Orange Rocks and the Minimum Wage

I’ve long been deeply suspicious of contrarian research that purports to show that the minimum wage doesn’t decrease low-skilled employment.  But Don Boudreaux explains my suspicion far better than I could:

Has any science ever devoted so much time, effort, and cleverness to
elaborate attempts to determine whether or not a central and
indisputably correct tenet of that science – a tenet used without
question to predict outcomes in general – fails to work as an accurate
predictor for one very specific, small slice of reality as has been
devoted by economics over the past two decades to determine whether or
not the law of demand works to accurately predict the effects of minimum
wages on the quantity demanded of low-skilled labor?

I’m pretty sure that the answer to my question is ‘no.’

I judge from the furious debate over the effects of minimum wages on
the quantity demanded of low-skilled labor that were there to exist
powerful political and ideological forces that stand to benefit if the
general public believes that small orange rocks dropped into swimming
pools cause no increases in the water levels of swimming pools, there
would be no shortage of physicists who conduct and publish studies
allegedly offering evidence that, indeed, the dropping of small orange
rocks into swimming pools does not tend to raise the water levels of
swimming pools (and, indeed, might even lower pools water levels!).

[…]

And so it is with minimum-wage legislation.  The strong political and
ideological interests on the pro-minimum-wage side keep alive the
debate over whether or not raising employers’ costs of employing
low-skilled workers causes employers to further economize on the amounts
of low-skilled labor that they hire.  There is no furious empirical
debate among scholars over whether or not, say, raising an excise tax on
oranges would, ceteris paribus, cause fewer oranges to be
bought and sold.  There is no furious empirical debate among scholars
over whether or not, say, an increase in the tuition charged to attend
college would, ceteris paribus, discourage some people from
enrolling in college.  There is no furious empirical debate among
scholars over whether or not, say, imposing a poll tax would, ceteris paribus, discourage some people from voting.

Yet because powerful political and ideological interests have a stake
in the market for low-skilled workers being immune from the normal
operation of the law of demand, a furious debate rages over whether or
not employers forced to pay more for labor do or don’t further economize
on labor.

One picayune criticism of Don’s analogy: Comparing the minimum wage to “small orange rocks” leads casual readers to the specious inference that we have trouble detecting the minimum wage’s disemployment effect because it, too, is small.  Don’s should have simply spoken of “orange rocks” – then explained that we might trouble detecting even sizable disemployment effects because of confounding factors.  Don is naturally well-aware of this point.  He even extends his orange rock analogy by identifying confounding “factors such as rainfall and evaporation, swimmers jumping into
and out of pools, and the condition of each of the many pools’ drainage
and filtering systems.”  But I wish he’d driven it home a little more aggressively.

Last point: If I were an immigration skeptic, I’d be sorely tempted to use Don’s words to debunk the mainstream view that immigration has minimal effect on native wages:

Has any science ever devoted so much time, effort, and cleverness to
elaborate attempts to determine whether or not a central and
indisputably correct tenet of that science – a tenet used without
question to predict outcomes in general – fails to work as an accurate
predictor for one very specific, small slice of reality as has been
devoted by economics over the past two decades to determine whether or
not the law of supply works to accurately predict the effects of immigration on the wages of native laborers?

The key difference: The Law of Comparative Advantage specifically predicts an ambiguous net effect of immigration on native wages, because specialization and trade raises labor productivity and therefore labor demand.  You can’t credibly say the same about the minimum wage. 

The post appeared first on Econlib.