Open Letter To Bernie Sanders

A great post by my second favorite economist:

You want to raise the minimum wage and prevent what you allege to be “corporately backed” freer trade. Your positions are inconsistent with each other.

Presumably you believe that higher minimum wages (contrary to the prediction of basic economic reasoning) cause no, or only vanishingly few, low-skilled workers to lose their jobs. That is, you believe that employers respond to higher minimum wages in ways that do not include further economizing on the amounts of low-skilled labor they employ. Put differently, in your analysis of the minimum wage, domestic employment isn’t at all sensitive to wage rates.

Yet you oppose the Trans-Pacific Trade Agreement because you are convinced that the freer trade this agreement spawns will “allow corporations to outsource even more jobs overseas.” So when the topic at hand is international trade, you believe that domestic employment is sensitive to wage rates.

Can you explain why firms cannot or will not substitute out of higher-cost labor (say, by using labor-saving machinery) when the minimum wage rises, but are eager and able to substitute out of higher-cost labor when tariffs fall?

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