What's Skilful Almost Economic Science (Sometimes)
Bryan Caplan has a nice shipping at ecconlib. The terminal business office is an ode to the value of elementary economical theory, much disparaged inward world debate.
Bryan's fundamental point: Economic theory lets you lot vastly broaden the hit of sense that you lot tin convey to 1 enquiry -- the outcome of minimum payoff inward Seattle, for example. Economic theory also forces logical consistency that would non otherwise live obvious. You can't combat that the project demand crease is vertical today, for the minimum wage, together with horizontal tomorrow, for immigrants. There is 1 project demand curve, together with it is what it is. Economics lets 1 sense illuminate the other, together with done right forces politically uncomfortable consistency on those views. You can't combat that viscid too-high payoff crusade unemployment inward recessions together with inward Greece, together with non combat that viscid too-high payoff from minimum payoff laws create non crusade unemployment inward Seattle.
This sort of integrated thinking is far also rare inward evaluating economical policies. But that's the mistake of economists, non of economics.
Bryan:
Bryan's fundamental point: Economic theory lets you lot vastly broaden the hit of sense that you lot tin convey to 1 enquiry -- the outcome of minimum payoff inward Seattle, for example. Economic theory also forces logical consistency that would non otherwise live obvious. You can't combat that the project demand crease is vertical today, for the minimum wage, together with horizontal tomorrow, for immigrants. There is 1 project demand curve, together with it is what it is. Economics lets 1 sense illuminate the other, together with done right forces politically uncomfortable consistency on those views. You can't combat that viscid too-high payoff crusade unemployment inward recessions together with inward Greece, together with non combat that viscid too-high payoff from minimum payoff laws create non crusade unemployment inward Seattle.
This sort of integrated thinking is far also rare inward evaluating economical policies. But that's the mistake of economists, non of economics.
Bryan:
Research doesn't accept to officially live almost the minimum wage to live highly relevant to the debate. All of the next empirical literatures back upwards the orthodox thought that the minimum wage has pronounced disemployment effects:
1. The literature on the outcome of low-skilled immigration on native wages. A major contributor here, most famously for his study of the Mariel boatlift. These results imply a highly elastic demand crease for low-skilled labor, which inward plough implies a large disemployment outcome of the minimum wage.
This consensus amidst immigration researchers is together with so stiff that George Borjas titled his dissenting paper "The Labor Demand Curve Is Downward Sloping." If this were a newspaper on the minimum wage, readers would assume Borjas was controversy that the project demand crease is downward-sloping rather than vertical. Since he's writing about immigration, however, he's truly claiming the project demand crease is downward-sloping rather than horizontal!
2. The literature on the outcome of European project marketplace position regulation. Most economists who written report European labor markets acknowledge that strict project marketplace position regulations are an of import crusade of high long-term unemployment. When I inquire random European economists, they tell me, "The economic science is clear; the job is politics," pregnant that European governments are afraid to comprehend the deregulation they know they need to restore total employment. To live fair, high minimum payoff are solely 1 facet of European project marketplace position regulation. But if you lot honour that 1 sort of rule that raises project costs reduces employment, the reasonable inference to depict is that any regulation that raises project costs has similar effects - including, of course, the minimum wage.
3. The literature on the effects of toll controls inward general. There are vast empirical literatures studying the effects of toll controls of housing (rent control), agriculture (price supports), liberate energy (oil together with gas toll controls), banking (Regulation Q) etc. Each of these literatures bolsters the textbook storey almost the outcome of toll controls - together with thence ipso facto bolsters the textbook storey almost the outcome of toll controls inward the project market.
If you lot object, "Evidence on rent command is solely relevant for housing markets, not labor markets," I'll retort, "In that case, bear witness on the minimum wage inward New Bailiwick of Jersey together with Pennsylvania inward the 1990s is solely relevant for those ii states during that decade." My point: If you lot can't generalize empirical results from 1 marketplace position to another, you lot can't generalize empirical results from 1 acre to another, or 1 era to another. And if that's what you lot think, empirical move is a waste matter of time.
4. The literature on Keynesian macroeconomics. If you're even mildly Keynesian, you lot know that downward nominal wage rigidity occasionally leads to lots of involuntary unemployment. If, similar most Keynesians, you lot remember that your thought is backed yesteryear overwhelming empirical evidence, I accept a challenge for you: Explain why market-driven downward nominal wage rigidity leads to unemployment without implying that a government-imposed minimum wage leads to unemployment. The challenge is tough because the whole signal of the minimum wage is to intensify what Keynesians correctly come across every bit the fundamental crusade of unemployment: The failure of nominal payoff to autumn until the marketplace position clears.
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