Will raising the minimum wage boost crime?

by on February 19, 2014 at 2:45 pm in Economics, Law | Permalink

There is a recent 2013 paper on this topic by Andrew Beauchamp and Stacey Chan, the abstract is here:

Does crime respond to changes in the minimum wage? A growing body of empirical evidence indicates that increases in the minimum wage have a displacement effect on low-skilled workers. Economic reasoning provides the possibility that disemployment may cause youth to substitute from legal work to crime. However, there is also the countervailing effect of a higher wage raising the opportunity cost of crime for those who remain employed. We use the National Longitudinal Survey of Youth 1997 cohort to measure the effect of increases in the minimum wage on self-reported criminal activity and examine employment–crime substitution. Exploiting changes in state and federal minimum wage laws from 1997 to 2010, we find that workers who are affected by a change in the minimum wage are more likely to commit crime, become idle, and lose employment. Individuals experiencing a binding minimum wage change were more likely to commit crime and work only part time. Analyzing heterogeneity shows those with past criminal connections are especially likely to see decreased employment and increased crime following a policy change, suggesting that reduced employment effects dominate any wage effects. The findings have implications for policy regarding both the low-wage labor market and efforts to deter criminal activity.

For the pointer I thank Kevin Lewis.  And there is an ungated version here (pdf).  And via Gordon, here is a profile behind one of the forces behind the campaign to raise the minimum wage.  Here is a good recent article on minimum wages and cross-state mobility.

Aaron W February 19, 2014 at 2:47 pm

I don’t support increasing the minimum wage, but this is too “cute” for its own good.

Brian Donohue February 19, 2014 at 3:07 pm

Self-trolling.

john personna February 19, 2014 at 3:54 pm

Reeks of data mining. I’m sure that we can equally show that the rise of US minimum wage has raised the price of milk in one or more small South American villages, and changed the tempo of dance tunes in Western Africa. Related: P values, the ‘gold standard’ of statistical validity, are not as reliable as many scientists assume.

Peter Schaeffer February 19, 2014 at 4:57 pm

This is just dumb special pleading. The opponents of raising the minimum wage don’t care a hoot about crime. They live in nicely segregated neighborhoods and send their kids to comparably exclusive schools.

What they do care about is creating and profiting from a society based on radical inequality, and divided by income, race, education, etc. Their vision of the good life is fantasy dreamed up watching “Gone With the Wind”.

If they really cared about reducing crime, they would press for immigration restriction. See

“IMMIGRATION AND THE ECONOMIC STATUS OF AFRICAN-AMERICAN MEN” by George J. Borjas, Jeffrey Grogger, and Gordon H. Hanson

“The employment rate of black men, and particularly of low-skill black men, fell
precipitously from 1960 to 2000. At the same time, the incarceration rate of black men rose
markedly. This paper examines the relation between immigration and these trends in black employment and incarceration. Using data drawn from the 1960-2000 U.S. Censuses, we find a strong correlation between immigration, black wages, black employment rates, and black incarceration rates. As immigrants disproportionately increased the supply of workers in a particular skill group, the wage of black workers in that group fell, the employment rate declined, and the incarceration rate rose. Our analysis suggests that a 10-percent immigrant-induced increase in the supply of a particular skill group reduced the black wage by 2.5 percent, lowered the employment rate of black men by 5.9 percentage points, and increased the incarceration rate of blacks by 1.3 percentage points.”

The Other Jim February 19, 2014 at 5:41 pm

Straw-man much?

You either have zero understanding of your opponents’ opinions, or are entirely willing to brazenly lie about them. Neither one makes you look good.

Peter Schaeffer February 19, 2014 at 6:50 pm

The Black American Leadership Alliance released a statement on the relationship between Open Borders, poverty, and immigration. See http://bit.ly/Ncbv4W. A portion is copied below. Read it all.

“Many studies have shown that black Americans are disproportionately harmed by mass immigration and amnesty. Most policy makers who favor the legalization of nearly 11 million aliens fail to acknowledge that decades of high immigration levels has caused unemployment to rise significantly, most particularly among black Americans. They further fail to consider how current plans to add 33 million more legal workers within ten years will have an enormously disastrous effect on our nation’s jobs outlook. With respect to African Americans, well respected researchers from some of America’s most venerable universities have found undeniable links tying large-scale immigration in the U.S. to declining rates of employment for America’s black citizens. The National Bureau of Economic Research recently issued a report asserting that 40 percent of the decline in employment rates for low skilled black men in recent decades was due to immigration. Studies by Borjas and Katz, professors from Harvard University, found that immigration reduced the earnings of certain native born laborers by as much as eight percent and other demographic groups by 2 to 4 percent.

According to research conducted by University of California San Diego economics Professor Gordon H. Hanson, immigration has accounted for 40% of the 18 percentage point decline in black employment rates, and current immigration proposals are sure to substantially raise these numbers. Upon conducting research in this area, Professor Vernon Briggs of Cornell University concluded that illegal immigrants and blacks, both of whom are disproportionately likely to be low skilled, frequently compete for the same jobs, and that a large number of illegal immigrants ensures a surplus of low skilled labor, thus keeping wages for black workers artificially low.”

Floccina February 20, 2014 at 2:52 pm

@Peter Schaeffer,
I think that most people earning more that $50,000/year would benefit from a big rise in minimum wage, if it (as we fear) would increase unemployment because this would tend to improve service in businesses we use. This is because the worst workers would be push out. It would eventually mean slightly higher prices but we can easily afford the added cost. It would mostly hurt those who would cannot find jobs and those with income just above the new minimum. Now it might hurt some who own stock in companies that hire low paid worker but this would small and temporary.

john personna February 19, 2014 at 4:48 pm

OK, so reading this might be slightly beyond me … but do I understand that for their data-set 31.30% of teens aged 14-16 commit crime? I think they are starting with a seriously criminal group, before they apply small changes to wage earnings.

prior_approval February 20, 2014 at 5:18 am

Well, there is a bit more recent research on the topic, using empirical data, as described in an article from November, 2013 –

‘Academics, however, are far less skittish about discussing the relationship between wages and criminality. The first person to raise the possibility that the two were connected was sociologist Robert K. Merton. He argued in 1938′s “Social Structure and Anomie” that certain types of crime resulted from the inability to achieve “culturally defined goals”—namely, the acquisition of material goods—by socially acceptable means. Pointing to a group of Irish-American bootleggers on Chicago’s North Side, Merton argued that the “limitation of opportunity to unskilled labor and the resultant low income can not compete in terms of conventional standards of achievement with the high income from organized vice.”

