Economics Questions

Re: Do minimum wages raise employment?

JackCuyler — Fri, 21 Aug 2009 03:14:22 GMT

Jon Irenicus:
What a laugh. No, rather this "study" reflects your utter inability as an economist. "Monopsony" and "efficiency wages" already come under the laws of demand and supply, and their "naive" (please spare me this condescending waffle) approach. You, it seems, wish to introduce them ad hoc to explain away problems your study faces. Your control for the boom is amateurish and does not filter out its effects, and your measurements of "increasing" employment are plagued by all the problems Xahrx outlined. How about you come back when you've learned a little economics? Please do explain how raising the price of a good will increase demand for it (and please spare me the efficiency wages garbage - we're not even talking about a homogeneous good anymore, and it does not provide a theoretical reason for expecting employment to rise...)

I've actually given this quite a bit of thought. Since the study included the restaurant industry, I wonder how tipped employees were factored into the equation. The reason I bring it up is that the federal minimum wage for tipped employees ($2.13/hour) did not change at all during the period studied, and has remained the same since the early 90's. Though many states have a higher minimum wage for tipped employees than the federal law demands, only a few states don't have a tip credit, meaning an effective lower minimum wage for tipped employees than non-tipped employees. This could lead to some interesting scenarios.

I tend to believe that an increase in the minimum wage would have a positive effect on the business of low and mid-level restaurants such as Denny's, TGI Fridays and The Olive Garden. As much of the staff of these businesses are not affected by the minimum wage increase, an increase in staff to meet the greater demand would be perfectly reasonable. Take TGI Friday's, for example. During a busy dinner shift at a 50 table shop, there may be 2-4 hosts/hostesses, a few bartenders and perhaps 10 or 12 waiters/waitresses. The waitstaff, being tipped employees, will have wages significantly less (usually well less than half) than those of the hosts/hostesses, who generally make right around minimum wage. An increase in the minimum wage could very well lead to management deciding to go with one less hostess and two more waitresses, and have waitresses help out with the seating -- a savings in labor costs, but an increase in employee count.

Further, an increase in the minimum wage may very well have a positive effect on the business of lower-end retail stores such as Target, Walmart and Kmart, whose employees make right around minimum wage. The increase in business may alleviate some of the would-be layoffs. It probably wouldn't be a wash, but the increased business could certainly offset some of the staff reduction. Add to that increases in staffing in businesses whose costs are not affected (or less affected) by a minimum wage increase, and I guess I could see how unemployment could remain stagnant or even slightly decrease in the face of a minimum wage increase.

The key factor, however, is that employment is increasing in jobs that are exempt from the increase. I wonder if/how the study took that into account.

Re: Do minimum wages raise employment?

JackCuyler — Wed, 19 Aug 2009 18:52:02 GMT

This

process:
Those that support the elimination of minimum wages are therefore effectively demanding greater unemployment.

Does not follow from this

process:
We find little evidence of disemployment effects once we allow for geographic-specific trends. Indeed, in many sectors the evidence points to modest (but robust) positive employment effects

http://en.wikipedia.org/wiki/Contraposition

Just to be clear, none of the following sentences contradicts the others.

If the minimum wage remains constant, unemployment will increase.
If the minimum wage is increased, unemployment will modestly decrease.
If the minimum wage is decreased, unemployment will dramatically decrease.

I'm not claiming that these are all true, just that they don't contradict. Proving or disproving one does not prove or disprove the others.

Re: Do minimum wages raise employment?

Alice — Wed, 19 Aug 2009 03:36:06 GMT

Caley McKibbin:

This is the funniest thing I've seen in a long time. I expect that few people have/will read the "study", including me. I did a study that found that gravity in Orlando makes things fly straight up. Anyone care for a poke?

i think it's even worse than arguing with physics, this guy is basically arguing with the law of non-contradiction.

Re: Do minimum wages raise employment?

Caley McKibbin — Wed, 19 Aug 2009 03:17:26 GMT

This is the funniest thing I've seen in a long time. I expect that few people have/will read the "study", including me. I did a study that found that gravity in Orlando makes things fly straight up. Anyone care for a poke?

