Wednesday, February 27, 2013

Lars leaves things out

At The Market Monetarist, Lars Christensen writes

I find it incredible that anybody seriously would question the negative supply side consequences of higher minimum wages. This is not a political issue, but a simple question of understanding the laws of supply and demand.

So he reduces it to a simple matter of supply and demand. And he puts up the crossbones of a supply-and-demand chart and I'll tell ya, he explains it pretty well and he is as clear as can be. But does that mean I think he's right?


What Christensen has done is to take a matter of great (whether they know it or not) significance to an awful lot of people who don't make an awful lot of money, and make it so simple that it seems undeniable.

But it is the difference between "simple" and "simplistic". Lars is simplistic.

Simple is better. Simple doesn't leave things out. "Everything should be made as simple as possible, but not simpler."

My friend Gene Hayward had some thoughts on the Minimum Wage the other day. His post is a bit more involved than Christensen's. (He uses four graphs and works out a bit of his thinking in the post.)

Elasticity of Demand for Labor. That's the thing Gene includes and Lars leaves out. Basically Gene is saying Maybe the crossbones don't look like Lars's perfect X. Gene thinks the Demand for Labor line is a little more upright, so that the decrease in employment is less than it looks on Lars's graph. Gene makes a good argument.


Greg said...

Im just going to post a copy of what I thuink is the BEST comment ever on minimum wage laws.
I really wish I'd said this; (its kinda long)

"“Minimum wage laws are like hummingbird wings. In theory they shouldn't work at all, in the real world they work pretty well.
Australia's minimum wage was just bumped to A$15.96 an hour, US$ at today's exchange rate. Unemployment rate is 5.2%.
Think about that, their U3 rate is three points lower AND their minimum wage is more than double ours. Either the Coriolis effect makes neoclassical economics work backwards in the Southern hemisphere, or mainstream economists are a bunch of astrologers who think they're Carl Sagan.
$16.84/hr is high enough that a full time worker making that here would be means-tested out of food stamps, section 8 and other income security programs.
So what's going on is Australia puts the cost of a living wage for the working poor on their employers instead of taxpayers, enabling govt spending to be focused on other needs-- like universal Medicare and a Social Security system so broad it would impress even Rodger Mitchell.

“One other thing, this John Stossel post last month may be the most mendacious thing I've read all year.

(Stossel) "Statists say that Australia is proof that minimum wage laws help workers. They point to Australia's 5.1% unemployment rate... But statists ignore the details.
"Most people who earn minimum wage are young, unskilled workers. How are they doing in Australia?
"In June, Australia's unemployment rate for workers age 15 to 19 was 16.5%."

"Now that's digging pretty deep for an unemployment stat. Curious that Stossel neglected to mention the comparable US stat (for workers 16 to 19). In June, their unemployment rate was...26.6%.
That Coriolis effect is CRAZY.

OK, this is really the last one...
"According to the Heritage Foundation/WSJ "2011 Index of Economic Freedom", Australia's "government spending as a percentage of gross domestic product (GDP)" is less than that of the United States; 34.3% vs 38.9%.
Stop and think about that... universal Medicare (with dental!), a jumbo size Social Security system, a defense policy of jumping into the same wars we do (including Vietnam and Iraq) and Australia still spends less on government than we do. At risk of sounding hyperbolic, I"d say that Coriolis effect is strong enough to move hurricanes (and cyclones). :o)”

There is nothing anyone can add to this

Gene Hayward said...

Art---Thanks for the Shout-Out. I hastily put together that posting as a homework assignment for an online Microecon course through Tried to hit as many basic econ concepts as possible.

The question posed was how can an increase in the MW actually increase employment overall. Reviewing the literature I found the two biggest considerations were a relatively inelastic demand for labor in the short run and the "multiplier effect" of the increase in income that will increase the demand for labor.

I think there is more empirical support for the former as opposed to the latter.

As is the usual case, things are more complicated upon further reflection.

Thanks again for the link. Went back and re-read my own post. Found some data and spelling errors. I REALLY need to fire the idiot proof-reader I have on staff. LOL! :)