She's remarkable, isn't she?
Posted on 07/04/2009 10:32:05 AM PDT by GoodDay
Despite a number of differences I have with Ayn Rand on issues of religion and philosophy, her 1957 magnum opus, "Atlas Shrugged," definitely steered me away from the leftist upbringing I had, and introduced me to the world of conservative ideas and authors: Ludwig von Mises, Henry Hazlitt, Milton Friedman, Isabel Paterson, and many others.
Universally panned by literary critics of the day, "Atlas" was, nevertheless, a bestseller in 1957, and continued to sell about 100,000 copies a year for 51 consecutive years. 52 years later -- just after the inauguration of zerobama -- "Atlas" has apparently tripled its sales and has been flying off the shelves at bookstores.
For those who have never read it, "Atlas Shrugged" -- originally titled in its draft form "The Strike" -- is about a mixed-economy United States falling rapidly into full-fledged socialism. As it does so, all the highly competent people of individual accomplishment -- in business, science, and the arts -- mysteriously start to resign their positions, quit their jobs...and disappear. Naturally, the disappearance of these achievers -- these "Atlases" whose productivity carries the rest of the world -- causes the crash of the economy and society in general to occur ever more rapidly. Why these people are disappearing and where they are going is the core of the plot...which I certainly won't give away. Love her style of writing or hate it, "Atlas Shrugged" is relevant and essential reading today.
I read it twice in rapid succession in high school, lo these many years, and am now rereading it in light of the aggressive attempts at a socialist coup in our country. There's a passage toward the beginning of the novel that flabbergasted me, since it predicts with great accuracy the "bailout mentality" started by Bush and continued and augmented under zerobama. The passage also describes how industry is complicit with government in its own regulation and what it expects to gain from it (i.e., protection from competition).
The scene has to do with attempts to regulate the railroads, an industry that plays a starring dramatic role in the novel, as well as being an effective visual metaphor for goal-oriented achievement in general.
Here is an excerpt of Miss Rand's description of the regulation from "Atlas Shrugged":
__________________________________________________
"The proposal which they passed was known as the 'Anti-dog-eat-dog Rule.' When they voted for it, the members of the National Alliance of Railroads sat in a large hall in the deepending twilight of a late autumn evening and did not look at one another . . .
. . . No railroad was mentioned by name in the speeches that preceded the voting. The speeches dealt only with the public welfare. It was said that while the public welfare was threatened by shortages of transportation, railroads were destroying one another through vicious competition, on 'the brutal policy of dog-eat-dog.' While there existed blighted areas where rail service had been discontinued, there existed at the same time, large regions where two or more railroads were competing for a traffic barely sufficient for one. It was said that there were great opportunities for younger railroads in the blighted areas. While it was true that such areas offered little economic incentive at present, a public-spirited railroad, it was said, would undertake to provide transportation for the struggling inhabitants, since the prime purpose of a railroad was public service, not profit.
Then it was said that large, established railroad systems were essential to the public welfare; and that the collapse of one of them would be a national catastrophe; and that if one such system had happened to sustain a crushing loss in a public-spirited attempt to contribute to international good will, it was entitled to public support to help it survive the blow . . .
. . . The Anti-dog-eat-dog-Rule was described as a measure of 'voluntary self-regulation' intended 'the better to enforce' the laws long since passed by the country's Legislature. The Rule provided that the members of the National Alliance of Railroads were forbidden to engage in practices defined as 'destructive competition'; that in regions declared to be restricted, no more than one railroad would be permitted to operate; that in such regions, seniority belonged to the oldest railroad now operating there, and that the newcomers, who had encroached unfairly upon its territory, would suspend operations within nine months after being so ordered; that the Executive Board of the National Alliance of Railroads was empowered to decide, at its sole discretion, which regions were to be restricted . . ."
I agree that there will always be some people who, despite their best efforts, are not productive enough to provide for their own needs. We probably disagree on just how many people are really in that situation, but we have to agree that at least SOME people are that unfortunate.
And I think we both agree that *someone* must pitch in to help these people meet the basic needs they can not meet for themselves...that there is at least a moral obligation to take care of them. The question is, what is the fairest way to meet that obligation? Which way is most efficient?
We might try to meet that moral obligation without imposing legal obligations on anyone. In other words, we could just rely on private charity to take care of the needy. If there aren't many unproductive people, and most productive people are naturally generous, that might work.
But let's say the voluntary approach doesn't work. Let's say we agree that some people must be FORCED to help out the unproductive. But how do we decide who shoulders this burden? It's not as if anyone is at fault. Usually no one has caused an unproductive person to be unable to support themselves. (If someone is at fault then they should be made accountable through our court system). No one caused this person to need food and shelter...it's just a fact of our existence.
