Do not think about, write about or deal with human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.
Wherein we see that economists, of all people, are uncertain about the effects of raising the minimum wage by 107%.
My colleagues’ bizarre lack of opinion on price theory
Donald J. Boudreaux
Last month the University of Chicago’s Booth School of Business released the results of its latest survey of economists on the question of the minimum wage.
In this post I focus only on the first question asked, which is:
If the federal minimum wage is raised gradually to $15-per-hour by 2020, the employment rate for low-wage US workers will be substantially lower than it would be under the status quo.
The good news is that only a minority — less than a quarter — of the surveyed economists disagree. And a greater percentage of the surveyed economists (26 percent) either agree or strongly agree that such a hike (of 107 percent) of the national minimum wage in the US would substantially shrink the employment prospects of low-skilled workers.
The bad news is that 74 percent either disagreed or were “uncertain” that such a huge hike in the minimum wage would cause substantial shrinkage of low-skilled workers’ job prospects.
What are these 74 percent of economists thinking?* What other goods or services — especially ones for which (like low-skilled workers) there are many substitutes — do these economists suppose can have its price forced by diktat to more than double without causing a substantial reduction in the quantity of that good or service demanded by buyers?
In other words, how can a large increase in price of something not result in less product being purchased?
Suppose the question were not about the price of hours of low-skilled labor but instead about, say, the price of American-built commercial aircraft. Would 74 percent of my fellow economists either disagree that, be “uncertain” that, or have no opinion on the question of whether a forced 107 percent increase in the price of the likes of 737, 777, and 787 jetliners would cause airlines to cut back substantially on the number of new jetliners they buy from Boeing?
Or what if the question were about the prices of fast-food? Would 74 percent of these economists either disagree that, be “uncertain” that, or have no opinion on the question of whether a forced 107 percent increase in the prices of the likes of Big Macs, Baconators, and buckets of KFC fried chicken would cause consumers to cut back substantially on the amount of food they purchase at fast-food restaurants?
It’s embarrassing, quite honestly, that so many prominent economists today are either so ideologically blinkered, so stupefied by empiricist dogma, or so innocent of basic price theory (or all three) that they cannot see (or bring themselves to admit) that a forced doubling of the price of low-skilled labor is sure to cause a substantial reduction in the amounts of such labor that employers purchase.
When economists don’t understand economics, what does that mean?
Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Days of Songs and Mirrors: A Jacobite in the ‘45.”
Cui Bono–Cherchez les Contingencies