Her comments on the debilitating effect of unemployment are spot-on.
by Megan McArdle
It’s easy to see why Barack Obama wants to raise the minimum wage. It’s popular with his base. It’s popular with unions, who dislike competition with low-wage labor. And it doesn’t cost the government anything ecept the cost of printing some new posters telling people what the minimum wage is.
But is it a good policy idea?
The three main considerations are the same as for any economic policy: who does it help? Who does it hurt? And what is the effect on growth?
It’s obvious who benefits from a higher minimum wage: people who get minimum wage jobs. In theory, it may also boost the incomes of people who are making near the minimum wage, as employers raise those wages to ensure that these are “better than minimum wage jobs”—though in this labor market, I wouldn’t bet on it.
But who are the people in minimum wage jobs? This is primarily being sold as a poverty-fighting tool, so it would help to know how many of the people making it are poor.
The answer seems to be no; most of the people making the minimum wage are not living in households below the poverty line. Over half the people earning minimum wage are below the age of 25; for them, this is not likely to be a permanent condition, but a first rung on the income ladder. Many are students or entry level workers who are part of established households with higher earners.
Older minimum wage workers are probably more likely to be poor, but on average, they’re not. To be sure, they’re unlikely to be wealthy–this workforce will be predominantly drawn from near-poor and lower-middle-class households. Undoubtedly, they have uses for the extra money. But it will not specifically lift people out of poverty, because most of the people earning minimum wage aren’t in poverty now.
[......]
Ironically, minimum wage workers. Or so argue conservatives. When something becomes more expensive, people tend to use less of it. Or as economists like to say, “demand curves slope downward”. Raise the minimum wage, and some of the people who now have a minimum wage job will be out of work–or see their hours cut back.
The empirical evidence for this proposition, however, is somewhat mixed. David Card and Alan Krueger have done some pretty famous work showing no disemployment effects, and since Alan Krueger is now the head of the Council of Economic Advisors, it’s not surprising that Obama is embracing a higher minimum. However, David Neumark and William Wascher have also done some pretty famous work showing that there are disemployment effects. A recent paper by Jonathan Meer and Jeremy West suggests that the effect may show up, not in firings, but as a reduction in new hiring.
On balance, I think the evidence suggests that minimum wages do reduce employment–in part because I think that when you’re arguing that demand curves don’t slope downward, you need some extraordinary proof to back up your extraordinary claim.
Yes, there are all sorts of individual wrinkles; the economy is not a neat textbook model full of perfectly smooth curves. Businesses have a fair amount of inertia, and a strong reluctance to fire people. And businesses can make up for some of the loss by cutting worker amenities or forcing them to work harder. [........]
But I think that the evidence so far also suggests that the effect probably isn’t particularly large. If it were big, there wouldn’t be much debate over whether minimum wages reduce employment: the effects would be pretty obvious in the data.
So what about economic growth? I imagine there’s some effect, but I doubt it’s large enough to ever tease out of our noisy economic data. Of course, when growth’s anemic, you hate to lose even a hundredth of a percentage point. [.......] So the debate boils down to this: should we hurt some unknown number of workers in order to help others? Right now, I think the answer is no.
The thing about unemployment is that it’s much, much worse than having a crap low-wage job. It’s worse than almost anything. It’s one of those life events that people never really recover from. Two years after a divorce or being widowed, people have adjusted, and are mostly about as happy as they were before the terrible event. But after two years of unemployment, people are still miserable. And even after they get another job, a prolonged spell of unemployment often has permanent effects on future earning power, and risk for things like depression. We should weight the losses of the people who are out of work much higher than the gains to the people who get an income boost.
In an ordinary economy, those losses probably aren’t that large. But unemployment is still in the range of 8%, and the unemployment rate for young workers, and low-skilled workers, is considerably worse than that.
[........]
With this much slack in the labor market, I don’t think we should do anything that risks raising the unemployment rate. Especially since we are already handing employers a big new labor cost: Obamacare.
Starting in 2014, employers either have to provide full-time workers with insurance, or pay a penalty for failing to do so. With the economy weak and this much slack in the labor markets, that means they already have strong incentives to reduce their workforce, or cut more of their workforce back to full time. I don’t want to increase those incentives one iota.
If we think that low-wage workers should make more money, we should increase the Earned Income Tax Credit, not force a potentially job-killing wage boost on employers. Of course, the Earned Income Tax Credit will get scored by the CBO as costing money, while a higher minimum wage won’t. But the real costs of a minimum wage are potentially much worse.
Read the rest - How to think about the minimum wage
Tags: Megan McArdle
High unemployment is a bitter cup which we (young people in particular) will have to be prepared to drink as a result of twice voting for Barack Obama.
