The Minimum Wage
BOP is shared--Pro must show that the minimum wage is beficial overall to win, and I must show that it is harmful overall to win.
1st round for acceptance.
I’m glad to be debating this ever controversial issue with LaissezFaire, a most distinguished debater on this website. This will hopefully be quite insightful for readers.
Points of Note
Obviously, I’m not to make arguments this round, nor will I be having too many rebuttals in R2 – that’s more to lay out my arguments, but it’s important to make crystal clear a key point in this debate to the reader early on
We are not debating whether the minimum wage is economically harmful . The word ‘society’ reflects a more holistic, sweeping view; on the whole, all things considered, is the wage harmful? This distinction is fairly important, although obviously this debate will have clashes on the economics side of things - for instance, one may see monopsony become an issue in this debate on the economics side.
Just to be clear to readers, we’re discussing a single minimum wage. We’re not discussing variations, such as a minimum wage per occupation.
My other note is that empirical evidence isn’t constrained to just the US. While it is useful to have constraints on scope, evidence from other countries with the minimum wage and the subsequent impacts is permissible. Furthermore, understanding factors that could affect the impacts of the minimum wage is important, and factors may differ between countries.
I hope I these points serve as a clarification to the reader as to the scope and weighing of the debate. They are by no means arguments and should not be treated as such.
I look forward to a good debate.
1) There exists a marginal productivity (Amount of revenue that worker brings their employer per hour of work) for workers
2) Because companies compete with each other for workers, a worker's wage will be close to that marginal productivity. (If a worker is making significantly less than their marginal productivity, another person can make a profit by hiring them for slightly more than they're making, and so on until the wage is approximately the marginal productivity).
3) A government declaration of a 'minimum wage' doesn't raise the productivity of workers.
4) If a minimum wage is set above the marginal productivity of a worker, that worker's employer must either continue paying that worker, losing money, or fire that worker
5) Businesses aren't charities, they will not hire workers for a loss
6) So the minimum wage can only cause unemployment.
The problem people have with this argument is usually that they don't accept the 2nd premise—many think that wages will be significantly lower than workers' marginal productivity, and so a minimum wage can increase wages by decreasing profits. This is based on the idea that low-skilled workers, the ones that would be affected by the minimum wage, don't have the bargaining power required to get higher wages like higher skilled workers do. This, however, is false. If it were true, industries that used low-skilled workers would have significantly higher rates of profit than those that don't. Not only is this factually not the case, if it ever were the case, it would quickly change. We all know businessmen and investors are greedy—they always want to maximize their profits. And so, obviously, investors will tend to invest in the industries with the highest profit rates they can find. If these were industries employing low-skilled workers, then this additional investment would increase the demand for these workers, driving up their wages. And there would always be enough demand to do this—if a certain amount of investment wasn't enough, then profit rates in that industry would remain high, which would attract even more investment, and so on.
Empirical evidence confirms this conclusion. A study comparing youth employment and minimum wages across states found a significant negative correlation between them.  This correlation holds after controlling for other variables that effect employment, like nation-wide business cycles and state-specific trends. This study had the same conclusion—also finding that states with sub-minimum wage provisions (lower minimum wages for minors) reduce the disemployment effects of the minimum wage.  A meta-study reviewing previous minimum wage studies found that while some recent studies have found no effect or positive effects because of minimum wages, a strong majority show that the minimum wage does reduce employment.  This disemployment effect is long-term—the longer someone was exposed to a minimum wage (especially as a teenager), the worse their employment prospects, even in to their late twenties, because they get less training and skill acquisition. 
Thanks to LF for his post. I’m going to avoid going into rebuttals as per the rules, despite wishing to tear his case apart. Rebuttals will only be in the form of arguments. Also, remember this is ‘on balance’ , not just economics. Also, I’m presuming a certain amount of economic literacy on the part of the audience. I apologise if this post seems slightly rushed.
Con’s case is a nice exposition of neoclassical economics when given free market conditions. Unfortunately, this isn’t always the case. Take a monopsonist – a single buyer of labour. Monopsonies tend to be common in small towns, where only one large firm provides the majority of employment.  Due to this control over employment, monopsonists can control the price they pay compared with buyers in more competitive markets.
While pure monopsonists are rare, monopsony power is quite common. Take supermarkets for example. In Australia 2 monopsonists – Woolworths and Wesfarmers, control 80% of grocery sales. This allows them great power in dictating terms to suppliers (in this analogy, suppliers are like minimum wage workers).
