Minimum Wage Chic
I was a little amused to see a letter on the letters page rebuking B&W (actually, me) for ‘perpetuating the fashionable nonsense of minimum-wage laws.’ No. Minimum wage laws may be nonsense, but they’re hardly fashionable. They’re too old for that, for one thing, at least in the US. And they’re not fashionable anyway, any more than unions are. Are you kidding? Unions? The minimum wage? Yeah, right, they’re about as fashionable as poodle skirts, or peanut butter and grape jelly sandwiches on Wonder bread, or Maxwell House coffee made in a percolator, or zootsuits. No. The word class is fashionable, provided it’s accompanied – chaperoned, as it were – by the words ‘race’ and ‘gender’ – but that’s it. The thing itself is fashionable only if you’re in one of the right ones, and that doesn’t include the working class.
I would say hostility to the minimum wage is more fashionable than the minimum wage itself is – fashionable in the same sense and the same circles in which libertarianism is fashionable, that is. Libertarianism is not quite as hot as it was during the bubble, but it’s still a lot hotter than the boring old minimum wage is. You might as well say health and safety laws are fashionable.
But, we are sternly told, the minimum wage is bad, because it costs jobs. Sometimes it does, though there is dispute about how often, how invariably, how much, and so on. But even if it does, that doesn’t make it bad, full stop. Not all by itself. What it does is make it bad in one way, but not in another. There are fewer jobs, but the jobs there are pay more. Some people have no jobs, but other people work for – too little, instead of much too little.
It’s interesting that even in raving-right-wing Murka, there is a high level of political support for the minimum wage, and for raising it more often and higher than it gets raised. Even here, it is widely thought that people who do a job should actually be paid decently for it. The fans of the unregulated market don’t agree, of course; they think the market should decide. They also think the market should be helped to decide by always being oversupplied with unskilled labour, so that wages will always be as low as possible.
One of the odd things about the argument that the minimum wage costs jobs, in fact, is that full employment is not a goal anyway, and the government takes steps to prevent full employment any time the unemployment rate falls ‘too’ low. We heard about that a lot during the bubble. The unemployment rate was 4% – oh dear, uh oh – time to raise interest rates and hope it goes up again quick like a bunny. Well, if full employment is not the goal, is in fact not permitted, then why is it a problem that the minimum wage costs jobs?
First, as pointed out in the post below, your rage regarding the Davis-Bacon act was largely misplaced. (Davis-Bacon act != Minimum wage)
Second, the reason the Fed raises interest rates when the unemployment rate starts getting really low is not that they hate unemployed people, but rather that they don’t want to fuel speculative bubbles and superheating the economy more than they already do.
My guess is that if you would get your way, and the Fed would subsidize the unemployment rate down to, oh, two percent or so using ultra-low rates, that sure wouldn’t prevent you from railing about those damn speculators (I.e. the people who took advantage of the ultra-low rates) once the bubble burst…
Third, the minimum wage does cost jobs, in all likelyhood. Still, the US minimum wage probably doesn’t cost all that many jobs, as it is not prohibitively high. The bonus is of course that it can prevent various abusive scenarios.
Fourth, as an aside I find it interesting that people going on about the market being ‘oversupplied with unskilled labour’, etc. often are huge fans of massive unskilled immigration. (Just like George W Bush, by coincidence…)
Just read your reply in the other Minwage thread, so you can just pretend that that little minwage comment at the top isn’t there. Now I’ll go to bed for real. No, really!
Dobeln, I’m not talking about the Fed policy so much as the way people talk about these issues. I always wonder why unemployment is a worry when the minimum wage is discussed, while not enough unemployment is a worry when it actually does go down. I’m talking about rhetoric more than policy.
I’m not a fan of massive unskilled immigration, for exactly the reason you indicate.
It’s a fair question, but I believe I gave a (somewhat) fair answer.
Still, it should be expanded a bit:
– First, there will always be some unemployment in a healthy economy. Zero unemployment would mean no-one ever really switched jobs, which would be really bad. “Being between jobs” is not just a bad excuse ;)
– Rather, the killer is not unemployment, but long-term unemployment. That’s the social stat to watch. Of course, if unemployment shoots up really high, that’s a good sign that long-term unemployment is about to go up too, but the difference between, say four and three percent is not really killer.
– Finally, the this is the big difference between not pushing unemployment really, really low using interest rates (except for the whole bubble/superheating thing), and setting the minimum wage too high. Too high a minimum wage will make certain groups on the labor market more or less unemployable – permanently. That is a really neat way of ensuring a steady supply of those long-term unemployed I talked about above.