Seventy-five years later, Merton’s view still drives research. But was he right? There’s little agreement among experts. Studies published in recent years have found that raising the wage floor has reduced violent crime, that it reduces most crimes except violent ones, and even that increasing the minimum wage increases crime by decreasing the number of job opportunities for low-skilled workers.

A forthcoming study takes on the very nature of this debate. Derek Cohen, who is a PhD candidate at the University of Cincinnati and an analyst at the conservative Texas Public Policy Foundation, and Jay Kennedy, also a U.C. doctoral candidate, argue that there simply is no link between crime and the minimum wage. The connection between being poor and being a criminal is, they write, “so tenuous that any assertions about the effect of wage hikes on reducing crimes among the working poor are inappropriate.”

For their research, Cohen and Kennedy looked at the 18 states that have raised their minimum wages above the federal level at some point between 1977 and 2012 (the full list is here). They compared that to crime rates during that period. They found that prior to 1993, there was a “lockstep increase” of both minimum wage and crime. But from 1994 on, minimum wage rose while crime went down.’ http://www.theatlanticcities.com/politics/2013/11/new-study-challenges-link-between-crime-and-minimum-wage/7644/

The study itself –

‘Multilevel study finds no link between minimum wage and crime rates

A new study out of the University of Cincinnati is a unique examination into whether public policy on the minimum wage can affect the crime rate. The study finds that, contrary to conventional belief, increasing the minimum wage will not lower violent crime or property crime. Derek Cohen, an analyst for the Texas Public Policy Foundation and PhD candidate from the nationally top-ranked University of Cincinnati criminal justice program, along with Jay Kennedy, also a doctoral candidate in the UC criminal justice program, and Scott Dannemiller, a UC senior and undergraduate research assistant in the criminal justice program, will present their findings on Nov. 21, at the American Society of Criminology’s 69th annual meeting in Atlanta.’ http://www.eurekalert.org/pub_releases/2013-11/uoc-msf111813.php

Admittedly, the authors are not economists, being academics in the field of criminal justice. And being criminal justice academics, they not only have the temerity to use data to support their research, data is what their conclusion is based on.

Peter Schaeffer February 21, 2014 at 1:54 pm

p_a,

Thank you. I forwarded your comments to some folks working on raising the minimum wage.

Jay Kennedy February 24, 2014 at 9:09 am

As the co-author of this article, I can tell you with absolute certainty that we had no a priori hypotheses we wished to see fulfilled. While we were skeptical about the relationship between minimum wage increases and crime, we took every effort to be transparent and objective. So, as the previous post states, the data drove our conclusions, and our knowledge of criminological theory and crime in this country assisted in the interpretation.

Just another MR Commentor February 19, 2014 at 3:03 pm

The evidence mounts but the Libtards won’t budge on their position

Just another MR Commentor^2 February 19, 2014 at 4:23 pm

Great study – they should lower the minimum wage to decrease crime. Prisoners cost ~$40K per year – give them all McJobs that pay $2 or $3 per hour and we can empty all the jail cells. Big win for the taxpayer!

Just another MR Commentor February 19, 2014 at 4:40 pm

In theory this is a good idea, there is however a lower bound in that even for $1 or less per hour many of these individuals are simply too low IQ or do not even possess basic levels of conscientiousness to be put to work. However elimination of the minimum wage would certainly put more people back to work there is no doubt in that.

dearieme February 19, 2014 at 3:03 pm

Wouldn’t raising the minimum wage break some law or other by virtue of its disparate impact?

txslr February 19, 2014 at 3:30 pm

Higher crime leads to more police, more guns, more security guards, more iron bars on more windows, more jobs!

Winning!!!

Max Factor February 19, 2014 at 4:24 pm

…and more jails! GDP! GDP! GDP!

Thor February 20, 2014 at 1:29 am

Oh you kooky Keynesians and your ideas…

Herb February 19, 2014 at 3:58 pm

Wow, throwing anything at the wall to see what sticks?

It increases unemployment, it increases crime. What’s next? It contributes to cholesterol build-up?

Anti-ummmm February 19, 2014 at 4:30 pm

Plutocrats are running scared. The plebes will reject increased immigration and demand higher wages. This may lead to destruction of the economy but being that 80% of the population is moving sideways or backwards economically why not try what feels right? After all, the economists can’t get any predictions correct – I’m a dummy but I nailed the job numbers two months in a row while the “experts” were 40% off. You don’t have to use fancy math to know that Main Street and many formerly great cities are dying.

Just another MR Commentor February 19, 2014 at 4:38 pm

Except this is just the same fallacy about capitalism being self limiting. Since the top 10% consume roughly 75-80% of what is produced, and they will be willing and able to consume a greater share in the future, increases in income at the top does not in any way limit growth in a capitalist system. The majority will have to make due with a greatly reduced economic role but corporate profits are going to reach heights few could ever dream of. Since corporate profits are a reflection of correct resource allocation and production this should be celebrated. The increases at the top we are seeing is due to the great enhancement of the value of assets because we are now beginning to manage these assets properly for the first time in history.

Anti-ummm February 19, 2014 at 5:03 pm

Corporate profits would reach even higher heights if the 99% had more money to spend. And jobs.

What makes you think that the top 10% will be able to hold the robots, algorithms and genetically modified great apes at bay? Average is Over but above average will soon be over. Then genius will be over and so on.

I will take comfort in the virtual world – where my star will shine bright and nobody will nag about TPS reports.

Brian Donohue February 19, 2014 at 5:30 pm

You don’t understand economics. If we take Warren Buffett’s $50 billion and divide among the submerged tenth, it comes to $1,666 per head with a marginal propensity to consume of 1, which means massive multiplier and American Renaissance! Evil rich people are the source of all our problems.

