18 Feb 2013

Even More Thoughts on the Minimum Wage

Economics, Krugman 53 Comments

I am still in a mild state of shock that so many professional economists apparently doubt that demand curves slope downward. I admit upfront that I have not spent more than an hour or so looking through the latest literature reviews on the topic. Nonetheless, I remain unrepentant: I think increasing the price of unskilled labor by 24% will make employers hire fewer labor hours. The burden of proof is on the doubters to show why this isn’t so.

In addition to the compelling logic of “demand curves slope downward,” we also have the casual empiricism of my last post, and now we’ve also got the below chart (brought to my attention by John S in the comments), taken from an AEI blog post but not sure who the original creator is:

Wow, look at that. It’s almost as if employers respond to incentives on the margin.

It’s true, there are papers that look at “natural experiments” and somehow throw away logic and evidence such as the above chart. Let me run through some issues quickly:

Monopsony. One claim is that the Econ 101 logic breaks down because employers have market power. But hang on a second. If you want to tell me that the wages of, say, brain surgeons are below the competitive equilibrium, since there are only a few employers who can form a cartel, then OK I’ll at least give you a few moments to make your case. But you’re telling me there is a cartel of employers who are willing to hire unskilled labor?! That is literally the most non-specific factor of production on planet Earth. You need labor for everything, and by definition, unskilled labor is not suited for one occupation more than another.

I think the reason this might initially sound plausible to people, is that there aren’t a lot of teenagers working all over the place. You just see them concentrated in a few areas, like fast-food restaurants. But do you know why? Because of the ()#%$#$ minimum wage (and school attendance laws)!

You actually do see young people in various professional businesses and halls of government. They’re called interns. So we’ve got lots of young people finding employers willing to take them on at $0/hour, and yet apparently there is this “indeterminate bargaining zone” where employers’ quantity of labor demanded is the same between 1 cent and $7.25 (or $9). Does this range also count as a “modest increase”? Or does even Krugman admit that getting rid of the minimum wage altogether would help reduce the 25%+ teen unemployment rate, while increasing it from $7.25 to $9 would be negligible in the other direction?

Studies look at employment growth, not unemployment rates. Apparently the standard thing to do in these studies is look at how much the absolute amount of employment or labor hours changes, rather than looking at the unemployment percentage. The idea (I gather) is that a high minimum wage can draw people into the labor market who can’t find a job, but these people wouldn’t have had a job anyway, so it’s not a strike against the system. Only if employers actually reduce the quantity demanded, can we say (some) workers are hurt. But even on its own terms, this argument fails. The most desperate, vulnerable people are the ones who will work for, say, $5/hour. At that rate, fewer middle-class college kids will enter the labor market. But bump up the wage rate to $7.25, and now a bunch of suburban white kids take a part time job at Pizza Hut to make a little extra money. Even if the total payroll and hours worked doesn’t change, it still means these kids bump out the new immigrant who barely speaks English and needs to get his foot in the door to establish a work history.

Studies correct employment growth for broader trends. My very quick reading of the literature suggested that the empirical studies in the olden days did find a strong connection between a minimum wage hike, and reduced hiring among teens. But, the newer wave of studies disputes that finding. One of the “corrections” the new studies make, is to adjust the change in teen hiring compared to the broader labor market, which presumably isn’t affected by a minimum wage hike. Yet hang on a second. Even in the “natural” experiments, I would imagine a state legislature that jacks up the minimum wage is also more likely to do other “progressive” things that hurt employment growth. So things still move in the same direction, but now you’re not going to get as clear a signal; it’s hard to disentangle why the teenagers in California can’t get a job–is it because of the minimum wage hike, or because of their outrageously progressive income tax code?

