Tuesday, February 18, 2014

Minimum wage debate - a little old but good

This is coming up on a year old now, but it's excellent. Jared Bernstein does a phenomenal job drilling down to the real issues. I can also say that Russ Roberts is wrong on at least one point. He says that some empirical studies say one thing and some say another and nobody is ever convinced either way because of our ideology. So that's certainly not true. My mind was changed. I used to think that the minimum wage reduced employment for all the reasons that are typically stated. When I was required to read the empirical work on it in my labor classes I started to doubt that, and particularly in the last several years with the spate of new work that has come out my view has been solidly changed because I think that there is far stronger evidence that the minimum wage does not have disemployment effects.

I'm not saying that is universal - that it could never have those effects. In certain labor markets it probably does and if you jacked the minimum wage up to $15 or $20 it certainly would. But I don't think anyone would question that.

So Russ, I'm one. If I have been convinced by the evidence after holding an alternative viewpoint surely there are others. I think we are at a really critical time in this literature. The differences between the two empirical approaches is crystallizing, which means people are going to be better equipped to evaluate who has the better argument. I'm writing a short piece on that right now, and hopefully we can talk more about it in the future.


22 comments:

  1. "...if you jacked the minimum wage up to $15 or $20 it certainly would."

    So will you go on record as saying the following is going to have deleterious effects on the labor market?
    http://www.huffingtonpost.com/2014/01/14/la-highest-minimum-wage-hotel_n_4590136.html

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    1. I'd need to know more about LA's labor market. It's likely to be deleterious. Part of the reason why I strongly prefer state and local minimum wages to federal minimum wages is precisely that cost of living and market wages in LA are different from elsewhere. I don't know what the "right" minimum wage for LA is.

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    2. So we've gone from "it certainly would" to "it's likely," but you'd "need to know more."

      Oh, well. I'll learn to be happy with "it's likely." That's close enough for me.

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    3. No Ryan. You asked me about a minimum wage in one city. It certainly would cause problems if the federal minimum wage went up to $15. The point I was raising there was that different labor markets are probably going to react differently. Don't act like I'm flopping all over the place.

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  2. I find your statement to be nothing short of astounding: "I think that there is far stronger evidence that the minimum wage does not have disemployment effects.". To argue that there are no disemployment effects, none at all, due to a minimum wage, is preposterous. Arguing that on the whole we are likely all better off with a minimum wage is a valid discussion, but arguing that a higher cost of X does not impact the total consumption of X sounds to me like crazy talk.

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    1. Hmmm... sorry to astound.

      The next paragraph might be a little reassuring/important context.

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  3. Another logical extension of "I think that there is far stronger evidence that the minimum wage does not have disemployment effects." is that you must also believe that unpaid interns are being taken advantage of, and unpaid internships should not be allowed. Have you ever had an unpaid internship? Should they be also be subject to minimum wage law? Looking back on it, were you exploited by your employer (exploiter?) during your unpaid internship?

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    1. I'm not sure why I'm obligated to believe that. Could you explain?

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  4. I'm not getting consistency from these two statements:

    (1) I think that there is far stronger evidence that the minimum wage does not have disemployment effects.

    (2) I'm not saying that is universal - that it could never have those effects. In certain labor markets it probably does and if you jacked the minimum wage up to $15 or $20 it certainly would. But I don't think anyone would question that.

    So it's merely a question of degree and/or location? A question of differentials in cost of living and/or average wages and/or ??? between "here" and "there"? A rise from $7.25 to $10.10 has no effect in New York City, but does have an effect in Oklahoma City? What about those workers in Oklahoma City? What do we do about them???

    Inasmuch as we have far more "Oklahoma Cities" in the U.S. than we do "New York Cities," how can you make statement (1) without an explicit acknowledgement that a rise in the national minimum wage, which after all is what is being suggested, may have a "disemployment" effect on more workers than it minimally benefits?

    So long as statement (2) is true, how can you make statement (1)?

    Help me out here. I'd really like to understand how you were converted with that kind of thinking.

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    1. Statement 2 added to statement 1 just highlights that statement 1 is a reference to an average treatment effect (which is what it is understood to be in the literature), without having to reference that technicality. That was the whole point of making statement 2.

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    2. Thanks for taking the time to respond. Obviously, I had read (1) as an absolute statement contradicted by (2) rather than highlighted by (2).

      I am a layman (i.e., not educated in economics literature) trying to understand the opposing arguments & viewpoints with regard to minimum wage policy, and appreciate your explanations and enlightening posts. Thanks again for your courtesy.

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  5. Three thoughts: (A) what is the purpose of a minimum wage, in the World According to DK? (I do not say that derisively, I just mean in your world view.) Greater income for low skilled people because it is morally right? Because it is a net positive for the economy overall? Gov't acting on behalf of low skilled labor to keep businesses from taking advantage of them? Why have a minimum wage at all? (B) Points (1) and (2) from ColoComment above, from my chair, are mutually exclusive. You cannot have both "no disemployment effects", and "...it certainly would." An input (minimum wage, in this case) cannot simultaneously have both no effect, and an effect. That is the specific item I found to be astounding. (C) If minimum wages have no disemployment effect, there would be no impact on the availability of unpaid internships by mandating that formerly unpaid internship are now to be paid minimum wage. If you support a minimum wage, you cannot also believe that unpaid internships are OK.

