Looking In All the Wrong Places

"High minimum wages also hurts the people at the low end most. A kid with no experience and a questionable education is never going to get hired at 15 or 20 bucks per hour. He is left off the economic ladder entirely. We need to ABOLISH minimum wage laws."
Comment posted to "Tipping Is a Disgrace, but Where Did It Come From?"

The idea that young people won't be able to ever find entry-level work has become the "Won't somebody please think of the children," line of the pseudo-Libertarian armchair economist crowd. For me, the major problem with that line of reasoning is that is looks at a paying job as a form of charity - something that's offered to the clearly undeserving as some sort of favor, rather than a way of exchanging value (of labor) for value (of wages/benefits).

While I've never been a fan of the minimum wage myself, it's more because I think that it places the focus in the wrong place. The minimum wage is an attempt to take a broken system and make it less damaging to the vulnerable. A better solution, I've always thought, would be to make the system less broken or the people at low end less vulnerable. Abolishing the minimum wage does neither of these things. And the constant arguing over whether or not the minimum wage should be higher, lower or non-existent doesn't do them either.

The United States is a jobs economy. People look to the idea of working for someone else as their economic salvation, and, because of this arrangement, we've started accepting as normal a number of really wonky, and basically maladaptive, situations - like employer-sponsored health care. As was pointed out on one of the Planet Money Episodes of This American Life, no-one would sign up for such a system when it came to their groceries. And pensions are another wonky system. The gamble that you're making on someone's business sense by agreeing to what is the ultimate in deferred compensation is something that you otherwise couldn't get many people to agree to. But in the constant quest for jobs as the end all and be all of making a living, we accept these things.

What we need are fewer jobs and more entrepreneurship. Not that everyone can be an entrepreneur. You can't really sail a ship of any size with a crew made up entirely of Captains - you're going to need some sailors. But the more even that distribution can be, the more even the overall society can be. As a means of eroding the peaks and valleys of economic inequality, simply raising the minimum wage doesn't realy get us there. Not because it's an inherently bad idea, but because like a lot of things, there are assumptions between the implementation and the result, and if those assumptions turn out not to be correct, the result will likely be different than you were planning for.

Right now, we've structured our economy to make it possible for a relatively few highly efficient organizations to produce massive amounts of value, and then to distribute it among a relatively small percentage of the population. And I understand why we do that. It makes for massive Gross Domestic Product numbers, and explains why we have the highest aggregate GDP in the world and one of the highest GDPs per capita. But it contributes to some pretty clear income and wealth disparities because the people who are so efficiently pulling in this money are often disinclined to share - that's what allows them to be as wealthy as they are - they don't just give away money. We have to stop expecting that they will. Changing the system, so that more people can participate in it as something other than laborers, is likely to mean less overall efficiency. This overall drop in GDP will translate into a lower aggregate standard of living - we might even stop collectively being the richest people on the planet. We really have to ask ourselves if it's a worthwhile trade off. Right now, what we're trying to do is move money around after the fact, and complain that the people who lose it shouldn't miss it. That's unlikely to work. We need to solve the problem, rather than mask the symptoms.