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kirisutogomenH.R. 2, the Fair Minimum Wage Act of 2007, was the second bill introduced in the new House Democratic majority's "100-Hour Plan" of legislation introduced between the opening of the 110th Congress and the State of the Union address. It would increase the federal minimum wage from its current $5.15 per hour to $7.25 per hour, over two years and in three increments. While the intent of poverty alleviation is admirable, an increase in the minimum wage is not the right tool for the problem. Minimum wages force some low-earning people into unemployment, and higher minimum wages are more damaging. Moreover, even to the extent that anyone benefits from a minimum wage, that benefit is paid for by a narrow, poorly chosen constituency.
Many countries have minimum wage laws, and there is widespread agreement of the value of such laws. A minimum wage may seem like a sensible approach for helping the poorest members of society. It would certainly be good if we could selectively target the lowest-income members of society and raise their incomes avoiding the disincentive to work that is often associated with the social safety net. Unfortunately, there ain't no such thing as a free lunch. Poverty is not the result of being paid too little; it is the result of one's work being of low value. Low wages are no more than the necessary acknowledgment of this by employers.
The most basic argument against minimum wages is straight out of Economics 101. A minimum wage is a form of price control, in this case a floor below which the price of a good (in this case, labor) is not allowed to fall. If the price at which supply meets demand is above this floor, there is no effect. For example, the supply of computer programmers meets demand at a wage above $7.25/hour, so a minimum wage increase has no effect on what computer programmers are paid.
But if the floor is above the price at which supply equals demand, more labor will be available than would have been at the equilibrium price, and less will be demanded. The result is oversupply, and if the good is labor, we call that unemployment.
The unemployment is not distributed equally across the population. The market for computer programmers is not affected. The market for truck stop diner wait staff is likely to be affected. If the market-clearing wage, that at which supply meets demand, would be $4/hour in the absence of outside involvement, a minimum wage of $5.15/hour will reduce the number of food servers needed while increasing the number of people willing to be food servers. The resulting unemployment is concentrated in the segment of the population with lower incomes, less education, less experience, and with the greatest need, making it more pernicious than other types of unemployment.
Admittedly, there will also be workers whose incomes rise as a result of a minimum wage. While there will be fewer wait staff, those that are employed will be paid more. It is not certain whether those who retain employment are sufficiently better off to compensate for both the increased unemployment as well as the increased inequality that results. What is certain is that once the employers are taken into account, society as a whole will be worse off. The employers will not be able to employ as many people, and thus will be unable to serve as many customers, and their costs for their employees will increase. The loss to the losers is necessarily greater than the gain to the winners, as the law is preventing voluntary transactions which, being voluntary, are mutually beneficial.
It has been argued that this predicted unemployment does not actually appear in practice and that the very simple economic model used does not account for the complexities of real-world labor markets. It has also been asserted that considerations of justice impel us to place greater weight on the welfare of the poorest members of society, and that the relevant metric for judging whether a minimum wage is desirable is the benefit to the disadvantaged, not the benefit to society as a whole. To the former claim, I will argue that the empirical evidence is mixed at best, and that the deviations from theory that would be necessary to result in no increase in unemployment are unreasonable. In response to the latter statement, I will further argue that even if we accept the dubious assumption that minimum wages are of net benefit to the underprivileged, there are far more just and reasonable ways to redistribute income, some of which already exist and could be easily expanded.
Proponents of a minimum wage increase are especially fond of citing Card and Krueger, whose 1997 book assembled evidence that increases in minimum wages did not increase unemployment. The criticisms of their methods and conclusions are too long and detailed to go into here. It will have to suffice that some of their methods, such as relying on telephone interviews to determine if employers intended to reduce employment, rather than on actual measures of employment, are questionable, and that many other studies before and since have found that increases in the minimum wage do in fact lead to higher unemployment, particularly among the young, the unskilled, minorities, and women.
More fundamentally, there is a very basic problem with theoretical explanations for how a minimum wage could fail to result in unemployment. The argument is based on the possibility of a labor market failure, in which the worker is paid less than the value of their labor. If the employee is already being paid the full value of their work, then requiring the employer to pay them more would leave the employer paying the employee more than their output was worth, i.e., losing value with every employee. An employer cannot employ people at a loss for long.
