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Minimum Wage and Disability Service Provision

October 24, 2012

The basic economic model of decision making is that people chose their best option given their alternatives and beliefs. If someone picks something, economists assume that means they believed it to be their best option, which is known as revealed preference. In the case of disabled individuals, there may be situations where the disabled person lacks the resources to make good decisions about what is best for themselves, leading to calls for political intervention.

Currently, Section 14(c) of the Fair Labor Standards Act of 1938 allows some employers to pay sub minimum wage to workers with disabilities. There has been some debate lately about whether or not to apply a higher minimum wage to disabled workers. Most of the debate has been framed in terms of discrimination, which I can understand. Ideally, everyone should be afforded equal protection under the law, and so having different minimum wages for different groups does seem wrong from a legal perspective. The main point I would like to make is that the minimum wage is an inherently harmful policy, and so granting exemptions helps the group granted the exemption. There is good reason to believe that disabled workers would be harmed more than non-disabled workers by a binding minimum wage.

The disemployment effects of a minimum wage are higher for a disabled worker because, presumably, their productivity is lower than a non-disabled worker. And if a worker has productivity higher than the minimum wage, the minimum wage does nothing to help them. There is nothing stopping their wage from going higher than the legal minimum. Currently the unemployment rate is extremely high for non-disabled high school dropouts (and high school graduates for that matter). Why would an employer hire a disabled individual when they can hire a non-disabled individual at the same price?

Quality of life is highly subjective and everyone has different preferences. These facts make it quite difficult to judge someone else’s quality of life, except in very general terms. Everyone needs food, shelter, social network, etc, but which types of food a person enjoys, or how much social interaction someone wants to have varies widely by individual, especially for non-neurotypical individuals. A job is simply a means to fulfilling one’s ends. Money earned at a job only matters by the degree to which it can help fulfill one’s preferences and how much the individual values those preferences. A high minimum wage can cause employers to shift from providing a better work environment to paying higher wages instead. For example, an employer who provides good health insurance can pay lower wages and still attract workers. If the employer is forced to raise wages, they can drop health care to compensate. I suspect that disabled workers stand to gain quite a bit from workplace amenities, and so a high minimum wage may reduce their overall quality of life, even as it raises their take home pay.

Legally, I support ending the discrimination between disabled and non-disabled individuals in the workforce. I think that ending the minimum wage for everyone would be far more beneficial than raising it for the disabled. I think that enforcing the current minimum wage on the disabled would result in higher unemployment and lower quality of life. Employment has benefits beyond the purely monetary ones. Everyone should have the right to feel like they are productive and contributing to society.

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