The minimum wage should be abolished

I’ll rebut PRO’s case and defend mine in the next round. PRO’s remarks are nothing more than bare assertions--and he admits as much in conceding that he isn’t sure whether the MW has the effects he claims. If he isn't sure, he has a mountain to climb to prove it ought to be abolished, because in a case where it doesn't have these sorts of impacts, this boils down to a utilitarian question of whether the gains to society ought to be distributed widely or concentrated at the top, the former of which is optimal per my C3. Second, it is true that it is difficult for models to capture causation, but this in no way invalidates these findings, particularly statistically significant conclusions based upon empirics. Correlation, modelled via regression, confirms causation: if PRO claims that the MW causes unemployment, then the MW should be correlated with higher unemployment, which shows that either one causes the other or a third factor causes both.The absence of this, as my studies show, lays waste to PRO's remarks. Empirics are necessary to explain and expound on theory.“Empirical studies of the imposition of minimum wages do more than merely illustrate economic theory; they help economists to learn which theoretically relevant factors actually matter” (1). Also, theory may not hold up to reality. Theoretical MW analysis assumes perfect competition, rational expectations, equal bargaining power, and perfect information, none of which hold in the real world. For PRO to claim that the theory must be fact, even when empirics shows otherwise, is abusive and obviates debate. Do not allow PRO to apply a broad brush to discredit economic research. Even if models have their shortcomings, there is no reason at all to discredit them without a valid reason to do so (e.g., a flaw in the study). Further, do not accept mere generalizations, which is all PRO has offered, over facts. PRO’s Case Unemployment PRO begins by claiming that there is a “chance” that the minimum wage will cause unemployment. He falsely claims this logic is “irrefutable.” Economic theory and knowledge is constantly updated and is never beyond scrutiny. Further, I’ve provided several meta-analyses showing the minimum wage has no discernible effect on employment, while PRO has provided no evidence. Further, PRO’s nonsensical anecdote about India is based on the flawed notion that labor costs are the single factor bearing on unemployment. I could launch a business in Somalia if I wanted, but I wouldn’t be successful. Why? Because Somalia is a poor country, and in the absence of an adequate stream of revenue from sufficient demand, I would go bankrupt. If you add in my evidence on the efficiency wage hypothesis, which would explain why an employer would be willing and in fact better off to pay higher wages, his case falls further. His anecdote of an employer not being willing to pay above X wage is flawed. First, it presupposes that any minimum wage is necessarily above a person’s “productivity” level, or the maximum employers, per PRO’s example, would be “willing” to pay a worker, though this is far from the case. Median wages have stagnated for three decades and the real value of the MW has fallen. For the MW to have the same purchasing power today as it did in 1968, it would need to be $10.68 today (2). If we add productivity, it would be as much as $21.72 (3). It’s clear workers are being paid significantly lower than their “worth”—which by itself is artificial because labor productivity isn’t fixed, cannot be readily ascertained ex ante, and includes qualitative factors—which lends weight to Marx’s notion of surplus value, where workers require a productivity of X + Y in order to earn a wage of X (4). The remainder of PRO’s contention hinges on the supremacy and perfection of markets and rational actors, which I have already refuted. Capital Investment First, he claims that, all else equal, there’s an inverse relationship between wages and capital investment. The first thing he does wrong is using the phrase “all else equal” —that’s the basis for his entire case, and it’s patently false and not borne out by reality. Second, this relationship is completely fabricated. Higher wages tend to reflect an improving economy, more competitive job markets, and higher productivity—with these factors in mind, capital investment would tend to increase because the economy is doing well, irrespective of wage rates, because wages are procyclical (i.e., they rise as the economy does). The rest of PRO’s paragraph is non-topical. The reason that the former region he describes had an abundant supply of capital was by virtue of higher capital investment, which was a consequence of a strong labor market and strong demand. That doesn’t tie to the MW, save for the fact that the MW tends to boost consumption which may spur capital investment—so this point supports my C1. As the economy improves, demand for both capital AND labor tend