Ideology and the Minimum Wage

by Don Boudreaux on June 27, 2006

in Prices, Reality Is Not Optional, Regulation

In a private e-mail sparked by my most recent post on minimum-wage legislation, someone accused me of being an “ideologue.” His evidence, of course, is my opposition to such legislation as a means of helping low-skilled workers.

I realize that Humpty Dumpty instructed Alice that a user of a word can mean by that word whatever he or she wants that word to mean. But we live in a wonderland if we imagine that such use of language facilitates communication.

Am I an ideologue for continuing to believe that a higher price of labor will cause employers to hire less labor, or to extract more output from any given amount of labor?  Does this insistence that the law of demand describes reality reveal ideological blindness? (I know, I know: it’s theoretically possible for a minimum wage to increase employment if there’s monopsony power in labor markets. But any such allegation of monopsony power – any allegation that each employer of low-skilled labor does not compete with other employers to hire such labor — flunks the smell test. One of the few benefits enjoyed by low-skilled laborers is their possession of highly versatile abilities, thus making it quite easy for each of them to switch jobs even for a modest difference in relative wage rates and work conditions.)

If I am an ideologue on this matter, then so is everyone else.  Everyone. I’m certain that no one really believes that the law of demand sometimes is suspended. For example, I’ve met no one who, upon finding that he cannot sell his house at his current asking price of $250,000, reasons that he will attract more potential buyers if he raises his asking price to $260,000. I’ve never heard of a supermarket that seeks to clear out excessively large inventories of canned peas or laundry detergent by raising the prices it charges for these items. I’ve never heard of a construction contractor who believes that the higher the price he asks to do a job the more likely he is to be awarded the contract for that job. I’ve never encountered a car salesman who, upon my rejecting the price he asks for a car that I just test drove, says “Okay, okay. I’ll talk to my manager and ask if he’ll accept an even higher price for this baby.” I don’t encounter advertisements by merchants bragging that their prices are the absolute highest in town — guaranteed!

Do any of you, Dear Readers, know of such behaviors? More importantly, do you know people who are generally more likely to purchase something as its price rises? If you do, surely you are by now a person of enormous wealth.

What is it about unskilled- and low-skilled labor that makes many people fancy that the law of demand does not apply to it? Are the greedy, profit-lusting employers of this labor so foolish that they’ll just dish out more money for the same output as before, without economizing further on labor – say, by buying less of it or by extracting more work from each man-hour hired? Or are low-skilled workers so daft or dysfunctional that they consistently refuse to respond to pre-minimum-wage-hike differences in wages and work conditions?

No – the true ideologue is one who suspends his awareness of all that he knows about reality in order to continue to believe in some pet possibility – some pet possibility that is inconsistent with reality.

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{ 51 comments }

chris June 27, 2006 at 9:58 am

You're right, of course. What you might have added is that supporters of minimum wages themselves are selective readers of Card and Krueger. They say (p280 in my copy of of Myth and Measurement) that the impact of minimum wages upon poverty is "statistically undetectable."
Does any advocate of minimum wages really believe they are a better way of reducing poverty than a basic income or negative income tax?

John Dewey June 27, 2006 at 10:15 am

"Does any advocate of minimum wages really believe they are a better way of reducing poverty than a basic income or negative income tax?"

A negative income tax may alleviate poverty in the short term. But I don't see how any measure can work long term if it removes incentives to acquire more skills.

I am equally opposed to minimum wage rates and negative income taxes.

John Townsend June 27, 2006 at 10:16 am

One quibble: Yes, there certainly have been cases when the seller of a product has raised the price to make it (seemingly) more attractive, to wit, Schweppes Tonic Water and Chivas Regal. And in the labor market, CEO pay scales seem to be influenced in part by boards' preoccupation with being seen as "world class companies". I've talked to CEOs who've actually resisted higher pay but end up being convinced by the board that it will enhance the reputation of the company and thus its stock price.

John Brothers June 27, 2006 at 11:53 am

Dr Boudreaux – I happen to have a counter-example, specifically to your supermarket example, from Dr. Cialdini's book – Influence – the Psychology of Persuasion.