Doug February 19, 2014 at 8:35 pm

“I’m a dummy but I nailed the job numbers two months in a row while the “experts” were 40% off. You don’t have to use fancy math to know that Main Street and many formerly great cities are dying.”

N=2 is highly significant. All hail Anti-ummmm and his indisputable street smarts superiority over modern economics. The plutocrats are shaking in their boots that such a brilliant savant is calling them out all over Internet comment boards.

Anti-ummm February 19, 2014 at 11:01 pm

The plutocrats are scared but it has nothing to do with me

Anti-ummm February 19, 2014 at 11:12 pm

Hedge funds aren’t a good substitute for a well balanced portfolio built around a core of index funds. This has been reported on too many times for it not to be true.

http://www.forbes.com/sites/greggfisher/2012/01/23/chasing-the-mirage-of-hedge-fund-returns/

Ryan Muldoon February 19, 2014 at 3:59 pm

I’m guessing the mechanism here is supposed to be that when wages go up, employers go for higher quality employees? And teenagers are less likely to be employed (or at least not full time)?

It seems a bit odd to focus a paper on the effects of minimum wage changes on teenagers, when they do not hold the majority of minimum wage work (though their cohort is disproportionately represented among minimum wage workers). They are not heads of household. The point of the proposed increase is for heads of household, not for people with after school jobs. It’s also notable, because they just so happened to pick the demographic with the greatest propensity for committing crime.

What the paper doesn’t investigate at all is whether there is an alternative substitute for criminal behavior, such as afterschool programs or sports or whatever. Other studies have shown pretty large effect sizes on such programs. The only reference is to a study pointing out that when school is out of session, crime rates go up.

There are two options. One, make the minimum wage kick in at 18 (the big effects seem to be in the 14-16 year old cohort). Most minimum wage workers are a lot older than 18 anyway, so the CBO’s projected poverty reduction would still happen. Second, more after-school programs or other anti-idleness initiatives seem to be appropriate. Making the school day longer, and the school year longer would both offer large educational gains to the poorest students, for which there’s quite strong evidence, and reduce teenager crime.

This paper is really about idle hands – coming up with ways of filling time for kids. It’s not about income substitution between criminal and legal work. There’s a reason that mechanism isn’t really discussed. One might want to sell this as a minimum wage story, but it’s much easier to sell this as a “teenagers are a lot more likely to commit crimes when they are bored, so let’s fill up their time somehow” story.

Joe February 19, 2014 at 5:08 pm

We could go the Australia route and have two minimum wages, one for teenagers, and one for everyone else.

gavinf February 19, 2014 at 7:13 pm

Not only that, but youth not employed are required to be in study to get income support.

pritesh February 19, 2014 at 4:08 pm

You know we just went through something called the Second Great Depression, with high unemployment, was there a spike in crime?

Ray Lopez February 20, 2014 at 12:59 am

@pritesh – good point, but many of the ZMP workers laid off during the Second Great Depression were not of the age to commit crimes, like teenagers are, but middle-aged.

Rahul February 20, 2014 at 1:25 am

I just think it takes a lot of methodological arrogance to imagine that in a country of 300 million people with crime due to hundreds of constantly changing causes one can accurately detect the blip caused by 0.1% more people losing a job a small fraction of which will ever turn to crime.

Z February 19, 2014 at 4:48 pm

One of my many gripes about libertarians is they pretend politics can be wished away. The minimum wage has zero to do with public policy. It is not even about the cheap political theater. It is about the democrats rewarding their supporters. Most government contracts have scale wages based on the minimum wage. Union contracts in the hospitality business usually peg wages and benefits to the minimum wage.

This is about stuffing money into the pockets of unions who, coincidentally, spend a lot of that money on democrats at election time. You could supply proof that raising the minimum wage will kill 20% of the population and it will make no difference.

Anti-ummm February 19, 2014 at 5:08 pm

Support for a minimum wage increase is universal – it’s approximately 75%

http://talkingpointsmemo.com/livewire/poll-3-4-americans-support-minimum-wage-increase

I love your work but sometimes you give the CML too much credit. People are hurting and they want money in the hands of workers. I don’t think this is being driven by the lifeless corpses of unions.

ummm February 19, 2014 at 6:09 pm

75% of people are ignorant of economics. They just equate higher wages = more money without looking at the ramifications.

John February 19, 2014 at 6:56 pm

Higher wages does mean more money for wage earners.

Urstoff February 20, 2014 at 10:32 am

And fewer wage earners. That’s the possibility the 75% never consider. They think it’s just taking from corporate profits and giving it to the bottom-level workers. The actual world doesn’t work like that, of course, but the public doesn’t know that.

John February 20, 2014 at 12:57 pm

Higher wages doesn’t entail fewer wage earners. The minimum wage may entail fewer wage earners, but higher wages don’t necessarily entail fewer wage earners.

Urstoff February 20, 2014 at 9:50 pm

Well we are talking about minimum wages here (that is, wage floors), right?

Doug February 19, 2014 at 8:40 pm

“Support for a minimum wage increase is universal – it’s approximately 75%”

I’m sure some non-negligible fraction of the population would support converting the $1 bill into the $1 million bill so that everyone was a millionaire. When it comes to economics the reality is that sub-115 IQ people have as much to contribute as they do to quantum electrodynamics. The purpose of a well-run democracy is to manage the unreasonable and uninformed demands of the unwashed masses, for their own good.

Z February 19, 2014 at 10:04 pm

It is why democracy is a loser. The left side of the bell curve will always be with us. On the other hand, if you’re looking to commit civilizational suicide, it is a good choice.

Anti-ummm February 19, 2014 at 11:03 pm

“The purpose of a well-run democracy is to manage the unreasonable and uninformed demands of the unwashed masses, for their own good.”

You’re thinking of a republic and not a democracy. Unfortunately, we have neither at the moment. Our government is bought and paid for by corporations and the plutocrats that control them.

Brian Donohue February 19, 2014 at 5:10 pm

“Most government contracts have scale wages based on the minimum wage. Union contracts in the hospitality business usually peg wages and benefits to the minimum wage.”

