A tale of two minimum prices

Consider two propositions. Firstly, that a minimum price on a unit of alcohol will reduce alcohol consumption by making cheap booze less affordable. Secondly, that minimum wage laws increase the price of a unit of labour, but do not lead to greater unemployment. 

These two statements are logically inconsistent and yet many people are able to hold both simultaneously. Some people take the opposite view: that minimum pricing won’t work, but that the minimum wage destroys jobs. They, too, seem to believe that employers respond differently to higher costs than drinkers.

There would be less disagreement if the minimum wage was raised to £50 an hour and the minimum price was set at £20 a unit. Clearly, there is a point at which the price exceeds what people are willing to pay. The only question is whether 50p a unit – as demanded by the ever-demanding British Medical Association – reaches that point. If 50p proves ineffective, we can surely expect campaigns for a 60p, 70p and 80p unit price in the years ahead.

Demand for alcohol is often inelastic, most obviously for alcoholics, but so is demand for labour. If a supermarket chain wishes to open a new store, it will have to employ shelf-stackers. The minimum wage might compel this employer to spend more on labour costs than would otherwise be the case, but at £6.08 an hour, it is unlikely to plunge him into bankruptcy. He might have to find savings elsewhere, but the store will still open. 

The situation might be different for the sole trader who is offered a contract to make a thousand widgets. The contract can be fulfilled, but only by taking on staff. If he pays £5.50 an hour, there is just enough profit to make the job worthwhile, but at £6.08 the margin is too tight. Deciding that the job is not worth the hassle, he turns down the contract and it goes to a company in China. We cannot know how often decisions like this are made, but it is doubtful that they are never made at all. The demand for labour may be relatively inelastic, but it is not totally rigid.

The minimum pricing of alcohol differs from the minimum pricing of labour only insofar as it is explicitly aimed at reducing consumption. The unintended consequence of the minimum wage is the intended consequence of minimum pricing and vice versa.

Ultimately it is a moral question. We might accept the loss of a few jobs for the higher goal of ensuring a higher wage for the low-paid, just as we might accept that forcing the majority to pay more for their beer is a price worth paying if a few problem drinkers cut down their consumption. The economics remain the same in both cases, but there is one significant distinction. Whereas the minimum wage compels supermarkets to give low-income workers more money, minimum pricing compels poor consumers to give supermarkets more money. No matter how noble the intention, that would be a peculiarly ignoble consequence.