4 ms·

I'm going to head off all the armchair economists, including the two* who have already replied as of 15 minutes after the article was posted. http://www.igmchi

I'm going to head off all the armchair economists, including the two* who have already replied as of 15 minutes after the article was posted. http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_br0IEq5a9E77NMV http://www.igmchicago.org/igm-economic-experts-panel/poll-re... Here's a real survey of actual economists, who largely agree, weighted by confidence, that "The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy." And, economists are reasonably mixed (split between schools, I believe) on the belief that raising the minimum wage to $9 per hour would make it noticeably harder for low-skill workers to find employment, and no one strongly agreed or disagreed. The evidence, the science, of economics, is mixed, as has been demonstrated by a comprehensive meta-analysis by Doucouliagos and Stanley. You can find a graph and other analysis here: http://www.cepr.net/documents/publications/min-wage-2013-02.pdf http://www.cepr.net/documents/publications/min-wage-2013-02.... So, in summary, economists mostly believe the benefits of raising the minimum wage outweigh the distortionary economic effects, and none were willing to make strong assertions on the effect it might have on unemployment. Everyone, put down your pitchforks and take off your party insignias, let's just raise the minimum wage a bit and see what happens, because it benefits a lot of people and there is scant evidence of a downside for a marginal increase in the wage floor. QED. * Perhaps three, if my sarcasm detector is off?

jljljl 13y ago
I came to link the exact study you provided. Here's the executive summary from the CEPR paper: "The report reviews evidence on eleven possible adjustments to minimum-wage increases that may help to explain why the measured employment effects are so consistently small. The strongest evidence suggests that the most important channels of adjustment are: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ("wage compression"); and small price increases. Given the relatively small cost to employers of modest increases in the minimum wage, these adjustment mechanisms appear to be more than sufficient to avoid employment losses, even for employers with a large share of low-wage workers." Of course, it's worth noting that the first two impacts listed (reductions in labor turnover; improvements in organizational efficiency) could themselves have an impact on new hires and hours worked.
yetanotherphd 13y ago
The question "The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy." contains asssumptions that are very objectionable to someone trained in economics. To most economists, it is wrong to think of the minimum wage as a tradeoff between distortionary effects, and a benefit to the workers. In particular, why do we want to benefit workers on the minimum wage? It seems that the people we really care about are people with a given (low) yearly income, and we can easily give/take benefits from them using the tax system. To the extent that economists support a minimum wage, I assume it would be because it forms some kind of "default contract" that is less prone to cheating (e.g. promising one wage and delivering another).
- moocowduckquack 13y ago
  In particular, why do we want to benefit workers on the minimum wage? Maybe because they need the money?
  - yetanotherphd 13y ago
    Maybe you should have read past the sentence you quoted?
    - moocowduckquack 13y ago
      I did, perhaps I misunderstood where you were coming from though. I was just meaning that there is a definite and not particularly subtle reason for minimum wage laws, sure the economics is used to set a level and to argue on the theory, but the reason for them existing in the first place does not come from economic theory, but rather from political experience with hungry angry people.
      - yetanotherphd 13y ago
