Australian economists: a sloppy lot

Australian economists are not used to being directly part of the political and media dialogue.  But when the Prime Minister cites the support of Australian economists for her carbon tax package and Tony Abbott is asked to name one economist in favour of his plan, we know that we are being used as pawns in the game (not that the public at large is noticing or could give a toss).

I, along with many Catallaxians, filled out the on-line survey circulated by the Economic Society of Australia earlier in the year. In all, some 577 economists (self-nominated) responded to the survey.  As you will recall, there was a series of statements  (64) and there was grading of agreement and disagreement.  No opinion/do not know was an option.  I’m sure many of you found the survey quite annoying – more information was required, what are the provisos – I personally found myself voting for ‘do not know’ to a fair portion of the statements.

But one statement on which I did not hesitate was this: “There would be less unemployment if minimum wages were lowered.”  I strongly agreed, although the statement would have been better to deal with employment rather than unemployment.  An amazing 55 per cent of respondents did not agree with this statement.  To them, I say, we are clearly not trying – forget a minimum wage of $15 per hour, why not $30 per hour or $60 per hour?  Obviously, there are free lunches galore out there just waiting to be devoured.

Now I’m not quite sure what supply and demand curves these 55 per cent of economists have in mind.  For them, the demand for labour curve does not slope down or is extremely inelastic, while lower minimum wages must cause a massive reduction in supply.  But where is the empirical evidence for this proposition?  And what are the assumptions underlying the nature of competition in the labour and product markets?  (It just can’t be the case that there is monopsony everywhere.) How does it square with Neumark and Wascher’s seminal meta-analysis using 300 high-quality minimum wage studies from around the world that bears out the traditional prediction that higher minimum wages lead to higher unemployment, particularly among unskilled workers?  I guess these Australian economists know better.

It is interesting to contrast this survey result with those that have been obtained from surveys of American economists who are members of the American Economic Association.  In a recent survey (2006), only 17.5 per cent of respondents disagreed with the statement that “A minimum wage increases unemployment among young and unskilled workers”.  62 per cent agreed and 19.5 per cent agreed with provisos.  Nearly 50 per cent of the respondents wanted the minimum wage eliminated altogether.

I think the last word on this comment goes to Jame Buchanan, who in typically blunt fashion, had this to say:

…no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimum scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.

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23 Responses to Australian economists: a sloppy lot

  1. Jarrah

    Such a high proportion is striking, and troubling. The contrast with the US is good to see, thank you.

    However, maybe the 55% also felt hampered by the limited options and really wanted to disagree with the statement because they thought the current minimum was close to what they thought the market minimum would be, and therefore any reduction would have little effect. That is, they weren’t implying an increase was a good idea, and saying “forget a minimum wage of $15 per hour, why not $30 per hour or $60 per hour?” isn’t fair.

  2. Abu Chowdah

    The 55% likely reflects that Economics is like many arts disciplines. Easy to get into, easy to coast, easy to graduate, easy to label yourself an Economist.

    Much harder to stand out and excel, the way many of the bloggers on Catallaxian have done – Sinkers, Steve Kates, yourself Judith, and others. The survey reflects that many of the industry hacks are… hacks.

  3. rodney

    Judith; you have failed to allow for the fact that employers are are generous unselfish people who are happy to employ people regardless of cost. I am sure that what the majority had in mind was the moral superiority of employers which renders usual market analyses irrelevant.

  4. Fleeced

    That is truly pathetic…

    55%? A consensus!

  5. It’s obviously the fault of those who teach economics. Where else would they get such loopy ideas?

    You know who you are! 🙂

  6. rcon

    forget a minimum wage of $15 per hour, why not $30 per hour or $60 per hour?

    This was the question that started me from a labor voter (inherited thought processes from parents) to a more independent and small l, liberal/libertarian outlook.

  7. Rafe

    The evidence from US surveys is mixed. I seem to recall a fairly recent petition supporing min wages that was signed by a large number (some hundreds?) of economists including five nobel prizewinners. That was probably the 2007 reference below.

    The following is from Wik.

    Until the 1990s, economists generally agreed that raising the minimum wage reduced employment. This consensus was weakened when some well-publicized empirical studies showed the opposite, although others confirmed the original view. Today’s consensus, if one exists, is that increasing the minimum wage has, at worst, minor negative effects.[75]

    According to a 1978 article in the American Economic Review, 90 percent of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers.[76]

    A 2000 survey by Dan Fuller and Doris Geide-Stevenson reports that of a sample of 308 American Economic Association economists, 45.6% fully agreed with the statement, “a minimum wage increases unemployment among young and unskilled workers”, 27.9% agreed with provisos, and 26.5% disagreed. The authors of this study also reweighted data from a 1990 sample to show that at that time 62.4% of academic economists agreed with the statement above, while 19.5% agreed with provisos and 17.5% disagreed. They state that the reduction on consensus on this question is “likely” due to the Card and Krueger research and subsequent debate.[77]

