Ars Gratia Libertatis

Sheldon Richman reviews Bryan Caplan's new book The Myth of the Rational Voter: Why Democracies Choose Bad Policies. The book presents a somewhat depressing, though brilliantly argued, analysis of exactly how poorly most voters understand economics, and why (quick summation: because they have no reason not to be irrational when it comes to voting), and what this means for limited government. Richman wonders what Caplan's thesis means for libertarian strategists:

Economic education for the public also would also seem in order. But just straightforward teaching won't be enough, for as Caplan elaborates, people hold fast to their errors through "emotional commitment." "A good teacher could change some minds, but the best teacher in the world would be lucky to convince half," he writes. Dogma dies hard.

At the very least, this implies that the case for liberty must be pressed across the entire cultural front, especially in movies and novels where emotions as well as reason can be appealed to. We must find emotional commitments in the population that are consistent with freedom. Libertarian strategic wisdom may well begin with Jonathan Swift's insight: "It is useless to attempt to reason a man out of a thing he was never reasoned into.

Previous blogging on Caplan's book, summarizing what both the New York Times and In These Times had to say about it.

Comments

[otio]

Should be Ars Gratia Libertatis, Brian. You need the genitive there.

[otio]

And to continue the insufferable pedantry, it should be Ars Libertatis Gratia, apparently. I never got past Wheelock so it's beyond me but in this case word order matters. Samuel Goldwyn just didn't like the way Ars Artis Gratia looked so he switched it around. I'll shut up now.

[Ken]

"Economic education for the public also would also seem in order." But of course such education should be provided by private sources, eh?

[Ken Shultz]

"At the very least, this implies that the case for liberty must be pressed across the entire cultural front, especially in movies and novels where emotions as well as reason can be appealed to. We must find emotional commitments in the population that are consistent with freedom."

I know! Let's ridicule their religious convictions!

...I can't tell you how many people I've brought to the libertarian cause by making fun of their religions.

[Pious Candy-Assed Sidewinder]

...this implies that the case for liberty must be pressed across the entire cultural front, especially in movies and novels where emotions as well as reason can be appealed to.

That's fucking hilarious. Next time you post something like that, at least have the decency to warn me. I almost shot refried beans out my nose.
Well, I'm off to my Society of Screenwriters and Novelists for Reason, Logic and Economic Literacy meeting.
Bye-eye!

[JM]

Yeah, not all THAT hilarious. I mean, Ayn Rand would have been a member of such a society, and her novels are one of the top quoted reasons libertarians give for BECOMING libertarian.

If you have any doubt about the power of stories to persuade people better than clearly written arguments do, read the business book "Made to Stick" by Chip and Dan Heath.

It's much easier to sympathize with someone like Hank Rearden after reading his courtroom speech defending his right to make a profit, than after seeing a Cato Institute graph on corporate tax rates.

I've actually put together a list of works of fiction written from a free market POV over at http://www.arsgratialibertatis.com/?page_id=83 but definitely think the necessity of promoting libertarianism through fiction is a conversation we ought to be having.

[Nasikabatrachus]

Well, I'm off to my Society of Screenwriters and Novelists for Reason, Logic and Economic Literacy meeting.

And why not? It's not like the logical and economic arguments, despite their obvious strength, have actually been working for the past 100 years.

[joe]

Perhaps one of the reasons voters don't act in the manner that political activists who fancy themselves economists would like them to is that political activists who fancy themselves economists don't do a very good job at understanding the economic consequences of political policies.

Every political activist who fancies himself an economist I can think of told me that the Clinton economic plan was going to result in recession, inflation, and massive unemployment. Oops. Every political activist who fancies himself and economist I can think of tells me that minimum wage increases cause greater unemployment. Oops.

Actual economists - like, say, Duncan Black - vote Democratic at much higher rates than political activists who fancy themselves economists.

[GILMORE]

let me quote myself snarkily from previous thread (from = why do 65% of Americans suck?)

http://www.reason.com/blog/show/120448.html

GILMORE | May 30, 2007, 3:38pm | #
My explanation for why 65% of America is contradictory and apparently pretty fucking stupid =

We dont teach both Rhetoric or Economics in high school with any real rigor. Seriously. People a) dont know how to construct logical chains of argument, free from fallacies, and b) they have no idea how the world works in terms of currency, trade, regulation, etc.

(insert conspiracy thought here)

Is it surprising that Public high schools fail so miserably in these two things, which would likely help voters actually parse the BS that politicians spit out daily??

[Edward]

Although orthodox libertarians may believe they know the TRUTH, economics is closer to theology than to science, which is why they think they do know the truth, I guess.

[Nasikabatrachus]

Every political activist who fancies himself and economist I can think of tells me that minimum wage increases cause greater unemployment. Oops.

So forcibly raising wages above the market rate does not cause unemployment?

[GILMORE]

joe

save your breath, read this.

http://www.mises.org/etexts/EconReasoning.pdf

isolated anecdotes arent particularly good ways of making generalizations.

[jb]

I don't know about the cultural front...Serenity (the most libertarian of the movies of the last couple years) didn't do too well.

I guess people are OK with being meddled with, if they can meddle with other people too.

[GILMORE]

What follows is an unpublished letter to the Economist, responding to their negative conclusion to the above question...:-)

Editor
The Economist

Sir:

In "News from the lab" (May 8, 1999 ) it is flattering to read that Kagel and Roth ( Handbook of Experimental Economics) is "the indispensable reference" on experimental economics. But it is distressing to read that because "...unlike physics, economics yields no natural laws or universal constants" it follows that "...with or without experiments, economics is not and never can be a proper science." By this definition, astronomy, geology, biology, perhaps parts of physics itself, and certainly psychology must not be proper sciences either.

Rather than quibbling about definitions, it may help to consider how laboratory experiments complement other kinds of investigation in economics, as they do in those other sciences. Let me give an example.

One strategy for looking at field data (as opposed to laboratory data) is to search out "natural experiments," namely comparable sets of observations that differ in only one critical factor. The benefit of using field data is that we are directly studying markets and behavior we are interested in, but the disadvantage is that in natural markets we can seldom find comparisons that permit sharp tests of economic theory.

In a 1990 paper (in the informatively named journal, Science) I studied such a natural experiment, involving the markets for new physicians in different regions of the U.K. in the 1970's. The markets in Edinburgh and Cardiff succeeded while those in Newcastle and Birmingham failed, in ways that can be explained by how these markets were organized. But as will be apparent to readers of the Economist, there are other differences than market organization between Edinburgh and Cardiff on the one hand and Newcastle and Birmingham on the other. So, how are we to know that the difference in market organization, and not those other differences, accounts for the success and failure of the markets?

One way to approach this question is with a laboratory experiment. In a paper in the Quarterly Journal of Economics, John Kagel and I report such an experiment, in which we study small, artificial markets that differ only in whether they are organized as in Edinburgh and Cardiff or as in Newcastle and Birmingham. Unlike in those naturally occurring markets, the market organization is the only difference between our laboratory markets. And our laboratory results reproduce, on a smaller scale and despite far smaller incentives, the results we see in the natural markets. So the experiments show that the differences in market organization by themselves can have the predicted consequences.

Does this "prove" to a mathematical certainty that the different market organizations are the cause of the differences observed in the natural markets? Of course not. Does it provide powerful additional evidence in favor of that hypothesis? Of course it does.

Alvin E. Roth

References cited:

? Roth, A.E. "New Physicians: A Natural Experiment in Market Organization," Science, 250, 1990, 1524-1528.

? Kagel, John H. and A.E. Roth, "The dynamics of reorganization in matching markets: A laboratory experiment motivated by a natural experiment," Quarterly Journal of Economics, February, 2000, 201-235.

? The Handbook of Experimental Economics, John H. Kagel and Alvin E. Roth, editors, Princeton University Press, 1995. Paperback edition, Fall 1997.

Charlie Plott, at Cal Tech, also wrote an (also unpublished) letter in response to the same piece: at his suggestion it is posted here....

Charlie Plott's letter to The Economist

The Economist
Letters:

The issues about laboratory experimental economics methods, addressed in your May 8 issue editorial, are not new. They have been examined extensively. The rapid growth in use of these methods is precisely because the implicit questions raised in your editorial have been answered in many ways. The issues are (1) whether or not there are principles of economics that can be observed operating under laboratory conditions and (2) what might be the value of using laboratory methods to study them, if such principles do exist. There is a third issue, which seems to grate against the editor's sense of what constitutes proper science, and that is how the profession as a whole deals with theories that are rejected by laboratory experiments.

Have experimentalists uncovered basic principles of economics? The law of supply and demand might be the best example. This principle, which predicts the price and volume of ultimate market equilibration, works with amazing accuracy under appropriate conditions. The price that is discovered in competitive markets is exactly the one predicted by an application of the competitive model. The nature of price stability and the information content of prices are both actively studied. The findings are robust, not depending on income, culture, education and perhaps not even age (since it seems to work with children). Furthermore, not only do multiple market systems follow the same principles, markets respond to institutional changes in predictable (but not always understood) ways. I think that no other branch of science can claim success in identifying principles that govern something as complex as a multiple market system with human participants. And, there is no need to stop with markets. Game theory and Nash equilibria are demonstrating similar powers of prediction. Circumstances have been identified where the models are stunningly inaccurate, yet even when the inaccuracies occur, experiments have been able to supply explanations from closely related disciplines, such as psychology.

Have the principles been put to valuable use? Experiments have played a central role in several major instances. These include the allocation of the rights to land at major U.S. airports, regulations governing pricing in natural gas pipelines, the Ethyl case in antitrust, the design of the auction mechanism used by the Federal Communications Commission, the architecture of the Regional Clean Air Markets in Southern California, the electric power markets in operation in Southern California, decisions regarding access to public railroad tracks, methods of allocating resources on Space Station Freedom, etc. Many other applications are underway. The editorial carried the implication that laboratory experimental work has no applications and that impression is seriously wrong.

Has the profession acted responsibly when the basic theories are rejected? The preference reversal phenomenon, used as an example in the editorial, was introduced to the economics literature by David Grether and me. The editorial reported accurately. We concluded that the phenomenon is inconsistent with all theories of economic decision making. Has the profession abandon the theories as a result? Of course not and it would be silly to do so. While the theories do have problems, paradoxes do exist, they nevertheless continue to help us understand phenomena of staggering complexity. They continue to help us design and implement very successful policies. Critics of the theories, scholars who relish in pointing out that the theories have been falsified, have produced absolutely nothing that will do a similar job. Much like the editorial, these scholars suppose that the sole purpose of economics is to study individual choice. They ignore the fact that much of economics is about markets.

The editorial did not provide many references for those who would want to pursue the issues. In addition to the excellent reference contained in the editorial, readers should be directed to sources such as Davis and Holt. There are also several other good books and collections of papers. (Douglas D. Davis and Charles A. Holt, Experimental Economics, Princeton University of Press, Princeton New Jersey (1993). Vernon L. Smith (editor), Experimental Economics, Edward Elgar, 1990. John D. Hey and Graham Loomes (editors), Recent Developments in Experimental Economics, Volumes 1 and 2, Edward Elgar, 1993. Daniel Friedman and Shyam Sunder, Experimental Methods: A Primer for Economists, Cambridge University Press, 1994. Elinor Ostrom, Roy Gardner and James Walker, Rules, Games and Common-Pool Resources,The University of Michigan Press, 1994. A new Journal Experimental Economics, Special Issues of Economic Theory.)

It is nice to know that the use of experimental methods in economics caught the eye of The Economist. However, whether or not economics or any other science, is a "proper science" according to the criteria used in the editorial, is probably not an answerable question. Of more interest to the readers are the existence of a laboratory experimental methodology in economics, its limitations, and the areas of potentially successful applications.

Professor Charles R. Plott
Edward S. Harkness Professor of Economics and Political Science
California Institute of Technology
Pasadena, California 91125

626 395-4209 (voice)
626 793-8580 (fax)

[Mike Laursen]

very political activist who fancies himself and economist I can think of tells me that minimum wage increases cause greater unemployment.

I assume by "political activist who fancies himself an economist" you are at least in part alluding to Hit & Run commenters. A common take on minimum wage laws I have seen in the Hit & Run comments, perhaps even the prevalent view, is that small increases in minimum wage have hard-to-measure or negligible effects, while a large increase in minimum wage probably would cause a significant increase in unemployment.

(I say probably because it's largely theoretical. Other than limited experimentation with "living wage" laws, minimum wage hikes are usually small and lag behind market wages.)

[Ken Shultz]

Take a subject like the humane treatment of detainees, for instance. Given the mission of persuading the masses and a choice of weapon, I'd take a photograph of the abuses at Abu Ghraib over an elegant and logical argument any day.

...when I see effective commercials on television, I don't see many logical arguments being used by advertisers. They're using big eyed children or hot chicks or puppies or whatever.

Although, like I said before, people do love it when you make fun of their religions. ...nothing's as persuasive, nothing brings other people to your point of view quite like making fun of their religious convictions.

[joe]

Nabakabalabaradapolis,

The data is very mixed on the effects of the minimum wage on unemployment rates. Actual economists recognize this. Political activists who fancy themselves economists tell each other that it's a settled question.

Actual economists recognize that, in cases of extreme inequality in bargaining power, workers will end up taking wages lower than the "market rate." Political activists who fancy themselves economists use phrases like "market rate," "force," and "consensual" to convince themselves that these inequalities in bargaining power don't exist.

If things were as simple as your nice little formulation, the data would be clear. The data are not clear.

[Edward]

Gilmore, thanks. It's amazing that you came up so fast with such an elegant rebuttal of my--it turns out, lame--point. Nevertheless, libertarians are a bit more evangelical about their economics than one would expect from those interested in objective science.

[Leif]

"Every political activist who fancies himself an economist I can think of told me that the Clinton economic plan was going to result in recession, inflation, and massive unemployment. Oops."

what in the hell is this? oh right, i guess the economic growth of the 90s was due to the enlightened policies our philosopher king, not the creation of that whole 'internet/computer industry' thing. (well i guess al gore DID invent the internet - now we just need him to get back in the lab and solve this whole weather thing)

[joe]

Good point, Ken.

Everyone, I'm sorry I made fun of your religion. 🙂

Oh, here's another one: every political activist who fancies himself and economist I can think of said that Reagan's tax cuts would pay for themselves. Two years and a trillion dollars in deficits later, Reagan and the Democratic Congress had to implement the largest tax cut in American history to stave off fiscal armegeddon.

[joe]

Leif,

I didn't say anything, one way or the other, about the cause of the economic growth in the 1990s. If you wish to respond to what I write, please respond to what I write, not to what you assume I must have meant.

But since you asked, I attribute only a tiny part of that economic growth to Clinton's policies - the budget discipline and debt reduction had some positive effects on financial markets. What is absolutely certain, proven beyond even a shadow of a doubt, and which was the actual point I made, is that the political activists who fancy themselves economists were completely wrong in their predictions. Their little models failed miserably to predict the effect of those policies.

[Nasikabatrachus]

The data is very mixed on the effects of the minimum wage on unemployment rates. Actual economists recognize this. Political activists who fancy themselves economists tell each other that it's a settled question.

Let's take the simplest possible situation-increases of a few bucks an hour are too vague for the general point. Let's say the government mandates a 100$/hour minimum wage from a 5.15$/hour minimum wage. Do you think there would be an increase, or a decrease in employment?

Actual economists recognize that, in cases of extreme inequality in bargaining power, workers will end up taking wages lower than the "market rate." Political activists who fancy themselves economists use phrases like "market rate," "force," and "consensual" to convince themselves that these inequalities in bargaining power don't exist.

I'm not quite clear on how that was relevant, but do you think that there's such a thing as a market rate independent of what people actually choose to pay and work for?

[Ken Shultz]

The principles of economics are fundamental to so much of what libertarians advocate. Whether or not you agree that libertarians generally interpret economics correctly, surely you'll concede, joe, that for most libertarians there's a special connection between economics and public policy. ...more so than in the other parties.

[Edward]

In their economic determinism, libertarians are kissing cousins of marxists.

[joe]

Nas,

I acknowledge that your reasoning is internally logical. However, it doesn't do a very good job predicting what happens in the real world.

If you'd like a similarly simple example from the world of physics, I'll point out than an airplane is heavier than air, and that objects heavier than air can be expected to sink. That's why universities offer more than one semester of physics, and why they offer more than one semester of economics.

"do you think that there's such a thing as a market rate independent of what people actually choose to pay and work for?"

Let's set the conclusion-defining terminology aside; I think that employers want to pay less than they are willing to pay, when conditions allow, and that extreme differences in bargaining power are an example of such circumstances.

[Nasikabatrachus]

In their economic determinism, libertarians are kissing cousins of marxists.

Troll much?

[joe]

Ken Shultz,

I acknowledge that. I'll leave you people alone now. I just found the arrogant assumptions in the review sufficiently irritating that I was motivated to comment on the emperor's fashion choices.

