Wednesday, February 5, 2014

Three quick minimum wage memes to push back on...

So as the minimum wage blog discussions drag on I've run across three memes (the original "meme", not the pictures) that I want to push back on a little (although one I need a little help with... it's more of an inkling right now).

1. Privileging theory.

The first is the tendency to say that when empirical evidence contradicts solid economic theory, you have to dismiss the empirical evidence. I have seen this put out there with varying degrees of strenuousness, of course. In any case, my view is that this way lies madness. You might be very curious about an empirical result for which there is no theoretical explanation (although in this case, of course, there is). You might want to think about how you might be getting that result. In my dissertation I'm coming up with a funny finding - a labor demand subsidy is resulting in reduced employment but increased earnings. Strange. My working hypothesis (that I'm going to test) is that part-time jobs converted to relatively fewer full time jobs without necessarily changing total hours worked (you have to offer a full time job to get the subsidy). I have no obligation to take my result at face value. But I don't just dismiss it because it doesn't at first blush match how I think labor markets work.

The moment we start privileging theory over empirics like that, our theories are going to start getting unmoored from reality and we're going to have doctrines and dogma rather than theory. Science is an interaction between theory and observation - and a constant revision and testing of theory to ensure that it is a story that best explains the world we experience. You figure that out by going and collecting data on the world we experience.

2. Empiricism as a popularity contest

I've also seen references to the fact that X number of empirical studies support the view that the minimum wage has disemployment effects. Who cares? You don't do meta-analyses by counting up studies. You organize and assess the studies by the quality of the methods they use. Any undergrad STATA monkey can run a state-level fixed effects model. That data is readily available and the model is very straightforward. So I don't care if there are a million variants of a state-level fixed effects model telling me that the minimum wage has disemployment effects. I mean, it's nice to have confirmation that that model works out that way I guess but when you use similar methods on similar data, you tend to get similar results. The important question is whether that's the right specification. The quasi-experimental studies may be outnumbered (I don't know this for sure, but I suspect it's true, particularly if you start trolling the lower tier journals [the original "trolling", not the thing Ryan Murphy does]), but the point is they are better. That's not to say you can't criticize them. Bob Murphy recently raised some important criticisms of how the quasi-experimental studies use time trends, which you may or may not be convinced by. But by almost any econometric standard the identification of the quasi-experimental studies is stronger than the fixed effects studies.

This is very similar to the fiscal multiplier debate or the immigration debate (in the empirical economics literature). These debates are not about counting studies - they are about dueling methods. If you run fiscal multipliers with certain identification techniques, you tend to get a certain magnitude of results. If you run immigration impact on native studies with Card's methods you tend to get different results from if you run it with Borjas's methods. Knowing this, nothing could matter less than how many of each type of study was run and published. What matters - once we establish the basic distribution of point estimates - is which specification we think is the best one. We might still disagree on that, but you don't argue that point by counting studies.

3. Racism and the minimum wage (this is the one I need a little help with).

I've heard a lot that the original proponents of the minimum wage wanted to push blacks out of the labor market. It's a little hard to parse... it requires the assumption that blacks are less productive than whites and that in the early twentieth century people needed the minimum wage as an excuse to discriminate against blacks. But it always seemed plausible to me simply in the sense that lots of progressives at the time were racists and progressives favored minimum wages. (And you can wave your hands over the fact that opponents of the minimum wage at the time were pretty racist too, I guess.)

The other day for completely unrelated reasons I was reading a portion of Bruce Schulman's book From Cotton Belt to Sunbelt, on the economic development of the South from the 30s to the 80s. He was briefly discussing the minimum wage legislation in the 30s and he noted that the proponents were advocates of black Southerners and that the opponents were the defenders of Jim Crow and racial terror in the South.

I doubt it's a clean story. You've probably got a mix. I am very concerned now that people who argue this point are cherry-picking cases and that there's no real solid correlation. But I do need help on this - does anyone know anymore details? My advice is to be cautious about this meme.

25 comments:

  1. I'm going to go out on a limb here on the third point and give the following hypothesis: the minimum wage *might* have had an effect of crowding out black labor (since black workers obviously typically made less), but this effect would have been minimal at best, and any business owner would have been firmly against something that would crowd out black labor. I say this by analogy to something similar that happened in South Africa during the early 60s. They passed a law that required wages for black workers to be set lower than wages for white workers. The result was a surge in employment for black workers (and remember, this is South Africa in the 60s, one of the most racist environments in history). Why? Because regardless of anyone's built-in prejudices, the fact was that black labor was cheaper, and therefore profits were higher. The law was repealed very quickly, and other, more effective ways of suppressing the black population were implemented.

