Economics Laureates in Favor of Raising the Minimum Wage
[UPDATE below.]
The Economic Policy Institute has released a letter signed by 75 economists–including 7 winners of the Nobel (Memorial) Prize in economics–calling for the federal government to raise the national minimum wage from its current level of $7.25 to $10.10 by 2016. In this post I want to explain how this is possible, and why I remain wedded to the (literally) textbook discussion of minimum wages.
The obvious downside of raising the minimum wage is that it would cause unemployment among low-skilled workers, the very people allegedly being helped. Yet according to the EPI letter, the evidence shows that previous increases in the minimum wage have had “little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market.”
If you want to see where these economists are coming from, try this survey article. It documents how the consensus through the 1990s used to be just what we all learned (and taught, for some of us) in Intro: Raising the minimum wage reduces the quantity demanded for low-skilled workers, thereby reducing job opportunities.
Yet from the 1990s onward, the literature began shifting. From today’s vantage point, the new consensus is apparently that modest increases in the minimum wage have little impact on employment. Hence, you have progressive economists clamoring for a hike, who say that the critics relying on “textbook economics” haven’t kept up with the cutting-edge literature.
I have several responses to these developments:
(1) Even among the studies that conclude a hike in the minimum wage will have little discernible impact, the outcome is couched as a “modest” hike. I have seen studies say things like “a 10 percent increase in the minimum wage will have such and such effect.” Yet disregarding price inflation through 2016, the EPI letter calls for a 39% increase! I could be mistaken, but I don’t think there exists a single academic study concluding that a 39% hike in the minimum wage would have no appreciable effect on employment. Thus, even if we stipulated all of the recent empirical studies as gospel, the 75 economists have no basis for their recommended policy. At best they should be arguing that, say, a hike from the current $7.25 to $8 per hour (and thereafter adjusted for price inflation) would not measurably hurt employment.
(2) Again, even taking the new generation of studies at face value, they overlook a major drawback to the progressive goal: The studies look at the absolute growth in employment, rather than the unemployment rate, among low-skill workers. So even if it’s true that, say, a Burger King franchise will hire roughly the same number of teenagers between now and 2020 as it otherwise would have, it might not be the same group of teenagers getting jobs. Rather, at the $7.25 level there will be lower-skilled applicants cycling through, with a high turnover rate as the store manager tries to find the few decent workers in the bunch. At the higher rate of $10.10 per hour, higher-skilled kids (perhaps those from affluent families who are home from college) will enter the mix in greater numbers. The manager will be pickier on the front end in giving somebody a bite at the apple, and there will be less turnover. (Note that this isn’t merely hypothetical; the studies finding “no effect” often cite “lower job turnover” as an explanation for how the firm responds.) Thus, even taking the studies at face value, it is entirely possible that there are a bunch of people with low skills who now can’t get a job, who otherwise would have been able to. They are merely being displaced by higher skilled workers who otherwise would not have been interested in a position paying so little.
(3) Finally, I am not convinced that we should take these new studies at face value. I admit that I have not studied them in depth, but if you look at the discussion in the survey article I mentioned above, here’s what it sounds like: You can take all of the adjacent counties in the country for which you have continuous data over a long period (such as 16 years), where the applicable minimum wage is occasionally different in each county (because they fall in different states). If you “naively” run a regression on this dataset, then the classical consensus emerges: It does indeed seem that a higher minimum wage is associated with a slowdown in the growth of employment. However, this could be a spurious result, because states with high population growth might just so happen to also match the federal minimum wage, rather than setting a higher state level. To correct for this, the newer studies introduced a regional dummy variable into the regression analysis, at which point the negative effect of the minimum wage almost disappears.
If indeed what I just described is what’s going on, then that seems ludicrous. The point of matching contiguous counties is to isolate all other relevant variables, except for the applicable minimum wage. You can’t use the weather (one of the explanations given in the survey article to explain the flaw in the original studies, which did not correct for geography) to explain why people would flock to one county versus the adjacent one.
