Minimum Wage, Freedom, and Externalities

Andrew Olmsted outlines his “number one objection to a minimum wage” succinctly:

[W]hat gives the government (and particularly the federal government) the power to interfere with freedom of contract? If I’m willing to work for $5 an hour, why should the government be allowed to step in and say ‘No, you either work for $5.15 an hour or not at all’? Am I the only one who thinks that’s a bit insane? You have someone willing to work and someone willing to pay, but we need a bureaucracy that can prevent that transaction from occurring?

This is why I tend to chuckle when people on the left say they’re about personal freedom. They’re really no different from those on the right: they’re willing to support the freedoms they think we should have, but they’re quite willing to suppress the freedoms they think are bad for us. Sure, the freedoms the left and right want to protect and suppress vary a bit, but in the end, we end up in the same place whichever of them is in charge: only as free as our overlords are willing to allow.

By definition, using the government to limit activity between consenting adults diminishes freedom. In some cases, there is at least the “externalities” argument to fall back on. That is, there may be harm done to those who do not consent to the activity.

For example, if people are allowed to use heroine, some of them will get drive under the influence and kill innocents, some will overdose and leave their families without support, leaving the taxpayer to pick up the burden, and so forth. (Of course, we have that problem even though drugs are illegal. Arguably, at least, we’d have it in greater scope if more people felt free to experiment.)

It’s less clear what the externalities are in the case of people agreeing to work for, say $4 an hour doing manual labor. They might impose a greater burden on the social welfare system, presuming their job doesn’t come with health benefits or they need public assistance to pay for food and housing. But those externalities are voluntarily accepted by a society that restricts freedom by adopting redistributionist policies. And the burdens are certainly less than would exist if the person were making $0 an hour and are only marginally greater than if they made $5.35.

FILED UNDER: Economics and Business
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. the minimum wage, poverty and it’s alleviation

  2. Original Article syndicated via RSS from Outside The Beltway | OTB

  3. legion says:

    Olmstead is an idiot. Although he does note that some poor SOBs out there could get shafted by companies unwilling to pay a living wage, he defends not trying to fix that problem thusly:

    Unfortunately, that floor is permeable. There are plenty of immigrants willing to work for less than minimum wage. This creates two problems: first, we have a surge of illegal immigrants flooding the country, providing chances for less desirable people to come across the border in their midst (I have no objection whatsoever to illegal immigrants, I should note; they come here to work, and I’m not going to condemn that). Second, these immigrants end up taking jobs from citizens, although I’m not sure how much of that is people not getting the jobs because the immigrants undercut their wages and how much of it is people who just don’t want to work. In any case, we end up with a fair sum of people who aren’t gathering any benefits from minimum wage increases, and we may be exacerbating our security problem into the bargain.

    First of all, even if there are people out there “willing” to work for free (previously known as “slaves”), IT WOULD STILL BE ILLEGAL TO HIRE THEM if it violated the minimum wage standards. The solution is not to repeal the minimum wage, it’s to actually enforce the laws we already have.

    The thinly-veiled xenophobia and bigotry are also pathetic – his actual position is that it’s better that some Americans starve than some immigrants should get illegal jobs. Not to mention the part where he says he’s not going to condemn illegal immigrants for wanting jobs and then condemns them in the very next sentence (really, some of his best friends are wetbacks). The “security threat” crap at the end is just icing.

  4. James Joyner says:

    Legion:

    The argument is that if people are willing to work for less than X, they should be free to do so. Presumably, if they could get someone to hire them at an otherwise as appealing job at X + something, they’d take that instead. This is especially true in the case of incredibly low skill jobs, where the value added is less than minimum wage.

    I don’t see how it’s “racist” to note that having millions of people coming across the border living in a black market existence carries with it some problems. That would be equally true if they were Eastern European.

  5. Daily Summary…

    NEWS: – Bush spreads gospel of religious freedom – Romney Wants Gay-Marriage Ban on Mass. Ballot – U.S. Senate Minority Leader Sees Hope for Bipartisan Progress – Return to Pre-1994 Attitude, Former GOP Chairman Says – US Support of Global……

  6. Cernig says:

    By definition, using the government to limit activity between consenting adults diminishes freedom. I see the right is still hot to redefine freedom as only “negative freedom” and leave out positive freedom.