Studies focus on fast-food employment across county or state lines. Again, I am not claiming to be an expert on this stuff, but it looked like a lot of the really “compelling” studies looked at natural experiments where you had similar conditions except a chain of restaurants fell in one jurisdiction that raised its minimum wage, while the other restaurants in the chain fell in an adjacent jurisdiction that didn’t. Seems like a perfect laboratory test right? But hang on. If the minimum wage in one state makes it profitable for the restaurant to bite the bullet and install a bunch of labor-saving machinery (like the drink dispensers that you put the cup under and hit a button and walk away, unlike what they used to do when I was growing up where you had to hold the cup in place on the nozzle), then it would be pretty easy for that restaurant chain to use the same, new design when opening up new locations in other states with the original minimum wage. By the same token, even longitudinally looking at the same actual restaurant, once they redesign the place to be run by (say) 4 responsible teenagers and a manager, instead of (say) 9 goof-off teenagers and a manager, then even if that state later abolishes its higher-than-federal minimum wage, the damage is done; the restaurant isn’t going back to the old model.

How does this square with the Keynesian story about monetary stimulus? Finally, how the heck does this whole minimum wage digression line up with Krugman et al. constantly telling us that the problem in Europe and elsewhere, is that wages are too high relative to the price level? They tell us that if we engage in a currency war, we’ll all be better off because prices will rise, making it profitable for employers to hire once again. So, are they saying prices will need to rise by more than 24 percent, in order for the teen unemployment rate to budge?

I’m sorry, I just get the feeling that the story changes to fit the progressive policy of the day. And again, I am not burying my head in the sand and refusing to accept something obvious: On the contrary, I am saying demand curves slope downward, and I can point to all sorts of obvious evidence to back that up. Indeed, the Keynesians themselves think employers follow the same logic I’m talking about, when it comes to their proposals for monetary stimulus.

Yet somehow, the old empirical consensus on the minimum wage has been overturned by a wave of new studies of “natural experiments,” so I’m giving reasons in this post why those studies might be missing the obvious conclusion staring us all in the face: Making teenagers 24% more expensive in the middle of a depression is not the way to help teenagers.

53 Responses to “Even More Thoughts on the Minimum Wage”

  1. John Hawkins says:

    So the minimum wage is a club good that benefits the older at the expense of the younger. What is the policy implication? Does this mean we need to expand the voter base to include those younger than 18? In honesty, if the government lets them work, isn’t it taxation without representation? Of course they’d probably see it more fit to stop letting them work.

  2. John S says:

    Great point about interns. One of the perverse consequences of min-wage laws is that they have to work for free, even if an employer were willing to give them, say, $5/hr. That’s not enough to live on–but wouldn’t an extra $800/month sure be nicer than nothing for a young person still living with their parents?

    If the graph is correct, then surely the stricter min-wages laws in Spain (€744.92 in 12 payments, €638.50 in 14 payments, or $11,426/year), Greece (€586 a month), and France (€9.40 per hour; €1,425.67 per month for 151.67 hours worked) are having a devastating effect on young workers.

    http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country

    • Eric says:

      It gives young workers an immediate incentive to get education rather than work for little pay – something which will help them, and the economy, more in the long term.

    • Silas Barta says:

      That’s (yet) another example of the absurdity of the entire concept of the minimum wage: You can employ for $0/hour, you can employ for $X per hour, you just can’t employ for in-between. Huh?

      • Major_Freedom says:

        That is one more reason why I think minimum wage laws derive from a psychological resentment of the poor, contrary to the protestations of (faux) non-selfish altruism.

        For who are the people who can most afford to work for free as interns? Those from relatively more well to do families, not the poor.

        So there is no ban on free labor.

        If most poor people miraculously started to work for free (unlikely, but for the sake of argument), then I expect there would be a ban put on free labor too.

  3. Glen says:

    If I recall correctly, the Card-Krueger argument for monopsony power isn’t really based on a supposed lack of competition. It’s that low-skill labor markets have a very high rate of turnover, and therefore employers have to set a wage that balances new hires with new quits in order to maintain a target employment level. This means they can’t hire any number of workers at the going wage, as the perfectly competitive model would require. Instead, they have to raise wages to hire more workers, so the firm faces an upward-sloping supply curve.

    (You might say, “Of course, supply curves slope upward, that’s what they’re supposed to do.” But that’s the *market* supply curve. Just as perfect competition in output markets implies a horizontal demand curve faced by the individual firm as seller, perfect competition in input markets implies a horizontal supply curve faced by the individual firm as buyer.)

