Economists: Raising the minimum wage might actually be good after all.

[flash9286]

The Card and Krueger study has been completely discredited.
April, 2006:

http://apolyton.net/forums/showthre...ard#post4362569

May, 2005:
http://apolyton.net/forums/showthre...ard#post3822431

You forget to mention that C-K went back and used establishment-level ES-202 data and found the same results of the phone survey.

[Adam Smith]

ES-202 is an area census. IIRC Murphy and Welch went back and got the actual time cards from the establishments Card and Kreuger surveyed. That's a direct test of Card and Kreuger's survey result.

Also, ES-202 reports number of persons employed but not hours worked. If adjustments take place on the intensive margin (i.e., number of people employed stays the same, but hours of work falls), as seems likely if there are explicit or implicit hiring costs, then ES-202 data would not pick up the adjustment.

[Maniac]

``The law of demand says simply that the higher the price of anything, the lower the quantity that will be taken,'' says William Dunkelberg, chief economist of the Washington-based National Federation of Independent Business. ``This law has never been incorrect in predicting market behavior.''

I haven't read the no doubt numerous threads on this subject, but surely this is only true if there is a cheaper alternative available for the low wage worker?

Eg a waitress in some restaurant. I haven't yet heard of robots that can do the job, so even if the wage is increased, they'll still need to hire the same number of people?

Inelastic demand I guess that would be called.

[Flip McWho]

Wouldn't the effect on employment be dependant on the actual rise in the minimum wage? Hence a small rise having little to no effect on the employment rate?

[Maniac]

All depends on the elasticity of low wage labour.

[Kuciwalker]

Originally posted by Flip McWho
Wouldn't the effect on employment be dependant on the actual rise in the minimum wage? Hence a small rise having little to no effect on the employment rate?

Your solution is damaging to exactly the degree it is effective.

[Dinner]

Smith, you didn't address the article at all. The claim made was that there was a negative effect but that the negative was much, much smaller then previously thought.

It seems that you didn't respond to that at all. Nor even did you talk about the proposal to raise the minimum wage while also lowering taxes on businesses to help off set the increased costs. Could you please respond to those points? They were the main thesis of the OP article.

[Flip McWho]

Aye, I just did a little research on the NZ situation. We've had a minimum wage since 1984 and the current Labour led administration has been increasing the minimum wage every year since 1999. Currently it's at $10.25, prior to this (before March 27 2006) it was $9.50.

It looks like our unemployment rate has been shrinking since about 2000, though our employment growth has been growing in the same time period.

(source: http://www.dol.govt.nz/publications/lmr/lmr-HLFS.asp)

So basically, raising the minimum wage when the economy is growing ain't too much of a bad thing as long as you're careful about it, though you don't wanna over do it.


Oerdin, check out this .pdf.

https://www.nzbr.org.nz/documents/policy/policy-2004/PB_No3.pdf

On page 4 of the above .pdf:

US evidence suggests a significant adverse
impact on the employment of the least skilled.

In regards to raising the unemployment wage.

Maybe checking out the alternatives is the way to go?

[Maniac]

Originally posted by Kuciwalker
Your solution is damaging to exactly the degree it is effective.

No it depends on the elasticity of low wage labour. Eg the effect would be very different depending on if the demand graph was D1 or D2.

[Flip McWho]

Yeah. My guess is that most of the cost of a minimum wage increase will get passed onto the consumer (in certain minimum wage jobs that is) rather than the employer firing people or not employing anymore.

It's fairly safe to assume that no business wants to decrease the supply if the demand doesn't go away

[Dinner]

Flip, an excellent article. It really did go into both sides.

Studies on the impact of minimum wage changes are subject to criticism on both empirical and
methodological grounds, and should be treated with caution. Despite this caveat, the evidence from
decades of research does suggest that minimum wages have an adverse impact on employment.

It then goes on to say that the amount of decreased employment growth is relatively small. For a 10% increase in the minimum wage they would expect a 1%-3% decrease in new job growth. That is without any offsetting tax releaf for businesses.

[Adam Smith]

Originally posted by Oerdin
Smith, you didn't address the article at all. The claim made was that there was a negative effect but that the negative was much, much smaller then previously thought.

It seems that you didn't respond to that at all. Nor even did you talk about the proposal to raise the minimum wage while also lowering taxes on businesses to help off set the increased costs. Could you please respond to those points? They were the main thesis of the OP article.

Some parts of the article appear to claim that there is no effect, and others that there is less effect than previously thought. My only objection, through several rounds of this disucssion over the years, is that the "no effect" argument is wishful thinking unsupported by the data. I would also argue that the "no effect" or "less effect" arguments are both weak if they rely to any extent on the Card and Kreuger study. In that sense I did respond.

As far as tax credits, I would prefer the Landsburg approach I quoted above, primarily because it would provide a greater incentive for work. It would also cause less economic distortion than granting tax credits to small businesses, though any distortion would likely be smaller than the minimum wage effect itself, and therefore not much worth arguing over.

EDIT, x-posted:

Originally posted by Oerdin
It then goes on to say that the amount of decreased employment growth is relatively small. For a 10% increase in the minimum wage they would expect a 1%-3% decrease in new job growth. That is without any offsetting tax releaf for businesses.

I quoted similar estimates in all of the previous threads. If we can agree on this, I will have made my point.

Finally, I would like to credit Alan Blinder, Professor of Economics at Princeton, and Chairman of the Council of Economic Advsors under President Clinton, and quoted in the OP, with one of my favorite quotes, which seems appropriate for this thread:

"It is almost impossible to be a good economist and a Democrat."

[Kuciwalker]

Originally posted by Maniac
No it depends on the elasticity of low wage labour. Eg the effect would be very different depending on if the demand graph was D1 or D2.

I'm familiar with elasticity, thank you. You're still causing economic damage to these businesses which are the primary employers of low-wage labor, and to the consumers who pay higher prices (these consumers comprise most of the population).

And, unlike the EITC, a lot of the benefit can be mistargeted (e.g. to middle-class teenagers, who are the only people around here making minimum wage in the first place).

[Flip McWho]

From the little research I did into the matter it appears that a raise in the minimum wage when the economy is growing won't negatively affect the employment of low skilled workers. Though to raise the minimum wage when the economy is slowing or ungrowing is probably stupid.




At the moment the Labour led administration is considering a drop in the business tax rate from 33% to 30% though this probably won't come into effect till 2008. The stated aim of the administration is to increase the minimum wage to $12 by 2008 as well. So although increasing the minimum wage by a little can't hurt, you shouldn't use it as a be all and end all solution.

[Flip McWho]

And, unlike the EITC, a lot of the benefit can be mistargeted (e.g. to middle-class teenagers, who are the only people around here making minimum wage in the first place).

Aye, in NZ we have a youth rate which is like a dollar or so less than the adult rate (age 18 being the difference), though both increase when the govt. adjusts the minimum wage.