Economic Intervention Punishes Those Who Help Most
ROBERT P. MURPHY, THE FREEMAN
I saw the mom and her two little kids camped out in the shopping center parking lot. She held a sign asking for help to feed them. I bought some oranges and bananas for them.
Imagine if someone from the government had swooped in to explain that my bag of fruit was hardly sufficient to feed the struggling family. What if the government then passed a law saying that if anybody decided to donate food (or cash) to people begging on the street or in a parking lot, the contribution had to be worth at least $15? Anybody caught giving, say, a $1 bill or a small bag of fruit would be fined heavily. Does that sound like “pro-homeless” legislation?
Try a different example: there are civic and church groups who will pick a weekend to go to a specific elderly widow’s house and help her put on a fresh coat of paint, clean up the yard, restock the pantry, and so on. Such one-off bursts of assistance obviously can’t fill the void for someone without an extended family or a generous pension. Shouldn’t the government pass legislation insisting that if you are going to donate time and goods to an elderly widow, you must do so in a way that allows her to live comfortably? Isn’t that a great “pro-widow” method for raising the living standards of the target demographic?
Or consider families who adopt children from war-torn regions. These actions, though seemingly noble, are clearly a drop in the bucket, with hundreds of thousands of orphans left behind. What if the government passed a law saying that US families were only allowed to adopt foreign children if they did so at least 15 kids at a time? Would activists agree that such a “pro-adoption” measure would increase the number of adoptions and be an unmitigated boon for foreign orphans?
Currently there are people who volunteer to teach adults how to read. But adult illiteracy is still a vexing problem in certain communities, so clearly these volunteer efforts have been inadequate to overcome the challenge. The obvious, pro-literacy way to fix things is to pass a law saying volunteers must give at least 15 hours of tutoring per week. If they are caught only teaching adults how to read for, say, 14 hours, then the volunteers will be heavily fined.
I’ll offer one final example. There are millions of people in the United States who do not have very marketable skills. There are a few thousand people who are willing to give them jobs. Wouldn’t it be a great benefit to these unskilled workers to pass a law saying that if you want to hire any of them, then you must pay at least $15 per hour of their labor? (If you get caught only paying, say, $14 per hour, then you get heavily fined.) What could possibly be a downside to such “pro-labor” legislation?
At this point, you surely recognize that I am being facetious. I am highlighting the absurdity of minimum wage legislation as an alleged “pro-labor” device. First and most obvious, by raising the hurdle to giving a job to unskilled workers, minimum wage legislation might perversely reduce employment among the very groups the government is supposedly helping.
The minimum wage is a perverse tool with which to (allegedly) help unskilled workers.
This textbook claim about the danger of minimum wage laws is repeated by free-market economists so often that people have been lulled into complacency, especially in light of econometric studies that seem to show that minimum wage hikes do not have disastrous effects on employment. Yet, there is a strong prima facie case against the minimum wage in the analogous examples. Would advocates for the homeless, widows, adult illiterates, and other disadvantaged groups be so confident in the other hypothetical legislation I described above?
I designed my hypothetical examples to underscore another perversity in minimum wage legislation — and, more generally, all mandates placed on employers: it attacks the benefactors of the unskilled. Consider: there are millions of people who have trouble earning a living. Isn’t it perverse to burden those specific people who are doing the most to alleviate the problem? This is analogous to singling out volunteers doing at least something to battle adult illiteracy, making them bear the brunt of further efforts on this score, while allowing the rest of society to continue doing nothing to mitigate the problem.
To be sure, as both an Austrian economist and a libertarian, I consider it neither appropriate nor ethical for state officials to interfere with property rights in order to help unskilled workers. But if the government is going to “do something,” then it is particularly perverse to lay down the burden exclusively on the people who are already giving some money to unskilled workers. A more sensible approach would, say, give government subsidies to workers who were earning a bona fide paycheck in the market, or (better yet) would give targeted tax breaks to the unskilled workers that the government wanted to assist. Incidentally, this type of reasoning is why many economists — even progressives — are pushing the earned income tax credit as a much more efficient way to help poor workers than minimum wage mandates.
The minimum wage is a perverse tool with which to (allegedly) help unskilled workers. At best, it helps some unskilled workers while drastically hurting others — by making it impossible for them to find work at all. Beyond that, minimum wage legislation perversely places the entire (direct) burden of helping such workers on their employers, the one (tiny) group of people who are actually helping them solve the problem. The rest of society, which has done nothing whatsoever to help the unskilled workers have a higher standard of living, can pat themselves on the back for voting for certain politicians while continuing to do nothing whatsoever to help those who want to work.
Robert P. Murphy is senior economist with the Institute for Energy Research. He is author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).
Used with the permission of the Foundation for Economic Education.