Question for Readers about the Minimum Wage

The blogosphere has been abuzz about Steven Landsburg's article that claims that studies show that the minimum wage does not really affect unemployment.

My question is this: how would you design a study to determine whether or not the minimum wage affects unemployment?


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I?ve studied economics for a

I?ve studied economics for a long time. And I cannot tell you the intensity with which I despise it now, because of the fact that it is just about the most horrendous floating-abstraction of our time.

And all this talk of absolute moral principles isn't a floating abstraction?

Economics isn't morally absurd. Morality itself is absurd. And what's even more absurd is that you and JTK think that you can accomplish something useful by focusing solely on your pseudo-religious Randian nonsense, while at the same time rejecting practical arguments that might actually have a chance of being taken seriously by people who don't already agree with you (all five of them).

As for Jonathan's original question, the best way to test the effect of a policy change is to do what John Lott proposed for testing the effects of gun control laws on crime rates (whether or not he actually performed these studies properly is left for the reader to decide). Find two or more areas--states, cities, counties, etc.--as similar as possible in all respects except the independent variable (economectrics can be used to account for other variables not of interest), and see what happens to both areas before and after the change is implemented.

Of course, there are many places where this kind of study can go wrong. But most importantly, changes in the minimum wage most likely suffer from the same problem as changes in concealed carry laws - the effects of these changes, whether positive or negative, are so small that they become clouded by the uninteresting variables.

In terms of the minimum wage debate, this leads to the question: if we cannot be sure whether raising the minimum wage helps, hurts, or done nothing for its intended recipients, and if a better alternative is available (the EITC), why bother with the minimum wage at all?

Excellent question. As with

Excellent question. As with all experimentation the challenge is to isolate the independent variable (i.e., having a sample group and a control group with the only difference between the two being the variable you are studying). That can be quite a challenge in macroeconomics.

I have never been an applied or empirical economist in any of my past lives, but I might start by looking at employment among those who were making above the initial minimum wage but below the increased minimum. In other words, if the minimum wage was $5.00 and then was raised to $6.00, what happened to the people making $5.50? Were they let go, raised to $6.00 or raised to $6.50? That should provide at least some insight into whether the minimum wage is truly acting as a price floor over a significantly-sized labor supply curve.

Of course, in the non-lab-rat world an applied economist can never fully isolate external factors and unintended consequences, so any results one way or the other would less than perfect.

Alternatively, you can do what I did: go to Yahoo! or Google, type "minimum wage empirical evidence" and review the results. There's a few interesting studies listed, though I have no time to really digest them.

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I have just been appointed

I have just been appointed the "Minimum Wage Czar" and have dictated that the minimum wage shall be $100.00 per hour. I have also have dictated that this increase will not lead to unemployment or inflation.

Decreed.

Of course, in the

Of course, in the non-lab-rat world an applied economist can never fully isolate external factors and unintended consequences, so any results one way or the other would less than perfect.

Uhhh, I think you should restate that and take out the part about "non-lab-rate world" as even in a laboratory setting there are still unknown factors. Further, even in a laboratory setting you can't rule out bizzare statistical sampling. That is if you have 100 random samples, you'd expect about 5 fo those samples to give you something impressive even when there is nothing there.

This latter point the one that Landsburg is hanging his hat on, and it is an interesting point.

Study schmuddy, just raise

Study schmuddy, just raise the minimum wage to $50/hr and settle the question once and for all.

Um, if employers are not

Um, if employers are not price sensitive can't we pretty much junk economics?

The worst thing about

The worst thing about Landsburg's piece is that he thinks it's more *principled* to steal a little from everyone than to steal more from fewer.

I disagree with Billy Beck

I disagree with Billy Beck that the question is absurd and that the author should stop asking it.

Even if we agree that minimum-wage laws are immoral, we still live in a would where governments have the power and inclination to enact them despite our claims of their immorality.