To repeat, I admit I haven’t personally vetted the individual articles and looked at their t-statistics, but I am very suspicious that their procedure is illegitimately dampening the very real result–which accords with common sense–that raising the price of low-skill labor will cause employers to hire fewer such workers. In short, demand curves slope downward.
UPDATE: At the urging of Ken B. in the comments, I dug up a previous post where I walked through my final point on the contiguous county pairs. Here it is.
I sometimes wonder if minimum wage suppresses wages for the majority of partially skilled workers?
Sure many people don’t even deserve current minimum wage but stop and think about all the other semi skilled workers who would, in absence of any minimum wage, fetch a higher rate?
When has minimum wage ever kept up with real inflation? Seems like minimum wage is just a tricky way to reduce real wages.
Stating economic disputes in terms of hypothesis testing clarifies the matter immensely.
On the one hand, we have theory + model + data arguing that increases to minimum wage increase unemployment among the affected group.
On the other hand, we have defense of the null hypothesis + data justifying a policy prescription.
If the research out there calls into question the idea that textbook theory is wrong, then that means the textbook theory is inconclusive. It does *not* mean that policymakers are justified in raising the minimum wage.
I am okay with the idea that the empirical data behind the textbook economic theory is inconclusive. I am not okay with the idea that because Theory X has not been conclusively upheld, Theory Y is justified. If the signatories of the petition would like to make a case for why raising the minimum wage is good for the economy, then I am all ears. But they must state their theory, assumptions, and models, and must then demonstrate that the data is more on their side than it is for the current textbook theory.
Bob has posted on this before I think, concentrating on the counties issue. He did a terrific job in exposing a bad use of statistics.
Bob: it’s worth linking to your previous post in an update.
Bob,
Respects your point #2, you are spot on.
My 16 yr old works part-time in a retail food related job making minimum wage. He is probably overpaid. But in a year or two it will be a different story.
Increase the minimum wage and he is out of a job. (I talked to the owner offline) The point of his job is not to make money. It’s a net loser when I factor in the transportation costs. It’s so he can learn the basic skill sets of working, learn how to deal with customers, responsibility, cause and effect of effort and reward, make mistakes and learn from them. Along the way start to make a contribution to his employer, after which the wage starts to increase or you can take the skill set someplace else.
Increase the minimum wage and you kill this opportunity for young people. Then again, collectivists love expanding the dependency class and a work ethic gets in the way of that.
re: ” It’s a net loser when I factor in the transportation costs. ”
What do you do – rent a limo to send him to work?
Have you heard of opportunity costs? You don’t have to hand cash to someone for it to be a net loss.
I have NEVER heard of opportunity costs before. Why don’t you explain them to me Silas.
I do it, but I can’t spare the time.
The above is one of the ten best retorts ever written.
Mike M. anecdote is an oft observed one. A higher minimum wage primarily makes employers more picky about who they hire for minimum wage positions. The least skilled and least connected to prosperity are hurt the most. They most desperately need work experience but the minimum wage raises the barrier for them getting and holding that first job.
On the other hand, industrious teenagers and young adults who do not need a job for the income benefit greatly. They would likely work for less money but the minimum wage ensures they earn more than they would otherwise demand.
It would make sense to not have a federal minimum wage but no one claims politics yields sensible results.
The above is one of the ten best retorts ever written
You mean Ken B.’s “I do it, but I can’t spare the time”?
If he hadn’t forgotten the apostrophe+”d” then would it be in the top 3?
Siri.
I’d fix it but I can’t spare the time.
Sure thing, super smart Econ grad student!
In the above example, the value of the parent’s time (and vehicle costs) that would be spent driving the kid to and from work would exceed the kid’s take-home pay from the job. It’s not, as you thought, that he has to hire a limo driver.
I know, it’s an easy thing for a non economist to miss.
Awesome, thanks.
I’m covering for a professor next week and going over supply and demand in an intro micro class. If you could find the time, perhaps you could explain those to me before then too.
