I read your post, thank you. I'm not very interested in discussing the relative merits of various "-isms" , but I am very much interested in the question of whether the minimum wage should be raised and what might the effect of that be on the economy. My own view is that we should raise it, and if we raise it to the right point, the economy will get a big shot in the arm and everyone will do better. I have posted elsewhere my views on how to go about deciding what the target wage should be.( see my posts where I discuss the "true cost of minimum wage labor". I have a preference for actual case studies. the following is from:
http://www.businessinsider.com/minimum-wage-effect-on-jobs-2016-5 and seems a nice review of those many, many economic studies that are available to us.
A report that analyzed every minimum-wage hike since 1938 should put a bunch of nonsense ideas to rest
_Nick Hanauer.
From the fear-mongering headlines marking passage of $15 statutes in New York and California, you would think nobody ever dared raise the minimum wage before.
"Raising minimum wage risky," the Lexington (Kentucky) Herald-Leader tersely warned.
"Raising minimum wage hurts low-skill workers," the Detroit News bluntly declared.
"Even left-leaning economists say it's a gamble," Vox solemnly cautioned.
Nonsense. We have been raising the minimum wage for 78 years, and as a new study clearly reveals, 78 years of minimum-wage hikes have produced zero evidence of the "job-killing" consequences these headline writers want us to fear.
In a first-of-its-kind report, researchers at the National Employment Law Project pore over employment data from every federal increase since the minimum wage was first established, making "simple before-and-after comparisons of job-growth trends 12 months after each minimum-wage increase."
What did the researchers find? The paper's title says it all: "
Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels."
The results were clear. Of the nearly two dozen federal minimum-wage hikes since 1938, total year-over-year employment actually increased 68% of the time.
In those industries most affected by the minimum wage, employment increases were even more common: 73% of the time in the retail sector, 82% in low-wage leisure and hospitality.
"These basic economic indicators show no correlation between federal minimum-wage increases and lower employment levels," the authors write.
In fact, if anything, the data suggest that increases in the federal minimum appeared to encourage job growth and hiring.
Perhaps even more striking, of the only eight times that total or industry-specific employment declined after a minimum-wage increase, the US economy was already in recession (five times), technically just emerging from recession (twice), or about to head into recession (once).
Clearly, this handful of employment downturns would be better explained by the normal business cycle than by the minimum wage.
"As those results mirror the findings of decades of more sophisticated academic research," the authors conclude, "they provide simple confirmation that opponents' perennial predictions of job losses are rooted in ideology, not evidence."
But while there is no evidence that raising the minimum wage is the "risky" "gamble" that doomsayers describe, the devastating economic costs of keeping wages too low are very well documented.
After decades of stagnant wages,
73 million Americans — nearly one quarter of our population — now live in households eligible for the Earned Income Tax Credit, a benefit exclusively available to the working poor.
And according to a 2014 report from the Organization for Economic Cooperation and Development, rising income inequality (and the reduced consumer demand that comes with it) knocked
6% to 9% off US economic growth over the previous two decades.
Wow. If the US economy were 9% bigger than it is today, it would have created about 11 million additional jobs. Imagine how great that would be for both American workers and businesses.
To be clear, I am not suggesting that there's no limit to how high we can raise the minimum wage. But minimum-wage opponents are not haggling over a number. They are not making a nuanced argument that the minimum wage might be bad for some people if it's too high or phased in too fast or if the economy is too weak to absorb the change.
No, their core claim is that the minimum wage always hurts the whole economy — that it will always reduce growth— that it is always a sure-fire "job-killer."
For decades, our minimum-wage debate has been dominated by ideology — the zero-sum claim that if wages go up, employment must inevitably go down — leading even many progressives to believe that the minimum wage is at best a necessary trade-off between fairness and growth.
But 78 years of evidence demonstrates that this old trickle-down model just isn't true. On the contrary: When workers have more money, businesses have more customers and hire more workers. That is the virtuous cycle that has always described the way market economies actually work.
So if you are genuinely worried about killing jobs, our current $7.25-an-hour minimum wage is arguably far riskier than $15.
Hello piezoe:
I read the
http://www.businessinsider.com/minimum-wage-effect-on-jobs-2016-5 article and also the paper it was based on
"Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels."
The paper's claims certainly flies in the face of basic economic theory. Kind of like saying perpetual motion machines actually work.
And yet the authors cite scholarly studies to back up their conclusions.
One has to wonder if basic business math theory still applies, namely can increased costs of labor effect the profitability of businesses so that some businesses cannot absorb the increased labor costs and will go out of business and some businesses will never get started. And for other businesses that would have hired more workers at the old wage they might end up slowing their rate of hiring because of the increased costs.
