I'll alert you to Quinn's musings on minimum wages not necessarily because I agree with them, but because I suspect most Filter^ readers would. I'll also paste below my rather rambling and incoherent comment. My interest here is to know the precise areas of contention. I think Quinn does an excellent job of trying to bridge the debate, but ultimately fails. I think we all ultimately fail at this, and that's why I'm a subjectivist. Having said that, I have faith that these areas are potentially accessible, and that's why I'm not a nihilist. So do I shed more light, or simply resort to shouting from different premises?
An interesting post.
Will demand for them fall if the price rises by 1 or 2p? Will it balls, but economic theory suggests it will.
You can be "highly price-inelastic" over small changes in price (and therefore unresponsive), but that doesn't violate the fact that demand curves slope downward - because there will always be a potential price change that would illicit a change in behaviour (as I discussed here).
Can’t the minimum wage be seen in the same light as health and safety, tax and interests rate rises, as something that may need to be done to protect certain parts of our society even if it can also have some negative effects?
But those negative effects harm those very "certain parts of society". At least with health and safety regulation you're not directly making unskilled workers more costly to hire. But that's precisly why economists argue that labour markets should be flexible, regulations minimal, and Central Banks independent.
You're right though - like so many other types of intervention and regulation it's simply a matter of weighing up positive and negative factors. Which just comes down to who's got the loudest voice: dispersed unskilled workers, or concentrated unions?
Ultimately the minimum wage is very effective at restricting the ability of immigrant workers to directly compete with British labour. To argue in favour of a minimum wage though you'd need to go beyond saying that democracy has the capacity to shift money from some people to others, to explain why it's morally just to adopt a policy that has deliberately harmed blacks, women, and any other minority group seeking to join the labour market.
You seem to accept that the economic rationale is correct (i.e. there will be unemployment effects) but argue that this can be offset by "the greater good". If that's the case, it's an argument about the ethics of intervening to intentionally create unemployment for the sake of higher wages for employed workers.
This is completely different to outsourcing, which is not an intervention, but a natural response to market conditions. If outsourcing is legislated against you're simply consigning people to work in industries that cannot sustain them.
When "profit chasing" causes job lossess it is moving resources to more productive uses, and therefore making us wealthier. Intervention simply reallocates those resources to groups with political power, making us poorer. That's why the job losses due to globalisation are regrettable but inevitable and ultimately beneficial to all parts of society, whilst job losses due to minimum-wages are just regrettable.
Finally, you're dead right to say that whether or not a minimum wage is the best way to help the poor and low-paid is a different matter. But isn't it a shame that the actual efficacy of a policy should be considered a different matter to the intention?
The only reason people (including economists) support a minimum wage is because it has symbolic connotations. No one seriously advocates it as a measure to help poor people. Everyone accepts that the underlying economic implications are correct. It's just that some people want to play politics and signal their social justnes.
But they're phonies.
Interesting post. I'm often fascinated by this particular type of economic debate.
Is there much real study or proof on either side of the debate? It seems to me that it's such a polarised issue among economists and one that's highly difficult to truly measure that we're mainly left to conjecture on the issue.
Posted by: Kevin Cannon | March 12, 2007 at 04:28 PM
For a comprehensive survey you can start here , but this is a nice case study.
I've tried to assemble some evidence at The Orange Path but i've got stacks of links to still post.
Of the many many studies I've seen the only one that claims that the economic theory is wrong is the Card and Kruegar study, which has since been torn apart.
In the stacks and stacks of empirical work on this issue if anyone can find a replicated refutation of the claim that "minimum wages harms low-skilled workers" I'll buy them a jam doughnut.
Posted by: AJE | March 12, 2007 at 06:03 PM