Tuesday, July 19, 2011

The Second Recession for Teenagers from Raising the Minimum Wage, Especially Black Teenagers

From an editorial in today's Investor's Business Daily  by economists William Even and David Macpherson:

"Each 10% increase in the minimum wage [since 2007] was accompanied by a decrease in employment of 1.2% for Hispanic males, 2.5% for white males and 6.5% for black males. When looking at hours worked, we saw a similar effect: Each 10% increase in the minimum wage reduced hours worked by 1.7% for Hispanic males, 3% for white males and 6.6% for black males.

The data clearly show a disproportionate loss of hours and employment for black young adults. Let's put these lost opportunities into context. Between 2007 and 2010, employment for 16- to 24-year-old black males fell by approximately 34,300 as a result of the recession; over the same time period, approximately 26,400 lost their jobs as a result of increases in the minimum wage across the 50 states and at the federal level.

In other words, raising the minimum wage essentially created a second recession for these black young adults."

MP: In other words, demand curves for unskilled labor really do slope downward, as economic theory predicts. 

61 Comments:

At 7/20/2011 1:36 AM, Blogger T J Sawyer said...

Is it just my imagination or is there some link between increases in the minimum wage and the onset of recessions?

 
At 7/20/2011 3:29 AM, Blogger PeakTrader said...

Even after the recent increases in the minimum wage, the real minimum wage is still low, which suggests other factors have been causing the high teen unemployment rate.

The real minimum wage (currently $7.25 an hour) has been between $5.50 in 2006 (a 60 year low) and $10 in 1968.

Also, when the real minimum wage was at the 2006 low, teen unemployment was over 15%.

Even during economic booms, when the unemployment rate was falling or below 5%, the teen unemployment rate was much higher (usually over three times higher).

And even when the real minimum wage was falling, the teen unemployment rate remained high.

 
At 7/20/2011 4:34 AM, Blogger Innovation rules said...

The debate amongst economists over whether the minimum wage destroys jobs is strange to me.

Surely most economists understand the economy is a complex and inter-causal system. That employers react to an increase of primarily unskilled labor in many different ways, not always by not hiring, must be obvious.

Why then rely only on the unemployment metric to argue the fact that when costs rise, there will be an opposite and to best purpose equal reaction by employers?

Especially since the first job is so extraordinarily important to people even if it does not pay much, why pretend to be so omniscient as to manipulate it?

The fact that extra-ordinarily educated people argue about the minimum wage seems surreal to me even while we pretend to manage the economy by artificially setting interest rates and monetary policy and government debt without the benefit of an ROI to guide them.

There comes a time when we of the professional class; the bankers who can not go bankrupt, the auditors whose signatures mean very little, the lawyers, and the educators and the social scientists, must ask ourselves exactly what value we have added in the last 40 years, other than building a vast and leeching tax upon the shoulders of those who produce and trade.

 
At 7/20/2011 4:44 AM, Blogger rjs said...

that is thoroughly debunked here with data & charts back to 1980:

http://politicalcalculations.blogspot.com/2011/07/disappearing-teen-jobs-and-minimum-wage_13.html

 
At 7/20/2011 5:43 AM, Blogger Jet Beagle said...

Peak Trader: "Even after the recent increases in the minimum wage, the real minimum wage is still low"

The real minimum wage may be low relative to its historical levels. It is not likely low relative to the value which unskilled workers can offer to employers.

Automation, and to a much lesser extent globalization, have reduced the value of unskilled workers. At the same time, a perceived decline in the overall work ethic of young workers has made them an even less valuable resource.

 
At 7/20/2011 5:47 AM, Blogger Jet Beagle said...

Innovation rules: "The debate amongst economists over whether the minimum wage destroys jobs is strange to me."

Is there really much of a debate among economists? I thought that the overwhelmiing majority of economists are convinced that the minimum wage reduces the demand for unskilled labor.

Have you seen research by any economist other than Card and Krueger that suggests the minimum wage does anything other than reduce demand for labor?

 
At 7/20/2011 7:56 AM, Blogger morganovich said...

"There comes a time when we of the professional class; the bankers who can not go bankrupt,"

while this is a popular populist talking point, it's also completely untrue.