So if we are going to force some people to support others, the only fair way to do it is to require everyone to pitch in. We all benefit from not having to see people starving in the streets. We all take comfort in the idea that the social safety net (might) protect us from unexpected catastrophe. If society collectively decides that we MUST help the unproductive, society should enforce that obligation collectively. That means relying on taxation.
What would NOT be fair is to make only a select few shoulder the burden of supporting the unproductive, such as by requiring "living wages." As I demonstrated in my last post, once you pay someone a wage higher than their productivity, you are in effect giving that person charity. So why pick employers as the ones who must offer this charity? Again, they are not the ones who caused people to be unproductive or to have a phone bill.
In addition to being unfair, living wage laws would also be inefficient. Consider someone whose labor is only worth $5/hr. Even with slightly higher MPC, it wouldn't make sense to pay this person $15/hr. With a living wage law this kind of person will never be hired. Now the taxpayers has to support ALL of his needs instead of just some, and the unproductive person contributes nothing economically since he is unemployed.
Ask this question. How likely is it that America will go to an unregulated economy. No Fed regulation. No State regulation. No minimum wage laws. No safety laws. No food standards. No anti-trust regs. No regulation of banks, stock brokers, insurance companies, APR disclosures,weight and measure standards. No drug studies. No civils rights laws. No wage and hour laws. No securities regulations.
And then secondary type regulation. No welfare. No food stamps. No medicare. No medicaid. No social security. No student loans. No unemployment. No requirement for worker’s comp insurance. No required schooling for anybody.
I am not asking how many of these you might think are bad, or good, but I am asking what the chances are that our economy will ever end up without these things?
If your answer is NEVER, then the only realistic choice a person has is to get into the battle and try to insure that regulation is sensible and accomplishes what it is meant to accomplish.
That is the biggest gripe I have with the laisse faire crowd, like goodday. You can go around all day long griping about the theory of von Miser, or Rand, or Smith and how regulation and laws should not be imposed and how they interfere with our individual rights, etc. but that is the real desertion to Cloud Cuckoo Land.
There has always been economic regulations, ever since humans lived in societies. They have been a necessity.
It goes without saying that sometimes the fewer the regs, the better, but some like minwage, are not seriously questioned by any serious candidate. Most people have enough sense to realize why a floor has to be set and why doing so isn’t some sort of rush towards communism. Heck, we did it in this country for years with no bad results.
parsy, who likes you too, and enjoys a good debate.
Also you might enjoy this from wiki under American Standard of Living.
Since 1975, practically all the gains in household income have gone to the top 20% of households... The rise in GDP in 2004 and 2005 was undergirded by substantial gains in labor productivity... Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. -CIA factbook on the US economy, 2005.[13]
The United States has one of the widest rich-poor gaps of any high-income nation today, and that gap continues to grow.[16] In recent times, some prominent economists including Alan Greenspan have warned that the widening rich-poor gap in the U.S. population is a problem that could undermine and destabilize the country’s economy and standard of living stating that “The income gap between the rich and the rest of the US population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself”.[17]
When Alan Greenspan, a former disciple of Ayn Rand, says we are having this problem, you may agree or disagree, but you can’t just dismiss him out of hand.
parsy, who really believes what he is saying.
Your question might, just might, make some sense if I were advocating such a thing. I'm not. I'm advocating a return to Constitutional governance which is a very, very long way from the strawman argument you're tossing up.
No one in there right mind is advocating NO Federal government, nor is anyone in their right mind advocating NO State government.
That's something conjured up by tiny little minds who can't imagine the Feds returning to the enumerated powers specified for them in Article 1, Section 8 of the US Constitution.
As such that makes you part of the problem Parsy.
No welfare. No food stamps. No medicare. No medicaid. No social security. No student loans. No unemployment. No requirement for worker’s comp insurance. No required schooling for anybody.
I'm on board with all of these. They're all legalized theft, nothing more. If you're in favor of any of them you're a looter and a pillager.
but some like minwage, are not seriously questioned by any serious candidate.
Does the name Walter Williams mean anything to you? The correct minimum wage is zero. And there's absolutely NO Constitutional authority for the Feds to set one, let alone enforce it at the point of a gun.
Heck, we did it in this country for years with no bad results.
Other than throwing millions of poor black kids out of work anyway. Oh an paying off the Unions by artificially inflating their wages.
You might want to try reading the Constitution sometime Parsy. You might learn a thing or two.