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    1. Could you clarify A? Are you asking my view of the minimum wage or my view of why people support it?

      B is asked and answered as far as I'm concerned. I know that you are astounded, but that's what you said the first time. If you don't have additional concerns on my response to ColoComment then I don't have anything else to add.

      On C, I think unpaid internships (and paid internships for that matter) are an odd mix of education and work. It's largely the firm providing an education to interns, in which case the interns owe the firm something. But of course they do do work, and so the firm owes them something. Interns aren't called workers for a reason, right? They're kind of half workers, half students. Another way of saying this is that the minimum wage would be binding for interns at a much lower level than for the average worker, so I would think imposing the minimum wage on them would reduce unpaid internships. Anyway, that sort of increase in the minimum wage for interns - from zero to the existing minimum wage rate - would be an increase that is way out of sample of any of the studies that we have, so my claim about disemployment effects absolutely does not obligate me to make such a claim about internships.

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    2. I would think imposing the minimum wage on them would reduce unpaid internships. I'm going assume you meant something slightly different.

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    3. What I mean is the share of the pool of internships previously unpaid that would still exist after a minimum wage is imposed is going to be smaller.

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  6. (A) By what logic should the Fed put a lower bound on the price of labor? Why not the salary of a baker (and by extension, the price of a loaf of bread), or a doctor, or an engineer right out of college? If a defined minimum wage is good, why would it not also be good to define ALL wages?

    (B) Your first paragraph is contradicted by your second paragraph.
    "minimum wage does not have disemployment effects" in the first paragraph becomes "I'm not saying that is universal - that it could never have those effects" and "In certain labor markets it probably does" in the second.

    Which is it? "does not" or "probably does"? If there are EVER disemployment effects, then there are disemployment effects. Being able to think of cases where there are not disemployment effects does not negate all instances of disemployment effects.

    (C) By your own discussion of the value of internships, any entry level job where the employee might become more employable in the future, or learn something about the industry in which they are working, would negate the need for a minimum wage. All entry level jobs are internships unless the worker is able to keep from learning anything that might benefit them in the future while carrying out the job.

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    1. (A.) First, let's be very clear here - I never said it was good for the Feds to put a lower bound on the price of labor. As for why not specify between different occupations, because that would interfere with relative price signals that aid in allocation of labor across occupations. The justification of a minimum wage is more of a safety net justification that does not discriminate between occupations.

      B and C I think I've been clear on and I don't have time right now to continue. See previous comments on that, particularly since you don't seem to be breaking new ground..

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  7. See how difficult it is for someone that thinks outcomes can be determined on principle, that effects can only occur in one direction and must vary monotonically and be any and every where the same, at all magnitudes, and in any amount, to understand something more complex.

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  8. I agree that my third post was a restatement of my second. And you are under no obligation to respond to every comment on your blog.

    My take-away is that you believe an input can simultaneously have no effect per the literature you referenced in the original post, and an effect per your speculation on internships declining if they had to pay minimum wage. To me, those are in direct opposition. You do not have to find them to be so. Interfering with relative price signals is as true for a minimum wage as it is for the price of a loaf of bread.

    Lord: I'm not looking for a 'principle', I am looking for logical arguments. I don't discuss things to change your world view, I discuss things to change my own.

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    1. What I think you're missing is my response to ColoComment on the point you think is contradictory, and the fact that the literature absolutely does not speak to the case of internships or anything that far below the current minimum wage.

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    2. Apologies if I'm trespassing on your goodwill. I have been checking back from time to time in the hope that I would find additional meaningful explanation in the comment thread.

      Perhaps it's my unfamiliarity with the "literature" and my layman's ignorance of any more than general economic principles, and/or perhaps it's that I am simply heavily reliant on my plain common sense or perhaps I'm severely obtuse but unaware of it (which is all my problem, not yours), but your above response to my comment was completely impenetrable to me, notwithstanding your belief that your response was "clear."

      You relied on some [obscure to the average Joe/Jane] reference to "average treatment effect" (which my pitiful Google research efforts indicate seems to be found primarily in a controlled medical testing environment and I'm having trouble translating that to economics) and more or less stated that, well of course, this meant that and QED.

      As CR noted, it's your blog & you can post and respond as you choose. However, at some point in the future, when you have the time and inclination, I'd love for you to expand your explanation of the reconciliation of Statements 1 and 2, so that I can better understand what it is that is the basis for your "conversion," and why those two statements, as written, are in fact NOT contradictory.

      As for CR's question about internships, notwithstanding that the "literature" may not address that setting specifically, perhaps you could apply your way of thinking about these things to that topic? For, if a statement is indeed to stand against argument, it seems that it should be applicable in multiple, generally similarly-situated examples.

      Thank you. Your courtesy & time (and your blog!) are greatly appreciated.

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