Minimum wage hikes are a much worse idea now

For one thing, the marginal product of labor is much lower, at least for a good while.  But there is a deeper problem.  Under the status quo ex ante, minimum hike proponents argued that the highest wages would be taken out of, say, the economic rents of restaurants.

But now those rents are largely gone!  Especially for the small restaurants.  The result will be that, if the minimum wage is raised, more laborers are laid off.  At the very least there should be no minimum wage, or a much lower minimum wage, for small businesses.

A further effect is that higher contagion risk (extending into the future too, now that pandemics are salient) may encourage more employers to automate, including in kitchens, theme parks, etc.  A higher elasticity of automation also militates against a minimum wage increase, because capital-for-labor substitution is now more likely, again indicating larger negative employment effects.

In essence, most of the previous empirical literature on this topic has to be significantly downgraded in relevance.  Whatever you thought of them to begin with, the pieces by Dube and the like just don’t apply any more.

Most likely, we should lower current minimum wages.  And that is all the more true, the more you have been worrying about coronavirus risk and Trump’s poor performance in response.

These are all very simple points, I am tempted to say they are “not even Econ 101.”

And note that in the very early stages of a lock down you might want a much higher minimum wage, precisely to keep people away from work, if somehow you cannot keep the customers away.  The much higher minimum wage would force the employer to decide which are the truly important workers, and send the other into non-infectious activities, as Brian Slesinsky suggested to me.

This is all related to my earlier post The Meaning of Death, from an economist’s point of view.

Comments

The error in that is assuming that laid off people will go into non-infectous activities. Rather then go home to their crowded dwellings (where "isolation" has little meeting) - or go looking for something else to do. (The college kids on break on the beaches of Florida were an obvious example, not an outlier.)

Otherwise, my expectation is that a lot of businesses will be trying to arrange as much business function as possible with distributed, trustworthy, don't have to be in the office people. Meaning "more than min wage" people will be in high demand and "useful only under close observation folks" will be replaced however possible whenever possible. What the min wage is won't matter much.

The U.S. has just become the world leader in coronavirus cases, and the issue is the minimum wage?

Cowen blames minimum wage and Trump blames Obama. Does that mean either Trump or Cowen could be wrong?

This is somewhat true. While, a California minium wage makes L and H growth slow. The current 7.25 an hour effects few workers since L and H labor is closer to 10 an hour. So, this is where I disagree with Libertarians. minimum wages are here to stay just like overtime pay for factory workers. Now, rising the minimum across the board now is not smart but minimum wages of 10 an hour in a certain state has little impact in general on hiring people even now.

Given all the carping that TC should pay obeisance to medical experts surely people should be pleased that the post focuses on economics.

See below for the sort of economics issue that was foreseeable weeks ago, and where one does not need to be a medical expert to discuss it.

And nobody should pay obeisance to medical experts - a person I know in the UK was likely infected with covid19 about a month ago (the shortness of breath and cough combination is fairly distinctive), and after calling the covid NHS hotline, the doctor went through the checklist used at the time (basically foreign travel/contacts) and said she should be fine. She then travelled in the next couple of days to three other UK cities. Honestly, she should have been informed enough at the beginning of March to have ignored that medical advice, and self-isolated.

This is the reality of the pandemic, in a von Clausewitzian sense - A pandemic is very simple, but in a pandemic the simplest things become very difficult.

Certain other familiar MR commenters have been the ones insisting that TC should not venture anywhere near the area they marked off as being the exclusive preserve of medical experts, not me.

Not all medical experts are trustworthy. Rand and Ron Paul, both MDs, have displayed some poor judgement these last few weeks. Rand possibly spreading the virus around and Ron calling it the virus a hoax. Maybe they don't teach common sense in med school. Or maybe the stupidity is genetic to that family.

You mean the people claiming to be doctors, to have worked in the pharmaceutical industry, or those with experience in handling samples? Though as a group, their insistence seems as much directed towards AT as TC.

Watching prior have these conversations with himself is a little creepy.

Ah, who doesn’t love telling poor people how much they should or shouldn’t get...a favorite pastime of those in comfortable perches, and an especially good diversion during a pandemic.

Indeed. It is very easy for those in comfortable perches to tell the poor how much they must be paid and say "let them eat cake" when no one wants to hire them at the minimum wage.

So if there was an extremely low, or no, minimum wage, an employer can choose to pay very little. People supporting no minimum wage would argue that an employer wouldn't pay too low as people wouldn't work for it. However in reality when there is the choice of no money coming into the house and some money, however little, coming in then an employee would go with the latter option.
When this is the case, where do the 'no minimum wage' people say an employee gets the money from to pay basic expenses such as rent/mortgage, food, medical expenses etc?

