Miracles Performed Beneath Marble Domes

by Don Boudreaux on November 19, 2007

in Economics, Myths and Fallacies, Politics, Prices, Reality Is Not Optional

Rep. Bill Sali (R-Idaho) understands economic processes.  Here’s his smack-down of minimum-wage legislation.  (HT to Amit Varma at India Uncut.)

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holymoly November 19, 2007 at 12:41 pm

Don –

Could you please point to any actual empirical evidence published in the last, say, 15 years, in reputable economics journals, that quantifies the effect of increasing minimum wages on labor demand?

pgl November 19, 2007 at 1:18 pm

Holymoly nails one of the points I just made over at EconoSpeak. The empirical evidence does not support that Congressman's claim. Of course, Don might wish to note the possibility that not all labor markets fit the perfect competition model.

Ian Dunois November 19, 2007 at 1:39 pm

Thought i would send you guys a few links for empirical evidence starting off with an article by Walter Williams. Its a short read
http://www.capmag.com/article.asp?ID=4639

This is a 35 page study on minimum wage or you can call it a regulation on labor.
http://www.princeton.edu/~tleonard/papers/Womenswork.pdf

Hope it helps some… there are plenty out there but can't link to JSTOR or other databases unless the readers have access to them; if you can, search JSTOR.

holymoly November 19, 2007 at 2:01 pm

Ian –

Thanks for the reply. The first link (Walter Williams) is a blog post and doesn't cite any empirical evidence that raising the minimum wage leads to unemployment. It notably only cites 2 surveys of economists (one in 1979 and one in 1992) about their beliefs that minimum wage causes unemployment. The only other evidence Williams cites is personal anecdote from apartheid era South Africa (!)

The second is a link to a review paper on eugenics and women's entry into the labor force by Thomas Leonard and has absolutely no empirical analysis whatsoever.

So, I guess I'm still waiting…

M. Hodak November 19, 2007 at 3:12 pm

I always wonder what the theory is that one uses to suppose that raising the price of something will have no effect. I'm sure there are plenty of second-order, exceptional circumstances that may allow my neighbors to sell their homes for $1 million when the prevailing prices appear to be $900,000, but it seems the burden of proof should be on those posing the counterintuitive reasoning, not those posing the rational one.

Still, to give someone like holymoly the benefit of the doubt that they are actually looking for proof for an open mind, here are a few of the dozens of papers that have tested or challenged this theory:

- Deere et al. (1995)
- Kim and Taylor (1995)
- Fuchs, Kreuger, and Poterba (1998)
- Burkhauser et al. (2000)
- Neumark and Wascher, using Card and Kreuger's 1996 data (2000)

John Pertz November 19, 2007 at 3:49 pm

I think the skeptics in this forum are correct. If you raised the minimum wage to 20 dollars an hour only a psycho ideological zealot would argue that the quantity demanded of labor would be diminished. People should stop being so ideological and start thinking logically. Price does not affect quantity demanded. In the face of rising prices people will continue to demand the same quantity of the good or service, ignore substitutes, and maintain status quo no matter what the damage. Keep up the good work guys, we have to protect the faith all costs.

Ian Dunois November 19, 2007 at 3:57 pm

Let us also recall Roberts linked to a few earlier in the year.

http://cafehayek.com/2007/01/the_empirical_l.html

Also, off of the journal databases there are a multitude of articles from economic journals. It may help to look up price floors and ceilings and their impact on any resource.
Labor is just another factor of production so falls in line with all out resources and the laws that govern them.

Hope it helps some.

save_the_rustbelt November 19, 2007 at 4:02 pm

When the farm lobbyists line up at his door I'll be the Congressman forgets the free market really quickly.

The free marketeers are all in favor of free markets until it is time to send the lobbyists with hat in hand to get some sort of subsidy.

(One of the news shows over the weekend had a list of persons and companies in Manhattan who get federal farm subsidies – huh?)

