Think tank data

Have I said this before? I think I have. But let me say it again. You are not allowed to argue in favor of school choice if the only evidence you can come up with is two links from Cato. You are not allowed to argue against global warming if you are relying entirely on a report from CEI. You are not allowed to talk about the recording industry based only upon press releases from the Progress and Freedom Foundation. And you are definitely, definitely not allowed to talk to me about the minimum wage if the best evidence for your position comes from EPI.

We can argue back and forth about whether think tanks buy scholars who agree with them, or pay scholars to agree with them; I'd argue for the former. And in fact, I think many think tanks do very good work, and I take figures from everyone at one time or another. But EPI is not, on the minimum wage, a serious institution. It is funded by unions who want the minimum wage raised because it makes their labor more competitive, and because there are union contracts pegged to the minimum wage. The evidence against the minimum wage could be overwhelming, and EPI would still be publishing surveys showing that it raised middle class incomes by 300% and also, made workers 17% thinner without diet or excercise.

For example, saying that most of the benefit of a minimum wage increase accrued to adults is not a good argument. This is exactly what you would expect if it caused disemployment among teenagers.

The main thing to remember about the minimum wage is that it is trivial. If the minimum wage actually made a substantial improvement in worker's conditions at the expense of employers, it would also almost certainly cause substantial disemployment. But it doesn't, so it won't. Anyone who tells you anything different, on either side of the debate, is trying to sell you something.

Comments

You are not allowed to argue in favor of school choice if the only evidence you can come up with is two links from Cato. You are not allowed to argue against global warming if you are relying entirely on a report from CEI. You are not allowed to talk about the recording industry based only upon press releases from the Progress and Freedom Foundation. And you are definitely, definitely not allowed to talk to me about the minimum wage if the best evidence for your position comes from EPI.

Surely EPI shouldn't be disqualifying if there's other evidence, which in this case there is, right?

Posted by LizardBreath | May 13, 2008 10:11 AM

Like the pack of clowns emerging from the impossibly small car at the circus, we have a lot of logical fallacies and factual un-facts packed into a couple of paragraphs here.

That unions think a higher minimum wage helps them does not mean a higher minimum wage is bad on other counts.

Typically union contracts are pegged to the CPI, when possible, not the minimum wage. The MW has not kept up with the CPI.

What EPI might do if "the evidence against the minimum wage were overwhelming" you have no idea, unless you possess some unique capabilities of mind-reading and soothsaying. It's hard to defend yourself against accusations of what 'you might do' under some counter-factual.

EPI does not presently and never has "[published] surveys showing that it raised middle class incomes by 300% and also, made workers 17% thinner without diet or excercise."

That most of the benefits of the minimum wage accrue to adults is relevant to working class families, since -- not to get too mathematical here -- since a wage boost for full-time Dad could be worth more than a gain, or a part-time job for that matter, for Junior. So if you could show this with data, it is at least a relevant argument.

In principle, it is quite possible for workers to gain at the expense of employers without disemployment. You state this as if it is some kind of axiom, but it is nothing more than religious adherence to econ 101 paper-and-pencil exercises.

"It doesn't." See argument by assertion.

cheers.

(economist formerly at EPI)

Posted by Max B. Sawicky | May 13, 2008 10:11 AM

If we are going down this road, then how about a corollary that you aren't allowed to rely on the work of partisan committee staff, either?

Posted by bob | May 13, 2008 10:20 AM

Now I understand Megan's style of argument: no evidence allowed. That explains her entire corpus of writing.

Posted by rickm | May 13, 2008 10:38 AM

The earned income tax credit allows companies to pay starvation wages while the public bears the burden of keeping their workers alive. It's a brilliant strategy, and I can see why people with Megan's outlook prefer it to the minimum wage.

Posted by Stan | May 13, 2008 10:46 AM

Like a clown whose necktie is far too short for his dress shirt, Sawicky's remark about union contracts being "typically" tied to CPI, "when possible", and not tied to the minimum wage, is far too short of intellectual honesty. No, Mr. Sawicky, it is not necessary for all, or even most, union contracts to have language which tie union wages to the minimum wage for a labor-funded study to be influenced by the practice. Some contracts with such language will suffice. Now, please get rid of the weasel terms "typically" and "when possible", and tell us, yes or no, whether there are labor contracts which compel an increase in union wages when the minimum wage is increased.

