Ron Unz is one of the good guys. No, scratch that: one of the very, very, very good guys. However, his position on the minimum wage law is highly problematic.
Dear Ron:
You are truly a mensch. Very few people in your position would have published our essay, given that it is a frontal attack on your position. My co author and I are very grateful to you for that.
How shall we proceed? Shall you write a rejoinder to what you have just published of ours, and invite us to respond? Or, shall we respond to this material you just sent us beginning with the words: “Finally, the CBO conclusions seem to totally demolish…” If you have published other material on the min wage, perhaps you could send it to us (if it would take less than 2 minutes of your time) and we could respond to that, also. I think the best way to get to the truth of this matter, any matter at all for that matter, is via this sort of back and forth dialogue. Perhaps such a debate might also be of interest to your readership.
I rereading what we wrote, I regret that material about your “genius.” That was impolite and uncalled for. We promise not to do that sort of thing any more. Thanks for putting up with us despite that.
Best regards,
Walter
From: Ron Unz
Sent: Monday, June 27, 2022 9:10 PM
To: Walter Block <[email protected]>
Thanks, Walter. Since your piece so directly challenges my own position, I think it’s only fair that I run it, and it’s now up in the Economics section:
https://www.unz.com/article/ron-unz-on-the-minimum-wage-law/
However, I really do think that there’s actually very strong evidence that monopsony effects have artificially depressed wages at the lower end.
As you might remember, during the 2014 battle over raising the minimum wage, the CBO came out with a report suggesting that the proposed $10.10 MW would probably lead to the loss of 500,000 jobs, a conclusion that was hailed and widely cited by the anti-MW camp. A CBO analysis last year exploring a variety of different MW increases found roughly similar conclusions. But here are a few paragraphs from a column I published at the time:
Finally, the CBO conclusions seem to totally demolish one of the central economic dogmas presented by ideological opponents of minimum wage laws.
Rigidly doctrinaire libertarians argue that minimum wage laws serve no valid purpose since our free market in labor ensures that employers must pay all workers their true economic value, no more and no less. Thus, they say that if a worker earns $8.50 per hour, that is the approximate value of the labor he produces and his job would disappear at any higher required wage. By contrast, economists who support a minimum wage suggest that low-wage businesses benefit from their “monopsony” position in the labor market, and regularly use that great market power to pay workers less than their true value, much like a monopolist can unreasonably bid up the price of his products.
This obscure technical dispute is central to the theoretical basis for minimum wage laws, and I would argue that the CBO figures decisively resolves this question. According to the CBO, some 98% of those low-wage workers impacted by a 40% hike in the minimum wage would keep their jobs at a much higher rate of pay, thereby demonstrating that their economic value to their employer was vastly greater than their current rate of pay, which had been artificially reduced due to their lack of effective bargaining power. When 98% of workers are paid below their true economic value, any assumptions of a truly efficient market in labor are absurd, and the rectifying impact of a higher minimum wage becomes absolutely justified.
Thus, on both theoretical and practical grounds, the CBO report demonstrated the exact opposite of what the contending parties in the minimum wage debate seemed to suggest. Perhaps journalists will eventually begin reporting this more correct interpretation of the stated facts.
https://www.unz.com/runz/understanding-the-cbo-analysis-of-a-minimum-wage-hike/
Best,
Ron
Dear Ron:
Please consider publishing the op ed that appears below. My coauthor and I are big fans of yours. We consider your efforts monumental in behalf of promoting liberty. But not on this one issue. We hope and trust you take this in the spirit we mean it: an attempt to convince a hero of ours of a mistake on this one issue.
As always, this is exclusive to you. If you publish this, please let me know. If I don’t hear from you on this within a week, I’ll assume you won’t be using it, and I’ll be free to send it elsewhere.
Best regards,
Walter
Ron Unz on the Minimum Wage Law (923 words)
By Walter E. Block and Frank Tipler
Ron Unz fits Winston Churchill’s famous description: he is “a riddle, wrapped in a mystery, inside an enigma.” Unz has an IQ of 214. His views are for the most part conservative, even libertarian; certainly, he is an otherwise supporter of the free enterprise system. And, yet, he supports the minimum wage law.