Now, monopsony means that workers are not being paid an amount they would in a competitive market, which seems to be the standard Con holds to (more on this later). A rise in the minimum wage eliminates monopsonist power and reduces the degree to which exploitation occurs, up to the point where the marginal cost of labour (MCL) = marginal revenue product (MCP) , so profits still occur for the former monopsonist, merely that they can’t exploit workers by paying them below what would be payed in a competitive market.
In fact, in the case of a monopsony the minimum wage increases employment. The below diagram (depicting various minimum wage regimes) illustrates how monopsonies operate.
Elasticity of Demand
Con’s case is very strongly dependent on the idea that the minimum wage will increase prices if additional costs are passed on (instead of the cost being absorbed or redundancies occurring) , resulting in less demand.
Unfortunately Con’s case presumes a degree of elasticity. Many industries have inelastic demand. If I had control over the water supply then if I raised prices you would still demand water – you need it to live. Demand is close to perfectly inelastic. The same applies to supermarkets and essential goods and services – the minimum wage will hardly affect demand because demand is inelastic.
From here it’s clear to see that conspicuous consumption would likely reduce as a percentage of overall spending. Given that conspicuous consumption is precisely what drives a materialistic culture, a reduction is conspicuous consumption could be helpful. I won’t push on this topic though as cultural preferences are subjective; readers can decide if a reduction in conspicuous consumption is a good thing. Nevertheless, Con is still incorrect to state that higher prices necessarily equate to lower demand.
Big increases vs. small decreases
While not strictly the case, the law of diminishing returns applies to minimum wage workers. One often finds less utility in each additional dollar they make. To use an extreme example, if I had a billion dollars I’d get a lot. I’d value what I got from that billion quite highly. Another billion wouldn’t get me quite so much.
Basically, a small increase in a worker’s wage (as minimum wages do; I’m not advocating for a large wage increase – see second regime minimum wage ) is worth a lot more to them than any loss if a price is passed onto consumers. Increased costs in areas like luxury goods may slightly lower people’s total utility yet it enables minimum wage employees to vastly increase their utility. Essentially, total happiness is increased, which is a good thing.
Con states “1) There exists a marginal productivity (Amount of revenue that worker brings their employer per hour of work) for workers”, making the mistake of presuming that an employee’s output isn’t changeable which isn’t correct. A worker’s productivity is not set – psychology, health, sleep etc. can alter a worker’s productivity – it is not a constant, unchanging, set in stone value. 2 workers on the same wage may have complete different levels of productive output for instance.
This is relevant to the minimum wage because better paid staff who feel their wages are likelier to be healthier, and feel more respected and motivated, leading to more productivity. This is backed up by various economic process theories, such as behavioural management theory. Edwin Locke studied this phenomena and found that higher wages increased productivity by an average of 30% [3, 4]
The point is thus – there’s a point to which it doesn’t matter what the actual effects of the minimum wage are. If many people believe the minimum wage is fair, just and beneficial then they’ll work harder. A 30% increase in productivity is most definitely worth a few potential job losses in some circumstances (not all, ie. Monopsonistic competition).
One’s psychological viewpoint is most definitely worth consideration by itself. When it increases productivity it’s even better. Need I mention a similarity to the Placebo Effect?
Are Market Prices Optimal?
As mentioned before, Con has adopted a fairly neoclassical economical approach. As Ross Gittins states in  “This conventional economics reduces all economic activity to that which happens within markets. It further narrows the operation of markets to the setting of prices, assuming movements in relative prices are the primary thing influencing the behaviour of producers and consumers”. Put quite simply, Con views price as a critical factor in economics (nevermind that people tend to overemphasise the importance of quantifiable things) , and henceforth supports the price mechanism as ideal. Is this always the case?
No. Negative externalities are an example of the price mechanism failing to produce an ideal result, because externalities (in this case negative) are not accounted for because the cost is not incurred by a buyer or seller of the good or service causing the cost. See the below diagram.
What’s this all about? Con can’t simply view the price mechanism as always ideal. Things like behavioural economics are important to consider. Furthermore, there are good reasons to doubt that price movements have as much of an impact as Con speculates.
