Tuesday, August 6, 2013

Minimum wages in the short run and the long

Megan McArdle on recent policy talk about the minimum wage.

The problem of confusing short run and long run impacts (or simply forgetting the distinction entirely) is hardly unique to the literature on minimum wages. The literature on "the" elasticity of taxable income has exactly the same problem. I think the underlying problem is the same in both cases (and in many others), which is that it is easier to provide compelling identification for short run effects than long run effects, and applied economics these days is too often willing to trade off policy relevance and the economics of the problem in exchange for clever and compelling identification.

With minimum wages, I think most of the story is about the substitution of capital for labor as in my favorite paper about the minimum wage.

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