[throwaway73838]

That’s silly. Of course increasing the minimum wage increases unemployment. It’s theoretically proven, and you can observe the evidence in the real world. And it’s simply common sense.

Say you have a business which employs ten staff at $10 an hour, who work at 85% capacity, and your business is breaking even. The minimum wage is raised to $11. Now, you have a choice. Either your business starts losing money and will fail, or you lay off one staffer and increase the workload of the other 9. You could also raise prices (which will increase the cost of living and nullify the benefits of increased wages across the board). Or most likely you do both - lay off one staffer and increase prices to make up for the difference in productivity. Your 10th worker is now unemployed, at a time with a great many ‘tenth workers’, and the cost of living has just increased. Sound familiar?

Look at the minimum wage of Singapore. There is no minimum wage. And observe their unemployment rate - one of the lowest of any developed nation. These statistics are closely linked, due to the above mentioned facts which have been known for hundreds of years.

Economics has been poisoned by vested interests, lobby groups and general ignorance for so long, that people don’t understand that it’s an incredibly simple and intuitive discipline. It’s just that so much profit can be made by obfuscation and promises of ‘free money’. People are extraordinarily easy to fool if they haven’t had a classical education in economics (or an ability to grasp the concepts, which many are counter intuitive).

[Mikeb85]

I do have a classical education in economics.

And yes, you're right, in a vacuum raising the minimum wage would reduce demand for labour. But we don't live in a vacuum and there's a lot of other factors at play.

> You could also raise prices (which will increase the cost of living and nullify the benefits of increased wages across the board)

Yes, this is what happens in real life, most of the time. Now the real question is does the increase in price fully nullify the increase in wages?

Again, lots of other stuff to consider.

[tomrod]

For the record, what the throwaway username accountholder is missing above is three decades of empirical research and 40-50 years of general equilibrium theory.

Card/Krueger have a fascinating paper on minimum wage that really launched the causal inference revolution in applied economics, based on a 1992 policy change.

[throwaway73838]

Krueger’s study was highly flawed. What it amounted to, was, as one economist put it, attempting to prove that water flows uphill, by looking only at the upward movement of water in a rapids. It’s politically correct, feel good nonsense. Just because you’ve found an exception does not nullify the rule - as in chaotic systems, sometimes water does flow up hill. But economics solves this issue by studying the underlying forces.

I think of the economy as a biological extension of our species. Any attempt to control or regulate it can only result in inefficiency (beyond the obvious maintenance of contracts and outlawing of violence).

Another way to look at money is as analogous to energy - and like with energy, it cannot be created nor destroyed (which is different from growth of the economy as a whole due to innovation). So any time you see a policy which appears to “create value” by shifting it around, will create slightly more losers than winners, if you take a holistic view (eg, increase cost of labour, decrease comparative advantage and decrease spending on research and development).

[throwaway73838]

“ The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that “water runs uphill,” no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.” ~James M. Buchanan, 1986 Nobel laureate in economics, writing in the Wall Street Journal on April 25, 1996

[Mikeb85]

IMO Card/Krueger's results are flawed for a different reason. They rely too much on real world results meaning that if all the other factors don't stay the same, their conclusions will eventually fail too.

For example, they say immigration doesn't affect wages. In Canada our government and top banks literally all say it does. There's also a wide body of evidence that increased labour supply does put downward pressure on wages (now whether they actually fall or stagnate depends on a combination of other factors).

Card/Krueger's work is like perfectly fitting a regression line to historical data. It has predictive power until it doesn't...

[tomrod]

I'm not sure I've heard people complain that economics got too much data. Fun. To be clear, their model is to explain, not to predict.[0]

Causal inference has progressed a lot since their paper.

[0] https://projecteuclid.org/journals/statistical-science/volum...

[Mikeb85]

Just go to the thread on HN discussing their Nobel Prize. They're most known for their study on Cuban migrants to Miami, where many migrants came and wages didn't fall.

Many, many economists cite this study to say that immigration doesn't reduce wages. And it is true, often. However it's not because an influx of workers doesn't create downward pressure on wages. It's because there's other factors which keep wages rising.