So what were you confused about? What made you think that you’d have to hire a limo for it to be a net loss?
I mean, since you’re already the expert on stuff like opportunity costs.
You see this is why I have a healthy skepticism towards career academics.
Instead of DK displaying such “basic” knowledge by simply abstaining from making dim witted comments that strongly suggest that the idea of opportunity costs has not in fact been adequately absorbed and understood, he instead, and not the first time, goes for the display of economic prowess by appearances only (i.e. covering for a professor…as if every single economics professor and economics class throughout history has been amazingly well structured, with brilliant profs who always know the subject matter they teach more than the students in all matters).
I felt embarrassed just reading that pompous drivel.
I know psycho-analysis is frowned upon here, yet I think learning doesn’t only work when you’re joking around. It also happens, and sometimes only happens, when you’re uncomfortable.
I suspect why DK made that limo comment.
It’s because transportation seemed to be a “fudge factor” that Mike M introduced in order to ideologically justify in his own mind why and how a minimum wage hike might negatively affect his son.
It’s plain that DK doesn’t like counter-evidence to the progressive ideal, so such a comment about transportation costs has to be ridiculed and minimized.
I could be wrong, but if I am, at least the possibility of the above is covered.
Dude it was a joke.
If you insist on being serious about the calculations I still find it a little hard to believe that it’s not worth it unless his dad is in a really high paying job with flexible hours (i.e. – he could have been working and is giving it up) or the kid works a long way away.
But that’s beside the point. It was a joke.
When you got to that stage in the conversation where you felt you had to explain opportunity costs to me, it should have dawned on you.
You know Daniel_Kuehn, instead of backpedaling into an implausible story about “I was totally joking, man”, you could have just asked for sample numbers. When you “make jokes” about limo drivers, that tends to suggest you’re only counting costs that involve paying someone else rather than
Here’s a numerical example: a middle age adult could reasonably value his free time (plus trans costs) at ~$50 hour, and it could take him about an hour out of his way to chauffeur his kid around (two trips to/from). This DOESN’T mean, as economists are well aware, that he could work one more hour and make $50; it just means that’s his psychic break-even point.
If Junior works 8 hours at $8/hour (remember, he’s one of these margin, that’s $64 base, but less than $50 after our ingenious tax system takes its cut. (Plus expenses he incurs by working like having to buy or prepare a lunch that differs from what he could eat at home.)
So, as claimed, it’s a net loss even if Junior gives everything to Dad.
(Of course, there are more benefits to the work than the wage, which was the point of the original poster — he wants his kid to work to get the experience, not to make an immediate realizable economic profit.)
Glad to help your understanding! Keep up the brilliant, rigorous research!
Backpedaling?
It seemed like a fishy claim to the point of being a little funny to me, so I toss out limo rides.
What is so implausible about shooting off a quick joke response without doing all the opportunity cost calculations?
Look I know you take everything and ESPECIALLY yourself extremely seriously, Silas, but general practice on here is to throw in one liners every once in a while.
I can’t even bring myself to reading the rest of your comment – you’re hopeless.
Apparently Silas and Daniel have a lot of free time. Maybe you guys could give Mike’s kid a ride to work?
Wow, reading calculations is “too much” for you? Yikes.
Daniel,
I don’t know if you take tips from me but I will give you one this time: Written comments make it very hard to distinguish between innocent jokes and ridicule, especially if the tone is harsh sometimes like on this blog.
So if you joke innocently, then add a Smiley at the end and we all can be spared such a useless discussion. And if you forget and someone misunderstands you, tell him directly it is a joke instead of pushing it further..
Seriously Silas, you don’t see DK’s limo question was a (pointed) joke?
Ken B:
Oh it was a “joke” alright. Like Krugman “joking” about Greenspan creating a housing bubble.
DK:
I think you just forgot to integrate opportunity costs into your response. Of course you know what opportunity costs are if you stopped and thought about it in the abstract, the way you were taught. But knowledge of economics comes through when you can look at every day comments and know much sooner which economic principles apply.
