Like A LeBron James Slam Dunk

Craig Westover – maybe the best libertarian-conservative intellectual writer in Minnesota today – took the “con” side of the minimum wage debate in the Strib last week, and stuck the landing:

Consider studies “proving” that when the minimum wage is raised, employers do not raise consumer prices. Because other economic forces are always in play, indeed, little quantitative effect may be seen in an industry affected by the minimum wage. What remain unseen, however, are the qualitative effects of the arbitrary wage increase on the industry and quantitative effects on the economy as a whole.

Raising prices is not as simple as changing an item’s price tag. Prices are always determined by what the market will pay and not by what the vendor needs or wants to charge. Not all cost increases can be passed on to consumers in higher prices.

If raising the price of a product or service in response to an increase in minimum wage drives the price higher than some people are willing to pay, they will buy less of the product or stop buying the product altogether and switch to substitutes.

Consequently, while some workers benefit from an increase in minimum wage, others in supplier industries suffer through job loss or lower wages resulting from the reduced demand for their products and labor. Eventually, even the boost in income for the few is offset by higher prices and lower future wages brought on by reduced economic growth — a net loss for them and the whole community.

Studies that claim to affirm the harmlessness of the minimum wage have to cherry-pick their criteria pretty closely.

Read Westover’s entire piece.

And Westover only covers the pure economics.  Libertarian-GOP activist Jake Barnett, writing about Westover’s piece on Facebook, adds:

“Craig Westover makes a sound economic argument here. Personally, I think that’s only half the issue. A significant portion of campaign contributions of those who make social justice arguments about the minimum wage come from trade and government unions. It just so happens that the majority of Union Contracts are tied to the minimum wage, and the pay of workers under these contracts would rise a result of a passage of this bill. I’m sure we’ll hear well intended emotional arguments from the dupes on the left who believe politicians seek first to help the poor, but we all know better. A DFL led legislature and Governor wish to increase their campaign funds for the next cycle, and this is an easy way to do so while pandering to their base. Now where’s that mission accomplished banner?”

SEIU will be waving one around the the end of the session.

Dime’ll getcha a buck the banner will be made in China.

12 thoughts on “Like A LeBron James Slam Dunk

  1. Not only the banner, but their jackets and other apparel. China will replace the U.S. as the greatest economic power in the world by 2016. Just ten years ago, that was unthinkable. Our leaders are economically illiterate buffoons pandering you ignorant moochers.

  2. The Chairman of Obama’s Council of Economic advisers is Alan Krueger, who notoriously produced a study showing that a minimum wage increase would not reduce hiring by employers of minimum wage employees, at least in fast food. The study is here: http://davidcard.berkeley.edu/papers/njmin-aer.pdf
    Krueger’s 1992 study on a New Jersey minimum wage increase has been widely criticized for its methodology and its conclusions, and not just by right wingers, but it seems to have common wisdom among some lefties (including some who consider themselves intelligent) that doesn’t stop the low-forehead leftists from trying to use it has been proven that raising the minimum wage doesn’t decrease MW jobs.
    You can find the criticism of Krueger’s research by googling the title of the paper. Two of the main criticisms were that the methodology (phone interviews of fast food franchise owners) was spooky, and that Krueger cherry picked his industry.
    By spooky, I mean that it was a dataset that belonged to Krueger and his colleague. Rather than use publicly available datasets on how many people were fired and hired, Krueger and his colleague asked individuals who said that they made hiring and firing decisions at fast food restaurants what they planned to do.
    Krueger’s numbers did not match the official data, but they did match his data (of course). Some confused people might believe that this means that his research had integrity.
    The ‘cherry-picking in dustries’ complaint is that Krueger only studied large franchise fast food industries (BK, KFC, etc.), and these industries are notoriously labor efficient compared independent fast food restaurants and other MW employers. The big franchises are run as lean as they can run as far as in-store employees go (not back office and infrastructure, though). That’s how they make money.
    The weirdest thing about the Krueger study is the conclusion. He says that standard models can’t explain his data, and that even non-standard models can’t explain his data. You’d think that he might take a critical look at his own methodology.
    The cynic in me says that Krueger isn’t an idiot and that he used phone surveys (rather than hard employment data) because he knew the numbers would be more what he wanted them to be, and his research couldn’t be duplicated.
    A guy with a PhD in labor economics should have known that fastfood franchises were not a good sample to use to measure the effect of minimum wage increases on minimum wage job creation. For the record, Krueger says he picked FF franchises and corporate stores because they employed a lot of MM workers. I think the truth is that they both employed a lot of workers and they were easy to phone survey & collect data from. They keep good books.
    That’s called selection bias, by the way.

