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June 23, 2006
Minimum Wage vs. Free Trade
From the comments on Greg Mankiw's post on Paul Krugman and the minimum wage: It is interesting to compare the debate over the minimum wage to that over free trade. Free trade produces winners and losers and economist as a group are in favor of free trade because they believe the benefits outweigh the cost. The minimum wage produces winners and losers. But as a group economist oppose the minimum wage because it causes some to lose. Looks to me like their is a massive bias in the analysis. Nice try but here are two ways, one libertarian the other utilitarian, to explain the difference: 1. Minimum wage laws are a restraint of individual liberty (to contract at a mutually agreeable price) whereas free trade laws do not restrain people's freedom to contract with whomever they please under whatever terms are mutually agreeable. 2. Using economic tools such as consumer surplus, it can be shown that minimum wage laws are negative sum whereas free trade is positive sum. That is, losers in minimum wage laws lose more than winners gain (the wage increase that some folks receive is a pure transfer from employers but there are lost gains from trade resulting from fewer people being employed) whereas winners in free trade gain more than losers lose. Posted by E. Frank Stephenson at 02:41 PM in Economics
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The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith
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