I asked this question before but didn’t get an answer. I did some research, and it sounds like this is not very widespread, but I may be wrong.

Can anyone speak definitively to this question: How many employees who are above the proposed minimum wage would see a pay increase if the minimum wage were increased? 1 million? 10 million? I honestly have no idea.

Urso February 19, 2014 at 5:21 pm

I would imagine a lot of this would be informal. If you’ve been working somewhere 2 years, and now you make min + $2, and the minimum wage gets raised $2, what happens when the brand new guy gets hired at minimum wage? Is the boss going to say, sorry, you have to make the same amount as the new guy, or is he going to give you a little bump for your seniority?

Seems to me this would happen in a lot of relatively low paid areas.

Brian Donohue February 19, 2014 at 5:32 pm

Yeah, that’s not what I’m getting at. I’m talking about union contracts that tie pay increases to minimum wage increases. It happens, but I have no idea how widespread it is. If it’s quite widespread, I renew my objection to increasing the minimum wage, and a lot of people feigning interest in poor people are only interested in their own bottom line. Shocking, I know.

john personna February 19, 2014 at 5:40 pm

Given the rarity of minimum wage increase, what union in their right mind would write that contract?

Brian Donohue February 19, 2014 at 6:40 pm

jp, That’s a naive answer. Actually, not an answer to my question at all.

Given the rarity of minimum wage increases, perhaps management negotiators attach little or no value to such a provision.

john personna February 20, 2014 at 10:09 am

I’ll cop to naive, but I know that you are asking for examples of these contracts and not hearing back about any concrete examples.

Brian Donohue February 20, 2014 at 11:43 am

I hear ya. Until I see something more concrete, I’m not attaching any weight to this talking point.

Z February 19, 2014 at 9:59 pm

In many, but not all, government contracts, wages for certain job classifications are determined by the government. It is more common at the state level. “Scale” is often pegged to the current minimum wage. Raising the minimum wage does not give workers on these contracts an immediate raise. It applies to future contracts put out to bid.

Unions like the SEIU often negotiate automatic increases if their contracts based on changes in the minimum wage. It is only prudent. If the minimum suddenly jumps to the rate of of the bargaining unit, there’s not much of a reason to be in the union. This would never apply to ILA guys, but it would to service workers in Vegas hotels.

It has always been an article of faith among some unions that higher minimum wages are good for them. The basic reasoning is the smaller the gap between the minimum wage and the bargained wage, the less resistance unions get from management.They don’t run around advertising it, but that’s the argument.

Regardless, minimum wage debates have nothing to do with policy. It is about one party rallying their muscle for the upcoming street fight. In human societies, the more guys you have in the streets, the better.

Herb February 19, 2014 at 5:25 pm

“This is about stuffing money into the pockets of unions who, coincidentally, spend a lot of that money on democrats at election time.”

This is nonsensical. We’re talking about the minimum wage and you mention unions? I have to ask: why?

jerseycityjoan February 20, 2014 at 2:15 am

Good question.

Only about 7% of private industry workers are unionized, if I recall correctly.

A lot of low income workers in this country are Independents or Republicans. For those who do not like Democrats, perhaps it would be beneficial not to insist that our low income workers continue to make $7.25, $8.00, $8.50 an hour, etc. which won’t allow anybody in America to support themselves.

How can wages for the people at the bottom stay the same for years when prices keep going up?

prior_approval February 20, 2014 at 5:21 am

By keeping government out of the tide of wealth that rises all yachts with majestic equality?

Call it faith based economics.

x February 19, 2014 at 7:32 pm

Well, this is called corruption and it ought to carry jail time for both the politicians and the “rewarded supporters”.

Contributing to campaigns in any way should of course be illegal, and carry the harshest sentences possible.

spencer February 20, 2014 at 11:39 am

I didn’t know the hospitality business had labor unions.

What are some of their names?

Finch February 20, 2014 at 12:36 pm

Google “hospitality union”

This is an example, with 265,000 members in Canada and the US: http://en.wikipedia.org/wiki/UNITE_HERE

tt February 19, 2014 at 4:54 pm

so logically if there is a negative minimum wage, people will do random acts of kindness.

Urso February 19, 2014 at 5:22 pm

I think you’ve invented volunteering.

tt February 19, 2014 at 8:10 pm

so the minimum wage is already zero ?

lxm February 19, 2014 at 5:39 pm

I think you have to look at crime from a utilitarian perspective.

If, it appears, my best course forward is to engage in what is called criminal, than that is what I should do.

Who among us is not criminal?

Who takes cash for services and does not report it?

Who cheats on their taxes and does not report it?

Who does marijuana or other drugs and lives free?

Who commits monumental crimes and says they are doing God’s work? (Bankers)

Who get payoffs that have been deemed legal? (Politicians)

Who cheats on their spouse?

Who abandons their children?

The best scams, after all, are those that have been made legal. (Who gets to ship billions off-shore tax free?) ((I earned it; I really did! Just ask my lawyer!))

There is a moral judgement assumed in this post. Those who lose work and turn to crime do so because of the minimum wage increase. Bad, bad, bad. Therefore, the minimum wage increase is bad.

I have more respect for those who turn to “crime” on the bottom rungs of the economic ladder than I do for those who live off legalized crime on the top rungs of the economic ladder.

ummm February 19, 2014 at 6:07 pm

No great stagnation: Facebook acquires whatsapp for a jaw-dropping $19 billion. Paying employees too much makes it harder for companies to make acquisitions, like this one.

Brenton February 19, 2014 at 8:39 pm

If that $19 billion instead was divided equally as a one time payment to all of their employees, each employee would get a million dollars.

If minimum wage was raised over $12 an hour, Walmart would have to raise their prices a massive 1% to compensate for the increased costs. Massive inflation!

Walmart made enough profit last year to give every one of their employees 8 thousand dollars…

Just another MR Commentor February 20, 2014 at 2:29 am

THIS

Paying employees too much simply burns scare capital which would otherwise be reinvested into greater technological development. The synergies created by mergining your whatsapp account with your facebook account are going to be huge especially with new data analytics applications just over the horizon. This is very exciting.
The reality is pay is too high and the historically low levels of corporate cash flow strongly indicates this is the case.
But the other issue is it is not just low skill workers who are over paid but medium skilled workers too, especially engineers. More H1B visas are a solution here because they mean more engineers workering and more interesting technologies being deveoped.

