Harvard economist Greg Mankiw pens this argument against “living wage” or “minimum wage” policies in response to a group of students at his university going a hunger strike, yes a hunger strike, to protest the wages their school pays security guards.

The crux of his argument, to be blunt, is that the minimum wage causes unemployment among low wage workers.  But I’ll let him make his own point:

Like most of the prices in our economy, wages move to balance supply and demand. A high minimum wage set by fiat, either through legislation or student pressure, prevents this natural adjustment and hurts some of the people it is designed to help. It is a timeless economic lesson that when the price of something goes up, buyers usually buy less of it. If Harvard has to pay its unskilled workers a higher wage, it will hire fewer of them. Some workers earn more, but others end up unemployed.

Living-wage advocates say that Harvard with its huge endowment can afford to pay higher wages. That’s true, but it misses the point. Like all employers, Harvard faces trade-offs. Should extra money be spent hiring more professors to reduce class sizes, or should it be spent hiring more janitors to vacuum classrooms more often? It’s a judgment call. If the cost of unskilled labor rises, Harvard faces a new set of trade-offs. Over time, it will respond by hiring fewer of those workers.

Read the whole thing.

I made a similar argument earlier this year in a post about a recent steelworkers strike against the Bobcat company.  At the time the striking steelworkers were successful in forcing Bobcat to raise wages and health benefits for 780 striking workers.  A couple of months later, however, Bobcat had to lay off 155 workers at another plant.  The reason given by Bobcat was a “decline” in the market for its products, but it’s pretty clear to most observers that this was a cost-cutting maneuver.

Thanks to the union the price of labor went up for Bobcat so they had to make room for that extra expense elsewhere by laying off workers elsewhere.  This is how business works.  Sure the unions were successful in getting some extra money and benefits for 780 workers, but they also cost 155 workers their jobs.

So you have to ask yourself which is better: More jobs or more money?  Because when you artificially inflate the cost of labor, be it through union antics or government-mandated wage hikes, you decrease demand for that labor.  Which means putting people out of their jobs.

Personally, I’d just as soon see wages set through individual agreements between employers and employees.