Dan Boudreaux on the Minimum Wage

posted on June 27, 2006 in

Dan Boudreaux, chairman of the department of economics at George Mason University, has some thoughts about the minimum wage, and whether he is an idealogue for believing that the Law of Demand is rarely (if ever) suspended.

Generally, I agree with him.  However, based on “Influence: The Psychology of Persuasion” by Robert Cialdini, I think he errs in one place (and it’s this deviation that’s the point of this blog post, not the discussion of the minimum wage).

Dr. Boudreaux says:

I’ve never heard of a supermarket that seeks to clear out excessively large inventories of canned peas or laundry detergent by raising the prices it charges for these items.

However, Dr. Cialdini writes in chapter 1 of his book about a woman who was able to clear out her inventory of turquoise jewelry by doing exactly that.  She (accidentally) doubled the price of jewelry that wasn’t selling, and the doubled price provoked people to buy it, because they believed that, based on the price, it must be of a high quality.

Now, this does not refute Dr. Boudreaux’s point in the least – if the minimum wage was increased, no one would say “ah, everyone’s labor is of higher quality today than it was yesterday, therefore I will buy more”.  But it does make an interesting case study of how the Law of Demand can be bent, if not broken :)

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