UC San Diego - New Study Finds Minimum Wage Reduces Employment

[maxparrish]

Researchers looking for mystery spots where the laws in physics and economics no longer apply, have been disappointed. Yep, the laws of gravity, and supply and demand still work:

We estimate the minimum wage’s effects on low-skilled workers’ employment and
income trajectories. Our approach exploits two dimensions of the data we analyze. First,
we compare workers in states that were bound by recent increases in the federal minimum
wage to workers in states that were not. Second, we use 12 months of baseline
data to divide low-skilled workers into a “target” group, whose baseline wage rates were
directly affected, and a “within-state control” group with slightly higher baseline wage
rates. Over three subsequent years, we find that binding minimum wage increases had
significant, negative effects on the employment and income growth of targeted workers.
Lost income reflects contributions from employment declines, increased probabilities of
working without pay (i.e., an “internship” effect), and lost wage growth associated with
reductions in experience accumulation. Methodologically, we show that our approach
identifies targeted workers more precisely than the demographic and industrial proxies
used regularly in the literature. Additionally, because we identify targeted workers on
a population-wide basis, our approach is relatively well suited for extrapolating to estimates
of the minimum wage’s effects on aggregate employment. Over the late 2000s, the
average effective minimum wage rose by 30 percent across the United States. We estimate
that these minimum wage increases reduced the national employment-to-population ratio
by 0.7 percentage point.

http://econweb.ucsd.edu/~mwither/pdfs/Effects of Min Wage on Wages Employment and Earnings.pdf

 

[Nexus]

Is it better to have more people working yet struggling or fewer people working at a higher standard of living. A question for the philosophers.

 

[untermensche]

In other words capitalism is so fucked up it is difficult to fix.

 

[Loren Pechtel]

Is it better to have more people working yet struggling or fewer people working at a higher standard of living. A question for the philosophers.

Yes, this is the choice. Almost nobody on the left will admit this, though, they continue to insist that it can be done basically cost-free.

 

[AthenaAwakened]

Is it better to have more people working yet struggling or fewer people working at a higher standard of living. A question for the philosophers.

Yes, this is the choice.

No it isn't.

Almost nobody on the left will admit this, though, they continue to insist that it can be done basically cost-free.

Wrong again. But thank you so much for playing our game. And while you didn't win, we do have some lovely parting gifts back stage for you. Let's everybody give Loren a hand.

 

[Jayjay]

Yes, this is the choice.

No it isn't.

Then what is? The research in the opening seems to confirm the intuition there is correlation between unemployment and minimum wage.

Of course there may be other dimensions of compromise. My favourite would be a universal basic income system coupled with abolishing minimum wage.

 

[barbos]

Well, if you have two neighboring states with different minimum wage then it's pretty obvious that jobs will be leaking from state with higher minimum wage to one with lower minimum wage.
Same as with gun control "studies" where they find that lax gun control "decrease" crime. It does not, it merely redistribute it.

 

[Canard DuJour]

Well, if you have two neighboring states with different minimum wage then it's pretty obvious that jobs will be leaking from state with higher minimum wage to one with lower minimum wage.
Same as with gun control "studies" where they find that lax gun control "decrease" crime. It does not, it merely redistribute it.

Yep. They also appear to be doing the old trick of multiplying "target" data up to "estimate" an effect on aggregate employment. The uncritical reader thinks a reduction in employment by a MW hike has been proven, when the authors are in fact positing a counterfactual : how much more employment there would have been if there hadn't been a MW hike. Aggregate employment needs no such "estimate" since the statistics exist - only they don't show what some authors set out to show.

 

[Canard DuJour]

Is it better to have more people working yet struggling or fewer people working at a higher standard of living. A question for the philosophers.

Yes, this is the choice. Almost nobody on the left will admit this, though, they continue to insist that it can be done basically cost-free.

I don't know anyone left or right who says any such thing. Certainly if you keep raising MW, you'll get unemployment. What people (who aren't all on the left) dispute is that the relation is continuous and linear i.e. that you can keep pushing wages down cost-free. As wages approach zero, unemployent would approach, not 0%, but 100%.

My own policy preference would be to raise wages until no -or few- employed need welfare, along with a guarantee of public sector employment for any displaced worker who wants a job. If I'm subsidising them anyway, I don't want a middle man skimming a profit and bidding others' wages down. I would indeed expect some private sector disemployment.

 

[Axulus]

As wages approach zero, unemployent would approach, not 0%, but 100%.

It's almost as if there is some sort of equilibrium point.

 

[Canard DuJour]

Mmmmyeah, but not a unique one where independent supply and demand curves cross.

 

[untermensche]

Mmmmyeah, but not a unique one where independent supply and demand curves cross.

In one case "demand" means the whims of dictators.

If you force some dictators to pay the people who make them their money more, many will simply demand less people do more work.

When your economic system is based on the whims of dictators it is not a very good system.

 

[Nice Squirrel]

I see they used data from 2008-2012. I cannot for the life of me figure out any outside factors that would contribute to the unemployment rate.

