TL;DR The Econ textbook model of rising prices —> lower demand is incorrect for minimum wage labor. Areas that have raised minimum wages have not reduced employment.
I believe many economists (including this author) are missing the structural changes caused by technology. The labor market is not just humans any more, and if/when human labor prices go up, the economics of automation are even more attractive. Ask any robotics startup.
As the article states, the real dollar value of minimum wage labor hasn’t gone up much in decades. This fact (combined with a relatively low unemployment rate) seems to puzzle many economists. But it makes a lot more sense when you consider the labor “market” to include robots and automation.
Funny how the same people who insist that we should raise the cost of cigarettes because, of course, it will reduce demand for cigarettes, and we should raise the cost of fossil fuels because of course it will reduce demand for fossil fuels, also insist we should raise the cost of minimum-wage jobs because...for great justice!
I like NN Taleb's skin-in-the-game take on it. The only people who get to vote on the minimum wage would be those who work at a minimum wage job or want to do so. Instead of other people getting them fired to signal their virtue, let the people who will face the consequences decide. If they decided to raise the minimum wage, I would support it, too. If they decided they'd rather not, I wouldn't insist on overriding them.
This is actually similar to what we have in sweden. The workers union negotiate with the employers, usually represented by an industry organisation.
It works fine in the sense that it means that we don't need minimum wage laws and the minimum wage therefore varies based on the job.
Usually there's a lack of representation of those who are not employed anywhere. So the union tend to prefer higher wages rather than increasing the number of jobs.
Did you read the article? Because it debunks exactly this simplistic argument.
> The argument goes like this: Low-skilled labor is bought and sold in a market, just like any good or service, and its price should be set by supply and demand.
> A minimum wage, however, upsets this happy equilibrium because it sets a price floor in the market for labor.
> More people want jobs at $7.25 than at $6, but companies want to hire fewer employees. The result: more unemployment.
Sorry to respond twice, but I wanted to catch another point you made:
> I believe many economists (including this author) are missing the structural changes caused by technology. The labor market is not just humans any more, and if/when human labor prices go up, the economics of automation are even more attractive. Ask any robotics startup.
This one is addressed in the article:
> The idea that a higher minimum wage might not increase unemployment runs directly counter to the lessons of Economics 101. According to the textbook, if labor becomes more expensive, companies buy less of it. But there are several reasons why the real world does not behave so predictably. Although the standard model predicts that employers will replace workers with machines if wages increase, additional labor-saving technologies are not available to every company at a reasonable cost. Small employers in particular have limited flexibility; at their scale, they may not be able to maintain their operations with fewer workers. (Imagine a local copy shop: No matter how fast the copy machine is, there still needs to be one person to deal with customers.) Therefore, some companies can’t lay off employees if the minimum wage is increased. At the other extreme, very large employers may have enough market power that the usual supply-and-demand model doesn’t apply to them. They can reduce the wage level by hiring fewer workers (only those willing to work for low pay), just as a monopolist can boost prices by cutting production (think of an oil cartel, for example). A minimum wage forces them to pay more, which eliminates the incentive to minimize their workforce.
> As the article states, the real dollar value of minimum wage labor hasn’t gone up much in decades. This fact (combined with a relatively low unemployment rate) seems to puzzle many economists.
It's not that puzzling if you consider the unionization has also fallen off a cliff and trade liberalization has increased.
I believe many economists (including this author) are missing the structural changes caused by technology. The labor market is not just humans any more, and if/when human labor prices go up, the economics of automation are even more attractive. Ask any robotics startup.
As the article states, the real dollar value of minimum wage labor hasn’t gone up much in decades. This fact (combined with a relatively low unemployment rate) seems to puzzle many economists. But it makes a lot more sense when you consider the labor “market” to include robots and automation.