[GILMORE]

libertarians are a bit more evangelical about their economics than one would expect from those interested in objective science.

sure. because we want something to cling to to justify what "good ideas" really are OTHER than rhetorical 'feel good'

I dont think anyone is particularly "religious" about it - in fact i'd say only about 1/3 of libertoids come with any real education in economics. but they reason that its better to have a science-'based' system rather than something that is constantly at the mercy of the vicissitudes of public feeling at the moment

I myself gall fellow reasonoids with my tolerance of some less-than-free-market issues, because I'm not a free market purist - there are fundies in our midst (is Dan T one of these?) who closely resemble religious zealots, and are impervious to reasonable argument

anyhoos

[Ken Shultz]

"Everyone, I'm sorry I made fun of your religion. :-)"

I appreciate the humor there. ...really. ...but that kind of speaks to the same point too.

As someone who doesn't see a big barrier between faith and reason, I can say it like I really mean it. ...If only we pulled at people's heart strings like religions do.

If people vote out the incumbents with their hearts, then it would be irrational not to try to appeal to grab 'em by the heart.

[Mike Laursen]

Political activists who fancy themselves economists tell each other that it's a settled question.

That statement could apply to all of the liberal political activists who consider it a settled question that there should be minimum wage hikes. You forgot to throw in your "that I can think of" qualifier.

[GILMORE]

If people vote out the incumbents with their hearts, then it would be irrational not to try to appeal to grab 'em by the heart.

Good point ken

Cicero, i think, said something similar

But, at the same time, politics becomes overburdened when they go too far with these emotional appeals, and find themselves in a bind, having creating a fake boogeyman that they now have to slay

see: immigration reform, and how it's killing the GOP

[GILMORE]

sorry, "having created"

When you type like 10,000 words a minute like me, these things happen 🙂

[Edward]

Libertarianism has its greatest appeal on social issues. I should think that gay rights, legalization of drugs, and civil rights in general would draw in more young people than economic positions that are perceived, rightly or wrongly, to favor the clever and the rich.

[Nasikabatrachus]

I acknowledge that your reasoning is internally logical. However, it doesn't do a very good job predicting what happens in the real world.

I don't think so: I just think that many situations are more subtle than many libertarians will admit, plus the impossiblity of predicting the future, which is why you see predictions of utter catastrophe that don't pan out.

If you'd like a similarly simple example from the world of physics, I'll point out than an airplane is heavier than air, and that objects heavier than air can be expected to sink. That's why universities offer more than one semester of physics, and why they offer more than one semester of economics.

Yet despite all of their attempts, governments are typically unable to overcome the drag of economic reality, despite the power of the engines they use. Cuba, FDR, Soviet Russia, etcetera. I'm sure you know the gauntlet by now.

Let's set the conclusion-defining terminology aside; I think that employers want to pay less than they are willing to pay, when conditions allow, and that extreme differences in bargaining power are an example of such circumstances.

So what you're saying is that employers would rather that their employees work for free: to that I agree. Forgive my confusion, but I don't understand how this is relevant.

[Leif]

the point was that the general economic growth of the 90s (driven by the spontaneous creation of new industries not subsidised in any way by public policy) confounds any hypothesis about the effects of the administration's policies. if these new industries hadn't been created, who knows what the effect would have been? "free market" models were (sometimes) wrong about the general progression of the economy, sure. but so were the keynsian/duncan black ones that you apparently revere. and how the hell can you establish a real-life causal relationship between the federal budget of 90's and the activity of 'financial markets' in general? any prediction about the 'economy in general' is voodoo. no model exists, created by "political activists" or otherwise, that has been proven to accurately predict the effects of regulation on the general economy. THATS the reason why regulations tend to be stupid on the whole: they assume that markets behave linearly (in other words, predictably), and therefore can be manipulated by policy. but in terms of real life that's (observably) a stupid assumption; they are complex systems best modeled roughly by differetial equations that are effectively impossible to solve because they have so many variables.

[joe]

Mike Laursen,

"That statement could apply to all of the liberal political activists who consider it a settled question that there should be minimum wage hikes."

I can't think of a single liberal activist who bases his support for minimum wage hikes on their macro-economic effect. I've never seen any of them make the argument that we should support minimum wage hikes in order to reduce enemployment or increase GDP growth. Instead, they make values-based arguments about how lowest-income workers deserve to be treated.

[MikeP]

Libertarianism has its greatest appeal on social issues.

...says a liberal.

[joe]

Nas,

"Yet despite all of their attempts, governments are typically unable to overcome the drag of economic reality, despite the power of the engines they use. Cuba, FDR, Soviet Russia, etcetera."

Yes, governments that have attempted to act in conflict with economic reality have run into serious problems. Even FDR, sometimes. This observation doesn't seem to be terribly relevant to our discussion of the minimum wage. Once again, going back to my point, you are assuming an understand of economic reality that you really don't have the objective data to back up.

"So what you're saying is that employers would rather that their employees work for free: to that I agree. Forgive my confusion, but I don't understand how this is relevant."

Actually, there's a second part to my point that you seem to have missed: that in cases of extreme disparity in bargaining power, a "seller of labor" is not going to be able to maximize his profit as predicted on a demand curve, because he is, for one reason or another, not going to be able to operate as a free actor in a perfect market, or anything approaching it. Hence, it is not rational to conclude that the wage he accepts represents the market value of his labor, just because he accepts it.

[MikeP]

Instead, they make values-based arguments about how lowest-income workers deserve to be treated.

...where "lowest-income" is defined by fiat.

It is fair to say that perhaps there is a social good to be had by providing a floor to the income of a family breadwinner. But do realize that you are disemploying anyone whose labor is worth less. It may not matter so much because they may be only middle class teenagers passing the time. But, on the other hand, it may indeed matter to someone, somewhere.

[GILMORE]

Leif | June 12, 2007, 8:26pm | #

... but in terms of real life that's (observably) a stupid assumption; they are complex systems best modeled roughly by differetial equations that are effectively impossible to solve because they have so many variables.

YOU SHOULD KNOW YOU SWEDISH ONE WORLD GOVERNMENT SHILL YOU AND ALL YOUR OLD PEOPLE ARE GOING TO BURY YOURSELFVES IN ENTITLEMENTS AND SALTED COD AND BE RELEGATED TO A SHAMEFUL FOOTNOTE OF VIKING HISTORY

[GILMORE]

Oh shit! I've been outed

that was supposed to be MORE AMERICAN THAN YOU man

Sorry Leif. Only kidding.

(slinks back to hole)

[joe]

Leif,

The fact that I don't find your economic theories to be terribly useful does not mean that I am beholden to any others, Keynsian, Atrioid, or otherwise.

But as for your statement that the American economy is too big and complicated for economists to make accurate predictions about, I agree. That's why I find political arguments based on some dude's economic predictions to be of such limited value.

[joe]

"...BURY YOURSELFVES IN ENTITLEMENTS AND SALTED COD"

Big, heary, bearded LOL!!!

That was awesome!

[GILMORE]

the variability of economic reasoning doesnt discount it - the point should be that all political decisions should consider the most obvious economic ramifications, not just the subtle ones, and adapt to them. too often the political rhetoric tries desperately to ignore these things, and sidesteps informing the public about the real consequences of decisions/policies for short term political gain...

a case in point was on the news hour tonight, on the topic of immigration, between a D rep from Arizona and a GOP state sentator from georgia. They totally talked across each other, one (the dem) making the case that the US *needs* cheap labor, and should encourage it, while the other made scare-tactic arguments about 'our culture', kind of.

Would post link to the exchange, but it only happened an hour ago, and the transcript is not online yet

[Leif]

this assumption that there is a 'market value' of a commodity floating in the ether that is different from the actual price paid for that commodity is asinine. people don't usually have a 'fixed amount' that they are willing to pay for some commodity: they enter the market looking for a commodity, and go about finding for the cheapest price they can get. if 2 parties enter into a negotiation about a labor contract, the seller of the labor wants the highest price he can get, and the buyer wants the lowest price. now you'll probably say that mcdonalds can probably afford - and might be "willing to pay" - a burger flipper more than $5.75. fine. but in the negotiation process it sets a price of precisely $5.75, and refuses to go higher. so the minimum wage argument effectively says that mcd's should be obliged to pay the amount it would be 'willing to pay' (say, $8). this is obviously absurd. the 'value' of something can only be coherently defined by the price that was actually agreed upon via negotiation.

[GILMORE]

Listen you swede this wasnt supposed to be a real discussion. It's a H&R thread. 🙂 Say something insulting and vindictive!!

Also, if no one's ever seen Posh Nosh, a mock cooking show on public TV...

http://www.bbc.co.uk/comedy/poshnosh/

oh, my, god. Really funny. It was on in the background and i cried laughing over some of the routines.

[Leif]

ok here's vindictive.

I'm norweigian you silly person!

[Leif]

notice how i spelled norwegian wrong

[joe]

Leif,

I'm neither an idiot nor an eigth grader. You completely whiffed on the idea that disparities in bargaining power can produce wages "agreements" at variance with the optimal wage level that would be produced by a perfect market. Inefficiencies can go in more than one direction, sport.

[Derrick]

is that small increases in minimum wage have hard-to-measure or negligible effects, while a large increase in minimum wage probably would cause a significant increase in unemployment.

It has always seemed to me that minimum wage increases are likely to hurt the poorest people the most. That is, the problem is not how many people an increase hurts, but who it hurts: the marginally-employable, developmentally disabled, and/or homeless. The higher the increase, the farther up the employment ladder its effects are felt.

[joe]

"Big, heary, bearded LOL!!!"

You know, whether this was a typo for "hearty" or "hairy," it doesn't matter. They both work.

[Leif]

no, there was no whiffing. the whole concept of 'an optimal wage' in a 'perfect market' is incoherent, because it depends on a demand curve that itself depends on the concept of price being defined by what actor is 'willing to pay' for a commodity. and it is this last notion that I gave a refutation of. i don't think i can spell it out any clearer.

[Nasikabatrachus]

Yes, governments that have attempted to act in conflict with economic reality have run into serious problems. Even FDR, sometimes.

Only sometimes? He, and Hoover to a lesser extent, cartelized the economy, strengthened union power, and bailed out failing businesses to an enormous degree. It should be no surprise that the Great Depression lasted as long as it did given those factors, as well as the fact that a similar stock market crash to the one in '29 occured in 1920, and the earlier one was resolved much sooner despite the government not doing anything.

Actually, there's a second part to my point that you seem to have missed: that in cases of extreme disparity in bargaining power, a "seller of labor" is not going to be able to maximize his profit as predicted on a demand curve, because he is, for one reason or another, not going to be able to operate as a free actor in a perfect market, or anything approaching it. Hence, it is not rational to conclude that the wage he accepts represents the market value of his labor, just because he accepts it.

How would you define bargaining power? If I have nothing to offer someone else, does that mean it is not a free market?

[MORE AMERICAN THAN YOU]

NORWAY SWEDEN WHATEVER YOU NEUTRAL NORDIC FISH EATING ATHEIST STATIST WHY DONT YOU JUST BRING ON RAGNAROK AND LETS ALL SEE WHO MAKES IT ACROSS THE RAINBOW BRIDGE

[joe]

GILMORE,

Don't get me wrong, I think economic analysis and even prediction can be very useful to public policy. I just don't think those making such predictions should get too big for their britches.

Here's what a useful contribution from an economist to a political leader would sound like: "OK, well, you can try A, B, or C. If you try A, you might get X, Y, or Z. So if you try A, keep an eye out for Measure M getting higher than 10% per month - that means Y is happening. If you can keep it below 5 or maybe 6%, that means Z is happening. But that's only going to last so long, and you should ease off if M starts growing."

A little humility is order, and there was almost none observable in that book review. If economists, or political activists who fancy themselves economists, want to opine about public policy, they should recognize that their profession operates with a level of precision closer to urban planning than to chemistry. If economists want to make broad statements about political philosophy, they need to be aware that there is more that goes into political philosophy than what they've been trained to measure.

[GILMORE]

WARNING:

ACTUAL ECONOMICS DEBATES ARE HIGHLY TECHNICAL AND BORING. PROCEED AT OWN RISK

[GILMORE]

joe,

you're going farther than the general point.

"Better economics education would produce a more rational electorate; a more rational electorate would probably err on the side of libertarian principles; a better understanding of economics would produce demand for more equitable policy"

i think thats the short of it

[Gahan]

Joe,

How do you define "extreme disparity of bargaining power"? There are certainly conditions (such as a labor surplus) under which a laborer would have relatively little bargaining power, but I don't see this phenomenon as being somehow exempt from the laws of supply and demand. When workers have little bargaining power, the market rate for selling labor drops, but it's still the market rate.

[joe]

No, Leif, "optimal wage" and "perfect markets" are widely recognized, useful concepts, that help us to discuss how economic phenomena operate in the world, even if they themselves are too simple to accurately describe the real world.

"price being defined by what actor is 'willing to pay' for a commodity" is not always coterminus with maximum efficiency or with the value that the employee's labor contributes to the economy, despite the fact that political activists who fancy themselves economists like to pretend that the two are the same. This is because negotiations over wages DON'T tend towards maximum efficiency when large disparities in bargaining power prevent the worker from selling his labor in something approaching a perfect market. Therefore, it is not the case that laws which require employers in this situation to pay more than they can get away must result in decreased economic efficiency.

[joe]

Dude, that thing with the Rainbow Bridge isn't actually very American.

[Ken]

Gahan
I won't speak for joe, but here is my example: you bargain with employer x for a job. Employer x has demands, and so do you, and you both decide to hold out until the other gets closer to your demands. He is worth 100 million dollars which he inherited from his dad, you are worth 1 dollar. I think he'll hold out a bit longer, won't he?

[joe]

Nas, Gahan,

Take, for example, the case of a worker who cannot afford the cost of transportation to competing establishments. He really isn't able to put "I could go work for someone else" on the table.

Or just someone who is such severe economic straits that he can't even take the chance of spending another week looking for a better offer.

Yes, I'm sure you can come up with excuses about how each of these people is "perfectly free" to make some super-human effort to, I don't know, walk across country or eat table scraps for a couple of weeks. Please don't. If you're going to stretch that far, you're not actually discussing how the economy operates.

[Gahan]

Ken,

Right, but the point I am making is that such situations are not exempt from economic theory or the rules of supply and demand. If I only have 1 dollar to my name, it's probably because the service I offer is A: not in demand or B: offered by lots of other folks who can do the same job as well as or better than I can for less money.

[MikeP]

Employer x has demands, and so do you, and you both decide to hold out until the other gets closer to your demands. He is worth 100 million dollars which he inherited from his dad, you are worth 1 dollar. I think he'll hold out a bit longer, won't he?

And to make it an even more believable example, all this takes place on a deserted isle.

[WAYMORE AMERICAN THAN THOR]

joe | June 12, 2007, 9:34pm | #
Dude, that thing with the Rainbow Bridge isn't actually very American.

HOW WOULD YOU KNOW YOU ATHIEST LIBERAL LABOR PROTECTIONIST SUBSIDY JUNKY REAL AMERICANS HAVE A OPEN PASS TO ANY HEAVENS THEY MIGHT PREFER SO WHEN THE FINAL SHIT KICKING STARTS BE IT LEFT BEHIND SCENARIO OR FIMBULWINTER ITS ALL THE SAME WE GET TO GET IN AND THE FOREIGNISTS ALL GET TO CHILL IN N?STR?ND CAUSE YOURE NOT INVITED

[Nasikabatrachus]

Take, for example, the case of a worker who cannot afford the cost of transportation to competing establishments. He really isn't able to put "I could go work for someone else" on the table.

Only assuming that the employer does not know that our friend cannot go elsewhere, and only assuming that there isn't actually other employment nearby. My best guess is that this is not a free economy that you are describing.

Or just someone who is such severe economic straits that he can't even take the chance of spending another week looking for a better offer.

I find these snapshot arguments kind of ridiculous, quite frankly. How did this person get in this situation?
a) it's not a free economy
b) mismanagement of their life
c) they're good at managing their life, but they have some emergency bill due

For (a), well that's precisely what I'm arguing against, for (b) it's their own damn fault and for (c) they would seem to have plenty of bargaining power.

Yes, I'm sure you can come up with excuses about how each of these people is "perfectly free" to make some super-human effort to, I don't know, walk across country or eat table scraps for a couple of weeks.

What a weird bunch of options. Why not go to a local charity?

If you're going to stretch that far, you're not actually discussing how the economy operates.

What economy are you talking about? It sounds like a mercantilist economy, given your scenarios.

[Nasikabatrachus]

for (c) they would seem to have plenty of bargaining power.

i.e. they are bound to be decent employees who have good references (and probably savings, too).

