Does the minimum wage put people out of work?

by on July 10, 2004 at 4:27 am in Economics | Permalink

Steve Landsburg imparts much wisdom on the minimum wage; read Brad DeLong as well. Steve writes:

How do we know what was in all the unpublished research about the minimum wage? Of course we don’t know for sure, but here’s what we do know: First, the big published studies were no more statistically significant than the small ones. Second, this shouldn’t happen if the published results fairly represent all the results. Third, that means there must be some important difference between the published and the unpublished work. And fourth, that means we should be very skeptical of what we see in the published papers.

Now that we’ve re-evaluated the evidence with all this in mind, here’s what most labor economists believe: The minimum wage kills very few jobs, and the jobs it kills were lousy jobs anyway. It is almost impossible to maintain the old argument that minimum wages are bad for minimum-wage workers.

The work of Card and Krueger has emphasized the puzzle of why minimum wage boosts don’t cause a big downturn in employment. They offer up a complicated story about labor market monopsony.

My take:

On this issue (and many others) I’ve been much influenced by my colleague Gordon Tullock. Gordon notes that the government can make an employer raise nominal money wages, but can’t stop him from turning off the air conditioner. [A more optimistic scenario is that the employer invests in creating a higher-productivity job.] Surely just about every job out there can be made worse, one way or another, in a way that saves the employer money.

So the scenario is now simple. The government boosts the minimum wage. Low-wage workers earn more. Few lose their jobs. Workers sweat more too, one way or another. Few are much better off.

Addendum: There is a neat twist on this argument, drawing on the idea of an intra-family externality. Let’s say you hold the “traditionalist” view that the poor don’t work hard enough for their families. If Tullock’s mechanism is operative, you might then favor increasing the minimum wage. The end result would be more sweat at a higher money wage.

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