Yes, no and quite the opposite! | DUTY

Everyday discussion is full of examples where those discussing ideas often quote parts of what one or the other said to reach a conclusion different from the one expressed by the author.

For example, with this technique it can be affirmed that the Judeo-Christian Bible says that God does not exist. Indeed, if we take only part of the first verse of Psalm 14 we can find: “There is no God.” So, we could say that believing in God is unreasonable because the Bible itself says that he does not exist.

However, this is wrong because a phrase is taken out of context. The specific quote reads: “The fool has said in his heart, ‘There is no God’” (NIV).

The same happens in other discussions. I want to highlight one in particular that is related to economic science.
A few weeks ago the following caught my attention: “David Card, Nobel Prize in Economics 2021, with his research
Minimum wages and employment studied the consequences of the salary increase and contradicted the theory that it ended up expelling the workers, and showed that an increase in the minimum wage does not increase unemployment.”

Subsequently, its author detailed the trajectory of the minimum wage and unemployment between 2015 and 2019, and concluded that “these increases did not raise the unemployment rate in the country, on average the increase in the SMN (National Minimum Wage) was 8% and the unemployment rate was reduced by 2%.” (La Razón, “Salary increase and unemployment”, May 5).

Let’s look at this statement in light of the context.

The main contribution of David Card and the 2021 Nobel Prize laureates (Joshua Angrist and Guido Imbens) was “answering causal questions using observed data” according to the Swedish Academy in the statement published on October 10 last year. His work has been characterized by the rigorous use of methodology to answer research questions.

The statements mentioned in that opinion article and others like it do not use the methods proposed by Card and, therefore, do not have the conditions of scientific rigor.

On the contrary, they are rather examples of the “Fallacy of causality”, because they erroneously attribute specific phenomena such as the fall in the unemployment rate to the rise in the minimum wage.

It is somewhat like a child seeing his father go out with an umbrella in the morning, observing the rain in the afternoon, and concluding (wrongly) that his father’s umbrella caused the rain. The real reason is that his father previously saw the weather forecast in the media and went out with an umbrella because he knew there was a high probability of rain.

Returning to the subject in question, the application of more rigorous methods such as those made by Claure, Leytón, Valencia, Sánchez and Dávalos in Evidence of the impacts of minimum wages on labor market outcomes: the case of Bolivia (2017) show with methods similar to those proposed by Card that the excessive increase in the SMN implied damages to employment in the country.

The researchers Velasco and Puente obtained the same in the document presented at the 8th Meeting of Economists of Bolivia “Effects of salary policy on income distribution” (2015), where it says verbatim: “Based on these results, the salary population minors to the SMN present a lower probability of finding a job”.

Card’s discovery is due to a specific context where he took advantage of a situation in which he was able to observe increases in the minimum wage and how they affected employment in fast food restaurants.

As the prestigious Harvard economist Dani Rodrik points out, “we cannot look to economics for universal explanations or prescriptions that apply regardless of context.” (The laws of economics2015).

Economics is a social science that responds to various situations. Remembering that “a text out of context is simply a pretext”, we could end up with the answer of an old professor in Chile who said: “Yes, no and quite the opposite”.

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Yes, no and quite the opposite! | DUTY