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The whole bit about "raising the minimum wage actually hurts poor peolpe" is a neat little Econ 101 trick, but it doesn't always withstand scrutiny past Econ 101, and it grows old very quickly. So before you congratulate yourself on the brilliance of your contrarian position, look at some slightly more advanced models, and do a bit of research. Maybe read "Why Wages Don't Fall During a Recession," by Yale economist Truman Bewley. Then leave the libertarian fantasy world behind.
Here's a post I once wrote about this:
http://www.cato-at-liberty.org/2006/06/16/have-...
I'm still right.
You don't have to take the Card-Krueger results as The Final Word to recognize that the evidence on minimum wages is still unclear, and that there is no definitive answer yet. If it turns out that the Card-Krueger results are closer to reality than you think/wish, then increasing the minimum wage isn't "arbitrary" at all. But we just don't know for sure yet.
If you think it's only possible for raising the minimum wage to be helpful in "backwardsville," then you don't know the literature, and your misplaced sense of certainty is based purely on ideology.
Dude.
http://www.pollingreport.com/work.htm
Arbitrary is having laws on the books that say it is illegal to employ undocumented workers and not enforcing those laws by fining or jailing the employers who evade them.
If Professor Boudreaux likes the idea of countries with low or no minimum wage there are many for him to choose from but I'm sure he knows that generally the standard of living would likely be much less in those countires. We hold ourselves to higher standards for our workers and that's a big reason why we have such a productive and high standard of living.
http://www.nationmaster.com/encyclopedia/List-o...
Hey , Djibouti , has no minimum wage. And probably few rules at all. Maybe a good place for those over reulated American companies to move.
http://www.harrisinteractive.com/harris_poll/in...
I'm not sure polling is the best way to settle a factual dispute.
Perhaps the word "arbitrarily" was inapt (I'm not sure), but the main point was true
What is productivity like in Djibouti?
A democratic majority is often wrong about what is in their best interest -- as fully explained in Bryan Caplan's Myth of the Rational Voter. So I agree with you -- minimum wage laws are not arbitrary. They are, however, pernicious.
Good point. The free-marketeers like to argue the minimum wage to the opposite extreme , like why not pay every one a million dollars. As if they are making a good point.
Why make slavery illegal. Just think of all the slaves who can't find employment now because of the arbitrary 13 th amendment.
Even with the minimum wage, the return on the investment in labor is probably higher here in the U.S. than it would be in Djibouti. Plus, lots of minimum wage jobs are service industry jobs, that rely on a pretty good amount of wealth among the customer base. Djibouti probably isn't the best place to open a movie theater.
You're right, though, on one point. The minimum wage is a trade-off. Some people in Congress have decided that they'd rather have fewer people employed, but a higher standard of living for those who keep their jobs. Maybe that's a good trade-off, and maybe it isn't. But I'm not sure why 535 people in Washington get to make the decision for everyone.
Imposing the minimum-wage on slave-owners is a good thing because they'll try to get rid of some slaves and the price of slaves goes down making them less of a valuable investment. On the other hand, imposing a minimum-wage on employers in the free market is not a good thing because they'll get rid of some of their workers. The difference is that workers want to work (do not want to be fired), while slaves don't want to be slaves (want to be fired).
Ashish,
forcing slave-owners to provide air-conditioning to their slaves is a good thing because it reduces the return on the slave-owner's investment. On the other hand, forcing employers to provide air-conditioning, means that the workers will take a pay-cut proportional to the cost of the new unit. The difference is that slaves don't get anything to start with, while workers appreciate all the money they can get and don't like third parties to decide for them if they should get wages in the form of air-conditioning or fire-escapes or other.
Arizonans discovered this when they passed their increase, to the point where advocates for the mentally retarded asked our attorney general to say it ain't so, that voters couldn't have meant to raise retarded peoples' wages, too. Teenagers also found it more difficult to work. I compiled and commented on some news reports back when this happened, it's still on the tubes for your convenience.
Think twice before you accuse someone of being in "libertarian fantasy land", and remove your own VR goggles first. The minimum wage harming the marginal worker isn't Econ 101 speculation. It's known, empirical fact.
