Seems Cruel

by Don Boudreaux on December 1, 2009

in Myths and Fallacies, Prices, Reality Is Not Optional, Work

Here’s a letter that I sent yesterday to the New York Times:

Pleading for government to address today’s unemployment problem more vigorously, Paul Krugman writes that “The long-term unemployed can lose their skills, and even when the economy recovers they tend to have difficulty finding a job, because they’re regarded as poor risks by potential employers” (“The Jobs Imperative,” Nov. 30).

I’m confused.  Because Mr. Krugman here seems to understand that low-skilled workers produce less value per hour for their employers than do higher-skilled workers (or than does capital equipment that substitutes for low-skilled workers) – and because he recognizes that employers can get by profitably without hiring low-skilled workers – why does he, in other columns, support a higher minimum-wage?

Why does Mr. Krugman advocate policies that raise employers’ costs of hiring workers who, as he himself describes them, are “regarded as poor risks by potential employers”?

Sincerely,
Donald J. Boudreaux

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  • MnM
    Great question.
  • Zing! Nicely-done! ;-)
  • I think YOU should have a regular column in the NYT, or better yet, the Wall Street Journal.
    -Cato intern
  • JohnK
    Is there any form of government intervention that Krugman does not support?
  • LowcountryJoe
    I'm sure that someone will drop by with some reply letting you know what Krugman meant in his latest column and thereby clearing up any ambiguity.
  • Barbarossa
    lol, Krugman, the Jackson Pollock of economists.
  • Methinks1776
    Too logical. Krugman can't compute. Nice try, though.
  • It seems to me that if you don't support minimum wage then you are an ally of inequality and poverty. In my microeconomics textbook, the effects of minimum wage and collective bargaining are well described, yet the author is unable to make the final conclusion that by artificially raising wages you are prolonging unemployment. He, instead, suggests that in this case total hours work per worker will be lower, and the firm will employ more people. Even if this is true (and it isn't always true), the surplus of labor is in hours worked, and somebody working part-time might not be able to make a living.
  • Methinks1776
    I think you need to burn that textbook.

    If minimum wage drives up the cost of labour per hour, why would I reduce the number of hours worked per worker and hire more workers? If the two workers are now working the same number of hours together that the one worker used to work on his own, the labour cost remains the same, but now I have the additional hassle (cost) of managing more people.

    I think I would fire the lower skilled labourer and hire one with more skills to do his job and perhaps take on other duties as well (since he's more skilled) to add more value to my company for the higher price I'm forced to pay.

    The guy whose labour is worth less than the minumum wage potential employers are forced to pay him simply remains unemployed. Minumum wage simply changes who is employed. In this country, that group tends to disproportionately consist of young black men. Min. wage is perhaps the most racist policy since Jim Crow laws.
  • johndewey
    JCatalan,

    If a specific worker's contribution to a firm is only valued at $6.00 an hour, why would that firm employ the worker if forced to pay him $7.25 an hour?

    Here's what firms have done when minimum wage rates have risen above the value of specific workers:

    1. automate a previously manual task
    2. send the work to another nation not burdened with economically invalid minumum wage laws
    3. hire replacement workers who can provide more value to the firm than just the task performed by the low-skilled worker
    4. stop doing the task performed by the $6.00 low-skilled worker
    5. demand and get more productivity from a fewer number of low-skilled workers.

    Can you see how each one of those reactions to minimum wage laws will reduce the number of jobs available to U.S. low-skilled workers?











  • Methinks1776
    Nice. As usual, you put it better than me.
  • johndewey
    One more point, JCatalan: those reactions I listed only apply to existing jobs. In addition, minimum wage laws prohibit the creation of some low-skilled jobs. A good or service which may be viable when produced by $5.00 an hour workers may not be viable when minimum wage rates are $7.25 an hour. So a job which would have been created is not created. Or it is created in Vietnam.
  • You seem to believe that I am arguing in support of minimum wage. You need to re-read what I wrote.
  • johndewey
    I was confused by your comment. This statement:

    "It seems to me that if you don't support minimum wage then you are an ally of inequality and poverty."

    can be interpreted as a criticism of those who oppose minimum wage. Consider this as an alternative:

    "It seems to me that if you don't support minimum wage then you will be viewed as an ally of inequality and poverty."