Did this genius come up with some new twist or wrinkle that the rest of us had somehow missed? Not a bit of it. His “reasoning” is pretty much the same old tired economic balderdash offered by all other supporters of this monstrous and pernicious law:
“Once I started investigating the details it really seemed like the facts were on the other side—especially since so much of the economy has shifted from manufacturing to other industries. You can always relocate manufacturing jobs. You can’t ship McDonald’s jobs to India or Bangladesh.”
Let us try to educate this genius regarding what economics 101 has to say about a minimum wage. To start with, what determines wages in the absence of any law? Why do employers want to hire employees in the first place? Employers hire based upon a new hire’s expected productivity (actually, discounted marginal revenue product, but that is a matter for an intermediate microeconomics course). And what is this productivity? It is the amount by which having a worker on the premises will boost the company’s bottom line.
If staff person Smith increases profits by $10 hourly, that will tend to be his wage. It cannot permanently be higher than that, or the firm will lose money on this hire, and, if it persists in the folly of hiring him, it will court bankruptcy. Nor can Smith’s wage be lastingly lower than that amount. For suppose that Smith is now being paid $7 per hour. Some other company will benefit by offering him $7.01, and then another $7.02. This bidding process will tend to rise to an even $10, assuming no transaction, sorting or information costs, which disappear in the long run.
With a minimum wage of $12, Smith is no longer welcome on the shop floor or asking anyone if they “want fries with that?” Anyone hiring him will now lose $2 per hour. Smith is now unemployable, Mr. Unz to the contrary notwithstanding.
But we have to be careful about this. In 1949, the minimum wage was raised from $.40 to $.75, almost a doubling. At that time elevators were run manually. How many operators of this machinery lost their jobs the very next day? None, not a single one. Many people who should have known better thus thought this law beneficial. But over the next few months automatic elevators replaced all humans. Automatic elevators were not competitive with manual labor at the old rate, but were at the new higher one. Indeed, as Unz says, one cannot ship a MacDonald’s job to India. But one can automate the job out of existence. This, seemingly, has never occurred to Mr. Unz.
If a minimum wage is justified, how does one determine at what level it should be implemented? No answer has ever been given to this basis question. That is, no minimum wage law is based on first principles.
If there is no justified upper bound to the minimum wage, why not require a minimum wage of one kilogram of gold per hour? It is estimated that only 250,000 metric tons, or 250,000,000 kilograms, of gold has ever been mined. At a wage of 1 kilogram of gold per hour, after two hours, USA employers would owe their workers more gold than has ever been mined in the totality of human history.
Isn’t it obvious that this is nonsense? Sure, we can all favor a minimum wage of $1 million per hour. Then, we’d all be rich. No, make that $1 quadrillion per hour.
But what about monopsony or oligopsony? This would indeed place an upper bound on the minimum wage; mainstream economists who believe in this fallacious doctrine tend to place it at something like $12 – $25 hour. However, this only applies, if it applies at all, to highly skilled jobs that have only one (monopsony) or only a few (oligopsony) potential employers: professional athletes, actors, highly specialized lawyers, doctors, nerds, etc. It is entirely irrelevant to minimum wage workers.
There is of course one other explanation for Unz’s position. He really hates unskilled workers and wants them to have miserable, unemployed lives. Then, we can all admit, he is very intelligent. Evil, but highly gifted.
Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans
Frank Tipler is a Professor of Mathematical Physics at Tulane University
Pegs:
This stopped being convincing to Unz, who made his fortune by designing software that allowed mortgages to be chopped up into securities, and whose IQ has clocked in at 214. “Once I started investigating the details,” he says, “it really seemed like the facts were on the other side—especially since so much of the economy has shifted from manufacturing to other industries. You can always relocate manufacturing jobs. You can’t ship McDonald’s jobs to India or Bangladesh.”
In 1949, the minimum wage was raised from 40 cents an hour to 75 cents an hour for all workers and minimum wage coverage was expanded to include workers in the air transport industry.
2:37 am on July 28, 2022
