Ron Unz fits Winston Churchill’s famous description: he is “a riddle, wrapped in a mystery, inside an enigma.” Unz has an IQ of 214. His views are for the most part conservative, even libertarian; certainly, he is an otherwise supporter of the free enterprise system. And, yet, he supports the minimum wage law.
Did this genius come up with some new twist or wrinkle that the rest of us had somehow missed? Not a bit of it. His “reasoning” is pretty much the same old tired economic balderdash offered by all other supporters of this monstrous and pernicious law:
“Once I started investigating the details it really seemed like the facts were on the other side—especially since so much of the economy has shifted from manufacturing to other industries. You can always relocate manufacturing jobs. You can’t ship McDonald’s jobs to India or Bangladesh.”
Let us try to educate this genius regarding what economics 101 has to say about a minimum wage. To start with, what determines wages in the absence of any law? Why do employers want to hire employees in the first place? Employers hire based upon a new hire’s expected productivity (actually, discounted marginal revenue product, but that is a matter for an intermediate microeconomics course). And what is this productivity? It is the amount by which having a worker on the premises will boost the company’s bottom line.
If staff person Smith increases profits by \$10 hourly, that will tend to be his wage. It cannot permanently be higher than that, or the firm will lose money on this hire, and, if it persists in the folly of hiring him, it will court bankruptcy. Nor can Smith’s wage be lastingly lower than that amount. For suppose that Smith is now being paid \$7 per hour. Some other company will benefit by offering him \$7.01, and then another \$7.02. This bidding process will tend to rise to an even \$10, assuming no transaction, sorting or information costs, which disappear in the long run.
With a minimum wage of \$12, Smith is no longer welcome on the shop floor or asking anyone if they “want fries with that?” Anyone hiring him will now lose \$2 per hour. Smith is now unemployable, Mr. Unz to the contrary notwithstanding.
But we have to be careful about this. In 1949, the minimum wage was raised from \$.40 to \$.75, almost a doubling. At that time elevators were run manually. How many operators of this machinery lost their jobs the very next day? None, not a single one. Many people who should have known better thus thought this law beneficial. But over the next few months automatic elevators replaced all humans. Automatic elevators were not competitive with manual labor at the old rate, but were at the new higher one. Indeed, as Unz says, one cannot ship a MacDonald’s job to India. But one can automate the job out of existence. This, seemingly, has never occurred to Mr. Unz.
If a minimum wage is justified, how does one determine at what level it should be implemented? No answer has ever been given to this basis question. That is, no minimum wage law is based on first principles.
If there is no justified upper bound to the minimum wage, why not require a minimum wage of one kilogram of gold per hour? It is estimated that only 250,000 metric tons, or 250,000,000 kilograms, of gold has ever been mined. At a wage of 1 kilogram of gold per hour, after two hours, USA employers would owe their workers more gold than has ever been mined in the totality of human history.
Isn’t it obvious that this is nonsense? Sure, we can all favor a minimum wage of \$1 million per hour. Then, we’d all be rich. No, make that \$1 quadrillion per hour.
But what about monopsony or oligopsony? This would indeed place an upper bound on the minimum wage; mainstream economists who believe in this fallacious doctrine tend to place it at something like \$12 – \$25 hour. However, this only applies, if it applies at all, to highly skilled jobs that have only one (monopsony) or only a few (oligopsony) potential employers: professional athletes, actors, highly specialized lawyers, doctors, nerds, etc. It is entirely irrelevant to minimum wage workers.
There is of course one other explanation for Unz’s position. He really hates unskilled workers and wants them to have miserable, unemployed lives. Then, we can all admit, he is very intelligent. Evil, but highly gifted.
Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans
Frank Tipler is a Professor of Mathematical Physics at Tulane University
This stopped being convincing to Unz, who made his fortune by designing software that allowed mortgages to be chopped up into securities, and whose IQ has clocked in at 214. “Once I started investigating the details,” he says, “it really seemed like the facts were on the other side—especially since so much of the economy has shifted from manufacturing to other industries. You can always relocate manufacturing jobs. You can’t ship McDonald’s jobs to India or Bangladesh.”
In 1949, the minimum wage was raised from 40 cents an hour to 75 cents an hour for all workers and minimum wage coverage was expanded to include workers in the air transport industry.