Asymmetrical Information

Believe it or not, fast food restaurants CAN outsource some operations to low-wage countries. The voice you hear over the drive-up intercom might belong to someone in India or Mexico, who inputs your order for transmittal to the order screen inside the store.

So there is a real possibility that the minimum wage is a subsidy to affluent workers at the expense of the poor workers it is supposed to help

This strikes me about a number of programs.

Of course the real reason people push minimum wage increases "instead" of alternatives is that they are pushing the alternatives, but getting more traction with minimum wage efforts.

I wish I had a solution.

"No one has posited any plausible reason that an employer whose wage bill has just gone up would respond by . . . taking on more, now more expensive, workers."

In the case of a monopsonist, i.e. a firm that is the sole buyer (in this case, of labor), this is precisely how it would respond. The imposition of a minimum wage has the effect of flattening the marginal cost curve, resulting in a higher equilibrium employment level.
Wikipedia has a decent description of the dynamics: http://en.wikipedia.org/wiki/Monopsonistic_competition

I do not think it is all that farfetched to think that fast-food chains in large markets resemble, to some degree, a monopsonist in the labor market. On top of unskilled, poor workers, there are tons of teenagers with no skills, work experience, etc. Thus, up to a point (I doubt this could be taken to the limit) min. wage increases might actually correspond to employment increases. Though, the model tells us nothing about what would happen to the quality of the job (and here I think you are right--it would go down).

(It probably only works up to a point, I doubt a $10/hr minimum wage would result in a McDonalds hiring bonanza).

Also, since the min. wage isn't binding for most other industries, its increase is a trivial thing and doesn't affect their employment decisions. Whereas, in fast-food and retail, where a lot of workers make at or slightly above min. wage, the market structure resembles more monopsonistic competition and thus some rather counter-intuitive results.

Two quick practical examples: When I was much younger, I had a job at a novelty printing company. We produced glass plaques with funny quotes or pictures on them. Most of the jobs in the company were filled by college students paid minimum wage. The month before a minimum wage increase was to take effect, I left the factory floor to say good-bye to my boss. (It was my last day on the job.) He was looking out on the shop floor at his workers file out. They were in a celebratory mood -- anticipating both the Christmas holidays and what they would do with the extra 35 cents an hour they would earn come January 1st. My boss shook his head and said, "What they don't understand is that half of them will not be working here come January 1st." I asked how he'd be able to get the work done without the workers. The answer was that he'd ordered machinery to replace the workers -- machinery that was now cheaper than the workers at the new minimum wage. Seeing the shock on my face, he asked, "What do you want me to do? It's either that or shut the place down. I can't get any more for our products. If I don't add the machinery, our production costs will exceed the price we can get for our products." It was the first time I ever saw the law of unintended consequences in action.

The second experience came about 2 years later. I was now working at a furniture mill. One of the long term employees of the mill was a man, at least 10 years older than me, named Frank. Frank was, as we used to say, a bit slow. He could not do much other than sweep up the place. He could not be trusted with the power machinery -- he'd be a danger to himself. But what Frank could do, he did well and he worked hard. Frank was the son of an acquaintance of the owner of the mill. Frank's job was not, strictly speaking, a charity case. He worked hard for and earned his money. However, it was clear that the owner could have gotten Frank's work done more cheaply without Frank. I've always wondered, how much right does society have to dictate the costs of a business owner's charity? There are a lot of Franks who work at jobs made just for them at businesses across our country. Every-time we change the minimum wage, it makes it more expensive to keep them on.

The EITC has been expanded in basically every major tax bill recently-- 1986, 1990, 1993, and 2001. Notice that's a tax reform bill that eliminated many other deductions and credit, tax raises, and a tax cut. It has pretty broad bipartisan support-- the working poor are much more popular politically than welfare cases who don't work.

Whats going to happen in 20-25 years when cheap robots begin to hit the market?

I am not kidding. Really. Its going to happen. I've actually been thinking about this all day today, and here is Jane with a post that is almost close enough to justify talking about my cheap robot takeover theory.

go over to Boston Dynamics and see what they have now, today. Its pretty cool. Imagine 20-25 more years of research in this area. Next, factor in the roughly million-fold (yikes, but possible.) increase in computer power in the next 20 years, and what are we going to have? Robots!! Robots!! Robots!!

Why worry about the minimum wage when robots will take over?

Unions earning considerably more than the minimum wage push for an increase because some big labor contracts set the hourly rate as a multiple of the minimum wage rather than a flat amount. Give a burger flipper $0.25 an hour and you may be giving an autoparts worker at least a couple of bucks. This, obviously, has little to do with helping the poor either.

I have a third hypothesis about why the left is so attached to the minimum wage: it resonates with their worldview. To drop the minimum wage in favor of welfare-style handouts is tantamount to admitting that low wages aren't really caused by greedy capitalist exploiters, that some people really aren't productive enough to justify paying them enough support themselves and their families, and that their employers have no special obligation to make up the difference.

Angling for minimum wage hikes to "help the poor" is mere money-tree thinking wrapped in a shiny paper of good intentions and bad logic.

Some floor arguably needs to be enforced, mainly to prevent employer exploitation during brief cyclical depressions in the labor markets, but forcing employers to pay out more than the market wage will have the preductable result: what the left hand giveth, the right taketh away.

As an example, many fastfood restaurants fill daytime positions with full-time employees, in order to ensure more professional and reliable service during the critical breakfast and lunch hours. These workers usually draw somewhat greater than minimum wage, and basic benefits. Overflow, evenings, and weekends are staffed heavily by non-benefited, near-minimum wage part-time positions. If the cost of employing those part-time employees suddenly increases notably, the short-term solution is price increases of course; but the next step is to begin converting full-time staffing into part-time. In order to avoid benefit requirements triggered by the average number of hours worked, this will necessitate an additional hire or two; now, e.g., five people may be employed where formerly were four, but the five together are poorer than the four were as full-time employees.

This inflates employment and wage data, but it does not promote growth.

I'm surprised that some liberal (you must have some liberal readers among all us libertarians) isn't posting that if you pay minimum wage workers more, they will be able to afford to eat at McDonald's, forcing wages up.
It's at least as valid as what some of the conservatives here post.
As a libertarian I believe that the economic difference between the previous and the present minimum wage increases net income to workers because all the minimum wage service workers outweigh all the minimum wage manufacturing workers in pay.
So the people who can be replaced by Chinese imports will lose their jobs, but the people who work at McDonald's won't because McDonald's is about the cheapest place to eat.
The government can increase costs for people to eat there because there is no alternative for most people who eat at McDonald's. Certainly they aren't going to spend an hour cooking a meal at home, not even bearing in mind that they pay retail for the same burgers, potatos, buns, ice cream, soda, and ketchup that McDonald's buys wholesale.

Let me rephrase that, Dave: no one has posited any reasonable mechanism by which fast food and retail establishments in highly competitive markets can be acting as monopsony employers. Even Wal-Mart pays more than minimum wage.

