The Minimum Wage

Thanks to LF for his post. Remember this is ‘on balance’, not just economics. Also, I’m presuming a certain amount of economic literacy on the part of the audience. I apologise to LF as this argument is rather rushed, and perhaps not as it should be. Overview Let’s recount a few points of note. Firstly, Con basically agrees with me on monopsonistic grounds where a minimum wage increases employment and so forth. A crucial point. Secondly, he doesn’t counter the idea that there is no set marginal productivity. In effect, his original theory is undermined as premise 1 isn’t true (not to mention premise 2 and 3, which we are still debating). Also, Con admits to market prices not being optimal and ignores my ‘Big increases vs. small decreases’ point, deeming it irrelevant. All these points help build my case. Still up for contention is the elasticity of demand, the impact of financial incentives on marginal productivity and empirical evidence. Monopsony Con basically conceded this point. It should be noted that there are 3 minimum wage ‘regimes’ – those that pay above a competitive wage, those that pay less than a competitive wage and more than a monopsonistic wage, and those that pay less than a monopsonistic wage. What’s the point? There’s not often a pure monopsony, but employees still have monopsony power, as shown by “A large empirical literature, dating back to the 1940s finds evidence of substantial wage dispersion among workers that do the same job in the same city. The classic references are the case studies of Lester (1946) , Reynolds (1951) and Slichter (1950) . Although the data in these studies are now 50 years old, their conclusions probably remain valid today.” http://pubs.aeaweb.org... We’re not just talking about ‘small towns’ , we’re talking about cities – settlements of a much larger size. The point is that monopsony extends far beyond the small country town, although it’s impacts are most far reaching there, it pervades much of society. Also, even ignoring the whole cities point the debate is basically won. If a minimum wage is made that pays above a monopsonistic wage yet less than a competitive wage then positive gains are made. But you shout ‘wait, what about different occupations and pay rates?’ . Easy, - simply cater to the lowest earning occupations and pay above a monopsonistic wage and you’ve made an improvement. Granted, it’s a very minor improvement as such a low minimum wage would hardly affect most people, but on this technicality the minimum wage policy can be supported without any downsides. Note as well that a minimum wage often still has an overall benefit even if it’s above a competitive wage given monopsonistc wages. The main point though is that monopsony pervades the labour market, and a minimum wage improves upon a monopsonistic situation. Big Increases, Small Decreases The point is thus – if some customers pay more because a business passes on costs from an employee receiving the minimum wage then it’s still a positive. Those on the minimum wage earn less, and per the fact that each additional dollar brings less additional utility, minimum wage earners gain more than consumers lose. Think along the lines of utilitarianism here – a weighing mechanism as yet unrefuted. Price Elasticity Check for yourself the fact that essential food items have relatively inelastic demand in LF’s study. Basically, essentials are inelastic. Now, as to conspicuous consumption, as LF’s source notes it’s more elastic. Of course, reducing conspicuous consumption is often considered a good thing. Ever heard of a materialistic culture being a bad thing? Countering a materialistic culture, courtesy of a minimum wage, is sure to be a good thing. Marginal Productivity I’ve already proven that there doesn’t exist a single marginal productivity, so I won’t address that now. The issue is on Locke’s evidence. LF claims that people aren’t more productive under a minimum wage, merely being a case of ‘produce 10% more, get paid 10% more’ . However, it’s the wider psychological effect that’s at issue here. It’s not just payment, it’s image. Ever heard somebody question a product’s lifespan because it was ‘made in China’ or something of the like? This is often because of low wages and assumptions people make about quality based on wages. The point is that if places like China had a higher minimum wage then other countries would respect their products more. That’s clearly a good thing. Also, people do work harder if they feel properly treated. Just knowing that a minimum wage exists increases productivity. If people feel they are being paid fairly they’ll work harder. Same with higher wages. In the minds of the people ‘minimum wage’ equates to fairness. If we eliminate the minimum wage their productivity will drop, regardless of any change in pay rates. Optimal Market Prices We agree market prices are not always optimal. Is the minimum wage optimal? That’s the whole point of this debate. Of course, a market price, ie. Monopsony, isn’t optimal. Refer to monopsony for discussions on this point. Empirics Let’s be blunt – I can give you a bunch of studies, as can LK. Look at Card and Krueger say (that ought to get somebody going!) . Point is, there’s lots and lots of evidence on both sides. There is a bomb to be dropped though. Statistical meta-analyses of minimum wage studies have shown publication bias. 2 meta-studies [1,2] show evidence of publication bias and that correction of this bias shows no relationship between the minimum wage and unemployment. Ie. Conclusion of [2] – “Once the publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains.” Compare that to some positive studies mentioned earlier. Point is, publication bias, not empirical evidence explain studies, as proven be meta-analysis. Conclusion If this seems like a rushed round then I apologise to LF and readers. Nevertheless, there’s still many arguments and such here. Unfortunately I can’t add new arguments in R4... The arguments presented so far support my side of the resolution though. Note my monopsonistic technicality is a win in and of itself. Hence vote Pro. Sources ] [1] - Hristos Doucouliagos and T.D. Stanley, "Publication Bias in Minimum-Wage Research? A Meta-Regression Analysis," British Journal of Industrial Relations, 2008. [2] - T.D. Stanley, "Beyond Publication Bias", Journal of Economic Surveys, Vol. 19, no. 3 (2005), pp. 322-327. – publication bias