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Thursday, March 18, 2010

Minimum Insight

Whenever someone I know makes a statement to the effect that the minimum wage benefits the poor, I always ask, "if a minimum wage of $7.25/hour helps the poor, why not make the minimum wage be $1,000/hour and really help the poor?"

Nobody has ever been able to answer that question and stick to that answer with further questioning. Oh sure, some have said, "because who could afford to hire anybody for $1,000 per hour?" So, then I ask, "how about $500? No? $100? No? $50? No? $40? No? ... $10 ...". Somewhere in this string they promptly either change the subject, create and knock down straw men, get irate and insist that my questions are absurd and have no merit, or otherwise indicate through their behavior and speech that they know perfectly well that some people who are employable at a lower wage are never going to find work at $7.25 per hour.

In other words, pretty much everybody knows that minimum wage laws don't help the poor. In fact, they are currently devastating the young poor:

Obviously, I think that minimum wage laws are really a bad idea. However, it has now crossed the line, in my opinion, into severely immoral. The government is now telling a large class of people that they are not allowed to legally work. These people, who can't find jobs, are going to be adversely impacted their whole lives because they are unable to gain experience that would've helped them find better jobs later.


Bret said...

As much as I dislike government programs, I sort of think that if the government insists on a minimum wage, it must provide jobs at the wage for all who want them. Otherwise, it's enforced destitution.

erp said...

Bret, we're the government.

Susan's Husband said...

Hence the rise in productivity during this recession.

erp said...

I thought rise in productivity is because people who still have a job are working smarter and harder.

Hey Skipper said...

The French proved Bret's point starting about 15 years ago.

The liberal left is immoral.

What people who advocate the minimum wage laws are really saying, aside from the economic incompetence of their argument, is that people are not free to make their own decisions on how much they are willing to accept in compensation for their own time.

Susan's Husband said...


Not so much. I intended to write my own post on this, but the gist is that when the economy goes bad, the least productive are fired first. That makes the average productivity of everyone who still has a job increase without any change in their behavior.

Anonymous said...

Susan's Husband alluded to this, but that chart doesn't show what you think that it does.

Add a line tracking the BLS' U-6 employment category, and we'd see that un- and underemployment for every group of people, including middle-aged white men with graduate degrees, has increased significantly during the timeframe of the minimum wage increase - because it happened to coincide with the worst economic downturn since the first Great Depression.

I think that a better test of the effects of a minimum wage would be to track employment once the economy starts adding jobs again, and see if, over time, teenage employment does or does not regain its former ratio and relationship with overall employment.

But otherwise, I agree that if we are to enforce a minimum wage, then we also must provide a public alternative for the relatively unemployable.

Bret said...

The chart shows a clear correlation between rising minimum wages and rising teen unemployment, no?

Anonymous said...

I was going to post "yes, but as I certainly hope that you know, correlation DOES NOT EQUAL causation," but since you do know that, I got to wondering: What exactly is the point of defending that which you know to be indefensible???

The chart perfectly illustrates that which you claim to be true, but YOU KNOW that it does so coincidentally, as the "teenage unemployment" line would have done almost exactly the same thing, absent a raise in the minimum wage.

And we know that because every other group whose employment rate is specifically-tracked did the same thing.

Perhaps you should attempt to claim that the minimum wage increase caused the whole Great Recession, (as some like to call it), and was therefore responsible for decreased employment among all groups?

In any case, I am curious about why you would post that "the chart shows a clear correlation between rising minimum wages and rising teen unemployment", when you know that that's non-determinative, and you also could readily guess that I know that too?

Unless it was subtle humor, and I just didn't get it...

Bret said...

The causation part comes from the analysis - we can say with a high degree of confidence that a very high minimum wage of $1000 would exclude a lot of people from the labor force; while the function of unemployment versus minimum wage is likely to be non-linear, it's very unlikely to be a step-function where the step happens to occur at a wage greater than $7.25 (in my opinion); and there's no evidence that contradicts it (indeed, every chart shows strong correlation).

The high correlation chart I provided is eye-candy to drive home the point.

Anonymous said...

"...and there's no evidence that contradicts it..."

That may be true, but again, any effect from raising the minimum wage is absolutely swamped by the concurrent worst economic downturn in three generations.

Therefore, this chart is only eye-candy.

Harry Eagar said...

If a minimum employment age of 15 helps the older workers by excluding competition, why not make the minimum employment age 40 and really help the jobless, white, middle-aged college graduates?

Bret said...

I was under the impression that child-labor laws were enacted for quite a different reason.

Anonymous said...

According to the University of Iowa, the movement to restrict child labor began in the middle of the 19th century, urged by do-gooding reforms but mostly by labor organizations. Which would seem to support an interpretation that child-labor restrictions were mostly about removing wage competition.

The Feds issued some executive orders restricting child labor at Federal contractors in the 30s, but actual national legislation about it didn't pass (without getting stricken by the SCOTUS) until '38.

Harry Eagar said...

Why couldn't the original impetus have attracted special interests?

Both reasons were operative, although to put it another way, the pressure for child labor from employers was entirely driven by a desire to reduce labor inputs.

There soon arose a claque of preachers who provided sententious reasons why it was good for the little kids' spiritual welfare to miss school and work for starvation wages, but uplift was not the original motive.

Employers used to chain children to the looms in English factories.

erp said...

Good God Harry, must we suffer for the sins of our great, great, great grandfathers.

Children of yore weren't the wonderful gifts we think they are and were treated accordingly.

A lot of really bad stuff went on in the past, but we fixed it for whatever reason. That doesn't mean minimum wage laws fall into the category of fixing alleged wrongs in the hiring of youngsters. They don't for the reasons already given above.

Let's concentrate on what the SOB's in Washington are doing right now. There's plenty to be outraged about without Dickensian comparisons.

Hey Skipper said...

Track French unemployment among younger workers since they significantly raised the minimum wage.

Correlation is not causation, but, by definition, correlation demonstrates causation. (i.e., correlation does not necessarily connect cause to effect, but without correlation, there is no connection.)

Harry Eagar said...

I was trying to hint that all you have done is restate Ricardo's Iron Law in soft words.