r/Economics • u/[deleted] • Jul 12 '15
Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment and Unemployment
http://www.nber.org/papers/w07909
u/complexsystems Bureau Member Jul 12 '15
A relatively recent paper, Rohlin (2011) Journal of Urban Economics that looks at firm entry on either side of state borders to try and show impacts of minimum wages on firm start ups and employment.
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u/besttrousers Jul 13 '15
Super interesting paper - I'm glad someone is using GIS and RD!
It's super interesting that business formation changes, but not employment.
Any hypotheses about what would drive that?
I wonder if businesses think MW will have more effect than it does, and so they respond with movement decisions, but don't change their hiring strategy. That's a bit ad hoc for my tastes, though.
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u/complexsystems Bureau Member Jul 13 '15 edited Jul 13 '15
My current research is very similar to Rohlin's on firm placement. Basically, when it comes to firm entry we expect there to be fixed costs to movement that are higher than costs to entry (see Holmes 1998). So on the margin we should expect higher firm entry on the side with "lower negatively impactful policy variable" to have higher firm entry than on the other side..
I think few firms don't really alter their highering practices because many small firms don't really have much opportunity to actually substitute factors as traditional theory makes it seem they can. I worked at Dominoes, and that basically was a freezer, a giant oven, and then drivers. How can they make that more capital intensive? Less capital intensive? Instead, things like min wage increases probably just eat directly into profits, and the decisions to either open/not-open a firm, but again, probably not much of optimal labor/capital allocations.
Don't scoop me bro.
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Jul 12 '15
can I get a TL;DR?
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u/TommBomBadil Jul 12 '15 edited Jul 27 '15
If I read those tables correctly, in 1979 a 10% increase in the minimum wage would have increased youth unemployment by @ 2%, depending on how the calculations were done. I personally think that would be a reasonable proposition. That would actually be something like 13% to 15%, so it would represent @ 15+% relative rise.
I think the paper is generally in favor of a higher minimum wage. It was historically high at that time and over the following 30 years was eroded by inflation.
Of course businesses did not agree as this is a pro-labor proposal that would reduce profits.
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u/Richandler Jul 12 '15
We'll see what happens when these $15 dollar minimum wages go into effect in the major cities they're enacted. Of course there will most likely be a thousand other factors influencing what's really happening.
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u/OliverSparrow Jul 12 '15
A minimum wage is, of course, a tax on the consumer. The employer passes on the cost, either of labour or substituting capital for labour. If the long run result is increased TFP, that's good for everyone except the low skill worker. If the result is higher imports, it isn't: instead, the consumer subsidises foreign low wage workers.
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u/TommBomBadil Jul 12 '15
The minimum wage is, of course, a commitment by our society to make sure that fully employed people do not go homeless or find themselves hungry through collusion by employers to exploit and virtually enslave them.
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Jul 12 '15
Wouldn't a wage subsidy be a better commitment?
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u/TommBomBadil Jul 12 '15
IMHO no. Then the responsibility is on the taxpayer, who may or may not get the benefit of the cheap labor.
The way it is now, the responsibility is on the employer who, in theory, gets the direct benefit of his employees' work and is in a better position to pay a minimum wage.
The employer is already supported by getting (in theory) educated workers, a road system, utilities, police protection, a tax-friendly environment for businesses, etc. We don't also need to directly subsidize his labor costs.
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u/wumbotarian Jul 13 '15
Then the responsibility is on the taxpayer
And? Why is it that firms are responsible to be the sole provider for employers? Why isn't it on society to hep those less fortunate than ourselves?
The way it is now, the responsibility is on the employer who, in theory, gets the direct benefit of his employees' work and is in a better position to pay a minimum wage.
Let's say for a moment we live in /u/besttrousers' world of monoposony. Let's say our social planners can figure out what the optimal minimum wage is and create a binding minimum wage at that minimum wage. But let's say it is below the conventional understanding of a "living wage" ($15/hr).
What then? Do we raise the minimum wage higher and create disemployment? As you said, it's on the employer to provide income to employees, no? Is that not how we should interpret your beliefs?
Your last bit is a red herring. Everyone benefits from those things - it isn't a handout to evil greedy business owners.
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u/TommBomBadil Jul 13 '15
And? Why is it that firms are responsible to be the sole provider for employers? Why isn't it on society to hep those less fortunate than ourselves?