The Congressman and his bad attempt at satire do not impress me.

holymoly November 19, 2007 at 4:11 pm

M. Hodak –

First, you asked for the theory that raising price will have no effect. The theory is based on existence of market power on the labor demand side (monopsony, oligopsony, monopsonistic competition, etc.) creating a potential for wage to be stuck below marginal revenue product of labor. See, e.g., Bhaskar, Manning and To (J. Econ Perspectives, 2002, 16(2), 155-174. (http://www.ingentaconnect.com/content/aea/jep/2002/00000016/00000002/art00008)

Second, THANK YOU for actually citing reasonably credible studies in the spirit of debate. In the spirit of debate, let me address those papers.

Deere et al, 1995: results inconclusive, contaminated by recession in 1990.

Kim and Taylor, 1995: A simple differences-in-differences analysis of California, which could not directly estimate the elasticity with respect to minimum wage changes, but rather "in the average wage cost per worker." The authors admit "We cannot, however, ignore the possibility that the negative elasticity we estimate using OLS is due to the way we have attempted to deal with shortcomings in our data. In particular, we do not have in our data set the actual wages firms are paying."

Fuchs, Krueger and Poterba's 1998 JEL paper (a version of their NBER working paper) is not empirical data on minimum wage and employemnt, but simply surveys of economists on their beliefs.

Burkhauser, Couch and Wittenburg's 2000 JLE paper is actually a pretty good paper. It demonstrates that the results of empirical analyses of labor demand elasticity wrt minimum wage changes are extremely sensitive to the way macroeconomic conditions are included on the right-hand-side. While their analysis of monthly CPS data does indicate that raising the minimum wage does have "significant but modest negative effects on teenage employment." (emphasis added)

It's funny that you'd cite Neumark and Wascher's 2000, but not even mention that the original 1994 paper by Card and Krueger found "no evidence that the rise in New Jersey's minimum wage reduced employment at fast-food restaurants in the state." It's also funny that you didn't cite Card and Krueger's 2000 reply in the American Economic Review (http://www.jstor.org/view/00028282/di020242/02p00172/0) calling both Neumark and Wascher's data and their interpretation of statistically insignificant results as evidence of decreased labor demand due to the minimum wage increase.

Even the most credible empirical evidence you were able to muster fails to demonstrate any large effects. So, the "miracle performed beneath the marble dome" was really just another tale told by an idiot, full of sound and fury, signifying nothing (apology to the Bard).

Randy November 19, 2007 at 4:19 pm

Holymoly,

I'm still waiting for one of you guys to show me a single example of someone who was hired "because" the minimum wage was raised. Not "regardless" of the fact that it was raised – but "because" of the fact that it was raised. Until I see an example of such, I think its perfectly logical to assume that an increase in the minimum wage does cause at least some unemployment, because I've heard several stories of employers who have chosen to higher fewer people "because" of an increase in the minimum wage. So do you have an example? Even one will do.

holymoly November 19, 2007 at 4:35 pm

Randy –

You're taking an extremely narrow "partial equilibrium" approach here. Of course, some firms will decide to cut low-wage workers because of the increase. But the empirical evidence suggests that it's not that many.

So, the question is whether the displaced workers will find other opportunities. There are those of us who propose that having our working class earn a living wage might actually create new markets, with consequent increases in economic activity… and, yes, jobs.

muirgeo November 19, 2007 at 4:35 pm

Back in the 50's and 60's the index adjusted minimum wage was about $9.50 per hour. Likewise the economy was in far better shape.

I can say emperically that when I drop my pen it will be attracted to the center of the Earth with a force proprtinate to both their masses. There is no such empiric law as the congressman seems to beleive with regards to the minimum wage, prices, employment and the economy in general. And that's because one other variable can allow the wage increase to have NO EFFECT or even a positive effect on the economy as a whole. That variable would be that as the low end workers wages rise the high end workers can make less. The local economy can then be infused with the increased earnings being spent by the low end workers/earners.

