A Minority View: Higher Minimum Wage

[_Droopy]

http://townhall.com/columnists/walterew ... page/full/

In his State of the Union address, President Barack Obama proposed raising the minimum wage from $7.25 an hour to $9 an hour. That would be almost a 25 percent increase. Let's look at the president's proposal, but before doing so, let's ask some other economic questions.

Are people responsive to changes in price? For example, if the price of cars rose by 25 percent, would people purchase as many cars? Supposing housing prices rose by 25 percent, what would happen to sales? Those are big-ticket items, but what about smaller-priced items? If a supermarket raised its prices by 25 percent, would people purchase as much? It's not rocket science to conclude that when prices rise, people adjust their behavior by purchasing less.

It's almost childish to do so, but I'm going to ask questions about 25 percent price changes in the other way. What responses would people have if the price of cars or housing fell by 25 percent? What would happen to supermarket sales if prices fell by 25 percent? Again, it doesn't require deep thinking to guess that people would purchase more.

This behavior in economics is known as the first fundamental law of demand. It holds that the higher the price of something the less people will take and that the lower the price the more people will take. There are no known exceptions to the law of demand. Any economist who could prove a real-world exception would probably be a candidate for the Nobel Memorial Prize in Economic Sciences and other honors.

Dr. Alan Krueger, an economist, is chairman of the president's Council of Economic Advisers. I wonder whether he advised the president that though people surely would be responsive to 25 percent increases in the prices of other goods and services, they would not be responsive to a 25 percent wage increase. I'd bet the rent money that you couldn't get Krueger to answer the following statement by saying either true or false: A 25 percent increase in the price of labor would not affect employment. If anything, his evasive response would be that found in a White House memo, reported in The Wall Street Journal's article titled "The Minority Youth Unemployment Act" (Feb. 15), namely that "a range of economic studies show that modestly raising the minimum wage increases earnings and reduces poverty without measurably reducing employment." The WSJ article questions that statement: "Note the shifty adverbs, 'modestly' and 'measurably,' which can paper over a lot of economic damage." My interpretation of the phrase "without measurably reducing employment" is that only youngsters, mostly black youngsters, would be affected by an increase.

University of California, Irvine economist David Neumark has examined more than 100 major academic studies on the minimum wage. He states that the White House claim "grossly misstates the weight of the evidence." About 85 percent of the studies "find a negative employment effect on low-skilled workers." A 1976 American Economic Association survey found that 90 percent of its members agreed that increasing the minimum wage raises unemployment among young and unskilled workers. A 1990 survey found that 80 percent of economists agreed with the statement that increases in the minimum wage cause unemployment among the youth and low-skilled. If you're looking for a consensus in most fields of study, examine the introductory and intermediate college textbooks in the field. Economics textbooks that mention the minimum wage say that it increases unemployment for the least skilled worker.

As detailed in my recent book "Race and Economics" (2012), during times of gross racial discrimination, black unemployment was lower than white unemployment and blacks were more active in the labor market. For example, in 1948, black teen unemployment was less than white teen unemployment, and black teens were more active in the labor market. Today black teen unemployment is about 40 percent; for whites, it is about 20 percent. The minimum wage law weighs heavily in this devastating picture. Supporters of higher minimum wages want to index it to inflation so as to avoid its periodic examination.

[_Molok]

a 25% increase in minimum wage =/= 25% increase in the cost of labor, unless the author is somehow under the impression that everyone who works in the United States makes minimum wage.

[_Kevin Graham]

As I already explained in one of the other MW related threads, there is no longer a consensus on this issue. Droopy's idiotic source, which he gladly swallows hook line and sinker, refers us to two surveys that are (get ready to laugh!) 37 and 23 years old! It doesn't even cover the last five times the MW has been increased. There has been a wealth of economic data, as well as peer reviewed studies that challenge this, once believed to be axiom of economic science. As time passes, that majority got smaller and smaller to the point I don't even know if it is a majority anymore. You're better off reading a basic wiki synopsis of this issue than any silly blog piece Droopy pulls from the Right Wing propaganda machine.

