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(Some) Econometric Studies Find that the Law of Demand Mysteriously Doesn ‘t Apply to Low-Skilled Workers

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Here’s a letter to the Washington Post:

Editor:

Andrew Van Dam is impressed with some empirical research by authors who claim to find only significant net positive consequences from minimum-wage hikes (“It’s not just paychecks: The surprising society-wide benefits of raising the minimum wage [2],” July 8). Having kept abreast of minimum-wage research since the early 1980s, I’m much less impressed.

Starting about 25 years ago there poured forth a stream of research claiming that the data debunk the standard economic prediction that minimum wages affect the employment options of low-skilled workers negatively. Proponents of minimum wages refer to these studies in the same way as does Mr. Van Dam: “the most definitive.”

But these papers inspired other economists to produce a parallel stream of research, all claiming that the data confirm the standard economic prediction that minimum wages affect the employment options of low-skilled workers negatively. (These researchers include – but are hardly limited to – Richard Burkhauser [3], Jeffrey Clemens [4], Jonathan Meer [5], David Neumark [6], William Wascher [7], and Jeremy West [8].) Contributors to this latter stream of research – ignored by Mr. Van Dam – use econometrics at least as sophisticated as that of the other papers. This latter research is referred to by opponents of minimum wages as “the most definitive.”

So whom to believe? If you think it plausible that the same firms that, to escape as much as possible the burden of higher costs, will reduce their carbon emissions if the cost they must incur to emit carbon is raised – or the same firms that, to minimize their exposure to higher costs, buy fewer imports when tariffs on their imported inputs are raised – somehow simply absorb the higher costs of minimum wages and do nothing to minimize their exposure to these costs, then believe the research reported by Mr. Van Dam.

In contrast, if you see no reason to believe that firms, sensitive to the higher costs of all other inputs, are mysteriously indifferent to the higher costs of low-skilled labor – or if you see no reason to believe that workers who are paid more because of the minimum wage spend all of their extra earnings buying the outputs that their firms produce, so that minimum-wage hikes are a sort of self-fueling prosperity machine – then reject the research reported by Mr. Van Dam.

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

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