L
I would never be in favor of forcing someone to hire a particular person. Just, if hired, you have to pay the minimum wage.
As far as those who frankly aren’t worth even that much, such as the mentally disadvantaged, the addicts and alcoholics, and the lazy, divide them into the ones who can’t help their situation such as the mentally ill, and the ones who can. Give welfare to the ones who can’t help it. If we choose to help addicts and alcoholics and lazy, pay their welfare straight to rent and food so they can’t blow thru check on substances. They can survive on less than minwage with gov’t help.
parsy, who knows about the ship of fools
Therein lies your problem. You really believe the crap you're posting.
What you don't realize is that once you're willing to toss out the rules the Federal Government is supposed to operate under you leave us all at the mercy of whatever idiot 51% of the voters manage to put into office.
You've ceded the premise of the argument and that is why people like you, with the best of intentions, will bring about the deaths of millions of your fellow citizens.
And your last thought as you're being shoved up against a wall will be "But this isn't what I meant!"
It ain’t just me. Take a hero around here, Selma Hayek who wrote the Road to Serfdom:
The libertarian economist Walter Block has observed critically that while the The Road to Serfdom makes a strong case against centrally-planned economies, it appears only lukewarm in its support of pure laissez-faire capitalism, with Hayek even going so far as to say that “probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all of the principle of laissez-faire capitalism”.[15]. In the book, Hayek writes that the government has a role to play in the economy through the monetary system, work-hours regulation, and institutions for the flow of proper information.[16]
parsy, who reads up on this stuff
She's remarkable, isn't she?
Oh yes, and I downloaded the Snake Dance from youtube from Dusk til Dawn. For the guitar playing of course.
parsy, who would probably drink with her too.
I’m not trying to argue terrible things don’t happen - I have heard horror stories too. Especially from a nurse who worked in the ER and intensive care.
You mentioned about putting a price on certain things, and of course the correct answer is that you can’t. Some things are “priceless” - and yet a number has to be agreed upon.
Well - if the number is $5 million - then why not $10? Why not $20 million?
People leave the courtroom feeling good about the victim receiving a mountain of money.
The thing I mull over is - what is the cost AFTER this happens?
So - everyone’s premium goes up - even the good doctors.
Less doctors go into medicine - some retire early - some just drop out (I know one doctor who up and quit so he could milk cows)
And that leaves “what” for the current doctors?
A larger workload? (you made reference to surgeons overscheduling) Less sleep? More time on-call?
And when are doctors more apt to commit dangerous mistakes?
When they are overworked? When they are expected to pick up the slack when there is a shortage?
SW - wondering what could be done?
That's absolutely correct! Congratulations on having learned some basic economics! (Oh. That was my post. Sorry.)
No. Empirical studies do not back it up any more than they backup trickle down economics.
Yes. Empirical studies back up the injurious effects of minimum wages, and they back up the fact that without capital accumulation -- savings -- there is no job creation and no wages paid. They also back up the indisputable historical fact that the minimum wage was first advocated by unions as a way of keeping OUT -- i.e., making unemployable -- competition from undesirable workers just entering the labor market at the time: blacks and women. Unions understood readily enough that by forcing employers to pay a higher beginning wage than a beginning worker was worth (or what amounts to the same thing, by forcibly preventing a beginning worker from offering his or her services to an employer at the going wage rate), such workers -- such undesirable workers -- would not be able to compete with union workers. So much for the good intentions of the advocates of a minimum wage.
Google it some and read some non-von miser, stuff.
Nah. I think that's your job. I can't waste time reading non-von-mises stuff. Say! I've got an idea! Why don't you find a specific article, give us the specific link, and summarize the specific argument proving that minimum wages do not do what all economists know they do. (The only economists who favor the minimum wage are (i) so-called "labor" economists, who cherry-pick the data they want to look at so that it can be made to appear to prove a conclusion that they already accept, and then ignore the rest of the 70 years of empirical data contradicting them; and (ii) real academic economists who purposely ignore data and purposely contradict an earlier position they held because they now hold "politically important" positions. Such economists suppress their earlier views (or explain them away) for the same reason that the EPA recently suppressed one of its own studies contradicting the global warming baloney of the U.N. study (IPCC) -- the bureaucrats running the EPA simply want to be in "sync" with the current administration, even if the latter's policies are based on junk science. Studies claiming to prove the benefits of minimum wage are junk economics -- Keynesianism, for example, is junk economics.
Paying workers who have a higher MPC actually leads to increased demand. Your theory of savings is kaa-kaa.
