Via Bleeding Heart Libertarians, I read Daniel B. Klein and Stewart Dompe’s admirable article “Reasons for Supporting the Minimum Wage: Asking Signatories of the ‘Raise the Minimum Wage’ Statement.”
Klein, an economist who opposes the minimum wage, wanted to understand why so many economists disagree. As Klein and Dompe explain, summarizing many surveys of economists regarding the minimum wage, “US economists are not only divided over the minimum wage, but the distribution of policy opinion is U-shaped, suggesting deep-seated cleavages.”
Internationally, economists in the USA are more likely than economists in other countries to believe that the minimum wage causes significant increases in unemployment (economists in France are the least likely). In the US, economists who specialize in labor economics are somewhat more supportive of the minimum wage than other economists.
My point is, there is no consensus among US economists regarding the minimum wage. And yet, conservatives often speak as if the negative consequences of the minimum wage are settled fact.
Art Carden writes that scrapping the minimum wage “would show investors, entrepreneurs and employees that policymakers appreciate the laws of supply and demand” — but the hundreds of economists who support the minimum wage are fully aware of the existence of supply and demand.
Meanwhile, the same Art Carden is frequently found on lists of “skeptical scientists” who doubt the scientific consensus on global warming — a consensus that is absolutely extraordinary in its scope.
Carden isn’t alone. The Power Line blog seemingly doubts there are experts who favor minimum wage, but unhesitatingly labels Global Warming a hoax.
David Henderson writes that “economists of various political stripes tend to oppose the minimum wage…. Economists’ consensus estimate is that a 10% increase in the minimum wage would destroy 1% to 2% of youths’ jobs.” But he also derides “the mistaken belief that ‘the science’ is ‘settled'” when it comes to climate change.
In other words, when about half the relevant experts disagree with Henderson’s partisan preference, then there’s a consensus. But when nearly every expert in the world disagrees with Henderson’s partisan preference, then there’s still a lot of doubt and we can’t say anything for sure.
Even aside from the obvious jibe “why are we listening to economists who couldn’t predict the current recession?”, there’s a more solid critique to make. Economists as a group favor policies that lead to an efficient market, not necessarily what leads to a healthy society.
If total market efficiency could be achieved through slavery, economists would be in favor of it. If consumers could be made more rational through lobotomies, economists would consider it a worthwhile expense to publicly fund the procedures. The welfare of the market, not the culture, is what matters to them.
Well, you know the saying about how hard it is to get a man to understand an argument when his salary depends on his not understanding it.
Essentially, it’s neo-Calvinism
All of these conclusions are predicated on a set of assumptions. We’re used to talking about “in-field” assumptions, like “How much growth do you assume?” and “what is the assumed interest rate?”
We tend to ignore the out-of-field assumptions but they can often have a much larger effect on the end result. In this case, I found it telling that the economists had such deep divides about questions like “what is liberty?”
It’s very important because those deeper assumptions are REALLY driving the issues, even though we don’t discuss them much.
” conservatives often speak as if the negative consequences of the minimum wage are settled fact” — but of course liberals often speak as if the positive consequences of the minimum wage are settled fact.
Actually, the primary positive consequences of the minimum wage are settled fact. I’ve worked a minimum wage job at a point where the minimum wage went up. My wages went up. I had more money to spend and was a little less poor. This is the primary positive consequence of the minimum wage.
The negative consequences of the minimum wage are a nebulous aggregate affair. There are positive consequences of the minimum wage that are also nebulous aggregate effects. None of those consequences are settled facts. Maybe they are all true to some extent or another, maybe they balance out, maybe they don’t. But the basic positive effect of the minimum wage is simple and well documented: with a minimum wage, lots of people get paid more than they would without a minimum wage. These people have more money to spend and are less poor.
[edited to add: Hi Stentor, haven’t seen you here in a long time!]
The idea that there are negative employment consequences to the minimum wage is based on a particular theory of efficient labor markets that is pretty clearly fallacious. If all of the power were in the hands of prospective employees, so that wages for each job category converged on the maximum that an employer could pay without losing money on the exchange, then raising the minimum wage would reduce employment. But as long as employers tend to have more power than job-seekers, wages will converge on the minimum that a prospective employee will accept without losing money on the exchange. And as long as an employer is making a profit by getting a job done, it’s irrational for them not to have it done.
Paul: “And as long as an employer is making a profit by getting a job done, it’s irrational for them not to have it done.”
But, that is the problem, particularly with minimum wage jobs.
I do not have to worry about the minimum wage, because my employees all have skills that place them in a higher pay scale.
