I don't understand why nobody ever even tries to just say "every county's minimum wage will be set each January 1st to 50% or 60% of that county's most-recent median-wage, based on whatever numbers from BEA or the Census seem most reliable."
Thanks for this. I'm very interested in whether or not min wage laws are good. I'm glad that you went into regional differences because a national min generally seemed like a bad idea to me and I would wonder if it could be tied to regional wage levels. But even with the monopsony scenario, is the assumption that if an employer has market power then they WILL be artificially keeping wages low and can afford more? I'm not trying to say that I think employers are good and will always want to pay fair wages but it seems like the argument perhaps assumes that employers will be unfair.
Also, how would you compare min wage laws to letting the market wages go but then using more gov't assistance like EITC, UBI, or something else.
If you scour BLS data to find the workers within 10% of MW, it's not about small one-company towns in Kansas so much as about "the entire South," even in urban and suburban areas. It's important to recognize that unemployment pressure there is disproportionately borne by one group. So if you're trying to fix the racial wealth gap, this is playing with fire.
I mean, I find it totally plausible that national MW increases might not increase unemployment in the black community. Maybe even more likely than not. Even if I give up to 80% odds of that though, I find that pretty cavalier policymaking.
Perfect is the enemy of the good, though, so I do not want to toss MW entirely. But it must be asked, why not a tiered policy tied to local conditions? Why not add specific measures to protect historically marginalized groups, such as wage subsidies for transitional employment opportunities? Why is this all or nothing? Why can't we include any technocratic safeguards? I know it's a pipe dream that legislatures would pass perfectly written measures, but even on wonkish blogs, can't we at least fantasize about a little technocracy, as a treat?
I'm increasingly frustrated that our policy debates tend to be just "X good! X bad!" The smart vanguard of policy discussions could instead be saying, "Ok, X has some benefits we want, but I'm willing to acknowledge some tail risks, even though I think they're a bit higher/lower than the general consensus. Here are the greatest risks with X, ordered by my best guess of likelihood * impact, and here are some mitigations we can add to the policy that will let us reap the benefits while making it safer for everyone."
Just, "eh, Federal might be fine?"
What's the actual harm of trying to do better? Honest question, maybe there's an answer. Maybe I'm being naive and there are specific reasons why any possible mitigation would be a poison pill, fine, let me know, I can take it. But otherwise I don't know why this is the line. I don't know why this is where we just shrug and give up trying to make a more robust policy that has all the exact same benefits but fewer risks.
(Sorry if this is on the rant-y side; thank you either way for the continuing reviews of research. I find them very powerful and useful distillations of current best knowledge on policy. Just wish you'd let your technocracy flag fly a little higher. Sure, maybe Biden's policy is fine whatever, but what would YOUR best policy be?)
I find explanations incorporating search theory more convincing than the monopsony power theory: When minimum wage is raised, some low productivity jobs will be lost. Hence, laid off workers will spend more resources in finding a higher productivity job, and will also have to accept inconveniences (like a longer traveling time) for it.
This is for example what could have been observed when germany introduced the minimum wage a few years back. And it raises the question, whether the overall result of having a minimum wage is really socially optimal or not.
Nice work. The potential impact of price setting effects of employers and the interaction with the minimum wage leading to possible employment gains is something that has been deserving of more attention for years. It's implied by but almost never discussed in most intro micro models.
Not an economist here but can`t one argue that a market with wages at or close to the minimum wage is inherently not competetive?
Given that many people have to have a job to make ends meet they don't have any bargaining power and not taking a job might not be an option, even if they barely or not at all are able to live off of it. Should one or many employers realise that, they could decide to only offer people minimum wage and chances are they still might get enough people to not have their economic output suffer from vacant positions.
Isn't the fact that there are people working fulltime and still needing social security somewhat proof of this?
What about the racial impact of minimum wage laws? Its odd that it isn't discussed much, given that the left is obsessed with racial impact in many other policy realms. My biggest beef with the minimum wage is what it does to minorities in inner cities. UC Irvines David Neumark is especially poignant on this and how it disproportionally harms the most marginal in society - especially Blacks from inner cities. Everyone intuitively understands why say the teenage unemployment is so high given minimum wage laws, but the Black urban youth is suffering from the same impact of the minimum wage. I'd be for a minimum wage if it was somehow pegged to the Black/White unemployment gap, for example. But when it comes to issues that greatly benefit unions (public schools, public services, and the minimum wage) the left suddenly doesn't care about racial impacts.
The BLS states the median hourly wage in the US is $19.14/hr. That means a $11.48/hr minimum wage is the 60% sweet spot. Or $12.63/hr if you want that two-thirds upper range. $15 is 78% of the median hourly wage in the US.
