Re: What’s the deal with conservatives, economists, and the minimum wage?
On Jan 18, 2007, at 2:45 AM, Jason McCullough wrote:
I’ve been in what seems like a never ending argument over the last
couple weeks with some conservatives, and one economist in
particular, on a message board I hang out on. There’s an
unbelievable level of certainty on the right, especially with
economists on the right, that the minimum wage’s impact is not only
significantly negative on employment, but significantly negative on
the net welfare of the people having those jobs.
I doubt they’re offering any evidence for the position - just saying
something like, “It’s common sense! [Or, more likely, “basic
economics” - to show that unlike you, well-meaning naif, the
hardheaded speaker has been inducted into the mysteries of the
discipline.] When you raise the price of something you reduce the
demand for it, whether it’s porridge or labor. Force wages up beyond
market levels, and you’ll create unemployment. So in this case you’re
only hurting the people you’re trying to help.”
Problem is there isn’t much evidence for this proposition. Even the
theoretical appeal is a little dodgy, because the elasticity of
demand can be extremely variable. In the recent gas price spike, for
example, demand in the U.S. barely stumbled; people complained, but
kept driving. Same with the wage. Increase it by 10% and what
happens? Does demand for labor decline by 10% or 1%?
In fact, actual empirical studies of minimum wage show little or now
effect on employment. David Card and Alan Krueger did a series of
comparisons of similar jurisdictions, one of which increased its
local minimum vs. another that didn’t. There was no reduction in
demand for low-wage labor in the areas that increased. Also, there
was no visible decline in the demand for labor after the last rounds
of minimum wage increases in the U.S. And, I just got a press release
announcing the results of a survey by firm that does payrolls for a
lot of small businesses, which found they don’t care about a minwage
increase.
Yeah, Bill Bartlett has a point that it’s the class interests of
economists at work. But it’s also the idiot reflex of orthodox
economics: raise the price, and demand just has to go down. It does,
it does! But it doesn’t.
Doug