Deviations from the textbook economics model can create situations in which employees are paid less than the value of their output. One way in which this could happen would be if the employer has what is called market power. In the case of a producer market power is usually the result of monopoly or oligopoly; in this case it would be the consumer of the good (labor) with the market power, and this is called either monopsony or oligopsony. The classic case of monopsony would be the company town, a labor market in which there is only one consumer of labor, the single employer in town. Oligopsony would be the case of collusion between employers, in which the consumers of labor would cooperate to keep wages low, and either co-opt or exclude any potential competitors that might try to break into the labor market and bust the cartel.
In the case of a company town, monopsony would be a significant concern, but few areas still exist in the US that could qualify as company towns. Mobility of labor effectively prevents workers from becoming tied to a single employer, and mobility of capital prevents a single employer from dominating any given community. An employer that tried to pay wages below the value of labor would quickly find competitors moving into town to take advantage of the abnormally cheap labor.
Collusion between employers is similarly implausible in a modern economy. It is highly unlikely that Wal-Mart, for example, would collude with Target to underpay their employees, but it is unimaginable that they would also collude with McDonald's, Burger King, Hilton, Marriott, and the International House of Pancakes.
There are phenomena other than oligopsony which can cause markets to become inefficient. Jobs are not perfect substitutes for one another, and to the extent that employers are not directly competing with one another for employees, they would have market power. The weakness of this argument is that the low-wage jobs we are considering are actually close to being substitutes for one another. High-end jobs requiring a great deal of specialized knowledge and skills are far more segmented than low-wage work that requires much less specialized knowledge or skills. The sheer size of the market at the low end is also a closer approximation to the theoretical ideal of perfect competition.
Many of the ways in which labor markets are less than perfectly competitive may actually work to hold wages above their market-clearing levels, rather than below. Efficiency wage theory describes a number of ways in which it could be advantageous to firms to pay above-equilibrium wages. Turnover costs are substantial for employers -- it can cost a substantial portion of an annual wage to replace a worker, and it is likely more economical to simply pay an employee more than they are worth to avoid turnover costs. There is also evidence that paying employees above market-clearing rates can improve their productivity, possibly because of the psychological effect of gratitude, or perhaps because the resulting unemployment (caused in the same way as that resulting from minimum wages) makes it more plausible that an employer would be able to quickly and easily replace any under-performing employee with one of the similarly qualified unemployed.
A second set of arguments for the existence of and increases in the minimum wage is focused on distributional justice. These arguments may recognize that absent redistribution, a person's income is determined by the value of their output -- the value of a person's work cannot be improved by fiat. A minimum wage is thus simply another form of income redistribution. Even if the minimum wage leaves society as a whole worse off, its redistributive effect makes it worth the loss of societal wellbeing.
The question of how much societal welfare to sacrifice for a given amount of reduction of inequality is a difficult one, possibly even impossible to answer definitively. Fortunately, it is not necessary to know the answer, because there are improvements available in how we reduce inequality. A minimum wage, as a redistribution of income, rewards low-income workers, and is paid for by their employers. It is a combination of a wage subsidy for low-income workers and a tax on their employers. Transferring wealth to low-income workers is just fine, but it is perverse to impose an unfunded mandate that penalizes companies for employing the unskilled. We can agree that there ought to be a subsidy for low-income workers, but we should acknowledge that a minimum wage is only one possible way to implement it, and that other ways to pay for such a subsidy are available. If McDonald's employs many minimum wage workers, and Microsoft employs few, that is no reason to force McDonald's to fund the redistribution of wealth and allow Microsoft to dodge the costs. Even broadening the sources of funds to include all employers is still too narrow. There is no reason for us to consider Microsoft any more responsible for the alleviation of poverty than Paris Hilton. All we do by imposing the costs on only the employer is to disguise our redistribution as earned income.
There might be an argument for imposing the costs of wage subsidies on the employers of low-wage workers if we thought that the employers were responsible for the low incomes. But low incomes are the necessary result of low value of labor, which is in turn the result of poor education, disadvantaged backgrounds, and other circumstances that largely determine the value of a person's work long before they enter the labor market. The employers of low-income workers are often excoriated as exploiting their employees, but such accusations have a surplus of florid rhetoric and a deficit of substance. In fact the employers of low-income workers are among the only participants in the economy doing anything at all that benefits those workers -- they're paying them.
