Open Letter To Bernie Sanders

A great post by my second favorite economist:

You want to raise the minimum wage and prevent what you allege to be “corporately backed” freer trade. Your positions are inconsistent with each other.

Presumably you believe that higher minimum wages (contrary to the prediction of basic economic reasoning) cause no, or only vanishingly few, low-skilled workers to lose their jobs. That is, you believe that employers respond to higher minimum wages in ways that do not include further economizing on the amounts of low-skilled labor they employ. Put differently, in your analysis of the minimum wage, domestic employment isn’t at all sensitive to wage rates.

Yet you oppose the Trans-Pacific Trade Agreement because you are convinced that the freer trade this agreement spawns will “allow corporations to outsource even more jobs overseas.” So when the topic at hand is international trade, you believe that domestic employment is sensitive to wage rates.

Can you explain why firms cannot or will not substitute out of higher-cost labor (say, by using labor-saving machinery) when the minimum wage rises, but are eager and able to substitute out of higher-cost labor when tariffs fall?

72 Responses to “Open Letter To Bernie Sanders”

  • At the moment the cost of mechanizing the work force, is not technologically or economically feasible.(it may be possible in the future, as greater leaps in technology lead to jobs being filled by automated programs). A raise in the minimum wage would provide a large stimulus to the immediate amount of money spent in the economy. Its effects may not be viable further in the future when such technological advancements replace and automate jobs, it should be done before that occurs. I have returned to this blog after five years of absence and I am sad to say that your thoughts have not changed despite the empirical data which has debunked the; trickle down theory, charter schools; and the vast amount of knowledge released acknowledging the growth and expansion of global warming. Good luck with your endeavors although it seems you are an ideologue rather than someone whom seeks facts, truths .

  • Perhaps one reason Sanders doesn’t think minimum wage increases cause job losses due to employers replacing workers with machines is because many studies have shown that when the minimum wage goes up we don’t see any statistically significant level of job loss. However increases in outsourcing of labor have correlated to depressed wages for the middle class, which has had a follow on effect with US economic performance. Less money in the pockets of the middle class and poor does cause reductions in demand, which negatively impact economic growth.

    Again what we get from conservatives is stories. It’s a plausible sounding story that you’ll get replaced with a machine if minimum wage goes up. But where is the real world evidence?

    My personal experience is that I bought off on the right wing stories for a long time, and I think that was understandable. Stories can be produced very quickly so you have an initial basis for a conclusion. But then it’s time to do a little more heavy lifting and look at the actual real world data. That’s what has caused a shift in my thinking. Maybe you heard of the recent story of how the IMF has conceded that so called trickle down economics doesn’t work. A rising tide does not lift all boats. There’s recent research from EPI that higher CEO pay does not correlate to improved performance for a corporation. The idea that the salaries are so high because this is what a corporation is compelled to do to compete for top talent, that’s plausible sounding and makes logical sense. I accepted that as a younger person that hadn’t looked deeper. Having looked deeper I’ve become convinced that the real world evidence repeatedly refutes conservative arguments.

    At some point you have to learn from reality, not just accept claims based on plausible sounding and logical stories that aren’t connected to the real world. For instance is there anything specific that you learned and which caused a change of opinion for you due to the 2008 economic crisis?

  • Jon,

    Who said anything about mechanization of employment? There are many ways that the minimum wage destroys jobs, replacing employees with machines is the least likely, atleast currently. Don’t know why your take and Garr’s lead to mechanization. Anyway…

    You miss the point: how to solve the contradiction? If what you say is true of the minimum wage – that labor is not that sensitive to wage changes, and the data proves this – then on what foundations do you disprove of trade agreements? And if the data does show that trade “depressed wages for the middle class”, then how was this done, without via a sensitivity to wage rates??

    I get that one wants to agree with one group of data and not the other. But the two rest on the same assumption. If not, then pray tell, what assumption could explain this seemingly contradictory data?

    It reminds me of this contradiction, of which I have yet to see explained. Oh and, check out a quick argument showing that the minimum wage does indeed reduce employment here.

  • Your quote talks about substituting higher wage labor with machines. It’s in the final paragraph of your citation.

    how was this done, without via a sensitivity to wage rates??

    Healthy capitalist economies require consumption. Increase minimum wage and you get an increase in consumption, which tends to spur demand for labor. Outsource a job and you in fact reduce local demand, which depresses wages. It’s all about demand.

    That’s why S Korea would not allow their citizens to purchase foreign goods. They wanted Koreans purchasing local products. That artificial demand imposed by the government is what drove their economy forward. Same in Japan, Germany, the US, most every wealthy country. You really need to read Ha-Joon Chang’s book.

  • Jon,

    The data on the minimum wage seem to point in the direction that minimum wages harm the poor most of all (read this for the long version of the argument on this). I think you agree that a living wage is better than the minimum wage. It’s dissapointing that something that most libertarians and many lefties agree on is shunned, while a policy that harms the people it is intended to help is pushed. If Bernie Sanders can’t push for basic income on the left then there really isn’t any hope for support for it on the left.

    Also, to the main point raised by the letter, Sanders does seem to contradict himself.

  • Maybe put it this way for Bernie Sanders. He probably doesn’t think the data actually shows that raising the minimum wage harms the poor. There is the MIT study that says it does, but there are others that say it doesn’t. Here’s an article that talks about various studies, including this MIT one, and points out that conservatives have a preference of this one and liberals have a preference for others that conclude otherwise.

    So if you take the MIT conclusions as a given then maybe Bernie has something to answer for, but presumably he doesn’t, so he’s at least being logical. You could conclude he’s wrong, but not illogical.

    Looks like he does support basic income though, see here:

    Yeah, I think this is a great policy, something that would do more good than a minimum wage hike, and I can agree with you if you want to say that it’s not clear that minimum wage hikes help the poor. I guess I suspect they do, but that could be my bias. Basic income though, yeah, that’s I think pretty clearly good for the poor. If I could choose a minimum wage increase or basic income I’d definitely go with basic income.

    Probably the issue of getting it done is more murky. It could have broad support on both the left and right, but I don’t think it has the support of the rich, and that’s really the key. You figure Wal-Mart would hate it. You can’t lure in a worker at minimum wage if they can count on a life as good as that if they don’t work at all. Suddenly Wal-Mart has to pay a good amount. Probably more than what even minimum wage advocates are pushing for. As you’ve probably seen public support of all income groups doesn’t mean much as far as getting a policy enacted, what matters is support of the rich. Maybe there’s more support among the rich for a minimum wage hike than a basic income.

  • Increase minimum wage and you get an increase in consumption, which tends to spur demand for labor. Outsource a job and you in fact reduce local demand, which depresses wages. It’s all about demand.

    If the above assumptions are true, then one would have to conclude that technology advancements – especially those that reduce the need for workers – also has the same affect? Is this your view as well? If not, what is so special about ‘outsource a job’ vs ‘technology advancements?

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