Two Readings on Obamacare

1. 54 Colleges Cut Adjunct Hours
2. Destined to Flop? 

Some Observations on Minimum Wages

John Cochrane has a nice post on minimum wages.

I was recently discussing the topic of minimum wages with a friend who favors them.  (He is a prominent economist, whose name you would surely recognize, but conversations with friends are off the record).  As justification for his view, he pointed me to this paper by Lee and Saez, called "Optimal minimum wage policy in competitive labor market."

What was notable to me about this paper is the incredibly strong assumptions they need to make their case.  In particular,

Assumption 1. Efficient rationing: Workers who involuntarily lose their low-skilled jobs due to the minimum wage are those with the least surplus from working in the low-skilled sector.

 Later they point out:

Finally, the desirability of the minimum wage hinges again crucially on the “efficient rationing” assumption. Under “uniform rationing”, where unemployment strikes independently of surplus, the minimum wage cannot improve upon the optimal tax allocation, a point formally proven in Lee and Saez (2008). Indeed, with efficient rationing, a minimum wage effectively reveals the marginal workers to the government. Since costs of work are unobservable, this is valuable because it allows the government to sort workers into a more socially (albeit not privately) efficient set of occupations, making the minimum wage desirable. In contrast, with uniform rationing, as unemployment strikes randomly, a minimum wage does not reveal anything about costs of work. As a result, it only creates (privately) inefficient sorting across occupations without revealing anything of value to the government. It is not surprising that minimum wages would not be desirable in this context.

Rather than providing a justification for minimum wages, the paper seems to do just the opposite. It shows that you need implausibly strong assumptions, such as efficient rationing, to make the case.  I cannot see any compelling reason to believe that in the presence of excess supply of workers, the market will somehow manage to efficiently ration the scarce jobs.

Economics Teaching Conference

The 9th Annual Economics Teaching Conference sponsored by the National Economics Teaching Association and Cengage Learning will be in Austin on October 24 and 25. I will be speaking at lunch the first day.

If you would like to register for the conference, you can do so here.

Teaching Monetary Policy

Is the zero lower bound the new normal?

The debt ceiling tactic is not unprecedented

The Washington Post reports:

In 1973, when Richard Nixon was president, Democrats in the Senate, including Sen. Edward Kennedy (D-Mass.) and Sen. Walter Mondale (D-Minn.), sought to attach a campaign finance reform bill to the debt ceiling after the Watergate-era revelations about Nixon’s fundraising during the 1972 election. Their efforts were defeated by a filibuster, but it took days of debate and the lawmakers were criticized by commentators (and fellow lawmakers) for using “shotgun” tactics to try to hitch their pet cause to emergency must-pass legislation.... 

One of the most striking examples of a president being forced to accept unrelated legislation on a debt-ceiling bill took place in 1980. The House and Senate repealed a central part of President Jimmy Carter’s energy policy — an oil import fee that was expected to raise the cost of gasoline by 10 cents a gallon. Carter vetoed the bill, even though the United States was close to default, and then the House and Senate overrode his veto by overwhelming numbers (335-34 in the House; 68-10 in the Senate).

Even so, at the present time, I don't think the tactic is going work well for the Republicans.

I talk with Larry Kudlow

Crowd-sourcing an Award

Voting is open for the Economist Educators Best in Class Teaching Award, but only for this week. If you teach economics, you may want to review the finalists and vote. Click here to learn more.