    Anyway, I’m not endorsing the argument, just reporting it. At one time I checked the math and it works. That doesn’t mean it’s true empirically.

    • skylien says:

      It sounds absolutely trivial to argue that for compensating high turnover of workers you have to increase pay to compensate for this or reduce turnover. How is this in any way bad for workers if they get more or proves that there is monopsony? I rather think that is an argument against monopsony power.

      “…so the firm faces an upward-sloping supply curve.”

      I guess you mean to the right? I thought that is what supply curves are supposed to do usually.

      • Glen says:

        “I guess you mean to the right? I thought that is what supply curves are supposed to do usually.”

        Yes, that is what a *market* supply curve usually does. That’s why I included a parenthetical paragraph in response to that objection. In the perfectly competition model of an input market, supply and demand set the market wage, which is then *taken as given* by the individual firm. The firm can then hire as many or as few workers as it wants at that wage; this is the price-taking assumption.

        You might say that’s a ridiculous assumption. But if so, then you are also accepting that there is *some degree* of monopsony power (keep in mind that there’s a spectrum between perfect competition and full monopsony). If the firm has to pay higher wages to maintain a larger workforce, it has some amount of monopsony power, and the question is just how much. If this sounds odd, think of it this way: the firm has the power to set wages rather than just accepting the market wage.

        Here’s a simple version of the math. Say you currently hire 10 workers at $5/hour. To attract 11 workers, you’d need a higher wage of $5.10. If you offered that wage, your total wage bill would rise from 10 x $5 = $50 to 11 x $5.10 = $56.10. So the added cost of going from 10 to 11 workers is $6.10 — which is higher than the wage, because you also had to pay everyone (not just the new guy) an extra $0.10/hour. (Rapid turnover means you can’t easily pay differential wages.) Say the 11th worker is worth $5.50 in added revenues. You won’t hire him, because that’s less than $6.10. But now suppose a minimum wage of $5.10 is imposed. Your first 10 workers now cost you $51 anyway (compared to $50 without the minimum wage). That means adding the 11th only adds another $5.10, which is less than $5.50, and therefore the 11th worker is worth hiring after all.

        • skylien says:

          Sorry, saw your answer only now.

          Thanks for that example. Yet what if those 1 USD loss that the firm would make when it would hire 11 people instead of 10 means that the 11th worker is employed elsewhere in the economy more efficiently? Therefore a minimum wage would do nothing more than distort market conditions to a less productive state and only make it artificially profitable for this one firm.

          Not to mention that for other firms who might have been on the margin already, now will have to lay off workers, probably more than this one firm will hire… Well I mean how high is the possibility that a minimum wage will increase the level of employment? Given a falling demand curve for labor it is nearly impossible, which means those who are unable to find a job now are those paying the bill for those workers left employed now enjoying higher (nominal) wages.

  4. skylien says:

    You absolutely nailed it. It really is hypocritical to call for devaluation to relatively decrease wages to increase employment and on the other hand call for higher wages which suddenly only have negligible effects on employment… And if you call them out on it you get a total non-answer…

    http://consultingbyrpm.com/blog/2013/02/i-get-empirical-on-minimum-wage.html#comment-57910

  5. Tel says:

    …even if that state later abolishes its higher-than-federal minimum wage, the damage is done; the restaurant isn’t going back to the old model…

    Why do you say that efficiency is necessarily “damage”?

    As a technologist myself I take mild umbrage to the idea that business somehow serves the primary purpose of hiring people instead of buying machines.

    • Dean T. Sandin says:

      The balance between labor and capital, like anything else, should be determined by the market. The fact that you like technology isn’t any more relevant than the fact that your political opponents like people. If hiring additional teenagers at a low wage is more efficient than investing in new capital, that is the “right” thing to do. “Damage” means distortion. The primary purpose of business is neither to hire people nor to buy machines.

      • OskarStålberg says:

        But if the minimum wage is abolished and resutrants DO stick to their more capital intensive model, as Bob say they might, then that no longer is a distortion. In this case, the distortion is the additional costs of the investment. But once the capital is in place, if continuing to run the buissnes in that capital-intensive way is the most efficient way of doing it, then that is neither a distortion or a damage.