I’m not sure how minimum wage laws can raise unemployment. If people earn more they have more disposable income which means they buy things which have to be made by somebody which means employment for those somebodies. In other words, the rationale is the ‘trickle up’ equivalent of the conservative ‘trickle down’ argument for tax cuts for the rich. The ‘more unemployment’ theory arises from specific employers or their representatives trying to defend their own profits rather than looking at the economy as a whole.
Tingey: Just curious, what is the preferred method for manipulating unemployment figures in the UK? It’s an entire artform here in Sweden. ;) (500 000+ “health-related early retirees” out of a four million person workforce? Check!)
Dobeln-
“Third, the minimum wage does cost jobs, in all likelyhood. Still, the US minimum wage probably doesn’t cost all that many jobs, as it is not prohibitively high. The bonus is of course that it can prevent various abusive scenarios.”
First of all, note the tension between the first two sentences. Does the minimum wage cost jobs or not?
Second, most studies in the US and the UK have shown that a moderate minimum wage does not cost jobs. I know that some versions of economic theory suggest that it will cost jobs but I think that we can say that these particular theories have been falsified.
OB- As for John Hughes I think that anyone who recommends anything associated with Ludwig von Mises is beyond the reach of empirical evidence anyway.
“I’m not sure how minimum wage laws can raise unemployment.”
Sweet, then why not just set a minimum wage of 100.000 dollars a month for Wal-Mart cashiers? Everyone will be rich, at no cost – pretty sweet. (Why didn’t people think of this in the medieval era, they could have lifted themselves out of poverty so easily!)
“If people earn more they have more disposable income which means they buy things which have to be made by somebody which means employment for those somebodies.”
Shifting around minimum wages doesn’t impact the productivity of work the slightest (well, ignoring selection effects, but…).
What they do is rather to (sometimes) shift around the surplus between employers and employees. An increased payout to employees comes out of the pocket of the employers. (Historically, roughly 2/3 go to the employee) No resources have been created, and aggregate income in society remains excactly the same.
Also, the notion that those evil, money-grubbing employers really don’t care about making money at all strikes me as somewhat… quaint.
PS.
The impact of increasing production by reducing unemployment is rather limited as long as unemployment is around 5-6 percent, some of it productive (or “natural”) unemployment. This is especially so given that unemployment is the highest for the least productive labor.
DS.
” First of all, note the tension between the first two sentences. Does the minimum wage cost jobs or not?”
There is of course no tension whatsover between the two sentances. If you think so, read them again.
” Second, most studies in the US and the UK have shown that a moderate minimum wage does not cost jobs.”
Which was my point. (I.e. – UK and US minimum wages are rather low, and hence in all likelyhood do not cost that many jobs)
“I know that some versions of economic theory suggest that it will cost jobs but I think that we can say that these particular theories have been falsified.”
If that is truly your belief, would you prefer to see the minimum wage of Wal-Mart cashiers raised to 100.000 dollars / month? Or would you like to modify your statement somewhat?
“Third, the minimum wage does cost jobs, in all likelihood. Still, the US minimum wage probably doesn’t cost all that many jobs, as it is not prohibitively high.”
“There is of course no tension whatsover between the [first] two sentences”
No, the two sentences don’t quite contradict each other, but the first one needs qualification and the second one is merely tautological (“prohibitively high” = “so high that it results in fewer people being hired”).
“don’t quite contradict each other”
Hogwash – the fist sentance discusses the impact of minimum wages in general. And yes, I am willing to stake a great deal on that minimum prices on goods tend to reduce consumtion, especially when the elasticity of supply is lower than the elasticity of demand, as is the case with labor.
“but the first one needs qualification”
The second sentance *is* the qualification, which is why it is so ridiculous to carp about there being something contradictory about the two sentences. Here, let me boil it down to excactly one sentence to make it real simple: The minimum wage as a concept will cost jobs, but at 5.15$, it will not cost many jobs.
“and the second one is merely tautological (“prohibitively high” = “so high that it results in fewer people being hired”).
Excuse me? “tautological”? The federal minimum wage is 5.15$, that is my definition of “prohibitively high” in this case, not some arbitrary level that makes my statement true by default*. In my view, a 5.15$ minimum wage will not prevent many hirings. But go ahead, ramp it up to 20 dollars, and see what happens.
PS.