I am a small business owner. I employ 30-35 employees. If minimum wage was $15, my payroll last week would have been $8000.00 more. My rates to parents will raise $50-$70 per week per child. This will be the same in all businesses. So, employees making $15-$20 now will be brought down into poverty level because they will not get an $8 an hour raise. How does that feel for employees who have worked hard to get where they are, and now all the lazy, always late, never show up to work employees are making the same as them. Now, who wins, it is the government. I also figured how much more payroll taxes my business would pay on just the increase in minimum wage. My increase in payroll taxes would be $125,000.00 per year, multiply that by all the businesses in this country and you can see why the government wants minimum wage raised so much. They will collect billions of dollars more in payroll taxes on just the increase. They don’t want to tell you that!!!!!
Big corporations like Amazon regularly lobby to increase minimum wage while small businesses regularly fight it. This tells me who it benefits and who it harms. Increasing minimum wage may cause the economy to become more of a monospony than it was before? If there is a way to force minimum wage only for companies above a certain market cap, that would be better.
This is some of the laziest "analysis" I have ever seen by a professional "economist" (granted, he's not exactly an endowed chair at Harvard). Given that we are subscribing to the reification fallacy, I'd point out that the data "says" no such thing regarding increases in minimum wages. The data's sensitivity curves indicate that marginal increases in the effective price floor do not meaningfully decrease labor force participation rates during the time periods of study (some of the increases in the actual price floor were very high, but generally in areas where few earned minimum wage).
This is a far cry from saying that "a more than doubling of the wage floor will have no effect whatsoever in the labor markets." Rather, it is clear that there will be effects on a regional level (which would be clear if you did any actual analysis).
For instance, three states (WV, MS, & AR) have median wages below $15, another 11 have median wages below $16. If you actually think that this will have no impact on the labor market than you are even less sophisticated than your published research would lead an unbiased observer to assume.
The above point is doubly reinforced given that you cannot even bother to get basic information correct: The BLS reports the median wage in the US at $19.33 per person in all states. No state has a median wage of more than $23 per hour (the highest are CT, MA, & AK). Only Washington D. C. has a median wage in excess of $24 (at $33 or $34 - the data is a couple of years old). Given your claim that price floors are only net detrimental at 60% of the median wage and that no state has a median wage of $15/.6 = $25, we are forced to conclude that this new labor floor would be net harmful in every state. Furthermore, we can introduce a little bit of marginalization (and common sense) to show that large employers located in the geographies with the cheapest labor likely do not do so with their outside option being relocation to California. Rather, their outside option is likely to re-locate abroad. Rather than the Monopsony model, you should consider that employers have a greater ability to relocate than do employees (especially in the long run) which would imply that their best strategy is to relocate in the long run.
Who was the empiricist again?
TL;DR: Noah proves the counter due to his inability to collect actual data.
How about the non-partisan CBO report which says MW would cut of 1.3 million jobs? Or how about David Neumark's meta-analyses from 2007 of 96 studies which showed zero to negative effect?
This piece is incredibly scary when "recent PHDs and Economists" sit around offering endless theory of the effects of a $15 min wage with NO analysis of any data on whether businesses can afford it.
And using the US state median income as a basis means 24 states are going to have negative impact on trying to adjust to it.
The theory presented here is incorrect. The x-axis should not be "number of people employed" but instead "hours of labor for jobs paying the proposed minimum wage or less." A reason many studies fail to find a detrimental effect of the minimum wage is because they focus on employment numbers, which are easy to find, rather than hours worked. The most comprehensive analysis done on this subject was on Seattle's hike, where it was found that increases in the minimum wage were offset by reduced hours and slower low wage job growth. Single study sure, but much more in depth than Card and Krueger and many others commonly cited.
Noah is deleting any negative comments. Another problem with academics is that they can curate things. They also only seek approval from other academics. PhD economists and academics are talkers, but not doers. Listen to tinkerers, inventors, and entrepreneurs big and small, those with actual skin in the game that don’t rely on theory. Sooo many uncontrollable variables for minimum wage. I wish Nassim, and other complexity scientists who actually understand mathematics and statistics at the deepest level would come across this piece and shred it. Noah pumps out content without rigor simply for financial and status gain. Deep down he knows he’s not doing the due diligence or rigor in regards to his “work”. Economists, specifically Keynesian, love to think they are the ones who know what good economic policy is, but no one in the world is smart enough to model the world at a macro level. Once people realize this then there is no use for economists because it’s a fake job.
I don't understand why nobody ever even tries to just say "every county's minimum wage will be set each January 1st to 50% or 60% of that county's most-recent median-wage, based on whatever numbers from BEA or the Census seem most reliable."
Thanks for this. I'm very interested in whether or not min wage laws are good. I'm glad that you went into regional differences because a national min generally seemed like a bad idea to me and I would wonder if it could be tied to regional wage levels. But even with the monopsony scenario, is the assumption that if an employer has market power then they WILL be artificially keeping wages low and can afford more? I'm not trying to say that I think employers are good and will always want to pay fair wages but it seems like the argument perhaps assumes that employers will be unfair.
