Minimum Wage

We recently covered the minimum wage in class, and I am providing more detail about the minimum wage and its impact by for students who are interested. In your text, Dr. Mankiw quoted a survey of economists conducted by Alson, Kearl and Vaughn and published in the American Economic Review in 1992 that noted that 79% of economists agree with the statement, "A minimum wage increases unemployment among young and unskilled workers."

Increases in unemployment are not the only problem. A mechanism other than the wage rate determines which low skilled workers will be employed and which will not, leading to discrimination as Dr. Sowell points out in a non-technical article.

David Neumark, perhaps the leading researcher on the minimum wage, speaks at the American Enterprise Institute on the impact of the minimum wage using his most recent research. Dr. Mankiw blogs on Neumark's findings at his blog. Dr. Neumark's research supports traditional findings, and concludes that an earned income tax credit would be a more efficient method of increasing income of poor, low-skilled workers.

Despite the drawbacks, a great many economists support regular increases in the minimum wage. A few years back, over 500 economists, including five Nobel Prize winners in Economics signed an petitoin adding their support for legislation to increase the minimum wage.

Klein and Dompe, in their Econ Journal Watch paper survey economists who signed the petition. They also do a great job of reviewing other surveys of economists on their beliefs about the minimum wage. Although I am doing disservice to the depth of the paper, the economists who signed the petition generally believe that the benefits of raising the minimum wage outweigh the costs. The benefits largely come in dealing with market imperfections that tend to benefit employers relative to employees.

In the Becker-Posner Blog, Dr. Becker expresses regret that so many economists including very good economists, signed the petition. He writes, "A recent petition by over 600 economists, including 5 Nobel Laureates in Economics, advocated a phased-in rise in the federal minimum wage to a much higher $7.25 per hour from the present $5.15 per hour. This petition received much attention, and the number of economists signing is impressive (and depressing). Still, the American Economic Association has over 20,000 members, and I suspect that a clear majority of these members would have refused to sign that petition if they had been asked. They believe, as I do, that the negative effects of a higher minimum wage would outweigh any positive effects. That is one reason I would surmise why only a fraction of the 35 living economists who received the Nobel Prize signed on to the petition--I believe all were asked to sign."

In 2005, Robert Whamples surveys members of the American Economics Association, and finds that 46.8% would favor eliminating the minimum wage, 1.3% would decrease it, 14.3% would leave it at the same level, 38% would increase it by $.50 to more than $1 per hour.

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Quotes on Greed

Thank you Blake for leaving your comment on my blog. You are the first student to do so. I am impressed that you spent part of your summer reading Atlas Shrugged. In your honor, I am creating a new posting asking readers to post their favorite quote on greed, with appropriate citation.
Blake said,
This summer I read Atlas Shrugged, and the main theme was that greed is a must. That in a society that thrives and succeeds ultimately is the society where people keep wanting and perusing the best. It talks of how if you keep making people successes harm them, by taxing them or saying it is unfair that you are that prosperous compared to other people in the same profession, people will loose motivation to keep working. Therefore technology and society is gone because the innovators and the leaders of the world disappear. It went along with Aristotle's theory that the most unfair thing to do is to try to make unequal things equal. Therefore, if you are looking for a society that can gain the most from its members I believe that the only way to gain this is through a certain type of greed. People should decide what to do with their money and with the profits of their work. The book keeps going back to two main points that money is the root of all good, and a quote from John Galt "I swear I will never live for the sake of another man, and will never make another man live for mine." It has thus convinced me that this would be the society to aim for, and I believe that greed is a great motivator.
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What's Greed Got To Do With It?

Don Boudreaux of Café Hayek, (http://cafehayek.typepad.com/hayek/) had an interesting post tilted, "Greed" Is Not an Explanation.” I encourage you to read it and the rest of the post, and earn extra credit by responding to the discussion board in Blackboard referring to “Greed.”
I believe that the distrust of greed, or self interest, as a motive is at the heart of the first of Bryan Caplan’s four biases, anti-market bias. As many of my students recall, I ask if they really believe that oil company executives, or Wall Street bankers are any greedier than in the past, or if they are likely to be less greedy in the future. If not, what changes in markets or market structure changed to make their greed manifest. In the case of oil, the change was probably increasing demand. In the case of the home loan market, it was probably changes in regulatory structure pushing loans to individuals in underserved areas, and perhaps one of Taleb’s Black Swans, leading investment bankers that had never seen a decline in housing prices to believe that one never would occur.
I believe, like Don Boudreaux, that greed is a universal constant like gravity. Perhaps my belief is wrong. If it is not a constant, economists have a big empirical problem: how do we measure changes in greed.”
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