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https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/ https://www.theatlantic.com/business/archive/2017/01/economi... > T

https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/ https://www.theatlantic.com/business/archive/2017/01/economi... > The argument against increasing the minimum wage often relies on what I call “economism”—the misleading application of basic lessons from Economics 101 to real-world problems, creating the illusion of consensus and reducing a complex topic to a simple, open-and-shut case.... > [discussion of economic research that shows no consensus if increasing minimum wage empirically leads to greater unemployment] > Even if a higher minimum wage does cause some people to lose their jobs, that cost has to be balanced against the benefit of greater earnings for other low-income workers. A study by the Congressional Budget Office (CBO) estimated that a $10.10 minimum would reduce employment by 500,000 jobs but would increase incomes for most poor families, moving 900,000 people above the poverty line. Similarly, a recent paper by the economist Arindrajit Dube finds that a 10 percent raise in the minimum wage should reduce the number of families living in poverty by around 2 percent to 3 percent. The economists polled in the 2013 Chicago Booth study thought that increasing the minimum wage would be a good idea because its potential impact on employment would be outweighed by the benefits to people who were still able to find jobs. Raising the minimum wage would also reduce inequality by narrowing the pay gap between low-income and higher-income workers. > In short, whether the minimum wage should be increased (or eliminated) is a complicated question. The economic research is difficult to parse, and arguments often turn on sophisticated econometric details. Any change in the minimum wage would have different effects on different groups of people, and should also be compared with other policies that could help the working poor—such as the negative income tax (a cash grant to low-income households, similar to today’s Earned Income Tax Credit) favored by Milton Friedman, or the guaranteed minimum income that Friedrich Hayek assumed would exist.