* – Although several people here have indeed argued along very absolute lines, which if taken seriously make it a mystery why no one has so far cashed in on the huge 100.000$/month Wal-Mart clerk free lunch that is supposedly out there.
DS.
PPS.
The subject is of course not new:
“In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”
DDS.
Uh, dude, I was sort of defending you against the charge of contradiction.
“Third, the minimum wage does cost jobs, in all likelyhood. Still, the US minimum wage probably doesn’t cost all that many jobs, as it is not prohibitively high.”
Translation: Minimum wage above a certain level probably does cost jobs. However, the current minimum wage in the US does not reach that level.
If that is not what you meant to say, then you have said whatever you did mean to say very badly.
Sorry, but I’m feeling cranky for some reason. Still, it was the “don’t quite contradict each other” thing that ticked me off a bit, as it implies that ‘the sentences are very close to contradicting each other’, a statement with which I really don’t agree at all. Also, I felt that the tautological thing was uncalled for as well. But yes, you interpreted the sentences excactly correct.
PS.
By the rapid response frequency in this thread I take it you are a hopeless debating addict just like me. ;)
DS.
“I take it you are a hopeless debating addict just like me.”
No, just a quarrelsome drunk.
“If that is truly your belief, would you prefer to see the minimum wage of Wal-Mart cashiers raised to 100.000 dollars / month? Or would you like to modify your statement somewhat?”
It is already modified- read again
I said:
” Second, most studies in the US and the UK have shown that a moderate minimum wage does not cost jobs.”
Maybe it should say the “current minimum wage” but I think it is still reasonable.
My point is that, according to the competitive labour market theory, the minimum wage forces wages above the “equilibrium level” of wages (otherwise there would be no point in a minimum wage). This should cause unemployment. However, there is no unemployment so the theory is falsified.
This suggests that the labour market is not competitive and so competitive labour market theory is wrong.
PS- I didn’t actually accuse anyone of a contradiction- tensions aren’t contradictions
The thread IS quick here.
“Translation: Minimum wage above a certain level probably does cost jobs. However, the current minimum wage in the US does not reach that level.”
I can agree with that but I think that the theory behind much of the minimum wage= unemployment argument needs to be heavily qualified or revised
“tensions aren’t contradictions”
What are they, then, exactly?
“I can agree with that but I think that the theory behind much of the minimum wage= unemployment argument needs to be heavily qualified or revised”
Definitely.
“The minimum wage here in the UK does not seem to have increased unemployment.
The only people to complain were some really shit employers, and nothing happened at all – apart from “official” unemployment going down.”
In the UK income support acts as a subsidy for employers to pay low wages – which suggests that the minimum wage is set far too low.
OK- I can’t find a decent definition of “tension”, in a philosophical sense, quickly so apologies if I’m misusing the word (I’m not a philosopher).
What I *meant* was that the two statements were going in opposite directions not that they were contradictions.
“My point is that, according to the competitive labour market theory, the minimum wage forces wages above the “equilibrium level” of wages (otherwise there would be no point in a minimum wage). This should cause unemployment. However, there is no unemployment so the theory is falsified.”
Yowza, where to begin? First, you appear to have a quite interesting view of how economic modelling should work. Economic models, as usually concieved by economists, are ‘thought tools’ to help thinking about a certain phenomena, not mathematical proofs.
People don’t find models based on “perfect competition” assumptions (which is what you just described) useful because they believe that there is perfect competition everywhere.
Rather, they are especially useful because they are a great starting point for examining what happens when you introduce imperfect competition. (Monopsony in local hiring, etc.)
Second, there is not one labor market, but many out there. Some are more competitive than others.
Third, even if the market is roughly in equilibrium, it might be useful to pass a minimum wage below the equilibrium wage, in order to prevent rare cases of ‘abusive’ hiring and / or working conditions. Still, there are certainly alternate approaches. (Sweden, for instance, does not have a minimum wage)
“This suggests that the labour market is not competitive and so competitive labour market theory is wrong.”
First, there is a great deal of mixed evidence on this issue, so let’s not make too categorical empirical statements here. (Disentangling all factors impacting hiring decisions is a b*tch, usually…)
Second, treating competitiveness as a binary variable is just a very, very bad idea.
” What I *meant* was that the two statements were going in opposite directions not that they were contradictions.”
Well, not really. Sentence one points out the direction of impact (more unemployment), while sentence two points out the extent of the impact in the US (low).
Again we don’t agree on this. I know where you are coming from but I think that this is part of the problem in economics.
