I’ve been reading Henry Hazlitt’s “Economics in One Lesson,” and it occurred to me that there is a moral case both for and against minimum wage laws. Yet, it seems to almost be a truism among many people today that these laws are inherently moral. Maybe we should rethink that.
The minimum wage debate basically comes down to which is the greater of the two evils: low wages or unemployment. The fact is that minimum wage laws do put people out of work, and that is a real ethical issue that we should care about.I’m certainly no economist, but here is a hypothetical thought experiment for considering the moral implications of the minimum wage:
Cindy lives in Seattle and is looking for work. Based on her qualifications and experience, most employers would be willing to pay her $280 a week ($7 an hour, assuming a 40-hour work week) to work in a free market. The state of Washington, however, requires employers to pay her a minimum of $367.60 a week ($9.19 an hour, again assuming a 40-hour work week). Since employers don’t value her labor at $367.60, they are unlikely to hire her and will instead hire someone whose qualifications and experience are worth $367.60 to them. Thus, Cindy can’t find a job.
Now, let’s consider what happens when we add unemployment benefits to the equation. Since Cindy can’t find a job, she applies for unemployment relief. This poses two distinct problems for her and for society:
- On one end of the scenario, the minimum level of unemployment relief that Cindy can obtain in Washington is $148 a week ($3.70 an hour, if we thought of this as the equivalent of a 40-hour work week). Because her skills actually make her worth $280 a week in the market, but she is prohibited by law from earning that amount of money, she is losing $132 a week that she could have otherwise made. Cindy is effectively banned from earning money she could have used to sustain herself.
- On the other end of the scenario, the maximum level of unemployment relief that Cindy can receive is $624 a week ($15.60 an hour, assuming the same conditions as in the previous example). Since the minimum wage entitles her to $367.60 a week, but unemployment benefits are now worth $624 a week, it makes no practical sense for her to work at all. It is more economical for her to be unemployed than to have a minimum wage job. This situation deprives Americans of her services who could have otherwise benefited from them.
Clearly, the moral case is not as black-and-white as minimum wage proponents would have us believe. Their argument rests on the idea that extremely low wages hurt Cindy’s fundamental human dignity. Yet, unemployment is also an indignity. She loses her sense of self-sufficiency and her feeling that she has earned any success she might have. The indignity of unemployment merits consideration every bit as much as that of low wages.