Unfortunately this debate has been entirely misframed.

Alan February 19, 2014 at 6:21 pm

Mandating a minimum wage is a crime. Unemployment benefits are funded by theft. Let the $%#@&s starve, they’ll soon start working. If they get sick, they will disappear from the gene pool.

Brenton February 19, 2014 at 8:42 pm

That’s what I said to my grandmother when she was dying of cancer. “Can’t afford to buy food or pay someone to buy it for you? Then get a job, or disappear from the gene pool!”

What a wonderful society it would be if we all thought like you Alan :)

Just another MR Commentor February 20, 2014 at 2:37 am

Alan may have been a bit harsh but these days there are actually exciting options for people who can’t do traditional work to earn money. Bitcoin mining is the obvious example but one could also do Brand Empowerment work for Facebook or a Facebook advertisier. The internet and smartphones have unleashed a lot of opportunity and for those who are willing to get to work glittering prizes await.

CPV February 19, 2014 at 6:34 pm

Because these types of econometric studies are so reliably meaningful, we can turn from studying primary, secondary and tertiary effects to nailing down the quaternary effects. That is certainly good news!

ummm February 19, 2014 at 6:50 pm

http://marginalrevolution.com/marginalrevolution/2014/02/the-cbo-report-on-the-minimum-wage.html?replytocom=158051084#respond

It’s not greed. it’s looking after the best interest of shareholders to keep costs as low as possible. Zuck has a lot of power but he can be superseded by the board of directors and the shareholders. The benefits of cheap labor outweigh the potential externalities. Apple can hire overseas labor because those people will never have enough money to buy an iphone anyway. The Americans that could have hypothetically been hired by Apple will look elsewhere for work. The savings from outsourcing far exceeds what apple could earn from the increased purchasing power from US apple employees if some of those employees had slightly more money in their pocket to buy apple products. Boeing, for example, knows that no one will be buying jet planes, so they outsource as much as possible.

John February 19, 2014 at 7:07 pm

Apple should move overseas or secede from the US so Americans who don’t want to live with foreign labor or with companies that employ foreign labor don’t have to. Then Apple and its shareholders can depend on some other country for their protection or pay for their own protection and form a militia to defend themselves.

Just another MR Commentor February 20, 2014 at 2:50 am

Sorry how does this make sense? Apple is a major employer in the US as well as contributing a large chunk in taxes to local, state, and federal governments. The US should, and is, proud to host them.

John February 20, 2014 at 12:59 pm

It makes sense because there are plenty of Americans who don’t want to live with foreign labor and with companies that employ foreign labor, like Apple. Thus Apple should move overseas or secede from the US so Americans who don’t want to live with foreign labor and with companies that employ foreign labor don’t have to. Then Apple and its shareholders can depend on some other country for their protection or pay for their own protection and form a militia to defend themselves.

Chris Long February 19, 2014 at 6:59 pm

I don’t know, but putting bankers in prison would definitely lead to lower crime.

Doug February 19, 2014 at 9:56 pm

And what would you put them in prison for? What laws are broken and what evidence constitutes a crime “beyond reasonable doubt”. And if this exists why hasn’t some ambitious prosecutor somewhere done so already? Or should we just suspend the rule of law because bankers are “bad guys”?

Anti-ummm February 19, 2014 at 11:09 pm

In the past two years they have been flagged for manipulating LIBOR, manipulating currencies, manipulating commodities (aluminum) and most recently, manipulating ForEx.

Naked Capitalism and Zero Hedge can provide you a daily blotter of crimes committed by financial services firms.

Just another MR Commentor February 20, 2014 at 3:36 am

Great we’re quoting Marxist blogs like Naked Capitalism now? Run by some woman without the slightest clue about economics, banking, or finance

Urstoff February 20, 2014 at 10:34 am

Let’s improve the quality of discourse and start linking to Naomi Klein.

Brandon February 21, 2014 at 3:18 pm

Market manipulation, fraud, money laundering for drug cartels, etc. etc.

gavinf February 19, 2014 at 7:11 pm

Tyler, has there been any comparison of the cost displacement effects to the benefits to the workers that get the wage rises? Cheers, Gavin

x February 19, 2014 at 7:28 pm

If it’s illegal to employ people a given price, then only criminals will employ people at that price.

Like, duh.

Lopez February 19, 2014 at 10:03 pm

Anyone who favors increasing the minimum wage simply lacks human decency.

Leftists are a disease masquerading as a cure.

Just another MR Commentor February 20, 2014 at 2:44 am

+1

Lopez February 19, 2014 at 10:05 pm

The only reason we even have a minimum wage is because white Progressives hated blacks so much. Same with gun control.

The goal of Liberal Fascists is to impoverish the peasantry. Obama is succeeding.

Willitts February 19, 2014 at 11:39 pm

You know, at this point I think we should just raise the minimum wage to $20 per hour and let the chips fall where they may.

It will be humorous to hear the proponents of minimum wage try to explain the negative impact in a way that doesn’t implicate them or the law.

Rahul February 20, 2014 at 12:40 am

Isn’t there a difference between $10.10 & $20? Why should impact be similar. I never get these extreme arguments. Just because I like a squirt of mustard doesn’t mean I’d enjoy my hot dog slathered in an ounce of it.

Brian Donohue February 20, 2014 at 8:18 am

I think this is the point though. The disemployment effects of moving to $20 an hour are obvious to all.

When we zero in on the $7.25-$10.10 part of the curve, the data, while generally supporting the idea that this impact is not some sort of “lump” that kicks in at $15 an hour or somesuch, are cluttered with so many confounders that it’s easy to torture to tell what you story one likes, kicking up enough sand to make the empirical story inconclusive.

We’re mostly talking about young people starting out here. Very few people stay at minimum wage for long. Getting an extra couple bucks an hour for the first year, while 500,000 people have this first rung taken away, doesn’t seem like good policy to me.