to rise. PRO then names several factors which in theory may attract capital investment, but this doesn’t tie to the MW, though he is continuously making the assumption that low wage rates spark capital investment. Again, none of his arguments are sourced. He then makes even more incoherent, fact-free arguments. The purpose of capital investment is not necessarily to raise real wage rates, though that may be a result, but to grow business’ productive capacities. In many cases, higher productivity and productive capacity do not lead to increases in wage rates. For this, you can look at my evidence that, over the past thirty years, real wages have stagnated for most Americans and the real MW has fallen in spite of a nearly doubling of productivity. Further, you can note that in spite of productivity gains in recent years, real wages have also been stagnant since the recession, largely as a consequence of a still-weak jobs market (5)—proving my point that wages are heavily procyclical. PRO’s remarks suggest that once wages rise, capital investment falls—but when the economy is doing well, both tend to rise. His next argument is also flawed. Again, capital investment is not a consequence of low wage rates. PRO fabricated this relationship—meaning that there is absolutely no evidence that the MW will reduce capital investment unless it materially reduces employment, and because I’m winning on that point—since I provided several studies showing no effect on employment, and an estimate that there will continue to be no effect on employment until at least the MW hits $13 an hour—I also win on this point too. Third, there is no reason to assume that capital investment spurs wage increases. Prefer my evidence on stagnant wages amid productivity gains. Third, there’s no reason to think the MW will harm capital investment. At the very least, it will have no effect, though we would tend to think that businesses would invest more in capacity as demand rises. His assertion that wages are raised in a “free market environment through capital investment” is also ahistorical, as I’ve noted already. Signaling These remarks once again are completely off-base, and display an unfounded faith in the market mechanism which isn’t founded by reality. Again, cross-apply my evidence on stagnant wages amid a doubling of productivity over three decades—showing that, even amid significant productivity gains, wages didn’t budge. This is largely because of asymmetries of bargaining power, globalization, and imperfect markets. My points on income inequality and social mobility are also applicable here, because PRO claims that people can simply “improve their skills” and their wages will rise. First, education is extremely hard to attain and expensive for people on the bottom end of the income ladder, and results in crippling student loan debt, which has now outstripped credit card debt (6). Second, as Krugman argues, there is no perfect link between education and incomes (7). Instead, as Pikketty has argued, wage inequality is ingrained based upon the resources of one’s families, which is highly likely to persist. People borne from large amounts of inherited wealth may be able to access higher education at higher rates than people without, but there is no perfect link between higher education and higher wages—nor is there one between productivity and wages, as I’ve already noted. Second, the remark on signaling to workers is flawed not only for the points I’ve raised earlier—imperfect markets, differentials in bargaining power, and lack of rational expectations that would drive workers to consider these signals—but also for basic labor market dynamics. Prices and wages are not perfect signals for several reasons. First, a multitude of factors bear on both, which are completely independent of worker skills—globalization, for instance, has depressed wages in much the same way that falling oil prices depress inflation and thus depress nominal wage gains. He cannot possibly tie wages or prices to one specific factor. Second, labor markets are rigid, particularly in the very short run: wages and prices tend not to move at all, particularly due to contracts fixed in nominal terms. In other words, skill preferences could conceivably change, but prevailing wages will remain the same. We cannot simply “wait for the long run” for wages and prices to become flexible, because by that time, we’re already dead. Thus, this signaling mechanism is already broken at best, if not almost entirely nonexistent. His next remarks on dampening demand for workers “at the bottom end of the wage ladder” is unsourced and refuted by the evidence in my C4. Further, the point on “artificially high wages” has already been refuted several times over in my discussion of imperfect markets. Sources (1) http://tinyurl.com... (2) http://tinyurl.com... (3) http://tinyurl.com... (4)http://tinyurl.com... (5) http://tinyurl.com... (6)http://tinyurl.com... (7)http://tinyurl.com...