At Cafe Hayek, Don Boudreaux has an excellent post on comparing “wins” and “losses” from free trade and minimum wage. In the comments section, commenter Jermel Purse asks:
“All true but who gets the net wealth and who losses the net wealth.[sic]”
Don responds to his direct question, but there is a larger point I want to make on the difference between net gains and net losses from free trade and minimum wage.
From an economic point of view, one can argue that no one really loses from free trade. After all, free trade is, by definition, voluntary and mutually beneficial. In other words, both parties benefit from the exchange. There are no losers directly involved in the exchange.*
However, the same cannot be said with minimum wage. With minimum wage, an exchange is imposed upon the parties: “you WILL work for at least wage X or you will not work at all!” This means that anyone who is willing to work for less than X but cannot find anyone who can pay him less than X will not be able to work. Absent minimum wage, he would be able to work. In other words, a mutually beneficial action that would have normally occurred does not and at least two people who would have benefitted cannot. Therefore we have at least two losers.
These realities get lost in the churn when we begin talking about things on a macroeconomic level and focusing only on this can lead to false conclusions. Ultimately, all economics is microeconomics.
*Some may argue that the losers are those not involved in the exchange, but such an argument doesn’t have any ground to stand on. It has the implicit assumption that those producers not involved in the exchange have some right to the buyer’s wealth and that those buyers not involved in the exchange have some right to the producer’s wealth.