Edgar the Exploiter

Valmont · 20-04-2012 4:36pm #1

This short video clearly explains the negative consequences of the minimum wage. The fact that it disproportionately harms young and inexperienced workers is, I believe, indisputable.

While it obviously benefits those already in employment, how do supporters of the minimum wage resolve the situation that by supporting some low-paid workers, you are indirectly harming the prospects of those not yet in the workforce? Is this right or proper, morally speaking?

Or you disagree with me entirely -- what am I missing?

Channel Zero · 20-04-2012 6:33pm

Valmont wrote: »

Is this right or proper, morally speaking?

Or you disagree with me entirely -- what I am missing?

I disagree with you entirely.

The positive impacts of minimum wage laws are considered to far outweigh the (disputed) harms for stereotyped young and inexperienced workers like the young man in your educational video.

Studies like the Jared Bernstein and John Schmitt one linked below detail the fact that raising the minimum wage has not resulted in job losses, contrary to what organisations like the U.S. Libertarian Party and Cato etc probably like to maintain.

MAKING WORK PAY
The Impact of the 1996-97 Minimum Wage Increase

Main points:

* The 1996 and 1997 minimum wage increases raised the wages of almost 10 million workers. About 71% of these workers were adults and 58% were women. Just under half (46%) worked full time and another third worked 20 to 34 hours per week. * The average minimum wage worker is responsible for providing more than half (54%) of his or her family’s weekly earnings.
* The two-stage increase disproportionately benefited low-income working households. Although households in the bottom 20% of the income distribution (whose average income is $15,728) receive only 5% of total family income, they received 35% of the benefits from the minimum wage increase.
* Four different tests of the two increases’ employment impact — applied to a large number of demographic groups whose wages are sensitive to the minimum wage — fail to find any systematic, significant job loss associated with the 1996-97 increases. Not only are the estimated employment effects generally economically small and statistically insignificant, they are also almost as likely to be positive as negative.

These empirical results, particularly those showing strong wage gains and no negative impact on job opportunities, are at odds with traditional economic theory, which argues that a rise in the minimum wage must cost jobs. Over the last decade, however, new economic models designed to reconsider low-wage labor markets may help explain the increasingly weak link between the minimum wage and low-wage employment opportunities. These more recent models, often referred to as “dynamic monopsony” models, incorporate the costs of recruiting, training, and motivating low-wage workers, variables neglected by more traditional models. Not only do these new models more realistically reflect the character of the low-wage labor market, but they also offer a better explanation of our central finding: the 1996-97 increase in the minimum wage has proven to be an effective tool for raising the earnings of low-wage workers without lowering their employment opportunities.
http://www.epi.org/page/-/pdf/studies-making-work-pay.pdf

"One common misconception about minimum-wage workers is that they are mostly teenagers, working part time. In fact, of the roughly 1.4 million low-wage workers who will benefit from Jan. 1 minimum wage increases in eight states, roughly 80 percent are at least 20 years old and 78 percent work at least 20 hours per week. The percentage of affected workers who fit the false stereotype of teenage, part-time workers is a mere 12 percent."
http://www.epi.org/publication/minimum-wage-workers/

There is a growing view among economists that the minimum wage offers substantial benefits to low-wage workers without negative effect. Although there are still dissenters, the best recent research has shown that the job loss reported in earlier analyses does not, in fact, occur when the minimum wage is increased. There is little question that the overall impact of a minimum wage is positive.

Over 650 economists, including five Nobel Prize winners and six past presidents of the American Economics Association, recently signed a statement stating that federal and state minimum wage increases “can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed”

http://www.epi.org/page/-/old/briefingpapers/178/bp178.pdf

later12 · 20-04-2012 6:57pm

OP your link is exactly why people should avoid using youtube to inform their economic beliefs.

Nobody doubts that minimum wage laws could possibly cause job losses if the wage were high enough.

However, if the case is as clear cut as your link makes out, it should be easily observed in research on the labour market.

Unfortunately for your link, the evidence on minimum wage and job losses is unclear. Some (like Finis Welch) say there is an observable relationship, others like David Card and Lawrence Katz (in independent studies) say not so.

Maybe read the studies and then come back with something a little more balanced or informed.

SupaNova · 20-04-2012 7:14pm

What's missing is the alternative theory unless someone can make point me in the right direction? Is it not strange how most of these economists standing by these studies are(or should be) aware of the theory of minimum wage laws causing involuntary unemployment but cannot provide an alternative theory?

As far as I am aware they have settled on something along the lines of oh well of course it will cause unemployment if we set it too high, but it is good otherwise and that's the extent of it. If they truly believe this should they not be frantically at work finding some optimal rate to set a minimum wage, and developing theory in the process that shows existing theory to be wrong?

