A recent article at US News and World Report by Pat Garofalo quotes Associated Press writer Christopher Rugaber who says that ‘US states that boosted their minimums at the beginning of the year, the number of jobs grew an average of 0.85 percent from January through June. The average for the other 37 states was 0.61 percent.’ However, this appears to be another example of the Broken Window fallacy refuted by Frdric Bastiat in his famous essay ‘That Which is Seen and Unseen.’ In the introduction Bastiat states that
in the economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee.
By raising wage rates, the public can see their states’ minimum-wage earners making more money. This is the factor that is seen. What is unseen is the number of jobs destroyed or citizens who would have been able to obtain jobs if the minimum wage were never raised in these states in the first place.
This post was published at Ludwig von Mises Institute on Thursday, September 04, 2014.