Now in Canada we have a situation where our immigration levels are so high that we don't even pretend it doesn't affect wages anymore.

https://www.baystreet.ca/economiccommentary/3472/Canada-Wage... https://financialpost.com/news/economy/immigrant-influx-is-s... https://www.bloomberg.com/news/articles/2021-11-24/immigrant...

[SantalBlush]

>However it's not because an influx of workers doesn't create downward pressure on wages. It's because there's other factors which keep wages rising.

So one of the main theories about that paper is that the immigrants were in a largely separate labor market in terms of skills/experience from local workers. When they raised the labor supply in their particular market, it increased entreprenurial activity and more labor was hired across many labor markets as a result.

[tomrod]

I got you. Yeah, reduced form models will have the issue of disentangling factors. This is why diff-in-diff and synthetic control models are valuable, but identification assumptions have to be clear.

[ItsMonkk]

Systemic thinking is hard. It's hard to just say that a worker is worth some amount, because that worker is using tools that you own, and most of the productivity is from the tools.

Furthermore, the important factor with is compared to your competition. I'll give an example - let's say you want to buy a gas station. You can pick from a rural location and a highway next to the city. Which do you pick? That's not enough information, because obviously the gas station that gets more traffic, the city highway one, and thus higher profits, is going to cost more.

What happens if both gas stations get a raised minimum wage? You claim that their profits will drop, and if their profits drop then so does their land value. For the existing owner this is going to be a hit they have to take, but for you, someone who wants to buy after the change, you just put the numbers into Excel and it spits out a new formula for what you bid. The new number is lower, but your new ROI is exactly the same as it was. The only thing you really need to check is if the new land value for the rural gas station is negative, if it is, don't buy it. You don't have to fire anyone.

Minimum wages produce dead-weight loss, yes. But it's minimally small dead-weight loss, and in return they give workers collective bargaining. That collective bargaining gives workers more money, which can they be spent(which will in-turn allow you to raise gas prices slightly, this and many many other side-effects occur), which then creates incentive for more businesses to expand. It's countering the dead-weight loss coming from monopolistic practices. I wish we didn't need that bargaining, but until anti-trust has some teeth it's a required hack in the system. If we could remove rent-seeking behavior, I would love to remove minimum wage with it.

[throwaway73838]

I don’t see the logic. If what you’re saying was true, the free market would do this anyway. Employment is mathematically the same as any other commodity - mandatory price floors will make people who’s real value is lower than the market rate become unemployed.

I think evidence is important here. Look at the unemployment level of Singapore (no minimum wage). Now look at the same for Australia (high minimum wage). A great many jobs exist in Singapore that wouldn’t exist in Australia (such as people who conduct customer experience surveys at airports in SG) because it wouldn’t be profitable.

If you can give me a clear, direct, non vague, logically justified, and non conspiratorial alternative explanation, I’ll eat my hat.

[imtringued]

By the way, we do not have a free market. We have a distorted market. Nobody is trying to get rid of the distortions in mainstream economics by the way so it is appropriate to give the current market the name capitalistic market.

[BirdieNZ]

Last year's Nobel Prize in Economics went to researchers who showed, via natural experiments, that raising minimum wage does not decrease employment.

It's counter-intuitive, to be sure, and there are vested interests who want minimum wage to stay down or be removed, but "the facts" are there and observable in the real world.

[throwaway73838]

Re: Krueger’s study:

“The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that “water runs uphill,” no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.” ~James M. Buchanan, 1986 Nobel laureate in economics, writing in the Wall Street Journal on April 25, 1996

[BirdieNZ]

Yes, economists thought for a long time that minimum wage increases reduce employment, as their models showed that it should.

Reality doesn't care about models, though. In reality, you can increase minimum wage without decreasing employment.

[throwaway73838]

You clearly have no idea what you’re talking about.

If you understood economics, you would understand the absurdity of what you just said.

You’re rejecting the most fundamental basic of economics. It’s what you learn on day one. Changes to price will alter the equilibrium point and therefore quantity demanded.

For example: If I raise the price of milk, people will buy less milk. How much less they buy depends on elasticity of demand. But to say that increasing the price of milk will result in increased demand for milk is the equivalent of saying that water flows uphill.

