A Lesson in Economic Analysis from the Minimum Wage Debate
Mises Daily: Tuesday, August 26, 2014 by Ken Zahringer
In the ebb and flow of interventionist politics, there are some issues that surface periodically regardless of how many times and how completely they are proven to be harmful to the very people they are purported to help. Currently the tide is once again carrying the minimum wage to the forefront of collective attention. Supporters of this and similar measures often use straw-man arguments, like the one in the picture below.
I discovered this ad through one of my friends who shared it on Facebook. It was originally posted on July 12, 2014 on the website of OurTime.org. I propose to deconstruct this pseudo-argument here, pointing out its major errors. I do this not to convince hard-core supporters of raising the minimum wage that it is a bad idea; I doubt that is possible by any means. Rather, this can be a short lesson for those interested in sound economic analysis in how to proceed when confronted by opposing arguments buttressed by seemingly sound statistics.
The Ceteris Paribus Principle
The statement in the box is worded rather ambiguously, which is typical for this type of argument. It can be interpreted two different ways. On the one hand, it could be claiming that the minimum wage hike caused the increase in employment. This is a clear violation of ceteris paribus (i.e., all other things being equal or held constant), which is at the core of any good analysis and cannot be stressed often enough. In order for that interpretation to be valid, we must assume that all states are identical in all other respects and that the increase in the minimum wage was the only economic condition that changed. This is clearly not the case. States use a variety of policy initiatives to encourage job growth; focusing on this one factor ignores significant heterogeneity among states.
In its weaker form, the statement could merely be claiming that jobs were created in spite of the increase. This is obvious and trivial. In order for this interpretation to be meaningful we must assume that the minimum wage is the biggest kid on the block, the overriding factor that swamps all others. It’s all or nothing; either it kills all job growth or it’s not a factor. This is what makes the argument a straw man. It is overly simplified and no one who opposes the minimum wage takes the position it attempts to refute. The minimum wage is simply one factor among many affecting the job market; real-world outcomes are a result of a constellation of factors, each playing its part. But this is not the only thing wrong with this version of the argument — it gets better (or worse).
https://mises.org/daily/6854/A-Lesson-in-Economic-Analysis-from-the-Minimum-Wage-Debate
