Counsel for Getting There - Economics and Ecology: United for a Sustainable World - page 168

not only accomplishes little but also creates additional political and cultural
conflict.
As an economist, I (RB) need to add another perspective to this particu-
lar issue. Raising the minimum wage is a favorite example of economists
of the workings of supply and demand. Any downward-sloping demand
curve says that if the price of something is raised, less of it will be consumed.
Thus, conventional economic wisdom says that if the wage rate is (artifi-
cially) increased, unemployment will result. People who would have been
employed at the lower rate will be let go at the higher wage level. Businesses
either would not be able to afford it or would choose not to. At this point, the
traditional economist draws a few lines on the graph and says, “This much
unemployment will occur,” and then moves on to the next topic.
At times during my career I have spent hours over lunch asking my col-
leagues why they suppose data never show that an increase in the mini-
mum wage causes unemployment. Over the years, as the minimum wage
has many times been raised, it has never been statistically measured to have
led to any unemployment whatsoever. I will not go into the answers I have
received, because there were no real answers. They simply continued believ-
ing what they believed. But, I have some suggestions.
First, it is very likely that the business in question really was not paying
the workers all it could afford, because the business had all the power in the
model anyway, and was, therefore, simply paying as little as the business
could legally get away with. So, after the minimum wage is increased, the
business owners need not fire any of the employees because they cannot
afford them. Second, when wage rates are increased, for whatever reason,
more purchasing power is injected into the economy, especially on the part
of people who have to spend virtually all of their income immediately. There
will be more demand for goods and services, and thus more demand for
the labor to produce them. The minimum-wage increase may be part of the
reason for a higher demand for labor.
The failure of economics and economists to acknowledge this possibility
is a major shortcoming and exemplifies a criticism we emphasized earlier.
It fails to acknowledge the whole system, that there really is no indepen-
dent or dependent variable, and thus assumes things are constant that
do not and cannot remain constant (biophysical principle 1). When sup-
ply/demand analysis is employed, for instance, it is common to add the
Latin phrase, ceteris paribus , or “all other things equal.” This is a convenient
assumption for the methodology of the moment, but unfortunately it does
not represent the world as it is (again, biophysical principle 1: everything is
a relationship ).
Before examining the bottom-up approach, two other points are in order.
First, in our legislative example, the discipline of economics, intentionally
or not, would come down squarely on the side of conservatism. The busi-
ness interests, eager to hold down labor costs, would aggressively invoke