But your theory of higher MPC is koo-koo. As in just plain wrong. As in junk economics. "MPC" is Marginal Propensity to Consume, an index number used to measure the additional demand created by an increase in spending. We can skip the numbers here because they're irrelevant to the logic of the argument. Keynes, being a congenital inflationist, of course had no understanding of the role of capital accumulation and saving in an economy. This is completely understandable because Keynes was paid off by a group of Fabian socialists to write his "General Theory" as justification for the introduction of socialism through small incremental measures that would ultimately destroy capitalism (inflation is one such means). His logic is this:
If we force an employer to pay a wage that is higher than a market wage (an "equilibrium wage") to an employee, the employee will most likely not save the entire extra income, but will most likely increase his spending -- he'll buy that iPhone he always wanted. Then the Apple Store will have some of that extra income just spent by the employer, and they will spend the additional cash flow on something (perhaps a higher minimum wage for their employees); they in turn will spend it on something else, ad infinitum, ad nauseam. This, truly, is "trickle down" economics. Alas, it's junk economics: the additional money given to the employee in the form of a higher-than-equilibrium wage WOULD HAVE BEEN SPENT ANYWAY or WOULD HAVE BEEN SAVED ANYWAY by the employer had it not been forced out of him by government diktat. The employer could have used that money to (i) hire another worker, (ii) make an improvement in his store, (iii) buy that iPhone he always wanted, (iv) add to his savings account...in which case, his savings bank would have had additional money to lend to some other business for it to hire an additional worker, make an improvement in its shop, etc. So, there's no NEW spending in the economy viewed as a whole (which is the only proper way to view an economy), and there's no new wealth added. There is merely a different pattern of spending.
Here's a link to a Mises Institute article on the minimum wage, specifically, on well known economists (like George Stiglitz) who clearly came out against it when they were mere academics, and then changed their minds when offered powerful political positions:
http://mises.org/story/2266
Regarding the wages fund, cash flow replenishes savings, but is not the ultimate source for wages. Many businesses -- most, perhaps -- borrow short term loans to make payroll; they are not relying on consumer spending, throwing it into a cashbox, and then dividing up, like waiters do with a tip-jar. In fact, unemployment began to rise when there was a "credit freeze" at the end of 2008 and many businesses were unable to meet payroll because they could not get short term loans -- try telling them that there was nothing to worry about: "Where's the beef? Your salary and your workers' wages are all paid for out of parsy-know-nothing's discretionary spending!"
Here's a sweet little article -- an editorial, really -- from a newspaper that is today thoroughly discredited as a source of accurate economic reasoning: The New York Times. The piece is from 1921 and was written by that rare animal, a lawyer who actually seems to know something about economics.
"Great Fortunes As A Benefit To All"
by Harry Hubbard
http://tinyurl.com/r7fk9g
GoodDay, who thinks parsy should abandon mere common sense and start employing uncommon sense.
Looking at her, I feel as if I'm on a "Superhighway to Serfdom."
Go to wiki and search “minimum wage .” A very fair and balanced article. They also have good article on von Miser.
I would link stuff but that would make it too easy on all you lazy fair types! (OK, really, I don’t know how to do the little html thingies or I would link them for you. Sorry.)
parsy, who is just busting with common sense
Nah, I think I’ll let you copy/paste from the article. You don’t need HTML to do that...just a little common sense.
Never heard of “von miser.” Who is he? I have heard of John Maynard Arcane, a 3rd rate English economist who spent much of his career obfuscating economics so that 4th rate bloggers on economics could pretend to know something about the subject. He loved to take two numbers and divide one into the other so that he could claim the quotient was some sort of objective “index” or “measure” of something actually relevant to the economy. And he also loved to give these “indices” and “measures” very scientific sounding names...and then abbreviate them by their first initials, which only made the original name sound even more authoritatively terrifying. Thus, the “MEC” was his “Marginal Efficiency of Capital”, and the “MPC” was his “Marginal Propensity to Consume”. He had lots of fun thinking up things like this. You’d probably like Arcane. He was wrong about everything, but — like parsy — he gave never tired of claiming that he was just busting with common sense.
Here’s a little excerpt from a little book on Hong Kong. It casually relates to the reader that as of 1994 (when the book was published), Hong Kong had no minimum wage law and no unemployment (no “structural unemploment”, i.e., no chronic long-term unemployment). You can find the book at the following link:
“Hong Kong business
By Christine Genzberger (1994)
Page 9
Unemployment
Unemployment in Hong Kong has been so low, particularly during the past decade, that the colony can be said to have virtually no structural unemployment. Over the past 10 years, unemployment has averaged 2 percent, peaking at 3 percent during the downturn in 1985 and dropping as low as 1.3 percent in 1990. Unemployment held at 2 percent in 1992, rising to 2.1 percent in 1993 . . .
