Monday, March 14, 2016

Jazz Shaw: Dear God But the Economic Stupid is Strong With This One

     Jazz Shaw is a blogger at Hot Air who has written several pieces on Seattle's minimum wage issue.  He argues that the hike -- which is just beginning to take effect -- has sent Seattle employment plummeting, thereby proving his point that the hike was ill-advised.  However, as I will point out, Mr. Shaw is not only ill-qualified to make such an argument, but that the data he is using to justify his conclusion is the wrong data.  This second point not only disproves his thesis, but also bolsters my contention that Mr. Shaw is simply unqualified to write about economics in general.

     Who is Jazz Shaw?  Oddly enough, for a man with an extensive online presence, we know remarkably little.  I received the following after typing "Jazz Shaw, Biography" into Google:

Jazz Shaw is a heretical, Northeastern former RINO and the weekend editor at He can be reached at Or you can follow him on Twitter @JazzShaw

This tells us nothing about his qualifications to write about economics.  My suspicion is that he has no training in the field.  I will happily change that opinion should I see contradictory information. However, if he wanted to bolster his assertions, we'd probably see something definitive about his background.  In addition, his statement "Is economics really a science? I’ve long felt it should be taught alongside astrology or some related field," is not only wrong (there is a tremendous amount of data and analytical work in the field that is statistically and mathematically very sound) but is the kind of thing someone would say to imply they could offer an informed opinion without having the requisite pedigree to do so.

     Let's turn to his latest effort, which is titled, "Fight for 15 update: Seattle employment craters." The entire basis for this article is a report from AEI, which supposedly shows a large drop in Seatle employment numbers after the minimum wages increased.  Here's the problem:  The AEI study uses the wrong data to justify its argument.  From the LA Times:

Now, Perry is back, armed with what he says are Seattle-only statistics. "Seattle's 'radical experiment' might be a model for the rest of the nation not to follow," he wrote on Feb. 18. He cited figures from the Bureau of Labor Statistics showing that Seattle employment fell by more than 11,000 from April, the date of the first minimum wage hike, through December. He compared these numbers to the Seattle MSA, writing that "while jobs in the city of Seattle were tanking starting last April, employment in the suburbs surrounding Seattle was increasing steadily to a new record high in November."

Unfortunately, local economists say Perry is still using bad data. Although he attributes the city-only numbers to the Bureau of Labor Statistics, they're not reliable jobs numbers. Perry's source is the Local Area Unemployment Statistics file, or LAUS, which is based on a small sampling. It's aimed at counting the number of employed people living in the sample area (in this case, Seattle), not the number of jobs. The data are "prone to error," University of Washington economist Jacob Vigdor told me by email, and "basically worthless for any serious analysis." 

Indeed, Vigdor — who is overseeing the university's analysis of minimum-wage data — notes that the same statistics for Bellevue and Everett, Wash., showed exactly the same percentage decrease that Perry found in Seattle, even though they haven't increased their minimum wage. (See below.)

Cities that didn't institute a wage hike experienced the same drop. That indicates something else is the cause of the drop.  You can't argue an event only impacting one area is the primary cause for the drop in two adjoining areas experiencing a similar decline.  That's poor logic.

     Shaw's and Perry's reasoning run into two primary microeconomic problems.  Both assume labor demand is elastic (a term I doubt Mr. Shaw is familiar with) -- that a change in cost will have a disproportionate impact on demand.  However, this simply isn't true.  For example, let's assume that a restaurant owner currently has 10 employees when wages increase.  Let's assume he fires 4 people due to increase cost.  At some point, he'll cut off his economic nose to spite his face -- that is, he'll lower his payroll to such an extent that he'll hurt customer service, lowering overall revenue.  Given the profit maximizing principal underlying cost theory (again, I doubt Mr. Shaw is aware of this concept, either), the current level of 10 employees is probably already peak efficiency, which means he'll either, absorb the cost, cuts costs elsewhere, raise prices, or do some combination of all three.

     And then there's the inherent problem of the production function graph:

As anyone who knows micro (which, it is painfully obvious Mr. Shaw doesn't) would note, when you lower your primary short-term variable cost (labor) you also lower your output.   Now, it's possible you might not do too much damage, depending on a number of different factors, but the bottom line is that you're moving in the wrong direction.

     So, Mr. Shaw, you have not won the argument, as you claim.  In fact, you've demonstrated that you really don't know anything about economics.  This of course, doesn't concern him.  He is a political blogger making political points.  Data is irrelevent.  However, it's also important that a record exists documenting his incompetence in this matter, if for no other reason, than to show him the large error(s) in his analysis.