Posted by Will Allen | May 13, 2008 10:52 AM

Anything is possible. You could be a ring-tailed lemur. I've never heard of a union contract being tied to the minimum wage. That would be a pretty dumb contract, since the MW wage goes up infrequently. If you want to insist there are such contracts, it seems to me the burden of proof is on you.

But it's a trivial point. Unions like the minimum wage, no doubt about that. That proves nothing about EPI research.

Posted by Max B. Sawicky | May 13, 2008 10:59 AM

I don't feel I need unique soothsaying abilities to predict that Cato is never going to publish a study saying minimum wages are the best thing since sliced bread, or that EPI is never going to publish a study saying that the minimum wage is a terrible idea. I mean, maybe in twenty years if there's some sort of a sea change in the funders and ideology of one or the other institution, a la the Ford Foundation. But short of that, I stand by my assertion that the EPI will not publish such a study. Anyone who has any familiarity with think tanks will recognize that this is not some crazy, outlandish notion of how they work.

The general rule is government economic data > think tank funded study, no matter who controls the government--but that said, I linked to the JEC mostly to provide literature cites, not to make a point.

LB, there is other data on the minimum wage, from the Census and the BLS, and it generally points to its overall triviality. If someone points to an NBER working paper, and you counter with EPI studies, as happened in a previous thread, the NBER working paper wins unless you can provide some methodological flaw that invalidates it. Think tank reports are not peer reviewed or prepared for peer review, they are performed by economists who were handpicked for their ideological views, and they generally have a lower level of data quality. You may have noticed that I don't spend a lot of time linking Heritage, Cato, or CEI reports for just this reason.

Think tanks do a lot of good work, and I have taken data from almost every one of the major economic policy think tanks at one time or another. But they are not objective, they do not even pretend to be objective, and they generally start out with a very restricted set of possible answers before they ask the question. Questions that cannot provide satisfactory answers do not get asked.

Posted by Megan McArdle | May 13, 2008 11:13 AM

Tell me, Mr. Sawicky, do ring-tailed lemurs typically demonstrate greater literacy than that exhibited in your last post? Read very, very, slowly. I never made any claims regarding the content of labor contracts. You and Ms. McArdle did. Now, if you suspect that Ms. McArdle's assertion regarding labor contracts is false, why not just plainly write that, instead of respondng with a phrase filled with conditional clauses which renders it meaningless to the issue being examined? Is clear writing only for ring-tailed lemurs as well?

I have no idea whether Ms. McArdle is correct. Unfortunately, I still have little idea what your position is, other than the laughable notion that it is trivial when an organization which receives funding, from other organizations which stand to financially benefit from policy A, endeavor to study policy A.

Posted by Will Allen | May 13, 2008 11:19 AM

"The earned income tax credit allows companies to pay starvation wages while the public bears the burden of keeping their workers alive."-Stan

Stan, this ignores competition in the labor market. There are lots of different employers and they are all competing to hire the same workers. If a given worker is worth more than he is being paid (in economic jargon this means that the value of his marginal product is greater than his real wage), then he is free to go some place else to work. Someone else will hire him and pay him more money.

Posted by rwe | May 13, 2008 11:22 AM

I feel like your last paragraph should be Megan's Law #27 (or whatever number you're up to) - The unintended consequences stemming from a law will be small iff the amount of distortion imposed by that law is also small. Or to put it mathematically:

C = k1 - k2 * D

Posted by Josh | May 13, 2008 11:23 AM

LB, there is other data on the minimum wage, from the Census and the BLS, and it generally points to its overall triviality.

I was mostly being a smartass -- the shift in your phrasing from if the "only" evidence is a think tank, you're out of luck to, on this one issue, if the "best" evidence is a think tank, struck me funny. But I'm sure it was unintentional.

Posted by LizardBreath | May 13, 2008 11:26 AM

"Think tank reports are not peer reviewed or prepared for peer review, they are performed by economists who were handpicked for their ideological views, and they generally have a lower level of data quality."