I’m not going to push the point any further, because I’m most concerned with ideas, and it seems like the idea is clear. That’s what I really want.
Thanks for the pep talk, MF.
Trust me, I see economics all around me in the world. It’s part and parcel of doing this for a living. That’s really what it gets to be – it’s like Boettke’s book: you’re “living economics”.
You’re welcome DK.
The difficult thing about opportunity costs is that they are present even if one engages in very dull witted, boring, almost unthinking aimless behavior. Which is to say that one is indeed “living economics” even if one isn’t even thinking about the principles explicitly.
Did… Did I lay that on too thick, maybe? Even by Silas standards? The first draft drew other inferences from his assumption of a limo comparison, that I bought were a bit personal in this context.
No. DK has been acting like a massive tool to everyone around here the past few days. I’d say you haven’t laid it on thick enough…
???
Past few days? Because I refused to take shit from Bob Roddis? What else do you have in mind? I’ve had pretty productive discussions on the church and interest, the minimum wage, choice theory and Menger, etc.
Actually it’s probably because the discussions have been so productive that Bob Roddis pissed me off so much.
Some of you forgive the vilest crap on here. It takes a special sort to turn around and call the guy a tool that actually didn’t turn a blind eye to it.
I predict that you will be a limo driver in about 12 years.
That was directed at DK. It posted in the wrong spot.
The federal minimum wage already increased by 40% during the recent recession. Since employment has been so robust since then, especially among the unskilled, what a fantastic idea to do that again!
It really depresses me that so many notable academics are calling for an increase when they know economics tells us that such an increase cannot increase the average standard of living and can only have a negative impact. They decide to follow statist ideology for their own personal benefit and job security. Washington has become a forum where various interest groups clamor for handouts. These academics are just another interest group. Therefore, it is in their best interest to follow whatever political ideology that will give them the most money. Here is Mencken on pedagogues (i.e. university professors) under our democratic system:
“Its chief exponents, by some divine irony, are pedagogues of one sort or another – which is to say, men chiefly marked by their haunting fear of losing their jobs. Living under such terrors, with the plutocracy policing them harshly on one side and the mob congenitally suspicious of them on the other, it is no wonder that their revolt usually peters out in metaphysics, and that they tend to abandon it as their families grow up, and the costs of heresy become prohibitive. The pedagogue, in the long run, shows the virtues of the Congressman, the newspaper editorial writer or the butler, not those of the aristocrat. When, by chance, he persists in contumacy beyond thirty, it is only too commonly a sign, not that he is heroic, but simply that he is pathological.”
This is why Rothbard and Mises were treated as if they had some strange disease and needed to be ostracized.
The most damaging aspect of the current intent is not the increase in the minimum wage nominal value, which most likely will cause short term damage to the least skilled, currently unemployed workers.
The indexing of the minimum wage to the cost of living or to inflation is the real long term danger. It’s effects will be double:
1. Create a feed back mechanism: Inflation -> Higher wages -> More inflation. Remember that not only those actually making minimum wage get an increase when that wage is hiked, many work contracts (mainly unionized) are tied to the minimum wage.
2. It will create a strong, constant, long term and predictable incentive for automation and reduction of work force in those industries where minimum wage is mostly present: fast food, restaurants and retail. It just so happens that automation in those industries is possible and relatively easy and cheap.
Finally, there’s historic data about such indexing, like Israel in the 70’s and 80’s. It is not pretty. And if you suspect (or hope for, like Krugman and the FED) inflation is coming, why would you do something that will make it worse?
1. is wrong. Mandating higher wages does not create inflation. It creates unemployment. This may lead to reduced supplies and thus higher prices, but only in a very few sectors, and demand will simply shift to equilibrate this. Inflation is a monetary problem, not a fiscal one.
2. This is definitely true. Until such jobs are gone. Like with gas attendants everywhere except New Jersey, where they are (stupidly) protected by law.