. . . Most employers provide subsidized meals and an annual bonus equal to one or two months’ salary. Larger employers often provide subsidies for transportation and health care, and award attendance bonuses. Although there is no legal minimum wage in Hong Kong, it is difficult to find workers below prevailing wage levels.”
GoodDay, who can’t help noticing that parsy is losing his touch.
Losing my touch! I have not yet begun to teach! I’ve just been very busy the last few days and haven’t felt very good to boot. I promise to follow up later with more info.
parsy, who has to run for the moment
Of course that would be the same regulators that have been running the multi-trillion social security ponzi scheme.
“Effective” regulation would have caught Madoff earlier on. There are rules and laws against what he did. Enforcement was lax.
Effective regulation would have probably stopped the Wall Street Boys from their trillions of dollars fiasco. A lot of regulations were put in after 1929 crash to keep it from happening again. Then it does with S&L’s. Then with internet bubble. Then with oil specualtion. Now with sub-primes. It will continue to hit with prime problems and what I predict will be huge numbers of personal banjkruptcies clobbering the usurious credit card companies.
More of the “frippery” slope. And yes, SocSec has been like a Ponzi scheme. It has been an unfunded liabiklity that no one has wanted to deal with. Instead, the GOP has wanted to cut tax rates on the rich, deregulate, provide protection to gross usurers.
I think if the captain of the Titantic had been a Republican, when he was told the ship had just hit an iceberg (or a Zeppelin) whichever, his first response would have been, “Let’s Cut Taxes!”
When you add the trillions of deficit spending and the unfunded SocSec and Medicare costs, I have estimates as high as 100 trillion. The debt will have to be monetized because there is no other way to ring that out of the economy. Look up Solon (a greek) and “The Great Shaking Out (or Up)”.
We are in for same, IMHO. We will all get a Basic Income Check (BIG) from gov’t. We can work to get more. But our society is about to get rattled from top to bottom. Hate to be pessimistic, but I see no other way, BO or GOP in power.
parsy, who will live off his BIG check and become a street musician.
Okay, here’s you some cut and paste from the wiki article, which is very balanced, IMHO.
“So the basic theory says that raising the minimum wage helps workers whose wages are raised, and hurts people who are not hired (or lose their jobs) because companies cut back on employment. But the situation is much more complicated than the basic theory can account for.
Complicating factors
One complicating factor is possible monopsony in the labor market, whereby the individual employer has some market power in determining wages paid. Thus it is at least theoretically possible that the minimum wage may boost employment. Though single employer market power is unlikely to exist in most labor markets in the sense of the traditional ‘company town,’ asymmetric information, imperfect mobility, and the ‘personal’ element of the labor transaction give some degree of wage-setting power to most firms.[12]
Standard theory criticism
Gary Fields, Professor of Labor Economics and Economics at Cornell University, argues that the standard “textbook model” for the minimum wage is “ambiguous”, and that the standard theoretical arguments incorrectly measure only a one-sector market. Fields says a two-sector market, where “the self-employed, service workers, and farm workers are typically excluded from minimum-wage coverage… [and with] one sector with minimum-wage coverage and the other without it [and possible mobility between the two],” is the basis for better analysis. Through this model, Fields shows the typical theoretical argument to be ambiguous and says “the predictions derived from the textbook model definitely do not carry over to the two-sector case. Therefore, since a non-covered sector exists nearly everywhere, the predictions of the textbook model simply cannot be relied on.”[13]
An alternate view of the labor market has low-wage labor markets characterized as monopsonistic competition wherein buyers (employers) have significantly more market power than do sellers (workers). This monopsony could be a result of intentional collusion between employers, or naturalistic factors such as segmented markets, information costs, imperfect mobility and the ‘personal’ element of labor markets. In such a case the diagram above would not yield the quantity of labor clearing and the wage rate. This is because while the upward sloping aggregate labor supply would remain unchanged, instead of using the downward labor demand curve shown in the diagram above, monopsonistic employers would use a steeper downward sloping curve corresponding to marginal expenditures to yield the intersection with the supply curve resulting in a wage rate lower than would be the case under competition. Also, the amount of labor sold would also be lower than the competitive optimal allocation.
Such a case is a type of market failure and results in workers being paid less than their marginal value. Under the monopsonistic assumption, an appropriately set minimum wage could increase both wages and employment, with the optimal level being equal to the marginal productivity of labor.[14] This view emphasizes the role of minimum wages as a market regulation policy akin to antitrust policies, as opposed to an illusory “free lunch” for low-wage workers.
