In addition to creating unemployment, MW also reduces society’s productive efficiency. This is because some of the gains from the trades of the labor of the employees for the money of the employers that do not take place due to minimum wage legislation would have gone to the businessmen. The work that would have furthered productive activities does not happen. Business efficiency is reduced, and consumers are harmed with higher prices or lower quality and quantity of products or both.

In other words, just as some workers become jobless or employerless, some businesses become workerless. There is thus double damage dealt. Therefore, for example, the firms that are located in a state without MW have a competitive advantage over firms located in states with MW.

It might be objected that given MW, some lose, yet others gain (such as union members or big business), and we cannot compare utilities. In order to do so, loving personal relationships are required: the beloved is another self, etc. Economists can’t do it, however. And yet, besides institutional unemployment as an effect of MW among the poor, production declines, consumers are harmed, real wages go down, and efficiency is lowered.

Who cares about efficiency, you ask, given that minimum wage diminishes it by such a small amount? Well, once we agree to sacrifice efficiency for some vague emotional satisfaction, there is no stopping it. Why not have inflation and government-enforced monopolies and price and rent controls and mandatory “consumer protection” and public projects? All these benefit some and harm others. Efficiency, as a measure of the ideality of a system, is what makes possible an ever increasing standard of living. Interventionism sabotages this process. In the long run it makes everyone worse off. Finally, in a reductio, why not have full-blown socialism? The tiny clique of the power elite will win, being the owners of millions of slaves, but everyone else will lose. Why aren’t the people supporting the MW concerned about the welfare of the future Politburo members who under capitalism right now may be mere average workers or low-level bureaucrats?

So, once you stop caring about efficiency and utilitarianism which uses it to make policy proposals, you’ve given up the whole game. It’s all or nothing. It’s laissez-faire or it’s social death.

So, the impossibility of formally comparing utilities between persons is no obstacle to an economist’s ability to evaluate policies.

1 Comment

Dick Wetherbee · July 12, 2007 at 12:44 pm

I have nothing of value to add to a discussion on the minimum wage except perhaps one reminiscence. Right out of high school in 1968 I got my first real job (Paid by check, taxes withheld, ssn required) laying sod on the side of a county road. I was paid MW, $2.00/hr at that time. I just checked the CPI at and found that would be $11.95 in today’s dollars. Some of my co-workers were older men who owned homes and supported families on that wage.

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