        If there was no welfare, and no tax system, then introducing a minimum wage would probably be a net improvement. However, taxes and welfare already address the issue of hungry people (I don't particularly care how angry a person is). My problem is not with the goal of redistributing wealth, but with the minimum wage as a way to do this. Since the tax authorities already know the figure that we are really interested in (how much money a person makes in total), it makes more sense to lower the tax rate on low income earners, or increase welfare, than to increase the minimum wage.
cynicalkane 13y ago
I'm going to say the surveyed opinion is wrong and is furthermore asking the wrong question. 1) There is a welfare trap, and it is real. The more needy you are, the more your welfare programs are robbed with each wage increase. The marginal rate is very high and in some situations can exceed 100%. Here's what the welfare trap looks like for low-wage families, in one graph: https://lh3.ggpht.com/-_-6Fsycanmw/ULO_5kk3fxI/AAAAAAAAAU4/y1PbUElDS34/s1600/marginal-tax_6.PNG https://lh3.ggpht.com/-_-6Fsycanmw/ULO_5kk3fxI/AAAAAAAAAU4/y... taken from: http://johnhcochrane.blogspot.com/2012/11/taxes-and-cliffs.html http://johnhcochrane.blogspot.com/2012/11/taxes-and-cliffs.h... If you follow economics there is an astonishing difference in the quality of discourse between the two sides--the pro minimum-wage crowd does not seem aware of the data working against them. 2) There is furthermore research suggesting employers respond to minimum wage by scaling back future employment plans and by causing workers to work harder. Part of the reason minimum wage jobs are so awful is if they weren't, they would not be worth the money. 3) People think of minimum wage as a redistribution of wealth from evil corporate employers and rich consumers to the poor and needy. Notwithstanding who is evil and who is good, that is basically the effect. You can accomplish the same thing in a much simpler, market-friendly fashion: pay the poor for working. A minor version of this program exists--the earned income tax credit. It does the same thing as minimum wage--redistribution of wealth--without the overhead, without reducing workers' negotiating power, and without pricing new low-skill workers out. It can be done in a fashion that greatly reduces the welfare trap. For a while, this idea had broad bipartisan support, from Milton Friedman and Paul Krugman among others. But now economists argue about minimum wage because it's an attractive political issue. Famously, Paul Krugman's opinion on minimum wage changes depending on who is president. Bleh. Imagine if climate scientists or evolutionary biologists made political compromises. Worse yet, imagine if they started believing their own compromises. 4) Surveys are not of particularly high interest when it comes to discussing economics. Talking about theory, data, and consequences is a better use of time. Surveys are only social proof--backup evidence--when there is not a confident consensus.
- cortesoft 13y ago
  Earned income tax credit is amazing. It is one of the few government initiatives that is an unquestionable success. It is such a good way to redistribute wealth without creating the negative incentives of welfare and the like.
panarky 13y ago
That CEPR paper is really the gold standard of "evidence-based" economics. There's a wealth of real-life evidence that shows what actually happens when the minimum wage is increased. So put away all the theories about what should happen, and look at the extensive data on what does happen. It turns out this is a lot more complex than just "higher price of labor = lower supply of jobs". Offsetting the higher cost per hour are lower turnover, lower training costs, upgraded skill levels, higher worker productivity, and higher demand when workers spend their bigger paychecks. Believe it or not, the data shows that modest increases in the minimum wage do not reduce employment in any significant way.
brownbat 13y ago
How many economists prefer the minimum wage to other benefit programs, like the EITC, a negative income tax, or direct competition in the labor market (like the Works Progress Administration)? Genuinely curious, I couldn't find any good metanalyses at first glance...
forgingahead 13y ago
Rather than worry about what economists think, I'd highly suggest talking to real people who employ other real people in jobs that are at the current minimum wage, and see what their reaction will be. Understand their thinking of how and why they make salary decisions.