(My writeup is here (http://www.picobusiness.com/blog/index.php/2006/06/27/dan-boudreaux-on-the-minimum-wage/), if you want to read it)

In summary: There are times when raising a price sparks demand, but only because price is highly correlated in people's minds with quality. This works for certain types of goods. I seriously doubt that it would work in the case of minimum wages, because that kind of change is both ubiquitous and transparent.

But it is food for thought on the Law of Demand!

Half Sigma June 27, 2006 at 12:18 pm

You are an idealogue because you hate the idea of the minimum wage so much that you refuse to apply unbiased microeconomic analysis to it.

Supply and demand is mostly meaningless without talking about the slope of the supply and demand curves. In the past, when the minimum wage was higher in real dollars, there wasn't any horrible level of unemployment, so the natural conclusion is that the demand for low wage labor is pretty inelastic, yet you keep on insisting that raising the miminum wage will result in unemployment that hurts low wage workers.

I am not an idealogue because I am really pretty agnostic on the issue of whether minimum wage SHOULD be raised. It will definitely benefit low age workers relative to everyone else in America, but then do I really care what happens to low wage workers? After all, I'm not one of them.

I just don't like all these bogus arguments being tossed around by people who are supposed to be more rational than the leftists.

Noah Yetter June 27, 2006 at 12:21 pm

The strength of the Law of Demand comes from its strictness, embodied in the familiar phrase "ceteris paribus".

For example, the perennial exception to the LoD that gets trotted out is the (largely hypothetical) Giffen Good. This is a good where raising the price increases consumption because it crowds better goods out of one's budget. Giffen Goods are NOT actually an exception to the LoD because they violate ceteris paribus in that the individual's income has changed. (Note that this is a pet argument of mine and not the consensus view.)

Similarly "prestige goods" or goods where the price signals quality do not violate the LoD either. For such goods that increase in price causes a preference shift among consumers, which breaks ceteris paribus. (I believe this argument is even stronger than the Giffen Good argument above.)

When ceteris paribus holds, the Law of Demand is ironclad and unyielding.

happyjuggler0 June 27, 2006 at 12:46 pm

Half Sigma,

To what do you attribute our high unemployment rate? Approximately 5% is high in my books.

I expect that in the absence of government distortions that the unemployment rate would be somewhere in the neighborhood of 1% or 2%, with those workers truly being in between jobs and knowing that they can get another job lickety split due to the "labor shortage".

And I am taking into account so-called discouraged workers who aren't part of the ~5% official number.

Trumpit June 27, 2006 at 1:15 pm

The federal/state minimum wage is a fait accompli. If a legislature decides that a minimum wage law is a good idea, wouldn't it seem natural that it should be pegged to the cost of living.

To not want the minimum wage to be tied to inflation, seems to me to be a means to undo the original wage law. So what you are saying is that you hated the original law and want it to become meaningless by not allowing it to increase to reflect REALITY or real world conditions. Since you are unable to get people to agree with you that a minimum wage is a bad thing you take the obvious, yet sneaky, approach of opposing any (small) increase in the minimum wage.

So, I beseech you to face reality, not be an ideologue, and not be a sneak. Am I asking too much of you?

Paco June 27, 2006 at 1:17 pm

Dear Professor,

You really would have more credibility if you weren't a tenured professor whose salary (and appointment) is determined by artificial, non-market means. It is ironic to deny being an ideologue when you live as a beneficiary of a socialistic system that denies others competition for your position. You argue vociferously against the minimum wage. Shouldn't you first argue that your tenure should be removed and your salary be put to the open market so that, say an excellent Bangledeshi economist who might compete with you for your job? I suspect we'd hear less of your pontificating on free-markets if you yourself were actually exposed to them.

happyjuggler0 June 27, 2006 at 1:28 pm

trumpit,

If you believe a minimum wage is a good thing, then you are right that it ought to be indexed for inflation.

But to complain to opponents of a minimum wage that the minimum wage is not indexed to inflation is silly. The opponents of a minimum wage don't want a minimum wage at all. The people you ought to be directing your complaints at are those members of Congress who vote for such bills without them being indexed to inflation.

I suggest giving Ted Kennedy and his ilk a piece of your mind instead of a libertarian professor who doesn't have a congressional vote.

John Dewey June 27, 2006 at 1:33 pm

trumpit,

Just because a legislature enacted a minimum wage law doesn't mean that the law is good – or guarantee that it served its purpose.