TARP allocated $410bn to financial institutions. (some of it by force and against the will of the recipients)

all but $25bn has been paid back.

the outstanding balance to government entities freddy and fannie is $150bn.

thus, the rest of the private sector has been nicely profitable for the government and thereby the taxpayers.

take out F+F and you have a $125bn profit. that's 30% return in 2.5 years, quite a handsome sum in this interest rate environment.

i am just sick of these anti-banker rants. they were NOT the problem. the problem was government sponsored entities and that is where the losses from the bailout reside.

not wall st, k street.

paying back a loan with interest is nothing at all like a bailout.

to see a bailout, look at GM and the UAW. that's NEVER going to come good and involved the forcible seizure of private assets and their transfer to unions.

look at freddy and fannie, arch idiots of the mortgage mess who, which the full blessing of congress, made so many bad loans in the name of "encouraging home-ownership".

look at the mortgage cram-downs bailing out the irresponsible at the expense of the banks.

but to try to pin this on the banks is just stupid. they are net payors, not recipients.

 
At 7/20/2011 8:06 AM, Blogger morganovich said...

rjs-

i think there is a key aspect left out of the thinking in the piece to which you link:

absolute level matters.

raising the minimum wage from 5c to 10c makes no difference at all.

anyone can produce 10c an hour in output.

but if you raise min wage across the hourly productivity level, you get a collapse in employment.

the magnitude of the recent rise (40%) was much grater than past hikes as well (more like 20%). this makes it far more likely to push many jobs over their point of zero marginal return.

also: there are clearly other factors.

the strength of the economy for one. if you look at his chart, there is a strong correlation between min wage hikes and rises in unemployment in every period except 1997.

that was one of the most booming economies in living memory and had some of the lowest overall employment in american history.

such incredible pull would overcome the effects of a wage hike.

 
At 7/20/2011 8:14 AM, Blogger Bernie Ecch said...

What you really have is the hollowing out of industry, with jobs being moved overseas, all to boost the pay of the corporate system lords. I came across a web posting from Oregon State from last February pointing out that in inflation-adjusted dollars, the highest minimum wage was in 1968, the equivalent of $10.04

Free trade and globalism is a bad joke as long as jobs get shipped to places like Vietnam where workers make 6 cents an hour.

 
At 7/20/2011 8:14 AM, Blogger morganovich said...

"That employers react to an increase of primarily unskilled labor in many different ways, not always by not hiring, must be obvious."

this is essentially meaningless gibberish.

it has nothing to do with the topic at hand.

the point under discussion is the effect of wage constraints on employer behavior with regard to a pool of unskilled labor.

to attempt to obfuscate with complexity the fundamental fact that higher wages will lessen demand and make it unprofitable to hire workers whose MP falls below min wage is just a rhetorical gambit that begs the question.

if a worker produces $6/hr in value and the min wage goes from $5 to $7.25, he gets fired. there is nothing complex or interdependent about that.

minimum wages disrupt the "complex interdependency" to use your fuzzy term of a wage market. no longer can wages drop to marginal productivity or to market clearing levels.

it's price fixing, which has very well understood effects.

fix price too high, you get under-demand, too low, over-consumption.

you are just playing a silly parlor game by saying "it's complex". just because systems are complex does not mean that we cannot know meaningful things about them.

the turbulence behind a wing is complex and interdependent as well. that does not stop us from calculating lift and building airplanes.

i'm sure this sort of posturing is a big hit on the vassar cocktail circuit, but it has no place in serious discourse.

 
At 7/20/2011 8:29 AM, Blogger morganovich said...

bernie-

there are so many flaws in what you said that it is difficult to know where to start.

first off, manufacturing jobs are not "good" jobs. they have generally been crappy jobs apart from one golden age from 1945-65 when the rest of the world lacked a manufacturing base.

sure, there are a couple fo good ones, but ask yourself, where are the rich parts of the US? where the manufacturing is? no.

manufacturing jobs are better than farming but far inferior to knowledge based jobs. being mired in this manufacturing mindset just holds you back into the 18th century.

ditto your ideas about trade.

free trade is ALWAYS a net benefit to a society because there is ALWAYS a deadweight loss from tariffs.

http://mjperry.blogspot.com/2011/03/econ-101-protectionism-for-dummies.html

this could not be more obvious.

protectionism will increase the price we pay for sugar by more than the sum of the benefit to US producers and in taxes collected.

in real terms, we will be worse off 100% of the time.

protectionism makes us all worse off to shower largess on a select few. it's a particularly pernicious form of negative sun wealth transfer.

the fact that your shirt was made by someone getting paid less that us minute wages means you get a cheaper shirt. if it were made here, it would cost twice as much. that would leave you with less money after buying it to spend on dinner or gasoline. having your shirt cost twice as much does NOT make you better off.

like most protectionists, you assume that the benefits of free trade would exist even without it and focus only on the costs. this is why you consistently get the wrong answers.

if you have any savings at all, a 5% drop in price level makes you better off that a 5% increase in income. stop and think about that and you'll see why your trade philosophy is so backwards.

