3 ms·

It's worse than inefficient. It's actively counter-productive, as it increases welfare at the expense of reducing the number of opportunities to benefit from th

It's worse than inefficient. It's actively counter-productive, as it increases welfare at the expense of reducing the number of opportunities to benefit from that welfare. e.g. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2951110 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2951110

acover 9y ago
Do you have a source? Economists disagree about this issue. Lots of the people who are affected by the minimum wage support it. Remember, it's okay to not know something. Edit: thanks for the source. I don't think an analysis of the minimum wages affect on restaurant exits answers the question "Is the minimum wage good for those whose skills are in excess supply?". It may be bad for the number of restaurants but is it bad for restaurant workers?
- malandrew 9y ago
  If the number of restaurants declines, so does the number of restaurant jobs. Those that still have a restaurant job are better off until they find themselves in the market again, at which time they will be competing with more people for fewer jobs. Effectively, you've just transferred income from some restaurant workers to other restaurant workers and eliminated the income for some restaurant owners who went out of business. Those restaurants that do survive also end up reducing the number of staff or shifts available to maintain their profit margin.
  - acover 9y ago
    No. You've transfered from customers/restaurant owners/unemployed to the workers. The unemployed get unemployment, which is a transfer from the workers. There are smarter people than us who are debating this. Maybe you shouldn't hold this opinion so strongly. Edit: Downvotes for what?
    - malandrew 9y ago
      > There are smarter people than us who are debating this. Maybe you shouldn't hold this opinion so strongly. An ad hominem is not an argument. If we're going with logical fallacies to make our case, I'm going to appeal to authority: I understand this pretty well as I used to work directly on macro-economic reports at the largest broker dealer in Latin America upon which many international institutional investors based their investment decisions. Unfortunately, the citizens of the country whose economy I covered (Brazil) didn't understand these economics issues (among many), which among the reasons why its economy has contracted over 3% for the past 2+ years. You're assuming that it's a strict wealth transfer where the size of the pie stays the same. It does not. The pie gets smaller when you reduce economic activity, which raising the minimum wage accomplishes as it eliminates jobs and puts businesses out of business. You can lie to yourself by using welfare to prop things up, but that doesn't work so well when the amount of taxes you collect to fund your welfare state drops as the economy shrinks. Eventually that gravy train runs out of steam.
      - acover 9y ago
        I didn't assume that. I was just correcting your statement about what transfers were occurring. I do not consider myself an expert on this topic. It's good that you do. However, your evidence is weak. You have made a leap from restaurant exits to minimum wage is bad for the workers. That there is disagreement among people better informed than I suggests I shouldn't hold my opinion strongly without good reason.
- Spooky23 9y ago
  The source isn't particularly meaningful. Restaurants need to be cheap or great. No middle ground survives. The 3.5 star restaurants, who are generally dead men wakling anyway just hasten the their exit. It's better to look at similar localities where there are constrasting costs. There are still stores in Philadelphia and Trenton even though sales tax is 0% in Delaware. Likewise, counties or adjoining states with higher wages than neighbors are still able to compete. I worked for a retail chain in college and saw the regional numbers. The marginal differences in wages between stores in different jurisdictions was insignificant. Our stores had about 100 employees -- a $1 delta was a few thousand bucks... peanuts that barely registered in the bottom line.
wahern 9y ago
The problem with that paper is that other research that looks at employment figures across industries doesn't show a decrease in employment when the minimum wage is raised. Which I assume is why you cited that paper. So while that paper's data and conclusion may be sound, neither that paper nor other research supports the notion that low-skilled labor demand is, overall, strongly responsive to changes in the minimum wage. That said, there are a ton of problems in that paper. Their estimates on changes in restaurant entry in the same timeframe as exit were statistically insignificant, so they gratuitously look at a completely different timeframe and data set which happens to support their conclusion. Economies are just too complex and multifaceted to be able to say that a minimum wage bump will clearly decrease employment. It's worth noting that the political pressure to increase wages doesn't happen in a vacuum. For example, presumably the political pressure exerted is a function of wealth inequality and thus of the capacity for the local economy to redistribute income downward. This incredible complexity is why you get such counterintuitive results, such as that American corporate investments were highest when taxes were highest, decreasing as corporate taxes decreased, so that today both investment and taxes are at their lowest. https://www.ft.com/content/a4e01ef4-3c8d-11e7-821a-6027b8a20f23
- malandrew 9y ago
  What other industries? Are these other industries businesses where minimum wage laborers are a significant part of the labor? An increase in minimum wage isn't going to hurt businesses in an industry where you have few if any minimum wage laborers. If you have specific contradictory evidence, cite it instead of a vague handwavy response.
  - wahern 9y ago
    By across industries I meant studies that look at the impact of minimum wage changes in geographic regions, which would include not only the restaurant industry but all industries. For example, some studies have looked at metropolitan areas that span multiple jurisdictions (i.e. straddling a state line) where one jurisdiction increased the minimum wage but the other didn't, so that you have something approximating a control group. If you look at all the literature, the results are mixed and equivocal, at least for modest changes in the minimum wage. See the empirical studies section on Wikipedia https://en.wikipedia.org/wiki/Minimum_wage#Empirical_studies or a discussion of minimum wage studies in an economics textbook, such as The Economic Way of Thinking, Paul L. Heyne, et al. Fundamental economic laws tells us that an increase in the minimum wage should result in a decrease in labor demand. But the numerous empirical studies are so equivocal and so obviously confounded that it's utterly naive to assume (as we normally assume, and indeed normally should assume) to see a simple labor demand response. Exogenous and second-order effects seem to be huge. So whenever you see a study that purports to claim (or is held out to evidence) either that an increase in the minimum wage decreases overall labor demand _or_ that it decreases income inequality, we should be highly skeptical. Of course, the paper you cited doesn't make any claims about aggregate labor demand, nor even labor demand in the restaurant industry. It only looks at exists and entries using some novel data sources. The only truly interesting thing about that paper, IMO, is it's novel use of Yelp. That paper raises a ton of questions--good questions--about data sources and methodologies. I wouldn't venture to rely on it's conclusions for any economics argument.
mcguire 9y ago
"Our analysis proceeds in three stages. First, we provide evidence that lower quality businesses [as measured by Yelp rating] are, on average, closer to the margin of exit and fail at higher rates than higher quality restaurants irrespective of the minimum wage level. A one-star increase in rating is associated with more than a 50% decrease in the likelihood of going out of business. This qualitative relationship holds both with and without restaurant effects. "We then exploit the multiple city-level minimum wage changes in recent years across the Bay Area to implement a difference-in-differences design to investigate the effects of the minimum wage. We find suggestive evidence that a higher minimum wage leads to overall increases in restaurant exit rates – depending on the specification, we find that a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit, although the estimate is only statistically significant in certain specifications. "Next, we present robust evidence that the impact of the minimum wage varies with the rating of the business. Our point estimates suggest that a $1 increase in the minimum wage leads to an approximate 14 percent increase in the likelihood of exit for the median 3.5-star restaurant but the impact falls to zero for five-star restaurants. These effects are robust to a number of different specifications, including controlling for time-varying county characteristics that may influence both minimum wage policies and restaurant demand, city-specific time trends to account for preexisting trends, as well as county-year fixed effects to control for spatial heterogeneity in exit trends."

