Economics, Ideology and the Minimum Wage
We’ve had several discussions about the economics of the minimum wage. Over at Crooked Timber, there’s a very interesting and instructive discussion of the way ideology permeates economic analysis, with particular attention to the question of the impact of the minimum wage on employment. (HT Leiter) Included in the post are a series of links to and discussions of the econometric literature on the issue. Here’s a taste:
What economics has done is to take the models of the supply and demand of consumer goods and apply them to the supply and demand of labor. This, I believe, is fundamentally wrong-headed. Human labor and consumer goods are categorically different, and it’s a big mistake to treat them as if they were interchangeable. There are a slew of institutions, norms, and other features of labor markets that do not apply to product markets.
When I first read that paper by Murphy and company, I was struck by the passages in it about “the law of demand” and how you can’t “repeal” the law of demand. It was so literal! Now, I should mention that I’ve taken one of Kevin Murphy’s classes and I am familiar with his work. I have great respect for him. He is a first-rate economist, a brilliant econometrician, a gifted teacher, and, so far as my limited dealings with him go, a really nice guy to boot. But he is a University of Chicago economist in every sense of the word. I’ve heard him speak, and he is quite contemptuous of the idea that regulation can ever improve anything, or that the government can ever do a better job of anything than the free market.
I also believe, based on his writings, that Kevin Murphy, like all too many economists, takes the models literally. He is so enamored of them that he sees them, I think, not as tools for understanding, but as God’s revealed truth, handed down to Moses on stone tablets. He’s an economic fundamentalist, if you will. Fortunately, though, the old-fashioned theories about labor markets that Murphy and others hold are gradually being displaced.