Stossel on the Minimum-Wage

Don-

Have you seen any updates on Stossel's move to Fox? I poke around once a week or so to see if I can dig up what his new role is going to be but haven't found anything concrete.

I'm hoping that, with any luck, they'll start up the Libertarian power hour using the one-two punch of Stossel and Napolitano.

Thanks for the link ... I've found that over the years their are very few that can illustrate libertarian ideals in a mass marketed fashion. John Stossel is one of them. And he has an awesome moustache.

Sounds like he's going to do a weekly show on FBN. Probably similar to what he was doing on ABC.

here is Stossel's first day at FBN http://www.foxbusiness.com/search-results/m/270...

I agree that minimum wage makes no sense, neither for its advocates (it doesn't provide a minimum living standards) not for its opponents (it generates an inefficient outcome, with unclear fairness effects). But Stossel overstates his case. At the current margin, the impact of minimum wages changes is hardly detectable, and not only according to Card-Krueger. If I have to pick a fight, I choose the one with the highest potential upside; if I have to denounce the price distortion du jour, I' d pick the most egregious one. Farmers' subsidies and import tariffs come to mind, as well as H1-B quotas and restrictions on immigration.

I agree. We probably shouldn't have one, but it's hard to get too concerned about it.

While I agree with both of you that substantively there are bigger fish to fry. The idea of a minimum wage is so insulting and ... is the most evident form of price controls to the average citizen.

Most people have no idea what subsidies the government gives to whom or to what but most everyone knows what the minimum wage is and almost exactly what it's price point is at any given time.

To be able to overturn something as ridiculous as the minimum wage would be a major victory for the free marketeers among us given how prevalent it is in society.

See - I'd disagree that it's the most ridiculous thing that free marketers should be comforted by. It goes to people that are just scraping by. The employment effects seem to be minute - certainly dwarfed by other market forces causing low wage unemployment. How is that the most ridiculous?

Now - hand outs to rich people, like farm subsidies - that's more ridiculous. At least the minimum wage can be shrugged off as an ill-conceived welfare program. That, for me, is far less offensive than hand-outs to millionaire absentee landowners through the farm program.

Preventing people with low-value skills from selling their labor is abhorrent. Whether or not it's worse than handouts to rich special interests is academic. We are not limited to targeting one ridiculous policy at a time.

I completely agree, Brian.

No, it's not academic - it's pragmatic. And I never said don't eliminate it - quite the opposite, I explicitly said we shouldn't have it.

It's not preventing anyone from selling their labor. And given how wishy-washy the evidence and the theory (http://en.wikipedia.org/wiki/Monopsony#Minimum_...) is on the employment effect, I'm not going to get up in arms over the wage effect that a lot of people appreciate.

It most certainly is preventing people from selling their labor. It outlaws free exchanges for anyone whose labor is not worth at least the value of the minimum wage.

OK, but by that logic taxes, asymmetric information, and a host of other things "prevent people from selling their labor".

I'm obviously not denying there's an employment effect - I've mentioned it several times, after all. I agree with your logic, I just didn't realize that's all you meant by "preventing people from selling their labor".

"logic taxes, asymmetric information, and a host of other things "prevent people from selling their labor"."

Your right, so why add on to it with a minimum wage? (yes I know you said you didn't think it was necessary. it was just a rhetorical ques)

danielkuehn: "It's not preventing anyone from selling their labor."

How did you reach this conclusion? Is this something you learned in an economics class?

daniel, the economics of price floors is pretty simple to understand. Why do you believe that suppliers of labor are somhow insulated from the effects of a price floor?

RE: "daniel, the economics of price floors is pretty simple to understand. Why do you believe that suppliers of labor are somhow insulated from the effects of a price floor?"

I don't - I'm not sure why you think I do. I said it has a negative employment effect before you even started commenting on this thread. To me "prevents someone from selling their labor" is very different from having a negative impact on employment.

daniel, what did you mean when you wrote:

"It's not preventing anyone from selling their labor."?