If the minimum wage is less than the market value of unskilled labor, raising it has no effect - except that there are some people whose going rate is even less than the usual unskilled rate: illegal immigrants, poor teenagers with no job history, and unskilled workers with a criminal record or a terrible job history. Raising the minimum hurts the last two groups, because if you have to pay them the same as those with a better history, you'll go for the better employee at the minimum wage. If you're illegally hiring illegal aliens, you can ignore the minimum wage laws, too, so it doesn't affect that group much.

If the market value of unskilled labor is below the minimum wage, then the result seems to be more after-school jobs for the children of the affluent, while it is harder for the really poor to get started in the job market, to find full-time jobs with a schedule consistent with family life, and to hold onto their jobs. In other words, affluent liberals love policies that pretend to help the poor but actually help their kids at the expense of the poor. I'm not surprised.

Here is a theory on raising minimum wage. I would assume that as low wage worker's salaries increase, it would provide them more income to purchase the products of the companies that are employing them. As a result, demand for their product increases...Hence the raise in demand in their product.

If this is a plausible theory, then what would happen if the reverse came true...that is, what would happen if the floor was removed? Would less money available to those workers mean that they would spend less therefore decreasing demand, causing lower employemnt levels.

I would assume that if raising the minimum wage caused employment to rise, it was because at the previous wage the jobs weren't worth taking - the employers hadn't been responding correctly to the reality of the labor market.

And I firmly believe, if you want to raise the minimum wage and put more money in worker's pockets, reduce what comes out of their paychecks. Nothing is more disheartening for a worker new to the labor force than looking at the money going into their bank (or pocket) and seeing that it's 60% of Wages X Hours.

I agree with you that the earned income tax credit is a far superior method of fighting poverty to the minimum wage.

But I have to question much of your analysis.

Since WW II essentially every OECD has had minimum wages that is regularly increased. So out of these hundreds, if not thousands of examples why can we not find a single example in the data of an increase in the minimum wage leading to the drop in employment that theory calls for. What we have is a great theory with not data to support it. Why not?

For example, you talk about teenage employment. But if you look at the US data you find that the correlation between teenage employment and the minimum wage from 1950 to 1980 was 0.9 == since 1980 it has been much lower. Moreover, over the entire period the relationship between the teenage partpitation rate and the minimum wage has also been extremely strong. Despite the theory and claims that raising the minimum wage causes teenagers to lose jobes you can make a very strong stastistical case that raising the minimum wage leads to an increase in the minimum wage.

So why is the actual experience in suck stark contrast to the theory? Maybe there is something wrong with the theory?

Believe it or not, fast food restaurants CAN outsource some operations to low-wage countries. The voice you hear over the drive-up intercom might belong to someone in India or Mexico, who inputs your order for transmittal to the order screen inside the store.

They can do simpler things than that. They can outsource food preparation (by having more done by vendors before it gets to the store). They can outsource to *customers*. This is already one of the biggest trends in retail--low wage work being replaced by customer labor. So we have self-serve gas, and soda fountains, and checkout lanes. We have self-serve big-box stores where clerks don't bring items from the back room because there IS no back room. It's becoming quite feasible to have a store with a minimal skeleton crew of hired labor--shelves are stocked directly by distributors and customers customers do their own checkout and bagging at U-Scan lanes.

Do you think a fully automated (or almost fully automated) fast food restaurant is not possible? Jack up the minimum wage, and I'm betting you'll see just that.

You're the one who got me to read Jason DeParle's book, Jane (clicked through on AsymInfo) which certainly convinced me that the plight of the poor has little to do with the minimum wage. (Not that I ever really thought it did.) One more plug for the book, though, can't hurt.

Dylan gets at who really backs minimum wage increases -- unions and not wooly-headed liberals worried about helping the poor.

Here's a Cato article that explains it well (toward the bottom):

"As would be expected, labor unions are the main political force behind minimum-wage legislation. Although unions already hold privileged positions in labor markets, minimum wages further increase their gains by raising employers' labor costs. As long as union members earn wages above the minimum rate, their positions are made more secure by the government policy that eliminates those who might undercut the union wage. People willing to work for less than the government's minimum are not allowed into the labor market at all."

Do you think a fully automated (or almost fully automated) fast food restaurant is not possible? Jack up the minimum wage, and I'm betting you'll see just that.

Recently saw a picture of a Taco Bell that had no one there to take your order-- you simply input it into a menu machine directly. A very obvious way to eliminate low wage jobs, especially if the minimum wage is raised. That revolution has already begun.

The best way to increase wages is to do it (somewhat) organically.

Make more companies in the US say that they need more workers from all skill levels.

And the best way to do that is to slap a tariff of 10% on all items that were manufactured outside of the US. Same for items that were assembled outside of the US. Manufactured *AND* assembled outside of the US? 18% tariff.

We'd see a handful more factories open up in the US, I tell you what.

Support for minimum wage increases serves as a group signifier for the left, rather than instrumental policy goal. Similar dynamics work for inheritance taxes, rent control, Head Start, affirmative action in contracting, and (until recently) farm subsidies. Nobody who is paying attention actually believes any of these policies do much good, and indeed most of them don't do much of anything. Instead, espousing these polies shows that you believe that we're all in the same boat, with the federal government at the tiller. It's about showing that you belong to the Roosevelt tribe.

A way that minimum wage increases could possibly help the poor is if the higher wages given to the minimum wage earners are offset by lower wages higher on the pay scale. Perhaps when the burger flippers are making more the managers are making less. Thus the minimum wage laws could have a flat effect on employment as a whole. It could be that it is a transfer from the lower middle class to the lower class. It seems unlikely but possible.

I'm retired since 2001, but was in charge of a small business for many years which hired a good many people at the minimum wage.
They were all young people and old people, nobody in prime years was paid the minimum wage.
They were all delighted to receive the minimum wage, delighted to have the job.
They all had other income in the home, either from pensions or parents. (Obviously, because nobody could live on the minimum wage).
It was good for the kids and good for the oldsters, physically and mentally. Many were otherwise unemployable, but we gave them the feeling their services were needed and useful to someone. Generally speaking, the elderly workers gave us good value for their cost while the younger workers cost the business slightly more than they were worth. Every year some kids would come to plead with me for a summer or after-school job, and often proposed working for LESS than the minimum wage. They wanted spending money, badly, but I couldn't chance it.
Now, many of the kids were not worth the minimum wage. Employers like me hired them as a public service. We taught them to get somewhere on time every day, with clean clothes and odor-free. We taught them the need to get along with the other workers at their side. We also rewarded the best ones with promotion, teaching them there was a relationship between pay and performance (unlike in the public sector)... Often, when I came around the corner suddenly I would find these kids drinking pop, listening to their music, tap dancing and NOT WORKING. Young people need much more supervision than others. Young people were unreliable about showing up. Young people were always asking to be excused for a game or a practice or something--and expected to be excused without any complaint. (and usually were). The government discouraged employers from hiring kids in several ways. They could not lift over 50 pounds. They could not work on a ladder. They could not work (say) after 7 p.m. at night. They had to get permission from high school administrators, in writing. The employer had to agree to (in effect) a contract when he hired them, and despite the fact YOUR ass was grass if caught in any violation, kids regularly did NOT do what they were told. (Like working on a ladder..) It is a hair-raising experience for employers to employ teens today, which is probably why most of them do not. (They all did when I was a kid). So the kids are out in the park sellnig dope, instead. In my view, from all I've seen, the minimum wage is a terrible idea, and raising the minimum wage is always bad for the younger generation and the older generation.