[Leif]

"No, Leif, "optimal wage" and "perfect markets" are widely recognized, useful concepts, that help us to discuss how economic phenomena operate in the world, even if they themselves are too simple to accurately describe the real world."

so in other words they can't describe what actually goes but lets use them anyway.

[joe]

Wait a sec, wouldn't the Americans be the foreigners?

[AMERICAN TO THE NUCLEUS]

joe | June 12, 2007, 10:01pm | #
Wait a sec, wouldn't the Americans be the foreigners?

FOOL AMERICANS ARE THE PURE FORM OF ALL THE DISPARATE NATIONALITIES INTERMIXED INTO THE IDEAL OF ALL OF HUMAN CREATION ALL RELIGIOUS PREDICTED OUR COMING AND ALL RELIGIONS WHEN THEY DESCRIBE THE CHOSEN MEAN RED BLOODED ASS KICKING AMERICANS IF ITS NOT OBVIOUS YET I SUGGEST YOU GET YOUR HEAD EXAMINED BY AN AMERICAN HEAD SCIENTIST BUT THEN YOU MIGHT FIND OUT YOUR HALF FRENCH AND THEN WONT YOU BE SORRY

[joe]

Nas,

I'm talking about the real world. Neither breezy assertions that such things don't happen in libertopia, nor opining that severe economic hardship is unfamiliar to you, really count as holding up your end of this argument.

Leif,

Sometimes, people use the term "meter" to refer to distances that are fractionally greater or smaller. Welcome to the real world. If your beautiful mind is too fragile for such imperfection, then you shouldn't lecture those of us who can operate here on how to discuss it.

[Nasikabatrachus]

I'm talking about the real world. Neither breezy assertions that such things don't happen in libertopia, nor opining that severe economic hardship is unfamiliar to you, really count as holding up your end of this argument.

Well, I assume that you're offering these arguments to disprove the economic arguments of libertarians, so I don't think that positing a society that's popped into existence on a mercantilist desert island is really the way to go. Unless you'd like to respond to my arguments directly, I'll take my leave, as I don't enjoy the style of debate that you have now decided to employ.

[joe]

Nas,

"So forcibly raising wages above the market rate does not cause unemployment?"

The market rate? What is this market rate you speak of? If you can't precisely quantify it, does that make it a worthless concept to use in conversation?

Hey, Leif, remember writing "they are complex systems best modeled roughly by differetial equations that are effectively impossible to solve because they have so many variables?" And now you're going to get all fussy on me about my use of concepts because their ability to describe the real world with absolute precision is limited?

Y'all just blew a bunch of chaff and beat a hasty retreat, is what I think.

[joe]

The fact that you think transporation limitations, finding yourself in harsh economic straits, or other conditions that limit very poor people's ability to exploit economic opportunities that come with a transaction cost exist only on theoretical desert islands indicates that you don't have a very solid grasp of the experience of poor people, Nas.

[Nasikabatrachus]

The market rate? What is this market rate you speak of? If you can't precisely quantify it, does that make it a worthless concept to use in conversation?

If you're trying to enjoy this debate, I apologize for mischaracterizing you, but I'm not going to stick around for what I perceive to be a growing amount of passive-aggression.

As for the market rate, I believe it's defined as what people are willing to pay. If you say they have to pay more, it's going to reduce demand. That's how price is decided in the first place.

[Nasikabatrachus]

The fact that you think transporation limitations, finding yourself in harsh economic straits, or other conditions that limit very poor people's ability to exploit economic opportunities that come with a transaction cost exist only on theoretical desert islands indicates that you don't have a very solid grasp of the experience of poor people, Nas.

My perception is that you're using these examples to argue against libertarian economic arguments: I agree that it's possible for this to happen even in this country, but then again I don't find this country's economic system to be free enough, so in relation to libertarianism the point seems nil to me.

[joe]

Oops, my bad, Nas. Gahan and Leif were throwing out "your terminology isn't precise" arguments, and I responded to you in my confusion.

Just ignore that last comment; it doesn't apply to you at all.

[Leif]

im going to say this one more time and then im done. the concept of market effeciency that you're employing depends on a concept of price that doesn't describe how people really behave when they enter negotiations over what to pay for a commodity. its not that its 'a rough estimate' of what goes on: its that its wrong, period. people look to get the highest possible price if they are selling or lowest possible if they are buying. thus the only meaningful 'meter' of the value of a commodity is what is actually paid for that commodity. yes, you're right, sometimes one party has much more 'bargaining power' than another in a given negotiation. in fact most transactions in the modern world are like that, e.g. i don't have much "bargaining power" when i go buy a can beans at safeway. there is nothing inherently immoral about one party having more bargaining power in a given transaction. and given that the complaints of "market inefficiency" wtr to labor prices are based on a bogus assumption about bargaining behavior, i don't see what the problem is.

i don't care if 100 out of a 100 academic economists (regardless of their voting tendencies) use a model that assumes people have a fixed price set in their head when they go to the market to buy tomatoes. that assumption is wrong, wrong wrong, and any model built on it is going to be wrong, wrong, wrong (not just a 'kind of rough' approximation of what goes on).

[joe]

Here, Nas, these arguments are directed at you:

1. Asserting that there won't be poor people who inability to afford transaction costs related to selling their labor in even a libertopian economy is wishful thinking.

2. Economists, as well as political activists who fancy themselves economists, don't seem to have any problem talking about predictable, Economics-based (in the sense of the Social Science) economic phenomena and consquences in our less-than-libertopian economy. You certainly seem to have no problem doing so, and your effort to hold me to a higher standards seems a bit dodgy.

[CharlesWT]

"...movies and novels where emotions as well as reason can be appealed to."

Here's a page turner with a libertarian bent. And the price is hard to beat too.

[joe]

Leif,

"there is nothing inherently immoral about one party having more bargaining power in a given transaction."

We haven't been talking about morality; we've been talking about market efficiency, and whether a minimum wage that makes up for disparities in bargaining power at the lowest end of the labor market is going to have the negative economic effects its critics postulate.

You say there is no other wage level that is legitimate beyond what an employer gets an employee to accept; yes, there is - there is the wage level that brings about the most good, whether this is measured in overall economic efficiency, or in social utility. It is simply a statement of faith to insist that in all cases, those three measures will always be the same.

[Nasikabatrachus]

1. Asserting that there won't be poor people who inability to afford transaction costs related to selling their labor in even a libertopian economy is wishful thinking.

If one is making universal claims, then yes it is wishful thinking: however the trend seems to me to be largely against it, especially in the realm of the kind of disparities you're talking about. After all, these things do not occur in a vacuum, but within the context of a policy. I mean, it's the whole point of having a free economy to ensure that these kinds of disparities are minimised.

2. Economists, as well as political activists who fancy themselves economists, don't seem to have any problem talking about predictable, Economics-based (in the sense of the Social Science) economic phenomena and consquences in our less-than-libertopian economy. You certainly seem to have no problem doing so, and your effort to hold me to a higher standards seems a bit dodgy.

Don't get me wrong: I'm aware that planes can fly, despite their weight. There might even be an argument that raising the minimum wage a little bit motivates workers more: after all, the increased motivation means the market rate is changed, meaning in turn that the increase has not raised it above the market rate. Nor am I confident in those who make flat predictions based on one variable. In what way do you think that I'm holding you to a higher standard?

[Anthony Gregory]

Joe, which "models" are you speaking of? Chicago school models? You know those free-market lite economists are basically Keynesians and neoclassicals in many of their assumptions. Not very a priori.

You assumption that libertarian free-market types don't understand issues like unequal bargaining power is unfounded:

http://www.mises.org/story/804
http://libertariannation.org/a/f41l2.html

[Gahan]

One can appreciate the plight of poor people who face hardships like lack of transportation or whatever hypotheticals you want to throw out, but still not agree that a minimum wage is the best method of helping these people. Why not address the specific problems, i.e. the lack of transportation, instead of implementing sweeping market distortions that may or may not help the people they're aimed at helping?

[Gahan]

Those who think that being against the minimum wage means being against alleviating poverty ought to read some of Milton Friedman's (an actual economist, not an activist who fancies himself as one) work on the subject.

[Robert]

"Antiforeign bias means underappreciation of the benefits of trading with people in other countries. This apparently results, primarily, from some natural but unreasonable fear of foreigners, as well as a lack of understanding about the division of labor and law of comparative advantage, or costs."

It's a special case of what might be called the mercantile bias -- the idea that money is better than the goods & services it buys. People frequently regret spending money, but they hardly ever regret making it. As long as you have money, you have all this potential, but once reduced to a particular purchase, it seems like less. Therefore selling is better than buying.

[Mike Laursen]

Instead, they make values-based arguments about how lowest-income workers deserve to be treated.

True. Pro-minimum wagers side tend to quote economic studies only in defense against economic assertions made by the anti-minimum wagers.

[grylliade]

The fact that you think transporation limitations, finding yourself in harsh economic straits, or other conditions that limit very poor people's ability to exploit economic opportunities that come with a transaction cost exist only on theoretical desert islands indicates that you don't have a very solid grasp of the experience of poor people, Nas.

The fact that you don't like Wal-Mart shows that you don't have a very solid grasp of the experience of poor people, joe.

Take, for example, the case of a worker who cannot afford the cost of transportation to competing establishments. He really isn't able to put "I could go work for someone else" on the table.

Or just someone who is such severe economic straits that he can't even take the chance of spending another week looking for a better offer.

Both of those cases assume that the employer has perfect knowledge about the circumstances of the potential employee, and that they'll use those circumstances during an actual negotiation for wage. At the bottom of the barrel, it doesn't work like that. Labor is a fungible commodity there; the employer doesn't care whether you work there or someone else does. The effort required to find out the personal circumstances of a potential employee is simply not justified. Basically, they're not negotiating with individuals, because at such low wage rates it's not worth the time or effort to debate wages. They're negotiating with the labor pool, and competing with other businesses, all of which seem similar from the standpoint of the unskilled laborer. In other words, it's the kind of market in which you'd most expect the free market to apply. If you want to help poor people out, try a negative income tax or some similar low-overhead way of helping them. A minimum wage is about the least helpful thing you can do.

As to the rest of it: the basic libertarian position is that meddling in the economy is mostly bad. The problem is one of knowledge: you don't know ahead of time (or even, given imperfect knowledge, in hindsight) which interventions work and which don't. In general, over time, the free market produces the best outcomes. You might gain some small advantages in one case or another (like, if the data are true, the minimum wage not affecting employment), but the risks from intervention outweigh the benefits in almost every case.

What's worse, the cost of administering all the programs you start to "adjust" the efficiency of the free market starts to outweigh those very efficiency gains. You have to go around to every employer and make sure that they're paying the proper wage and, if necessary, drag them through the legal system, which costs time and money. Again, in this one case, it might be worth it (though I doubt it very much). But you set a precedent for intervening again, and again, and again . . . until you've swamped the engine of the free market with regulations, all of which mean well, but almost none of which have any actual benefit.

And the worst part of this is that all the damage done is in foregone wealth growth. It's easy to point out the hard-luck cases that result from free market capitalism; it's a lot harder to point out how much better their lives would be had the economy not been shackled by unnecessary regulation for decades. I contend (and I suspect that, if they thought about it, most libertarians would) that the actual wages of those minimum wage workers would be much higher than any "living wage" proposed by progressives had libertarian economic ideas prevailed in the Great Depression and after. That is why I support the free market, because the outcomes are much better in very nearly every case than under any form of regulation, and those few cases under which it would be worse are better managed by private charity or a simple negative income tax than by complex regulation of the whole economy.

[jh]

"Libertarianism has its greatest appeal on social issues."

Not for me. The love of free markets is what drew me into libertarianism, and only when I started reading the literature and commentaries like this did I realize that the social issues were simply a subcategory of free markets, and that the two were inextricably intertwined, that violations of one usually lead to violations of the other. For example, unjustified wars lead to economic restrictions as well as civil liberty violations.

[jh]

joe says: "But as for your statement that the American economy is too big and complicated for economists to make accurate predictions about, I agree. That's why I find political arguments based on some dude's economic predictions to be of such limited value."

But as for your statement that the American economy is too big and complicated for STATIST POLITICAL HACKS IGNORANT OF BASIC ECONOMICS to make accurate predictions about, I agree. That's why I find ECONOMIC arguments based on some dude's POLITICAL PRECONCEPTIONS to be of such limited value.

Fixed those typos for you, Joe.

[MJ]

"But as for your statement that the American economy is too big and complicated for economists to make accurate predictions about, I agree."

"You say there is no other wage level that is legitimate beyond what an employer gets an employee to accept; yes, there is - there is the wage level that brings about the most good, whether this is measured in overall economic efficiency, or in social utility." -joe

joe, given that you simultaneously believe that the economy is too big for even experts to fully understand and that the market left to its own devices does not produce an optimal "good" wage. Who or what in your perfect world is capable of figuring out what that optimal "good" wage is and on what basis?

I am not saying that the market is infallible, I am asking how is any other institution better qualified to make those decisions?

[ChrisO]

Here's a thought:

Libertarianism is primarily a moral, rather than economic, force. To the degree that it results in higher economic efficiency, that's great. But even if it results in lower efficiency, it is still a more just ideology than authoritarianism, which is the only real alternative.

[Ken]

"And to make it an even more believable example, all this takes place on a deserted isle."
Or maybe, nearly every employer has way more resources to hold out than nearly every worker. You know, the way things actually are.
"If I only have 1 dollar to my name, it's probably because the service I offer is A: not in demand or B: offered by lots of other folks who can do the same job as well as or better than I can for less money." Or, since the beginning you've had less and had to take the worst part of a bargain from those who can hold out (after all, you have to eat).
"How did this person get in this situation?" Maybe he chose his parents poorly and he is poor, eh?
""there is nothing inherently immoral about one party having more bargaining power in a given transaction.""
Unless you believe in freedom of choice, which in unequal bargaining exist at least to a lesser degree (why do libertarians think fraud is wrong for example?).

[knock knock]

The 'people' have an innate right to be stupid and make stupid decisions and the responsibility to live with those choices.

We certainly exercise our right to freedom of stupid speech on here all the time, don't we?

Stupid isn't the right word, 'ignorant' is,
for we surely try to learn and not make the same mistakes over and over.

From the person we marry to the car we drive to our taste in clothes, we make decisions that we have to live with for a time.

[D.A. Ridgely]

My (long winded) review of Caplan's book here.

Actually, not only are any number of joe's comments fairly good evidence of Caplan's thesis, so are the opinions of many libertarians. (So, probably, are some of mine. Being irrational, I wouldn't be able to know.) The important thing about his book is his challenge to the Public Choice "rational ignorance" thesis. As for what economists believe as opposed to non-economists, he devotes a section to data in support of his thesis.

As for joe's thesis, sure, individual prospective employees may lack sufficient bargaining power to optimize their incomes. So, for that matter, may employers from time to time, though probably less often in most firms. The issue is aggregate efficiency, not individual efficiency, and in the real world in the aggregate the market approaches perfect efficiency better than non-market approaches do.

Yes, minimum wage laws increase unemployment except in the case where the minimum wage for a job is below its market price. Maybe not much and maybe society is willing to accept that cost. But if you artificially raise the price of anything beyond its market price the market will consume less of it, and that includes labor.

Almost universally, the (real) economists who support minimum wage laws are making the normative decision it is worth that cost. That's hardly surprising in terms of Caplan's thesis -- economists are not immune from what he calls "rational irrationality," either.

[joe]

Nas,

1. There will always be transaction costs to changing jobs or even holding out for a better offer, and there will always be a stratum at the bottom who will be unable to afford them.

2. Your counter-argument, that my observations about labor mobility transaction costs is only true because we don't have a perfect free market system and should therefore not be considered when formulating policy, is holding me to a higher standard, since you seem to have no problem advocating for policies that you think would be improvements, even given that we're in a less-than-totall-free-market system.

[joe]

Anthony Gregory,

I'm an equal opportunity economics skeptic. I think any school's models are going to be insufficiently able to describe the complexity of the world to justify leaning too heavily on them in the formulation of policy.

[joe]

Gahan,

"Why not address the specific problems, i.e. the lack of transportation, instead of implementing sweeping market distortions that may or may not help the people they're aimed at helping?"

Like libertarians wouldn't be arguing against those!

Don't get me wrong, I do support more targetted efforts like that, too - I'm not holding out the minimum wage as a cure-all. But the fundamental problem - a lack of economic power that prevents one from operating at a sufficiently high level of choice and autonomy - is one that is going to have far more manifestations than there can possibly be programs.

[joe]

Gahan,

Freidman's negative income tax idea is certainly a profound one, and I for one was glad when Clinton boosted the EITC.

Anyway, my argument has not been that fans of classical economic theory lack compassion.

