18 Feb 2013

Further Thoughts on the Minimum Wage

Daniel Kuehn, Economics 29 Comments

Daniel Kuehn repeated a statement from an Economix blog post, saying that, “In fact, in 2000 only 46 percent of American Economic Association members agreed with the idea that the minimum wage increases unemployment.”

That struck me as inconceivable. I could *possibly* believe that as of 2000, only 46% of AEA members thought the minimum wage was bad policy–but to say only 46% believed it increased unemployment?! (Note that those are distinct claims.)

If you go to Wikipedia you can see a more nuanced statement of the result (which I’ve put in bold), as well as the general historical progression:

Until the 1990s, economists generally agreed that raising the minimum wage reduced employment. This consensus was weakened when some well-publicized empirical studies showed the opposite, although others confirmed the original view. Today’s consensus, if one exists, is that increasing the minimum wage has, at worst, minor negative effects.[76]

According to a 1978 article in the American Economic Review, 90 percent of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers.[77]

A 1992 survey by published in the same journal revealed 79% of economists in agreement that a minimum wage increases unemployment among young and unskilled workers.[78]

A 2000 survey by Dan Fuller and Doris Geide-Stevenson reports that of a sample of 308 economists surveyed by the American Economic Association, 45.6% fully agreed with the statement, “a minimum wage increases unemployment among young and unskilled workers”, 27.9% agreed with provisos, and 26.5% disagreed. The authors of this study also reweighted data from a 1990 sample to show that at that time 62.4% of academic economists agreed with the statement above, while 19.5% agreed with provisos and 17.5% disagreed. They state that the reduction on consensus on this question is “likely” due to the Card and Krueger research and subsequent debate.[79]

A similar survey in 2006 by Robert Whaples polled PhD members of the American Economic Association. Whaples found that 37.7% of respondents supported an increase in the minimum wage, 14.3% wanted it kept at the current level, 1.3% wanted it decreased, and 46.8% wanted it completely eliminated.[80]

Another survey in 2007 conducted by the University of New Hampshire Survey Center found that 73% of labor economists surveyed in the United States believed 150% of the then-current minimum wage would result in employment losses and 68% believed a mandated minimum wage would cause an increase in hiring of workers with greater skills. 31% felt that no hiring changes would result.[81]

P.S. People are saying modest increases won’t hurt employment. Since when is a 24% hike “modest”? Let’s take the estimates at face value. What do people think the employment effects will be? “Only” 50,000 teenagers thrown out of work?

29 Responses to “Further Thoughts on the Minimum Wage”

  1. Jonathan Finegold says:

    What does this mean,

    …73% of labor economists surveyed in the United States believed 150% of the then-current minimum wage would result in employment losses…

    • Bob Murphy says:

      It means 27% of labor economists are insane…

      (It means if the gov’t increased the minimum wage by 50%, then 73% of labor economists agreed there would be employment losses.)

      • Jonathan Finegold says:

        Thank you, I see it now.

        I might be totally wrong, but last week I suggested that looking at employment effects might be too narrow a scope to consider the full consequences of minimum wage legislation. Let’s assume that the demand curve is inelastic enough for the effects on unemployment to be “miniscule.” But, whatever decrease there are in profits can mean a decrease in re-investment, which over the long-run impacts workers’ productivity. If this is true, then over the long run the minimum wage can actually lower the wage bill. Also, it may help induce a growing gap between the incomes of unskilled workers and those of skilled workers.

        • Major_Freedom says:

          MUST. CONSUME. CAPITAL.

          Capital only benefits its owners anyway, right?

          • Ken P says:

            Yes, de-capitalize entrepreneurs and then wonder why we end up with European-like unemployment levels.

  2. Dan says:

    Did you happen to notice this from DK. He said this on your potpourri post,

    “What’s amazing about all this commentary is that the post was about my lack of enthusiasm for the proposal.
    Do you guys click through or just eat up what Bob tells you?
    Apparently I have to foam at the mouth of the mere mention of the minimum wage!”

