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Minimum Wages: A Survey of the Evidence

January 3, 2017 4 comments

With the new year, minimum wages are rising in many cities and states, including Michigan where I live. I have written before on this subject (a link is given below) but I ran across a nice article containing a very readable summary of the evidence on this subject. It is a nice read for non-economists because it has no equations (gasp!) and it is not very long but it does provide an accessible summary statement of the empirical scientific evidence on the effects of the minimum wage. But I have another motive in providing this summary of the evidence.

The nature of scientific inquiry is that not all studies on a subject produce the same answer. As a result, more than one study is necessary because, as the evidence emerges, hopefully a consensus forms about the problem that is being studied. So undoubtedly there are studies suggesting that there is no connection between smoking and cancer but it seems quite likely that the preponderance of the evidence, and the highest quality work, reveals a link between smoking and cancer. I once saw Barack Obama “cherry-pick” evidence, citing one particular study indicating that minimum wages do not cause unemployment. But one study isn’t important; the entire literature is and here is a summary of what that literature shows.

An extensive survey by Neumark and Wascher (2007) concluded that nearly two-thirds of the more than 100 newer minimum wage studies, and 85% of the most convincing ones, found consistent evidence of job loss effects on low-skilled workers.

This statement is taken directly from the article linked above. The Neumark and Wascher (2007) article is a scholarly study providing a more thorough analysis of the evidence.

The good news for an economist like me is that what we tell students in Econ 101 is correct: minimum wages cause unemployment. Some workers gain and some lose and the tragedy of the policy is that it harms those in our society who are the least-able to deal with a job loss and the loss of skill-accumulation that goes along with working. Namely, the policy harms people at the low end of the income distribution. This is just another example, in a long list of examples, of how a government can harm some of its citizens while the politicians, implementing the policy, claim that it helps those citizens. As long as the public is unaware of the evidence, politicians can get away with this destructive behavior.

Previous Post on Minimum Wages: minimum-wages-to-rise-in-2013

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Random Thoughts After a Long Hiatus

September 21, 2015 2 comments

It has been quite a while since I last posted on this blog. I finally decided to catch up by posting a series of remarks on a number of issues that are of interest to economists and (hopefully) others.

Disparate Impact Analysis

I teach in a university economics department. If you were to attend one of our faculty meetings, you would observe that nobody in the room is a seven-foot Chinese basketball player. Does that mean the faculty in my department discriminated against the seven-foot Chinese basketball players in the world who wanted to be on our staff and attend this meeting? If you were to use a nonsensical theory known as disparate impact analysis, then if seven-foot Chinese basketball players were a politically-protected group, the answer is yes and my university could be charged with discrimination in federal court.

To say the least, disparate impact analysis ignores the scientific method which most of us learned in primary school. The fact that a person has the disease known as AIDS does not imply how the person got that disease. The reason is that medical science has determined that the disease can be contracted in more than one way. Similarly, if one group of individuals makes less money than another group, there are many reasons why this may be so.  One of those reasons could be discrimination but how do we know this to be true? Put differently, there are causal relationships in an economy and there are many random events that can make a group of individuals have the demographic characteristics that they have. Read more…

On the Differing Policy Prescriptions of Economists

January 28, 2014 2 comments

To a person who is not a professional economist, it can seem difficult to understand why economists can have such disparate views on economic policy issues.  Part of the explanation for these apparent differences in professional opinion is that some economists are willing to sweep aside the implications of economic theory when theory leads to policy conclusions that the economist dislikes. A recent newspaper article (War on the Poor) illustrates this behavior by some economists.

Alan S. Blinder is a distinguished economist at Princeton University who specializes in macroeconomics. He has produced a substantial body of influential research in his academic career. He also served as a member of the Board of Governors of the Federal Reserve System. He recently published an article discussing what he called a “war” on the poor being waged by the government. This is provocative stuff and he lists a number of policy issues which he believes are illustrative of this so-called war. Here is a revealing quote from this article. Read more…

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