Sunday, March 26, 2006

Half of all economists think werewolves negatively impact interest rates

Being an idealist at heart while at the same time a hopeless political junkie, I rely on rationalism as a compass for steering the middle road between these yin and yang aspects of my personality. I believe there are many people with a similar dilemma out there. Why? Look at the way most people view economics and economists. They steer clear, because for an IPJ, economist's claims are hazardous to our health. Trying to use reason to evaluate competing economist's claims is about as effective as Peter Boyle's Wizard trying to counsel Travis Bickle by telling him he should not "worry so much." So, when John Edwards called in The Ethical Werewolf to make the case for an increase in the minimum wage, I approached it with some trepidation.

You can't swing an indicted Republican without smacking a conservative who will tell you increasing the minimum wage costs jobs, replete with reams of Cato studies. But,
TEW cites no less than five economists with three different studies ( 1: "Myth and Measurement: The New Economics of the Minimum Wage" David Card and Alan B. Krueger, 2:"The Effect of the Minimum Wage on the Fast Food Industry" Lawrence F. Katz and Alan B. Kruegar, 3: "The Effects of New Jersey's Minimum Wage Increase on Fast
Food Employment: A Re-Evaluation Using Payroll Records."
David Neumark, William Wascher) showing that increasing the minimum wage does not significantly affect unemployment. Neumark and Wascher's results are notable as they are opponents of increased minimum wage and initiated their study with the intention of refuting Card and Krueger.

Granted, the above studies were done in the 90's. But as TEW notes, Florida raised the MW in 2005 with no negligible effect on jobs. When Michael Sasso asked David Denslow, research economist at the University of Florida's Bureau of Economic and Business Research (an opponent of MW increases) Sasso quoted him saying, "I think it's really quite clear that the effect of the minimum wage is quite small"

Now, Maryland serves up another test case and short of an economist cage match (sponsored by Cato?), no satisfying conclusion is anywhere in sight for long suffering IPJ's.

Let anecdotes be in reason's good stead. From the Sasso piece:

One independent retailer, Ronald "Mac" Walter, who owns two discount furniture stores in Tampa, doubts that the amendment will seriously hurt the job market.

"I don't think it's going to kill jobs because you need the people to do the work no matter what," said Walter, owner of Highland Park Furniture, which has a license to use the trade name Macy's Furniture & Mattress Clearance Center. "But it might hurt profits, and it sounds better to say it's going to hurt jobs than hurt profits."

4 comments:

Jeff Haught said...

Card and Krueger's study only studied the results of a survey of select fast food restaurants. It did not use actual data. That's not to say that increasing the minimum wage increases unemployment. Only that the Card and Krueger's study was just as flawed as any study is that uses survey data.

Muddy Mo said...

Jeff- (FYI, I fixed the links) Right: Card and Krueger, baaaaaaad; So the Employment Policies Institute hires Neumark and Wascher goooooood. Except it didn't turn out like they thought:
"The minimum wage has found unexpected support in a new quarter. Data from David Neumark and
William Wascher, two long-time critics of raising the minimum wage, have vindicated an important
study that found that a moderate increase in the minimum wage did not reduce employment.
The original study, by Princeton professors David Card and Alan Krueger,’ looked at data from the
New Jersey fast-food industry after the state raised the minimum wage in 1992. It received heavy criticism
in the spring and summer of 1995 after the Employment Policies Institute, a research organization
funded by a cross-section of manufacturers, restaurants, and retailers, charged that Card and Krueger’s
findings were the product of mistakes in the two economists’ data-gathering procedures."

Jeff Haught said...

Like I said, I wasn't refuting the CW that raising the minimum wage increases unemployment, I was just saying survey data in a select industry doesn't tell you a thing.

From Jane Galt
Possibly . . . but the problem is that, as a poverty fighting weapon, the minimum wage is an exceptionally blunt instrument. Only about half of the people earning the minimum wage are adults; the rest are teenagers and young adults, many of whom come from relatively affluent families. According to this paper from the Clinton-era Department of Health and Human Services, only about 30% of the people receiving minimum wage live in families near or below the poverty line . . . a result that is hardly surprising, since the overwhelming majority of minimum wage workers worked less than twenty hours a week--so much less that the average workweek for all minimum wage workers was less than 10 hours in 1998. This would suggest that most people working at minimum wage are supplementing their studies, or their spouse's income, rather than trying to support themselves with such a job. So in order to get to the relatively small number of people who need the money, we provide a subsidy to the 71% who do not. This is not very efficient social policy.

Even worse, there is evidence that whatever job losses there are fall disproportionately on minorities and women, the groups most likely to be dependant on the minimum wage to support themselves. So there is a real possibility that the minimum wage is a subsidy to affluent workers at the expense of the poor workers it is supposed to help. Or, as the HHS paper sums up the moderate consensus on the minimum wage:

* A disproportionate share of minimum wage workers are teenagers and most do not live in poor families.

* A sizable portion of minimum wage workers are poor parents.

* Negative employment effects, if any, appear to be slight and are difficult to detect.

* Minimum wages curb employer-provided training opportunities for low-wage workers and may reduce educational attainment for some at-risk groups.

* Moderate minimum wage increases will not reduce poverty rates.

So, are you arguing that increasing the minimum wage is good for the poor or that anyone who believes otherwise is intellectually dishonest because they don't believe Card and Krueger?

Muddy Mo said...

Not at all