        The market deals only with the conditions of the present, and the anticipations of the future, how the conditions of the present came to be is not relevant to the market.

    • Major_Freedom says:

      I think by “the damage is done”, Murphy means sunk costs as relating to new labor market requirements. I don’t think he’s attacking technological advancements.

  6. Blackadder says:

    I’m with you, Bob.

  7. Daniel Kuehn says:

    1. Nobody,to my knowledge, has argued that demand curves do not slope downward.
    2. Monopsony is econ 101 too, in most cases. People just doze off by that point in the semester.
    3. Forget the natural experiments for a moment. Put the real value of the minimum wage on that chart instead of the nominal value and then put an inverse NGDP gap on it too and tell me if you still think it tells us that the minimum wage drives teenage unemployment rates.
    4. re: “You need labor for everything, and by definition, unskilled labor is not suited for one occupation more than another” – except for, you know, skilled occupations.

    • Major_Freedom says:

      1. Is that supposed to mean nobody in fact has argued that demand curves do not slope downward? Whether or not you are personally aware of something, has no bearing on whether or not that something is real.

      2. Not in my class, which is also irrelevant.

      3. Employers don’t hire labor based on the real value of wages. They hire based on the nominal costs of labor, the nominal prices they can sell their output/goods, and other nominal factors specific to their respective businesses. Employers who sell capital goods for example would likely not hire or fire workers, or pay more or less for labor, if the prices of consumer goods change in some basket or index.

      4. Skilled occupations require skilled labor, obviously. Murphy is talking about unskilled labor. Saying “except” here is like saying “Except the sky is blue” in response to someone saying “demand curves slope downward.”

    • John S says:

      1. Nobody,to my knowledge, has argued that demand curves do not slope downward.

      Are you talking about this MW thread, or in general? B/c post-Keynesians sure don’t seem to believe in downward sloping demand curves (Steve Keen says the Law of Demand is bunk in Debunking Econ):

      http://socialdemocracy21stcentury.blogspot.kr/2013/01/is-law-of-demand-really-universal.html

      http://socialdemocracy21stcentury.blogspot.kr/2012/12/e-k-hunt-on-equilibrium-prices-in.html

    • Bob Murphy says:

      Daniel Kuehn wrote:

      1. Nobody,to my knowledge, has argued that demand curves do not slope downward.

      OK, are you just saying really what your position is, is that there is a discontinuity in the demand curve, that it has a vertical strip between $7.25 and $9? If that’s what you’re saying, then yes, I should be more accurate in the future.

      3. Forget the natural experiments for a moment. Put the real value of the minimum wage on that chart instead of the nominal value and then put an inverse NGDP gap on it too and tell me if you still think it tells us that the minimum wage drives teenage unemployment rates.

      ??? That same inverse NGDP gap is what you would use to explain the total unemployment rate though, right? So why does an NGDP gap seem to hurt teenagers more, and why does it really stick it to them whenever the minimum wage gets raised? I haven’t seen any of you even try to answer that issue, let alone satisfactorily.

      4. re: “You need labor for everything, and by definition, unskilled labor is not suited for one occupation more than another” – except for, you know, skilled occupations.

      Wrong again, Zod. A brain surgeon could hire unskilled teenagers to constantly make coffee in the waiting room, to greet customers at the door, to help old ladies to their car, to play with the little kids of the patients, etc. But you don’t see that pattern because of the minimum wage.

    • Ken B says:

      “1. Nobody,to my knowledge, has argued that demand curves do not slope downward”
      I believe one D Kuehn has argued that the slope is so close to flat as too be indistinguishable from flat. In infer this from his assertion that raising the price of a unit of labor does not decrease the units of labor demanded. If you know this good fellow, can you ask him to explain what I missed?

  8. Chris P says:

    Bob,
    Their theory isn’t so much one of standard monopsony, but rather dynamic monopsony. The theory doesn’t rely on employer cartels but rather labor market frictions such as search costs. Supposedly, these frictions ensure that all firms face an upward sloping supply curve for labor which allows them pay a wage below the competitive equilibrium. It’s basically the labor market equivalent of monopolistic competition. I would be interested in hearing your thoughts on that.