 
At 7/20/2011 8:38 AM, Blogger Jet Beagle said...

Bernie Ecch: "What you really have is the hollowing out of industry, with jobs being moved overseas, all to boost the pay of the corporate system lords."

I don't think so, Bernie. Most low-skilled jobs of past decades were service jobs, and were not offshored. Here's a few low-skilled jobs which were eliminated or reduced by automation and work re-engineering:

grocery store bag boys
french fry cookers
car wash employees
garbage truck workers
typists
toll booth collectors

If I had time, I could list dozens more low-skilled jobs which have disappeared over the past four decades.

 
At 7/20/2011 9:23 AM, Blogger morganovich said...

jet-

as a member of the elevator operators union, i deeply resent your implication that mere automation could adequately replace such a vital skilled trade.

if people start pushing their own buttons, it'll be anarchy. what next? a device that could julienne potatoes for you? where is the personal touch in that?

 
At 7/20/2011 9:51 AM, Blogger Jet Beagle said...

bernie ecch: "all to boost the pay of the corporate system lords"

Again, I disagree. Savings from eliinattion of low-skilled jobs did not boost the pay of corporate leaders or increase the wealth of shareholders. Rather, it was consumers who benefit directly when corporations reduce their costs. We know that from basic microeconomics education, and we also know that by observing real-world data.

 
At 7/20/2011 9:57 AM, Blogger Jet Beagle said...

morganovich,

The elevator operator is the classic example.

I like the grocery store bag boy example, as it requires a little more thinking and it happened in recent years. As laser scanners became more and more reliable, cashiers were freed up from the task of keying in prices. So they could then easily perform both the scanning task and the bagging task.

Walmart was the first place I noticed the bag carousels, a small industrial engineering change which increased even more the productivity of the lowly checkout clerk.

Walmart critics tend to focus on their use of global suppliers and ignore their productivity improvements in the stores and warehouses.

 
At 7/20/2011 10:06 AM, Blogger morganovich said...

jet-

actually, most grocery store still have baggers.

when i go shopping, i look for a line with one as it's faster. (perhaps not for a few items, but if you are buying 6 bags, yeah, absolutely).

you need fewer that you once did, but that job seems to be going strong. whole foods uses planty. of interest, the one grocery store i have shopped at that didn't have them was rainbow grocery in san francisco a "worker owned cooperative". they had some of the worst wait time in line of any store i've ever shopped at. (but amazing produce)

 
At 7/20/2011 10:12 AM, Blogger Ironman said...

rjs pointed to the second post in our recent series, but there's a third part as well! (P.S. thanks for linking!)

 
At 7/20/2011 10:18 AM, Blogger Ironman said...

TJ Sawyer asked:

"Is it just my imagination or is there some link between increases in the minimum wage and the onset of recessions?"

It's not your imagination. Bonus quote:

"The takeaway from all this is that when the U.S. Congress acts to increase the minimum wage, this action either directly coincides with the loss of jobs in the U.S. economy one-third of the time or with the continuance of job losses for another one-third of the time. And one out of five times, these job losses occur despite economic growth as indicated by growing stock market dividends."

 
At 7/20/2011 10:45 AM, Blogger Rich B said...

Ironman-

BTW, you are doing great work, and your efforts are appreciated.

 
At 7/20/2011 11:21 AM, Blogger Jet Beagle said...

morganovich: "you need fewer that you once did, but that job seems to be going strong"

I hate to waste time on a disagreement of such minor importance. But your observations are just not representative of the industry I referred to.

Walmart has taken over a large share of the grocery store industry. Walmart does not have baggers. The point I just made is exactly correct:

"Grocery store bag boy" is a job which has been significantly reduced due to automation and re-engineering.

Walmart is not the only place where that job is being eliminated. In fact, the large chain grocers have eliminated both bag boy and check out clerk jobs by installation of self-serve lines.

