David R. Henderson  

Hedengren et al and Dorman Advance the Ball

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In an article in Econ Journal Watch, David Hedengren, Dan Klein, and Carrie Milton present data showing a sharp divide among economists who sign petitions on economic policy issues. They segment the petitions into liberty-reducing and liberty-augmenting. Economists who signed many liberty-reducing petitions were unlikely to sign liberty-augmenting ones and vice-versa. As I noted in a recent post, I was one of three people who signed a lot of liberty-enhancing petitions.

Recently, Peter Dorman, one of the people who signed a lot of liberty-reducing petitions, responded. His whole response is worth reading. He presents other views of liberty and, by these other definitions, he notes, he is not a liberty-reducer. I don't agree with his alternate ideas of liberty--I share the views of Hedengren, Klein, and Milton. But what I want to note is that Professor Dorman has advanced the ball.

First, I like his tone. He doesn't attack those who accuse him of being a liberty reducer and, indeed, has a sense of humor about it, titling his post, "Confessions of a Serial Liberty Reducer."

Second, he admits that coercion is clearly involved in enforcing the minimum wage. He writes:

By this standard, for instance, an increase in the minimum wage is liberty-reducing, since it increases the number of wage offers that would be criminalized. This is not just a theoretical possibility; in Los Angeles the co-owners of a chain of carwashes were forced to pay over a million dollars to their workers for minimum wage violations, a plea bargain they made in order to avoid long prison sentences. There can be no denying that the minimum wage, whether you favor it or not, has an illiberal aspect.

It's refreshing for someone who favors the minimum wage to admit that.

Third, Hedengren, Klein, and Milton have drawn him out so that he gives his own personal case for the minimum wage. He points out that in real terms the minimum wage was higher when he was a young man and then writes:

Thanks to the counterculture, I took time out to explore different life directions: I spent years in underground newspapers and, later, community radio to see if I wanted to be an "alternative" journalist. I spent a few months trying out the life of a professional chess player. (OK, I was no Ken Rogoff, but I did combine chess journalism, instruction, and competitive play at a lower level.) I also dabbled in other stuff that we can leave to the side right now.... How was this possible? The high minimum wage, I would argue, had a lot to do with it. I felt free to experiment because, at any time, I could find a low-labor-force-attachment job that paid enough to keep me afloat.

Two things in this passage are striking. First is his assumption that the minimum wage made his wage high. How can he know that? His post and other things he's written show a good brain and a good writing ability. Isn't there a reasonably high probability that he would have earned about the same wage rate he did earn even had the minimum not existed. Second is his narrow viewpoint. Let's grant that the minimum wage made him and people like him better off. What about the lower-skilled black teenagers who didn't have jobs because of the minimum wage and who didn't get to feel "free to experiment?" And what about the employer who had to pay the minimum wage? Where do the teenagers who didn't have jobs and the employers who had to pay fit in? Dorman doesn't mention them.

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CATEGORIES: Labor Market

COMMENTS (14 to date)
Nathan writes:

It's just incredible that anyone with even one course of economics, much less a phd, can write the type of nonsense Dornan writes. A high minimum wage allowed him to experiment with jobs and goof around? Well, let's raise it to $20/hr! Why not $100? Does he not realize that certain jobs didn't exist because of the high minimum wage? Has he never heard of the "seen and unseen" as explained by Bastiat and Hazlitt?

Does he similarly think that a law setting a maximum rent at $500/month would guarantee him a place to stay, rather than diminishing the amount of available housing?

Just astonishing.

David R. Henderson writes:

I'm guessing that Dorman understands the effects of rent controls and the effects of the minimum wage. I'm also guessing that his response would be that a minimum wage back then equal to $20 in today's $ would have priced him out. I'm betting that his argument would be an argument on the margin: the higher minimum wage back then kept him priced into a job but one much higher than that would not have.

kebko writes:

I was able to experiment because jobs below minimum wage were available to me when I was experimenting.

David R. Henderson writes:

Good point.

MikeDC writes:

I'm entertained by this because Peter Dorman was one of my teachers as an undergraduate and Bryan was one of my grad school teachers. The blogosphere truly reduces degrees of separation faster than you can say Kevin Bacon.

But anyway, my tangible point is I generally find the minimum wage works in the opposite way as almost everyone folks suggest. It's not the upper middle class teen who loses from the job, but the working poor.

A minimum wage gives employers a long line of folks to choose from. If given the choice between a perky, attractive teen with a middle class work ethic or a weary single parent who might have to call off work at any time if their kid gets sick at any time, many employers will choose the former over the latter.

This is exactly why a substantial chunk of individuals making minimum wage belong to families in the upper half of the income distribution.

I point this out because to some extent it underscores what Dorman writes. Peter is a smart, hard working guy. A minimum wage stacks the odds in his favor (as a young man seeing the world) when applying to any particular low paying job, at the cost of folks who don't have his skills but would be willing to work for less.

So in a way, I agree a minimum wage law decides between helping people put food on the table vs. helping youth on a voyage of self discovery, but I think it helps in a way consistent with Dorman's experience but opposite to the way he implies minimum wage actually works.

