Minimum wages & the left

Kathy G makes an heroic effort to attack economic fundamentalists’ opposition to the minimum wage. I fear, however, that this is the wrong ground for left economists to fight on, for two reasons.
First, rises in the minimum wage are a bad way to help the poor (pdf) even if they do have no impact at all upon labour demand. This is partly because such rises are often clawed back by losses of tax credits and benefits, and partly because the overlap between the poor and the low-paid is weak; many of the poor aren’t in work, and many of the low-paid are second or third earners in middle-income households.
There are, surely, many better ways of helping the worst-off than minimum wages.
Second, there are bigger flaws in orthodox neoliberal economics than the idea that higher wages cut the demand for labour, for example:
1. The notion of an identifiable and differentiable production function is pure bull.
2. Competitive forces are just not strong enough to weed out rent-seeking by private sector managers.
3. This being so, higher top-rate taxes might be efficient precisely because they do reduce labour supply, if they reduce the amount of rent-seeking.
4. It is at least plausible that, under certain circumstances, profits arise from exploitation.
5. Human capital theory (pdf) is, at best, woefully incomplete (pdf). Income inequalities cannot be fully explained by differences in skills.
I’m sure this list is incomplete. I’m just not sure how high on it the neoliberal view of minimum wages should be.

Comments

[dearieme]

The minimum wage is an example of rent seeking by left wing politicians and economists.

[John Quiggin]

On the second point, there's no crowding out problem in relation to refutation of wrong ideas. Kathy's posting on minimum wages doesn't preclude you or anyone else writing on other problems with standard theory.

On the first point, crowding out may or may not be a problem. Granting, for the sake of argument that an earned income tax credit is better than a minimum wage hike, are these policies complements or substitutes? In political terms, they are probably substitutes - effort to push one is at the expense of the other. But in operational terms, the discussion at CT suggests they are complements.

[reason]

Yes there are better solutions, but it still doesn't hurt to put a floor under wages (provided that floor is not too low). Otherwise you could find genuine exploitation on the rise. Of course the best way to provide that floor is GMI.

[Rob]

I don't know where you are going with the srgument about higher top-rate taxes.

Didn't we see this in the Harold Wilson years when we hit 90% upper tax limit? I seem to remember that there was a scampering to get out of Britain by everyone from middle england upwards.

Yes, it might have helped to create a lot of jobs, but there were no entrepeneurs atound to capitalise on it, and noone to manage them, to take risks or who were prepared to invest money.

That needs a great deal of thinking about.

[Michael Petek]

Part of the justification for having a minimum wage is that the market for labour is not really a free market. It is, on the supply side, a forced market because, at least in theory, people without independen means must either work or starve, and can be driven in desperation to offer themselves for work at firesale wages.

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