Another reason minimum wage may not affect employment in certain industries is that the demand for the product the employees produce is highly inelastic;[15] For example, if management is forced to increase wages, management can pass on the increase in wage to consumers in the form of higher prices. Since demand for the product is highly inelastic, consumers continue to buy the product at the higher price and so the manager is not forced to lay off workers.
Three other possible reasons minimum wages do not affect employment were suggested by Alan Blinder: higher wages may reduce turnover, and hence training costs; raising the minimum wage may “render moot” the potential problem of recruiting workers at a higher wage than current workers; and minimum wage workers might represent such a small proportion of a business’s cost that the increase is too small to matter. He admits that he does not know if these are correct, but argues that “the list demonstrates that one can accept the new empirical findings and still be a card-carrying economist.”[16]
Debate over consequences
Various groups have great ideological, political, financial, and emotional investments in issues surrounding minimum wage laws. For example, agencies that administer the laws have a vested interest in showing that “their” laws do not create unemployment. So do labor unions, whose members’ jobs are protected by minimum wage laws. The presence of these powerful groups and factors means that the debate on the issue is not always based on dispassionate analysis. Not only that, but it is extraordinarily difficult to separate the effects of minimum wage from all the other variables that affect employment.[5]
On the other side of the issue, low-wage employers such as restaurants finance the Employment Policies Institute, which has released numerous studies opposing the minimum wage.[17]
There is more and they discuss all your many grievances but I like this, and think it to the point:
Today, the International Labour Organization (ILO)[7] and the OECD[19] do not consider that the minimum wage can be directly linked to unemployment in countries which have suffered job losses. Although strongly opposed by both the business community and the Conservative Party when introduced in 1999, the minimum wage introduced in the UK is no longer controversial and the Conservatives reversed their opposition in 2000.[34] A review of its effects found no discernible impact on employment levels.[35]
Since the introduction of a national minimum wage in the UK in 1999, its effects on employment were subject to extensive research and observation by the Low Pay Commission. The Low Pay Commission found that, rather than make employees redundant, employers have reduced their rate of hiring, reduced staff hours, increased prices, and have found ways to cause current workers to be more productive (especially service companies).[36] Neither trade unions nor employer organizations contest the minimum wage, although the latter had especially done so heavily until 1999.
parsy, who is getting his touch back
And heres some more for you from same wiki article, this time relating to the empirical studies:
Empirical studies
Economists disagree as to the measurable impact of minimum wages in the ‘real world’. This disagreement usually takes the form of competing empirical tests of the elasticities of demand and supply in labor markets and the degree to which markets differ from the efficiency that models of perfect competition predict.
Economists have done empirical studies on numerous aspects of the minimum wage, prominently including:[3]
Employment effects, the most frequently studied aspect
Effects on the distribution of wages and earnings among low-paid and higher-paid workers
Effects on the distribution of incomes among low-income and higher-income families
Effects on the skills of workers through job training and the deferring of work to acquire education
Effects on prices and profits
Until the mid-1990s, a strong consensus existed among economists, both conservative and liberal, that the minimum wage reduced employment, especially among younger and low-skill workers.[9] In addition to the basic supply-demand intuition, there were a number of empirical studies that supported this view. For example, Gramlich (1976) found that many of the benefits went to higher income families, and in particular that teenagers were made worse off by the unemployment associated with the minimum wage.[37]
Brown et al. (1983) note that time series studies to that point had found that for a 10 percent increase in the minimum wage, there was a decrease in teenage employment of 1-3 percent. However, for the effect on the teenage unemployment rate, the studies exhibited wider variation in their estimates, from zero to over 3 percent. In contrast to the simple supply/demand figure above, it was commonly found that teenagers withdrew from the labor force in response to the minimum wage, which produced the possibility of equal reductions in the supply as well as the demand for labor at a higher minimum wage and hence no impact on the unemployment rate. Using a variety of specifications of the employment and unemployment equations (using ordinary least squares vs. generalized least squares regression procedures, and linear vs. logarithmic specifications), they found that a 10 percent increase in the minimum wage caused a 1 percent decrease in teenage employment, and no change in the teenage unemployment rate. The study also found a small, but statistically significant, increase in unemployment for adults aged 20–24.[38]
Wellington (1991) updated Brown et al.’s research with data through 1986 to provide new estimates encompassing a period when the real (i.e., inflation-adjusted) value of the minimum wage was declining, due to the fact that it had not increased since 1981. She found that a 10% increase in the minimum wage decreased teenage employment by 0.6 percentage points, with no effect on either the teen or young adult unemployment rates.[39]
