Comment by jbellis | Hacker News Reader

Comment by jbellis | Hacker News Reader

It's pretty easy to find research coming to a different conclusion than the Card/Kreuger paper that most pro-minimum-wage-increase people cite:

http://gregmankiw.blogspot.com/2006/06/sperling-on-minimum-w... http://cafehayek.com/2009/09/new-study-casts-doubt-on-card-k... http://rjwaldmann.blogspot.com/2009/12/in-which-i-disagree-w...

But the best reasoning I've seen on the subject is Bryan Caplan's:

"Suppose you have a weak prior about the disemployment effects of the minimum wage. Suppose further that you think that the best empirical work in economics is very good indeed. Doesn't existing evidence then oblige you to admit that the minimum wage has roughly zero effect on employment?

"Hardly. Why not? Because there is far more 'existing evidence' than meets the eye. Research doesn't have to officially be about the minimum wage to be highly relevant to the debate. All of the following empirical literatures support the orthodox view that the minimum wage has pronounced disemployment effects:"

http://econlog.econlib.org/archives/2013/03/the_vice_of_sel....

It's not hard to argue with the "more existing evidence than meets the eye" either:

http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/200...

Three things to observe from the graph on page 31 (adobe reader page 33):

* There is publication bias in favor of the hypothesis that minimum wage increases decrease employment.

* If one takes the liberty of selecting only a handful of studies to argue with, one can find "strong" support for either side of this argument.

* Neither the "true mean" (mean at large y) nor the "biased mean" (mean at small y) of the studies lies anywhere near the break-even point (x value of -1) where the proposal of raising the minimum wage begins to hurt poor people in aggregate (i.e. the sum total of money flowing to poor people is less than it was before the raise).

Also, observe that the graph on page 33 (adobe reader page 35) suggests a trend in elasticity over time which has a plausible argument to back it up. Signed elasticity should increase (minimum wage increases become more beneficial) when labor is overabundant. In this case, labor tends to be sold nearer to the minimum price laborers will sell at and further from the price at which employers will stop purchasing so that a minimum wage increase results in more "win" scenarios (wages are increased without being pushed over the "cliff" that results in negative productivity) than "loss" scenarios (where wages are pushed over the cliff). This is consistent with the narrative of American employees losing leverage over time.

If both the narrative and its theoretical+observed impact on elasticity are true, minimum wage increases are becoming more beneficial over time.

>It's pretty easy to find research coming to a different conclusion than the Card/Kreuger paper that most pro-minimum-wage-increase people cite

It's usually riddled with methodological flaws, however, or not in the slightest bit empirical (as your last link so perfectly demonstrates - the guy doesn't even WANT empirical data!).

Neumark/Wascher, while empirical, was a crock of shit that restricted and modified Card/Krueger's data set in an attempt to change the outcome.

Card/Krueger has also, incidentally, been repeated across multiple state borders and has held up.

Of course there is a very good reason why there is a consistent effort to push the idea that hiking the minimum wage causes unemployment despite it being clearly false...

It's SAVAGE towards profits:

http://164.36.50.178/lowpay/research/pdf/NMW_profits_and_pri...

This is why Mankiw and other intellectual frauds in the hock of corporate lobbyists will always push this lie.

Even if minimum wage does cause some unemployment that's not the beginning or the end of the story. It's a market distortion created to counteract two other market distortions - namely already existing unemployment and market concentration on the employers' side, both of which depress wages.

So even proving beyond a doubt that minimum wage causes an increase in unemployment isn't enough to abolish the institution if there isn't a better solution to the problems at hand. Plus, unemployment percentage is not a robust enough metric to base the entire conversation on.

I liked Bryan Caplan's piece but to me it was predicated on the idea that minimum wage is based on errors in logic and not based on distortions in markets (especially in his conclusion.) I'm yet to see a better idea for addressing the downward effect of unemployment and oligopolization on low end wages. Caplan's solution seems to be deregulation but to me that's a bit like letting the wolves and the sheep work it out for themselves.

Unemployment is a market distortion?

Yep, and notice that the article was talking about a reduction in aggregate poverty rather than total employment. If a few people lose their jobs but a significantly larger number of people get higher wages, poverty in aggregate goes down.

But as the article points points out, there is excellent and robust empirical evidence that the current minimum wage (and even earlier minimum wages in America, which were much higher) are too low to significantly affect total employment. Wikipedia has an excellent writeup of the scholarship on this topic:

http://en.wikipedia.org/wiki/Minimum_wage#Empirical_studies

I am actually a little confused, why do you consider unemployment a market distortion, and how does the minimum wage helps to correct it?

OK, I'll respond to this and harryh's at the same time. First of all, "distortion" is relative to what economic model you're starting with - so it can get a bit tricky, and I'm not very concerned with using the absolute correct technical term. But I'll make my case from the ground up:

Unemployment has a downward effect on wages because there's more competition for every job, just like competition between firms for employees will increase wages. Ideally these things will all even out. Unfortunately in our current economy we have high market concentration (so low competition between firms for employees which decreases wages) and high unemployment (so high competition for each job which also decreases wages). So we see lower wages from what they would be under Perfect Competition (or an ideally functioning free market) where I'm told it's impossible for these things to persist.

Minimum wage laws put a limit on how much firms can wield this market power given to them by market conditions. Without minimum wage/collective bargaining of some sort (and without technological advances, etc.) history and economic theory agree that firms will tend to push wages down to subsistence levels in order to maximize profits. Minimum wage is not the greatest tool, and I don't actually like it - but I do think it should be higher. We have a lack of good options at the moment so we're left picking the best of the bad.

But why do I call it a distortion? Large enough unemployment, coupled with lack of competition between firms for employees causes such a shift that the free market is barely distinguishable from slavery for those at the bottom (subsistence wages are literally only enough to survive and keep working.) So I throw around the word distortion because I'm trying to communicate that unemployment gives such a large amount of market power to employers that the market becomes fundamentally different from what we expect in a Free Market.

On paper there's a solution to this problem: Negative income tax [1]. Would be interesting to see it implemented somewhere...

1. http://en.wikipedia.org/wiki/Negative_income_tax

What's the Earned Income Tax Credit if not a negative income tax?

A negative income tax is a strictly progressive income tax systems which has a range at the low end of the income scale where the marginal rate of is negative.

The EITC is not itself, and does not make the US federal income tax system, a strictly progressive system, since the EITC creates both progressive and regressive ranges.

It's not a problem. Negative income tax and EITC is another way of saying "I'm ok in theory with giving more money to the poor, but let's not divert the money from corporate profits to do that".

(that being the normal outcome of a hiked minimum wage)

It's a distraction in other words. A way to stop people demanding for a minimum wage hike.

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