Compassion in the midst of contradictions | AIER

“California has some of the highest housing expenditures in the country, the most expensive gas, and the third highest total cost of living.” This was Isaac Lozano’s main assumption, “Workers need a decent living wage,” as of late. Los Angeles Times An editorial calls for a higher minimum wage in the state. I have often noticed that the same premise is used to justify rent controls. Apparently, the rising cost of living, caused in large part by taxes, government regulations and restrictions, still justifies further coercion in the labor and housing markets. Unfortunately, not only are those government “solutions” based on faulty logic, they are mutually contradictory.

Both minimum wage and rent control, although one forces prices to rise and the other forces prices to fall, reduce the quantity exchanged in those markets. This makes them counterproductive “solutions” for those who are unable to sell adequate labor services or purchase adequate housing services. But the rhetoric used hides how exacerbated the central problem.

For low-skilled minimum wage advocates, they frame the case as “if you can earn more per hour, you’ll be better off”. This is probably true. But it assumes that the desire to work at higher wages means that one will be able To work for higher wages when these wages are the result of government imposition rather than market forces.

Low-skilled workers will be willing to work more at higher wages, other things being equal (law of supply). However, higher wages reduce the number of service employees they will employ (law of demand). Therefore, the growing desire of low-skilled workers to provide their services at higher minimum wages is not relevant, since the number of jobs available will be less. Instead of selling more services at higher wages, they will actually be able to sell fewer services, some of which may be priced entirely out of jobs.

Symmetrically, rent control advocates frame this issue as “if you can rent for less, you’ll be better off”. This is probably true. But it assumes that wanting to rent more housing at a lower price means that one will be able To increase rents at a lower price, when these rents are the result of government assumptions and not the result of market forces.

Controlling rents will increase the amount of housing tenants willing to “buy” (the law of demand). However, lower rents reduce the number of units landlords are willing to offer (law of supply). Therefore, an increase in the quantity of desirable dwellings is irrelevant, because rent control makes fewer dwellings to be rented. Instead of being able to consume more housing at lower rents, tenants will get less housing, and some may end up homeless.

Besides exacerbating the central problems facing cash-strapped families in the labor and housing markets, the rhetoric of raising the minimum wage shows the stark mistake of conflicting rhetoric on rent controls, and vice versa.

If higher mandatory wages increase the willingness of workers to render labor services, lower wages must reduce workers’ willingness to render labor services. But if lower wages reduce the willingness of workers to provide labor services, rent control price ceilings must likewise reduce the willingness of landlords to provide housing. If so, rent control would restrict rather than expand tenants’ housing options.

Likewise, if lower rents sanctioned by legislation increase people’s willingness to rent housing, higher rents will reduce their willingness to rent housing. But if higher rents will reduce their willingness to rent housing, a higher minimum wage must also reduce employers’ willingness to hire low-skilled workers. If so, the minimum wage would constrain rather than expand labor market options for low-skilled workers.

The cognitive dissonance between minimum wage discourse and rent control discourse reveals that those mutually inconsistent positions cannot be good policy. But they have one thing in common that makes both less effective in what defenders claim is their goal. Both increase discrimination against the poor, the less skilled, and other disadvantaged groups, so that there are fewer jobs and housing available for those groups.

A surplus of low-skilled workers with minimum wages reduces the cost to the employer of turning away an applicant who has any undesirable characteristic in their eyes (including lower skills), because there are enough applicants for jobs available without that characteristic. Likewise, the shortage of rental housing under rent control reduces the cost to the landlord of alienating a particular applicant with any undesirable property in their view (including higher potential for non-payment).

Advocates of minimum wages and rent controls justify both as merciful. But they ignore the rationale and are far from merciful infringements of property rights imposed on employers and landlords. Despite these coercive abuses, both also present low-income individuals and families with fewer options, to the detriment of many. And pity cannot justify harming those whose interests you are trying to advance.

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Dr. Gary Seats is Professor of Economics at Pepperdine.

His research focuses on public finance, public choice, company theory, industry regulation, and the role of liberty, including the views of many classic liberals and America’s founders.

include his books Policy Failure PathsAnd the defective buildingsAnd the wrong policiesAnd the Messenger of peaceAnd the Freedom lines.

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