If economics is scientific then models need to be more than just “thought tools”. There need to be predictions which are correct or incorrect.
While it is true that a large proportion of economists do not believe that the economy can be represented as a unified competitive labour market there is a minority who still do- plus a host of ideologues who still believe it like a religion
THe point is: will a minimum wage cause unemployment or not?
It seems that, for a *moderate* wage, for the whole economy the evidence is mixed, heading towards negative, while economists disagree about the theory.
Can we make any categorical statements about the minimum wage and unemployment based on this?
“Again we don’t agree on this. I know where you are coming from but I think that this is part of the problem in economics.
If economics is scientific then models need to be more than just “thought tools”. There need to be predictions which are correct or incorrect.”
Economics isn’t science in the physics sense, but social science. Until someone builds a perfect (and dynamic!) model of human society, partial modelling is what you are going to have to make do with. Sorry. (You aren’t going to get a better deal in, say, sociology – on the contrary…)
“While it is true that a large proportion of economists do not believe that the economy can be represented as a unified competitive labour market there is a minority who still do”
Well, I would certainly say the labor market is competitve (although not entirely unified) to some signficant extent. If it was not, wage levels in, say, the US, would just be plain inexplicable. (A US hotel clerk makes 8.95$ an hour on average – way above the minimum wage. The employers are unlikely to pay extra out of the goodness of their hearts… )
Furthermore, there are hundreds of thousands of employers in the US alone, and it would be nigh impossible for them to coordinate successfully enough in order to avoid competitive pressures. There are probably some local employers with a certain amount of market power, though.
“plus a host of ideologues who still believe it like a religion”
True, but then again that happens for everything from religion to politics to computer chips to football teams. Unavoidable, sadly.
” The point is: will a minimum wage cause unemployment or not?”
I dunno. Will heat cause water to boil or not? When you have to think about a very complex phenomenon, such as a labor market, in terms of interacting factors. Will a minimum wage, pretty much always, be a risk factor for creating unemployment? I would say yes. Does that mean that the minimum wage always creates (significant) unemployment? I would say no.
As for the impact of the minimum wage on employment, what sets the US and the UK, discussed here apart from, say, much of Europe, is that the minimum wage in the US and UK is *low*, and that there is significant negative taxation in place. (I.e. the EITC, etc.) Therefore, I really wouldn’t make the minimum wage out as a big culprit in explaining US unemployment. However, as you increase the MW, the unemployment risk factor it creates growths gradually.
All this discussion doesn’t seem to have got to the heart of the matter. Obviously there is some level of minimum wage that will create significant unemployment, the question is what is that level? For instance, why should the minimum wage be lower than a living wage? Why is the government having to subsidise businesses so that they can pay below the sums necessary for someone to live? How much unemployment would it really cause to pay people a living wage? And do we want people to be forced to work in jobs where they are paid so little that they cannot even live on it?
Well, just defining what consitutes a “living wage” is a job I sure wouldn’t want. (You would have to do it locally, of course – costs of living differ quite a bit across the US)
Many people have already thought about it for you.
I was thinking of the UK where people have already sought to define it (as they have across all of Europe). In London the Mayor’s office have declared £6.70 to be a living wage, compared to the minimum wage of £5.05 (1 in 7 londoners is paid below the ‘poverty’ threshold of £5.80/hr).
So is this too much? How many jobs would be lost? Groups like the CBI have campaigned vigorously against any increases in the minimum wage – what would the repurcussions be?
PM:
Last year I lived in London, I worked in central London (hence need for travel card) as a temp for 7 pounds an hour and I got no (paid) sick leave. I rented a single room for 75 pounds a week (pretty extravagant) and I managed to save 4000 pounds in a year. So I would dispute that 6.70 pounds an hour should constitute a living wage. Of course I didn’t have kids (but then I didn’t have access to any benefits at all), but that at least suggests that the figure should be qualified a little.
When a minimum wage is moderate, the effect on employment is ambiguous. When the minimum wage was introduced in England there was no noticeable effect on employment (the economy added loads of jobs the following year) but the economy was growing very fast. At the time 4% of Londoners were earning less than that minimum wage that was instituted, and a minority of those were living in poverty. The majority earning less than the minimum were either earning a second income or kids of richer parents.
The good that the minimum wage does is worth finding out, economists suggesting that a minimum wage will hurt the poor are not necessarily in the pocket of big business as has been implied a few times in the 2 relevant threads.