For most low wage earners, the minimum wage of $5.15 is meaningless. They already earn more than that. But increase that floor to $7.00 an hour and the law becomes much more meaningful. Jobs will be outsourced or automated or just eliminated altogether. Jobs that would have been created will not be.

Some workers in this nation are just not worth $7.00 an hour to potential employers. We cannot legislate that fact away.

happyjuggler0 June 27, 2006 at 1:35 pm

Paco,

Just what exactly does college/university tenure have to do with the minimum wage? Do you really think that abolishing tenure would make him think he would be hurt by minimum wage workers but not hurt by these workers if there isn't a minimum wage?

If anyone is lacking in credibility it is someone who thinks college professors would in any way be threatened by those earning a minimum wage.

Of course, you could make the insulting case he might be opposed to immigration if he had no tenure, but that is a subject for another thread. He has plenty of those too!

John Dewey June 27, 2006 at 1:41 pm

Paco,

Aren't all college profesors exposed to the marketplace? A professor's employer must provide a product that someone will purchase. Otherwise there is no job. George Mason University competes with all other universities for student tuitions. I would think that any raises a professor might receive, or the continutation of his existing salary, are dependent on how well his university fares in that marketplace.

spencer June 27, 2006 at 1:46 pm

"You are an idealogue because you hate the idea of the minimum wage so much that you refuse to apply unbiased microeconomic analysis to it."

Half Sigma is absolutely correct.

Your entire analysis is exactly like Vice President Cheeney on the weapons of mass destruction. You search hard for any evidence that supports you preconceived conclusion and arbitrarily give such evidence very heavy weights while systematically rejecting any evidence to the contrary.

What it really comes down to is your mind is made up, do not bother you with the facts.

happyjuggler0 June 27, 2006 at 1:47 pm

John Dewey,

I reject your implicit assumption that a $5.15 minimum wage is relatively benign. The minimum wage hurts not only those with low skills, but those in unfavorable locations or with "suspicious" skin coloring, such as the so-called inner city which has very high unemployment rates. End the minimum wage and it is absurd to argue that the unemployment rate in "inner" cities wouldn't drop, probably by a lot over time if would-be employers believed the ending of the minimum wage was here to stay.

Of course it would also help if other stupid government regulations were abolished too.

Another group of people seriously hurt by minimum wages are ex-convicts. Who would dare employ them for a low skill job at $5.15 per hour? End the minimum wage and there is a level which initial wages would clear, and they could get hired on a trial basis. They can then develop a resume that says something other than served prison time, and they can get a job reference saying they are a reliable hard worker.

Nevertheless you are correct in your assertion that the higher the minimum wage is that more and more people that white middle class people would consider "normal" would be adversely affected. The problem is those middle class whites mostly only know other white middle class and say and think things like "it is absurd to think that there are people that can't produce more value than the minimum wage at a higher minimum wage".

Their provincialism leads them to ignore those on the margin and think everyone else is like them.

spencer June 27, 2006 at 1:50 pm

No – the true ideologue is one who suspends his awareness of all that he knows about reality in order to continue to believe in some pet possibility – some pet possibility that is inconsistent with reality.

That is an exact description of you.

Don Boudreaux June 27, 2006 at 1:55 pm

Spencer,

I didn't have to look hard for evidence that the minimum-wage has adverse consequences on low-skilled workers. In fact, it took me just a few mouse clicks and about 30 seconds:

http://gregmankiw.blogspot.com/2006/06/sperling-on-minimum-wage.html

Chris June 27, 2006 at 1:58 pm

Spencer – It seems like it applies to you to, unless you have some substantive evidence that minimum wage helps those that it is supposed to be helping. Based on everything I've seen the effects are transparent at best.

Don – I've known several independent consultants that have had to raise bill rates in order to attract business. As a previous poster mentioned, cost is loosely associated with quality, so if you charge too little people believe they will get little in return.

I don't see how this counter-example can be applied to minimum wage though.

happyjuggler0 June 27, 2006 at 2:01 pm

Any one who thinks the US has a low unemployment rate and thus that government distortions like the minimum wage don't cause unemployment need to explain why the US has the 48th lowest unemployment rate in the world, despite our current cyclically "low" 4.4% unemployment rate.

