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Affluent Investor | April 26, 2017

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Minimum Wage Causes Substitution of Capital For Labor

(Photo by Wellcome Images) (CC BY) (Resized/Cropped)

(Photo by Wellcome Images) (CC BY) (Resized/Cropped)

More capital substitution for minimum wage labor… I was grateful and far more fortunate than today’s young minorities who badly need the experience you gain when first entering the labor force. I made 8 cents per hour delivering on my bicycle, age 12, when the minimum wage was 25 cents, but small businesses were exempt. I learned to operate a fountain, and transferred to a drive-in at 14 to manage the fountain for $1 a day. Because I was reliable, with a work record, and had taken electricity shop in high school, I was hired at Boeing at age 16 for 70 cents an hour. It was like a fortune to me. Child labor laws were not in force, as we had a war to win. So I was not a victim of child protection from work.

Jonathan Meer Vernon, Isaac Sorkin has some nice papers on capital-labor substitution in response to the minimum wage.

This is related to my work with Jeremy West on the minimum wage and employment dynamics, and also Jeff Clemens’s paper.

Dr. Vernon L. Smith was awarded the Nobel Prize in Economic Sciences in 2002 for his groundbreaking work in experimental economics. Dr. Smith has joint appointments with the Argyros School of Business & Economics and the School of Law, and he is part of a team that will create and run the new Economic Science Institute at Chapman.

Dr. Smith has authored or co-authored more than 250 articles and books on capital theory, finance, natural resource economics and experimental economics. He serves or has served on the board of editors of the American Economic Review, The Cato Journal, Journal of Economic Behavior and Organization, the Journal of Risk and Uncertainty, Science, Economic Theory, Economic Design, Games and Economic Behavior, and the Journal of Economic Methodology. He is past president of the Public Choice Society, the Economic Science Association, the Western Economic Association and the Association for Private Enterprise Education. Previous faculty appointments include the University of Arizona, Purdue University, Brown University, the University of Massachusetts, and George Mason University, where he was a Professor of Economics and Law prior to joining the faculty at Chapman University. Dr. Smith has been a Ford Foundation Fellow, Fellow of the Center for Advanced Study in the Behavioral Sciences and a Sherman Fairchild Distinguished Scholar at the California Institute of Technology.

In 1991, the Cambridge University Press published Dr. Smith’s Papers in Experimental Economics, and in 2000, a second collection of more recent papers, Bargaining and Market Behavior. Cambridge published his Rationality in Economics: Constructivist and Ecological Forms in January 2008. Dr. Smith has received an honorary Doctor of Management degree from Purdue University, and is a Fellow of the Econometric Society, the American Association for the Advancement of Science, and the American Academy of Arts and Sciences.

Dr. Smith is a distinguished fellow of the American Economic Association, an Andersen Consulting Professor of the Year, and the 1995 Adam Smith Award recipient conferred by the Association for Private Enterprise Education. He was elected a member of the National Academy of Sciences in 1995, and received CalTech’s distinguished alumni award in 1996. He has served as a consultant on the privatization of electric power in Australia and New Zealand and participated in numerous private and public discussions of energy deregulation in the United States. In 1997 he served as a Blue Ribbon Panel Member, National Electric Reliability Council.

Dr. Smith completed his undergraduate degree in electrical engineering at the California Institute of Technology, his master’s degree in economics at the University of Kansas, and his Ph.D. in economics at Harvard University.

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