1. Yeah, you see that type of reasoning with gas prices, as well. People forget to consider that if you are paying more for gas then you have less money for other things. It’s one of the more common mistakes I see people make when thinking about inflation.
I am here to learn, thanks. I get your point.
But:
1. I know only 3-4 million workers concentrated mainly in few sectors earn the minimum wage. But It’s worth a study to see how many other worker’s wages are tied to minimum wage by contract, and how many sectors.
2. If I rephrase to “Price Inflation -> Higher wages -> More Price inflation” will you say I’m closer to being right?
Germany is worth paying attention to. For a long time they have had no minimum wage, but they have had industry-specific union agreements and an individual worker can argue for market-based pricing if they feel they are paid significantly less than typical for whatever they do.
Germany has also had low unemployment, regardless of the trouble facing Europe as a whole.
Now they are shifting toward a central planning system where a government committee decides these things. Of course the first few years will be closely following established market practice, but then the interest groups start piling in and we will see each industry group demand their particular skill be deemed more valuable.
On #1 – Since the real value of the minimum wage declines over time it’s not obvious to me that by the time it increases again the minimum wage is binding any more, at least not in all markets. If it becomes less binding over time, it’s obviously going to accommodate a bigger increase. We’ve oscillated around a $7 real minimum wage for decades, and any time you go to increase it its going to be on the low end of that distribution. Since the studies have come from this range of data, I can’t imagine a nominal increase that keeps it in that range is going to be that immodest (certainly it will be very immodest in CERTAIN labor markets – this is what has interested me lately).
On #2 – I don’t think incurring more turnover costs to find better workers that are likely not to have a particularly long job attachment themselves is especially plausible, but I don’t think it’s crazy either. There are probably certain occupations where its more likely, presumably the ones with longer job tenure. A lot of a worker’s productivity is likely to be readily discernible, and any unobserved differences seem like they would be swamped by the increased productivity simply resulting from being on the job a few weeks. It’s an interesting idea, but it seems like a funny one to hang your hat on, especially when you’re conceding that employment itself won’t have gone down.
I don’t quite understand what you have a problem with in #3. Adding a regional dummy means that these are going to be within-region estimates because you are saying that holding region constant I want to see the effect of the minimum wage. You are taking out that source of variation. If the minimum wage effect disappears in that case it suggests that the difference across county pairs from different regions is bigger than the difference across county pairs in the same region. That suggests to me that even though those counties are right next to each other they are not as comparable as we would have hoped. It’s not the quasi-experiment we were looking for. Looking at the survey it suggests that when the regional dummies were added they weren’t even exclusively looking at counties straddling borders yet, so of course you’re not going to have the impact well identified.
DK, On #1, the outcome depends on the inflation rate between now and 2016 when it takes effect. $10.10 today would be the 3rd highest year in US history. If it drops to $9 ny 2016, it will still be at the high end even for the 1960 – 1980 era and according to articles I’ve read there is a lot of support for indexing it going forward, locking it in. I definitely agree with your geographic point.
On #2, that has always been my primary concern – that low skilled workers would find gaining employment more difficult, while college kids would see the higher wages and think a job isn’t such a bad idea after all.
Another perspective on longevity: I worked at a gas station for a number of years through high school and college. Guys who were fresh out of high school would eventually see job opportunities at higher wages elsewhere and it would take a long time before they went for one. Some would not apply even if the job paid double what they were making. There is a fear of the unknown especially since they had only worked in one job in their life.
The probability of them moving on to greener pastures was largely dependent on the increase they were looking at. I’m not surprised that increasing the minimum wage (which presumably reduces the wage gap between first and second job) would result in people staying in the starter job longer.
And this (On #2) was directed at the original post not DK.
I guess for me to think you have a point on #3 you have to answer this: why would making a counterfactual similar to the treatment case on more variables make the result less reliable?