    So I am inclined to believe that, while it's feasible that there may have been racist intentions behind early minimum wage legislation, any effects that disproportionately happened to black workers would have been absolutely DWARFED by the negative effects of the general racism present in society as a whole. This is not an easy hypothesis to test, but I believe it could be done.

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  2. Regarding 1 - since it perhaps applies to some of my previous comments - I think it is important to second-guess any empirical model that contradicts established theory. Whether that means we ultimately reject the empirical model quite depends on any number of important considerations. But on (at least) the first pass, if the output of a statistical model contradicts accepted theory, then errors in the model are the first thing to consider. Accepting any empirical contradiction of established theory the minute you see it obviously comes with its own problems. Type I vs. Type II errors, etc.

    Agreed on #2.

    #3 - CF Walter Williams and Thomas Sowell, who have both expounded at length on this theory. It is compelling, in my opinion, but you should obviously consider their case and decide for yourself.

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    1. Theory is established by empiricism, though.

      re: "Accepting any empirical contradiction of established theory the minute you see it obviously comes with its own problems. "

      Sure, but you could have cut out the "contradiction of established theory" and this sentence would still be true.

      Right - Williams and Sowell are two I have in mind here.

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    2. Minor quibble: Theory is not established by empiricism, but rather validated by it.

      Your 3rd paragraph looks like a descent into semantics to me, and all I can say is that it should be clear to both of us by now that we're never going to agree on the perfect way of phrasing something; and maybe also that perfect phrasing is more important to you than it is to me.

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    3. Let me get ahead of the curve here and acknowledge the irony and hypocrisy in that last comment: First I quibble with your semantics, and then I accuse you of quibbling about semantics.

      Mea culpa.

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    4. In the sense that you referred to "established theory".

      What "establishes" a theory? What makes it "established"? Empiricism.

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    5. My third paragraph is just saying that you're not making any real claim about contradiction of theory because the "the minute you see it" part rules out just about anything.

      I am trying to be clear that I can definitely agree on that sentence but disagree with other claims about empirics contradicting theory. You can call it quibbling about semantics but the purpose is so that I don't say "I agree completely" and give the wrong impression of what I think, even though I do agree with that sentence completely.

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    6. Daniel, regarding empiricism and theory, let me ask you a question: Do you accept or reject string theory?

      (1) If you accept string theory, then you accept that some theories are true despite lack of empirical validation.

      (2) If you reject string theory, then you are consistent in your belief that theories are established by empirical validation.

      (3) One final possibility: You believe that empiricism is one way to establish a theory, but not the only way.

      For the record, I agree with both (1) and (3), but I reject (2).

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    7. I am no physicist but my understanding is that string theory offers an explanation for something we observe about the world that was previously unexplained - namely, it provides an explanation for why we observe the outcomes associated with both quantum field theory and general relativity.

      What we are lacking is good evidence that string theory is what connects those dots. But I would not call that a lack of empirical evidence. Our empirical evidence is the empirical literature associated with quantum field theory and general relativity, and because we observe both in the real world theory has moved to try to account for those observations.

      What we'd prefer is even more evidence - direct evidence that string theory really is what connects the dots. Just like in addition to the quasi-experimental minimum wage studies we would like to see studies of monopsony power (or something comparable) in the low skill labor market. That would be analogous to the evidence we're still looking for on string theory.

      In that sense I don't think I agree with any of the three as stated. But like I said, I'm no physicist.

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    8. Okay fair enough.

      Possibly of interest:

      "But it's important to notice that science depends on many claims that are unfalsifiable in practice but we still choose to believe them because they naturally follow from theories that have been tested or established. In principle, these claims are falsifiable."

      http://motls.blogspot.com/2014/01/scientific-theories-need-to-be.html

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  3. 1. Hammers aren't better than screwdrivers either. They serve different purposes and are complements. And sometimes a screwdriver is the appropriate tool to use.

    2. General consensus is not conclusive, but if our field as a science is working it does grant some degree of the benefit of doubt. Not much to disagree here on, though.

    3. It requires no assumption about productivity, though it would certainly enhance the effect; for minimum wages to price blacks out of the market even assuming equal productivity is some measure of employer dis-utility at employing blacks. This is not at all a bold assumption considering man's habit of preferring group-member to group-outsider on nearly all margins of life.

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    1. I'm not sure I agree with the hammer/screwdriver analogy. Theories are stories about the way the world works. You assess the value of a theory based on whether it helps you to understand the way the world works. So observation of the way the world works undergirds theory in a very critical sense that the work of a screwdriver does not undergird the work of a hammer. This goes the other way as well - theory structures empirical observations.

      In short, I don't think picking theory or empirics is analogous to picking the right tool for the right job. Our assessment of the quality of these tools is interdependent.

