Felix Salmon has a rundown of the proposals to help lower unemployment, and he finds them mostly unsatisfactory. So he has a proposal of his own; increase minimum wage and strengthen unions:
Without unions and minimum-wage laws, corporations compete on who can pay the least. With them, they compete on who has the best employees and they invest significantly in those employees. Which is exactly what we want, especially since raising the minimum wage is unlikely in and of itself to increase unemployment visibly.
I think this is a bad idea. First, increasing the price you pay for a worker does not on it’s own increase the marginal productivity of that worker or the marginal return of investing in their human capital. The only way this happens is if increasing wages lures higher skilled workers into the labor pool and pushes lower skilled workers out. This is not, I’m sure, what Felix has in mind.
It’s also worth noting that despite the common assertions to the opposite, there is still a consensus among labor economists that increasing minimum wage causes disemployment. And equally important, a strong consensus of labor economists believe that the EITC is a better way to increase income for low income workers. According to the EPI survey of labor economists linked to above, 71% believe that EITC is the best policy to address the income needs of poor families, while 21% send general welfare grants, and only 6% said a higher minimum wage. A lot of this probably has to do with employment effects. In contrast to a higher minimum wage, 64% of economists said an EITC will increase employment, and 34% said it will lead to no change.
Now you can believe that the parameter that relates the minimum wage to employment changes over time and space, for instance you might think that the parameter was actually positive in the fast food industry in New Jersey at one point in time. But the fact remains that a strong academic consensus finds that EITC is a more efficient and effective way to improve the incomes of poor people. Rather than take a gamble that the outside of consensus position is correct, and that it won’t cause unemployment, why not support the policy that is actually more likely than not to increase employment?
There is no Dark Age of Microeconomics, so there’s no reason to doubt economists on this one.
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Friday ~ July 9th, 2010 at 9:29 am
geaugailluminati
the discussion felix picked up on started with the article by andy grove of intel; it was not d so much about fixing unemployment as it was about providing good. living wage jobs…
Friday ~ July 9th, 2010 at 9:31 am
Adam Ozimek
Providing jobs is a necessary condition for providing good jobs.
Friday ~ July 9th, 2010 at 10:56 am
Rebecca Burlingame
I’d like to add some minimum wage demographics based on observation. A local grocery store in a rural area back in 2001, was willing to employ lots of workers from outside the area, along with students who were still in high school. As the minimum wage went up, fewer outsiders were likely to be hired, and fewer low skilled young workers as well. (This runs contrary to the hiring of young people out of college who send the signal they are willing to work hard.) For the low wage employee (also one who probably does not receive health insurance) the low wage employer feels that the older worker may be the safer bet because of the better work ethic.
As to the outsiders, the rise of the minimum wage pushes these individuals back to cities where the increased wages are more easily absorbed in stronger economic environments. There are not enough jobs in rural areas for employers to take the chance on outsiders or younger unskilled workers that they once took, with lower wages.
Friday ~ July 9th, 2010 at 12:23 pm
Felix
No argument on the EITC front, although it’s fiscally more expensive.
But my basic idea is that when workers are more expensive, employers treat them better, and are more likely to invest the necessary time and money into turning low-skill workers into high-skill workers. Whereas cheap workers are generally considered high-turnover and expendable, not worth investing in.
Friday ~ July 9th, 2010 at 1:03 pm
Adam Ozimek
At prices above market levels workers will be less scarce and easier to replace, so you can treat them crappier because you know they are easier to replace.
Also it doesn’t change the marginal value to the employer turning a low skilled worker into a high skilled worker, it just increases the cost of low skilled workers.
To the extent that many low skilled jobs increase human capital (i.e. teenagers at Mcdonalds do learn something compared to unemployment), higher minimum wages will lead to less human capital accumulation as the lowest skilled jobs are priced out of the market.
Friday ~ July 9th, 2010 at 11:13 pm
teageegeepea
I thought Felix was supposed to be smart. Not one of his best posts. The closest he came to making a connection between higher wages and less unemployment was when he said that workers will be less likely to quit. Yes, and that was the actual reason Henry Ford raised wages (retraining was costly, so he was targeting turnover rather than employment numbers), but does he actually think that’s why unemployment is high? All the numbers I’ve read indicate that the far larger problem is that firms aren’t making enough new hires. And his line “never been very good at improving employment numbers” is quite funny: the whole point is to restrict the supply of labor! He does say that he’s also concerned with low-paying jobs (which seems to loom larger in his thoughts, despite the title referencing “unemployment”), but he should make distinct which policy is supposed to have what effect on which issue.
David Henderson denies being an anarcho-capitalist and opposes unemployment insurance. Casey Mulligan has done the most writing recently on the employment reducing effects of UI (even during recessions) and other policies, but has carefully avoided expressing a normative opinion (or discussing baseline UI rather than extensions).
Friday ~ July 9th, 2010 at 11:48 pm
teageegeepea
“There’s a real risk that American companies will thrive on foreign labor, leaving their home nation to slowly devolve into a land of chronic unemployment and widespread lack of skills.”
A cosmopolitan utilitarian might regard that international equalization as applause-worthy.