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I see this a lot here and if you believe there is basically any market where the simple supply and demand model is relevant you're probably mistaken. The other

I see this a lot here and if you believe there is basically any market where the simple supply and demand model is relevant you're probably mistaken. The other thing is that this graph: http://i.investopedia.com/inv/tutorials/site/economics/economics5.gif http://i.investopedia.com/inv/tutorials/site/economics/econo... is not a free market model! Not at all! It is a "perfectly competitive" model and has several very specific assumptions: 1) All firms sell an identical product 2) All firms are price takers - they cannot control the market price of their product 3) All firms have a relatively small market share 4) Buyers have complete information about the product being sold and the prices charged by each firm 5) The industry is characterized by freedom of entry and exit. I'm not sure the labor market actually meets any single one of those criteria. Furthermore, if you are interested in how minimum wage actually effects employment I would check out the following report(here's a good quote). The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage. http://cepr.net/documents/publications/min-wage-2013-02.pdf http://cepr.net/documents/publications/min-wage-2013-02.pdf

mason240 9y ago
The argument that because no market is the theoretical, textbook prefect market means we can ignore market forces and supply and demand is dubious.
- frgtpsswrdlame 9y ago
  That's not what I'm saying. Our understanding of supply and demand is shaped by the model we place them in. In this case if your understanding of supply and demand is that regardless of any of the 5 factors I listed above, supply and demand will converge to a pretty equilibrium like two lines on a graph with only two lines then you're wrong. And if you look at the empirical evidence and it strongly contradicts what your model says should happen then your model needs an update. In this case the perfectly competitive model is absolutely the wrong way to understand the labor market. The paper I linked mentions a dynamic monopsony model and also 11 different channels through which adjustment is possible. Basically the market is lots and lots of different forces (not just supply and demand) all originating from (not always rational) people, in this case we need a model which more accurately models this. If you'd like to read more about how the proliferation of the basic supply and demand model has really hurt the layman's understanding of the economy there's a great book that came out recently called "Economism." Here's a short article which can give you a bird's eye view: https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/ https://www.theatlantic.com/business/archive/2017/01/economi...

mason240 9y ago

The argument that because no market is the theoretical, textbook prefect market means we can ignore market forces and supply and demand is dubious.

frgtpsswrdlame 9y ago
That's not what I'm saying. Our understanding of supply and demand is shaped by the model we place them in. In this case if your understanding of supply and demand is that regardless of any of the 5 factors I listed above, supply and demand will converge to a pretty equilibrium like two lines on a graph with only two lines then you're wrong. And if you look at the empirical evidence and it strongly contradicts what your model says should happen then your model needs an update. In this case the perfectly competitive model is absolutely the wrong way to understand the labor market. The paper I linked mentions a dynamic monopsony model and also 11 different channels through which adjustment is possible. Basically the market is lots and lots of different forces (not just supply and demand) all originating from (not always rational) people, in this case we need a model which more accurately models this. If you'd like to read more about how the proliferation of the basic supply and demand model has really hurt the layman's understanding of the economy there's a great book that came out recently called "Economism." Here's a short article which can give you a bird's eye view: https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/ https://www.theatlantic.com/business/archive/2017/01/economi...