American society appears to be in consensus that we should assist low-wage workers. If we are to continue to subsidize their low wages, the money has to come from somewhere. Rather than foist the responsibility on some of the only people already doing anything to help them, it makes far more sense to broaden the burden as widely as possible, and fund wage subsidies out of general government revenue. These considerations of justice aside, the lowest deadweight loss to the economy results from the broadest possible funding of poverty alleviation. In fact, we are already doing just that, by means of the Earned Income Tax Credit. The EITC is a tax credit that effectively acts as a wage subsidy, and in some cases can even result in negative total tax liability. It is certainly not perfect, but it acts as arguably the largest poverty reduction program in the country, with $36 billion distributed in 2004. If Congress really want to help the poor, they should be expanding the EITC, not increasing the minimum wage.
Minimum wages almost certainly increase unemployment among the poorest members of society. They certainly injure the employers whose businesses rely on unskilled labor. Those people who are better off as a result would be better served by other poverty programs, which would help more people and impose less of a burden on society as a whole. A minimum wage may play well in a sound bite, but to genuinely help people, there are much better options.
Many countries have minimum wage laws, and there is widespread agreement of the value of such laws. A minimum wage may seem like a sensible approach for helping the poorest members of society. It would certainly be good if we could selectively target the lowest-income members of society and raise their incomes avoiding the disincentive to work that is often associated with the social safety net. Unfortunately, there ain't no such thing as a free lunch. Poverty is not the result of being paid too little; it is the result of one's work being of low value. Low wages are no more than the necessary acknowledgment of this by employers.
The most basic argument against minimum wages is straight out of Economics 101. A minimum wage is a form of price control, in this case a floor below which the price of a good (in this case, labor) is not allowed to fall. If the price at which supply meets demand is above this floor, there is no effect. For example, the supply of computer programmers meets demand at a wage above $7.25/hour, so a minimum wage increase has no effect on what computer programmers are paid.
But if the floor is above the price at which supply equals demand, more labor will be available than would have been at the equilibrium price, and less will be demanded. The result is oversupply, and if the good is labor, we call that unemployment.
The unemployment is not distributed equally across the population. The market for computer programmers is not affected. The market for truck stop diner wait staff is likely to be affected. If the market-clearing wage, that at which supply meets demand, would be $4/hour in the absence of outside involvement, a minimum wage of $5.15/hour will reduce the number of food servers needed while increasing the number of people willing to be food servers. The resulting unemployment is concentrated in the segment of the population with lower incomes, less education, less experience, and with the greatest need, making it more pernicious than other types of unemployment.
Admittedly, there will also be workers whose incomes rise as a result of a minimum wage. While there will be fewer wait staff, those that are employed will be paid more. It is not certain whether those who retain employment are sufficiently better off to compensate for both the increased unemployment as well as the increased inequality that results. What is certain is that once the employers are taken into account, society as a whole will be worse off. The employers will not be able to employ as many people, and thus will be unable to serve as many customers, and their costs for their employees will increase. The loss to the losers is necessarily greater than the gain to the winners, as the law is preventing voluntary transactions which, being voluntary, are mutually beneficial.
It has been argued that this predicted unemployment does not actually appear in practice and that the very simple economic model used does not account for the complexities of real-world labor markets. It has also been asserted that considerations of justice impel us to place greater weight on the welfare of the poorest members of society, and that the relevant metric for judging whether a minimum wage is desirable is the benefit to the disadvantaged, not the benefit to society as a whole. To the former claim, I will argue that the empirical evidence is mixed at best, and that the deviations from theory that would be necessary to result in no increase in unemployment are unreasonable. In response to the latter statement, I will further argue that even if we accept the dubious assumption that minimum wages are of net benefit to the underprivileged, there are far more just and reasonable ways to redistribute income, some of which already exist and could be easily expanded.
Proponents of a minimum wage increase are especially fond of citing Card and Krueger, whose 1997 book assembled evidence that increases in minimum wages did not increase unemployment. The criticisms of their methods and conclusions are too long and detailed to go into here. It will have to suffice that some of their methods, such as relying on telephone interviews to determine if employers intended to reduce employment, rather than on actual measures of employment, are questionable, and that many other studies before and since have found that increases in the minimum wage do in fact lead to higher unemployment, particularly among the young, the unskilled, minorities, and women.
