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 , robust to social welfare weights, and generates small welfare gains that recover only 2 percent of the efficiency losses from monopsony power.” A measly ? 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
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Tyler Cowen links to a an NBER working paper with an excerpt from the paper:
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)