Thursday, January 04, 2007

Foolishness from the left

George Will raised hackles today around the left blogosphere with a Washington Post op-ed saying that the minimum wage should be abolished. I'd have to say, I lean towards his side on this one.

The reasons I only lean rather than definitvely stand that way are twofold. First, while I think one would basically have to be a moron not to favor trading in the minimum wage for government-provided wage subsidies if this were politically feasible, it isn't. Also, the minimum wage can improve distirbution. As a forced cartel of low-wage workers, it can potentially increase the overall income of the cartel participants. Only, rather than sharing the extra $$ among members like OPEC in its glory days, you get winners (people whose jobs end up with higher wages) and losers (thuse who lose jobs). Second, while from a standard neoclassical view the disemployment effect should be clearcut, in truth the labor market is a bit more complicated and has various odd quirks (e.g., employers choosing between lower-wage, higher-turnover and higher-wage, lower-turnover equilibria). I discuss a lot of this, along with the still-controversial Card-Krueger empirical work showing no detectable job loss, in a 1995 article that I published in the University of Chicago Law Review.

A couple of more points on the progressivity angle. The subsidy is geared to people based on hourly wage not household circumstances. So you get, e.g., teenagers from affluent households getting a lot of the $$. I think of it as conceptually a wage subsidy to low-hourly-wage workers, financed by a tax on commodities produced with low-wage labor. Not the design one would really want in a wage subsidy program that was being designed from any coherent set of criteria grounded in efficiency or distributional concerns. Note also that if, say, it ends up increasing consumer prices for commodities produced with low-wage labor (e.g., fast food), then it's a bit like a retail sales tax targeted at consumer goods that poor people disproportionately buy.

So I am not a big fan, and indeed I'm closer to George Will on this than that statement alone would suggest, although, yes, he is too simplistic about it.

But then again, look who's talking about simplistic if we bring the left blogosphere into this. Let's try Kevin Drum, who says, in supposed rebuke of Will, that workers aren't "commodities." This apparently is meant to be a moral statement of some obscure kind. Hard to rebut an ostensible argument that does not state anything coherent or rooted in consequentialism (i.e., in assessing what a minimum wage will actually do).

Kevin also says: "A rich society really has no excuse for not setting bare minimum levels of decency for all human interactions, including those between employer and employee."

Meaning, I suppose, that it's fine if someone doesn't get a job and is worse off due to the minimum wage - we regulate the job market interaction and care specially about it even if the consequences of our special treatment are Pareto-minimal, i.e., someone is left worse off and no one better off.

Not a very thoughtful post, from an individual I sometimes agree with. Makes me wonder a bit.

Irrefutable problem with his entire line of argument: he fails to recognize the central importance of an empirical, rather than logical, consideration: the question of what (and how great) are the disemployment effects of the minimum wage (at various levels). This remains inadequately understood. I really fail to see how anyone with half a brain can have so cocksure a view about the minimum wage without better knowledge about this question than any of us really has.

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