A Liberal/Progressive Case Against Minimum Wage

A person truly concerned with helping others have a duty to make sure that their plans actually help them.

– Alonzo Fyfe

Alonzo Fyfe is doing thoughtful writing about issues at the heart of disputes between progressives and conservatives. In this article he argues that minimum wage policies intended to help low wage earners actually hurts them in a number of ways, such as by:

  • Forcing companies on the edge of viability into closure, leading to layoffs;
  • Forcing companies to increase their prices which, in turn, will result in them losing customers and subsequently laying off staff. I would add that this will also increase the cost of living, which could have a disproportionate effect on people near the bottom of the income distribution;
  • Incentivizing investment in automation. Low-wage positions are often the ones most amenable to automation. By increasing the cost of hiring a person to do a job, a minimum wage policy inadvertently supports the case for investment in automation.
  • Attracting more people to the labour market, thereby increasing competition for jobs.
  • Disincentizing education, as artificially high wages can be earned without education. Of course, minimum wage is far from high, but a teenager living at his parents’ home making $8/hr may feel less need to pursue educational career advancement than if they were making $5/hr. Relatedly, one alternative to minimum wage offered by Fyfe was to provide educational funding assistance such as loans to those making below a certain amount, thereby incentivizing and aiding them in acquiring skills that will benefit them and the broader society.

Fyfe’s line of reasoning is not intrinsically liberal or progressive, as the title of this post might have implied. But it’s the kind of reasoning capable of speaking to those who want a society that lends a helping hand to those on the edge of subsistence.

What do  you think?

8 thoughts on “A Liberal/Progressive Case Against Minimum Wage

  1. This is the problem with most economists. They live in an ideal theoretical world and posit possible outcomes but never actually look at what happens in the real world. Minimum wage laws help, the facts are in (as far as I’ve seen, feel free to refute me with some studies). Companies want to pay their employees as little as possible to make as much money as possible, so without actually forcing higher wages, there’s little incentive to do so.

    Also, I will do some link love soon from CanAtheist, it’s just been a busy couple days.

  2. Alonzo Fyfe is either obviously not an economist, or you are misinterpreting him. Nothing that Fyfe says makes any sort of sense to someone with even a minimal education in economics.

    I’ve been reading Alonzo for many many years, and I have very little respect for his intelligence or character.

  3. That being said, a minimum wage is not a particularly good way to regulate labor prices, but for macroeconomic reasons that are completely different from the “microeconomic-ish” reasons Fyfe describes. Without other factors, raising the minimum wage either has no effect in the long run (just changing aggregate prices to match the increase in wages) or creates a “deadweight loss” of activity that does not take place because of the higher wages, with no compensation for the public good.

    A minimum wage prevents only grossly exploitative labor conditions by not forcing the most disadvantaged workers to forego necessary long-term costs of living, such as medical care, just to survive in the short run. If an industry requires slave labor to be profitable, it is not an industry that civilized people should be in.

    Fundamentally, the desired task is usually reallocating demand from the owners of capital (profit, interest and rent) to the owners of labor power. No level of minimum wage will achieve this goal. There are no excellent strategies for reallocating demand to labor in a capitalist economy; the only strategies that work even for a little while are a lot of government spending on public goods, a strong progressive income tax, strict financial regulation, and substantial government/social support for labor unions.

  4. Hi BB,

    Thanks for the comments. I recall looking at your blog a few years back when I was blogging at The Frame Problem, and liking what I read🙂

    I’m very interested in economics, myself. I have no formal training in it, but have been gradually learning about it on my own through books (I’ve read Naked Economics, The Big Short, Freakonomics, and about 1/3 of The Ascent of Money; I’ve also recently started reading a book on personal finance), various Wikipedia articles and following news on the US economy. Can you recommend any good sources?

  5. Can you recommend any good sources?

    Krugman’s textbooks are a good place to start. He has one on macro, and one on micro. They’re pricey to buy, but available if you have a good enough library. Another way is to read a lot of economics blogs, just let it soak in for a while, and start training your intuition. I recommend Yves Smith (naked capitalism), Maxine Udall, Paul Krugman, Brad DeLong, Mark Thoma and Angry Bear. The links are in the sidebar on my blog.

    You can also read my posts on economics. My earlier posts detail my attempts to understand economics without any formal training. I think trying to work things out from first principles is good training for one’s intuition.

    And my friends call me “Larry”.

  6. Hey Larry,

    Thanks a lot for the suggestions. And I know what you mean by training up one’s intuitions. Economics really is a particular – and amazing – way of thinking.

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