Ignorant Survey from Chicago-Booth?

By Mario Rizzo

The Chicago-Booth IMG Forum asks their favorite economists two questions. Let us examine them.

Question A:

Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.

Why was the word “noticeably” added to the question rather than some specific quantitative amount?  In other words, the question could have been phrased: “Would it increase unemployment among low-skilled works by approximately 5 percentage points or less?”  I realize that economists would get nervous about mentioning a specific number. But (1) That would reveal the true difficulties in economics of making quantitative predictions and hence tradeoffs; (2) It would take the subjectivity out of the word “noticeable.”  Noticeable for whom, and by what standard?  Noticeable to the public or to the policy maker or to the economist or to the low skilled workers or to union members?

Question B:

The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

There is a lot here. Let us first separate the raising of the minimum wage to $9.00 per hour from the indexing (one could favor the former but not the latter).

What is meant here by distortionary costs? Does this include the greater number of people who would engage in search for these particular covered jobs as they are misled by the higher price-signal? Or just the ones who are thrown out of work? Does this separate out the effects on the lowest of the low skilled – for example, teenagers who want/need work experience?

As I understand it, the bottom line on “distortionary” effects is that they represent monetary losses to the losers that exceed monetary gains to the gainers. Is this not true here?

What I think the economists are being asked is that, according to their value judgments — their views about equity in the distribution of income – is the tradeoff worth it?

My reaction to this question is to laugh. Do I care what their value judgments are? Do their judgments represent some deeply considered ethical reflection? I sincerely doubt it. Most economists would rather solve equations than study ethics.

But now that we have introduced ethical value judgments, why stop with those relating to the distribution of income? What about the ethical quality of preventing willing employers and willing workers to engage in exchange?

And as to indexing: Well, that adds the additional wrinkle that the policy must be “good” in all economic environments like an inflationary boom and so forth.  This is another matter.

The reader may be forgiven for thinking that I am too fussy here (or perhaps even engaging in sophistry).  However, I think publishing answers to survey questions like these is, by the nature of the questions, misinformation. The reader is clueless how to separate the value judgments of the economist from his scientific judgments.

As Neville Keynes argued in 1890 in The Scope and Method of Political Economy, to talk of policy one must combine the science of economics with ethics and the art of policy. The questions asked by Chicago-Booth are sloppy scientifically and they throw in questions of ethics and policy judgment in with the mix for a brew that just makes us drunk.

I admire the economists who did not answer the questions.



8 thoughts on “Ignorant Survey from Chicago-Booth?

  1. At what point does it make sense for an employer to replace one full time higher wage worker with two only slightly lower paid? In other words, it seems to me, and I know little about economics, that it might make sense in some (many?) situations to replace one $12 an hour worker with two $9 an hour workers given the marginal cost benefit and increased productivity…am I way off?

  2. I like Austan Goolsbee’s classic non-answer to question B: “Depends what your social welfare function looks like.”

    Well, yes, of course it does. But the question question seems to be asking what *your* SWF is, Dr. Goolsbee.

  3. Why was the word “noticeably” added to the question rather than some specific quantitative amount?

    That is one of my pet peeves, people who discus policy and make non concrete statements. One common comment is “people cannot afford x”. What people, and what does cannot afford mean to you. Sometimes they even say people cannot afford that which they are already paying for. If you cannot afford something does it mean that it would consume enough of your income that there would not be enough left to keep alive in minimal conditions?

  4. Congress almost always sets the minimum wage very near the market wage for entry level work, judging by what Wal-Mart and McDonalds pay. That’s why no one can find any effect for minimum wage.

    Much of the past generation has seen the minimum wage below the market wage. By the time the new law is passed and the minimum rises to $9, the market wage for unskilled labor will have risen to at least $10.

    Politicians are all about pretending to help while doing nothing helpful. It makes everyone feel warm all over without doing any harm or good. If politicians thought they could raise the minimum to any level without hurting anyone they would raise it to $50/hr.

  5. Jay, if the minimum is $9, then the $12 worker must be experienced and have higher productivity or he wouldn’t be earning that much. The two $9 workers will have very low productivity because they are unskilled and need training. So to pay $18 for less productivity wouldn’t make much sense.

  6. Jay, the answer to your question is, “Yes, it’s possible. But if so, then the employer will already have done it.”

    Reading into your question a bit, it seems like you’re wondering if this could weaken the usual economic case against the minimum wage. The answer is no. Let’s suppose that it’s worth dropping the $12-worker in favor of two $9-workers, as you suggest. If the minimum wage is below $9, then the employer will do the switch on his own. If the minimum wage is above $9, then he will be unable to make the switch, so he’ll stick with the single $12-worker instead. Thus, the minimum wage will have caused two lower-wage workers not to be employed.

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