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June 16, 2006
Quote of the Day
Matt Singer, on yesterday's minimum wage dust-up:
Ezra’s debating partner is also scoffing at minimum wage impositions since they teach you in Economics 101 that price floors produce surpluses. Right. In Econ 111, they also told me that they were oversimplifying the system. In Econ 311, I found out that the problem with the econ 101 models is that they assume perfect competition (which, in a labor market, would require that Bill Gates and I are nearly identical workers). And in Econ 313, we actually started studying labor markets.
Here’s a hint folks: If Econ 101 answered all the questions we ever ask about economics, they wouldn’t still be giving out a Nobel Prize for the discipline.
Still, it’s one more reminder of that old adage. Libertarianism: Political Philosophy for 13-Year-Olds.
Heh.
June 16, 2006 | Permalink
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Comments
Actually, even Econ 101 will give you a good case for a minimum wage, because wages have an inelastic demand function. That means that, even if a minimum wage does depress employment (and there are some reasons for thinking that it might not), it will do so by a fraction that is less than the increase in wages. So minimum wage earners _as a whole_ receive more income. Given that "unemployment" generally means a longer time spent looking for work, a 10% increase in that time is well spent if it results in a 20% higher wage (to oversimplify the calculation a bit).
The reason for thinking that it may not even cause additional unemployment has to do with the possibility that the low wage sector of the economy is in a liquidity trap, and additional income might have a stimulative effect, bringing more labor and more consumption into the system, offsetting each other in a classic bit of Keynesian stimulus. Of course, mentioning Keynes to a libertarian (or a movement Conservative) is akin to an appeal to Satan.
Posted by: James Killus | Jun 16, 2006 3:43:14 PM