As Brian has pointed out, when the value of a worker's labor is less than the minimum wage, he should not be able to find a buyer for his labor. So how is that any different from saying that the minimum wage prevents someone from selling their labor? Please supply some other rationale other than a link to a wikipedia web page on monoposony.

RE: "So how is that any different from saying that the minimum wage prevents someone from selling their labor?"

Because it doesn't prevent anyone from selling labor - it makes some labor contracts unprofitable for people. Those seem like two different things to me. Do taxes prevent people from selling labor? They definitely make some labor contracts unprofitable, but I never would have thought of that as "preventing people from selling their labor".

If you want to label that "preventing people from selling labor", be my guest. It wouldn't be the first time people used weird labels for things on this blog. I do agree with the logic that it will lead to unemployment in most cases because it raises labor costs. I said as much before you even started commenting on this thread. That's the bottom line.

RE: "Please supply some other rationale other than a link to a wikipedia web page on monoposony."

That's the spirit - just reject ideas that provide a counter-argument. Don't explain why they shouldn't be referenced - just reject them. Nice job johndewey.

daniel kuehn: "Because it doesn't prevent anyone from selling labor - it makes some labor contracts unprofitable for people. Those seem like two different things to me."

I do not see the difference. When government prices low-skilled, inexperienced workers out of the market, it exactly does prevent them from selling their labor.

daniel kuehn: "Don't explain why they shouldn't be referenced - just reject them."

I thought it pretty obvious that a discussion of the economics of monopsony was irrelevant to a discussion of a national minimum wage.

If, by referencing the webpage on monopsony, you were meaning that under certain unusual circumstances, a minimum wage does not prevent someone from selling their labor, you should have included such a qualification. Of course, monopsony power for consumers of labor, in the age of the automobile, hardly exists in America.

Many people would argue that monopsony isn't unual at all in the labor market - that it is pervasive. Often it depends on the industry. You shouldn't think of monopsony as being restricted to a company-town sort of situation.

Regardless - I've clearly said several times at this point I think it has a negative impact on employment. I don't think that's preventing people from selling their labor, but keep calling it that if that makes sense to you.

danielkuehn: "Many people would argue that monopsony isn't unual at all in the labor market - that it is pervasive. Often it depends on the industry."

Please provide a few U.S. examples where employers hold monopsony power over low wage or unskilled workers. If monopsony in labor markets is so pervasive, that shouldn't be hard.

By the way, who are these "many people" who argue that monopsony isn't unusual? Can you cite any research that might help me understand your argument?

Re: "Please provide a few U.S. examples where employers hold monopsony power over low wage or unskilled workers. If monopsony in labor markets is so pervasive, that shouldn't be hard."

Not sure exactly what you mean. Monopsony power is like monopoly power - every firm has it, the question is to what degree. Either it's a condition that characterizes the labor market, or it's not and perfect competition characterizes the labor market. Can you name a few examples of employers who are perfect competitors in the labor market - ie, complete price takers?

I'm most familiar with Alan Manning's work on it, but it's been awhile. I'm sure you wouldn't have trouble finding others with a quick google search.

danielkuehn: "Monopsony power is like monopoly power - every firm has it"

That's about the B.S. answer I expected from you.

danielkuehn: "Can you name a few examples of employers who are perfect competitors in the labor market - ie, complete price takers?"

Neither Walmart nor McDonald's, the largest U.S. private employers, enjoy monopsony power in labor markets. Of course, your B.S. response is likely going to be that their labor markets are not perfect competition. Lack of perfect competition does not imply monopsony, but that won't stop you from arguing so.

RE: "That's about the B.S. answer I expected from you."

Yes, it does sound like BS if you don't finish the damned sentence: "the question is to what degree".

As for Wal-Mart or McDonalds - if they lowered their wage by a penny would all their employers suddenly leave? Of course not - so they're not perfect price takers and they have some monopsony power. Barely any at all, to be sure, but some.