I don't know what is happening at Whole Foods Market and I don't really care. They are a niche player in the $562 billion supermarket indusstry, with about a 1.7% share.

 
At 7/20/2011 12:11 PM, Blogger Ron H. said...

Bernie: "Free trade and globalism is a bad joke as long as jobs get shipped to places like Vietnam where workers make 6 cents an hour."

If that's true, doesn't raising minimum wage make even LESS sense?

 
At 7/20/2011 12:20 PM, Blogger Ron H. said...

"rjs pointed to the second post in our recent series, but there's a third part as well! (P.S. thanks for linking!)"

OOpsie! Maybe, rjs, when you link to a chart as support for your view, you should make certain the context of the article also supports your view.

Just sayin'.

 
At 7/20/2011 12:29 PM, Blogger juandos said...

"that is thoroughly debunked here with data & charts back to 1980"...

Yeah if one takes the data from the politicised BLS data...

From the WSJ dated OCTOBER 3, 2009: Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers...

From the WSJ dated July 1, 2011: Only 24% of teens, one in four, have jobs, compared to 42% as recently as the summer of 2001. The nearby chart chronicles the teen employment percentage over time, including the notable plunge in the last decade...

 
At 7/20/2011 12:50 PM, Blogger Innovation rules said...

you are just playing a silly parlor game by saying "it's complex". just because systems are complex does not mean that we cannot know meaningful things about them.

I'm not sure what instigated such an aggressive response, for markets and economies are certainly complex systems, and they are inter-causal.

Lately Progressives have argued that the unemployment data is indeed fuzzy. I am saying that should not matter to reasonable people.

An employer has any number of choices when the minimum wage is raised. One of them is to fire unskilled labor. But she can also degrade product quality, pay in piecework, pay by contract, raise prices, delay hiring, work other salaried employees harder, and any combination of these and a host of other choices.

If she still hires unskilled labor, many of these tactics will not show up in the data, and yet the minimum wage has still affected the workplace.

So yeah, I believe the unemployment data comparisons are a simplistic view of a fairly complex situation. To assert that the minimum wage does not have an adverse affect, especially on a person's first job, is IMHO quite strange.

And it is far from a parlor game for those firms that rely on minimum wage workers to function. The myriad of reactions they make define their struggle for survival.

The minimum wage, like taxes, tends to drive a myriad of behaviors that otherwise would not occur, warping markets in ways I doubt we can all predict as easily as we can understand air flow over the wing of an airplane.

 
At 7/20/2011 1:21 PM, Blogger Innovation rules said...

@morganovich re: TARP costs.

You quote the loans to the banks and their pay-off. I measure the cost of TARP quite differently.

Trillions in debt and real estate has been prevented from being reset and revalued. I believe that is a major cause of our stagflation. And I am by far not the only one that thinks so. Lately even the questionable TV 'pundits' have taken to mentioning it.

IOW, the economy will not rebound until those markets clear one way or another, which could take years. Bankruptcy would have cleared them in a matter of months.

In that light, TARP's cost to the economy is incredibly high, including at least in part the devaluation of the dollar by the Fed.

And sure regulation helped drive the financial mess. But we will have to disagree on whether the banks also played a role. For the banks that did not play silly games did not need a bail-out. And the ones that did are still bankrupt; take a look at their CDO valuations to see what insiders think of them.

Just how much money will we print to keep them afloat, and alleviate the inevitable write-down that is now happening one loan at a time. There is at least a small chance that those same banks go bankrupt again before the economy picks up. Will we transfer the risk of their debt to the citizenry again? Dodd and Frank just made it the law.

 
At 7/20/2011 1:32 PM, Blogger Benjamin said...

But why not also get rid of child labor laws?

 
At 7/20/2011 2:30 PM, Blogger Ron H. said...

"But why not also get rid of child labor laws?"

There is absolutely no reason not to, but you might want to check with your union rep to see what the official union position is.

