Tuesday, December 24, 2013

"Economic bigotry" or the utter stupidity of minimum wage laws

There has been a lot of outrage over the arrest and detention of the Indian diplomat Devyani Khobragade, on charges of violation of contract to pay her maidservant the mandatory minimum wages as prescribed by local US law

A lot of "larger issues" have been discussed in the media...the treatment of domestic servants in Indian households in general, the sense of entitlement of the Indian elite, and the Indian bureaucracy in particular etc.

One thing that has escpaed comment is the minimum wage law itself.

At best what some commentators have noted is that the US minimum wage laws may be "too high" for Indians (with the famous comparison of the diplomat's own salary with the mimimum wage requirement)

For me though this misses the point ...it's not about whether the minimum wage is "too high" or "too low", it is that the minimum wage law is stupid.

It's not only that I disagree with it, or think it is unnecessary etc., it is that it is objectively speaking moronic.

Most people see minimum wage laws as a vanguard against rapacious employers greedily exploiting their innocent employees with a pitiable wage that is unfit for dignified living.

Such a formulation only makes sense if you think that the labor market is monopsonistic- that there are very few employers, and hence they can cartelise to keep wages low.

It is impossible to make that argument with a straight face about the market for domestic servants. Do we really believe that there are only a handful of people in India who have servants?

In fact, the market for domestic servants is probably one of the most free markets- people can easily move between jobs, prevailing market wages are widely known, the market is very liquid etc.

In such a market the price/ wage is a fairly accurate estimate of the productivity or value added or marginal benefit by employing that worker

All transactions in a free market are a two way street- both parties benefit from the transaction (indeed that is the only reason they are voluntarily participating in the transaction)

So a mandate or stipulation would cut both ways. You may feel a warm glow on being kind enough to stipulate a minimum amount for people to pay...but a minimum for wages is exactly identical to a minimum for productivity

What this means is that you believe that anyone who produces less than an arbitrarily decided minimum amount does not deserve a job...even if there are others who would willingly employ that person

Indeed that is the conclusion that most of the commentators are advancing (including people like Mihir Sharma who edits a business newspaper and Lord Desai who is a renowned economist)...that the Indian diplomats should do their housework themselves if they cannot afford to pay a servant as per the minimum wage laws.

Think of that for a second...they would rather than no one has a job, than someone has a job that pays them what they are willing to work for, but that people like Mihir Sharma deem as unfit for a dignified life. So they impose their notions of aesthetics and morality upon the rest of society to prevent other adults from engaging in voluntary exchange that does not hurt anyone else.

How is this any different from those who impose their notion of morality upon the rest of society to criminalize homosexuality? And yet it is the same people like Mihir Sharma who decry the Supreme Court verdict on 377 (which it has to be noted, did not criminalize homosexuality, but merely noted that the Constitutional way to change that law was by an act o Parliament rather than judicial review)

Normally, I avoid strong language or even a mention of personalities that I may disagree with. The reason I am doing so now is that I believe that the sanctimonious self-righteous arguments that these people are now advancing are nothing but sheer bigotry.

It is economic bigotry to say that a person who does not produce a basic minimum is unfit to have a job. That is the sum and substance of minimum wage laws.

Intentions do not matter. You may think that your only objective is to protect the distressed workers. But the truth is that your Galahad act consigns them to unemployment.

Intentions are no excuse...bigots may believe that laws against racial miscegenation, or sexual conduct are genuinely in the interest of the people whose behavio they control, but it is both nauseatingly paternalisitic and deeply bigoted.

Footnote: Of course a violation of any contract is punishable and to that extent Devyani Khobragade should be held accountable. My only point is that let's recognise that she is being charged for not following a stupid law.