Walter Williams Explains the Folly of Minimum Wage Laws

The legendary professor needs only the following four excerpted paragraphs from his August 9 column to do it:

There are decent people, without a selfish hidden agenda, who support increases in minimum wages as a means to help low-skilled workers, and there are other decent people, with the identical goal, who strongly oppose increases in the minimum wage. So the question is: How can people who share the same goals, helping low-skilled workers, come up with polar opposite means that produce polar opposite results?

It all depends on one’s initial premise. It would do us some good to make our initial premises explicit and check them against reality. One initial premise is that an employer needs a certain number of workers to accomplish a given task. That being the case, increasing the minimum wage simply means that all low-skilled workers will enjoy a higher salary and employers will have lower profits and/or customers will pay higher prices. With this vision of how the world operates, the logic of increasing the minimum wage as a means of helping low-skilled workers is impeccable.

Another initial premise is that there is no fixed number of workers necessary to accomplish a given task. Employers might be able to substitute capital for labor such as using dishwashing machines instead of dishwashers, automatic elevators instead of elevator operators, self-service gasoline stations rather than full-service gasoline stations, online reservations rather than reservation clerks or relocating their operation overseas. People who share this initial premise can still have concern for the welfare of low-skilled workers but argue that increasing minimum wages will cause unemployment for some of them and deny job opportunities for others. Given their initial premise, the logic of their argument is also impeccable.

Thus, the question to decide is which initial premise best describes how the world operates. Is it the one that says there’s a fixed number of workers necessary to perform a given task, or the one that says employers have flexibility in the mix of workers and capital they use and where in the world they can choose to manufacture? I think the latter description more properly describes how the world operates.

The only question remains is how quickly employers can change their mix of labor and capital in response to minimum-wage law changes and remain competitive. Perhaps 60 years ago the answer would have been “gradually, at best.” Today’s answer is anything but that. If minumum wages are increased above what market conditions dictate a given job is worth, employers can react quickly to mechanize, outsource, close facilities, or otherwise make the necessary adaptations. That’s not “good” or “bad”; it just is, as Williams said, “how the world operates.”

__________________________________

UPDATE: Porkopolis, with a small assist from Rich Lowry at National Review, was all over the capital-labor substitution issue earlier this year as it relates to the few remaining high-labor content sectors in agriculture.