Academic paper bleg

Anyone with access to JPE?

How effective is the minimum wage at supporting the poor?

The highly esteemed and extremely proficient Thomas MaCurdy has a new piece in the JPE (jstor) on exactly that question.

Can I get a copy?

14 thoughts on “Academic paper bleg”

  1. that’s an interesting paper and gives proponents of the minimum wage a lot to chew on. However it is describing the results of a model-based simulation, and it does impose the assumption in this model that firms tolerate no reduction in profit margins nor do they reduce wages of, for example, managers, in response to min wage hikes.

    if you assume higher wages are passed through to prices, and poor households all purchase those goods but do not all benefit from MW (because many are already employed above it) then you get this result. At least, I think that’s what’s going on.

    the interesting parts are – from a quick read – about the distribution of min wage workers in US – i.e. surprisingly many from high income households.

  2. n.b. lest the hordes of lefty haters here misinterpret me, forgetting that higher wages are passed on in prices is exactly the sort of dumb thing that dumb lefties do. Not all lefties are dumb.

  3. “[it] gives proponents of the minimum wage a lot to chew on.”

    No it doesn’t, because it’s a scientific paper, and the minimum wage is a religion. Otherwise minimum wage proponents would have found a lot to chew on in the work of eg. Neumark and Wascher.

  4. @ Luis Enrique
    It does not impose the assumption that firms tolerate no reduction in profit margins. It does assume that a very few of the largest firms are quoted and demand that return on capital eployed be maintained (which would involve a small decrease in profit margins on the higher prices to maintain a constant ROCE). BUT the principal assumption is the easily provable one that most small firms paying minimim wages to employees have profit margins so small that they cannot accommodate substantial rises in minimum wage rates without raising prices. Perhaps you would pull your full weight if you were on NMW in a small firm whose owner-manager swanned around in a Rolls, but how many others do you know who would? I estimate that 99% of humanity dislikes being “ripped off”. So small businesses that have high margins pay more than the minimum wage because the extra effort put in by those who are not resenting being “ripped off” more than compensates for higher wage.
    I am glad that you have picked up a key point which is the small proportion of those earning the minimum wage who are the principal wage-earner for a family. This is why the TUC campaign for a “living wage” is such utter balderdash: the “living wage” is what is required for a single wage-earner to support a family of four, providing a higher standard of living than was accepted by the middle class when I was young.

  5. @ Richard Allan
    It’s a political ideology, not a religion. A religion appeals to a higher power: proponents of a minimum wage profess to *be* a higher power.

  6. john77

    “this study examines the antipoverty effectiveness of this policy presuming that firms raise prices to cover the full amount of their higher labor costs induced by the rise in wages. “

  7. ““this study examines the antipoverty effectiveness of this policy presuming that firms raise prices to cover the full amount of their higher labor costs induced by the rise in wages. “”
    And it explains *why* it does so.

  8. Yes it does. But instead of pointing that out, why don’t you acknowledge your error in denying it imposes the assumption on the model that I said it did, justified or not?

    People who never admit error but are always on the attack are tiresome

  9. @ Luis Enrique
    “To evaluate, then, the redistributive effects of the minimum wage adopting the view implicitly held by its advocates, this study examines the antipoverty effectiveness of this policy
    presuming that firms raise prices to cover the full amount of their higher labor costs induced by the rise in wages.”
    Which is *not* “it does impose the assumption in this model that firms tolerate no reduction in profit margins nor do they reduce wages of, for example, managers, in response to min wage hikes.”
    It is a model, which you are quite entitled to point out. It has flaws, albeit lesser ones than the models that assume all mimimum wage-earners are supporting a family while their employers are riding a gravy -train. And I know a number of companies that have actually cut board pay when profits wre squeezed.
    I am not always right and cannot pretend to be but why should I apologise to you for pointing out that what you said was wrong?

  10. Ah OK so now what I think is going on is confusion over what it means to impose an assumption on a model. What he’s saying there is he is making assumption that wage increases as fully passed on in prices, and don’t squeeze profits. He motivates that assumption, but it is something he imposes on the model, it is not a result of optimising behaviour in the model or anything like that.

    Other than my mistaken use of word margin it is how I described it

  11. @ Luis Enrique
    The paper attempts to demonstrate that the moral argument for the minimum wage is flawed.
    There are two aguments for NMW, moral and economic – the latter is clearly nonsense and the general publc ignore such claims so the trade unions campaign on the “moral” argument which the paper debunks.
    If, and only if, the firm is making so much profit that it can not only continue in business when paying NMW but also continue to invest in growing the business (and why should it choose to do so if the investors get none of the incease in profits?), does the creation or increase in NMW have no impact.
    Sure if company A is paying its workers £4 per hour while all its competitors, including company B next door are paying £7 an hour, the imposition of NMW will help but who is going to work for company A if he/she can get a job at company B?.

  12. I am glad that you have picked up a key point which is the small proportion of those earning the minimum wage who are the principal wage-earner for a family…
    These are US data, not directly relevant to minimum-wage policy in the UK. In the UK, “for about 60% of NMW families, the main worker is paid the NMW in their family’s main job”

    MacCurdy’s conclusion is that the minimum wage helps poor people working for minimum wage, but, on the assumption that it’s passed on in consumer prices, slightly hurts a lot of other people. That’s unsurprising. (This paper finds that the US minimum wage does have a significant effect on the average income of poor families.)

    Rather oddly, MacCurdy accounts for the extra tax collected on increased wages on the income side, but doesn’t consider that it might actually be spent on something.

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