Hyena writes:

What I would like at some point is a table directly comparing the different forms of income transfer and what their impacts are. I'm sure that the argument of economists who support the minimum wage is generally that it is more welfare-improving than reducing at the margin.

But even if we concede that, we don't know which transfer is the most welfare-improving or which gives us the highest return in exchange for fewer degrees of freedom.

david writes:

Labor monopsony model? Then the minimum wage, appropriately selected, can increase employment and net welfare.

(of course, the trouble is then selecting such a wage in a heterogenous and complex labor market, but you can't deny that the effect is theoretically possible and enjoys some empirical support via Card & Krueger)

Kurbla writes:

Those who want to experiment with their life should advocate welfare or socialist state. If you have some minimal existence covered, you can try to be monk, athlete, rock star, writer, factory worker, student, politician, UFO researcher ... if you fail all that, you'll still have place to sleep, food, medical care, and in a socialist state, job if you want it. Laissez faire cannot offer that even in very wealthy countries.

Of course, someone has to make these houses, food, medical care, and someone has to pay these people etc.

Tom West writes:

As a fairly strong supporter of minimum wage, I'd like to thank MikeDC for producing one of the stronger counter-arguments to it that I've seen.

Thank you, Mike.

David R. Henderson writes:

I second Tom West's comment on MikeDC's comment. Nicely put. And it's nice to know you're still reading us, Tom. I haven't heard from you in a while.

Peter Dorman writes:

I don't want to get drawn into a general discussion of minimum wage legislation, but two points:

1. Mainstream empirical research does not support the view that, within US historical experience, minimum wage laws significantly reduce employment. The literature is large, and different researchers come to different opinions, but at the least, it's sure not a slam-dunk the way you guys at this blog presume.

2. In any case, as far as my personal experience is concerned, there was absolutely no problem (for me or anyone else) in getting a low-end job in 1968. I literally walked into the unemployment office and walked out with a job an hour later. We've never had an unemployment rate so low. Chalk it up to (eventually unsustainable) war-Keynesian fiscal policy: Vietnam without taxes to pay for it. The one proposition I can defend without any hesitation is that, under these conditions, the minimum wage made it more possible for me to explore. In fact, I will go further and suggest that this economic environment goes a long way toward explaining the explosion of the counterculture, and that its end also dealt a decisive blow to hippiedom.

Peter Dorman writes:

Sorry, two more short points:

1. If you want to talk about the effects of minimum wages, talk economics. Talk about search & matching models, efficiency wage models, not first year supply and demand heuristics that do not incorporate the specific features of labor markets and that play little role in labor econ at the research level. My own view, FWIW, is that micro interventions in the labor market mainly affect the position of the Beveridge curve (in sometimes tricky ways), and that positioning along the curve is a matter for macropolicy (within limits, of course).

2. What is really strange is that the topic of this thread is supposed to be freedom. I challenged the libertarian assumption that only noncoercion qualifies as freedom, and as a minor footnote mentioned an experience I attributed to minimum wage laws. You guys have focused all your attention on this one detail, and no one has provided a coherent defense of the view that noncoercion is the only, or at least the dominant, criterion. What's up?

Bill writes:

Well, I'd like to take issue with Mr. Dorman on non-coercion as a dominant criterion.

You mention that you find a "single mindedness" in the concept of non-coercion, and I would strongly disagree. I would argue that non-coercion maximizes the range of solutions to any given problem. Once you add a factor of coercion, you necessarily begin to limit the range of options, and start butting up against the knowledge problem a la Hayek.

In my mind, coercion becomes the single minded option as you need to keep adding more layers to offset the flow of information between market participants allowing them to sidestep the coercive solution.

With regard to measuring collective liberty, I am a big fan. But I also see collective liberty suffering once coercion from outside is injected into the situation. The work on Ostrom on common pool resources comes to mind.

Let me address one more point in your piece:

"If a thousand workers are better able to put food on the table, but ten teenagers are unable to get an after-school job of a few hours a week, the benefits to the larger group do not erase the costs to the smaller."

Do you truly believe that is empirically true? that seems like pure fantasy to me. Living in a resort town with a "living wage," my anecdotal observation is the opposite - as MikeDC points out. I've seen many less educated minority workers replaced by higher educated white kids who want to live in a resort town. It may never really show up in the data, as the less educated are quietly and gradually forced to leave for other opportunities, maybe even in the black market.

Yaj writes:

"If you want to talk about the effects of minimum wages, talk economics. Talk about search & matching models, efficiency wage models, not first year supply and demand heuristics that do not incorporate the specific features of labor markets and that play little role in labor econ at the research level. My own view, FWIW, is that micro interventions in the labor market mainly affect the position of the Beveridge curve (in sometimes tricky ways), and that positioning along the curve is a matter for macropolicy (within limits, of course)."

If you want to talk about the effects of a waning moon on Libras, talk astrology. Talk about nodal points and perihelions.....

Labor markets function perfectly well without abstract models to guide them. Evidently this is not true for labor economists.

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