More fundamentally, there is a very basic problem with theoretical explanations for how a minimum wage could fail to result in unemployment. The argument is based on the possibility of a labor market failure, in which the worker is paid less than the value of their labor. If the employee is already being paid the full value of their work, then requiring the employer to pay them more would leave the employer paying the employee more than their output was worth, i.e., losing value with every employee. An employer cannot employ people at a loss for long.
Deviations from the textbook economics model can create situations in which employees are paid less than the value of their output. One way in which this could happen would be if the employer has what is called market power. In the case of a producer market power is usually the result of monopoly or oligopoly; in this case it would be the consumer of the good (labor) with the market power, and this is called either monopsony or oligopsony. The classic case of monopsony would be the company town, a labor market in which there is only one consumer of labor, the single employer in town. Oligopsony would be the case of collusion between employers, in which the consumers of labor would cooperate to keep wages low, and either co-opt or exclude any potential competitors that might try to break into the labor market and bust the cartel.
In the case of a company town, monopsony would be a significant concern, but few areas still exist in the US that could qualify as company towns. Mobility of labor effectively prevents workers from becoming tied to a single employer, and mobility of capital prevents a single employer from dominating any given community. An employer that tried to pay wages below the value of labor would quickly find competitors moving into town to take advantage of the abnormally cheap labor.
Collusion between employers is similarly implausible in a modern economy. It is highly unlikely that Wal-Mart, for example, would collude with Target to underpay their employees, but it is unimaginable that they would also collude with McDonald's, Burger King, Hilton, Marriott, and the International House of Pancakes.
There are phenomena other than oligopsony which can cause markets to become inefficient. Jobs are not perfect substitutes for one another, and to the extent that employers are not directly competing with one another for employees, they would have market power. The weakness of this argument is that the low-wage jobs we are considering are actually close to being substitutes for one another. High-end jobs requiring a great deal of specialized knowledge and skills are far more segmented than low-wage work that requires much less specialized knowledge or skills. The sheer size of the market at the low end is also a closer approximation to the theoretical ideal of perfect competition.
Many of the ways in which labor markets are less than perfectly competitive may actually work to hold wages above their market-clearing levels, rather than below. Efficiency wage theory describes a number of ways in which it could be advantageous to firms to pay above-equilibrium wages. Turnover costs are substantial for employers -- it can cost a substantial portion of an annual wage to replace a worker, and it is likely more economical to simply pay an employee more than they are worth to avoid turnover costs. There is also evidence that paying employees above market-clearing rates can improve their productivity, possibly because of the psychological effect of gratitude, or perhaps because the resulting unemployment (caused in the same way as that resulting from minimum wages) makes it more plausible that an employer would be able to quickly and easily replace any under-performing employee with one of the similarly qualified unemployed.
A second set of arguments for the existence of and increases in the minimum wage is focused on distributional justice. These arguments may recognize that absent redistribution, a person's income is determined by the value of their output -- the value of a person's work cannot be improved by fiat. A minimum wage is thus simply another form of income redistribution. Even if the minimum wage leaves society as a whole worse off, its redistributive effect makes it worth the loss of societal wellbeing.
The question of how much societal welfare to sacrifice for a given amount of reduction of inequality is a difficult one, possibly even impossible to answer definitively. Fortunately, it is not necessary to know the answer, because there are improvements available in how we reduce inequality. A minimum wage, as a redistribution of income, rewards low-income workers, and is paid for by their employers. It is a combination of a wage subsidy for low-income workers and a tax on their employers. Transferring wealth to low-income workers is just fine, but it is perverse to impose an unfunded mandate that penalizes companies for employing the unskilled. We can agree that there ought to be a subsidy for low-income workers, but we should acknowledge that a minimum wage is only one possible way to implement it, and that other ways to pay for such a subsidy are available. If McDonald's employs many minimum wage workers, and Microsoft employs few, that is no reason to force McDonald's to fund the redistribution of wealth and allow Microsoft to dodge the costs. Even broadening the sources of funds to include all employers is still too narrow. There is no reason for us to consider Microsoft any more responsible for the alleviation of poverty than Paris Hilton. All we do by imposing the costs on only the employer is to disguise our redistribution as earned income.