Call it the law of economic wage gravity. As high end wages go to high the natural force of economies is towards fairness and justice and it will always bring them back into closer alignment. That law (econimic wage gravity) has been observed consistently in the past and indeed will be observed by this economy. It's emperic like gravity. As far as the congressmans position goes its like he dropped his pen and it floated off into space.

pgl November 19, 2007 at 4:45 pm

Muirgeo – interesting point about the real minimum wage, which was its highest in 1968. Unemployment that year was 3.2%. Of course, I never said people attribute finding a new job to a higher minimum wage. All I'm saying is that those who have faith in the Law of Demand seem to have less faith in testing their theories with real world data. Oh I'm sure one could find a couple of regressions here or there to support the Law of Demand faith based economics here. But then see my post on Capital Punishment over at EconoSpeak if one is too eager to say some ivory tower theory must be true based on one or two correlations.

Randy November 19, 2007 at 4:59 pm

Holymoly,

Yes, I'm taking a very narrow view because I wish to isolate cause and effect. Removing all other variables, a higher minimum wage causes some to decrease hiring but no one to increase hiring. As for the idea that a higher minimum wage might create new markets, it seems like a wash to me, as the class of people who make the higher minimum wage are paying for it out of their own pockets. It seems quite obvious to me that the minimum wage is a political ploy and nothing more.

pgl November 19, 2007 at 5:04 pm

Isolate cause and effect? Randy? If you have a really careful econometric model that does this – please call the Journal of Labor Economics as they want to publish it. But I have to question your model specification as it would seem you have not done the leg work to know whether the data is being pulled from a market that is perfectly competitive v. one with firsm with market power. Seriously, your 4:59 comment smacks of something a junior in college would write and not one from someone who has actually tried to do real world econometric work.

shawn November 19, 2007 at 5:07 pm

Holymoly:

"There are those of us who propose that having our working class earn a living wage might actually create new markets…"

How could that work? If someone is let go because they're not worth $10 an hour with the (assumedly) best employable skill they had, who will hire them (in a new industry, no less) for $10 an hour for the second best skill they've got?

Is there some other way that they'll find a job/new markets will be created?

shawn November 19, 2007 at 5:10 pm

to clarify, $10/hr is the new 'living wage' that I just made up in Shawnville, where the cashier at mcdonalds used to make $8/hour.

Randy November 19, 2007 at 5:10 pm

Muirgeo,

"That variable would be that as the low end workers wages rise the high end workers can make less."

Neat theory, except that I see no reason to believe that the increase is paid for by anyone outside of the class of workers who receive the supposed increase. The powerful do not pay taxes – they collect taxes.

Randy November 19, 2007 at 5:13 pm

pgl,

I'm asking for an example, just one, of a single person who was hired "because" the minimum wage was increased. Do you have an example or not?

notsneaky November 19, 2007 at 5:16 pm

pgl,
Please provide compelling evidence of monopsony power in the markets for unskilled labor, as well as evidence which shows that some proposed minimum wage increase would increase employment in these markets (since employment can fall with higher minimum wages EVEN IN monopsonistic markets). You seem to have a lot of faith in the Existence of Monopsony Power but somewhat less faith in testing that theory with real world data. Oh I'm sure you can find a couple of regressions to support your faith based economics here but see your own post over at your own blog if you're too eager to say some ivory tower theory must be true based on one or two correlations (if you can find these).

Holymoly, thanks for actually explaining why those studies suffer from some (unavoidable, given the data limitations) weaknesses rather than just rejecting everything out of hand.

holymoly November 19, 2007 at 5:27 pm

Shawn -

You've missed the point that if the labor market is not perfectly competitive, it is possible that they are worth *more* than $10 per hour, but aren't being paid that because of the market power on the labor demand side. This is what the other commenters and I are referring to as monopsony/oligopsony/monopsonistic competition. See the Bhaskar, Manning and To article for a theoretical explanation.

notsneaky November 19, 2007 at 5:34 pm

Or, just see Wikipedia which is actually pretty good on this topic:
http://en.wikipedia.org/wiki/Monopsony

Note however that increasing minimum wages after the 'competitive wage' level will STILL result in falling employment. Again, where's the empirics?