There is perfectly logical reasons why these studies may have not found evidence showing a minimum wage law to be overly harmful, the minimum wage law may have been below the market rate, and even if it was originally set above the market rate inflation can move it below the market rate. Have the sources been read, and did the sources so much as mention how this might be a problem?

Then we have these studies coming out with vague stuff like the following:
"fail to find any systemic, significant job loss associated with the 1996-1997 increases".

A minimum wage law doesn't have to cause systemic job losses merely more unemployment than without a minimum wage law.

DubTony · 20-04-2012 7:46pm

Studies are great. I think we're all aware of how many kids go to bed hungry in Ireland each night. I know both of mine do ... At least that's what they'll say if I ask them. The results of studies can always be released to suit whatever agenda needs to be suited.

I can offer a real world example of how minimum wage affected people who worked for me. And while the "emperical evidence seekers" will write this off as anectodal, it is what it is.

When the JLC for Retail Grocery and Allied trades was introduced, I was the manager of a medium size independent convenience store with a total of 13 staff. At the time there were 4 employees on salary; myself, asst. manager, trainee manager and deli manager. Between us we worked about 140 hours a week.

The JLC led to a 15% increase in wages in the store, including that of the trainee manager. The owner felt he had no option but to let people go as he was already at the limit of his budget. His own personal circumstances didn't allow him to take a pay cut so the trainee manager and another member of staff were let go. The owner, the 2 other salaried employees and I took up the slack, so there were no overtime payments.

This resulted in an overall saving to the business of .25% from the pre JLC costs and we carried on as normal. Real life proof, for me, that the introduction of min wage had a negative effect on employment.

A few years later I opened my own store. The only reason I have ever added to my work force is when people are needed as business expands or when I decided to work less. Unfortunately JLC rates made it prohibitive for me to hire people to allow me more time off, resulting in my working constantly a 60 + hour week. Had pay rates been lower, I would have happily employed more (at least one - possibly 2) people.

Permabear · 20-04-2012 9:40pm

This post has been deleted.

later12 · 20-04-2012 10:16pm

Bit of an exaggeration there.

If you want to reference some of the many studies listed in Minimum Wages, go ahead and do so. After all, the book's greatest value is the research it cites. Moreover, the effect on the youth, immigrants and the low skilled only make up part of the book and I think most economists would be surprised to hear someone describe this text as a definitive answer on minimum wage. Personally, I'm no minimum wage fanatic, but I would suggest people cite actual research on this issue as opposed to their favourite authors or youtube channel.

Valmont · 21-04-2012 9:57am

later12 wrote: »

If you want to reference some of the many studies listed in Minimum Wages, go ahead and do so. After all, the book's greatest value is the research it cites. Moreover, the effect on the youth, immigrants and the low skilled only make up part of the book and I think most economists would be surprised to hear someone describe this text as a definitive answer on minimum wage. Personally, I'm no minimum wage fanatic, but I would suggest people cite actual research on this issue as opposed to their favourite authors or youtube channel.

This issue is very simple and taking certain facts concerning the behaviour of businesses, can be analysed using deduction. Employers hire workers aiming towards increasing their revenue (indisputable, no?). When my employer hired me, they looked at the wage I wanted and judged that the revenue I would generate exceeded that which they paid me (have I lost you yet or would a scatterplot with a regression line through it help?).

Now, as this simple video clearly demonstrates, young or unskilled workers do not bring much value or increased revenue to a business when they begin working: this is why they are paid low wages. However, the experience they gain has a good chance of helping them up the ladder.

The point is that a state-mandated minimum wage ignores every distinct employers own unique cost-benefit analysis of hiring inexperienced and unskilled workers by placing an articificial floor in wages across the entire economy. In short, a ham-fisted one-size-fits-all 'solution' for low wages.

This is where it becomes really simple, and we don't even need inferential statistics to bolster our case: an artificial floor on wages simply prevents employers from hiring a potentially profitable employee at a lower wage.

I'm very impressed that during your economics 101 class you noted down the names of researchers who have completed conflicting research on the effects of the minimum wage; however, I would contest that 'measuring' the effects of the minimum wage is a largely futile endeavour because you are attempting to quantify what people would have done if different circumstances prevailed. I don't think I need to point out the massive methodological issues of completing a generalisable study on what is essentially a hypothetical data-set.

SupaNova · 21-04-2012 10:31am

Out of curiosity I started reading Channel_Zero's first link which uses 4 tests to determine the effects of minimum wage on unemployment. I have read through the first test which is conceded as useless.