I'm sick of playing your stupid games, johndewey. It's clear that even when someone furnishes you with an argument you're going to keep pushing - and keep picking at parenthetical side points just for the sake of fighting.

The discussion is becoming repetitive. I think everyone here understands why on paper the minimum wage increases unemployment. What is at issue is how much at the margin of the current level. My understanding is: not much. One can make a moral case for the minimum wage, independently of the size of the effect: "it is repugnant that the government distorts prices". Well, there are more repugnant things that the government does. You can all get incensed about the minimum wage because it's a pet project of modern liberals. Fine, but you are wasting your energy, and Stossel is wasting his airtime. Just sayin'.

Giuseppe Paleologo: "What is at issue is how much at the margin of the current level. My understanding is: not much. "

And your understanding is based on what? Card-Krueger?

As Don has pointed out before, Card-Krueger is contrary to decades of economic research showing just the opposite. Here's a few relevant findings:

from the Library of Economics and Liberty:

"Because telephone survey data are notoriously prone to measurement error, Neumark and Wascher repeated Card and Krueger’s analysis using payroll records from a similar sample of restaurants over the same time period. The results from the payroll data showed that “the minimum-wage increase led to a decline in employment in New Jersey fast food restaurants relative to the Pennsylvania control group.”

From the Joint Economic Committee of the Congress of the United States:

"While it is not yet clear why Card, Katz and Krueger got the results that they did, it is clear that their findings are directly contrary to virtually every empirical study ever done on the minimum wage. These studies were exhaustively surveyed by the Minimum Wage Study Commission, which concluded that a 10% increase in the minimum wage reduced teenage employment by 1% to 3%."

from a more exhaustive survey of research by Neumark and Wascher:

"First, we see very few if any cases where a study provides convincing evidence of positive employment effects of minimum wages, especially from studies that focus on broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, when researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages, we regard the evidence as relatively overwhelming that there are stronger disemployment effects for these groups. "

Well, for starters, I have not said, like Card and Krueger do, that minimum wage increases have no effect on unemployment. I have said that the effect is small. Second, I do get my economic knowledge mostly from JSTOR and EconLit. You can be content with Don (not bad, just a bit partial). I have actually read a bit of the literature, and it's nuanced. If you just read the Neumark-Wascher survey, you'll find for example that the original Katz-Krueger's results were partially replicated by Spriggs and Klein; and that Baker-Benjamin-Stanger found that in Canada the short-term elasticity is slightly *positive* and the long term is slightly negative. The point here is that the recent research on the relationship between minimum wage is much more careful, and that the elasticities estimated in most studies are in the range 0 to -.2 for the teen ager market alone. Neumark-Wascher estimate -.14 for *all* young adults. Bazen and coauthors also have a number of papers in which the obtain estimates between -.1 and -.2. The population in the range 15-18 is less than 5% of the total. So, for an increase of 10% in real terms of the minimum wage, we can observe an increase in unemployment between 0% (if you believe the optimist) and 0.2*0.1*0.05=0.001, or 0.1% (the pessimistic estimate). The latter is barely detectable by state and federal unemployment measurements.

I reiterate my point. There's nothing wrong with being upset with the existence of the minimum wage. The effects are consistent with basic economic theory, which is a good thing, but they are *not* very strong. I would focus my energy on policies that have a bigger impact.

I take everything that comes out of Card and Krueger with a grain of salt. Their reliance on shaky IV estimates and natural experiments makes every study boil down to "just trust us - it works". Which isn't to say they aren't good empiricists - they are. And they're creative and fun to read. But I agree - the thrust of the literature and Card-Krueger's contribution to it leads me to say "well - it just doesn't seem that big". It doesn't lead me to completely embrace Card and Krueger's results.

Giuseppe Paleologo: "I would focus my energy on policies that have a bigger impact."