[joe]

grylliade,

It does not take detailed information about every applicant for someone seeking to secure minimum wage labor to realize that his applicants are people who lack bargaining power in the economy. The fact that their labor can be so commodified, that he can throw out the offer of $5/hour and expect to have people accept, and not budge on that wage, is pretty gosh darn irrefutable evidence that he knows that his applicants lack bargaining power.

[D.A. Ridgely]

BTW, and before joe gets around to telling me why I'm wrong, too, another "social justice" problem with minimum wage laws is that they constitute an unfair tax on employers whose business uses low skill labor. If society wants to ensure everyone makes $10 an hour, then all of society should subsidize whatever the market rate for labor happens to be, not foist the subsidy on people who hire gardeners instead of accountants. Yes, there are problems with that approach, too, but for those who seek some abstract sense of distributive justice and who also want both plenty of gardeners and accountants, it is unjust to have the latter escape the cost of that "justice."

[joe]

MJ,

"Who or what in your perfect world is capable of figuring out what that optimal "good" wage is and on what basis?"

No one, with any great degree of accuracy. That's why I support state efforts to set wages only in a tiny fraction of employment situations, when the failure of the real-world market to operate like a perfect market is so obvious and extreme.

[joe]

Hush, jh, the grown-ups are tyring to have a conversation.

[joe]

DAR,

"The issue is aggregate efficiency, not individual efficiency, and in the real world in the aggregate the market approaches perfect efficiency better than non-market approaches do."

In the case of wages, there are levels in between the entire universe of employment contracts and an individuals employment contract. I would agree, if you look at that whole universe, a market approach is going to yield greater efficiency; however, in the subset of the bottom reaches of the labor market, I have laid out cogent, economics-based reasons for why market failure can be expected.

Which you have only waived away with a statement of faith, while failing utterly to offer even the beginning of a rational counter-argument.

[joe]

It is just to impose the cost of a minimum-wage law on those who hire at the very bottom of the labor market for exactly the reason I have already laid out - they are already enjoying the benefit of a market failure, which has allowed them to enjoy labor costs below those that they would experience in a perfectly functioning market, while those who hire higher-cost labor are negotiating wages with people who are able to operate like the provider of a service in a perfect market, or at least something close to it.

The extra cost imposed on those who hire dirt-cheap labor isn't putting them at a disadvantage compared to other employers; it's leveling the playing field.

[steveintheknow]

I have laid out cogent, economics-based reasons for why market failure can be expected.

joe

Is the lack of bargaining power the market failure you are talking about?

Sorry, I just started reading this thread (..30 minutes ago, but its still not enough time), so you may have made it clear already.

[steveintheknow]

Ok, I got you, the market failure has lead to the lack of bargaining power. is that a correct reading?

[joe]

Yes, that's right - the inability of lowest-wage workers to operate in a manner that approaches that of a labor-provider in a perfect market leaves them with reduced bargaining power, which leaves them accepting irrationally low wages.

To those who would say, "Well, if they took the job, that meant the wage was high enough," I'll reply with the old chestnut, "A drowning man will grasp even the sharp end of a sword."

[D.A. Ridgely]

Um, no. "Waiving away" would be ignoring the abundant evidence of price theory to fit one's prejudices here. There is nothing about labor that exempts it from supply and demand pressures.

Beyond your noting occasional labor surpluses (which, sure, drive down the price of labor but that hardly counts as market failure) and transaction costs, neither of which I denied as leading to sub-optimal results in individual cases, if there are "cogent, economics-based reasons why market failure can be expected," I must have missed them.

[steveintheknow]

Well I agree with you that there is a huge lack of bargaining power, but I am not sure I agree it is because of market failure exactly. Although none are "perfect", it still seems like the labor market sets the rate. That is not an argument that the rate is justified, just that I don't think it is failure in the most academic sense.

But you are also right that just because someones accepts a job doesn't mean they are happy with it.

[Reinmoose]

*I must preface my post by saying that I have read every comment posted before mine. I regret that I was not involved in the entirety of the above conversation.*

Joe -
I'm trying to figure out a short way of displaying to you how you're not making any sense, other than how Leif said it earlier.

First, as others have pointed out, your jabs at libertarians are unfounded for one very important reason: libertarianism, by its nature, doesn't HAVE to believe that the market will do everything better than a regulated economy. Likewise, not all market-fans are libertarians. If you're going harp on a single stupid example of how some poor person might not be able to get what you consider to be the proper wage due to LACK of regulation, I can provide you an equally tragic single example of a person who would be harmed by that same regulation. Don't start with me about which regulations I choose to use, because an example can be made for EVERY regulation. Let's say that you have a minimum wage to protect this person from this "market failure" (which isn't a market failure, but whatever). There are 2 unemployed people in a town and only 1 job opening by 1 employer. Person A would do X job for $2 an hour and person B would do X job for $3 an hour. By establishing a minimum wage of $3 an hour, you are taking away the bargaining power of person A. Person A may be slightly less skilled than Person B, which is why Person A would only be able to bargain for $2 an hour. In a free market, the employer may decide to employ Person A because the employer doesn't want to pay an extra $1 an hour for the extra skills Person B possesses. But with a flat wage of $3, the employer will choose the person with more skills (Person B), leaving the less skilled worker perpetually out of a job when competing against slightly more skilled workers.

[D.A. Ridgely]

BTW, just as Caplan's use of the term rational is odd (unless you're an economist), some of joe's terms here are odd, too (unless you're a Marxist economist, and no I'm not accusing joe of being a Marxist). If low skill labor is really "commodified," then (liberal negative connotations aside) its price becomes subject to perfect competition, not market failure, and laborers are price takers.

There ya go, joe, now you can argue for price supports on wheat now, too.

[joe]

theory, DA. Theory. Shouting "Demand Kurve" is not evidence.

Evidence would be actual real-world studies of the question, which are decidedly mixed.

And no, the reduced ability of people at the lowest end of the labor market to operate like providers of labor in a perfect market is not and "individual" circumstance - it's a defining characteristic of being in that circumstance.

DEMAND KURVE TO THE RESCUE!!!! is a theory, and an internally logical one. It just fails to describe how lowest-end labor markets operate. If it did, there would be solid evidence. There ain't - the studies are all over the place. I can explain why, and you can't.

[joe]

steveintheknow,

"But you are also right that just because someones accepts a job doesn't mean they are happy with it."

I'm going beyond "not happy with it," to "is not the most efficient wage."

Labor-rate ineffeciency can go in both directions.

[Reinmoose]

Oh, and in conclusion, I would rather let what would occur in nature happen because then we, as a society or as individuals, cannot be held responsible for our policies negative impacts on individuals. It's the same reason you see more people who actively study the environment favor preservation and f'ing with the environment as little as possible. We don't fully understand what every effect of our decisions will be, and in this way, it is more responsible to let what would have happened happen anyway rather than finding out 20 years down the road that your well-intentioned actions led to the extinction of the equatopolamazonian goose

[joe]

Reinmoose,

I'm making perfect sense. I'm not misunderstanding the rather simplistic point you're needlessly repeating to me. I'm neither an idiot, not an eigth grader.

You're just allowing the dual meanings of "market rate" to be conflated. In classical economic theory, the aggregate of wages bargained for between employers and employees is going to track very closely to the ideal, most-efficient wages, because both employers and workers can move about freely in the market to find a better deal, so workers can't demand irrationally high wages, and employers can't set irrationally low wages.

When structural problems prevent workers from being able to operate like this - for example, when moving about in the labor market involves transaction costs they can't afford at the time they wish to move - employers gain the ability to set irrationally low wages.

In other words, your assumption that the only reasons Person A would be willing to accept that lower wage are reflections of the actual value of his labor is unjustified.

[joe]

Reinmoose,

"It's the same reason you see more people who actively study the environment favor preservation and f'ing with the environment as little as possible."

It's the definition of "as little as possible" that's at issue here. I'm certainly not arguing that the government should set wages at all, or most, or even many levels.

There are people who look at an eroding streambank that is sprouting with some aggressive invasive species and insist that we do "as little as possible" and leave it in its "natural" state. Those people are idiots, and their idiocy comes from assuming that green stuff growing = the natural order. That isn't always the case.

[joe]

An eroding streambank that was stripped of vegetation and graded at some point in the past, that is.

[Reinmoose]

joe -
Thank you for proving my point.
There are people who look at an eroding streambank that is sprouting with some aggressive invasive species and insist that we do "as little as possible" and leave it in its "natural" state. Those people are idiots, and their idiocy comes from assuming that green stuff growing = the natural order. That isn't always the case.

This is just like how when people advocate leaving the economy alone people go all "but... if it's not a free market, you can't make policy decisions that assume that it is!" That just allows the rest of us (economists or environmentalists) to go "see why I keep saying we shouldn't screw with the economy/environment?"
All your argument boils down to is "now that we've screwed with it, we have to continue to do so for eternity... because continuing to screw with it won't possibly cause more damage elsewhere that we'll also have to screw with, which will cause other externalities, etc. etc."
It's TERRIFICALLY inefficient (to use a word you like to use) to continue to try to compensate for what you see as market/environmental failures. Where do you draw the line?

You also didn't respond to my statement about how the market solution doesn't have to be the best one to solve all problems. You're still operating based on the assumption that I'm trying to tell you that the market solution is better, and I'm trying to tell you that the market solution is the most ethical/fair solution.*

*Though I tend to believe the market DOES create the best solutions, that is irrelevant to my argument.

[D.A. Ridgely]

Caplan would be pleased. joe, if you think I'm just shouting DEMAND KURVE (drink!), they would you please (1) define "actual value" as something other than the prevailing market price in an actual (and therefore local) market, (2) define "market failure" in terms other than either "not perfectly efficient" or "yields results joe doesn't like," (3) explain what you did mean by commodified and (4) site more than, say, three studies out of the hundreds if not thousands that have been done that purport to demonstrate there is no adverse effect on unemployment from minimum wage laws?

[D.A. Ridgely]

that is, um, cite (although links to sites would do, too)

[Reinmoose]

joe -
I'm going to take a stab at this:
WRT my example, you would suppose that the employer would be all "I'll pay you $1 an hour, since you obviously need to eat and couldn't otherwise! HA!" And then both Person A and Person B would have to accept $1 an hour because they do in fact need to eat, and they don't have any capacity what-so-ever to look for a job elsewhere and there are no private charities that would help them out with that (because people are not compassionate at all, and wouldn't give money to the poor if not forced to). I'm missing where this isn't the market rate.

[joe]

'That just allows the rest of us (economists or environmentalists) to go "see why I keep saying we shouldn't screw with the economy/environment?"'

In other words, to dodge the hard work of actually thinking, and just take your pre-determined policy preference as the only appropriate one, now and forever, world without end, Amen.

I've got nothing against using the Precautionary Principle you espouse to inform our actions. It's the absolutist certainty that there cannot be countervailing factors to consider that leaves you so incapable of understanding the world or formulating useful policy.

"You're still operating based on the assumption that I'm trying to tell you that the market solution is better, and I'm trying to tell you that the market solution is the most ethical/fair solution."

OK. We have different values about what is ethical and fair.

[joe]

DA,

(1) Already done, see my numerous comments about how a perfect market for labor works.

(2) Market failure is a condition in which the functioning of a market produces aggregate results which are at variance with what would be produced in a perfectly-functioning market, in a manner that lowers overall social utility.

(3) I may have used the term "commodified" at odds with its textbook definition; the rest of the sentece in which it appears expresses my meaning.

(4) I suppose I could, if I felt like it.

[joe]

Reinmoose,

Depending on the desperation of their circumstances, perhaps they would.

But your reductio ad absurdum aside, my argument is that the capacity of people at the lowest end of the labor market to bargain and move about in the market, as described in classical economic theory, is REDUCED below that which will produce maximum efficiency, not that it is completely eliminated.

[D.A. Ridgely]

OK. We have different values about what is ethical and fair.

Which is what the argument has been about all along -- not economics but what is ethical.

As for your replies:

(1) & (2) Unsurprisingly, all markets therefore must fail by your lights.

(3) Um, yeah.

(4) See #3

[joe]

Anyway, I've been sitting discussing thrust to weight ratios, differentials in air pressure on various wing surfaces, and drag coefficients.

I am no longer going to respond to comments of "But your airplane is heavier than air, you don't understand how gravity works." Regardless of how haughty you make your voice when saying this, it still isn't a refutation of what I've been saying.

If anyone wishes to take up my points about factors such as transaction costs, lack of information, or other structural causes producing a failure in the lowest-end labor market, I'll be checking back throughout the day.

[Ken]

"I would rather let what would occur in nature happen"
But we are not even close to a state of nature, we have had a system of laws and institutions (such as property, tort and contract law, rent-seeking, etc.) in place for a long time, ones that have help create and maintaine many structural inequalities so that now the bargaining is pretty far from equal. I don't think anyone wants to return to a state of nature (snapshot: me: ooga, ooga, me want your fish; you: ooga nooga, me no give!; club fight ensues, boy that's tasty liberty!), we both are putting forward systems that involve restricting other people's behavior (most libertarians would restrict my right to defraud the more gullible, or to simply take your fish, or my ability to back out on a promise I made, or my ability to just lay ack and take a nap on your 'property'). The question is, which system of restrictions promote the most liberty and choice in the most people's lives? So when a libertarian says, the employer has the right to push whatever wage he wants on workers that have little ability to hold out, they are actually restricting thousands (internationally millions) from having what some economists call "choiceworthy lives" all in the name of some abstract principle (well, at least we did not FORCE that employer to give a certain wage by God!).

[joe]

D.A.R.,

"Which is what the argument has been about all along -- not economics but what is ethical." However much you wish this to be true, it is not, as even the most cursory reading of the thread demonstrates.

Reinmoose raised the issues of ethics and fairness; it didn't appear anywhere else in the discussion prior to that. And, in fact, he raised it to make the point that even if my ideas were to produce greater efficiency and social utility, he'd still oppose them, becasue of his ideas about ethics and fairness.

I chose to shrug this off, because I'm interested in a discussion of economics, not competing ethical systems.

Which, frankly, is an odd turn of events in a conversation between a liberal and a libertarian.

"Unsurprisingly, all markets therefore must fail by your lights." Just about all markets in the real world are going to be imperfect - this is why yelling "Demand Kurve" is an inadequate argument about economic policy, all by itself. Not all fail so significantly, and with such dire consequences, that invervention is justified. I've made the case that the lowest-end labor market is such a case.

"Um, yeah" When you've been bested as severely as you have, I suppose you take your comfort where you can. Congratulations, I made a grammatical error.

[Reinmoose]

joe -
you sleep with a copy of Nickel and Dimed under your pillow, don't you?

Your occasional fancy words don't do anything but make you feel better about your sheepness (though my 11th grade English teacher would have mistaken it for insight). Your statement about "actually thinking" is assumptive and actually very arrogant. It places human science above philosophy.

You make reference to my policy preferences... except that I haven't really advocated any policies. It's a philosophical willingness to accept whatever comes your way, and stresses individualism over collectivism. The world is so much more complex than even the greatest human minds could ever understand, and I would never make the mistake of classifying you that way. Some people don't want to live in a game, joe, where there are rules and regulations, and societal feel-good policies like welfare and soc sec, and team-sport/us vs. them mentalities used to manipulate nationalism and attitudes about labor vs. industry to promote federal power.

Your entire string of "no, you're wrong" posts assume a certain definition of terms. I don't care what they are, but you should at least acknowledge that "no, you're wrong" is ridiculous given that you've already said that it's impossible to predict the future and no economic model is capable of accurately doing so. It appears you say such things with reason, and then revert to "but this is the way it is." Bringing it all back up to the subject of the post, it comes back to emotion and irrationality. Any sensible person, IMHO, who recognizes that their decision making is fallible should also concede their ability to make decisions for others. This is why the "moral authority" is so politically aggressive, because they do not, in fact, believe that their abilities to make moral decisions are fallible, because they believe that the source of their decisions is infallible.

[Ken]

Again, it strikes me that the only real libertarians are liberaltarians. As conservative icon Robert Nisbet explains throughout history conservatives have revered societies institutions (the church, the community, the family, and yes the government [think of their implicit trust in law enforcement]) while liberals have revered the individual (they are pro-choice, pro-porn, pro-rights of the accused). Liberals can be pro-government, because they have made a Devil's bargain to use the power of government to protect the rights of individuals from overbearing institutions (against parental consent because th individual girl, not the family should rule; against censorship because the individual reader, not the community should rule; against church civil power because the individual believer, not the demonination should rule; but the government has to step in and make sure these rights are enforced). Liberals also realize that since the vast majority of people are workers and that only a handful of powerful folks are employers the government must also be used to step in here to give individuals real choiceworthy lives (the choice to form a union and be free from arbitrary firings or dangerous working conditions). They are the real maximizers of choice for most. If libertarians had their way we would all be bullied by the economically and socially connected and powerful, because we could not "hold out" as long as they.