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    2. Like all analogies it has its weaknesses, but I did say they were complements, as are theory and empirics. And while theory should not necessarily trump empirics when they clash (and I know of no-one worth listening to who claims this), neither should empirics (not that I suggest you're doing so); for while empirics may find something true, that thing may be utterly irrelevant. (Which, incidentally, is an issue I have with your blog's name: facts can be just as pernicious and misleading as falsehoods.)

      At any rate, yes, they're interdependent. But also, yes, one or the other may be unsuitable for the task at hand.

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  4. Regarding #3:

    Even if the intent of the original minimum wage law was discriminatory, who cares? "Grandfather clauses" were originally a method of disenfranchising black voters, but that's no reason to object to grandfather clauses in general.

    My recollection is that in order to gain support from Southern Democrats, the 1938 Wage Act had to have exemptions carved out for professions in which black people were likely to be employed. This would have been consistent with Southern Democrats' general willingness to apply the New Deal only to poor whites. I'll look for a source when I have time.

    Will

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    1. Here's a source: http://moritzlaw.osu.edu/students/groups/oslj/files/2012/04/72.1.perea_.pdf -- specifically, pages 114 through 117.

      "Like the Social Security Act, the racism in the Fair Labor Standards Act (FLSA) becomes apparent through the purposeful exclusion of most black
      employees by proxy from an originally inclusive proposal. President Roosevelt’s initial desire in the FLSA was to protect all workers, agricultural
      and industrial, by establishing minimum wages and maximum working hours. The earliest versions of this legislation, however, excluded agricultural workers explicitly, and domestic workers implicitly, continuing the pattern set in preceding statutes."

      The article further quotes several white supremacist Southern Democrats of the era opposing the application of a standard minimum wage to all laborers.

      An examination of the bill's history shows that it was originally drafted by Frances Perkins's office to revive some labor protections from the NIRA. Perkins's record on racial issues was strong enough to shed serious doubt on the hypothesis of the minimum wage as a plot to keep black workers unemployed.

      Will

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  5. Progressive-era advocates of the minimum wage were often explicit that they wanted it to marginalize certain types of labor (women, children, and yes racial/ethnic minorities as well). You don't even need the assumption that black labor was less productive. If you assume that employers are racist, then they will only be willing to choose a black over a white worker if they can pay enough less to compensate for the "butthurt" (as they say on the internet) the racist employer experiences as a result. The minimum wage prevents laborers who are discriminated against from competing on price.

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    1. re: "You don't even need the assumption that black labor was less productive. If you assume that employers are racist, then they will only be willing to choose a black over a white worker if they can pay enough less to compensate for the "butthurt" (as they say on the internet) the racist employer experiences as a result."

      Again, I disagree with this equation of racism and not wanting blacks to have jobs. That is largely my point. Racists don't want to price black labor out of the market. They want to keep black labor employed and under their boot. You can't do that if (1.) black people are unemployed or (2.) they are employed and paid the same minimum as whites.

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    2. If black labor is unemployed, what will it do? Find some way to make a living doing other stuff; and because the relative cost has just dropped, that stuff may potentially be extralegal. In one fell swoop you have your A) excuse to apply boot directly to the forehead, and B) justification for your bigoted preferences towards blacks who, as anyone can see, are a rampantly idle and larcenous race of people.

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    3. Thinking on the margin (which could well be a faulty way of modeling racist preferences) deciding to hire a black over a white does not really put more blacks "under the boot". It actually expands their opportunity set. If 99% of employers refused to hire them, they'd be limited to the remaining one percent, who would be in a real buyer's market.

      But my initial response wasn't imagining sociotropically racist preferences, rather more individual ones. I suppose it might depend on what sort of occupation it is. The more subservient, the more ok our hypothetical racist massa will be with hiring them rather than whites (unless that results in conspicuous consumption from hiring more expensive subservient servants!). That could segment the labor market into occupations that are considered fit for the different groups. Competition between the groups could be reduced with whites regarding one set of occupations as being "beneath them" (northerners often looked down on white southerners for having that sort of attitude) and blacks knowing that pursuing certain occupations might be considered "uppity" and inviting retaliation. But if there exists some variation where even a minority of employers is willing to hire cheaper black labor for typically white occupations, the minimum wage could have an effect in preventing that and entrenching occupational segregation.

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  6. Mr. Kuehn,

    With regards to your #3 and asking, "But I do need help on this - does anyone know anymore details?" I would suggest Walter Williams' essay, "Government Sanctioned Restraints that Reduce Economic Opportunities for Minorities," Policy Review (Fall, 1977), pp. 1-24 (A revised reprint was published by Policy Review in July, 1978). It's available here:

    www.unz.org/Pub/PolicyRev-1977q4-00007

    All I will elaborate from that essay here is that Williams' points out that those who are trying to suppress black labor with minimum wage laws were not white business owners but white labor unions as it is the white labor unions who are in competition with black labor. From the essay,

    "white racist unions in South Africa have also been supporters of minimum wage laws and equal-pay-for- equal-work laws for blacks. In South Africa, where the racial climate is perhaps the most hostile in the world, The New York Times reports that:

    "'Right wing white unions in the building trades have complained to the South African Government that laws reserving skilled jobs for whites have broken down and should be abandoned in favor of equal-pay-for-equal-work laws . . . The conservative building trades made it clear they were not motivated by concern for black workers but had come to feel that legal job reservation had been so eroded by Government exemptions that it no longer protected the white worker.'

