Neoclassical economists and the minimum wage

Posted: 12 October 2010 in Uncategorized
Tags: , ,

Nothing quite makes neoclassical economists go apoplectic than reading or hearing the argument that an increase in the minimum wage doesn’t cause unemployment. Just ask David Card and Alan Krueger (here’s one example, from Gary Becker).

A new study by Arindrajit Dube, T. William Lester, and Michael Reich will no doubt provoke a similar reaction. Here’s the link to an interview with Dube.

Dube’s findings indicate that a higher minimum wage helps service retailers attract and retain employees, increasing their productivity. He said that a restaurateur, for example, is likely to reduce his employees when the wage goes up if only one restaurant raises their wage, but if most of them raise it, the added cost is passed on to the consumer who is likely to absorb it without decreasing their demand. . .

He added that work done by economists at the Federal Reserve showed minimum wage increase led to significant increases in purchases of durable goods.

“From a perspective of stimulating demand, minimum wages will tend to increase demand by increasing the purchasing power of those workers.”

And this is in a country in which the real federal minimum wage is more than 20 percent lower than it was in 1968. Imagine how crazy neoclassical economists would get if there were a minimum wage that actually lifted workers above the poverty level!

Maybe as crazy as it makes them when the suggestion is made to repeal the tax cut for the top 2 percent. . .

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Comments
  1. I blogged about it here http://sparc5.blogspot.com/2010/06/rationed-demand-to-undermine-labor.html it’s so nice to see some data backing up my hypothesis. Love the blog, keep it up.

    • To the best of my knowledge, fast food franchise owners have no control over the number of employees working any particular shift; this is wholly dictated by McDonald’s, Burger King, etc. It should, therefore, be no surprise that nationally dictated staffing requirements are unaffected by local differences in wages. This is Card-Krueger’s central flaw repeated. It’s equally silly to assume that business owners are simply waiting for some wise government official to serve their interests by decreasing their employee turnover. Andrew Carnegie payed premium wages for the very same purpose more than a century ago.

  2. Zeroc00l says:

    so, why shouldn’t we set minimum wage to, for instance, 10’000$/month, so we can easily all be wealthy and happy forever…

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