acover 9y ago

Do you have a source? Economists disagree about this issue. Lots of the people who are affected by the minimum wage support it. Remember, it's okay to not know something. Edit: thanks for the source. I don't think an analysis of the minimum wages affect on restaurant exits answers the question "Is the minimum wage good for those whose skills are in excess supply?". It may be bad for the number of restaurants but is it bad for restaurant workers?

malandrew 9y ago
If the number of restaurants declines, so does the number of restaurant jobs. Those that still have a restaurant job are better off until they find themselves in the market again, at which time they will be competing with more people for fewer jobs. Effectively, you've just transferred income from some restaurant workers to other restaurant workers and eliminated the income for some restaurant owners who went out of business. Those restaurants that do survive also end up reducing the number of staff or shifts available to maintain their profit margin.
- acover 9y ago
  No. You've transfered from customers/restaurant owners/unemployed to the workers. The unemployed get unemployment, which is a transfer from the workers. There are smarter people than us who are debating this. Maybe you shouldn't hold this opinion so strongly. Edit: Downvotes for what?
  - malandrew 9y ago
    > There are smarter people than us who are debating this. Maybe you shouldn't hold this opinion so strongly. An ad hominem is not an argument. If we're going with logical fallacies to make our case, I'm going to appeal to authority: I understand this pretty well as I used to work directly on macro-economic reports at the largest broker dealer in Latin America upon which many international institutional investors based their investment decisions. Unfortunately, the citizens of the country whose economy I covered (Brazil) didn't understand these economics issues (among many), which among the reasons why its economy has contracted over 3% for the past 2+ years. You're assuming that it's a strict wealth transfer where the size of the pie stays the same. It does not. The pie gets smaller when you reduce economic activity, which raising the minimum wage accomplishes as it eliminates jobs and puts businesses out of business. You can lie to yourself by using welfare to prop things up, but that doesn't work so well when the amount of taxes you collect to fund your welfare state drops as the economy shrinks. Eventually that gravy train runs out of steam.
    - acover 9y ago
      I didn't assume that. I was just correcting your statement about what transfers were occurring. I do not consider myself an expert on this topic. It's good that you do. However, your evidence is weak. You have made a leap from restaurant exits to minimum wage is bad for the workers. That there is disagreement among people better informed than I suggests I shouldn't hold my opinion strongly without good reason.
Spooky23 9y ago
The source isn't particularly meaningful. Restaurants need to be cheap or great. No middle ground survives. The 3.5 star restaurants, who are generally dead men wakling anyway just hasten the their exit. It's better to look at similar localities where there are constrasting costs. There are still stores in Philadelphia and Trenton even though sales tax is 0% in Delaware. Likewise, counties or adjoining states with higher wages than neighbors are still able to compete. I worked for a retail chain in college and saw the regional numbers. The marginal differences in wages between stores in different jurisdictions was insignificant. Our stores had about 100 employees -- a $1 delta was a few thousand bucks... peanuts that barely registered in the bottom line.

