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Is the Minimum Wage Ethically Justifiable? An Order-Ethical Answer

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Order Ethics: An Ethical Framework for the Social Market Economy

Abstract

Is the minimum wage ethically justifiable? In this chapter, we attempt to answer this question from an order-ethical perspective. To this end, we develop two simple game theoretical models for different types of labour markets and derive policy implications from an order-ethical viewpoint. Our investigation yields a twofold conclusion. Firstly, order ethicists should prefer a tax-funded wage subsidy over minimum wages if they assume that labour markets are perfectly competitive. Secondly, order ethics suggests that the minimum wage can be ethically justified if employers have monopsony power in the wage setting process. As it turns out, then, order ethics neither favours nor disfavours the minimum wage. Rather, it implies conditions under which this form of labour market regulation is justified and, hence, allows empirical science to play a great role in answering the ethical questions that arise in the context of the minimum wage debate. This illustrates one of order ethics’ strengths, viz. the fact that it tends to de-ideologize the debate about ethical issues.

This chapter reproduces some material that has previously been published in Mukerji and Schumacher (2008). We thank A B Academic Publishers for their permission to reproduce it here.

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Notes

  1. 1.

    For simplicity, we neglect the fact that low-wage workers may differ in productivity. Differences in productivity have, however, played a role in the empirical investigation of the economic consequences of minimum wage laws for some time, particularly in regards to the impact of minimum wages on unemployment amongst youths (e.g. Moore 1971).

  2. 2.

    The theoretical extensions to two-sector economies have been developed by Welch (1974), Gramlich (1976), and Mincer (1976).

  3. 3.

    Since then, Card and Krueger (2000) have confirmed their initial findings using a different data set.

  4. 4.

    Note that we set this premise only for the sake of completeness. It does not influence the outcome since the alternative preference order III > I > IV > II for workers leads to the same outcome.

  5. 5.

    For a discussion of a minimum wage which fulfills this requirement, see Manning (2003).

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Author information

Authors and Affiliations

  1. Faculty of Philosophy, Philosophy of Science, and the Study of Religion, Ludwig-Maximilians-Universität München, Munich, Germany

    Nikil Mukerji

  2. School of Economics and Finance, Massey University, Auckland, New Zealand

    Christoph Schumacher

Authors
  1. Nikil Mukerji
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  2. Christoph Schumacher
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Correspondence to Nikil Mukerji .

Editor information

Editors and Affiliations

  1. Peter Löscher Chair of Business Eth, Technische Universität München, Munich, Germany

    Christoph Luetge

  2. München, Bayern, Germany

    Nikil Mukerji

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Mukerji, N., Schumacher, C. (2016). Is the Minimum Wage Ethically Justifiable? An Order-Ethical Answer. In: Luetge, C., Mukerji, N. (eds) Order Ethics: An Ethical Framework for the Social Market Economy . Springer, Cham. https://doi.org/10.1007/978-3-319-33151-5_16

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