What's Proficient Close Economic Science (Sometimes)

Bryan Caplan has a nice postal service at ecconlib. The concluding business office is an ode to the value of elementary economical theory, much disparaged inward populace debate.

Bryan's key point: Economic theory lets you lot vastly broaden the make of sense that you lot tin hand notice convey to ane enquiry -- the termination of minimum reward inward Seattle, for example. Economic theory also forces logical consistency that would non otherwise live obvious. You can't fighting that the task demand flexure is vertical today, for the minimum wage, as well as horizontal tomorrow, for immigrants. There is ane task demand curve, as well as it is what it is. Economics lets ane sense illuminate the other, as well as done right forces politically uncomfortable consistency on those views. You can't fighting that viscous too-high reward displace unemployment inward recessions as well as inward Greece, as well as non fighting that viscous too-high reward from minimum reward laws create non displace unemployment inward Seattle.

This sort of integrated thinking is far equally good rare inward evaluating economical policies. But that's the error of economists, non of economics.

Bryan:

Research doesn't choose to officially live nigh the minimum wage to live highly relevant to the debate.  All of the next empirical literatures back upwards the orthodox persuasion that the minimum wage has pronounced disemployment effects: 

1. The literature on the termination of low-skilled immigration on native wages.  A major contributor here, most famously for his study of the Mariel boatlift.  These results imply a highly elastic demand flexure for low-skilled labor, which inward plough implies a large disemployment termination of the minimum wage.

This consensus alongside immigration researchers is as well as then stiff that George Borjas titled his dissenting paper "The Labor Demand Curve Is Downward Sloping."  If this were a newspaper on the minimum wage, readers would assume Borjas was controversy that the task demand flexure is downward-sloping rather than vertical.  Since he's writing about immigration, however, he's genuinely claiming the task demand flexure is downward-sloping rather than horizontal!

2. The literature on the termination of European task marketplace position regulation. Most economists who written report European labor markets acknowledge that strict task marketplace position regulations are an of import displace of high long-term unemployment.  When I inquire random European economists, they tell me, "The economic science is clear; the job is politics," important that European governments are afraid to comprehend the deregulation they know they need to restore total employment.  To live fair, high minimum reward are entirely ane facet of European task marketplace position regulation.  But if you lot uncovering that ane sort of rule that raises task costs reduces employment, the reasonable inference to depict is that any regulation that raises task costs has similar effects - including, of course, the minimum wage.

3. The literature on the effects of toll controls inward general.  There are vast empirical literatures studying the effects of toll controls of housing (rent control), agriculture (price supports), unloosen energy (oil as well as gas toll controls), banking (Regulation Q) etc.  Each of these literatures bolsters the textbook flush nigh the termination of toll controls - as well as thence ipso facto bolsters the textbook flush nigh the termination of toll controls inward the task market.  

If you lot object, "Evidence on rent command is entirely relevant for housing markets, not labor markets," I'll retort, "In that case, bear witness on the minimum wage inward New Bailiwick of Jersey as well as Pennsylvania inward the 1990s is entirely relevant for those 2 states during that decade."  My point: If you lot can't generalize empirical results from ane marketplace position to another, you lot can't generalize empirical results from ane solid soil to another, or ane era to another.  And if that's what you lot think, empirical function is a waste matter of time.

4. The literature on Keynesian macroeconomics.  If you're even mildly Keynesian, you lot know that downward nominal wage rigidity occasionally leads to lots of involuntary unemployment.  If, similar most Keynesians, you lot recollect that your persuasion is backed past times overwhelming empirical evidence, I choose a challenge for you: Explain why market-driven downward nominal wage rigidity leads to unemployment without implying that a government-imposed minimum wage leads to unemployment.  The challenge is tough because the whole betoken of the minimum wage is to intensify what Keynesians correctly encounter equally the fundamental displace of unemployment: The failure of nominal reward to autumn until the marketplace position clears.