It is the fast food industry (and other entry-level jobs) that have a problem. The problem is that an inexperienced 16 year old might not be worth paying $7.00 an hour to flip burgers that get sold for $1.00. But, the employer is forced to (or pay someone who can be profitable-squeezing the 16 year old out of the market).
The other option is to pay the inexperienced person a wage that is above the person’s skill level and raise the price of hamburgers to $1.25 to make up for it (i.e. to make it profitable, as you say).
-Jut
A higher minimum wage actually looks like it reduces job losses in recessions: http://massbudget.org/report_window.php?loc=minimum_wage_job_creation.html&utm_source=cc&utm_medium=email&utm_campaign=min_wage&utm_source=twitter&utm_medium=social&utm_campaign=min_wage
Raising the minimum wage in a recession doesn’t slow job creation, either: http://www.americanprogressaction.org/issues/labor/news/2012/06/20/11749/the-facts-on-raising-the-minimum-wage-when-unemployment-is-high-2/
Not necessarily.
“Contrary to the central prediction of the textbook model of the minimum wage, but consistent with a number of recent studies based on cross-sectional time-series comparisons of affected and unaffected markets or employers, we find no evidence that the rise in New Jersey’s minimum wage reduced
employment at fast-food restaurants in the state”
There are apparently more than just two options because this study finds that outcome inconclusive. (Differences between New Jersey and Pennsylvania cited in the study above.)
So you would pay them minimum wage if the demand fell for their types of job?
If yes, then it’s not their skills that make them valuable, but the profit you can turn off of them. Suddenly your skilled workers are at the level of “teenagers” and taking jobs away from the entry level despite their experience level.
If no, then it’s an admission that human beings are worth more than what they produce. And you’ll also need to give up being a business owner because you’re acting irrationally according to Friedman’s market theories, and you should stop messing up the economy with your socialist ways, you welfare spend liberal.
I will be happy when economics as a whole stops sucking at the teat of Milton Friedman and begin accounting for reality. The Perfect Market will never happen. I told my economics professor that they needed to add “Unicorns” to the list of conditions for a perfect market, because it’s never going to happen.
Small changes in the minimum wage produce small changes in the economy, and larger changes produce larger changes.
That becomes clearer if you picture the effects of raising the minimum wage to $200 per hour. On a smaller scale, you can look at the effects of raising the minimum wage in cities to a “living wage”. Detroit did that, and it is not a place I would want to live. Or even stay overnight.
Edited to add: I know that the “living wage” is not solely what wrecked Detroit, of course, but the cumulative implementation of those kinds of measures (among them the living wage) – belonging to advocates at a certain point on the political spectrum – wrecked Detroit far more than disruptions in the auto industry. Stir in permanent city-wide corruption and incompetence, bake for a couple of decades, and you’ve got Detroit.
Simple Truth:
Hard to answer, because it is hard to imagine demand falling for those types of jobs (think office or clerical work). But, probably not. You get what you pay for. Generally, I make decisions about pay based not on what the work is worth, but what I can afford.
I pay more to attract better (meaning more skilled or efficient) workers, but I can only pay them what I can afford to, and, sometimes, that is less than they could make somewhere else.
I suppose, if all I could afford to pay them were the minimum wage, I suppose I would have to. But, I doubt that I would get many takers (except for the fact that the economy would have to be so bad for that scenario to happen that there would probably be a large supply of people willing to work for that amount).
I don’t know if that answers your question.
-Jut
@Penelope: saying that ‘living wage’ laws killed Detroit is like saying the lack of modern IV lines are what killed Lincoln. Detroit prospered for decades with strong unions and CBAs that made ‘living wage laws’ look like kindergarten stuff. Treating the corruption and mismanagement, the collapse of the manufacturing economy and foreign competition as footnotes is….well, I don’t want to use ableist language, so let’s just say that point is neither functional nor elegant.
Er…. wha?
The negative consequences are very simple: If you have a job which is worth less to you than the minimum wage, you (a) pay more than you think the job is worth, or (b) don’t hire anyone at all.
I can personally attest to (b), as I have avoided hiring people for that precise reason. When a willing intelligent 17 year old came to me for work, I turned them away. They want me to hire them–and also teach them a bit, and help them learn to write, and assign them some tasks, and let them see “what it’s like to be a lawyer,” and sometimes explain things they don’t understand. After a summer they’d be worth more, and know more. And frankly I might be willing to do it, because even though training a new employee can be a net LOSS for me, it’s nice to pass it on. But I don’t want to pay minimum wage plus contributions plus unemployment risk: they are simply not providing me much benefit.
That person does not get the job they want; I do not get the help that I might take; it’s because of the minimum wage. And the more that I have to pay them, the greater the likelihood I’ll have that problem.