    In any case, I was disputing the conclusion of the textbook author, who apparently believes that minimum wage laws reduce hours worked but not number of workers.
  • The Other Eric
    I've never understood why the left, in the US, does not embrace education credits instead of minimum wages. Education and training, often supported in theory by the left, get no love when it makes sense to look at employment and inequality as a social-cognitive issue instead of a welfare-labor one.

    You can eliminate any minimum wage requirements for employers who pay wages plus education credits to workers. Instead of constraining employment the government could use this system to support educating the populace to actually be employable.

    If you're out of work you get credits to go out and spend on classes, tutorials, or co-op experiences with an employer who gets new trainees for free. You can earn credits while working, like paying into social security and unemployment funds. The longer you are unemployed, the more opportunities you'll have to retrain or apprentice with a company you think could be your future.

    Why does Washington have to think of labor and wages as if that market hasn't changed for 75 years?
  • danielkuehn
    That sort of support for training while unemployed was included in the Unemployment Insurance Modernization Act, and in the temporary unemployment extension. I don't know if you'd call it "the left" but these things were spearheaded by the Democratic Party. Guess who didn't like the addition?

    I like your broader idea for education credits. Has that ever been presented by anyone before? Not that I know of. Anyway, I like it a lot, but it's obviously a big change.

    I'm not sure "the left" (again, whoever that might be) is ignoring the role of education in inequality. Almost all the research I've seen on income inequality has concluded that education and the demand for skills is at the heart of it. Who are you thinking looks at it as a "welfare-labor" issue (what exactly do you mean by that)? Are you just talking about things like the reaction to The Bell Curve? Just because there was a rejection of some of the conclusions about IQ doesn't mean there was a rejection of the role of education.



  • Methinks1776
    The other Eric suggested it as an alternative to minimum wage. The legislation you're talking about ADDED an extra burden rather than substituting minimum wage for something else. Is it any wonder "guess who" was against it then?

    I'm not surprised that such a thing as education credits has not been proposed instead. It would give individuals way too much choice and that chafes the average politician.
  • danielkuehn
    Yes I understand that. I've said on this blog before I'd be entirely comfortable with dropping the minimum wage.

    And right - the example I gave, as I said, is only that "sort of support for training". It's not the other Eric's whole package.

  • Methinks1776
    Since you agree the education credits in the legislation are an additional burden, why are you so surprised they received no support from "guess who"?

    Seems disingenuous. Did you think that we just wouldn't notice that the credits added to the burden and take to raging against Republicans or something? Mandating additonal burdens is the "sort of thing" you support?
  • danielkuehn
    Well any credits - whether they come with a minimum wage or not - would be an "additional burden". The other Eric's initial point was that Democrats don't support those things. I was simply pointing out that in a measured way they have, and Republicans haven't. I don't expect anyone on here to come running to the defense of the GOP.

    RE: "why are you so surprised they received no support from "guess who"?"

    I'm not surprised... but I don't think "guess who" has ever demonstrated a particular distaste for creating additional burdens.
  • Methinks1776
    Well any credits - whether they come with a minimum wage or not - would be an "additional burden".

    If credits replaced some of the unemployment insurance burden on employers or replaced minimum wage, they would not be an additional burden. I didn't realize that was such a fine point. Democrats don't support tax credits as a replacement because politicians in general and Democrats especially can't abide by people making their own economic choices.

    We all agree that politicians in general don't like to reduce their own power by allowing people to direct their own lives as provided for in the constitution. If your statement wasn't meant as some partisan remark, then what's with the cryptic "you know who" opposed it?
  • danielkuehn
    I didn't realize this was such a fine point either! OK - you add a credit to the budget, but it's not an additional burden because it comes with the elimination of something else? Fine, whatever.

    RE: "Democrats don't support tax credits as a replacement because politicians in general and Democrats especially can't abide by people making their own economic choices."

    Last time I checked the tax code is riddled with tax credits and they have broad bipartisan support. The credits aren't always well advised (and rarely endorsed by libertarians... which makes this whole discussion a little surreal).

    RE: "If your statement wasn't meant as some partisan remark, then what's with the cryptic "you know who" opposed it?"

    Was it really cryptic? :) I could have just said "the Democrats supported it and the Republicans didn't". I said "you know who" because they've been so outspoken on it - it seemed like an allusion was fine. Anyway, as I explained above, the only point of that statement was to disabuse the other Eric of the notion that this is something that "the left" is opposed to.
  • Methinks1776
    education credits, I meant. That's what we were talking about. And instead of unemployment or minimum wage, not in addition to is what the other eric was talking about.

