Compassion compromised by contradictions | EGG

“California has some of the highest housing costs in the country, the most expensive gas, and third in total cost of living.” This was the main premise of Isaac Lozano’s article “Workers Need Decent Wages” published in a recent article. Los Angeles Times editorialadvocating for an increase in the state’s minimum wage. I have often noticed that the same premise is used to justify rent controls. It seems that the high cost of living, caused mainly by government taxes, regulations and restrictions, justifies even more coercion in the labor and housing markets. Unfortunately, these government “decisions” are not only based on faulty logic, but also contradict each other.

Both minimum wages and rent controls, although one raises prices and the other lowers them, reduce the volume of exchange in these markets. This makes them counterproductive “solutions” for those who cannot sell enough labor services or buy enough housing services. But the rhetoric used obscures how they exacerbate the central problem.

For low-skilled minimum wage advocates, the wording of the problem is: “If you could make more per hour, you’d be better off.” It’s probably true. But it is assumed that the desire to work more for higher wages means that a person will able work more for higher wages when those wages are the result of government coercion rather than market forces.

Low-skilled workers would be willing to work more for higher wages, other things being equal (the law of supply). However, higher wages reduce the number of services that employers will hire (the law of demand). Therefore, the increased willingness of low-skilled workers to offer their services for higher minimum wages is irrelevant because fewer jobs will be available. Instead of selling more services for higher wages, they will actually be able to sell fewer services, and some of them may even do without jobs entirely.

Symmetrically, rent control advocates frame the question as “If you could rent less, you’d be better off.” It’s probably true. But it is assumed that the desire to rent more housing at a lower price means that a person will capable rent more at a lower price when that rent is the result of government coercion rather than market forces.

Rent control will increase the amount of housing tenants are willing to “buy” (the law of demand). However, lower rents reduce the number of apartments that homeowners are willing to offer (the law of supply). Thus, the desired increase in the number of housing units is irrelevant, as rent control results in a decrease in the amount of available rental housing. Instead of being able to consume more housing at lower rents, tenants will get less housing, and some of them may well end up homeless.

In addition to exacerbating the underlying problems that low-income families face in labor and housing markets, the rhetoric about raising the minimum wage demonstrates the glaring fallacy of the controversial rhetoric about rent controls, and vice versa.

If a higher fixed wage increases the willingness of workers to offer their services, lower wages should decrease the willingness of workers to offer their services. But if lower wages reduce the willingness of workers to offer labor services, then price ceilings imposed by rent controls should similarly reduce the willingness of homeowners to provide housing. If so, then rent controls will restrict rather than empower tenants.

Similarly, if a lower statutory rent increases people’s willingness to rent, a higher rent will decrease their willingness to rent. But if higher rents reduce their willingness to rent, then a higher minimum wage should also reduce employers’ willingness to hire low-skilled workers. If this is the case, then the minimum wage will limit, rather than expand, the opportunities for low-skilled workers in the labor market.

The cognitive dissonance between the rhetoric of a minimum wage and the rhetoric of rent control shows that these mutually incompatible positions cannot be good policy at the same time. But they have something in common that makes them both less effective at what defenders claim is their goal. Both increase discrimination against the poor, the least skilled and other disadvantaged groups, so that there will be even fewer jobs and housing for these groups.

A surplus of low-skilled workers with higher minimum wages reduces the cost to an employer of turning down any candidate with any characteristic they deem undesirable (including lower qualifications) because there are enough applicants available for jobs without that characteristic. Similarly, a shortage of rent-regulated rental housing reduces the cost to a landlord of rejecting a particular applicant with any characteristics they deem undesirable (including a higher chance of non-payment).

Supporters of minimum wages and rent controls justify both with compassion. But they ignore both logic and far from compassionate violations of the property rights of employers and landlords. Despite these coercive abuses, in both cases, low-income individuals and households have fewer opportunities, to the detriment of many. And compassion cannot justify harming those whose interests you are trying to advance.

Gary M. Galles

Gary M. Galles

Dr. Gary Galles is professor of economics at Pepperdine.

His research focuses on public finance, public choice, the theory of the firm, the organization of industry, and the role of freedom, including the views of many classical liberals and America’s founders.

His books include Pathways to policy failure, Faulty premises, Wrong Policies, Apostle of the worldas well as Freedom lines.

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