I forgot to say I think your measurement of employment declines following each increase in the minimum wage was not a fair test. Before it is increased the old rate is often an deterrent to employment. So when you count the jobs lost directly in response to an increase, you are not including the jobs which were not there to be lost, and thus are not getting an accurate total of all jobs lost because of the minimum wage.

John Thacker wrote: " .... Recently saw a picture of a Taco Bell that had no one there to take your order-- you simply input it into a menu machine directly. A very obvious way to eliminate low wage jobs, especially if the minimum wage is raised. That revolution has already begun. ...."

Deja Vu!!! Am I the only one here old enough to remember the Horn & Hardart "Automats" in the Philadelphia area?? I think they went out of business in the late 1950's.

I don't think it's fair to compare to PA. You'd really want to have a truly parallel universe for a control, but of course, you can't do that.

There's got to be some allowance for common sense. Price controls don't have a very good track record. And then you can also reason out what happens if taken to the limit. Why not have a $50/hr minimum wage? Would you decrease hiring or just mindlessly increase inflation?

I often wonder just WHO is actually working for the "minimum wage".

Food service workers (wait staff, etc., ) are usually paid less than minimum, & are expected to make most of their income from tips (a strong incentive to quality of service). Farm work is usually exempt from the minimum wage requirement...

And, in terms of fairly simple, "low skill" jobs, employers often have to offer a pretty good wage in order to get anyone worth hiring to apply - as one example, a grocery store in my town (Northern CT) had a sign up offering jobs restocking the shelves. Quoted rate was $10.00/hr to START, plus benefits!! I'm sure if they could have gotten folks to put the cans on the shelves at minimum wage, they'd have been overjoyed!

Thomas Sowell once said that the "minimum wage" often becomes a MAXIMUM wage, as there's now an ample excuse for employers to offer no more, & simply say "Well, it's the government-mandated minimum, & I see no reason to pay any more for this job!".

If left to market forces alone, things might work a lot better, especially given the disparity in cost-of-living, etc., between places such as NYC & El Paso.

JohnW:

Employers of waitstaff are still required by law to provide minimum wage. If tips fail to drive a worker's net wage past minimum within timespan 'x', the employer is required to provide the difference. Of course, if it becomes a recurring problem with a particular employee, than the market may be indicating that said employee has QoS issues.

As for the grocer example, the usual-suspect chain establishments are heavily unionized. Was this one of those, or a local?

And the best way to do that is to slap a tariff of 10% on all items that were manufactured outside of the US. Same for items that were assembled outside of the US. Manufactured *AND* assembled outside of the US? 18% tariff.

We'd see a handful more factories open up in the US, I tell you what.

Possibly, at the cost of non-manufacturing jobs which pay more, and at the cost of increasing the price of goods which everyone pays for. There's no point in raising wages if everyone you buy becomes more expensive at the same time.

You would make us all poorer.

Anony-mouse:

Yes, most of the big grocers are unionized. Wegman's isn't, though,, and it's one of the fastest growing and most profitable. Has very high worker satisfaction (Scores well "Best Places to Work" charts and articles) too.

Only 4% of Wegmans' 31,000 employees are unionized, unusually low for a grocer in the Northeast. Everyone earning less than $55,000, including butchers and stock boys, gets substantial benefits: full medical coverage, a 401(k) plan under which the company matches employee contributions 50 cents to the dollar up to the allowable tax limits and a defined-contribution retirement plan funded by the company. Part-time high school cashiers and baggers can earn a scholarship bonus of up to $6,000 over four years.

If tips fail to drive a worker's net wage past minimum within timespan 'x', the employer is required to provide the difference. Of course, if it becomes a recurring problem with a particular employee, than the market may be indicating that said employee has QoS issues.

That, or their clientele consists entirely of blacks and asians. They're universally shitty tippers.

I've always found it amusing that people will argue strongly (and correctly) that raising the minimum wage lowers growth, and then argue strongly (and incorrectly) that lowering taxes will increase government revenue.

Demand for some things can be extremely price inelastic. The price of gasoline has doubled, yet demand has actually gone up during the same time period!

All the evidence points to the demand for low wage workers also being extremely price inelastic. Raising the minimum wage by $2 would probably have almost no effect on demand.

People who make minimum wage benefit when the wage is increased.

Regarding the data, the fact that it was New Jersey and pre and posr April makes a possible answer clear.

The Jersey shore. Being a major destimation, small businesses hire a lot of employees to handle the summer rush, which begins officially on Memorial Day. In the winter, they let people go.

Half Sigman,

"Demand for some things can be extremely price inelastic. The price of gasoline has doubled, yet demand has actually gone up during the same time period! .... All the evidence points to the demand for low wage workers also being extremely price inelastic."

First, this is hardly "all the evidence". Also, you are misunderstanding what is meant by elasticity. This is only applicable when all else stays exactly the same. As pointed out below, other factors (such as seasonality) effect the demand curve. It's really hard to prove elasticity from this kind of data.

"People who make minimum wage benefit when the wage is increased"
Not if this is just an inflationary increase.

Slocum wrote: "Do you think a fully automated (or almost fully automated) fast food restaurant is not possible?"

Yep, there are two types. One is a vending machine + microwave. Most big office buildings have them. Second type is the local stop-n-rob. Most have sandwiches, microwave foods, and hot dog cookers.

Of course, none are as tasty (?) as McBarnyard's Golden Starches.

A big reason leftists love the minimum wage is it creates a statutory parasite class. If you don't have the skills to generate $15-20/hour in revenue (break-even for overhead and materials), it is illegal for you to support yourself. This requires the creation of bureaucracies to "help" the "poor".

So out of these hundreds, if not thousands of examples why can we not find a single example in the data of an increase in the minimum wage leading to the drop in employment that theory calls for

I'm afraid your information is more than a little off. There are numerous examples of minimum-wage employment declining after the minimum wage is increased. For example, as Jane pointed out in her post, a study of payroll data showed a decline in New Jersey minimum wage employment compared to Pennsylvania after the former raised its minimum wage.

The price of gasoline has doubled, yet demand has actually gone up during the same time period

So what you're saying is that demand for a limited natural resource increased, and prices for that resource rose? Gosh, somebody better tell Adam Smith about this phenomenon. :)

So what you're saying is that demand for a limited natural resource increased, and prices for that resource rose? Gosh, somebody better tell Adam Smith about this phenomenon. :)

The number of unskilled workers in the U.S. is just as fixed a resource as oil.

Just as OPEC has, at times, successfully caused the price to rise by intervening in the free market, Congress can cause the price of unskilled labor in the U.S. to rise by setting a higher minimum wage.

Nearly all minimum wage jobs are service sectors jobs that can't easily be outsourced. And whether the U.S. worker is paid $5.15/hr or $7/hr, he will never be able to compete with overseas labor earning less than $1/hr.

