Our findings suggest that the efficiency aspects of a modest rise in the minimum wage are overstated….
[W]e find no evidence for a large negative employment effect of higher minimum wages. Even in the earlier literature, however, the magnitude of the predicted employment losses from a much higher minimum wage would be small: the evidence at hand is relevant only for a moderate range of minimum wages, such as those that prevailed in the U.S. labour market during the past few decades.
Within this range, however, there is little reason to believe that increases in the minimum wage will generate large employment losses.
David Card and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage, (Princeton: Princeton University Press, 1995, p. 393).
Raising the minimum wage by a substantial amount would price working poor people out of the job market.
A far better way to help them would be to subsidize their wages or – better yet – help them acquire the skills needed to earn more on their own…
Raise the legal minimum price of labour above the productivity of the least skilled workers and fewer will be hired.
If a higher minimum means fewer jobs, why does it remain on the agenda of some liberals?
A higher minimum would undoubtedly raise the living standard of the majority of low-wage workers who could keep their jobs. That gain, it is argued, would justify the sacrifice of the minority who became unemployable.
The argument isn’t convincing. Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs. Indeed, President Reagan has proposed a lower minimum wage just to improve their chances of finding work.
The minimum wage is specifically intended to take aim at the inherent imbalance in power between employers and low-wage workers that can push wages down to poverty levels.…
The weight of the evidence shows that increases in the minimum wage have lifted pay without hurting employment
Both the White House and the New York Times are not the best of Bayesian updaters because the author of the one study on which they are very much hang their hats for their policy conclusions about no job losses from a minimum wage increase interprets his results with very much less zeal than they do:
I think careful research on the topic has found that for this range of minimum wage increase, the almost unmistakable conclusion is that there will be little in the way of job losses, while the wages of low-end workers will get a boost (his underlining).
The claims of the White House and the New York Times that the minimum wage can be lifted without hurting employment are a long bow from what Andrajit Dube said about small changes in the minimum wage having small adverse effects on unemployment:
What Andrajit Dube said s not much different from everyone else on the minimum wage – Nuemark is an example:
a 10 per cent increase in the minimum wage could reduce young adult employment by up to 2 per cent
David Card was always very careful amount about how his pioneering research was about how small increases in the minimum wage not reducing employment in the presence of search and matching costs:
From the perspective of a search paradigm, these policies make sense, but they also mean that each employer has a tiny bit of monopoly power over his or her workforce.
As a result, if you raise the minimum wage a little—not a huge amount, but a little—you won’t necessarily cause a big employment reduction. In some cases you could get an employment increase.
There is always offsetting behaviour: Barry Hirsch found that when the federal minimum wage went up in 2007, businesses just made their employees work harder to justify the expense.
I am always surprised that people might think that the minimum wage will have anywhere near its intended effects after market participants have had time to act to counter its effects as Peltzman explains:
Regulation creates incentives for behaviour to offset some or even all of the intended effect of the regulation…
Regulation seldom changes the forces that produces the particular results the regulators seek to change. So we need to ask whether the regulation really changes result or only the form in which the market forces assert themselves.
Is a minimum wage increase a Pareto improvement – a policy action done in an economy that harms no one and helps at least one person?
Obviously there are winners and losers from a minimum wage increase and these wins and loses must be summed up in some way as they are for all public policy changes.
When there are winners and losers from deregulation, the only thing seems to matter to many of those who support a minimum wage increase are the losses to the incumbent industry and its often well-paid workers rather than the gains to consumers, rich or poor.
For there to be a Marshall improvement, the sum of all of the gains and losses must sum to a positive.
A Marshall improvement from a minimum wage or any other change is measured by adding utilities as if everyone receives the same utility from a dollar. A dollar is a dollar to everyone as David Friedman explains:
A net improvement in the sense used by Marshall–what I have elsewhere called a Marshall improvement–is a change whose net value is positive, meaning that the total value to those who benefit, measured as the sum of the number of dollars they would each, if necessary, pay to get the change, is larger than the total cost to those who lose, measured similarly.
The advantage of the Marshall improvement criterion is we commonly observe people’s values of different things by seeing how much they are willing to pay for it.
Alfred Marshall was aware that treating people as if they all had the same utility for a dollar was a stretch but this was considered less relevant for policy changes that affect large and diverse groups of people. Individual differences could be expected to cancel out over a broad suite of policies in a well-functioning democracy so that most people gain in net terms through time. David Friedman explains:
I prefer to use the Marshallian approach, which makes the interpersonal comparison explicit, instead of hiding it in the ‘could be made but isn’t’ compensating payment…
a change that benefits a millionaire by $10 and costs a pauper $9 is a potential Pareto improvement, since if combined with a payment of $9.50 from the millionaire to the pauper it would benefit both. If the payment is not made, however, the change is not an actual Pareto improvement.
