{"id":2503,"date":"2014-05-21T00:44:46","date_gmt":"2014-05-21T00:44:46","guid":{"rendered":"http:\/\/www.rationalargumentator.com\/index\/?p=2503"},"modified":"2014-05-21T00:45:02","modified_gmt":"2014-05-21T00:45:02","slug":"slogans-science","status":"publish","type":"post","link":"https:\/\/www.rationalargumentator.com\/index\/blog\/2014\/05\/slogans-science\/","title":{"rendered":"Slogans or Science? – Article by Sanford Ikeda"},"content":{"rendered":"
\n
\"The<\/div>\n<\/div>\n
Sanford Ikeda
\n<\/big><\/big><\/strong><\/span><\/div>\n
May 20, 2014<\/span>
\n<\/big><\/div>\n
******************************<\/div>\n
\n

The debate over raising the legal minimum wage (LMW) to $10 an hour has people on both sides saying things they should know better than to say. For example, a friend recently posted the following meme (which isn\u2019t the worst I\u2019ve seen) on Facebook:<\/p>\n

\n

One year ago this week, San Jose decided to raise its minimum wage to $10\/hour.<\/em><\/p>\n

Any jobs disappear?<\/em><\/p>\n

The number of minimum wage jobs has grown.<\/em><\/p>\n

Any businesses collapse?<\/em><\/p>\n

The number of businesses has grown.<\/em><\/p>\n

Any questions?<\/em><\/p>\n<\/blockquote>\n

Yes, several, but I\u2019ll get to those in a bit.<\/p>\n

Memes like these are just as silly and misleading as the simplistic arguments they\u2019re probably attacking. In fact, the economic analysis of significantly raising the minimum wage says that, other things equal, it will reduce employment below the level where it would otherwise have been. It doesn\u2019t say that that employment will fall absolutely or businesses will collapse.<\/p>\n

A little thinking can go a long way<\/strong><\/p>\n<\/div>\n

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Have a look at this chart published in the Wall Street Journal<\/em><\/a>.\u00a0At first, it seems to support the simplistic slogans. But it\u2019s important to compare similar periods, such as March\u2013November 2012 (before the increase was passed) versus March\u2013November 2013, (just after it went into effect). The LMW increase wasn\u2019t a surprise, so in the months before it was passed, businesses would have been preparing for it, shaking things up. Comparing those two periods, which makes the strongest case for the meme\u2019s assertions, the total percentage increase in employment (the area under the red line) looks pretty close, going just by my eyeballs and a calculator. In fact, the post-hike increase might actually be smaller, but you\u2019d need more data to be sure. So if you compare similar periods, the rate of employment growth seems not to have been affected very much by the hike. So is the meme right?<\/p>\n

According to that same chart and other sources<\/a>,\u00a0hiring in the rest of California and the country, where for the most part there was no dramatic increase in the LMW, was also on the rise at pretty much the same time. Why? Apparently, the growth rate of the U.S. economy jumped<\/a> in 2012, especially in California.\u00a0So the demand for inputs, including labor, probably also increased. I’m certainly not saying this correlation is conclusive, but you could infer that while hiring in San Jose was rising, it wasn\u2019t rising as fast as it might have otherwise, given the generally improving economy.<\/p>\n

That’s a more ambiguous result, and of course harder to flit into a meme.<\/p>\n

You are stupid and evil and a liar!<\/strong><\/p>\n

Those strongly in favor of raising the LMW cast opponents as Republican apologists for big business. Take this post<\/a> from DailyKos, which apparently is the source of the above meme. The author writes, “Empirically, there’s no clear negative effect that can be discerned. The concerns of Teahadists like Paul Ryan and Marco Rubio is [sic<\/em>]\u00a0rather unfounded in academic literature and in international assessments of natural experiments.”<\/p>\n

Now, the overwhelming conclusion of years of economic research on the effects of a minimum wage on employment is that it tends to increase, not lower, unemployment. As this article<\/a> from Forbes<\/em> summarizes, “In a comprehensive, 182-page summary of the research on this subject from the last two decades, economists David Neumark (UC-Irvine) and William Wascher (Federal Reserve Board) determined that 85 percent of the best research points to a loss of jobs following a minimum wage increase.”<\/p>\n

So, saying there is \u201cno clear negative effect\u201d is an outrageously ignorant claim. And there\u2019s not one mention of the economic evidence that significantly raising the LMW will hurt the very people you wish to help: the relatively poor<\/a>. But why address solid scientific research when there\u2019s sloppy sloganeering by politicos to shoot down?<\/p>\n