M. Hodak November 19, 2007 at 5:50 pm

holymoly,

As you can guess, I surely wasn't trying to hide the Kreuger & Card paper in the shuffle here. With regards to your critiques, it's fair to say that no one can prove, using large-scale empirical data, an exact elasticity of demand for labor, especially if the effects aren't significant in relative terms. Even if the elasticity were around 1 percent aggregate per (2006) dollar change, the uncertainty around that could easily be one or two percentage points. So, even if the effect were "small," say a half a percentage point per dollar, that would still be a lot of people tossed on their butts for a counter-intuitive, second-order theory.

I still think that the burden of proof is on those who think that labor elasticity is violated here, with research that proving that case, because the evidence, such as it is, including the collected, albeit anecdotal, experience of innumerable small business owners, is still pretty one-sided.

pgl November 19, 2007 at 6:05 pm

The crowd allows Don to talk theory sine evidence but when I post an alternative market model, it demands "compelling evidence". The call for a single example of a person being hired because his wage went up should consult the Wikipedia definition – movement along a supply curve. Of course the provider of Wikpedia as a (poor) substitute for an economics test quotes the part about higher wage AFTER point c in the graph. Well DUH! And higher tax rates could lead to less revenues if the initial tax rate were say 90%. Fellows? Are you still in week one of Principles of Economics at the Community College – or what?

pgl November 19, 2007 at 6:09 pm

Our Wikpedia scholar should consult the 2003 book by Alan Manning. Assuming you fellows are actually interested in serious economics rather than ivory tower doctrine.

shawn November 19, 2007 at 6:23 pm

holymoly,

so, then, taking what I can understand from the monopsony wikiarticle, and what you've said here, there are a percentage of people (x%) making minimum wage that actually 'should' (in a perfectly competitive market–which doesn't exist, but that's beside the point) be making more than they are, and assumedly there are a portion of people (100-x%) who are making what they should be (again, assumptions assumptions).

Your point, I believe, is that the x% of employees hired by monopsonistic corporations would be aided by legislated minimum wage increases. I can understand that, at least in theory.

What I don't understand is that this justification for higher minimum wage seems to assume that x is over 50%…if it isn't, wouldn't you be hurting the employees who actually were making a market wage (those that didn't work for monopsonistic firms), and were let go because equipment is a better investment than labor at that new wage?

There are other things that don't click with me, but they seem to all boil down to "of course demand is going to decrease when price increases, how could it not??", but that sort of 'faith' is what's in question here in the comments, so I'll put that on hold for now.

shawn November 19, 2007 at 6:26 pm

no, I take that back…

'x' wouldn't necessarily need to be larger than 50, it would just need to be larger than the 'y' of people who lost their jobs due to capital re-investment, rather than continued investment in labor.

Unfortunately, however, the 'y' that lose their jobs in this new wage would seem inevitably to be the lowest skilled of the lowest skilled members of the workforce…so they're even worse off than they were to begin with.

notsneaky November 19, 2007 at 6:31 pm

"The crowd allows Don to talk theory sine evidence but when I post an alternative market model, it demands "compelling evidence""

Hodak above has already provided links to evidence for the theory so Don doesn't have to. Which you blithely dismissed. So me asking for compelling evidence is just par for the course. And I'm not "crowd", just me.

"Of course the provider of Wikpedia as a (poor) substitute for an economics test (sic) "

Well, this being an online discussion and all, wikipedia is online while Manning's book is not, hence, even though it is not a perfect substitute it is at least readily available. What's your point? Can you point exactly to where the wikipedia presentation makes a mistake?

"…quotes the part about higher wage AFTER point c in the graph. Well DUH! And higher tax rates could lead to less revenues if the initial tax rate were say 90%.""

