Tuesday 27 June 2017

Minimum wage increases, wages, and low-wage employment: evidence from Seattle

A new NBER working paper looks at the effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. The paper is

Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle
by
Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor and Hilary Wething
NBER Working Paper No. 23532.
The absract reads,
This paper evaluates the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.

Wednesday 14 June 2017

Positive v's normative economics

This is a distinction every economics student knows. But where did it originate?

A clear distinction between positive and normative economics goes back at least as far as John Neville Keynes (father of Maynard). Keynes wrote,
"[a]s the terms are here used, a positive science may be defined as a body of systematized knowledge concerning what is ; a normative or regulative science as a body of systematized knowledge relating to criteria of what ought to be, and concerned therefore with the ideal as distinguished from the actual ; an art as a system of rules for the attainment of a given end. The object of a positive science is the establishment of uniformities, of a normative science the determination of ideals, of an art the formulation of precepts" (Keynes 1917: 34-5).
Carl Menger also saw a difference, with regard to ethical considerations, between theoretical economics (positive economics) and economic policy (normative economics). In Menger (1883: 235) Menger criticises what he calls the "ethical orientation" of the German historical school. He writes with regard to theoretical economics that
"[w]hat we should like to stress here particularly is the fact that we cannot rationally speak of an ethical orientation of theoretical economics either in respect to the exact orientation of theoretical research or to the empirical-realistic orientation". But normative consideration do enter into economic policy: ``Economic policy, the science of the basic principles for suitable advancement (appropriate to conditions) of ``national economy" on the part of the public authorities" (Menger 1883: 211).
The important word here is suitable. You can not determine what is suitable without value judgements.

John Stuart Mill makes a similar distinction when he differentiates between science and art.
"These two ideas [science and art] differ from one another as the understanding differs from the will, or as the indicative mood in grammar differs from the imperative. The one deals in facts, the other in precepts. Science is a collection of truths ; art, a body of rules, or directions for conduct. The language of science is, This is, or, This is not ; This does, or does not, happen. The language of art is, Do this ; Avoid that. Science takes cognizance of a phenomenon, and endeavours to discover its law ; art proposes to itself an end, and looks out for means to effect it" (Mill 1844: 124).
So 1844 is as far back as I've found the distinction going, so far.

Refs.:
  • Keynes, John Neville (1917). The Scope and Method of Political Economy 4th edition, New York: Augustus M. Kelley Publishers, 1986.
  • Menger, Carl (1883). Investigations into the Method of the Social Sciences with Special Reference to Economics, formerly published under the title: Problems of Economics and Sociology (Untersuchungen uber die Methode der Socialwissenschaften und der Politischen Oekonomie insbesondere), with a new introduction by Lawrence H. White, edited by Louis Schneider, translated by Francis J. Nock, New York: New York University Press, 1985.
  • Mill, John Stuart (1844). Essays on Some Unsettled Questions of Political Economy, London: John W. Parker.