Friday, December 6, 2013

Shoes, Ships, Sealing Wax, Cabbages, Kings

Why is the sea boiling hot? Rancor. Rancor over the working poor. Rancor over minimum wage legislation, and rancor over transfer programs. How does this happen? Well, let's ask the Rancor.

Zac G.: The working poor are back in the news as fast food employees gear up to strike for a higher minimum wage. As we know from both theoretical and empirical economics, mandated minimum wages tend to have disemployment effects for marginal workers, particularly the young, the less-well educated, and minorities. The arguments in support of a higher minimum wage are well-intentioned, but ultimately misguided. There are better ways to help low-income households, like wage subsidies or a basic income.

Kevin Drum scoffs at the wage subsidies idea for practical political reasons here. According to him, "a higher minimum wage is the only game in town." He also reads the empirical literature as claiming that the effects of MW legislation on employment as being close to zero. But there's more. 

Noah Smith: A job is more than just a paycheck. It's dignity, it's accomplishment, it's GDP+. If all you economists would stop being so parochial for a minute and go check out some of the other literature out there, you'll find that being able to provide for your family is causally connected to things like life satisfaction, health, longevity, &al. Working for peanuts is demeaning for individuals and has disruptive consequences in the aggregate. Duh.

But there's still more. 

Steve Landsburg here and here: The productive value of labor is an entirely separate consideration from poverty relief. If you want working families to have more disposable income, that is if you think poverty relief is a public good, then the just, fair policy is to fund transfer programs from the general coffers, not to force firms to take on possibly ruinous payroll obligations.

Garett Jones: More to the point, firms substitute capital for labor. I propose we call minimum wage legislation a "full employment for robots act." ATMs, self-checkout lanes, specialized farm equipment, the lack of movie theater ushers, and pump-your-own gas can all be explained pretty well by labor market interventions. Instead of hiring teenagers, business owners will relieve themselves of the expensive hassle by swapping in a machine. I for one welcome our future robot overlords.

You might reply by saying that the jobs replaced by robots are bad jobs anyway and like the farrier and the coachman, should probably be relegated to an historical dustbin, but I urge you to consider what the alternatives are. Yes, it might be that we can just send every boy and every girl off to college to springboard into a high-skilled career, but that doesn't square with a casual observation of the actual people you probably actually know.

Bryan Caplan: meep meep meeeep meep

Translation: It's worse than that. Since we're talking about service industry jobs, substitution in the form of DIY is a substantial threat to the stability of entry-level positions. Sure, an employer could replace a cashier with a touch-screen display, but even in the short term, a customer can replace a Big Mac and fries with a bag lunch from home. 

Don B. offers a thought experiment here to get at the practical morality behind MW increases. My impression is that someone could look at all the economic arguments against the MW and reply: "dogmatic free-market economists don't care about poor people." And when they do, oh boy, watch out. Here's one of our favorite apostates, linked here at EE yesterday.

Matt Z: Hey guys, how about a Basic Minimum Income? Novice workers can still get work and develop elementary workplace skills, and not have to worry about being caught in vicious poverty traps. Sure, there are probably some political barriers we have to overcome, but come on you guys: Milton Friedman ended military conscription in the United States. If he can fight the Pentagon and win, we've at least got a shot at reforming the welfare state. Right? Guys?

Munger: I like this guy. Makes sense. I won't bet on it happening anytime soon though. 

But the real hell broke loose in the comments. How dare Zwolinski retain the audacity to label himself "libertarian" when he so bald-facedly proposes to pick the pockets of his neighbors to ply his pet project of redistribution? 

I'm being kind with that paraphrasing. I won't link to the actual responses, but I will say that I've got a lot more sympathy for my neoliberal dudebros who claim that libertarians are borderline psychopathic after seeing yesterday's fallout. Egads. 

Anyway, Russ Roberts recently sponsored an essay contest comparing and contrasting T. Cowen's (crypto-pessimistic) and J. Mokyr's (historo-optimistic) visions of the future, and whichever view you align with, you'll probably agree that this debate is likely to become increasingly salient as the Jones Effect (pro-robot, ie probot) settles in. 

TGP: Hey Wilson! Aren't you forgetting something?
FiSH: Go easy on the kid. Maybe he fell on his head.
TGP: But this is the Euvoluntary Exchange blog, Steve. Shouldn't he be discussing, I don't know, euvoluntary exchange?
FiSH: That'd be great. There's a first time for everything.
Both: ho ho ho ho ho

Thanks guys. The trouble with making a coherent story about low-skilled labor is that there's always going to be disagreement over the counterfactual state of the world. All the thought experiments you can dream up, all the empirical studies you can cite, all the pathos you can muster will fall on deaf ears if your audience refuses to accept your description of the alternatives. I can say that the minimum wage will swap out workers for androids, but you can say that other opportunities will come along in a dynamic economy. I can say that over a long enough time horizon, all policy is subject to change, but you can say we can't wait that long. I can say that non-euvoluntary labor agreements are worse under coercive political circumstances than under laissez-faire, but you're under no obligation to believe me.

What makes my counterfactuals more plausible than yours? How am I more correct about BATNA assumptions than you? This isn't a relatively simple matter the way Norwegian butter import restrictions or airplane seat purchases might be. This is a debate that touches 70% of GDP, spans generations, and has implications far into the future. Because the stakes are so high, it's probably reasonable to expect some truculence.

Anyway, I'll leave JR to give today's closing comments.

You people are insane.


  1. Note that wage subsidies financed by a land value tax would increase self-esteem, incentivize work, and distort markets far less than a minimum wage!

  2. I would like to hear one side debate that unemployment is far worse than low pay and so a small employment effect is worse and the other side argue that more income for low wage earners is more important and so a few more unemployed is worth it, but the debates never seem to go that way.


Do you have suggestions on where we could find more examples of this phenomenon?