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Minimum Wage Debate: Meer versus Galbraith

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Video of Jonathan Meer's debate with James Galbraith on the minimum wage is now up!  Enjoy.

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COMMENTS (11 to date)
Kevin Erdmann writes:

Minimum wage hikes were planned for July 2008 and 2009. By the time those dates arrived, we were deep enough into recessionary conditions that Emergency Unemployment Insurance had been enacted. By 2009, unemployment was hitting the highest point in decades with lengthening durations of unemployment.

Was there any discussion at all about delaying those hikes? In light of this recent experience, Galbraith's claim that gradualism would allow us to pull back if empirical results point to employment losses seems tin eared.

ThomasH writes:

Very unsatisfactory on both sides. Neither attempted to quantify the effects of their arguments. Minimum wages are not theoretical exercises; the are (arguably mistaken) attempts to raise the incomes of low income workers. Does an increase of the minimum wage from W0 to W1 do so? Well it depends on the elasticity of substitution between low wage labor and other factors of production, whether firms were mistakenly failing to pay efficiency wages before the change and what that efficiency wage is, the distribution of wages between those who gain and those who loose, the change in means-tested public assistance to low income workers, etc.

Without at least notional quantification of these magnitudes, it is hard to know whether a given increase in the minimum wage is better or worse than alternative ways of transferring income such as a wage subsidy or EITC which also have their costs and benefits).

andy writes:

I am just about in the beginning, but I am very disappointed by the quality of the 'pro-minimum-wage' arguments.

Capital won't displace workers as McDonalds is capital intensive (so is all employment at minimum wage??). Higher minimum wage leads employers better utilizing the workers (the whole purpose of 'economizing' of scarce resource is to use less of it...). Food stamps subsidize employers (assuming these poor people would stop working if there were no food stamps, so that the wages would have to rise? so why not abolishing the food stamps...)

Is there any debate where the pro-minimum-wage side wouldn't start the whole discussion with such weird arguments while not realizing the weirdness of it?

ThomasH writes:

The first two are possible explanations of the failure in some studied to find a very high elasticity and the third is an argument that taxpayers benefit if higher minimum wages allow some people to move off means-tested assistance, but it was just left at the verbal level.

To make a practical judgement on the desirability of the minimum wage (assuming that a wage subsidy is not politically feasible) one needs a view if 50%, 1% or .001% of low income workers will lose/fail to gain jobs. Neither guy addressed that.

andy writes:

Thomas, you definitely can make such argument. But if I was making an argument "if you throw an object, it will not fall, but fly straight up", I'd start: "Now I am going to tell you something that really is *not* common-sense. It seems to defy laws of physics. When you throw this object, it won't fall, but it will fly. Because it is so unexpected, I'll explain how did I get to such result".

When somebody says: "It's obvious this object will fly, saying the opposite is just a blackboard argument, but that's not reality" - I'd tend to assume he has no idea about laws of physics. And that's an impression I have from Mr Galbraith.

third is an argument that taxpayers benefit if higher minimum wages allow some people to move off means-tested assistance, but it was just left at the verbal level.

Yes, and that's exactly it. If you make such argument, you either assume your audience knows something that most people have no idea about (at least I don't) or you are simply wrong. That's a totally non-obvious conclusion.

BTW: I just heard the whole thing and I'll add another one: how could somebody make an argument that employers are already investing into machinery/robots/etc., therefore it's irrelevant to minimum wage debate? Am I missing something or did we just ditch the whole Marginalist ideas?

ThomasH, read the paper Meer is citing. It answers your objections in detail. Here's a short intro to it.

The paper itself can be read here. From the abstract;

The voluminous literature on minimum wages offers little consensus on the extent to which a wage floor impacts employment. For both theoretical and econometric reasons, we argue that the effect of the minimum wage should be more apparent in new employment growth than in employment levels. In addition, we conduct a simulation showing that the common practice of including state-specific time trends will attenuate the measured effects of the minimum wage on employment if the true effect is in fact on the rate of job growth. Using three separate state panels of administrative employment data, we find that the minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers.

Joe Munson writes:

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gmm writes:

I really wish someone had asked "so why not 100 dollars an hour?"

LD Bottorff writes:

Professor Galbraith claims that since the financial crisis all the gains have gone to the 1%. Although the last minimum wage increases were passed before the crisis, they went into effect around the time the recession began. If increasing the minimum wage helps address the disparity in where the gains go, why have all the gains gone to the 1%?

And I extend no respect towards an economist who thinks that productivity gains should be reflected in labor wages. Productivity gains reward workers by allowing them to buy more with what they earn. And to the extent that investors provide the capital to provide the productivity gains, they should be rewarded.

Jason K writes:

@gmm, Jonathan Meer asks that question starting at 52:40, "if 15 is good and pays for itself and stimulates the economy, why not 30, why not 50, why not 100?"

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