Dorman on Minimum Wage
By David Henderson
A few days ago I posted about economist Peter Dorman’s views on the minimum wage and just noticed that a few days later he replied as a commenter. This is my reply to him.
Professor Dorman writes:
Mainstream empirical research does not support the view that, within US historical experience, minimum wage laws significantly reduce employment. The literature is large, and different researchers come to different opinions, but at the least, it’s sure not a slam-dunk the way you guys at this blog presume.
That’s certainly not the way I read the literature, although maybe our difference is over the word “significantly.” I think there have been a few hundred studies by now and the vast majority do find job losses due to minimum wages.
In any case, as far as my personal experience is concerned, there was absolutely no problem (for me or anyone else) in getting a low-end job in 1968. I literally walked into the unemployment office and walked out with a job an hour later. We’ve never had an unemployment rate so low. Chalk it up to (eventually unsustainable) war-Keynesian fiscal policy: Vietnam without taxes to pay for it. The one proposition I can defend without any hesitation is that, under these conditions, the minimum wage made it more possible for me to explore. In fact, I will go further and suggest that this economic environment goes a long way toward explaining the explosion of the counterculture, and that its end also dealt a decisive blow to hippiedom.
I don’t doubt that he had no trouble finding a low-end job. Indeed, that was a point I made in my initial post. His obviously good brain and good writing ability put him a few cuts above the average. And notice that he chalks it up to fiscal policy, not to the minimum wage. We can disagree about fiscal policy–I think Milton Friedman won the debate with Walter Heller over the reasons for the late 1960s boom–but that doesn’t matter for this discussion. So he seems to be agreeing with me that the high minimum wage was not a factor in his finding a job at the minimum wage. Which makes his statement that “the minimum wage made it more possible for me to explore” surprising. But I think he exaggerates in saying there was no problem “for anyone else” in finding a job. Indeed part of my charge was that he thought of his situation from his narrow self-interested viewpoint, not from the viewpoint of some of those less-skilled teenagers who did have trouble finding work and the employers who had to pay more.
In a follow-on comment, Peter Dorman writes:
If you want to talk about the effects of minimum wages, talk economics. Talk about search & matching models, efficiency wage models, not first year supply and demand heuristics that do not incorporate the specific features of labor markets and that play little role in labor econ at the research level. My own view, FWIW, is that micro interventions in the labor market mainly affect the position of the Beveridge curve (in sometimes tricky ways), and that positioning along the curve is a matter for macropolicy (within limits, of course).
Of course, I was talking economics. Supply and demand are part of economics. Certainly, I could have dressed it up in search and matching terms: what that does is make the situation probabilistic. So that means that a binding minimum wage will cause a marginal worker who’s looking for a job to search longer. OK. I can accept that. It doesn’t undercut my point. How about efficiency wages? It’s true that employers sometimes, maybe often, pay efficiency wages. It’s also true that if the minimum wage is above the wage the employer wanted to set, there will be some job loss. And if Peter is saying that the employer would have paid an efficiency wage above or equal to the minimum wage, then the minimum wage is not binding. And if it’s not binding, it had no effect on what he was paid as a young man.
What is really strange is that the topic of this thread is supposed to be freedom. I challenged the libertarian assumption that only noncoercion qualifies as freedom, and as a minor footnote mentioned an experience I attributed to minimum wage laws. You guys have focused all your attention on this one detail, and no one has provided a coherent defense of the view that noncoercion is the only, or at least the dominant, criterion. What’s up?
Fair question. I stated in my initial post my view that Hedengren et al had the right view of freedom. I’m not sure what more I would say about that. What I found striking was that Peter admitted that the minimum wage required coercion and that he made the case for the minimum wage based entirely on what it did for him and people like him without considering the losses to others. That’s what I chose to address because that’s what I found interesting.