The Right Minimum Wage Question
By David Henderson
Like Bryan, I received the same request from the same friend: what question(s) would I want to put on a survey of economists. My response was that I would want the question on the minimum wage asked accurately instead of sloppily. Here’s how the issue was posed in the famous 1976 survey that was reported in J. R. Kearl, Clayne L. Pope, Gordon C. Whiting, and Larry T. Wimmer, “A Confusion of Economists?” American Economic Review 69 (May 1979): 28-37:
A minimum wage increases unemployment among young and unskilled workers.
Of 211 economists who responded, 90 percent agreed, or agreed with provisions, with this statement. In an early 1990s survey, the percent agreeing or agreeing with provisions had fallen to 80 percent. In a 2000 survey, reported in Dan Fuller and Doris Geide-Stevenson, “Consensus Among Economists: Revisited,” Journal of Economic Education (Fall 2003): 369-387, it was posed as:
Minimum wages increase unemployment among young and unskilled workers.
Of the economists surveyed, 74 percent agreed or agreed with provisions.
What’s wrong with these statements as posed? Two things. First, when I teach about the minimum wage in class or even talk about it in interviews, I take pains to point out that the minimum wage can price people out of work but not make them unemployed, because of the way unemployment is measured. To be officially unemployed, you must be out of work, available for work, and looking for work. But what if a youth priced out by the minimum wage gives up looking for work? Then he will no longer be officially unemployed. Had I been one of the economists surveyed, I would have been tempted to agree with provisions, the provision being that the person keeps looking for work or that we measure unemployment more inclusively. But I can imagine some economists who are sticklers for accuracy saying that they disagree even though they would agree that the minimum wage prices people out of work. How many such economists? Probably not many. But why set up the question to cause such a problem when there’s a simple word fix?
The second problem is what we learned in my Ph.D. program at UCLA to call a “changes versus levels” problem. If the minimum wage has been constant for a while, it will not increase unemployment or reduce employment. It will just make employment less than otherwise. Indeed, a constant-dollar minimum wage will, when there is inflation, price more people in over time, as the $3.35 minimum wage did in the 1980s.
Here’s the fix:
A minimum wage causes employment of young and unskilled workers to be lower than if the minimum wage did not exist.
Can anyone hone it further?