There’s Nothing Special About the Location

In the past few days, I’ve heard two arguments for minimum wage:

1) Minimum wage needs to be committed at the high level (national level) because firms can adjust at the local level, but not at the national level

and

2) Minimum wage needs to be committed at the local level because knowledge is better at the lower level.

Both arguments have elements of truth, but make the same crucial error: the locality of the legislation can override economic laws.

With the first argument, the idea is when legislation is passed at the local level, a firm can move to another locality to avoid the new legislation, but at the national level, that is considerably harder to do.  While it is true that national legislation becomes more difficult (but not impossible) to avoid, this argument assumes that relocation is the only meth a firm can use to lower its costs.  Automation and cuts to non-monetary benefits or hours are still viable.  The law of demand and supply doesn’t disappear at the macro level.

With the second argument, the idea is that local politicians have a better idea of local labor market conditions, so they can more accurately set minimum wage.  While it is true that local actions likely have better knowledge than national actors, there is still the problem of the knowledge of a particular time and place.  If the business owners, who have direct knowledge of their circumstances, cannot set the “proper” wage, how could political actors, who have, at best, indirect knowledge, do any better?  Public Choice doesn’t disappear at the local level.

2 thoughts on “There’s Nothing Special About the Location

  1. Jon, 5th paragraph, second sentence. You made a meth out of that……..:-)

    I am not so sure that dodging national minimum wages is all that difficult anymore. Firms can move so much of their operations overseas to a more favorable wage environment very easily with the communications and transportation available today.

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  2. Well clearly we just need a global minimum wage (and global government to enforce it). It’s the answer to all our problems! (yes, I just threw up in my mouth a bit)

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