Minimum RAAAAAAAAAAAGE!

So, according to the Keynesians at the CBO, raising the minimum wage to $10.10 cents an hour would cost 500 thousand jobs. That’s not some right wing talking point, that’s what they actually claim:

Effects of the $10.10 Option on Employment and Income.
Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects. As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers (see Table 1).
Now, for the record, the report itself is actually quite nuanced. You can decide for yourself, for example, if it is worthwhile to increase the income of “many more” families, and the expense of those whose incomes you reduce to zero-I personally doubt they know either of those numbers with the precision necessary to say one is actually a larger number than the other. They’re still Keynesians.
But for what it is worth, it doesn’t seem like the left wing position should be that we should redistribute wealth from the very poor, to the slightly less poor.
But that is the left wing position. At least if we keep in mind that the left is not entitled to their own facts.
Predictably, the Keynesians at the CBO came under attack for their apostasy. But they are standing by their findings. Well, good on them, someone really ought to push back hard on the Administrations asinine lie that economists don’t believe that the minimum wage reduces employment for low to unskilled labor. The real truth is that since the 1990’s, a handful of econometricians-not economists but statisticians who study economic data-have published a handful of studies suggesting little such effect occurs empirically. The actual case for what happened “empirically” is not clear. But one would not be justified in throwing out textbook economics on the basis of a few studies claiming that the laws of supply and demand are magically suspended in low to unskilled labor markets. The reaction of economists should be not unlike the reaction scientists would have to someone claiming to have created a perpetual motion device: “No, you’ve obviously done something wrong.”
Let’s review, though, lest you think me some heartless ideologue, let’s review what the very laws of economics tell us the consequences of a minimum wage and raising it are.
First, what is a minimum wage? A minimum wage is a price floor. It outlaws any employment contract-with certain exceptions, which we will discuss-where the hourly wage rate is below a certain nominal value. If this floor is above the wage that would clear a labor market, then that labor market won’t clear, at least legally. The last bit is kind of an important point, which some commentators miss. It is already illegal, for example, to hire an illegal alien. However, it is not like you are doing something that will get you in significantly more trouble as an employer if you also pay illegal aliens below the minimum wage. There are no jobs Americans won’t do-there are jobs Americans aren’t allowed to do. Or more specifically, there are employment contracts Americans aren’t allowed to agree to. But I am digressing a bit. What does it mean to say that a market “won’t clear?” Well, those on the short side of market can deny trade to those on the long side, or attach conditions to trade. Or, in English, employers can refuse to employ people at the non market clearing wage. Because demand curves slope downwards and supply curves slope upward (mathematically, the derivative of quantity demanded as a function of price is less than zero, the derivative of quantity supplied as a function of price is greater than zero) there will be a large gap between the people willing to accept work at the new wage, and the actual amount of work available at the new wage. This is called “unemployment”-or at least it is, as long as the surplus labor doesn’t get the message that they might as well give up on getting a job altogether, in which case we just pretend it isn’t a problem because we suddenly no longer call it “unemployment.” It’s worth noting that certain groups will be over represent amongst those whose labor is still demanded, and those whose labor is not. Those who will be better represented in the former group: secondary/part time workers from multi-income families, entry level workers with clear potential for advancement, and young workers from working class households will probably still, mostly, see their labor still demanded. The latter group will have would be workers from the lowest income families, victims of discrimination, and single parents with young children overrepresented. In other words, the minimum wage hurts most those it is intended-or at least, claimed to be intended-to help. It cuts off the bottom rungs of the economic ladder, needed more than anyone else by the most disadvantaged. The total income earned by all such workers may initially increase-it depends on the elasticity of labor demand-but it will be a redistribution of income within those in that labor market. But over time firms will substitute skilled labor and capital for unskilled labor-labor demand will become more elastic-and as a result, ultimately the total income earned by unskilled workers will go down. Now, this effect is the effect on the unskilled and some low skill labor markets, at least those which are subject to the minimum wage price floor. But actually, not every labor market for unskilled or low skilled labor is subject to the price floor. Tellingly, there is a legal exception for farm labor. This has the effect of driving those driven out of other unskilled or low skilled labor markets, into the market for farm labor-the supply curve for farm labor shifts rightward, which means that the market clearing wage for farm labor is now lower. This means that not only does the minimum wage drive many out of the unskilled and low skilled labor markets, it has the particularly perverse consequence of driving down farm wages. But this is the only way to avoid the politically unpalatable level surplus of labor that would be created if an exemption for farm labor did not exist. But the effects on other labor markets are equally telling. Unions generally support raising the minimum wage-even though union workers typically earn well above the minimum wage already. This might seem strange, since there should be no direct effect on their wages. However, union labor is typically skilled labor, and skilled and unskilled labor (or more skilled and low skilled) can be substitute inputs, which means that the imposition of or raising of a minimum wage, should increase demand for skilled labor-the demand curve for skilled labor shifts rightward. Both employment of skilled workers and their total income increases as their wages rise. In other words, higher earning skilled labor, including most union labor, gains at the expense of low earning unskilled labor. In a parallel story, because of regional cost of living differences, and because a Federal minimum wage does not factor these in, areas where prices-including wages-tend to be higher, for example, more Northern states versus Southern ones, those regions with lower wages will have the direct effect of a high minimum wage impose increased labor costs on them, but those regions with higher prices and wages will not. As such, Northern labor acts as a substitute for Southern labor, demand for the labor of higher cost of living areas increases, the total income, and the wage rate in those areas rises. But migration also shifts, as the Southern or low cost of living area workers can move more to the North or high cost of living areas (or more likely, fewer people move away from higher cost of living areas). This shifts the supply curve for high cost of living area labor rightward, somewhat offsetting both the increase unemployment in the low cost of living areas, and the income gains in the higher cost of living areas. But in net, higher cost of living regions are expected to gain at the expense of lower cost of living areas. This lines up rather well, generally, with elections maps-it’s a redistribution of income from Red States to Blue States.
Now, maybe you really think all of the above effects sound great. I certainly don’t. I find them perverse, and immoral. But then, that’s why I vehemently oppose the minimum wage.
Advertisements

Comments Off on Minimum RAAAAAAAAAAAGE!

Filed under Common Sense, Dumbasses, Economics, Liberals

Comments are closed.