There might be an argument for imposing the costs of wage subsidies on the employers of low-wage workers if we thought that the employers were responsible for the low incomes. But low incomes are the necessary result of low value of labor, which is in turn the result of poor education, disadvantaged backgrounds, and other circumstances that largely determine the value of a person's work long before they enter the labor market. The employers of low-income workers are often excoriated as exploiting their employees, but such accusations have a surplus of florid rhetoric and a deficit of substance. In fact the employers of low-income workers are among the only participants in the economy doing anything at all that benefits those workers -- they're paying them.
American society appears to be in consensus that we should assist low-wage workers. If we are to continue to subsidize their low wages, the money has to come from somewhere. Rather than foist the responsibility on some of the only people already doing anything to help them, it makes far more sense to broaden the burden as widely as possible, and fund wage subsidies out of general government revenue. These considerations of justice aside, the lowest deadweight loss to the economy results from the broadest possible funding of poverty alleviation. In fact, we are already doing just that, by means of the Earned Income Tax Credit. The EITC is a tax credit that effectively acts as a wage subsidy, and in some cases can even result in negative total tax liability. It is certainly not perfect, but it acts as arguably the largest poverty reduction program in the country, with $36 billion distributed in 2004. If Congress really want to help the poor, they should be expanding the EITC, not increasing the minimum wage.
Minimum wages almost certainly increase unemployment among the poorest members of society. They certainly injure the employers whose businesses rely on unskilled labor. Those people who are better off as a result would be better served by other poverty programs, which would help more people and impose less of a burden on society as a whole. A minimum wage may play well in a sound bite, but to genuinely help people, there are much better options.
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tunafish
Date: 2007-02-15 01:35 am (UTC)Interestingly, American Samoa, where Starfish Tuna canneries employ most of the working population, was the one US territory specifically excluded from the new minimum wage. The justification given was that it would lead to unemployment there.
Re: tunafish
Date: 2007-02-15 02:48 am (UTC)no subject
Date: 2007-02-15 02:16 am (UTC)And yet I mostly agree. The minimum wage increase is just showboating. Expanding the EITC makes way more sense. Of course, why would our government do something that made sense?
no subject
Date: 2007-02-15 02:32 am (UTC)Hey, at least I mentioned one problem with the Card and Krueger work. Seriously, though, giving a fair treatment of the scholarship would end up being so long that it would dominate the essay, turning it from something about the minimum wage into something about Card and Krueger.
And as far as the EITC goes, it's been expanded several times, usually with bipartisan support. I was shocked at how big it has gotten.
no subject
Date: 2007-02-15 03:40 am (UTC)no subject
Date: 2007-02-15 04:00 am (UTC)In an accounting sense, it's actually a reduction in revenue, rather than an expenditure, because it's administered as a tax credit on income tax returns. Which means that the feds are outsourcing most of the bureaucracy to whomever is preparing the tax returns. It's probably better than a centralized bureaucracy, not so much for efficiency reasons as for incentive reasons.
no subject
Date: 2007-02-15 03:53 pm (UTC)By which you mean it's essentially replacing welfare benefits for people who work, but still don't make enough to live on? It seems like that would still cost the government less, even laying aside the incentive reasons...
no subject
Date: 2007-02-15 04:01 pm (UTC)All that said, though, the EITC is so much simpler than almost any other anti-poverty program that it's still likely one of the most efficient around.
no subject
Date: 2007-02-15 04:26 pm (UTC)Naturally. Just using a classical rhetorical flourish to make a tax reduction sound like an expense increase. OK, I suspect that fooled no one. On the other hand, if you push the EITC to the point where some of the poor get paid, I think it does count as an expense.
"... the feds are outsourcing most of the bureaucracy to whomever is preparing the tax returns."
