Saturday, July 25, 2015

Annals of Derp: Dysarithmia continued

Coldplay, Magic, directed by Jonas Åkerlund, 2014. Via Wikipedia.
So as always, I love it when Brooks dips his toe into economics, because while I really don't know that much about economics, compared to Brooks I'm a master. It's brilliant for my self-esteem. As in the present case, where he is trying to show that Dr. Krugman has been ignoring the research on raising minimum wage hikes, which I started looking at in the previous post.

It's to be presumed here that he doesn't actually know or even care especially what he's talking about at all, of course, but is simply taking instructions from his masters at AEI and the Manhattan Institute and Hoover, Timeswashing their ideas as it were to make them look serious to some particular set of readers who regard themselves as educated and modern and "for heaven's sake, Ethel, I'm not some old fuddy-duddy, I just believe in responsibility", but always glad to learn new reasons for keeping poor people poor.

Because moral philosophy will be taking more and more days off as the 2016 campaign season gets under way.

Today's story boils down to this: ever since the zenith of high capitalism in the late 19th century, progressive forces have been advocating wage floors, on the basically moral-rather-than-economic theory that an employee deserves enough money to keep her- or himself and dependents alive and in some sense decent—shoes on your feet and roof over your head and the kids don't go to bed hungry—and regressive forces have said no because freedom; meaning, obviously freedom for employers, who are the only real people. If the market allows me to get away with paying my workers less than they need to live on, why shouldn't I? Which isn't a very attractive argument, so they've always made other ones, with the assistance of economists.

One is that very-low-wage jobs are for people who don't need money, like the 1960s housewives with husbands earning a sufficient salary who haven't actually existed since the 1960s or so, or teenagers living with their parents, so it doesn't matter how much they get paid. Of course that's bullshit:
  • There are 25 million low-wage workers in America, but the figure balloons to 60.6 million by adding the number of people living in their households. One in four Americans are in working households trying to get by on low wages that are not keeping pace with the rising costs of the things necessary to a family: rent, heat, clothes, medicine, food, and transportation.
  • Most low-wage workers are their families’ primary breadwinners, accounting for 56 percent of total family income on average.
  • The average household of a low-wage worker includes two family members in addition to the worker. This may include partners, children, aging parents, or siblings.
  • More than one third (35 percent) of low-wage workers are caring for children. That’s almost nine million parents working for low wages who would receive a raise if Congress were to increase the minimum wage. This number includes almost six million working mothers and almost three million working fathers.
  • More than a quarter of all American children in working families live in households supported by low-wage workers: 15.4 million children.
(2014 numbers)

This is also a charge on the state, in that these inadequately paid workers need to go to the government for help—SNAP food benefits, rental assistance, and so on—to make ends meet, and thus an indirect subsidy from taxpayers to the employer. But I digress.

The other argument, more speciously economistic, is that the industry only has so much revenue to dole out, so that if they increase their overhead by paying workers more, they will have to decrease it elsewhere by raising their prices, or by hiring fewer people. Irony! You progressives are trying to help the working man by raising his wage and you're forcing me to lay him off!

Of course if that were true, it would be a sign of a major failure in the whole system. Even Ricardo and Marx were sure that capitalism would always pay its workers a survival wage, and it can't even do that? But it isn't true, in any case, and this has been clear since Card and Krueger published their famous results in 1993: minimum wage hikes are sometimes accompanied by job losses, sometimes not, and there's no causal association.

So the object of conservative desires for the past 22 years has been to come up with some alternative research suggesting that Card and Krueger were wrong, and lots of economists have tried their best, and Brooks's assignment yesterday is to lay out some of the attempts in a form his readers (persons of civility who would never lower themselves by listening to a Ted Cruz speech or reading a Heritage Foundation document) will find convincing.

David Neumark of the University of California, Irvine and William Wascher of the Federal Reserve have done their own studies and point to dozens of others showing significant job losses.
But then again, according to John Schmidt at the Center for Economic Policy Research (Dean Baker's outfit),
In their analysis,* Neumark and Wascher reviewed 102 studies of the minimum wage, 33 of which they declared “credible.” Of the 102 studies examined, only 53, however, used data for the United States, which would seem to be an important criteria for evaluating the employment impact here. Of these 53 U.S. studies, 19 earned the rating of "credible" from Neumark and Wascher. But, fully five of these 19 — more than one-fourth — were ones that Neumark and Wascher had conducted themselves. This raises real questions about the objectivity of Neumark and Wascher's evaluations.
Neumark and Wascher are long-time opponents of the minimum wage. I have, for a long-time, been a supporter of regular, moderate increases in the minimum wage. So, who are you going to believe?
Schmidt points out an alternative metanalysis of 64 studies on teen unemployment in the US, in which the studies were ranked for statistical precision; a large majority of the studies found that the effects of minimum wage rises were around zero, but the interesting thing is that all the more precise studies found effects very close to zero, the more precise the closer.