 

[Jimmy Higgins]

Researchers looking for mystery spots where the laws in physics and economics no longer apply, have been disappointed. Yep, the laws of gravity, and supply and demand still work:

We estimate the minimum wage’s effects on low-skilled workers’ employment and
income trajectories. Our approach exploits two dimensions of the data we analyze. First,
we compare workers in states that were bound by recent increases in the federal minimum
wage to workers in states that were not. Second, we use 12 months of baseline
data to divide low-skilled workers into a “target” group, whose baseline wage rates were
directly affected, and a “within-state control” group with slightly higher baseline wage
rates. Over three subsequent years, we find that binding minimum wage increases had
significant, negative effects on the employment and income growth of targeted workers.
Lost income reflects contributions from employment declines, increased probabilities of
working without pay (i.e., an “internship” effect), and lost wage growth associated with
reductions in experience accumulation. Methodologically, we show that our approach
identifies targeted workers more precisely than the demographic and industrial proxies
used regularly in the literature. Additionally, because we identify targeted workers on
a population-wide basis, our approach is relatively well suited for extrapolating to estimates
of the minimum wage’s effects on aggregate employment. Over the late 2000s, the
average effective minimum wage rose by 30 percent across the United States. We estimate
that these minimum wage increases reduced the national employment-to-population ratio
by 0.7 percentage point.

http://econweb.ucsd.edu/~mwither/pdfs/Effects of Min Wage on Wages Employment and Earnings.pdf

Do you need a cloth to clean up?

Our best estimate is that this period’s minimum wage increases resulted in a 0.7 percentage point decline in the national employment-to-population ratio for adults aged 16 to 64. This accounts for 14 percent of the total decline in the employment-to-population ratio over this time period.

So that 0.7 percent drop is 1 part in 7 of the alleged reason for the lowered employment.

This study is very brave. It is attempting to look at a rather complex calculation amidst the Great Recession, somewhat equivalent to measuring rising sea levels due to glacier melts during a hurricane. The study is likely flawed, because it fails to discuss one minor detail regarding the drop in employment, the increase in corporate profits. If the raise in minimum wage indeed was the problem, shouldn't profits be more level, or even slightly down?

 

[Jayjay]

Yes, this is the choice. Almost nobody on the left will admit this, though, they continue to insist that it can be done basically cost-free.

I don't know anyone left or right who says any such thing. Certainly if you keep raising MW, you'll get unemployment. What people (who aren't all on the left) dispute is that the relation is continuous and linear i.e. that you can keep pushing wages down cost-free. As wages approach zero, unemployent would approach, not 0%, but 100%.

Wages ≠ Minimum wage.

Therewill always be jobs that are worth more than the minimum, and people capable of doing those jobs would not be unemployed even if minimum wage was abolished. There would still be some unemployment though because there are always people who are simply not willing or capable of working.

My own policy preference would be to raise wages until no -or few - employed need welfare, along with a guarantee of public sector employment for any displaced worker who wants a job. If I'm subsidising them anyway, I don't want a middle man skimming a profit and bidding others' wages down. I would indeed expect some private sector disemployment.

My favourite policy would be to raise welfare (and taxes) so that no - or few- people would need jobs to survive: in other words, UBI. Then minimum wage would be meaningless. If I have to subsidize people anyway, I'd rather give them money up front than force them to do unproductive labor for it.

 

[ksen]

Well, if you have two neighboring states with different minimum wage then it's pretty obvious that jobs will be leaking from state with higher minimum wage to one with lower minimum wage.

How are retail chains and restaurants, the typical MW employers, going to move from a higher MW state to a lower MW state? Isn't the whole point of those businesses to have locations near where their customers live, work and shop?

 

[Nice Squirrel]

Well, if you have two neighboring states with different minimum wage then it's pretty obvious that jobs will be leaking from state with higher minimum wage to one with lower minimum wage.

How are retail chains and restaurants, the typical MW employers, going to move from a higher MW state to a lower MW state? Isn't the whole point of those businesses to have locations near where their customers live, work and shop?

Through the Invisible Hand of the Free Market, all things are possible.

 

[SimpleDon]

Once again, I must point out that it is not supply and demand that increases unemployment in neoclassical, mainstream economics when wages go up. That makes no sense at all in any economics.

Employers hire workers to increase their production of goods or services. If wages go up it makes no sense for employers to lay off workers because not only will the employer see a reduced profit from the increased costs due to the wage increase for the workers that they retain, they will lose the profits and the fixed cost coverage from the lower production due to reduced workforce. They will see lower revenue and lower profits than if they had kept the workers.

 

[dismal]

Once again, I must point out that it is not supply and demand that increases unemployment in neoclassical, mainstream economics when wages go up. That makes no sense at all in any economics.

Employers hire workers to increase their production of goods or services. If wages go up it makes no sense for employers to lay off workers because not only will the employer see a reduced profit from the increased costs due to the wage increase for the workers that they retain, they will lose the profits and the fixed cost coverage from the lower production due to reduced workforce. They will see lower revenue and lower profits than if they had kept the workers.

You really don't have this right.

Let's assume that ex-ante economy-wide all firms have hired just enough people to maximize profits. In some cases this will involve paying someone, say $5 per hour whose marginal contribution is $5.50.

Now you pass a law raising the minimum wage to $10. At the margin there will be several negative impacts on demand for unskilled labor. First, all the people who have a marginal contribution to profit of less than $10 are immediately kaput unless prices can be raised enough to maintain a positive marginal contribution to profit at the new labor rate. Second, at the margin possible substitutes for unskilled labor become more attractive whether they be automation or hiring skilled people who are now relatively cheaper. Third, businesses that employ large amounts of unskilled labor will raise prices causing demand for their products to fall, causing these industries to hire fewer people.

 

[Jimmy Higgins]

Is the increase in minimum wage, however, really affecting the bottom line that much? You have the existing cost for labor, which includes a lot of people not making minimum wage, your full-time staff costs you health care and FICA which can add up substantially and dwarfs a minimum wage hike, then you add the cost of equipment/services, etc... Just how much would it actually affect the outlays for a company?