"The free-marketeers like to argue the minimum wage to the opposite extreme , like why not pay every one a million dollars. As if they are making a good point."
Forget about the "million dollar" extreme. What would you say to a minimum $10 per hour? What logical outcome might you expect?
The law of demand, which is confirmed in almost everything that ever happens in the social world every second of every day, applies other things equal -- given normal conditions. If you think the law of demand will not apply in a particular instance, you are under a burden to say why not. The very best story of the conditions under which increasing wages for low-skilled workers does not decrease demand for their labor is the monopsony story. It is indeed possible to make this case credibly for certain industries or certain regions at certain times. But local labor markets for low-skilled workers are seldom characterized by the relevant conditions. (If they are, then GREAT, raise the min wage to somewhere in range in which doing so increases efficiency.) But the min wage law at hand is national. The national labor market is certainly not characterized by the relevant conditions. There is really is no reason based on anything more than hope to predict that this makes low-skilled workers better off.
In order to be less low-skilled, low-skilled workers need to be better-skilled. You get better when you work. You work when you are hired. You are hired when the cost of hiring does not exceed the value of the labor provided. I want more low-skilled workers to get hired, so that they can work, so that their skills can get better, so that they can get paid more, so that they can be less poor. Therefore, I am in favor of wage subsidies that allow employers to pay a wage higher than the value of a worker's labor. And I favor direct wage subsidies to employers over increases in the EITC for behavioral "internal accounting" sorts of reasons. (The benefit from EITC is too psychologically dissociated from the work that determined its level.) Wage subsidies have their unintended consequences too, but the MAIN one is not the systematic non-hiring of the people who most need to increase their hours at work in order to increase their skills in order to increase their wages in order to not be so poor.
If this is libertarian faith, then libertarian faith is just the same thing as giving a shit and knowing what you're talking about. So, yes, the law of demand is God. Defy it and it will smite you.
Ceteris paribus doesn't mean "given normal conditions," and if you think it does, then I'm sorry, but you really have no clue what you're talking about. Also, working isn't the only way to become less low-skilled. You're a skilled worker. Did you gain most of your skills through work or school? If this is part of your argument against the minimum wage, then you obviously don't give a shit enough to think your position through.
Try relaxing the assumption of perfect profit maximization across all industries, and then you can do a lot better than monopsony. You don't have to be a Thaler-ite to know that that's a reasonable assumption in many industries; especially in the industries that rely on employees paid the minimum wage.
"Economic laws, like the principles of all the “special sciences,” are ceteris paribus generalizations: generalizations that are true other things being equal. Econ 101 lays out the basic laws and explains what follows from them ceteris paribus."
Where in there do you get that Will thinks CP means "given normal conditions"?
Really what you do in this post is that you call Will out for what you believe is a misuse of the term ceteris paribus, and then you say he doesn't know what he's talking about because he argues that some important 'skills' come from on the job experience. If you're going to call someone a 'libertarian play-economist' you should have more to work with than that.
You obviously have some theory based in bounded rationality about how firms that hire low income workers are not profit maximizing and so the minimum wage can act as an effective transfer to low income workers. I would like to hear about it, I really don't know of good theories for the minimum wage beyond the C&K monopsony theory.
However, I tend to think that Will is right here and that you need to have some reason to throw out the law of demand if you don't think that the minimum wage increases unemployment for low-income workers.
"If this is libertarian faith, then libertarian faith is just the same thing as giving a shit and knowing what you're talking about. So, yes, the law of demand is God. Defy it and it will smite you."
Bartlett's-worthy! I love it when Will gets political about something (and I mean by "political" in a very specific/"philosophic" sense, having something to do w/...thumos...).
That would be close to what the effective minimum wage was in 1950... remember when a single working person could buy a house, raise his kids and afford to and them to college?
So that's reasonable. The evidence IS NOT absolute that minimum wage harms the economy. If companies need workers the difference in paying minimum wages can come from over paid top executives with out any need for lay offs.
