Friday, 28 October 2005

Supporting unemployment for women

With the exception of the economically illiterate and the Greens (but of course I repeat myself) most people these days accept that minimum wage laws make no economic sense: to the extent that they raise wages for low-paid workers beyond what employers can otherwise afford to pay, they also raise unemployment for low-paid workers. Not much good for low-paid workers, then. Linda Gorman provides chapter, verse and history on the topic in the Concise Encycopedia of Economics...
Unfortunately, neither laudable intentions nor widespread support can alter one simple fact: although minimum wage laws can set wages, they cannot guarantee jobs. In reality, minimum wage laws place additional obstacles in the path of the most unskilled workers who are struggling to reach the lowest rungs of the economic ladder.
So much, so straightforward: Minimum wage laws cause unemployment.

But here's an interesting thing. While liberals these days support minimum wage laws despite the fact they cause unemployment, Marginal Revolution points out that at the turn of last century 'progressives' supported them for precisely the opposite reason: because they do. These progressives wanted their women 'kept where they belong' -- at home -- and the unemployment caused by minimum wage laws was one tool to achieve that.
Unlike today's progressives, the originals understood that minimum wages for women would put women out of work - that was the point and the more unemployment of women the better!

Much more on the secret history of the minimum wage in Tim Leonard's paper, Protecting Family and Race: The Progressive Case for Regulating Women's Work.
[Hat tip Stephen Hicks once again]


  1. Theoretically, minimum wage laws remove from the economy those jobs which can only be affordably done by those on less than minimum wage. But, how many of those jobs are there? How many employers will simply raise their product prices along with wages, which they can now do because their competition has to do so as well? This gives some category of workers more money, at the cost of a lowered general standard of living.

    In reality, is the additional unemployment (however much there is), added difficulty to get into the workplace, made up for by the increased standard of living of those near minimum wage level (at the cost of everyone else's)?

    This is all ends-based reasoning of course.

  2. On the contrary, it's only empirically ignorant theoreticians who continue to uphold the old claim that minimum wage laws must, as a matter of principle, cause unemployment.

    The fact of the matter is that minimum wages (so long as they're not too excessive, I assume) can help the lower classes. The money quote from Stephen Landsburg: "Now that we’ve re-evaluated the evidence... here’s what most labor economists believe: The minimum wage kills very few jobs, and the jobs it kills were lousy jobs anyway. It is almost impossible to maintain the old argument that minimum wages are bad for minimum-wage workers. In fact, the minimum wage is very good for unskilled workers. It transfers income to them."

    (Though, for the record, I would prefer the more flexible alternative of a UBI. But until the rest of the country comes on board, we need something to protect against exploitation and help the worst off, and though economic theory might not predict it, the evidence does suggest that a minimum wage can help here.)

  3. Richard, the point here is that minimum wage laws increase unemployment. Landsburg and Quiggin are arguiong something slightly different, ie, that legisatively raising the minimum wage is very good for unskilled workers who still remain in work, and that this constitutes a tax on employees. These are two different claims.

    I can't improve on the comment made by a reader of John Quiggin's post at 'Crooked Timber' (but I will try):

    "The conventional view is the commonsensical one (Economics 101) that minimum wages are good for those workers who remain employed, and bad for those who are sacked or do not find employment because their value-adding capacity is below the minimum wage." That's it in a nutshell -- those who are hurt by minimum wage laws are not necessarily those unskilled workers ~in~ jobs, but those who are not. I understand that the Card-Krueger study did not address this either, and like all economic studies it labours* under the 'post hoc, ergo procter hoc' problem, as Mark Skousen suggests.

    The Card-Krueger study apparently had other flaws. Tom Knapp draws attention to one:

    "the Card-Krueger study compiled its data through a telephone survey of fast-food joints -- a method that may not produce the best results if the fellow at the other end is answering questions while hovering over the deep-fat fryer. In fact, as the Employment Policies Institute points out, "[t]he data set used in the New Jersey study bears no relation to numbers drawn from the payroll records of the restaurants the New Jersey study claims to cover."

    To be specific, after economists David Neumark and William Wascher recreated the study using information drawn from actual payroll records rather than a chat with a teenager in a paper hat, they found that "the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group."

    Now, that can't be good. "

    Even Landsburg acknowledges that minimum-wage laws kill jobs -- "very few, and the jobs it kills were lousy anyway" you quote him saying, rather patronisingly. Lousy by whose standards? Presumably the people working at these 'lousy' jobs have decided that that the job, however lousy, is better than the alternative; many of these 'lousy' jobs are a step up for workers who won't remain in them for long -- getting rid of them, however few, removes the opportunity for betterment and employment for people who might otherwise have to rely on state largesse (of whatever form).

    And in the end, of course, it's not the government who provides jobs, it's employers. They're entitled to set whatever conditions they choose, as are employees to agree to them or not when they choose among the alternatives on offer. Remove the alternatives available to them, and their choices become fewer, and maybe more desperate.

    Landsburg continues: "In fact, the minimum wage is very good for unskilled workers." It is for those who remain in employment, but not so good for those whose jobs have gone because they're no longer affordable.

    * Sorry, couldn't resist the pun. :-)

  4. "employers [are] entitled to set whatever conditions they choose"

    That certainly follows from libertarian principles. But of course not everyone agrees with those. And it's entirely different from arguing that the minimum wage is on the whole bad for poor people.

    I don't know enough to comment on the merits of the discussed study -- I admit I'm simply trusting the judgment of Quiggin and Landsburg. I guess it all comes down to the empirical question of whether most unskilled labour is worth at least as much as the minimum wage. So long as the minimum wage is set appropriately (i.e. not excessively high), it shouldn't cause any significant amount of unemployment -- and what little harm it does will be far outweighed by the benefits to those who can now earn a decent living. (So, really, 'anonymous' hit upon the crucial questions in his first comment.)


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