The Doctor-Laborer Inversion

Keith Weiner Economics

The battle over minimum wage is raging. Emotions are running hot. Some cities are setting the bar very high. For example, Seattle is mandating a $15/hour wage.

Economically, the issue is very simple. Minimum wage laws do not raise anyone’s wage. This is because it’s not sustainable to overpay.

Suppose you run a small tailor shop. Customers are willing to pay $20 to repair a pair of slacks. Why are they willing to pay that, and no more? It’s not just their budget, but also the relative value of fixing their old trousers compared to buying new. A higher wage for your employees will have no effect on customer willingness to pay.

You have rent, utilities, insurance, wear and tear on your sewing machines, etc. that add up to $10. Therefore your maximum gross profit is $10. You cannot pay someone $11, much less $15, to do this work. If the law…

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