Re: Do minimum wages raise employment?

Romantivist — Wed, 19 Aug 2009 02:47:25 GMT

Please read http://blog.mises.org/archives/001989.asp thoroughly before continuing your self-ingratiating, embarassing lack of understanding, process. I'm sure it will answer all your questions.

Re: Do minimum wages raise employment?

TropicalK — Wed, 19 Aug 2009 00:21:35 GMT

If you send a link to your paper and the data, I would be glad to give you a precise critique (if there is one.) I have the necessary econometrics background to do so.

process:

log(Yist)=φlog(MWst)+γ′Xist+μi+λit+τt+(epsilon)ist

where i, s, and t refers to county, state and quarter of observation. Y is employment. X is a vector of variables, which includes factors that vary across counties and over time.

An initial look shows no lag variables such as a before and after the raising of the minimum wage.

Replacing the Ys with (Y-Y') would more effectively isolate the effect of minimum wage changes. What is explained in your equation can just as accurately be interpreted as "places and times with lower unemployment tend to raise the minimum wage. AKA reverse causality.

Re: Do minimum wages raise employment?

Jon Irenicus — Tue, 18 Aug 2009 23:51:22 GMT

The use of monopsony and efficiency wages reflects the inability of the naive supply & demand approach to understand empirical phenomena

What a laugh. No, rather this "study" reflects your utter inability as an economist. "Monopsony" and "efficiency wages" already come under the laws of demand and supply, and their "naive" (please spare me this condescending waffle) approach. You, it seems, wish to introduce them ad hoc to explain away problems your study faces. Your control for the boom is amateurish and does not filter out its effects, and your measurements of "increasing" employment are plagued by all the problems Xahrx outlined. How about you come back when you've learned a little economics? Please do explain how raising the price of a good will increase demand for it (and please spare me the efficiency wages garbage - we're not even talking about a homogeneous good anymore, and it does not provide a theoretical reason for expecting employment to rise...)

Re: Do minimum wages raise employment?

Bostwick — Tue, 18 Aug 2009 23:02:23 GMT

process:
This is nonsense. The paper controls for other variables that impact on employment. It isolates the minimum wage effect and supports the labour theory

No. You controlled the variables to get the results you wanted.

Re: Do minimum wages raise employment?

filc — Tue, 18 Aug 2009 22:46:44 GMT

process:
A reduction in labour demand is reliant on those two unrealistic assumptions: (1) zero labour market frictions, (2) a purely technical relationship where human beings are understood in the same terms as inanimate objects

A person's labor is just as much a tradeable good as the produce which derives from it.

Re: Do minimum wages raise employment?

filc — Tue, 18 Aug 2009 22:42:58 GMT

process:

Quote:

One of the uses of economic reasoning is to enable us to perceive whether or not any of the given possible explanations for historical facts is plausible or possible.

The use of monopsony and efficiency wages reflects the inability of the naive supply & demand approach to understand empirical phenomena

Things don't randomly happen, there is a reason. Just because y ou've used a mathamatical approach with limited variables which forces your scope of view down doesn't mean your going to discover the reason of the phenomena. If you open your scope up wide again the causes of these phenomena's become apparent again as other factors play a roll. It's impossible to isolate a true replicatory model in a single industry. It's almost quiet impossible to replicate the eocnomic model of the life of a single man. The whole study is fallacious, it's like a bull rider trying to analyze why he can't stay on the bull. The whole thing is much bigger then your very isolated study which does not and can not account for all variables.

process:

Quote:

Employment can increase simultaneously with raises in minimum wage, but it is untenable to attribute this rise to an increase in minimum wage.