Some research suggests that the unemployment effects of small minimum wage increases are dominated by other factors. [8] In Florida, where voters approved an increase in 2004, a follow-up comprehensive study confirms a strong economy with increased employment above previous years in Florida and better than in the U.S. as a whole.[9]
[edit] Card and Krueger
In 1992, the minimum wage in New Jersey increased from $4.25 to $5.05 per hour (an 18.8% increase) while the adjacent state of Pennsylvania remained at $4.25. David Card and Alan Krueger gathered information on fast food restaurants in New Jersey and eastern Pennsylvania in an attempt to see what effect this increase had on employment within New Jersey. Basic economic theory would have implied that relative employment should have decreased in New Jersey. Card and Krueger surveyed employers before the April 1992 New Jersey increase, and again in November-December 1992, asking managers for data on the full-time equivalent staff level of their restaurants both times.[40] Based on the employers’ responses, the authors concluded that the increase in the minimum wage increased employment in the New Jersey restaurants.[41]
Card and Krueger expanded on this initial article in their 1995 book Myth and Measurement: The New Economics of the Minimum Wage (ISBN 0-691-04823-1). They argued the negative employment effects of minimum wage laws to be minimal if not non-existent. For example, they look at the 1992 increase in New Jersey’s minimum wage, the 1988 rise in California’s minimum wage, and the 1990-91 increases in the federal minimum wage. In addition to their own findings, they reanalyzed earlier studies with updated data, generally finding that the older results of a negative employment effect did not hold up in the larger datasets.
Critics, however, argue that their research was flawed.[42] Subsequent attempts to verify the claims requested payroll cards from employers to verify employment, and found that the minimum wage increases were followed by decreases in employment. On the other hand, an assessment of data collected and analyzed by David Neumark and William Wascher did not initially contradict the Card/Krueger results,[43] but in a later edited version they found that the same general sample set did increase unemployment. The 18.8% wage hike resulted in “[statistically] insignificant—although almost always negative” employment effects.[44]
Another possible explanation for why the current minimum wage laws may not affect unemployment in the United States is that the minimum wage is set close to the equilibrium point for low and unskilled workers. Thus in the absence of the minimum wage law unskilled workers would be paid approximately the same amount. However, an increase above this equilibrium point could likely bring about increased unemployment for the low and unskilled workers.[11]
[edit] Reaction to Card and Krueger
Some leading economists such as Greg Mankiw do not accept the Card/Krueger results,[45] while others, like Nobel laureates Paul Krugman[46] and Joseph Stiglitz do accept them,[47][48] In 1995, the Republican Staff of the Joint Economic Committee of the United States Congress published a study critical of Card and Krueger’s work. They note that it conflicts with other studies done on minimum wage laws within the United States over the past 50 years.[49] According to the JEC analysis, minimum wage laws have been shown to cause large amounts of unemployment, especially among low-income, unskilled, black, and teenaged populations, as well as cause a host of other mal-effects, such as higher turnover, less training, and fewer fringe benefits.
According to economists Donald Deere (Texas A&M), Kevin Murphy (University of Chicago), and Finis Weltch (Texas A&M), Card and Krueger’s conclusions are contradicted by “common sense and past research”. They conclude that:[50]
“ Each of the four studies examines a different piece of the minimum wage/employment relationship. Three of them consider a single state, and two of them look at only a handful of firms in one industry. From these isolated findings Card and Krueger paint a big picture wherein increased minimum wages do not decrease, and may increase, employment. Our view is that there is something wrong with this picture. Artificial increases in the price of unskilled laborers inevitably lead to their reduced employment; the conventional wisdom remains intact. ”
Nobel laureate James M. Buchanan famously responded to the study in the Wall Street Journal:
...no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimum scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.[51]
Alan Krueger responded in The Washington Post:[52]
More was at stake here than the minimum wage — the methodology of public policy analysis was also at issue. Some economists, such as James Buchanan, have simply rejected the notion that their view of economic theory possibly could be proved wrong by data.
Paul Krugman, moreover, states that Card and Krueger “found no evidence that minimum wage increases in the range that the United States has experiences led to job losses. Their work has been attacked because it seems to contradict Econ 101 and because it was ideologically disturbing to many. Yet it has stood up very well to repeated challenges, and new cases confirming its results keep coming in.”[53]
[edit] Neumark and Wascher
David Neumark and William L. Wascher took a leading role in the debate over the work of Card and Krueger, of which they were strongly critical. In a 2008 book, they backed up their criticism with a survey of over 300 studies, which, they concluded, supported their position and left Card and Krueger, as “outliers”.[3] The studies, taken from many countries and spanning many viewpoints, covered a period of over 50 years, primarily from the 1990s onward. According to the authors, a large majority of the studies show negative effects for the minimum wage; those showing positive effects are few, questionable, and disproportionately discussed.