It’s difficult to cover every point to do with the minimum wage in 8000 characters. I’ll cover empirical evidence more in later rounds. Empirical evidence is obviously sometimes questionable though because we can’t control all the variables. Nevertheless, there is quite a bit of empirical evidence supporting the minimum wage. To reinforce this I need merely partially quote LF “A meta-study reviewing previous minimum wage studies found that while some recent studies have found no effect or positive effects because of minimum wages...” . There’s quite the conflicting body of evidence and it’s nearly impossible to control all variables.
More in my 3rd round.
I’ll leave it there for now – more in later rounds.
Addressing LF’s theory
Put simply, this is done already.
1 is negated under my section ‘Marginal Productivity’ due to there not being a set marginal productivity – it varies based on certain circumstances. 2 is negated by monopsonistic competition. 3 is addressed by psychological points stated under ‘Marginal Productivity’ . As to 4, yes, but productivity will likely raise due to additional wages. I’ll grant 5. Nevertheless, 6, the conclusion, is flawed as it is derived from flawed premises.
 - http://economicsonline.co.uk.........
 - http://en.wikipedia.org.........
 - http://www.nbrii.com.........
 - http://www.questia.com.........
 - http://www.smh.com.au.........
Monopsony is common for buyers of goods—Walmart, for example, as well as the grocery stores he mentions—but it’s rare in the labor market. It is sometimes the case in small towns—but that’s a minority of the labor market. And you can’t have a minimum wage just for small towns—it would be too easy for businesses to relocate to the next town over that didn’t have a minimum wage, thus driving jobs away from those small towns.
Elasticity of Demand:
Pro’s case seems plausible—after all, surely people won’t stop buying essentials if the minimum wage increases costs to those businesses and they pass these costs on to consumers. But it turns out he’s wrong—the demand for food is, in fact, fairly elastic.  This is because while the demand for food is only inelastic if you’re starving to death. Some food is necessary, but the marginal unit of food (the last unit you’d buy) isn’t, and prices are determined at the margin. If you think about it, an inelastic demand for food doesn’t make any sense—if supermarkets could get more money by raising prices to cover the increased costs of the minimum wage, then why wouldn’t they increase prices now to get more profits?
Since demand is, in fact, elastic, supermarkets and other places minimum wage workers work could not simply increase prices to cover the costs of wage increases. If they raised prices, they would sell less, and thus require less labor.
Big Increases vs Small Decreases:
Irrelevant, because I’m arguing that the minimum wage is harmful to low income workers, regardless of what it does to everyone else.
Pro misunderstands his own source regarding wages and productivity. He claims that Locke’s research showed that higher wages increased productivity. What his source actually says is that when offered financial incentives for higher productivity, workers worked harder and were more productive.  It’s like if an employer says, “produce 10% more and I’ll pay you 10% more”—not that employees will become more productive after a pay raise, even though the pay raise isn’t tied to productivity. Since the minimum wage isn’t tied to higher productivity, it wouldn’t have this productivity increasing effect.
Are Market Prices Optimal?:
Markets don’t have to be ‘optimal’ for my argument to be correct. The question is not whether markets are always optimal, but whether this particular intervention is good or bad. Negative externalities are indeed an example of market prices being sub-optimal—but not an example that applies to the minimum wage.
Monopsony would be an example of prices being sub-optimal in the labor market—but only if most employees worked for monopsony employers, which isn’t the case.
The fact that we can’t control for all possible variables, and studies have conflicting results, doesn’t mean we can’t conclude anything about the efficacy of the minimum wage. Not controlling for all variables means we can’t have perfect econometric results, but that doesn’t mean we should throw the evidence out the window. We can make every effort to control for as many variables as possible—for example, controlling for national economic trends and state-particular economic trends controls for many variables at once, such as business cycles, other state and national policies that would affect employment, etc. The results aren’t perfect, but they can still be pretty good.
Conflicting studies also don’t mean we don’t know the right answer. Imagine that 99% of the studies found that the minimum wage was bad, and 1% found it was good. It’s possible that the 1% was right and the 99% was wrong—but we wouldn’t say that it’s equally likely that the 1% is right and the 99% is right. We would conclude that the minimum wage is almost certainly, but not definitely, harmful. The actual numbers aren’t 1% and 99%, but it’s still the case that the vast majority of studies find that the minimum wage is harmful. So while we can’t say that the empirical evidence shows that the minimum wage is definitely harmful, we can say that it shows that the minimum wage is probably harmful.
Note: You can’t access the full article without an academic search engine. Logic, if you’d like to read the full article, message me your email and I can send it to you.
