My colleague Bryan Caplan gives us – in this inspired blog post over at EconLog – the economics behind Peter Thiel’s recent “second-best” argument in favor of raising the minimum wage. Here’s Bryan’s conclusion (but please do read the entire post):
I have great respect for Peter Thiel, but his concession to minimum wage advocates is confused. While some inefficient policies can offset the effects of other inefficient policies, the minimum wage is not such a policy. It doesn’t matter if welfare is high, low, or non-existent. The minimum wage causes unemployment by making marginal workers unprofitable to employ.
Speaking of the minimum wage, Washington Post columnist Robert Samuelson isn’t impressed by White House economists Jason Furman’s and Betsey Stevenson’s dismissal of recent CBO findings that the proposed hike in the minimum wage will indeed reduce the number of jobs available to low-skilled workers. Here’s Samuelson:
Choices exist. On some, the White House has voted against job creation. Naturally, it tries to obscure this. Concerning the minimum wage, it predictably assailed the estimated job losses. These don’t reflect the “consensus view of economists . . . that raising the minimum wage has little or no negative effect on employment,” wrote Jason Furman and Betsey Stevenson of the White House Council of Economic Advisers.
How convenient. Conflicts vanish. The decision is a no-brainer. So say the studies.
This is fairy-tale economics. Many studies find negative job effects. The CBO didn’t make them up. As important, the CBO shows — and this is its real contribution — why many recent studies may not be relevant to today’s proposal. The reason: The proposed increase is much “larger than most of the increases that have been studied.” Even after inflation, it would likely be about a third. Moreover, the minimum would be indexed to inflation, rising automatically with prices. This, too, is new.
All these differences suggest larger job effects, says the CBO.
My colleague Tyler Cowen reviews, in the Washington Post, new books by Diane Coyle and by Zachary Karabell. (I’ve read Coyle’s book – GDP – and, like Tyler, recommend it.)