Wednesday, May 09, 2007

Nothing Can Be Done

This tends to be the conservative reaction to most any injustice or unfairness in this world, at least as long as it is not seen as caused by the government. Take the idea of a minimum wage: The conservatives will point out that raising the minimum wage will just hurt those it is intended to help by making firms employ fewer people than before, because they now cost more to employ. Or the jobs, which now cost the firms more, can attract a different, more skilled slice of the labor force and the original holders of those jobs will be unemployed in that theory, too.

These arguments seldom point out that even within the limited models used those employees who remain employed at the higher wage rate do benefit directly and that giving these workers more money to spend will help the local consumption levels to rise and that this, in turn, will cause more openings for fairly low-skilled workers in that community. Neither is it explained where the different and more skilled workers come from, the ones who are supposed to snap up the jobs with the higher minimum wage rate, or what happens to the jobs they presumably leave open elsewhere in the community.

I was reminded of these rhetorical tricks while reading Greg Mankiw's response to the Harvard students' living-wage-protest (via Max Speak). Then I read the comments to Mankiw's post and found a few more rhetorical tricks:

One is the argument that when two people enter a voluntary contract, nobody else should interfere with that purely voluntary agreement. If Carmen and Megapower International, say, agree that she will clean floors for one dollar a day, who are we to say that this contract shouldn't be legal? Nobody is forcing Carmen to enter into it, after all, and if she doesn't like the contract she can always starve. Was I clear enough about the fact that such contracts are not the same in consequences for the two contracting parties in some cases?

The other one has to do with the odd idea some commenters had that Harvard is a profit-maximizing firm and therefore must obey the market-set wage levels. But Harvard is explicitly and legally NOT a profit-maximizing firm. It is a nonprofit entity, and economists debate quite fiercely about the possible goals that such entities have and what those goals would predict about cost minimization. In short, it is not at all obvious that Harvard would have to try to minimize its labor costs to thrive.