"Just as OPEC has, at times, successfully caused the price to rise by intervening in the free market, Congress can cause the price of unskilled labor in the U.S. to rise by setting a higher minimum wage." - Half Sigma

I don't think anyone is claiming that Congress cannot raise the price of unskilled labor. What we are arguing is that Congress cannot change the market clearing price for such labor. Therefore, unless the unskilled labor market price is higher than the current minimum wage, raising the minimum wage will lead to fewer jobs for unskilled laborers. Jane's point, which she amply supported, is that the minimum wage hurts unskilled workers (as a group) more than it helps them. Obviously, those who KEEP their jobs may be better off than they otherwise would be, but those without a job many times worse off than they were before government stepped in to help. Those who cannot currently find a job will find it much more difficult to find a job after the minimum wage is raised.

The number of unskilled workers in the U.S. is just as fixed a resource as oil.

Not really. Unskilled labor is frequently staffed by first-generation immigrants. In my area of the country, that usually means recently immigrated Mexican nationals; that resource overfloweth abundantly at the moment.

The number of unskilled workers in the U.S. is just as fixed a resource as oil.

Wha? That's completely wrong.

The supply of oil is limited because pretty much all of the existing supplies are already being exploited. In contrast, there are several billion people in the world who are potential unskilled workers for the US labor market. We can tighten the supply of unskilled labor (by tightening immigration controls and improving education) or, as we have been, increasing the supply of unskilled labor by providing lousy educations and winking at illegal immigration. But either way, there's nothing limited about the supply of unskilled labor -- there's way more of it out there than we've any use for.

'Recently saw a picture of a Taco Bell that had no one there to take your order-- you simply input it into a menu machine directly. A very obvious way to eliminate low wage jobs, especially if the minimum wage is raised. That revolution has already begun.'

We can't stop this revolution. Lowering/Raising the the minimum wage won't help. As the years go past, this automation is going to creep up the skill ladder. Once minimum wage jobs are replaced, more skilled workers have about 10 years before they are replaced. Its going to happen early in my sons lifetime, before he reaches my age. He won't have any jobs open to him, a computer will be able to do all jobs better. if you think I am crazy, think back to the vintage 1972 computers. A bank of large spinning tape reels, if you remember, was state of the art. Only 30 years ago...

This minimum wage problem is only going to be an issue for the next 7-10 years, after that it will be called something like the 'useless worker issue'.

What are we going to do with all of these now useless people? I don't have any illusions, 10 years later, it will be my job.

All check out counters will be replaced. Stock people next.

to Anony-mouse:

(1)
you said:
If tips fail to drive a worker's net wage past minimum within timespan 'x', the employer is required to provide the difference.

I did not know this. Is it a Federal thing, or can it vary by state? It might be that the average waitress at the local pizza shop, mexican restaurant or tavern doesn't know this, & is being taken advantage of??

(2) Grocery involved is indeed large & probably union (Stop & Shop).

I really have to agree with a lot of the commenters today, that the sort of jobs that qualify for min wage (& no better) are indeed jobs being filled by teens & seniors picking up some spare change, and also likely to be replaced by automation if the price of the labor gets "too high".

There will always be such jobs, as wastebaskets need emptying, floors need sweeping, boxes need stacking, etc., no matter how high-tech the rest of the world gets. but I don't think they'll ever pay as well as a CPA, oncology technician, or jet engine mechanic would be....

It has been 12 hours since I posted the point that there is not a single example of an increase in the minimum wage leading to a drop in employment.

Not a single person has come back and said Spencer you are wrong, in Japan in 1962 or in Spain in 1996 or in Germany in 1987 it happened.
The one person who responded to my coment was Dan, who was 100% wrong. He said the NJ case was an example of it happening, when the actual case was that the study found just the opposite.

It is still the case that the right wing is living in some fanatasy world where they argue that an increase in the minimum leads to a drop in employment yet out of the hundreds of examples of governments raising the mininum wage there is not a single example of their theory being correct.

Why do you keep pushing this theory without any evidence that it has any basis in reality?

Come on Jane give me a single example of your theory having any evidence to support it.

The discussion seems focused on the minimum wage and unemployment. Doesn't the minimum wage also have inflationary tendencies? Of course, with two hungry mortgages to feed, perhaps I should be welcoming inflation.

The one person who responded to my coment was Dan, who was 100% wrong. He said the NJ case was an example of it happening, when the actual case was that the study found just the opposite.

You really should pay more attention. Go back and read Jane's post -- the original study used a highly inaccurate means of measurement and found an increase in employment. The followup, which used an accurate measure, found a decrease in employment.

As for why nobody else cited data to refute your unsupported claim, the answer is probably that they simply dismissed you as the economic equivalent of a flat-earther or creationist; "there is no data showing a decrease in minimum-wage employment following a minimum-wage increase" is a claim so ridiculous that the odds of the person making it being worthy of further attention are fairly low. :)

If the workers who lose their jobs as a result of a minimum wage hike are illegal immigrants this is a feature not a bug.

"If the workers who lose their jobs as a result of a minimum wage hike are illegal immigrants this is a feature not a bug." - James B. Shearer

However, the exact opposite seems to be the case, at least here in Arizona. As wages go up, employers have this unreasonable tendency to expect more production from their workers. This makes it far more difficult for someone with no experience (the typical US born minimum wage applicant) to compete for such positions. Instead, the employers are more apt to opt for experienced workers who are still willing to work for the minimum wage -- a/k/a illegals.

David Walser, you are loading the dice by comparing legal applicants to illegal workers. Current workers always have an advantage over applicants. If the minimum wage had been set at the market clearing price for legal workers this would have discouraged the immigration of illegals. The large illegal population indicates to me that the minimum wage was (and is) too low.

All of this would be irrelevant if we would end the statist control of the economy seated in the power of The Federal Reserve and allow the unemployment figure to drop bellow the four percent that is currently mandated by law. The natural upward pressure on wages would increase the earning power of the working class with out endangering any job loss.

Spencer,

You're wrong. One example follows. But notwithstanding this one example, which you apparently thought didn't exist, what is your argument against the underlying premise of Jane's argument - i.e., if one raises the cost of something (e.g. labor), demand for that something is reduced? And if you think that an increase of $1.00/hr in the minimum wage is good, why wouldn't a $20.00/hr in the minimum wage be even better? How about a $50.00/hr. Maybe with the right policies we can make teenagers working at McDonald's into millionaires.

Wage hike forces cut to senior employees
Thursday, November 17, 2005
By COURTNEY ELKO
Staff Writer

SALEM, NJ -- Several senior citizens working in non-profit and public organizations in Salem, Cumberland and Gloucester counties will face layoffs in December.

Chris Davenport, executive director of Salem Main Street program, said the federally funded non-profit company Experience Works, which assists low-income senior citizens with job training and placement, has been forced to lay off seniors due to the increase in minimum wage.

Experience Works held a meeting Tuesday to discuss the issue with employers and informed them a letter would be sent to employees Dec. 1.

The layoffs will go through age groups starting with the 50s then 60 and 70-year-olds and priority will be given to veterans and their spouses, Davenport said.

He said Experience Works over hired and did not plan for the increase in minimum wage from $5.15 per hour to $6.15 per hour.

Mike O'Brien, field coordinator for Experience Works, said the Senior Community Service Employment Program is funded by the United States Department of Labor and provides training for low-income seniors in public and non-profit agencies.