@ Speranza:
The first minimum wage laws in the country were part of the Jim Crow South, that should be enough of an economics lesson for the morons who keep accepting this idea.
@ Flyovercountry:
The first gun control laws in this country were part of the Jim Crow South, intended to keep freed slaves from gaining access to firearms. That doesn’t stop Jessee Jackson from embracing gun control despite the racially disparate effects of gun control in the Cities and States where it has been enacted. A little racism never bothers the Left so long as it is the right racism.
What most people completely miss as part of the minimum wage laws is that unions tie their contracts to minimum wage, and have clauses pertaining to a rate change. If the minimum wage goes up, aside from devauling the currency, and less low-end jobs, union salaries get a jump. $9 mandated between private individuals is top down control, but multiply the increase in salary across the different unions, some of them public, and watch the defecit and taxes associated with it jump.
@ Flyovercountry:
Off topic, Speranza, but i think the 7 Syrians hospitalized in Israel are Druze. That thickens the plot some.
Moe Katz wrote:
Syrian Druze are just as hostile as Syrian Alawites.
Running on a platform to abolish the minimum wage is a recipe for electoral disaster.
Moe Katz wrote:
Taking advantage of Israel’s tolerance of the intolerant. That ought to work. /
Reminds me of one of the Palestinian women suicide bombers who went to Israel for medical treatment and tried to blow up the hospital. She didn’t think she should be blamed because she screwed up and didn’t kill anybody. These people are moral midgets.
yenta-fada wrote:
Yeah, I remember that. With respect to the Druze, though, I think Israel may be seeking to consolidate the support of the Golan Druze, who have been steadily shifting their allegiance to Israel and the situation in Syria has destabilized. The Druze are all about survival as an ethno-religious minority in the heart of the Muslim world, which they’re succeeded in doing for a millenium….
@ Iron Fist:
So long as the right racism is against Whites. And speaking of Jesse Jackson, until this morning I didn’t fully realize he got sued for sexual harassment…by a gay employee who alleges Jackson wanted to suck his dick!
Speranza wrote:
Outsourcing manufacturing ruined North American productivity. Ontario
is overly reliant on the auto industry and public sector unions. We turned from a “have” economy into a “have not” one. I know of a manufacturing company that was destroyed by agitation from the U.S. Steelworkers Union. The workers went on strike for so long that the owners moved to a low tax U.S. state.
Correction: “who have been steadily shifting their allegiance to Israel AS the situation in Syria has destabilized.”
The GOP may cave on gun control:
Aagazine ban is unacceptable. The GOP needs to know this. Whose votes do they think they are going to get by caving on an important principle like this? The Left isn’t going to vote for them, but the base (that Rodan denies exists) will vote Third Party. The GOP is comitting electoral suicide if they do this.
@ Moe Katz:
While the Druze may be different, that letter to Israel from ‘the communities’ REEKS of using the tolerance of the West to urge them into becoming servants of Islam. As Macker might say, “It smells of sulphur.”
Moe Katz wrote:
Yeah, it’s called a hudna.
@ yenta-fada:
That letter is a classic document of dhimmi survival skills. The Druze always adapt to the dominant ethno-religious group, the winning side.
yenta-fada wrote:
I can’t remember if I ever said it quite that way….
yenta-fada wrote:
From what I read it’s more than that. Younger Golan Druze are developing more of an Israeli identity and are taking Israeli citizenship. For some it’s a means to an end, an insurance policy, while for others it’s a basic shift in allegiances.
Macker wrote:
No, but you have implied it.
yenta-fada wrote:
Druze don’t do jihad. They try to go with the flow, that’s all.
Moe Katz wrote:
Given Israel’s current enemies list, I don’t think it has the luxury of looking for a few individual allies. Iran? Obama? Destablized Egypt and Syria?
@ Iron Fist:
That’s Mars who claims the base doesn’t exist.
If Republicans cave on this, they are done as a Party. That is not an exaggeration, its a fact. Republicans really have a death wish.
Moe Katz wrote:
Well then, let’s set up an Interfaith dialogue.
Rodan wrote:
There, fixed that for ya!
@ yenta-fada:
If they’re planning to keep the Golan, the loyalty of the Druze is useful, especially in the present context of instability in Syria. If a militant Sunni government comes to power in Syria it will be very helpful to have the loyalty of the Golan Druze.
Speranza wrote:
It’s electoral suicide.
zerohedge on ‘Parento’s Economy’ 20% of the people do 80% of the productive work. Interesting take.
http://www.zerohedge.com/news/2013-02-17/guest-post-pareto-economy
@ yenta-fada:
They don’t do that either. Most Druze are not initiated into the higher teachings of the religion, only a select few. Think how useful that must have been as a survival strategy in the heart of the Muslim world since the 11th century. The average Druze knows nothing about his religion, hence cannot blaspheme and bring down a Sunni pogrom.