Here are my thoughts on this recent push: http://factsandotherstubbornthings.blogspot.com/2014/01/seven-nobel-laureates-endorse-higher-us.html
I can never understand how anyone can support any Minimum Wage except zero. I find these people heartless and cruel. Regardless of any statistics, by definition every person who accepts the Minimum Wage is made worse off by raising it. The mistake these pro-raisers make is that they fail to look at an individual Minimum Wage earner. These folks are in a current contract to sell labor at one rate and some do-gooder is coming in and telling them that their current moral and mutually beneficial arrangement is now illegal. And part of their ability to have a buyer of their labor is that they can under price higher wage earners, machinery and grey or black market labor.
No one believes that if I am Hundai Motors supplying a car for $15000 that I would be better off by having Uncle Sam force me to price it at $20000 WITHOUT FIRST restricting my competition in some way. But they never add the restrictions to higher priced labor or machinery thus eliminating lower priced labor on quality. The same number of cars sold may not change but certainly with a Minimum Car Price the types of cars sold would change significantly. This also goes to explain why the stats guys see not reductions in employment as Bob mentioned the content of the employment is changing and not the amount.
The way I always explain it to people is that the real minimum wage *is* zero, no matter what the statutory minimum wage is: it’s called not having a job.
I was talking to my grandmother over the weekend and she said that it is bad for the economy if unemployment goes below about 6.5%, because 6.5% of the population is simply unemployable. I told her that they probably are employable, they just aren’t worth minimum wage.
You also probably should have pointed out that the unemployment rate is not the percentage of the people not employed.
I find it very interesting and enlightening that the Democratic party has chosen this moment to start campaigning for a higher minimum wage. I once debated someone based on one of those adjacent county studies, followed by his citing a county in Washington state which enjoyed much better prosperity than an adjoining Idaho county. I came away from that discussion with the conviction that the causation actually runs the opposite direction, and when you add politics into the mix, it really starts to make sense.
Remember that old rebuttal to minimum wage increases that if increasing it to $8/hour is good, than increasing it to $20 or $100/hour must be even better? We all know that such an increase would be disastrous, but that the damage caused by a small increase is better contained and more easily hidden. And that is EXACTLY the point. A politician who campaigns for modest minimum wage increases knows that the negative effects will be correspondingly modest and therefore easy to disregard by most people. Similarly, he is more likely to gain the popular support of voters if there is already a thriving economy in the area.
This brings me back to my point that, with the economy finally in fully recovery and unemployment shrinking, the Democratic party is willing to take the risk of implementing a policy that at least some of them must realize will have negative effects. The size of the increase seems a bit surprising, but I’m betting on them “reluctantly” compromising with Republicans to push through a smaller increase, something between $8 and $9, with the high end getting phased in slowly enough to keep hiding the damage. The Republican party will, of course, play their part dutifully and stupidly, as always. At first they will resist any increase, but eventually they will cave.
Good Analysis…
“We all know that such an increase would be disastrous, but that the damage caused by a small increase is better contained and more easily hidden. And that is EXACTLY the point. A politician who campaigns for modest minimum wage increases knows that the negative effects will be correspondingly modest and therefore easy to disregard by most people. Similarly, he is more likely to gain the popular support of voters if there is already a thriving economy in the area”
Nailed it. Let the economists fight about what happens with small changes to MW, while the politician wins votes. But of course if they are not aware of the effects of such policies in general they might overstep like Holland seems to do. Let’s see if he finds his little Mitterand in himself at some point.
*Mitterrand*
*Hollande*
…
Is this another installment of “name a former french president”? *Deladier*
No, unfortunately it is just another installment of “me being to stupid to look up how something is written beforehand*…
Oh. I’m a past master of THAT game!
“… disregarding price inflation through 2016, the EPI letter calls for a 39% increase!”
To Mr and Mrs Man, a baby: Straw!
Why on earth should we disregard price inflation?!
Have any minimum wage studies looked at whether it causes a reduction in paid hours for part-time employees? It seems likely that small wage hikes could cause hours to be cut without people actually losing their jobs.