Brian Donohue February 20, 2014 at 8:23 am

Take two: perhaps Willitts means our Bayesian prior ought to be some kind of disemployment effect, with the burden on the data to show otherwise, which it doesn’t.

Rahul February 20, 2014 at 8:44 am

But everyone agrees about the potential dis-employment effect, in general. The argument is about how much. And whether there are sufficient compensating factors. And that cost-benefit analysis can only be made with the factual change proposed i.e. $10.10. Not with some arbitrary wage level.

e.g. Does it make sense to install a slightly more powerful, yet heavier, engine in a car if it’d increase deadweight by say 50 lbs. That’s a reasonable question. Sometimes yes, sometimes no. Amenable to analysis.

If you instead assume the engine weighs 2000 lbs more, of course it’s a stupid idea but it’s irrelevant to the question at hand.

Willitts February 20, 2014 at 11:06 am

Analogies are always suspect, and this one is convicted.

Yes, your marginal utility for mustard diminishes fast, but it diminishes much faster than the marginal utility of $10 per hour.

Unless of course you mean the collective preference for mustard and higher minimum wage, but I dont see proponents measuring the costs on mustard providers.

I think you greatly overestimate the degree to which the disincentive effects are understood and accepted. I saw on the news a rally in Oakland, California for a $15 minimum wage. I would wager that none of the knuckle draggers in that crowd understood, accepted, or even cared about the disincentive effects.

You do make one valid point, albeit tangentially. Minimum wage does have an excess burden that increases at an increasing rate with the wage hike. You appear to be arguing that with some preferences, the benefits outweigh the costs for relatively low increases in minwage but not at higher increases. Fair enough. However, if an individual prefers strong policy but faces little of the cost, personally, I am not persuaded by their concern for equity.

Rahul February 20, 2014 at 12:23 pm

@Willits:

I’m even willing to believe $10.10 is too high a min. wage & the burden is already too high. I don’t know. I don’t believe it is an easy calculation, definitely not the qualitative sort of hand-waving I see in most arguments. CBO seems the only ones who’ve tried a quantitative approach.

My main point is that the issue can only be settled quantitatively & by doing the appropriate calculation based on a $10.10 target not an arbitrary wage that’s not on the table.

I see two more hardline alternatives, which I still consider valid positions, but quixotic: (1) No policy intervention, purely on ideological grounds, even if no one is worse off. (2) No intervention so long is even one person is worse off; doesn’t matter how many million are better off.

Personally I like neither #1 nor #2 so the alternative I favor is weighing how much good exactly & to how many versus the bad that is done. IMHO this is how most practical policy works or ought to.

Willitts February 20, 2014 at 1:36 pm

OK, I get your point in analyzing the proposed policy rather than an arbitrary one. But isnt 10.10 fairly arbitrary? Doesnt the inefficiency of min wage depend on the market wage in each local area?

For option 1, I need not accept the assertion that I (and others) oppose minwage solely based on ideology. One aspect is that we think government should not do it and in another aspect we believe that it is illegal to do. If ‘ideology’ includes interpretations of law, then I guess I have ideological objections in addition to economic objections. Proposition 2 is also ideological because it implies a choice of weights on individuals in the social welfare function. The pareto principle you cite is a bright line indicator of efficiency, not a preference per se (although someone may have preferences coinciding with efficiency).

My point is that not everything that is socially efficient is politically feasible or legal, and most things government does is inefficient, so policy involves not only redistribution relative to the free market but also lost welfare.

Another criticism of minwage is “death by a thousand cuts.” This is not the only well-meaning program with negative incentive effects, and those effects can be additive or multiplicative. The fact that we continue to have high poverty and crime rates in inner cities despite a long history of abundant social controls militates against further intervention.

Rahul February 20, 2014 at 2:01 pm

@Willitts

Is the legality of Minimum Wage Laws still shaky? I thought the Supreme Court in US v. Darby Lumber settled that controversy 75 years ago? Unanimously too.

Are there further nuances / legal challenges I’m unaware of?

Urso February 20, 2014 at 11:40 am

The contrary hypothetical is, what if the minimum wage was one penny per day – would there be any disemployment effects? Of course not. Does that fact add anything to the current discussion? Of course not.

The question is not whether “a minimum wage” has “a disemployment effect.” The question is what the effects will be when you move from $x to $x +1. Look at title of the website.

Artimus February 20, 2014 at 12:25 am

Well geewhiz Tyler. I guess you don’t think the minimum wage should be raised. What’s next for you? A link to a study showing that raising the minimum wage causes acne and body odor?

Willitts February 20, 2014 at 11:09 am

More than any economic blog I know, this one links to opposing opinions and not merely for rebuttal purposes.

It would be truly remarkable if Krugman ever did this.

prior_approval February 20, 2014 at 2:18 am

The only audience that matters is the one pleased to support a distinguished member of a leading economics faculty at a major university capable of expressing such deeply important concerns as part of a major ongoing public policy debate.

And that is the sort of skill that only a few people actually possess.

Willitts February 20, 2014 at 11:15 am

You appear to be arguing that having a benefactor increases the incentive for the blog host to post favorable research.

Do you think the blog hosts are insincere and whose loyalty must be purchased, or that the blog hosts have a well developed world view that coincides with the benefactor?

Could you say that Paul Krugman is bought and paid for by the New York Times and its socialist readership? I would.

I recall a post recently by AT arguing that more guns lead to more deaths. Have the Koch Brothers hired a brute squad to rough him up?

prior_approval February 20, 2014 at 1:38 pm

‘You appear to be arguing that having a benefactor increases the incentive for the blog host to post favorable research.’

No, I am actually arguing that the general director of the Mercatus Center is far too aware of the needs of the Center’s donor base to ever allow those needs to be challenged in a public forum.

‘Do you think the blog hosts are insincere and whose loyalty must be purchased, or that the blog hosts have a well developed world view that coincides with the benefactor?’

Neither, actually, based on my personal experience of several centers at GMU (including being paid by one), though without any personal connection in any sense to Profs. Cowen and Tabarrok.

‘Could you say that Paul Krugman is bought and paid for by the New York Times and its socialist readership?’

