Wednesday, November 04, 2009

O Minimum Wage, Thy Name is Discrimination!

In my recent podcast with Russ ("DJ Yiddisher Kop" is his rap name) Roberts, we discussed the problems caused by minimum wage. In particular, economic theory would clearly imply that forcing a higher than equilibrium wage would allow, in fact encourage, employers to take it out on employees on other margins. Abuse, discrimination in hiring, overwork, bad scheduling, etc.

And...well, what do you know?

Discrimination in a Low-Wage Labor Market: A Field Experiment

Devah Pager, Bart Bonikowski & Bruce Western
American Sociological Review, October 2009, Pages 777-799

Abstract:
Decades of racial progress have led some researchers and policymakers to doubt that discrimination remains an important cause of economic inequality. To study contemporary discrimination, we conducted a field experiment in the low-wage labor market of New York City, recruiting white, black, and Latino job applicants who were matched on demographic characteristics and interpersonal skills. These applicants were given equivalent résumés and sent to apply in tandem for hundreds of entry-level jobs. Our results show that black applicants were half as likely as equally qualified whites to receive a callback or job offer. In fact, black and Latino applicants with clean backgrounds fared no better than white applicants just released from prison. Additional qualitative evidence from our applicants' experiences further illustrates the multiple points at which employment trajectories can be deflected by various forms of racial bias. These results point to the subtle yet systematic forms of discrimination that continue to shape employment opportunities for low-wage workers.


Now, it's the ASR, so they would never make the connection. But discrimination and abuse is caused by the minimum wage. At the competitive wage, there would be NO economic space for discrimination. But the minimum wage creates a space for discretion.

The usual story is this: sure, MW may cause some unemployment, but the people who have jobs, they are better off, right?

Um, no. Back to school. Back to Econ 101.

5 comments:

Dom said...

After a 4 years honours degree in econ I had never heard about costs or benefits being shifted to other margins.

I really enjoyed the podcast and have decided to write my final paper on the affects of the minimum wage in Australia.

codeandculture said...

it's interesting to see confirmation bias so strong that it takes contrary evidence as confirming.

did you read the complete article? both pager and western are very familiar with the labor economics literature as is evident in their lit review. not only that, but the statistical discrimination hypothesis was one of the main things that motivated both this and an earlier study on the same lines, Pager ASR 2003. the central point is that employers have an expressed preference for white criminals over clean minorities, a pattern that is very hard to understand as rational behavior on the employer's part even if the employers are forced by law to pay the same minimum wage to whomever they hire since presumably the clean black fellow would be more productive for that wage than the white ex-con. your argument only makes any sense if you treat productivity as a step function (the position is filled or it ain't), but that's implausible because even if any worker would do the job equivalently bad workers might be more likely to steal, abandon w/o 14 days notice, or otherwise cause trouble.
furthermore, in other work, pager and quillian ASR 2005, the lead author argues that "taste" is a bad model for how discrimination works in present day America and cognitive biases ad implicit association is probably more accurate.

card and krueger may be a fluke so you can still plausibly argue that abandoning the minimum wage would increase employment for low-skilled labor and this in turn would have a disproportionate benefit for the employment and labor force experience of black men. however even that's a conjecture and it's also a much weaker claim than the argument you're making that the minimum wage is the only relevant source of friction that allows employers to discriminate. you're not only making the strong claim but arguing that it's so obvious that three sociologists and a top journal are idiots for not embracing your speculation and running with it.

btw, i may be a sociologist (and a princeton PhD at that) but i'm also a regular (and broadly sympathetic) reader of KPC and ex ante i was basically bought into the becker theory of discrimination but i was convinced otherwise by pager's field experiments.

bd said...

The PBW study presents evidence that firms in NYC did in fact discriminate against African-Americans during a short observation window in 2004. It does not estimate any CHANGE in the extent of discrimination occurring after a CHANGE in the minimum wage, so Mungowitz's point stands unless it can be shown that the minimum wage in NYC was not binding in 2004.

codeandculture said...

bd,
i think you mean "Mungowitz's point may stand" since the absence of analytical leverage from an observed policy shock doesn't tell us whether a particular interpretation of a policy is valid, only that it's indeterminate.

Anonymous said...

This is a piece worth watching on the minimum wage: http://blog.mises.org/archives/010334.asp
Finding cases of discrimination is one thing. Finding any positive results from these anti-discriminatory measures is much more difficult. Evidence seems to suggest they cause significantly more harm than good.