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January 18, 2006



The time period seems too short. But I'm interested why you say prices would not rise. If all firms in a sector - say contract cleaning - have to raise their wages to pay for the minimum wage, then over time I'd expect prices to drift up. Why expect any of them to go bust? People will still need their offices cleaned - even if it's (say) 5% more expensive than before.


rjw: because illicit "firms" using illegal labour will displace licit firms whose performance is observable?

My guess: minimum wage laws might do modest harm while things are thriving, but they will intefere mightily with recovery from recession. You could argue, I suppose, that the attempts of Hoover and FDR to obstruct wages from falling explain much of the length and severity of the Great Depression. I presume most schools of economists could agree on that?


in all your economic analysis of profit margins etc, you seem to forget that there are people involved here and a minimum wage guarentees them a minimum return on their labour (or at least to be safeguarded from exploitation).

You mention that there are more efficient ways of helping the poor. I would be interested in hearing these at that is the point of having a minimum wage.

Tim Worstall


With all of their associated problems things like the (US) EITC or the (UK) tax credits are more efficient at doing what we want, which is to help the working poor.

Even better would be a citizen’s basic income, or at least a doubling of the personal tax free allowance.

And Chris, of course you agree with me. All the interesting stuff in that TCS piece was me quoting great chunks of your blog.

Now, if I can only find a way to get paid for reprinting your Investor’s Chronicle stuff as well.....

Brock Haussamen

Thanks for calling attention to the Draca study. (I'll add it to my Web site, "Raising the National Minimum Wage: Information, Opinion, Research" at www.raiseminwage.org.) Despite the blogs about what's wrong with the minimum wage, the studies from England seem to me to confirm the recent liberal American view of the minimum wage: that disemployment fears have been exaggerated by standard-model economists, that a reasonable minimum wage does add to the wages of the working poor (the low cut-offs for the definition of "poor" in the U.S. have distorted this discussion), and, yes, that if prices don't rise, the money will come from profits.

I favor an American federal minimum wage that is raised regularly based on a commission that reviews inflation and other factors--very much what England has now. A small regular increase would seem to make sense for not only the working poor but also for business owners who can plan for it. And I'm sure it wouldn't get in the way of their profits for very long.

Tim Auch

Stockholders will not tolerate decreases in profit, so prices have to rise when costs, including wage costs, rise to maintain profit goals set for management by the boards of directors. Otherwise executives are replaced, which gives them plenty of motivation to make the shareholders happy. Prices rise, thus everybody's buying power decreases. The only ones who experience the wage increase are those at minimum wage, so they are neutrally affected. Everyone who is above minimum wage, who does not receive comparable wage increases, is negatively impacted. So instead of taking money from the rich to give to the poor, we take money from the slightly less poor to give to the poor so that they all stay poor.
Minimum wage is just an delusion that rich people buy into to make themselves feel better about buying $35,000 sunglasses while those around them die from disease and starvation. Those who aren't rich and ascribe to minimum wage only do so to convince the poor and uneducated that they sympathize and have their best interest at heart. They only do that to gain the support of the poor masses to push their own agendas at the polls.
In Oregon the minimum wage is set to increase every year in step with inflation, and anyone who thinks prices are not raised to keep up with costs can try living here for a while. Try making house payments, buying groceries and paying for health insurance, slowly slip further and further into debt, then tell me that minimum wage is a good thing.

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