Actually, this isn't quite correct. Some think tank reports are peer reviewed by folks both in academia and at other think tanks. Research from many think tanks are accepted in peer reviewed academia literature.

I also think individuals in think tanks are much more open about their research than the government. Folks on both sides are very willing to explain their methodology and how studies are conducted. It is much harder to try to understand how some of the government studies are conducted and can require FOIAs instead of a call or email.

I know Heather at EPI was kind enough to talk to us about her min wage piece and how it was different from BLS and our results. Results are different because we were measuring different things.

Posted by hederman | May 13, 2008 11:32 AM

An NBER paper could be utter drivel, and an EPI paper the light of the universe, or vice versa. It depends on what's in the paper.

"EPI is never going to publish a study saying that the minimum wage is a terrible idea . . . "

I happen to agree, but actually, Megan, your claim was much stronger, that the evidence against it could be overwhelming and EPI would tilt wildly in the opposite direction. That takes some omniscience. Among analysts, commentators, academics and researchers of all types and stripes, stuff that you believe but is hard to defend, you don't devote as much effort to defending it. You look for better fish to fry.

Though the minimum wage is not that hard to defend.

And hederman is right, think tanks use peer review. EPI does. You don't want to roll something out there without benefit of thorough scrutiny, especially if it's controversial and you know scoundrels are in the weeds, waiting to attack you.

Posted by Max B. Sawicky | May 13, 2008 11:55 AM

It is funded by unions who want the minimum wage raised because it makes their labor more competitive

If unions think having the minimum wage higher helps keep their wages up too, maybe they know their business and they're right, hm? Haven't the anti-MW people here been arguing that the MW doesn't matter because so few people make the MW? Now you're saying unions think a lower MW also lowers high union wages. Do you think the unions are stupid and don't know what they're talking about? Because in the above post, you actually seem to be agreeing with them.

Posted by brooksfoe | May 13, 2008 11:59 AM

LB, the statement did not suggest any disqualifying - but it IS a bit confusing what is meant by "best".

I took it in context to mean "best sourced", suggesting that you were out of your depth if the "best" source were an EPI study, and all the other evidence were from sources even MORE biased.

The statement could also be read "best results", and that interpretation does not make sense, and is probably not what McArdle meant. I.e., if there are a dozen studies from highly reliable sources showing a strong effect with a 95% degree of confidence, the fact that there was an EPI study showing a stronger effect with a 99% degree of confidence is NOT actually going to hurt :-)

Posted by Jens Fiederer | May 13, 2008 12:04 PM

No, brooksfoe, a lot of anti minimum wage people have been arguing that the minimum wage is trivial to helping poor people, and if the minimum wage were raised high enough to actually be non-trivial in assisting poor people, the unintended negative effects would swamp the intended effect in regards to poor people, and the poor thus would actually be harmed.

Posted by Will Allen | May 13, 2008 12:05 PM

While statements from Sawicky such as "EPI does not presently and never has '[published] surveys showing that it raised middle class incomes by 300% and also, made workers 17% thinner without diet or excercise.'" suggest either a complete deafness to humor or a rather quirky sense of humor feigning such, I WOULD love to hear of an example contract pegged to the minimum wage.

Posted by Jens Fiederer | May 13, 2008 12:16 PM

Actually, I'm pretty accepting of most sources - unless I've been repeatedly and systematically burned(this is only a blog, after all.) And in that respect, 'think tanks' - actually propaganda shops - like Cato have, after much toil, deserved the right to be automatically excluded from the list of sources considered even semi-reputable. For example, their infamous study on welfare benefits:

A close reading of both studies makes it difficult to avoid the conclusion that the errors and distortions in the Cato report were deliberate. Without doubt, they were destructive.

Or how about that campaign ad in '96, where it was bluntly stated that 'under Clinton, the average tax burden rose 16 percent' (or some other impossibly high figure in the mid- to high-teens)? Turns out that Cato compared total tax collections in '95 and '91, then looked at the percentage change. Uh, when I get a raise of $5,000, I don't generally complain that my taxes have 'gone up'.

