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No, There’s No Economic Case for the Minimum Wage

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12/12/2015

Mary King, a professor emerita of economics, writes an op-ed in the Oregonian with the title The economic case for a $15 minimum wage is good. I have no reason to think Professor King is intentionally misrepresenting or using smoke screens, but the op-ed does just that. The very first paragraph makes it clear that King is not talking about anything but artificial analysis without relevance:

Contrary to claims in a recent Oregonian/OregonLive guest column, the economic case for a shift to a $15 minimum wage over the next few years is based on very solid mathematical analyses by the best labor economists in the field.

I should admit I have not read the linked column, so I am in no sense trying to defend it. But King’s claim that there are “very solid mathematical analyses” that provide an economic case for raising (that is, more than doubling) the minimum wage are at best comical. "Mathematical analyses" of course refers to the "mathturbation" of econometricians clouding guesses about the particulars of the unknown future by presenting them using Greek letters in equations and fancy statistical methods. She continues:

Their work predicts higher economic growth and therefore more tax revenue; lower business costs for turnover, recruitment and training; greater labor productivity and job satisfaction; lower poverty rates, particularly among single parents and young families; lower public expenditures for food stamps and other benefits; and a counter-force against spiraling income inequality in our state and nation.

Note what is the core of the argument: averages, aggregates, or averages of aggregates. There are no people involved in King’s analysis – it is all aggregate macro data. In other words, all the human suffering caused by raising the minimum wage disappears as people's lives are made into statistics through aggregation and then averaged. That we'll have fewer jobs due to this policy measure can then be balanced by advances in other areas, development of more effective technologies, and higher earnings by not-so-poor people. After all, considering "rates" and averages, then who cares about the unfortunate?

Of course labor productivity will go up if the unproductive will no longer have jobs (the obvious outcome of a substantial increase of the minimum wage). Of course poverty rates will go down if those lucky enough to keep their jobs more than double their salaries. Some people will be better off, some will be worse off. Statistically, we might still end up with a situation that looks better in terms of rates, averages, and aggregates.

But what about the real people adversely affected by the policy for which King claims there is a strong economic case? Many of them will not be able to find jobs as a result of the outright legal prohibition of jobs earning over $7.25 (the current federal minimum wage) but under $15 (the proposed minimum wage). That is, after all, what a minimum wage law is about: prohibiting jobs that don’t earn at least the specified “minimum” wage.

The answer we hear from bleeding-heart macro economists is that we shouldn't give a damn. Because the average might turn out to be higher. If our models are right.

Per Bylund is assistant professor of entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Website: PerBylund.com.

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