According to Peter Schiff and Ron Paul, we’ve had 6% inflation since 2009, the year the minimum wage was increased to 7.25. In 2009 dollars, 7.25 is then 9.15. So raising the minimum wage to $8.00 means the real minimum wage is 13% lower than it was in 2009 (assuming you believe Peter Schiff and Ron Paul’s inflation number).
Just can’t figure out why the “true” rate of inflation is not taken into consideration when talking about raising the minimum wage. Seems strange to talk about the “true” rate of inflation when criticizing the Fed but then ignore it when talking about the minimum wage.
Joe,
Real median household income has declined. Shall we mandate that employers increase all non minimum wage salaries as well?
Hey Joe,
You make a great point. This is why I say minimum wage is tricky way to pay people LESS.
Take it a step further. The goods and services that have recently increased the most in price, effect low paid workers the MOST. Therefore, their personal rate of inflation is off the charts. Every persons food bill is nearly identical yet as a portion of income the food bill can very drastically. SO when food prices go up 10% and food is 10% of your take home pay, you really feel the pain. However when food bill is only .01% of your take home, you hardly even notice a 10% food price increase.
Go to Heritage and read their mentality. You will see where this entire hate the poor mindset comes from. They act as if a little poor person is destroying their prosperity when somebody like Jamie Dimon received a 28 Billion dollar bailout. All these “smart” people constantly harp about where your tax dollar goes, yet they overlook two critical factors. First, taxes come no where close to funding all of the spending. This means you cant simply look at who pays taxes and who does not and then point fingers. Debt and inflation is spread across the greater economy so even the a homeless person pays for government spending. Stop and think about what I just said. IF a light did not just go on, you heart is black as coal. Secondly, of course poor people pay less taxes. There is no way poor people could pay an equal share of taxes. Think about what you are proposing, lol. Nor should they be expected to. They are not the ones clamoring for more government and they are not the ones profiting from the system. They are not the ones utilizing the infrastructure.
The people at the top of this pyramid love to keep us infighting. Poor versus rich can never win an election nor accomplish much of anything. Read all the hate coming from the heartland. IT is right here.http://www.heritage.org/research/reports/2013/11/the-2013-index-of-dependence-on-government
This world really is sick and twisted and it nest deep within in Republican circles. I cant believe I am and have been a registered R since I was 18. Time to make a change.
That is hate? The point libertarians raise about welfare expenditures is that it does no good in the long run for the people it was intended to help. This is because we need more than good intentions and crappy programs.
“There is no way poor people could pay an equal share of taxes. ”
No way? or are you just not trying hard enough?.
dear god, please ignore shadowstats.
I think point #1 is really worthy of an extended discussion sometime. I used to think George Orwell and Ayn Rand were cranks for obsessing over language so much. Who has the time or the desire to get so caught up in usage and semantics?
But that’s exactly how any number of horrible policy recommendations survive scrutiny these days. In public debates, pundits never use the actual numbers, and most of the public wouldn’t really know what to do with them anyway. So Krugman writes a column calling for a “modest” increase in the minimum wage of nearly 40%, while at the same time blasting the “draconian” sequester cuts that represent less than 1% of the federal budget. And it doesn’t really matter, because his audience won’t question him. The only people who will call him out on it are Peter Schiff and Bob Murphy, obvious cranks and psychos in the eyes of most respectable economists.
And I don’t mean to pick on one side with this. I’m sure “our” side does it too. If Peter Schiff talks about “massive” money printing, I don’t really double check his numbers, I pretty much just trust that the general sentiment of what he’s saying is accurate, because I trust and agree with him on most issues, so in a way, I’m no better than the blind followers of Krugman. This is a society-wide problem.
Every hypothesis test MUST be approached with skepticism. Clearly, these 75 “economists” are, for the sake of appearances (since it can’t be actual knowledge guiding their thoughts), wanting to show themselves politically palatable to the dimwitted, but parasitical, con artists with power.