Experience Works pays the employee's salary he said.

O'Brien said participants usually stay at an agency for about a year and gain the skills to move on to a private sector.

"Then we can move other seniors in," he said.

There are 20 Experience Works participants in Salem County and 15 need to be laid off, O'Brien said.

"We only have funding now to support five participants in Salem County," he said.

O'Brien said because of the minimum wage increase the program can not meet its payroll needs.

"We have to take action and lay off," he said.

Experience Works is hoping some agencies will hire the participants and the number of layoffs could be cut back, O'Brien said.

"We're working now to find other employment for them," he said.

Davenport said Experience Works has to make a least 40 total layoffs from all three counties.

He will not know how many layoffs will occur at the Salem Main Street office until he receives the December letter, he said.

Some of the organizations that could be effected are Stand Up for Salem-Salem Main Street, who has three Experience Works employees, United Way of Salem County, has one employee, Bishop Williams Community Center in Penns Grove, the Borough of Penns Grove, the housing authority in the City of Salem, the Oasis Soup Kitchen, Noah's Ark Day Care and Preschool, Salem County Board of Social Services, Salem County Community College, Salem County courthouse, Salem County Historical Society, Salem County Visitors Center, and the Township of Pennsville.

I did not know this. Is it a Federal thing, or can it vary by state?

As far as I know, it is part of the (federal) minimum wage law.

It might be that the average waitress at the local pizza shop, mexican restaurant or tavern doesn't know this, & is being taken advantage of??

Sure, it could happen as any crime sometimes does; but the employer would have to be engaging in blatant tax fraud, with the associated risks. Waitstaff are required to report their tips; the employer then incorporates that figure into the employee's payroll, raises it to minimum wage if necessary, and then reports that to the IRS along with the usual withholdings.

A far greater problem would be waitstaff under-reporting tips in order to lower the resultant tax liability.

Ah, once again we see the old "Card and Krueger's results were invalid due to their lousy data" canard. This issue should really have been put to bed years ago, after the exchange between Card/Krueger and Neumark/Wascher (their chief critics) in the December 2000 issue of the American Economic Review. In their contribution to the exchange, Card & Krueger demonstrated pretty convincingly that it was in fact Neumark and Wascher's data, in particular the subset of their data provided for them by the restaurant industry, that were suspect. Neumark & Wascher's response on this issue was totally unpersuasive.

Even Steven Landsburg (who has libertarian credentials at least as good as yours, Jane, and far better ones as an economist) tacitly acknowledged last year, in a piece for Slate, that Card & Krueger appear to have been correct about the negligible employment effects of moderate increases in the minimum wage.

As for the supposed mystery about how raising the minimum wage is supposed to affect productivity, it's actually fairly straightforward--higher pay leads to reduced job turnover, and a more stable workforce increases productivity. The Economist had a piece on the minimum wage several years ago (while I was still in California, so it was pre-2001) which made this point pretty well.

"I really have to agree with a lot of the commenters today, that the sort of jobs that qualify for min wage (& no better) are indeed jobs being filled by teens & seniors picking up some spare change, and also likely to be replaced by automation if the price of the labor gets "too high"."

This varies by region. In more than a few states, (usually illegal) immigrants comprise a huge amount of the low wage work force. To find out which ones, just check out the states where teen employment is abnormally low.

The low skilled are easily replaced hence business will pay them low wages. It doesn't mean they they are not productive for the employer. In any business there is always dog work that needs to be done.

So the minumum wage is effectively a subsidy from business owners to the low paid (and thus hopefully the poor). It may (slightly) reduce employment and yes it it is not perfectly targetted.

But it is SIMPLE to implement and it does encourage people to WORK.

You might find this interesting, on the actual effects of raising the minimum wage in the UK.
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2005/02/tony_blair_toda.html
As theory would suggest. A reduction in hoursoffered at the new higher minimum wage. The reason we don’t see a loss of jobs overall is that it’s too small a number to show up in the national statistics.

"If the workers who lose their jobs as a result of a minimum wage hike are illegal immigrants this is a feature not a bug." - James B. Shearer

James, why are you assuming that employers who violate one law by hiring illegals will respect another law and pay them minimum wage?

Dan writes:

You really should pay more attention. Go back and read Jane's post -- the original study used a highly inaccurate means of measurement and found an increase in employment. The followup, which used an accurate measure, found a decrease in employment.

That's correct, there was a decrease in employment in New Jersey from 1991 to 1992. However, there was a larger decrease in Pennsylvania in the same same time period. See http://www.cato.org/pubs/regulation/reg18n1c.html#table4

Comparing 1991 and 1992, the years on either side of the effective date of New Jersey’s hike to $5.05, shows that teenage employment in New Jersey fell by less than in Pennsylvania, where the minimum remained at $4.25.

Do you think a fully automated (or almost fully automated) fast food restaurant is not possible? Jack up the minimum wage, and I'm betting you'll see just that.

They already have these in the Netherlands. I saw one at a train station. You put your Euros in a slot, and opened the door where the food was. Very self serve. They only had employees to make the food and fill the slots as they emptied. Given the hiring restrictions and costs in Europe, I can see why this would catch on.

Michigander:

Except that if you consider the minimum wages in context of when the laws were passed instead of when they took effect (assuming that employers would start to change their staffing plans based on what they knew would happen), it looks quite different. New Jersey's teen employment fell by mcuh more than Pennsylvania's, if you measure over the period after the minimum wage was passed instead of when it took effect. I don't think it's a stretch to assume that businesses would go ahead and start investing to change their personnel use once they knew that their labor costs would change in two years.

To quote the next couple sentences after what you did, to provide context:

Recall that the increase in the federal minimum was debated and passed in 1989 and that the 1992 increase in New Jersey’s minimum to $5.05 was passed in early 1990. Now note that the teenage employment rates in New Jersey and Pennsylvania were virtually identical in 1988. By 1992 teenage employment in Pennsylvania had fallen 9 percent, while in New Jersey it had fallen 28 percent. Moreover, subsequent data show that teenage employment began to rebound in Pennsylvania during 1993 as it continued its downward spiral in New Jersey.

I'm glad that some people understand how raising prices causes demand to decrease because liberals usually don't get that far.

But to fully understand the phenomenon one has to understand the concept of price elasticity. If something has extremely low price elasticity of demand, such as oil, then when the price can go up substantially yet we see hardly any impact on demand.

All the evidence seems to indicate that low wage labor in the U.S. has a low price elasticity of demand. I think it's beyond clear that low wage laborers benefit when the minimum wage is increased.

Of course there is no such thing as a free lunch. If low wage laborers are benefitting then it's at the expense of wealthier people who have to pay a little more for a Big Mac. Whether this is good or bad is a philosophical question and not an economic one.

But remember we don't live in a true free market economy. Most competion is oligopolistic, and there is heavy government intervention. It may very well be that (1) raising the miminum wage is a more EFFICIENT way to help low wage workers than wasteful government handouts; and (2) wages are kept artificially low because employers have unequal bargaining power because they are smaller in number and better organized, so raising wages may actually make the economy more efficient by pricing it more accurately!

