Monday, February 11, 2013

A good question on the minimum wage

Here's a question posted at Cafe Hayek:

If the legislated minimum-wage rises in the U.S., which of the following two people is most likely to benefit from that rise: (1) Joe, a black 17-year-old recent graduate of a New York City public school, raised by a single mother, living in a very poor section of inner-city New York, or (2) Jim, a white 17-year-old recent graduate of an exclusive private school, raised in a two-parent household, living in Manhattan’s very wealthy Upper East Side?
The Cafe Hayek post doesn't give an answer, and points out that it's "not a trick question."

Consider this scholarly article about a 2011 study of the minimum wage. From the intro:
[We] analyzed the unemployment rates in contiguous counties with different minimum wage rates in the Pacific Northwest. [We] compared unemployment rates in geographically contiguous counties of the two states that had the largest difference in minimum wage rates, both in absolute terms ($2.48) and as a percentage of the federal minimum wage (48%). The study examined this gap in the context of a consistent increase in one state’s minimum wage rate over several years, while the other state’s wage rate remained unchanged. The analysis of the data reveals that, from an economic perspective, there is a strong correlation between a higher legislated minimum wage rate and a higher unemployment rate. The results of this study suggest that, because of this disemployment effect, minimum wage laws indeed may frustrate the goals advanced as their justification ...


LemmusLemmus said...

I've skimmed the comments at the link, and I think what they really show is that it depends on which assumptions you are going to make on the basis of the meagre information given in the example.

One could, for example, make the following assumptions: Jim will not consider working in a job the pay level of which is affected by minimum wage, but Joe will. As a consequence, he cannot benefit from the minimum wage. Joe will consider working in such a job. As a consequence, he might benefit from receiving a somewhat higher wage. This is especially true given that he'll probably compete against lots of high-school dropouts with an otherwise similar background.

I am aware, of course, of the argument that the minimum wage will make some jobs disappear that otherwise could have been, but note that the question makes no reference to harm whatsoever, it asks who is most likely to benefit.

Anonymous said...

Although this is clearly snobbery, I'm skeptical about that second link. You'd think that a good study of the impact would come from the economics literature, not from a (relatively low ranking) non-peer reviewed law journal. The Gonzaga law students are not competent to judge legal scholarship -- they are not even pretend-competent to judge data analysis.

trailbee said...

If you would like to read another opinion, go here:
I tend to trust Dr. Sowell a bit more than the Gonzaga law students. Just saying. However, it was a great exercise, which will have far-reaching consequences for the participating students. So, kudos on the article.