Thailand 1.4%. Iceland 2.1%. Bangladesh 2.5%. Singapore 3.3%. Mexico 3.6%.

Why do such countries have lower unemployment rates than we do? Minimum wage advocates need to explain why.

http://www.cia.gov/cia/publications/factbook/rankorder/2129rank.html

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?request_action=get_data&reformat=true&from_results_page=true&from_year=1948&to_year=2004&Go.x=18&Go.y=13&include_graphs=true&initial_request=false&data_tool=other&series_id=LNU04000000&years_option=specific_years&delimiter=

The second link you need to enter the year 2006 to get the current data (at the bottom of the page). For some reason I get an error message when I input that link.

Half Sigma June 27, 2006 at 2:06 pm

"George Mason University competes with all other universities for student tuitions."

GMU is a STATE UNIVERSITY which means its tuitions are subsidized by the taxpayers of Virginia. GMU isn't in true competition with private universities, only with the other VA state schools like UVa or Va. Tech.

I used to be a Virginia taxpayer, and I don't even recall anyone ever asking me if I wanted my taxpayer money spent on GMU. If I had control of my taxpayer money, Don Boudreaux wouldn't even have a guaranteed government job. (Not because of any animus against him personally, and he's a lot better than a leftist college professor–but I don't think the state of Virginia needs so many state run universities.)

Don Boudreaux June 27, 2006 at 2:06 pm

Phillip Johnson wrote a book about a dozen or so years ago challenging Charles Darwin's theory of natural selection. The book's title is Darwin on Trial. (In the book, Darwin loses the trial.) Johnson, along with biochemist Michael Behe, author of Darwin's Black Box, are among a large number of people who claim to find evidence disproving the theory of natural selection. Are biologists, palentologists, and others who continue to treat the theory of natural selection as valid somehow "ideological" — their minds rivited closed to evidence?

The evidence against natural selection simply isn't substantial enough or sufficiently compelling to cause many serious scientists to reject Darwin's theory. Likewise with the evidence that minimum-wage legislation does not diminish either (or both) the quantity or quality of jobs available to low-skilled workers.

Half Sigma June 27, 2006 at 2:09 pm

"Mexico 3.6%."

Wow, that argument takes the cake. If Mexico is such a great economy, WHY ARE THEY CROSSING OUR BORDERS ILLEGALLY TO WORK HERE?????

happyjuggler0 June 27, 2006 at 2:21 pm

They are crossing the border to make more money. I should think that would be obvious.

The reason why wages are higher in the US than in most of the world is a combination of more capital, better education than third world coutnries, and better higher education than developed countries, more quality infrastructure, better property rights, less corruption, less restrictions on capital, fewer strikes, more open borders to trade etc.

Now back to my question, why do they, and the other countries I listed have significantly lower unemployment rates than the 48th ranked US? despite all the advantages the US has that I listed? We have more than enough money to hire every single American, why don't we? Could it be regulations like the minimum wage? Explain why not?

JoshK June 27, 2006 at 2:26 pm

It's funny to see that some people can argue for price controls today after so much bad history. It's funny to think that anyone here can beleive that an employer wouldn't feel the effects of a higher minimum wage.

But, I can think of one other exception to supply / demand, and that is in trading . Often people buy and sell based on momentum models.

It's obviously a very specific exception, but it's hard to find anything valid, so I think I get a point for that.

JoshK June 27, 2006 at 2:29 pm

Also, being an ideologue is a strange criticism. From dictionary.com:

"An advocate of a particular ideology, especially an official exponent of that ideology."

So if you beleive in something and then advocate it, what's the problem with that? If you advance an argument that you don't beleive in, isn't that kind of bizzare?

Eric H June 27, 2006 at 2:43 pm

Ugh, the "You are an ideologue, I am not" argument again. It only makes sense if it means "You favor your theory despite the overwhelming empirical evidence against it," but it is frequently pressed by people who have either no or scant empirical evidence.

John Dewey June 27, 2006 at 2:52 pm

happy juggler,

I agree that existing minimum wage laws harm some folks, though I think the number is very small.

My guesses about why the U.S. "normal" unemployment rate exceeds that of the countries you listed:

1. quality of data in some of those countries;

2. U.S. government distortions such as free medical care, subsidized housing, welfare, etc;

3. higher overall U.S. incomes, allowing more parents to support their grown offspring;

4. higher overall U.S. incomes, allowing workers to survive without paychecks for longer periods;

5. better access to credit to be used as a bridge during unemployment.

