The Minimum Wage as Capitulation

It is an odd thing watching the pro-labor, pro-redistribution portions of our advocacy and activism classes capitulate to the notion that the welfare state must be channeled through employment. When did this framing become so dominant? One of you just yelled “the Welfare Reform Act of 1996!” through my office window, but I think that’s wrong. I think the game was lost when we decided the minimum wage was a core policy signifier. There’s something irresistible about it– if there is one thing median voters everywhere seem to agree on is that their wage should be higher and their rent lower. Everything else is policy nerd gobbly-gook.

To my mind, the minimum wage is a policy failure strictly on the terms of (my own) left-of-center preferences. It is a victory of both political framing and strategy for coalitions against economic redistribution and the social safety net. That most of the left doesn’t even see this as a defeat makes it all the more devastating. Those outside the workforce are quietly placed outside the discussion and, in turn, are of secondary concern. More subtly, and perhaps more importantly, though, it builds into the policy construct a bargain that must be repeated and updated as national and local price levels change. Those repeated bargaining events force supporters to expend resources in each new iteration while, at the same time, giving their antagonists votes they can dangle when trying to secure support for their own pet policies. You want a higher minimum wage? Well, I’ve got a military procurement bill coming up next month that is slated to build 4 more F-35s in my district...

I subscribe to the belief that the failures of the US healthcare system most frequently stem from its connection to employment. Instead of heavily (or, yes, even entirely) subsidizing its purchase by consumers, we instead opted to grant a tax break to insurance provision by employers and here we are. The Affordable Care Act tried to weaken this connection, but still we are here. If you believe that health care is a human right, then connecting it to employment is a grievous error. If you believe a “living wage” is a human right, then why would you advocate making the same mistake again? We don’t live off wages, we live off consumption. If you want to guarantee an adequate standard of consumption, why would you include my employer as a go-between?

Which is not to say there isn’t political value to be mined from the $15 minimum wage debate. It has certainly crested the threshold of credible threat. It could be used as a political cudgel to bargain for a Universal Basic Income (UBI), and then bundled with the carrot: repeal the minimum wage entirely from the US law books in return for a $1,000 a month UBI that every citizen receives once they are no longer claimed as a legal dependent. For all the theoretic struggles the market might have with distortionary effects of a price floor (unemployment, low-cost discrimination) and substitution effects of a more expensive labor force (robots), I have all the faith in the world it can handle broad income effects just fine, thank you very much.


When economists talk about the minimum wage in bars, amongst themselves, without cheering and jeering onlookers, it is almost inevitably turns into a story of technocratic calibration. If we accept there is non-zero monopsony power, but also eventual disemployment effects, given the observed numbers, the optimal minimum wage is X% of the Zth percentile of the wage distribution. When these conversations happen on twitter, onlookers and participants are frequently less interested in calibration or generous in spirit. I’ve been on Twitter long enough to know that animal spirits are real, particularly when blood and memes are in the air.

Arguments over the minimum wage nearly always include references to an empirical literature that sometimes finds negative effects on employment while other times finds little to no disemployment at all, quickly followed by the theoretical point that there has to be some minimum wage above which employment would decline (or, at least, shift out of the legal sector). Part of what lets this debate persist are the modest sizes of past minimum wage increases. The one glaring exception I know of is when the Fair Labor Act of 1938 imposed a minimum wage that was roughly four times as large as standard worker wages in Puerto Rico, resulting in 65% unemployment . An exemption for Puerto Rico did not arrive for over two years and it is fair to say large portions of the economy were decimated. Future hikes had similarly negative, but far less cataclysmic, effects on Puerto Rican employment.

When the Fair Labor Act smashed into Puerto Rico with all the technocratic precision of a drunken mammoth, ~65% of the workforce ceased to be employed. But… do we really believe that 65% of people stopped working for a living? Of course not. Rather, the island labor market went gray. Under a hypothetically crushing minimum wage, employers will pay people in cash, off the books. They will hire family members, take them out of retirement or out of school. Yes, they’ll hire robots too, but I’m not really worried about 2nd order employment shifts favoring upper-middle class engineers. What I’m worried about is when whole classes of people enter the gray market (or markets even less legal), they no longer operate under the layering of legal and regulatory protections we often take for granted, especially ostensibly pro-market types who think that labor and safety standards are emergent phenomena. This sounds suboptimal to me, and probably to most labor advocates, but you know who it might sound great to? Libertarians who want the government entirely out of the workplace.

The minimum wage has become a left wing shibboleth, but that doesn’t make it good left wing policy. If anything, its one of the great right-wing gambits of the last 100 years. A policy that undermines its own ambitions at semi-regular intervals and inoculates the political marketplace against superior policies that would help far more people but, yes, would demand a larger tax bill. What more could Republican’s have asked for than a policy that holds the welfare state tax bill at bay and while handing ammunition to the Democratic coalition members purging their own ranks?

5 thoughts on “The Minimum Wage as Capitulation

  1. Clement Pappas March 17, 2021 / 10:52 pm

    Facebook has censored this article. Apparently, it doesn’t meet “Community standards” Amazing.

    Like

    • Joy March 18, 2021 / 7:04 am

      We are aware of that. It is frustrating. Twitter is where we have been sharing our posts.

      Like

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