jljljl 13y ago

I came to link the exact study you provided. Here's the executive summary from the CEPR paper: "The report reviews evidence on eleven possible adjustments to minimum-wage increases that may help to explain why the measured employment effects are so consistently small. The strongest evidence suggests that the most important channels of adjustment are: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ("wage compression"); and small price increases. Given the relatively small cost to employers of modest increases in the minimum wage, these adjustment mechanisms appear to be more than sufficient to avoid employment losses, even for employers with a large share of low-wage workers." Of course, it's worth noting that the first two impacts listed (reductions in labor turnover; improvements in organizational efficiency) could themselves have an impact on new hires and hours worked.

yetanotherphd 13y ago

The question "The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy." contains asssumptions that are very objectionable to someone trained in economics. To most economists, it is wrong to think of the minimum wage as a tradeoff between distortionary effects, and a benefit to the workers. In particular, why do we want to benefit workers on the minimum wage? It seems that the people we really care about are people with a given (low) yearly income, and we can easily give/take benefits from them using the tax system. To the extent that economists support a minimum wage, I assume it would be because it forms some kind of "default contract" that is less prone to cheating (e.g. promising one wage and delivering another).

moocowduckquack 13y ago
In particular, why do we want to benefit workers on the minimum wage? Maybe because they need the money?
- yetanotherphd 13y ago
  Maybe you should have read past the sentence you quoted?
  - moocowduckquack 13y ago
    I did, perhaps I misunderstood where you were coming from though. I was just meaning that there is a definite and not particularly subtle reason for minimum wage laws, sure the economics is used to set a level and to argue on the theory, but the reason for them existing in the first place does not come from economic theory, but rather from political experience with hungry angry people.
    - yetanotherphd 13y ago
      If there was no welfare, and no tax system, then introducing a minimum wage would probably be a net improvement. However, taxes and welfare already address the issue of hungry people (I don't particularly care how angry a person is). My problem is not with the goal of redistributing wealth, but with the minimum wage as a way to do this. Since the tax authorities already know the figure that we are really interested in (how much money a person makes in total), it makes more sense to lower the tax rate on low income earners, or increase welfare, than to increase the minimum wage.

cynicalkane 13y ago

I'm going to say the surveyed opinion is wrong and is furthermore asking the wrong question. 1) There is a welfare trap, and it is real. The more needy you are, the more your welfare programs are robbed with each wage increase. The marginal rate is very high and in some situations can exceed 100%. Here's what the welfare trap looks like for low-wage families, in one graph: https://lh3.ggpht.com/-_-6Fsycanmw/ULO_5kk3fxI/AAAAAAAAAU4/y1PbUElDS34/s1600/marginal-tax_6.PNG https://lh3.ggpht.com/-_-6Fsycanmw/ULO_5kk3fxI/AAAAAAAAAU4/y... taken from: http://johnhcochrane.blogspot.com/2012/11/taxes-and-cliffs.html http://johnhcochrane.blogspot.com/2012/11/taxes-and-cliffs.h... If you follow economics there is an astonishing difference in the quality of discourse between the two sides--the pro minimum-wage crowd does not seem aware of the data working against them. 2) There is furthermore research suggesting employers respond to minimum wage by scaling back future employment plans and by causing workers to work harder. Part of the reason minimum wage jobs are so awful is if they weren't, they would not be worth the money. 3) People think of minimum wage as a redistribution of wealth from evil corporate employers and rich consumers to the poor and needy. Notwithstanding who is evil and who is good, that is basically the effect. You can accomplish the same thing in a much simpler, market-friendly fashion: pay the poor for working. A minor version of this program exists--the earned income tax credit. It does the same thing as minimum wage--redistribution of wealth--without the overhead, without reducing workers' negotiating power, and without pricing new low-skill workers out. It can be done in a fashion that greatly reduces the welfare trap. For a while, this idea had broad bipartisan support, from Milton Friedman and Paul Krugman among others. But now economists argue about minimum wage because it's an attractive political issue. Famously, Paul Krugman's opinion on minimum wage changes depending on who is president. Bleh. Imagine if climate scientists or evolutionary biologists made political compromises. Worse yet, imagine if they started believing their own compromises. 4) Surveys are not of particularly high interest when it comes to discussing economics. Talking about theory, data, and consequences is a better use of time. Surveys are only social proof--backup evidence--when there is not a confident consensus.

cortesoft 13y ago
Earned income tax credit is amazing. It is one of the few government initiatives that is an unquestionable success. It is such a good way to redistribute wealth without creating the negative incentives of welfare and the like.

panarky 13y ago

That CEPR paper is really the gold standard of "evidence-based" economics. There's a wealth of real-life evidence that shows what actually happens when the minimum wage is increased. So put away all the theories about what should happen, and look at the extensive data on what does happen. It turns out this is a lot more complex than just "higher price of labor = lower supply of jobs". Offsetting the higher cost per hour are lower turnover, lower training costs, upgraded skill levels, higher worker productivity, and higher demand when workers spend their bigger paychecks. Believe it or not, the data shows that modest increases in the minimum wage do not reduce employment in any significant way.

brownbat 13y ago

How many economists prefer the minimum wage to other benefit programs, like the EITC, a negative income tax, or direct competition in the labor market (like the Works Progress Administration)? Genuinely curious, I couldn't find any good metanalyses at first glance...

forgingahead 13y ago

Rather than worry about what economists think, I'd highly suggest talking to real people who employ other real people in jobs that are at the current minimum wage, and see what their reaction will be. Understand their thinking of how and why they make salary decisions.