Oh dearie me, this research paper is cruel, very cruel indeed. It?s on one of the great questions of our time, what happens when you raise the minimum wage? Who benefits and who loses? Now yes, there have been any number of such papers and almost all of them end up proving what the writer of the paper would originally have asserted. People who think that the unemployment effect of higher labour costs will lead to jobs losses will write papers that tell us that unemployment effects lead to job losses. Those who believe the opposite, that the marginal propensity to consume of the poor will lead to more jobs as a result of directing more money to those poor will make assumptions in their papers that lead to that result. And so on through all of the various assumptions that we can make about what is going to happen when the minimum wage is raised. Most papers reflect the priors of the authors. For the obvious reason that the priors will influence the estimates of the elasticities of the various things (employment, propensity to spend, demand etc) and it?s those very elasticities that lead to the varied conclusions.
However, this paper (via Mike Munger) is cruel, very cruel indeed. It?s pretty obvious where the author?s sympathies lie. He thinks that a rise in the minimum wage just ain?t a great way of helping the poor.
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The efficacy of minimum wage policies as an antipoverty initiative depends on which families benefit from the increased earnings attributable to minimum wages and which families pay for these higher earnings. Proponents of these policies contend that employment impacts experienced by low-wage workers are negligible and, therefore, these workers do not pay. Instead proponents typically suggest that consumers pay for the higher labor costs through imperceptible increases in the prices of goods and services produced by low-wage labor. Adopting this ?best-case? scenario from minimum-wage advocates, this study projects the consequences of the increase in the national minimum wage instituted in 1996 on the redistribution of resources among rich and poor families. Under this scenario, the minimum wage increase acts like a sales tax in its effect on consumer prices, a tax that is even more regressive than a typical state sales tax. With the proceeds of this national sales tax collected to fund benefits, the 1996 increase in the minimum wage distributed these bulk of these benefits to one in four families nearly evenly across the income distribution. Far more poor families suffered reductions in resources than those who gained. As many rich families gained as poor families. These income transfer properties of the minimum wage document its considerable inefficiency as an antipoverty policy.
The cruelty comes from the fact that he?s not running the model on his priors nor his estimates of those elasticities and so on. Rather, he?s running the model on those of those who support the minimum wage as an anti-poverty measure. That is, it?s not his prejudices being examined here, he?s teasing out the implications of the prejudices of others. And even when you use the arguments commonly used in favour of the minimum wage we still find that it?s not a good anti-poverty measure. Which is really cruel, taking someone?s argument seriously and then still showing that they?re wrong.
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