Thursday, February 28, 2013

Smashing an Ignorant Survey about Minimum Wage Laws

By Mario Rizzo

The Chicago-Booth IMG Forum asks their favorite economists two questions. Let us examine them.

Question A:

Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.

Why was the word “noticeably” added to the question rather than some specific quantitative amount?  In other words, the question could have been phrased: “Would it increase unemployment among low-skilled works by approximately 5 percentage points or less?”  I realize that economists would get nervous about mentioning a specific number. But (1) That would reveal the true difficulties in economics of making quantitative predictions and hence tradeoffs; (2) It would take the subjectivity out of the word “noticeable.”  Noticeable for whom, and by what standard?  Noticeable to the public or to the policy maker or to the economist or to the low skilled workers or to union members?

Question B:

The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

There is a lot here. Let us first separate the raising of the minimum wage to $9.00 per hour from the indexing (one could favor the former but not the latter).

What is meant here by distortionary costs? Does this include the greater number of people who would engage in search for these particular covered jobs as they are misled by the higher price-signal? Or just the ones who are thrown out of work? Does this separate out the effects on the lowest of the low skilled – for example, teenagers who want/need work experience?

As I understand it, the bottom line on “distortionary” effects is that they represent monetary losses to the losers that exceed monetary gains to the gainers. Is this not true here?

What I think the economists are being asked is that, according to their value judgments – their views about equity in the distribution of income – is the tradeoff worth it?

My reaction to this question is to laugh. Do I care what their value judgments are? Do their judgments represent some deeply considered ethical reflection? I sincerely doubt it. Most economists would rather solve equations than study ethics.[...]As Neville Keynes argued in 1890 in The Scope and Method of Political Economy, to talk of policy one must combine the science of economics with ethics and the art of policy. The questions asked by Chicago-Booth are sloppy scientifically and they throw in questions of ethics and policy judgment in with the mix for a brew that just makes us drunk.[...]

I admire the economists who did not answer the questions.


  1. Is this the full post? You linked the "Read the full post here." to the poll results.


  2. To be honest, that they are even having this discussion show's that there is a serious lack of regard for the younger folks and the unskilled. It also displays that none of these people really have a clue about what they are speaking of.

    I agree with the author, and the comments for the most part. The only thing I disagree with them on is the language. I think there should be more open and honest telling of said persons where to go, or what to shove where. Only through honest discourse can people bring the discussion back to where it belongs, like how to get the government's tentacles out from around the public's collective neck.

  3. I guess when college economics professors do not comprehend supply and demand, it isn't hard to understand how the world's economy is in the toilet.

    This must be how it would feel to live in a world of Ptolemaic and Aristotelian science.