The Temperamental Minimum Wage

by | May 9, 2007

The first fundamental law of demand postulates that the lower the price of something, the more will be demanded, and the higher the price, the less will be demanded. To my knowledge, there are no known exceptions to the law of demand. That was until last fall when 650 economists, including several Nobel Laureates, signed […]

The first fundamental law of demand postulates that the lower the price of something, the more will be demanded, and the higher the price, the less will be demanded. To my knowledge, there are no known exceptions to the law of demand. That was until last fall when 650 economists, including several Nobel Laureates, signed a letter calling for an increase in the minimum wage.

They said, “We believe that a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed.” I’m not sure if these 650 economists meant increases in the minimum wage will have no effect on the employment of low-wage workers or if they meant its magnitude won’t be large. If their argument is the former, I’m embarrassed for them.

Maybe these economists, like House Speaker Nancy Pelosi, see the law of demand as being somewhat temperamental — sometimes having an effect and sometimes not. This would be like a physicist suggesting that the velocity of light, in a vacuum, is temperamental — sometimes a constant and sometimes not. But they and Speaker Pelosi might have a point.

On Jan. 10, the House of Representatives voted to raise the minimum wage from $5.15 to $7.25 per hour. Their bill, for the first time, extended the federal minimum wage to the U.S. territory of the Northern Mariana Islands, but it exempted American Samoa, another U.S. Pacific Ocean territory. American Samoa would have been the only U.S. territory not subject to the federal minimum wage. If increases in the minimum wage, like my 650 fellow economists claim, are so helpful to low-wage workers, why deprive Samoan workers from the benefits? Are Speaker Pelosi and my fellow economists anti-Samoan?

StarKist Tuna, whose parent company is Del Monte, and Chicken of the Sea employ nearly 50 percent of the Samoan workforce.

Samoan cannery workers earn about $3.50 an hour. I’ll give you one guess what would happen if the minimum wage were raised to $7.25 an hour. Here’s a hint: The average cannery wage in Thailand is 67 cents an hour, and in the Philippines, it’s 66 cents. If you guessed that StarKist and Chicken of the Sea might move their operations to Thailand or the Philippines, go to the head of the class. Perhaps Speaker Pelosi agrees that mandating a higher wage would have an unemployment effect, but just in Samoa.

There’s a better explanation for Speaker Pelosi’s position that has nothing to do with the possible fickleness of the law of demand. StarKist, which owns one of the two Samoan packing plants, has been a big opponent of increases in the U.S. minimum wage. Del Monte, its parent company, is headquartered in Speaker Pelosi’s San Francisco district. Chicken of the Sea is based in Southern California. It’s not unreasonable to guess that Speaker Pelosi’s position has to do with the interests of her well-heeled constituents. In any case, Samoans are off the hook for now because the proposed legislation enacting a higher minimum wage didn’t pass Congress.

Many minimum wage supporters, like the Speaker, are hypocrites, but most supporters are decent people with an honest concern for the well-being of their fellow man. True compassion for our fellow man requires that we examine not the intentions behind public policy but the effects of that policy. There’s no question that Congress can mandate the minimum wage at which a person is hired, but Congress hasn’t found a way to mandate that a person have a level of productivity commensurate with the wage. Moreover, Congress hasn’t chosen to mandate that an employer hire a person whose productivity is less than the minimum wage. This means higher minimum wages cause unemployment for the least-skilled workers.

Walter Williams (March 31, 1936 – December 1, 2020) was an American economist, commentator, academic, and columnist at Capitalism Magazine. He was the John M. Olin Distinguished Professor of Economics at George Mason University, and a syndicated editorialist for Creator's Syndicate. He is author of Race and Economics: How Much Can Be Blamed on Discrimination?, and numerous other works.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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