Recently, Michael Wither and Jeffrey Clemens of the University of California, San Diego looked at data from the 2007 federal minimum-wage hike and found that it reduced the national employment-to-population ratio by 0.7 percentage points (which is actually a lot), and led to a six percentage point decrease in the likelihood that a low-wage worker would have a job.
Actually, no. Almost every statement in this brief summary is wrong. What Wither and Clemens did was to compare states that had to follow the federal wage increase of 2007-09 with those that didn't (because they already had state minimum wages higher than the federal floor). What they found was that in the "bound" states with low or no minimums of their own (including Lousiana, Mississippi, Tennessee, Pennsylvania), low-skilled workers' employment rates fell by about 8 percentage points from 2009 to 2011, as opposed to 2 percentage points in the "unbound" states (such as Florida, California, Montana, and Arizona). Then, based on the understanding that these numbers prove a causal relationship between minimum wage rises and unemployment, they extrapolated the guess ("our best estimate") that minimum wage increases in the late 2000s led to an overall reduction in employment of 0.7 percentage points, or about 1.4 million workers, 45% of them ages 15 to 24, or 14% of the total decline in unemployment during the period.

Ah, yes, because as you may recall this was the aftermath of the worst economic crisis since the Great Depression, and there was a lot of that declining unemployment going on. What makes Wither and Clemens so sure minimum wage laws had anything to do with it?
Aggregate data characterising the Great Recession’s severity reveal that the housing crisis was more severe in unbound states than in bound states.  Consequently, the recession would tend, if anything, to bias estimated effects of the minimum wage on employment towards zero.
Because of the housing crisis, it's "just common sense", as the Serious People say, to assume unemployment would be rising faster in California and Florida than in Mississippi and Tennessee, so why the heck not? But then, I would expect those job losses to be worst in the period before the minimum wage hike took effect, from 2007 to 2009, because that's when the housing crisis was. Also, that's when it happened; but because the crisis was about more than housing, it also affected states where housing wasn't the problem long afterwards, and apparently more severely (with the exception of the energy-boom states like Texas, Oklahoma, and the Dakotas).

To me (following Krugman and others) the housing crisis was the trigger, but the recession was a collapse in demand. I would imagine that once the initial crash was over and the (infuriatingly slow) recovery beginning, consumer demand would grow faster in higher-wage states than lower-wage ones, regardless of when their minimum went up, and increased consumer demand would associate with slower decreases in employment (or even increases as the case may be). I just happen to have a picture of changes in consumer demand from 2011 to 2012 right here,

and you can see how reasonably well recovering consumer demand corresponds to a picture of the high-wage "unbound" states of 2009 (green ones on this SEIU chart), the ones where employment was falling so much less sharply in 2009-11.

So it's really just idiotic. The 2009 minimum wage increases in certain states didn't really have anything to do with the unemployment issue.

What else you got?
 A 2010 study by Joseph Sabia and Richard Burkhauser found that only 11.3 percent of workers who would benefit from raising the wage to $9.50 an hour would come from poor households.
Oh, really? Sadly, no. They found that the minimum wage increase in New York state in 2005-07 had negligible effects on poverty in the state; and extrapolated from there to model the possible effects of a federal increase at some point in the near future. A much more serious and detailed response by Arindrajit Dube explains what's wrong, compared to his own results showing an anti-poverty benefit from minimum wage rises.

Of course that has nothing to do with the employment argument anyway. But, using the same data,
In a 2012 paper published in the peer-reviewed Industrial and Labor Relations Review (ILRReview), economists Joseph Sabia, Richard Burkhauser, and Benjamin Hansen concluded that the 39 percent increase in the New York state minimum wage in 2005-2007 (from the federal rate of $5.15 to $7.15) had “substantial adverse labor demand effects for low-skilled individuals.” (p. 350)
But, a new working paper by University of Delaware economist Saul Hoffman suggests that Sabia, Burkhauser, and Hansen's (SBH) results were an artifact of the relatively small dataset they used to perform their analysis. When Hoffman uses a much larger version of the same data, he finds “no evidence whatsoever of a negative employment impact.”
So you can see how much the model is likely to be worth. You can keep trying, people, but it's just never going to happen. The reason Dr. Krugman doesn't mention these challenges to Card and Krueger is that they just aren't that serious. You know why? Because the world doesn't work the way conservatives think it does, that's why.

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