Why cite economists doing literature reviews on the minimum wage when you can cite a report by Republican politicians? This seems to be Don Boudreaux's perspective.
There are literature reviews compiled by economists on this. My understanding of these literature reviews is that there are a lot of studies with small positive effects, a lot of studies with small negative effects, none with particularly big effects, and it kinda centers on a zero effect. This suggests to me that a simple competitive supply and demand model of the minimum wage is missing something because there should not be an average zero effect (much less the presence of some clear positives in some cases) if that model were true. That's why I think the monopsony model makes a fair deal of sense. With a monopsony model you're not guaranteed to get a positive effect of course. If the minimum wage increase is sufficiently large given the production technology and market conditions of an individual firm, some firms may indeed reduce their employment as a result. But it explains why we'd see these mixed and weak findings.
I said as much in my response to the question Don posed to me the other day on the minimum wage. I'm still curious what his response is (I emailed it to him and he responded, so I know he saw it).
Friday, October 25, 2013
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Daniel,
ReplyDeleteWhat about macro-level effects, i.e. the hypothetical rise of effective demand because of redistribution of wealth from high-income to low-income groups? I remember that you once stated that you do not think this is the explanation, but I'm curious why. For example, you write: "If the minimum wage increase is sufficiently large given the production technology and market conditions of an individual firm...", but surely the very market conditions are not independent of the minimal wage policies and distribution of wealth?
Because so few people earn anything close to the minimum wage it's unlikely they could pull themselves up by their own bootstraps so to speak. It has macro effects to be sure. These people have a high MPC so if employment really is increased that all has positive macro effects. But not concentrated enough on those sectors to make the minimum wage pay for itself in any sense.
Delete"Because so few people earn anything close to the minimum wage it's unlikely they could pull themselves up by their own bootstraps so to speak"
DeleteReally, more people make less than the minimum wage than above the minimum wage? Are you insane or just playing stupid? Are you sure that you don't wish to revise you usage of "so few", because it certainly implies a pandemic dynamic with regard to wages.
"These people have a high MPC ..."
Just how in the hell do you know this? Are you Kuegnstadamus? And just where are they going to get that MPC if they're unemployed? Let me guess, you're talking about potential MPC, am I right?
Everybody has the "propensity" to consume, without it we would all be dead. And everybody has a level of productivity that is priced by the market. How is it that you seem to know when their wage is above/below the market wage for that job, or that their propensity to consume is below or above a certain measure. Are you fucking God?
Daniel,
DeleteThanks for the answer. Well, I guess the only way to be absolutely sure would be to have an economy-wide ERP system (like Cybersyn or OGAS) that could trace the intra- and intersectoral flows of money. Otherwise, without knowing the 'deep structure' of the economy, it is difficult to estimate all kinds of indirect effects higher wages of some workers would produce.
I'm not seeing what this has to do with libertarianism, you're talking about economics. Or are you just wanting to snipe at libertarians lately?
ReplyDeleteIt's an outspoken self-identified libertarian making a libertarian policy argument. This libertarian has the capacity to cite academic literature and instead he cites a misleading report by Republican politicians. It is not a good advertisement for libertarianism at all.
Delete"It's an outspoken self-identified libertarian ..."
DeleteThat's debatable. Shit, even Fama recently described himself as an "extreme libertarian". Do you buy that? I don't. In fact, in response to that statement of Fama's, I can't help but say to myself, "really?" and then shake my head in disbelief.
"... making a libertarian policy argument."
Which argument was that, exactly? Boudreaux's posting of a report by a Republican committee, or his single sentence afterward? Neither said anything in the form of rights or property theory, which is essentially what libertarianism is all about.
"This libertarian has the capacity to cite academic literature and instead he cites a misleading report by Republican politicians."
Wasn't it you who said to me that we should not "assume out (sic) own conclusions"? Head your own speed, because you're swerving here, and the road is getting quite bumpy. You're heading for a crash. (please excuse the use of metaphor, I've been digging on some literary works lately)
Further, in that other thread that I commented on, I was trying to explain how one shouldn't use Party nomenclature to define a political philosophy (I didn't say that explicitly, but what I said had that conclusion in mind). That Boudreaux is using an economic study from a Republican establishment committee should be your first clue that we aren't talking about political philosophy in any sense here, and especially not the political philosophy of libertarianism. We're talking about one of two things: economic studies (and their interpretations) or party politics (and *their* interpretations). That is the extent, it goes no further than that.
"It is not a good advertisement for libertarianism at all."
Well, no shit! But where exactly does libertarianism come into the picture, does it even show its face at all? I don't think that it does. Perhaps you can enlighten me. Maybe you will, who knows for sure?
You really need to parse your arguments a little better, because you're starting to go all over the map. Because next thing you know, you'll be telling me that a dog is really a cow (it just depends upon how you define it), that it's perfectly acceptable to kill innocents so long as you get the guy you want to get, and that Keynesianism is a free-market school of economic thought. Oh wait ... I think that you're two out of three here, so the outlier doesn't seem so ridiculous after all.