Neumark and Wascher emphasize three conclusions: First, and contrary to Card and Kreuger, they concluded that studies since the early 1990s have strongly pointed to a “reduction in employment opportunities for low-skilled and directly affected workers.” Second, they concluded some evidence that the minimum wage is harmful to poverty-stricken families, and “virtually no evidence” that it helps them. Third, they concluded that the minimum wage lowers adult wages of young workers who encounter it, by reducing their ultimate level of education. They summarized their conclusions in a “scorecard,” showing the effects they considered, a summary of the evidence they found, and their evaluations of the strength of their conclusions based on that evidence. A partial summary of the scorecard is presented below:
[edit] Statistical Meta-analyses
Several researchers have conducted statistical meta-analyses of the employment effects of the minimum wage. Card and Krueger analyzed 14 earlier time-series studies and concluded that there was clear evidence of publication bias because the later studies, which had more data and lower standard errors, did not show the expected increase in t-statistic (almost all the studies had a t of about two, just above the level of statistical significance at the .05 level.[54] Though a serious methodological indictment, opponents of the minimum wage virtually ignored this issue; as Thomas C. Leonard noted, “The silence is fairly deafening.”[55] More recently, T.D. Stanley has criticized their methodology, suggesting that their results could signify either publication bias or the absence of an effect. Using a different methodology, however, he concludes that there is statistically significant evidence of publication bias and that correction of this bias shows no relationship between the minimum wage and unemployment.[56] In 2008, Hristos Doucouliagos and T.D. Stanley conduct a similar meta-analysis of 64 U.S. studies on disemployment effects and concluded that Card and Krueger’s initial claim of publication bias is still correct. Moreover, they concluded, “Once this publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains.”[57]
[edit] Surveys of economists
Until the 1990s, economists generally agreed that raising the minimum wage reduced employment. This consensus was weakened when some well-publicized empirical studies showed the opposite, but others consistently confirmed the original view. Today’s consensus, if one exists, is that increasing the minimum wage has, at worst, minor negative effects.[58]
According to a 1978 article in the American Economic Review, 90 percent of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers.[59]
A 2000 survey by Dan Fuller and Doris Geide-Stevenson reports that of a sample of 308 American Economic Association economists, 45.6% fully agreed with the statement, “a minimum wage increases unemployment among young and unskilled workers”, 27.9% agreed with provisos, and 26.5% disagreed. The authors of this study also reweighted data from a 1990 sample to show that at that time 62.4% of academic economists agreed with the statement above, while 19.5% agreed with provisos and 17.5% disagreed. They state that the reduction on consensus on this question is “likely” due to the Card and Krueger research and subsequent debate.[60]
A similar survey in 2006 by Robert Whaples polled PhD members of the American Economic Association. Whaples found that 37.7% of respondents supported an increase in the minimum wage, 14.3% wanted it kept at the current level, 1.3% wanted it decreased, and 46.8% wanted it completely eliminated.[61]
Surveys of labor economists have found a sharp split on the minimum wage. Fuchs et al. (1998) polled labor economists at the top 40 research universities in the United States on a variety of questions in the summer of 1996. Their 65 respondents split exactly 50-50 when asked if the minimum wage should be increased. They argued that the different policy views were not related to views on whether raising the minimum wage would reduce teen employment (the median economist said there would be a reduction of 1%), but on value differences such as income redistribution.[62] Klein and Dompe conclude, on the basis of previous surveys, “the average level of support for the minimum wage is somewhat higher among labor economists than among AEA members.”[63]
In 2007, Daniel B. Klein and Stewart Dompe conducted a non-anonymous survey of supporters of the minimum wage who had signed the “Raise the Minimum Wage” statement published by the Economic Policy Institute. They found that a majority signed on the grounds that it transferred income from employers to workers, or equalized bargaining power between them in the labor market. In addition, a majority considered disemployment to be a moderate potential drawback to the increase they supported
So, goodday, the point of all this is that things ain’t as simple as you would have all believe. There are studies that back up your position and studies that back up mine. The issue isn’t as black and white as you and other simplistic minded folks assume.
Now that I am back to form, I will follow up with an explanation of why YOUR theory and reality do not compute!
parsy, who is laying it on you now! (and don’t you dare come back with some more dang von Miser theory stuff. Please try to address the issues.)
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