I don't know these are valid reasons, but they seem to make sense to me.

spencer June 27, 2006 at 3:39 pm

The argument here about the minimum wage takes one form only — the minimum wage hurts employment. OK, I will accept that.

But at the same time it gives minimum wage employees a higher income.

So what I want to do is compare the benefit — higher income — against the costs — lower employment.

But the argument that I see here is that if the minimum wage causes one person to suffer or lose their job the costs are too high and the minimum wage is bad for minimum wage workers. If you agree with this argument you must also reject free trade because it causes harm to some individuals.

Economists favor free trade because the
benefits are greater then the costs.

But this blog refuses to acknowledge that the minimum wage has benefits as well as costs and for that reason Don Boudreaux is an ideologue.

happyjuggler0 June 27, 2006 at 3:44 pm

John Dewey,

I'll take your points one at a time.

1) It is quite true that intercountry comparisons are difficult to make in unemployment. But the same holds true for other economic categories, but we compare them anyway.

I'll just add that the US enemployment rate doesn't include "discouraged workers" who are no longer in the labor force. It also doesn't include those such who not in the workforce because they chose to go to school or take care of the kids due to lousy perceived current job prospects.

Europeans are pretty famous (in my mind) for arguing the official US unemployment rate is far too *low* due to our huge prison population, our huge military, and our counting of part time workers etc.

So you could make the argument, as some do, that the US numbers are even worse than they seem.

2) I am pretty sure that those who are not working because of too many government handouts are not considered unemployed in the official statistics. They are either simply not considered part of the work force to begin with, or are considered discouraged workers.

3) The same arguments here as in the first two, anyone not working because their parents allow them to not work aren't considered unemployed, but simply not in the workforce or discouraged.

Also, the ability to live with your parents enables you to take a part time job and thus lowers the unemployment rate instead of raising it.

4) Good point. This brings up another reason the unemployment rate is higher than it "ought" to be, unemployment insurance.

5) They choose not to work because they can go into debt instead? I'm not persuaded.

happyjuggler0 June 27, 2006 at 3:50 pm

spencer,

You ought to include the fact that employers are hurt by the minimum wage. Since you left it out you are an idealogue. In fact, since Don Boudreax left it out he too is a left wing idealogue. :o

Since I didn't point it out before this in this thread until now, I guess was also a left wing idealogue, but now I am a reformed idealogue.

Dare I spell out that calling someone an idealogue for making a point against someone else's idea without making every single other relevant point is more than a little silly?

Scott June 27, 2006 at 4:01 pm

I am quite proud to be an ideologue. I think it is the actions that matter most, and people will deal with the consequences the best way they can. The action of using government force to interfere with the private negociations of adults is WRONG, so no matter how one feels about the outcomes, the action is still wrong. The act of taking from some, employers, and giving to others, low skilled employees, is stealing. It just is. No matter how noble your intentions might have been, it is still stealing. It's wrong. Just like receiving stolen goods is wrong. So the government makes everyone under it's jurisdiction guilty. Isn't that nice? So arguing whether the minimum wage reduces employment or not is akin to rearranging the deck chairs on the Titanic.

BTW, the minimum wage reduces employment.

happyjuggler0 June 27, 2006 at 4:02 pm

Contrasting the minimum wage job losses with job losses due to international trade is a false comparison.

International trade is a positive sum game. Minimum wage regulations are a zero sum game at best. Employee gains are employer losses. But if you accept the common sense logic and evidence that minimum wage legislation reduces employment, then the minimum wage is not a zero sum game, but a negative sum game.

Minimum wages mean less choice for individuals. International trade means more choice for individuals.

Free trade, a positve sum game. Minimum wage laws, negative sum game.

spencer June 27, 2006 at 4:03 pm

Alan Blinder surveyed economist for what they thought would be the impact of a 10% increase in the minimum wage. They said it would cause a one percent increase in uunemployment among minimum wage workers.

That means that out of every 100 minimum wage employees 99 would get a 10% wage increase and one would become unemployeed.