Because obviously that range after point c DOES EXIST! And sorry, if there's an analogy with the Laffer curve here it goes the other way. Just as lower tax rates COULD increase revenues so COULD higher minimum wages increase employment. But since it's the unlikely effect the burden of proof should be on the those pushing the higher-min-wages-raise-employment folks just like it is on the supply siders.

And seriously. Calling the "when price is higher people purchase less" theory "ivory tower" is a bit disingenuous here, since it's actually the one that is in accordance with basic intuition and people's experience. So what is "monopsony model" then? Dirt-and-mud tower? Yeah right.

Anyway. Show me evidence of monopsony power (and don't use Don as an excuse for not doing it).

notsneaky November 19, 2007 at 6:40 pm

And just to add, I'm quite familiar with the monopsony model as well as all kinds of fancy-schmancy "serious economics". By providing the wiki link I was trying to be helpful since maybe not everyone is familiar. I guess that's enough reason for you to get all haughty, pretentious and smug and try to win an argument by insinuating that I'm an ignoramus.
Please come off of it.

shawn November 19, 2007 at 7:35 pm

hey…I AM an ignoramus. Please continue to provide non-gated/non-pay-for links to papers, journals, or other reader-friendly/lay-understandable materials.

John Pertz November 19, 2007 at 8:23 pm

Oh god not another minimum wage argument. This is usually how it plays out.

-you tell the left wing person that there are better interventions to help the working poor.

-the left wing person tells you about some David Card study where they called a bunch of fast food restaurants after a min wage hike and they reported no lay offs.

-the left wing person asserts that this refutes any ideological notions about quantity demanded of labor being diminished due to an increase in price.

-you repeat to the left wing person that there are still even better interventions to help the working poor. You ask him or her "is it not better to help the working poor than maintain support for a mechanism whose efficacy is specious at best?"

-they continue with their mantras about caring for the poor.

-you remain stunned, nobody's mind is changed and we begin anew in another month.

-this is how it always plays out. over and over and over and over and over and over and over

-and the plight of the working poor continues to go unchanged. Their supposed ideological protectors refuse to educate them properly and yet worse they support policies which will by and large hurt their well being.

holymoly November 19, 2007 at 10:11 pm

John Pertz –

So, anyone who dares point out that Bill Sali's claim that a minimum wage increase will result in a "loss of over 1 million jobs" has no empirical support is a "left-winger."

Excuse me, but WTF?!

Shawn —

You're no ignoramus. Unlike many around here, you actually seem interested in reading the literature and judging the merits on your own. I may not convince you, but I respect you. What I am really interested in is not necessarily the percent of people in category X or Y, but rather the changes in total well-being in both the short and long run. I honestly don't know enough about the empirical labor literature to say whether the welfare effects of a minimum wage change are positive or negative on balance and by how much and at what point in time. What I do know is that Bill Sali's (and Don Boudreaux' by extension) reasoning is far too simplistic to reflect real labor market conditions, and they have no empirical support for their doom-and-gloom claims.

Notsneaky –

In my opinion (not a labor economist), as I told Shawn above, there isn't empirical evidence firmly in either direction because the direct and indirect effects are real and move in opposite directions. The low-end labor market varies from fairly competitive (big city with lots of service jobs) to pure monopsonistic (company town), depending on local conditions. So, effects will vary from place to place and time to time. But the burden of proof here is on Bill Sali in backing up his laughably-bereft-of-empirical-support "1 million job" comment.

notsneaky November 19, 2007 at 10:28 pm

holymoly,

I don't want to argue about the 1 million number since I have no idea where that came from and whether it's anywhere close to the truth. Most likely it was given to him by some staffer. But it's a speech in Congress, not an academic paper – though true, he should've at least said where the number came from. Overall, his point is pretty valid though.

Unit November 19, 2007 at 10:36 pm

holymoly,

by your admission, you're no labor economist and you also don't know what the true effects are. So, rationally, you should remain agnostic about the issue. And therefore, because government interventions have a well-documented empirical history of failures and unintended consequences, as an agnostic observer you should be opposed to minimum-wage legislation. In other words, unless proponents of the law can demonstrate that it's a slum-dunk any agnostic observer should be skeptical and vote no.

tim November 19, 2007 at 11:02 pm

I think what is getting lost in this heavily theory laden string of arguments is my favorite subject.