Or how about the gotcha for Cato wanting to have it both ways with Reagan:

For example, it so happens that in October 1996, little more than three years ago, Mr. Moore and William Niskanen, Cato's chairman, put out a report titled "Supply-side tax cuts and the truth about the Reagan economic record." This report was vehement in insisting that in assessing Mr. Reagan's achievement one must not include any data after 1989, which marks the end of the Reagan era; the years from 1981 to 1989 "provide a convenient and unique laboratory-like testing ground for assessing the success or failure of Reaganomics." And the report went on to argue that the slower growth from 1989 to 1995 demonstrated the superiority of Reaganite policies.

It doesn't get much better than this. If the post-Reagan economy stumbles, the great man's responsibility ends on the day he left office. But if the good times keep rolling, so does Mr. Reagan's legacy. As they say in the scholarly journals: Gotcha!

It's one thing to be 'Partisan. But fair', so long as this is openly acknowledged. It's quite another to be so out-and-out dishonest that they've poisoned the well for any legitimate scholarship that they may have produced.

Posted by ScentOfViolets | May 13, 2008 12:18 PM

I woud too, Jens. It is one of those assertions floating about that I've never seen actually specified, in this case meaning an example given.

Posted by Will Allen | May 13, 2008 12:21 PM

No, brooksfoe, a lot of anti minimum wage people have been arguing that the minimum wage is trivial to helping poor people

You're arguing that it's trivial to helping poor people why? Assuming poor people work, the only way to argue that is to argue that it doesn't boost poor people's wages. The unions obviously disagree; they think a low MW exerts a downward pressure on union wages. If a low MW exerts a downward pressure on union wages, it exerts a downwards pressure on everyone's wages. And Megan appears to take for granted that the unions are correct in this contention. No?

There is one other way to interpret Megan's contention: she's saying that unions would like a situation where the MW was so high that it actually caused unemployment, and their actions now in defense of the MW are just wishful thinking on their part that the MW could ever get so high that it would make a difference to union wages. But that, again, seems to me to be tantamount to saying that unions don't really know what issues are important to their members' interests and are wasting time on something that's not really helping them.

Posted by brooksfoe | May 13, 2008 12:25 PM

No, Brooksfoe it boosts poor people's wages very trivially, while aiding union member's wages more substantially. There is nothing mutually exclusive about this. Why do you suppose that the poor and union members have identical interests?

Posted by Will Allen | May 13, 2008 12:39 PM

"in that respect, 'think tanks' - actually propaganda shops - like Cato have, after much toil, deserved the right to be automatically excluded from the list of sources considered even semi-reputable. For example, their infamous study on welfare benefits..."

Your criticism of CATO is from Bob Herbert citing a CBPP report. I'm stunned that CBPP would strongly disagree with Cato.

Your criticism of CATO needs a stronger hook that liberal editorial writer citing a liberal group.

Posted by hederman | May 13, 2008 12:49 PM

Then of course, you have the evidence that shows these objections are spurious, right? What, specifically, is wrong in that piece? Did Cato engage in the shenanigans described?

Or is it simply enough in your eyes to dismiss the article because 'it was written by a liberal'?

Posted by ScentOfViolets | May 13, 2008 12:58 PM

Here's an example of the misleading work done by the EPI. They published a chart comparing the minimum wage to the poverty line.

What they didn't mention is that the poverty line they showed was the poverty line for a single parent with two children, while only 9% of workers making less than $7.25/hour (and thus affected by the proposed increase in the minimum wage) are single parents at all, and presumably the majority of these have only one child.

So the EPI was portraying as representative of minimum-wage workers a demographic which was in a worse situation than perhaps 96-97% of minimum-wage workers.

Posted by Brandon Berg | May 13, 2008 1:15 PM

Sigh. How does this address the criticisms of the Cato study?

It doesn't, does it?

Posted by ScentOfViolets | May 13, 2008 1:21 PM

By the way, Brandon, you might want to actually read the report:

Given the importance of capturing geographical variation in family budgets, there is no meaningful national budget threshold. The three-person family (one adult with two children) budgets we reviewed, as well as our own, generated levels that ranged from about $20,000 to $40,000 in 1996 dollars. All estimates were well above the poverty threshold for a comparable family ($12,636 in 1996);

And this is referenced repeatedly in many sections. So, can we say that you have the credibility of a Cato? Or did you just not bother to actually read any of the report?