One of the simplest means of testing the impact of the minimum wage increases is to use the “difference-in-differences,” or DD test. The rationale behind DD is that if the minimum wage increase led to job losses for low-wage workers, then we would expect such workers’ employment rates to fall after an increase.7 However, simply comparing employment rates before and after is insufficient; we must also account for various factors that can potentially confound the comparison. Teenage employment rates, for example, are highly seasonal, and consequently these seasonal effects must be extracted. The overall economy may also be growing when the increase goes into effect. If, for example, the overall economy grew more rapidly in the year in which the minimum wage rose than in the comparison year (and this was the case during the last increase), then the raw difference-in-differences estimate might be biased against finding job losses, since economic growth would be boosting employment despite the minimum wage.8 A final potential bias can be found in the lack of uniformity in economic growth between states. If low-wage employment is not evenly distributed across the states, then the DD estimate might confuse regional variations in economic growth with positive or negative employment effects of the minimum wage. As explained in the Data Appendix, each of these factors is accounted for in the following results.

So they acknowledge the problems.

The “growth-adjusted” estimates in column 8 indicate that economic growth was more rapid in the year that the minimum wage increased than it had been in the preceding year. Controlling for overall economic growth rates generally reduces the minimum wage’s positive employment effects and makes any negative employment effects more negative. The growth in teen employment, for example, falls from a 1.0 percentage-point increase to a smaller 0.5 percentage-point increase after controlling for overall growth.

They don't say how they adjust for growth. I'm guessing whatever numbers the author randomly plugged in just so he can at least have some growth adjusted figures.

How reliable are these findings? Relative to some of the other employment tests in this study, we consider the DD test to be fairly weak. Despite our best efforts, we still question whether this test effectively controls for economic growth, a drawback this test shares with others in the literature. However, even if the test is not powerful enough to separate the minimum wage effect on, say, teenage employment from the effect of macroeconomic growth on such employment, this would underscore the negligible impact of the most recent wage increase on job growth. If the recent increase generated the economic upheaval that its opponents predicted, this would be reflected in the DD test. In this regard, the fact that the test does not uncover such dislocation speaks both to the weakness of the test and the small impact of the recent increase in low-wage workers’ employment rates.

Then they admit it to be a useless test, but mention at least the results didn't show economic upheaval as if its some sort of victory for their side of the argument.

SupaNova · 21-04-2012 11:36am

DubTony wrote: »

Studies are great. I think we're all aware of how many kids go to bed hungry in Ireland each night. I know both of mine do ... At least that's what they'll say if I ask them. The results of studies can always be released to suit whatever agenda needs to be suited.

Exactly, and for proponents of minimum wage this is what they have to do as what they are saying makes no sense in theory, if raising minimum wage doesn't cause more unemployment than in its absence and is a generally good thing, why not raise it substantially, why does it work if we only raise it a little bit? Obviously this is absurd in theory, so theory is brushed aside for models where the authors get to adjust for growth and inflation(which are themselves imperfect aggregate statistics) at their own discretion.

I can offer a real world example of how minimum wage affected people who worked for me. And while the "emperical evidence seekers" will write this off as anectodal, it is what it is.

When the JLC for Retail Grocery and Allied trades was introduced, I was the manager of a medium size independent convenience store with a total of 13 staff. At the time there were 4 employees on salary; myself, asst. manager, trainee manager and deli manager. Between us we worked about 140 hours a week.

The JLC led to a 15% increase in wages in the store, including that of the trainee manager. The owner felt he had no option but to let people go as he was already at the limit of his budget. His own personal circumstances didn't allow him to take a pay cut so the trainee manager and another member of staff were let go. The owner, the 2 other salaried employees and I took up the slack, so there were no overtime payments.

This resulted in an overall saving to the business of .25% from the pre JLC costs and we carried on as normal. Real life proof, for me, that the introduction of min wage had a negative effect on employment.

A few years later I opened my own store. The only reason I have ever added to my work force is when people are needed as business expands or when I decided to work less. Unfortunately JLC rates made it prohibitive for me to hire people to allow me more time off, resulting in my working constantly a 60 + hour week. Had pay rates been lower, I would have happily employed more (at least one - possibly 2) people.

Your anecdotal evidence is actually more insightful to how the minimum wage works than what I have just read.

KyussBishop · 21-04-2012 11:59am

Low skilled workers who aren't skilled enough for minimum wage jobs will have social welfare to fall back on, and job training schemes; judging by stats, there does not seem to be an overly significant (just negligible) increase in unemployment as a result of minimum wage laws.

A lot of low paying jobs won't just disappear because of minimum wage either, because most of the time the work still has to be done by someone; how unskilled would someone have to be anyway, to not be skilled enough for a minimum wage job?

The main time minimum wage is harmful, is when an economy is in a downturn; at that time, I don't think aboloshing it is the right move, but certainly reducing it in line with the downturn is a good idea.

