Thursday, October 19, 2006
C. Ford Runge, "Distinguished" Professor of Applied Economics and Law at the U, is bragging about being one of the signers of the foolish letter arguing an increase in the minimum wage would not hurt employment and would increase wages for the poor. He uses the letter to attack Michele Bachmann in an op-ed in the PiPress that is breathtaking in its economic stupidity.
The simple economics of the minimum wage are that the "equilibrium" or market-clearing wage � the place where the supply and demand curves for labor intersect � is already above $7.25. Therefore, raising the minimum wage to this level will have virtually no effect on average wages or employment.If the market-clearing wage is above the wage floor, "Professor", then wages naturally rise to that level without any act of Congress. This is a question we give in first-year economics: "If the equilibrium price is above the price floor there will be a) a surplus; b) a shortage; c) neither a surplus nor a shortage." The correct answer is c.) Why? Because the price goes to equilibrium.
Of course, he didn't really mean that, you say. OK, I can buy that, if you mean instead that there are many, many different jobs and many, many different market-clearing wage rates for those jobs. Labor is not perfectly substitutable; everyone has different skills. But if that's true then some of the market-clearing wage rates for some job categories must be below $7.25. Some of them might be even less than $5.15. Look at food service occupations, for example, from this list of 800 occupations. (Want to look just at St. Cloud? Here you go.) Median wage for fast food cooks is $7.25, so over 300,000 cooks make less. Just scroll that page and find the other categories. Unless demand curves are vertical, those industries are going to see a decline in the number of people employed.
And thinking demand curves are vertical disqualifies you from the Society of Real Economists.
Reconsideration is possible after you read Alex Tabarrok, and a review of the arguments as Missouri debates a minimum wage initiative (maybe the best argument against initiative and referendum I have seen!) by David Neumark.
Filed in: economics