Friday, February 6, 2015

Addendum on the minimum wage

Just after I posted yesterday’s piece on the minimum wage, I saw this column by Larry Elder, noting the views of two prominent - even infamous - economists on the Left.

MIT economist and Obamacare architect Jon Gruber, in 2011: Let's say the government rolled in and set a minimum wage. ... Workers want to supply more hours than firms want to hire. ... You end up with excess supply. And we call that excess supply ‘unemployment.’” And: "We have a downward sloping demand curve, and why is it downward sloping? Because the higher the wage, the fewer workers the firm wants to hire. It would rather use machines instead."

Here’s Elder quoting Princeton economics professor (and New York Times columnist) Paul Krugman:
In 1998, Krugman reviewed a book that supported the living wage, titled "The Living Wage: Building a Fair Economy." But Krugman slammed the idea: "The living wage movement is simply a move to raise minimum wages through local action. So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment." 
Krugman even dismissed Card-Krueger, the widely cited minimum-wage study that purports to show its positive effect. Krugman pretty much dismissed it. "Indeed," he wrote, "much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages 'do,' in fact, reduce employment, but that the effects are small and swamped by other forces. ... 
"In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price -? determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away."

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