You guys are so against minimum wages point to ONE single successful country that doesn't have them. The only exception is in countries where there is strong support for labor.
Bottom line the economics that accumulates massive wealth at the top is doomed. You need lots of money circulating in the middle and lower class to rev up the economy. Time to return to demand side Keyensian economics. It's most compatible with democratic forms of government. Unregulated neoliberal and libertarian economies result in the things we fought against in the last revolution for. Blow that.. No gods, no kings, no masters...
Again , ONE successful no minimum wage society.... where through all of time and of all countries. The fantasy doesn't exist.
Minimum wage can be reacted to via less pay for top end workers AND the recirculation of extra dollars spent by minimum wage workers creates more demand boosting the economy and creating more jobs.
Now I might agree that wage issues might be better effected in other ways such as wage subsidies or stronger unions. There is always a better way and indeed lets argue for better ways but minimum wage is not necessarily a bad way or arbitrary. If minimum wage is arbitrary it's sure curious that all the worlds successful economies have it. Things can seem arbitrary when trying to get 300,000,000 people to decide on something but that's democracy and I'll take it over a country ruled by Kings, Economic Royalist or even well educated philosophers and economist.
Support for minimum wages is pure altruistic signaling. It works as altruistic signaling because the people receiving the signal don't understand economics either.
Denmark, for example, has a lot of fairly effective policies aimed at helping poor people. Collective bargaining rules are strong there, which effectively mandates that many employers pay a certain wage. But not everyone is able to get jobs with those employers. And the Danes are smart enough to not make it illegal to pay those people market rates.
Just so you know, I am on the fence when it comes to minimum wage because the empirical literature is unconvincing (on both sides) and because it really doesn't seem to have much of an effect on macrovariables (particularly in the long-run). However, when I try to imagine the counterfactual of our society without the minimum wage, Denmark style equality is not what I see. But I am definitely open to considering the replacement of the minimum wage with other policies (like those in Denmark).
If you reread what Will has said and look more closely at many liberalization arguments in general, you will see something you probably never noticed before:
Direct subsidies of some kind to targeted demographics are not the same as interfering in the labor through price controls and other distorting policies that can backfire. Some free market thinkers oppose both...others leave room for some specific subsidies while still opposing minimum wage laws.
Debates about minimum wage are not about "wanting to help vs. NOT wanting to help the poor" as many liberals like to think. That's what Will meant by "signaling"...and empty misguided signaling at that.
Something I've noticed through the years is that most Modern American Liberals (social democrats) do not distinguish between different kinds of intervention. It's all the same to them because they don't think about market forces (or think they matter). Therefore, the difference between a negative income tax and a variety of income supplements...as proposed by Friedman and Hayek (for example)...and minimum wage laws are often not different to garden-variety liberals in terms of how they conceptualize what exactly these very different measures MEAN to labor markets.
Think about it.
BTW, Denmark has very flexible labor markets....something whose details you should look into.
From what I have read by Will, he is in favor of instituting direct wage subsidies for low-skilled workers and getting rid of the minimum wage. Let me say that I understand this proposal and think it is actually very compelling.
What I was hoping to get at by probing Will's comment was his thoughts on adopting other Danish policies that can be thought of as substitutes for the minimum wage. Specifically, I was curious what his take was on the Danish policies of having free education (including college), free health care, free job training, and relatively generous unemployment benefits. All of these policies either lead to less unskilled workers in the economy or improve the bargaining position of labor. As such, these policies all lower the distortions of imposing a minimum wage by lowering the number of people who would be on and outside of the margin created by the distortion.
Also, John V, please know that I do not appreciate you implying that I am a liberal, social democrat, or whatever. You will never witness me implying that anybody falls under any sort of category and I expect the same treatment in return. Categorizing people and generalizing their thoughts with those of others detracts from discussion and understanding. If you ever check out my blog, you may notice that I praise and attack the ideas of all parties, regardless of their party or political-economic leanings.
So you DO understand the difference (maybe?). It just didn't seem that way in your previous answer.
