How Much is an Economics Major worth?
Plus my hot take on the minimum wage
It amazes me that I still get asked whether economics majors get jobs. Months ago I wrote about how this reflects flawed thinking about how companies hire college students.
Well in this week’s video I get at the question of how much an economics major changes your salary. I explain a new paper that identifies the causal effect—not just a correlation, but the actual causal increase in salary. And I use chocolate to explain regression discontinuity!
Minimum Wage
Speaking of pay, this was quite the week for the minimum wage. Last week, president-elect Biden announced his stimulus package, part of which included raising the federal minimum wage to $15/hr. For economists, this was like that scene from the Dark Knight where Joker gives the criminals a broken pool cue.
Now, in the Dark Knight they don’t show the actual bloodbath; it’s left for our imaginations. But if you want to see a good simulation, read Jennifer Doleac’s tweet. Jennifer Doleac—a fantastic, serious economist—tweeted that a minimum wage that high would change how she hired students. The responses are disappointing. It’s disheartening to see what people are willing to write on twitter, especially when I have little doubt that Doleac’s understanding far exceeds theirs.
As for my thoughts, a minimum wage that high would be disastrous. There are many papers by economists that claim the minimum wage has small disemployment effects outweighed by the higher earnings. But those papers all look small increases in the minimum wage. For many states, this would double the minimum wage. A survey of economists in 2015 showed a lot of uncertainty about whether the past research could tell us what we needed to know about a large increase.
One of the biggest fears in the future is automation replacing jobs. In some jobs, robots and humans are substitutes, and the motivation to use robots is that they are cheaper and more efficient. Raising the minimum wage makes human labor more expensive and increases the incentive to use robots.
If you want to keep human jobs, don’t unnecessarily increase their cost. Instead, let the market determine a wage then provide transfer payments like the Earned Income Tax Credit (EITC) or Universal Basic Income (UBI). Such programs reduce poverty without distorting the labor market (or, at least, they distort it less).
Modern Monetary Theory
A popular video request has been a Modern Monetary Theory explainer. It’s going to take at least a few weeks for me to do it, but it’s in the works. My question to you is how can I prove that I’m an expert in MMT? I want to show my viewers that proponents of MMT agree that I understand what I’m talking about so that when I explain the flaws I don’t seem uninformed.
Ideas welcome.
Life Lessons from 2020
Here’s a great thread on what Austen Allred, founder of Lambda School, learned over the last year.
