The Wages of Economic Ignorance

by Don Boudreaux on August 31, 2013

in Seen and Unseen, Work

Here’s a letter to Media Matters:

Samantha Wyatt criticized NPR for reporting that raising the minimum wage might increase unemployment among low-skilled workers (“NPR Pushes Myth That Raising Minimum Wage Would Kill Jobs,” Aug. 30).  According to Ms. Wyatt, “economic studies have concluded that raising the minimum wage has no effect on employment.”

She’s misinformed.  While there are indeed some studies showing no measurable negative effects of higher minimum wages on employment, many other studies find the opposite.  For instance, Texas A&M economists Jonathan Meer and Jeremy West recently concluded that “Using a long state-year panel on the population of private-sector employers in the United States, we find that the minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments.”*  And this study is hardly an outlier.  For Ms. Wyatt to suggest that economists have reached a consensus conclusion that minimum-wage legislation doesn’t reduce the job prospects of low-skilled workers is both wrong and irresponsible.

Empirically detecting the consequences of legislation, such as the minimum wage, that affects a relative small number of workers is inherently difficult – especially given that employment prospects are affected also by dozens of other forces simultaneously in play in the economy.  Theory cannot be abandoned.  And sound theory makes the burden of persuasion very heavy for those who insist that raising employers’ cost of hiring workers will have no negative effects on workers’ job prospects.  Contrary to Ms. Wyatt’s reckless insistence, the empirical record of the consequences of minimum-wage hikes doesn’t remotely begin to bear this burden.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* “Effects of the Minimum Wage on Employment Dynamics” (August 2013).

And never mind (as Bob Murphy points out) that the minimum-wage hike in question is a near-doubling of that wage – a hike far larger than those minimum-wage hikes that have been studied regularly.

….

Do this mental experiment: Suppose government formally prohibits employers as well as all law-enforcement officials from prosecuting or otherwise in any way retaliating against or punishing employees who pilfer small amounts (say, cash or merchandise worth $50 or less each week) from their employers.  Would there be a serious debate about whether or not this enforced policy would prompt employers to protect themselves from the likely increase in pilfering by employees?  And suppose that after such a policy had been in place for a number of years some studies find that, as predicted by textbook neoclassical microeconomic theory, the employment prospects of workers and wannabe workers are reduced while other studies find no such negative effect.  Would it be regarded as an instance of responsible journalism to look only at the latter studies and then insist, based upon these studies, that increased employee pilfering – enforced by government! – has no effect on workers’ employment prospects?

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