[D.A. Ridgely]

No, joe, the "yeah" was because you were purporting to use terms the technical meaning of which belied your argument and the second one was because that's your M.O. -- claim evidence you don't produce when called on it and accuse others of shooting from the hip. I didn't even notice the error.

[Neu Mejican]

An article related to this discussion that ya'll might find interesting...

http://www.santafe.edu/~bowles/2003E&HB.pdf

"In Fehr, Ga?chter, and Kirchsteiger (1997), the experimenters divided a group of 141
subjects (college students who had agreed to participate in order to earn money) into a set of
''employers'' and a larger set of ''employees.'' The rules of the game are as follows. If an
employer hires an employee who provides effort e and receives a wage w, they employer's
payoff p is 100 times the effort e, minus the wage w that he must pay the employee
(p = 100we), where the wage is between 0 and 100 (0w100) and the effort between
0.1 and 1 (0.1e1). The payoff u to the employee is then the wage he receives, minus a
''cost of effort,'' c(e) (uwc(e)). The cost of effort schedule e(e) is constructed by the
experimenters such that supplying effort e = 0.1, 0.2, 0.3, 0.4, 0.5, 0.6, 0.7, 0.8, 0.9, and 1.0
cost the employee e(e) = 0, 1, 2, 4, 6, 8, 10, 12, 15, and 18, respectively. All payoffs are
converted into real money that the subjects are paid at the end of the experimental session.
The sequence of actions is as follows. The employer first offers a ''contract'' specifying a
wage w and a desired amount of effort e*. A contract is made with the first employee who
agrees to these terms. An employer can make a contract (w,e*) with at most one employee.
The employee who agrees to these terms receives the wage w and supplies an effort level e,
which need not equal the contracted effort e*. In effect, there is no penalty if the employee
does not keep his promise, so the employee can choose any effort level, e2[0,1,1], with
impunity. Although subjects may play this game several times with different partners, each
employer-employee interaction is a one-shot (nonrepeated) event. Moreover, the identity of
the interacting partners is never revealed.
H. Gintis et al. / Evolution and Human Behavior 24 (2003) 153-172 155
If employees are self-interested, they will choose the zero-cost effort level, e0.1, no
matter what wage is offered them. Knowing this employers will never pay more than the
minimum necessary to get the employee to accept a contract, which is 1 (assuming only
integral wage offers are permitted). The employee will accept this offer, and will set e = 0.1.
Since e(0) = 0, the employee's payoff is u = 1. The employer's payoff is p = 0.11001=9.
In fact, however, this self-interested, outcome rarely occurred in this experiment. The
average net payoff to employees was u = 35, and the more generous the employer's wage
offer to the employee, the higher the effort provided. In effect, employers presumed the
strong reciprocity predispositions of the employees, making quite generous wage offers and
receive higher effort, as a means to increase both their own and the employee's payoff, as
depicted in Fig. 1. Similar results have been observed in Fehr, Kirchsteiger, and Riedl
(1993, 1998).
Fig. 1 also shows that although most employees are strong reciprocators at any wage rate,
there still is a significant gap between the amount of effort agreed upon and the amount
actually delivered. This is not because there are a few ''bad apples'' among the set of
employees, but because only 26% of employees delivered the level of effort they promised!"

[Reinmoose]

Ken -
Didn't I refute your argument before you made it?

[Neu Mejican]

Another one I find interesting

"Evolutionary Dynamics of Class Structures
Samuel Bowles1 and Suresh Naidu
November 29, 2005
Abstract
We study the emergence and persistence of institutions governing the size of the
joint surplus and its distribution between two classes, and we identify conditions under
which efficient and/or egalitarian contractual conventions are likely to emerge and to
persist. We study transitions between contractual conventions as a perturbed Markov
process in which individuals occasionally play idiosyncratically rather than adopting a
best response. In contrast to the standard stochastic evolutionary models, we represent
idiosyncratic play as intentional rather than uncoordinated individual behavioral
errors. In contract to the results of the models with unintentional idiosyncratic play,
when class sizes differ, very unequal contracts may be stochastically stable even if they
are very inefficient and not risk-dominant. We extend this benchmark model to make
the relative sizes of the two classes endogenous, showing that higher barriers to interclass
upward mobility make unequal contracts stochastically stable, and imply higher
levels of societal class inequality. We also let the rate of idiosyncratic play vary with
the degree of class polarization and group network structure. Finally, we introduce the
state as an actor mediating class conflict, and identify the conditions under which it
will adopt redistributive strategies. In the penultimate section we suggest extensions
addressing the effects of technical change, collective as opposed to individual idiosyncratic
play, endogenous barriers to class mobility, variations in state capacities, and the
structure of inheritance systems and marital assortment."

http://www.santafe.edu/~bowles/class_dynamics_30_nov.pdf

[joe]

Reinmoose,

Never read it. The paucity of opportunity and difficulty in adapting to the opportunities that do exist for the poor was never really a revelation to me, as it was for some.

"Any sensible person, IMHO, who recognizes that their decision making is fallible should also concede their ability to make decisions for others."

I agree. I take this observation seriously as a cautionary tale, and support interventions in markets only in extreme and marginal circumstances.

[Neu mejican]

And one last one, more on target for the topic of how theory can interact with policy...

http://www.santafe.edu/research/publications/workingpapers/07-01-003.pdf

"the experimental evidence surveyed here also suggests that the effects of public spirited motives may be either enhanced or diminished by policy interventions designed to more closely align self-regarding incentives with social objectives.

But if incentives work, why should one be concerned about failures of the separability assumption? As long as there exists some combination of explicit incentives that will implement a social optimum without the assistance of other-regarding preferences, are these additional considerations not simply an unnecessary complication of normative public
economics?

There are five reasons why the answer is "no". ... Fourth, those entrusted with designing and implementing optimal incentives would themselves need the proper incentives so that, as Bentham put it, their "interests" would coincide with their "duties." Fifth, one may value social preferences for reasons other than their contribution to allocational efficiency."

[Jeff S.]

Joe,

Who are a few of these "political activists that fancy themselves economists"?

[Neu Mejican]

Jeff S.

Milton Freedman (^_~)

Oh wait. Flip that.

[D.A. Ridgely]

Jeff, I think he means people without graduate degrees in urban planning economics.

[dhex]

this was an interesting thread in which "angry, avenging democrat joe" became "regular joe" over the course of a hundred something post conversation. weirdness.

(were i more well-versed in comic books i would have made an incredible hulk reference but as i am not, and could not be bothered to wikipedia it, you'll have to do with this non-comic book version. sorry.)

[joe]

No, not Milton Friedman.

Grover Norquist would be a good example.

Tell you what - if you use the search feature on the Reason archives, and find everyone who argues a position by making reference to "Econ 101," you'd have a pretty good roster.

[R C Dean]

joe's argument on minimum wage rests on the premise that there is a market failure at the lower end of the wage spectrum, leading to artificially low wages.

His evidence, as far as I can tell, are that wages are lower than he would like them to be.

Is it just me, or does that seem a little circular.

[MATT DAMON]

DEMAND KURV!!!!!!!!!

[runs off]

[D.A. Ridgely]

It's just you, RC. joe isn't one of those political activists who fancy themselves economists, you know.

[Jeff S.]

"Tell you what - if you use the search feature on the Reason archives, and find everyone who argues a position by making reference to "Econ 101," you'd have a pretty good roster."

I don't think they're political activists and I don't think they fancy themselves economists. If you know why a plane can stay aloft it doesn't mean you fancy yourself a physicist; if you're familiar with concepts of neotraditional development it doesn't mean you fancy yourself an urban planner; and if you make an appeal to "Econ 101" in an argument it doesn't mean you fancy yourself an economist. What is more, most of those here who appeal to "Econ 101" have pretty good knowledge of basic economic theory and beyond, as I bet you'd agree, so their self-opinions whatever they are don't include much fancying.

OK, Grover Norquist.

Did you just want to get into a big old argument about the minimum wage, again?

[VM]

"What is more, most of those here who appeal to "Econ 101" have pretty good knowledge of basic economic theory and beyond, as I bet you'd agree,"

actually I don't agree. Look at the other arguments on minimum wage and the like to see that.

[heffer]

Are the only options (A) government setting wages and (B) allowing the free market to work?

Depending on why we're turning to (A), I have to believe that the needs can be satisfied without government wage manipulation. Addressing examples given above - Workers can't afford transportation to multiple job opportunities: Charities provide a free bus services to large employment centers. Workers can't afford job transition: Charities provide that help. Workers can't live off current wages: Charities provide some sort of "invest in my future" plan sort of similar to what they do with paying for college educations in third world countries.

It seems to me that libertopians don't have to fight to prove that free markets can or can't work - it's rather a fight to show that the world can be a good/better place without asking the government to manipulate the economy. Am I way off base here?

[joe]

"His evidence, as far as I can tell, are that wages are lower than he would like them to be."

My evidence, as gooder readers can tell, is that studies of the effect of minimum wages, and minimum wage increases, have failed utterly as establishing any connections to higher unemployment. If the wages paid at the lowest level approximated the optimal wages that would be produced by a perfectly functioning economy, this would not be the case - unemployment would rise, exactly as classical economists predict.

[joe]

Jeff S.,

"Did you just want to get into a big old argument about the minimum wage, again?"

Actually, no. I just threw it out there as one example of an unwarranted assumption of superior understanding commonly made by P.A.W.F.T.E.s, like the author of this review.

A number of P.A.W.F.T.E.s then attempted to prove that the DID SO have a greater understanding by attempting to prove that a minimum wage would reduce unemployment.

I was just putting the "market failure" thesis out there to demonstrate the shortcomings of their "DEMAND KURV" reasoning.

[jh]

joe says: "I'm an equal opportunity economics skeptic. I think any school's models are going to be insufficiently able to describe the complexity of the world to justify leaning too heavily on them in the formulation of policy."

So because economic models are imperfect, we're going to instead "lean heavily" on oh-so-perfect political ideology like yours "in the formulation of policy"? Because that's the choice -- making economic decisions based on the best available economic theory and data, or making economic decisions based on political hit pieces designed to spread misinformation and reinforce clearly wrong theories held by the majority of those who bother to show up at the polls.

[jh]

Joe says: "Hush, jh, the grown-ups are tyring to have a conversation."

Hush, JOE, the grown-ups are TRYING to have a conversation.

Fixed those typos for you, joe.

[joe]

jh,

No. When there are quantitative judgements to make about the effects of policies, we should "lean heavily" on objective data. Economic theory can help us in this process, but given the history of failure among the more truculent, absolutist economic thinkers, we should treat theory as a useful tool, but not a controlling one.

Trying to read my statement about "theory" to mean "theory and data" is pretty indefensible, if you've actually bothered to read what I've written in this thread.

All your data are belong to us econo-skeptics.

[joe]

jh,

Here's what I actually wrote about economists and public policy, fyi:

"Don't get me wrong, I think economic analysis and even prediction can be very useful to public policy. I just don't think those making such predictions should get too big for their britches.

Here's what a useful contribution from an economist to a political leader would sound like: "OK, well, you can try A, B, or C. If you try A, you might get X, Y, or Z. So if you try A, keep an eye out for Measure M getting higher than 10% per month - that means Y is happening. If you can keep it below 5 or maybe 6%, that means Z is happening. But that's only going to last so long, and you should ease off if M starts growing."

A little humility is order, and there was almost none observable in that book review. If economists, or political activists who fancy themselves economists, want to opine about public policy, they should recognize that their profession operates with a level of precision closer to urban planning than to chemistry. If economists want to make broad statements about political philosophy, they need to be aware that there is more that goes into political philosophy than what they've been trained to measure."

[jh]

Ken says: "Again, it strikes me that the only real libertarians are liberaltarians."

There is no such thing as a "real libertarian". It is not a black vs. white situation -- it is shades of gray. People hold more or less libertarian thoughts on a wide variety of subjects. There is no sharply defined cut-off of what makes you a real vs. an unreal libertarian. A "liberaltarian" is someone who holds libertarian views on many social issues, and not-so-libertarian views on many if not all economic issues.

This business of reading out people who have advocated libertarian views on some topics, but don't hold quite as libertarian views as you on some other issues, is destructive and wrong.

Not that I'm opposed to pointing out that someone like Dondero or joe who claims to be libertarian is failing to advocate any discernable libertarian positions on the actual topic being discussed. Not that I'm opposed to challenging someone like Dondero or joe to point out some libertarian views he or she holds, and then vigorously challenging any claims you believe are false.

[joe]

I don't claim to be a libertarian.

I'm a liberal.

I come here because I like to argue with smart people (which rules out conservative sites) who disagree with me (which rules out liberal sites).

Speaking of which, could you please get out of the way, jh?

[joe]

I know, I know, I'm supposed to be terrified of that word.

I'm not. It's not 1988 anymore.

[jh]

Joe says: "Economic theory can help us in this process, but given the history of failure among the more truculent, absolutist economic thinkers, we should treat theory as a useful tool, but not a controlling one."

So, instead of throwing out the economic theories of "truculent, absolutist economic thinkers" (like Marx and Engels) and using the robust theories that seem to predict real events with some degree of accuracy, we should instead rely on the political solutions of people who hold demonstrably wrong economic theories?

Or, to rephrase your argument, "The theory of gravity can help us in this process of aircraft design, but given the history of failure among the more truculent, absolutist physicists, we should let politicians with no knowledge of physics help engineers who do understand physics design airplanes, and use a compromise design?

You go ahead and take a flight in the committee-designed plane, joe. I'm gonna be a truculent absolutist and insist on flying only in planes designed 100% by qualified engineers.

[jh]

Joe says: "I come here because I like to argue with smart people (which rules out conservative sites) who disagree with me (which rules out liberal sites).

Speaking of which, could you please get out of the way, jh?"

Sorry. I didn't realize that:

1) You were the arbiter of who is smart and who isn't.

2) That all conservatives are idiots.

3) That I am an unsmart prole who is making doubleplusungood statements.

4) That you had been elected to the job of thread arbiter, with the power to dismiss from the thread people who you feel aren't disputing your inarguably correct positions with the correct deference to your superior wisdom.

My bad. I apologize.

[joe]

jh,

"So, instead of throwing out the economic theories of "truculent, absolutist economic thinkers" (like Marx and Engels) and using the robust theories that seem to predict real events with some degree of accuracy, we should instead rely on the political solutions of people who hold demonstrably wrong economic theories?"

That is exactly the opposite of what I wrote earlier, and was even kind enough to cut and paste for you.

I can only interpret your eagerness to argue against points I haven't made as an admission that you can't refute any of those I actually did make.

But I already knew that.

Anyway, I accept your apology, but, please, don't solipsize your individual stupidity to an entire economic class. It insults them, and gives you an excuse not to try to overcome your shortcomings.

[Political Activists Who Fancy]

(4) I suppose I could, if I felt like it.

[crickets chirping...]

[sun setting, rustling wind sounds...]

[ominous howl in distance...]

[silence...]

[jh]

Joe says: "I can only interpret your eagerness to argue against points I haven't made as an admission that you can't refute any of those I actually did make."

You made these arguments (I'm paraphrasing for brevity:)

1) Many workers are no damn good at bargaining, and get taken advantage of by employers.

2) If politicians impose minimum wages, then those workers who can't bargain will get pay raises while still keeping their jobs.

3) These minimum wages will cause little or no unemployment, and further increases in the minimum wage will cause little or no harm to the economy.

4) It's OK for me to insult people and call them stupid and ignorant if they disagree with the above points.

REFUTATION: Go to daviddfriedman.com. Read his free online economic primer, Price Theory.

Executive summary: Imposing artificial limits on what wages an employer can offer causes some currently unemployed people to become unemployed, causes some people who are currently unemployed to remain unemployed, causes lower consumer surplus, causes lower employer surplus, causes some businesses to go out of business, causes some people contemplating going into business to not do so, etc. The higher that artificial limit is, the worse the effects become.

Is any of this sinking in?

[joe]

Your eagerness to put theology above the observed facts was always quite apparent, jh. It doesn't need to sink in.

I'm quite familiar with the theory you're repeating. It just doesn't comport with the observed results.

We in the reality-based community will take evidence over elegantly constructed logic that fails the real-world test every time.

[BG]

I agree with the goal of aiding the poor, including having government policies aimed at doing so (so I guess I'll disqualify myself from being a libertarian). One policy I might favor would be a guaranteed minimum income policy: http://en.wikipedia.org/wiki/Guaranteed_Minimum_Income

I am not sure whether I support having a minimum wage or not.

The way I think about it, a minimum wage law that has an effect (i.e. is not set so low that everyone working would make more than that without a minimum wage anyway) has to result some combination of:

1) reductions in the amount of labor employed
2) price increases
3) reductions in employers' bottom lines

To the extent that #1 is the case, this usually means unemployment. However it could also mean fewer hours worked per employee in some cases.