” rented a single room for 75 pounds a week (pretty extravagant) and I managed to save 4000 pounds in a year. So I would dispute that 6.70 pounds an hour should constitute a living wage. Of course I didn’t have kids (but then I didn’t have access to any benefits at all)”
So poor people should live in a single room? And having kids is a net financial benefit?
Well explained and argued Dobein. A reason economics cannot be a science is that it depends in large part of forecasting human behavior. And all of us so-and-so’s won’t behave in a predicable way. I spent my career trying to market consumer products and finished up with great respect for the good judgment of consumers. Try as I might, I just could not manipulate them. All I could do was give good products and value for money.
Similarly, calculating a “living wage” depends on ruling on our decisions about how to spend money.
I really need a large book and CD and concert budget but don’t need to spend much on clothes. Or eating out.
“Similarly, calculating a “living wage” depends on ruling on our decisions about how to spend money.
I really need a large book and CD and concert budget but don’t need to spend much on clothes. Or eating out.”
I don’t think people here quite understand poverty.
My point was that baldly stating pounds 6.70 pounds as a living wage is obviously ridiculous. should say something like 6.70 pounds for a single income family with 7 kids or something. Anyway, I’m not sure what kind of poverty you are talking about, I think its great that Brits can expect so much, but coming from south africa I think its pretty funny that 6.70 can be thought of as a living wage, unless it is redefined to mean something it doesnt initialy appear to. perhaps i am thinking of real poverty and you relative?
PM: I do understand poverty. We were not talking about it. We were talking about whether it is possible to state a minimum wage that gives a person an acceptible standard of living. I think not.
I was trying to illustrate why.
Poverty is a different issue to the minimum wage.
OK my last word on this stream. (I do have a job to do!!!)
I really don’t buy dobeln’s argument- you can’t hide behind complexity. If economics is a process of rational enquiry then it must take notice of empirical evidence and take risks in making statements. Otherwise it is just a brand of “fashionable nonsense”.
In my opinion and experience many economists do take notice of empirical evidence and model appropriately. Reducing complex situations to simple models and then testing them is what science (or rational inquiry or social science) is all about.
As for the level of the minimum wage- Surely we can at least vaguely distinguish between necessities and luxuries when making this judgement?
CDs are not necessary but food and heat certainly are.
“Reducing complex situations to simple models and then testing them is what science (or rational inquiry or social science) is all about.”
That could almost have been written by Paul Krugman himself. Simple examples illustrate the point very well.
Recently in South Africa, a minimum wage was instituted for domestic workers. It was pretty modest and so seemed reasonable enough. Some people who employed domestic workers full time then employed them for 1 or 2 days a week, some got rid of their maid all together. Those people wont find other jobs and so are worse off now. Some are better off, but has the lot of domestic workers improved overall? I don’t think so.
The government argued that it wouldn’t result in some workers being laid off because workers deserve a just wage. But what does a just wage for work have to do with whether or not homeowners can afford to pay a maid?
KN: “Similarly, calculating a “living wage” depends on ruling on our decisions about how to spend money.
I really need a large book and CD and concert budget but don’t need to spend much on clothes. Or eating out.”
PM: “I don’t think people here quite understand poverty.”
KN “…I do understand poverty. We were not talking about it. We were talking about whether it is possible to state a minimum wage that gives a person an acceptible standard of living. I think not.
I was trying to illustrate why.
Poverty is a different issue to the minimum wage.”
Poverty is indeed a slightly different issue to the minimum wage, but what I was trying to get at is that very poor people do not spend quite so much time trading off going to concerts and eating out as we do – because they haven’t got much money. I was paid more as a PhD student than huge swathes of the country could ever hope to earn – how sad is that?
“Those people wont find other jobs and so are worse off now. Some are better off, but has the lot of domestic workers improved overall? I don’t think so.”
But these examples really don’t work so well in mature labour markets with extensive social protection, like the UK and much of Europe.
Summer job?
Well there you go, your idea of a living wage sounds totally ridiculous to me.
I suppose that The Economist can safely be dismissed as being in the pocket of big business and despising the ‘poor’, so I suggest this link
http://www.oecd.org/searchResult/0,2665,en_2649_201185_1_1_1_1_1,00.html
and this paper in particular
http://www.oecd.org/dataoecd/8/57/2080222.pdf
This study considers data from 9 countries (including USA, Japan, France, Spain and the Netherlands – mature labor markets?) from 1975 to 1996.
But my domestic worker example illustrates the point I want to make, that people genuinely concerned about poverty may reasonably oppose a minimum wage. Hopefully the links show that opposing a minimum wage in a developed economy is also consistent with concern for the (relatively) poor.