 
At 7/20/2011 2:42 PM, Blogger morganovich said...

innovation-

sorry if that seemed overly aggressive. my point is that people hide behind this idea of "complex and interdependent" all the time to try to deny basic truths.

no one can predict every effect that will ripple through and economy from an input.

but we can get a general gist in an awful lot of cases.

all economic inputs are fuzzy. you cannot really know GDP or unemployment or inflation or likely even money supply.

we are left taking best guesses. (and some are much better than others)

but even under such imprecise conditions, we can still make meaningful predictions and derive quantitative realtionships.

many seem hell bent on making the perfect the enemy of the good and claiming that anything with error bars is irrelevant.

raising min wage will have fairly predictable effects on employment.

you can make claims about product quality etc, but the core relationship between wages and employment has already included that in the past.

if anything, the rise of india and china etc are likely to intensify job losses from wage rises by adding a large reservoir or new labor offshore.

so sure, there will be other effects, but trying to deny a longstanding relationship based on "complexity" is only valid in a very picayune sense.

 
At 7/20/2011 2:47 PM, Blogger arbitrage789 said...

This comment has been removed by the author.

 
At 7/20/2011 2:56 PM, Blogger morganovich said...

ir-

regarding tarp- what does a wall street liquidity loan have to do with real estate prices and foreclosures? that was a whole separate raft of legislation around cram downs and foreclosure prohibition.

i think you are confusing 2 issues.

also:

you are ignoring the costs of not having tarp. i'm not saying it was well executed, but ANY fractional lending bank can become illiquid.

if you take in $100 in deposits and lend just $10 in mortgages, even perfectly good mortgages, you can still become illiquid.

for the fed to lend against a valid asset to prevent this is one of its few valid roles: lender of last resort.

they have no business bailing out the insolvent, but every business doing so with the illiquid (though at a price to make such borrowing sufficiently punitive that banks will seek to avoid it)

you see adjustment issues, but what would have happened if 8 of 10 banks failed? you honestly believe that would be a better outcome? solvent but illiquid banks failing in droves and our whole capital system coming down? bond yields spiking to 8% in a recession? the dow at 3000? no lending to be had anywhere in the US? banks unwilling to deal with one another due to counterparty risk? 80% of homeowners underwater instead of 30%?

if you are going to count costs as you are, you need to balance them with what would have happened without action.

you are ignoring an awful lot in your analysis.

then you are rolling lots of unrelated issues into it like cram down legislation and interest rate/monetary policy.

that is not tarp.

your thinking on this seems muddled.

 
At 7/20/2011 2:59 PM, Blogger Junkyard_hawg1985 said...

There are actually two minimum wages:

The first is the minimum wage law at $7.25/hr.

The second is what the government will pay you to not work.

The actual minimum wage is the higher of these two. If the minimum wage is $1/hr, but the government will pay you $10/hr to do nothing, then an employer will have an extremely difficult time fining anyone to work for less than $10/hr. If the government pays you $1/hr to do nothing and the minimum wage law is $10/hr, then the employer can't pay you less than $10/hr.

The problem in 2007-2009 is that both the minimum wage went up, and the amount of benefits for doing nothing went up (Obama/Dems repeals welfare rules from the 1990's).

 
At 7/20/2011 4:57 PM, Blogger PeakTrader said...

Jet Beagle, it's more likely the teen unemployment rate is high, because wages, including the minimum wage, have been too low.

An interesting (t-1 year) data point, since 1960, is the teen unemployment rate was lowest in 1969 when the real minimum wage was highest in 1968.

 
At 7/20/2011 5:46 PM, Blogger Ron H. said...

Peak: "Jet Beagle, it's more likely the teen unemployment rate is high, because wages, including the minimum wage, have been too low."

Well, that makes sense. Once again the demand curve slopes up.

"An interesting (t-1 year) data point, since 1960, is the teen unemployment rate was lowest in 1969 when the real minimum wage was highest in 1968."

Hello, cart, meet horse.

Perhaps a high demand for labor, caused lower unemployment, and higher market wage rates, allowed for a higher real min wage.

 
At 7/20/2011 5:55 PM, Blogger Jet Beagle said...

Peak Trader: "it's more likely the teen unemployment rate is high, because wages, including the minimum wage, have been too low."

That's an interesting suggestion. Do you have any economic theory to back that up?

Peak Trader: "the teen unemployment rate was lowest in 1969 when the real minimum wage was highest in 1968."

Were you alive in 1969, Peak Trader? That's the year I became eligible for the military draft. Here's what really was happening in 1969:

Peak U.S. troop strength of 543,482in VietNam was reached in April, 1969. The average age of those troops was 19, indicating that much more than 50% had to be teenagers. (http://www.mrfa.org/vnstats.htm)

At least a million more teenagers were serving in the military during 1969, but not in VietNam.

