Minimum wage
Greg Mankiw has a good way to think about the real cost of the minimum wage:
here are some hints about how to think about it in a competitive labor market using supply and demand curves. Let w be the market wage, and let W be the target wage of policymakers. Draw supply and demand curves for labor such that the equilibrium wage in the absence of any policy is below W. Now suppose the government tells suppliers of labor: Whenever w is less than W, you are paid a subsidy equal to W-w. Similarly, it tells demanders of labor: Whenever w is less than W, you are charged a tax equal to W-w. Calculate quantity supplied and quantity demanded as a function of the market wage w. Graph the new supply and demand curves, and I believe the equivalence should be clear.
Unfortunately for the rest of us, I doubt that most policymakers can calculate supply and demand curves; too many of them are lawyers, and too few economists.
Comments
The problem is that there haven't been any real serious studies on the effect minimum wage has on employment.
I forget the named of the "progressive" think tank that did a study of minimum wage in the Philadelphia area and concluded that the minimum wage has only good effects and effectively raises rates all the way up the income ladder.
The problem is that the study only looked at a single labor market (i think it was for bartenders) not at the whole picture.
Good shabbos
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December 29, 2006 10:29 AM