Monday, March 13, 2006

Debate II

Is there anyone that would like to discuss the minimum wage? First off, I would like someone to actually explain to me the purpose of increasing the minimum wage. I have yet to hear a satisfactory answer beyond the knee jerk comments of those whole heartedly supporting it. Since most of the empirical evidence is mixed, I think it is a good topic of discussion for economics, politics, and the law.


At March 13, 2006 7:44 PM, Blogger Andrew said...

Hope everyone had a great break. Anyway:

Mixed empirical evidence? I thought it was a clear cut issue of economic inefficiency. Are you factoring in psychological factors? Because that's the only (pathetic) justification of a minimum wage I can think of at all. What am I missing here?

I'm going to extrapolate Krugman's words a bit and quote: "Because economics touches so much of life, everyone wants to have an opinion."

The labor surplus, or unemployment, caused by the minimum wage (or an increase thereof) is largely limited to the market of correspondingly low paying jobs, so I'm really not going to lose any sleep over it. However, it is a bit ironic that the very people that most enthusiatically voice the desire for an increase would be the ones that would have a higher level of unemployment over time.

On that note, a topic that somehow seems to draw parallels to this issue, in my mind, is the lottery. How about that for a debate topic?

At March 13, 2006 8:12 PM, Blogger Chris said...

Our most basic economic theories give the impression that there will be significant unemployment. There have been a fair amount of work done on this, stating that we actually do not have (many) losses in employment numbers (on the net).

That's why I say it is mixed. It isn't as clear cut as our neo-classic models purport. However, we can see losses in benefits, reduced raises, or lost time off (alternative compensation packages) because of this agenda.

Additionally, minimal increases (small % increases) have not shown significant overall changes in the labor market. So the artificial price floor might serve as a low-rung guide for employers(perhaps an example of imperfect labor markets caused by legislation).

The lottery is a very iteresting topic as well. I have written up a few things on this topic and I would highly recommend Clotfelter and Cook's work on this subject. You can find them on the Duke website.

At March 13, 2006 9:05 PM, Blogger Andrew said...

Well, yes, if 'mixed' is defined as 'varying degrees of negative effects', we indeed observe mixed empirical evidence. As I implied, I don't think I'll personally notice any difference either way.

I admit, I overlooked the point of it being a general guideline/safety net in event of unforeseen shocks -- arguably, like the rationale behind some foreign currencies having bands they can fluxuate between.

Correct me where my figures are off, but the break-even point where going off welfare to work is around the $12/hr mark. In our current system, the rhetoric behind basic needs, humane conditions, etc. are just that, rhetoric. Sure it'd be nice to have higher wages for low rung jobs, but what real benefit does that have in the bigger picture? I think we both know that the WELL THELYL GET MOR MONEY AND WE GET HIGHER CONSNPTION WICH STIMULTES THE ECONMUY (LOLO) is a pretty shit argument, and perhaps an extended example of the broken window fallacy.

Also, I'll look up Clotfelter and Cook. Thanks.

At March 13, 2006 9:55 PM, Blogger Chris said...

I suppose that the $12/hr range is equivalent to the much touted "living wage", where I think many of the supporters of the minumum wage would like to take it.

However, I think it goes well above $12/hr. Individuals in the United States qualify for EITC (earned income tax credit) all the way up to about 34,000/yr. So subsidies to wages, exceed far beyond $12/hr and where they stop, I have no idea. It is pretty confusing stuff altogether. The legislation is immense.

About the argument for increasing the minimum wage -- you are preaching to the choir on that one.

At March 14, 2006 7:51 PM, Blogger Juris Naturalist said...

Can we (sic) look at minimum wage in a fixed costs light? NewMark gave the example today in class of Doctors in California going on strike because of skyrocketing malpractice insurance rates.
The end of the story was that, so long as no doctors left the market, prices would not rise, and the doctors would have to bear the complete burden of higher prices.

In minimum wage terms, the higher wages are increasing insurance rates. The employers are the doctors. The workers are the insurance companies.

So long as no employers close up shop, the workers will get their higher wage, and employers will bear the full burden.

So the story goes...
Fallacies abound:
1) Employers will close up shop, and at a higher rate than doctors would because they have more substitues for profit opportunities.
2) The story assumes full employment. It ignores "the unseen" without adequate skills to earn higher wages.
3) Because of #1 prices will go up and the consumer will bear the burden.


At March 22, 2006 8:45 AM, Blogger Chris said...

How bout drug legalization? That is sure to get a crowd!

At March 22, 2006 9:16 AM, Blogger Travis said...

Legalize it. Don't criticize.


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