All the evidence seems to indicate that low wage labor in the U.S. has a low price elasticity of demand. I think it's beyond clear that low wage laborers benefit when the minimum wage is increased.

All what evidence? Someone already mentioned self-checkout lanes. Most fast food assembly processes could be performed by a self-cleaning machine, albeit an expensive one, and will be if the long-term cost of labor is driven beyond the threshold. All you need then is a couple workers to restock the ingredients, resolve an ocassional jam, and run the cleaning cycle -- even during the busiest periods when six to ten workers might otherwise be so-occupied. And the low-wage labor to assemble that machine will come from China.

If in that sense you mean the demand for low-wage labor is inelastic, fine; but I wasn't aware that converting low-wage positions in the US to low-wage Chinese manufacturing jobs because of undue tinkering in labor market regulations, was the best way to help low-wage US workers.

markm, it is illegal for employers to "knowingly" hire illegal workers. Employers are supposed to verify that new employees are legal but are required to accept documents at face value as long as they "reasonably appear to be genuine and relate to the person presenting them". It is my understanding that these documents are easily forged. As a result prosecutions of employers for hiring illegals are rare and obtaining convictions is difficult.

I believe paying below minimum wage is considerably riskier particularly for substantial employers like McDonalds. If you employ an illegal worker for several years there is no advantage to the worker for complaining. If you pay below minimum wage for several years the worker can complain and obtain back pay.

For these reasons I think minimum wage laws are more likely to be obeyed. I don't know for sure that raising the minimum wage would discourage illegal immigration which is why I said "if". However I think it is a reasonable hypothesis.

All the evidence seems to indicate that low wage labor in the U.S. has a low price elasticity of demand. I think it's beyond clear that low wage laborers benefit when the minimum wage is increased.

This is a point that could be made more often. Even the largest estimate I've ever seen of the impact of minimum wage laws, one of Finis Welch's IIRC, found that a 10% increase in the minimum reduced employment of affected workers by about 3%, or in other words, he found an implicit price elasticity of demand of 0.3. Most studies find a smaller impact, and therefore an even lower implicit elasticity.

This needs to be qualified somewhat, as basic micro theory also tells us that elasticity is seldom constant along an entire demand curve. If you adjusted the wage values and increases covered in the various studies over the past 30 years or so, I'd guess that we could be reasonably sure that demand is highly inelastic over a wage range from about $5 to $8 or so. That doesn't mean that the minimum could be raised outside that range, in real terms, without larger effects on employment.

If you pay below minimum wage for several years the worker can complain and obtain back pay

The typical way employers get around the minimum-wage law, especially with regard to illegals, is to demand a kickback, in cash, from the employee. That way the effective wage is lower, but on the books everything looks legit.

Dan, the worker can still complain and obtain back pay as long as the employer is not judgement proof. So if the employer is a one man "labor contractor" and likely illegal himself the employee is probably out of luck (unless he can go after the business employing the contractor) but if a substantial company like McDonalds or Walmart pulls stuff like this they are taking a big risk. Do you doubt that Walmart employs more illegal workers than workers receiving less than minimum wage?

John Thacker writes:

Except that if you consider the minimum wages in context of when the laws were passed instead of when they took effect (assuming that employers would start to change their staffing plans based on what they knew would happen), it looks quite different.

If we look at the New Jersey numbers, the biggest drop is from 1988 to 1989, of 4.6%. From Deere et. all, "the 1992 increase in New Jersey's minimum to $5.05 was passed in early 1990." Since the 1989 numbers run from April 1 to March 30, 1990, it is just barely possibly that the future hike had some impact on the 1989 numbers but largely the biggest year-to-year drop in the New Jersey employment was before the law was passed.

If you take the New Jersey and Pennsylvania numbers and graph them, the results are interesting. They start off at virtually the same place. From 88 to 89, before the minimum wage law is passed, NJ's employment drops 4.6% while PA's increases by 2.4%, resulting in a about a 7% difference. After that, the two drop is a similar fashion, with NJ losing 6.7% employment in the next three years while PA loses 6.1%.

It seems that the effect of the minimum wage law is dwarfed by other factors. Or, as Jane put it:

"...when the studies tend to point both ways, that's a good sign that whatever change you're looking at is pretty small."

Mark,
As for the supposed mystery about how raising the minimum wage is supposed to affect productivity, it's actually fairly straightforward--higher pay leads to reduced job turnover, and a more stable workforce increases productivity.

K. Murphy's analysis addresses this. In the absence of a minimum wage, two willing parties reach a mutual agreement on labor supply (employee) and compensation for that supply (employer). After introducing a minimum wage, if productivity increases to adjust to the higher wage level, then at least one if not both parties are worse off because if the natural equilibrium was at a higher productivity/higher compensation level, then that level would have been reached natrually without legislation. Thus economic deadweight is created for at least one, if not both parties.

Spencer,

Making use of deductive methods is not the same as living in a fantasy land. Rejecting the conclusion of a deductive argument for *lack* of empirical confirmation is.

Meanwhile, you can find multiple studies showing the negative effects of a minimum wage listed here.

As much as you claim to be concerned about using empirical evidence (even when a valid deductive argument addresses the issue!), I'm surprised that you didn't know that any of these studies existed.

if a substantial company like McDonalds or Walmart pulls stuff like this they are taking a big risk

Obviously they're not going to do it as a matter of corporate policy, but McDonald's is a franchise outfit. You'd better belief the individual owners could be willing to screw over employees that way if that's what it takes to make ends meet. Sure, the employee could file a complaint -- and get deported without ever being able to collect, if he's an illegal immigrant.

I'm not sure if you are aware of this, but La Migra doesn't do raids as often as it used to. I think it's falling by about 50% a year for the last five years, or down by 95% in total. Can't vouch for the numbers. Might only be down 94% or something.
What effect this has on wage rates is unknown or at least debateable. I suppose if the dollar renormalises when everone cuts off credit to America, we'll find out what imports and immigration (well, the kind of immigration based on remittances to the home country, anyway) did to wages retroactively. Would kind of make minimum wage laws academic.

This is a point that could be made more often. Even the largest estimate I've ever seen of the impact of minimum wage laws, one of Finis Welch's IIRC, found that a 10% increase in the minimum reduced employment of affected workers by about 3%, or in other words, he found an implicit price elasticity of demand of 0.3. Most studies find a smaller impact, and therefore an even lower implicit elasticity.

The problem is that almost all the studies I've seen focus on the relatively short term. In the short term, the data you're mostly looking at relates to the question, "Does the minimum wage cause businesses to lay people off?"

For relatively small increases in the minimum wage, the answer is probably not. Firing people is unpleasant and disruptive and hurts morale and such. The effect is more likely to be seen in those people not hired, as (as many people above have noted) companies force current employees to work more and/or invest in automation and the like. But that's going to take far longer to show up in the data.

James: If the sub-minimum wage is implemented by making the illegal worker kick back part of his pay in cash, how is the worker going to prove this so he can collect it? Especially from Mexico?

There's another possibility: The employer will suck it up and pay the higher minimum until two of his teenaged employees quit. Then he will replace them with one adult whose papers look OK if you don't look too close, and who will actually earn the higher rate (and more) by doing twice as much work. The only problem is the new employee can't speak English - but some American teenagers apparently can't speak any language known to people over 25, so it evens out...