If we want to improve the moral landscape, one of our possible stragies is to participate in the political process; and that involves engaging with these empirical studies. It helps us to know if they are valid, or if their are better ways to measure the economic costs of such proposals.

To clarify: I agree with

To clarify:

I agree with many of the a priori arguments against minimum wage laws. My question, however, relates to empirical studies.

How would you set up an empirical study to determine whether or not minimum wage increases unemployment?

What would you measure? How would you measure it? When would you measure it? How often would you measure it?

The question in the post is

The question in the post is completely impertinent, because it rests on the premise that there is a moral right to forcibly dictate the terms and conditions of operating a business.

The "minimum wage" is not principally an economic issue. It is a moral issue having essentially to do with private property and this entire discussion is only more evidence of the abject ignorance of "political economy" that Ayn Rand pointed out in her indictment of it as "the attempt to study and devise social systems without reference to man".

Whether you know it, like it, or not, you're all being utterly absurd, and you should stop it.

I would throw up my hands

I would throw up my hands and acknowledge that it can't be done.

Like so many (all?) predictions of economic theory, the proposition that raising the minimum wage increases unemployment is essentially a counterfactual assertion: what we mean to say is that unemployment will be higher than it would have been, which is very different from simply saying it would go up. This same distinction is why no simple test of correlation finds any effect of gov't debt on interest rates.

So what do you do when you're trying to test the influence of a simple factor you can measure (the min. wage) on an ultra-complex phenomenon you can barely define, can never hope to measure, and that is affected by a thousand other things? Even a physicist or chemist couldn't overcome such a challenge.

Actually now that I think of

Actually now that I think of it, the minimum wage itself is neither simple nor truly measurable, as it is subject to real/nominal confusion.

So in short, we don't even know what we're talking about.

I knew about Godwin's law,

I knew about Godwin's law, and I understood that Billy Beck thinks the process is immoral. He's right (although there are real differences between our government and Nazi Germany's).

But, it still exists and is doing bad things.

I don't understand why he thinks it's wrong to think about the harm a particular policy is causing. Or, even just a part of the harm that people in power (or people who might affect them) care about.

What alternative is he proposing? And why does he expect it to be better? That's what I'm really asking.

This would be wery hard to

This would be wery hard to do.

Remember the emphasis of "gradually" raising the minimum wage. This means that studies have to detect a small change, and that means a large sample and a great risk of not reaching significant results (on top of everyting else).

This is impossible to do in my opinion.

Remember also Hayek talking about Coplexity/Chaos:

http://visualeconomics.blogspot.com/2004/05/chaos-complexity-and-hayek.html

What happens to a study when an major "unforseeable" economic event hits the economy (911, quakes, market crashes...). This of course desimates all studies that are trying to detect miniscule changes in one economic variable in that time period.

Also, remember the Krueger and Card study on Minimum Wages, that was statistically insignificant...

http://www.economist.com/finance/displayStory.cfm?story_id=2384590

...on top of everyting else.

I agree with the premises

I agree with the premises other people have said regarding minimum wage, i.e. that government interference in the economy is morally wrong, etc., etc., but don't ignore Micha's point. It's great when we have our little circle jerk and all agree that minimum wage is wrong, but if someone doesn't share our moral premises, then he won't be convinced, period. The purely economic approach attempts to show the man who with morals what we should do.

Pardon that last sentence,

Pardon that last sentence, it should read: The purely economic approach attemps to show the man with no morals what we should do.

Billy Beck: "Without a

Billy Beck: "Without a standard of good against which to gauge, what makes you think that person is going to respond to any argument, Randall?"

Me: I am not counting utilitarianism as a true moral principle (Micha will disagree with me there). The average man is basically utilitarian, and supports some things because he thinks the consequences would be good, when in fact they are not (but the media won't tell him that). The purpose of economic arguments is to point out the real effects of the approaches he has to choose from, e.g. the negative consequences of being anti-business.

