Minimum Wage Nonsense
What's the difference between buying a tomato and hiring someone to work for you? If market economics did not so dominate our intellectual landscape, people would laugh at the absurdity of that question. For humanists, no issue can be more important than understanding the significance of human labor and the distinction between the market for human talents and skills and markets for other "commodities." One of the little discussed aspects of the long running standoff between the President and the Republican majority has been the President's proposal to raise the minimum wage, now at a 40-year low. Republican attacks on the minimum wage are premised on the notion that "labor markets" are just like any other market. Republicans and many business leaders at both the state and national level claim that joblessness would go away if it weren't for federal and state intervention in labor markets. If unemployed workers would just accept lower wages, they too could get jobs.Fortunately or unfortunately, human beings are not like tomatoes. They have skills, interests, and moral sensitivities. Their productivity and interest in their jobs are not fixed and determined for all time. Performance often depends on how they are treated. When an employer pays a man or woman a living wage, the boss is making a statement as to the worth of the worker. That worker in turn is more likely to stay at the job and commit some of him or herself to the process of learning the job and becoming a better worker. In addition, when employers must pay workers relatively high wages, the worker is more likely to be treated as an asset. Employers will be more likely to provide training to those workers and to give them more substantial responsibilities to ensure a return on those higher wages. Better paid workers also have the security and the incomes which allow them to go out and buy more goods. If unemployed workers were allowed to offer their services for very low wages, they would simply bid down wages everywhere -- and with it the purchasing power that drives production and investment. Will higher minimum wages always produce more jobs? To make this assumption would be as simplistic as the Republican assertion that minimum wages always destroy jobs. The role of minimum wage standards in generating jobs depends on whether the actual or potential productivity of labor is greater than what workers are currently paid. It also depends on other aspects of the legal structure. Can businesses easily relocate to states or nations that do not require any minimum standards? Are businesses likely -- or could they be compelled to -- make long term investments in worker training and productivity or do they prefer cheap and expendable labor? To the extent that businesses can easily relocate or are forced by mutual funds or other competitive pressures to think short term, minimum wages can destroy jobs. To the extent that employers can be effectively forced to pay more of what a worker is worth, more jobs are created by the increased purchasing power in the hands of labor.I believe that states where many of the minimum wage jobs are in service industries that cannot easily relocate could benefit from a higher minimum wage, but I do not claim to have done a thorough study of this issue. My preference, however, would be to see the first steps toward a higher minimum wage are taken at the federal level, which would offer the most likely prospect of dramatic job creation as well as humane alternatives to welfare. These contentions about the role of federal standards are more than speculation on my part. Austrian economist Thomas Nowotny has found no positive correlation between low labor standards (including low minimum wages) and rapid job growth. It is true that unemployment in the U.S. has been reduced somewhat by the creation of many short-term, low-paying service jobs, but unemployment in Japan has been consistently much lower despite much higher minimum labor standards. In addition, the low wage jobs created here have left many in poverty and have failed to stimulate substantial growth in investment. Furthermore, economists at the University of Massachusetts have shown in several other recent studies that economies in which labor rights and income have been protected have shown faster rates of growth than those in which pure free markets allow wages to head into free fall.Minimum wages clearly should be one strategy that governments at all levels consider employing when economies are weak or stagnant. Nonetheless, the minimum wage by itself can be one of those simplistic gimmicks which gets its advocates -- usually liberals and the left -- into trouble for overpromising. I believe that the minimum wage is more likely to be effective when it is part of a broad policy mix that includes efforts to: 1) educate workers, 2) provide market research and targeted investment to the private sector, and 3) plan democratically the kinds of social investment such as transit systems and pure and applied research on which sustained growth has always depended.Even in an era in which the federal government has largely eschewed these responsibilities, states can still often be effective to some degree. A targeted investment strategy that looked for market opportunities for products that drew on local resources or conserved local capital is most important. An example could be use of state pension funds to finance housing construction based in part on local or recycled materials. Such forms of bootstrap development can support and in turn be aided by appropriate state wage standards. Without adequate protection for labor and support for important public services, market societies will never deliver the goods modern conservatives promise. This is not surprising, once one recognizes that most of us hardly think of ourselves as tomatoes.