    • skylien says:

      Search costs are real costs. Just like transportation for a good from A to B are real costs and are taken into account by people buying stuff. They are often content with paying a little extra if they don’t have to go a longer way to get what they want. They just put those options on their value scale and rank them and act accordingly. I really don’t see how search costs show “monopsonic power”. Else every shop abuses monopoly power because only one shop can be at one place at a time…

      And doesn’t firms have search costs for new labor as well, which can be abused by the workers currently employed by the firm?

      • skylien says:

        What I want to say with it is, without having really only one firm or at least a cartel of firms buying labor, monopsony power doesn’t make sense and becomes meaningless.

      • Daniel Kuehn says:

        re: “I really don’t see how search costs show “monopsonic power”. ”

        Because unlike other costs, search costs influence matching behavior.

        • skylien says:

          Can you alaborate on why “search costs influence matching behavior” is special and cause monopsony power while search costs for a new lap top that influence decission making do not create monopoly power?

          • skylien says:

            it is ‘elaborate’ and ‘decision’ of course… sorry..

          • Daniel Kuehn says:

            Who says search costs for goods don’t create monopoly power?

            I’m not sure I agree that search is the only thing that gives these employers monopsony power, I’m just pointing out that search costs are different from production costs.

            • skylien says:

              I just want to hear what creates unfair pricing power in your view.

              Well if you want to argue that all search costs create some form of monopoly/monopsony power then at least you are consistent.

              Yet as I have asked above, then also laborers have monopoly power because firms also have search costs as well, which in my view makes the concept meaningless, since in the real world there is nothing that has no search costs, it makes all market participants monopolists and monopsonists.

              • Daniel Kuehn says:

                I’m not sure what “unfair” has to do with it skylien. I wouldn’t call it unfair.

                Workers command some monopoly power over their labor, of course. I’d imagine none of us are satisfied with just determining whether they have any, right?

              • skylien says:

                Well I thought the whole issue is that monopsony/monopoly is some immoral thing that should be put right by declaring specific laws like minimum wage or institute a break up of a firm etc..

                Yet when you say monopoly and monopsony are fine and fair, why is monopsony then used as argument for minimum wages laws if it doesn’t imply a charge of “unfair” pricing power?

              • Daniel Kuehn says:

                Where did you get the idea that it is immoral?

                I am very confused.

              • Daniel Kuehn says:

                Even if it were “immoral” I’m not usually a fan of legislating morality.

              • skylien says:

                A quick search for monopsony and unfair resulted in that:

                “2. Inequality arising from Monopsony power

                Monopsony occurs when a firm has market power in employing workers at a wage below the competitive equilibrium. It means the wage workers are paid will be lower than the marginal revenue product (MRP) of labour. This leads to an unfair distribution of income away from workers. Again the inequality arises from some firms having the power to set wage rates.

                http://www.economicshelp.org/blog/3586/economics/pros-and-cons-of-inequality/

                I would like to have an answer on why is monopsony power used as argument for minimum wage laws if it doesn’t imply a charge of “unfair” pricing power (unfair = immoral).

              • skylien says:

                Am I the only one who thinks that monopoly and monopsony is understood by most people to be bad and unfair?

              • Chris P says:

                I don’t think the ethics are the concern here but the economics.

              • Daniel Kuehn says:

                I generally think of monopsony power as the explanation for why we don’t see big negative employment effects associated with the minimum wage. I don’t think of it as having the moral things you’re attaching to it. It may explain things we don’t like (inequality), but I’m not sure it makes sense to call it immoral. People think technological change causes a lot of inequality, but I don’t think they’re arguing technological change is immoral.

                Now, you bring up “most people”. If you ask most people whether monopsony is moral they’ll say “huh?”. If you ask most people whether monopoly is immoral, they may very well say “yes”.

                Needless to say, that’s not really the perspective of economists even those who think monopoly power might offer a reason to do certain things sometimes. The presumption of monopoly power on the part of firms is pretty standard. Interestingly, the presumption of monopsony power is less standard.