CryptoPunk 6y ago
There are limits to what a study can show. It's hard to measure its effects on the unemployment rate due to the mobility of labour. We don't have an experimental control where we can see what unemployment rates are like without a minimum wage anywhere in the world, and that would be the only way to actually provide something approaching proof that minimum wage increases the unemployment rate. But what has been demonstrated suggests that minimum wage decreases job growth: https://web.archive.org/web/20160410035745/http://economics.cornell.edu/sites/default/files/files/events/Meer_West_Minimum_Wage.pdf https://web.archive.org/web/20160410035745/http://economics.... And this is exactly what economic theory would suggest. Basic supply and demand theory tells us that the minimum wage, to the extent that it has an effect, harms wage growth. In the absence of the ability to conduct controlled experiments to prove definitively its effect one way or another, we should opt to trust basic economy theory. >>Dube finds that a 10 percent raise in the minimum wage should reduce the number of families living in poverty by around 2 percent to 3 percent. He hasn't shown anything. These studies are at best suggestive, and based on some amount of conjecture by the study authors. They also have difficulty measuring long-term effects, which in any case of any anti-market intervention that redirects profit for investors, to give workers above market wages, while redirecting private sector income to the larger roll of welfare recipients, will be negative for wage growth. I am not going to believe that a centrally imposed price floor, that is universally considered harmful, and a source of deadweight losses, in economics, just happens to be beneficial in its one application that has been most heavily politicized.
- tablespoon 6y ago
  > Basic supply and demand theory tells us that the minimum wage, to the extent that it has an effect, harms wage growth. In the absence of the ability to conduct controlled experiments to prove definitively its effect one way or another, we should opt to trust basic economy theory. So trust the 101-level dogma, even though it's not been validated empirically, and it's also quite clear that actual economic and sociological systems are far more complicated than its models? The problem with econ 101 is that it's oversimplified yet so seductively simple that you can give a group of people a 400 page persuasive econ book, a good chunk of them will be confusing the map for the territory by the end of it.
  - CryptoPunk 6y ago
    >>So trust the 101-level dogma It's not dogma. It's a very strongly supported economic principle. In the absence of definitive proof either way, we ought to trust well-tested and supported economic principles. Price controls == bad >>it's also quite clear that actual economic and sociological systems are far more complicated than its models? This is a strawman. Economists are fully aware of the imprecision of predictions made based on theories relating to generalizations and simplifications of the economy, and also that this doesn't change the fact that these theories do a good job of approximating the effects of government interevention on real world economies, and that it is far better to legislate in accordance with them than in conflict with them. The idea that some cookie-cutter price floor, recklessly imposed on a diverse landscape of economic actors, based on utopianist left-wing drivel pushed to the public by rent-seeking labor unions and left-wing demagogues, is going to do more good than harm, is very very misguided.
    - tablespoon 6y ago
      > It's not dogma. It's a very strongly supported economic principle. In the absence of definitive proof either way, we ought to trust well-tested and supported economic principles. We're talking about economics here, the social science where it's notoriously difficult to conduct controlled experiments? > This is a strawman. Economists are fully aware of the imprecision of predictions made based on theories relating to generalizations and simplifications of the economy, and also that this doesn't change the fact that these theories do a good job of approximating the effects of government interevention on real world economies, and that it is far better to legislate in accordance with them than in conflict with them. You really should read the whole article I linked above: https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/ https://www.theatlantic.com/business/archive/2017/01/economi... > [A repetition of anti-minimum wage dogma from popular persuasive economics books and places like the WSJ and AEI.] > The real impact of the minimum wage, however, is much less clear than these talking points might indicate. Looking at historical experience, there is no obvious relationship between the minimum wage and unemployment: adjusted for inflation, the federal minimum was highest from 1967 through 1969, when the unemployment rate was below 4 percent—a historically low level. When economists try to tackle this question, they come up with all sorts of results. In 1994, David Card and Alan Krueger evaluated an increase in New Jersey’s minimum wage by comparing fast-food restaurants on both sides of the New Jersey-Pennsylvania border. They concluded, “Contrary to the central prediction of the textbook model ... we find no evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants in the state.” > Card and Krueger’s findings have been vigorously contested across dozens of empirical studies. Today, people on both sides of the debate can cite papers supporting their position, and reviews of the academic research disagree on what conclusions to draw. David Neumark and William Wascher, economists who have long argued against the minimum wage, reviewed more than one hundred empirical papers in 2006. Although the studies had a wide range of results, they concluded that the “preponderance of the evidence” indicated that a higher minimum wage does increase unemployment. On the other hand, two recent meta-studies (which pool together the results of multiple analyses) have found that increasing the minimum wage does not have a significant impact on employment. In the past several years, a new round of sophisticated analyses comparing changes in employment levels between neighboring counties also found “strong earnings effects and no employment effects of minimum wage increases.” (That is, the number of jobs stays the same and workers make more money.) Not surprisingly, Neumark and Wascher have contested this approach. The profession as a whole is divided on the topic: When the University of Chicago Booth School of Business asked a panel of prominent economists in 2013 whether increasing the minimum wage to $9 would “make it noticeably harder for low-skilled workers to find employment,” the responses were split down the middle.... > ...Nevertheless, when the topic reaches the national stage, it is economism’s facile punch line that gets delivered, along with its all-purpose dismissal: people who want a higher minimum wage just don’t understand economics (although, by that standard, several Nobel Prize winners don’t understand economics). Many leading political figures largely repeat the central theses of economism, claiming that they have only the best interests of the poor at heart.... > ...This conviction that the minimum wage hurts the poor is an example of economism in action. Economists have many different opinions on the subject, based on different theories and research studies, but when it comes to public debate, one particular result of one particular model is presented as an unassailable economic theorem. (Politicians advocating for a higher minimum wage, by contrast, tend to avoid economic models altogether, instead arguing in terms of fairness or helping the poor.) This happens partly because the competitive market model taught in introductory economics classes is simple, clear, and memorable....

CryptoPunk 6y ago

There are limits to what a study can show. It's hard to measure its effects on the unemployment rate due to the mobility of labour. We don't have an experimental control where we can see what unemployment rates are like without a minimum wage anywhere in the world, and that would be the only way to actually provide something approaching proof that minimum wage increases the unemployment rate. But what has been demonstrated suggests that minimum wage decreases job growth: https://web.archive.org/web/20160410035745/http://economics.cornell.edu/sites/default/files/files/events/Meer_West_Minimum_Wage.pdf https://web.archive.org/web/20160410035745/http://economics.... And this is exactly what economic theory would suggest. Basic supply and demand theory tells us that the minimum wage, to the extent that it has an effect, harms wage growth. In the absence of the ability to conduct controlled experiments to prove definitively its effect one way or another, we should opt to trust basic economy theory. >>Dube finds that a 10 percent raise in the minimum wage should reduce the number of families living in poverty by around 2 percent to 3 percent. He hasn't shown anything. These studies are at best suggestive, and based on some amount of conjecture by the study authors. They also have difficulty measuring long-term effects, which in any case of any anti-market intervention that redirects profit for investors, to give workers above market wages, while redirecting private sector income to the larger roll of welfare recipients, will be negative for wage growth. I am not going to believe that a centrally imposed price floor, that is universally considered harmful, and a source of deadweight losses, in economics, just happens to be beneficial in its one application that has been most heavily politicized.