Sorry, but I see it differently. Federal minimum wage price floors prevent tens of thousands - and perhaps hundreds of thousands - of low-skilled workers from selling their low-valued labor. That's a serious assault on personal liberty. It takes very little energy to write letters to newspaper editors and to write to elected officials - less energy than either you or I have expended already on this particular blog post. As I see it, your statement about focusing energy on policies that have a bigger impact is what we used to refer to as a copout. Please understand, I'm not suggesting that you personally should write such letters. But I am criticizing your argument about focusing energy.

While it's tempting to conclude that the effect of the minimum wage on jobs is "minimal," it's still very real to the "minimal" number of flesh-and-blood people who go unemployed.

And while the gains of the higher wage is more money for some low end workers, the overall economic pie actually gets smaller in the bargain -- even if only "minimally" so -- because of the lost output of the unemployed. Clearly some portion of whatever consumption increase the wage beneficiaries receive comes directly out of the mouths of those who lose jobs.

Card and Krueger did make one thing clear that no minimum wage advocate ever mentions: they reported no evidence that the higher wage reduced poverty.

And I can't remember the last time I saw even a liberal politician suggesting that some impoverished nation come up with a decent minimum wage to fight its own poverty.

The only good thing about the minimum wage is that the people it hurts the most are implied to be too ignorant to know why -- and will usually be inclined to vote for the very people who are screwing them.

Dan likes to play word parsing games a lot...you know like what the definition of is, is?

Can't blame him though, he likes Krugman and Krugman is a master of leaving wiggle room to get out of anything he says.

I understand where you're coming from ... I guess I'm trying to say that I've heard time and again from those that understand little about economics that "we need a livable wage, not a minimum wage". Although it is generally accepted that price controls don't work (because of our horrible experiment with them in the '70s) most don't realize that the minimum wage is a price control.

Maybe I'm putting the cart before the horse because the political will that would be needed to overturn something like the minimum wage would put us so far down the free market path that, I for one, would be thrilled with our progress.

Do you see what I'm saying?

RE: "Do you see what I'm saying?"

Definitely - simply getting people to realize that a minimum wage isn't some golden idol would be great progress. Half the benefit would be from that journey. And I'm really surprised it's been so difficult. All you've really gotta say is "well Sweden doesn't have any minimum wage - and you know what those Swedes think about the role of government in the economy!"

"we need a livable wage, not a minimum wage"

Would we even need that if we didn't have the Fed inflating all the time?

Well, even without fed printing, there would be people living below the poverty line. In those cases, people would be forced to double up on housing, share modes of transportation, etc.

The point in eliminating the minimum wage is that you allow people the decency and self respect of a days work without forcing them to become wards of the state (in my opinion).

Fed printing and inflationary policies add another layer of complexity which makes it harder for the everyday joe to realize that he's losing purchasing power but there would still be "poor" people regardless.

There is always going to be poor. That's just a fact of life.

And as long as you keep raising the height of that first step out of poverty, it will not only be a growing fact of life, but create a growing chronic class of people.

"we need a livable wage, not a minimum wage"

Nice. So lets make it illegal to work unless you intend to do so for a "livable wage". Kids supported by their parents earning experience and a little spending money--illegal. Seniors supplementing their pensions--illegal. Trust fund brats trying to find meaning in life through employment--illegal. Homeless trying to augment his charity and build a work reputation--illegal.

Those 6a$t@rds calling for a "livable wage" are such elitist impoverishing slime.

I agree completely with the sentiment of your post. I cannot be sure of the motives of the people you refer to as 6a$t@rds and elitist slime. For all I know, they may be just the ignorant end products of our socialized education systems. But whatever their motivation, they are dead set in their oppostition to liberty.

"For all I know, they may be just the ignorant end products of our socialized education systems."

