This is a story about ethics and economics, winners and losers, and the philosophical muddle on both ends of the political spectrum, as told through two of the hot-button issues of the 2016 U.S. presidential race: the minimum wage and free trade.
Start with an unpopular but irrefutable fact: Raising the minimum wage to $15 an hour, as some states are doing, will create both winners and losers. The winners will be workers who get paid more, of course. The losers will be low-skilled workers who don't get paid at all, because employers couldn't afford to keep them on.
Should you care that a measure intended to make people better off will actually make some worse off? That's a deep question that has exercised such greats as John Stuart Mill, Vilfredo Pareto, and John Rawls. Before you answer it, though, please consider the case of free trade, which involves a similar conundrum. Like raising the wage floor, lowering barriers to cheap foreign imports makes a lot of Americans better off (by cutting the cost of baby clothes, toys, televisions, etc.) while undeniably hurting others (by closing down their factories).
This is where it gets interesting. As similar as the two cases are, the political reactions to them are not. Liberals like Bernie Sanders are strongly in favor of raising the minimum wage, yet suspicious of free trade. When it comes to the minimum wage, they're all about the greatest good for the greatest number, but on the topic of trade they're focused intently on protecting the disadvantaged minority.
Conservatives are just as self-contradictory on these two issues, only in the opposite direction. They worry a whole lot about Americans losing their jobs because of a higher minimum wage, but are less concerned with people losing their jobs because of lowered trade barriers.
These don't seem to be cases of outright hypocrisy. Instead, they simply reflect the human tendency to be impressed by evidence that confirms our beliefs and reject information that challenges them. "We see what we want to see ," economist and author Tim Harford wrote in a recent column.
Advocates of a $15 minimum wage argue that economic research has shown little or no job loss from raising the floor. The U.S. Department of Labor even posted an undated page on its website called "Minimum Wage Mythbusters" that says it's "not true" that a higher minimum wage will cost jobs.
But that all depends on how much it's raised. That Mythbusters page cites a letter by more than 600 economists, including seven Nobel laureates, who say minimum wage hikes to date "have had little or no negative effect on the employment of minimum-wage workers." But wait—click on the link and you'll see the economists, in 2014, were advocating raising the floor to $10.10 an hour by this year. That's a far cry from $15. “We have no experience with an increase in the national minimum of that size and I am concerned about what a $15 minimum nationwide would do to employment,” former Bureau of Labor Statistics Commissioner Katherine Abraham wrote to me last year.
On trade, of course, everything is backward. Liberals dwell on the stories of factory workers thrown out of work. Conservatives counter that the gains from trade are so great that a portion of the societal benefit can go toward compensating those who lose out. That is true in textbooks, but not so much in real life. As I wrote in a recent Opening Remarks column in Bloomberg Businessweek, "trade adjustment assistance, as it’s called, is hardly a cure-all. The sums are tiny in comparison with the scale of the problem, and the success rate is low."
It's fine to favor a higher minimum wage but oppose freer trade, or vice versa. Just be aware that the argument you're using to make your case on one issue could be used against you on the other.
Peter Coy is the economics editor for Bloomberg Businessweek and covers a wide range of economic issues. He also holds the position of senior writer. Coy joined the magazine in December 1989 as telecommunications editor, then became technology editor in October 1992 and held that position until joining the economics staff. He came to BusinessWeek from the Associated Press in New York, where he had served as a business news writer since 1985. Before that, Coy worked as a correspondent in the AP Rochester bureau. He began his career at the AP in 1980 as an editor in the Albany bureau. Prior to that, Coy was a reporter for the Waterbury (Conn.) Republican. He has appeared on numerous TV programs, including shows on CNN, Fox News Channel, and MSNBC, among others. Coy holds a BA in history from Cornell University.
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