Massive economic study: Minimum wage raises does not increase unempoloyment

[IcarusAngel]

Increases in the minimum wage do not increase unemployment for low-income workers, but simply make their wages higher.


An important new study exploiting this opportunity will appear this month in The Review of Economics and Statistics. The economists Arindrajit Dube of the University of Massachusetts Amherst, T. William Lester of the University of North Carolina at Chapel Hill, and Michael Reich of the University of California, Berkeley, closely analyze employment trends for several categories of low-wage workers over a 16-year period in all counties sharing a common border with a county in another state where minimum wage increases followed a different trajectory.

They report that increases in minimum wages had no negative effects on low-wage employment and successfully increased the income of workers in food services and retail employment, as well as the narrower category of workers in restaurants.

http://economix.blogs.nytimes.com/2010/11/01/along-the-minimum-wage-battle-front/

[RGacky3]

As if having to pay workers less money would make employers hire more than nessesary, is if they would'nt just pocket the difference.

this is empirical evidence for the most logical of conclusions.

[inyourhouse]

I'll wait until I've read the study before passing a final judgement on it, but based on the summary given in the article it seems to suffer from a major methodological flaw in that it only looks at employment in food services, retail employment and restaurant workers. This is a problem because the standard argument is that the minimum wage raises aggregate unemployment; this is not the same as saying that the minimum wage raises unemployment in every industry. David Neumark and William L. Wascher made this point in their book, Minimum Wages (MIT Press, 2008; page 52), when evaluating Card and Krueger's famous work:

"If we extend the [neoclassical labour market] model to include more than one industry, we also need to consider possible general equilibrium cross-industry effects. For example, if a minimum wage increase pushes up costs for one product (X) more than for another product (Y) that is substitutable for X, then the demand for Y can increase, even though the minimum wage has increased its price. That is, when there are multiple products that are viewed as close substitutes by consumers, the scale effect can operate in the opposite direction for products that are produced with a smaller share (in costs) of minimum wage labour. As a result, the neoclassical model does not make firm predictions on an industry-by-industry basis, and thus a failure by researchers to find a decline in less-skilled employment in a narrow industry should not necessarily be viewed as inconsistent with the theory."

That's why it's best to look at overall unemployment figures in my view. Neumark and Wascher actually look at over 300 studies from 50 countries and find that the majority of them do support the claim that the minimum wage raises unemployment. They also find negative effects on the amount of fringe benefits received by low skilled workers, such as expenditure on training. It's a very interesting book.

[ComradeMan]

I am against minimum wages, I am for decent wages- the problem, in practice, with minimum wages is they usually turn out to be the maximum wages for the majority of workers. It's like one of those ideas that sounds fair and just but in practice actually perpetuates oppression.

[RGacky3]

I am against minimum wages, I am for decent wages

WHat does that mean? How are you legislating that? Thats like saying I'm not for unemployment benefits I'm for employment.

[Bilan]

WHat does that mean? How are you legislating that? Thats like saying I'm not for unemployment benefits I'm for employment.

I assume he means that wages ought to be up to a certain point so that one can have a certain standard of living.
Although I agree with you. The sentiment of what he said is very similar to something that happened during the Rudd government:
We had the neoliberal 'Work Choices' legislation brought in by Howard, which was replaced with the Labor Parties "Fair Work" legislation.
No difference.

[ComradeMan]

WHat does that mean? How are you legislating that? Thats like saying I'm not for unemployment benefits I'm for employment.

That's right! :thumbup1: I am not a big fan of any form of wage slavery be it minimum or maximum etc...

However there is an alternative in the form of collective bargaining as implemented in some nations such as Germany and Denmark.

Also-

The right to bargain collectively with an employer enhances the human dignity, liberty and autonomy of workers by giving them the opportunity to influence the establishment of workplace rules and thereby gain some control over a major aspect of their lives, namely their work... Collective bargaining is not simply an instrument for pursuing external ends…rather [it] is intrinsically valuable as an experience in self-government... Collective bargaining permits workers to achieve a form of workplace democracy and to ensure the rule of law in the workplace. Workers gain a voice to influence the establishment of rules that control a major aspect of their lives.
Health Services and Support – Facilities Subsector Bargaining Assn. v. British Columbia [2007] SCC 27.

[RGacky3]

However there is an alternative in the form of collective bargaining as implemented in some nations such as Germany and Denmark.


I think thats actually a MUCH MUCH better circumstance than a minimum wage, so yeah, I agree, empower the unions.

[Decolonize The Left]

In many place, though, the unions are non-existent or very weak. So in these situations a minimum wage is necessary to maintain at least a minimum amount of income for workers.

It's one thing to say that in an ideal world there would be a minimum wage as there wouldn't be a wage, or if there was it would be decided by workers, etc.. etc... But this world isn't ideal, and hence the claim is relatively meaningless.

- August

[Havet]

Minimum wages ftl, collective bargaining ftw (http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country#cite_note-CRHRP-2009-3)

[RGacky3]

the 2 are not mutually exclusive.

[ComradeMan]

In many place, though, the unions are non-existent or very weak. So in these situations a minimum wage is necessary to maintain at least a minimum amount of income for workers.

It's one thing to say that in an ideal world there would be a minimum wage as there wouldn't be a wage, or if there was it would be decided by workers, etc.. etc... But this world isn't ideal, and hence the claim is relatively meaningless.

- August

The trouble with minimum wages is they tend to end up being the only damn wages anyone can ever hope for- i.e. the minimum. Anyway, collective bargaining does work and does exist in the real world- Germany, Denmark, Sweden- all with relatively high standards of living and "rights" in comparison to "minimum" wage regimes.

[Dean]

You can't rely on statistics to understand economic phenomena. You have to rely on blind assertion like Praxeology. (http://en.wikipedia.org/wiki/Praxeology) So you should reject real-world data and instead take on quaint theories of the world.

[Bud Struggle]

Increases in the minimum wage do not increase unemployment for low-income workers, but simply make their wages higher.

Any (honest) business owner could have told you that. :) The minimum wage is just a number for figuring out part of (and a very small part of) the cost of labor. It's really nothing more.

Its factored into the cost of the goods being made and the final price of the product. The good thing abut it is that if it goes up IT GOES UP FOR EVERYONE so my competition has no advantage over me.

It's really a non issue for business unless you are competing with an over seas company paying 11 year old 3 cents an hour.