INSIGHTS: MAKING SENSE OF THE MINIMUM WAGE
Guest Columnist: Jeffrey Clemens, an associate professor of economics at the University of California, San Diego. Reprinted with permission.
The new conventional wisdom holds that a large increase in the minimum wage would be desirable policy. Advocates for this policy dismiss the traditional concern that such an increase would lower employment for many of the low-skilled workers that the increase is intended to help. Recent economic research, they claim, demonstrates that the disemployment effects of increasing minimum wages are small or nonexistent, while there are large social benefits to raising the wage floor.
This policy analysis discusses four ways in which the case for large minimum wage increases is either mistaken or overstated.
First, the new conventional wisdom misreads the totality of recent evidence for the negative effects of minimum wages. Several strands of research arrive regularly at the conclusion that high minimum wages reduce opportunities for disadvantaged individuals.
Second, the theoretical basis for minimum wage advocates’ claims is far more limited than they seem to realize. Advocates offer rationales for why current wage rates might be suppressed relative to their competitive market values. These arguments are reasonable to a point, but they are a weak basis for making claims about the effects of large minimum wage increases.
Third, economists’ empirical methods have blind spots. Notably, firms’ responses to minimum wage changes can occur in nuanced ways. I discuss why economists’ methods will predictably fail to capture firms’ responses in their totality.
Finally, the details of employees’ schedules, perks, fringe benefits, and the organization of the workplace are central to firms’ management of both their costs and productivity. Yet data on many aspects of workers’ relationships with their employers are incomplete, if not entirely lacking. Consequently, empirical evidence will tend to understate the minimum wage’s negative effects and overstate its benefits.
To read Professor Clemen’s full research paper on minimum wage, click on the image below.
ON THE ECONOMY: REVOLUTION
John Dunham, Managing Partner, John Dunham & Associates
You say you want a revolution. Well, you know, we all want to change the world. You tell me that it’s evolution. Well, you know, we all want to change the world. But when you talk about destruction, don’t you know that you can count me out. So begins the 1968 song, Revolution, written by John Lennon (but credited to Lennon–McCartney) and recorded by the Beatles during sessions for the White Album, although the popular version of the song was a remake specifically intended for release as a single.
With so many politicians proposing radical change, Lennon’s problem with the kind of cultural revolution espoused by those who wanted to control society, like Chairman Mao, is an object lesson. Simply put, all revolutions come with a cost, and often that cost can be very great. While many in the Democrat party nomination for the Presidency tout exceedingly more radical socialist ideas, we should probably take a step back and examine how they really work.
The abject mess that is (and has been) the American system for providing health care has led many of the Democrat primary candidates to call for Medicare for All as a way to ensure that everyone has access to good health care. This seems on the surface to be a reasonable and hardly radical idea. Most developed (and for that matter many other countries) have some form of universal health insurance, or state-controlled medicine. In many of these cases the population of the countries generally approves of their systems. So, it seems like good politics – and good socialism – to advocate for a form of universal health insurance in the United States, thus Medicare for All.
What does Medicare for All really mean? As is often in politics, the definition is not what the words actually say. If the socialist candidates really meant Medicare – for – all, it would mean that everyone in the country, not just those over 65, would have the ability to buy into the Medicare system. While there are huge problems with this (as are described in my blog post), a plan like this would simply place another insurance program into the existing mix. Medicare is not some sort of panacea, nor is it socialized medicine, rather it is a large insurance program operated by the Federal government serving those 65 years old and older. Like any insurance program, participants need to pay monthly premiums, they have deductibles, and they have limits to what the plan will pay for. What makes the idea of the words Medicare – for – all, attractive is that, as a very large pool, Medicare has fairly reasonable rates, and is widely accepted by medical providers.
The insurance system set up under the Affordable Care Act (there again, words that don’t mean what the law does), are all micro-HMO plans, most with extremely high deductibles, high co-pays and high premiums. Sure, just like Medicare, there are subsidies for the less wealthy, but these are much more expensive plans. More importantly, they offer very little access to actual health care. The limited supply of doctors in the networks effectively lead to rationing, where patients must wait for long periods of time, often months, to actually see a doctor or receive an actual health care service.
While many doctors don’t take Medicare patients either, participants are not required to see a network physician, so there is a larger supply of doctors and hospitals that a person using the plan can access.
While there would be significant problems that would occur if the entire population were able to sign up for Medicare, this would not be the worst possible alternative to the existing mess that the American health care system finds itself in.
But in the world of Bernie Sanders, and other socialist candidates for President, simply offering Medicare – for – all is not enough. One of the key tenants of socialism is that private enterprise and choice are inherently bad. So rather than offering the choice to sign on to Medicare, Medicare for All replaces the existing system of private insurance, public welfare, and self-insurance with a single government funded insurance plan that would cover everyone in the country. In fact, under this plan, Medicare would not even exist.
Under Medicare for All, there would be no market at all for health care, rather the government would establish payment rates for services and for drugs, and all physicians and hospitals would be required to accept those amounts. This means that essentially health care itself would be provided by private companies or doctors; however, they would not be allowed to set their own prices. In effect, this makes them de facto contractors to the Federal government.
The proposals are extremely generous in what they would cover, even more so than Canada, Australia or Britain. They would technically cover all medical services from doctor’s visits to mental health to prescription drugs. From dental care, vision care and even long term care. But again, this is a health insurance program, not a health care program. While the pool would be broad like the existing Medicare system, and while there would be no HMOs to ration care, the costs would be tremendous. By covering a more comprehensive set of benefits and asking no cost sharing of enrollees, it is likely to cost the taxpayer significantly more than programs other countries have adopted.
More importantly, a plan like Medicare for All cannot change the dynamic of economics. By setting a price ceiling on services, a single-payer system will necessarily limit supply. In addition, by lowering the prices actually seen by consumers, it would increase demand. As the blog post discusses, in a system where prices cannot clear, shortages and rationing will develop. One only has to look at the lack of products available to purchase in Cuba, or the lines that develop in Venezuela whenever anything actually reaches a shop, to see the results of this. In effect, Medicare for All will create the same problems as the micro-HMOs under Obamacare, there simply will not be enough medical facilities or doctors to provide real health care. It’s one thing to have insurance, it’s a completely different one to be able to actually be able to use it.
John Lennon was wise when he said when you talk about destruction, don’t you know that you can count me out. The very fact that the proponents of single-payer socialized medicine have to cloak it with a name that has nothing to do with what it really being proposed should provide warning enough that it would come with a cost, and that cost could be very great indeed.