The Science of Minimum-Wage Legislation

Congratulations to Prof Horwitz for a first rate piece of work.

FTA Obama may well have taken some science more seriously than his predecessor ...

What kind of science did Obama take more seriously than his predecessor?

I tend to believe what economic theory predicts: that higher minimum wage causes less unemployment among low-skilled workers. However, to say this is settled science is a misrepresentation. I am currently taking a graduate course in labor economics, and just last week, we looked at a paper that seemed to indicate that raising the minimum wage may actually increase employment among teenagers. (See D. Card, Using Regional Variation to Measure the Effect of the Federal Minimum Wage,” Industrial and Labor Relations Review, October 1992.)

Granted there's not a satisfying explanation for this. Often a monopsony model of the labor market is used, but any honest economist is not satisifed with modeling the thousands of businesses involved in the labor market as a monopsony.

But to label this as settled science is a farce. And Dr. Horwitz should be somewhat ashamed to call the evidence "nearly unanimous" when the link embedded in his own paper, points to paper which less convincingly states "A sizable majority of the studies ... give a relatively consistent (although not always statistically significant) indication" that higher minimum wages lead to less employment.

Maybe we should just say "WE DON'T KNOW (YET)". It's seems like not knowing should be enough to argue against further minimum wage increases. And I don't want to see economists I otherwise greatly be disgraced in the same way as those global warming champions who are currently "enjoying" their comeuppance.

To test the theoretical prediction that the minimum wage causes fewer units of labor to be employed requires care that other factors remain constant, and care that data are accurate and meaningful. Not all studies of the minimum wage are done with care; some studies by Card and Krueger have been challenged for such reasons.

My reading of the literature does not lead me to doubt that the laws of upward sloping supply and downward sloping demand apply to labor markets. I think Steve Horowitz, and other economists who have done their homework, would agree with this.

Of course science is not about discovering capital "T" Truths, and failure to reject is not generally dependent upon the number of people who think a proposition is sensible.

That price increases lead to reduced demand for almost all goods has been demonstrated time and time again. Only a very tiny portion of goods can be described as price inelastic, and usually only for a very short period of time.

To my knowledge, the empirical evidence reported by Card and Krueger has not been supported by research of any other economist. Rather, numerous empirical analyses - and commen sense - clearly support the view that demand for unskilled labor is elastic in the medium to long term.

The only reason Card and Krueger have received so much attention is that this very tiny set of short-term data, compiled using questionable methods, is the only empirical support for those who would continue to impose government restrictions on the freedom of humans.

I would venture a guess that rent control is also more likely to be supported by "pro-science" partisans. When I read that childhood vaccination rates tend to be lower in wealthier schools and districts (at least here in Southern Calif.), I wonder how many of these parents make the decision not to immunize based on "science" AND think there is scientific "proof" of human-caused climate change sufficient to support an active, interventionist carbon policy. What's next, the re-emergence of alchemy as an elective in trendy private schools?