I never read the Times, as it is absolutely insufferable (and the destruction of the IHT is just one of the crimes the Times should answer for). But to call the NYT ‘socialist’ is amusing, at least since I can actually buy a paper like the TAZ, whose writers and readers would consider the NYT about as ‘socialist’ as the FAZ. And I mean that quite literally – both papers represent the interests of their respective country’s financial centers.

‘I recall a post recently by AT arguing that more guns lead to more deaths. Have the Koch Brothers hired a brute squad to rough him up?’

And a minimum wage leads to more crime – do I think anyone roughed up Prof. Cowen to have him post such reasearch? Of course not. He has a much better incentive than fear.

Nathan W February 20, 2014 at 7:01 am

Sorry, what’s the causal factor? Unemployment or minimum wages? This presupposes agreement that minimum wages lead to increased unemployment, which has sketchy foundations in real world experience at best.

Nathan W February 20, 2014 at 7:02 am

I think we are complicating things too much. First, we need to establish general principles on connections between minimum wages and employment levels. Second, we need to establish general principles on connections between unemployment and crime. Then, we can start to make credible assertions with regard to all two of those things happening at the same time.

Willitts February 20, 2014 at 11:29 am

The evidence is not sketchy. Many researchers and, apparently you, make the mistake of measuring the employment effect by looking at the unemployment rate. The correct measurement on the X axis is LABOR HOURS. There can be a decline in labor hours without a significant change in the unemployment rate.

Timing is also an issue. Short run effects might be small because employers of low wage people have a difficult transition to higher levels of capital in substitution. A McDonalds cant easily add storage space or tables to its dining room. The transition to fewer labor hours or even lower employment could take months to years.

The infamous Card and Krueger paper surveyed what employers intended to do, not what they actually did.

Nathan W February 20, 2014 at 7:05 am

The theory of minimum wages causing increased unemployment presupposes perfect markets, which simply is not true when workers can hardly negotiate with their better informed and more powerful employers. That is why wages on the low end of the spectrum can be expected to be LESS than their ‘equilibrium’ levels, and that would do a perfectly good job of explaining the commonly found empirical result where increased minimum wages do not cause increased unemployment, and may improve employment by inducing a positive labour supply response.

Urstoff February 20, 2014 at 10:38 am

That’s a pretty big assumption of the effect of negotiating power / asymmetrical information, especially when it comes to no-skill jobs.

Nathan W February 21, 2014 at 6:01 am

It’s a big assumption to assume that no/low skilled workers have less information or negotiating power than their employers? What world do you live in?

Urstoff February 21, 2014 at 2:00 pm

Massive reading comprehension fail. It’s a big assumption that whatever asymmetrical information exists exerts a large effect.

Willitts February 20, 2014 at 11:21 am

Just based on the number of such firms, I find it difficult to believe that there is an enormous amount of market power. Firms that hire people at low wages value same-store experience, regularity, predictability and stability in their work forces. The cost of hiring is nontrivial, especially as a percent of the wage bill. The net effect is that low wage workers are NOT disposable, and employers likely do not bid down wages based on market power.

Nathan W February 21, 2014 at 6:05 am

You have very strong faith in perfect competition indeed.

Walmart and MacDonalds, for example, are widely known to “bid down” low wages, in a sense, by busting unions (Walmart) and lobbying governments (both). (MacDonalds, however, to my knowledge, is less concerned because their lower class clientele can afford yo buy more MacDonalds when minimum wages are higher.)

If that doesn’t affect the general wage environment I would be truly amazed.

andy February 20, 2014 at 11:24 am

The theory of minimum wages causing increased unemployment presupposes perfect markets, which simply is not true when workers can hardly negotiate with their better informed and more powerful employers
The theory of minimum wages presupposes negatively sloping demand curve. And that is something that is expected to be true except in some special circumstances; it is supposed to be true even in many (most?) assymetrical information environments.

Claiming the opposite bears the burden of proving that the labour market with its millions of participants on both sides is somehow akin to monopoly/monopsony type of market. It doesn’t seem plausible. So maybe people claiming minimum wage does not have disemployment effects should start by analyzing how is it possible and come with some credible and strongly empirically supported mechanism instead of ‘see, we measured this here, adjusted for X, Y Z and got positive effect on employment’…

Floccina February 20, 2014 at 2:58 pm

Nathen W.
IYO Why then are there so many more job seekers than job openings?

M. February 20, 2014 at 5:47 pm

Well, maybe markets just do not work the way we think they do.

Take a general equilibrium model, add imperfect information, bounded rationality/coordination failures, search costs, heterogenous labor, uncertainities etc.; all realistic assumptions. And then verify if the market clears.

Floccina February 20, 2014 at 2:56 pm

I do not think that we can draw much conclusive from this one study but I think there are large non monetary benefits to a job in the taxed sector.
Do those on the other side disagree?

jonfraz February 20, 2014 at 8:53 pm

There’s some fairly solid data that there’s no link between higher unemployment and higher crime rates.

Nathan W February 21, 2014 at 6:11 am

My guess is that economists are predisposed against arguments which support a higher minimum wage or point out flaws of low/no minimum wage arguments because they are “bribed by self interest” and do not want to pay hired help more to mow their lawns, clean their houses, etc.

The basic theoretical principle is pretty easy. Higher prices = lower quantity demanded. However, at the theoretical indoctrination stage, we are looking at straight lines, where this is easy to see. In the real world, elasticities can vary, and it is no stretch of the imagination to suppose that the labour supply response can exceed the labour demand response, while various other assymetries cannot be assumed away for such an important issue.

How many minimum wage workers have the skills/knowledge/connections to get the data to crunch numbers to support their case? How many corporations have the skills/knowledge connections to get the data to crunch numbers to support their case? Who hires which economists to perform which analysis that supports which case?

And that last question should always, always, always be kept in mind when trying to reach through the mounds of crap to obtain something that remotely resembles an unbiased view of what’s going on in the real world.

andy February 21, 2014 at 9:28 am

The basic theoretical principle is pretty easy. Higher prices = lower quantity demanded. However, at the theoretical indoctrination stage, we are looking at straight lines, where this is easy to see. In the real world, elasticities can vary, and it is no stretch of the imagination to suppose that the labour supply response can exceed the labour demand response, while various other assymetries cannot be assumed away for such an important issue.