    I don't speak for libertarians, but I don't like tax credits because they complicate the tax code and because they are used as a means to redistribute wealth. I'd happily replace the entire IRS shite show with a negative income tax as suggested by Milton Friedman. Yes, that redistributes wealth as well, but in a more honest, transparent and cheaper way.

    I keep making this point and you keep missing it: Eric did not suggest piling education credits on top of existing entitlements. He suggested education credits instead of a specific existing costly (and racist - my addition) policy. You wish to disabuse the other eric of the notion that Democrats would not prefer to have education credits instead of minimum wage by pointing to Democrat legislation which plops education credits on top of minimum wage? Laughable.
  • danielkuehn
    And I should note - you see this type of sentiment a lot. People on here say "the left doesn't like vouchers". Sure, vouchers aren't a rallying cry for the Democratic Party but of course many on the left support vouchers. That kind of homogenization just seems a little overblown to me.
  • Mark
    "That kind of homogenization just seems a little overblown to me."

    When you hit that masters-degree-professional-researcher level, generalizations are anathema.
  • Barbarossa
    Well, frankly such "homogenization" and generalization is difficult to avoid when most people cannot transcend the false left-right paradigm or escape the fact that our government is run by a party duopoly.
  • Methinks1776
    a party duopoly? I was under the impression it's run by feces-flinging chimps.
  • Barbarossa
    Don't think that they're somehow mutually exclusive.
  • Methinks1776
    Ha! Clearly they're not!
  • Mark
    "I don't think "guess who" has ever demonstrated a particular distaste for creating additional burdens."

    A nice, vague bait that Danny can use to get someone into an argument. Then he can split hairs, backpedal, wonk and claim victory. Any takers?
  • Mark
    "I'm not surprised..."

    Nothing surprises the omnicient.
  • The Other Eric
    Thank you for actually reading my post. Your last point is, sadly, absolutely true.
  • Mommsen1625
    A minimum wage along with welfare benefits creates a need for a large bureaucracy; that would seem far less true for education credits. On a side note, one of the benefits of Friedman's version of the negative income tax is that it largely bureaucracy free.
  • Mark
    "I'm not sure "the left" (again, whoever that might be)"

    Labels sure bother Count Danku.
  • Mark
    "ho are you thinking looks at it as a "welfare-labor" issue (what exactly do you mean by that)? Are you just talking about things like the reaction to The Bell Curve? Just because there was a rejection of some of the conclusions about IQ doesn't mean there was a rejection of the role of education."

    Oooh, he's searching for hairs to split. Watch out, Danku's on the prowl, looking for someone to wonk on!
  • Mark
    "I like your broader idea for education credits."

    Yes, it's nice and wonky. It's fun to make policy and lead people through life like rats in a maze, isn't it?
  • Methinks1776
    You nailed it.
  • Mark
    Oooooh, nice policy!

    -- Count Danku, circa Every Day
  • Barbarossa
    You're deathly afraid of being exposed as the leftist you truly are, aren't you? (Sorry, "leftist.") To thine own self be true, my young Laertes.
  • danielkuehn
    I personally don't care what you call me - I don't normally think of myself as "left", but I'm not scared of the label, and I know I'm left of people on here. I just didn't know if he was talking about socialists, or just liberals, or just Democrats, or just people that aren't libertarians. The first two are usually used for "left" in the real world... around here you never know. He may just be refering to non-libertarians or Democrats.

    My concern with labels on here is that it's impossible to know exactly who the hell anyone is talking about.

  • Barbarossa
    Can I just call you a statist, then? That way there's no room for mislabeling.
  • johndewey
    Well, let's think about that, Other Eric:

    1. As a taxpayer, I'm already heavily subsidizing the education of potential workers who train at public community colleges and tech schools.

    2. As a consumer, the prices I pay for goods are already higher due to unemployment taxes levied on all employers.

    3. As a taxpayer, I'm already paying for food stamps, many of which are given to the unemployed.

    4. As a taxpayer, I'm already paying for Pell Grants and for guaranteeing student loans which enable unemployed workers to be retrained.

    I assume from your comment, though, that I'm just not doing enough, am I? So who is going to pay for your new social program, Other Eric? I suppose governments could just increase unemployment taxes. Did you consider what happens to employment opportunities when taxes are raised? Do you think that increasing employment-related taxes is going to make American industry more competitive in global markets?
  • The Other Eric
    No John, since I also have to pay for these things I think you are not paying enough... I was actually making a point that we should, in the US taxpaying system, actually ask for a system of social supports that support, well, society. Unemployment benefits don't seem to do that. Neither do food stamps (although I didn't write about them.)