SupaNova wrote:

Exactly, and for proponents of minimum wage this is what they have to do as what they are saying makes no sense in theory, if raising minimum wage doesn't cause more unemployment than in its absence and is a generally good thing, why not raise it substantially, why does it work if we only raise it a little bit? Obviously this is absurd in theory, so theory is brushed aside for models where the authors get to adjust for growth and inflation(which are themselves imperfect aggregate statistics) at their own discretion.

There is more evidence of stats being doctored and bias against minimum wage than for:
https://en.wikipedia.org/wiki/Minimum_wage#Statistical_meta-analyses

People seem to be promoting taking theory as fact, rather than demanding evidence; that's not very scientific or empirical, get some stats.

SupaNova · 21-04-2012 12:20pm

KyussBishop wrote: »

The main time minimum wage is harmful, is when an economy is in a downturn; at that time, I don't think aboloshing it is the right move, but certainly reducing it in line with the downturn is a good idea.

Agree that it is more harmful in a downturn.

People seem to be promoting taking theory as fact, rather than demanding evidence; that's not very scientific or empirical, get some stats.

This could turn into another debate regarding empiricism and economics. Anyhow, the theory is that a minimum wage above the market rate will lead to unemployment. Basically a minimum wage set above the market rate will lead to higher unemployment than if such a minimum wage were absent, and the higher above the market rate it is the more unemployment. Roughly it seems most logical to test this along the following lines, if a minimum wage is €8 an hour, survey all unemployed asking who would be willing to work for €7.50, then survey all employers, and ask would they hire extra workers at the lower rate, if so how many, etc? And then you can estimate the effect on employment.

KyussBishop · 21-04-2012 1:49pm

SupaNova wrote: »

This could turn into another debate regarding empiricism and economics.

Perhaps, but a discussion is either grounded in fact or faith; if you promote a theory as fact, and try to discount the idea of seeking evidence, that is a belief without solid grounding i.e. faith.

Don't get me wrong, discussing things on a theoretical level is perfectly fine, but you have to acknowledge existing evidence and also acknowledge where there is a lack of evidence/data to back up particular viewpoints.
That doesn't discount said viewpoints, it's just the difference between saying something is true, and saying something might be true (which is quite an important distinction

).

SupaNova wrote: »

Anyhow, the theory is that a minimum wage above the market rate will lead to unemployment. Basically a minimum wage set above the market rate will lead to higher unemployment than if such a minimum wage were absent, and the higher above the market rate it is the more unemployment. Roughly it seems most logical to test this along the following lines, if a minimum wage is €8 an hour, survey all unemployed asking who would be willing to work for €7.50, then survey all employers, and ask would they hire extra workers at the lower rate, if so how many, etc? And then you can estimate the effect on employment.

It seems that any jobs that disappear through that would be unessential, and that social welfare will catch those workers; they would be free to enter into any other low skill jobs, and would have the opportunity to retrain to seek skilled employment.

Essentially, minimum wage only seems to be harmful when the low-skilled market is saturated, and even then, the stats (at most) show a negligible difference before/after minimum wage changes (although different stats from a saturated market would be interesting; needs more study really).

If the low-skill market is saturated and the economy is healthy, I think investment in retraining programs is a better solution; in an unhealthy economy with significantly rising unemployment, minimum wage should probably be reduced somewhat (though not eliminated).

SupaNova · 21-04-2012 2:55pm

KyussBishop wrote: »

Perhaps, but a discussion is either grounded in fact or faith; if you promote a theory as fact, and try to discount the idea of seeking evidence, that is a belief without solid grounding i.e. faith.

Theory can be deduced from facts though, and theory deduced from facts is not faith, so theory is not equal to faith. Taking inflation(increasing the money supply) as an example, we can start with the fact that new money has to enter the economy at a certain point, or set of points and deduce the logical implications of this undeniable fact. This Hayek article is nice example of what I am talking about:
http://mises.org/tradcycl/avoidinf.asp

SupaNova · 21-04-2012 2:58pm

KyussBishop wrote: »

Essentially, minimum wage only seems to be harmful when the low-skilled market is saturated, and even then, the stats (at most) show a negligible difference before/after minimum wage changes (although different stats from a saturated market would be interesting; needs more study really).

Can you clarify what you mean by harmful please.

KyussBishop · 21-04-2012 4:33pm

SupaNova wrote: »

Theory can be deduced from facts though, and theory deduced from facts is not faith, so theory is not equal to faith. Taking inflation(increasing the money supply) as an example, we can start with the fact that new money has to enter the economy at a certain point, or set of points and deduce the logical implications of this undeniable fact. This Hayek article is nice example of what I am talking about:
http://mises.org/tradcycl/avoidinf.asp

You're conflating things somewhat here; if someone believes a theory definitely will work in the absence of evidence, that is a belief without solid grounding, i.e. faith.

