Addison et al (2009, Do minimum wages raise employment? Evidence from the U.S. retail-trade sector, Labour Economics, Vol. 16 Issue 4, pp 397-408 ) have kindly confirmed the rejection of the whinge’n’whine over minimum wage disemployment effects:
This paper examines the impact of minimum wages on earnings and employment in selected branches of the retail-trade sector, 1990–2005, using county-level data on employment and a panel regression framework that allows for county-specific trends in sectoral outcomes. We focus on specific subsectors within retail trade that are identified as particularly low-wage. We find little evidence of disemployment effects once we allow for geographic-specific trends. Indeed, in many sectors the evidence points to modest (but robust) positive employment effects
Those that support the elimination of minimum wages are therefore effectively demanding greater unemployment.
Please share their methodology so we can show you where they went wrong.
Convenient for you that the study over looked other sectors…like manufacturing.
You’d have to be an imbecile to believe an empirical study can disprove that price floors cause surpluses. All that is demonstrated is that an error has been committed in compiling data…for example, an overly narrow scope.
The unemployment rate is a lie. There are a myriad of other factors that affect the unemployment rate in addition to minimum wage. There is no way a statistician can work these things out. Then the unemployment rate drops people when their unemployment benefits run out or they go on government assistance. Furthermore, the unemployment rate does not count people working off the books.
The rate of unemployment is not the individual rate. If the unemployment goes down and my personal unemployment rate goes up to 100% then I am not better off and really don’t care about the unemployment rate.
Losers and winners: Minimum wage like other policies is just a system of the government using force over people in an effort to pick winners and losers. The losers: Minorities, mainly black and hispanic men, especially younger men. The winners: Working class women, married women and bum kids of middle and upper income parents.
Substitutions: Like any consumer who faces higher prices, buyers of labor, employers, will find substitutes for their low wage labor as the costs go up. So these laborers face competition for jobs from the winners in 3 who are normally more educated and skilled. And they face competition from equipment. So a McDonalds can simply purchase more efficient equipment instead of paying labor.
How the hell did they ‘know’ where to look for disemployment? There’s no guarantee where it will show up. Oh yeah, was the study done during an inflationary boom? Because if so, those effects will overshadow any price floor increase so trends will still be up, but less up than they would be otherwise.
Or they reject garbage that tries to square the circle. The “whinge’n’whine” is from MW supporters who can’t swallow this fact and try concoct trash that rationalises their conclusions. Pity they’re just throwing darts randomly at a wall, isn’t it?
Oh, but they know! Their oracle tells them! It’s funny how many economists are like kids trying to bash a cube through a star-shaped slot.
“Please share their methodology so we can show you where they went wrong.”
They use a regression technique which takes into account that minimum wages may not be binding. The main econometric model is based on the following specification
where i, s, and t refers to county, state and quarter of observation. Y is employment. X is a vector of variables, which includes factors that vary across counties and over time.
“Convenient for you that the study over looked other sectors…like manufacturing.”
The majority of analysis into minimum wages will focus on the retail trade. The reason? A tad obvious! There are more ‘low wage’ workers and therefore any impact of the minimum wage should be visible. That you don’t know that suggests that you’re quite innocent over the available literature. Perhaps you should sort out that flaw?
“You’d have to be an imbecile to believe an empirical study can disprove that price floors cause surpluses.”
Labour theory predicts employment gains from minimum wages are likely. That there is empirical evidence in support of the theory is quite predictable
The rather lengthy paper can be found here. They admit, in the very first paragraph, that there is (in their opinion “slight”, nonetheless") a reduction in employment when there is a minimum wage. The arguments are valid, except they are studying periods in which there was employment under the rate of natural employment. In other words, in periods of boom, when wages undergo a drastic increase in adjusted real value (see: Vedder and Gallaway, Out of Work; this is one of the best books ever published on the subject of unemployment). I, unfortunately, don’t have the time to read the entire paper, but my questions to those who do and will:
Do they look at the retail sector in aggregate, or at certain retail companies? It is much easier for Walmart to cope with increasing wages, since they also have increasing profits. For Kmart, on the other hand, an increase in the minimum wage could be disastrous for many people in times of recession.
They mention that the majority of their data is from 1984 to 1989. To they gather any other data from a wider range of dates? It seems as if they are cherry picking data to support their conclusions, although they seem to admit that as a whole they are wrong.
Their econometrics seem iffy, given that I could just as well provide econometrics that suggest they are wrong. What matters is their theory, which they provide little of and even admit that in theory they are not right.
Correlation does not show causation. There are many factors not being included, such as the robust inflationary boom during this period. Inflation does indeed stimulate economic activity; unfortunately, it’s not stable and will inevitably destroy itself (our current economic condition). I suggest you research a period without an inflationary boom and measure the effects of wage rigidity on employment; good luck finding this period. Either way, regressions are not required, simple intuition would suffice: as the price of something goes up, it’s demanded less.
Originally Posted by Jonathan M. F. Catalán The arguments are valid, except they are studying periods in which there was employment under the rate of natural employment.
This is a deliberate corruption of macroeconomics. Be it the natural rate or the non-accerelating inflation rate of unemployment, the panel techniques adopted controls for these factors. Its also amusing that you’d suggest that the NRU would have any bearing on an analysis from 1990 to 2005. Gosh, what exactly is your definition of the short run?
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I, unfortunately, don’t have the time to read the entire paper…
Then you won’t be able to achieve relevance.