Of course I could be wrong, but how is this different from any sincere enquiry? The implication has been constant, opposing a minimum wage means favoring business over poor people and that is complete rubbish.
No, it’s not complete rubbish, stuart. It may be partly rubbish, but not complete. Surely you realize that there are reasons other than altruistic concern for the poor, for opposing a minimum wage, just as there are reasons other than thinking it is ‘good for the economy’ to favour tax cuts for the rich.
“and this paper in particular
http://www.oecd.org/dataoecd/8/57/2080222.pdf
This study considers data from 9 countries (including USA, Japan, France, Spain and the Netherlands – mature labor markets?) from 1975 to 1996.”
Well that paper uses what I, as a natural scientist, would regard as highly dubious statistical methods (it’s just a big regression on 9 countries which seems to have loads of relevant variables missed out and which is highly sensitive to time point: “The fact that the elasticities decline substantially when time trends are added suggests there may be omitted variables which are required to explain overall country trends in employment-population ratios.”) to draw dramatic conclusions from, but be that as it may (I imagine that economics is beset by those sorts of problems) the paper says:
“Bearing in mind the possible ‘‘fragility’’ of the
results in Table 2.5, a number of tentative conclusions can be drawn. Firstly, the results suggest that a rise in the minimum wage has a negative effect on teenage employment. Secondly, negative employment effects for young adults are generally close to or insignificantly different from zero. Thirdly, for prime-age adults, the most plausible specifications suggest that minimum wages have no impact on their employment outcomes…At the same time, it is important to note that these estimated effects are relatively insignificant in terms of explaining the large decline that has occurred
in the teenage employment-population ratio in some countries…Thus, the substantial difference across countries in teenage employment trends can only be marginally attributed to differences in the evolution of minimum wages and must be explained by other factors.”
“But my domestic worker example illustrates the point I want to make, that people genuinely concerned about poverty may reasonably oppose a minimum wage. Hopefully the links show that opposing a minimum wage in a developed economy is also consistent with concern for the (relatively) poor.”
Well I don’t think they really show that, at the most they suggest teenage employment might be sensitive to a minimum wage – but minimum wages often (e.g. the UK) take that into account by being lower for teenagers. I’m quite able to believe that someone might be genuinely opposing a minimum wage because of concern for the poor, however you haven’t provided much evidence that they should (with the obvious caveat that we were talking about rich countries).
“The implication has been constant, opposing a minimum wage means favoring business over poor people and that is complete rubbish.”
Well it is hardly rubbish. For a start you have provided the evidence that a minimum wage has a negligible impact on anyone except teenagers in developed economies (although to be consistent, I should point out that it is pretty poor evidence). But what we have been arguing about is the opposite claim, that favouring a minimum wage is some kind of muddle-headed lefty affectation, and that economics has proved the benefits of abolishing the minimum wage for the poor. And as that report points out “This suggests that minimum wages can be effective in ensuring that “fair” wages are paid to workers…minimum wages can reduce poverty rates and income inequality…”
“Summer job?”
I.e. employment that is temporary, rather than the job you do your entire life. You cannot live very long employed as a paper-boy.
“Well there you go, your idea of a living wage sounds totally ridiculous to me.”
Well it doesn’t to me, the cost of living in London is sky-high. A living wage is supposed to be sufficient for all living costs (food, rent, transport, heating) and to cover some recreation. It is not (any longer) supposed to mean the minimum money necessary for a human being to stay alive long enough to procreate and to produce the next generation of workers.
I wouldn’t live in London on that much, so it is hardly a cloud cuckoo land figure.
PM’s last point reminds me that in Paris they are reserving public housing in the centre for “public servants” such as nurses and teachers, who otherwise could not afford to live in the centre and therefore would not work there, causing staff shortages. That’s one way of addressing the problem. Another is to let the market, which has driven up the cost of accommodation in the centre, also work in the setting of wages for nurses and teachers etc, thereby driving up the incomes of those working in the centre. It is not obvious why the rich centre-dwellers should effectively be subsidised by the rest of the population who pay for the cheap accomodation.
(I know, there are other issues at play, but the point above is worth thinking about. )
OB, I’m sure Stuart does realise that “there are reasons other than altruistic concern for the poor, for opposing a minimum wage”, because he wasn’t saying this was always the reason. He was saying that it’s a possible reason. So opposing the minimum wage doesn’t necessarily mean that someone is not concerned about the poor.