Was just reading an article there which made me think of this discussion; what it applies to philosophy/physics applies equally well here:
http://www.quantumdiaries.org/2012/04/20/mathematics-and-science/

That explains the general gist of what I mean pretty well, and why experimentation is important before you can state with certainty that a theory is true.
Theory is fine, you just need to back it up with evidence/facts (and where possible, testing) if you want to say it will work; if there does not appear to be any evidence/facts supporting it, you can only say it might work.

This is the major problem with current dominant streams of economics right now (neoclassical primarily); there is growing evidence undermining much of it, but it is very institutionalized within academic and political arenas right now, so (the many) alternative schools of economic thought are not getting as much voice or attention as they should.

It's all stuff I'm still reading up on, so don't have a solid grounding in the debates surrounding it yet.

Similar situation with string theory in physics; it's so complicated it doesn't even make any predictions (with the funny criticism that it's "not even wrong"), so can't even be tested, but it's so ingrained in academia, and people have devoted so much time to it that it's become institutionalized (pushing out research on competing theories), despite increasing debate over whether it's actual science anymore (due to inability to test and it being unlikely for that to change).

SupaNova wrote:

KyussBishop wrote:

Essentially, minimum wage only seems to be harmful when the low-skilled market is saturated, and even then, the stats (at most) show a negligible difference before/after minimum wage changes (although different stats from a saturated market would be interesting; needs more study really).

Can you clarify what you mean by harmful please.

In that context, harmful means it creates unemployment without the ability of the worker to readily seek reemployment (because the low-skilled job market is saturated).

benway · 21-04-2012 4:36pm

KyussBishop wrote: »

In that context, harmful means it creates unemployment without the ability of the worker to readily seek reemployment (because the low-skilled job market is saturated).

Whereas, correct me if I'm wrong, monetarist type approaches would regard inflation to be more "harmful" than unemployment?

SupaNova · 21-04-2012 4:55pm

KyussBishop wrote: »

You're conflating things somewhat here; if someone believes a theory definitely will work in the absence of evidence, that is a belief without solid grounding, i.e. faith.

Maybe I wasn't clear or should have picked out the exact passage to show the point. But we can know that things are true without testing. Starting simple:
-Something cannot be both a teapot and not a teapot. Something cannot be A and not A at the same time.
-Something cannot be in two places at a particular point in time.

Now moving onto the example I tried to give:
-Newly created money has to enter an economy at a particular point or set of points.

This is an undisputable fact, no?

And here are the implications of this fact:

The whole conventional analysis reproduced in most textbooks proceeds as if a rise in average prices meant that all prices rise at the same time by more or less the same percentage, or that this at least was true of all prices determined currently on the market, leaving out only a few prices fixed by decree or long term contracts, such as public utility rates, rents and various conventional fees. But this is not true or even possible. The crucial point is that so long as the flow of money expenditure continues to grow and prices of commodities and services are driven up, the different prices must rise, not at the same time but in succession, and that in consequence, so long as this process continues, the prices which rise first must all the time move ahead of the others.[...] The influx of the additional money into the system always takes place at some particular point. There will always be some people who have more money to spend before the others. Who these people are will depend on the particular manner in which the increase in the money stream is being brought about. It may be spent in the first instance by government on public works or increased salaries, or it may be first spent by investors mobilizing cash balances or borrowing for the purpose; it may be spent in the first instance on securities, on investment goods, on wages or on consumer's goods. It will then in turn be spent on something else by the first recipients of the additional expenditure, and so on. The process will take very different forms according to the initial source or sources of the additional money stream; and all its ramifications will soon be so complex that nobody can trace them. But one thing all these different forms of the process will have in common: that the different prices will rise, not at the same time but in succession, and that so long as the process continues some prices will always be ahead of the others and the whole structure of relative prices therefore very different from what the pure theorist describes as an equilibrium position.

So given we have an undeniable fact that new money enters at a certain point we can logical deduce that prices will not rise evenly but in succesion.

benway · 21-04-2012 5:42pm

SupaNova wrote: »

And here are the implications of this fact

And here's another implication of this fact, that's always struck me: with rising wages and inflation, ordinary workers have a greater share of the available resources, as not only are their wages rising, even if prices rise to offset this, but also inflation reduces the value of accumulated capital sitting idly in bank accounts. Which would seem, to me, to provide a further incentive to mobilise and invest these funds in long-term projects.

So, low inflation and high unemployment suits the capitalist class, low unemployment, but moderate to high inflation suits the working class. I've never bothered digging too deeply in to this, must do when I get a chance. But it's something that's jumped at me about the monetarists absolute aversion to inflation.

