In article <34561BE7.5281@facstaff.wisc.edu> jim blair 
 quotes me to the following effect:

>> ...
>> (Vienneau supplements this with a story about how a rise in the minimum
>> wage can lead to a fall in the interest rate, thereby cobbling together
>> a story about how a rise in the minimum wage can lead to a rise in
>> employment.)...

(As noted in my subsequently posted correction, the word "rise" above 
should be "fall"; Blair's subsequent discussion corrects my error without 
calling attention to it.)

Blair then goes on:

> Do you mean that IF the minimum wage is raised AND interest rates drop at 
> the same time, the Widget Company might add workers? I would agree with 
> that.
> 
> Or do you mean that the  minimum wage increase will CAUSE the interest 
> rate drop, that is critical to his analysis? This is what I thought he 
> was claiming, and it has no basis except for his "static equilibrium" 
> theory. It is based on his totally unrealistic assumptions, and is not 
> supported by empirical interest rate data. And I bet it is not supported 
> by profit margin data either (since he claims that is term "interest" 
> means profit as well as INTEREST).


There are two separate issues here:  One is the correctness of the Vienneau
model and the other is its empirical relevance.  I think it is always a 
recipe for confusion to try to attack both issues at once.   My post
addressed only the former.  I believe his model is right and I believe 
there are good reasons (in his model) for a rise in the minimum wage to 
cause a fall in the interest rate.  

(Of course I should qualify this by saying I haven't thought *very* hard
about his model---as evidenced by the fact that my original post was badly
garbled and had to be corrected.)

Of course the model---like all models---makes a number of blatantly
false assumptions.   I don't think that in itself is cause for criticism.
For example, the model assumes that the representative firm hires only 
minimum wage workers.  But that doesn't bother me; it's clear that you
could use the *idea* behind this model to generate the same result in a 
far more general context.  

In other words, I think it's a complete red herring to criticize this model
for being "unrealistic".   The fact is that it points to a phenomenon 
that could clearly occur in far *less* unrealistic models, if one took the
time to build them.  

As to the second issue---the issue of empirical relevance---I am extremely
skeptical that this model could have any empirical relevance, and I am
very close to certain that in the real world, minimum wage increases do have
negative effects on employment (although those negative effects appear
to be surprisingly small).  Nevertheless, I think I learned something by
thinking about this model.


Let me take the opportunity to insert a plug for my discussion of the
minimum wage issue on pp. 69-74 of my book "Fair Play".  The points
raised there are, I think, substantially separate from the points that
Vienneau and Blair have been debating.