http://ideas.repec.org/a/aea/aecrev/v84y1994i4p772-93.html
Thoughts?
http://www.econ.jhu.edu/people/Barnow/neumarmw.pdf
In short, their statistics failures led them astray. Imagine that.
The total number of people employed is not the issue in the implementation of minimum wage. The real issue is that there are people who will lose their employment as their output is less than the minimum wage because they can not freely sell their labor for less than the minimum wage. These folks are injured worst in this sick use of force on voluntary exchanges of labor.
And to make matters worse these folks lose the ability to collect valuable experience which will help them earn higher wages in the future.
Look at the plight of black men. They not only had to deal with racism but after minimum wage they had to deal with the government being against them as well. And the statistics prove this as almost immediately upon passage, the difference in employment rates between blacks and whites began to grow.
There’s ongoing debate on this paper. The “refutation” you linked to certainly didn’t end the debate. The point of this post is that whilst Micro 101 might suggest that minimum wage will always decrease employment, there are all sorts of empirical complications that need to be taken into consideration.
Please clarify.
Yes, I think everyone here would agree with that. Though there are theoretical “complications” in addition to whatever “empirical complications” you believe exist. Ceteris paribus, enforcing a minimum wage above a market wage results in unemployment. Obviously, it is rarely the case that all other things are held constant.
^ labor markets are not perfect.
if you have a situation where there is only one major employer in your area (factory towns say), then the employer could potentially nagotiate wages below those that would result from a more comepetitive labor market. this implies that setting a minimum wage above that amount could actually INCREASE employment and in a net welfare improvement.
similar logic could be applied in situtations where you have multiple employers but high costs for job search. the fact that its costly to search for a job could give an employer enough market power to nagotiate rates below competitve rates, implying that welfare could be improved through a minimum wage.
now, one could argue “oh well, eventually the market will solve those problems. how many factory towns are left?? and look at monster.com!! thats reducing job search!” which I think makes sense. but i doubt those arguments serve much comfort those people that have to suffer the conditions in the mean time.
in any case, i think the op’s point stands. life is more complicated than micro 101. and minimum wages need not always result in unemployment (in either theory or practice).
I would say it’s ironic that Card & Krueger are still taken seriously, but I guess it makes perfect sense considering the pro-government policy bias that exists in the econ profession. If someone published a pro market paper with similar flaws found in Card and Kruger’s various studies (inadequate data collection methods, statistical manipulation, and failure to examine beyond the ‘seen’), they would be immediately discredited.
CK used telephone surveys where the interviewee had to interpret the question. Then they performed 'empirical analysis ’ based on these subjective interpretations and came to conclusions that defy economic logic and as later shown the actual empirical evidence.
Furthermore, they didn’t examine other competitors of the chains in question… (Large chains can probably absorb a wage hike much better than small independents…these chains could have increased their business and employees, but did that coincide with smaller mom and pop eateries closing down? )
Which machine do you use to measures social welfare again?
^ funny an austrian would be arguing that something only exists if you can measure it.
So your point on social welfare is apriori?
^ i am saying the conclusions follow from the assumptions (pick up a labor econ textbook for the details). i’ll let you decide if you think the assumptions are a priori true. methodology discussions are not my thing. I just thought it was funny you would be so quick to abandon your methodological foundations to score a rhetorical point.
PS* Even if you want to debate the existence of welfare (ala Roy Cordato), my note also described how employment would increase. Hopefully, the existence of the state of employment isn’t as controvertial.
Except I did no such thing…
My first silly question was to get you to answer the second. You were smart enough to deflect the second one.
PS* Even if you want to debate the existence of welfare (ala Roy Cordato), but my note also described how employment would increase. Hopefully, the existence of the state of employment isn’t as controvertial.
Yes I took labor econ too!
What do you think of the european model of industry based minimum wages?
What about regional minimum wages?
There are all sorts of “empirical” complications with everything. If there weren’t, we wouldn’t have “things” like calculation “problems”. For example, you might complicate the “issue” by using poor “statistics” that lead you to the wrong “conclusion”. That’s why empirical “study” of real live human “action” are a poor way to do “economics”.
Employers still face competition from other firms, even distant ones, for labor. This is the same argument that predicts monopoly in a free market.
The fact that industries must die to pave the way for reallocation of labor probably serves as little comfort to those whose skillset becomes obsolete. Are you recommending that, despite the consequences economics reveals to us, we should be in favor of propping up these dying markets because it’s uncomfortable for those involved?
Employers still face competition from other firms, even distant ones, for labor.
How much competition? If search costs and barriers to entry are high enough, then I think it is possible for a firm to operate like a monopsony wrt labor. Are you suggesting that workers have always operated in a competitive global market for labor such that employers never have enough “market power” to nagotiate wages below market rates (that if risen by law could actually increase employment)??
Are you recommending that, despite the consequences economics reveals to us, we should be in favor of propping up these dying markets because it’s uncomfortable for those involved?
No I am not.
This perfectly exemplifies the differences between a neoclassical economist and an Austrian economist. The neoclassical economist takes a quick snapshot of the market, reveals some imperfection, and then justifies government intervention (wage rigidity). The Austrian economist, on the other hand, realizes that the market is a process and that government intervention, in the long-run, is self-defeating.
It is true that limited geographical competition may lead to temporary disequilibria in the labor market, but it is also true that such a condition would yield supernormal profits for capital within that region. The supernormal profits that are earned would draw capital investment towards this geographical area, which, in turn, would elevate the productivity of labor (output) and therefore real wages. The government intervention, then, would not only prevent capital investment within this area, but it would cause wage rigidity which could (would) yield involuntary unemployment during recessions.
^ actually, i believe i did mention how new employers may be eventually attracted to the area at the end of my post (since i was responding directly to the claim that minimum wages always decrease employment, i don’t think its unfair i spent more time on the short-run than long-run). in fact, i went a step further in subsequent posts and mentioned factors that may prevent the rosey, long-term outcome you describe (specifically, barriers to entry could keep new employers from entering the local labor market). for some reason, you fail to even acknowledge those.
but, i believe this perfectly represents the difference between neoclassical and some austrian economists. the neoclassical economist takes an assessment of both the long-term and short-term of a situation and identifies those factors that may influence market outcomes in both cases before making any conclusions. on the other hand, some austrian economists first find the conclusion that fits their politics and then work backwards to get their argument (ignoring all possibilities where their argument may fail, if they notice them at all).
if i wanted to continue the comparison, i guess i could note that some austrians also hate political ambiguity. for instance, i never said i would support a minimum wage (because i don’t), but that didn’t stop some from jumping to the conclusion that i do. i don’t think a “neoclassical” economist would ever even care about my politics because it isn’t relevant for the economics.
of course in reality, some austrian economists never fall into these stereotypes. there are good austrian economists just as there are bad neoclassical economists. thats why i figure “schools of thought” are not nearly that important.
But this is a fantasy. How are politicians and burocrats supposed to know this rate of minimum wage that will hold all this assumptions you make? First, they could not do it even in a small town. Second, each part would require a different rate. Third, politicians have no incentive on doing it right, since having a small enough number of unemployed people allows them to gain votes by offering welfare and justify more power to them.
So what you are proposing is basically not in the realm of reality.