SupaNova · 21-04-2012 6:08pm

benway wrote: »

And here's another implication of this fact, that's always struck me: with rising wages and inflation, ordinary workers have a greater share of the available resources, as not only are their wages rising, even if prices rise to offset this,

The way you have put this is contradictory. If prices rise to offset increases in your wage you do not benefit from inflation. Maybe you just worded this badly

but also inflation reduces the value of accumulated capital sitting idly in bank accounts. Which would seem, to me, to provide a further incentive to mobilise and invest these funds in long-term projects.

Increasing the money supply will decrease the value of money, but accumulated capital is not always in the form of money. Money can rush anywhere in an attempt to avoid devaluation not just long term projects. And this is hardly a win for the average working man who doesn't know anything about investing or who is unlikely to be able to buy some fine art as an inflation hedge.

So, low inflation and high unemployment suits the capitalist class, low unemployment, but moderate to high inflation suits the working class. I've never bothered digging too deeply in to this, must do when I get a chance. But it's something that's jumped at me about the monetarists absolute aversion to inflation.

You can have low inflation and high unemployment as well as high inflation and high unemployment. And your obsession with the capitalist and ordinary worker class is getting in the way of your understanding. Some of those rich capitalists(the 1%) can benefit greatly while others suffer, and likewise for the average working man. And your conspiratorial lightbulb moment regarding monetarists at the end made me lol.:pac:

KyussBishop · 21-04-2012 6:26pm

benway wrote:

Whereas, correct me if I'm wrong, monetarist type approaches would regard inflation to be more "harmful" than unemployment?

From brief reading, I think so yes, as they would restrict money supply to try and counteract inflation, which would probably increase unemployment.

SupaNova wrote:

Maybe I wasn't clear or should have picked out the exact passage to show the point. But we can know that things are true without testing.

You can make hypothesis that something is true without testing, but you have to verify it through experiment as well.

I'm getting into pedantry mode a bit here, but lets take one of your basic examples:

SupaNova wrote:

-Something cannot be in two places at a particular point in time.

By the classical physical theories this true, but by quantum physical theories this is not true (and that is backed up by experimental evidence).

The hypothesis laid out in the bit you quote are perfectly logical, and they make sense in a theory, but you could find in practice there are unusual circumstances, such as the first-line receivers of the money all putting it into full-reserve savings, causing barely any price adjustments, or some other exceptionally weird conditions like that.

That's why you need to test stuff and put it through experimental validation (and why when considering any theory, you should do your best to try and find ways to break it, to limit its bounds); many a theory has been devoured by the 'law of unforeseen consequences'

benway · 21-04-2012 6:27pm

SupaNova wrote: »

And your conspiratorial lightbulb moment regarding monetarists at the end made me lol.:pac:

It wasn't really a lightbulb moment, tbh, except for my, admittedly probably slightly simplistic, reading of the mechanics. I read an interview with a Thatcher/Keith Joseph era economist with the British government, whose position was to the effect that he worried that the regime had taken the fight against inflation as their cue to engineer, and I quote, "a crisis of capitalism" so as to increase unemployment and weaken the working class. Don't think this guy is much of a socialist, either.

Warren Buffett wrote:

There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning.

If I'm a conspiracy theorist for thinking along these lines, then I'm in some pretty exalted company - from an interview in the New York Times.

SupaNova · 21-04-2012 6:45pm

KyussBishop wrote: »

That's why you need to test stuff and put it through experimental validation (and why when considering any theory, you should do your best to try and find ways to break it, to limit its bounds); many a theory has been devoured by the 'law of unforeseen consequences'

A hypothesis can be falsified by experiment. The statement, "something cannot be both A and not A at the same time" cannot be falsified by experiment. Also what you are saying is:
"The only way we can know something is if it can be empirically stated"

Is the only way I can know I am sitting in front of my laptop in my room, and not on a beach is if it is empirically tested and shown to be true? That seems a little absurd. If you believe the only way we can know something to be true is if it is empirically tested, that begs the question how do you know that belief itself to be true? An interesting contradiction to ponder. :pac:

SupaNova · 21-04-2012 7:07pm

benway wrote: »

It wasn't really a lightbulb moment, tbh, except for my, admittedly probably slightly simplistic, reading of the mechanics. I read an interview with a Thatcher/Keith Joseph era economist with the British government, whose position was to the effect that he worried that the regime had taken the fight against inflation as their cue to engineer, and I quote, "a crisis of capitalism" so as to increase unemployment and weaken the working class. Don't think this guy is much of a socialist, either.

If I'm a conspiracy theorist for thinking along these lines, then I'm in some pretty exalted company - from an interview in the New York Times.

