Economists agree: Raising the minimum wage reduces poverty • Hacker News Board

Re: Economists agree: Raising the minimum wage reduces poverty

#21

Post by derefr » Sun, Jan 05, 2014, 1:36 AM UTC

ddebernardy wrote: post #17

derefr wrote: post #6

If I recall, economists tend to point out that the causation between minimum wage and poverty is actually reversed from its "intuitive" position. What actually tends to happen, is that first , a city/county/state/country's economy improves to the point that everyone is making a certain wage, just because of competition for workers. And then , policy-makers notice this, realize that there's an upside (better civic ima…

Not quite. What actually happens is that by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing. There's a virtuous circle in there. It's that thing Ford showed in its early days: paying workers extra so they can buy the cars they produce yields more economic activity for the benefit of…

> by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing

Do you have a citation on this? A raise of the minimum wage actually having an effect at the margins, in either direction, is unusual, because places don't tend to raise the minimum wage until it wouldn't have an effect anyway.

Raising the minimum wage does serve as a ratchet, to prevent productivity from slipping down to previous levels. But this basically mirrors the other way in which places transform to exclude low earners: gentrification.

Re: Economists agree: Raising the minimum wage reduces poverty

#22

Post by jbellis » Sun, Jan 05, 2014, 1:37 AM UTC

It's pretty easy to find research coming to a different conclusion than the Card/Kreuger paper that most pro-minimum-wage-increase people cite:

http://gregmankiw.blogspot.com/2006/06/sperling-on-minimum-w... http://cafehayek.com/2009/09/new-study-casts-doubt-on-card-k... http://rjwaldmann.blogspot.com/2009/12/in-which-i-disagree-w...

But the best reasoning I've seen on the subject is Bryan Caplan's:

"Suppose you have a weak prior about the disemployment effects of the minimum wage. Suppose further that you think that the best empirical work in economics is very good indeed. Doesn't existing evidence then oblige you to admit that the minimum wage has roughly zero effect on employment?

"Hardly. Why not? Because there is far more 'existing evidence' than meets the eye. Research doesn't have to officially be about the minimum wage to be highly relevant to the debate. All of the following empirical literatures support the orthodox view that the minimum wage has pronounced disemployment effects:"

http://econlog.econlib.org/archives/2013/03/the_vice_of_sel....

Re: Economists agree: Raising the minimum wage reduces poverty

#23

Post by cjo » Sun, Jan 05, 2014, 1:37 AM UTC

jswinghammer wrote: post #11

The basic issue is that economics is not an empirical discipline but rather a deductive one. You cannot test anything in isolation because you cannot have a control. All economists can say is "If you do X when nothing else changes Y will result". It is basic economics that when the government mandates a price floor then anyone who cannot sell their goods for anything below that floor will not be able to sell their go…

> It is basic economics that when the government mandates a price floor then anyone who cannot sell their goods for anything below that floor will not be able to sell their goods. Thus it will hurt those it's trying to help.

Applying this to the low end of the labor market is pushed in a lot of Econ 101 classes but it requires so many assumptions to be true that the model only has a passing resemblance to reality.

To use your own logic, you can't say that raising the minimum wage won't also change other variables important to the model but assumed to be constant (maybe it causes companies to outsource, maybe it causes workers to emmigrate, maybe it raises worker productivity) - so if economists are truly constrained to ceteris paribus situations then they have nothing to say about the effects in reality from a minimum wage increase.

Re: Economists agree: Raising the minimum wage reduces poverty

#24

Post by ddebernardy » Sun, Jan 05, 2014, 1:39 AM UTC

jswinghammer wrote: post #19

ddebernardy wrote: post #17

Earlier quoted context omitted.

Not quite. What actually happens is that by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing. There's a virtuous circle in there. It's that thing Ford showed in its early days: paying workers extra so they can buy the cars they produce yields more economic activity for the benefit of…

Ford and a lot of other thinkers thought this way but a basic understanding of how things are actually produced and paid for would tell us that high wages are not what causes prosperity but rather high wages are a sign of prosperity. In a world without continual non-stop inflation higher wages aren't necessary to raise your standard living because falling prices would do it.

Actually, they do. The classical economist's understanding is that money is created exogeneously, meaning a central bank prints it and it trinkles down into the mainstream by virtue of banks having excess reserves.

What happens in practice is that banks extend loans first and worry about their reserves later. By virtue of that, the enterpreneur gets a buck to invest in whatever he's doing, and part of that buck lands as extra pay (and thus economic activity) in the hands of workers who will spend every last bit of it for all intents and purposes.

Re: Economists agree: Raising the minimum wage reduces poverty

#25

Post by ddebernardy » Sun, Jan 05, 2014, 1:47 AM UTC

derefr wrote: post #21

ddebernardy wrote: post #17

Earlier quoted context omitted.