Millions of teenagers were enrolled in colleges in 1969, as student deferments were the only way for most to avoid being drafted. These teenagers were not in the workforce, and thus not included in unemployment calculations.

The minimum wage had almost no impact on teen unemployment in the late 1960s and early 1970s for a very simple reason: America's teens were either drafted into the military or else enrolled in college trying to avoid being drafted.

 
At 7/20/2011 6:32 PM, Blogger PeakTrader said...

Ron, the supply curve slopes up.

Jet Beagle, yes, you provided the theory yourself. Higher wages in the military, along with the high real minimum wage, reduced teen unemployment.

 
At 7/20/2011 6:51 PM, Blogger PeakTrader said...

Also, it should be noted, the average teen in 2006, when the real minimum wage fell to $5.50, was much better educated than the average teen in 1968, when the real minimum wage was $10.00.

 
At 7/20/2011 7:13 PM, Blogger PeakTrader said...

Anyway, while the real minimum wage generally fell from 1968-06, the teen unemployment rate generally rose.

 
At 7/20/2011 9:20 PM, Blogger Ron H. said...

"Also, it should be noted, the average teen in 2006, when the real minimum wage fell to $5.50, was much better educated than the average teen in 1968, when the real minimum wage was $10.00."

What evidence do you have for that?

"Anyway, while the real minimum wage generally fell from 1968-06, the teen unemployment rate generally rose."

Well that certainly proves that a higher min wage would increase teen employment.

You may have noticed a rather large supply of teens available for work lately, and not much demand for their labor. I'm sure the higher min wage will convince businesses to hire them.

 
At 7/20/2011 9:28 PM, Blogger Ron H. said...

...Also, it doesn't seem to matter whether teens are better educated than before, if there are no jobs, there are no jobs.

High school graduates with Ph.Ds don't appear to fare any better than dropouts

 
At 7/20/2011 11:55 PM, Blogger kleht said...

Not to debunk the theory of harming the inexperienced young with increasing of the minimum wage (since 2007), which I suspect has some truth to it. However, there is something occurring which is far more powerful under current circumstances and is certainly affecting the young.

The fact is that the recession has not ended, allthough officially it has. The economy is improving, although at a snail's pace. If you look at the huge corporations loaded down with cash with the resulting explosion of earnings, yeah, the recession is over.

Then why is the unemployment rate still at 9+%? Who hires by far the greater share of employees in America? Those large corporations? Hardly.

Small corporations which do hire the great majority of America's workers are really stuggling. Why? Little or no cash available. Large corporations have easy access to Wall Street cash, not to mention overflowing cash already in the safe. Numerous small corporations are not even sure they will survive. New restrictions on bank loans results in funds not being readily available. Loans are needed for many just to stay in business. No way can required upgraded business plans be made when survival itself is at stake.

Small corporations are starving for cash. For most such corporations the recession is still in force and unlikely to end soon.

This situation seems to be the major cause of the lack of jobs for the inexperienced than raises in the minimum wage. The minimum wage theory seems to be more important during good times than the present. (2007-2010)

 
At 7/21/2011 2:29 AM, Blogger PeakTrader said...

Innovation rules, something like a minimum wage is important, because although the government does more harm than good, it does some good.

Even lawyers in Washington micromanaging the economy can't be wrong all the time :)

 
At 7/21/2011 2:36 AM, Blogger PeakTrader said...

Ron, I'm suggesting other factors are keeping unemployment high rather than the minimum wage.

 
At 7/21/2011 5:27 AM, Blogger Jet Beagle said...

peak trader: "Higher wages in the military, along with the high real minimum wage, reduced teen unemployment."

Higher wages wages in the military had no inlfuence whatsoever on me and the millions of other young Americans who were in the military in the late 1960s and early 1970s. We were conscripted. We were either going to be soldiers or we were going to jail.

Once again, the draft caused most young men of those years to be removed from the civilian work force. Those who were not drafted were enrolled in college in order to gain student deferments. If you do not know what a deferment is, look it up.

Not sure if you are unable to read or just stubborn.

 
At 7/21/2011 5:42 AM, Blogger Jet Beagle said...

kleht: "The minimum wage theory seems to be more important during good times than the present. (2007-2010)"

It's not the minimum wage theory, kleht. It's theory of demand. And it't held true during economic booms and during recessions. Further, it's just common sense.

When the price of a good or service increases, those who consume that good or service will demand less of it.