I agree that some people are swayed by principle, and that is why I never grant the state legitimacy for the sake of argument; but I take the state as a painfully given fact when I talk about real-world policy. Abolishing the agency or law or what have you is always my first recommendation, but when that doesn't happen we need others.

John T. Kennedy: Voters have insufficient incentives to evaluate arguments properly under these circumstances. What?s in it for the individual? Why bother to invest effort in understanding this argument when the political result will be the same whether you do or not?

Political ignorance is instrumentally rational in the context of a democracy. It?s rational for voters to blow off your arguments. You?re trying to build castles in sand.

Me: It's rational for voters to blow off our demands to know how the minimum wage is morally justifiable in the first place, as well as our blogs. Why do you still do it?

Randall, Voters are not my

Randall,

Voters are not my intended audience, I'm not attempting to persuade the body politic of anything.

I think that ideas

I think that ideas matter.

Even if most individuals don't actively investigate issues (rationally), better ideas tend to dominate worse ones in the long run and eventually spread throughout the culture.

People didn't have to travel around the world to learn that it isn't flat. They won't have to analyze economic studies to learn that minimum-wage laws cause more harm than good for the very people they are purported to help. But, they will learn it.

I think that there is a much greater general awareness of the practical hazards of economic intervention today than there was 30 years ago, and, with vigilence, this trend will continue.

If we disengage from the battle of ideas because we think the moral case is the only one that matters and what other people care about is "beside the point", then seductive, bad, ideas will gain support and dominate policy.

I don't just want to be right. I want things to get better, too.

Micha: "I have opinions and

Micha:
"I have opinions and preferences, but those opinions/prefences don?t extend any further than myself. There is nothing ?objective?, outside my subjective value judgements, that leads me to believe that taxation is theft, or that ice cream is tasty."

Well, what a lovely intellectual wankfest this is! If any value is as good as any other, why are you arguing here? Because you think your words look pretty on the screen?

I have no right to ENFORCE my values on others. But in a world actively opposed to my values, I'm for sure going to defend them, and part of that is holding them in public and arguing for them. As one of the "five people" persuaded by Kennedy and Beck, I've got to ask: what happens when you set up your experiment and it turns out that Landsburg was right? What then? What if the "E"ITC DOES work better than minimum wage for distributing the booty? What if we can find a way to turn brown Jewish eyes blue? Wouldn't the research be worth it then?

What JTK said. Or if you

What JTK said.

Or if you want, just ask employers why they pay employees the wages they do... is it because they value their productivity differently?

"I don?t understand why he

"I don?t understand why he thinks it?s wrong to think about the harm a particular policy is causing."

Because the harm or lack thereof is *beside the point*.

It's *wrong* to steal from people, Gil.

and this is why libertarians

and this is why libertarians will never be taken very seriously by the general public. moralism gone wild with no concern for consequence.

** putting fingers in my ears **

"Nah Nah Nah Nah Nah Nah, I can't hear you, Nah Nah Nah Nah Nah Nah..." "As long as me and my five buddies agree, all is well."

For someone who went on and on about "reality" and "that which exists", it's painfully ironic that Rand focused so much on nonexistent morality and so little on actual, measurable economic consequences.

"and this is why

"and this is why libertarians will never be taken very seriously by the general public. moralism gone wild with no concern for consequence."

Moralism gone wild? And what's your alternative to rampaging *morality*, Scott?

Rampaging immorality?

See the problem with *that*?

"moralism gone wild with no

"moralism gone wild with no concern for consequence."

The question in the post at issue here has to do with at least a hundred years' eradication of the principle that a business owner can conduct his own affairs as he sees fit, in trail of which you people stand around scratching your asses trying to figure out a way to make it work.

And some chimpanzee is going to come around and start howling about "consequence".

You all deserve each other.

Micha, Morality itself is

Micha,

Morality itself is absurd.

So when you say you agree that taxation is theft and it's wrong to steal you really don't mean anything of consequence?

