Monday, July 17, 2017

About That Danish Minimum Wage Study

On the heels of the debate about the specious Seattle minimum wage study, a new Danish study is currently making headlines.  Denmark has a de facto minimum wage (set by collective bargaining) of over $20/hour, or about $14.50/hour when adjusting for purchasing power parity.  That is the rate for adults 18 and over.  Prior to that age, the de facto minimum wage is significantly lower, and suddenly jumps by 40% upon turning 18.   The researchers did a regression discontinuity design to determine what effects on employment that would have, and they found a 33% drop in employment within the first month after turning 18.  And it apparently takes a full two years for the employment rate to fully recover to what it was just prior to one's 18th birthday.

So what do we make of this finding?   This study actually leaves the reader with more questions than answers.  One should note that age discrimination in employment is illegal in Denmark, with one exception:  it is in fact perfectly legal to fire someone upon turning 18 in order to avoid paying the higher minimum wage.  Yes, really.  Thus, it doesn't take a rocket scientist to see how that creates a powerful incentive to preferentially hire 16 and 17 year olds temporarily, use them up, and throw them away like so much garbage upon turning 18.

However, this study does not actually prove that a higher minimum wage is a bad idea overall.   The biggest takeaway from this study is that age discrimination is a bad idea across the board, not that the minimum wage is too high.  So close the goddamn loophole in the age discrimination law.  And if they still see a need to set the minimum wage lower for workers under 18, at least make it graduated and less of a difference from the adult minimum wage.

For example, the TSAP party platform calls for the minimum wage in this country to be raised to $15/hour for all workers over 18, with the minimum wage for workers under 18 set no less than 80% of the adult minimum wage (i.e. $12/hour), on a sliding scale rather than one sudden and sharp jump. And it should go without saying that firing someone upon turning 18 (or any age, for that matter) just to avoid paying them a bit more should be illegal, period.  As this latest study shows, caveat lector, anything less is basically asking for trouble.

Sunday, July 2, 2017

Latest Minimum Wage Study Reeks of Junk Science

A new study claims that Seattle's minimum wage law cost jobs, despite the fact that their unemployment rate dropped dramatically since the new law began to be phased in, faster than the rest of the country, and is now one of the lowest in the nation at 2.6%.  But there is far less here than meets the eye, and their methodology is highly questionable.  For example, they curiously omit data from the entire fast-food sector, ostensibly due to lack of data (riiiiight!), and assume that any decrease in the number of workers earning below a certain wage is a result of fewer jobs rather than those workers simply getting a raise.  Yes, really.  All this specious study really proves is that if you torture the data enough, they will confess to anything.  And of course, Occam's Razor would strongly disagree with these results, which are way out of line with other recent studies.

One should note that the unemployment rate in Seattle has dropped so low that it has now reached Massachusetts Miracle territory, albeit for reasons unrelated to the minimum wage.  In the city's white-hot economy, restaurants are having a hard time finding help due to the tightness of the labor market, and are essentaily forced by the laws of supply and demand to pay employees significantly more as a result, regardless of the legal minimum wage. Keynes would have a field day.  And this alone could potentially account for the anomalous results in this yet-to-be-peer-reviewed study that should essentially be considered a radical outlier in the field.

With the issue of the minimum wage now in the spotlight again, we must keep in mind that the whole debate is a giant workaround. Thus, I will let the late great Buckminster Fuller answer the question:

"We should do away with the absolutely specious notion that everybody has to earn a living. It is a fact today that one in ten thousand of us can make a technological breakthrough capable of supporting all the rest. The youth of today are absolutely right in recognizing this nonsense of earning a living. We keep inventing jobs because of this false idea that everybody has to be employed at some kind of drudgery because, according to Malthusian Darwinian theory he must justify his right to exist. So we have inspectors of inspectors and people making instruments for inspectors to inspect inspectors. The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living."

And he said this back in 1970, mind you. With today's technology, it would apply *a fortiori* to our time, if it weren't for the greedy oligarchs who siphoned up all the labor productivity gains since then. How do we put his plan into action, you ask? A Universal Basic Income Guarantee for all is the best and most efficient way to do it.   Until then, by all means, raise the minimum wage.  Fight for $15!   But the root of the problem ultimately needs to be tackled as well, especially in a world of increasing automation and globalization.