The ‘potential Paretian’ approach reaches the same conclusion as the Marshallian approach and has the same faults; it simply hides them better. That is why I prefer Marshall…
It is worth noting that although a Marshall improvement is usually not a Pareto improvement, the adoption of a general policy of ‘Wherever possible, make Marshall improvements’ may come very close to being a Pareto improvement…
Add up all the effects and, unless one individual or group is consistently on the losing side, everyone, or almost everyone, is likely to benefit.
This is the latest review of the minimum wage research from David Neumark:
The potential benefits of higher minimum wages come from the higher wages for affected workers, some of whom are in poor or low-income families.
The potential downside is that a higher minimum wage may discourage employers from using the low-wage, low-skill workers that minimum wages are intended to help.
If minimum wages reduce employment of low-skill workers, then minimum wages are not a “free lunch” with which to help poor and low-income families, but instead pose a trade-off of benefits for some versus costs for others.
Research findings are not unanimous, but evidence from many countries suggests that minimum wages reduce the jobs available to low-skill workers.
George Stigler set-out the conditions for a minimum wage to achieve its purported objectives in 1946, which have not been bettered:
If an employer has a significant degree of control over the wage rate he pays for a given quality of labour, a skilfully-set minimum wage may increase his employment and wage rate and, because the wage is brought closer to the value of the marginal product, at the same time increase aggregate output…
This arithmetic is quite valid but it is not very relevant to the question of a national minimum wage. The minimum wage which achieves these desirable ends has several requisites:
1. It must be chosen correctly… the optimum minimum wage can be set only if the demand and supply schedules are known over a considerable range…
2. The optimum wage varies with occupation (and, within an occupation, with the quality of worker).
3. The optimum wage varies among firms (and plants).
4. The optimum wage varies, often rapidly, through time.
A uniform national minimum wage, infrequently changed, is wholly unsuited to these diversities of conditions.
The case for a minimum wage was therefore hung, drawn and quartered in 1946 by Stigler. Not every cause and effect is open to policy manipulation because of the lack of the necessary knowledge about the relationship and insufficiently deft policy tools to exploit that knowledge in a timely fashion and as circumstances change. This information and organisational burden is such that the process of setting minimum wage increases is an example of public policy making that is groping about in the dark. Success can be neither appraised in advance nor later retrospectively determined.
David Card’s research suggested that small rises in the minimum wage do not reduce employment by much.
He said that he did not do much further research in the area because people were so personally unpleasant for him:
I haven’t really done much since the mid-’90s on this topic. There are a number of reasons for that that we can go into.
I think my research is mischaracterized both by people who propose raising the minimum wage and by people who are opposed to it.
… it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed.
They thought that in publishing our work we were being traitors to the cause of economics as a whole.
I also thought it was a good idea to move on and let others pursue the work in this area. You don’t want to get stuck in a position where you’re essentially defending your old research.
You need a thick hide and academic tenure to do research into the minimum wage these days. There are plenty of research topics that do not cost you friends.
Richard Tol has pointed out that maybe 20 or so academic economists work on climate change on a regular basis. Many of the key survey papers are written by the same few people, including him.
The reasons were that inter-disciplinary works is looked down on in the economics profession and government agencies do not like what economic research says about the costs and benefits of global warming so they pre-emptively do not fund it.
When he dissented about the quality and alarmist nature of the economics of the IPCC reports, they smeared him so badly as a fringe figure that you wonder why they hired him in the first place.
The co-chair of the IPCC working group that produced the report, said Richard Tol was outside the mainstream scientific community and was upset because his research had not been better represented in the summary:
“When the IPCC does a report, what you get is the community’s position. Richard Tol is a wonderful scientist but he’s not at the centre of the thinking. He’s kind of out on the fringe,” Professor Field said before the report’s release.
You cannot, on the one hand, say that you have hired the best and the brightest to work on “the greatest moral, economic and social challenge of our time” and then say that a dissenting member is a fringe figure. If that was true, rather than a smear, he would never have been hired in the first instance.
Nor would Richard Tol have been asked to write a 2009 survey of the economics of climate change for the leading surveys journal in all of economics – The Journal of Economic Perspectives. This fringe figure said in that survey in 2009 that:
Only 14 estimates of the total damage cost of climate change have been published, a research effort that is in sharp contrast to the urgency of the public debate and the proposed expenditure on greenhouse gas emission reduction.
These estimates show that climate change initially improves economic welfare. However, these benefits are sunk.
Impacts would be predominantly negative later in the century.
Global average impacts would be comparable to the welfare loss of a few percent of income, but substantially higher in poor countries.
Still, the impact of climate change over a century is comparable to economic growth over a few years.
The IPCC hired Tol because their economics of global warming chapters would have lacked credibility if he had not been on the team. LBJ said that it is better to have someone inside the tent pissing out than outside pissing in.
Bob Ward, has reached a new level of trolling. He seems to have taking it on himself to write to every editor of every journal I have ever published in, complaining about imaginary errors even if I had previously explained to him that these alleged mistakes in fact reflect his misunderstanding and lack of education. Unfortunately, academic duty implies that every accusation is followed by an audit. Sometimes an error is found, although rarely by Mr Ward.
Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.
“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.
Utopia, you are standing in it! 
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