BTW, Denmark is a very capitalist country with a vibrant private sector. Let's not call it "socialist". A welfare state? Yes. But not socialist. There is a difference in most respects. And, if you search out info, you'll see Denmark has some kinks in the armor and have had to address some of the overgenerosity of their benefits.
Anyway,
Denmark's "free" institutions that you mention are not "free" at all. They pay heavily in income taxes...50% and higher. It's not "FREE".
As for what Will thinks about it, I don't know. You'll have to wait for him to answer.
This is a little speculative:
"As such, these policies all lower the distortions of imposing a minimum wage by lowering the number of people who would be on and outside of the margin created by the distortion."
Not so sure you're drawing accurate conclusions.
And I have read you're site. You strike me as a liberal...I used to be one. ;) Sorry, nothing to take offense to. If you aren't just say so. As for me, I'm libertarian for the most part. No secret. But I'm totally nonpartisan.
I know that Denmark is a mixed economy. But, you are right, "socialist" is a strong term and "welfare state" is certainly better. But you must admit that with socialized health care, childcare, education, job training, etc., Denmark is more socialist than the U.S.
I know that *nothing* is truly free, not even "free" social services. But "free" is what we tend to call things that have no monetary marginal cost, and (as you well know) that is what I meant.
I don't care if you think that I am a liberal. Just know that I don't like to label myself or anybody else. To label yourself is to limit yourself. When you label others and their arguments you're being lazy, as you're saving yourself the work of understanding the difference between what that person is saying and the usual argument of some group you have in mind. All that I ask is that you do not generalize what I say with that of other people.
Thanks for asking for a clarification of what I meant by,
"As such, these policies all lower the distortions of imposing a minimum wage by lowering the number of people who would be on and outside of the margin created by the distortion."
I admit that was a bit sloppy. Here's another attempt to say the same thing:
Since these policies all increase either the marginal product and/or the bargaining power of labor, they also decrease the market distortion of instituting a minimum wage.
The idea is that these policies all increase the wages that labor would be able to successfully negotiate for in an unregulated market. With less people below any given wage level, once a minimum wage is imposed there are less people who lose their jobs (i.e. there is less distortion). (One might illustrate this as an upward shift in the labor supply curve.)
I agree with the substantive point here (wage subsidies rather than minimum wage), but it is bad faith argumentation to accuse others of bad faith argumentation. "Support for minimum wages is dumb" would be a less assumption-laden way of putting it. "Pure signaling" is presumably taking a position purely for its signalling value, which seems like an uncharitable characterization of the motivations of minwage-supporters.
Nevertheless, your content-to-garbage ratio is impressive given the depths of the flame war at this point.
I don't think the bad faith argumentation charge is fair, here.
Will goes on to write: "It works as altruistic signaling because the people receiving the signal don't understand economics either."
Notice the "either". He's not claiming that the signalers are knowingly promoting policies to hurt the poor. He's saying that they don't understand economics enough to know, but they do know that advocating minimum wage increases works to transmit certain messages.
Actually, those Danish policies I mentioned would also lead to an upward shift in labor demand curves as well. I must have been just focusing on the increased bargaining power and opportunity cost of working for a specific employer, without adding in the effect that each worker's marginal product would also be boosted for that employer, shifting up that employer's demand.
Hell I'll give you an end to minimum wage if you allow a return of the Glass Steagall Act and get rid of Phil Gramms Enron loopholes and his God forsaken "rider" the Commodity Futures Modernization Act which he snuck in on the back of another major piece of legislation.
Those things... those deregulatory handouts and transfers of wealth NOT minimum wage are what's hurting the worker, his wages and the American economy in general.
Minimum wage is a flea on the elephants back but some how it's the big issue for libertarians worried about poverty rates. But of course they don't want to discuss the "deregulatory" fiascos because that doesn't support their world view.
The facts smash their world view as we've done just fine with minimum wage but trusting greed to run Wall Street and some invisible hand to make us loans has ben an unmitigated disaster! Keep your invisible hands OFF ME!
]
The minimum wage imperils the least advantaged among us. The very people our hearts should go out to.
Take a good look at what happened in Arizona. Read an actual clear result of a law that hurt real people:
http://goldwaterstate.blogspot.com/2007/02/ariz...
