Sunday, February 9, 2014

Economists and the Minimum Wage

Today's editorial in the New York Times supporting an increase in the minimum wage cites a letter to President Obama signed by over 600 economists in support of the bill by Senator Tom Harkin and Congressman George Miller to raise the minimum wage to $ 10.10.  The letter argues that the minimum wage not only increases wages at the bottom but has "spillover effects as employers adjust their internal wage ladders."  In other words, everyone makes more money all the way up and down the line.  Even better "in the academic literature....the weight of evidence now ...increases in the minimum wage have had little or no negative effect on ... employment."

This letter suggests that there is simply no reason not to push the minimum wage even higher.  Conceivably, we could make everyone as wealthy as Bill Gates and Warren Buffet by the simple expedient of mandating a $ 100,000 per hour minimum wage.  That should have a terrific "spillover" effect with no consequences on employment following the logic of this letter.

What this letter really demonstrates is the lack of scientific endeavor that permeates academia and especially modern academic economics, which often is nothing but extremely partisan politics dressed up as academic research.  The same folks who think raising taxes on cigarettes and pollution to dramatically curtail their activities think that dramatically raising the costs to employer of employees will have zero impact on employment.  Interesting!  Whether or not a minimum price effects markets depends upon how you label the axes, if you believe these economists.

Wonder if these folks are teaching their students that imposing an arbitrary minimum price in the market place will have no effect on demand, might even increase demand. That's what their letter is saying.

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