    "To understand how job reservation laws became eroded requires only two bits of information: (1) during the post World War II period there was a significant building boom in South Africa and (2) black skilled workers were willing to accept wages less than 25 percent of those wages paid to white skilled workers. Such a differential made racial discrimination in hiring a costly proposition. That is, firms who choose to hire whites instead of blacks paid dearly- $1.91 per hour versus .39 cents per hour. White racist unionists well recognized that equal-pay-for-equal-work laws would lower the cost of racial discrimination and thus improve their competitive position in the labor market."

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  7. Actually (re point 3) it's possible to find reasonably good evidence that one purpose of the federal minimum age as enacted in the US in the 1930s was to cause employers to substitute adult male workers for teenage workers. (I used to have citations (from the Congressional debates about the MW law in the 1930s), but it's been a long time since I needed them.) In this case the argument that teenagers were likely to be (on average) less productive than adult males has prima facie plausibility (which does not, of course, mean accepting it without question). I have never--in a fairly long career--read or heard of an argument that a purpose of the federal minimum wage was to disadvantage black workers. (I would be interested if anyone has cites.)

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    1. doc,

      I too have not found any arguments that a purpose of the FLSA mandated minimum wage was to disadvantage black workers but a stated purpose was definitely to disadvantage southern textile workers. From Dr. Burton Folsom via the Mackinac Center ( http://www.mackinac.org/356 )

      "During the 1920s and 30s, the American textile industry had begun to shift from New England to the South, where the cost of living was lower and where Southern workers produced a high quality product for lower wages. Politicians in Massachusetts, led by Senator Henry Cabot Lodge, Jr. and House leader Joseph Martin, battled in Congress for a law that would force Southern textile mills to raise wages and thereby lose their competitive edge.

      "Governor Charles Hurley of Massachusetts bluntly demanded that Southern wages be hiked so that 'Massachusetts [would] have equal competition with other sections of the country, thus affording labor and industry of Massachusetts some degree of assurance that our present industries will not move out of the state.'

      "Southerners were well aware of what Massachusetts was attempting and they scuttled all minimum wage laws before Congress during 1937 and well into 1938. In doing so, they handed President Roosevelt his first major legislative defeat.

      "'Northern industries are trying to stop the progress of the South,' Congressman Sam McReynolds of Tennessee observed, 'and they feel if they can pass this [minimum wage] bill it will really be a tariff against Southern goods.'"

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    2. doc,

      A couple of the reasons that people might incorrectly argue that the FLSA mandated minimum wage had racist intents ( both from http://jewishworldreview.com/cols/williamns030613.php3 )

      1) In South Africa in the 1920's there was definitely racist intent for a minimum wage,

      "During South Africa's apartheid era, the secretary of its avowedly racist Building Workers' Union, Gert Beetge, said, 'There is no job reservation left in the building industry, and in the circumstances, I support the rate for the job (minimum wage) as the second-best way of protecting our white artisans.' The South African Nursing Council condemned low wages received by black nurses as unfair. Some nurses said they wouldn't accept wage increases until the wages of black nurses were raised. The South African Economic and Wage Commission of 1925 reported that 'while definite exclusion of the Natives from the more remunerative fields of employment by law has not been urged upon us, the same result would follow a certain use of the powers of the Wage Board under the Wage Act of 1925, or of other wage-fixing legislation. The method would be to fix a minimum rate for an occupation or craft so high that no Native would be likely to be employed.'"

      2) The first federally mandated minimum wage could be said to be the Davis-Bacon Act of 1931 which set the minimum wage on federal construction jobs to the prevailing wage. It too had clear racist intents,

      "Our nation's first minimum wage came in the form of the Davis-Bacon Act of 1931. During the legislative debate over the Davis-Bacon Act, which sets minimum wages on federally financed or assisted construction projects, racist intents were obvious. Rep. John Cochran, D-Mo., supported the bill, saying he had 'received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South.' Rep. Miles Allgood, D-Ala., complained: 'That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.' Rep. William Upshaw, D-Ga., spoke of the 'superabundance or large aggregation of Negro labor.' American Federation of Labor President William Green said, 'Colored labor is being sought to demoralize wage rates.' The Davis-Bacon Act, still on the books today, virtually eliminated blacks from federally financed construction projects when it was passed."

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