Robert Reich Shills for $15 Minimum Wage

Robert Reich Shills for $15 Minimum Wage
Profile photo of Robert P. Murphy

Former Clinton Labor Secretary Robert Reich has teamed up with to produce a series of YouTube videos _MG_0694.JPGoutlining “Ten Big Ideas to Save the Economy.” Each video has Reich giving a 2:30 pitch for the idea in question, armed with infographics and high-speed sketching. In this blog post I’ll point out the huge problems with the first video, in which Reich makes a case for a $15 minimum wage.

==> “A Basic Moral Principle”?!

Reich starts the video stating that a basic moral principle–upon which a majority of Republicans, Democrats, and independents agree–is that “no one who works full-time should be in poverty, nor should their family.”

In the first place, it betrays Reich’s Big Government perspective when he chooses to classify Americans according to the major political parties. (He is hardly aiming his video at fans of Ludwig von Mises.) But let’s take the claim at face value to see how baseless it is.

Most obvious, there is a respectable strain in philosophical circles that says it cannot be true that certain material conditions flow out of moral necessity. For example, suppose a giant asteroid hits the Earth tomorrow, kicking up all kinds of soot and blocking the sun, so that over the next two months billions of people starve. In such a world, it would be physically impossible for governments to enact any policies that would allow full-time workers to be guaranteed a decent standard of living for their families. Does that mean all of the politicians involved would necessarily be immoral then, because of the asteroid?

Less fancifully, we can also test Reich’s alleged moral principle in more mundane circumstances to see that it can’t possibly be right. What if one worker is at a job and has 0 kids, while another worker doing the same thing for the same employer has 15 kids. Does Reich want them both to be paid the same, or should the worker with 15 kids be paid a lot more? The quick answer would be, “Yes, pay them equal wages for equal work, but also make sure the worker with 15 kids gets paid enough to keep himself and the kids out of poverty.” But then that means the entire wage schedule gets set by the one worker in America with the most children. Does that really sound correct? If we were just barely satisfying that condition, and then that worker had one additional child, would millions of people then get a raise the next day?

What if the person who works full-time is doing a bad job? Is the employer allowed to fire him or her, or is that a violation of Reich’s widely held moral principle? I hope Reich would admit that if a worker shows up for 40 hours a week, but does nothing except swear at customers and light inventory on fire, that the employer is allowed to fire the guy and pay him $0. (Note that this would plunge the man and any of his children into poverty.)

So, if Reich is OK with an employer paying $0/hour to a worker who contributes nothing, what about a worker who contributes only $14 per hour? Why is it immoral for an employer to only pay such a worker $14/hour in wages? Is Reich saying that this scenario would never actually happen–that every full-time worker in the country generates at least $15 in extra revenue for his or her employer–or is Reich saying there is something qualitatively different about a worker with a “good attitude” that deserves to receive charity from the employer, in contrast to the jerk worker who can be fired?

==> “Productivity”

Reich then goes on to argue that if the minimum wage in 1968 had kept pace with the growth in the “average productivity” of American workers, then today it would be more than $21/hour. Although Reich doesn’t come right out and say it, he sure implies that the workers on the bottom rungs are really getting screwed, that they are producing $21/hour of output for their bosses and yet only getting paid $7.25/hour (the current federal minimum wage).

Is this remotely plausible? Surely someone who was the Secretary of Labor can’t possibly be this ignorant of how competitive labor markets work?

To give a hint, those “average productivity” figures work by taking total GDP and dividing by the number of workers. So hypothetically speaking, if developments in fracking technology allowed the same number of workers to produce more oil, then “average productivity” would go up. In terms of marginal productivity analysis, this would obviously mean increased rents for the owners of land (which had large mineral deposits), and lesser increases in the earnings of specialized drilling equipment and high-skill workers with experience working in oil fields. There would be no reason at all to expect the statistical increase in “average productivity” to correspond to the same jump in “average wages,” let alone the average wage among unskilled workers.

==> No Downside?

