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To: TimF who wrote (321351)	1/17/2007 12:03:25 PM
From: TimF	Respond to of 1574267

The uses, and misuses, of economic studies Posted by: Economist.com \| NEW YORK Categories: Labour Markets WHILE reading socialist/feminist blogger Ampersand today, I was a little surprised to see this statement, regarding the minimum wage article we blogged about yesterday: The article is anecdotal, but it matches a lot of empirical evidence showing that modest increases in the minimum wage don’t increase unemployment, either by forcing employers to hire fewer people, or by forcing small employers out of business. One possible reason for this, alluded to in the article (and by Mark at Economist’s View), is that better-paid employees tend to value their jobs more, and so work harder and quit less often. I don’t there is any serious evidence-based case against raising the minimum wage any longer. The only reasons to oppose the minimum wage left are reasons of pure ideology, or of class warfare. I was particularly surprised because this weekend in Chicago, I was chatting with a moderately famous economist who advised John Kerry in the 2004 election; he could not in any way be said to be reflexively opposing the Democrats out of sheer malice. And in the course of discussing something else, he said "Even when economists support the minimum wage, they're kind of sheepish about it, at least when they're talking to other economists." That's about my read on it from doing interviews. From most economists who do not actually work for the Economic Policy Institute (a think-tank not merely left, but heavily associated with the American union movement, which indisputibly does benefit from a higher minimum wage supressing competition), I generally hear not an economic but a political argument: the minimum wage isn't very good, but it's the best we can do in the current political environment. It's hard to argue with Greg Mankiw's basic formulation that the minimum wage is a policy designed to help low-skilled workers—paid for by a tax on employing low-skilled workers. That sort of policy is rarely considered ideal by any economist. I imagine you could get a very broad consensus on a few general facts about the minimum wage: 1. Effects of moderate increases are hard to pick out of noisy economic data 2. Disemployment effects are probably fairly small over the short term 3. To the extent that short-term disemployment occurs, it probably comes through reduced working hours and hiring, rather than sacking workers outright 4. Demand for labour, like demand for almost everything else, is more elastic over the long term 5. The more elastic demand for labour is, the more unemployment a minimum wage will cause 6. Long term disemployment effects from minimum wages are very, very hard to pick out of economic data That does not, however, translate into universal in support for the minimum wage. Minimum wage industries have a high rate of churn, so even if no one is sacked, jobs can be lost relatively quickly. There is at least some evidence that the number of opportunities in the labour market during formative periods (particularly leaving school--whether it be high school or a graduate programme) has significant impact on your job prospects even 20 years later. So cutting down on labour demand may permanently lower the incomes of those who happen to be starting out when it happens. There is another problem: so few people who make the minimum wage are poor; about 18% in America, according to the Congressional Budget Office. Only about 10-15% of the benefits of the minimum wage will accrue to those in poor households. And then there are the basic disputes over the Card and Krueger study that Ampersand cites; Card and Krueger are good economists, but it is safe to say that their work is still hotly contested. It is certainly not settled economics the way that, say, openness to free trade, or opposition to rent control, overwhelmingly dominate the economic consensus on those issues. Most people are prone to find studies more convincing when they agree with our convictions, but it is an instinct that should be fought whenever possible. Of course, I suppose one could decide that the entire economics profession is engaging in class warfare—but if you discredit the entire profession and its methods, you have to abandon Card and Krueger, as well. I don't know what you rely on then; the Marxists I favoured in my college days have not worn well. economist.com

To: TimF who wrote (321351)	1/17/2007 1:55:30 PM
From: Road Walker	Read Replies (1) \| Respond to of 1574267

re: All this talk about the minimum wage generally misses a key point. The proponents of a higher minimum wage must argue either (a) that the market is undervaluing (through some inefficiency) low wage labor, or (b) that the labor is correctly valued, but that the minimum wage is an effective method of artificially redistributing income to lower paid workers. If (a), then it must be argued not only that low-wage labor is undervalued but also that the United States federal government - in its infinite wisdom - is better at valuing it than the market. I find this hard to swallow. "A" is correct; the inefficiency is the 10,000,000 illegal low wage workers that are allowed to compete for low end jobs. And yes the federal government "in it's infinite wisdom" is to blame for not enforcing the current laws.