Joined: 28 Dec 2005
|Posted: Mon Aug 31, 2009 6:07 pm Post subject: Understanding the Minimum Wage II
|BLS -- The youth unemployment rate (the unemployment rate for 16 to 24 year olds) was 18.5% in July 2009, the highest July rate on record for the series, which began in 1948 (see chart above).
Additionally, the male (19.7%) - female (17.3%) jobless rate gap of 2.4% in July 2009 for youth was the highest male-female gap since 1954 (2.5%), and 1949 (2.8%), see chart below.
Bottom Line: Between the economic slowdown and the 24% increase in the minimum wage over the last years, the 16-24 year old group is having a rough summer. And it's especially bad for males in that age group, who are feeling the effects of the "mancession" along with males in other age groups.
"Between the economic slowdown and the 24% increase in the minimum wage over the last years, the 16-24 year old group is having a rough summer"...
Its not like we've not been warned about this numerous times in the past as noted by Walter Williams, Larry Elder, or Thomas Sowell...
8/30/2009 4:24 PM
Again, the economic literature shows an increase in the minimum wage has little or no effect on employment. An increase in the minimum wage may be stimulative, because the wage effect is greater than the employment effect (also, if there's a negative employment effect, it's mostly offset by unemployment benefits).
A hundred years ago, many of the 16-24 age group and children had to work to support their families. Today, the country is much wealthier, and it's generally unnecessary for the youth to support their families.
Also, I may add, an increase in employment of the 16-24 age group may actually reduce GDP, given they're the least productive group, and can displace older groups, which are more productive.
8/30/2009 5:22 PM
"Again, the economic literature shows an increase in the minimum wage has little or no effect on employment"...
What economic literature?
8/30/2009 5:38 PM
The literature of labor economists, who are the experts. Their work shows rises in the minimum wage shifted from a large negative effect on employment to a small negative effect (e.g. 1%).
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. 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."
8/30/2009 5:51 PM
Mark J. Perry said...
PeakTrader: Even if increases in the min wage has NO effect teenage on employment/unemployment, that's not to say that there are NO negative effects of the min wage. As I have written before, there could be reductions in hours, reductions in non-wage compensation (uniforms, free or discount food at restaurants, paid holidays, etc.), that would make unskilled workers WORSE OFF, even if there are no measurable effects on employment.
8/30/2009 6:10 PM
Much more important than teen unemployment is the unemployment of college and professional school graduates. I've heard that very few can find jobs. I know that big law firms like mine are cutting their hiring of new graduates by 60% from last year.
8/30/2009 6:18 PM
Peak, what economic literature are you reading? There have been literally HUNDREDS of papers showing empirical evidence that minimum wage does increase unemployment. The BS Card and Krueger paper was thoroughly DEBUNKED when their palty survey of fast food restaurants didn't match payroll records of employment hours. Their 15 minutes of fame ended with Clinton's State of the Union address. No rational economist takes it seriously anymore.
Labor economists are LEFTISTS by self-selection. Polling economists about what they think will happen is voodoo. Looking at what actually DID happen is science.
Let's clarify something: when micro economists say 'unemployment' they are NOT always talking about labor and most certainly not talking about the unemployment rate (or number of unemployed either). We're talking about the quantity of labor employed (measured in worker-hours) relative to the worker-hours desired at that wage. We need not observe rising unemployment rates to have prove of basic economic theory - a decrease is worker hours will suffice.
But you certainly can, as Dr. Perry has shown, get rising unemployment rates. One would have to separate out the effect of the downturn (which is substantial) from the effect of min wage, but it's clear to all but neanderthal brains that raising minimum wage did not help. During economic decline, wages must FALL to maintain full employment.
8/30/2009 7:53 PM
"The literature of labor economists, who are the experts. Their work shows rises in the minimum wage shifted from a large negative effect on employment to a small negative effect"...
Well Peak Trader I don't know where you are getting your info but the actual literature out there doesn't show anything of the sort...
Try a dose of reality sir: Minimum Wage And Its Effects On Small Business
A Hearing Before the Subcommittee on Workforce,Empowerment, and Government ProgramsTestimony of Craig GarthwaiteDirector of Research, Employment Policies Institute
April 29, 2004
8/31/2009 8:28 AM
I have to agree with Peak Trader. There has been a huge shift in opinion, particularily among labor economists (those most familiar with the research) concerning the effects of minimum wage increases on employment. Meta-analyses has shifted opinion still further in Card and Krueger's favor over the years.
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.
Though a serious methodological indictment, opponents of the minimum wage virtually ignored this issue; as Thomas C. Leonard noted, "The silence is fairly deafening."
Thomas C. Leonard, "The Very Idea of Applying Economics: The Modern Minimum-Wage Controversy and its Antecedents," History of Political Economy 32 (1), p. 139 (2000).
T.D. Stanley criticized Card and Krueger's methodology, suggesting that their results could signify either publication bias or the absence of an effect. Using a different methodology, however, he concluded that there was statistically significant evidence of publication bias and that correction of this bias showed no relationship between the minimum wage and unemployment.
T.D. Stanley, "Beyond Publication Bias, Journal of Economic Surveys, Vol. 19, no. 3 (2005), pp. 322-327.
Last year, Hristos Doucouliagos and T.D. Stanley conducted a similar meta-analysis of 64 U.S. studies on disemployment effects and concluded that Card and Krueger's initial claim of publication bias was 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."
P.S. It's important to note that no one is suggesting that the minimum wage could be endlessly elevated without ever having a negative effect on employment, only that elevating it incrementally has no negative effect at its current low historical levels.
P.P.S. Some researchers have concluded that the welfare gain to those in the 16-24 age group is particularily significant. That's because fewer hours spent at work for the same aggregate income means more time for studies. (And that ultimately means a general population with more human capital, and that benefits us all.)
8/31/2009 4:04 PM