Minimum wage

About

The phrase "minimum wage" refers to laws which prevent employers from paying their employees less than a certain amount per hour of work. It also refers to the particular minimum amount required by legislation currently in effect.

Dilemma

Liberals often argue that raising minimum wage is helpful for combating poverty; conservatives argue (apparently without much evidence) that raising the minimum wage raises unemployment as companies must reduce their ranks in order to stay within budget.

Solutions

Although it is unclear that raising minimum wage actually does cause job loss, it is possible that it does under some circumstances; it is also possible that political resistance may prevent raising it even in the absence of evidence that there is any negative effect.

Revenue-based minimum wage is a proposal which may avoid both of those problems.

Books

• Myth and Measurement: The New Economics of the Minimum Wage by David Card & Alan B. Krueger
  • book information from publisher "In each case they present a battery of evidence showing that increases in the minimum wage lead to increases in pay, but no loss in jobs."

Discussion

excerpts from Contrary Brin

• Paul P said...

  I am disappointed to see someone with your breadth of knowledge say that raising the minimum wage is "obvious". It's far from obvious. This is one of those unusual areas that has broad agreement among economists: minimum wages hurt the people they're supposed to help. The minimum wage is a fine example of "warm and fuzzy" policy, well-intentioned laws written without a real understanding of their impact.

  • OdinsEye2k responded...

    Wrong. Minimum wage is a weird thing to muck around with, same as the "Laffer Curve." Typical economic analysis is an extrapolation from two reasonable extremes. Namely, very low wages would have full employment (but people would die of starvation working these jobs) while high employment would have very few people working. However, we are pretty ignorant of what goes on in the middle.

    The elasticity of jobs with respect to wage is back to being a contraversial subject, especially with the recent experiences of states like Oregon that showed no major employment problems even after a decent wage hike. Further, there are a large number (558, with 4 Nobel prize winners) of ecnomists that called for a wage hike back in 2004. I have even heard of an economist or two revising their textbooks on the subject due to the results of new empirical studies.

    Cato, Heritage, et al. continue to say the case is closed on minimum wage and unionism in order to enable their corporate clients to absorb an unfair share of the profits they generate. Of course, this is a long-term no-go, because these companies are now taking their profits from the capital of the lower and middle classes (evidenced by a negative savings rate), rather than the profitable exchange and fair sharing that built the middle in the first place. They are cornering themselves into unsustainability (no worries of course, because the Street only sees one quarter ahead) with these practices. Building the middle was sustainable, as in the wisdom of Henry Ford allowing his workers to purchase the fruits of their own labors.

    Of course, one may object to EPI, since it is liberal in its thinking (meaning to the left of Mellon-Scaife), but here is their summary of the state-of-the-art of research:

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

    Of course, note that they cite the research of real academics (meaning they still participate in the peer-review world), rather than think tank hacks.

• Anonymous said...

  Actually, minimum wage is one of those things that is essential to ensure that people are not abused by industry. Back before there were minimum wage laws and child labor laws, businesses would hire people for pennies (though those pennies paid for far more than they do today) and hire children for even less. People were used as chattel and their health and wellbeing ignored except where it harmed output of products.

  People were on the verge of starving, barely able to scratch out a substenance income with husband, wife, and several children working. Minimum wage ensured that these people would be allowed to earn enough so they could actually survive something like a parent getting ill or an injury in the family.

  Industry then chose to respond to this by upping their prices so their profits wouldn't be cut into. Thus minimum wage had to be increased again and again. But it is not minimum wage that is truly to blame. It is the mixture of taxation, minimum wage, greed, and the decreased purchasing value of the dollar that has allowed the situation to go out of control... and leaving minimum wage alone (or abolishing it) won't fix things.

  I'm not sure what will, to be honest.

Links

Editorials & Blogs

• 2006-11-15 Raising The Minimum Wage by hilzoy

Reference

• Wikipedia
• Conservapedia "The left wing in American politics tends to present a minimum wage as benefiting the lower class by helping to lift poor people out of poverty. Conservatives and libertarians generally counter this argument with statistics showing that every increase in the minimum wage has increased unemployment ... [and] obliges companies to outsource many jobs to China and the Third World."
• dKosopedia
• SourceWatch: no information as of 2009-11-10
• Vermont Legislative Research Shop: The Effects of Increases in the Minimum Wage
• Minimum Wage Issue Guide (PDF) (updated 2009-07-21)

Research

• Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis$ "Card and Krueger's meta-analysis of the employment effects of minimum wages challenged existing theory. Unfortunately, their meta-analysis confused publication selection with the absence of a genuine empirical effect. We apply recently developed meta-analysis methods to 64 US minimum-wage studies and corroborate that Card and Krueger's findings were nevertheless correct."