For those who haven’t seen it, Gary Becker and Richard Posner had an article against raising the minimum wage in yesterday’s edition of the Wall Street Journal. What I find interesting in the article is not so much Becker and Posner’s view (one wouldn’t expect less from them). No, what is interesting is that their defense is based on good (a priori) economic reasoning. See for instance their first paragraph:
An increase in the minimum wage raises the costs of fast foods and other goods produced with large inputs of unskilled labor. Producers adjust both by substituting capital inputs and/or high-skilled labor for minimum-wage workers and, because the substitutes are more costly (otherwise the substitutions would have been made already), by raising prices. The higher prices reduce the producers' output and thus their demand for labor. The adjustments to the hike in the minimum wage are inefficient because they are motivated not by a higher real cost of low-skilled labor but by a government-mandated increase in the price of that labor.
They do mention that the magnitude of the effect on unemployment is uncertain and that some economists deny that low increases bring much unemployment. Indeed, it is difficult, they remark, to disentangle the effect of the minimum wage increase from that of other factors in the economy. However, there are good (a priori) reasons to think that an increase of 40% will create involuntary unemployment. As they put it:
Some economists deny that a minimum wage reduces employment, though most disagree. And because most increases in the minimum wage have been slight, their effects are difficult to disentangle from other factors that affect employment. But a 40% increase would be too large to have no employment effect; about a tenth of the work force makes less than $7.25 an hour. Even defenders of minimum-wage laws must believe that beyond some point a higher minimum would cause unemployment. Otherwise why don't they propose $10, or $15, or an even higher figure?
The effects of the minimum wage (involuntary unemployment and a different allocation of resources, see here) can be known a priori (and the authors explain it well in their first paragraph). Becker and Posner cannot avoid using a priori reasoning to defend their position. This is another example of the “Friedman paradox” (see here). Of course, the authors can retort that their claims in the Wall Street Journal would have to be “verified empirically” if published in a scientific journal. This is part of the scientistic pseudo-experimentalism that many economists like to engage in. At the end of the day, the claims that the authors make are solidly based on economic reasoning whether they are printed in a newspaper or in the American Economic Review. Becker knows this but preaches some form of empiricism. As with Milton Friedman, the quality of his reasoning is why we like his work.