Is a minimum income “fairer” than a minimum wage?

The economic argument against the minimum wage is irrefutable. It hurts the most marginal workers by making it illegal to hire them at the market price. It helps larger, more established firms (who tend to pay more than minimum wage) at the expense of smaller, competing firms (who are more likely to pay lower wages).

Andrew Coyne, writing for the Financial Post, concedes the economic argument against the minimum wage. It hurts those it is professedly intended to help, and doesn’t help fight poverty. Yet he remains convinced that wealth must be reallocated with the government’s badges and guns — he just wants a more direct, efficient way of doing it.

He proposes a minimum income paid by the state, instead of a  minimum wage paid by employers.

This is a terrible idea.

First, we should note that nowhere in his article does Mr Coyne give a moral argument as to why the state should take property from some people and give it to those who cannot or will not take care of themselves. Anyone speaking of fairness should be expected to raise the moral issue. Economics is a technical discipline and its laws do not deal with fairness. Instead, fairness is an issue for ethics and moral philosophy.

Nor does Mr Coyne offer any economic reasons as to why charity should not handled by voluntary activities. The best case he can make is based on nothing more than a complete lack of imagination and a silly anti-capitalism cheap shot:

I think it is because people imagine the alternative is… nothing. Let people starve, that is, to sate some sadistic God of Laissez-Faire. But that is not the alternative. The alternative to the minimum wage is a minimum income: paid not by employers, but by the state.

So his only argument, if it can be called that, is that it’s fairer to have a minimum income, because minimum wages instead involve shunting off “our” responsibility for “distributional justice” onto others.

I am not sure how one tallies up the fair score for each side to see which one is fairer. Let us merely note that there is nothing positively fair about this proposal as such. For what is using the state to impose the “collective ideal” of distributional justice, other than completely unfair? Because a government taking money from one group to give to another group is a political issue — by definition, it is determined by who has the most power in a political system. That is always unfair.

A minimum income must be paid by the government, which acquires most revenue through taxation. But in democracy, the amount a person pays through taxation can only be decided with a ballot box and a gun. How is that ever fair? And “need” can never be objectively quantified, so there can never be a “correct” value for the minimum income.

Putting aside the issue of fairness, what would be the economic impact of a state-provided minimum income? It’s amazing that someone like Mr Coyne, clearly capable of following the steps in reasoning which show the failure of minimum wage laws, would yet propose something even worse.

Obviously, a state-provided minimum income is a subsidy to poverty and idleness. Therefore, this effort to combat poverty and idleness will increase poverty and idleness. As Thomas Mackay wrote more than 100 years ago, “the cause of pauperism is relief. . . . we can have exactly as many paupers as the country chooses to pay for.” Unemployment relief accomplishes the same thing by subsidizing unemployment. If you do not accept the law that subsidizing gives you more of it, then you might as well throw all of economics in the garbage.

Providing a minimum income for not working causes the labor market to be smaller than it would otherwise be — this causes the price of labor to rise. But because nothing has changed to increase the marginal productivity of labor, employers will simply hire fewer workers. One of the reasons unions support unemployment aid and minimum wage laws is to preserve their artificially high wage, below which they withhold their labor. So basically, a minimum income still has a distorting effect on wages. However, to benefit from a higher minimum wage you have or get a job at the new minimum wage. With a minimum income, you don’t have to go work — you can sit around with no pants on, playing Xbox instead.

Additionally, these social programs reduce the incentive to be a producer. All taxes imply a decrease in present and future goods, because not only are resources shifted away from the producer, but the producer’s incentive to add more value in the future is diminished . Therefore, as with all government transfer payments, such a minimum income program would systematically depress the utility of productivity and encourage the tendency to be nonproductive.  People will shift from productive, tax-paying efforts, to nonproductive, tax-consuming activities. With a minimum wage law, you still need to get a minimum wage paying job to see any benefit. With a minimum income, you can sit around with no pants playing Xbox all day. Nonproductive bureaucrats must also administer the minimum income. The entire economy would necessarily contract.

There is only one way to create “wealth” in society: to increase the marginal productivity of labor with capital investment. Shuffling existing wealth around with schemes like minimum wages and minimum incomes only aggravates the problem of poverty by encouraging people to be poor and unemployed. Men such as Mr Coyne need to consistently apply the principles that reject the minimum wage to all other forms of social welfare.