Thursday, December 18, 2014

FREAKONOMICS, CRACK DEALING, AND MINIMUM WAGE: you won't believe what happened next!

OK, that's it. I'm starting to come up with interesting essay topics in economics every day now, so I've got to go to university and get my degree.

I had an interesting brainwave just now.

There's one chapter in Freakonomics where they study the salary structure available in street crack dealing, and find that it closely mirrors the salary structure in minimum-wage low-skilled fields like working in fast food. Not exactly, but fairly closely. The street dealer is paid crap, the "local manager" makes more but still crap, and only the "C-levels" at the top make the real money.

It seems obvious when you think about it - if crack dealing paid more, then people would quit fast food jobs to go deal crack, and thus wages in the fast food industry would have to go up so they could successfully compete for labour.

So what do you think would happen if the USA would increase its minimum wage to $10/hr?

Something interesting would happen, at least according to Economics 101:

1. Labour (in the aggregate, and over time, smartass) would leave crack dealing to work at safer, legal jobs. The crack dealing "industry" would need to "raise wages" if it wanted to still sell enough to meet demand.

2. But that would mean more money in the crack "industry" would go to labour, and thus the per-unit price of goods would increase, which would (in the aggregate, and over time, smartass) reduce demand.

So increasing the minimum wage would reduce profitability and demand for drugs, and get more young kids out of drug-dealing and into safe, legal, tax paying jobs.

And that would increase government revenue, and also decrease policing expenses.

Sounds like a slam-dunk move, no?

Dammit now I want to become a policy economist.

1 comment:

  1. "Sounds like a slam-dunk move, no?"

    Yes. That's why all whackaloon republican pols will automatically oppose it.