I also find it interesting that PM is so quick to add that we’re only talking about rich countries here. As has been pointed out, in most rich countries (especially the UK) the minimum wage is quite low relative to market-clearing wages for unskilled labour. This makes it very difficult to assess their effect and consequently to determine empirically whether or not they are a good idea in principle.
Surely then, if the debate is about whether or not minimum wage laws are a good thing in principle, it is instructive to look at the experience of countries with relatively high minimum wages compared to prevailing wages (hence the relevance of the South Africa example).
I’m not too sure about the details of minimum wage laws in continental Europe, but there seems to be a consensus amongst economists that the high degree government regulation of the labour market is responsible for the high degree of unepmloyment there.
“I also find it interesting that PM is so quick to add that we’re only talking about rich countries here.”
Well at that point we were, explicitly.
“As has been pointed out, in most rich countries (especially the UK) the minimum wage is quite low relative to market-clearing wages for unskilled labour. This makes it very difficult to assess their effect and consequently to determine empirically whether or not they are a good idea in principle.”
Well we know they have some positive benefits already. The question is whether the rise in unemployment counteracts those benefits.
“Surely then, if the debate is about whether or not minimum wage laws are a good thing in principle, it is instructive to look at the experience of countries with relatively high minimum wages compared to prevailing wages (hence the relevance of the South Africa example).”
I don’t see how that follows at all. The UK, US, French or whatever minimum wages are real minimum wages, examples of low minimum wages compared to average wages maybe, but they are still minimum wages. Looking at high minimum wages will tell you about the effects of high minimum wages, not the principle of minimum wages in general. You can’t have your cake and eat it, if you don’t want to look at low minimum wages because they don’t have much effect on employment – then they don’t have much effect on employment! You can have another argument about how high they should be, and then use your other evidence from SA or wherever, but you have already conceded that minimum wages are not bad in principle.
“I’m not too sure about the details of minimum wage laws in continental Europe, but there seems to be a consensus amongst economists that the high degree government regulation of the labour market is responsible for the high degree of unepmloyment there.”
There may well be such a consensus, but as we have established, there is not much evidence that the minimum wage aspect of regulation has caused this unemployment – something that you already seem to have conceded, so I’m not too sure what you’re saying here that has relevance to minimum wages.
“”Surely then, if the debate is about whether or not minimum wage laws are a good thing in principle, it is instructive to look at the experience of countries with relatively high minimum wages compared to prevailing wages (hence the relevance of the South Africa example).”
Also, the reason I was talking about rich countries was to do with high levels of social welfare provision. This is because any overall loss of very low wage employment (from a minimum wage) in a country with good welfare provision will be less severe (from a worrying about poor people point of view, which was the POV we were adopting) than in a country with poor welfare provision.
“but you have already conceded that minimum wages are not bad in principle”
Only in a trivial sense. You are guaranteed your conclusion because it depends on how low you set the minimum wage.
The effect of a low minimum wage on unemployment is difficult to gauge because other economic effects are stronger. It doesn’t mean the effect isn’t there. ID’ers never tire of pointing out that we have never actually seen speciation happen, but there are still very good reasons to suppose that speciation has happened.
Relatively low minimum wages have a relatively small effect on the economy, but also for the people benefiting from them. When new labor introduced the minimum wage in 1999, the poorest households only benefited on average 1.50 per week. Middle income households benefited by more than 2 pounds a week this is because the majority of low income workers do not live in the poorest households. Most low income workers are young or older women and are the second earners in the household. A minimum wage does not target the poor well at all. Income support from general taxation can be much better targeted, and will limit the effect to the economy.
“there is not much evidence that the minimum wage aspect of regulation has caused this unemployment – something that you already seem to have conceded”
No, it was conceded that minimum wages in England and the US had little measurable effect on employment, not in continental Europe, which has double the unemployment.
“The effect of a low minimum wage on unemployment is difficult to gauge because other economic effects are stronger. It doesn’t mean the effect isn’t there.”
And conversely, just because it is difficult to gauge doesn’t mean it -is- there.
“A minimum wage does not target the poor well at all. Income support from general taxation can be much better targeted”
Not something I would dispute.
“No, it was conceded that minimum wages in England and the US had little measurable effect on employment, not in continental Europe, which has double the unemployment.”