OK, at no time have I seen Don acknowledge that the minimum wage debate should be looked at in this way. He says because one person loses his job we should not have a minimum wage. He refuses to acknowledge that 99 people have gotten a wage increase.

Consequently his analysis if fundamentally dishonest. If he wants to argue that the minimum wage is bad he is going to have to argue that it causes more harm then good
not just that it causes some harm.

there are many ways he can make this argument but until he makes an honest attempt to compare the benefits and the costs his analysis is fundamentally dishonest.

Dan June 27, 2006 at 4:14 pm

These comment sections are beginning to sound more and more like postings on the http://www.drudgeretort.com.

Half sigma 12:18 – I believe (but have no evidence to support) that about 3% or less of the population is on the min wage. Since many states have min wages that are higher than the federal rate, even less than 3% of the population would be subject to the federal increase. If the increase led to a 20% decline in unemployment among those people (“horrible unemployment?), the unemployment rate would change by about ½%. So while it would not result in “horrible unemployment” it would hurt 20% of the people affected by the law.

Paco – Even if I agreed with your analysis of the Professor’s job – which I do not – it is irrelevant. You attack the integrity of speaker to deflect the argument which you are unable to counter and which is the entire point of the conversation.

Spencer 1:46 – you claim that the professor had to search long and hard for his information, suggesting that evidence to the contrary is abundant. Yet you provide no evidence.

1:50 – Why would you take the time to write such a meaningless and childish post. This is the equivalent of a 7 year old yelling in the playground “I know you are but what am I?” when another calls him a kootieburger.

Half sigma 2:06 – How often are you asked what your taxes should be applied to? I disagree with many laws and still have to pay for their enforcement. What makes this any different? I’d rather pay to give society extra education than many other things my earnings pay for.

Half sigma 2:09 – The argument was not about wealth. The claim was the effect of min wage on employment rate. It is possible that the unemployment rate is higher than it would be without it and we would still be the richer than Mexico.

spencer June 27, 2006 at 4:14 pm

At no time have I denied that there are costs to the minimum wage.

Moreover, I have no idea if the benefits outweigh the costs and I have not said that.

But you do not know if the costs outweigh the benefits either and that is my point.

You are claiming to know something with 100% certainty that you do not know.

John Dewey June 27, 2006 at 4:17 pm

happy juggler

Most of my arguments about unemployment were meant to explain why the temporary unemployed can remain that way for a longer period in the U.S. They do not accept the first available job, or even look for it. Instead they continue to look for the job that will exactly replace the one they left.

I work for an airline that laid off thousands the past four years. Some of my friends remained unemployed for many months, seeking the pay levels they had earned in old jobs. I'm told by financial counselors that many former employees did take on debt to tide them over.

I do not believe the 5 percent who are unemployed at any one time represent permanently unemployed workers. I suspect that we have more of the latter in the U.S. than do other nations. But I think it's our wealth rather than our minimum wage that permits us to have so many.

happyjuggler0 June 27, 2006 at 4:18 pm

If you take one person in one hundred and murder that person, and redistribute his/her wealth amonst the other 99 people, then you have one person much worse off and 99 people marginally better off.

I don't consider that a good tradeoff. Now imagine that the one person out of one hundred that are hypothesized to be unemployed may never get a job as a result. You have in effect destroyed that person almost as effectively as murdering him.

Additionally the bulk of those helped are teens who frankly have no real need for help, while the bulk of those hurt long term are not teens, since those teens have greater chances to improve their job skills via education.

In fact, if it encourages marginal teens to work instead of doing more to further their education (and thus their future wages), then the minimum wage increases hurt those employed teens on the margin.

Maury Positron June 27, 2006 at 4:20 pm

It seems strange to me to argue that one should consider cost/benefit analysis when deciding whether a third party should interfere in the labor wage agreements between two people. Is it so wrong to actually hold to principles? This reminds me of Kelo, and the argument that stealing and tearing down people's homes to build a mall will have a net benefit. I don't know what calculus they are using, but they seem to place a low value on a person's consent.

We can play number games and say "what if we made minimum wage $100/hr" such that even those who are in favor of increasing the wage can see there are consequences to that action, but unless you can get those people to understand that initiating force against someone is wrong, they'll just come up with some arbitrary increase that they personally think be a net benefit. I'm more interested in the psychological reasons behind why many people think they can dictate what other people may do against their will.

happyjuggler0 June 27, 2006 at 4:29 pm

John Dewey,

Point taken.

