My friend Chris and I were recently debating the policy implications of raising the minimum wage. I explained my view that while some workers could be made better off by having a higher wage, any unemployment created by forcefully raising the price of labor would be morally wrong. In other words, the end doesn’t justify the means.
Chris explained that he wouldn’t want to set a minimum wage any higher than what the equilibrium price of unskilled labor would be, and that a minimum wage would just ensure that individuals desperate for a job don’t accept a wage below the equilibrium rate. While we could not agree on the policies we would support, we both agreed that increases in unemployment would be more severe with greater increases in the minimum wage.
We talked about the recent minimum wage law that Congress passed concerning the American Samoa, which led to roughly half the Samoan workers losing their jobs. Prior to the law, much of the workforce was making $3.26 an hour in tuna canneries. After the law, much of the workforce was unemployed at $7.25 an hour. If I were to put myself in the shoes of a Samoan, I would rather be employed at $3.26 an hour than unemployed at $7.25 an hour. Unfortunately, Congress did not give the Samoans the freedom to direct their own economic policy.Published in