The Minimum Wage

Monopsony:Monopsony is common for buyers of goods—Walmart, for example, as well as the grocery stores he mentions—but it’s rare in the labor market. It is sometimes the case in small towns—but that’s a minority of the labor market. And you can’t have a minimum wage just for small towns—it would be too easy for businesses to relocate to the next town over that didn’t have a minimum wage, thus driving jobs away from those small towns.Elasticity of Demand:Pro’s case seems plausible—after all, surely people won’t stop buying essentials if the minimum wage increases costs to those businesses and they pass these costs on to consumers. But it turns out he’s wrong—the demand for food is, in fact, fairly elastic. [1] This is because while the demand for food is only inelastic if you’re starving to death. Some food is necessary, but the marginal unit of food (the last unit you’d buy) isn’t, and prices are determined at the margin. If you think about it, an inelastic demand for food doesn’t make any sense—if supermarkets could get more money by raising prices to cover the increased costs of the minimum wage, then why wouldn’t they increase prices now to get more profits?Since demand is, in fact, elastic, supermarkets and other places minimum wage workers work could not simply increase prices to cover the costs of wage increases. If they raised prices, they would sell less, and thus require less labor.Big Increases vs Small Decreases:Irrelevant, because I’m arguing that the minimum wage is harmful to low income workers, regardless of what it does to everyone else.Marginal Productivity:Pro misunderstands his own source regarding wages and productivity. He claims that Locke’s research showed that higher wages increased productivity. What his source actually says is that when offered financial incentives for higher productivity, workers worked harder and were more productive. [2] It’s like if an employer says, “produce 10% more and I’ll pay you 10% more”—not that employees will become more productive after a pay raise, even though the pay raise isn’t tied to productivity. Since the minimum wage isn’t tied to higher productivity, it wouldn’t have this productivity increasing effect.Are Market Prices Optimal?:Markets don’t have to be ‘optimal’ for my argument to be correct. The question is not whether markets are always optimal, but whether this particular intervention is good or bad. Negative externalities are indeed an example of market prices being sub-optimal—but not an example that applies to the minimum wage.Monopsony would be an example of prices being sub-optimal in the labor market—but only if most employees worked for monopsony employers, which isn’t the case.Empirics:The fact that we can’t control for all possible variables, and studies have conflicting results, doesn’t mean we can’t conclude anything about the efficacy of the minimum wage. Not controlling for all variables means we can’t have perfect econometric results, but that doesn’t mean we should throw the evidence out the window. We can make every effort to control for as many variables as possible—for example, controlling for national economic trends and state-particular economic trends controls for many variables at once, such as business cycles, other state and national policies that would affect employment, etc. The results aren’t perfect, but they can still be pretty good.Conflicting studies also don’t mean we don’t know the right answer. Imagine that 99% of the studies found that the minimum wage was bad, and 1% found it was good. It’s possible that the 1% was right and the 99% was wrong—but we wouldn’t say that it’s equally likely that the 1% is right and the 99% is right. We would conclude that the minimum wage is almost certainly, but not definitely, harmful. The actual numbers aren’t 1% and 99%, but it’s still the case that the vast majority of studies find that the minimum wage is harmful. So while we can’t say that the empirical evidence shows that the minimum wage is definitely harmful, we can say that it shows that the minimum wage is probably harmful.Soures:[1] http://www.yaleruddcenter.org...[2] http://www.sciencedirect.com...Note: You can’t access the full article without an academic search engine. Logic, if you’d like to read the full article, message me your email and I can send it to you.