“I’m a good guy mommy and daddy government! In my micro class I teach that non-market price floors cause surpluses, but miraculously not for employment!”
While I do not condone or welcome unnecessary unemployment brought about by maniacs with itchy pen writing hands encouraging others with itchy trigger fingers, I will say that I am very happy that there is economic justice in the world, i.e. economic laws. Even if they refuse to think up cannot be down at the same time, due to being misled by historical studies that are incapable of even showing them that minimum wage leads to any of higher or unchanged or lower unemployment, the fact that there is unemployment generated by labor price floors makes me hopeful that with a long enough time, at some point these buffoons will learn their errors. They just need to be shown how to do economics. What they are doing is sandbox mathematical manipulations.
When there is a discussion of raising the minimum wage, why does the effect on other employees never factor in? If a business has entry-level, no/low skill employees making minimum wage (currently $7.25/hr) and employees that have been with the company, let’s say a year, that have gained a level of training and are now making $8/hr, what happens to these employees when people off the street are now hired at $10.10/hr?
The person with more experience is now still making $8, while the new hire is making $10.10, unless the employer raises everyone’s wages proportionally. If that happens, the cost of the good/service goes up also, which makes the purchasing power of the $10.10 minimum wage no better than the purchasing power of the $7.25.
susan,
Of course the cost of the good/service goes up. But the leftists will yell that it didn’t have to, and blame everything on “corporate greed.”
Bob, theoretically, couldn’t an increase in the minimum wage increase employment in the long run if the productivity gains from replacing humans with machines outweigh the losses resulting from the wage hike that aren’t/can’t be completed by machines? Such as people who would pump your gas for you when it was cold out.
Still wouldn’t support a minimum wage of course, but it seems like some caveats might be needed when saying it’s a burden on the economy.
Yikes, worded that terribly.
Theoretically, couldn’t increasing the minimum wage so that firms look to replace workers with machines, couldn’t the increases in productivity be a net benefit to the economy in the short run and employment in the long run?
No
Hmm. Economics “laureates”. Recon they ever had a real job? Much less ran a business. Useless brainiacs. They’re part of the problem. Minimum wage is the foundation wage. When it rises everything above it must rise. I think that would be inflation. But, then, I’m no laureate of anything.
Bob this is a 2012 paper from Neumark and Wascher making the same case as you did for why those studies are flawed:
Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?
Dr. Murphy,
I am sorry, but I don’t understand what you are talking about here:
However, this could be a spurious result, because states with high population growth might just so happen to also match the federal minimum wage, rather than setting a higher state level. To correct for this, the newer studies introduced a regional dummy variable into the regression analysis, at which point the negative effect of the minimum wage almost disappears.
What does high population growth have to do with it? Could you please explain in more depth? Thank you.
Senyor, remember what they’re looking at is the growth in total employment, i.e. how many people have jobs. So let’s say you were just looking at Florida versus New York, and further say that Florida just matches the federal min. wage, while New York state makes it $1/hour higher than whatever the federal level is. If lots of people are leaving New York because of the cold and high income tax, while lots of people are moving to Florida because of the weather and no (individual) income tax, then in a regression that doesn’t include these specific factors, it would show up that the minimum wage penalizes employment growth.
Dr. Murphy,
Thank you very much for your reply and clear explanation.
On point 3, there is not just these recent studies – there are also the meta analyses discussed in the survey article. “Doucouliagos and Stanley (2009) conducted a meta-study of 64 minimum-wage
studies published between 1972 and 2007 measuring the impact of minimum wages on teenage
employment in the United States. When they graphed every employment estimate contained in these
studies (over 1,000 in total), weighting each estimate by its statistical precision, they found that the
most precise estimates were heavily clustered at or near zero employment effects”. They concluded publication bias was responsible. So if we look at all the data, the case for these minimum wage rises causing increased unemployment looks weak.
Dr. Murphy,
Thank you very much for your reply and clear explanation.
Sorry for double entering my above reply…