[_Droopy]

As I already explained in one of the other MW related threads, there is no longer a consensus on this issue.

Are you just a naked, heels-dug-in prevaricator or a mindless, quivering drone? At this point, I'll bet money on both. I'll call you out right now, because as real, distinguished economists who have spent many hours of their working lives studying the issue, such as Walter Williams, Thomas Sowell, etc., who actually have the intellect, education, and intellectual honesty that you lack, will tell you, mainstream thinking and conclusions among economists generally has always been that of a negative appraisal of minimum wage laws. This has always been settled in the literature. There are a relatively small group of economists on the Left who disagree, but those are the outliers.

Quite clearly, you didn't even read the piece. You saw William's name (a notorious black race traitor), scanned the column for some polemical ammunition, and posted your mindless, demagogic response.

Typical.

If you had read it, you might have seen:

University of California, Irvine economist David Neumark has examined more than 100 major academic studies on the minimum wage. He states that the White House claim "grossly misstates the weight of the evidence." About 85 percent of the studies "find a negative employment effect on low-skilled workers." A 1976 American Economic Association survey found that 90 percent of its members agreed that increasing the minimum wage raises unemployment among young and unskilled workers. A 1990 survey found that 80 percent of economists agreed with the statement that increases in the minimum wage cause unemployment among the youth and low-skilled. If you're looking for a consensus in most fields of study, examine the introductory and intermediate college textbooks in the field. Economics textbooks that mention the minimum wage say that it increases unemployment for the least skilled worker.

Droopy's idiotic source, which he gladly swallows hook line and sinker, refers us to two surveys that are (get ready to laugh!) 37 and 23 years old!

1. This is irrelevant. There is no reason to think that the effects of minimum wage laws would have been any different a hundred years ago, let alone 20 or 30, than at the present.

2. Two surveys? Hmm. when I read Williams piece, I see that he mentions that 85% of over 100 major academic studies show net negative effects for minimum wage laws. And the surveys? Graham has no answer at all except to point out that they were done when he was still in grade skool, and hence, have no relevance. The 1990 survey found that 80% of economists agreed that minimum wages "cause unemployment among the youth and low-skilled." The 1976 study found of AEA economists found 90% of its members agreeing. He can't argue this away, so all he can do is stomp the ground.

As you've provided no rational, coherent argument as to why findings only 25 to 35 years old, in the same country under the same fundamental economic and political conditions, could possibly be irrelevant or inapplicable to present conditions, nor, even more importantly, why and how the laws of economics have changed in that time period, you walk away from the marketplace of ideas, yet again, with nothing.

It doesn't even cover the last five times the MW has been increased. There has been a wealth of economic data, as well as peer reviewed studies that challenge this, once believed to be axiom of economic science. As time passes, that majority got smaller and smaller to the point I don't even know if it is a majority anymore. You're better off reading a basic wiki synopsis of this issue than any silly blog piece Droopy pulls from the Right Wing propaganda machine.

Empty bloviation:


http://www.becker-posner-blog.com/2013/ ... al%20Media

http://www.forbes.com/sites/modeledbeha ... imum-wage/

http://www.cato.org/doc-download/sites/ ... /PA701.pdf

http://economystified.blogspot.com/2013 ... -wage.html

The following makes an excellent point:

http://cafehayek.com/2013/02/minimum-wage-as-a-tax.html

http://marginalrevolution.com/marginalr ... e_eco.html

http://www.econjournalwatch.org/pdf/Kle ... ry2007.pdf

[_krose]

Wow, it's like being stuck in time. Williams has been railing against the evils of the minimum wage for decades. I was suckered into it as a college kid, when I even wrote an undergrad ECON paper agreeing with him (back when the rate was being raised from $2.65 to $2.90, in 1978). Not any more.

