Why the minimum wage is like free trade

Much like the debate on the minimum wage, the Darvaza gas crater fire has been raging for decades and shows no sign of abatement

Over the last week or so, Ontario’s scheduled minimum wage hike has sparked a new round of debate on the wisdom of this policy, and in a column at the National Post, Andrew Coyne has reiterated his preference for a guaranteed minimum income rather than a minimum wage. The column is worth reading, but his conclusion should be rejected.

Coyne’s reasoning is that raising the minimum wage can end up hurting some of the people it is meant to help. If it becomes more expensive to employ people, then some people who would otherwise have low-paying employment will end up having no employment at all. Raising the minimum wage may well increase overall labour income, he admits, but gains for those who are lucky enough to keep their jobs do not justify the burdens imposed on those who lose out. If minimum wage hikes were the only means available to increase the incomes of poorly paid workers, then we might face a real dilemma. Fortunately, he points out, this is not the only means available. Supplementing workers’ low pay with a basic income scheme would achieve the same goal without unfairly burdening the worst off. Given our collective refusal to pursue this alternative, minimum wage supporters’ indignant rhetoric about greedy employers seems hypocritical.

I agree with some of the points Coyne raises, especially where he invokes sound Rawlsian principles holding that the well-being of the worst off should be our paramount concern, the aggregate benefits of a policy do not cancel out the burdens imposed on actual individuals, and the task of ensuring a decent standard of living for all is a job for the basic structure of society as a whole rather than employers in particular. However, Coyne’s conclusion should be resisted, because these principles are not incompatible with the minimum wage as such; they can easily be reconciled by implementing a minimum income scheme alongside a minimum wage.

Coyne’s reluctance to address this third option is puzzling, especially because the kind of dilemma he points out is extremely common. He even points out a comparable situation himself: free trade. Increased competition in open markets promotes innovation and leads to lower prices for consumers; while the overall gains can be substantial, however, so too may be the costs to the worst off. Even if we assign absolute priority to the interests of the worst off, however, we are not obligated to erect trade barriers to shield them from these costs. Instead, we can redistribute some of the gains from free trade in the form of cash transfers and active labour market policies, thereby maintaining or improving the situation of the worst off without having to forgo the benefits of a more open domestic market.

The analogy between free trade and the minimum wage is appropriate because Coyne grants the validity of a Bank of Canada finding that minimum wage hikes will increase labour income overall. Coyne does not contest that this is a legitimate policy goal; his objection is just that this goal must not be pursued at the expense of the worst off. But he does not consistently apply the principles his argument invokes.

A Rawlsian focus on the basic structure works both ways; the obligation to ensure a decent standard of living for all doesn’t fall on employers or the government in particular, and specific responsibilities arising from this more general obligation may be assigned to either of them depending on what division of responsibilities would result in the best overall basic structure consistent with the requirements of justice. A basic structure that secures a decent standard of living for all and increases overall labour income by assigning employers the responsibility to pay a minimum wage and assigning government the responsibility to provide a basic income is preferable to one that achieves only one of these objectives. Coyne — and the rest of us — ought to support both of these policies, not try to pick one or the other.

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