Freedom.

If I own my body, and I own my mind, and I own my time. Then my labor is my PROPERTY. What I sell my property for is none of your damn business. If I sell it for 100$ per hour or 1$ an hour it is my perogative.

We have a long tradition of fighting for the right to privacy for consenting adults in this country. It seems a lapse by some to champion "pro-choice" as long as it involves gay sex or killing babies but not when it involves someone choosing to accept a job that you think is under-paid.

notsneaky November 20, 2007 at 12:21 am

As an aside holymoly, can you point to a modern day example of a 'company town' in US?

holymoly November 20, 2007 at 1:16 am

Um, Unit? I *am* agnostic on the empirics of the effect of minimum wage legislation. Pay attention!

Notsneaky – Modern-day company town? Hmmm… Washington DC?

(hah! a joke that should make even the crankiest libertarian smile)

Gil November 20, 2007 at 1:26 am

" . . . you repeat to the left wing person that there are still even better interventions to help the working poor." – John Pertz.

'Interventions'? I thought if the minimum wage was an intervention into the free market such that some benefit at the expense of others and the standard reminder from Libertarian that any intervention into the market made by people, no matter how good-intentioned, only cause harm, then there can be no 'good' interventions into the free market? That the only good intervention is 'no intervention'? Or alternatively, if you want to help others than 'free the market'/'remove interventions into the market'?

notsneaky November 20, 2007 at 1:49 am

Yeah, even that'd be a duopsony, ey?

notsneaky November 20, 2007 at 2:18 am

Also, that Bhaskar, Manning and To paper in JEP (as well as the one in the Economic Journal; http://ideas.repec.org/a/ecj/econjl/v109y1999i455p190-203.html , and I haven't read the one in the European Economic Review) is really good at laying it out. It should be noted however that even though the authors lay out a monopsonistic model and argue that some monopsony power exists out there, they don't conclude that increased minimum wages necessarily lead to higher employment:
"Furthermore, these examples highlight one way in which oligopsony (or in this
case, monopsonistic competition) differs from textbook monopsony. Under monopsony,
a small enough rise in the minimum wage must raise employment. Under
monopsonistic competition, it is possible that even the smallest rise in the minimum
wage reduces employment."

So, pgl, is that "serious economics" enough for you?

This paper:
http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VBY-4NS36HY-1&_user=10&_coverDate=08%2F31%2F2007&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=43b5f8a25f4093d78ebc30ce12e0bf75
also looks interesting, unfortunetly you gotta pay for it unless you've got a subscription to JME (sorry shawn)

I apologize in advance if the links screw up the formatting of this post.

G November 20, 2007 at 4:19 am

If anyone really thinks the minimum wage laws don't have any effect on employment, I suggest trying to apply them and other statutory "gifts" to workers to illegal immigrants. Don't forget to make sure they apply to agricultural jobs as well. See what happens. There is a reason illegals are employed even though they often don't speak English: They are willing to work for less money than other people.

In Florida, I know many employers who most definitely employ illegals for one reason and one reason only: Their labor is cheaper. Its not that they are racist, its just a pain to work with someone that barely speaks your language.

But honestly, what towns in America have monopsony employers? Every single firm needs unskilled laborers in some capacity.

Notsneaky – Modern-day company town? Hmmm… Washington DC?

Ah… Touché.

shawn November 20, 2007 at 7:09 am

…with the relative ease of moving to a new town (did it myself 12 times before 8th grade), and high levels of communication available to almost everyone, I am doubtful of high monopsonistic effects of lowering wage rates below a "perfectly competitive" wage market. so, like monopoly, I'm wagering that monopsony is a dead-or-dying beast, at least here in the u.s.

as this seems to be the best argument for a federally mandated minimum wage, (let me know if there are others), it seems I will still have to fall back on the idea that, as in every other instance, increased prices equals decreased demand.

if there were a way to really help the poorest, i'd be all over that. unfortunately, "learn a skill by getting in the workforce and investing in yourself" is still the best way that I can see, and raising the minimum wage, as I mentioned above, makes it harder for them to get into the workplace.