[_Kevin Graham]

You heard it right here folks. Droopy just killed any chance he ever had of gaining credibility as even an arm-chair economist. He just said it doesn't matter if his studies are decades old. And it doesn't matter if new data has come in over the past forty years to change the consensus. Because according to Droopy consensus never changes in economics, and apparently he thinks it is an exact science.

Then he goes on to assure us that the usual blow-hards at his favorite think tanks, have all the answers because they're smart, and must represent the majority because they say so. Yes, idiots like Sowell who still thinks the housing crisis was caused by the CRA!

I'll just repeat some of the things I have already posted over the past week on this issue. The fact is there is no longer a consensus, and I backed this up with evidence.

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"Until the 1990s, economists generally agreed that raising the minimum wage reduced employment. This consensus was weakened when some well-publicized empirical studies showed the opposite, although others confirmed the original view. Today's consensus, if one exists, is that increasing the minimum wage has, at worst, minor negative effects." ( "A Blunt Instrument; The Minimum Wage," The Economist, October 28, 2006)

That's from the Economist, not some partisan "think tank."

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Six years ago over 650 Economists signed a statement asking for an increase in the minimum wage, precisely because they rejected this notion that it killed jobs. And just this month John Schmidt released a study explaining why the minimum wage has no discernible effect on employment.

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I've read about a dozen articles/studies on this issue the past few days and the overwhelming consensus is that there simply is no consensus anymore. What was once believed to be standard Econ 101 axiom is now losing adherents in droves because of the simple fact that employers do not appear to be responding to the minimum wage increases as expected. In some cases they respond contrary to expectations. And the more I think about it the more it all makes sense. I've managed businesses during minimum wage increases and don't ever recall there being a big deal about it. If anything, the talking heads at corporate headquarters will try to increase profits in other ways. You see most corporations allocate salaries in a truly warped way as it is, so what tends to happen in some cases is that executives making multi-million dollar salaries might have to take a slight pay cut in order for the company to recoup whatever losses from the minimum wage increase. And who is going to be pissed off about that? Republicans? Well, they supported it when Bush was in office, but they've decided to object to anything Obama does even before he tells them what it is he wants to do.

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It’s a fairly logical and simple argument: increasing the cost of labor causes competitive employers to cut employment or hours to make up for the additional cost, hurting the very low-skilled workers that the policy was designed to benefit in the first place.

The problem? What sounds perfectly reasonable in theory doesn’t actually hold up in the real world and the overwhelming empirical consensus shows little if any effect of the minimum wage on employment.

For instance, in 2009 researchers conducted a review of 64 minimum-wage studies published between 1972 and 2007 measuring the impact of minimum wages on teenage employment and when they graphed “every employment estimate contained in these studies (over 1,000 in total), weighting each estimate by its statistical precision, they found that the most precise estimates were heavily clustered at or near zero employment effects.”

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Now Droopy can keep living in the distant past if he so chooses. That's typical of hard-headed old farts who refuse to accept the fact that new economic data provides different analyses and oftentimes it changes a perceived consensus. The reason he thinks economists overwhelming continue to support his talking point is because he and is ilk insist on residing inside a bubble.

[_Droopy]

You heard it right here folks. Droopy just....

No mention of the 80% of the one hundred major studies, all showing a consensus in opposition to minimum wage laws. Graham just read a dozen studies...yeah, OK, well, even if so (he did this with Hayek's The Road to Serfdom a few years ago to; skimmed through it one night and in a post to me the next day summarily declared it all bunk. This is the person we are dealing with here), economics tends to be a discipline in which picking cherries can very quickly come to dominate debates on issues of central importance. Kevin's not nuanced enough to realize the complexity and dynamic flux of the real economy and how polices interact with human motives, calculations, future anticipation of return on investment and work, and incentives to hire, lay off, raise or lower time worked, set prices, or anything else. For him, its all just armchair ideology, easily circumscribed by a few statistical studies the methods of design and construction of which he has no inkling.