I found the conspiracy that you hinted at amusing more so because it doesn't make sense. The average Joe keeps his money in a bank account, while the stereotypical 1%er has a diversified portfolio, I don't think the average Joe does well here. Then there is debtors and savers, an average Joe severely in debt with a fixed rate mortgage would do very well if a bout of high inflation took off, where as the average Joe who stuck to the age old advice of staying out of debt and keeping some savings for a rainy day would be absolutely decimated. So it is severely flawed to treat the average working Joe as a class that would greatly benefit from inflation.

KyussBishop · 21-04-2012 7:09pm

SupaNova wrote: »

An interesting contradiction to ponder. :pac:

Perhaps, though diverging from the topic I guess. To cut it short, I suppose I'll meet in the middle, and just say theories should be tested where they can be.

later12 · 21-04-2012 7:40pm

Valmont wrote: »

a state-mandated minimum wage ignores every distinct employers own unique cost-benefit analysis of hiring inexperienced and unskilled workers by placing an articificial floor in wages across the entire economy. In short, a ham-fisted one-size-fits-all 'solution' for low wages.

That's not necessarily the case. Ireland, like many advanced economies, offers a sub-minimum price floor to prospective employers of young people or those who are new to the labour market. Elsewhere, varying arrangements have been by way of collective bargaining or JLCs, though this latter arrangement has ceased to have statutory backing.

Either way, if the situation were as clear cut as you suggest it is, one would expect there to be very little debate on the matter. Not so. Disagreement among economists on the effects of minimum wage laws on youth unemployment tends to be particularly contentious.

I will stress for a third time that I would suggest that the likes of Finis Welch has established his arguments against minimum wage laws with a good degree of credibility, and while I am not completely anti-minimum wage, I would veer towards the conservative end of its application, with subminimums as set out earlier. That's because the opposing data is simply too emphatic and convincing in itself.

'measuring' the effects of the minimum wage is a largely futile endeavour because you are attempting to quantify what people would have done if different circumstances prevailed.

It's fairly straightforward: most research revolves around interviewing employers in a particular sector before and after the application of changes to minimum wage laws (e.g. Katz 1992). I think studies like these are a good deal more reliable than youtube clips, or unreliable "deductions" which are very vulnerable to bias and may not take account of ways in which suppliers and demanders of labour respond to minimum wage laws.

I'm very impressed that during your economics 101 class you noted down the names of researchers

To be honest, I find this topic interesting and I have little time for this sort of catfighting on a Saturday evening. If you have nothing better to do, go do it with someone else please. I'm not going down that route.

SupaNova · 22-04-2012 7:20am

The Katz study is inadequate for a number of reasons.

There are two potential explanations for why firms were already paying above the new minimum wage increased their starting wage after the minimum wage increased. First, … relative wages may influence work effort so firms already above the minimum wage may adjust their wages to maintain effort levels. Second, it is possible that market forces would have led to a small increase in wages in the fast food industry in Texas even in the absence of minimum wage increase.

The first problem is well recognized, yes those employed on a minimum wage will have their wages rise, but a restaurant can save this by reducing other wages. And if the employers wage bill is increased, costs can be cut elsewhere which can quickly become untraceable. For example if a restaurant cuts costs on cleaning products, this would result in lower profits for companies selling cleaning products causing some of those companies to go out of business. This is a serious flaw in looking at the effect of minimum wage in one industry. Another way the company can deal with this is to pass on costs, although the study does deal with this in a reasonable way tbf.

Two caveats should be noted in interpreting our finding of a positive effect of higher minimum on employment in the fast food industry. First our sample is limited to restaurants that were in operation before and after the minimum wage increased. It is possible that a higher minimum wage caused some restaurants to close, thereby reducing total employment in the industry. Further, the rate of formation of new restaurants might have slowed down because of the minimum wage. Both of these forces might have caused employment to grow at the restaurants that remained in operation.

Not only is it flawed to look at one industry, but then within that industry to only look at those that were in business before and after renders this study completely inadequate for coming to a conclusion, whether it be positive or negative.

SupaNova · 22-04-2012 2:38pm

later12 wrote: »

I think studies like these are a good deal more reliable than youtube clips, or unreliable "deductions" which are very vulnerable to bias and may not take account of ways in which suppliers and demanders of labour respond to minimum wage laws.

Why not show how the theory and deductions of the free market economists to be unreliable and wrong?

I'm wording it nicely when I call the studies that I have read as flawed or inadequate. People may object probably with a personal attack instead of trying to show how I am wrong to say they are flawed. But I bet those people might be more motivated to examine the flawed methodologies used to arrive at these conclusions if the conclusions were not what they wanted to hear.

So as I asked earlier, if the economists who stand by these studies truly believe that raising minimum wages leads to higher employment, but only if it is not raised too much, where is there theory? Why are they not working on theory to find optimal minimum wage rates? It looks more like their belief is based on the result of flawed studies telling them what they want to hear.