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The below articles, also citing scholarly studies, dispute the claim of the revisionist literature that "modest increases in the minimum wage had a negligible impact on employment in the low-skilled and teenpopulations" pointing to flaws in the studies.
"another major problem as Robert Murphy’s points out,
… careful analysts will often summarize the new research in a nuanced way, saying “modest” increases in the minimum wage appear to have little impact on employment. But the proposed increase from $7.25 to $10.10 an
hour is a 39-percent increase, which can hardly be characterized as “modest.” Such an increase, therefore, could well destroy teenagers’ jobs, notwithstanding the revisionist studies."
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Another argument made is that while raising the minimum wage was accompanied by an increase in employment in many cases. This correlation does not signify causality. One could also say that if there was no minimum wage the increase in employment would be even higher."
The Effects of a Minimum-Wage Increase on Employment and Family Income
February 18, 2014
https://www.cbo.gov/publication/44995
"Effects of the $10.10 Option on Employment and Income
Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent"
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Economists Debate the Minimum Wage
Robert P. Murphy, FEBRUARY 3, 2014
http://www.econlib.org/library/Columns/y2014/Murphyminimumwage.html
Economists famously argue about everything. Even so, it used to be that economists across the board—whether left, right, or center—generally agreed that the minimum wage was ill-suited to help the poor. As we still teach introductory students in Econ 101, a price floor on low-skilled labor will (at least in the textbook diagrams) lead to unemployment among the very people minimum wage legislation allegedly helps. In addition to the textbook diagrams, economists also used to rely on a seemingly impregnable body of empirical studies backing up the claim that raising the minimum wage would throw unskilled laborers out of work.1
However, starting in the 1990s, this consensus began to unravel. A series of econometric studies, relying on new techniques for holding "other things equal," challenged the existing orthodoxy.2 Once the researchers controlled for other trends, it appeared that in practice, modest increases in the minimum wage had a negligible impact on employment in the low-skilled and teen populations. Indeed, this revisionist literature has grown so influential that, recently, 75 economists—including seven Nobel laureates—publicly signed a letter to prominent federal politicians, urging them to raise the federal minimum wage to $10.10 by 2016.3
In this article, I explain why, even if the revisionist empirical studies are accurate, it still does not follow that the proposed hike in the minimum wage will be a boon for low-skilled workers. I also argue that, because critics have raised many troubling concerns about these studies, we should not accept them at face value. I conclude that economists should maintain the standard view that employers have a downward-sloping demand for low-skilled labor and that raising the minimum wage will tend to destroy job opportunities for many of those whom advocates of the higher minimum wage wish to help.
Revisionist Studies Do Not Clinch the Case for Raising the Minimum Wage
Let us concede, for the sake of argument, that the new wave of research is correct, and that modest hikes in the minimum wage do not significantly impair teen (or other low-skilled worker) employment. Further, let us put aside any ethical or rights-based objections one might have to government interference in voluntary contracts between firms and workers. Even if we focus narrowly on low-skilled workers, it still does not follow that raising the minimum wage is necessarily a good idea.
In the first place, there is the matter of degree. Careful analysts will often summarize the new research in a nuanced way, saying "modest" increases in the minimum wage appear to have little impact on employment. But the proposed increase from $7.25 to $10.10 an hour is a 39-percent increase, which can be hardly be characterized as "modest." Such an increase, therefore, could well destroy teenagers' jobs, notwithstanding the revisionist studies.
There is a second, and independent, problem: Raising the minimum wage might represent a drastic harm to the most vulnerable and desperate workers if the specific employees who would be working for $10.10 an hour are different from those who would be working for $7.25 an hour. What could happen is that the higher wage would attract new workers into the labor pool, allowing firms to become pickier and, thus, to overlook the least-productive workers, who would remain unemployed or lose their jobs to more-highly-skilled workers.
I illustrate this point by using a supply-and-demand framework in which I have made the demand for low-skilled labor very inelastic.
...
However, in our example, the supply curve (by construction) is a more typical shape, such that the large increase in the wage rate leads to a large increase in the number of workers seeking employment—500,000 in our scenario. There is now a significant amount of involuntary unemployment in the market for low-skilled labor; the unemployment rate would skyrocket.4
Even though (by construction) our hypothetical minimum wage has not significantly reduced total employment, it has, nonetheless, drastically impaired the functioning of the labor market. The "glut" of workers on the market means that non-price allocation mechanisms must come into play. Since there are now multiple applicants for a given job opening, employers can rely on other criteria, including racial and class background, to
choose which worker gets the job. It is much more likely that an applicant will need to "know somebody" to get hired, and that teenagers from "respectable" backgrounds will be the ones to work at fast food restaurants, displacing teenagers who might be in more desperate circumstances.
