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Leading Economists Vote on Raising the Minimum Wage

I’m delighted to see the U Chicago IGM Forum ask a really useful, non-softball question.

The panelists are evenly split on whether an increase to $9 would make it “noticeably harder for low-skilled workers to find employment.”

A 4:1 majority thinks that weighing the costs and benefits, “this would be a desirable policy.”

I note how many who commented bring up the EITC, suggesting that an increase in that support might be better than a minimum-wage increase.

I note further that they apparently haven’t read the very good reasoning and research suggesting that the two together very effectively address the problems of each.

But Paul Krugman has. And his surprise helps explain why the others haven’t thought about this:

Second — and this is news to me — the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right

Cross-posted at Asymptosis.

Tags: Comments (9) | |

Comments (9)

  1. Tenured economists appear to have trouble understanding income variability. I’ve had years qualifying for the EITC and years where I changed jobs and part of my tax refund was from having overpaid SocSec.

    It’s also why their labor models tend to suck, I suspect.

  2. “Unemployment among low-skilled workers is already high by historic standards, indicating that wages are already too high for market-clearing”

    And the M/W is low by historic standards? Where are we getting that M/W>MPl?

  3. @anirrationalviewoftheirrational:

    This commenter obviously doesn’t understand that the demand curve for labor can look like this:

    http://www.asymptosis.com/is-the-elasticity-of-labor-demand-at-zero.html

    See in particular Nick Rowe’s comment on Clower.

  4. I think we need to associate the name with the “market clearing” comment for historical reference.

    That would be Caroline Hoxby of Stanford. She is 100% confident.

    Yet, Michael Greenstone at 70% confidence: The empirical evidence now pretty decisively shows no employment effect, even a few years later. See Dube, Lester and Reich in the REStat

  5. FIRST LET ME CUT AND PASTE A COMMENT OF rjs FROM ANOTHER DISCUSSION (see you in court rjs):
    well, here’s more grist for your mill, denis:

    Minimum Wage Would Be $21.72 If It Kept Pace With Increases In Productivity: Study: The minimum wage should have reached $21.72 an hour in 2012 if it kept up with increases in worker productivity, according to a March study by the Center for Economic and Policy Research. While advancements in technology have increased the amount of goods and services that can be produced in a set amount of time, wages have remained relatively flat, the study points out.
    Even if the minimum wage kept up with inflation since it peaked in real value in the late 1960s, low-wage workers should be earning a minimum of $10.52 an hour, according to the study.
    http://www.huffingtonpost.com/2013/02/13/minimum-wage-productivity_n_2680639.html [he -- why do I presume it's "he" -- knew how to imbed the link in the headline]

    ******
    NOW MY RESPONSE TO A STATE LEGISLATOR EMAILING THE USUAL QUESTION — WHY NOT MAKE THE MINIMUM WAGE $30/HR?

    Why not make it $2//hr? Because it harms nobody being as high as $7.25/hr. If per capita income were $100,000 year It could be $15/hr, no? The whole eighth-grade math point of my essay is that if it was alright to $10.50/hr ($1.60 adjusted) when per capita was something like $20,000/yr it could harmlessly be $15/hr now that it is more like $40,000/yr.

    According to Malthusian theory (from before industrialization — now economic output expands twice as fast as population) if the population grew 50% since 1968 there should be 33% less per person to go around. Between 1968 and early 2007 the minimum wage dropped almost 50%.

    Starting to get the idea. Something crazy is going on here — American labor is getting crazily short-changed. Craziest part is nobody knows it happened. Thanks for actually answering anyway.

  6. ANOTHER “KILLER” ARGUMENT ON DOUBLING THE MINIMUM WAGE — I KEEP TRYING TO COME UP WITH ONE:
    If there were a Teamster Union-tough retail employees union — able to negotiate one contract with all employers (under a setup called sector-wide labor agreements) couldn’t the bottom wage be raised to $15/hr — simply because the market would bear it?

    Wal-Mart employee wages would go up about 66% (these are all just rough estimates on my part) while Wal-Mart prices would only go up about 8%. McDonald’s wages would double while a Big Mack went up 33%. Top 10 percentile wages would not go up and overall prices they pay would go up a tiny little bit — is the latter what public policy should be concerned about?

    In Chicago, CBS-TV News reports that 100,000 gang age minority youth are in street gangs * (mostly selling drugs) out of I estimate 200,000 the same age. Are minority males evil or do they just refuse to work for nothing (the super-low minimum wage having effectively out-sourced most such jobs to American-Mexico)?
    * http://www.cbsnews.com/8301-18563_162-57451996/gang-wars-at-the-root-of-chicagos-high-murder-rate/

  7. But isn’t the usual response to the wage-productivity gap argument that the gap is smaller than it is often argued? For instance, drawing from Feldstein’s work, if we deflate productivity as we do for wages, the gap is smaller. Also, wages do not include total compensation which is a labor cost, and labor’s share of income has not dropped as dramatically as it would indicate looking purely at wage data, which would then indicate that the conflict is not between labor and business, but within labor in that wages are not decreasing, but being inefficiently redistributed.

    I am not advocating Feldstein’s point, I am more curious as to whether the way labor’s share is defined there is a class of “workers” like execs and others who could be considered “business” rather than “labor” that are being included in the labor share, and inflating that statistic a bit.

  8. IN SEARCH OF MORE “KILLER ARGUMENTS” FOR DOUBLING THE MINIMUM WAGE:
    From a discussion at: http://delong.typepad.com/sdj/2013/02/yes-thoughtful-economists-think-raising-the-minimum-wage-right-now-is-a-good-idea.html#comment-6a00e551f080038834017d4152a67e970c

    >>If the minimum wage is of appropriate size, employees must have higher productivity to justify their cost.< <

    A measure of productivity that seems to get ignored all around is the doubling of the economy’s overall productivity between 1968 and early 2007 — during which span the minimum wage dropped almost in half from $10.50/hr (adjusted) to $5.75/hr (adjusted).

    Barbers in Budapest earn less than barbers in New York (or do they?!) because there are more goodies and services to divvy up in the New York economy.

    Our minimum wage falling behind productivity growth has gone so far that by early 2007 the minimum wage underperformed Malthus! When population grows 50% as it did between 1968 and early 2007, before industrialization wages shrink only 33% — not almost 50%! :-)

  9. thanks for share.

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