What the Constitution does not say Tuesday, Jun 29 2010 

I’ve been reading on the Internet a bit about the recent Supreme Court decision in Christian Legal Society v. Martinez. (Opinion of the Court can be found here, and a New York Times article about it can be found here.)

At issue was whether the University of California’s Hastings College of the Law had to formally recognize the Christian Legal Society (CLS) as a student group on campus. The law school argued that it did not, because the student group did not conform to its nondiscrimination policy. The Christian Legal Society, which has 165 student chapters across the nation, disallows voting rights or officer positions to those who engage in “unrepentant participation in or advocacy of a sexually immoral lifestyle” (that is, homosexuals). The law school did not want to recognize a group that did not allow full membership to anyone who wanted it.

As evidenced by the opinion of the Court that I linked to above, the Court voted 5-4 in favor of the university.

As expected, this made conservatives, right-wingers, and even some proclaimed “libertarians” pretty unhappy. Students for Liberty declares that the ruling “undermines the freedom of association on campus.” The Foundation for Individual Rights in Education (FIRE) also declared that the ruling “undermines freedom.” These people and groups claim it is the CLS’s First Amendment right to bar homosexuals from membership from their organization. Ergo, the recent Court ruling is antithetical to liberty, free speech rights, and the right to “freedom of association.” Even Filip Spagnoli, a firm defender of human rights, states, “the discrimination that is imposed by the Christian group is real but not consequential enough to warrant a limitation of its freedom of association or religion.”

The question, as it always is, is, “Is it true?” (Bravo to me for using three is‘s a in a row. Apologies for poor prose!) Well, it certainly is true that the the CLS has the First Amendment right to bar whomever they please from membership, including homosexuals. Freedom of association certainly allows that, as Dr. Spagnoli keenly points out. However, as Dr. Spagnoli also correctly points out, “Withdrawal of recognition means that the group loses some subsidies and access to university resources, not that it has to cease to exist.”

While the student group certainly has the First Amendment right to exist, they have no right to public subsidy. The First Amendment gives people and groups the right to free speech and association, but not the right to have your speech subsidized. That is found no where in the U.S. Constitution. The Court affirms this view point. While affirming the CLS’s right to exist, the Court ruled that the U.S. Constitution offers the group no right to have their speech or views subsidized or supported by others.

Justice Stevens said that, while the U.S. Constitution “may protect CLS’s discriminatory practices off campus, it does not require a public university to validate or support them. . . . [O]ther groups may exclude or mistreat Jews, blacks and women — or those who do not share their contempt for Jews, blacks and women. A free society must tolerate such groups. It need not subsidize them, give them its official imprimatur, or grant them equal access to law school facilities.”

What I find to be hypocritical in the extreme is that those who claim to be defending “freedom of association” deny the university’s right to freedom of association. If the law school does not wish to associate with or subsidize patently discriminatory groups, that ought to be their right. So, in effect, I believe the Court’s ruling was a win for freedom of association rights.

Update: Dr. Spagnoli admits the following: “It seems I glossed over a crucial distinction: getting yourself banned and losing subsidies. The latter isn’t a rights violations and that is what happened. The former would have been but that’s not what happened.” I agree with him here.

Minimum wage, again Wednesday, Jun 23 2010 

A little less than a year ago, I wrote a rather long post about the minimum wage. I explained the “textbook model” of the minimum wage, which many students just beginning to learn economics are taught. The basic neoclassical model tells us that a minimum wage set above the equilibrium wage in a market creates a surplus of labor or, in other words, unemployment. I disputed some of the assumptions on which such an argument rests, for example, elastic demand for labor, the “one-sector” model, perfectly competitive markets, equal bargaining power, etc. I also looked at empirical evidence that suggests that the minimum wage may in fact be beneficial for employment or, in the very least, may only have a modest employment effect (primarily for teenagers). Finally, I looked at some ideological or pragmatic reasons why people support the minimum wage and why it is more favorable than other redistribution policies (e.g. welfare). Rather quickly, this post became the most looked at article on this blog, and remained that way for quite some time. Today, it remains the second most-read post I’ve written.

Last month, King Banaian, a professor and chairman of the economics department of SCSU, wrote about about a study that concluded people who accept “enlightened economics” are more conservative than they are liberal. These “economically enlightened” folk were required to believe, for example, that a minimum wage necessarily decreases employment. I disputed this type “enlightened thinking.” Dr. Banaian has again made another post about the minimum wage, this time explaining why a minimum wage is bad policy (it prevents people from coming to “mutually agreed” wages below the minimum wage) and how there is a “consensus” among economists about this issue.

In the first post, I responded by saying there is quite a bit of evidence in support of a minimum wage, even if neoclassical theory provide none. One of the most famous example is research done by Card and Krueger, who found that the minimum wage had positive effects on employment. This seems quite stunning, considering the standard neoclassical model predicts just the opposite. So, quite naturally, one becomes rather suspicious of this research, but I think a careful review of the literature will show that the underlying conclusions that Card and Krueger come to are solid and are supported by additional research. Of course, one wonders how increasing wages can, in fact, increase employment levels. It seems counterintuitive. David Switzer, a professor of economics at SCSU, said it “goes against all of neoclassical economic thinking.”

