Pivoting off Karl’s recent posts, I want to throw my two cents in on the minimum wage. Actually, I’ll make that one cent, because I’ve already written about my take on the empirical evidence plenty before and there’s no sense in rehashing that. What I do want to draw attention to is a smart post by Robert Waldmann from 2009 that illustrates why now in particular is a bad time for the minimum wage:
Empirical estimates of the effect of the minimum wage on employment suggest that the effect is very small. One famous study by Card and Krueger showed a positive effect of an increase in the minimum wage. The logic used by Card and Krueger to understand how this could happen suggests that things are different now.
Their logic is basically that firms can choose to pay a low wage and have a high quit rate and take a long time to fill vacancies or pay a high wage and have fewer quits and fill vacancies more quickly. If they are forced to pay the higher wage, their desired level of employment will be lower, but that level is the sum of employment plus vacant jobs. A binding minimum wage can reduce the number of vacant jobs by more than it reduces the sum of employment plus vacant jobs. Thus more employment.
I think this is not relevant to the current situation. There are very few vacant jobs. Quit rates are low. According to their logic, the effect of the minimum wage on employment depends on the unemployment rate. The evidence of a small effect is almost all from periods of unemployment far below 10%. I don’t think it is relevant to the current situation.
As you can see in this graph quits are still quite low, and so Robert’s logic still holds.
It’s always worth noting that when basic laws of supply and demand don’t seem to hold it’s not because of some universal and eternal forcefield simply protecting a market from these laws, but for reasons typically explained by some usually more complicated economic theory. Either that or it’s a mystery, and maybe the exception to the rule is simply due to some irreducible complexity economists will never grasp. But if this is the case it should make you worry even more: since you don’t know where the exception is coming from, you have no idea what will cause it to give way.
When the laws of supply and demand seem violated, it’s probably for a reason, and that reason may not hold in all circumstances. “When and under what circumstances will the result you believe continue to hold?” is an important question to ask yourself. Take the minimum wage. I don’t know any economist who believes that the minimum wage won’t definitely cause unemployment at some level. Maybe it’s a $10 minimum wage, maybe it’s $8, and just maybe it varies a lot by location, industry, and job. That some studies in the past have failed to show a significant unemployment effect of the minimum wage should not lead you to toss aside the concepts of supply and demand and conclude that they are meaningless or disproven in this context.