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1. Do they look at the retail sector in aggregate, or at certain retail companies?
You clearly haven’t read any of it, given the nature of the dependent and indepedent variables are clearly defined. They disaggegate according to: “Food and Beverage Stores (NAICS 445), Supermarkets (NAICS 44511), Convenience Stores (NAICS 44512), Specialty Food Stores (NAICS 4452), Beer, Wine, and Liquor Stores (NAICS 4453), Gasoline Stations (NAICS 447), Sporting Goods, Hobby, Book, and Music Stores (NAICS 451), General Merchandise Stores (NAICS 452), Department Stores (NAICS 4521), and Miscellaneous Store Retailers (NAICS 453)”.
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2. They mention that the majority of their data is from 1984 to 1989.
They refer to 1984 to 1989 given other minimum wage studies, determined by the data sources available, have chosen that period. The study is actually from 1990 to 2005. Wrong again!
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Their econometrics seem iffy, given that I could just as well provide econometrics that suggest they are wrong.
This is drivel. If you can attack their econometrics then provide an argument.
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What matters is their theory, which they provide little of and even admit that in theory they are not right.
They clearly refer to both monopsony and efficiency wage arguments. If you’d like to dispute either, be my guest. So far you’ve provided zip!
Leaving the economics alone (other than to parenthetically remark that correlation is not causation) you act as if, on an ethical/policy level, such a position would be absurd. But there are plenty of times that I’d demand greater unemployment. If there were a policy requiring all people to consume exactly the same in 2010 as they did in 2009, and prohibiting companies from downsizing, I’d advocate to repeal that policy - hence I’d demand greater unemployment. I’d also oppose laws against firing people, or against quitting jobs, or establishing universal slavery - all of which would decrease unemployment. So, too, I oppose threatening to shoot people who make voluntary agreements to exchange at a rate you don’t like.
You’d have a point if we had the abuse of raw data or the use of data mining techniques. We do not. We have the correct use of the empirical process, using theory to construct hypothesis and then referring to econometrics to test for robustness. For a website that typed “I can show you where they went wrong”, its a shame that you guys haven’t made one valid criticism.
There have been several valid criticisms. One, correlation does not mean causation. Two, there are plenty of other causes that may lead to higher employment despite a minimum wage increase, and there is no scientific way to account for these causes and control for them. Three, there is no way to predict where and when the effects of a minimum wage hike will cause disemployment. Unless the authors have been to Delphi and consulted an oracle, Four, sayinfg they’ve used the proper empirical method begs the question of whether or not it is even applicable/effective for the situation. Five, a problem arises because, if true, this means marginal utility is not a law but a circumstance and the last century’s worth of economic thought from the marginal revolution on needs to be reworked. Six, I’d be very interested to see the study followed through and to count from 2005 on to what happened after the nice inflationary boom ended and the whole economy popped and did fart circles around the construction sector. Seven, the key weakness to all ‘studies’ done on minimum wage and unemployment: they don’t have to account for jobs already lost. It’s analogous to dropping a bomb on a town and only counting the deaths that occur after the smoke clears and/or within a certain predetermined perimeter. That may be an accepted empirical method for a bunch of state educated/paid toads who can’t think themselves out of a paper bag, doesn’t hold water for me.
There have been several valid criticisms. One, correlation does not mean causation.
Nope! Its provides a hypothesis test based on valid theory. That is supports that theory means it cannot be rejected. Standard econometric tests are also used to tests for empirical bias.
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Two, there are plenty of other causes that may lead to higher employment despite a minimum wage increase, and there is no scientific way to account for these causes and control for them.
Nope! The panel data technique adopted ensures that the paper can control for both time variant and invariant factors that also impact on employment rates.
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Three, there is no way to predict where and when the effects of a minimum wage hike will cause disemployment.
The approach adopted controls for where the minimum wage is not binding. Thus, it is a straight forward test of the orthodox disemployment effect and the employment effect based on monopsony or efficiency wage criteria. The only aspect is that we cannot distinguish the extent that the positive effect is due to monopsony and the extent it is due to efficiency wages.
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Four, sayinfg they’ve used the proper empirical method begs the question of whether or not it is even applicable/effective for the situation.
This is deliberately vague twaddle. The approach is quite appropriate and of course has been through the peer review process. If you’d like to actually refer to a methodological flaw, then be my guest!
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Five, a problem arises because, if true, this means marginal utility is not a law but a circumstance and the last century’s worth of economic thought from the marginal revolution on needs to be reworked.
This is nonsense. Marginal utility will inform us of many factors such as the law of demand. It doesn’t have any bearing on disputing the validity of the monopsony approach. Indeed, by referring to the opportunity cost of employment, it can actually be used to support the prection of employment gains.
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Six, I’d be very interested to see the study followed through and to count from 2005 on…
That would be easily done. Given the extensive panel period chosen, it is highly unlikely that the results would significantly be affected. Typically, such an exercise would be undertaken by Post-Grads as they update data for their Master’s dissertation.
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Seven, the key weakness to all 'studies’done on minimum wage and unemployment: they don’t have to account for jobs already lost.
Given the paper refers to employment levels, you haven’t got a point (You wouldn’t have one either if we were referring to unemployment. The hypothesis testing process remains intact)
my critcism is simply that you arent doing economics. as to whatever it is you are doing and the value you place on that… i simply dont value it, so i dont care to critique it either way.