Is this from The Economist or from Yes, Prime Minister?

Scepticism about the merits of minimum wages remains this newspaper’s starting-point. But as income inequality widens and workers’ share of national income shrinks, the case for action to help the low-paid grows. Addressing the problem through subsidies for the working poor is harder in an era of austerity, when there are many other pressing claims on national coffers. Other policy options, such as confiscatory taxes, are unattractive.

Nor is a moderate minimum wage as undesirable as neoclassical purists suggest. Unlike those in textbooks, real labour markets are not perfectly competitive. Since workers who want to change jobs face costs and risks, employers may be able to set pay below its market-clearing rate. A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobs.

This is from “The logical floor,” in The Economist, December 14, 2013.

It’s part of The Economist’s attempt to make a case for raising the U.S. minimum wage.

Don Boudreaux has done a good job of pointing out some of the problems with The Economist’s argument. I won’t repeat Don’s points here. Instead, I’ll add a few more.

Here’s the paragraph that precedes the quoted paragraphs above:

For free-market types, including The Economist, fiddling with wages by fiat sets off alarm bells. In a competitive market anything that artificially raises the price of labour will curb demand for it, and the first to lose their jobs will be the least skilled–the people intervention is supposed to help. That is why Milton Friedman called minimum wages a form of discrimination against the low-skilled; and it is why he saw topping up the incomes of the working poor with public subsidies as a far more sensible means of alleviating poverty.

Other than the confusion between “demand” and “quantity demanded,” this is a very nice statement of the views of a large part of the economics profession. That’s what makes the next two paragraphs so strange. They admit Friedman’s point and then say, in effect, as in the BBC TV series, Yes, Prime Minister, “Something must be done; this is something; therefore it must be done.”

It is true that they make a case that a skillfully set–read “low”– minimum wage will not do much harm. I don’t buy their case, but they make it. Here’s what they say:

Nor is a moderate minimum wage as undesirable as neoclassical purists suggest. Unlike those in textbooks, real labour markets are not perfectly competitive. Since workers who want to change jobs face costs and risks, employers may be able to set pay below its market-clearing rate. A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobs.

Note three things.

First, often, when someone accuses someone else of being a “purist” in anything, it’s because he’s about to advocate something that goes against his own principles or understanding. I think that’s happening here.

Second, notice that they say employers may be able to set pay below its market-clearing rate. OK. Lots of things may happen. Do they happen? The Economist doesn’t say. Oh, and by the way, if wages are below their market-clearing rate, shouldn’t we see a shortage of labor, not what looks to most of us like somewhat of a surplus?

Third and finally, The Economist wins the “thumb on the obvious” award with the last statement above:

A minimum wage, providing [sic] it is not set too high, could thus boost pay with no ill effects on jobs.

Well, duh. But isn’t that the issue? No one disagrees that if it’s not too high, then there will be no bad effect. What we opponents are saying that it’s already too high and that setting it higher, will make it even more “too high.”

Finally, The Economist says that we can’t be like those French people:

High minimum wages, however, particularly in rigid labour markets, do appear to hit employment. France has the rich world’s highest wage floor, at more than 60% of the median for adults and a far bigger fraction of the typical wage for the young. This helps explain why France also has shockingly high rates of youth unemployment: 26% for 15- to 24-year-olds.

26% is a shockingly high unemployment rate for people in that age group who are trying to get on the first or second rung of the economic ladder. So are 20.8% and 35.8%. What are those? Those are the unemployment rates of 16 to 19 year olds and of 16 to 19 year old black people in America. But I guess The Economist is not shocked by that.