Posted by ScentOfViolets | May 13, 2008 1:37 PM

SOV - So your response is that EPI made an inappropriate comparison, but it doesn't matter since they didn't hide the fact that they were making an inapproptiate comparison? Does that make sense? It addresses part of BB's point while ignoring the rest and accusing him of being a hack. That seems a little unnecessary/

Posted by Bobar | May 13, 2008 1:46 PM

"There is one other way to interpret Megan's contention: she's saying that unions would like a situation where the MW was so high that it actually caused unemployment..."-brooksfoe

It does actually cause unemployment, especially among the least skilled groups (like teenagers) as the evidence overwhelmingly indicates--see here:

"The oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect."-Neumark & Wascher, NBER

And unions would of course like to see the minimum wage raised significantly, since that would reduce competition for their members from low-wage workers. They are trying to represent their members' economic interests faithfully, and shutting lower wage competition out of the market is in their members' economic interests. This is nothing new, of course. Economists have long known that unions benefit insiders at the expense of outsiders.

Posted by rwe | May 13, 2008 2:07 PM

BB neglects to note here and in the blog post that nowhere does EPI say that particular graph is 'representative.' In fact, there are a number of charts for different comparisons, as well as tables that provide the data enabling BB to make his unfounded assertion. And by the way BB found nothing that he could allege to be false, least of all the EPI finding that nearly 14% of all workers are directly or indirectly benefitted by the minimum wage.

Posted by Max B. Sawicky | May 13, 2008 2:23 PM

If the minimum wage actually made a substantial improvement in worker's conditions at the expense of employers, it would also almost certainly cause substantial disemployment. But it doesn't, so it won't. Anyone who tells you anything different, on either side of the debate, is trying to sell you something.

hummm...

Why is it not surprising to find such confidence in ... doctrine.

Do you believe that 'salaried employees' may actually be the cause of 'substantial disemployment'? [Maybe we need to take more of the wrong lessons from New Orleans, and shoot all the teachers first, rather than the lawyers ...].

What is the key difference between offering a salaried wage and a minimum hourly wage, in your ... doctrine of near "certainty".

Posted by Amicus | May 13, 2008 4:07 PM

Er . . . one's voluntary, the other's distortive?

Posted by Megan McArdle | May 13, 2008 4:14 PM

Here's more:

Suppose a run a widget company that makes 10%, net profit.

Getting "hit" by a minimum wage, which affects 50% of my employees, costs me 2% in profitability.

The optimal firm size is about the same for all my competitors, given the lack of scale in our industry. It costs them 2% as well.

I cannot pass on the wage-cost increase(s), because of competition, so I eat 'em. I have less profits to distribute, but the final demand for my widgets is not influenced by that. My rate of growth is slowed, it's true; but so is everyones.

Because I need workers to meet the final demand, my rational decision is not to fire anyone.

In fact, I look for innovations in workforce structure by firing salaried employees in the mid-level, to try to beat out my competitors - I try to run lean and mean, so to speak. (Someone introduces me to a "fixer" who will bring me illegal labor from Mexico ...).

Is this scenario economically misguided or does it fall outside the category of "near certainty"?

Posted by Amicus | May 13, 2008 4:17 PM

Er . . . one's voluntary, the other's distortive?

Uh, if I know enough to set a 'gurantee' for a annual salaried employee, then why can't I accept a minimum for an hourly worker?

Posted by Amicus | May 13, 2008 4:21 PM

Amicus,

I may misunderstand here, but you're asking what's the difference between:

A) hiring someone at a salaried wage that both the employer and employee agree to, where both parties feel they are getting value for their money / time

B) hiring someone at a federally mandated minimum wage, where the employer feels she is not getting value for her money

The distortive aspect is pretty clear - I can do A all day and not necessarily affect my profitability. Every time I do B however, I hurt my profitability.

Posted by skullberg | May 13, 2008 9:08 PM

What does "getting value for your money" mean? What do you mean hurt your profitability?

The ideal situation is that you pay both workers zero or near zero. Please work back the logic from that to where you *choose* to set the price, and I'll understand your objection, perhaps.