"What we ha' here, is

"What we ha' here, is failure to commun-cate!"
-- "Cool Hand Lule"

(I.e., of all the "institutions" noted falling into the Left's hands in a discussion elsewhere, I'd submit that none of them are as important as the *dictionaries*.)

Economics isn?t morally

Economics isn?t morally absurd. Morality itself is absurd. And what?s even more absurd is that you and JTK think that you can accomplish something useful by focusing solely on your pseudo-religious Randian nonsense, while at the same time rejecting practical arguments that might actually have a chance of being taken seriously by people who don?t already agree with you (all five of them).

What's practical in the absence of objective values?

Do you expect your argument to persuade voters? If not, then what is the relevance of the number of people you persuade?

In terms of the minimum wage debate, this leads to the question: if we cannot be sure whether raising the minimum wage helps, hurts, or done nothing for its intended recipients, and if a better alternative is available (the EITC), why bother with the minimum wage at all?

The free market is available, so why bother with the EITC at all?

And does it occur to you that a government program could serve it's intended recipients splendidly and still be wrong?

Jay -- At the very least,

Jay -- At the very least, one might hope for the elementary diligence of beginning a morally absurd discussion with the disclaimer that it is, indeed, morally absurd, and keeping that precept in the forefront at all times.

I've studied economics for a long time. And I cannot tell you the intensity with which I despise it now, because of the fact that it is just about the most horrendous floating-abstraction of our time. The whole project is rife with owl-eyed beanie-heads who would not not a moral principle if you beat them with it until they bled out their ears.

What you're seeing is my utter contempt, and I have excellent, unimpeachable, reason for it.

The question in the post is

The question in the post is completely impertinent, because it rests on the premise that there is a moral right to forcibly dictate the terms and conditions of operating a business.

The ?minimum wage? is not principally an economic issue. It is a moral issue having essentially to do with private property and this entire discussion is only more evidence of the abject ignorance of ?political economy? that Ayn Rand pointed out in her indictment of it as ?the attempt to study and devise social systems without reference to man?.

Whether you know it, like it, or not, you?re all being utterly absurd, and you should stop it.

and this is why libertarians will never be taken very seriously by the general public. moralism gone wild with no concern for consequence.

Key to the question of

Key to the question of whether raising the minimum wage raises unemployment, is a precise definition of unemployment.

I would imagine a large portion of minimum wage workers are teenagers and college students: part-time, enrolled in school, and receiving income from family members who make far more than the minimum wage. Thus if they lose their jobs they likely won't count towards unemployment statistics as normally calculated in this country. If the minimum wage is raised to $8/hour, they'll likely have a harder time finding work, and some of them will simply choose not to work. So "unemployment" won't go up, yet less people will be working.

As a friend said to me, no matter how many studies you produce, you can't repeal the Law of Demand.

hypothetically, what would

hypothetically, what would happen if the minimum wage was zero. Obviously, people wouldn't work for free (unless it was some sort of internship) but would wages across the board go down, esp among the already poor?

Would more people go on welfare?

I don't think it's possible

I don't think it's possible to measure this accurately.

You can determine whether particular jobs were lost, but not whether other jobs weren't created; and not how both potential employers and employees change their plans. Even if you compare very similar economies with different minimum wages there will always be other differentiating variables that can't be accounted for.

If it were the case that raising minimum wages did not inhibit employment, this would be such an astounding counter-intuitive result that it would call for a new, powerful, explanation.

I haven't seen such a thing.

The best theory that I know of says that it will inhibit employment. If there's a better theory available, let's hear it.

Otherwise, we should just acknowledge that some things are too hard to measure accurately.

It might be the case that politicians don't really care about the truth of the matter, but only about how evidence might affect their electoral chances. To me, this is just another reason why issues such of this should be placed beyond politics and left to the parties involved.

Minimum wage laws surely

Minimum wage laws surely "destroy jobs" that is lower than the law stipulates, unless of course the employer compensates by reducing other benefits and/or makes the workers work harder and/or dump the cost of the governments gift to the poor to the consumers, if at all possible (the laws make it possible for many industries to act in an monopolistic manner, since it has (in theory) the same effect on all of them).

