Devil's Policy Advocate

It’s Opposite Day, and Tyler’s alter ego Tyrone is defending the minimum wage. But he doesn’t defend it as I expected. If I were to defend the minimum wage, it would go something like this:

The evidence indicates that the minimum wage’s disemployment effect is relatively small. That means the demand for unskilled labor is inelastic. And that means the total amount paid in wages will increase after a wage hike despite the reduction in working hours. This is perfectly consistent with the standard neoclassical model of the labor market; the claim was never that demand for labor is elastic, only that it slopes downward.

So the question is, how is the higher total compensation distributed? The standard argument is that workers who keep their jobs are the winners, while workers who get fired (or not hired to begin with) are the losers. But it’s actually possible that all workers will share in the gains. How? Two ways: (1) The high rate of turnover in unskilled jobs means that most workers alternate between employment and unemployment. The higher wages in the employed periods outweigh the zero wages in the unemployed periods. But more likely: (2) The disemployment manifests as a reduction in hours per worker rather than a reduction in workers. Everyone keeps working, and though they work fewer hours, the higher pay during the hours worked more than compensates. (This possibility would rationalize the Card-Krueger study – which showed an increase in “Full Time Employment” (FTE) in New Jersey fast food restaurants after a minimum wage hike – and the subsequent Neumark-Wascher study that showed a reduction in payroll hours after the same hike. FTE measures workers, not hours worked.)

Following Tyler’s lead, I’ll resist the impulse to make the counterargument.