This year's nobel prize in Economics has been awarded. As I was listening to / reading about it, I couldn't help but feel a lot of the results were pretty obvious, even before the studies.

The idea that labor can be treated with a supply and demand curve similar to elastic goods should have never even been a consideration in economics, and I can't stress enough how much of an indictment of the field it is that examining this this was Nobel-Prize worthy.

I'll give a basic background and explain why I feel this way.

David Card was one of the winners of the nobel prize for "for his empirical contributions to labour economics". Specifically, his publications which showed "... among other things, that increasing the minimum wage does not necessarily lead to fewer jobs."
His experiments were accomplished by examining the labor market in 1992 after a raise of minimum wage in New Jersey. The same restaurant chains in similar geographic areas with the same corporate structure did not reduce employment even after a raise of minimum wage on the New Jersey side from 4.25 $/hour to 5.05 $/hour.

A laborer on average does not make a wage that is equal to the amount of monetary value they produce for the employer. If this happens, no business would hire anybody. Period. End of story. Hiring would never be profitable. In the real world wages are far lower because they are profit-oriented, and wages are depressed by labor competition.

Since the laborer does not make a wage that is equal to or above the value they produce, they will always produce value for the business. If hiring staff will increase the amount of value generated for the business, the person will be hired. It doesn't matter if the person makes 10x their wage for the business, or if the person makes 1.1x their wage for the business. As long as, on average, the position makes money for the business after all considerations, the position will be retained. If the position can be eliminated and the business will only lose 0.75 the value of the laborer, the position will likely be eliminated. (This is an over-simplification, but will hold on-average for an efficient economy over a sufficient period of time)

So we see a contradiction here. If minimum wage increases 50%, but all of the workers that were previously below the new minimum wage are still below the "positive value threshold", then their position will not be eliminated. The thing is, virtually every laborer produces several multiples of their cost for businesses. Even in labor-heavy industries, like fast-food and supermarkets, national chains could afford to double or triple worker wages and still make a massive profit. I've done the calculation on the forum before that Wal-Mart could quadruple every person's wage and would still be profitable. So the idea that modest minimum wage increases, even doubling of minimum wages, would have a significant impact on employment has always been ridiculous.



IMO it's easy to understand why this knowledge has been suppressed, and we still hear about how minimum wage increases will kill jobs. There's a lot of money on the line, so research that says otherwise is hyped, and research that doesn't is suppressed. Business and economics departments all over the country are massively compromised by business interests, and while they don't write "Only libertarians" on their grants, the soft power they push to down play this kind of research is significant.

https://cepr.net/documents/publications/min-wage-2013-02.pdf - Summary from 2013 with papers and meta-analysis going back to the 90's.


So what are your thoughts? I'm sure will chime in about automation, but this has implications going back to before the 90's, so there's plenty to discuss outside of the consequences of automation.


This was my favorite video so far. It also has implications for immigrants, but that's not the part I'm interested in right now. Even when you increase the labor market by 7% it doesn't depress wages.



This post was edited by NetflixAdaptationWidow on Nov 1 2021 01:14am

I love how a lot of people seem to think this is some outrageously difficult dilemma that takes only the smartest people to even converse about.

Its not. Just pay your fucking workers so they can eat and continue working for you. It's really, really not hard. And the topics that should be discussed are why so many refuse to do this simple thing and what we're going to do about it. But 'Ooh Jingly jingly awards time guys.'

Ill read the paper later today.

Usually things like this are highly politicized and fail to track variables like externalities and end up confounded.

automation

Of course wages and ingredients are different. Inflation only affects one. Evidenced by minimum wage.

/s

This post was edited by Skinned on Nov 1 2021 06:16am

Well, the argument that the minimum wage should be ridiculously low to preserve employment was obviously always bogus. I do, however, think that the opposite reasoning, namely that the minimum wage could be doubled or tripled without tangible impact on employment, is also faulty.

For instance, a higher minimum wage does shift the cost-benefit analysis toward outsourcing and automation. This might not have been a factor in restaurant chains in NJ during the early 90s, but it is a factor to be considered nowadays. For example, self-checkout machines in supermarkets are slowly but steadily becoming more common. Raising the minimum wage of cashiers by too much would of course risk mass layoffs and replacement by machines.

Another factor to consider is the inherent downside risk that a larger workforce carries. If government regulations or labor agreements prevent an employer from laying off his employees at will when necessary - which is the case in most places or industries, at least to some degree - then he will be stuck with them in case of a downturn or corporate restructuring. As a simple, illustrating example, say there is a 10% risk of a downturn, and in the case of such a downturn, the employer will have no use for around half of his workforce while having to conintue to pay them. Then, the true statistical cost of each employee will be 1.05 times his nominal wage, implying that the minimum wage has to keep some distance to a worker's true productivity in order to not affect employment negatively. The extent of this cushion depends on how regulated and inflexible the labor market in question is, so it is a bigger factor in places like California or Canada than in, say, Florida or Mexico.




And irrespective from these points, the old argument that a minimum wage should take the local cost of living and purchasing power into account is of course still valid. A minimum wage of $15 is no problem at all in NYC, but it will not be feasible in rural Montana or Georgia.

This post was edited by Black XistenZ on Nov 1 2021 07:16am

A Nobel Prize in economics? I hear they gave one to Paul Krugman. Says a lot about the value of a Nobel Prize anymore.

The minimum wage should be zero.

If we didn't have things like right to work interfering with free relations between workers and unions id agree.

We could definitely take the Nordic approach on this as well as social welfare.

They're not "free relations" when the letter of the law mandates a single union represent an entire shop if 51% of workers vote for a union. As many unions as laborers wish to have should be allowed into any shop.