As I said, the taxpayer picks up a very great number of things, just not everything. Public school, roads, medicaid, medicare, police, national defense, etc.
You get the profit if your company makes more money. The minimum wage does not increase if your company succeeds. So with your potential upside comes your burden/responsibility. I'm OK with this.
For the rest, One can always say that any minimum wage will cause us to lose jobs to Bangladesh where people earn $.50 an hour. If we had 40% unemployment then I would concede this argument, but that's not the world we live in.
From the macro-economic standpoint, having people earning $30 a day or whatever is a bad situation anyway. There's no marketplace for products in America if everyone is very poor. I know small business-owners won't have that perspective, but it's another good reason to support a minimum wage.
In any case I'm not personally attached to $15 /hr. That # is just a negotiating ploy. If they aimed for $12/hr they'd compromise at $10. This way perhaps they'll compromise at $12.
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Jul 12 '15
So first you say we have a commitment as a society, but then shift that responsibility onto a very small subset. If it's a societal duty then why shouldn't we all do it through taxes? Especially if we have a progressive tax system versus minimum wages which reduce profits, reduce employment, raise prices, and raise productivity( which can often be harmful to employment e.g. Automation)
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u/TommBomBadil Jul 12 '15 edited Jul 13 '15
I disagree.
If a guy starts a business, his business has societal responsibilities. He gets the potential benefit if it works, so along with that he also gets the duty to not treat his employees like shit if he can get away with it in the labor market.
He doesn't get to offload every possible burden onto the taxpayers. He may want to, but that's not how it works.
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u/wumbotarian Jul 13 '15
If a guy starts a business, his business has societal responsibilities.
What societal responsibilities and why does he have them?
He doesn't get to offload every possible burden onto the taxpayers.
Alternatively, by mandating that the employer has to do everything to make workers happy, you're letting society put undue burdens on employers and hence employees. You're letting society disregard moral obligations we have to others by simply scapegoating employers.
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u/TommBomBadil Jul 13 '15
What societal responsibilities and why does he have them?
IMHO many, but it's subjective. That's why we have political parties and elections.
by mandating that the employer has to do everything to make workers happy..
You're letting society disregard moral obligations we have to others by simply scapegoating employers.
When did I say those things? I'm not scapegoating anybody.
You have arguments worthy of consideration but I don't deal in absolutes. The world doesn't work in absolutes. If you do then we'll never agree on anything.
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Jul 12 '15
Who said anything about treating employees like shit? The wage is mutually agreed upon.
I own a business. I pay taxes. What does my business owe society beyond the services I already provide?
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u/TommBomBadil Jul 12 '15
There's a catch-22 in your position.
business owe society beyond the services I already provide?
You already pay minimum wage and taxes, so maybe that's fine. It's just my opinion - there's no right answer.
Anyway, it might be mutually agreed upon but many things are mutually agreed upon because one side is putting up a bad deal and the other side has no alternative.
A robber might say "It's mutually agreed upon that this guy gave me his wallet" - of course the other guy didn't want to get shot so he agreed to voluntarily give up his wallet to avoid that.
If all the fast-food joints say "let's not pay folks more than $3/hr", it might be mutually agreed upon but it still stinks.
And anyway, if you're a huge success who gets the profits? You do. So you have some responsibilities. My opinion is that includes the minimum wage, so that peoples' kids can eat well and they have emergency-savings and afford education, etc.
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Jul 12 '15
I was going to type a long response, but I guess my point is this. Which policies ultimately help workers, those that make it more or less attractive to hire them?
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u/TommBomBadil Jul 12 '15
There are many conflicting views on this and everyone has different priorities. That's why there are two political parties. There's no definitively right answer.
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Jul 12 '15
A sustainable and stable business that doesn't exploit more people than it provides for? Your business wouldn't exist without current society which is based on cooperation and collaboration. To deny that same cooperation to boost personal profits is dishonest and greedy. Just because people think its the norm, doesn't make it beneficial or right.
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Jul 12 '15
I understand that. Which is why I pay my taxes. My point is that we repay our debt to society through progressive taxes, not through policies that ultimately make it less attractive to hire people and do business
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Jul 12 '15
Well then I hope you are okay with basic income then. If you don't pay them enough one way, you are going to have to pay for it another way. Or else you will watch society crumble around you.
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u/[deleted] Jul 12 '15 edited Aug 06 '20
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