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Apparently, Firms Respond to Incentives Only Occasionally

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Here’s a letter to the New York Times:

You rightly lament (as described by your editorial’s title) “The Sad Demise of the Summer Job [2]” (Feb. 28).  Oddly, though, among your proposals to increase teenage employment is for government to subsidize firms to hire more teenagers.

I say “oddly” because you also support more than doubling the national minimum wage to $15 per hour [3] – a policy that you think is unlikely to dampen employers’ incentives to employ low-skilled workers.  Yet surely if employers are so stubbornly insensitive to the cost of low-skilled labor that they’ll not employ less of it when its price more than doubles, that same insensitivity to the cost of low-skilled labor means that employers will not hire more low-skilled labor even when it is heavily subsidized.

So I’ve questions for you: Do you or do you not believe that firms employ more low-skilled workers when firms’ costs of employing such workers falls?  You seem to believe that this effect holds when the policy under consideration is a government subsidy but not when the policy under consideration is the minimum wage.  Can you explain this mysterious asymmetry in firms’ responses to different sources of changes in their costs of employing low-skilled workers?

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

Not once in this NYT editorial on the demise of summer jobs is the minimum wage even mentioned as a potential culprit.  As I’ve said before, the portrayal of the laws of economics by the New York Times is akin to the portrayal of the laws of physics by Road Runner cartoons [4].

For the pointer to the editorial on the demise of summer jobs I thank Peter Smoot.