I'm not talking about your aunt Harriet here. I'm talking about the decision-makers. You really think the President, Congressmen, and Senators don't know? You think the economists at the CBO, and Peter Orzag are not fully aware that the minimum wage is simply a price floor with all the necessary consequences? OF COURSE they know. They push it not only because it gets warmfuzzy votes from the ignorant, but because it creates misery, and these people see human misery--when blame can be deflected from themselves--as a major source of their political fortunes.

My characterization was diplomatic.

The people who feel the negative effects of the minimum wage the most are probably teenagers seeking part-time work. They have little to no skills and also aren't going to commit for a long enough time to be worth a large investment in training them. These people typically aren't destitute but they're still harmed by the law.

That's why the 16-25 unemployment numbers are so high.

"The employment effects seem to be minute" or "That, for me, is far less offensive"

Tell that to the guy that can't get a job because of wage controls. You're minute.

Saying it's a small effect doesn't mean it's a non-existent effect. And even a negative effect has to be qualified - there are important conditions where a minimum wage can be expected to induce a positive employment effect. Anyway, I'm saying the effect is small and estimates vary. Don't twist that into me saying it's not important for the people actually experiencing it.

You seem to be forgetting that I'm saying it's a bad policy and we ideally wouldn't have one.

You seem to be forgetting that I'm saying it's a bad policy and we ideally wouldn't have one.

The problem Daniel is that you argue both sides of every issue. It is always "I agree, but..." So no one can ever pin you down. It gets annoying.

I can't help that you get annoyed. Why do I have to have a strong opinion on everything? What gets annoying to me is that people on here feel that they have to take an extreme position one way or another on everything. It's abnormal. Nobody is willing to say "well, I can see some benefits and I can see some problems with it". I don't know if you realize how unusual it is that so often people on here aren't comfortable responding that way. And not only can't they respond in that way, but if someone doesn't respond the way they do they brand them as the opposite ideological extreme. Anyway, that's what annoys me but I don't consider my annoyance to be anyone else's fault.

Why do you need to pin me down? I can't pin me down, I wouldn't expect you to.

You're essentially annoyed at me for not descending into righteous indignation at a minimum wage. You're annoyed at someone for not getting angry. Don't you realize there's something wrong with that?

Daniel, why do you assume anyone here supports corporate welfare like agriculture subsidies? Keep peddling your straw men.

I was under the impression that probably no one here did. Where did I say that people here support ag subsidies?

You threw out the corporate welfare talking point as though it hadn't been condemned by everyone many times here.

I never said such a thing - sorry you interpreted it that way. I threw it out there as something that it seems silly to worry about the minimum wage in comparison to.

Not everything has to be a fight - I threw it out there knowing it would be something a lot of people would be nodding their heads on.

2 years of muirdog has made us a bit hypersensitive.

My apologies.

Does muirgeo honestly believe libertarians like corporate welfare?!?!?

I give him more credit than a lot of you do - I honestly think he makes good points on a fairly regular basis. But sometimes he can offer some real doozies.

Of course he does. He is the king of employing straw men on this blog. He regularly accuses libertarians of things we don't stand for. That's why nobody takes him seriously. When has he made a good point about anything? Please cite one example.

Haha - not tonight. I have some work I need to get done. I'll give you a shout out next time I see one though. Usually it's points he makes regarding the state being a tool or protector of the people sometimes, and not always a predator. And I have to say... while he probably presumes he knows too much he's a lot more of a realist on climate change than most people on here.

He goes on tirades about Republicans and corporations that bug me - but every once in a while there's a gem in there.

Oh! One just came to me - the other day he was explaining to mommsen1625 how corporations are a product of the state, that they enjoyed special priveleges from the state the differentiated them from business partnerships (namely limited liability), and that limited liability was a quality of the corporation that couldn't emerge from contracting in a free market. And he's right. Now, he went on from there to talk about how that's bad and we shouldn't have large corporations... I went my separate way at that point. But he's right that a limited liability corporation exists by the fiat of the state. You couldn't force a third party to accept that you only have limited liability for property you own in a free market. You need the coercion of the state to do that. It's an important distinction that a lot of people ignore, but that muirgeo was dead-on with.