When the price of unskilled labor increases - a minimum wage increase is such an increase - the employers who consume unskilled labor will demand less of it.

A recession heightens the effect of the minimum wage. Because workers with skills are unemployed for other reasons, they also seek the jobs that would have gone to unskilled workers in boom times. So the employer now has a substitute for the unskilled worker. The employer can hire a skilled or semi-skilled worker for the price that the unskilled worker is forced to ask.

So now, the unskilled worker is faced with a double whammy. And both were caused by the minimum wage law.

 
At 7/21/2011 9:22 AM, Blogger morganovich said...

"Peak Trader: "it's more likely the teen unemployment rate is high, because wages, including the minimum wage, have been too low."

this is not so at all.

keep in mind that the unemployment rate for teens counts only those that are looking for work.

if you have a large supply of labor and no demand, that tells you wages are too high, not too low.

 
At 7/21/2011 9:28 AM, Blogger morganovich said...

"Innovation rules, something like a minimum wage is important, because although the government does more harm than good, it does some good.

Even lawyers in Washington micromanaging the economy can't be wrong all the time :)"

sure they can.

what's more, they always will be. economies are dynamic. even if fed micromanagment gets it right for a minute, they will not adapt as conditions change.

top down policy can never be as responsive as that from the bottom up.

there are a few kinds of externalities that may require government mediation, but wage levels are not an externality.

if you would willingly sell your labor for $6 and hour and there is someone willing to hire you at that rate, why on earth would we want the government to forbid such a voluntary transaction?

if you wanted to sell your house for $800k and had a buyer, you'd thing it was insane and intrusive for the government to tell you you had to hold out for a million when no one is going to pay that.

why are wages different?

 
At 7/21/2011 11:17 AM, Blogger Jet Beagle said...

kleht: "The minimum wage theory seems to be more important during good times than the present."

I don't think so. It is exactly during recessions that minimum wage laws have the potential to do the most harm.

When unemployment of workers is high, the supply of workers willing to work for low wages is higher than at any other time. The obvious tactic for any worker is to offer his services for lower wages. That's what workers do where minimum wage laws do not exist and that's what microeconomic theory says they will do.

During periods of low unemployment, the supply of workers is much lower. As Peak Trader and others learned in basic microeconomics class, when the supply cannot meet the demand, prices rise to reach a new market clearing price. In those periods - the economic boom years - increased demand for workers causes the market clearing price to rise way above minimum wage levels. So the minimum wage rate becomes irrelevant. That's exactly what happened in the late 1990's and then again from 2004 to 2007.

 
At 7/21/2011 4:51 PM, Blogger PeakTrader said...

Jet Beagle, maybe if the minimum wage was raised to $10, that would also "force" more teens to work.

Morganovich, from 1960-06, the real minimum wage fell and teen unemployment rose.

Teens have a reservation wage too, and even if they take a job that pays too low, they may not stay long.

 
At 7/21/2011 5:10 PM, Blogger Jet Beagle said...

Peak Trader: " maybe if the minimum wage was raised to $10, that would also "force" more teens to work."

I'm sure when you studied microeconomics, you learned about supply and demand curves. Certainly if teenagers were offerred $10 an hour more of themn would work than if they were offerred $5 an hour. But the supply curve by itself does not determine how much of the labor of teenagers will actually be used. Are you arguing that the demand for labor should be ignored?

When you "earned" those two degrees in economics, did someone really teach you that raising the minimum wage would increase employment? Did an economics professor actually teach that to you?

 
At 7/21/2011 5:31 PM, Blogger PeakTrader said...

Jet Beagle, I'm glad you acknowledge both the supply and demand curves.

It's not impossible that a higher minimum wage increases employment.

Perhaps, it was in a labor economics class that I learned of Card-Krueger, for example.

 
At 7/21/2011 9:22 PM, Blogger kleht said...

Jet Beagle (kleht: "The minimum wage theory seems to be more important during good times than the present.")

I do agree with your responses. What I meant above is that in good times minimum wage theory has a greater effective weight (and benefit) to minimum wage employees and therefore have more relevancy to workers at the time.

Whereas at the present time the minimum wage theory seems almost irrelevant because the "ongoing" recession atmostphere (at 9% unemployment rate) vastly overwhelms the inexperienced workers with far greater competition from experienced workers for the same minimum wage jobs.

