Via Marginal Revolution I see that there is a paper common confirming the intuition that the minimum wage is a wage of targeting a given view of the “deserving poor”. Essentially, those with a strong taste for leisure are assumed to be the ones that lose their jobs first in the case of a minimum wage (efficient rationing) and as a result the minimum wage gives a way to “target” our income transfers to those we think are most deserving.
I have so far only skimmed the paper, and the Saez 2012 paper that justifies efficient rationing – so take my comments with a grain of salt. However, I have two issues with this:
- The efficient rationing argument does not appear compelling – the wage will be in excess of the market wage for both types of workers, so the efficient rationing argument seems to rely on a situation where lower labour demand is primarily working through the intensive margin and the “high leisure” individuals are either generally unemployed or loosely tied to the labour market to start with. I need to think on this point more – but it is the crux of the issue.
- I generally find the “deserving poor” argument weak. I don’t like the normative assumption that we should favour people with one set of preferences over another – the general policies I’d favour don’t follow this type of assumption. Now, society may hold this view, and then society should make policies along this line – that is fine. But I don’t have to like it 😉
I want to read these papers in more detail and write about this business. The new minimum wage and optimal tax literature is formalising a lot of topics that we’ve previously used “intuition” on, and that is pretty exciting! Why – well formalisation helps to make assumptions transparent, which is what we really want to do before going around and trying to figure out policy. However, it is going to be a while until I get to this, as I get very busy through the middle of the year – and this year is busier than usual!
If anyone knows the literature, and would like to do a guest post, I would really like it – compensation would involve a beer and a discussion about economics in a Wellington bar 😉