Perhaps a better comparison for me would be to compare rich countries unemployment rates with other rich country unemployment rates, while comparing poor country vs poor country as well.

I unfortunately am not aware of a source that gives me minimum wage levels for various countries. But I do know that France, Germany, Italy etc. have worse such laws than we (the US) do, while Bangladesh has no minimum wage. I'm willing to bet that those poor countries that have high unemployment rates also have minimum wage rates that act as devastating price floors on the ability of employees to bargain for a job.

Dan June 27, 2006 at 4:32 pm

"If you agree with this argument you must also reject free trade because it causes harm to some individuals. "

That is not true at all. Both sides oppose the government passing laws that help some at the expense of others. I oppose min wage laws because it helps those who were making min wage, and now are still working at the higher min wage, at the expense of everyone else. Likewise I oppose tariffs because they help people in the protected industry (sometimes) but hurt everyone else.

Dan June 27, 2006 at 4:38 pm

I would have to agree with Maury. This issue transcends cost/benefit analysis. If I could somehow harm you and benfit more from doing so than you were harmed, that dosnt make it right. I hope that makes sense….

JoshK June 27, 2006 at 4:48 pm

The fact that the minimum wage increases unemployment is only one small part of why it's bad. The larger, undiscussed, reason is that it introduces all kinds of bizzare market distortions.

That's best illustrated by considering a $15/hr minimum wage. People would stop many newspaper deliveries and watch more TV news (possibly). Or they would get less pizzas ordered in and cook more instead. They would then do less of whatever other work they were doing because of the time needed to prepare food at home. All kinds of misallocation of resources starts to occur.

One interesting thought that I've heard before is that the minimum wage may be a very negative thing for those affected by it b/c it provides a gounding point and reduces negotiation. A lot of employers can just say "I pay the minimum wage" and know that has a certain weight with people who would explore the market further otherwise.

David Zemens June 27, 2006 at 5:01 pm

Spencer said "But the argument that I see here is that if the minimum wage causes one person to suffer or lose their job the costs are too high and the minimum wage is bad for minimum wage workers. If you agree with this argument you must also reject free trade because it causes harm to some individuals.

Economists favor free trade because the
benefits are greater then the costs."

Economists do not like the minimum wage law because it impedes efficiency. They do not like protective tariffs for the same reason.

I think you've got it wrong. Minimum wage is a positive action that immediately criminalizes free & voluntary association and contract between individuals. Any harm done by such legislation is directly attributable to those who enacted it. On the contrary, free trade is simply that – the removal of any harmful legislation/regulations that would otherwise impede economic progress. It also happens to be more efficient, benefitting from specializations and divisions of labor.

The removal of a harmful restriction (even if it benefits some people) cannot truly be said to cause a positive harm to anyone.

abhi June 27, 2006 at 5:17 pm

Half Sigma: WHY ARE THEY CROSSING OUR BORDERS ILLEGALLY TO WORK HERE?????

Because there is a minimum wage on this side of the border, that doesn't impose a penalty on the illegal status

;)

Chris June 27, 2006 at 5:54 pm

Alan Blinder surveyed economist for what they thought would be the impact of a 10% increase in the minimum wage. They said it would cause a one percent increase in uunemployment among minimum wage workers.

What are the rest of the associated costs? Because that surely isn't the end of the story.
The remaining workers will work less hours, work harder, work under less pleasant circumstances, customers will get less, pay more, enjoy it less, business owners will make less, grow less, hire less, teenagers forgo education due to immediate gain, more difficult (more skill intensive jobs) have to raise wages to compete against actual minimum wage jobs, rises in inflation.

All are plausible answers that are impossible to determine (just as impossible as the 1% of people fired for 10% raise).

In the meantime no one has even asked if these people need helping. 75% of them are above the poverty line, many are teenagers, many are part time. What is the minimum wage increase supposed to accomplish exactly?

spencer June 27, 2006 at 7:53 pm

In 1991 the minimum wage rose from $4.00 to $4.14 a 12.2% increase.This was accompanied by an increase in employment at or below the minimum wage from 3.228 million to 5.283 million, a 63% increase. Consequently minimum wage employees were 75% better off.

in 1998 the minimum wage rose from $4.38 to $5.15,a 17.7% increase. this was accompanied by an increase in employment at or below the minimum wage from 3.724 million to 4.427 million, an 19.7% increase.
Consequently, minum wage employees were 38.4% better off.

