Minimum wage "cause" unemployment?

[Malachi151]

You be the judge:

http://www.rationalrevolution.net/unempvsminwage.gif

So after all these years of people saying that minimum wage "causes" unemployment, does anyone have any proof of that, or is it all just right-wing psycho theory?

Using the graph above, can anyone backup the assertion?

[Grammatron]

Originally posted by Malachi151
You be the judge:

http://www.rationalrevolution.net/unempvsminwage.gif

So after all these years of people saying that minimum wage "causes" unemployment, does anyone have any proof of that, or is it all just right-wing psycho theory?

Using the graph above, can anyone backup the assertion?

Can you please site your sources?

[Malachi151]

Originally posted by Grammatron


Can you please site your sources?

I made the graph from the following data:

http://pw1.netcom.com/~rdavis2/awages.html

which is ultimately from the federal gobmnt.

[Cecil]

Higher winimum wages lead to higher unemployment, ceteris paribus. All other things were certainly not equal between the late 40s and now. The unemployment rate depends on other things, like the state of the economy, inflation, changes in the structure of the economy, and the number of discouraged workers.

If the government raised minimum wages to $30/hr tomorrow, obviously the unemployment rate would rise as firms would be unable to pay everyone that much. If you think about it in terms of supply and demand, it's clear. More people are willing to work at a higher minimum wage (supply increases as price increases), but businesses aren't willing to hire as many (demand decreases as price increases).

[Malachi151]

Originally posted by Cecil
Higher winimum wages lead to higher unemployment, ceteris paribus. All other things were certainly not equal between the late 40s and now. The unemployment rate depends on other things, like the state of the economy, inflation, changes in the structure of the economy, and the number of discouraged workers.

If the government raised minimum wages to $30/hr tomorrow, obviously the unemployment rate would rise as firms would be unable to pay everyone that much. If you think about it in terms of supply and demand, it's clear. More people are willing to work at a higher minimum wage (supply increases as price increases), but businesses aren't willing to hire as many (demand decreases as price increases).

Well yes obviously, and this is the point afterall. Minimum wage is just one of many factors and it is more about HOW the minimum wage is applied than anything else. You can't make the blanket statement that increasing minimum wages, or the existance of minimum wages increases unemployment.

In fact several studies have proven that the existance of a minimum wage reduces unemployment, if I can dig them back up I'll post them.

[corplinx]

Malachi, since I guess you want to be a skeptic or at least a wannabe, try googling for "correlation versus causation" and then tell my why your graph is proof of nothing.

[UserGoogol]

I graphed minimum wage in a given year versus unemployment in the same year in a scatter plot, and there's not a particularly noticable relationship there. Of course, what do I know about Statistics?

[Chaos]

Originally posted by UserGoogol
I graphed minimum wage in a given year versus unemployment in the same year in a scatter plot, and there's not a particularly noticable relationship there. Of course, what do I know about Statistics?

Lots of other factors influence this, and they are not shown in the graph. I guess that if there IS a relationship, it is not strong enough to withstand the influence of the other factors.

[Malachi151]

Originally posted by UserGoogol
I graphed minimum wage in a given year versus unemployment in the same year in a scatter plot, and there's not a particularly noticable relationship there. Of course, what do I know about Statistics?

Right, that's exactly my point, there isn't a direct correlation.

corplinx

The point is that there is no proof that one "causes" the other.

Influences? Maybe, logically there has to be some influence, but even still there are many other factors, and there is certianly no strong relationship shown in the historic data.

[WildCat]

So long as min. wage is at or below the market rate for wages, it has no effect. Raise it much above the market wages and it will cause unemployment.

Politicians realize this and cynically raise it every now and then (but being careful not to raise it too much) so they can claim to help the working folk, though they realize it does no such thing. It's just grandstanding.

[shanek]

Originally posted by Malachi151
Using the graph above, can anyone backup the assertion?

No one can back up anything using the above graph, because it does nothing to account for the myriad of other aspects which affect unemployment rates.

[Pyrian]

corplinx:
Malachi, since I guess you want to be a skeptic or at least a wannabe, try googling for "correlation versus causation" and then tell my why your graph is proof of nothing.No amount of (uncontrolled) correlation can demonstrate causation, however, a lack of correlation does demonstrate an upper limit to causative factors.

[RichardR]

Federal Reserve economist Peter Tulip calculated that the relative reduction in value of the minimum wage over a period of 20 years reduced the US equilibrium rate of unemployment by 1.5%.