Also, how would you compare min wage laws to letting the market wages go but then using more gov't assistance like EITC, UBI, or something else.
Thanks again!
If you scour BLS data to find the workers within 10% of MW, it's not about small one-company towns in Kansas so much as about "the entire South," even in urban and suburban areas. It's important to recognize that unemployment pressure there is disproportionately borne by one group. So if you're trying to fix the racial wealth gap, this is playing with fire.
I mean, I find it totally plausible that national MW increases might not increase unemployment in the black community. Maybe even more likely than not. Even if I give up to 80% odds of that though, I find that pretty cavalier policymaking.
Perfect is the enemy of the good, though, so I do not want to toss MW entirely. But it must be asked, why not a tiered policy tied to local conditions? Why not add specific measures to protect historically marginalized groups, such as wage subsidies for transitional employment opportunities? Why is this all or nothing? Why can't we include any technocratic safeguards? I know it's a pipe dream that legislatures would pass perfectly written measures, but even on wonkish blogs, can't we at least fantasize about a little technocracy, as a treat?
I'm increasingly frustrated that our policy debates tend to be just "X good! X bad!" The smart vanguard of policy discussions could instead be saying, "Ok, X has some benefits we want, but I'm willing to acknowledge some tail risks, even though I think they're a bit higher/lower than the general consensus. Here are the greatest risks with X, ordered by my best guess of likelihood * impact, and here are some mitigations we can add to the policy that will let us reap the benefits while making it safer for everyone."
Just, "eh, Federal might be fine?"
What's the actual harm of trying to do better? Honest question, maybe there's an answer. Maybe I'm being naive and there are specific reasons why any possible mitigation would be a poison pill, fine, let me know, I can take it. But otherwise I don't know why this is the line. I don't know why this is where we just shrug and give up trying to make a more robust policy that has all the exact same benefits but fewer risks.
(Sorry if this is on the rant-y side; thank you either way for the continuing reviews of research. I find them very powerful and useful distillations of current best knowledge on policy. Just wish you'd let your technocracy flag fly a little higher. Sure, maybe Biden's policy is fine whatever, but what would YOUR best policy be?)
I find explanations incorporating search theory more convincing than the monopsony power theory: When minimum wage is raised, some low productivity jobs will be lost. Hence, laid off workers will spend more resources in finding a higher productivity job, and will also have to accept inconveniences (like a longer traveling time) for it.
This is for example what could have been observed when germany introduced the minimum wage a few years back. And it raises the question, whether the overall result of having a minimum wage is really socially optimal or not.
Nice work. The potential impact of price setting effects of employers and the interaction with the minimum wage leading to possible employment gains is something that has been deserving of more attention for years. It's implied by but almost never discussed in most intro micro models.
Not an economist here but can`t one argue that a market with wages at or close to the minimum wage is inherently not competetive?
Given that many people have to have a job to make ends meet they don't have any bargaining power and not taking a job might not be an option, even if they barely or not at all are able to live off of it. Should one or many employers realise that, they could decide to only offer people minimum wage and chances are they still might get enough people to not have their economic output suffer from vacant positions.
Isn't the fact that there are people working fulltime and still needing social security somewhat proof of this?
TY in advance.
What about the racial impact of minimum wage laws? Its odd that it isn't discussed much, given that the left is obsessed with racial impact in many other policy realms. My biggest beef with the minimum wage is what it does to minorities in inner cities. UC Irvines David Neumark is especially poignant on this and how it disproportionally harms the most marginal in society - especially Blacks from inner cities. Everyone intuitively understands why say the teenage unemployment is so high given minimum wage laws, but the Black urban youth is suffering from the same impact of the minimum wage. I'd be for a minimum wage if it was somehow pegged to the Black/White unemployment gap, for example. But when it comes to issues that greatly benefit unions (public schools, public services, and the minimum wage) the left suddenly doesn't care about racial impacts.
Why is the worker not allowed to set a price for their own labor?
The BLS states the median hourly wage in the US is $19.14/hr. That means a $11.48/hr minimum wage is the 60% sweet spot. Or $12.63/hr if you want that two-thirds upper range. $15 is 78% of the median hourly wage in the US.
https://www.bls.gov/oes/current/oes_nat.htm
I am a small business owner. I employ 30-35 employees. If minimum wage was $15, my payroll last week would have been $8000.00 more. My rates to parents will raise $50-$70 per week per child. This will be the same in all businesses. So, employees making $15-$20 now will be brought down into poverty level because they will not get an $8 an hour raise. How does that feel for employees who have worked hard to get where they are, and now all the lazy, always late, never show up to work employees are making the same as them. Now, who wins, it is the government. I also figured how much more payroll taxes my business would pay on just the increase in minimum wage. My increase in payroll taxes would be $125,000.00 per year, multiply that by all the businesses in this country and you can see why the government wants minimum wage raised so much. They will collect billions of dollars more in payroll taxes on just the increase. They don’t want to tell you that!!!!!
