Wednesday, November 15, 2006

So I am compelled back to my own blog because I had created a sort of minor dust up on another blog. I waded in a bit on tangential posts about the democrat’s plans for the new congress, strongly suggesting a bump in the EIC over a raise in the minimum wage. In the back and forth, I admitted I had done no particular research on this, and in turn was chastised for not being interested in “facts”. The blog in question (*cough* 2 politicaljunkies) is very partisan, with liberals and conservatives trading what are, in my opinion, very unhelpful insults back and forth, with little content.

So here’s the thing, as far as the minimum wage goes, my gut instinct is that there are not a whole lot of helpful facts out there, because it is one of those big economic issues that are very difficult to study. After the fact, I went to the web to look a little at what is out there on the minimum wage. I found various partisan studies on the increasingly unhelpful Google, nothing on what the Congressional Research Service has released to the public (cowards). The Wikipedia has an interesting page, however. Bearing in mind that the Wiki could be influenced by partisans, I found their treatment of the subject compelling. The page states that almost 50% of economists believe a MW hurts low end workers, another roughly 25% partly believe that, and 25% reject the idea. A breakdown not unlike the overall political breakdown in the US, showing that economists population has its own partisans (or something like that). By the ways, that question was asked in the abstract, not based on a study or real life data. To be sure, the Wikipedia also pointed out that Europeans have largely accepted minimum wages, though the Wiki cited data that could support either side (no jobs effect, a weak hiring effect). And the Wiki pretty well indicated that there have been no break through studies, and the studies that have been done have problems and are not universally accepted.

I can see this too. Any regional study will have muddy effects based on worker mobility. National studies will have problems because of other factors influencing employment at the time. The economy was good in ’96, the labor market tight, so of course a minimum wage hike had little effect. The opposite was true in ’92, but would we blame unemployment on the recession or the MW hike?

The thing is that the MW carries negative connotations with business. Does the new democratic run congress need to alienate business?

More later…


Anonymous said...

I've heard a good deal but never read too much on the subject, (not much that is fact based anyhow).

I can only say what seems reasonable to me.

If you raise the MW businesses have to make a choice:
A. Raise prices for goods and service
B. Cut employment.

This clearly doesn't benefit anyone other than those who don't loose their jobs. It is reasonable to think that businesses would do a combo of the above. Though those companies who are not making steady profits will most likely do more than companies who are struggling or just breaking even - think your local pizza shop or flower shop.

You have to look beyond those making the MW as well - those making 1 or 2 dollars more are taking a virtual pay-cut.

As you can see I don't support a raise in the MW yet I still feel that I am very liberal. I do think of myself as being rather pragmatic though and would rather see us spend money on educating the masses in order to have people find work that has a higher value.

No matter how much you pay a person to do a job, you cannot legislate the value of that job as measured against the alternatives. Meaning a prep-cook or shoe sales-person is never going to be as valuable to society as a doctor.

I don't think that we should leave people to fend for themselves but rather we should provide healthcare, alternative and cheaper energy, better public transit, and first and foremost a serious education system that gives ALL students the chance to find work that is of value to society.

EdHeath said...

Well, you give me the opportunity to defend the MW, which is a valuable thing actually. I have been making some loose criticisms on a website called 2political junkies. But let me say first that a majority of economists agree with you, largely on the similar grounds (why give someone a raise not based on performance?).

I haven’t finished my exploration of the MW, but I feel comfortable advancing some ideas. The labor market is not perfect, and wages for people at the bottom may not have grown as fast they should have (as a whole, based on the whole increases in worker productivity at this income level). It could be that (institutional) stockholder on corporations for short term increases in profit may have depressed wages for the entire economy, for example. Considering that these jobs are often if not mostly filled by women and minorities, the sluggish growth of wages may reflect a non-economic judgment of the worth of these workers. In both cases it would be appropriate for the government to step in the correct these “market failures”, however the minimum wage is a blunt tool to accomplish a correction in the market.

Some of the arguments for the minimum wage seem to run along the line that it is immoral to expect people to raise families at this level of pay, and there is no negative effect from raising the minimum wage. Based on the Wikipedia’s page on the minimum wage, this may be true, but why? Two possibilities present themselves. First, if low end wage earners make most of their purchases from stores that employ other low end wage earners, then the rise in the minimum wage is essentially a wash, the higher wages paying for the increased costs. Another way to look at it is that the employment situation is influenced by many factors, that change over time. If you implement an increase in the MW in a time when unemployment is rising anyway, how much of the rise can be attributed to the higher MW. Similarly if unemployment is falling, if the job market is tight, does unemployment fall The Wiki page in fact suggests this may be the British experience. British employers have reported choosing not to hire new employees when the minimum wage increases, as a long term solution to higher labour costs, and simply absorbing the higher costs in the short run.

Which means that advocates of a higher MW may be hurting the chances of the unemployed to get a job.

Have you heard about the Earned Income Credit? It seems to me a much more sophisticated tool for alleviating poverty, although it has some of the problems of the MW.

It is a very complicated issue. I am planning on writing a letter to the paper on the subject. Feel free to let me know what you think.

fester said...

Hey Ed --- sorry for getting in on this late. I remember seeing a good study looking at regional employment impacts of state level changes in minimum wage requirements for the Philly MSA during the late 90s that indicated little negative impact. But yeah, the evidence is fairly light on both sides... the empirics suggest little social cost to marginal increases, while the theory suggests that there should be more social deadweight losses than what gets picked up. But at this point disaggregating and doing ANOVA is shooting at flying monkeys --- fun if it was possible, but there are no flying monkeys to shoot at.

More in the next comment

fester said...

Onto your question on whether or not the Democratic Congress either wants to or can afford to alienate business in the first couple of months ----

This one is a good question as the tradeoff of not enacting a visible minimum wage increase is pissing off a significant portion of the activist base and the labor unions which provide a good deal of the GOTV and campaign volunteer base. Unless a grand bargain can be struck which incorporates some form of single-payer basic healthcare, revision of parts of Sarbane Oxley, pension reform, and NLRB reform on the definition of what constitutes a supervisor, the Democrats can not afford to placate a pro-GOP faction (National Chamber of Commerce, the Restaurant and Bar lobbies) while pissing on their base. And given that the net social costs of a small minimum wage increase are fairly small, this is a cheap political play.

Now would I also want to see the Democrats increase the eligibility and extent of the EITC --- Hell yes, as that program generates very positive results with a minimal skewing of incentives. But one thing at a time is my opinion here.

EdHeath said...

Hey Fester, missed your posts (my email is supposed to buzz me?), and it is late now, but a couple of quick thoughts. I was trying to suggest threading the needle, a smaller than planned, but still visable, minimum wage incease combined deliberately with a bump in the EITC. Two things at once precisely because you are throwing small bones to the right and the left. Part of the importance of throwing business a bone is in their continued financial support. This is why I would be will to dishearten the radical left a bit, with a smaller but still positive increase in the MW.

Healthcare? Single payer basic healthcare? And you think I'm being ambitious?