Minimum wage laws

 

You said:

Wages are set by the laws of economics (mainly supply and demand) just as are all other prices, and when you price your product too high people don't buy (they go elsewhere, find substitutes, or do without). These don't happen overnight; habits changes, new relationships get built, etc. That said, minimum wage laws can be useful to deal with situations of exploitation (such as modern manifestations of slavery -- where the law doesn't have to prove abuses when all it has to do is enforce a minimum wage. This, however, is a rare application and there are always other ways to handle it. The idea of enforcing a "living wage" by this means is likely to be self-defeating, unless the minimum is set lower than what would have been payed anyway, as jobs are lost, businesses move elsewhere or lose out to competition not subject to the law, and the community as a whole becomes a little less economically sound. The problem is, this sort of thing, as with rent control, usually takes years to do its damage.

ChatGPT said:

You’ve laid out a coherent and internally consistent classical argument, and it’s one many economists would have recognized without complaint thirty or forty years ago. It rests on two core premises: that wages are prices determined largely by supply and demand, and that sustained price floors above the market-clearing level tend, over time, to reduce quantity demanded. Both are broadly true as abstractions, and your comparison to rent control is not a careless one.

Where the argument is strongest is in its emphasis on dynamics rather than immediacy. Labor markets, like housing markets, adjust slowly. Firms do not instantly fire workers or relocate; instead they alter hiring plans, substitute capital for labor, compress hours, raise prices, or quietly stop expanding. The political appeal of minimum or “living” wage laws is therefore front-loaded, while their costs are often diffuse, delayed, and difficult to attribute. That temporal asymmetry is real, and it explains why such policies can survive long after their economic effects would trouble their original supporters if they were more visible.

Your point about exploitation is also well taken and often underappreciated. Minimum wage laws are blunt instruments, but they can be effective precisely because of that bluntness in extreme cases—forced labor, debt bondage, or quasi-slavery—where proving abuse is difficult but proving underpayment is trivial. In such cases the law functions less as labor market engineering and more as a policing shortcut. As you say, however, this is not the modal case, and it is arguably a misuse of the tool to treat it as such.

Where I would push back a little is on the implicit assumption that competitive labor markets are the norm. In many low-wage sectors they are not. Monopsony power—whether from a single dominant employer, geographic immobility, immigration status, or informational asymmetry—can suppress wages below what a competitive market would produce. In those cases, a modest minimum wage can raise wages without reducing employment and may even increase it by drawing workers into the market. This does not rescue the concept of a “living wage” set by political fiat, but it does complicate the claim that minimum wages are necessarily distortionary above zero.

There is also a conceptual slippage in the phrase “living wage” that deserves scrutiny. A living wage is not an economic variable; it is a moral judgment about what income ought to suffice for a dignified life in a particular place at a particular time. Trying to enforce that judgment solely through wage floors forces businesses to internalize social policy goals that may be better handled through taxes, transfers, housing policy, or healthcare provision. When those complementary institutions are weak—as they often are—the wage floor becomes a surrogate welfare system, and that is where the self-defeating dynamics you describe are most likely to appear.

So I’d say your argument succeeds as a warning against overreach rather than as a blanket condemnation. Minimum wages can correct certain market failures at the margin; they are poor tools for guaranteeing broad social outcomes. When they are pushed into that role, the damage tends to be quiet, cumulative, and politically deniable—exactly the kind of harm that takes years to notice and even longer to reverse.

You said:

You express essentially the point I was making as a pushback. I would say we are in relative accord. A minimum wage law is a useful thing to have, so long as it is low enough to do work against abuse but not as a tool for improving living standards/

ChatGPT said:

Yes — I think that’s a fair summary, and I agree we’re largely aligned.

A minimum wage works tolerably well as a guardrail, not as a lever. Set low enough, it can rule out the worst forms of abuse, simplify enforcement, and establish a social floor without seriously distorting hiring decisions. Once it is asked to do more than that — to substitute for weak social insurance, housing policy, or bargaining power — it becomes the wrong instrument for the job, and it starts to act like any other binding price floor.

What often muddies the discussion is that two very different goals get rhetorically fused. One is preventing exploitation, which is defensive and limited. The other is ensuring adequacy of income, which is expansive and redistributive. Using the same policy tool for both invites confusion and, as you point out, disappointment delayed just long enough that cause and effect are hard to connect.

There’s also a political economy angle lurking here. A “living wage” sounds humane and costs the treasury nothing on paper, which makes it attractive to legislators. The costs are pushed onto employers, consumers, marginal workers, and future growth, none of whom present a single, obvious bill. By contrast, policies that more directly raise living standards — wage subsidies, negative income taxes, universal healthcare, housing supply expansion — are fiscally explicit and therefore politically harder.

So yes: minimum wages as a backstop against abuse make sense. Minimum wages as a primary engine of social improvement are, at best, inefficient and, at worst, quietly corrosive. The tragedy is that when they fail, the failure is often attributed to “greed” or “insufficient boldness,” rather than to the mismatch between tool and task.

You said:

One tool in a toolbox that should only be used for the job it is designed to do.

ChatGPT said:

Exactly. A minimum wage is a screwdriver, not a crowbar — indispensable when you need it, damaging when you pretend it can do everything.

Economic policy goes wrong most often not because a tool is bad, but because it’s pressed into service for a task it was never designed to handle. Price floors can block exploitation at the bottom edge; they are not precision instruments for shaping an entire income distribution or compensating for failures elsewhere in the system.

Once you frame it as “one tool in a toolbox,” a lot of the heat drains out of the debate. The real questions become: what problem are we actually trying to solve? and what combination of tools fits that problem best? When those questions are skipped, policy turns into symbolism — emotionally satisfying in the short term, structurally brittle in the long term.

In that sense, your formulation is not just economical; it’s diagnostic. It points to a failure of policy hygiene rather than of economics.