Raise the minimum wage to $10, $11, $12 per hour and watch unemployment soar. It is intellectually dishonest to not admit that there are marginal increases in unemployment as wages are mandated higher. Demand curves slope downward.
Old Joe at the corner shop has a pay threshold beyond which he can no longer afford to keep one of his least productive helpers (Jill) on the payroll. Jill is likely the least advantaged (an most in need of a job) among us. Keep her on the job and give her the opportunity to advance her life by allowing her a chance. Your prescription for her is cruel if it isn't evil.
Will, you know perfectly well that all the decent research on this suggests that the kind of minimum wage laws we have produce virtually no effect on unemployment. The produce virtually no effect on long-term growth. But they make a profound difference in the lives of millions of people.
Murgo is almost certainly right that if you "Raise the minimum wage to $10, $11, $12 per hour," you'll see some negative employment consequences. Nobody's doing that. Let's talk about reality here, to the extent we're able to perceive reality given the econometric tools that exist.
Here is the Arizona article (scroll down a bit) we all should read:
http://www.arizonasportsfans.com/vb/f22/arizona...
You know what really bothers me every time I read your posts? The way you jump around from topic to topic like a kid with ADD and baselessly accuse people of things that you cannot prove....or can easily be disproven.
And you do this all the time.
You can't seem to stay on topic and discuss policy in a concentrated and thoughtful way while leaving personal innuendos far away from the discussion...where they belong.
And again, (and AGAIN), you accuse libertarians, bluntly or through implication, of holding positions that they DO NOT HOLD. There are so many articles written by libertarians that run contrary to what you say that I would be embarrassed, if I were you, to make such claims when a quick perusal of a few common sites shows the exact opposite of what you claim.
Boudreaux articles covering what you accuse him of not being concerned with or covering:
http://cafehayek.typepad.com/hayek/2008/04/shug...
http://cafehayek.typepad.com/hayek/2008/07/casi...
http://www.econtalk.org/archives/2007/10/boudre... (podcast)
So, besides the nonsensical and false implication that you make, you then go on to minimize the importance of this debate on minimum wage...which really doesn't speak to the matter raised by Will. You don't think this is important? Just say so. You don't care? Just say so.
You want to change the subject and get on the Freddie/Fannie/Subprime mess? Just say so. But be honest and do realize that in doing so, you are preaching to the choir even though you'd like to believe you're not.
Then there's this whopper:
"Minimum wage is a flea on the elephants back but some how it's the big issue for libertarians worried about poverty rates. But of course they don't want to discuss the "deregulatory" fiascos because that doesn't support their world view.
It is AN issue. AND it's the issue of this thread....not all threads. Here's where your duplicitous and dishonest streak comes through.
You see libertarians, like the good and thoughtful Will Wilkinson, talking about poverty and the poor ALL THE TIME. Yet, you have the gall to accuse him and others of not caring. That's a poor argument and a dishonest one. If you don't like the WAY people like Will approach helping the poor, then just say so and be honest about it. And while you're at, give constructive criticism and be precise about it and give it some thought and stay on topic. Jumping from issue to issue and treating them as one for some broad brushed and thoughtless meta-critique reflects poorly on you. That's a content-based approach that doesn't take the infantile, cheap and sleazy approach of attacking people's motivations and character.
Complaining about the economy in general doesn't do much. Neither does conveniently pinning on whatever you're aimlessly babbling about...like here:
"those deregulatory handouts and transfers of wealth NOT minimum wage are what's hurting the worker, his wages and the American economy in general."
That makes no sense as a general statement. You make cause-effect assertions with nothing to back it up. As it stands, that statement could be interpreted to mean several different things. And it not clear at all.
If you are interested in combating law-of-demand-denialism, how about among your ideological confreres? What about those libertarians who deny that legalizing dangerous drugs will increase usage or that taxing carbon will decrease emissions? What are they peddling?
I am a huge fan of the original post, your replies in this thread, and then the older post you linked to. I wish I had started reading your blog sooner, it's really blowing me away lately.