This is nonsense. The paper controls for other variables that impact on employment. It isolates the minimum wage effect and supports the labour theory

No, all it proved is that the retail industry ballooned just like the real-estate industry. As it ballooned demand for labor increased in those industries, even as the minimum wage was raised they were able to eat that expense as that particular industry was in high demand by consumers. Your scope again is too narrow and does not take into account external variables. You have effectively made all other economic phenomona, such as business cycles, an externalities.

process:
Only in a case of a good. The labour market is quite different, given monopsony and efficiency wage criteria. The former in forms us that the profit motive will lead to a result where employment is deliberately (and inefficiently) restricted. The latter tells us that a wage increase does not necessarily translate into an unit labour cost increase.

Right and since labor is a good we are in agreement. Follow the logic. If the minimum wage was $100 an hour would we have an unemployment problem or not? Only those individuals whos economic value is worth that rate will retain their job, the rest will be fired.

Is this logic really that hard to follow?

Re: Do minimum wages raise employment?

Alice — Tue, 18 Aug 2009 22:32:57 GMT

All exchanges are monopsonies and monopolies. All supply is demand.

Re: Do minimum wages raise employment?

process — Tue, 18 Aug 2009 22:29:23 GMT

Quote:

Ceteris paribus, it is impossible for a raise in price to increase demand.

Only in a case of a good. The labour market is quite different, given monopsony and efficiency wage criteria. The former in forms us that the profit motive will lead to a result where employment is deliberately (and inefficiently) restricted. The latter tells us that a wage increase does not necessarily translate into an unit labour cost increase.

Quote:

One of the uses of economic reasoning is to enable us to perceive whether or not any of the given possible explanations for historical facts is plausible or possible.

The use of monopsony and efficiency wages reflects the inability of the naive supply & demand approach to understand empirical phenomena

Quote:

Employment can increase simultaneously with raises in minimum wage, but it is untenable to attribute this rise to an increase in minimum wage.

This is nonsense. The paper controls for other variables that impact on employment. It isolates the minimum wage effect and supports the labour theory

Quote:

Such an increase must lower the demand for wage-labor, to the extent it does anything whatsoever.

A reduction in labour demand is reliant on those two unrealistic assumptions: (1) zero labour market frictions, (2) a purely technical relationship where human beings are understood in the same terms as inanimate objects

Re: Do minimum wages raise employment?

Rooster — Tue, 18 Aug 2009 22:28:57 GMT

My understanding is that the study attempted to control for the business cycle by using the unemployment rate, but isn't this a crude measure? The problem is whether the control variables are good enough to rule out other explanations. Without a good theoretical explanation -- and the authors defer to others for this -- then it's not very convincing, especially when you've got a small effect.

Re: Do minimum wages raise employment?

filc — Tue, 18 Aug 2009 22:28:18 GMT

I just realized that this whole argument boils down to you trying to denounce the fundamental law of Supply and Demand.

Re: Do minimum wages raise employment?

filc — Tue, 18 Aug 2009 22:22:33 GMT

process:

Quote:

Since the retail industry has ballooned due to the credit expansion policy it's stupid to use the retail industry as the base industry to find a coorelation of un-employment.

You've already been educated in the explanation of focusing on the retail industry: the high % of minimum wage workers should maximise the chances of finding any significant effects. Concerns over credit expansion are nonsense, given the panel technique controls for these sort of time variant factors. You've already been told that, so no excuses for peddling more mistakes!

I'm going to respond despite my fear of sounding ignorant as I don't know if I understood one word of what you just said.

Are you trying to say the balooon in the retail industry and our now consumer based economy has nothing to do with credit expansion?

Also minimum wage laws are used by various large business's to disrupt and stifle less effecient competition. They gain political support by the people for their compassion and eradicate marginal competition. It is competition however that wuold have survived and offered an economic alternative had the governments hand of force not intervened in the first place. Larger businss's lobby for things which promote them and hinder competition.

Some retail shops, like walmart, will encourage minimum wage laws to rise. This will hurt less effecient competitors and further create a monopoly like condition that would not exist without the brute force of the state.

My point is if your looking for a coorelation between minimum wage laws and employment why would you use a ballooned industry? It immediately discredits your proof. It was ballooned just like the real-estate market, what did you expect to find? The statistics are erroneous when the industry has been effected by an entirely different economic phenomina, such as a business cycle