Minimum Wages and Wal-Mart

Professor David Neumark is presently visiting ANU. He’ll be giving two major lectures while in Australia – a talk at the Australian Fair Pay Commission on Friday 3 August about minimum wages, and a talk at ANU on Monday 6 August on the economic effects of Wal-Mart. I’m not sure whether or not his AFPC talk is open to the public, but the ANU one definitely is (details here).

(Incidentally, despite what the title to this post might imply, David assured me today that Wal-Mart pays above the minimum wage. Once you understand this, it’s much easier to understand why Wal-Mart supported raising the US federal minimum wage: it raises their competitors’ costs, but not theirs.)

Update: One of David’s many minimum wage papers is here, and his Wal-Mart paper is here.

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10 Responses to Minimum Wages and Wal-Mart

  1. EconoMan says:

    I’m fairly sure today’s lecture is not open to the public. I’m going — the invitation was for a specific (and small) number of people.

  2. Ed says:

    Will he be talking about Wal-Mart’s policy of paying Mexican teenagers $0 per hour?

  3. Andrew Leigh says:

    Ed, I suspect not, but doubtless he’d be happy to give his views on it. (Incidentally, the situation isn’t that different from US restaurant workers, who get paid $2/hour by their employers, and make their wages off tips.)

    EconoMan, you never introduced yourself!

  4. boots says:

    Does that mean you were at the AFPC on Friday? I must have seen you both you and EconoMan there.

    Neumark’s talk was interesting. The idea that a minimum wage has negative employment effects is not much surprise. His conclusion that it does have negative consequences for the distribution of income is a little more interesting (especially given that he had the ear of a number of Fair Pay Commissioners and others).

    He is fairly strong on the idea it is mainly teenagers (who are not necessarily from poor families) that are receiving the min wage, and that those who are likely to be relying on the min wage for living expenses are marginal workers who are likely to be pushed into unemployment with an increase in the min wage. he did convince me that the earned income tax credits are a more effective approach to improving distribution of income.

    Hope that makes sense, given it is 2 in the morn.

  5. Andrew Leigh says:

    Boots, yes. I was sitting next to the shy and retiring Grant Bellchamber, who barely said a word.

    What I like about the distributional stuff is that it’s clearly asking the right question: what does a minimum wage rise do for poor families? Even if you think Neumark’s answer is wrong (and I don’t), this must clearly be the correct place to focus research attention.

    Hope that makes sense, given that it’s 5.40 in the morn.

  6. derrida derider says:

    Of course Neumark is definitely on one side of the debate here – even before he did that big critical literature review with Wascher. If you read that review it’s hard to escape the feeling they approached it with very strong priors, so I’m not as convinced as others by him on the disemployment effects of the US minimum wage.

    But of course he’s right that it’s the overall picture that matters – does raising it make poor people better or worse off? But the arguments in Oz have in fact mostly focused on that anyway (my answer is “probably not” in Oz, but I think it may be different in the US).

    Any visit to US cities makes you very aware of how the much higher disparities in income permeate social attitudes – despite myths, I think the US really is becoming a class-bound society (and I think there’s empiric data to back that up, BTW). It’s those class relations between employees and employers, and between service staff and customers, that I think give the strongest case for employment regulation generally and minimum wages in particular.

  7. boots says:

    I agree that the right question is about the effect of min wage change on the poor, and I generally agree with his argument that increasing it will prob not help poor working families. But DD is also right — you get this sense that Neumark approached it with very strong ideas of what he was going to find, and seems to have a bit of a chip on his shoulder about Card and Krueger as well.

  8. Andrew Leigh says:

    DD/B: you’re both right that priors make it tricky. Once someone has written a few empirical papers with a particular finding on the same topic, we should probably discount subsequent papers somewhat, on the basis that they’re relatively unlikely to release a new paper that overturns their existing work. This would apply to Neumark on minimum wages, Card on immigration, Clive Hamilton on happiness, etc.

    That’s why I emphasised the fact that I think Neumark is asking the right question. And contrary to DD, it’s not obvious to me that this is at the centre of the policy debate in either Australia or the US. My guess is that the typical policymaker on this topic thinks that the ‘do minimum wages cost jobs?’ question is the definitive one.

  9. derrida derider says:

    I think you’ll get vociferous denial from the policymakers at the AFPC on the last point, Andrew. In the US the question of disemployment effects is more closely tied to that of poverty because very-low-wage working families are much more prevalent – the “low wage youth living in well off household” effect is muted there (partly precisely because of increasing class stratification – kids from better off US families don’t earn near-minimum wages).

  10. EconoMan says:

    I’m sorry Andrew, I straight up didn’t see you. I would have said hi too. I was up the back, asked a couple of questions.

    Reasonably good summary boots, but I think you left something out. Neumark is confident that the negative employment effects would be true pretty much everywhere, including Australia.

    However, he said that the distributional effects (which I agree is clearly the right question Andrew) they find in the USA might not be the same in Australia. However, I remember seeing a presentation from Mark Wooden about HILDA data that found a pretty similar story.

    As to ‘the ear of a number of Fair Pay Commissioners’ I already know that at least one of them believes the Min wage is too high. I believe their policy would be to maintain it in real terms and let it fall relative to median wage. However, they might not get that chance…

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