[BirdieNZ]

Economics 101 might start with that, but you need to progress to Economics 201 and so on. "Changes to price will alter the equilibrium point and therefore quantity demanded." is only true if certain assumptions are true, such as "people are rational actors that have sufficiently complete knowledge to act in their own self-interest", and "people always work to maximise meeting their own needs and wants".

In reality, people act against their own self-interest, people don't always act rationally, and people have limited knowledge.

This is why when we look at specific real world examples of price changes, sometimes a change to price does not affect quantity demanded. With minimum wage, a common explanation for this is that minimum wage workers have limited knowledge of the available supply of workers, and don't realise they could bargain for higher wages. In other words, there is a market inefficiency that they are unable to exploit because of limited knowledge; moving the minimum wage higher results in that inefficiency being reduced or removed, despite the workers not having increased knowledge.

We can see this at a very simple level: I have worked with colleagues who are unaware that they are being significantly under-paid for their skills and experience. Technically, the price on offer for their services is set at a higher point than what they are being paid, but due to limited information, they are not selling their services at that point.

Sometimes, even though they have the information, they don't act in their own self-interest and don't change job or bargain for higher pay, for a variety of reasons. Now, if the software firms around collectively increased pay to all those under-paid workers by $10,000, there would be no reduction in employment. There would be a reduction in profits for the software firms, because they were exploiting a market inefficiency that was reduced, but they are still making sufficient profits that they won't change their number of employees in response.

[throwaway73838]

That would work both ways though. Employers could also be overpaying staff by the same token. So what you are saying is just a lie told to stupid people to take their money away from them.

[formerkrogeremp]

Minimum wage increases decreasing unemployment were still taught as dogma at my college four years ago up until senior evel courses. When I was working at minimum wage and could barely afford school and rent, my own coworkers with the same costs of living were advocating against minimum wage increases because they claimed minimum wage increases unemployment and increases inflation dramatically.

My college's entire department relied on grants largely funded by private libertarian think tanks who promulgated nonsense like removing the minimum wage. Correct economic theory and practice are cold comfort when they're still routinely applied decades after the field has moved forward allegedly. Especially as incorrect and dogmatic economics are used to justify screwing over people living paycheck to paycheck decades onwards.

I don't doubt the applications of economics and its uses, but the suffering, inequality, and excesses caused in its name (even if economics is being applied incorrectly) are where others and I angrily and perhaps justifiably ascribe economics and economists blame. One can blame politics or lobbying or what-have-you, but one cannot deny the culpability in part of economics and its (incorrect) application. What others and I rightly critique is the practice and promulgation of economics that cause suffering for the benefit of the those funding these economists.

I highly doubt I'll change anyone's mind or that there's much point in my discussing this further. Others more articulate than me have tried already.

[Adrox]

I really don't understand your "theoretical example".

How many counter-examples do I need to give to prove your "theortical example" false? Just one example would be enough to make your "theory" wrong, right?

How many countries do you want me to give you as a example where they RAISED minimum Wage, and unemployment LOWERED?

Do you think this is possible? If it's possible, what does it say about your "theoritical example"?

Look at any EU country after the financial crisis in the last 10 years, they both RAISED minimum wages, and unemployment FELL!

Portugal, Spain, Sweden, Denmark, Baltic Countries, Poland?

[c1ccccc1]

It would only take one example to disprove the theory, but finding that example is probably going to be somewhat difficult, since you'd need to establish that the increase in minimum wage caused the increase in employment. In the examples you give, maybe employment went up because those countries increased the minimum wage, or maybe it would have gone up anyway as those countries recovered from the financial crisis. Or maybe some third factor caused the increase. Or, if unemployment was unusually high during the crisis, it could be pure reversion to the mean.

[BirdieNZ]

https://davidcard.berkeley.edu/papers.html#6

"Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania." (with Alan Krueger), American Economic Review 84, September 1994.

[throwaway73838]

“ The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that “water runs uphill,” no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.” ~James M. Buchanan, 1986 Nobel laureate in economics, writing in the Wall Street Journal on April 25, 1996

[imtringued]

As I already mentioned, if two people negotiate and one person in power haggles the wage below the equilibrium, then an even more powerful entity can force the negotiated price upwards and end up closer to the equilibrium than if you had left the first person in power alone.

A minimum wage is a game of power not economics.