To the extent that #2 is the case, this means reducing (though not entirely cancelling out) the benefit to workers who do receive a higher salary due to the wage floor. It also raises questions regarding who is ultimately paying for the wage increase.

#3 is generally regarded as the best case scenario. The idea is that it diverts income away from a (presumably wealthy) employer and towards poor people who are barely getting by. This is usually the case but not always. For example, the business owner might be making only a small profit or the minimum wage worker may be a high school student who doesn't have to support him or her self.

There is obviously a lot more to cover, and it's a fairly complicated issue. I'm just throwing some stuff out there.

[MJ]

"No one, with any great degree of accuracy. That's why I support state efforts to set wages only in a tiny fraction of employment situations, when the failure of the real-world market to operate like a perfect market is so obvious and extreme." - joe

No one is capable of determining what your optimal "good" wage is, yet you still think it's a useful measure to criticize a real life wage? Enough to set any kind of policy on?

joe, just because an employer can find someone who will accept a wage of $5.15/hr is not in and of itself evidence of a market failure, by any rational definition. There are any number of reasons the employer setting the wage that low. The job does not provide much value to the product or service being offered that justifies a higher wage, the employee's competence and work ethic may be unproven, the supply of laborers with that skill set is outstripping the demand. To operate on the assumption that the employer is doing something ethically wrong and must be prevented from offering jobs at that wage is presumptuous at best, insufferably arrogant and heavy handed at worst. Minimum wage laws simply make it illegal to hire someone below the minimum wage, they do nothing to alleviate disparities in power, no law can.

[jh]

Joe says: "Your eagerness to put theology above the observed facts was always quite apparent, jh. It doesn't need to sink in. I'm quite familiar with the theory you're repeating. It just doesn't comport with the observed results. We in the reality-based community will take evidence over elegantly constructed logic that fails the real-world test every time."

***

MY eagerness to put theology above the observed facts was always quite apparent, jh. It doesn't need to sink in.

I'm quite familiar with the theory you're repeating. It just doesn't comport with MY POLITICAL BIASES.

We in the PARTISAN-based community will ENGAGE IN OBSESSIVE RANTING over elegantly constructed logic BASED ON the real-world every time.

Fixed those typos for you, joe. Third time today. You really need to start using spellcheck -- the shortcut key is the button below "Insert" and to the left of "End".

[Mike Laursen]

a minimum wage law that has an effect (i.e. is not set so low that everyone working would make more than that without a minimum wage anyway)

Exactly. That's the thing about a typical minimum wage increase. It lags far behind what most people make, anyway. Whatever economic effects it has is hard to measure.

Meanwhile, politicians use them to pander and, for the most part, have sense enough not to try to raise the minimum wage too much. And some Libertarians I have known have lost perspective on the importance of fighting minimum wage laws relative to the importance of fighting the really big, egregious threats to freedom, hurting chances for alliances with liberal political groups.

It would make more sense for the government to provide means-tested safety net assistance to the poor than to try to make employers, who have an obligation to watch their bottom line, into caring parental surrogates.

It would be even better, if we libertarians put our money and time where our mouths are and provide charitable assistance so great that it puts the government out of the business of taking care of the poor.

[Ken]

There is "economics" and "economics." The former, if I'm correct about what Joe is getting at, constitutes the classical economic theory that many conservative activists parade around. The latter is the actual field of economics, where experts have to go beyond broad axioms and the graphs they create (see, when the price of labor goes up, the demand MUST come down, see, see the graph?), and demonstrate that hypotheses generated by the theory are supported. And joe's point is that the record is quite mixed when it comes to the minimum wage. My colleagues in the econ department where I work tell me this is just true. In my discipline, criminology, economists are famous for having these axiom generated hypothesis that should explain things like the deterrent effect of harsher penalties which are simply not supported by the empirical work.
"1) Many workers are no damn good at bargaining, and get taken advantage of by employers.

2) If politicians impose minimum wages, then those workers who can't bargain will get pay raises while still keeping their jobs."
I don't know about joe, but I did not say that many workers are "no damn good" at bargaining, I said, and stick by, the fact that many workers have vastly unequal bargaining power to many employers and therefore despite their skill at bargaining they are going to lose. A rich factory owner can go much longer without the worker than the worker can without employment (now there is a hypothesis based on deduction from abstract axioms for you guys, but studies bear this out empirically).
As for your second point, I realize that your deductions from your accepted axioms predict that, but is that empirically supported (particularly in the US)?

[Jeff S.]

Joe,

I'll believe you if you say you didn't set out to incite an argument about the minimum wage, but it sure has strayed a long way from "Sheldon Richman is a PAWFTE."

[joe]

BG,

Those three conclusions assume that there is no economic benefit to employers from paying higher wages, and that the minimum wage forces employers to pay above the optimal wage rate. Neither of those assumptions holds up very well when the effect of minimum wage increases are analyzed.

MJ,

"No one is capable of determining what your optimal "good" wage is, yet you still think it's a useful measure to criticize a real life wage? Enough to set any kind of policy on?"

Yes. We can know that the people at the very bottom of the wage scale are earning below what they would earn in a perfect market, and implement a modest floor, while still being comfortable that we are not going to push that wage above the optimal wage for their labor. The point of minimum wage is not guess at what that optimal wage is and try to hit it, but to provide help for those who need it, without producing undesired effects. They're also not supposed to reduce inequalities in bargaining power, but compensate for them. Inequality is eternal; we shouldn't try to get rid of it, just deal with it when necessary.

jh,

Yawn.

Mike Laursen,

The minimum wage isn't supposed to help "most people." It's supposed to help a small segment of the population, those at the very bottom of the labor market. Sure, there are other things that can be done - I certainly don't think the minimum wage is a be-all-end-all of aid for the poor.

[jh]

Ken -- Thanks for your reasoned commentary. I suppose I should just ignore joe's "you don't agree with me, therefore you're stupid and childish" comments.

Some real world facts -- when I was in college, and needed money to buy cheap food and pay an absurdly low rent, I kept applying for jobs, and I kept being turned down because they "couldn't afford to hire me" (actual quote). Minimum wage harmed me. It wasn't just one employer doing this, it was a bunch of them. They all had "help wanted" signs in the window, and they all turned me down. And when I finally got hired, they kept my hours low, only hiring me when they were jammed up for help, because the managers correctly assumed that I hadn't acquired the work habits to be very productive and had the sort of nasty socialist entitlement views that didn't mesh with a productive workplace.

Then I graduated, and spent several months trying to get employed, with no luck. I finally took a temp company job at minimum wage, ditched the attitude, and started working hard. I got promotion after promotion after that, getting paid more and more, even though I made a point of never bringing up salary in the interviews. The employers voluntarily paid me more than minimum wage, despite an utter lack of negotiating skills, because I was now worth more than minimum wage and they didn't want me to move to a competitor. In the most recent job interview I had, I talked with my future employer for over two hours and FORGOT to even ask what the job paid. It didn't matter -- I knew they'd pay me what I was worth. I was hired, and was offered a salary many times higher than the minimum wage.

So, even before I studied these fancy economic theories, I acquired the gut-level, real world notion that minimum wage harms people because I was one of the people who was harmed. If joe wants to characterize such an unshakeable belief as religious, he's entitled to his (wrong) opinion.

[joe]

Wow, that individual anecdote is worth a thousand peer-reviewed studies.

[MJ]

"We can know that the people at the very bottom of the wage scale are earning below what they would earn in a perfect market,..."

Whether we can know this at all is debatable, and you certainly have not demonstrated that this is known. As RC Dean pointed out, the shape of your argument that people at the bottom of the wage scale are getting shafted is remarkably round (and before you object, you did not respond to RC's criticism, you answered a criticism you would have rathered he made). Since this is the keystone for your justification of the minimum wage, the integrity of the structure is dubious.

[jh]

"Wow, that individual anecdote is worth a thousand peer-reviewed studies."

... that concur with the conclusions that reasonable people would infer from the real-world data contained in the anecdote.

Fixed that missing clause in your comment, joe.

[The Fake joe]

I'm really upset that I'm stuck in a minimum wage job, and I feel my employers are taking advantage of me, so I'll spend all my work hours arguing in favor of statist economic ideas on a profoundly anti-statist web site, in the hope that improve my employment prospects.

[BG]

Those three conclusions assume that there is no economic benefit to employers from paying higher wages, and that the minimum wage forces employers to pay above the optimal wage rate. Neither of those assumptions holds up very well when the effect of minimum wage increases are analyzed.

I'll admit I have limited knowledge of the empirical data on this subject and the methodologies used to gather that data. But what economic benefits to employers from paying higher wages have been discovered? And in cases in which there are such benefits, why don't employers pay higher wages anyway without a minimum wage? If its just a matter of employers not knowing about those benefits, then we could get most of the same desireable effects by informing employers of how they could benefit from paying higher wages (although this process would probably take longer and getting the raise sooner could have a significant benefit to a low-wage earner).

[Stevo Darkly]

Wow, that individual anecdote is worth a thousand peer-reviewed studies.

I wouldn't normally do this, and I'll never do it again (I'll just link back to this post in future), but somebody seems to be under the impression that the bulk of the research indicates there is no evidence that the minimum wage has a negative effect on employment. This minority conclusion was the thesis of the research by Card (see below), whose methodology has since been questioned and whose conclusions, IIRC, were later contradicted by an examination of payroll records.

The actual consensus seems to be that a small increase in the minimum wage may not always have a detectable effect; but many, many studies indicate that a mandatory minimum wage increase is most likely to increase the unemployment of low-skilled people with little employment bargaining power anyway, e.g., entry-level black teenagers.