Something around 15% of total confirmed cases of covid19 go to a hospital, and around 3% of total confirmed cases of covid19 require an ICU bed.

However, many coviid19 patients require oxygen, likely a significantly higher number than 3%, as supplying oxygen does not require a ventilator. Someone in the U.S. did get into contact with the plant owners/managers that supply such gasses back in February, at least to the extent to see what extent industrial, not medical, oxygen could be supplied in an emergency to keep people alive as part of preparing for the pandemic, one can hope.

If not, maybe now would be the time to start thinking about it.

And the person re-stocking the toilet paper aisle should now be paid more or less? Mr. Cowen might find a list of "essential" employees helpful.

Minimum wage bores me to tears. Here's a better article on why violating IP rights (aka piracy) to manufacture critical medical supplies is justified in a time like this:

https://www.calcalistech.com/ctech/articles/0,7340,L-3803834,00.html

Ray Lopez will not be amused.

in a viral pandemic
the assertion that "the marginal product of labor is less" seems false
if the most of the jobs available
are the jobs that have been defined as essential!

Yeah! And further, each remaining worker has more capital to work with so that the marginal product of labor will rise. Proof is that some industries are raising wages. Pandemic is completely irrelevant to the statutory minimum wage.

IIRC, middle-ages pandemics and/or wars were generally followed by periods of much higher real wages. So many people died that the MPL increased significantly, sometimes for centuries after. But that was back when many young people died in such events.

Increasing faculty salaries and granting tenure
Is now a bad idea
Once students discover
That they can do it from home.

We should find a path to retire 65 year old plus faculty.
And,
Replace them with
AI teaching robots.

The flip side of the minimum wage is hours worked. Many businesses facing collapsing revenues have responded by terminating employees or cutting their hours, the latter being consistent with what an economist would do (cutting hours is analogous to cutting wages). But government has threatened to punish employers who cut hours, including Florida's governor. Many employers in Florida responded to the governor's threat by terminating employees (as opposed to cutting their hours). Indeed, cutting hours is a legal minefield for employers, even in an at-will state like Florida. By contrast, terminating employees (for reasons that aren't prohibited such as on account of race or gender) does not have the same potential for sanctions. Shouldn't we be encouraging employers to keep their employees, reducing their hours rather than terminating them? [An aside, the Emergency Paid Sick Leave Act, though well-intentioned, will have the effect of inducing employers to terminate their employees, a clean break that will avoid the paid leave required in the Act.]

" the Emergency Paid Sick Leave Act, though well-intentioned,"

The Road to Hell ...

In discussions of minimum wage why is it we never hear anything about maximum wage?

Because those doing the discussing are paid by those who would be affected by the maximum wage?

But the unemployment rate/possible higher elasticity of substitution for low skilled labor does not so far as I can see alter the case for higher EITC or wage subsidies as a way of raising incomes of low income workers.

The buried lede here is that the value of human labor right now is low, and dropping.
In other words, our economy is capable of producing goods, without the need for very much human input.

This is a tone-deaf topic to raise right now.

"...Trump’s poor performance in response."
Never miss a chance do you.

Sobey's, a large Canadian retailer is giving a wage increase during this thing. I don't know the number but heard $2 per hour, for what that is worth. I suspect they want to incentivize people to show up for work that is probably going to expose you to the virus.

Many employers in the US are raising wages to bring in people and offset the risks.

>Trump’s poor performance in response.

Right. So poor, his approval rating is through the roof.

Pretty low roof.

All of these arguments assume that the current minimum wage is set optimally. For instance, the fact that the marginal product of labour has fallen may imply that the *optimal* minimum wage should fall -- but that implies that the *actual* minimum wage is too high only if the actual minimum wage is set optimally. Is there any reason to believe this assumption?

In Seattle, raising the minimum wage to $15 led to a boom in new restaurant openings that was only dampened by rising rents forcing some to close. If we want to create more restaurant jobs, we want a higher minimum wage to increase demand and a freeze or reduction in commercial rents to increase supply. Ask anyone who runs a restaurant.

Saying that minimum wages should be lowered because otherwise jobs will be lost to automation is remarkably backward looking. I am shocked to read this on MR.

Encourage innovation is even more important after a shock. It might result in additional short-term government intervention because of the economic casualties, but that is precisely when government intervention makes sense.

In response to Joel on, “innovation is even more important after a shock”

The ten least innovative states are all Right-To-Work states. The ten most innovative states are all non-R-T-W states. Data from Bloomberg several years back.

MR priorities perhaps align more with R-T-W states.

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