Basically the idea is the minimum wage reduces employment (http://modeledbehavior.com/2010/10/12/what-the-new-minimum-wage-research-says/). Another criticism is that the benefits don’t necessarily go to someone who needs the help (for example it may go to teenagers getting their first job). I find it hard to understand having a good grasp of economics and having an intuition that minimum wage laws are good. Are price floors in general a good idea? At the very very least, they’re a very kludgy and indirect method of helping poor people.
My understanding of the evidence is that minimum wage laws is that they are not especially harmful, but they’re not especially helpful either (I have this link in my notes from when I did a bit of digging on this topic for the same reasons as you but from the opposite direction http://www.jstor.org/pss/1942818). Basically, minimum wages aren’t a huge problem, but if your goal is tp help poor people, there are better ways to do it (for example the Earned Income Tax Credit seems to work pretty well).
A problem with the earned income tax credit is that as your income increases you get less of it which creates a high effective marginal tax rate (especially when combined with other means tested government programs) which discourages people from leaving the lower working socioeconomic class.
Of course. I didn’t mean to imply that the EITC was perfect; the only perfect redistribution program is going to be uninfluencable lump sum transfers. My understanding was that wage subsidies were found to be pretty effective at boosting poor people’s spending power without doing too much to incrementally discourage work.
Imagine there are 100 manufacturers of cars, who discover that a byproduct (lets call it weberfoam) of the process of making cars is useful in making planes. Each manufacturer makes between 1 and 2 tonnes of weberfoam, of varying quality per month.
10 plane manufacturers want weberfoam, because it makes planes lighter. They’re willing to pay quite a bit for it (up to $1,000 a tonne) but at that price will want only 1 tonne each. At $1 a tonne they’ll buy 2 tonnes each.
What should the car manufacturers do? Would them getting together and agreeing a minimum price they’ll sell weberfoam for be in there interests?
Of course, putting it that way makes me realise the harmful effects more clearly. Cheers :-)
Basically the idea is the minimum wage reduces employment (http://modeledbehavior.com/2010/10/12/what-the-new-minimum-wage-research-says/). Another criticism is that the benefits don’t necessarily go to someone who needs the help (for example it may go to teenagers getting their first job). I find it hard to understand having a good grasp of economics and having an intuition that minimum wage laws are good. Are price floors in general a good idea? At the very very least, they’re a very kludgy and indirect method of helping poor people.
My understanding of the evidence is that minimum wage laws is that they are not especially harmful, but they’re not especially helpful either (I have this link in my notes from when I did a bit of digging on this topic for the same reasons as you but from the opposite direction http://www.jstor.org/pss/1942818). Basically, minimum wages aren’t a huge problem, but if your goal is tp help poor people, there are better ways to do it (for example the Earned Income Tax Credit seems to work pretty well).
A problem with the earned income tax credit is that as your income increases you get less of it which creates a high effective marginal tax rate (especially when combined with other means tested government programs) which discourages people from leaving the lower working socioeconomic class.
Of course. I didn’t mean to imply that the EITC was perfect; the only perfect redistribution program is going to be uninfluencable lump sum transfers. My understanding was that wage subsidies were found to be pretty effective at boosting poor people’s spending power without doing too much to incrementally discourage work.
Even lump sun transfers reduce incentives to work because as most people get richer they prefer to work less.
Is this necessarily a bad thing?
Imagine a utopian future. How much time would you expect people to spend working, more or less than they do currently?
It might not be bad, but it does result in their wealth being increased by less than the lump sum amount received.
This may be of interest: http://harrisschool.uchicago.edu/about/publications/working-papers/pdf/wp_07_20.pdf It describes how the EITC works and discusses the empirical evidence on its effects, including labor supply effects. I haven’t read it, so I can’t vouch for it, but it looks interesting.
This links to some other research: http://modeledbehavior.com/2010/10/26/why-the-minimum-wage-should-go/
This says that the EITC doesn’t seem to ever reduce the number of hours people work.
Imagine there are 100 manufacturers of cars, who discover that a byproduct (lets call it weberfoam) of the process of making cars is useful in making planes. Each manufacturer makes between 1 and 2 tonnes of weberfoam, of varying quality per month. 10 plane manufacturers want weberfoam, because it makes planes lighter. They’re willing to pay quite a bit for it (up to $1,000 a tonne) but at that price will want only 1 tonne each. At $1 a tonne they’ll buy 2 tonnes each.
What should the car manufacturers do? Would them getting together and agreeing a minimum price they’ll sell weberfoam for be in there interests?
Of course, putting it that way makes me realise the harmful effects more clearly. Cheers :-)