              • Major_Freedom says:

                DK:

                Re: monopsony

                The unskilled labor market (the market most closely associated with minimum wage laws) is perhaps the best example of an antithesis of monopsony.

                Your statement “I generally think of monopsony power as the explanation for why we don’t see big negative employment effects associated with the minimum wage” cannot be given a coherent meaning, because “big negative” is too subjective a term.

                One person may believe that there isn’t a big increase because they look at the 1% rise in unemployment, while someone else may believe that there is a big increase because they’re looking at the total number.

                For me, JUST ONE additional unemployed person makes the entire minimum wage law unjustified. No law should be passed that violates individual rights (to trade his labor for another’s money).

                Of course it doesn’t have to be emphasized that you don’t speak that language.

              • skylien says:

                Daniel,

                Most people just don’t know the word, yet they understand the concept (at least to the degree they understand it for monopoly as well). You just need to explain that monopsony is basically the same as monopoly, except that instead of the firm abusing its customers by “overcharging” them for its products, it abuses its workers by “underpaying” them.

                I write “abusing” above because that is what most people understand when you say to them “they charge a higher price than the competitive price” or “they pay less than the competitive wage”.

                Ok. So if there is no reason for minimum wage because of fairness then having only low negative effects is not reason enough to promote minimum wage increases, and it should therefore be opposed. A small negative effect is still a negative effect.

                BTW the logic for why you think (which I do not share at all) that there is only a little effect on employment because of monoposnic effects can be countered by pointing to the monopoly power of the workers as well who put also search costs on the firm for alternative personal, machinery, procedures etc… And you cannot say which is greater.

                Yet even if this were right, there would be the question of where is this sweet spot at which all the room given by monopsonic power is used up? You are unfortunately not able to calculate the “proper competitive” wage (Which interestingly treats the knowledge problem obviously as something not real or not proper at least not competitive). So all suggestions of this or that rate of minimum wage are nothing but wild arbitrary guesses. You just don’t know if you are operating above or below the “proper competitive” wage. Not even mentioned that a single rate of minimum wage doesn’t address the problem in a quite complex economy with millions of different jobs with all having different “competitive” wages.

  9. Daniel Kuehn says:

    re: “So things still move in the same direction, but now you’re not going to get as clear a signal; it’s hard to disentangle why the teenagers in California can’t get a job–is it because of the minimum wage hike, or because of their outrageously progressive income tax code?”

    But it’s not hard as long as you don’t do a cross-sectional look like you did the other day!

    If income taxes don’t change but the minimum wage does it is trivial to disentangle.

    • Bob Murphy says:

      Daniel Kuehn wrote:

      If income taxes don’t change but the minimum wage does it is trivial to disentangle.

      Yes, in principle, and yes, if we had a bunch of state legislatures that randomly picked policies–some of them implemented a flat tax and abolished legal tender laws, at the same time they jacked up the minimum wage 50%.

      But I don’t think you’re going to really see such “natural experiments” in the real world, do you? So when you run an apparently sophisticated regression, which assumes these changes *are* truly independent variables, then you’re going to get weak results that seem to contradict basic economic logic (such as: raising the price of something 24% across the nation will reduce the aggregate quantity demanded).

      Also Daniel, can you please confirm: When we get the currency war Krugman wants, prices will need to rise by how much before we see any movement on the teenage unemployment front?

  10. Chris P says:

    Here’s a summary of the numerous problems with the Card Krueger study. Needles to say, if all of the ‘new’ minimum wage research is this poor then something besides a quest for scientific knowledge is driving the push for a minimum wage among economists. How do you conduct a minimum wage study like this without measuring labor hours worked!?

    http://heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/3623.pdf

    • Major_Freedom says:

      “…something besides a quest for scientific knowledge is driving the push for a minimum wage among economists.”