Do Minimum Wages Raise the NAIRU? (http://www.federalreserve.gov/pubs/feds/2000/200038/200038pap.pdf)

Abstract:

A high minimum wage (relative to average wages) raises nominal wage growth and hence inflation. This effect can be offset by extra unemployment; so the minimum wage increases the Non-Accelerating Inflation Rate of Unemployment or NAIRU. This effect is clearly discernible and robust to variations in model specification and sample period. It is consistent with international comparisons and the behavior of prices. I estimate that the reduction in the relative level of the minimum wage over the last two decades accounts for a reduction in the NAIRU of about 1 1/2 percentage points. It can also account for the substantial reduction in the NAIRU in the United States relative to continental Europe.

[Malachi151]

Originally posted by RichardR
Federal Reserve economist Peter Tulip calculated that the relative reduction in value of the minimum wage over a period of 20 years reduced the US equilibrium rate of unemployment by 1.5%.

Do Minimum Wages Raise the NAIRU? (http://www.federalreserve.gov/pubs/feds/2000/200038/200038pap.pdf)



Another possibility is that the minimum wage acts as a safety net or “outside option” that affects workers’ bargaining
position. This interpretation seems consistent with (and would help to explain) the widespread view that the reduction in the NAIRU in the 1990s was due to worker insecurity.

Yes, I would agree to that, which is part of my overall point. Capitalism works through conflicts of interest. It's not a system where everyone wins. That's fine as long as we honestly recognize that fact.

Yes, inflation was reduced because of an increase in worker insecurity.

What his paper fails to do though is look at all wages and all forms of income, not just minimum wage and average wage.

Minimum wage can increase without increasing inflation if profits go down, or other means are used to reduce the overall cost of production of goods and services.

In theory if the cost of production stays the same then there should be no rise in prices for goods due to that factor, only due to increased demand, wich can occure from an increase in prosperity, but in that case upper limits are set, not lower limits, which is much more acceptable.

So, if #1 profits are reduced and or #2 the cost of other elements of production are reduced, i.e. more automation and use of computer, etc that save money are used then production should be abel to be increased to match a rising demand on a per unit basis with the cost of production staying the same, the employment staying the same, and the rate of production going up to match a demand that is goign up becuase of higher wages, such that if demand and production both go up by the same amount then prices should stay the same, and then you have no inflation, stable prices, and an increasing standard of living for the population. This can only happen if profits are limited, wages increase, and production increases.... i.e. socialism... ;)

Oh well, don't mind that.

[shanek]

Originally posted by Pyrian
No amount of (uncontrolled) correlation can demonstrate causation, however, a lack of correlation does demonstrate an upper limit to causative factors.

True, but something does not cease to be a waste of money just because something else made even more money. And so the minimum wage does not cease to contribute to unemployment just because there are other factors out there causing unemployment to drop.

[RichardR]

Originally posted by Malachi151
Yes, I would agree to that, which is part of my overall point. Capitalism works through conflicts of interest. It's not a system where everyone wins. That's fine as long as we honestly recognize that fact. In what system does everyone win?

Originally posted by Malachi151
Yes, inflation was reduced because of an increase in worker insecurity. No no no inflation wasn't reduced. You need to read the paper again and understand it. The NAIRU is not inflation. It is the Non-Accelerating Inflation Rate of Unemployment – that's the equilibrium rate of unemployment – the rate of unemployment that's consistent with stable inflation. It's not inflation – nothing to do with it.

Originally posted by Malachi151
What his paper fails to do though is look at all wages and all forms of income, not just minimum wage and average wage. Huh? He looked at minimum wage, because that is what he was measuring. He did not look at "all wages and all forms of income" because he was comparing minimum wage with unemployment.

Originally posted by Malachi151
Minimum wage can increase without increasing inflation if profits go down, or other means are used to reduce the overall cost of production of goods and services.

In theory if the cost of production stays the same then there should be no rise in prices for goods due to that factor, only due to increased demand, wich can occure from an increase in prosperity, but in that case upper limits are set, not lower limits, which is much more acceptable. That's your theory. Apparently it's not in agreement with the data.

Originally posted by Malachi151
So, if #1 profits are reduced and or #2 the cost of other elements of production are reduced, i.e. more automation and use of computer, etc that save money are used then production should be abel to be increased to match a rising demand on a per unit basis with the cost of production staying the same, the employment staying the same, and the rate of production going up to match a demand that is goign up becuase of higher wages, such that if demand and production both go up by the same amount then prices should stay the same, and then you have no inflation, stable prices, and an increasing standard of living for the population. This can only happen if profits are limited, wages increase, and production increases.... i.e. socialism... ;)

Oh well, don't mind that. That's a lot of "ifs". Perhaps you can give an example of where that has happened? Or perhaps an example of where socialism has ever worked.