Concerning this passage from Krugman on Pollin and Luce's book on living wages: >So what are the effects of increasing minimum wages? Any Econ 101 student >can tell you the answer: The higher wage reduces the quantity of labor >demanded, and hence leads to unemployment. This theoretical prediction >has, however, been hard to confirm with actual data. Indeed, much-cited >studies by two well-regarded labor economists, David Card and Alan Krueger, >find that where there have been more or less controlled experiments, for >example when >New Jersey raised minimum wages but Pennsylvania did not, the effects of >the increase on employment have been negligible or even positive. Exactly >what to make of this result is a source of great dispute. Card and Krueger >offered some complex theoretical rationales, but most of their colleagues >are unconvinced; the centrist view is probably that minimum wages "do," in >fact, reduce employment, but that the effects are small and swamped by >other forces. To Bob and others interested-- The impact of imposing or raising a minimum wage is not as clearcut as Krugman suggests, even under essentially neoclassical conditions; nor is the theoretical rationale for this ambiguity isn't particularly "complex." I've written a paper showing that under otherwise competitive exchange conditions, the presence of "quasi-fixed labor costs"--labor costs that vary with the number of employees rather than the total number of hours worked, like health insurance or lockers or office space--creates a setting in which raising a minimum wage may increase the number of *workers* employed, even as it reduces the total number of *hours* worked by these employees. In this light, results such as those by Card and Krueger are not so paradoxical. Gil Skillman