Yasafi is a hypocrite. He constantly bashes libertarians as pro corporate welfare when he's the only person to comment here (as I noted in my other post) in support of corporate welfare.

He's also a hypocrite about AGW, telling us that we need to reduce our CO2 output while he extravagantly traipses the globe on his carbon-spewing vacations.

He's also a hypocrite about medical profiteering, decrying for-profit medicine while profiting in medicine to such excess that he can afford those carbon-spewing vacations.

In fact, we've bashed several of his pets the last couple of days, and he hasn't chimed in yet. He's probably just getting off the plane in Alaska, on yet another of those vacations that let him walk "where no human has ever set foot" - again.

Speak of the Devil!

There is one person who frequents this Cafe who supports corporate welfare for Ag producers like ADM, and for other corporations that make products deemed by the leader of the Church of AGW (His Holiness: The Divine Prophet Algore I) to be crucial to the survival of Mother Gaia.

That would be none other than the Grand Inquisitor for the Church of AGW; Cardinal Yasafi Torquemuirduck.

I agree, it's not the most pressing issue to the economy. Over-regulation is. It's especially harmful to small businesses who exist on a wire's edge as it is.

Only because the people devastated by the minimum cage are not people you and I associate with. Makes it even easier for the slimy politicians to marginalize them.

That's true I hardly know anyone who makes less then 6-figures.

I suppose it's always been easy for politicians to trample on the liberties of those who need liberty the most. What's so infuriating is the well-intentioned but ignorant folks who refuse to learn the very basic economics of price floors.

That's why politicians created public schools.

Just when you think "the impact of minimum wages changes is hardly detectable", presumably because quite a small percentage of the (above ground) U.S. workforce earns only minimum wage, you remember the whole "Seen and Unseen" thing. The imagery in the old phrase "kicking the bottom few rungs out of the employment ladder" is quite powerful. For more details, see Walter Williams.

Exactly! The minimum wage has been in force for decades now, so entire classes of work and entire opportunities for generations have been lost. Now you can look at an increase in the minimum wage, and conclude, "The effects are small" but you are comparing two scenarios which include minimum wage, and completely ignoring the scenario that excludes minimum wage. Unseen effects here are huge.

It has no detectable effect on the aggregates, but probably a devastating effect on the most vulnerable, who are small in number and thus drowned out in the usual statistics. And keep in mind that the studies usually look at changes in the minimum wage from one level to another level, not from ZERO to the current level. That further diminishes the effect. Abolishing the minimum wage would open the door to a lot of unemployable people to enter the mainstream of productive life.

The minimum wage is really a horribly cruel and inhumane law. Who knows how many of the millions currently on the street or government supports could move toward self-sufficiency if minimum wage laws were repealed.

Would those currently unemployed people be willing to pick vegetables or work on factory farms? Basically what we employ illegal aliens to do.

I doubt they are ALL illegals out in the fields. Most of the homeless I know are urban. I've talked to a ton of homeless guys. Some say that they periodically do a walk around town asking for work. I don't doubt it, but I wouldn't want to hire them either--not at the cost of minimum wage, benefits, and liability risk if I should want to fire them. Shame. I'd like to help them out, but the cost is WAY too high.

Perhaps. But who is going to relocate an unemployed, unskilled Philadelphia teenager to south Texas or central California? That teenager may or may not become productive picking vegetables. Why take the risk?

Daniel - if muirdog could keep his whopper rate down to below 90% that would be something. But it pretty invalidates his credibility.

In case anyone is interested, John Stossel is now blogging on Fox. See http://stossel.blogs.foxbusiness.com/ . I don't think that this was mentioned in any of the comments.

Great link to the video. I am completely onboard that setting a minimum wage is actually counter productive.

I'm wondering how one becomes a part of your blogroll?

Thanks!