Saturday, February 24, 2007

To Answer Tyler

Tyler Cowen asks what kind of model would support David Neumark’s result that the EITC / Minimum Wage hike is good for women but bad for men.

The story is not complex. Both tend to increase the competition men face from working mothers.

Working mothers have high opportunity costs for work. They could be doing the very important job of caring for their children. As I have argued, however, for young men who either have no kids or are not involved in their children’s lives the opportunity cost of work is near zero and in some cases negative.

It is not uncommon for young college age men to get summer jobs for the primary reason that they are bored or they want to find people to socialize with. I have said repeatedly that as a single healthy young man working 90 hours a week is not unreasonable. The only other thing you would be doing is drinking or watching sports.

As a consequence, single young men will accept low wages.

For a working mom, however, the wage has to be reasonably high for her to enter the market.

So, what happens we either raise the minimum wage or the EITC?

In both cases we increase competition for jobs by inducing working moms into the workforce. This is particularly true for the EITC which gives very little to those without dependants.

The increase in supply of working moms cannot be fully absorbed in equilibrium and so some young men must lose their jobs.