Thanks to LF for his post. Remember this is ‘on balance’, not just economics. Also, I’m presuming a certain amount of economic literacy on the part of the audience. I apologise to LF as this argument is rather rushed, and perhaps not as it should be.
Let’s recount a few points of note. Firstly, Con basically agrees with me on monopsonistic grounds where a minimum wage increases employment and so forth. A crucial point. Secondly, he doesn’t counter the idea that there is no set marginal productivity. In effect, his original theory is undermined as premise 1 isn’t true (not to mention premise 2 and 3, which we are still debating). Also, Con admits to market prices not being optimal and ignores my ‘Big increases vs. small decreases’ point, deeming it irrelevant. All these points help build my case.
Still up for contention is the elasticity of demand, the impact of financial incentives on marginal productivity and empirical evidence.
Con basically conceded this point. It should be noted that there are 3 minimum wage ‘regimes’ – those that pay above a competitive wage, those that pay less than a competitive wage and more than a monopsonistic wage, and those that pay less than a monopsonistic wage.
What’s the point? There’s not often a pure monopsony, but employees still have monopsony power, as shown by “A large empirical literature, dating back to the 1940s finds evidence of substantial wage dispersion among workers that do the same job in the same city. The classic references are the case studies of Lester (1946) , Reynolds (1951) and Slichter (1950) . Although the data in these studies are now 50 years old, their conclusions probably remain valid today.” http://pubs.aeaweb.org...
We’re not just talking about ‘small towns’ , we’re talking about cities – settlements of a much larger size. The point is that monopsony extends far beyond the small country town, although it’s impacts are most far reaching there, it pervades much of society.
Also, even ignoring the whole cities point the debate is basically won. If a minimum wage is made that pays above a monopsonistic wage yet less than a competitive wage then positive gains are made. But you shout ‘wait, what about different occupations and pay rates?’ . Easy, - simply cater to the lowest earning occupations and pay above a monopsonistic wage and you’ve made an improvement. Granted, it’s a very minor improvement as such a low minimum wage would hardly affect most people, but on this technicality the minimum wage policy can be supported without any downsides.
Note as well that a minimum wage often still has an overall benefit even if it’s above a competitive wage given monopsonistc wages.
The main point though is that monopsony pervades the labour market, and a minimum wage improves upon a monopsonistic situation.
Big Increases, Small Decreases
The point is thus – if some customers pay more because a business passes on costs from an employee receiving the minimum wage then it’s still a positive. Those on the minimum wage earn less, and per the fact that each additional dollar brings less additional utility, minimum wage earners gain more than consumers lose. Think along the lines of utilitarianism here – a weighing mechanism as yet unrefuted.
Check for yourself the fact that essential food items have relatively inelastic demand in LF’s study. Basically, essentials are inelastic.
Now, as to conspicuous consumption, as LF’s source notes it’s more elastic. Of course, reducing conspicuous consumption is often considered a good thing. Ever heard of a materialistic culture being a bad thing? Countering a materialistic culture, courtesy of a minimum wage, is sure to be a good thing.
I’ve already proven that there doesn’t exist a single marginal productivity, so I won’t address that now.
The issue is on Locke’s evidence. LF claims that people aren’t more productive under a minimum wage, merely being a case of ‘produce 10% more, get paid 10% more’ .
However, it’s the wider psychological effect that’s at issue here. It’s not just payment, it’s image. Ever heard somebody question a product’s lifespan because it was ‘made in China’ or something of the like? This is often because of low wages and assumptions people make about quality based on wages. The point is that if places like China had a higher minimum wage then other countries would respect their products more. That’s clearly a good thing.
Also, people do work harder if they feel properly treated. Just knowing that a minimum wage exists increases productivity. If people feel they are being paid fairly they’ll work harder. Same with higher wages. In the minds of the people ‘minimum wage’ equates to fairness. If we eliminate the minimum wage their productivity will drop, regardless of any change in pay rates.
Optimal Market Prices
We agree market prices are not always optimal.
Is the minimum wage optimal? That’s the whole point of this debate. Of course, a market price, ie. Monopsony, isn’t optimal. Refer to monopsony for discussions on this point.
Let’s be blunt – I can give you a bunch of studies, as can LK. Look at Card and Krueger say (that ought to get somebody going!) . Point is, there’s lots and lots of evidence on both sides.