The costs are nonzero, and acknowledging them isn’t fallacious.
That says nothing about the overall balance of cost/benefit; that question is very complex and I personally believe it supports a minimum wage of some kind.
The obvious (to me) thing is that the minimum wage effect is closely tied to the functional wage “floor” below which ERs can’t reliably find decent EEs irrespective of the wage laws. When the minimum wage is close to the floor (as it is now) then it won’t have much effect on overall employment because the wages in either case would be at least roughly similar. If the minimum wage were far above the “floor” then it would be expected to have a much greater effect.
This means you have to be pretty demanding in your examples. Raising the minimum wage to $8.25 might be close to enough to the floor to be fine. Raising it to $12.50 would almost certainly be way above the floor. The expected effects of raising it to 12.50 would be DIFFERENT IN TYPE because they’d be in a different class of behavior. It wouldn’t be fair to say “the employment change from a $1 increase will be 1/4 of the employment change with a $4 increase.”
Of course, one other obvious (to me) thing is that the straight wages of an EE are becoming a smaller %age of the total ER expenses. Way back when, you paid wages only: if your wages went up by 10% then you had to pay 10% more. Now, an ER may pay everything from health insurance to unemployment to expensive training to worker’s comp to state and federal contributions and all that jazz. The less %age that the wages are a part of the total ER expense, the less that the ER will react to changes in wages.
g&w,
Regarding the 17 year-old, I had a similar problem this past summer. 15 y.o. son of a friend wanted to get some experience. Of course, the IRS does not allow “unpaid internships” (they don’t want to lose tax money), unless (and I am almost quoting them) it is primarily for learning purposes and is not of a benefit to the employer (they don’t want me not to pay someone for work I would otherwise pay for).
The problem is: I was not going to employ anyone anyway. I could have used a bit of help; he primarily wanted the experience (and possibly a reference later). But, as a result of the regulations to prevent me from taking advantage of him and cheating the IRS out of money it would not have gotten anyway, he mostly lost out on an opportunity to learn much about my line of work.
-Jut
Of course, the IRS does not allow “unpaid internships” (they don’t want to lose tax money), unless (and I am almost quoting them) it is primarily for learning purposes and is not of a benefit to the employer (they don’t want me not to pay someone for work I would otherwise pay for).
I realize that’s the letter of the law, but you realize that the unpaid/minimally paid (with a flat stipend) internship is alive and well? Every single one of my students does them, both during school and most of them after school and before licensure. The publishing world is filled with them. The law world is filled with them. You can’t call someone an “intern” and then make them your receptionist 40 hours a week, displacing a paying job. But you can have an intern who works with you a few hours a week and learns skills, and you can pay them nothing, or a stipend, and no one will say “boo” to you.
Elusis,
I do realize it is alive and well. I have an unpaid intern in my office now. She came in through an academic program and is doing it for credit. I do not pay her, but I do have certain benchmarks that she has to perform (and she has learned the skills so that she could actually do some of them).
The 15 y.o. has never had a job but is looking toward a career. All he had to offer were skills I did not want to pay for (answer phones, photocopy documents), and all he wanted was a chance to see the way the job worked. He lost out more than I did, because, if things went bad, I would be the one who got in trouble; he had nothing to lose in the deal. I did not want that headache.
-Jut
I’m confused. The IRS will allow Jut to have an unpaid intern with skills he’d pay for but will not allow Jut to have an unpaid intern with skills he wouldn’t pay for? And the one without the desired skills would be there to learn what the job is, while the one with desired skills is there to earn college credits?
What am I missing? Or is this a tomayto/tomahto deal?
Welcome to the bureaucracy, Jake Squid.
Actually, to help clarify things, here is the Department of Labor criteria:
http://www.dol.gov/whd/regs/compliance/whdfs71.pdf
Notice the requirement that I not benefit from the intern but may actually have my work impeded.
That is an encouraging regulation.
-Jut
What I’m confused about is where the IRS comes into the picture – it’s not mentioned in the document linked in @19; the regulations are determined by the Fair Labor Standards Act (passed by congress), and by the supreme court.
You probably can, but if you’re someone who often makes a living suing employers for violating wage laws, it’s an unusually bad idea image-wise ;)
It’s pretty easy to imagine demand falling for that sort of work. I’ve seen it all the time. My dad’s office used to have a room full of typists who would listen to the tapes that the lawyers dictated and type them up. Now, that room is empty, and everyone is supposed to use dictation software. All sorts of tasks like that are being reassigned to the higher-up people. When was the last time you saw a Mad Men style office, where each person has his own secretary?