Ivy League Minimum Wage

On Thursday night, I attended a panel on minimum wage at Dartmouth College.  The panelists were Don Boudreaux (George Mason University), Arindrajit Dube (UMASS – Amherst), and Lara Shore-Shepard (Williams College).

The debate was very interesting.  I am obviously a fan of Don Boudreaux, but I also highly respect Dr. Dube, who always presents interesting information on the minimum wage.  I’d like to share my thoughts on the debate (and limit it to the debate, as I think my personal thoughts on minimum wage are well-known).

  • I wish more people had attended the debate as I think it showed the disagreements of the experts (that is, the economists) are not where the politicians and pundits claim they are.  It was universally agreed by all three panelists that the minimum wage does have costs.  Both Drs. Dube and Shore-Sheppard’s research showed the same thing: Dr. Dube presented his finding that a 10% raise in MW resulted in a 0.1% decline in employment, and Dr. Shore-Sheppard demonstrated that the MW can work against those who are childless.  The discussion, rather, was whether or not the costs were sufficiently low enough to justify minimum wage (or, at least, a hike in the wage).
  • All three panelists also dismissed the argument used by many political proponents on minimum wage that the hike wouldn’t cause issues because of increased demand.
  • Dube discussed some of the theoretical examples of when a MW would have a limited impact, one of those being an imperfect labor market.  However, the rest of his presentation and research indicated this theoretical situation doesn’t apply.  He mentioned several times in his presentation that MW jobs are “high turnover.”  That would mean that workers are NOT constrained by their jobs, that imperfect competition isn’t a major characteristic of the MW labor market.
  • Both Dube and Shore-Sheppard offered testimony that didn’t seem to jive with the evidence they were presenting.  For example, both testified that the EITC (Earned Income Tax Credit) compliments the MW, but then offered evidence that it actually makes things worse.  Shore-Sheppard showed that workers who did not qualify for EITC actually had to take a lower wage than they otherwise would have to because the EITC held down wages.  Of course, the argument was then that the MW would be enacted to raise the wage floor so that wouldn’t happen, but that still results in the disemployment effects.
  • There were also some issues of fact with Dr. Dube’s presentation.  I’m willing to give him a pass as this was some of a “think of your feet” thing, but still.  For example, he testified that “a few” MW workers were teenagers.  The US Census Bureau data, however, says otherwise: about half of MW workers are under the age of 25.
  • All three presented evidence that the MW is, at best, a poor anti-poverty tool.

6 thoughts on “Ivy League Minimum Wage

  1. Jon

    Shore-Sheppard showed that workers who did not qualify for EITC actually had to take a lower wage than they otherwise would have to because the EITC held down wages.

    Maybe I’m not understanding this. It sounds a lot like claims that taxpayers subsidize businesses that pay low wages, which we know isn’t true. Can you enlighten me please?

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  2. “All three panelists also dismissed the argument used by many political proponents on minimum wage that the hike wouldn’t cause issues because of increased demand.”

    Well thank goodness for that. It’s a thoroughly embarrassing thing (at least it should be) for any economist to say. Utter rubbish, Shallow thinking nonsense.

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  3. There are only two circumstances under which raising the minimum wage won’t cause unemployment. First, is when the new wage is below the market-clearing wage. Second, is when the price-demand curve just happens to be vertical over the range between the old and new minimum wages. Vertical demand curves are as scarce as the friction-free surface, or hen’s teeth.

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  4. I know this is an older post, but I wanted to chime in, as I was also at this presentation. I don’t feel that you adequately presented the views of Dube or Shore-Sheppard (although I would say I can speak to a greater extent on Shore-Sheppard’s position, as I was her student).
    The comments on the EITC were that it is possible that some of the incidence of the EITC can fall on employers (see Leigh 2010) despite the fact that we can see large improvements in outcomes for those that receive the EITC. It is important to note that the research on the incidence of the EITC is not perfect (Nichols and Rothstein 2015), so that is why the panelists were tentative when they made this point. At any rate, to respond to this possibility, it was recommended that EITC expansions be tied to increases in the minimum wage to prevent employers from capturing part of the increase. Lee and Saez (2012) make the case for this policy change.
    Also, Dube and Shore-Sheppard did say that there are costs associated with an increase in the minimum wage, but that the costs in employment are small compared to the benefits of an increase. Indeed, the numbers you provided are consistent with this view. Therefore, the argument goes, it would be more efficient to modestly increase the minimum wage.
    Finally, it is doubtful that high turnover within a market is a signal for perfect competition.

    I think an honest review of the academic literature would suggest that there are small disemployment effects associated with the minimum wage increase, but that modest wage increases would be more beneficial for the poor than they would be harmful. That being said, I do think that the panelists would say that as an anti-poverty measure, there is much to be desired of the minimum wage; because of this, they would argue that the EITC may be a better way to achieve the desired outcomes of an increase in the minimum wage.

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