There is a bomb to be dropped though. Statistical meta-analyses of minimum wage studies have shown publication bias. 2 meta-studies [1,2] show evidence of publication bias and that correction of this bias shows no relationship between the minimum wage and unemployment.
Ie. Conclusion of  – “Once the publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains.”
Compare that to some positive studies mentioned earlier. Point is, publication bias, not empirical evidence explain studies, as proven be meta-analysis.
If this seems like a rushed round then I apologise to LF and readers. Nevertheless, there’s still many arguments and such here. Unfortunately I can’t add new arguments in R4...
The arguments presented so far support my side of the resolution though. Note my monopsonistic technicality is a win in and of itself. Hence vote Pro.
 - Hristos Doucouliagos and T.D. Stanley, "Publication Bias in Minimum-Wage Research? A Meta-Regression Analysis," British Journal of Industrial Relations, 2008.
 - T.D. Stanley, "Beyond Publication Bias", Journal of Economic Surveys, Vol. 19, no. 3 (2005), pp. 322-327. – publication bias
Pro's source does not show that urban labor markets are monopsony—it argues that they are a sort of ‘oligopsony’, something between perfect competition and monopsony. This is an important distinction—the paper argues that a minimum wage would not have just positive effects in this environment, as it would with a monopsony, but both raise wages and drive some employers out of businesses.
Another important distinction between monopsony and oligopsony is their causes. A monopsony is simply a monopoly buyer—but an oligopsony is more complicated than that. The author’s of Pro’s source theorize that the main reason labor markets aren’t perfectly competitive is that workers have heterogeneous preferences. Workers prefer different kinds of work. They live in different places, and thus may have different transportation costs for the same job. Or they may experience the same transportation costs differently—one person may dislike a 1 hour commute more than another person. So an employee might accept a lower wage in exchange for a shorter commute. Thus, wages may be lower than a worker’s marginal productivity. But this doesn’t necessarily mean that a minimum wage will be beneficial. Remember that the paper concludes that under an oligopsony, a minimum wage will decrease employment in some places and increase it in others. It’s not like a monopsony, where higher wages would mean that that employer will increase employment. Some people with low wages might get higher wages, but others will lose their jobs. Even if the minimum wage worked as it was supposed to, and it raised wages with the employment and disemployment effects canceling each other out—workers would still be worse off. Remember that workers with low wages accept those low wages in return for other benefits—they like that type of work more than other, higher paid work, or they’d rather have low wages near home than higher wages with more transportation costs.
Pro ignores my argument about different levels of labor market competitiveness in different areas. Even if an area has monopsony employment power, that doesn’t mean a minimum wage will help. If the minimum wage was everywhere, it would help in the monopsony area and hurt everywhere else. And if it varied by area—having a minimum wage in the monopsony area and not anywhere else—it would drive the demand for labor away from the place with a minimum wage and toward other places. This same logic applies to monopsonistic competition. Even if politicians could find the exact right minimum wage—an amount between the competitive and monopsonistic wage—it would be different for different places, depending on the level of competition among employers. If a uniform minimum wage was set across the nation, then it couldn’t be between the competitive and monopsonistic wage rate everywhere—it would raise wages for some people, but lower employment elsewhere. If you had different minimum wages in different places, not only would some of them probably be set at the wrong level, but it would drive labor demand away from high minimum wage areas and toward lower minimum wage areas. This is harmful because 1) employers produce things in the place where it’s most efficient to do so—artificially moving labor demand around reduces efficiency, and 2) the lower demand in high minimum wage areas could drive the minimum wage above the competitive wage, even if it was between the monopsonistic and competitive wage before.
Big Increases, Small Decreases:
Again, this is irrelevant. My point is that if businesses raise prices in response to a minimum wage, the demand for their goods would decrease, and thus those businesses would demand less labor.
It doesn’t matter how “essential” the goods are. Even if you don’t care about reductions in “conspicuous consumption” for its own sake, any such reduction means that the sellers of such goods don’t need as much labor, and thus will reduce employment.
Pro argues that a higher minimum wage has psychological effects, like people feeling properly treated, or people respecting Chinese products more if their workers were paid more. However, he has absolutely no evidence for these claims. I could just as easily say that a minimum wage makes people lazy and lowers their productivity. But obviously, that wouldn’t count as an argument, because it’s just an unsubstantiated assertion.
