Minimum Wage Contradictions

The economist, Bryan Caplan, makes some interesting arguments against the minimum wage. But what piqued my interest the most was his commentary on the research of David Card. Recently, Obama's proposal to increase the minimum wage has put Alan Krueger, chair of Obama's Council of Economic Advisers, in the spot light. He, along with Card, produced several notable studies concluding that the MW doesn't have deleterious effects on employment.

But Caplan points out that Card also produced studies showing that immigration doesn't have an effect on the wages of low skilled workers and this contradicts the aforementioned studies. How so? The studies on immigration showed that demand increased with the increased supply of labor which means that demand for labor is highly elastic. So instead of the increased supply of immigrants reducing the price of labor, the demand for that labor increases, leaving the wage amount pretty much the same. So demand for labor is infinitely elastic (the demand curve is horizontal).

But Card's argument for the MW having no effect on employment is the exact opposite. There the argument is that the more the MW is increased the more workers are available for work but the demand for employment remains exactly the same. In other words, according to Card's work, demand is infinitely inelastic (the demand curve is vertical).

Caplan's conclusion

1. The literature on the effect of low-skilled immigration on native wages.  A strong consensus finds that large increases in low-skilled immigration have little effect on low-skilled native wages.  David Card himself is a major contributor here, most famously for his study of the Mariel boatlift.  These results imply a highly elastic demand curve for low-skilled labor, which in turn implies a large disemployment effect of the minimum wage.

This consensus among immigration researchers is so strong that George Borjas titled his dissenting paper "The Labor Demand Curve Is Downward Sloping."  If this were a paper on the minimum wage, readers would assume Borjas was arguing that the labor demand curve is downward-sloping rather than vertical.  Since he's writing about immigration, however, he's actually claiming the labor demand curve is downward-sloping rather than horizontal!