tablespoon 6y ago
> Basic supply and demand theory tells us that the minimum wage, to the extent that it has an effect, harms wage growth. In the absence of the ability to conduct controlled experiments to prove definitively its effect one way or another, we should opt to trust basic economy theory. So trust the 101-level dogma, even though it's not been validated empirically, and it's also quite clear that actual economic and sociological systems are far more complicated than its models? The problem with econ 101 is that it's oversimplified yet so seductively simple that you can give a group of people a 400 page persuasive econ book, a good chunk of them will be confusing the map for the territory by the end of it.
- CryptoPunk 6y ago
  >>So trust the 101-level dogma It's not dogma. It's a very strongly supported economic principle. In the absence of definitive proof either way, we ought to trust well-tested and supported economic principles. Price controls == bad >>it's also quite clear that actual economic and sociological systems are far more complicated than its models? This is a strawman. Economists are fully aware of the imprecision of predictions made based on theories relating to generalizations and simplifications of the economy, and also that this doesn't change the fact that these theories do a good job of approximating the effects of government interevention on real world economies, and that it is far better to legislate in accordance with them than in conflict with them. The idea that some cookie-cutter price floor, recklessly imposed on a diverse landscape of economic actors, based on utopianist left-wing drivel pushed to the public by rent-seeking labor unions and left-wing demagogues, is going to do more good than harm, is very very misguided.
  - tablespoon 6y ago
    > It's not dogma. It's a very strongly supported economic principle. In the absence of definitive proof either way, we ought to trust well-tested and supported economic principles. We're talking about economics here, the social science where it's notoriously difficult to conduct controlled experiments? > This is a strawman. Economists are fully aware of the imprecision of predictions made based on theories relating to generalizations and simplifications of the economy, and also that this doesn't change the fact that these theories do a good job of approximating the effects of government interevention on real world economies, and that it is far better to legislate in accordance with them than in conflict with them. You really should read the whole article I linked above: https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/ https://www.theatlantic.com/business/archive/2017/01/economi... > [A repetition of anti-minimum wage dogma from popular persuasive economics books and places like the WSJ and AEI.] > The real impact of the minimum wage, however, is much less clear than these talking points might indicate. Looking at historical experience, there is no obvious relationship between the minimum wage and unemployment: adjusted for inflation, the federal minimum was highest from 1967 through 1969, when the unemployment rate was below 4 percent—a historically low level. When economists try to tackle this question, they come up with all sorts of results. In 1994, David Card and Alan Krueger evaluated an increase in New Jersey’s minimum wage by comparing fast-food restaurants on both sides of the New Jersey-Pennsylvania border. They concluded, “Contrary to the central prediction of the textbook model ... we find no evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants in the state.” > Card and Krueger’s findings have been vigorously contested across dozens of empirical studies. Today, people on both sides of the debate can cite papers supporting their position, and reviews of the academic research disagree on what conclusions to draw. David Neumark and William Wascher, economists who have long argued against the minimum wage, reviewed more than one hundred empirical papers in 2006. Although the studies had a wide range of results, they concluded that the “preponderance of the evidence” indicated that a higher minimum wage does increase unemployment. On the other hand, two recent meta-studies (which pool together the results of multiple analyses) have found that increasing the minimum wage does not have a significant impact on employment. In the past several years, a new round of sophisticated analyses comparing changes in employment levels between neighboring counties also found “strong earnings effects and no employment effects of minimum wage increases.” (That is, the number of jobs stays the same and workers make more money.) Not surprisingly, Neumark and Wascher have contested this approach. The profession as a whole is divided on the topic: When the University of Chicago Booth School of Business asked a panel of prominent economists in 2013 whether increasing the minimum wage to $9 would “make it noticeably harder for low-skilled workers to find employment,” the responses were split down the middle.... > ...Nevertheless, when the topic reaches the national stage, it is economism’s facile punch line that gets delivered, along with its all-purpose dismissal: people who want a higher minimum wage just don’t understand economics (although, by that standard, several Nobel Prize winners don’t understand economics). Many leading political figures largely repeat the central theses of economism, claiming that they have only the best interests of the poor at heart.... > ...This conviction that the minimum wage hurts the poor is an example of economism in action. Economists have many different opinions on the subject, based on different theories and research studies, but when it comes to public debate, one particular result of one particular model is presented as an unassailable economic theorem. (Politicians advocating for a higher minimum wage, by contrast, tend to avoid economic models altogether, instead arguing in terms of fairness or helping the poor.) This happens partly because the competitive market model taught in introductory economics classes is simple, clear, and memorable....