Big corporations like Amazon regularly lobby to increase minimum wage while small businesses regularly fight it. This tells me who it benefits and who it harms. Increasing minimum wage may cause the economy to become more of a monospony than it was before? If there is a way to force minimum wage only for companies above a certain market cap, that would be better.
This is some of the laziest "analysis" I have ever seen by a professional "economist" (granted, he's not exactly an endowed chair at Harvard). Given that we are subscribing to the reification fallacy, I'd point out that the data "says" no such thing regarding increases in minimum wages. The data's sensitivity curves indicate that marginal increases in the effective price floor do not meaningfully decrease labor force participation rates during the time periods of study (some of the increases in the actual price floor were very high, but generally in areas where few earned minimum wage).
This is a far cry from saying that "a more than doubling of the wage floor will have no effect whatsoever in the labor markets." Rather, it is clear that there will be effects on a regional level (which would be clear if you did any actual analysis).
For instance, three states (WV, MS, & AR) have median wages below $15, another 11 have median wages below $16. If you actually think that this will have no impact on the labor market than you are even less sophisticated than your published research would lead an unbiased observer to assume.
The above point is doubly reinforced given that you cannot even bother to get basic information correct: The BLS reports the median wage in the US at $19.33 per person in all states. No state has a median wage of more than $23 per hour (the highest are CT, MA, & AK). Only Washington D. C. has a median wage in excess of $24 (at $33 or $34 - the data is a couple of years old). Given your claim that price floors are only net detrimental at 60% of the median wage and that no state has a median wage of $15/.6 = $25, we are forced to conclude that this new labor floor would be net harmful in every state. Furthermore, we can introduce a little bit of marginalization (and common sense) to show that large employers located in the geographies with the cheapest labor likely do not do so with their outside option being relocation to California. Rather, their outside option is likely to re-locate abroad. Rather than the Monopsony model, you should consider that employers have a greater ability to relocate than do employees (especially in the long run) which would imply that their best strategy is to relocate in the long run.
Who was the empiricist again?
TL;DR: Noah proves the counter due to his inability to collect actual data.
I wonder what you think of Tyler Cowen's arguments, can you respond point to point?
1. https://marginalrevolution.com/marginalrevolution/2021/01/consistency-about-elasticities.html
2. https://marginalrevolution.com/marginalrevolution/2020/10/minimum-wage-laws-during-a-pandemic.html
3. https://marginalrevolution.com/marginalrevolution/2020/03/minimum-wage-hikes-are-a-much-worse-idea-now.html
How about the non-partisan CBO report which says MW would cut of 1.3 million jobs? Or how about David Neumark's meta-analyses from 2007 of 96 studies which showed zero to negative effect?
This piece is incredibly scary when "recent PHDs and Economists" sit around offering endless theory of the effects of a $15 min wage with NO analysis of any data on whether businesses can afford it.
And using the US state median income as a basis means 24 states are going to have negative impact on trying to adjust to it.
The theory presented here is incorrect. The x-axis should not be "number of people employed" but instead "hours of labor for jobs paying the proposed minimum wage or less." A reason many studies fail to find a detrimental effect of the minimum wage is because they focus on employment numbers, which are easy to find, rather than hours worked. The most comprehensive analysis done on this subject was on Seattle's hike, where it was found that increases in the minimum wage were offset by reduced hours and slower low wage job growth. Single study sure, but much more in depth than Card and Krueger and many others commonly cited.
https://evans.uw.edu/faculty-research/research-projects-and-initiatives/the-minimum-wage-study/
Researchers also wrote opinion on the disappointing results, although they make a caveat that a national min wage might do better:
https://www.seattletimes.com/opinion/lessons-from-a-wage-experiment/
Noah is deleting any negative comments. Another problem with academics is that they can curate things. They also only seek approval from other academics. PhD economists and academics are talkers, but not doers. Listen to tinkerers, inventors, and entrepreneurs big and small, those with actual skin in the game that don’t rely on theory. Sooo many uncontrollable variables for minimum wage. I wish Nassim, and other complexity scientists who actually understand mathematics and statistics at the deepest level would come across this piece and shred it. Noah pumps out content without rigor simply for financial and status gain. Deep down he knows he’s not doing the due diligence or rigor in regards to his “work”. Economists, specifically Keynesian, love to think they are the ones who know what good economic policy is, but no one in the world is smart enough to model the world at a macro level. Once people realize this then there is no use for economists because it’s a fake job.