    Trouble is, “consenting adults” becomes problemmatic when the adults accepting the low-waged jobs don’t have a choice because none of the jobs in their education/experience determined career are for more than minimum wage. Negotiation to change the wage is often ruthlessly suppressed and a below-subsistance wage leaves no room for manouver by way of increasing one’s education (expensive) or getting other work experience. You can’t afford to go look for other horizons because that one day a week of work you would loose is the difference between meeting your bills and not. Between having a roof and not.

    At that point, James, what you see as a freedom becomes a lock-down. You can’t lift yourself up by the bootstraps if you can’t afford boots.

    Positive freedom “is the practical ability to actually make choices and live your life in the way you want. The problem is that negative freedom alone doesn’t guarantee this. If you have no opportunities in life, the fact that the government isn’t interfering with your business is small consolation…Freedom only becomes real if people are empowered to make choices for themselves, and they may need the help of others to do so.”

    The right has forcibly pushed, for decades now, the notion that “positive freedom” is automatically “more government and more taxes” and this knee-jerk reaction is even made by many of those at the bottom of the heap who without the benefits of “positive freedom” will always be poor simply because the fight to live any kind of life takes all their energy and resources. They have bought the right’s vision of “negative freedom” and swallowed it whole, along with the notion that “liberals” are snobbish elitists who will take away that freedom. The first time I heard a native Texan argue that he wasn’t entitled to healthcare since his lowly job as a waiter meant he couldn’t afford it all on his ownsome, my jaw dropped in anguish at this perversion of civilized values.

    Your definition is at the least misleading and at the worst dishonest and you, as a political science major, know that it is.

    Regards, Cernig

  7. Cernig says:

    James,

    Can you tell me how trampling peaceful protestors asking for a wage increase (the provision of health insurance) and then arresting them for blocking an intersection with their prone and bleeding bodies is any part of freedom? Or how brutally abusing those protestors while in custody and setting bail at ten times and more than that set for a murderer isn’t “limiting activity between consenting adults”?

    While you are posting about grunting bodybuilders, all this is happening to Houston Janitors. Have a look at MyDD, Pandagon, Magikthize, Newshog and various other blogs for coverage.

    Cernig

  8. legion says:

    The argument is that if people are willing to work for less than X, they should be free to do so.

    True, but Olmstead is using the idea that some companies will break the current law by hiring people to work for less than X as a reason for repealing the minimum wage law altogether, which I don’t think is a valid argument by itself.

    Second, while I also agree that having a “black market society” isn’t a good thing, it’s Olmstead’s use of the “they’re gonna take our jobs” meme, coupled with that “I’m not gonna condemn illegals – oh wait, yes I am” business that I take issue with. There are certainly valid arguments against a federal minimum wage, but I don’t see Olmstead making them – just playing to people’s fears about immigrants & the gov’t’s infringement on personal corporate rights.

  9. James Joyner says:

    Cernig:

    I’m familiar with the positive/negative freedom argument but ultimately don’t find it incredibly persuasive. “The practical ability to actually make choices and live your life in the way you want” is a chimera, after all. Even those making very nice salaries have to make trade-offs and are constrained in the practical choices they can make. Indeed, living the life one wants often means a job that pays far less than your current job (if you’d rather be, say, a poet than an office worker) but that is limited by, say, needing to get braces for the kids and living in the type of neighborhood one prefers.

    I’m not sure that getting a job making $6 an hour is going to empower a person to take time off and spend thousands getting an education, either. In any case, though, it’s easier to buy boots on $4 an hour than on $0 an hour. Sometimes, that’s the choice.

    I oppose both strikers who block the entrance to a place of business and intimidate those who would gladly accept the job under the conditions offered and employing violence against those people. I’m not sure what that has to do with the issue at hand, though.

    legion: A person who does not get a job because the employer is not legally permitted to offer it to him at a wage that is economically viable is harmed. It’s not a matter of corporate rights but of individual ones.

