Kevin Drum doesn’t like my take on the minimum wage

This kind of stuff bothers me on a bunch of different levels. Let’s count the ways:

  • You either believe empirical studies or you don’t. If you have reason not to believe them, then let’s hear it.
  • Intuition about supply and demand just flatly won’t work in this case. We’re talking about a market with (probably) low elasticities and a huge number of confounding factors that could push it in multiple directions. It’s easy to see that a small increase in the minimum wage could be overwhelmed by other factors and lead to either a very small or zero impact on employment levels.
  • Are there jobs where it’s profitable to hire at $4.75 but not at $7.25? Well, there must be some, but we’re talking about such low skill levels here that there very well might not be many. That’s why empirical studies are so important. The effects are just too small to intuit.
  • Is this really what we’ve come to? That we should provide a (probably very small) boost to the job market by allowing businesses to hire people for $9,500 per year instead of $14,500? Seriously? I mean, this is the ultimate safety net program, aimed squarely at working people at the very bottom of the income ladder. If we’re willing to throw them under the bus, who aren’t we willing to throw under the bus?

 

This is how I think the honest intellectual response goes: Basic economic reasoning tells me that the minimum wage cuts employment and that the more effective the minimum wage is in raising wages above market rates the more pronounced the effect will be. For years empirical studies seem to support this though I do not have deep knowledge of them.

Then David Card and Alan Krueger come out with a study showing the opposite. This had an impact on me primarily because the names Card and Krueger were attached to the study. They are smart, thorough guys and quite frankly that matters. Yet, I haven’t delved seriously into the empirical issues surrounding it.

I am aware of some of the common faults that people point out from the Card and Krueger work, but I haven’t really evaluated them carefully either. I could latch on to some of those criticisms as my “reasoning.” But, honestly they are not my reasoning.

My reasoning is that I had strong priors one way. I saw conflicting evidence that made me question those priors but that evidence wasn’t strong enough to completely persuade me.

Its also true that while my skepticism is a data point, people should keep in mind that it doesn’t carry a huge amount of weight because I don’t have a huge amount of evidence behind it.

There has also been some follow-up work that has confirmed Card and Krueger. My understanding is there has also been work to refute it. I read a well put together paper not long ago using border-states that seemed to show small effects but my impression at the time was that the variables of true interest were going in the expected direction, less than expected employment growth.

I stir all of that together with my causal empiricism about how businesses work and I come to the conclusion that “my best guess is that the minimum wage decreases employment opportunity for low skilled workers.”

My mind could clearly be changed on this but that’s where I am right now. Not to turn this into to much of a philosophy of science post, but I think there is too much hanging of hats on specific arguments, weaknesses in position, or points about analysis.

That’s not how we reason and that’s not how a good Bayesian should reason. All evidence “counts” just to varying degrees and priors matter. We shouldn’t pretend that unless we can find specific reasons to tear apart a study we have to accept it. Doing that just motivates us to be artificially critical.

We accumulate evidence over time and hopefully get closer and closer to the truth.

About these ads