What matters is not whether marginal productivity can be changed, but whether the minimum wage changes it. If it doesn’t, then my theory is correct. And Pro has provided absolutely no evidence that the minimum wage changes marginal productivity. The only evidence he had, the Locke study, concludes that wage increases only increase productivity if they’re tied to productivity increases—it says nothing about minimum wages increasing productivity because of the psychological effects Pro claims.
Meta-studies about the minimum wage showing publication bias have been criticized for statistical problems—“In other disciplines, meta-analyses of published papers--generally focusing on clinical trials--provide some evidence consistent with a bias towards publication of significant results (see, for example, Berlin et al. ), under the (reasonable) presumption that the parameter of interest, such as the effect of a drug, should be constant across studies. In economics, however, the parameters of statistical models are more likely to vary across samples---especially when the samples cover different time periods--because of changed behavior (e.g., Lucas ), model misspecification, or measurement changes. The possibility of parameter instability makes it difficult to apply standard meta-analysis techniques to the economics literature, because these techniques draw inferences regarding publication bias from changes in estimates across samples.” 
In addition, if the minimum wage does, in fact, cause unemployment, then we should expect publication bias. If the minimum wage does cause unemployment, then papers showing that it doesn’t would be more likely to have lower data quality, fewer statistical controls, or other problems, and thus should be less likely to be published. For example, the Card and Krueger study Pro mentions has been criticize for using phone surveys instead of payroll data—further studies on the same area using payroll data instead of surveys failed to replicate their results.  So, if there was publication bias, it could be because studies showing that the minimum wage was effective tended to be of lower quality, not because journal editors were biased.
 Neumark, David, and William Wascher. "Is The Time-Series Evidence On Minimum Wage Effects Contaminated By Publication Bias?." Economic Inquiry 36.3 (1998): 458.
 Neumark, David and William Wascher, "The Effect of New Jersey's Minimum Wage Increase on Fast-Food Employment: A Reevaluation Using Payroll Records." American Economic Review, Vol. 90, No. 5 (December), pp. 1362–96.
Thanks to LF for his final round. It’s been a good debate. I only wish that I could have spent more time on my last round so that readers could be more enlightened. Let’s resume the debate.
At the core, LF’s case is basically that the minimum wage is like a regular price floor, and hence unemployment will increase. He also maintains that unemployment is bad (I agree, ceteris parabbus) and hence the minimum wage is not beneficial for society. Empirics and theory are used to try and prove this, as we’ll discuss below.
I argue that various mitigating factors exist, and that the labour market is different to other markets. Furthermore, the unemployment idea is not ceteris paribus – not everything else is equal for various reasons. If these mitigating factors outweigh the issues associated with a neoclassical price floor, then I win the debate. If not, the vote is for LF.
Price Elasticity of Essential Goods and Services
No response whatsovever to the conspicuous consumption argument this entire debate – driving down conspicuous consumption is assumed to be good, as a minimum wage does. The good done from this can outweigh employment losses in certain sectors due to the inelasticity of demand combined with monopsonistic issues.
Besides, undertaking employment is to forego the opportunity cost, say more education and a more efficient, specialised workforce. This, plus conspicuous consumption reduction is a positive.
Big Increases vs. Small Decreases
Again dismissed as irrelevant by Con. Even granting his statement that the demand for labor may decrease, unemployment is a negative given ceteris paribus, but the situation is not ceteris paribus! The utility gained for the workers is significant, and outweighs lost utility of the unemployed (in the case of layoffs) and exceeds that of customers when costs are passed on; the average customer has earnings above that of a minimum wage worker. Let’s also remember that firing somebody isn’t something that employers readily do – they have regulations to comply with, retraining to do if they ever lower prices and experience increased demand for their products etc. The situation is not always the case that a price rise will result in unemployment.
When considering what is beneficial for society it’s important to look at what utility one derives from each new dollar they earn – it’s the entire reason wealth redistribution exists. The minimum wage helps contribute to greater societal utility and happiness, which is beneficial.
Con attacks my evidence for my stated psychological effects, despite it being rather self evident. I suppose I have myself to blame for not going to great lengths (while rushing to post R3 due to Internet failure) to source generally accepted fact. Readers, see if my psychological impacts resonate with you – people like you are the people who are making decisions based on these impacts!