  3. Predictably, an op-ed battle immediately comes to life, with half of the commentariat arguing that a higher minimum wage would simply hurt low-skill workers seeking a job (and some adding that wage subsidies would be a far better option) and the other half arguing that higher wages at the bottom of the income spectrum are long overdue.

    The latest research suggests that a carefully imposed minimum wage (and I would consider Britain’s carefully imposed, and one indexed to inflation carelessly imposed) can raise incomes at the bottom of the wage spectrum without much reducing employment. But a higher minimum wage is neither a sufficient or a particularly germane response to labor-market polarization and capital’s rising income share. The problem is simply that the supply of people and robots available to do routine work is exploding. A proper response to this dynamic must either be a big change in relative skill supplies or relative productivities, or a move toward wage subsidies that are far larger and broader than have been considered in the past.

    http://www.resolutionfoundation.org/media/media/downloads/MinimumWageMaximumImpact.pdf

    http://www.irle.berkeley.edu/workingpapers/166-08.pdf

    http://www.irle.berkeley.edu/workingpapers/157-07.pdf

    http://www2.gsu.edu/%7Eecobth/IZA_HKZ_MinWageCoA_dp6132.pdf

  4. Bosshoss-
    That deal about China overtaking the US in 2016 is based on purchasing power parity, not GDP. Purchasing power parity is not a standard measure of GDP, it makes guestimates about what the exchange rate should be rather than is.
    The United States GDP was about double China’s GDP in 2012. The numbers aren’t easy to compare, but China has approximately 10 times as many people in its workforce as the U.S. has in its workforce.

  5. QUOTE “But a higher minimum wage is neither a sufficient or a particularly germane response to labor-market polarization and capital’s rising income share. The problem is simply that the supply of people and robots available to do routine work is exploding. A proper response to this dynamic must either be a big change in relative skill supplies or relative productivities, or a move toward wage subsidies that are far larger and broader than have been considered in the past.”

    Every god damn thing Obama and Bernanke are doing FAVORS CAPITAL OVER LABOR. Interest rates should not be so low and regulation and Obamacare is killing hiring and most forms and levels of normal entrepreneurial activity. The are killing small business that can’t compete under these circumstances.

    70% of economists are leftist political class parasite criminals that are financially incentivized to either not see reality or to lie about it.

  6. What it comes down to is Romney / Ryan would have been much better for the labor market, but people don’t understand what is happening.

  7. Emery-
    I think that the best link you gave was http://www2.gsu.edu/~ecobth/IZA_HKZ_MinWageCoA_dp6132.pdf
    The reason the Krueger paper is so easy to criticize is because it doesn’t ‘follow the money’. It finds that the minimum wage went up, employment cost went up, but the extra money paid to the workers didn’t come from anywhere. It didn’t come from profits, it didn’t come from reducing the number of MW workers or new hires, and it didn’t come from customers in the form of higher prices. If his numbers are right (and most people say they aren’t), the money for the pay raise would have to have come from back office people or suppliers whose wages are more flexible than MW workers. Essentially it would have shifted dollars from one rank of working class people to another.

  8. What it comes down to is Romney / Ryan would have been much better for the labor market, but people don’t understand what is happening.

    What is happening is that we are experience slow growth/no growth so the value of hiring marginally employable people is less.
    The slogan on Obama’s Council of Economic Advisers webpage? “Laying the Foundation for Recovery and Growth”.
    Obama has been president for four years and one month.
    There is no foundation being built. The only growth has been for high income people , crony capitalists, and some federal workers.

  9. SEIU is here already.

    They have been sending organizing literature and even showing up on the door steps of people in the health/home care industry. Even at the homes of people whose identifying info. is not readily available to the general public.

    Of course it’s annoying to those not interested in joiningh a union.

    It should be even more annoying to everyone when you consider who must have provided this personal information to this group for the purpose of union organization.

  10. For those who haven’t read the excellent This Time is Different, Carmen Reinhart has produced a succinct view of her thinking in a new paper, A Series of Unfortunate Events http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=8742.asp (alas, you may have to pay if you’re not a member for the Center for Economic Policy Research).

    There is a useful list of the factors that tend to precede financial crises: large capital inflows, sharp run-ups in equity prices, sharp run-ups in house prices, inverted V-Shaped growth trajectory and a marked rise in indebtedness. What is striking is that the Alan Greenspan school might not have worried about anything on that list, bar the growth trajectory. Many cited the capital inflows into the US (the obverse of the current account deficit) as a sign of confidence in the American model; similar reasoning applied to higher asset prices, while the increase in debt was being driven by a more “sophisticated” economy.

    In reference to the Federal Reserve policies: they help the housing economy to recover as well as auto sales.

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