But GT said that “…it interesting that PM is so quick to add that we’re only talking about rich countries here…in most rich countries (especially the UK) the minimum wage is quite low relative to market-clearing wages for unskilled labour. This makes it very difficult to assess their effect…”, and this was in response to me saying “at the most they suggest teenage employment might be sensitive to a minimum wage…you haven’t provided much evidence that they should [oppose the minimum wage on anti-poverty grounds] (with the obvious caveat that we were talking about rich countries)”, and I was, of course, talking about your study of minimum wages in “9 countries (including USA, Japan, France, Spain and the Netherlands)”. I’m pretty sure that France, Spain, the Netherlands, Portugal, and Greece are in continental Europe.
Incidentally, any comments re that study? If it only affects teenage employment, where is the massive poverty inducing effect of the minimum wage? You already said that “Most low income workers are young or older women and are the second earners in the household”, and since the employment effect is only on teenagers, presumably you don’t think the loss of employment leads to much hardship amongst the poor?
“And conversely, just because it is difficult to gauge doesn’t mean it -is- there.”
I suppose it is possible, just implausible.
Yeah, continental Europe was a little to sweeping. Spain Portugal and Greece have low minimum wage levels. The Netherlands is decreasing it all the time (and much lower than France). The moral of the study was that even a low min wage has a measurable effect on teenage unemployment. It also seems clear, on youth unemployment. Unemployment in the US of under 25’s is double the overall rate. In France it is closer to triple (28%). The younger the more pronounced the effect. The effects are worse the higher the min wage, obviously.
“massive poverty inducing effect of the minimum wage?”
huh?
“The moral of the study was that even a low min wage has a measurable effect on teenage unemployment. It also seems clear, on youth unemployment.”
How is that statement compatible with this quote?
“Secondly, negative employment effects for young adults are generally close to or insignificantly different from zero.”
“I suppose it is possible, just implausible”
So it is possible that a low minimum wage has no effect, but you’re not going to believe it anyway. So essentially any study that showed no effect of a minimum wage on unemployment would, according to you, be due to the complexity of it all, and swamping by other factors, and any study that shows an effect just goes to prove there is an effect. I think you’re really just starting out assuming what you want to conclude, confirmation bias anyone?
“Unemployment in the US of under 25’s is double the overall rate. In France it is closer to triple (28%).”
So? The French also speak French, does that cause the unemployment? So we’ve established that the study you quoted only provides evidence for an effect of the minimum wage on the very young, but since you’ve already conceded this won’t particularly impact the poor, and you’ve conceded that the “the poorest households…benefited on average 1.50 per week” in the UK, what is the reason to oppose minimum wages, from a helping the poor point of view?
PM, you also weren’t initially so interested in the narrow issue of whether current minimum wage laws are increasing unemployment. You were interested in what the effect of a higher minimum wage would be (see your postings on the 22nd). From your comments it’s clear that you think it should be significantly higher. I agree that this is the more interesting question – hence my attempt to steer the debate back in that direction.
We can probably also agree that taking the view that minimum wages at current levels in the rich countries don’t cause major unemployment problems is not the “muddle-headed lefty affectation” you referred to earlier. The muddle-headed lefty affectation comes in when people start to believe that high minimum wages are the key to solving all our problems because, after all, everybody deserves a decent wage and fat-cat employers have got plenty of money to pay them much more and the only reason they don’t is because they’re mean spirited and selfish. This type of view displays a fundamental lack of understanding of how a market system works. Plenty of the earlier comments on this thread betray such thinking.
“You can have another argument about how high they should be… but you have already conceded that minimum wages are not bad in principle.”
Actually I didn’t concede that they’re not bad in principle, just that they don’t always cause unemployment to increase. This is obvious and we all agree on it.
I do happen to think they’re bad in principle for other reasons – violation of individual freedom, unfairness, distortion of market signals, cost and complexity. These have to be set against the benefit of the min wage laws sometimes preventing abuse of market power. In balancing the pros and cons I personally come out against min wage laws and think it would be better for the government find other ways of combating the problems. But let’s not go there.
“I do happen to think they’re bad in principle for other reasons – violation of individual freedom, unfairness, distortion of market signals, cost and complexity.”
But we were arguing about opposing minimum wages in the interests of the poor.
“PM,…You were interested in what the effect of a higher minimum wage would be…it’s clear that you think it should be significantly higher.”
Yep, but by ‘significantly’ I mean a quid or so per hour. But the objections that this will lead to large-scale unemployment seem to have drawn on some fairly dubious evidence – which is why I’ve been merrily deconstructing them.
I really doubt we’ll all agree on this, and I’m going to bow out of this thread.