"Unemployment" is a tricky concept and is different between countries, states and counties. One is marching in sync with the enemy to talk about the laws increasing unemplopyment. The laws destroy jobs that are worht so and so to the employer.

"Even if we agree that

"Even if we agree that minimum-wage laws are immoral, we still live in a would where governments have the power and inclination to enact them despite our claims of their immorality."

The very same fact was true in Hitler's Germany.

This is the part where the point can be dodged with reference that notorious idiot, Godwin.

No, Billy's referring to

No, Billy's referring to "Godwin's law", which states in the specific that as the length of a (usenet) discussion increases, the chances of someone being likened to the Nazis approaches one; at which point, the argument is over and the one who does it first loses. It is used in the general sense to apply to all internet discussions.

Of course, this neglects to take into account times when you're actually talking about Nazis or Nazi or Nazi-like programs, etc etc. Its more of a case that if you're having a prosaic argument over which football team is better, and the other side starts calling you a Nazi or likening you or your team's coach to Hitler, then they've lost their marbles and there isn't any further point in talking with them.

Are you saying that it?s

Are you saying that it?s wrong to engage in the political process?

He's saying that process is immoral.

What point? Did you make a

What point?

Did you make a point?

I'm not trying to dodge it. I don't see it.

Are you saying that it's wrong to engage in the political process?

If not, then what is your point?

You know, I couldn't agree

You know, I couldn't agree more with Billy Beck that this discussion should not even be happening, as minimum wage laws should not exist. They absolutely shouldn't. They are as egregiously evil as were Nixon's absurd, misguided wage and price controls (and he called himself a Republican...) in the early seventies.

However, that isn't the question, even if it might not be healthy to dwell so much on the question that we lend the concept credibility. The question is whether we can measure clearly the damage presumably done by raising minimum wages, and if so, how. Not sure it's possible outside a simulation, really, but to me it's self-evidently logical that raising them is harmful. Even if the impact is theft from employers and a reduction in captial, rather than decreased employment per se in the short run.

Perhaps proving the harm of an increase in the minimum wage could lead to showing the harm of any minimum wage. Then discussing it leads to a way to eliminate what is an immoral perversion, and is thereby a good thing.

And what?s your alternative

And what?s your alternative to rampaging morality, Scott?

Rampaging immorality?

Rampaging amorality.

So when you say you agree

So when you say you agree that taxation is theft and it?s wrong to steal you really don?t mean anything of consequence?

I have opinions and preferences, but those opinions/prefences don't extend any further than myself. There is nothing "objective", outside my subjective value judgements, that leads me to believe that taxation is theft, or that ice cream is tasty.

I also agree about the

I also agree about the immorality of economic regulation.

The issue is what to do about it.

Should we sulk in our basements muttering that we know that we're right?

Or should we engage in the battle of ideas on multiple fronts; making both moral and practical arguments against these regulations? (please don't tell me that there's no conflict between the two; most of the world doesn't believe this and they're the ones who must be convinced).

Which is more likely to be effective?

What?s practical in the

What?s practical in the absence of objective values?

That which satisfies the subjective preferences of as great a number as possible, or maximizes this satisfaction across as many as possible.

Do you expect your argument to persuade voters? If not, then what is the relevance of the number of people you persuade?

We've already been through this over at No-Treason. You know my answer.

The free market is available, so why bother with the EITC at all?

There are arguments against having the EITC too, and I agree with those arguments. But if we are going to have some sort of welfare program, it makes more sense to have a relatively efficient program like the EITC than a relatively inefficient program like the minimum wage.

And does it occur to you that a government program could serve it?s intended recipients splendidly and still be wrong?

Of course. (At least "wrong" in the sense I have described it - subjectively). But doesn't it make more sense for a morally wrong program to at least benefit some rather than having a morally wrong progam that benefits none, or benefits far fewer than the alternative? Why waste even more tax payer money and cause even more theft than is necessary?