I had a lesson in the social and economic costs of outsourcing bureaucracy (and imposing restrictions on the use of money for social welfare) a week or two ago when I ended up in the grocery line behind a woman who was using WIC checks to pay for baby food. Nowadays food stamps seem to take the form of simple debit cards which you can use at the register (I don't know all of the details, but they appear to work fairly seamlessly). By contrast, a WIC check is a giant thing which specifies in excruciating detail which products it may be used to purchase. An egregious example: the counter attendant was trying to reject the purchase of a 12oz container of frozen juice because the coupon specifies an 11.5oz container of frozen juice in large print. In very fine print is "11.5 or 12oz". Each check covers a small number of purchases (usually just 1 item) and must be countersigned by the bearer, run through a three-step process by the grocery store (including individual back-printing by the register). What appeared to be a pretty simple and small grocery purchase took 45 minutes to ring up. This was a humiliating waste of time to the low-income mother who presumably has to do this every single week. It was a giant waste of time for the checkout attendants who had to deal with it, as well. It was clear the rules were poorly understood at best.
It was clear that government had designed a program whose costs would be borne disproportionately by others, in the name of making mothers buy exactly the supplies the government thought they ought to be buying. The level of complexity in this day and age (especiallly given the existence of, eg, manufacturer's coupons and the like which just scan and go) was absolutely shocking.
no subject
Date: 2007-02-15 03:26 pm (UTC)no subject
Date: 2007-02-15 03:16 pm (UTC)Second, I've always linked minimum wage increases to inflation. So, I thought you might throw that in, but you didn't. Now I'm wondering if there's no link.
Third, your post was rather long and full of words and such. I think this gets at the problem of how few seem to understand why raising the minimum wage is a bad idea. It's a little complicated and perhaps counter-intuitive. Thus, it seems, we may be doomed to live with it. What is needed is some sort of sound bite or spin-wording (e.g. "death tax") that sums up the problem or at least wraps it in a negative-sounding phrase. Perhaps, we could call it, "Minimum Jobs".
Thus, here I am, once again, feeling depressed over the way in which democracy (representative republic, whatever) fails to do the right thing. And the problem being, once again, that voters cannot be relied on to make good choices.
Fourthly, stuff like this also gets me questioning the whole notion of redistribution of wealth. Are we just chasing our tails? Someone has to do those low-paying jobs, right? I did my share of them when I was young and untrained. Don't the people who work hard to educate themselves deserve more compensation? Doesn't such compensation serve as a critical societal motivator for people to excel and thus for our culture to grow and innovate? I think it sucks that there are poor people, but I'm not convinced we have any solution to that problem that actually works.
Fifthly, I also tend to link the existence of minimum wage to illegal immigration. I don't have a very firm understanding of all the issues. But, I think migrant workers tend to get paid less than minimum wage. Thus, this seems relevant (and oh so topical). Many US employers violate the minimum wage laws by hiring illegal workers. They do this, because it's the only way for them to be profitable and to compete. The government is lax in enforcing laws against hiring illegals because it a political minefield and likely would hurt the economy. So, they spend billions on building a wall that everyone knows wont work instead.
Sixthly, it seems like the (mostly small) companies who are affected by minimum wage hikes should form a lobbyist group; buy some TV commercials and start a campaign to educate folks about their side of this. Also, they should start to bribe government officials. Since Walmart would be part of this group, it seems like they would have plenty of money. Actually, I wonder if they already have a group. Perhaps Walmart's bad press has thwarted them.
Finally, I wonder if it's reasonable to consider eliminating the minimum wage. I suppose there's just way too much political pressure against it. But, what if that changed and public support for eliminating it grew. Doing it all at once might be to chaotic, but lowering it slowly seems kind of nutty too. Some states have their own minimum wage laws, as well, though. So, it could be pretty interesting. I wish we had a detailed computer model for the country that we could just tweak to see what happened. I suppose another name for that is a crystal ball.
Walmart
Date: 2007-02-15 03:38 pm (UTC)Re: Walmart
Date: 2007-02-15 04:16 pm (UTC)Re: Walmart
Date: 2007-02-15 06:26 pm (UTC)no subject
Date: 2007-02-15 04:14 pm (UTC)1. Just don't expect me to start yammering about "family values" or any of that crap.
2. A very common part of the argument for increasing the minimum wage is to mention how long it has been since the last increase and how much inflation has occurred since then. It's absolutely true that this amounts to a gradual real reduction in the purchasing power of the minimum wage. I didn't mention it because I think it's a slippery debate tactic; it skips over the more fundamental questions of whether we should have a minimum at all, and how to determine what it should be. Sure, if we assume that the level of the minimum wage was appropriate in 1998, then it should be increased now. But that assumption is the problem.