Unit November 20, 2007 at 8:11 am

holymoly,

my point was that if you're agnostic about the empirics then you should be against the legislation.

shawn November 20, 2007 at 8:55 am

holymoly: (first, thanks…but i really am ignorant about all of this, especially in comparison to many others around these parts)

re: 'no support for gloom and doom hypotheses'…

I think that's the problem here, and what m.hodak is getting at: it really is anyone that is FOR an increased minimum wage that has the burden of proof, because they must prove that this situation, complex and multifaceted as it is, is different than every other situation (as I mentioned above) in which an increased price decreases demand.

pgl November 20, 2007 at 9:31 am

One company town? Try New Haven, CT. Yale University used to be able to keep the wages of janitorial workers and cooks low but then they formed a union. Wages rose but employment didn't fall. In the early 1980's, the secretaries tried to form a union to do the same thing – and matters got ugly. The WSJ sitting there in the competitive market known as NYC started in with the usual perfectly competitive BS. OK, their BS would good economics for NYC but their oped writers never took the Amtrack to New Haven to realize what was really going on in the relevant market.

annie moose November 20, 2007 at 11:28 am

Excuse my uneducated blue collar left of center perspective.Target reported 3rd. qtr. off 4 per cent. Walmart reports it's consumers running out of funds before the end of the month? How can this be good?
Even in my middle class neighborhood the people I talk to seem to be surviving on debt. The economy feels very soft.The natives are restless.You can't eat ideology.

holymoly November 20, 2007 at 12:25 pm

Unit, Shawn, Notsneaky –

Agnostic doesn't mean neutral. I find the data inconclusive, and I could be swayed either way by more data. But in the absence of conclusive data, I find monopsonistic competition in the labor market to be much more believable than perfect competition. Notsneaky made a good comment about the Bhaskar et al paper, re: even with monopsonistic competition, the minimum wage could increase unemployment. That may be true, but it's still about welfare, not just unemployment — and I find the conditions for welfare gain to be more plausible than for welfare loss.

On other grounds, I also find the escalating ratio of management/executive pay to rank-and-file pay to be troubling. Why? I think that concentration of wealth generally reduces growth in the long-run. Sometimes catastrophically so (see, France in the late 1700s; Russia in the early 1900s, etc). So, I'm in favor of a "living wage" on theoretical grounds, but if data could demonstrate that the welfare-effects of increasing the minimum wage is likely to be negative, I would definitely change my opinion.

Randy November 20, 2007 at 12:43 pm

"You can't eat ideology."

Good point annie. I don't see that ideology has much impact on the economy at all. The political types can always find numbers within the economy to support their vote buying schemes, but none of them are dumb enough to make any adjustments large enough to actually change the basic structure of the economy. The minimum wage is a perfect example. For all the heated debate, they never raise it enough to actually make a difference in anyone's life, because even the proponents are well aware that doing so would have severe negative consequences. The goal is to buy votes, not to change the world. Changing the world is way too high risk.

Bruce November 20, 2007 at 1:18 pm

"you can't eat ideology"

good point. Target will simply have to use some of its 486,000,000 in third quarter profits to buy food (after they set some aside to fund their proposed 10 billion dollar stock repurchase). Sorry Annie, but I just don't see the black clouds you do.

Plac Ebo November 20, 2007 at 5:27 pm

Has anyone considered that wages are not the only way to "make a living"? Unfortunately wages have to compete with crime and welfare for example. Do I go work at Burgers-R-Us for $6 an hour, or do I sell drugs? Or do I work the system for my welfare check? Are there any studies comparing minimum wage with crime, welfare, … Maybe it's worth it to society to raise the minimum wage to keep those on the borderline from turning to crime or welfare fraud.

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