I hope I didn't sound to snarky to Meagan.

It's frustrating enough that economics is not taught nearly widely enough. What sometimes frustrates me even more, however, is that I read so much that looks like "doctrine". I sense that economics candidates get an 'instruction', rather than an education.

Case in point. On one fairly well-read blog a writer said that his/her number one wish, if one could pick two or three things was to teach students, it would be "the benefits of trade". Well, what about the costs? Hello? What about the other dimensions?

Posted by Amicus | May 13, 2008 9:58 PM

Megan - It's still a (mostly) free country. I can do any of those things, if I want to. And in some circumstances, I might.

(I even think that Megan is free to make posts consisting of pretty diagrams, flat assertions, and no evidence. Though I wouldn't give her a very high grade if the work was for a class I was teaching.)

Posted by Jim Miller | May 13, 2008 11:39 PM

One way to check if a pro-capitalism think tank has been corrupted by corporate support if to see if it mentions ideas that people in corporations would like to ignore. For example, "corporate shills" would not want to mention the possibility of regulatory capture, in which the businesses being regulated are able to write the regulations in such a way as to produce or preserve an oligopoly. A think tank that frequently mentions regulatory capture or rent seeking is unlikely to be corrupt.

Posted by Joseph Hertzlinger | May 14, 2008 12:40 AM

I can give an example of a higher minimum wage meaning higher wages all around: China. They raised the minimum wage this year, and the factory owners I know explained that if the lowest paid person gets a 20% raise, then everyone at the plant else expects a 20% raise to "match" the new minimum wage.

This would explain why unions would also like a higher minimum wage. It helps raise their wages by this effect.

Posted by Aaron | May 14, 2008 2:57 AM

What does "getting value for your money" mean?

It's exactly like it sounds, I value their work at X, so as long as I pay them no more than X, I feel I am getting value for my money. They value their time at Y, and as long as they are gettgin more then Y, they are getting value for their time. A salary S where X >= S What do you mean hurt your profitability?

If hiring a person at S produces a marginal value V greater than S, then doing so should increase my net profitability by V-S. If V is less than S, my profitability goes down by S-V.

The ideal situation is that you pay both workers zero or near zero. Please work back the logic from that to where you *choose* to set the price, and I'll understand your objection, perhaps.

0 is certainly less than X above, but no one will take that wage. It is ideal for the employee to receive an infinite salary for minimal time.
There are two sets of people involved here, each with asymmetrical information about the transaction, both setting prices.

Posted by skullberg | May 14, 2008 9:44 AM

should be: A salary S where X >= S >= Y would be acceptable to both parties, as they feel they are getting value for what they are giving up.

Posted by skullberg | May 14, 2008 9:53 AM

Hertzlinger, I don't think the main issue with think tanks here is corruption so much as a biased viewpoint.

Posted by Jens Fiederer | May 14, 2008 10:44 AM

skullberg - I think you've ducked the question.

Let me shorthand a reply, in case I don't get back to this thread.

Companies are willing set and pay fixed "minimum wages", they just call them salaries.

Why does CATO not attack salaried employees? It's easier to beat-up on the working poor? They have an implicit assumption that some people are paid at their "value", a bit of post hoc ergo ...

Companies *segment* the labor force themselves and some get upset when the people with no bargaining power ... collectively bargain, either directly or through such blunt instruments as a Federal min wage.

Anyway, I just wanted to point out this inconsistency in their argumentation as a way of suggesting that there IS a balance to be struck. Even if I understand why they/some advocate so strongly for one side of that balance, as a matter of *policy* (not economics), my hope was to take issue with the assertion that massive disemployment is the certain result of pushing the min wage until it bites (i.e. is a binding constraint) and anyone who said anything different was "selling something".

Posted by Amicus | May 14, 2008 11:25 AM

Not getting my curiosity satisfied for free here (regarding an example of a union contract tied to minimum wage), I bit the bullet and looked around a bit myself. I found frequent assertions of this, and the occasional denial, but not much actual support.

There was a study of union adjustment clauses in Canada that mentioned it, but I figured Canada wasn't the USA. There was an actual wage condition (for university food service) that mentioned it, but specific rates were set for specific positions, and only the managers were negotiable, as long as not under the state and federal minimum wage (pretty unlikely, since their workers were getting more!).