Not quite. What actually happens is that by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing. There's a virtuous circle in there. It's that thing Ford showed in its early days: paying workers extra so they can buy the cars they produce yields more economic activity for the benefit of…

> by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing Do you have a citation on this? A raise of the minimum wage actually having an effect at the margins, in either direction, is unusual, because places don't tend to raise the minimum wage until it wouldn't have an effect anyway. Rai…

Not handy, but use your common sense if you will: if you're surviving on $8/hour or whatever it currently is in the US, and your wage increases by a dollar per hour, then all things being equal you're going to be spending that extra buck on a range of things that had been delayed for a while: shoes for the kids, new tires for the car, and what not. This is consumption, and it's going to get recycled over and over again across the economy for the benefit of everyone.

The trouble is if you increase it to $50/hour. (Assuming the businesses survive, which is indeed a big if...) In this case you buy everything you ever needed or wanted, and...?, then what? You save it, put on debt to buy a huge mansion that you'll never actually be able to afford in the end, or otherwise contribute to some random asset bubble, snd you get booms and bust cycles. (See Steve Keen's research on the latter point, fwiw.)

Re: Economists agree: Raising the minimum wage reduces poverty

#26

Post by maratd » Sun, Jan 05, 2014, 1:49 AM UTC

ddebernardy wrote: post #17

derefr wrote: post #6

If I recall, economists tend to point out that the causation between minimum wage and poverty is actually reversed from its "intuitive" position. What actually tends to happen, is that first , a city/county/state/country's economy improves to the point that everyone is making a certain wage, just because of competition for workers. And then , policy-makers notice this, realize that there's an upside (better civic ima…

Not quite. What actually happens is that by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing. There's a virtuous circle in there. It's that thing Ford showed in its early days: paying workers extra so they can buy the cars they produce yields more economic activity for the benefit of…

> What actually happens is that by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing.

That may happen to some workers, but many others will simply find themselves out of a job. Even if 90% of the workers simply see a good wage increase, is it really appropriate to put the other 10% out of a job to do it?

> There's a virtuous circle in there.

Sounds like a vicious circle to me.

Re: Economists agree: Raising the minimum wage reduces poverty

#27

Post by jswinghammer » Sun, Jan 05, 2014, 1:49 AM UTC

ddebernardy wrote: post #24

jswinghammer wrote: post #19

Earlier quoted context omitted.

Ford and a lot of other thinkers thought this way but a basic understanding of how things are actually produced and paid for would tell us that high wages are not what causes prosperity but rather high wages are a sign of prosperity. In a world without continual non-stop inflation higher wages aren't necessary to raise your standard living because falling prices would do it.

Actually, they do. The classical economist's understanding is that money is created exogeneously, meaning a central bank prints it and it trinkles down into the mainstream by virtue of banks having excess reserves. What happens in practice is that banks extend loans first and worry about their reserves later. By virtue of that, the enterpreneur gets a buck to invest in whatever he's doing, and part of that buck lands…

Say would tell us something else-that supply is paid for with supply. Ultimately math cannot make you richer-you need to produce more to consume more.

Re: Economists agree: Raising the minimum wage reduces poverty

#28

Post by tn13 » Sun, Jan 05, 2014, 1:51 AM UTC

As rule always ignore the headlines and focus on the details. Actually the article contains very little details about the actual research methodology and data.

If poverty reduction in short term is the only objective then I am pretty sure increasing minimum wages will bring some people above the poverty line set at a time before increasing the wages. But whether that reduction ins poverty is sustainable over a decade or so is the important question.

Re: Economists agree: Raising the minimum wage reduces poverty

#29

Post by jswinghammer » Sun, Jan 05, 2014, 1:51 AM UTC

cjo wrote: post #23

jswinghammer wrote: post #11

The basic issue is that economics is not an empirical discipline but rather a deductive one. You cannot test anything in isolation because you cannot have a control. All economists can say is "If you do X when nothing else changes Y will result". It is basic economics that when the government mandates a price floor then anyone who cannot sell their goods for anything below that floor will not be able to sell their go…

> It is basic economics that when the government mandates a price floor then anyone who cannot sell their goods for anything below that floor will not be able to sell their goods. Thus it will hurt those it's trying to help. Applying this to the low end of the labor market is pushed in a lot of Econ 101 classes but it requires so many assumptions to be true that the model only has a passing resemblance to reality. To…

Yes they can. This is because we can discuss what higher prices do-invariably they cause market actors to seek substitutes. If you push a $15 minimum wage it stands to reason that there would be demand for any machinery that would allow for cost savings. It would be good for the sectors of the economy that would supply these cost savings technologies. Ultimately marginal workers would get hurt even further once these technologies emerged.

Re: Economists agree: Raising the minimum wage reduces poverty

#30

Post by jmckib » Sun, Jan 05, 2014, 1:54 AM UTC

Very misleading title, economists absolutely do not agree on this point, just read the responses to Card/Kreuger. My view after taking all of this in: there are valid theoretical models that both support and disagree with the view that the minimum wage reduces poverty, and so far the statistics are not clear either way. Given that we don't know, why not support more effective policies for combating poverty such as the negative income tax (Milton Friedman was a proponent of this), or even unconditional income? Those policies would be such a win-win in terms of both reducing poverty and reducing the costly bureaucracy surrounding welfare programs, but unfortunately they don't seem to be politically viable yet.