My Mercatus Center colleague Jack Salmon exposes “the methodology laundering of minimum wage research.” Two slices:
A question economist have been exploring for decades is whether we actually know what minimum wage increases do to employment. But an equally important question is whether the methods economists have increasingly relied upon to answer that question are as clean as advertised.
A new working paper by David Neumark and Antonio Rodriguez-Lopez, “Modern Difference-in-Differences, Same Old Answer,” lands a serious blow against recent high-profile research claiming that minimum wages have little to no effect on jobs. Their argument isn’t that event-study designs are bad. It’s that the null results attributed to these methods are artifacts of specific, defensible-sounding, but ultimately flawed researcher choices that, once corrected, yield the same old answer: minimum wage increases reduce employment.
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The most striking is the dependent variable. CDLZ measure employment as a share of a varying population, that is, the current population in each period, which itself changes in response to minimum wage policy. This matters enormously. There is a well-documented negative relationship between minimum wages and population: higher minimum wages tend to reduce population in affected areas, as workers and firms relocate. When both employment and population fall after a minimum wage hike, the ratio of the two can actually increase, making it look as though jobs were created when in fact jobs were destroyed. CDLZ never justify this choice, and it’s inconsistent with their stated goal of estimating effects on low-wage jobs.
When Neumark and Rodriguez-Lopez switch to either a constant population denominator or simply log employment, both more defensible specifications, the long-run employment elasticity shifts from a statistically negligible +/- 0.01 to a significant -0.09 (weighted) or -0.20 (unweighted).
This paper estimates the effects of the 2025 U.S. tariffs on household spending using transaction-level data linked to tariff exposure and a tariff sentiment survey. Comparing high versus low tariff-exposed categories, we find 15 to 20 percent price pass-through. At the mean increase in tariff exposure, prices rise by 1 to 2 percent while spending falls by roughly 4 percent. Survey evidence linking stated intentions to revealed behavior identifies a mechanism for the large spending response: reallocation toward essentials and trade down within categories, concentrated among middle-income households with discretionary slack who express tariff concerns. Low-income households bear a disproportionate welfare burden through regressive pass-through.
From the moment that the news of Musk’s deserved prosperity broke, all that Democrats and progressives could think of was how they could get their hands on his money.
Sometimes, they’d tell themselves they need to expropriate his wealth because America’s unsustainable entitlement programs are faltering, as though Democrats hadn’t spent decades demagoguing every meaningful reform to the country’s unfunded liabilities.
Or they’d say that Musk owes his success to government contracts. Therefore, his net worth is fair game — as though federal contracts were a beneficence that Washington can capriciously revoke at will.
In moments of candor, some on the left would argue that it’s simply unethical to allow Musk to enjoy the fruits of his own labor. “Trillionaires shouldn’t exist in a moral society,” argued Representative Jim McGovern.
What’s immoral here is the rapacity to which the Democratic left succumbed. It’s also downright un-American.
As John Locke conceived it, the right to property was as God-granted as the rights to life and liberty. The Lockean ideal is codified in the nation’s founding documents. It is an ideal that protects the individual against being coerced or suborned into sacrificing her talents, efforts, and time to others or the state. As Locke wrote in Two Treatises of Government, “Where there is no property, there is no justice.”
The American foundation is built upon Lockean bedrock, and respect for individual labor and its rewards has contributed in no small measure to America as a force for good in the world.
Charles Cooke writes insightfully about California’s proposed “Billionaire Tax.” A slice:
Why has this happened? There are many reasons, but one of them is that the state’s residents have become all too comfortable having it both ways. Californians want to rely upon the rich to pay almost all of the taxes in the state and to vilify those rich people and to suggest that they shouldn’t exist. By design, California’s budget is heavily reliant upon the wealthy. This is why California collects far more revenue than usual during tech booms and periods of impressive market gains, while during busts and downturns it faces drastic budget deficits. Under the current system, the top one percent of Californians pay around half of all personal income taxes in the state, while the top five percent pay around 70 percent. And unlike in the federal tax code, capital gains are treated as ordinary income in California, which means that when a founder sells his company or an investor realizes his gains, he is taxed at the full rate. The Democrats who run the state insist that this is “fair,” which is their prerogative. But when combined with their open hostility toward those who are paying the bills, it is unsustainable.
A few years ago, the head of the California Federation of Labor Unions, Lorena Gonzalez Fletcher, tweeted “F*ck Elon Musk.” In response, Musk wrote “Message received” and relocated Tesla to Texas. While less profane, the “billionaire tax” has sent the same message, and, whatever its fate, it is now guaranteed to have had the same results.
GMU Econ alum Adam Michel reports that “AI panic is producing terrible tax ideas.” A slice:
In theory, productivity-increasing technologies can replace or complement human labor. New technologies have always replaced some jobs, but in the process, they have created entirely new industries, expanded overall output, and enhanced the value of human inputs and, thus, their wages.
As I explain in a new piece for GIS Reports, the labor is losing to capital story does not show up in the data:
In standard economic models, output is attributed to the combination of labor, capital and technology. Each component can be thought of as earning a share of national income. If, over time, capital became more important for economic output, capital’s share of national income would increase. Empirical evidence does not support this claim.
Figure 1 (below) uses data from the United States Bureau of Economic Analysis to show that the labor share of net income (net of taxes and depreciation, which better captures income actually available to workers and capital owners) is within its historical range, fluctuating above and below the average of 69 percent. Labor’s share rose gradually from the mid-20th century through the early 2000s, declined modestly thereafter and has since returned near its historical average.
