Margins of Adjustment

The old consensus on the minimum wage has broken down. More recent evidence here–though I’d still characterize those responses as being skewed toward “minimum wage skepticism.”

Almost entirely missing from the empirical minimum wage debates are the other “margins of adjustment” that are available to market participants. And when it comes to labor markets, that means adjustments to the contractual terms of employment.

Unfortunately, focus on these “margins” has ben a casualty of the “MIT approach” to economics, with its laser-like focus on “p’s” and “q’s” to the exclusion of all else. Then there’s the fact that these margins aren’t easily measured. After all, the possibilities for adjustment are limited only by entrepreneurial imagination. Gordon Tullock, for instance, pointed out that employers might respond to the minimum wage by turning off the air conditioner on a sultry day.

A recent paper by my student, Jack Everett, reminds us of the myriad margins of adjustment available to employers. If the empirical analysis doesn’t show disemploying effects of the minimum wage, that just means it’s time to roll up our sleeves and dive into the rich, multi-faceted nature of economic life.

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