Chapter 7

Minimum Wages and Wage Control

This chapter is really unnecessary. If you studied the previous chapter on “Price Controls” carefully, this chapter will hold few surprises for you. But wages are such a “hot” topic that an extend-

ed treatment of the subject is needed.

With prices, the usual complaint is that they are “too high.” With wages the case is different. They are “too low”: the rich get richer and the poor get poorer. You have no doubt heard of the alleged “income gap.” Is this a real problem? As we shall see, you have already learned enough to assess the economic impact of interference in wage bargains by the government.

1.	Before reading the rest of this chapter, try to analyze the	?
	effect of minimum wage legislation. (Hint: does the fact
	that we are dealing with a price floor—wages cannot go
	below a certain amount—rather than a price ceiling

change the basic points of our analysis?)

A DIGRESSION ON EQUALITY

This is an economics textbook, not a philosophy treatise— much as I’d like to forget it. But it will help you in your study of economics if you look at an often unexamined philosophical assumption. When people complain about the gap between the rich

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120 An Introduction to Economic Reasoning

and the poor, they take for granted that the ideal state of affairs is equality. We can’t have absolute equality, most people concede, but we should get as close to it as we can without sacrificing too much in productivity. Arthur Okun, a leading leftist economist, speaks of an “equality-efficiency tradeoff.”

	1.	Why do people think that there is a tradeoff between
?		equality and efficiency? Why can’t we maximize both
		equality and efficiency?
	2.	Have a look at John Rawls’s A Theory of Justice
		(Cambridge, Mass.: Belknap Press, 1999). This is the

most influential book of twentieth-century political theory. Look up what Rawls says about the “difference principle.”

MORE ON EQUALITY

But why is equality taken to be an uncontested good thing? You might think the answer is obvious. Suppose someone is homeless and starving, and a multi-millionaire passes him by “in silent contempt.” Isn’t this unfair?

?1. Extra-credit: Can you apply a technique of argument you have already learned to help you analyze this example?

A POORLY-CHOSEN EXAMPLE

A good philosophy example helps us understand exactly the issue in dispute. A bad example confuses us: it mixes together two or more different points.

Chapter 7: Minimum Wages and Wage Control 121

Remember, what we are interested in now is the (alleged) value of equality. An example that aims to show that equality is important should concern itself with equality—nothing else.

By this criterion, the example about the millionaire and the beggar doesn’t fare very well. Can you see why not? This example illicitly appeals to another moral view we may share—i.e., it is undesirable that people be very badly off.

But even if we share this view, this does not show that equality is a good thing. To see this, we can change the example so that only equality is involved. Consider two people, a millionaire and billionaire. Is there an ethical problem just because the billionaire is immensely more rich than the poor millionaire? If you don’t think so, what does this tell us about the importance of equality?

1.	“There’s no use arguing about equality. It’s just a subjec-
	tive value judgment that many people, especially those on	?
	the left of center, share.” How would you respond?
2.	“We don’t need to argue for equality. It is a self-evident
	truth, as a glance at the Declaration of Independence suf-

fices to show. Why do we need to justify equality through some further principle?” Evaluate.

BACK TO ECONOMICS

What determines wages rates on the free market? A standard joke among economists is that the correct answer to any question about the subject is “demand and supply.” (As you can see, economists don’t have very good jokes.)

However poor the joke, the answer is perfectly apt. A wage is a price for labor services of a certain kind. (Remember, there is not one wage rate: each type of work has a separate price.)

122 An Introduction to Economic Reasoning

Suppose that the market price for professional stilt-walkers is $10.00 per hour. (Stilt-walkers don’t come steep.) At this rate, all those who want to accept employment at that price can do so; and all those who wish to purchase stilt-walkers’ services at that price can do so as well. Demand and supply balance. I hope you’re not surprised. What happens if the government enacts a law that forbids stiltwalkers to be employed at less than $12.00 per hour?

?1. What does happen? Can you figure it out?

THE MYSTERY UNVEILED

At the new price of $12.00 per hour, more people than before will want to be stilt-walkers. (Certainly, for $12.00 per hour, I’d become a stilt-walker.) But some employers will no longer want to avail themselves of the stilt-walkers’ services any longer.