minimum wage
Source Jim Devine
Date 13/02/14/23:21

The Research Case for a Higher Minimum Wage
By Matthew Yglesias

The David Card / Alan Krueger empirical study showing no negative
employment impact from a minimum wage increase (PDF) is famous because
it showed what liberals wanted to believe and since Krueger is now
serving in the Obama administration it's natural to think of it as
relevant to Obama's push for a minimum wage hike. That study, however,
was really just the start of a research agenda. For a much more
persuasive run of the basic argument you really want to read
Arindrajit Dube, T. William Lester, and Michael Reich "Minimum Wage
Effects Across State Borders: Estimates Using Contiguous Counties"
which is able to take advantage of a much larger dataset. The basic
method is that since some counties are adjacent to counties that are
located in different states, we can take advantage of variation in
state minimum wage laws to assess the employment impact. The finding
is that there's zero employment impact within the actually occuring
range of variation (this does not rule out, obviously, that a $50
minimum wage would cause job losses).

A related paper from Syliva Allegretto, Dube, and Reich titled "Do
Minimum Wages Really Reduce Teen Employment?" concludes that no they

An analytic point that minimum wage proponents also offer, though
perhaps not one they're inclined to shout from the rooftops, is that
the case for a higher minimum wage doesn't strictly require that there
be no disemployment effect. After all, if you can boost earnings for a
huge swathe of low-income Americans at the cost of one guy losing his
job that seems like an acceptable price to pay. Two guys? Still
acceptable. And so on. So the point is you have some margin for error

The interesting theoretical issue about these empirical findings is
why don't minimum wage hikes have large disemployment effects. The
most optimistic reading is that you're basically pushing toward an
"efficiency wage" equilibrium and nobody loses. Another possibility is
simply that firms are operating in markets that aren't all that
competitive so firms are earning monopoly profits that the minimum
wage hike partially claws back. Yet another possibility is that
workers in minimum wage jobs are typically doing a decent amount of
slacking off, and that a higher minimum wage essentially forces
managers to force their staff to slack off less—in effect the minimum
wage pushes workers out of leisure and into work. An issue worth
considering is that the minimum wage contains a fair number of
loopholes: That's your tipped workers, your internships (whether
unpaid or with a "travel stipend"), and also a lot of work in family
businesses. Workers who are genuinely unemployable at a new higher
minimum wage may shift into work in the exempt sectors.

Last but by no means least, if you look at the main sectors that
employ minimum wage workers—fast food and retail—it's clear that a
move is under way to replace workers with kiosks of various kinds.
Phasing in a minimum wage hike over three years is going to moderately
accelerate that already-underway trend.

The Research Case Against A Minimum Wage Increase
By Matthew Yglesias

Yesterday I gave you the research case for a minimum wage increase.
The starting point for the research case against a minimum wage
increase should be David Neumark and William Wascher's book Minimum
Wages which makes a full-bore case that minimum wage rules are
perverse. That starts with findings of short-term disemployment
effects, but continues with the argument that the impact is
particularly severe on the youngest unskilled workers who suffer
lasting damage by failing to get inside the world of formal paid labor
quickly. They also argue that minimum wages are poorly targeted
policy. Many of the workers who earn more as a result of the minimum
wage are not poor, and many poor families receive little help from the
minimum wage.

This is precisely the line of research that Arindrajit Dube and his
co-authors are critiquing in their "new minimum wage" research that I
referenced yesterday. Naturally Neumark & Wascher have (with J.M. Ian
Salas) a critique of their critique of their work. Something worth
noting is that in principle policymakers could actually design minimum
wage policies that are meant to shed light on the issue. We could, for
example, randomly assign counties different minimum wages on a
spectrum of $5 an hour to $15 an hour and see what happens.

Meanwhile, though this cuts against the general
charts-and-NBER-abstracts tendencies of the wonk blogosphere, the
clearest case against a minimum wage hike has (in my view) more to do
with freedom than with research. You've got a guy who wants to give
someone $8 to do something that'll take an hour and another guy who
wants $8 and is happy to do the thing in exchange for the money. Now
Barack Obama's going to fine them for agreeing to trade $8 for the
work? Seems perverse. In the real world, obviously, the perversity of
this is greatly mitigated by the existence of formal exemptions and
weak enforcement. If you pay a neighbor's son $10 to mow your lawn and
it takes him 70 minutes, you're going to be able to get away with it
even in a world of a $9 minimum wage. Which is probably as it should

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