Fortunately for proponents of the minimum wage, these people (e.g., black teenagers) are not a major voting bloc and thus can be readily sacrificed by grandstanding demagogues for political gain.
-------------
Adams, F. Gerard. 1987. Increasing the Minimum Wage: The Macroeconomic Impacts. Briefing Paper, Economic Policy Institute (July). Finds that an increase in the minimum wage from $3.35 to $4.65 over three years would increase the unemployment rate by less than 0.1% and the inflation rate by 0.2%.
- Adie, Douglas K. 1973. Teen-Age Unemployment and Real Federal Minimum Wages. Journal of Political Economy, vol. 81 (March/April): 435-441. Finds that the minimum wage is responsible for a considerable amount of teenage unemployment.
- Al-Salam, Nabeel; Quester, Aline; and Welch, Finis. 1981. Some Determinants of the Level and Racial Composition of Teenage Employment. In Rottenberg (1981a): 124-154. Notes that in 1954, black teenage males were more likely to be employed than white teenage males. Since that time, the proportion of black teenage males employed has fallen sharply, while employment for white teenage males has risen. Expansion of coverage of the minimum wage appears to be a major factor in this trend. Further notes that more than half of all teenagers would earn more in the absence of a minimum wage.
- Bauer, P.T. 1959. Regulated Wages in Under-developed Countries. In The Public Stake in Union Power, ed. Philip D. Bradley. Charlottesville, VA: University of Virginia Press, 324-349. Argues that the negative effects of minimum wage laws in LDCs is even greater than in industrialized countries, because there is greater diversity of supply and demand for labor in LDCs. Also points out that in South Africa minimum wages helped whites at the expense of blacks.
- Behrman, Jere R.; Sickles, Robin C.; and Taubman, Paul. 1983. The Impact of Minimum Wages on the Distributions of Earnings for Major Race-Sex Groups: A Dynamic Analysis. American Economic Review, vol. 73 (September): 766-778. Finds that the minimum wage has helped white males and females while hurting black males and females. Bell, Carolyn Shaw. 1981. Minimum Wages and Personal Income. In Rottenberg (1981a): 429-458. Finds that increases in the minimum wage would benefit few families with incomes below the poverty level. Much of the benefit would accrue to upper income families with secondary earners, such as wives and children.
- Beranek, William. 1982. The Illegal Alien Work Force, Demand for Unskilled Labor, and the Minimum Wage. Journal of Labor Research, vol. 3 (Winter): 89-99. Finds that the minimum wage increases the employment demand for illegal aliens, who are less likely than legal residents to report violations of the labor laws.
- Betsey, Charles L., and Dunson, Bruce H. 1981. Federal Minimum Wage Laws and the Employment of Minority Youth. American Economic Review, vol. 71 (May): 379-384. Argues that employment losses from higher minimum wages have been overstated and that much of the higher unemployment among minority youth has been due to cyclical factors.
- Bonilla, Carlos E. 1992. Higher Wages, Greater Poverty. Washington: Employment Policies Institute. Finds that the 1991 increase in the federal minimum wage actually reduced the income of some single parents, after welfare and taxes are taken into account.
- Brandon, Peter D. 1995. Jobs Taken by Mothers Moving from Welfare to Work and the Effects of Minimum Wages on this Transition. Washington: Employment Policies Institute Foundation. Finds a decrease in work by women on welfare in states raising their minimum wages and an increase in time on welfare in such states.
- Brown, Charles. 1988. Minimum Wage Laws: Are They Overrated? Journal of Economic Perspectives, vol. 2 (Summer): 133-145. Finds that they employment impact of the minimum wage and its impact on reducing poverty are both less than generally believed.
- Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1981a. Effects of the Minimum Wage on Youth Employment and Unemployment. In Minimum Wage Study Commission (1981), vol. 5, pp. 1-26. Finds that a 10% increase in the minimum wage will reduce teenage employment by 1% to 3%.
- Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1981b. Time-Series Evidence of the Effect of the Minimum Wage on Teenage Employment and Unemployment. In Minimum Wage Study Commission (1981), vol. 5, pp. 103-127. Finds that a 10% increase in the minimum wage will reduce teenage employment by 1%.
- Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1982. The Effect of the Minimum Wage on Employment and Unemployment. Journal of Economic Literature, vol. 20 (June): 487-528. Summarizes a large volume of research on the minimum wage.
- Brozen, Yale. 1962. Minimum Wage Rates and Household Workers. Journal of Law and Economics, vol. 5 (October): 103-109. Found that increases in the minimum wage drove low-wage workers into uncovered occupations, such as household work. Predicts that broadening of coverage to such occupations will increase structural unemployment.
- Brozen, Yale. 1966. Wage Rates, Minimum Wage Laws, and Unemploy-ment. New Individualist Re- view, vol. 4 (Spring): 24-33. Points out a contradiction between the Johnson Administration's desire to hold wage increases to the rate of productivity growth, in order to reduce inflationary pressures, and its support for a higher minimum wage.
- Brozen, Yale. 1969. The Effect of Statutory Minimum Wage Increases on Teen-age Employment. Journal of Law and Economics, vol. 12 (April): 109-122. Finds that increases in the minimum wage only speed up wage increases that would have occurred over time. However, in the interval between an increase and the time when productivity catches up to it results in higher unemployment and business failures. In the case of teenagers, many who are barred from jobs suffer long-term effects from the failure to gain job skills, thus injuring them permanently.
- Card, David. 1992a. Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage. Industrial and Labor Relations Review, vol. 46 (October): 22-37. Finds no evidence that the April, 1990 increase in the minimum wage reduced teenage employment, but does find evidence that it led to higher wages.
- Card, David. 1992b. Do Minimum Wages Reduce Employment? A Case Study of California, 1987-89. Industrial and Labor Relations Review, vol. 46 (October): 38-54. Finds no evidence that an increase in the California state minimum wage in July, 1988 led to any loss in teenage employment, but does find evidence of higher wages.
- Card, David, and Krueger, Alan B. 1994. Minimum Wages and Employ-ment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania. American Economic Review, vol. 84 (September): 772-793. Finds no evidence of reduced employment from an increase in the New Jersey state minimum wage in April, 1992.
- Colberg, Marshall R. 1960. Minimum Wage Effects on Florida's Economic Development. Journal of Law and Economics, vol. 3 (October): 106-117. Finds that after an increase in the minimum wage unemployment increased most in the areas where wages were lowest and least in areas where wages were highest beforehand.
- Colberg, Marshall. 1981. Minimum Wages and the Distribution of Economic Activity. In Rottenberg (1981a): 247-263. Examines votes on the minimum wage and finds heavy support for it in high wage states of the North and opposition from low wage states in the South. This suggests that the North was attempting to reduce the South's competitive advantage in wages.
- Corbo, Vittorio. 1981. The Impact of Minimum Wages on Industrial Employment in Chile. In Rottenberg (1981a): 340-356. Finds substantial job losses from the minimum wage in Chile.
- Cotterill, Philip. 1981. Differential Legal Minimum Wages. In Rottenberg (1981a): 296-316. Favors differential minimum wages to reduce the impact of the minimum wage.
- Cotterman, Robert F. 1981. The Effects of Federal Minimum Wages on the Industrial Distribution of Teenage Employment. In Rottenberg (1981a): 42-60. Finds that minimum wages have altered the distribution of teenage employment. Teenagers are less likely to be employed in low wage industries, such as retailing, and increase employment in high wage industries, such as manufacturing.
- Cox, James C., and Oaxaca, Ronald L. 1981. The Determinants of Minimum Wage Levels and Coverage in State Minimum Wage Laws. In Rottenberg (1981a): 403-428. Finds that union support for the minimum wage is significant politically.
- Cox, James C., and Oaxaca, Ronald L. 1982. The Political Economy of Minimum Wage Legislation. Economic Inquiry, vol. 20 (October): 533-555. Explains why unions support minimum wages.
- Cox, James C., and Oaxaca, Ronald L. 1986. Minimum Wage Effects With Output Stabilization. Economic Inquiry, vol. 24 (July): 443-453. Finds that the minimum wage causes unskilled wages to be 15.7% higher than they otherwise would be, and that this causes employment to be 11.2% lower than it otherwise would be.
- Cunningham, James. 1981. The Impact of Minimum Wages on Youth Employment, Hours of Work, and School Attendance: Cross-sectional Evidence from the 1960 and 1970 Censuses. In Rottenberg (1981a): 88-123. Finds that minimum wages discourage part-time work and lowers school attendance.
- Currie, Janet, and Fallick, Bruce. 1993. A Note on the New Minimum Wage Research. National Bureau of Economic Research Working Paper No. 4348 (April). Finds that employed individuals affected by the increases in the minimum wage in 1979 and 1980 were 3% to 4% less likely to be employed a year later. Since the methodology employed is similar to that in Card (1992a and 1992b), it casts doubt on any generalization of his conclusions.
- Datcher, Linda P., and Loury, Glenn C. 1981. The Effect of Minimum Wage Legislation on the Distribution of Family Earnings Among Blacks and Whites. In Minimum Wage Study Commission (1981), vol. 7, pp. 125-146. Finds that an increase in the minimum wage increases white family incomes more than black family incomes. Also, middle- and high-income families benefit more than low-income families.
- Douty, H.M. 1960. Some Effects of the $1.00 Minimum Wage in the United States. Economica, vol. 27 (May): 137-147. Finds that the increase in the minimum wage from 75 cents to $1.00 in 1956 did lead to an increase in pay for many workers, but at the cost of jobs. Long-term employment losses by industry ranged from 3.2% to 15%.
- Ehrenberg, Ronald G., and Schumann, Paul L. 1981. The Overtime Pay Provisions of the Fair Labor Standards Act. In Rottenberg (1981a): 264-295. Opposes restrictions on mandatory overtime.
- Employment Policies Institute. 1994. The Low-Wage Workforce. Washington: Employment Policies Institute. Presents data on characteristics of workers earning the minimum wage.
- Feldstein, Martin. 1973. The Economics of the New Unemployment. The Public Interest (Fall): 14-15. Argues that the minimum wage prevents many young people from accepting jobs that would provide them with on-the-job training, thus contributing to long-term unemployment.
- Fleisher, Belton M. 1981. Minimum Wage Regulation in Retail Trade. Washington: American Enterprise Institute.
- Extension of the minimum wage to retail trade lowered employment in that industry by as much as 500,000, with the main impact on teenagers. Also finds that higher minimum wages led to a scale-back of fringe benefits and training.
- Forrest, David. 1982. Minimum Wages and Youth Unemployment: Will Britain Learn from Canada? Journal of Economic Affairs, vol. 2 (July): 247-250.
- Estimates that 40% of the increase in teenage unemployment in Canada since the 1950s is due to higher minimum wages.
- Freeman, Alida Castillo, and Freeman, Richard B. 1991. Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor? National Bureau of Economic Research Working Paper No. 3759 (June). Finds that the minimum wage has had a massive impact on the labor market in Puerto Rico.
- Gallasch, H.F., Jr. 1975. Minimum Wages and the Farm Labor Market. Southern Economic Journal, vol. 41 (January): 480-491. Finds that the 1967 extension of the minimum wage to the farm labor market, which had previously been uncovered, led to an increase in wages and a reduction in employment.
- Gardner, Bruce. 1981. What Have Minimum Wages Done in Agriculture? In Rottenberg (1981a): 210-232. Finds that extension of the minimum wage to farm workers has increased wages but reduced employment.
- Gordon, Kenneth. 1981. The Impact of Minimum Wages on Private Household Workers. In Rottenberg (1981a): 191-209. Finds that the minimum wage has led to a dramatic reduction in household workers. Also notes that the policy of enforcement of labor laws by complaint converts the minimum wage from an instrument of public policy to a tool of private disputes.
- Gramlich, Edward M. 1976. Impact of Minimum Wages on Other Wages, Employment, and Family Incomes. Brookings Papers on Economic Activity (No. 2): 409-461. Finds that raising the minimum wage above 40 to 50 percent of median wages leads to increased compliance costs, higher unemployment, workers forced to leave full-time work for part-time work, more benefits for high-income families, and inflationary effects on prices.
- Gregory, Peter. 1981. Legal Minimum Wages as an Instrument of Social Policy in Less Developed Countries, with Special Reference to Costa Rica. In Rottenberg (1981a): 377-402. Finds that the minimum wage has been ineffective in reducing income inequality.
- Grossman, Jean B. 1983. The Impact of the Minimum Wage on Other Wages. Journal of Human Resources, vol. 18 (Summer): 359-378. Finds that an increase in the minimum wage increases wages of those above the minimum wage for two reasons. First, workers above the minimum will want to restore their relative wage position, and second there will be increased demand for workers above the minimum to do the work previously done by those below the minimum.
- Grossman, Jonathan. 1978. Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage. Monthly Labor Review, vol. 101 (June): 22-30.
- Reviews the legislative history of passage of the first federal minimum wage law. Notes the limited coverage of the initial legislation.
- Hall, Robert E. 1982. The Minimum Wage and Job Turnover in Markets for Young Workers. In The Youth Labor Market Problem: Its Nature, Causes, and Consequences, ed. Richard B. Freeman and David A. Wise, pp. 475-497. Chicago: University of Chicago Press. Finds that the higher unemployment among youth resulting from the minimum wage is primarily due to higher job turnover.
- Hammermesh, Daniel S. 1981. Employment Demand, the Minimum Wage and Labor Costs. In Minimum Wage Study Commission (1981), vol. 5, pp. 27-84. Finds that a 10% increase in the minimum wage will reduce teenage employment by 1.2% overall, with smaller declines in services and retail trade and a higher impact in manufacturing.
- Hammermesh, Daniel S. 1982. Minimum Wages and the Demand for Labor. Economic Inquiry, vol. 20 (July): 365-380. Finds that a minimum wage reduces teenage employment.
- Hashimoto, Masanori. 1981. Minimum Wages and On-the-Job Training. Washington: American Enterprise Institute. Finds that minimum wage laws lead to a curtailment of training by employers.
- Hashimoto, Masanori. 1982. Minimum Wage Effects on Training on the Job. American Economic Review, vol. 72 (December): 1070-1087. Finds that minimum wages reduce training, first because workers lose job opportunities, and hence on the job training, and second because employers will no longer be able to afford to give such training.
- Hashimoto, Masanori. 1987. The Minimum Wage Law and Youth Crimes: Time-Series Evidence. Journal of Law and Economics, vol. 30 (October): 443-464. Suggests that increases in the minimum wage may be responsible for increases in teenage crime rates.
- Haugen, Steven E., and Mellor, Earl F. 1990. Estimating the Number of Minimum Wage Workers. Monthly Labor Review, vol. 113 (January): 70-74. Estimates that two-fifths of workers reporting wage rates at or below the minimum wage in 1988 had supplements raising their wage rates above the minimum. However, some 1.5 million salaried workers may also make the minimum wage or less on an hourly rate.
- Holcombe, Randall G., and Metcalf, John G. 1977. The Appeal of Minimum Wage Laws: A Dynamic Analysis. Public Choice, vol. 29 (Spring): 139-141. Explains the popularity of minimum wage laws even among those who lose their jobs as a result as stemming from the high turnover in the low-wage market. Although a worker may initially lose his job because of an increase in the minimum wage, he will expect to get other jobs in the future that will pay more.
- Iden, George. 1980. The Labor Force Experience of Black Youth: A Review. Monthly Labor Review, vol. 103 (August): 10-16. Concedes that the minimum wage has had a significant negative effect on teenage employment, especially for blacks.
- Johnson, William R., and Browning, Edgar K. 1981. Minimum Wages and the Distribution of Income. In Minimum Wage Study Commission (1981), vol. 7, pp. 31-58. Finds that much of the benefits of a higher minimum wage accrue to high-income families and that many low-income families benefit at the expense of other low-income families.
- Johnson, William R., and Browning, Edgar K. 1983. The Distributional and Efficiency Effects of Increasing the Minimum Wage: A Simulation. American Economic Review, vol. 73 (March): 204-211. Finds that a 22% increase in the minimum wage in 1976 would have increased the incomes of the lowest 10% of households by just $200 million.
- Katz, Lawrence F., and Krueger, Alan B. 1992. The Effect of the Minimum Wage on the Fast-Food Industry. Industrial and Labor Relations Review, vol. 46 (October): 6-21. Finds evidence that an increase in the minimum wage led to an increase in employment in Texas.
- Kaun, David E. 1965. Minimum Wages, Factor Substitution and the Marginal Producer. Quarterly Journal of Economics, vol. 79 (August): 478-486. The minimum wage hurts small businesses.
- Keech, William R. 1977. More on the Vote Winning and Vote Losing Qualities of Minimum Wage Laws. Public Choice, vol. 29 (Spring): 133-137. Suggests that support for the minimum wage even among those adversely affected may result from those benefiting having a clearer perception of the benefits than those who are harmed have of the negative effects.
- Kniesner, Thomas J. 1981. The Low-Wage Workers: Who Are They? In Rottenberg (1981a): 459-481. Finds that 60% of low-wage workers are women and less than 40% are teenagers. Also finds that low wages are not strongly associated with poverty. Less than 25% of low wage workers are heads of households, and only 30% live in families with incomes below the poverty level.
- Kohen, Andrew I., and Gilroy, Curtis L. 1981. The Minimum Wage, Income Distribution, and Poverty. In Minimum Wage Study Commission (1981), vol. 7, pp. 1-30.
- Since many low-wage workers live in high-income families, increasing the minimum wage is an ineffective way of increasing the incomes of poor families.
- Kosters, Marvin, and Welch, Finis. 1972. The Effects of Minimum Wages on the Distribution of Changes in Aggregate Employment. American Economic Review, vol. 62 (June): 323-332. Finds that increases in the minimum wage have a significant effect on employment patterns, especially for nonwhite teenagers. As a consequence, teenagers are less able to find jobs during periods of normal employment growth and are more likely to lose their jobs during cyclical downturns.
- Krumm, Ronald J. 1981. The Impact of the Minimum Wage on Regional Labor Markets. Washington: American Enterprise Institute. Finds that lower-skilled workers tend to be disemployed when minimum wages are applied uniformly, leading to higher wages for higher-skilled workers. Also, because the cost of living varies from region to region, the real minimum wage will also vary.
- Lang, Kevin. 1995. Minimum Wage Laws and the Distribution of Employment. Washington: Employment Policies Institute Foundation. Finds that increases in the minimum wage leads fast food establishments to replace adult workers with younger workers, and to replace full-time workers with part-time workers.
- Leffler, Keith B. 1978. Minimum Wages, Welfare, and Wealth Trans-fers to the Poor. Journal of Law and Economics, vol. 21 (October): 345-358. Finds that increases in the minimum wage lead to increases in welfare rolls. Argues that advocates for the poor may favor higher minimum wages in order to increase the number of people on welfare, because welfare benefits may exceed the income from work.
- Leighton, Linda, and Mincer, Jacob. 1981. The Effects of Minimum Wages on Human Capital Formation. In Rottenberg (1981a): 155-173. Finds that minimum wages discourage on-the-job training.
- Levitan, Sar, and Belous, Richard S. 1979. The Minimum Wage Today: How Well Does It Work? Monthly Labor Review, vol. 102 (July): 17-21. Argues that the benefits of the minimum wage outweigh its costs.
- Linneman, Peter. 1982. The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question. Journal of Political Economy, vol. 90 (June): 443-469. Finds that the disemployment effects of the minimum wage fall mainly on blacks, females, restricted individuals, residents of small cities, those with low education, the old, and non-union members. Beneficiaries of the minimum wage mainly are males and union members.
- Mattila, J. Peter. 1981. The Impact of Minimum Wages on Teenage Schooling and on the Part-Time/Full-Time Employment of Youths. In Rottenberg (1981a): 61-87. Finds that the disemployment effects of the minimum wage have encouraged youths to stay in school. Also, youths have shifted out of full-time work and into part-time work, in order to accommodate schooling.
- McCulloch, J. Huston. 1981. Macroeconomic Implications of the Minimum Wage. In Rottenberg (1981a): 317-326. Finds negligible effects from the minimum wage on inflation. However, it may reduce the size of the capital stock by reducing profitability in covered industries, thereby leading to lower wages in the long run.
- McKee, Michael, and West, Edwin G. 1984. Minimum Wage Effects on Part-Time Employment. Economic Inquiry, vol. 22 (July): 421-428. Finds that the minimum wage discourages part-time employment in favor of full-time jobs.
- McKenzie, Richard B. 1980. The Labor Market Effects of Minimum Wage Laws: A New Perspective. Journal of Labor Research, vol. 1 (Fall): 255-264. Argues that increases in the minimum wage, which apply only to money wages, will lead to a reduction in non-money wages, such as fringe benefits. Thus employers can respond to a higher minimum wage by lowering benefits by the same amount.
- Mellor, Earl F. 1987. Workers at the Minimum Wage or Less: Who They Are and the Jobs They Hold. Monthly Labor Review, vol. 110 (July): 34-38. Finds that those earning at the minimum wage or less consist largely of young persons and women. The majority worked part-time in services or sales. Since many of these people probably also received commissions or tips, the number of workers earning the minimum wage or less may be overstated.
- Mellor, Earl F., and Haugen, Steven E. 1986. Hourly Paid Workers: Who They Are and What They Earn. Monthly Labor Review, vol. 109 (February): 20-26. Finds that 60% of those earning the minimum wage or less are under age 25 and one-third were teenagers.
- Meyer, Robert H., and Wise, David A. 1981. Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth. In Minimum Wage Study Commission (1981), vol. 5, pp. 175-201. Finds that abolition of the minimum wage would increase employment by out-of-school youth by 6%.
- Meyer, Robert H., and Wise, David A. 1983a. The Effects of the Minimum Wage on the Employment and Earnings of Youth. Journal of Labor Economics, vol. 1 (January): 66-100.
- Estimates that abolition of the minimum wage would have led to significantly higher employment among youth, especially black youth. Finds no evidence of higher earnings from the minimum wage.
- Meyer, Robert H., and Wise, David A. 1983b. Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth. Econometrica, vol. 51 (November): 1677-1698. Finds that if the minimum wage did not exist in 1978, employment among out-of-school young men would have been 7% higher. Also, the average earnings of youth would have been higher.
- Mincer, Jacob. 1976. Unemployment Effects of Minimum Wages. Journal of Political Economy, vol. 84 (August): S87-S104. Finds that the negative effects of a minimum wage increase are greatest for nonwhite teenagers. Moreover, the disemployment effects on the size of the labor force are greater than the effects on the unemployment rate.
- Mincy, Ronald B. 1990. Raising the Minimum Wage: Effects on Family Poverty. Monthly Labor Review, vol. 113 (July): 18-25. Finds a significant impact on reducing poverty from an increase in the minimum wage. This is because the disemployment impact falls mainly on teenagers, whose contribution to family income is small.
- Minimum Wage Study Commission. 1981. Report, 7 vols. Washington: U.S. Government Printing Office.
- Concludes that a 10% increase in the minimum wage will reduce teenage employment by 1%-3%.
- Moore, Thomas G. 1971. The Effect of Minimum Wages on Teenage Unemployment Rates. Journal of Political Economy, vol. 79 (July/August): 897-902. Finds that the minimum wage increases unemployment primarily for nonwhite teenagers.
- Neumark, David, and Wascher, William. 1992. Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws. Industrial and Labor Relations Review, vol. 46 (October): 55-81. Finds that a 10% increase in the minimum wage reduces teenage employment by 1% to 2%, and a decline of 1.5% to 2% among young adults.
- Parsons, Donald O. 1980. Poverty and the Minimum Wage. Washington: American Enterprise Institute. Finds that the minimum wage mainly reallocates income among low-wage workers, benefiting adult females and hurting teenagers of both sexes.
- Peterson, John M. 1957. Employment Effects of Minimum Wages, 1938-50. Journal of Political Economy, vol. 65 (October): 412-430. One of the first empirical studies to show that minimum wages reduce employment.
- Peterson, John M. 1981. Minimum Wages: Measures and Industry Effects. Washington: American Enterprise Institute. Calculates the impact of the minimum wage on different industries. The negative employment effects primarily impact low-wage industries such as retailing.
- Peterson, John M., and Stewart, Charles T., Jr. 1969. Employment Effects of Minimum Wage Rates. Washington: American Enterprise Institute. Summarizes a large number of studies finding negative employment effects from minimum wages.
- Phillips, Llad. 1981. Some Aspects of the Social Pathological Behavior Effects of Unemployment among Young People. In Rottenberg (1981a): 174-190. Finds that primary impact of minimum wage is on young males, especially black males. This has encouraged continued school enrollment and entry into the armed forces. However, it has also encouraged "illegitimate" alternatives to employment, such as crime.
- Ragan, James F., Jr. 1977. Minimum Wages and the Youth Labor Market. Review of Economics and Statistics, vol. 59 (May): 129-136. Confirms that higher minimum wage rates reduce youth employment and increases youth unemployment rates, especially for nonwhite males.
- Ragan, James F., Jr. 1981. The Effect of a Legal Minimum Wage on the Pay and Employment of Teenage Students and Nonstudents. In Rottenberg (1981a): 11-41. Because the minimum wage reduces employment for teenagers, government funds spent on job training for teenagers must be counted as part of the cost of the minimum wage.
- Rosa, Jean-Jacques. 1981. The Effect of Minimum Wage Regulation in France. In Rottenberg (1981a): 357-376. Finds that the minimum wage reduces employment of youth in France, especially males.
- Rottenberg, Simon. 1981a. The Economics of Legal Minimum Wages. Washington: American Enterprise Institute. Collection of papers.
- Rottenberg, Simon. 1981b. Minimum Wages in Puerto Rico. In Rottenberg (1981a): 327-339. Finds that the minimum wage has caused massive disemployment in Puerto Rico and lowered the overall standard of living.
- Smith, Ralph E., and Vavrichek, Bruce. 1987. The Minimum Wage: Its Relation to Incomes and Poverty. Monthly Labor Review, vol. 110 (June): 24-30. Finds that 70% of workers earning the minimum wage in 1985 lived in families in which at least one other member held a job. Also, teenagers held almost one-third of all jobs paying the minimum wage.
- Smith, Ralph E., and Vavrichek, Bruce. 1992. The Mobility of Minimum Wage Workers. Industrial and Labor Relations Review, vol. 46 (October): 82-88. Examines a panel of workers earning the minimum wage in the mid-1980s and finds that over 60% were earning more than the minimum wage a year later, with gains averaging 20%.
- Sowell, Thomas. 1977. Minimum Wage Escalation. Stanford, CA: Hoover Institution Press. Argues that indexing the minimum wage would magnify its problems.
- Steindl, Frank G. 1973. The Appeal of Minimum Wage Laws and the Invisible Hand in Government. Public Choice, vol. 14 (Spring): 133-136. Argues that political support for the minimum wage results from the fact that those who benefit from a modest increase will outnumber those who lose.
- Stigler, George J. 1946. The Economics of Minimum Wage Legislation. American Economic Review, vol. 36 (June): 358-365. Argues that a minimum wage will reduce output and decrease the earnings of the poor.
- Tauchen, George E. 1981. Some Evidence on Cross-Sector Effects of the Minimum Wage. Journal of Political Economy, vol. 89 (June): 529-547. Finds that increases in the minimum wage tend to lower wages for those in uncovered sectors, because there is increased demand for uncovered jobs from those no longer employable at the minimum wage.
- Taylor, Lowell J. 1993. The Employment Effect in Retail Trade of a Minimum Wage: Evidence from California. Washington: Employment Policies Institute. Criticizes Card (1992b).
- Trapani, John M., and Moroney, J.R. 1981. The Impact of Federal Minimum Wage Laws on Employment of Seasonal Cotton farm Workers. In Rottenberg (1981a): 233-246. Finds that extension of the minimum wage to seasonal cotton workers in 1966 led to a substitution of mechanical processes for labor.
- Vandenbrink, Donna C. 1987. The Minimum Wage: No Minor Matter for Teens. Economic Perspectives, Federal Reserve Bank of Chicago, vol. 11 (March/April): 19-28. Finds large reductions in teenage employment from an increase in the minimum wage.
- Van Giezen, Robert W. 1994. Occupational Wages in the Fast-Food Industry. Monthly Labor Review, vol. 117 (August): 24-30.
- Shows that wages in the fast-food industry are closely tied to the minimum wage.
- Welch, Finis. 1974. Minimum Wage Legislation in the United States. Economic Inquiry, vol. 12 (September): 285-318. Finds that the minimum wage has reduced employment, especially among teenagers; it has made teenagers more vulnerable to the business cycle; and has forced teenagers out of covered occupations into those not covered by the minimum wage.
- Welch, Finis. 1978. Minimum Wages: Issues and Evidence. Washington: American Enterprise Institute. Finds that those primarily affected by the minimum wage are the aged, teenagers, and part-time workers.
- Welch, Finis, and Cunningham, James. 1978. Effects of Minimum Wages on the Level and Age Composition of Youth Employment. Review of Economics and Statistics, vol. 60 (February): 140-145. Finds that in 1970 the minimum wage reduced employment of 14-15 year olds by 46%, by 27% for those 16-17, and by 15% for those 18-19.
- Wessels, Walter J. 1980. Minimum Wages, Fringe Benefits, and Working Conditions. Washington: American Enterprise Institute. Finds that increases in the minimum wage lead to a reduction in fringe benefits and a deterioration of working conditions.
- West, E.G. 1980. The Unsinkable Minimum Wage. Policy Review (Winter): 83-95. Argues that economists should do a better job of explaining the negative effects of the minimum wage.
- Williams, Walter. 1977a. Government Sanctioned Restraints that Reduce Economic Opportunities for Minorities. Policy Review (Fall): 7-30. Argues that minimum wage laws have had a disproportionately negative effect on black teenagers.
- Williams, Walter. 1977b. Youth and Minority Unemployment. Study prepared for the Joint Economic Committee, U.S. Congress. Joint Committee Print, 95th Congress, 1st session. Washington: U.S. Government Printing Office. Points out that in 1947, prior to expansion of the minimum wage, black teenage unemployment was actually lower than white teenage unemployment, and that teenage unemployment generally was sharply lower than it is today.

