Mounting Evidence

One of my favorite Mungerisms goes a little something like this:

1. Blowhard Gertrudes his remarks with a comment much like "I don't know much about formal economics, but..."
2. Blowhard blows. Hard. What follows can be summarized as a fusillade of economic ignorance.
3. Munger serenely looks the blowhard in the eye and responds, "dear sir, I believed you when you said that you don't know much about economics. But then you went and proved it. Kudos to you."

Of course, most blowhards aren't members of the most august chamber of Congress, assembled.

To cut to the chase:

Bernie Sanders favors raising the Federal minimum wage to fifteen bucks an hour.

Bernie Sanders is simply appalled that youth unemployment is so high.

People, with politicians like this, why do we even have a civilization at all?

People, with politicians like this, how do we even have a civilization at all?

Of course, there's always the possibility that he knows exactly what he's doing. If you wanted a cohort of the young dedicated to securing the dominion of the sovereign, I could hardly sketch a better battle plan.

I Will Show You Despair in a Handful of Smiley Face Buttons

Wal-Mart hiked wages effective in April, with more to come by next year. Already they're reporting two important features of the new policy: lower turnover and an increase in the volume of applications. Since training new employees is expensive and time consuming, it sounds like this could be to the firm's advantage. It's difficult to say for sure without actually seeing the accounting documents, of course. And differential training cost estimates are not mandatory 10-k filings, so it's likely I'll never be able to really say for sure.

But what I can say for sure is that if the Reuters report is accurate, there have been quite a few disappointed applicants since April. For the folks who find a job and keep it, the wage increases are wonderful. But for the folks who never even get called back, well, they are obliged to look elsewhere. The benefit to incumbents comes at the expense of aspirants.

And that's fine. That's Wal-Mart's concern. They are in the business of selling consumer products to customers. They are not a works project, they are not a charity. Any in-house hiring or wage rate decisions they make are reflected in their marketplace performance. I certainly don't know how to run Wal-Mart any better than the residual claimants of the firm or their agents. And anyone who claims otherwise should probably be viewed with a great deal of skepticism. What I do know is that we should also be skeptical of claims that the entire labor market can follow this example and expect to flourish. If someone isn't worth hiring at Wal-Mart at nine bucks an hour, it's likely they're not worth hiring at Tom's Tobacco Hut at nine bucks an hour. He needs to have a way to bid down his asking wage, and with minimum wage statutes in place, that's malum prohibitium illegal.

Work is not euvoluntary for the least productive members of society. It's worth remembering that when we petition the state to price them out of work entirely.

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.

Sliding Minimum Wages and Immigrant Labor

Australia enjoys some fame among labor economists who note its relative success with heterogenetic minimum wages. The specific figures aren't that important, but the idea is that young people have lower minimum wages than established adults. The economic intuition is easy enough to understand: it's difficult for new workers to get an entry-level job since they have no experience. A policy that makes it cheaper for employers to take on greenhorns means that these new workers get the important opportunity to build critical work skills without forcing firms to risk forking out hefty wages for someone who could turn out to be dead weight. Win-win, and the median voter can relax a bit knowing that since the lower minimum wage only applies to teenagers, working families won't have to risk ending up on the dole to cover their weekly bread (here is not the place to evaluate the empirical validity of this claim, merely to assert that this belief is common enough in the mind of the median voter to show up as near-universal policy).

How about for newly-arrived immigrants? Would voters be as willing to relax the minimum wage for people who don't necessarily speak English all that well, or would they be inclined to commit the zero-sum fallacy of labor allocation, assuming that jobs created by lowering the wage rate necessarily take work opportunities away from native-born Americans?

Is a flexible minimum wage for immigrants euvoluntary, in other words? If it is, is it politically feasible? Why or why not?

Unpaid=Exploited?

Interesting piece.  A bit wandering, but then it's a blog post.

One idea that is pretty cool is this:  Why are we so stuck on number 0, as a "correct" payment?  Sometimes the payment might go one way, sometimes another.  We allow "students" to pay for college; why must firms pay "workers"?  Might not workers be willing to pay to be educated?

So, not only should unpaid internships be allowed, but perhaps internships where the intern actually pays the company should be allowed.

Like I said, interesting.  A very poor person might borrow to pay for an internship/apprenticeship, and be glad to have done it.  With imperfect capital markets, it's hard to borrow against future earnings, unless you are rich enough to go to college.  Can't borrow to pay for a chance to work in a muffler shop for a year.  But that year would make me MUCH more employable.

Should Doctors Make Housecalls? Should They Be Paid More?

Angry Alex sends this bit.


Findings from the 2012 Commonwealth Fund international health-policy survey show not only does Canada lag behind other countries in rapid access to doctors outside working hours, but Manitoba ranks at the bottom compared to other provinces.

"That isn't satisfactory," said Dr. Michael Moffatt, a Winnipeg pediatrician and member of the Health Canada Council, which released the report. "The public actually owns the system, and they should be getting better service."

Moffatt said doctors have "drifted away" from feeling responsible for their patients on a 24-hour, year-round basis, adding emergency rooms have become a "default system" for both physician and patient. Between 85 and 90 per cent of patients who visit emergency rooms have personal doctors, he said.


Those prices.  They ain't NEVER lied.  But price incentives may not be euvoluntary.  Minimum wage laws on workers distort price signals, just as maximum wage laws on doctors is causing a shortage in Manitoba.

Starter Wages: Directionally Euvoluntary?

Friend of EE and Kiwi economist Eric Crampton directs our attention to a New Zealand initiative aimed at making a dent in youth unemployment: a so-called "starter wage", where new entrants into the workforce can be paid some fraction (<1) of the state-mandated minimum wage for a period.

The labor force features several partitions over which employment contracts cannot be euvoluntary: recently released prisoners, young people, the handicapped, et al. Part of the problem for hiring marginal workers is uncertainty: will this new hire be productive? Will she steal from me? Burn the place down? By reducing the upfront costs to hiring these workers, perhaps more of these marginal folks will be able to land a first job. 

Even if this arrangement isn't completely euvoluntary upfront, is it possible that it'll be more euvoluntary over the long run? Give people a foot in the door so to speak (or if you prefer, restore a few of the lower rungs on the economic ladder) and over the longer run, you'll improve their BATNA. What do you think? Is this directionally euvoluntary?