To point out, Walter Williams is a distinguished and well-published economist who has taught in and chaired the department of economics at George Mason University (as well as at Temple and Cal State Los Angeles) Kevin Graham taught English in Brazil and is a vitriolic, volatile, bombastic, and marginally educated polemicist and wannabe intellectual who has no living idea what the overwhelming weight of the economic literature contains, for which he would have to be quite conversant with many hundreds of studies going back many years.

Kevin, however, has no understanding of economics. None. What could be pointed out, just from the archives of this forum, in support of that claim is legion. The reason he has no understanding of economics (outside what appears to be case that he has never studied it to any substantial degree) lies primarily in his leftist political ideology, grounded in a Hodgepodge of popular Marxist/socialist dogmas that tell us nothing about any reality-based economics but provide the moral imprimatur and intellectual scaffolding for what Thomas Sowell has called the "vision of the anointed."

As to Graham's fixation on the recentness of studies, this is an old hobby horse he trots out at every opportunity on every subject in which studies are used as sources. Its not an argument, obviously, but another one of his high-handed evasions. Dr. Williams is vastly more knowledgeable on this subject than either I or Graham, and he hasn't carefully cherry-picked a dozen studies to make a preconceived point but is cognizant of a massive corpus of them, and one of the clinching points of any such argument is exactly the long time-frame over which minimum wages have been studied and a broad, mainstream view generated around them.

This is to be expected, after all, as the laws of economics have not changed since the 80s or the 70s, or, in fact, for centuries.

Please be mindful of the Kevin Graham binge/purge cycle. I've already shown, via some other links already made, that the major studies now being touted as showing positive effects (like greater hiring) are riddled with methodological problems and aren't reversing the generations long consensus. But again, why should we expect such? The laws of economics and the fundamental nature of human motivation, incentive, and self-interested action in improving and raising standards of existence and felicity, haven't changed. The minimum wage is a tax that raises the cost of labor, and human beings will, depending on the size of that tax over time, and other economic variables, respond to the conditions it creates in various ways.

There is no free lunch. Higher minimum wages will not be born directly by the entrepreneur but will be transferred to third parties through higher prices at the cash register, laying off of marginal employees, cutting hours, and/or curtailing hiring. That's what actually happens in a real economy among real, living human beings acting within it, and that's what the substantial majority of economists support as, for all intents, a settled question.

As I showed with a survey that I linked to above, economists views on some major economic questions can be deeply infected and corrupted by ideological commitments. Kevin certainly does have studies he can point to that show the opposite of what's been said here, but he's swimming upstream against a pretty decent current.

I put up a number of links that show severe problems with Kevin's consensus argument. There is a consensus, but its in the opposite direction to that which Kevin is claiming.

[_krose]

There is no free lunch. Higher minimum wages will not be born directly by the entrepreneur but will be transferred to third parties through higher prices at the cash register, laying off of marginal employees, cutting hours, and/or curtailing hiring. That's what actually happens in a real economy among real, living human beings acting within it, and that's what the substantial majority of economists support as, for all intents, a settled question.

I would like see evidence of this, please.

If someone has surveyed practicing economists regarding this question, I have not seen it. Please direct me to the source for this.

[_Gadianton]

If someone has surveyed practicing economists regarding this question, I have not seen it. Please direct me to the source for this.

http://www.igmchicago.org/igm-economic- ... q5a9E77NMV

(pretty much any issue in the media where Paul Krugman squares off against the religious right and the fallout rains down on this forum will find its way into this poll)

[_krose]

Thanks, Gadianton. That's enlightening. The clarifying comments from the respondents are very interesting.

This confirms the impression I have had, that economists are split on whether there would be any ill effects, but a solid majority think an increase is good policy whose benefits outweigh any down side.

I have no idea what droopy bases his certainty on.