Nathan, on most markets with different elasticities and many assymetries, higher prices = lower quantity demanded still holds.

You are saying that the government should increase minimum wage, because there is 5% probability, that it would not hurt the poorest. Economists are not recommending minimum wage because there is 95% probability that it would hurt the poorest. What is the rational choice assuming you want to help poor people?

Nathan W February 21, 2014 at 3:22 pm

I’m not talking about probability. I’m assuming that there is some reality out there with real world elasticities reflecting the supply of workers according to their utility maximization function and the demand for workers according to profit maximization of companies. This would involve the assumption that the next most marginally employable person gets the job, which for purposes of empirical (but still theoretical) estimation, this would quite likely assign workers a probability of getting hired based on various attributes including the actual employment or unemployment situation of workers, most likely taking data from various labour force surveys.

I’m not saying that the government should increase the minimum wage because it WOULD not hurt the poorest, I am saying that there is a perfectly reasonable explanation for higher minimum wages resulting in increased employment.

To start with, companies enjoy a better negotiating position and therefore earn gains from not paying working the equilibrium wage. Failing to account for this will necessarily lead to overestimation of the negative side of impacts on this segment of the labour market. This factor means that many companies could continue to earn even more than normal profits even under the higher minimum wage. However, we would still expect to lose jobs, in particular at the margin, where workers contribute less to revenues than the higher minimum wage but more than the previous (subequilbirium) wage. Even in the simple case, we can look at the net wage bill of workers in that segment of the labour market to ask whether low wage workers gain as a group, but acknowledge that some unemployment may result.

However, and the key to my argument regarding that IF the labour supply response (workers deciding to take a job because the government negotiated on their behalf via an increased minimum wage) is greater than the labour demand response (companies getting rid of workers whose contributions to profit are less than the higher wage paid). I.e., if the elasticity of labour supply is greater than the elasticity of labour demand, then we can expect higher employment under a higher minimum wage. Another way of saying this is that the labour supply response may be greater than the labour demand response. Presumably this does not hold true in every economic environment or in every labour market.

You don’t have to stretch your head too hard to believe its plausibility (which would also explain real world results that minimum wage hikes do not typically lead to greater unemployment): just think of all the stay at home moms who would not leave their children at home (or under the care of a babysitter, who incidentally probably gets paid less than the minimum wage) to go work for $7 an hour, but would take on a few shifts a week, possibly at your local Walmart, at $10 an hour.

Nathan W February 21, 2014 at 3:23 pm

I’m not good with proofs. Feel free to formalize it if you like :)

andy February 21, 2014 at 7:37 pm

I’m not saying that the government should increase the minimum wage because it WOULD not hurt the poorest, I am saying that there is a perfectly reasonable explanation for higher minimum wages resulting in increased employment.

Nathan, there is perfectly reasonable explanation for any absolutely unlikely outcome in economy. Anything might happen. (No, it is not your explanation, but there are different, more reasonable explanations; these include positively sloped demand curve, heterogenity of workers, or some other effects ).

Even in the simple case, we can look at the net wage bill of workers in that segment of the labour market to ask whether low wage workers gain as a group, but acknowledge that some unemployment may result.

This seems to me totally irelevant factor. If 99% of low wage workers got fired and the 1% would get all their wages combined +20%, would it be an argument for raising minimum wage?

My guess is that economists are predisposed against arguments which support a higher minimum wage or point out flaws of low/no minimum wage arguments because they are “bribed by self interest” and do not want to pay hired help more to mow their lawns, clean their houses, etc.

My guess is that you love the idea that minimum wage help and so you stick to improbable theories thinking ‘if you don’t disprove this petty theory, you shouldn’t argue against minimum wage’. Given that all these theories are quite improbable, it should be you (and the economists coming with these papers) to show and prove, that the labour market is so specially formed that it really absolutely doesn’t resemble most markets we usually interact with. Coming with ‘it could be so and so’ really is not enough; it could be. Anything could be. Very improbable.

Nathan W February 22, 2014 at 8:36 am

If elasticity a greater than elasticity b. This is not complicated, and it happens all the time.

Nathan W February 22, 2014 at 8:40 am

If you’re not even willing to take the argument seriously, and instead dismiss it as an unlikely outcome despite the problem that that failure to explain why minimum wages often DO NOT lead to reduced employment, then how is it possible to proceed to the most probable explanation for that real world outcome.

The other side of the argument is that if elasticity a is less than elasticity b, then job losses are a sure thing. This cannot be resolved theoretically. Real world data is required. Even ex post, it is hard to say what exactly happened, so good luck with hitting the bulls eye on those elasticities in a given labour market situation.

Not every job market is the same, but what they do share is the common characteristics of being in constant flux. It is not a command economy with lifetime employment for everyone, so that is necessarily true for any economy beyond the size of a hamlet.

Nathan W February 22, 2014 at 8:42 am

By the way, a the sloped of the demand curve is pretty closely related to its elasticity. It might even be an identity of sorts.

Nathan W February 22, 2014 at 8:42 am

Sorry for the typos.

andy February 22, 2014 at 5:02 pm

Nathan, if the demand curve is downward sloping, minimum wage will cause reduced employment. Period. It absolutely does not depend on elasticities of anything. Downward sloping demand curve by definition means that with higher price you get lower quantity demanded.

If you’re not even willing to take the argument seriously, and instead dismiss it as an unlikely outcome despite the problem that that failure to explain why minimum wages often DO NOT lead to reduced employment, then how is it possible to proceed to the most probable explanation for that real world outcome.

The most probable explanation of this result is inability of the studies to correctly distinguish the effects.

Downward sloping demand curve is a result of many factors. Upward sloping demand curve is very unlikely; it is not impossible. Therefore if *some* studies find upward-sloping demand curve, it is in bayesian sense absolutely rational not to take such studies seriously unless either most studies end up with such result or the studies that did found this result do this in some very persuasive way.

https://xkcd.com/882/

josh February 21, 2014 at 3:14 pm

Any upward pressure on crime rates will be mitigated by the fact that most poor people are now morbidly obese and can’t get off the couch.

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