Fortunately, neoclassical economics (as well as a little bit of intuition) does provide us with an answer. It isn’t, after all, beyond one’s imagination that an employer might actually pay its laborers a wage below the market clearing (i.e. equilibrium) wage. A firm seeking to maximize its profits has this incentive if it has the ability to do so. One scenario that might bring this about is one in which the labor market is oligopsonistic. Oligopsony is a fancy word to describe markets where there are few buyers and many sellers. (A related term that is perhaps more familiar is monopsony, where there is only one buyer and many sellers; this is the opposite of monopoly, which is one seller and many buyers.) In the case of oligopsony, the small number of firms can distort the wages in a market (in a similar way a monopoly can distort prices in a market), such that wages can be set below the equilibrium wage. Oligopsonistic labor markets reduce the welfare of laborers and creates deadweight loss. Under such circumstances, raising the wage that employers must pay their labor actually increases employment, reduces deadweight loss, and increases efficiency in the market. (A simplified graphical representation of monopsony can be viewed here.) So, in this case, the minimum wage has some extraordinary benefits.

The question becomes whether particular low-skilled labor markets are oligopsonistic or not. If the New Jersey fast food industry was oligopsonistic in 1992, that might explain Card and Krueger’s findings. However, as Dr. Banaian points out, the research in this area is not robust and is still “very young.” He may well be correct, in which case it would be helpful to look at empirical evidence and other areas that are more thoroughly understood. As I said earlier, a little bit of intuition might be able to help us explain why the effects of minimum wage may not be consistent with the standard model. In a 2008 study, David Metcalf explores why the minimum wage in Britain has “had little or no impact on employment.” Some of these include changes in hours, tax credits, compliance issues (part of the two sector model that Gary Fields discusses in previously noted research), productivity changes, price changes, reduced profits, and so on. He also considers the existence of “modern monopsony” (oligopsony) “very likely” in British labor markets. I defer you to Metclaf’s research for a more thorough discussion on how these variables can effect employment levels following a minimum wage hike. Suffice it to say, how these variable change does have an effect on employment, and may help explain why the minimum wage might have “minor negative effects at worst.”

In fact, that’s what most research has concluded. The conclusion that I support is that the minimum wage has a modest adverse effect on employment, primarily for teenager workers. It may even have positive employment effect for older cohorts, consistent with research by David Neumark and Olena Nizalova. (Neumark, keep in mind, is a fairly notable labor economist who opposes the minimum wage.) I think this is what a majority of the published literature out there reports (I can provide plenty of references, if needed), and the reasons explaining these findings are quite reasonable. That isn’t to say that there is a “consensus” against the minimum wage, as Dr. Banaian contends there is. He thinks I am “wrong on this point in terms of where the profession is on the literature.” A few years ago, The Economist, the main establishment journal, actually printed an interesting story on the issue. They wrote, “Overall, economists have become less worried about the job-destroying effects of a modest hike in the minimum wage. . . . Today’s consensus, insofar as there is one, seems to be that raising minimum wages has minor negative effects at worst.” There’s a wealth of research to support these views, as I stated earlier. What there is not is a consensus against the minimum wage, as Dr. Banaian contends there is.

In defense of his position, Dr. Banaian cites research by Neumark and William Wascher, which stated, in its abstract no less, “Our review indicates that there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage.” Even more stunningly, Dr. Banaian readily confessed these facts in a post on his blog post he made in 2006, stating, “Both studies find a lack of consensus on the minimum wage, which I simply find shocking.” He finds the lack of consensus among economists “shocking,” but he at least acknowledges the fact. Today, he has shrunk from the issue and maintains that there, in fact, a consensus. He cites, for example, a 1996 survey by Robert Whaples, which suggested that there is a consensus among labor economists that the minimum wage decreases employment. That’s already been established. What Dr. Banaian conveniently does not do is refer to Whaples’ 2006 survey of PhD economists from the American Economic Association, which found that only less than 47% of them disagreed with a minimum wage policy. Though he readily mentioned it four years ago, perhaps the 2006 Whaples study is too inconvenient for the Minnesota House Representative hopeful in 2010.

The question, then, becomes less about the employment effects of the minimum wage, since there does seem to be some agreement on that issue. As one study by the U.S. Congress revealed, “Historically, defenders of the minimum wage have not disputed the disemployment effects of the minimum wage, but argued that on balance the working poor were better off.” That’s always been at the heart of the issue. Richard Freeman, one of the foremost labor economists and a professor at Harvard, writes in a 1994 study, “The question is not whether the minimum distorts market outcomes, but how its distortionary effects compare with those of other modes of redistribution, or with the benefits of redistribution.” He concludes that the minimum wage is a decent redistribution tool for four primary reasons that are typically ignored in the textbook models. I think his conclusion is consistent with what a majority of Americans believe. An overwhelming majority, usually over 80%, support the minimum wage. People support policies that help those who work (you need to work to earn the minimum wage), compared to those that help non-workers (e.g. welfare). They also are comfortable with redistributing their income via higher prices to help the most disadvantaged of workers. As Gary Fields keenly points out in a 1994 study, “One’s views about the desirability of a minimum wage ought to depend on more than the size of the unemployment effect alone.” I think he’s correct.