In the absence of a minimum wage, two willing parties reach a mutual agreement on labor supply (employee) and compensation for that supply (employer).

But the employer has unequal bargaining power, in large part because the number of employees far exceed the number of employers, so the employers of oligopolistic pricing power.

A minimum wage can actually result in a wage that better represents the true value of the labor, resulting in greater economic efficiency.

"A minimum wage can actually result in a wage that better represents the true value of the labor, resulting in greater economic efficiency." - Half Sigma

Yes, that's true. Just as it was also true that the Soviet Union's command and control economy could have been more robust and productive than ours by avoiding the mis-allocation of resources that is an inevitable part of a free market economy. Didn't work that way in practice, but it could have.

For the government to set a better "true" wage than the one produced by the free market, all minimum wage jobs in every single city, town, and village in the country would have to be exactly the same. However, working at a feed store in rural Texas is most likely not the same thing as working the night shift at a Circle K in Dallas. The discrepancies get larger when comparing one part of the country to another. In theory, the law could be designed to properly account for such differences. In practice, the wage is the same everywhere for all jobs. The chance that that one wage would be better than what the free market could come up with is exactly zero. But, in theory, it might work.

K. Murphy's analysis addresses this. In the absence of a minimum wage, two willing parties reach a mutual agreement on labor supply (employee) and compensation for that supply (employer). After introducing a minimum wage, if productivity increases to adjust to the higher wage level, then at least one if not both parties are worse off because if the natural equilibrium was at a higher productivity/higher compensation level, then that level would have been reached natrually without legislation.

Not only does this analysis assume, as Half Sigma noted, that both sides have equal bargaining power, it also assumes perfect, costless information, such that the dynamic effects of differing pay levels can be accurately foreseen in advance by both parties. I'm sure that Kevin Murphy, if he deserves even half of his hotshot reputation, understands this.

But the employer has unequal bargaining power, in large part because the number of employees far exceed the number of employers, so the employers of oligopolistic pricing power.

But the employees generally have a level of mobility that the employer does not usually enjoy, and can find an employer elsewhere (even in a different city or state) if they so desire. Assuming for the sake of the argument that the employer really does have oligopolistic pricing power, s/he cannot wield it recklessly without risking the stability of the business.

The market equilibrium wage depresses the real value of labor because the employer has all the advantages in negotiations. In addition to oligopolistic pricing power, the employer also as asymetric information (hey, that's the name of this blog), knowing how much all of its employees get paid and what its job applicants got paid at previous jobs, but the job applicant knows nothing. The employer has an HR department full of people who are expert at getting employees to work for the lowest possible wage.

"The market equilibrium wage depresses the real value of labor because the employer has all the advantages in negotiations. In addition to oligopolistic pricing power, the employer also as asymetric information (hey, that's the name of this blog), knowing how much all of its employees get paid and what its job applicants got paid at previous jobs, but the job applicant knows nothing. The employer has an HR department full of people who are expert at getting employees to work for the lowest possible wage." - Half Sigma

Power to the people! I suspect, but do not know, that most minimum wage workers do NOT work for an employer that has an HR department staffed with even one person, let alone a team of HR professionals who can round up -- at a moments notice -- a crew of ignorant, yet hard working, serfs willing to work for slave wages. Our firm, which I help run, has about 40 employees. We don't have an HR department. (Maybe at least one of our employees would work at the minimum wage if we did have an HR department. Currently, all make more than that. Memo to self: look into hiring HR director with money saved by cutting people's pay.) Most fast food joints don't have an HR department either. Neither does the local bowling alley, gas station, or bookstore.

Most of the jobs in this country are found in small businesses (depending on how you define that term). These businesses are not nearly as sophisticated as you seem to think they are. They understand their niche and how to serve their customers, but setting the appropriate wage is often a seat-of-the-pants trial-and-error process. When they find a good worker, they quickly move'em up the pay scale to try and keep him or her. Finding that good worker is difficult and expensive. Making someone pay an artificially inflated wage to a new hire only makes the gamble more expensive. You say that all the information is on one side of the negotiation, only the worker knows whether he or she is willing to work hard. That piece of information on the other side evens things out quite nicely.

It's easy to ignore those who are screwed by minimum-wage increases if you've never been one of them and don't expect ever to be one of them. I blogged about this here. Short version: in 1978 I earned $2.70 an hour as a piano mover (!), with no insurance or other benefits, when I would have been much better off making $2.50 or $2.25 or even $2.00 per hour using my brain in a job with prospects for advancement. I still resent the law that graciously allowed the former but forbade the latter.

A year ago, CoyoteBlog reported on the deleterious effects of minimum-wage laws from the employer's point of view. Unlike my old post, it appears to be still open for comments.

Jane: Is there some kind of one-link-per-comment limit? If so, you should say so up front. I posted a comment combining this one with my previous one a couple of days ago, but it was sent to moderation and still hasn't appeared.

Thank you, Dr. Weevil, for both links. They were interesting.

ACORN is an activist organization that among other things advocates for increases in the minimum wage. However, in http://www.epionline.org/studies/epi_acorn_05-2003.pdf page 16 appendix B epionline reprinted brief excerpts of a California court decision ruling that ACORN needs to pay its workers the California minimum wage. Yes, epionline has a dog in this fight, but the case citation is checkable.

Why is this interesting?

ACORN, in its court filings, claimed that they should be exempt from the minimum wage laws because their organization engages in first-amendment activity and because they would be able to afford to do less of it, hiring substantially fewer employees, if they were forced to pay the California minimum wage. If you make us pay our workers more we would hire fewer of them and issue less constitutionally protected speech.

I didn't make this up. I'm not creative enough. Perhaps theonion is creative enough to have made this up, but they didn't.

-dk

Why do we have child labor laws?

OSHA standards?

Why do we have minimum wage laws?

Seems to me that capital trumps labor every time, right or wrong.

In theory, we've moved past slave labor, but many of the arguments above seem to come just shy of favoring it.

Capital is of more value than people, seems to be the argument.

I don't get that.

What will we do with all the unskilled, or out-sourced labor in a few years hence?

The market equilibrium wage depresses the real value of labor because the employer has all the advantages in negotiations. In addition to oligopolistic pricing power, the employer also as asymetric information (hey, that's the name of this blog), knowing how much all of its employees get paid and what its job applicants got paid at previous jobs, but the job applicant knows nothing. The employer has an HR department full of people who are expert at getting employees to work for the lowest possible wage.

This undoubtedly happens, in companies (as someone already pointed out) large enough to have an HR department. It does not happen in all companies large enough to have an HR department, for the simple reason that companies so-managed tend not to last long. See, word gets out that Screwyall Incorporated is a crapshack which disrespects their employers, and then that Scrooge McDuck-staffed HR department tends to have difficulty hiring a competent workforce that can design salable products or execute useful services in the competitive marketplace.

In the employee/employer relationship there are multiple trends happening simultaneously, and sometimes in opposition to each other, but on different timescales. The worker-side timescale is one of the shortest and therefore easiest to observe and analyze. Unfortunately, because it is not the only trend at work, analyses derived from that only will tend shallow and pseudo-marxist, and ultimately irrelevant.