[Stevo Darkly]

Please note that the above survey of studies on the minimum wage does include research concluding that the effects of the minimum wage may be positive or negligible as well as negative; please also note that the evidence of negative impact is not exactly seen as lacking.

[BG]

Stevo Darkly

Wow! How long have you been researching this issue?

I am starting to think I should have majored in economics. There is no way I'm going to parse through all those studies in the near future but if I had been an economics major I might be able to have a more authoritative opinion on this and other issues.

[D.A. Ridgely]

Stevo, fergawdsakes, how many times does joe have to tell you to stop yellin' "DEMAND KURV"?

[Neu Mejican]

Stevo,

Typically with a review this large it is helpful to include a methods section so that the reader can evaluate the review for potential sources of bias in your collection of evidence. As is I can't tell whether this is a systematic review or just a convenience sampling...

http://www.bmj.com/cgi/content/full/315/7109/672
http://ssrc.tums.ac.ir/SystematicReview/

As is, I can't ascertain whether you left out the Bowles studies I linked to because they were already part of the thread, or because they were from a source not sampled (^_^)...

It would also be helpful to list empirical studies (with experimental and observational subsections) under a separate heading than the theoretical papers as your list seems to mix the two together willy-nilly...

"The actual consensus seems to be that a small increase in the minimum wage may not always have a detectable effect"

Was this the result of a meta-analysis?
Is it listed in your review?
Card has one

http://ideas.repec.org/a/aea/aecrev/v85y1995i2p238-43.html#abstract
See also http://ideas.repec.org/a/oup/ecinqu/v36y1998i3p458-70.html
and
http://findarticles.com/p/articles/mi_qa3620/is_199604/ai_n8745694
and
http://www.epinet.org/content.cfm/bp178

[cracks a smile...]

Sorry. I couldn't keep a straight face.
Just giving you shit.

[Consensus Economics who fancie]

October 25, 2006 | EPI Briefing Paper #178

Minimum wage trends
Understanding past and contemporary research

by Liana Fox
There is a growing view among economists that the minimum wage offers substantial benefits to low-wage workers without negative effect. Although there are still dissenters, the best recent research has shown that the job loss reported in earlier analyses does not, in fact, occur when the minimum wage is increased. There is little question that the overall impact of a minimum wage is positive, as the following facts make clear:

* If the minimum wage were increased nationally to $7.25:
o 14.9 million workers would receive a raise,
o 80% of those affected are adults age 20 or over, and
o 7.3 million children would see their parents income rise.
* Families with affected workers rely on those workers for over half of their earnings.
* 46% of all families with affected workers rely solely on the earnings from those workers.
* Some minimum wage workers remain in low-wage jobs for substantial periods.
* The best recent research on the economic impact of the minimum wage shows positive effects without job loss.
* Even the research that suggests a negative labor market effect shows only a minimal impact that is more than offset by the higher wage levels.
* The states that have adopted higher-than-federal minimum wages have seen low-wage workers' incomes rise with no negative side-effects.
* Over 650 economists, including five Nobel Prize winners and six past presidents of the American Economics Association, recently signed a statement stating that federal and state minimum wage increases "can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed" (EPI 2006).

http://www.epinet.org/content.cfm/bp178

[Neu Mejican]

See joe,
It really ain't that hard to source evidence...
You should try it. It might work better than raising your voice...

[Stevo Darkly]

The listed studies are from a bibliography appended to "talking points for a response to the Card studies, from Republican congressman" that I found on the WWW.

However, the last time I linked directly to that page, somebody mocked me for merely linking to "Republican talking points" without scrolling down to see the bibliography that was the point of the link. Then that person looked askance at the fact that this listing of minimum wage studies had been pulled together by (gasp) Republicans -- that is, the major party that opposes the minimum wage and therefore has an incentive to gather the evidence against it, and somehow not the other major party that denies evidence of the minimum wage's negative impact, or prefers to ignore it or wish it away.

I do not know how the items in the bibliography were gathered. But it certainly shows that there are abundant studies pointing to evidence that the minimum wage does have a negative impact on employment. This is not merely dogma without evidence, as joe has previously maintained.

The fact that the list includes several studies presenting an opposing view also indicates at least a token attempt at balance. That is, at least the list-gatherer acknowledged the existence of evidence for the view opposing his own.

[Stevo Darkly]

On the other hand, there does seem to be a rise in "minimum-wage unemployment deniers" recently.

"Consensus Economics who fancies himself an activist": Congratulations on turning up another contrarian/revisionist study.

Whereas the bibliography listed above was merely assembled by Repub congresscreatures, not actually commissioned by them, I note that the Liana Fox paper above is an "EPI briefing paper." The Economics Policy Institute's Agenda for Shared Prosperity betrays resemblences to left-of-center talking points itself, especially if you follow some of the links: there is a bias toward regulation, global trade should be managed, the USA should have a gov't run health care program like every body else, more workers should be in unions, and corporations are being naughty. All in rather reasonable-sounding language, though.

[D.A. Ridgely]

The irony to me of this thread is that I started out agreeing up to a point with joe. Yeah, theory doesn't always work perfectly in predicting a decidedly imperfect and messy reality, transaction and search costs are prohibitive for many low end workers to search alternatives and so forth. Mitigating factors can reduce the otherwise expected increase of unemployment in a particular sector or geographical area or for a particular period of time. For that matter, as Steven Landsburg observes, whatever rise in unemployment a rise in the minimum wage does create isn't exactly on a par with many other market warping government interventions -- most of those jobs suck, anyway, and many of those now unemployed teenagers (of any color) are not sole supporters of themselves or their families, etc., etc. I know, easy for me to say, but it is about aggregate effect, not anecdata about the poor black kid who loses her job as a grocery store bagger.

That said, the "commodified" claim is straight out of Marxist economists' polemics (again, not to say that's what joe meant) and the notion that a market not in perfect equilibrium is per se "market failure" is absurd. Yeah, there's deadweight loss in non Pareto (or Kaldor-Hicks) optimal markets, but if that alone were sufficient justification for government intervention then every market except, ironically, commodities markets should be regulated. (Surprise, surprise, the advocates of regulation have good "economic" reasons to want to regulate those, too.)

[Reinmoose]

I presume Joe is referring to the carrot vs. stick methods when he's talking about economic benefit of paying the employee the "optimal wage." Question: Do the employees get the feel-good productivity gain out of minimum wage increases that they would get out of a voluntary pay raise? I mean, an employer who was already going to pay a worker $7 an hour (which is what he can afford), even though he could bargain it down to $5 if he really wanted, is being robbed of that sense of gratitude and accompanying productivity gain due to an appreciative worker. Instead, with a minimum wage set at $7, the worker feels entitled to this amount, and the resulting productivity is no different than it would have been if he'd paid the guy $5 before the minimum wage was implemented.

[Neu Mejican]

Stevo,

"Whereas the bibliography listed above was merely assembled by Repub congress creatures, not actually commissioned by them,"

This is an easy mistake to make, but assembling a set of studies to use as evidence in "talking points for a response to the Card studies" is no different, in terms of danger of bias, than a review paper commissioned by the other side. A sprinkling of papers on the other side to give the impression of objectivity doesn't mean there is a smaller chance of a biased sample.

To call the EPI review a "revisionist" review says more about you than it does about the substance of the "briefing paper." It too fails to provide methodology, so is just as suspect, but it is no more suspect than the republican annotated bibliography. Both simply presents data to support a thesis. Neither do the hard work needed to demonstrate lack of bias.

:^)

[Neu Mejican]

This is all EPI does to demonstrate objectivity... not enough, but it is something.

How does EPI ensure the credibility of its research findings?

EPI has always demanded a high standard of quality in its research because of its desire to be a credible participant in public debates and a reliable source of information and analysis for policy makers, the press, community activists, academics, corporate leaders, labor union officials, and the general public. Its methods for ensuring that its research methodologies and outcomes are exemplary include the use of highly qualified researchers and multiple reviews by outside experts, including those who are known for disagreeing with EPI's values. In-house researchers maintain their standing in the academic community by publishing findings in prestigious peer-reviewed academic journals, like the American Economic Review and the New England Journal of Medicine.

http://www.epi.org/content.cfm/about

[Neu Mejican]

Here is a response to the critique of the Card studies...

http://www.econ.jhu.edu/people/Barnow/cardmw.pdf

Note that it is missing from the bibliography...

As are Card's meta-analysis papers.

[Neu Mejican]

And Stevo,

The only reason I bothered posting these other view points is because you present things with this header

"This minority conclusion was the thesis of the research by Card (see below), whose methodology has since been questioned and whose conclusions, IIRC, were later contradicted by an examination of payroll records."

Of course Card's response to the contradicting studies needs to be added to the discussion...

And without a real systematic review and meta-analysis, there is no evidence regarding which opinion is "the minority" view and which is the majority view. You are choosing to characterize the position you prefer as the majority position with no evidence to support that position.

I, I would like to make clear, do not know, and would not pretend to know, which view is the majority view on the issue.

Hopefully when you post links to your list, people will see the additional evidence presented below it.

(^_^)

[Neu Mejican]

And the last point on the bibliography...

It is outta date by about 10 years.

No articles past the mid-nineties...

It would be important to include that piece of information when using it in a discussion, since most people aren't going to look at it in any detail and will simply say...

"Wow! How long have you been researching this issue?"

So when you link to your bibliography, please do it honestly (and direct people to the addition more current resources).

[Neu Mejican]

urm...

to the addition = in addition to the

[Mike Laursen]

Do the employees get the feel-good productivity gain out of minimum wage increases that they would get out of a voluntary pay raise?

Wow. It would be really hard to gather objective evidence about that.

But it touches on one of the big reasons I'm a libertarian. We're all told to do often, in a wide swath of life matters. And letting the government take care of social ills can be a way to ignore them, while escaping any guilt about it. Big government causes our ethical judgement and will to atrophy, and promotes a complacent populace.

[Stevo Darkly]

Sorry, here is the link to the source of the bibliography (SCROLL DOWN): Here.

And I wasn't posting it as a scientific survey of the complete literature, but as convenient counter-evidence to joe's assertion (which he repeated at least once in this thread) that there is no evidence to support the assertion that the minimum wage causes unemployment. Abundant evidence has in fact been presented.

The argument about which is the majority view is tangential to my point. However, I have certainly been given the impression that this is at least the conventional wisdom among most economists, since long before I was a libertarian.

I've never taken an economics course in school. A good friend of mine did, and I remember him telling me during a discussion (back in the 1980s) that his economics professor taught him that "raising the minimum wage causes unemployment, period. This isn't just one side of an argument; this is an axiom. It's fundamental to economics." I've been assuming that this prof wasn't a lone deluded whacko out of touch with his peers. And just about every thing I've read about the Card study starts with an intro along the lines of, "Contrary to the oft-stated conventional wisdom" or words to that effect.