The liberal arts

[Phillip V]

I used to believe that higher wage leads to higher unemployment, since it kinda sounds like basic economics, but my impression is that economic studies don't really bear that out.  It could be that there is a non-basic second-order effect that largely minimizes the obvious conclusion.

AFAIK there is exactly one study, on New Jersey fast food, that purports to reverse the slope of the demand for labor curve.  It's findings have been widely disputed, and AFAIK there has been no other study that produced a similar result.

Bottom line, you pass an increase in the min wage in your state, don't run crying about bad management and unfair shareholder value when unemployment goes up.

So why does Denmark with their $20 pizzas have less than 5% unemployment rate?  Could it be that social-democratic model, at least in the long run, has less obvious and tangible benefits that more than make up for the Econ 101 stuff?

We should definitely be more like Denmark: small, ethnically/linguistically homogeneous, energy self-sufficient, big oil/gas profits per citizen.

[MadImmortalMan]

Norway has the oil.

[mongers]

So why does Denmark with their $20 pizzas have less than 5% unemployment rate?  Could it be that social-democratic model, at least in the long run, has less obvious and tangible benefits that more than make up for the Econ 101 stuff?

It's a bit of a mystery to me as well.  One could theoretically reproduce Denmark's result by doubling *all* wages in the US. Then demand for pizza would not drop as the price went up. 

The part that confounds me however, is how they insulate their labor market from the external accounts.  Why have they not priced themselves out of all export markets?  Why have their import competers not disappeared?

A tentative hypothesis is that as part of the Scandinavian social contract workers in tradeable sectors in effect accept lower wages than they could command internationally.  Say for example Hollywood actors accepted $100,00/year instead of demanding $20 million a movie.

I can't see that working as they have much less income inequality as compared to the US, it would more be like quadrupling minimum wage, doubling blue collar/low middle class, leaving the rest of the middle class even and probably halving and halving again the wealthy's income. 

[DGuller]

It's a bit of a mystery to me as well.

I think it's a mystery well-worth looking into before just assuming that the theory is correct and that reality is mistaken, don't you agree?

One could theoretically reproduce Denmark's result by doubling *all* wages in the US.  Then demand for pizza would not drop as the price went up. 

I disagree.  I don't think Denmark established their minimum wage all in one fell swoop. 

One of my guesses is that a very low wage job can trap you.  You barely earn what you need, and after you're done working, there isn't a lot of "surplus" time, money, and energy to better your lot, unless you're just one of those exceptional people.  As a rule, people on average are not exceptional, so devising a society that requires them to be exceptional is unlikely to work well.  Therefore, when you couple high minimum wages with good safety net, you greatly increase the standard of living for those who are still employed, and free the most marginal workers from their dead-end jobs and allow them to improve their human capital.

Another theory is that poor people spend more of their money than rich people (turns out it may or may not be true, but let's assume it is).  In that case, raising the minimum wage shifts the distribution of wealth and income between the rich and the poor, and raises aggregate demand that creates more jobs.

Yet another theory is that minimum wage is just part of the social-democratic model, and the advantage of the social-democratic model is that few people go to waste.  When you minimize the loss of human potential, you maximize the average productivity, with all the resulting positive effects on GDP and employment.  It's not the kind of effect that materializes overnight, but over a couple of generations it can really deliver, and compensate for what should in theory be a more lethargic economic model.

The part that confounds me however, is how they insulate their labor market from the external accounts.  Why have they not priced themselves out of all export markets?  Why have their import competers not disappeared?

There could be an efficiency wage effect.  If high minimum wages do indeed increase unemployment, then it just makes the still-employed all the more motivated to stay employed, rather than be close to indifferent about keeping their job.

[DGuller]

We should definitely be more like Denmark: small, ethnically/linguistically homogeneous, energy self-sufficient, big oil/gas profits per citizen.

And most importantly, we could be more highly educated, as this post demonstrates. 

[Admiral Yi]

I think it's a mystery well-worth looking into before just assuming that the theory is correct and that reality is mistaken, don't you agree?

This snarky line would work a lot better if there weren't example after example of countries that had priced their labor out of international competitiveness.  I'm not assuming anything more than you are. 

[DGuller]

I think it's a mystery well-worth looking into before just assuming that the theory is correct and that reality is mistaken, don't you agree?

This snarky line would work a lot better if there weren't example after example of countries that had priced their labor out of international competitiveness.  I'm not assuming anything more than you are.

You don't need countless counter-examples to have a second look at your theory, especially if you really are honestly trying to understand the world as best as you can.  Just one of them can suffice to make you conclude that there are important explanatory variables being left out.

[alfred russel]

Norway has seriously jacked up prices: I saw a pizza hut selling a normal pizza for $60 in the airport. Iirc typical value meals were in excess of $15 at McDonalds. That is partially driven by the social model, but also the oil.

[garbon]

Admittedly, I didn't look very long...but I didn't see evidence of $20 pizzas unless you are talking something a little more upscale (or just large) - so on par with what typically happens here.

[DGuller]

Norway has seriously jacked up prices: I saw a pizza hut selling a normal pizza for $60 in the airport. Iirc typical value meals were in excess of $15 at McDonalds. That is partially driven by the social model, but also the oil.

I wonder if there is a division by zero that happens somewhere in modern economies where service accounts for most of the GDP.  After all, if everything was service, and there are no imports/exports, then prices and wages could scale up by any multiple without there being any noticeable effect.

[Razgovory]

Norway has seriously jacked up prices: I saw a pizza hut selling a normal pizza for $60 in the airport. Iirc typical value meals were in excess of $15 at McDonalds. That is partially driven by the social model, but also the oil.

Maybe because it was pizza hut in the airport.  I bet it costs extra to fly it out to your house.

[DGuller]

There is truth to it.  Everything is jacked up in the airports.

[alfred russel]

Norway has seriously jacked up prices: I saw a pizza hut selling a normal pizza for $60 in the airport. Iirc typical value meals were in excess of $15 at McDonalds. That is partially driven by the social model, but also the oil.

I wonder if there is a division by zero that happens somewhere in modern economies where service accounts for most of the GDP.  After all, if everything was service, and there are no imports/exports, then prices and wages could scale up by any multiple without there being any noticeable effect.

Norway's service sector is probably comparatively smaller than most wealthy countries because of the oil industry crowding it out. The entire country only has something like 5-6 million people.

[alfred russel]

There is truth to it.  Everything is jacked up in the airports.

I left the airport (but not Oslo). It wasn't just the airport.

[Iormlund]

The part that confounds me however, is how they insulate their labor market from the external accounts.  Why have they not priced themselves out of all export markets?  Why have their import competers not disappeared?

By focusing on sectors where either labor plays a minor part (petrochemical, energy, pharma) or cost is second is to other concerns like quality or robustness (pumps, actuators, instrumentation). R&D can play a big role here.
That's also how Germany manages to export shit. They are not exactly cheap either.

It's something you can see in traditional sectors as well. We've worked in a few newly-automated vineyards in the area.