However, Con’s criticism ties in very nicely with my point from R2 about neoclassical economics and its overemphasis on markets, as demonstrated by my quote of Ross Gittins. Con attacked negative externalities yet dropped the whole overemphasis point. Now he’s saying that a lack of quantitative evidence is problematic, yet he let it slide earlier! Furthermore, a focus on quantitative data tends to result in valuing things too quantitatively. For instance, when you go shopping you tend to focus on price as opposed to say, quality, despite your wishes for quality being a priority, because you can’t easily measure quality as you can with price. Relating back, Con also dropped my the conclusion of all of this that price movements had less impact than speculated, severely weakening his case.
Readers can decide on the psychological impact of the minimum wage and whether the general populace sees it as fair and hence works more productively. The key is behavioural economics.
This issue is rather important, so let’s spend some time on it.
Con’s main contention to the minimum wage fixing monopsonies is that it doesn’t help in a majority of cases (if varied by area then relocation he says, nevermind that people are unlikely to move on small pay differences) . Again, my technicality argument about determining the very worst monopsonistic payment in existence (or something rather low) and then setting the minimum wage above this by a bit (but below most other jobs pay) is perfectly sound, if a little unfair. It’s a well known fact that a minimum wage increases employment under monopsony .
However, the big argument is about (less substantial) monopsony powers existing in urban labour markets. The paper under contention , states clearly that 2 effects will occur under a minimum wage “minimum wages have two opposing effects: the employment-increasing “oligopsony” effect and the employment-reducing “exit” effect. The overall effect of a minimum wage depends on which effect dominates” . Interestingly though, the ‘exit’ effect is a result of increased ease of entry into a market which causes greater competition. Of course, this causes a degree of unemployment, but this is simply markets at work, and is beneficial in the long run. As to the oligopsony effect, it’s clearly stated : “Thus, even in the case of multiple employers, a minimum wage set moderately above the market wage can increase employment through greater labor market participation. Intuitively, by setting the minimum wage above the market wage,employers ﬁnd it easier to ﬁll their vacancies” , among other statements. Basically, more employment.
Just to round off, studies like Bhaksar and To 1999, Walsh 2001 found an overall positive impact; ie. Oligopsony impact greater than exit impact.
This is amusing. Con quotes a meta-study on minimum wage studies, I discredit the study with meta-analysis showing publication bias and Con retorts argues that it is ‘difficult to apply’ meta-analysis to economics.
Explaining pages and pages of academic argument and statistical methods is beyond this debate however. I’ll note that Con’s quoted text is published at a time when it would be reacting to Card and Krueger’s statement of publication bias (a few years prior) . However, Doucouliagos and Stanley used a different, more accurate version of meta-analysis, disagreeing with Krueger’s methodology yet reaching the same conclusion that countered Neumark and Wascher’s findings.
I won’t delve into the minutae (debates in itself...) but here’s an interesting quote from the conclusion:
“Secondly, minimum-wage effects might exist but they may be too difficult to detect and/or are very small. Perhaps researchers are “looking for a needle in a haystack” (Kennan, 1995, p. 1955). In any case, with sixty-four studies containing approximately fifteen hundred estimates, we have reason to believe that if there is some adverse employment effect from minimum wage raises, it must be of a small and policy-irrelevant magnitude.” 
If employment change is of a ‘policy irrelevant magnitude’ then LF’s case, dependent on unemployment outweighing positive impacts, is essentially weak. There’s the productivity effects, the psychological impacts and the whole utility per dollar arguments based off diminishing returns being put against ‘policy irrelevant’ employment effects.
I can’t summarise the entire minimum wage debate in a few words – it’s a complex issue based on various mitigating factors meaning that conventional theory regarding a price floor doesn’t apply, or is of less importance than the mitigating factors. Basically ‘policy irrelevant’ unemployment effects (potential positive employment via monopsonistic competition as well in some cases) are outweighed by other effects. Case in point for behavioural economics.
Thanks to LF for a fierce debate.
 - http://pubs.aeaweb.org...
 – Ibid
 - http://www.deakin.edu.au...
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|Who had better conduct:||-||-||1 point|
|Had better spelling and grammar:||-||-||1 point|
|Made more convincing arguments:||-||-||3 points|
|Used the most reliable sources:||-||-||2 points|
|Total points awarded:||3||0|
|Agreed with before the debate:||-||-||0 points|
|Agreed with after the debate:||-||-||0 points|
|Who had better conduct:||-||-||1 point|
|Had better spelling and grammar:||-||-||1 point|
|Made more convincing arguments:||-||-||3 points|
|Used the most reliable sources:||-||-||2 points|
|Total points awarded:||3||0|