Moe Katz wrote:
I take your point. I don’t call the ability to shift to the winning side “loyalty” though. It’s still hudna imo.
@ Rodan:
I agree. This is a place where there can be no compromise. Instapundit had a good little blurb on how the Democrats try to divide and conquer on the gun issue. He is right. Anyone who plays along is a fool. The Constitution says “Shall not be infringed“. That is the strongest language used in the Bill of Rights. Republicans had better stay on the side of the angels here.
yenta-fada wrote:
No, Hudna is a mainstream Muslim idea, the Druze originated in Shiite Islam but became a syncretist, esoteric religion with mystical leanings. There is no hudna if there is no jihad to be setting aside, and the concept of jihad is completely alien to the Druze. They are experts in survival as dhimmis, I can’t blame them for wanting to be on the winning side at all times.
http://tinyurl.com/b8t7rav
Without Serious Spending Cuts, the Conservative Base Will Walk Away
yenta-fada wrote:
Her name is Wafa al-Biss. She was recently released in the Shalit deal and returned to Gaza as an unrepentant terrorist.
@ Iron Fist:
Just like they were on the side of angels in their stance against slavery, this is a fundamental American Constitutional Civil Right. If they cave on this issue, what’s the point of their existance?
@ yenta-fada:
It is coming to that. The Republican Party doesn’t seem to stand for much, anymore. If they cave on gun control, what is left for them to stand on? It is the Party Leadership, the Party Mandarins as they’ve been called, that are the problem. We need to get rid of them, or form a Third Party that will embrace conservatism and actually fight for the principles we espouse.
@ yenta-fada:
@ Moe Katz:
Ok as someone descended from Maronites I can tell you the Lebanese Christian view of the Druze. They are not viewed as Muslims, but as opportunists. Historically they have been allied with Christians, others times they have turned on them. They go with the strong horse. In Lebanese politics, Druze leader Jumblatt is know as the weather vane because he always changes sides.
Speranza wrote:
Chutzpah.
Moe Katz wrote:
You could say some of the same things about the Baha’i religion. Their founder renounced jihad, and their only safe place in the Middle East is in Haifa. I don’t blame them for taking on various Muslim practices in their attempt to be a world faith. Yet they consider Islam a major religion without taking the political aspects into the equation. The Druze may be far less worldly, but it does not make them friends. I appreciate your insights into the Druze.
@ Rodan:
Again, it’s been a successful survival strategy for a very small dhimmi nation, and I can’t really begrudge them that.
@ yenta-fada:
They are just opportunists. Friends of no one, enemies of none.
Rodan wrote:
So, does that mean that Israel should trust them or attempt to make alliances at this point in history?
@ Moe Katz:
They do what they have to do.
Rodan wrote:
You pre-answered my question.
yenta-fada wrote:
The Druze don’t have real friends, but they’ve survived 1,000 years in a very tough neighborhood….
@ Rodan:
Exactly. Gun rights are civil rights. People who are for gun control are anti-civil rights as surely as if they supported Jim Crow.
Rodan wrote:
Exactly.
@ yenta-fada:
I have no answer as to what Israel should do. Maybe use them for now, but keep them at arm’s length. The Druze have their own agenda and Israel needs to keep that in mind.
Iron Fist wrote:
It’s the same Party; Democrats. The party of anti-Civil Rights and prohibition.
@ Moe Katz:
Lebanese Maronites are very similar. Currently the Auoun faction is allied with Hizb’Allah. The Kateb/Lebanese Forces are allied with the Muslim Brotherhood and al-Qaeda. Jews did it for centuries also in the Islamic world.
When you are a minority in the Islamic World, you do what you have to do to survive.
Rodan wrote:
That’s it. And even then, it doesn’t always work and you get persecutions.
@ Moe Katz:
Yeah, it’s not simple.
Solving the problems of the Middle East
http://www.youtube.com/watch?feature=player_embedded&v=gVZr3WbMQ6w
WA gun bill calls for warrantless searches.
@ yenta-fada:
Rodan wrote:
That is quite correct. However when push comes to shove they know that Israel not only means them no harm, but will shelter them in an emergency. There is a reason why Africans flee from Muslims and make their way through the Sinai into Israel.
Rodan wrote:
You missed the other clearly unconstitutional bit in there. The LEOs can do a warrentless search to make certain your “assault weapon” is “safely and securely stored.” If that latter phrase means anything more than leaning up in the corner of your living or bed room, loaded, that’s a clear violation of the ruling in DC v Heller which said you cannot be required to keep weapons locked, unloaded or in inoperable condition.