But you claim this can not happen
Yon say a minimum wage increase must always make minimum wage employees worse off.

Now who do I believe — your theory or the data published by the BLS.

You argue that an increase in the minimum wage must cause minimum wage employment to fall. Can you explain why the BLS data says you are completely wrong.

this is why I accuse you being an ideologue
you calim your theory is correct in the face of overwhelming evidence that is is completely wrong.

Tell me why I should believe you rather then the BLS.

True_Liberal June 27, 2006 at 8:13 pm

"In 1991 the minimum wage rose from $4.00 to $4.14 a 12.2% increase.This was accompanied by an increase in employment at or below the minimum wage from 3.228 million to 5.283 million, a 63% increase. Consequently minimum wage employees were 75% better off…"

Ahem.

Now THAT is some of the strangest math I've ever seen. No wonder we see some weird theories in here…

liberty June 27, 2006 at 8:16 pm

>I do not believe the 5 percent who are unemployed at any one time represent permanently unemployed workers. I suspect that we have more of the latter in the U.S. than do other nations. But I think it's our wealth rather than our minimum wage that permits us to have so many.

Nope. We have a much lower rate of "long term unemployed" than other rich countries. Perhaps it is higher than poor countries, I don't know. But for "long term unemployed" = 1 yr or longer, we have about 8% – that is, 8% of the unemployed in the country have been unemployed for 1 yr or more. It is 20-30% in much of Europe and 40-50% in certain European countries. It does not usually make sense to compare rich and poor countries as the jobs available and the pay and so many factors are so very different.

>I unfortunately am not aware of a source that gives me minimum wage levels for various countries.

I know of some sources.
One good one is here: http://www.lisproject.org/publications/welfaredata/welfareaccess.htm

It has min wage, unionization and a bunch of other data for OECD countries plus some others.

liberty June 27, 2006 at 8:23 pm

>One interesting thought that I've heard before is that the minimum wage may be a very negative thing for those affected by it b/c it provides a gounding point and reduces negotiation. A lot of employers can just say "I pay the minimum wage" and know that has a certain weight with people who would explore the market further otherwise.

That is a very interesting point!!

I had not thought about that, but it makes sense and I think there is evidence to support it. For example, in Sweden there is so much unionization that there is very little individual negotiation in any industry. Obviously workers want to negotiate both long contracts and high wages. Unions promise both – but they only get long contracts– wage sin Sweden are incredibly low. Part of the reason is that there is no competition over labor – there aren't a thousand individual negotiations and searching around the job market for a better deal. The companies just say "I pay the industry union rate."

happyjuggler0 June 27, 2006 at 8:51 pm

spencer,

Do you have a link for that data? I get a headache whenever I try to navigate around the BLS website.

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?request_action=get_data&reformat=true&from_results_page=true&from_year=1948&to_year=2004&Go.x=18&Go.y=13&include_graphs=true&initial_request=false&data_tool=other&series_id=LNU04000000&years_option=specific_years&delimiter=

This is my link for the overall seasonally unadjusted unemployment data, not the minimum wage data. If you compare month to month for 1991 and 1992 it shows each and every month being a higher unemployment than the year before, for both 1992 and 1991. If your data actually show increasing employment at or near the minimum wage it is going in the exact opposite direction as the general unemployment rate. Perhaps the original thesis of minimum wages causes unemployment is better supported by the data than your suggestion that it helps employment. :)

Of course the real thing going on during 1991 is a recession, or at least the aftermath of one.

1998 the economy was expanding, and so was employment. A better comparison might be between the recession years begining the 1990's and beginning the 2000's so that you aren't comparing apples and oranges.

Again, assuming your data is accurate, I have an alternative explanation. People who were paid above the old minimum wage are now employed at the minimum wage, thus increasing minimum wage employment. A better comparison would therefore be comparing people who made at or above the new minimum wage in the years you want to study, rather than at or below the old minimum pre-raise and at or below the minimum post-raise. I expect you'll see a radically different picture than the one your weird math is trying to paint.

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