wahern 9y ago

The problem with that paper is that other research that looks at employment figures across industries doesn't show a decrease in employment when the minimum wage is raised. Which I assume is why you cited that paper. So while that paper's data and conclusion may be sound, neither that paper nor other research supports the notion that low-skilled labor demand is, overall, strongly responsive to changes in the minimum wage. That said, there are a ton of problems in that paper. Their estimates on changes in restaurant entry in the same timeframe as exit were statistically insignificant, so they gratuitously look at a completely different timeframe and data set which happens to support their conclusion. Economies are just too complex and multifaceted to be able to say that a minimum wage bump will clearly decrease employment. It's worth noting that the political pressure to increase wages doesn't happen in a vacuum. For example, presumably the political pressure exerted is a function of wealth inequality and thus of the capacity for the local economy to redistribute income downward. This incredible complexity is why you get such counterintuitive results, such as that American corporate investments were highest when taxes were highest, decreasing as corporate taxes decreased, so that today both investment and taxes are at their lowest. https://www.ft.com/content/a4e01ef4-3c8d-11e7-821a-6027b8a20f23

malandrew 9y ago
What other industries? Are these other industries businesses where minimum wage laborers are a significant part of the labor? An increase in minimum wage isn't going to hurt businesses in an industry where you have few if any minimum wage laborers. If you have specific contradictory evidence, cite it instead of a vague handwavy response.
- wahern 9y ago
  By across industries I meant studies that look at the impact of minimum wage changes in geographic regions, which would include not only the restaurant industry but all industries. For example, some studies have looked at metropolitan areas that span multiple jurisdictions (i.e. straddling a state line) where one jurisdiction increased the minimum wage but the other didn't, so that you have something approximating a control group. If you look at all the literature, the results are mixed and equivocal, at least for modest changes in the minimum wage. See the empirical studies section on Wikipedia https://en.wikipedia.org/wiki/Minimum_wage#Empirical_studies or a discussion of minimum wage studies in an economics textbook, such as The Economic Way of Thinking, Paul L. Heyne, et al. Fundamental economic laws tells us that an increase in the minimum wage should result in a decrease in labor demand. But the numerous empirical studies are so equivocal and so obviously confounded that it's utterly naive to assume (as we normally assume, and indeed normally should assume) to see a simple labor demand response. Exogenous and second-order effects seem to be huge. So whenever you see a study that purports to claim (or is held out to evidence) either that an increase in the minimum wage decreases overall labor demand _or_ that it decreases income inequality, we should be highly skeptical. Of course, the paper you cited doesn't make any claims about aggregate labor demand, nor even labor demand in the restaurant industry. It only looks at exists and entries using some novel data sources. The only truly interesting thing about that paper, IMO, is it's novel use of Yelp. That paper raises a ton of questions--good questions--about data sources and methodologies. I wouldn't venture to rely on it's conclusions for any economics argument.

mcguire 9y ago

"Our analysis proceeds in three stages. First, we provide evidence that lower quality businesses [as measured by Yelp rating] are, on average, closer to the margin of exit and fail at higher rates than higher quality restaurants irrespective of the minimum wage level. A one-star increase in rating is associated with more than a 50% decrease in the likelihood of going out of business. This qualitative relationship holds both with and without restaurant effects. "We then exploit the multiple city-level minimum wage changes in recent years across the Bay Area to implement a difference-in-differences design to investigate the effects of the minimum wage. We find suggestive evidence that a higher minimum wage leads to overall increases in restaurant exit rates – depending on the specification, we find that a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit, although the estimate is only statistically significant in certain specifications. "Next, we present robust evidence that the impact of the minimum wage varies with the rating of the business. Our point estimates suggest that a $1 increase in the minimum wage leads to an approximate 14 percent increase in the likelihood of exit for the median 3.5-star restaurant but the impact falls to zero for five-star restaurants. These effects are robust to a number of different specifications, including controlling for time-varying county characteristics that may influence both minimum wage policies and restaurant demand, city-specific time trends to account for preexisting trends, as well as county-year fixed effects to control for spatial heterogeneity in exit trends."