    So he didn’t like that you and many of us commentators were calling him out as a person who favors minimum wage hikes. He chided us for agreeing with you because he wasn’t enthusiastic about the proposal.

    Then we find out why he was enthusiastic and what changed his mind about it. He says this in the comments of the post you linked to here,

    “There’s been some discussion on Krugman’s blog about how the minimum wage makes the EITC more effective. That’s worth considering. But I personally greeted the SOTU call for an increase by being unimpressed. It’s a pretty blunt tool.

    I’ve since learned that the call was apparently to raise and then index it? That could make more sense. Then we can stop worrying about it so much!”

    So he chided us because we said he had no problem with minimum wage hikes by saying he wasn’t even enthusiastic about the proposal. Then once he finds out the idea was to continually increase it in line with inflation that makes the idea better, in his opinion. So why were you and us wrong to interpret him as having no problem with minimum wage hikes?

    • Yancey Ward says:

      My theory is there is no such person as DK, and he is Paul Krugman’s alterego on this site’s comments section.

      • Bharat says:

        Speaking of nutty theories, I’ve had a theory for a long time that Lord Keynes is actually Major Freedom. He just invented an opposite personality so that he could argue against himself on the blog after other people had given up.

        • Archaeopteryx says:

          Actually you are both wrong. Bob Murphy is Major Freedom, Lord Keynes, Daniel Kuehn, AND. . . wait for it. . . Paul Krugman. He’s a one-man schizophrenic blogging show.

        • skylien says:

          What if they are actually both real and are what matter is to antimatter. Better go with the caution principle and let’s just hope they don’t ever meet in person

          ;)

          • Major_Freedom says:

            I take satisfaction in the knowledge that if we ever did meet face to face, the probability that we will act “Rothbardian” towards each other, would almost certainly be multiples of orders of magnitude greater than the probability we will act “Post Keynesian” towards each other.

            And, not only that, but I also suspect that the probability that LK would consider acting “Rothbardian” towards me as the morally just social behavior would almost certainly be multiple orders of magnitude greater as well.

            In other words, when one eschews LK’s statist rhetoric and ad hominems over the internet, and consider his ACTIONS, it is amusing to know that he almost certainly act anarcho-capitalist towards me.

            How funny is that?

    • Daniel Kuehn says:

      Dan -
      Maybe you’re better off asking a direct question because I’m not sure what’s so confusing about my position.

      - I don’t think the minimum wage is the best policy tool. I don’t think that because there are problems with it.
      - I don’t think it has big negative employment effects
      - If it’s paired with other policies it’s not a particularly bad idea, just not what the president should be focusing on.
      - If we index it the problem sort of goes away. No big worries about negative employment effects and with productivity growth it will become less and less meaningful. Taking the policy off the table is better than keeping it as a once-every-couple-of-years-distraction.

      What is so confusing about this? What do you want to know?

      What Bob said – that I have “no problem” with minimum wage hikes isn’t exactly my position. People seemed to be taking it that I actually was eager to increase the minimum wage, which is definitely not my position!

      • Major_Freedom says:

        “I don’t think it has big negative employment effects”

        Obviously it depends on what numerical value the minimum wage is set at, relative to the nominal demand for labor and the supply of labor.

        Saying it doesn’t have big effects, without caveats or clauses, leads to the impression that you believe raising the minimum wage 100% won’t have “big negative effects” either. Then there is the vagueness of “big negative effects”, which has no clear meaning.

      • Dan says:

        No, I get it. You don’t think it is fair to say you have no problem with minimum wage hikes, but you do like a policy that causes minimum wage hikes on a consistent basis. Makes perfect sense.

        • Daniel Kuehn says:

          I’m relatively indifferent to whether we have a minimum wage or not. A policy that stabilizes the minimum wage and lets it erode in importance with productivity growth so we don’t have to consider it again sounds like a good idea to me relative to the status quo. I doubt it’s done a lot of harm or a lot of good. Given the erratic nature in which it gets jacked up and eroded, taking it off the table by indexing it sounds great to me.

          • Major_Freedom says:

            “A policy that stabilizes the minimum wage and lets it erode in importance with productivity growth so we don’t have to consider it again sounds like a good idea to me relative to the status quo.”

