I’m going to replicate one portion of a long winded rant about alleged cognitive dissonance:
The argument for a minimum wage is that labor demand is inelastic — employers will hire the same number of workers. They will just absorb the higher wages or pass along the costs to customers. Workers get all the benefit. If labor demand is elastic, employers cut back on the number of employees.
Of course, labor economists would recognize that John Cochrane’s entire post assumes a perfectly competitive labor market. One has to wonder about economists who have never even considered monopsony power.
Isn’t there another important element to this. The incentive to invest (both in equipment and employees). If workers are more expensive, then employers must make an effort to increase productivity and workers will benefit from that.
When I retire, I am going to try to write about book about – Economics and time, the missing dimension about the damage the often implicit comparitive static approach has done to economics.