  10. M1EK says:

    James, I’d be curious how you can reconcile this apparently completely laissez-faire attitude towards wages with the actual history of low-wage jobs in this country, prior to the minimum wage.

  11. floyd says:

    in some cases raising the minimum wage would only cut public welfare for employers. meaning they would have to pay in wages what the public is now paying in food stamps and public aid to the employees. these benefits today amount to corporate welfare after all.

  12. Cernig says:

    James,

    Of course you don’t find it persuasive. You’re not poor. You may never have known what it is to be poor. This classic post by John Scalzi may give you a hint.

    Still, I apologise for the intemperate nature of the last part of my first comment. I should have asked why, since as a pol-sci major you obviously covered it, you didn’t mention the concept of positive freedom at all. You attempted to answer what I should have asked and I thank you for that.

    I brought up the Houston Janitors because, to me, it seems a clearcut case of constitutional rights to peacefully assemble and protest being violently abridged by “using the government” to “limit activity between consenting adults” – i.e. legally protesting exploitative labor practises by their employer so as to change that employer’s incalcitrance towards negotiations. I wondered why you didn’t blog about that rather than some grunting bodybuilder.

    Do you think such protests, or the closely-akin civil rights protests of the MLK sixties, are always a bad thing?

    Regards, Cernig

  13. madmatt says:

    siding with oil companies regardless of who they screw over is a hallmark of the right! I am sure a small portion of a $400 million retirement package could solve all these problems.

  14. Tano says:

    Arguments such as yours, James, would be far more compelling if made by the people whose freedom is supposedly being compromised. When we see the demonstrations by workers who revolt against the tyranny of not being able to accept the $4/hr. job offer, then we might start paying attention. As it is, this is just shilling for the freedom of businesses to use the economic disparity between themselves and an unemployed worker to exploit that worker.

  15. James Joyner says:

    Cernig: I think peaceful demonstrations can be useful. The MLK marches were an exemplar of that: The quiet dignity of men and women dressed in their Sunday finest being met with the shameful behavior of their aggressors was quite a contrast.

    Union picket lines tend to devolve quickly into brutish tactics by one side or the other, although usually that of the picketers, especially when people desperate for work try to cross the lines.

    I actually hadn’t seen anything about the Houston janitors thing until you mentioned it this morning, having just skimmed over Hilzoy’s post which mentioned it much later (I tend to read blogs via RSS rather than directly). I found the bodybuilder thing via an aggregator and just found it novel.

  16. James Joyner says:

    Tano: Why would you presume that people powerless to land a job above the minimum wage would organize rallies or write opinion essays?

    There is always an economic disparity between an unemployed worker and the prospective employer. That’s true of PhDs fighting for scarce tenure track professorships just as it is for minimum wage laborers. In some ways, more so as one climbs the ladder because of the greater scarcity of those jobs and the greater fall in lifestyle status that obtains if not finding work.

  17. Cernig says:

    James,

    In some ways, more so

    Yep, in all the less meaningful ways. Not securing tenure is unlikely to mean the difference between a roof or not, between food for your kids or not, between heat and power or not. That’s what is at issue, not a “fall in lifestyle”. speak from experience. I’ve lived on both a minimum wage and that of a well-off insurance broker/underwriter. I will never confuse the problems of the latter with the day-to-day subliminal terror of the former.

    I dare you to live on a mimimum wage budget for a month. It would make an interesting set of blog posts.

    Regards, Cernig

  18. James Joyner says:

    Cernig,

    I’ve seen Morgan Spurlock’s “30 Days” episode wherein he lives on minimum wage for a month. Yes, of course it sucks.

    I’m not arguing that an unskilled laborer earning minimum wage is comparable to that of an educated professional in terms of lifestyle, merely that both are subject to market forces. Having been unemployed more than once as a college graduate, I can attest that it’s often several months in the wilderness looking to get another position. Conversely, a minimum wage guy can just go down to the local McDonald’s and replace his job.

    I’ve obviously got more options than that guy, as I can go compete for a $15 an hour job more easily than he can. Doing so, however, would mean giving up everything I’ve worked for.