3. I'm wordier than I need to be. (I didn't have time to write a short essay, so I wrote a long one.) But yes, some of this stuff may be a little subtle. I have hope, though, that with appropriate metaphor or just good communication these issues can be clarified. People aren't stupid; they're just very bad at abstract thought.
4. Redistribution of wealth isn't necessarily futile. Our current system, a hodgepodge of a mishmash, is kind of silly. And trying to make everyone come out equal would be a disaster. But we can partially compensate for the inequality of market outcomes; it blunts incentives a little, but it doesn't need to be too bad. The current system suffers from being a giant pile of kludges.
5. Yeah, illegal immigration is definitely related. One good reason to hire illegals is that you can pay them whatever and they won't complain, because complaining would involve the government, who wants to arrest them.
(However, the actual minimum wage law is somewhat complicated. Some agricultural jobs are excluded, some waitstaff jobs with substantial tip income are excluded, etc. So it's not necessarily the case that illegal immigrants are doing jobs that would pay minimum wage if they were legal.)
Nonetheless, a minimum wage is quite likely increasing the demand for illegal immigration. Conversely, the demand for illegal immigration may indicate the extent to which the minimum wage is distorting the economy.
6. Sadly, instead of fighting the increase, what businesses have done is lobby for a bunch of tax breaks to be added onto H.R. 2. They know that some arcane deduction for attorney fees for small businesses challenging federal regulations in court is a lot harder to explain than the minimum wage. So they're just contributing to the deliberate obfuscation from the other side.
no subject
Date: 2007-02-15 06:56 pm (UTC)From the NYT article below, I tracked down the National Restaurant Association (the other NRA!). This is essentially a small business lobbyist group as I pondered. And, indeed, they are against min-wage increases. Here's their statement:
http://www.restaurant.org/government/Issues/Issue.cfm?Issue=minwage
Their talking points seem pretty good, actually. I feel kind of sorry for them. They are up against strong forces.
Also, I see what you mean about them going after tax breaks (e.g. "restaurant depreciation relief"). Ugh, more complicated tax code!
no subject
Date: 2007-02-15 04:00 pm (UTC)First, your paragraph on efficiency wage theory shows how the two of us might know the same fact and yet our assumptions about how well the market works lead us to two different conclusions. You see that paying a higher wage than the market-clearing rate yields benefits to businesses, therefore you assume that businesses indeed pay that higher wage. Whereas I assume that in many cases businesses do not take advantage of efficiency wages, and therefore there may be some room for "no-regrets" legislative increases in wages. (Of course, half the time I'm the economist who doesn't pick up the $20 bill on the sidewalk because if it was real it would have been picked up already... but half the time I'm not)
Also, for some anecdotal evidence read this Nytimes article.
no subject
Date: 2007-02-15 04:29 pm (UTC)Efficiency wages are part of the standard first-year economics class in business school, and I could argue that business has been aware of their practical manifestation at least since Henry Ford started paying his guys five dollars a day, well before theoretical justification. Even if they don't know why they're paying these wages, the ones who don't are getting eaten alive by turnover costs.
I'll pick up the $20 if I happen to spot it, but I don't spend a lot of time looking for $20s on the ground, because I need some sort of reason to expect them to be there.
(One of these days I'm going to write my essay about how socialism is like Intelligent Design, in the shared lack of belief that anything sensible can arise from a purposeless system of ignorant units.)
Oh, and that article is so terrible. Yikes. OK, so the Washington minimum wage has forced Idaho businesses near the border to also pay above-equilibrium wages. And both economies are succeeding despite the unnaturally high wage. Oh, and they admit that Idaho has higher job growth than Washington (not really evidence of anything, but it's weird that they admit that if they're trying to argue that minimum wages don't kill jobs.)
no subject
Date: 2007-02-15 05:59 pm (UTC)'Living Wage' laws would no doubt produce a much clearer effect.
no subject
Date: 2007-02-15 06:44 pm (UTC)In your original post, you compared Walmart to Microsoft... but, perhaps it's Walmart's customers versus Microsoft customers, that take the burden of higher min-wage. Still, not exactly fair, but slightly different anyway.
no subject
Date: 2007-02-16 12:46 am (UTC)no subject
Date: 2007-02-15 09:09 pm (UTC)