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.