Previously, on When Economists Agree: We saw startling evidence that occasionally, you can put ten economists into a room, give them an issue, and come up with less than twelve opinions. In fact, we saw five issues where the great bulk of economists had a consensus on the best course of action. But we’re not done yet; here are five more issues on which most economists maintain the same point of view (and the percentages that agree):
6) Cash payments are better than equivalent transfers-in-kind at increasing the welfare of recipients (84%) -For those who are not already aware, transfers-in-kind are things like food stamps, where the actual items being distributed are not directly salable. Giving the recipients cash directly and allowing them to spend it as they wish expands the economic choices they can make and (in theory, at least) allow them to maximize the use of the welfare money that is provided to them.
7) A large federal budget deficit has an adverse effect on the economy (83%) – I’m kind of surprised that this one is so low on the list. A short list of negative effects of a high federal budget deficit: more borrowing to pay for the spending, more interest payments on the borrowed money, and the increased anxiety in the broader economy from fear of higher taxes or decreased government spending if the deficit remains high.
8 ) A minimum wage increases unemployment among young and unskilled workers (79%) – Let’s assume you are running, say, a fast food restaurant. You’d like to have ten people on each shift, and have $50 per hour to spend on salaries. If you can pay each of your workers $5 an hour, there’s no problem; you can hire ten people per shift, and each person will make $5 an hour. If you have to pay out $7 an hour, though, you will cut down the number of workers, to seven employees per hour that your restaurant operates. As a result there are now three fewer people working for each shift your restaurant is open. Since young and unskilled workers tend to be on the bottom of the wage scale, they are the ones who lose opportunities when the minimum wage increases.
(This is a bit of an oversimplification, of course. If you require eight workers for each shift, for example, you’ll have to find some way of putting an extra $6 each hour into your salary budget to hire the needed workers at $7 per hour. The less flexible the manpower requirements for a particular business, the less effect a change in the minimum wage will have on the number of workers who are employed by that business.)
9) Government welfare should be structured as a ‘negative income tax’ (79%) – This is along the lines of what we just mentioned up in number 6. The essential idea is that the government sets a minimum income level, below which any person will receive money from the government, rather than paying taxes into the system. In this way, one welfare system could replace things like unemployment, food stamps, and housing allowances from the government. This should end up cutting down on administrative expenses and making the government efficient.
10) Effluent taxes and marketable pollution permits represent a better approach to pollution control than pollution ceilings (78%) – Heh, I find this one amusing, as there is currently a sometimes spirited debate over whether we should go for a cap and trade system (essentially marketable pollution permits) or a carbon tax system to control carbon dioxide emissions. Almost nobody is discussing pollution ceilings for controlling greenhouse gases.
One reason for this, of course, is that taxes or cap and trade both give companies, agencies and individuals an incentive to cut pollution as much as possible, as opposed to reducing emissions to an arbitrary limit. Companies that exceed the desired emission cuts can either save money on taxes or sell the permits they don’t need for their own use.
And there you have it; ten public policy decisions where most economists agree on the best course of action. Hopefully, you have a better idea of how economists view the world now.
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JR
on April 23 2009
Let’s look at the error of this statement “Let’s assume you are running, say, a fast food restaurant. You’d like to have ten people on each shift, and have $50 per hour to spend on salaries.”
The falacy of this hypothesis is that you base the number of your employees on how much they cost you. Wrong answer!!
I spent many years running a fast food restaurant and based my employees on the amount of service I NEED TO PROVIDE at the time of the day and not on what they cost me.
This argument is used extensively by those who attack a minimum wage increase. None have propably ever soent time running a business where you have employees. Actually most business owner start with service and end with service and adjust their employees hours accordingly. Any that do not, FAIL miserably.
Roger
on April 25 2009
JR:
I will admit, I don’t have much experience running a business. My example was simply an attempt to provide a (overly) simplified view on the relationship between the minimum wage and employment.
But I stand by the points I made in the original article. If the minimum wage is increased, the costs to a restaurant or any other business employing people at or near minimum wage will increase as well. If the business is profitable enough, it might be able to simply absorb the needed pay increase and continue business as usual. If the profit margins are too slim to cover the increase, or the business owner just doesn’t want to see declining profits, there need to be some cutbacks, in supply costs, building costs, or labor costs. In the latter case, this means layoffs if the possibility of decrease the worker’s wages is off the table. Furthermore, there will be some businesses that can’t handle the pay increase and will have to close down, further increasing unemployment among minimum-wage earners.
The real issues that should be discussed when when consider raising the minimum wage are (a) how much will this change affect the number of minimum wage jobs available, (b) how much will the change benefit those minimum wage earners who are still employed, and (c) is the increase in the benefit to the remaining workers enough to justify the lost jobs? Personally, I lean towards thinking that we could increase the minimum wage quite a bit before the bad outweighs the good. But then, I’m not in charge of policy on this matter.