There were assertions in comment threads on Marginal Revolution (2006) and the Volokh Conspiracy as well, without supporting data.

Illinois Business Journal had the assertion along with a rebuttal:

( http://www.ibjonline.com/federal_illinois_minimum_wage.html )

"Dale Stewart, executive secretary of the Southwestern Illinois Building and Construction Trades Council, says, however, that's just not true. The SWIBCTC represents many of the building trades including the carpenters, electricians, plumbers and pipefitters.
Generally speaking, he said, union contracts are tied to prevailing wage -not minimum wage - with entry level set at about 50 percent to 60 percent of the prevailing wage. Stewart said that the prevailing wage has nothing to do with the minimum wage. "

Given how rarely the minimum wage changes there doesn't really seem to be much mileage for the unions in including them in their contracts.

Not that this means it can't or doesn't happen, but I am not convinced of it at this point.

Posted by Jens Fiederer | May 14, 2008 11:43 AM

Amicus,

I ducked no such thing: salaries are mutually agreed upon wages for services rendered. The federally mandated minimum wage (as a federaly mandated minimum salary would as well), artificially distorts the pricing decisions.

Unless I am missing something, you seem to think that "salary" is something other than a mutually agreed upon fee for services, regardless of hours worked. In fact, for companies, this isn't a "minimum wage" at in the traditional sense, since the total is fixed regardless of hours worked.

You also refuse to believe that VOLUNTARY salary agreements are different than MANDATED hourly wages. This isn't collective bargaining, this is fiat.

massive disemployment is the certain result of pushing the min wage until it bites (i.e. is a binding constraint)

What do you mean by this? If we pushed up the minimum wage to say $25/hr, do you think that would result in higher or lower unemployment? higher or lower off-books employment? If higher employment, at what point does that fail to hold?

The argument made so far as I see it is this:

-MW is a poor an blunt instrument with which to attack poverty
-Small changes in the MW will result in small / negligible disemployment but only have small / negligible effect on poverty
-Large changes in the MW will have more substantial impacts on poverty for those working but cause larger disemployment
-Since the higher MW will have an upward effect on wages, it will result in inflation eating into some of the MW gains, lessening their effects
-The disemployment effects of the MW fall mainly on low SES teenagers, which have long term impacts on SES mobility

Posted by Skullberg | May 14, 2008 11:52 AM

As EPI's vice president, I helped organize a statement in 2006 from more than 650 economists, including five Nobelists, six former heads of the American Economics Association, and other leading lights in the profession. The statement argued that the minimum wage was good for both workers and the health of the economy and that a raise was overdue. You can find it at:
http://www.epi.org/content.cfm/minwagestmt2006.
Ms. McCardle might want at least to consider the possibility that her own understanding of the economics of the minimum wage is wrong, and that EPI's position is based on empirical evidence.

Posted by Ross Eisenbrey | May 14, 2008 11:58 AM

skullberg, if I can think of a better way to illustrate the point I'll come back to it.

For now, I'm just prone to reiterate that companies accept minimums that they set themselves. Whether one moves from calling such a segmented level "voluntary" to "mandatory" seems an irrelevant exercise, if it is going to be done anyway.

As for "distortion" there is room for some pushback, there, too, *possibly*.

Consider this: I have $20/hr to spend on the 'low labor' part of getting my widgets out the door. It's probably the work of three skilled people, properly trained and working efficiently. However, I choose to hire five (at $4/hr), because I've got mid-level managers who find it cushy to have five people, for a whole variety of reasons (some good, some base).

One could argue that the $4/hr price is the one that is distorted, right, and the ~$7/hr price is the true price. (One could argue that the impact of going from $4 to $7 is what is picked up in some studies - although I really don't know the literature, so take that with a grain of salt, just for illustration).

I suppose that 'standard theory' would say that my $20 to spend would get pushed down (by competition) to the point that I have only $12 to spend on three people. But I'm not quite sure that standard theory accurately describes what truly goes on.

Anyway, nice chatting. G'nite.

Posted by Amicus | May 15, 2008 2:34 AM