    A similar survey in 2006 by Robert Whaples polled PhD members of the American Economic Association. Whaples found that 37.7% of respondents supported an increase in the minimum wage, 14.3% wanted it kept at the current level, 1.3% wanted it decreased, and 46.8% wanted it completely eliminated.[78]

    Surveys of labor economists have found a sharp split on the minimum wage. Fuchs et al. (1998) polled labor economists at the top 40 research universities in the United States on a variety of questions in the summer of 1996. Their 65 respondents split exactly 50-50 when asked if the minimum wage should be increased. They argued that the different policy views were not related to views on whether raising the minimum wage would reduce teen employment (the median economist said there would be a reduction of 1%), but on value differences such as income redistribution.[79] Daniel B. Klein and Stewart Dompe conclude, on the basis of previous surveys, “the average level of support for the minimum wage is somewhat higher among labor economists than among AEA members.”[80]

    In 2007, Klein and Dompe conducted a non-anonymous survey of supporters of the minimum wage who had signed the “Raise the Minimum Wage” statement published by the Economic Policy Institute. They found that a majority signed on the grounds that it transferred income from employers to workers, or equalized bargaining power between them in the labor market. In addition, a majority considered disemployment to be a moderate potential drawback to the increase they supported.[81]

  8. ar

    It could be a control question to weed out respondents who simply answer A to each question???

  9. Mother Hubbard's Dog

    The question is almost meaningless without specifying a quantum. Of course, if the minimum wage were raised or lowered by 1 cent an hour, this would have at most an unmeasurable effect. $1 an hour? Sure to have some effect. $10 an hour? Sure to have a significant effect.

  10. Do note the very high proportion of respondents who do not have doctorate. This was largely a survey of bureaucrats with an undergrad or masters, now working for government setting the hundreds of minimum wages that apply to different sectors.

    Without breakdowns by education and sector, it doesn’t mean much.

  11. Peter Patton

    Now, I don’t have a PhD. But I’ve read/browzed a lot, and think I have a good idea what they are about and require. But never once in my life has it even occurred to me that completing one is a reason to improve one’s confidence in its holder.

  12. duncan

    Maybe those 45% think the unemployed are there by choice due to the generous benefits available?

  13. Judith Sloan

    Good point, Eric, but I am told that, interestingly, the government employed economists in the survey were actually more wary of the effectiveness of government actions than the others!

  14. Judith Sloan

    Rafe, thanks for that, but I would make the point that the Federal Minimum Wage is varied only rarely in the US and over time, the rate becomes less and less binding – that is,even illegal cleaners from Puerto Rico are paid more than the minimum wage because of market forces. Putting up the regulated wage at the point is unlikely to do much harm and may induce a supply response. None of these facts applies to the Australian case in part because we have multiple minimum wages and not just one single one. We know that some 15 per cent of employees are paid the exact award wage rate; this percentage is much higher for low paid workers.

  15. twostix

    Judith; you have failed to allow for the fact that employers are are generous unselfish people who are happy to employ people regardless of cost. I am sure that what the majority had in mind was the moral superiority of employers which renders usual market analyses irrelevant.

    Employers employ someone to do a job that needs doing at a rate that they are willing to pay.

    If someone likes the money offered, they’ll take the job.

    Nobody *has* to take the job, it’s the employers loss if they set their pay rate too low.

    Where “selfishness” and “generosity” come in to any part of that equation I’ll never know.

  16. Louis Hissink

    Disemployment ???? What the heck in that? Economic waffle?

    Minimum wage regulations simply give existing employees a monopoly – stops their competitors undercutting them by offering a lower wage rate.

  17. Johno

    ‘government employed economists in the survey were actually more wary of the effectiveness of government actions than the others!’

    This is encouraging. From my experience of working as a government employed economist you realize how much mushy eyed romantic nonsense is taught in the standard economics degree. No real world economy has been or ever will be in ‘general equilibrium’. Markets only fail in a theoretical sense. Market failure isn’t a real world phenomena. Most externalities are massively over subsidised and their associated dead weight losses are likely to outweigh any theoretical benefit that might be produced. Any theoretical gain from government provision of services is greatly overshadowed by the need to use central planning to deliver taxpayer funded services.

  18. wreckage

    Johno, your words elicit the faint stirrings of hope that maybe our society isn’t boned.

  19. Jim Rose

    see richard freeman, “What Will a 10% … 50% … 100% Increase in the Minimum Wage Do?, Industrial and Labor Relations Review 48:4 (July) 1995.

  20. Greyfield

    The current Federal minimum wage (which mainly applies to award free employees) is $15.51 per hour or $589.30/week. This is an adult minimum hourly rate. Then we have different rates in the different industries. And then we have different rates within that industry. For example, in the retail industry, there are about eight levels of employment with varying rates of pay from $17.23 to $21.00, including various rates for Saturdays, Sundays and public holidays. It is all too confusing for the average small business. Many employers pay cash in hand below the minimum wage, no overtime, no super, no tax, no book keeping. The silly government does not know how much tax avoidance is taking place. It is common practice in the retail and fast food industry.

  21. Judith Sloan

    Thanks for tht Greyfield.

    And Johno, where have you been hiding. Go to the top of the class!

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