Bryan Caplan has a nice post service at ecconlib. The concluding role is an ode to the value of uncomplicated economical theory, much disparaged inwards world debate.
Bryan's primal point: Economic theory lets y'all vastly broaden the make of sense that y'all tin convey to i interrogation -- the lawsuit of minimum payoff inwards Seattle, for example. Economic theory also forces logical consistency that would non otherwise live obvious. You can't debate that the task demand plication is vertical today, for the minimum wage, too horizontal tomorrow, for immigrants. There is i task demand curve, too it is what it is. Economics lets i sense illuminate the other, too done right forces politically uncomfortable consistency on those views. You can't debate that mucilaginous too-high payoff motility unemployment inwards recessions too inwards Greece, too non debate that mucilaginous too-high payoff from minimum payoff laws create non motility unemployment inwards Seattle.
This sort of integrated thinking is far besides rare inwards evaluating economical policies. But that's the error of economists, non of economics.
Bryan:
Bryan's primal point: Economic theory lets y'all vastly broaden the make of sense that y'all tin convey to i interrogation -- the lawsuit of minimum payoff inwards Seattle, for example. Economic theory also forces logical consistency that would non otherwise live obvious. You can't debate that the task demand plication is vertical today, for the minimum wage, too horizontal tomorrow, for immigrants. There is i task demand curve, too it is what it is. Economics lets i sense illuminate the other, too done right forces politically uncomfortable consistency on those views. You can't debate that mucilaginous too-high payoff motility unemployment inwards recessions too inwards Greece, too non debate that mucilaginous too-high payoff from minimum payoff laws create non motility unemployment inwards Seattle.
This sort of integrated thinking is far besides rare inwards evaluating economical policies. But that's the error of economists, non of economics.
Bryan:
Research doesn't choose to officially live close the minimum wage to live highly relevant to the debate. All of the next empirical literatures back upwardly the orthodox sentiment that the minimum wage has pronounced disemployment effects:
1. The literature on the lawsuit of low-skilled immigration on native wages. A major contributor here, most famously for his study of the Mariel boatlift. These results imply a highly elastic demand plication for low-skilled labor, which inwards plough implies a large disemployment lawsuit of the minimum wage.
This consensus alongside immigration researchers is then potent that George Borjas titled his dissenting paper "The Labor Demand Curve Is Downward Sloping." If this were a newspaper on the minimum wage, readers would assume Borjas was contention that the task demand plication is downward-sloping rather than vertical. Since he's writing about immigration, however, he's genuinely claiming the task demand plication is downward-sloping rather than horizontal!
2. The literature on the lawsuit of European task marketplace regulation. Most economists who report European labor markets acknowledge that strict task marketplace regulations are an of import motility of high long-term unemployment. When I inquire random European economists, they tell me, "The economic science is clear; the job is politics," pregnant that European governments are afraid to covert the deregulation they know they need to restore total employment. To live fair, high minimum payoff are exclusively i facet of European task marketplace regulation. But if y'all notice that i sort of rule that raises task costs reduces employment, the reasonable inference to depict is that any regulation that raises task costs has similar effects - including, of course, the minimum wage.
3. The literature on the effects of toll controls inwards general. There are vast empirical literatures studying the effects of toll controls of housing (rent control), agriculture (price supports), loose energy (oil too gas toll controls), banking (Regulation Q) etc. Each of these literatures bolsters the textbook storey close the lawsuit of toll controls - too thus ipso facto bolsters the textbook storey close the lawsuit of toll controls inwards the task market.
If y'all object, "Evidence on rent command is exclusively relevant for housing markets, not labor markets," I'll retort, "In that case, bear witness on the minimum wage inwards New Bailiwick of Jersey too Pennsylvania inwards the 1990s is exclusively relevant for those ii states during that decade." My point: If y'all can't generalize empirical results from i marketplace to another, y'all can't generalize empirical results from i acre to another, or i era to another. And if that's what y'all think, empirical operate is a waste materials of time.
4. The literature on Keynesian macroeconomics. If you're even mildly Keynesian, y'all know that downward nominal wage rigidity occasionally leads to lots of involuntary unemployment. If, similar most Keynesians, y'all yell upwardly that your sentiment is backed past times overwhelming empirical evidence, I choose a challenge for you: Explain why market-driven downward nominal wage rigidity leads to unemployment without implying that a government-imposed minimum wage leads to unemployment. The challenge is tough because the whole indicate of the minimum wage is to intensify what Keynesians correctly run into equally the fundamental motility of unemployment: The failure of nominal payoff to autumn until the marketplace clears.
