Compassion Compromised by Contradictions | AIER

“California has some of the nation’s highest housing expenses, the most expensive gas, and the third highest overall cost of living.” That was the major premise of Isaac Lozano’s “Workers need a livable wage,” in a recent Los Angeles Times editorial, advocating a higher minimum wage in the state. I have often noticed that the same premise is used to justify rent controls. Apparently, high costs of living, largely caused by government taxes, regulations, and restrictions, justify still more coercion in labor and housing markets. Unfortunately, those government “solutions” not only rest on flawed logic, but are mutually contradictory.

Both the minimum wage and rent control, though one forces prices up and the other forces prices down, reduce the quantity exchanged in those markets. That makes them counterproductive “solutions” for those unable to sell sufficient labor services or purchase sufficient housing services. But the rhetoric employed disguises how they worsen the central problem. 

For the low-skilled, minimum wage advocates frame the issue as “If you could earn more per hour, you would be better off.” That is likely true. But it assumes that wanting to work more at higher wages means one will be able to work more at higher wages when those wages are the result of government impositions rather than market forces. 

Low-skill workers would be willing to work more at higher wages, other things equal (the law of supply). Higher wages, however, reduce how many of their services employers will hire (the law of demand). Therefore, the increased willingness of low-skilled workers to offer their services at higher minimum wages is irrelevant, because fewer jobs will be available. Rather than selling more services at higher wages, they will actually be able to sell fewer services, and some might even be completely priced out of jobs.

Symmetrically, rent control advocates frame that issue as “If you could rent for less, you would be better off.” That is likely true. But it assumes that wanting to rent more housing at a lower price means one will be able to rent more at a lower price, when those rents are the result of government impositions rather than market forces.

Rent control will increase how much housing renters will want to “buy” (the law of demand). However, lower rents reduce how many units landlords are willing to offer (the law of supply). Therefore, the increased amount of housing desired is irrelevant, because rent control makes less rental housing available. Rather than being able to consume more housing at lower rents, renters will get less housing, and some might well end up homeless.

Beyond worsening the central problems facing financially strapped families in the labor and housing markets, the rhetoric for higher minimum wages shows the glaring error in the conflicting rhetoric for rent controls, and vice versa.

If higher mandated wages increase workers’ willingness to offer labor services, lower wages must reduce workers’ willingness to offer labor services. But if lower wages reduce workers’ willingness to offer labor services, then rent control’s price ceilings must similarly reduce landlords’ willingness to provide housing. If so, rent control will restrict rather than expand tenants’ housing options. 

Similarly, if legislated lower rents increase people’s willingness to rent housing, higher rents will reduce their willingness to rent housing. But if higher rents would reduce their willingness to rent housing, then higher minimum wages must also reduce employers’ willingness to hire low-skill workers. If so, the minimum wage will restrict rather than expand low-skill workers’ labor market options. 

The cognitive dissonance between the rhetoric of minimum wages and that of rent control reveals that those mutually inconsistent positions cannot both be good policy. But they do have something in common that makes both of them less effective at what advocates claim is their goal. Both increase discrimination against the poor, the least-skilled, and other disfavored groups, so that there will be even less of the jobs and housing available to those groups.

The surplus of low-skill laborers at higher minimum wages decreases the cost to an employer of turning away any applicant with any undesirable characteristic in their eyes (including lower skills), because there are sufficient applicants for available jobs without that characteristic. Similarly, the shortage of rental housing under rent control decreases the cost to a landlord of turning away a particular applicant with any undesirable characteristic in their eyes (including higher probabilities of non-payment).  

Advocates for minimum wages and rent controls justify both as compassionate. But they ignore both logic and the far from compassionate violations of employers’ and landlords’ property rights imposed. Despite those coercive abuses, both also present lower-income individuals and households with fewer options, harming many. And compassion cannot justify hurting those whose interests you are trying to advance.

Gary M. Galles

Gary M. Galles

Dr. Gary Galles is a 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 liberty including the views of many classical liberals and America’s founders­.

His books include Pathways to Policy Failure, Faulty Premises, Faulty Policies, Apostle of Peace, and Lines of Liberty.

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