John Cochrane has a squeamish postal service on minimum wages.
I was of late discussing the topic of minimum reward amongst a friend who favors them. (He is a prominent economist, whose cite you lot would sure enough recognize, but conversations amongst friends are off the record). As justification for his view, he pointed me to this newspaper yesteryear Lee together with Saez, called "Optimal minimum wage policy inward competitive task market."
What was notable to me close this paper is the incredibly rigid assumptions they postulate to brand their case. In particular,
I was of late discussing the topic of minimum reward amongst a friend who favors them. (He is a prominent economist, whose cite you lot would sure enough recognize, but conversations amongst friends are off the record). As justification for his view, he pointed me to this newspaper yesteryear Lee together with Saez, called "Optimal minimum wage policy inward competitive task market."
What was notable to me close this paper is the incredibly rigid assumptions they postulate to brand their case. In particular,
Assumption 1. Efficient rationing: Workers who involuntarily lose their low-skilled jobs due to the minimum wage are those amongst the to the lowest degree surplus from working inward the low-skilled sector.
Later they betoken out:
Finally, the desirability of the minimum wage hinges in ane trial to a greater extent than crucially on the “efficient rationing” assumption. Under “uniform rationing”, where unemployment strikes independently of surplus, the minimum wage cannot amend upon the optimal revenue enhancement allocation, a betoken formally proven inward Lee together with Saez (2008). Indeed, amongst efficient rationing, a minimum wage effectively reveals the marginal workers to the government. Since costs of operate are unobservable, this is valuable because it allows the regime to form workers into a to a greater extent than socially (albeit non privately) efficient ready of occupations, making the minimum wage desirable. In contrast, amongst uniform rationing, every bit unemployment strikes randomly, a minimum wage does non disclose anything close costs of work. As a result, it solely creates (privately) inefficient sorting across occupations without revealing anything of value to the government. It is non surprising that minimum reward would non hold out desirable inward this context.
Rather than providing a justification for minimum wages, the newspaper seems to produce simply the opposite. It shows that you lot postulate implausibly rigid assumptions, such every bit efficient rationing, to brand the case. I cannot encounter whatsoever compelling argue to believe that inward the presence of excess render of workers, the marketplace seat volition somehow contend to efficiently ration the scarce jobs.
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