Moe Katz wrote:
As the Egyptian Copts, Iraqi Chaldean Christians, and Lebanese Maronites will attest to.
Moe Katz wrote:
They have lived quite well in Israel.
@ Rodan:
Someone posted that yesterday. That is what the Liberals want. They want to scrap the entire Bill of Rights, and replace it with a Bill of “Positive” Rights that the government grants to its subjects. And the Right to Keep and Bear Arms is their number one target. They know that they have to disarm us to enslave us. I don’t think Obama’s push for new gun control is going to go anywhere, but I really don’t trust the Republicans on this issue. They had the House, Senate, and Presidency, and they didn’t repeal the “Assault Weapons” ban. The Republican Mandarins like gun control as much as the Democrats, they just don’t dare admit it. They’d love to see a new AWB, but I don’t think they are willing to pay the electoral price to bring it about. It would be a bloodbath. The same goes for the Democrats. They remember the consequences of passing the 1994 Ban.
@ Mike C.:
These people do not even think about the constitutionality about the laws they advocate.
Speranza wrote:
Yes, which is why I have hope that the Golan Druze will integrate eventually.
@ Iron Fist:
That is the key right there.
yenta-fada wrote:
The Baaaaaase!
Moe Katz wrote:
I am not so sure about that. Israeli Arabs became radicalized after contacts with Palestinian Arabs in the West Bank.
Breaking: Axelrod hired by MS
NBCDNC as a “Political Analyst”.h/t Weasel Zip
The Osprey wrote:
Just another guy almost to the left of Stalin to join the stable of neo-Marxists at PMSNBC.
@ Speranza:
Charles Johnson will applaud this since he’s as Neo-Marxist.
Rodan wrote:
I would trade Rove for Axelrod as an analyst on Fox. I saw Pig Vomit Rove on Special Report yesterday and immediately reached for the remote control.
Rodan wrote:
He certainly is government dependent.
OT
In case you needed any further reason to dislike Karl Rove, the Greased Pig of the Republican Party, take a look at this video of his slavering endorsement of a Hillary Clinton presidency.
@ buzzsawmonkey:
He is a disgusting fat man.
Speranza wrote:
I think it will depend on how things shake out in Syria. If they don’t see a future for themselves with the new Syria they will increasingly take Israeli citizenship. My two cents’ worth….
@ buzzsawmonkey:
Yeah, if Hillary runs, the Republican Party Mandarins will want her to win. She’d be ideal for them. As I have often said, I don’t think the Republican Party leadership cares if it controls the Congress or not as long as they get the invites to the right parties.
@ Speranza:
Axelrod is a winner and Karl Rove is a loser.
Iron Fist wrote:
It ain’t the parties, it’s the pork and perks.
The Republicans have become the Palooka Party—take a dive, get the smaller purse, but be certain that it’s a sure thing. Make it look good for the rubes, bet on yourself to lose. As Spencer Tracy says at the beginning of Pat and Mike, “to win you can’t be certain, but coming in second—that’s insurance.”
@ Iron Fist:
My post at 11:30 will touch upon a subject similar to this.
Moe Katz wrote:
That is quite possible.
Iron Fist wrote:
Correct. As long as they get in on some of the “spoils”.
Rodan wrote:
Karl Rove is a disgusting specimen.
@ Speranza:
He wasted 400 million and only won one Senate to show for it.
Rodan wrote:
“What do you mean, “wasted?” Have you seen my bank account?”
—Karl Rove (may not be precise quote)
@ lobo91:
I’m surprised they don’t recommend laying back and thinking of England. What horseshit.
@ Iron Fist:
@ lobo91:
How about this way, pull a gun and to a Mozambique drill on the person trying to rape you. 2 to the body and 1 to the head.
@ MikeA:
Works for me. I’ve been a victimm of violent crime. There’s nothing fun about it. It is serious business. If someone tries to harm you, kill them. That should be simple enough for even Liberals to understand.
@ Iron Fist:
You need to understand them first… see what they are upset about… talk to them… Its what the stupid liberal neighbor I have says. of course she has never lived in anything but privilege.
At last—the White House releases the transcript of the Presidential conversations from 9/11/12.
Iron Fist wrote:
You give liberals too much credit.
I have met liberals who were severely injured during muggings (traumatized too) and still remained liberals.
Rodan wrote:
He is an epic failure and a truly repulsive individual.
buzzsawmonkey wrote:
I’d love to read his comments about Netanyahu.
MikeA wrote:
If there are multiple assailants, do the same to each of them. For that you may need a high-capacity magazine.
And don’t shoot for the exact center of mass; learn where the heart is and how to aim for it and hit it. That’s why they have those paper targets at the range.
My brother is one of those older minimum wage people. he is retired, a millionaire, and just wants something to keep busy, so he bags groceries.