    I think eliminating 1 through 4 and replacing them with a voucher/credit system through employment and co-op training would support US commercial and industrial growth by directly educating the population. (I really don't know much about direct food aid in the US except that it doesn't work very well for other countries.)

    I would not favor raising taxes at all. I would like taxes collected to support society to actually support society, which I am suggesting would be directly related to educating people in that society.
  • johndewey
    Other Eric: "I think eliminating 1 through 4 and replacing them with a voucher/credit system through employment and co-op training would support US commercial and industrial growth by directly educating the population."

    Why would America be better served by replacing subsidies to community colleges and public tech schools with your voucher/credit system and co-op training?

    Why would America be better served by replacing Pell Grants and student loans with your voucher/credit system and co-op training?

    Other Eric: "I would like taxes collected to support society to actually support society, which I am suggesting would be directly related to educating people in that society."

    Pell grants, student loans, and community college/tech school subsidies are directly related to educating people in America. Almost all of the people I have worked with the past 40 years have taken advantage of at least one of those three benefits. Why do you think those programs are not working?
  • The Other Eric
    I think they might work better as direct aid to individuals who then could 'purchase' education and training directly. Higher education and tech school subsidies and loan programs support those institutions. I would like to see individuals have better incentives and more flexible options for pursuing education. Loans and grants are often paid to institutions without ever even being seen by individuals (much like health care insurance payments). This is a benefit for students but one that divorces the student from the freedom and process of choice. It supports monolithic educational institutions rather than individuals. Good things are often learned, but often as a byproduct of the system rather than its design.

    This all goes back to Don's blog post (at the top). The long-term unemployed are the least likely to go back to school and yet they need new cognitive tools and abilities the most. Pell and other grants are often given to fresh-faced young folks already in schools or just graduated, primed, learners. Workforce retraining is often poorly organized, designed for a scattered array of skills, and available but not used by many unemployed people.

    Credits or vouchers would do things: give people incentives to use them on training that they think would be of the greatest interest and benefit and it would push institutions to offer education that serves the greatest needs. The subsidies would not stop. The direction they would come from would change.
  • johndewey
    OtherEric,

    Do you know what is taught in community colleges and tech schools in the United States? The programs offerred provide vocational skills which directly prepare them to work in jobs. Dallas County Community College, for example, offers programs for such things as: medical aides; air conditioning repairmen; automotive painters and body repairmen; food preparers; welders, and much more. The students are not all "fresh-faced young folks". My 52 year old sister, for example, last year received a Pell grant to attend a technical school.

    Do you know how government allocates funds to community colleges and tech schools? It is based on enrollment. So when students exercise their free choice to attend a program at a particular school, the school receives additional funding.

    Do you know much about the Pell Grants I referred to? These are given directly to students - young and old - to attend higher education programs.

    Do you have any clue as to how many Americans obtain student loans? SallieMae, the federally guaranteed student loan corporation, currently provides loans to 11 million students.

    Your comments seem to indicate you know very little about these programs. Yet, you have proposed eliminating these programs:

    "and replacing them with a voucher/credit system through employment and co-op training would support US commercial and industrial growth by directly educating the population."

    Here's your justification for your new program:

    "Credits or vouchers would do things: give people incentives to use them on training that they think would be of the greatest interest and benefit and it would push institutions to offer education that serves the greatest needs."

    Pell Grants, student loans, community colleges and tech schools are already doing exactly that.
  • The Other Eric
    Actually I know quite a bit about these schools and programs... for decades, as a consumer and faculty member. I'm not opposed to the efforts made so far.

    Your last sentence is wrong. The opportunity to use a gated system is not the same as the freedom to choose from open options.
  • Barbarossa
    They're certainly working well at driving up the cost of higher education in America, increasing graduates' debt levels, and encouraging or at least not discouraging wasteful degree tracks like liberal arts. Frankly, I think there shouldn't be any involvement in government education, certainly at the tertiary level. And we should remove this cultural myth that "any degree" can confer upon one better employment and income prospects, all opportunity costs considered. (John, by the way, just a side note, it does seem that you're asking an inordinate number of questions and that such excessive inquiry is not constructive to our discussion.)
  • Barbarossa
    "I think there shouldn't be any government involvement in education," is what I meant to say. My bad.
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