Tuesday, January 18, 2022

Fight for 15!!

 Tyler Cowen links to a an NBER working paper with an excerpt from the paper:


 “Under only the efficiency channel, the optimal minimum wage is narrowly around $8, robust to social welfare weights, and generates small welfare gains that recover only 2 percent of the efficiency losses from monopsony power.


 A measly $8 ?  So much for the "efficiency" channel. What are the other channels? Here is the abstract:

It has long been argued that a minimum wage could alleviate efficiency losses from monopsony power. In a general equilibrium framework that quantitatively replicates results from recent empirical studies, we find higher minimum wages can improve welfare, but most welfare gains stem from redistribution rather than efficiency. Our model features oligopsonistic labor markets with heterogeneous workers and firms and yields analytical expressions that characterize the mechanisms by which minimum wages can improve efficiency, and how these deteriorate at higher minimum wages. We provide a method to separate welfare gains into two channels: efficiency and redistribution. Under both channels and Utilitarian social welfare weights the optimal minimum wage is $15, but alternative weights can rationalize anything from $0 to $31. Under only the efficiency channel, the optimal minimum wage is narrowly around $8, robust to social welfare weights, and generates small welfare gains that recover only 2 percent of the efficiency losses from monopsony power.





So, we need a $15 minimum to maximize the welfare benefits when we take both channels of welfare gains, the efficiency and redistribution effects, into account.

What bothers me about Tyler's selective quoting is that utilitarian arguments for redistribution are about efficiency. They are arguments that a redistribution of income can increase overall utility. I know, I know: Pareto. We're not allowed to make anybody worse off. But why do we defer to Pareto on efficiency? Someone who hadn't been brainwashed with the Paretian stuff would not see much of a difference in kind between situations where redistributing, say, labor would increase overall production  and one in which redistributing income would increase overall happiness. Both are inefficient, arguably.

And, on an ad hominem note, Pareto was a fascist!


Fight for $15!



( The paper is NBER working paper #29662, by David Berger, Kyle Herkenhoff and Simon Mongey)


8 comments:

kevin quinn said...

A side-note: I haven't read the paper yet, but I am wondering: In the simulation, what happens to employment when we go to $15. At $8, it is certainly higher than what we started with (no minimum)--this is how gains from the "efficiency" channel arise, by correcting the under-employment created by monopsony. If we go above $8, we presumably lower employment and sacrifice some of these gains, but we still may end up with more employment than the status quo. I am wondering because if so, the redistribution effect would be coming from redistributing from capitalists to workers alone, and not in part from redistribution from no-longer-employed to still-employed workers.

Sandwichman said...

So is Tyler Cowen.

Anonymous said...

https://en.wikipedia.org/wiki/Vilfredo_Pareto


Vilfredo Pareto has been labeled a fascist and 'a precursor of fascism' largely because he welcomed the advent of fascism in Italy and was honored by the new regime. Some have seen in his sociological works the foundations of fascism. This is not correct: Even fascist writers did not find much merit in these works, and definitely condemned his economic theories. As a political thinker he remained a radical libertarian till the end, and continued to express serious reservations about fascism, and to voice opposition to its basic policies....

Note 13 reference...

Anonymous said...

"Radical libertarian"... So anti-social by any name, but that is Tyler Cowen.

Anonymous said...

how do we get the 2% decline [since the covid panic] in labor participation out of the basement?

aside from make them president.

Anonymous said...

Pareto died in 1923, so perhaps thinking of his support of fascism in describing his work in economics is too harsh. I find fascism intolerable in an historical context, but Pareto did not live long enough to experience what the fascist trauma would become. I wonder...

Anonymous said...

Sandwichman:

Should there be leeway for Pareto? Should he have understood the consequences of fascist ideas in practice before 1923?

kevin quinn said...

Mussolini's March on Rome was in 1922. He became Prime Minister and began the dismantling of democracy right away. The Fascist party originated in 1919. Pareto knew what he was supporting!