    There’s a tyranny of success that is much different than the tyranny of failure. In many obvious ways, it’s a much better existence. On the other hand, the guy working at Burger King can tell his boss to screw off, quit, and find a comparable job right away. There is a certain freedom in that.

  19. Tano says:

    James,

    I was not claiming that the disparity between employers and workers is unique at the minimum wage level. Just that, at that level, the effect can be that the worker is compelled to accept a position that is unsustainable (in terms of their basic health and the sustenance of their family) and from which there may be no escape. We’ve been down this road before, and their is a good reason why we, as a society, deemed it appropriate to maintain a floor under the wage structure.

  20. Cernig says:

    James,

    Your argument in response to the plight of the poor seems to be “but what about the professors?” along with “you’re hungry but you’re free”.

    I suggest that isn’t a reasonable response to 37 million Americans. Raising the minimum wages is, however, the beginning of one.

    A single parent of two young children working full-time in a minimum wage job for a year would make $10,712 before taxes – a wage $4,355 below the poverty threshold set by the federal government. (U.S. Department of Labor; U.S. Census Bureau.)

    But raising the minimum wage and decreasing unemployement isn’t enough on its own – which is why your comment about the guy from Burger King just changing jobs misses the point entirely.

    Most Americans living in poverty are too young, too old or physically incapable of working due to illness or disability. In fact, nearly two-thirds of all Americans living in poverty have to depend on someone else in the household to bring in money to live.

    Here are the words of the United States Conference of Catholic Bishops, hardly a bastion of liberal bias:

    Nine out of ten Americans believe the federal government has a responsibility to alleviate poverty. A strong majority believes that government should do more, not less, to help people move from welfare to work by providing skills needed to be self-sufficient.

    Regards, C

  21. Steve Verdon says:

    Your argument in response to the plight of the poor seems to be “but what about the professors?” along with “you’re hungry but you’re free”.

    No Cernig that is merely your own strawman of James’ comment. I suppose you’d find it somewhat unfair for me to claim that your argument is: okay so your a slave, but at least you aren’t hungry.

    I suggest that isn’t a reasonable response to 37 million Americans. Raising the minimum wages is, however, the beginning of one.

    As I’ve written here, and elsewhere there are better ways to improve the plight of the working poor, e.g. the EITC. Raising that vs. raising the minimum wage would probably yeild a better result. There is quite a bit of research that says there are undesirable outcomes from raising the minimum wage upto and including high school students dropping out to take a minimum wage job. Not all the research supports this, but there is this distinct possibility.

    A single parent of two young children working full-time in a minimum wage job for a year would make $10,712 before taxes – a wage $4,355 below the poverty threshold set by the federal government. (U.S. Department of Labor; U.S. Census Bureau.)

    Yes, and I note a complete lack of any concern for incentives on your part. Basically what you are implying here (whether you intend to or not) is that you want more families living under a minimum wage. You see, there is a pretty good rule of thumb: when you subsidize something, you get more of it.

    And, in keeping with one of the topics of James’ post, one of the downsides of the minimum wage is sort of like an externality. The minimum wage is in many ways like a tax which comes with its own peculiar form of inefficiency. See here as well.

  22. Cernig says:

    Steve,

    I feel my characterisation of James’ argument is an accurate and succinct summary of its points. It isn’t a strawman just because you say it is.

    As to your own argument, I’m actually in agreement with you. Once the minimum wage has been raised to the point where it is a livable wage, further incentives and aid for the poorest should indeed by done through methods such as changing the EITC. You’ve made a compelling argument for that in the past.

    However, your thinking on raising the minimum wage is linear and simplistic. Your objection about school leavers could easily be addressed by having different min. wages for different age brackets, as is done in the UK. There, the min.wage for a 16 and 17 year old is around $6 while that for an adult is now about $11. The Low Pay Commission monitors economic effects of the minimum wage – and I suggest that a study of what has in fact happened is worth any ten studies of what mightHere is their 2006 report.

