A little bit of something could be dangerous

There have a been a lot of discussion on the issue of minimum wage in the econ blogspere even since Dems took over the Congress. According to one survey among economists, majority of them are not in favor of setting minimum wage due to the concern of possible reduction in employment. Probably this is one of the least controversial issues for economists(another one could be free trade).

The way the impact of minimum wage is explained to the public is often the Econ 101 style: supply and demand with the implied assumptions of perfect competition and labor market equilibrium. Those who are against increasing minimum wage treat this simple exposition as Bible and dogmatize it that setting minimum wage will always lead to welfare loss. Those who are in favor of it, on the other hand, attack the assumptions here and claim that this simple supply and demand explanation does not hold water in the real world.

The actual theory of minimum wage is actually far more sophisticated in modern labor economics, and the conclusions are more subtle: it really depends, but it's more likely to cause harm than not.

There are there phases of understanding: simplistic, complex and profoundly simple. Too often people are trapped in the first phase and don't know that they don't know the real issues. I am all in favor of people having the basic economics, but at the same time there is a lurking danger of a little bit econ 101.

Update: Right after I posted this one, I found out there is a surprisingly similar post on this. Of course Dr. Chinn puts it in a much more elaborate way.