Specialization is for insects

Errol Morris is a very wise man

I have been thinking about this quote a lot recently:

As I've said elsewhere: Nothing is so obvious that it's obvious. When someone says that something is obvious, it seems almost certain that it is anything but obvious – even to them. The use of the word 'obvious' indicates the absence of a logical argument – an attempt to convince the reader by asserting the truth of something by saying it a little louder.

I like that a lot.

It's not obvious that socialized medicine is more efficient or effective than our current system of health care.  It's not obvious that disease is a primary factor in Africa's economic underdevelopment.  It's not obvious that economic growth leads to democracy.  It's not obvious that globalization has exacerbated income inequality in the U.S.  It's not obvious that the minimum wage lowers employment.  It's not obvious that immigration reduces low-skill wages.  It's not obvious that most CEOs are overpaid.  It's not obvious that unions reduce productivity.  It's not obvious that housing vouchers reduce poverty.  If anyone tells you otherwise, they haven't thought hard enough about these important and interesting problems.  All of these statement may be true, but it's definitely not "obvious."

I would have been a good financial planner

I have been saying this for years!

For people planning to convert regular I.R.A.'s into Roths, it is dangerous to assume that Roth tax rules will not change, Ron Lieber warns.

Minimum Wage Spillovers

Minimum wage went up this Friday (July 24th).  I'd like to think if it weren't for the major health reform and the bizarre incident between Professor Gates and the Cambridge Police that this would have been covered more widely in the national news.  NY Times does mention it in an editorial, though:

An estimated 2.8 million employees will get a raise on Friday, as the federal minimum wage rises from $6.55 an hour to $7.25. Another 1.6 million whose hourly pay hovers around $7.25 are also expected to get a boost as employers adjust their pay scales to the new minimum.

The NY Times seems to be assuming that workers aren't paid their marginal product of labor.  Instead, perhaps because of proliferation of "internal labor markets" with "administrative pay scales," increasing the minimum wage can have "spillover effects" to those being paid above the minimum wage.

That's sounds pretty reasonable to me, but it's not easy to write down a formal model which delivers this result (especially if you want to stay relatively to close to the neoclassical benchmark).  Also, the empirical evidence on such "spillovers" is fairly thin. 

Fortunately, riding to the rescue is a recent paper by David Autor, Alan Manning, and Chris Smith which attempts to test for the existence of minimum wage spillovers.  (Also, maybe Chris can leave link to a more recent version of the paper in the comments)

Since I'm becoming a public finance economist (on the side), one question I have is how minimum wage spillovers inform us about the economic incidence of minimum wage increases.  Seems to me that the greater the spillovers, the more likely it is that the incidence of minimum wage falls on firms (or capital owners).  Although that's still not necessarily the case; I could also imagine that there are large positive minimum wage spillovers alongside large declines in employment among those close to minimum wage cutoff.  In other words, I think there should be a lot more research on in this area.  For whatever reason, though, there isn't a lot of (active) work on the economic effects of minimum wage increases.  Maybe if we keep raising the minimum wage (NY Times editorial suggests it should go above $9 and thereafter be indexed to inflation), that will change.

Today's playlist

"Soft Shock", Yeah Yeah Yeahs

"Stopwatch Hearts," Delerium (ft. Emily Haines)