    We have seen no evidence to suggest that the introduction of the wage has had any adverse effects on employment or created incentives for young people to leave full-time education. It has, however, benefited some young people by outlawing clearly exploitative wages.

    and

    Since its introduction in 1999 the minimum wage has been a major success. It has significantly improved the wages of many low earners; it has helped improve the earnings of many low-income families; and it has played a major role in narrowing the gender pay gap. But it has achieved this without significant adverse effects on business or employment creation.

    The Commission monitors minimum wage levels each year, consults with both businesses and workers, and can decide to lower the minimum wage as well as increase it. It came very close to making the former decision this year and may well do so next year.

    I recommend reading the Commission’s last three years of annual reports for a detailled look into practise instead of theory.

    Regards, Cernig

  23. Cernig says:

    Sorry, that link didn’t work.

    Here is the Low Pay Commission’s 2006 report.

    Regards, C

  24. Cernig says:

    Stteve, one last comment and then I will drop this, promise.

    Like James, I think you are talking from the wrong end of the trumpet. My argument can be summarised as follows:

    The purpose of the economy is to serve the people, yet you seem to think it should be the other way about. A wage that cannot be lived on is uncivilised and has no place in a modern democratic society. Find some other way to tweak your precious economy instead of witholding food and shelter from the least priveliged among us.

    Regards, Cernig

  25. Bandit says:

    The purpose of the economy is to serve the people, yet you seem to think it should be the other way about. A wage that cannot be lived on is uncivilised and has no place in a modern democratic society. Find some other way to tweak your precious economy instead of witholding food and shelter from the least priveliged among us.

    Sorry but the world does not owe you a living. Instead of crying about how it’s ‘uncivilised’ to have to work at low wage jobs maybe people should try to improve their skills so they can earn more. Or maybe they should just whine and bitch about what the world owes them.

  26. Steve Verdon says:

    As to your own argument, I’m actually in agreement with you. Once the minimum wage has been raised to the point where it is a livable wage, further incentives and aid for the poorest should indeed by done through methods such as changing the EITC. You’ve made a compelling argument for that in the past.

    Bunk. Teenagers living at home in SoCal with mom and Dad in a $1,000,000 house with a household income over $200,000 a year don’t need a livable wage. This is just errant nonsense. Further, there is no strict and easy definition for what is “livable”. This is like poverty, there is no strict definition of that either.

    So working through the EITC alone is a more reasonable and feasible approach, IMO. It isn’t perfect, but it is better than the minimum wage.

    And yes, your mischaracterization of James’ comments is a strawman. He isn’t saying, “But look at the poor university professors”, he is pointing to them and noting the economic disparity exists there as well. Your characterization is grossly unfair.

    However, your thinking on raising the minimum wage is linear and simplistic. Your objection about school leavers could easily be addressed by having different min. wages for different age brackets, as is done in the UK.

    Talk about simplistic. Who do you think is going to end up getting the bulk of the lowskill jobs then? The younger workers will have the advantage all other things considered. Hence the very people you want to help, the working poor with a family, are going to end up, to some extent, being priced out of the market. Brilliant!

    The Low Pay Commission monitors economic effects of the minimum wage – and I suggest that a study of what has in fact happened is worth any ten studies of what mightHere is their 2006 report

    Please Cernig, I have read quite a few studies on the minimum wage.

    The purpose of the economy is to serve the people, yet you seem to think it should be the other way about.

    Nope, quite the contrary. My feeling is that the economy is where people come together and engage in voluntary transactions that each side percieves as making them better off. As such, I see it as a good thing and that while in theory the government can “make things better” it often times screws things up really badly as well.

    A wage that cannot be lived on is uncivilised and has no place in a modern democratic society.

    Again with this vague ill-defined concept. What is a livable wage? Must you be able to afford an apartment? If so where? How big, what kind of neighborhood? How much food, and of what quality? Personally I think not having a bottle of Lagavulin is uncivilized, but it doesn’t follow that a minimum wage worker should be able to afford that luxury.

    Find some other way to tweak your precious economy instead of witholding food and shelter from the least priveliged among us.

    Are you being obtuse on purpose? I have, that you are unaware of these alternatives does not reflect badly on me.