Friday, July 31, 2009

Unintended Consequences, Part III

A Minimum Wage Equals Minimum Jobs: The unseen costs of minimum wage laws - Reason Magazine. Here's the money quote

The Law of Unintended Consequences strikes again. Well, let me correct that. For some minimum-wage advocates, the bad consequences are not quite unintended. Consider the support for the minimum wage from large companies like Wal-Mart and organized labor. Why do they want the minimum raised? Economist Alex Tabarrok of George Mason University answers, "[T]hese employers will benefit from an increase in the minimum wage because it will raise the costs of their rivals. This is why unions have typically been in favor of the minimum wage even when their own workers make much more than the minimum."

I make a huge point of this in teaching both the Progressive Era and the New Deal. Government regulation often has the unintended consequence of reducing competition by raising costs disproportionately for small producers and driving them from the market. The Meat Inspection Act of 1906, ostensibly designed to foster public safety in the wake of Upton Sinclair's The Jungle, put enormous pressure on small meat packers. The NRA Blue Eagle Codes drove small business men under, and opened them up to prosecution if they flaunted the law --just ask the Schecter brothers (Schecter v. U.S. --which overturned the heart of the First New Deal). It was/is fashionable for New Left historians to bash FDR for being too pro-business; I think they missed the real point: government interference in business is always going to be exploitable by big fish. And I haven't even mentioned the housing and banking crises!

More unintended consequences: rises in the minimum wage mean more jobs going off-the-books. And I'm not just talking about unauthorized immigrant labor (many of whom won't work for sub-minimum wages, just ask any construction manager.)

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