Friday, July 31, 2015

John T. Harvey — The Real Argument For Raising The Minimum Wage

There continues to be a great deal of debate over the economic impact of the federal minimum wage. Does it serve as a drag because it raises firms’ costs or do businesses experience higher sales as a result of the rise in their customers’ income? Obviously, if you consider only one side of that equation or the other–as most amateur analysts do–you reach a biased conclusion. The real question is, what is the net impact after all the relevant relationships are considered?
Fortunately, this has already been addressed in myriad professional, peer-reviewed studies using both mathematical modeling and statistical evidence. And there appears to be something of a consensus: changes in the minimum wage have little to no impact on employment (see for example: Why Does the Minimum Wage Have No Discernible Effect on Employment?). Apparently, the change in cost is largely offset by the change in demand and other factors. A little boring, perhaps, but it’s always a cause for celebration in my discipline when we get anything close to an agreement!
But if that is true, then what is the point of raising or lowering it?….
Forbes — Pragmatic Economics
The Real Argument For Raising The Minimum Wage
John T. Harvey


Ralph Musgrave said...

Just one point in that paper that doesn’t impress me: that’s the claim that a rise in the min wage is justified if it raises demand. The flaw in that argument is that it costs nothing in real terms to raise demand by the usual stimulatory measures (interest rate cuts, QE, a deficit, etc).

Peter Pan said...

Still no consensus.