Monday, March 1, 2010

Econ 539-Public Policy Analysis: Minimum Wage

For the last week of classes before our series of rapid-fire in-class presentations (my there are a lot of you) we will study the minimum wage using the methods and ideas presented in class.  We will study the standard neo-classical theory of labor markets and how minimum wages affect labor markets, and then think about how realistic the neo-classical model is and what kinds of other complexity we might add and how this might alter how we view minimum wages.

We will then proceed to think about how one might test for the effects of minimum wages using real-world data.  We will think about the causality and identification problems and how these might be overcome.  We will than proceed to examine a series of studies to attempt to get a sense of where the literature stands on the issue.

After this, on Wednesday, we will think about minimum wages in policy terms: what is the market failure we are trying to correct and is it the best was to do so.  We will compare alternatives to minimum wages, most notably the Earned Income Tax Credit.  Finally we will think about the appropriate pieces of a cost-benefit analysis of the Oregon minimum wage and the lack of an exemption for tips.  We will finish with a specific examination of the Oregon restaurant industry: how is it probably affected by the state minimum wage law.

To begin, here is a provocative graph I threw together last night using BLS data on state unemployment rates and US Department of Labor data on state minimum wages:



Is this graph meaningful?

4 comments:

Fred Thompson said...

Sure, it says that high minimum wages don't explain very much if any of the variance in unemployment,

Dann Cutter said...

"Statistical inferences of cause-and-effect relationships can be drawn from randomized experiments, but not from observational studies."

-Schafer (over in Statistics - literally wrote the book)

Given the confounding variables, this is as you said, provocative, but not statistically meaningful.

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Chuck said...

"We will study the standard neo-classical theory of labor markets and how minimum wages affect labor markets" Remember, these are the assumed set of nonempirically derived theory constructs in microeconomics that operate as a static model.

Which reasonably causes us to "think about how realistic the neo-classical model is" in studying wage policy issues. For example, how realistic is it to use a barter theory to explain a money wage rate?

"And what kinds of other complexity we might add?" Or, perhaps we should ask, what other theoretical perspectives might we adopt?

Which of course will cause us to ask how proper theories and dynamics in a fully scaled dynamic model of the economy "might alter how we view minimum wages."

"We will then proceed to think about how one might test for the effects of minimum wages using real-world data" fully aware that statistics, absent conceptual substance and weight, warrant no conclusions and indicate nothing more then existence. Yes, wages and employees exist.

Therefore, "We will think about the causality and identification problems and how these might be overcome." We will even entertain the notion that given complexity and uncertainty they might not be overcome.

"We will than proceed to examine a series of studies to attempt to get a sense of where the literature stands on the issue."
You may be shocked at how silly much of the research enterprise is on the issue of wages.

"After this, on Wednesday, we will think about minimum wages in policy terms":
1. "what is the market failure we are trying to correct"?
2. How can we square known wage rates with known income distributions?
3. How might wage rate efficencies (market clearing and labor allocation) be understood under different distributions?
4. What role does uncertainty play in our data, conceptual model and policy considerations.
5. How might the minimum wage policy issue be seen in light of sociological phenomena such as state-power-based market exclusions using regulation i.e. teachers, medical personal, etc.?

"We will compare alternatives to minimum wages":
1. "the Earned Income Tax Credit."
2. Job creation using the government as employer of last resort.
3. Robust macro level interventions in income and wealth distributions.
4. Information assymetries between employers and employed.