Information or propaganda? More Cowen on minimum wages
Today Tyler Cowen posted this:
Remember the proposals for a $15 federal minimum wage?
Employment would be reduced by 1.4 million workers, or 0.9 percent, according to CBO’s average estimate…
That is from the new CBO report.
Here is a bit more context:
In an average week in 2025, the year when the minimum wage would reach $15 per hour, 17 million workers whose wages would otherwise be below $15 per hour would be directly affected, and many of the 10 million workers whose wages would otherwise be slightly above
that wage rate would also be affected. At that time, the effects on workers and their families would include the following:
Employment would be reduced by 1.4 million workers, or 0.9 percent, according to CBO’s average estimate; and
The number of people in poverty would be reduced by 0.9 million.
We can debate whether to raise the minimum wage, how far, whether to use wage subsidies or a negative income tax, etc. But debate is difficult when one side refuses to participate in good faith. Furthermore, when right-wing economists spread obvious half-truths to bolster the case for their preferred but unpopular policies they undermine trust in the economics profession as a whole. This makes it more difficult for economists to get a hearing when they have something important to say. I really don’t know what Cowen thinks he is accomplishing by doing this.
Prior post here.
Here is something I would like to know about the minimum wage — specifically, something about how job loss (or gain, yes gain) are calculated. If we use two different countries for a model (representing let us say bottom 40% wages and upper 59% wages), then, I think economists would automatically calculate whether higher labor prices might actually add lower 40% (nation) jobs under the expectation that higher wages create their own demand — and lower 40% earners purchase proportionately more lower 40% pay produced goods.
Think OPEC. OPEC charges twice as much for the same amount of oil (of course demand for oil is very, extremely sticky). OPEC then spends a lot more money on whatever it wants and the rest of the world buys less goodies for itself. Easily understood.
Now, suppose demand for oil declined 10% when the (formerly cheap) price doubles. OPEC still does very well for itself. The rest of the world bought fewer goodies for itself — maybe nobody lost a job anywhere — maybe higher oil prices just redirected demand. Actually Saudi princes probably redirected demand to some different places than the rest of the world would have spent money. Same overall demand in both cases.
In OPEC’s case more demand would be shifted towards high end goods. I lower 40% pay labor’s case, demand would probably shift towards lower end goods.
Now, what I would like to know is whether or not economists take into account what I call (don’t look for it on Google) “redirection” when they estimate job loss/gain associated with a federal minimum wage raise. Is there a specific number or equation that tries to take account of that?
Real world wage raise effect on prices. Labor at firms with 25% labor costs (e.g., fast food) can add 50% to wages with only 12.5% price raise — which might cost 10% of sales — fine with labor even without any input from “redirection.” Ditto for labor at more typical 10-15% labor costs firms (e.g., Target, Walgreens) — and ditto for labor at extreme low labor cost firms (e.g., Walmart). Can you imagine what the Teamsters Union could do with 7% labor costs.
If lower 40% labor firms just barely make up for initial sales losses via “redirection”, then, labor will have doubled its wages and not cost a single job. I think “redirection” will not just return jobs but add a bigger mix of lower price product jobs while draining away some high price product jobs (e.g., higher end restaurants will lose some business to a bit higher prices and more because its regular customers have less money to spend overall as product prices have increased across the board — across lower 40% pay product boards).
Again: when estimating job loss or gain from a minimum wage raise do economists use a specific number or equation to take into account “redirection”? I have never heard of such an estimate predicting job gain, so I suppose they must not.
Something went wrong with my paragraph separation there. ???
You need double ¶¶ between paragraphs, I think.
Well, If the minimum wage is set to $15/hour, then minimum-wage workers in my fair city will get a huge 23¢/hour increase.
Personally, as a consumer, I would like to see a $15/hr minimum wage for all restaurant workers. That would mean: NO TIPPING. It is one of the aspects of Europe that I enjoy very much.
When they raised the minimum wage in Seattle to $15/hour, there were all sorts of BS predictions of job loss and business closure. What happened was an increase in the number of jobs and a huge number of new businesses opening. Those businesses that closed usually cited higher rents, not higher wages.
The academic high point was a paper arguing that the $15/hour wage had eliminated a huge number of $14/hour jobs, even though to total number of jobs at the low end of the wage scale had risen. Basically, $14/hour workers were displaced by a larger number of $15/hour workers and somehow this was a bad thing.
There may still be some economic theory that argues that raising the minimum wage kills jobs, but just about every empirical study shows otherwise. The CBO needs to update its priors.
Usually it is Overhead or Material costs
I remember that. Seattle lost 6,000 jobs paying under $19/hr. That’s as far as many reports went. If they just looked a little farther they would have found that Seattle added 44,000 jobs overall. Which sounds to me like 50,000 jobs over $19/hr added — but that didn’t hinder much weeping over lost low wage jobs — problem with first grade math — even as Seattle was baking in a boom. :-O
[cut and paste]
… 50,000 more jobs over $19/hr (44,000 more overall — counting the 6,000 fewer under $19/hr)http://angrybearblog.strategydemo.com/2017/06/seattle-minimum-wage.html… 2.6% unemployment ratehttps://www.google.com/search?q=seattle+unemployment+rate&ie=utf-8&oe=utf-8… $80,000 median household income (up $9,374 since 2014 — US HH median $56,000)http://www.seattletimes.com/seattle-news/data/80000-median-wage-income-gain-in-seattle-far-outpaces-other-cities/… more construction cranes working than any other US city Seattle 58Los Angeles 36Denver 35Chicago 34Portland 32San Francisco 22Washington, DC 20New York 18Honolulu 10Austin 9Boston 7Phoenix 5Illustrated map: http://ritholtz.com/2017/07/where-the-cranes-are/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
I’m sure every parent has been through the “Opposites Day” thing with their children. For those who haven’t, it goes like this.
You get greeted at the door by your first grader who says, “It’s Opposites Day!. I hate you!” . That goes on until about two hours after their.
When reading Cowen it is best to approach it as Opposites Day. Just take the contrary view from his and you’re guaranteed to be right the vast majority of the time. Probably not as much as if you approached Larry Kudlow the same way, but nobody beats Kudlow in being wrong.
Thanks for calling out Tyler Cowen on this. Menzie Chinn over at Econbrowser is having a field day on this issue as he takes out two of his lying right wing trolls – Steve Koptis and Bruce Hall. Menzie is citing some excellent literature whereas our two trolls are outdoing even Donald Luskin for Stupidest Man Alive.
Here is Menzie noting a “natural experiment”:
Huge fan of your content here!
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