Richard Meadows' piece in the Fairfax papers on minimum wages and living wages should serve as exemplar of exactly how journalists should handle stories where academics weigh in.
Richard emailed me last week asking if I'd be able to give him some comments on WFF, minimum wages, and tax-free thresholds; he sent along his workings on the three scenarios. I told him I wouldn't be able to fact-check his numbers but pointed out one minor glitch when I emailed him the set of notes I posted today. I expect that Matt Nolan did the same. I'm not sure whether Tim Hazeldine emailed notes or chatted with Richard on the phone; Tim doesn't blog.
Richard's piece got the main things that we highlighted. Then, when Matt and I each put up our more extended notes, he linked to those. I'd caught one bit in Matt's discussion that I didn't think was right and noted it in his comments; he revised. A 'gotcha' style journalist might have framed this as me and Matt saying different things and arguing with each other, but it turns out that we didn't really disagree with each other. Matt just hadn't written the paragraph the way he'd intended. And anybody following the link from the Fairfax piece to our posts can check things. Matt's put in tons of useful links to the literature; I was a bit lazier and just used the tags at the bottom of the post to point to the dozens of pieces on the same issues that have showed up here.
Such an improvement on pieces that just copy or cut from academic press releases without even a hint on where to find the underlying work.
My understanding is that the demand for minimum wage labour is relatively inelastic. That is, it is for services such as retail etc, where it would be difficult to replace them with capital factors of production. Therefore any increase in wages would be passed on in prices to consumers and lower returns to shareholders. It would certainly vary industry to industry as you say but the industries actually affected by the minimum wage I think typically have jobs that could not be replaced by capital. Next we need to think to what extent is the wage of unskilled workers passed on in prices? Prices should relate to all the value added along the way. Most of the value added is not by the retail worker. So I think the increase in prices is also rather low. Yes if the increase in the MW all occurs in one hit then that would be a shock to businesses. But if it were incremental, say 25c per quarter, I think the impact could be absorbed and it wouldn't cause the unemployment you describe. If demand for unskilled labour is inelastic as I suggest, how would you revise your answer?
ReplyDeleteAlso is there a more dynamic effect if labour is replaced by capital, increasing the marginal value of each worker in order to justify their higher wage. Some increase in capital investment (as firms attempt to substitute away from labour) would also create more higher value jobs. The money otherwise spent on WFF could be used in assisting the unskilled to gain skills in order to supply labour to these now higher value (presumably higher skill) jobs.
In the short term, sure. In the longer term, well, waiters turn into iPads built into the tables to take orders. Did you know there's a bar in Manitoba that has taps right at each table so you just pour your own at your table on a meter? I'd also expect further abandoning of NZ retail for online alternatives.
ReplyDeleteSure, those remaining jobs would be higher productivity. But there'd be fewer of them.
@ericcrampton did you manage to catch the documentary on TV3 tonight? "Mind the gap"? I would love for a piece on a rather main stream documentary and for your views on points they are making! Possibly an idea for your next post ;)
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