Bryan Caplan  

Think Before You Sign

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Alex Tabarrok berates economists who signed a petition in favor of raising the minimum wage. He's willing to forgive them for disagreeing about the magnitude of the disemployment effect, but not for failing to check facts from the almanac:

Nevertheless, parts of the letter strikes me as absurd. The letter says, for example, that "The minimum wage is also an important tool in fighting poverty." Rubbish. But don't take my word for it.
The minimum wage is a blunt instrument for reducing overall poverty, however, because many minimum-wage earners are not in poverty and because many of those in poverty are not connected to the labor market. We calculate that the 90-cent increase in the minimum wage between 1989 and 1991 transferred roughly $5.5 billion to low-wage workers.... an amount that is smaller than most other federal antipoverty programs, and that can have only limited effects on the overall income distribution.
The source? Card and Krueger in Myth and Measurement (p.3).

Could Alex have done any better? Sure. Over 500 economists signed the letter on immigration that Alex wrote - and they didn't have to endorse anything absurd to do it!


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COMMENTS (13 to date)
Lord writes:

because many minimum-wage earners are not in poverty and because many of those in poverty are not connected to the labor market

Of course if you examine other government anti-poverty programs, you will also find many are just as defective, often in the same way. Many low wage earners don't qualify for EITC and many in poverty are not connected to the labor market, for example.

Miracle Max writes:

(sigs to letter inviting co-signers)
Henry Aaron, The Brookings Institution
Rebecca Blank, University of Michigan
Alan S. Blinder, Princeton University
Ronald G. Ehrenberg, Cornell University
Clive Granger, University of California - San Diego
Lawrence F. Katz, Harvard University
Lawrence R. Klein, University of Pennsylvania
Frank Levy, Massachusetts Institute of Technology

What could have led these fools to reject the majestic force of your logic and eminence?

Michael Stack writes:

I'd actually be interested in an answer to "Miracle Max's" question (see above). Given the overall force of the argument against minimum wage laws, why are there a number of economists willing to endorse such mandated increases in the minimum wage? At least some of the folks who've signed on are well-regarded and wouldn't easily fall for foolish policy proposals. I see a few possibilities:

1. Minimum wage laws simply are a good idea, the unemployment effects are minimal, and the increase in wages dwarfs the amount of unemployment generated by the increase.

2. Minimum wage laws are a second-best solution to the problem where the first-best solutions (simple transfers to the poor) aren't politically viable.

3. The folks signing on have a lot of faith in the Card-Krueger (sp?) labor monopsony explanation.


Any others? Professor Caplan, your post is pretty dismissive of the folks who've signed their support -- why on earth would smart folks do something so stupid? What is your explanation?

TIA,

Michael

Steve Sailer writes:

It's certainly ironic that economists like Alex and Arnold are simultaneously arguing that the law of supply and demand applies when it comes to minimum wage laws yet mysteriously doesn't apply in the case of immigration.

Randy writes:

The minimum wage is fun to debate, but I really don't see it as a serious issue. Why not? Because the people most likely to vote for a minimum wage are also the people most likely to be hurt by it - just as the people most likely to vote for high tax rates are the people most likely to be hurt by that. Shouldn't a true liberal support the people's right to hurt themselves if they wish?

Hellfreezer writes:

Commenting on Bryan Kaplan’s Think before you sign

Low wage laws have been the hot pot for economists to drool upon. United States is a country with free market idealization that has attracted many investors, foreign and inland. Recent expansion of production and information technology in the Asian markets due to the availability of cheap, experienced labor is an advancement that has to be taken a note of. Many production businesses have shifted to the Asian markets which has created a rift in the American industry. Consider organizations like Wal-Mart. Wal-Mart has externalized a lot of production and distribution costs to Asian markets for delivering cheaper products in its home soil. Wal-Mart has also got track records for one of the most lowest paying organizations and resultant high employee dissatisfaction. Wal-Mart has created a very high labor base. Implementing Low wage laws for safeguarding the labor will furthermore result in shifting of jobs. On the longer run Wal-Mart will opt for low demanding labor. Many such similar organizations like Lowe, Ingles will opt for a secondary strategy of increasing the cost of the goods sold. Any such increase will result in reduction of demand. This further creates the possibility of increase in inflation. The increase in inflation affects the economy on the longer run. Low wage laws safeguard poor employees until the satisfaction cycle is reached. Creation of high inflation decreases the margin or the ability to purchase basic supplies by increase in the cost of goods sold. Therefore implementing low wage laws to safeguard employees has a high risk factor of not succeeding.

Mike writes:

Well Max,

Many of us probably know one or more of the signatories you show us.

What seems to have led some of these fools is something to the effect of:

"Signing this document comes from the symbolic nature of the minimum wage. It happened to be the first piece of protective labor legislation passed in the US."

So, it seems to me that the fools have a romantic attachment to the minimum wage - fully realizing that you can't trick the laws of supply and demand.

EPI's smugness about getting the support of these eminent economists seems misguided. It ain't on the facts that these folks support you.

Randy writes:

Mike,

I would guess the motive is political. If it doesn't do any noticeable damage and gets my guy elected, then its good.

Randy writes:

P.S. Personally, I think a correct political response to calls for a minimum wage increase would be to initiate legislation to double it.

Miracle Max writes:

Well Max, Many of us probably know one or more of the signatories you show us. What seems to have led some of these fools is something to the effect of: "Signing this document comes from the symbolic nature of the minimum wage. It happened to be the first piece of protective labor legislation passed in the US." So, it seems to me that the fools have a romantic attachment to the minimum wage - fully realizing that you can't trick the laws of supply and demand. EPI's smugness about getting the support of these eminent economists seems misguided. It ain't on the facts that these folks support you.

Smug? I know you are but what am I? Smug is writing off the signatories (and, trust me, the hundreds more we will get) as hypocritical, sentimental frauds. The letter and petition make analytical points that you ignore, instead going ad hominem, and you call us smug?

Oh wait I get it. It's a joke. Funny! Got me.

Good one.

Randy writes:

Max,

The letter seems to me more a collection of beliefs than of analytical points. In summary, it says; "We don't believe a small increase in the minimum wage will cost enough jobs to offset the self evident social good." And I do think questioning the motivation of such a statement is valid.

rvman writes:

Possible left-wing logic for anti-poverty minimum: Set minimum at a rate sufficient to get everyone on it out of poverty, say $12 per hour. OK, so a bunch of fast food outlets and ununionized discount retailers die off - great, that kills two other evils with one stone. A vast number of the 'victims' will be 2nd wage earners, teenagers, illegal aliens, etc. Middle class teens and early-twenties don't actually NEED jobs, they should sponge off their parents - that is how normal, well-adjusted European kids do it.

Everyone else who loses their job? Disabled, because they are lazy, or too mentally or physically deficient to work hard/smart enough to earn $12. Call the first group the differently motivated, the rest as having a genetic defect or having been disabled by abusively bad schools. Give them SSI Disability.

This will take a tax increase. Easy - kill the SS/Medicare taxes, which are evul regressives, and fold the whole cost into the regular income tax, where they can be as progressive as they wanna be. Soak the rich, help the poor, and kill the evil Wal-Marts, all in one fell swoop.

rvman writes:

And the Economists can say "this isn't distortive, because anyone who pays less than $12 per hour is imposing social costs which are picked up by the government. This just internalizes the external costs of low wage employers. There was a market failure here, now it is fixed. As for the disability tax, well, these folks weren't that productive in the first place - if they were, they'd be making $12 already. There is plenty of welfare gain through redistribution from the low-marginal valuation of a dollar rich to the high-marginal valuation of a dollar poor, to offset the lost material product. GDP isn't the be-all and end-all, you know.

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