"capital trumps labor"

I love this stuff.

James points to a literature review that discusses how the Card and Krueger result is anomolous. But Card and Krueger conducted a fascinating meta-analysis of prior studies that was published in the American Economic Review (Time-Series Minimum-Wage Studies: A Meta-analysis,American Economic Review, 85(2):238-243 (1995)). Basically, they find evidence that the prior studies torture the data to get the "right" answer, i.e., that higher minimum wages reduce employment.

More specifically: If the effect of minimum wages on employment is consistent, then estimates of the effect from different studies would cluster around the true effect size. Studies based on data with fewer subjects, which are less precise, might vary more than larger studies, but the effects should be symmetrical around the true effect size. What Card and Krueger found was that they weren't.

The standard tests for statistical significance, t-tests or z-tests, require a value of 1.96 (call it 2) for the researcher to assert the probability the tue effect is zero is less than 5%, which is the magic number for publishability. As sample size goes down, the size of the effect needed to achieve a t-test or z-test of 2 goes up. Card and Krueger found that the reported t-stats in the literature were almost all around 2, the minimum needed for publishability, and that smaller sample studies systematically found larger effects. This is not the pattern one would observe if the studies were getting unbiased estimates of the same effect.

There are lots of ways to edit one's data when one is getting the wrong answer. And for an economist writing for a professional audience that believes economic theory supports finding an effect of the minimum wage, lots of reason to believe that the small, unpublishable effect or contrary effect one observes in one's initial analysis, is wrong. And so, one edits, and keeps on editing, until one gets the "right" answer. Card and Krueger's analysis provide substantial evidence that this occurred in the prior studies. Given this, one should be VERY skeptical of the research finding significant effects of minimum wages on employment. The conclusion that the effect is zero or small at best, small enough to ignore in policymaking, is highly plausible.

Unless I missed it. no one seems to have expressed the fundamental empirical economic principle here - fixing prices (i.e. wages) always causes shortages, i.e. availability of jobs.

You missed it. The "fundamental economic principle" is challenged by empirical data that suggests the reduction in demand is nonexistant to modest. See my post immediately above yours for a discussion of studies that find a large effect and see some of the discussion on March 7.

In response to:

The second experience came about 2 years later. I was now working at a furniture mill. One of the long term employees of the mill was a man, at least 10 years older than me, named Frank. Frank was, as we used to say, a bit slow. He could not do much other than sweep up the place. He could not be trusted with the power machinery -- he'd be a danger to himself. But what Frank could do, he did well and he worked hard. Frank was the son of an acquaintance of the owner of the mill. Frank's job was not, strictly speaking, a charity case. He worked hard for and earned his money. However, it was clear that the owner could have gotten Frank's work done more cheaply without Frank. I've always wondered, how much right does society have to dictate the costs of a business owner's charity? There are a lot of Franks who work at jobs made just for them at businesses across our country. Every-time we change the minimum wage, it makes it more expensive to keep them on.

A friend of mine went to a region of Italy - Emilia Romagne or soemthing - and he said there was no minimum wage. This allowed mentally handicapped people to become employed and thereby become integrated with everyday people. Persons with Down Syndrome, he said, seemed to like using their hands, and they were given the task of putting sheathed needles onto syringes, which they did quite well and enjoyed. A machine could do it - sure - but at $2 an hour or whatever, the mentally challenged people were employable, and got to be 'out there' in the world.

Then in back in Canada, another friend of mine has a mentally challenged sibling who is sequestered away in a home where they manually sort buckets of screws by head type. When the buckets are all sorted, they are whisked away to a back room, re-mixed and given back to the people in the dayhome. It's a shame that the minimum wage makes them unemployable, because they could be out there in the real world rather than all in a day home together.

This is why I love reality-based types.

When a deductive argument is offered, don't even bother to question the logic of the argument, or the assumptions. Just demand numbers. Refer to the use of logic as faith or fantasy or something.

Spencer: "It is still the case that the right wing is living in some fanatasy world where they argue that an increase in the minimum leads to a drop in employment yet out of the hundreds of examples of governments raising the mininum wage there is not a single example of their theory being correct."

Of course sometimes you get the numbers you demand. Several examples are offered, so now the argument changes: more sophisticated statistical analysis calls those examples into question.

Waldtest: "Basically, they find evidence that the prior studies torture the data to get the "right" answer, i.e., that higher minimum wages reduce employment."

C & K find some evidence that minimum wage studies are torturing their data. I just did a meta-analysis of my own which finds that being authored by C&K is a perfect predictor that a minimum wage study will oppose the mainstream view. So what?

What's worse is the statistical mistake of going from significant but questionable (according to C & K) or even insignificant results to accepting the null hypothesis that the effect of a minium wage is zero.

Even assuming away the implications of the stone age ideas of supply and demand, there is something about the lefty side of the empirical case that I find rather troubling. When someone proposes any policy, I want to be 95% confident that the policy won't have adverse effects. What the minimum wagers are saying is that we should have a minimum wage so long as the likelihood of disemployment is less than 95%. If we are only 80% or 60% certain that the minimum wage will result in disemployment, that's just not good enough to discourage its implementation.

C & K find some evidence that minimum wage studies are torturing their data. I just did a meta-analysis of my own which finds that being authored by C&K is a perfect predictor that a minimum wage study will oppose the mainstream view. So what?

And in what peer-reviewed journal of economics did you publish your meta-analysis?

I have mentioned to King Bananian(at SCSU Scholars) Molly Ivins quoting the Card /Krueger sstudy in a column as evidence of Republican myopia in opposing minimum wage increases.He's agreeable to gathering other dept chairs and sending a letter to Ms. Ivins re' her knowledge of economics.
I have enjoyed browsing through the above and would like to make a few commeents.First,re' the argument that increases the wage decreases the turnover,thus saving moneyt for the employer.Obviously ,that's the course taken with an employee who is valuble.I was at a servic station yesterday (in Michigan) where the owners wife was despodent over the coming rise in the minimum in Michigan.She feels everyone will now have a raise so the people currently making $7.15/hr don't feel taken for granted by paying them minimum wage.This is a large operation (several pump islands,car wash,deli area),spotlessly clean and open 24 hrs/day.With 40 employees,there is a significant loss of revenue.The owner started this as a small station over 30 years ago.He was working nights at a (UAW)wire mill at the time.Perhaps someone could explain to him he need only raise his gas prices to recoup his losses,and thaat no one will mind.
Also,a little thoughts on the state Republican's methods in spearheading this measure.Certainly,they know it's going to hurt the state and both business and the very poor.But;(1)It's popular.(2)It preserves their jobs and (3)Thee responsibility for the fall of the feeble economy will probably be directed against Gov. Granholm,since the top man gets the blame.Good politics,bad governing.I'll be moving in the next year.

One reason that raising the minimum wage has so little effect on employment, is because so few people earn minimum wage.

2.7% of the workforce...

http://www.bls.gov/cps/minwage2004.htm

Of course if you raise the wage, employment is not going to be affected much, because almost no one earns the minimum wage.

The question that really needs to be asked, is who bears the cost when the minimum wage is raised.

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