Channel Zero · 22-04-2012 3:01pm

SupaNova wrote: »

Is it not strange how most of these economists standing by these studies are(or should be) aware of the theory of minimum wage laws causing involuntary unemployment but cannot provide an alternative theory?

Yes they're aware that should happen in theory. I suppose they just don't accept any more that its effects in tandem with a reasonable minimum wage are as pronounced as some have steadfastly maintained.
The study is saying that the traditional theoretical competitive model is simplistic and unrealistic compared to the dynamic monopsony model.
(starts around page 33 of pdf "Making work pay")

"The competitive model, which assumes that all employers and workers participate
in the labor market on an equal footing and with perfect information about the
nature of the market, is obviously unrealistic." (page 39)

"Taken together, the new theoretical models and the weight of empirical evidence over the last decade argue for a serious re-evaluation of the way we think about the low-wage labor market and the effects of moderate increases in the minimum wage."

As far as I am aware they have settled on something along the lines of oh well of course it will cause unemployment if we set it too high, but it is good otherwise and that's the extent of it.

Yea pretty much. There seems to be something of a consensus that the benefits far outweigh the downsides they struggled to find.

There is perfectly logical reasons why these studies may have not found evidence showing a minimum wage law to be overly harmful, the minimum wage law may have been below the market rate, and even if it was originally set above the market rate inflation can move it below the market rate. Have the sources been read, and did the sources so much as mention how this might be a problem?

Yes they mentioned it.
So you think the reason they have not found evidence showing the minimum wage to be overly harmful is because it was not set high enough for it to be harmful? Well, yes am sure they would agree with that.

Then we have these studies coming out with vague stuff like the following:
"fail to find any systemic, significant job loss associated with the 1996-1997 increases".

They didn't find any significant job loss. How is that vague?

Valmont,
someone has made a response to the video in your OP.

https://www.youtube.com/watch?v=rcPNXuhAnEs

It makes two basic counter-points. To paraphrase:

The idea is not that the minimum wage laws are about injustice or punishing the rich, or legislating the poor into wealth. Minimum wage is about ensuring every worker exchanges their work for a wage that they can realistically live on without having to rely on welfare, charity or the support of friends or famly just to survive.

The argument that the state has no moral justification to intervene in any agreement between two parties is overlooking the primary role of the state, which is to make society as fair as it can be for it's citizens, and minimum wage is part of that.

So the logic follows that when Edgar the Exploiter employs the stereotyped young man at a wage below that which he can realistically live on without having to rely on welfare, charity or the support of friends or famly just to survive, in fact Edgar is effectively being subsidised for his employment costs by welfare (the state), charity, friends or family.

When looked at in this light, is it any wonder that there is so much opposition to minimum wage laws of any sort from certain quarters?

Leaving aside schemes like those that later12 referenced, surely the main crux of minimum wage law is to at least make sure that low earning workers do not need outside help to supplement their income in order to survive. And to guard against worker exploitation of course.

SupaNova · 22-04-2012 4:36pm

Channel Zero wrote: »

Yea pretty much. There seems to be something of a consensus that the benefits far outweigh the downsides they struggled to find.

Well the downside is supposed to be unemployment, and the first model I looked at had to adjust for growth and inflation, which is much to author's discretion, and would have to use furthermore imperfect statistics such as GDP and CPI numbers based on other authors discretion. I don't think this approach could ever yield anything strong enough to make a conclusion as to whether minimum wage had a positive or negative effect on unemployment. This is admitted, and they sort of throw it in study to say look at least there wasn't "upheavel" as some would claim, which is a red herring.

The one from Katz is severely flawed for the reasons given above.

So if these flawed studies are considered to be overwhelming evidence I don't know what to say. And this consensus(about 53% or so on another thread) you allude to is based on such flawed studies.

So you think the reason they have not found evidence showing the minimum wage to be overly harmful is because it was not set high enough for it to be harmful? Well, yes am sure they would agree with that.

They didn't find any significant job loss. How is that vague?

Terms like Overly harmful or significant are subjective, this could be 1% more unemployment to some, 3% or 5% to others. Now whether the study finds 1% more unemployment, or 1% less it doesn't matter if it is a severely flawed study.

SupaNova · 22-04-2012 5:05pm

Channel Zero wrote: »

So the logic follows that when Edgar the Exploiter employs the stereotyped young man at a wage below that which he can realistically live on without having to rely on welfare, charity or the support of friends or famly just to survive, in fact Edgar is effectively being subsidised for his employment costs by welfare (the state), charity, friends or family.

Employers pay tax to fund the welfare state, so are they then subsidising themselves?

When looked at in this light, is it any wonder that there is so much opposition to minimum wage laws of any sort from certain quarters?

What do you mean here? From what quarters?

Edgar the Exploiter

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