      It’s been like that for at least 100 years. In the early 20th century, most economists accepted the notion that minimum falling wage rates eliminate unemployment. It was an uncomfortable position to be in, politically, what with the rise of retrogressivism, excuse me, “progressivism.” But generally, economists were economists and the field held its ground against the irrational demagogues…

      …until Keynes entered the scene. Keynes provided a series of contorted and twisted (old mercantilist redux) arguments that higher wages are good for the economy. In the rising tide of cultural acceptance of Marx’s exploitation theory, economists no longer had to appear as haters of mankind. They found a needed excuse with Keynes, and one by one, they joined in the calls for the government to try to increase wages by law. There has been a positive portion of the economics establishment that has carried over this tradition ever since. The modern way to do it is to massage and manipulate data so as to reach the palatable, perhaps even desired, conclusion.

  11. Robert says:

    This is a dead on analysis, Bob. Well done. I can’t find a single flaw in your argument.

  12. Major_Freedom says:

    “…empirical studies in the olden days did find a strong connection between a minimum wage hike, and reduced hiring among teens. But, the newer wave of studies disputes that finding. One of the “corrections” the new studies make, is to adjust the change in teen hiring compared to the broader labor market, which presumably isn’t affected by a minimum wage hike. Yet hang on a second. Even in the “natural” experiments, I would imagine a state legislature that jacks up the minimum wage is also more likely to do other “progressive” things that hurt employment growth. So things still move in the same direction, but now you’re not going to get as clear a signal; it’s hard to disentangle why the teenagers in California can’t get a job–is it because of the minimum wage hike, or because of their outrageously progressive income tax code?”

    This paragraph is nauseating (not directed at you, but the studies).

    How many times do “latest studies”, which show conclusions contrary to economic logic, where dubious “corrections” abound, are glossed over and/or accepted without much critical thought by those wanting minimum wage laws? I can see it now “Didn’t you hear? The old logic has been overturned! The data say something new now!” No it doesn’t. What’s new is the style of data massaging, as always.

  13. Dan says:

    Great work. This is why you are a master.

  14. Steven E Landsburg says:

    Bravo on the point about (lack of) monopsony.

    Here is another story — taken seriously by labor economists — about why a rising minimum wage can increase employment. Say you own a McDonald’s and you hire a kid to work 11AM to 7PM. He’s very busy during the lunch and dinner hours, and pretty much loafs in between.

    Now the minimum wage goes up. Suddenly you’re no longer willing to pay this kid to loaf. So instead, you hire one kid to come in for an hour at lunch time and another to come in for an hour at dinner time.

    Employment — the number of people who work some postiive number of hours per day — goes up, though labor hours go down. Card and Kreuger looked at the former, not the latter. Arguably, this is an important part of what drives their results.

  15. David says:

    If the supply price to a business of its resources rose by 24%, what would the business do? Raise the price of its output? Take a cut in its profit?
    Why is the cost associated with employees any different to other (raw) material costs/inputs?
    Why can a raise in those be accepted to result in a price of its outputs going up but not a raise in the wages of its employees?

    To use the McDonalds example, if the price of burger buns goes up then McDonalds raises the price of burgers. Or to use the above example, why would an employer ever want to pay someone for just loafing about? Is the employer effectively willing to be a provider of welfare – really? Seems like that is a cost that can be cut right there irrespective of the minimum wage.

  16. Mike Herzog says:

    I’m pissed every time they do this because I get a pay cut. As a restaurant labored, every time they hire a newbie, at a even larger rate than last time they hiked minimum wage, my value has decreased. As a layman, without a degree in anything, I know minimum wage laws are wrong because now the imbecil that just got hired only needs to earn a smaller percentage of his wage to equal the wage I have worked 20 plus years to acquire. My value as a knowledgeable restaurant person is lost every time they do this. I’m back in school to get a skill other than babysitting teenagers.

  17. Karla Jordan says:

    Employers are indecent to not pay a man a wage that pays their bills. Support the passage of legislation of $9.00 an hour. Hillary Clinton would have had the minimum wagers in the soup lines starving because the moment you get a raise..the company would lay off the entire crew and rehire at the minimum wage level to cut company expenses or send the job overseas to get their products made with $2.00 hour labor in China/Japan/India/ or Mexico!! Give us our pay to cover rent,utilities, food, auto ins, health ins, etc…and recreation.
    Support my petition to the congress/senate.
    Go to my site http://www.fightforlivingwages.org
    Thanks for your support

Leave a Reply