This also applies to "taking" the value of property for environmentalist concerns.
Why not spread the costs broadly, if the cause has a broad benefit?
Contemporary American liberals display a particularly distasteful brand of vitriol whenever someone asks whether the minimum wage actually performs as advertised. It's a dull, dull empirical question. Do low-wage workers fare better of worse under the minimum wage than under a large-EITC program? Or wage subsidies? Or straightforward transfer payments? In this case, mind you, the question comes from Will Wilkinson, who has publicly endorsed a guaranteed minimum income. Apparently, support for a minimum income -- untethered to a requirement that *employers* pay the minimum income through hourly wages -- represents a kind of anarcho-capitalism.
One might even point to this kind of response as strong evidence that support for the minimum wage really is, in part, altruistic signaling. I can't think of having read a liberal political pundit or blogger (that is, someone outside the academy) provide an explanation of why we don't -- and should expect to -- see the rise in unemployment that one should expect. We get lots of comments to the effect that "This is more complicated than Econ 101," and that there *is* such an explanation, but the actual explanation is always conspicuously absent.
Armchair speculation on the merits: Surely there are *some* labor markets in the United States in which transaction costs give employers a kind of psuedo-monopsony power. Likewise, I can see how systematic discrimination in the labor market would depress wages in a way that the minimum wage could repair. I imagine that these effects are frequently quite large, and that's probably why the minimum wage's negative effects are not as large or as uniform as one would predict in a well-functioning market. But that story, alone, doesn't justify dismissing the unemployment objection. At the very least, one would have to argue that factors depressing wages are large enough and pervasive enough, and alternatives sufficiently unpalatable, that the benefits of an increase in the federal minimum wage outweigh increased unemployment in particular industries, regions, or segments of the labor market. But, of course, I haven't said anything that hasn't already been said above. As always, one should turn to the evidence.
After looking into it and thinking about Wills claims that there are better ways then minimum wage I have to say that indeed I'm inclining to think that Will made a good point.
As far as I'm concerned massive wage and wealth inequality are bad things for a host of reasons one of which is economic inefficiency. The second thing that matters to me is recognizing the fact that policy DOES effect the degree of inequality. So it bothers me when some one claims that if a policy effects wealth distribution then it is bad. This is absurd in my opinion because EVERY policy effects wealth distribution it's just a matter of how much, in which direction and how fair and efficient it is. The simple minded idea that all wealth is always a result of being more efficient or productive is non-sense.
We are the wealthiest country ever . In America there is no reason a hard working person shouldn't be able to feed, house and send his kids to college for an honest weeks work. We can do better and the answer certainly does not have to be socialism but it certainly is not unbridled capitalism.
The answer is good policy and I thank you all for making me think there is a better way then simply increasing minimum wage. I pledge to learn more on the issue.
If a person is so unqualified that he can't be hired for a minimum wage job (let's call this person a "schmo"), there are plenty of off-the-books jobs available to him: Sweeping and helping out in a small store; assisting a small-time contractor or handyman; doing off jobs for people. Those sorts of jobs generally, though not always, pay less than minimum wage (let's call it $5/hr for sake of reference), thus the needs of schmoes are taken care of.
Meanwhile, if you get rid of the minimum wage, it will just allow the sorts of larger scale employers now bound by the minimum wage to convert huge numbers of jobs to $5/hr jobs, doing two things: further impoverishing the workers who'd been earning the minimum wage, and flooding what had previously been the schmo job market with higher-skilled workers (because not everyone who'd been working at McDonalds for minimum wage will want to work there for $5/hr; some of them, if that's all their making, will decide they feel like doing previously-schmo jobs.
Oss
The whole bit about "raising the minimum wage actually hurts poor peolpe" is a neat little Econ 101 trick, but it doesn't always withstand scrutiny past Econ 101, and it grows old very quickly. So before you congratulate yourself on the brilliance of your contrarian position, look at some slightly more advanced models, and do a bit of research. Maybe read "Why Wages Don't Fall During a Recession," by Yale economist Truman Bewley. Then leave the libertarian fantasy world behind.