I?ve studied economics for a

I?ve studied economics for a long time. And I cannot tell you the intensity with which I despise it now, because of the fact that it is just about the most horrendous floating-abstraction of our time. The whole project is rife with owl-eyed beanie-heads who would not not a moral principle if you beat them with it until they bled out their ears.

Economists do not deal in moral principles because economics is science, not philosophy. An economist denying the actual effects of raising the minimum wage simply because it is immoral to impose, would be like a physicist denying the phenomenon of nuclear fission simply because he opposed the atom bomb.

Whether the minimum wage is wrong or not, and whether that's your belief or a fixed-in-the-firmament objective fact, are irrelevant to the question of what happens when it is raised. That is the question at hand, and your entire line of argument is beside the point.

"The purely economic

"The purely economic approach attemps to show the man with no morals what we should do."

Without a standard of good against which to gauge, what makes you think that person is going to respond to any argument, Randall?

I will point out that there is no such thing as a "man with no morals". Every human being holds a moral code. That code might hold the destruction of kulaks as its highest value -- making it incomprehensible to most of the rest of us -- but it exists, nonetheless, as a scale of values, which is all that morality is. (There is nothing "religious" about this.) Try to bear in mind: in the clamor for the minimum wage, you're facing a good number of people who believe business to be inherently evil. That is a moral determination. And nothing you have to say about the economic efficacy or futility of the minimum wage is going to alter that evaluation in that person's mind. If you're looking for something possibly effective, then it's going to lie in the power of principle: establishing the general value of a good to every human life. In this case, it's about freedom to conduct one's own affairs without coercive intervention, as a universal precept not subject to arbitrary discard, in some peoples' interests, to the cost of others. Without a general precept, all bets are off: anyone can just make it up as they go along, and then you're right back where you started in this: haggling over what percentage of coercion is going to work in any randomly chosen case, and without a standard.

That's an endless fight. Is that what you want? The commies will be happy to take you up on the prospect.

Micha: as long as you hold

Micha: as long as you hold that "Morality itself is absurd," you have no standing to use the word "theft".

You cannot have it both ways.

"Economists do not deal in

"Economists do not deal in moral principles because economics is science, not philosophy. An economist denying the actual effects of raising the minimum wage simply because it is immoral to impose, would be like a physicist denying the phenomenon of nuclear fission simply because he opposed the atom bomb."

As parallels go, that one is screwed up on both sides of the equation.

Beck doesn't deny that there are effects, just that any such are immaterial in the shadow of the immoral foundation underlying their creation.

To make your physicist/bomb thing work you'll have to get past the absurdity of "denying the phenomenon of nuclear fission" (an absurdity without parallel in anything Beck stated) and decide whether you mean to be talking about whether the existence of a bomb is in itself immoral or if you rather mean to be talking about any possible deployment of said bomb. You can torture it for all you're worth, but I don't see a parallel there at all.

You're not the only one who is confused here, though.

This...

"There is nothing ?objective?, outside my subjective value judgements, that leads me to believe that taxation is theft, or that ice cream is tasty."

... is another poor construction. "Tasty" is perhaps subjective, and yet, so universal in regards ice cream as to be largely beyond debate, but "theft" is not open to interpretation.

Noah, That is the question

Noah,

That is the question at hand, and your entire line of argument is beside the point.

No, because the question is at hand for a purpose, not as a matter of idle curiosity. It's perfectly relevant to point out that the purpose is misguided.

Why waste even more tax

Why waste even more tax payer money and cause even more theft than is necessary?

Exactly. And how much is necessary, Micha?

John T. Kennedy, Why is the

John T. Kennedy,

Why is the purpose misguided?

The purpose is to acquire intellectual ammunition to meet arguments that are currently politically persuasive. This can be used as one of several lines of argument in order to reduce something we all (here) agree is bad.

What's wrong with that?