Lift the minimum wage and employment still rises? How to anger the establishment and win a Nobel Prize

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It’s a little bit of a misleading headline. Card and Krueger didn’t anger the establishment. It spurred a very lively, nuanced, and needed debate about labor market adjustments. It spurred considerable research about how, other than firing workers, businesses accommodate government imposed costs. These are applicable in a number of other arenas (banning of oil production, for instance). But really, the key insight was not the minimum wage findings (which are still debated, in part because of a number of technical details, but also how broad (or not) things should be measured). The key insight of Card was that natural experiments can be plausibly exogenous. It opens up experiments for social sciences.

EconomistPunter

I never got this argument For example Eastern EU countries like Bulgaria, Romania, Lithuania increased their minimum wage by over 10% each year, and yet both inflation and unemployment remained low

Rift3N

I’m not sure how I feel about their study in general. According to economic theory, the only time a price increase can increase demand in a market is when there’s a monopsony. Applied to the labor market, a monopsony would be a single buyer of labor. Seeing as how a lot of minimum wage jobs skew to certain industries (like food service), the competition is more monopsonistic than at other wages. I haven’t seen them talk about this at all or try to measure it’s effects across industries I also don’t know what their measure of employment entailed. Labor force participation and unemployment are one measure, but hours worked and total payroll expense are important to look at too. There could also be exogenous variables that impact the New Jersey and Pennsylvania economies differently

Street-Individual292

In essence it comes down right to this argument that those investing Capital are taking all the risks. I never understood that argument. Sure investing in a new endeavor could be risky especially if you haven’t done your homework or there’s no data to draw from because it’s a completely new market. But those are inherent risks with extremely good rewards because the chance of success is exactly quite low. That’s a fair enough argument. However, capital is elastic it comes and it goes. Time on the other hand is inelastic it only goes. So on the one hand you have capital and on the other hand you have time. If a person invests their capital and loses it there’s a chance he can get it back. However if a person invests their time there’s no getting it back so time is the invaluable resource, or as some refer to it the “means of production”. Not capital. Yeah, I had to throw Marxist theory in there. I do think most of it is nonsense other than a complaint on capitalism, with really no solution. However this whole concept of the “means of production” , is really dwelling into the area of political science. And really, it’s the politics that create incredible inequity. Not capital, not intelligence, nor the ability to produce efficiently. Case in point when two people are going to bargain and they’re looking for the best deal from each other anything that can tip the scales is going to come into play. Because really in modern society each individual is is awarded the same fundamental rights and has to adhere to the same fundamental laws. So why is there a power imbalance? The “micro politics” that happen at a bargaining table come into play. In my opinion politics of any sort is basically a shell game we’re advantage isn’t real it’s a creation of rhetoric. If there is a larger political economy affecting the “micro politics” at that bargaining table, well you can see the problem. The person with more political influence will win the better end of the deal even if the value of ones time or capital is higher. I guess the real question is if one can measure the value of political economy on the bargain between employer and employee there would be a much better price setting mechanism in labor markets. Now if someone could create a set of econometrics to answer that question. Since, I believe I barely qualify as an armchair economist I’m hoping that someone takes this endeavor on. Now, that would be a Nobel prize win.

Classic-Soup-1078

Because workers are also customers increasing their pay could actually grow the economy. I think there is an average pay that would maximize the economy. Above that pay inflation would start growing. I think we should raise the Minimum Wage incremental annually until inflation gets to be about 5% or so.

stewartm0205