Later in the video, Reich addresses the obvious objection that raising the minimum wage to $15/hour will reduce employment among low-skilled workers. Reich dismisses this as fear-mongering and claims, “More money in people’s pockets means more demand for goods and services, which means more jobs.”

This proves too much. Notice that Reich doesn’t make a nuanced argument, balancing certain quantitative factors where the increased demand for goods and services offset the disemployment effect of more expensive labor up until $15/hour, but then flips if the wage rate were pushed to, say, $16/hour. Given the arguments Reich has presented, it’s a mystery why we are settling for $15/hour. Why not push for a $20/hour minimum wage? It can’t be that such a move would cause disemployment–Reich just told us, with no caveats, that more money in people’s pockets means more demand for goods and services.

Indeed, Reich ends his video saying, “It’s the least we can do.” Okay then, Mr. Reich, what’s the most we can do, according to your worldview? Once you admit that, we can at least see how there are downsides to your proposal, and the viewer can start wondering whether $15/hour–the alleged “least we can do”–is such an unambiguously “moral” proposal after all.

  • Paul Smith

    If the MW increases spending, the business are just getting back their OWN money, and this won’t cover the increased cost from selling more goods. Who comes up with this nonsense?

  • Platinus

    “Comments are disabled for this video.” – Of course they are!

    “Men are never so likely to settle a question rightly as when they discuss it freely.” – Lord Macaulay

  • Platinus

    “Comments are disabled for this video.” – Of course they are!

    “Men are never so likely to settle a question rightly as when they discuss it freely.” – Lord Macaulay

  • TKList

    The income inequality problem is counterintuitive. Big government equals more income inequality. Smaller government equals less income inequality.

    The middle class is the byproduct of a free market economy; it is not manufactured by a politician’s tax gimmicks, minimum wage laws, or government redistribution of wealth.

    There is no such thing as a living wage; there is only a wage that someone can afford to pay. You have to tailor your living around your wage, not have government tailor your wage around your living.

    Any increase in the minimum wage would only be a temporary relief to some as jobs, other wages and prices re-balance around the increase. Also it will hurt unskilled workers looking for their first job.

    It is about supply and demand. If you have an easy time filling your employee needs, you offer lower wages, if you have a hard time filling your employee needs, you offer higher wages; because if you do not your competition will and you will be out of business.

    It is not about what people deserve or what is fair or what is just; it is about what the market will bear. Blame the consumer for shopping for the lowest price and blame the voter for voting for government to fix their problems.

  • Ionutz Yountz

    Dr. Miguelito Quioxte Loveless strikes again demanding equal outcomes; ce pula mea.

  • Frank Zeleniuk

    Monetizing poverty, and even the gap between rich and poor, makes it all about “money” and not in the least about poverty or a wealth gap
    Owning that paper stuff or showing a surplus on your bank balance will eventually make everyone poor and equalize rich and poor when it reaches its intrinsic value of zero. A trillion Zimbabwean dollars for instance can perhaps buy you a coffee in a land where everyone is a trillionaire. Once again, Mr. Murphy, you show the art of Economics is never a socialists strong point but the primary objective is fooling people about your sincerity, compassion and humanity. Anyone that has been a leftist for as long as Mr. Reich and doesn’t recognize the failure of the collectivist ideology is only concerned about his own aggrandizement. Even Bono, the humanitarian from U2, has wised up about feeding the poor. Saving people in a crisis is different than creating a lifelong dependency.

  • Patrick Barron

    Hey, the Greeks passed laws giving every person a pension at a very early age. I wonder how that worked out for them?

    Government can legislate all it wants, but the laws of economics are immutable to them.

  • TRyan

    Great article. Who defines a “fair”wage? Who even defines poverty? The slope is slippery on Mr Reich’s arguments.

Profile photo of Robert P. Murphy

Robert P. Murphy is the Senior Economist at the Institute for Energy Research, and a Senior Fellow with the Fraser Institute. He holds a PhD in economics from New York University. Murphy is the author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015) as well as numerous other books and hundreds of articles.

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