            Productivity growth does not do what you think it does, at least if you’re talking about an economy with a central bank.

            If a wage floor is set and then held at that level indefinitely, then more productivity of goods will not by itself increase the nominal demand for labor, and yet it is an increase in the nominal demand for labor that would be necessary to gradually eliminate the surplus of labor caused by the wage price floor.

            The only plausible connection that economic growth has with the quantity of money and spending, would be if we were on a commodity standard (which is a rather amusing outcome of what you wrote).

            If we were on a commodity standard, then an increase in overall productivity would almost certainly be associated with an increased production of commodity money as well. For then it would be the case that a constant nominal wage price floor would become more and more irrelevant over time as nominal spending for all things, including labor, goes up over time and bids all existing wage rates above the antiquated wage price floor.

  3. John Papola says:

    The profession had more honesty in it when it called itself “Political Economy”. Daniels umbrage taking at Klein’s observation about Krugman should really be put in context of, you know, Krugman’s writing.

  4. Sean says:

    This is perhaps just nitpicking by a non-economist, but the the quoted article says “Today’s consensus, if one exists, is that increasing the minimum wage has, at worst, minor negative effects”. Isn’t this a grotesquely vague statement? Shouldn’t it be something like, “increasing the minimum wage a minor amount has only minor negative effects”. Surely (as has often been argued) nobody would think that raising the minimum wage to $1000 per hour would have only minor negative effects. But then if raising the minimum wage a “minor amount” as judged intuitively does lead to minor negative effects, why would anybody suggest raising it to be a good thing (other than ignorance or special interest politics). Or are there supposed to be other benefits to raising it a minor amount which outweigh the admitted costs?

    • Sean says:

      I reread my opening line and it sounds unintentionally arrogant when I intended non-economist humility.

      • Major_Freedom says:

        I for one didn’t parse arrogance out of your opening statement.

    • Yancey Ward says:

      +1.

      I tried calling Kuehn out on exactly this the other day, and got another evasive answer.

      • Daniel Kuehn says:

        Instead of bitching about it to him why don’t you just ask about what you thought was evasive?

        I have no intent of being evasive. I feel like I’ve laid out all my thoughts pretty plainly throughout this discussion. If you’re still not getting something about what I think and you really care to know, just ask.

      • Daniel Kuehn says:

        It’s not like I’ve held back on how much I’ve written on this. There’s plenty covering a variety of facets. I haven’t been evasive at all. If you’re still scratching your head over something, ask – don’t criticize me.

      • Daniel Kuehn says:

        My answer to Sean is below.

        I don’t think any of that is new from me, so it’s not a matter of me being evasive.

    • Daniel Kuehn says:

      I agree – a small negative effect ought to mean people shouldn’t get excited about a minimum wage increase.

      That’s not to say they can’t advocate it. There are benefits around reduced turnover and potentially macroeconomic benefits. I personally care about teenage unemployment but there’s also a case that we should be concerned about keeping kids at school rather than employed. But that’s not as big of an argument.

      My reaction to people who think this is a big determinant of teenage unemployment is to say that that is not what the research shows. My reaction to people that put this in nationally televised addresses is that this really isn’t what they should be focused on.

      I cannot, however, bring myself to cry crocodile tears over the minimum wage. The marginally committed worker is not going to be the one the employer keeps if they do shed any jobs. The people that enjoy the benefits of the minimum wage are probably going to enjoy the benefits the most, and the people who are going to bear the negligible costs are going to be the people that need it least.

      This is why my initial reaction was that I was not impressed – by Obama or his detractors.

      It’s simply a non-issue for me.

      The research, on the other hand, is very interesting.

  5. John S says:
    • John S says:

      Actually, the chart is measuring the changes in the gap btw the teenage jobless rate and the overall unemployment rate. Still, there seems to be correlation.

  6. Andrew Keen says:

    Nice catch Bob. My favorite part: “46.8% wanted it completely eliminated.” I wouldn’t have guessed that number to be so high.

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