Attacking easy targets is understandable if you want to vilify your opponents or win an easy one for the cause. In that case, you take the dumbest statement by your rival as the basis of your attack. Such is the way of politics. In intellectual discourse, however, you may win the battle but you\u2019ll lose the war. That is, if your goal is to learn from fruitful intellectual discussion, you must engage your opponent\u2019s best arguments, not her weakest ones.<\/p>\n

Let me use a counterexample. The sloganeering approach to attacking those who oppose raising the LMW is the equivalent of someone saying: \u201cWell, this past winter was one of the coldest on record<\/a> in the Midwest. So much then for global warming!\u201d That may be \u201cevidence\u201d in a mud-slinging contest, but it\u2019s not science.<\/p>\n

What\u2019s the theory?<\/strong><\/p>\n<\/div>\n

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While weather is complex and unpredictable, economic systems are even more so. Does that mean there are no principles of economics? Of course not. In fact, it\u2019s because of such complexity that we need whatever help economic theory can offer to organize our thinking. And it doesn\u2019t get any more basic than this: The demand curve for goods slopes downward. <\/em><\/p>\n

That is, other things equal, the costlier something is, the less of it you\u2019ll want to buy.<\/p>\n

Note that the caveat\u2014other things equal\u2014is as important as the inverse relation between price and quantity demanded. That\u2019s why my earlier back-of-the-envelope analysis had to be conditional on more data. Unfortunately, those data are often very hard to get. Does that mean we abandon the theory? Well, that would be like letting go of the rope you\u2019re hanging on to for dear life because you\u2019re afraid it might break.<\/p>\n

So what exactly is the theory behind the idea that raising the LMW will increase hiring low-wage workers and boost business? If raising wages will actually increase employment and output, then why not also mandate a rise in interest rates, rents, electricity rates, oil prices, or the price of any of the other myriad factors of production that businesses ordinarily have to pay for? I would hope that this idea would give even the meme promoters pause.<\/p>\n

As far as I know, the only situation in which forcing people to pay a higher wage rate will increase employment is when there is a dominant employer and there are barriers to competition. Economists term this \u201cmonopsony<\/a>,\u201d\u00a0a situation that might occur in a so-called \u201cfactory town.\u201d There, the dominant employer (of labor, capital, land, or whatever) can lower what she pays for inputs below the revenue that an additional unit of input earns the company. I would love to hear that argument and challenge it, because it\u2019s the strongest one that standard economics can offer in favor of coercing businesses to raise wages. But so far I\u2019ve not come across it, let alone any discussion of the economic literature on monopsony in the labor market, most of which questions its relevance. Some almost random examples are here<\/a>\u00a0and here<\/a>.<\/p>\n

Margins of analysis<\/strong><\/p>\n

Finally, economics teaches us that we can adjust to a particular change in different ways. In a thoughtful article<\/a> on the effect of the LMW increase in San Jose\u00a0that all sides of the debate should read, we get the following anecdote:<\/p>\n

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For his San Jose stores to make the same profit as before the wage increase, the same combo meal would be $6.75. “That would chase off a large percentage of my customers,” Mr. DeMayo said. He hasn’t laid off San Jose workers but has reduced their hours, along with some maintenance such as the drive-through lane’s daily hosing, and may close two unprofitable stores.<\/p>\n<\/blockquote>\n

Employers can adjust to higher costs in one area by cutting back on spending in others. That might mean less unemployment than otherwise, but it doesn\u2019t mean that raising the LMW has no negative employment effect at all. It means that the effects are harder to see. There’s that darn \u201cother things being equal\u201d again!<\/p>\n

Slogans and memes are no substitute for science, or even clear thinking.<\/p>\n

\n
Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism<\/em>.<\/strong><\/div>\n
***<\/span><\/div>\n
This article was originally published by The Foundation for Economic Education<\/a>.<\/strong><\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Sanford Ikeda May 20, 2014 ****************************** The debate over raising the legal minimum wage (LMW) to $10 an hour has people on both sides saying things they should know better than to say. For example, a friend recently posted the following meme (which isn\u2019t the worst I\u2019ve seen) on Facebook: One year ago this week, San Jose decided to raise its minimum wage to $10\/hour. Any jobs disappear? The number of minimum wage jobs has grown. Any businesses collapse? The…<\/p>\n

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