Yeah, I've seem Doug's studies and others and the empirical research doesn't support the proposition that raising the minimum wage depresses the demand for low wage labor. There's Doug's point that demand is inelastic -- what are car wash owners and MacDonald's franchiser gonna do, get out there with a brush or a spatula themselves? (If they're not already.) Are execs at janitorial services providers or the CEO of Manpower or Kelly's going to get out there and dig ditches or type, and if they did, would that satisfy the demand? Employers need a certain number of workers whatever they have to pay them. The NCE's will say, oh, then they'll quit that business and go do something where they don't have to pay such high labor costs. Thereby ignoring the huge transaction costs of setting up a new business. Also the fact that the minimum wage laws will generally affect most service-type low wage labor.
And much of that labor can't be offshored or exported -- you can't clean office buildings in LA or serve burgers in Chicago from Mumbai or Djakarta. There is always continual pressure to automate, which does reduce the demand for labor, of course, but I am not aware of studies that show that raising the minimum wage contributes to this. In fact, apart from practicalities about what can be automated, the fact is that theoretically it's the higher paid wage labor that gets automated first, that's where it makes most sense even in NCE terms to sink your automation research and investment dollars. Reduce the number of unionized autoworkers, that's the ticket.
There's also the general theoretical/empirical point, an immense thorn in the side for neoclassical economists, that theoretically (unregulated) labor markets ought to clear (wages should drop to the point where unemployment is zero or frictional -- limited to people in the process of switching jobs and the like) -- but they never did, even before the enactment of the minimum wage laws in the 1930s. Back in the 19th century, when there was virtually no labor regulation, there was still high unemployment. Marx wrote about this in his theory of the "reserve army of the unemployed" and used the fact to beat up on classical economists who believed the 19th century version of the same silly idea, that paying workers too much would be bad for them.
--- Doug Henwood <dhenwood at panix.com> wrote:
>
> On Jan 18, 2007, at 2:45 AM, Jason McCullough wrote:
>
> > I’ve been in what seems like a never ending
> argument over the last
> > couple weeks with some conservatives, and one
> economist in
> > particular, on a message board I hang out on.
> There’s an
> > unbelievable level of certainty on the right,
> especially with
> > economists on the right, that the minimum wage’s
> impact is not only
> > significantly negative on employment, but
> significantly negative on
> > the net welfare of the people having those jobs.
>
> I doubt they're offering any evidence for the
> position - just saying
> something like, "It's common sense! [Or, more
> likely, "basic
> economics" - to show that unlike you, well-meaning
> naif, the
> hardheaded speaker has been inducted into the
> mysteries of the
> discipline.] When you raise the price of something
> you reduce the
> demand for it, whether it's porridge or labor. Force
> wages up beyond
> market levels, and you'll create unemployment. So in
> this case you're
> only hurting the people you're trying to help."
>
> Problem is there isn't much evidence for this
> proposition. Even the
> theoretical appeal is a little dodgy, because the
> elasticity of
> demand can be extremely variable. In the recent gas
> price spike, for
> example, demand in the U.S. barely stumbled; people
> complained, but
> kept driving. Same with the wage. Increase it by 10%
> and what
> happens? Does demand for labor decline by 10% or 1%?
>
> In fact, actual empirical studies of minimum wage
> show little or now
> effect on employment. David Card and Alan Krueger
> did a series of
> comparisons of similar jurisdictions, one of which
> increased its
> local minimum vs. another that didn't. There was no
> reduction in
> demand for low-wage labor in the areas that
> increased. Also, there
> was no visible decline in the demand for labor after
> the last rounds
> of minimum wage increases in the U.S. And, I just
> got a press release
> announcing the results of a survey by firm that does
> payrolls for a
> lot of small businesses, which found they don't care
> about a minwage
> increase.
>
> Yeah, Bill Bartlett has a point that it's the class
> interests of
> economists at work. But it's also the idiot reflex
> of orthodox
> economics: raise the price, and demand just has to
> go down. It does,
> it does! But it doesn't.
>
> Doug
>
>
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>
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