I hope this provides some clarification. Thanks for your responses.

 
At 7/22/2011 4:27 AM, Blogger Ron H. said...

"It's not impossible that a higher minimum wage increases employment."

I don't see how it's possible. Are you suggesting that there can be unfilled jobs because min wage is too low, and that some workers won't enter the workforce at that wage? That raising the min wage causes more workers to enter the workforce, thus filling those job openings?

If that were the case, why wouldn't employers offer higher wages to fill the openings they wanted to fill?

What need would there be for min wage at all?

 
At 7/22/2011 4:19 PM, Blogger PeakTrader said...

Ron, I gave an example above. Even if the supply of teens is high and they take jobs that pay too little, they may not last long and collect unemployment.

 
At 7/22/2011 5:00 PM, Blogger Ron H. said...

Peak: "Ron, I gave an example above. Even if the supply of teens is high and they take jobs that pay too little, they may not last long and collect unemployment."

So does that mean that employers are unable to determine the correct price for labor, and that instead, Congress is able to do it for them?

The availability of unemployment benefits is a separate issue, and in any case, a base period of earnings is required to establish eligibility, that means "may not last very long" can be 6-18 months.

The notion of working a short time, then living on UE benefits is mostly a fiction.

 
At 7/22/2011 5:18 PM, Blogger Ron H. said...

kleht: "I do agree with your responses. What I meant above is that in good times minimum wage theory has a greater effective weight (and benefit) to minimum wage employees and therefore have more relevancy to workers at the time."

I'm not sure what you mean by "minimum wage theory", but you might want to consider that in good times, when idle workers are few, and wages are high, the minimum wage may be below the market clearing price of labor, and therefore irrelevant.

A min wage of $5/hr is meaningless when anyone who wants one can get a job at $6/hr.

On the other hand, when times are bad, and idle workers are many, competition for jobs may cause the market clearing price of labor to drop below the minimum wage, so that marginal workers will be excluded from employment.

A worker valued at $6/hr will not be employed if min wage is $7/hr.

 
At 7/22/2011 6:08 PM, Blogger PeakTrader said...

Ron, typically, employers want to maximize profit not seek a "correct" price for labor, and they've generally done an excellent job over the past decade.

I've known people who forced their employers to lay them off, for one reason or another, it seems, just to collect unemployment benefits.

 
At 7/22/2011 9:36 PM, Blogger Ron H. said...

Peak: "Ron, typically, employers want to maximize profit not seek a "correct" price for labor, and they've generally done an excellent job over the past decade."

You didn't exactly answer my question.

Of course employers want to maximize profits, and part of doing that is done by minimizing costs, including labor. There is a minimum price employers must pay to get the labor they need. Employers and employees negotiate that price, and by definition, it is the correct price, as both parties agree to it.

My question was, and still is, do you believe politicians in Washington are better able to determine that price by setting a minimum wage?

Keep in mind, that if an employer values a prospective employee less than that amount, they won't be employed.

 
At 7/23/2011 2:45 AM, Blogger PeakTrader said...

Ron, the price of unskilled labor has been falling and government has maintained a (lower) floor.

A domestic teen may not work for half as much compared to 1968, but a poor immigrant may be more than willing.

 
At 7/23/2011 11:40 AM, Blogger Ron H. said...

"A domestic teen may not work for half as much compared to 1968, but a poor immigrant may be more than willing."

That is a political, not an economic argument.

Would you change the inscription on the Statue of Liberty to read -

"Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,

And I will guarantee them a minimum wage" ?

 
At 7/23/2011 11:48 AM, Blogger Ron H. said...

""A domestic teen may not work for half as much compared to 1968, but a poor immigrant may be more than willing.""

Some would say -

"Those damn immigrants come here to steal jobs from Americans."

Would you protect those teenagers, who don't need for much of anything, against competition from those who come looking for work, often at great risk to life & limb?

Doesn't that amount to a tariff on imported labor?

 
At 7/24/2011 8:29 PM, Blogger Jet Beagle said...

Peak Trader: "Perhaps, it was in a labor economics class that I learned of Card-Krueger, for example."

It's possible you have taken economics classes from leftists, and that Card-Krueger was emphasized over the many, many other studies which show exactly the opposite.

Anyone who believes that a higher minimum wage increases employment really doesn't understand demand curves. But, of course, a leftist "economics" professor may have failed to teach you supply and demand theory.

 

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