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history and current application minimum-wage
legislation, i.e., The
Fair Labor Standards Act of 1938
Good Intentions / Bad
Roger W. Garrison
In a "Letter of Opinion" (4/14/96), Dr. Charles Britt
offered his thoughts
on wages and employment. While his concerns strengthen
a very different
concern of my own, the way he expressed them provids a
aid for use in my introductory economics course at
Auburn University. At
Auburn, as elsewhere, students first learning about
markets are taught
to mind their Ps and Qs, where the Ps
are the prices
paid and the Qs are the quantities bought:
Under given circumstances,
an increased price means a decreased willingness to
buy. This is the Law
The Law of
for everything from cauliflowers to workerhours. We
can apply it to labor
markets by recognizing that an increased wage rate
means a decreased willingness
(on the part of business firms) to hire.
is concerned with
(1) the failure of Congress to raise the minimum wage
and (2) the laying-off
or firing of workers. The Law of Demand links these
two concerns in a way
Dr. Britt seems not to comprehend. If Congress were to
remove his first
concern, it would intensify his second one. A
legislated increase in the
wage rate for unskilled labor would lead to more
lay-offs and firings.
While some workers' wage rate would go from
$4.25 to $5.15, other
workers' wage rate would go from $4.25 to $0.00. Dr.
Britt, like so many
other supporters of minimum-wage legislation, dwells
on the happy consequence
but remains blissfully unaware of the tragic
say that the case
he presents for raising the minimum wage involves bad
economics; it involves
no economics at all. He asks the reader to think about
the minimum wage
of $4.25 and helps the reader in his thinking by
multiplying this hourly
figure by 8, then 5, then 52 to get the corresponding
daily, weekly and,
yearly figures. He compares the annual figure to
and suspects, bitterly, that Congressmen spend more on
alcohol than minimum-wage
workers earn. He hints that a wage above the current
minimum could more
easily pass some fairness test, but he offers no
standard of fairness which
we might actually apply. (The term "fair wage" appears
only in the title
of his article.) Significantly, Dr. Britt does not
endorse--or even mention--the
$5.15 figure that is current being considered. His
opinions could condemn
that figure with near-equal force; he would have to
favor $6.15 or even
increasing the minimum
wage were simply a matter of weighing the happy
consequence against the
tragic consequence as mentioned above, we might find
opinion on both sides of the issue. But the happy
consequence is less happy,
the tragic consequence more tragic than they first
appear. There are two
groups of workers earning low wages: (1) the poor, as
and (2) young entry-level workers from middle-income
firms have a strong preference for the second group,
whose members show
much promise for the future; the first group are
among those actually laid-off or fired. Also
are blacks, women, and other victims of
discrimination. The most visible
of the tragic consequences are these actual lay-offs
and firings. More
significant, however, is the would-be entry-level jobs
that simply aren't
created--the young workers (especially the young,
black, or female workers)
that aren't hired. Minimum-wage legislation cuts the
bottom rung off the
economic latter for the very people in our society who
are most in need
of upward mobility.
in lieu of Congressional action, municipalities,
Auburn in particular,
might want to impose minimum wages of their own by
mandating that business
who have contracts with the city pay their worker an
Although he doesn't mention it, this kind of
legislation already exists
at the federal level in the form of the Davis-Bacon
Act (1931), an
act whose dramatic inequities and inefficiencies were
exposed in a segment
of ABC's 20-20 the evening before Dr. Britt's
opinion appeared in
students are taught
to ask: (1) What are the intentions of a particular
piece of legislation?
and then (2) what are its actual consequences? A good
student is one who
provides an answer to this second question that
squares with both theory
and history. It is not that Dr. Britt provided a bad
answer to the question.
Rather, he, like so many other well-intentioned
citizens not trained in
economics, simply failed to see any need to ask it.
This is my concern.
How can we have sound social policy in a society where
hence voters--treat good intentions as if they
were actual consequences?
Here's an exercise for students--and for Dr. Britt--to
Suppose that one of Dr. Britt's readers is currently
employed at a job
that requires little skill. He is earning $5.00 per
hour. The job is a
boring one and so the employee has time to do a little
Listed below is a sequence of his thoughts. The question
for you is: How
far are you willing to follow him in those thoughts?
1. At my current salary of $5.00 per
hour, I am making
$200.00/wk. and $10,400/yr.
2. If the government raises the
minimum wage to $6.00/hr.,
I will make $240.00/wk. and $12,480/yr
3. If the government raises the
minimum wage to $7.00/hr.,
I will make $280.00/wk. and $14,560/yr.
4. If the government raises the
minimum wage to $8.00/hr.,
I will make $320.00/wk. and $16,640/yr.
5. If the government raises the
minimum wage to $10.00/hr.,
I will make $400.00/wk. and $20,800/yr.
6. If the government raises the
minimum wage to $15.00/hr.,
I will make $600.00/wk. and $31,200/yr.
7. If the government raises the
minimum wage to $20.00/hr.,
I will make $800.00/wk. and $41,600/yr.
8. If the government raises the
minimum wage to $50.00/hr.,
I will make $2,000.00/wk. and $104,000/yr.
9. If the government raises the
minimum wage to $100.00/hr.,
I will make $4,000.00/wk. and $208,000/yr.
10. If the government raises the
minimum wage to $500.00/hr.,
I will make $20,000.00/wk. and $1,040,000/yr.
11. If the government raises the
minimum wage to $1,000.00/hr.,
I will make $40,000.00/wk. and $2,080,000/yr.
12. If the government raises the
minimum wage to $5,000.00/hr.,
I will make $200,000.00/wk. and $10,400,000/yr.
i. Did you follow this daydreamer to statement #12?
ii. Did you follow him to statement #2?
iii. Is there some statement between #1 and #12 that
has a special
claim on our attention? That is, is there a minimum
wage rate above
the market wage rate that will not cause unemployment
(even though we have
to admit that wage rates higher than that rate will)?
iv. Can you draw supply and demand curves for labor
such that a minimum
wage set $1.00 above the equilibrium wage causes no
v. Can you articulate--or even imagine--an "optimal
minimum wage rate"?