These concerns are not merely hypothetical. Even many economists in favor of the wage hike agree that raising the minimum wage will affect the turnover of workers. For example, one of the leading revisionist authors, Arindrajit Dube, says that in one of his earlier co-authored studies "we... find that both hires and separations of low-wage workers (teens, restaurant workers) fall in response to [a] minimum wage increase, but employment levels do not change noticeably."5
The Empirical Case on the Minimum Wage Is Far From Settled
Thus far, I have argued that even on its own terms, the revisionist empirical literature does not clinch the case for raising the minimum wage. Yet the situation is even worse for the proponents of hiking the minimum wage, for the empirical record is far from settled. There is currently a healthy ongoing debate in the empirical literature. The fact that a branch of revisionist studies has arisen since the mid-1990s does not mean that the consensus has been reversed; it merely means that the prior consensus has been challenged.
I will not attempt an exhaustive survey of the literature, but I do want to explain the main issues. First, a straightforward regression approach seems to validate the textbook treatment: hikes in the minimum wage are associated with a negative effect on the level of employment. This is intuitive, as it simply illustrates that demand curves in general slope downward. However, the revisionist studies argue that such a finding is spurious because of heterogeneity in the states that raise their minimum wage above the federal level. Once we refine the regressions to account for other factors that could affect employment, they argue, it is no longer obvious that hikes in the minimum wage retain any explanatory power.
To get a flavor of the disputes, we need to introduce some econometric terms. Introducing more independent variables into the regression for each of the items listed below isolates any remaining effect that could be explained by the minimum wage hikes.
Time trends: One can introduce a variable for the time period, so that national trends (such as the business cycle) will not distort the apparent effect of the minimum wage.
State-specific fixed effects: One can introduce a variable for each state, to account for permanent differences between them. For example, Florida has nicer weather than Minnesota, and so we would not want to try to explain faster employment growth in Florida solely by the minimum wage in both states.
State-specific time trends: One can introduce a variable for each state per time period, to prevent the minimum wage variable from apparently accounting for the changes in employment that are actually being driven by something else. For example, the loss of competitiveness by the Detroit automakers might cause a downward trend in employment in Michigan relative to other states over a certain time period. This is not a state-specific
fixed effect because it is not a permanent feature of Michigan versus other states. Yet a national time trend would also miss it. Absent a state-specific time trend—where there are variables for Michigan-2008 first quarter, Michigan-2008 second quarter, etc., if we are using quarterly data—if Michigan just so happened to raise its minimum wage in the middle of the decline, then a regression might unfairly blame this policy move for too much of the (relative) decline in teen employment.
Construction of control groups: One of the most advanced techniques is to construct pairs of contiguous counties lying on opposite sides of a state border. This is the favored method of Dube et al. (2010) and subsequent articles; it is a generalization of the "case study" approach of Card and Krueger's famous 1994 paper. Dube and his co-authors argue that regressions run on this smaller universe (rather than on the entire set of counties for which we have data) give a much crisper indication of the true effect of minimum wage hikes.
Now that I've reviewed some of the terminology and methodological issues, I can summarize some of the key arguments. Dube et al. (2010) concede that if we rely merely on general time trends and regional fixed effects, we will, indeed, see the old consensus: the minimum wage destroys low-skilled jobs. Yet if we include regional-specific trends indexed by time period, the influence of the minimum wage begins to disappear and, in particular, using their preferred control group method (of contiguous county pairs) completely obliterates the textbook finding. The minimum wage may even have a positive impact on employment.
On the other hand, Neumark and Salas (2013) provide a summary and critique of the revisionist studies. For example, they show that the results of Allegretto et al. (2011) depend on a very particular choice of time period and on a particular "functional form" of the state-specific time trend. If Allegretto et al.'s same regression were run on a different portion of the time period they chose (which had recessions at the start and end), then the minimum wage would appear to hurt teen employment after all. Moreover, even using Allegretto et al.'s original time period, Neumark and Salas merely allowed the state trend variable to be a higher order (not just linear), and, once again, the result was that the minimum wage hurt employment. As Neumark and Salas put it, "Thus, [Allegretto et al.'s] claim that underlying trends that vary by state generate spurious evidence of negative minimum wage effects on teen employment is clearly not true. Rather, only with a very specific form of controlling for this spatial heterogeneity" do the revisionist results hold up.6
Neumark and Salas directly tackle the contiguous county control group method, but their arguments are difficult to summarize concisely. What we should note is their general warning about Dube et al.'s desire to control for "spatial heterogeneity....
