The group identifies the following benefits from a 35% increase in the minimum wage:
1. "This policy would directly provide higher wages for close to 20 million workers by 2014. Furthermore, another nearly 9 million workers whose wages are just above the new minimum would likely see a wage increase through “spillover” effects, as employers adjust their internal wage ladders."
2. "A minimum wage increase can also serve to stimulate the economy as low-wage workers spend their additional earnings potentially raising demand and job growth. Therefore, pursuing a higher minimum wage at this juncture will not only provide raises for low-wage workers but would provide some help on the jobs front as well."
And what about the costs of artificially raising the minimum wage for unskilled workers? Well, there apparently are none! Here's the only thing the letter says about costs:
"In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market."
MP: Here are some important questions for the group of economists who apparently believe in a perfectly (or nearly) vertical demand curve for unskilled labor:
If a 35% increase in the government-mandated wage for unskilled workers can deliver such a huge stimulus to the economy by directly raising earnings for 29 million workers (almost 22% of payroll employment), and then creating a secondary stimulus through increases in both spending and jobs throughout the economy, why are you being so stingy? Why not advocate an even larger increase in the government-mandated minimum wage by 50 or 75% to create an even larger economic stimulus?
If a 35% increase in the government-mandated wage for unskilled workers can deliver such a huge stimulus to the economy by directly raising earnings for 29 million workers (almost 22% of payroll employment), and then creating a secondary stimulus through increases in both spending and jobs throughout the economy, why are you being so stingy? Why not advocate an even larger increase in the government-mandated minimum wage by 50 or 75% to create an even larger economic stimulus?
Their description of the research is very unfair. No research suggests there is no negative effect on employment. What the research suggests is that minimum wage has no effect on poverty if it is kept below the poverty line. That is a blindingly obvious statement.
ReplyDeleteSecondly, all the research conducted has found a negative effect on employment (especially on youth employment). Where the disagreement lies is how big of an effect it is. Estimate range from -0.5% to -3.0%.
Finally, the argument has never been that minimum wage might help in the short run. Assuming prices are sticky, minimum wage hikes may help in the short run. But as prices adjust (as they do), then the hike in minimum wage will lead to decline in the labor force and higher youth/unskilled labor unemployment.
I can't believe so many people make such a stink about the minimum wage. Such a small percentage of the workforce actually *makes* the minimum wage that lowering or raising by 35% or whatever isn't going to make a hill of beans of difference.
ReplyDeleteI can't believe so many people make such a stink about the minimum wage. Such a small percentage of the workforce actually *makes* the minimum wage that lowering or raising by 35% or whatever isn't going to make a hill of beans of difference.
ReplyDeleteIt hurts unskilled workers and harms the economy. Having activists who have no clue about real world economics lobby for such destructive measures deserves an outcry.
Mark, your add is exactly what I was thinking as I read the post. Only, I think they should make the minimum wage $50/hour, oh heck make $100/hour. That way, the majority of workers would get a gov't mandated pay raise and we can all be rich, at no significant cost to business!
ReplyDeleteThe result of a 35% increase in the minimum wage would result in a combination 2 things:
ReplyDelete1) A rapid cut (up to 25%) in the number of minimum-wage jobs that can be paid for by businesses at their current level of earnings.
($1.35 x 75% original workforce ~ $1.00)
and
2) To the extent that businesses preserve their minimum-wage labor force, products and services provided by minimum-wage workers would have to be that much more expensive - up to 35% more expensive - which would reduce the quantity of products and services purchased.
More (1) would mean less (2) and vice-versa. Simple math.
Right from the Home page of the Economic Policy Institute, where those economists posted their letter. I think this says it all about their objectivity:
ReplyDelete"EPI Values
Helping Working People
Economic policy should focus on improving conditions for working people.
Truth and Accuracy Matter
EPI research should be honest and rigorous.
Dignified, Remunerative Work
People must be provided with the capacity and opportunity for dignified, remunerative work for personal as well as societal benefit.
Strong, Effective Labor Movement
A strong, effective labor movement is essential for democracy and to ensure an equitable sharing of income and wealth.
Government for the People
Government should set standards and rules for markets, and should ensure the efficient provision of public goods and investments."
But note that this group of economists claim that 20 million workers would benefit from the increase in the min wage, that's 15% of payroll employment.
ReplyDeleteJon says "All the research conducted has found (minimum wage) a negative effect on employment."
ReplyDeleteThat's untrue.
That's untrue.
ReplyDeletePoint me to a paper that does show that? Even Card & Kruger's work (which is cited, rightly so, by proponents of minimum wage), shows a small negative effect on employment over the medium-to-long run and a minimal one in the short term.
If minimum wage remains below the poverty line, then the decrease in employment will remain moot. But if it rises above that, then the negative effects start becoming very noticeable.
ReplyDeleteSuch a small percentage of the workforce actually *makes* the minimum wage that lowering or raising by 35% or whatever isn't going to make a hill of beans of difference.
ReplyDeleteIt's more of a marginal thing. If a worker is employable at $8.50/hr, but not at $9.50/hr, it matters to him.
David Card and Alan B. Krueger
ReplyDelete"In each case they present a battery of evidence showing that increases in the minimum wage lead to increases in pay, but no loss in jobs."
http://press.princeton.edu/titles/5632.html
Also, it's important to note that studies like Card and Kruger only look at EMPLOYMENT effects of min wage increases (and only on fast food employment). Even if overall employment remains unchanged (unlikely) following an increase in min wage, that does NOT mean that workers were NOT adversely affected.
ReplyDeleteAs I have pointed out before, the unskilled workers' hours might have been reduced, and other non-monetary forms of compensation might have been reduced (uniforms, free/discount meals, other employee discounts, health care, tuition, company parties/picnics, etc.).
So there will BE adverse effects, the only question is how BIG those effects will be.
http://www.youtube.com/watch?feature=player_embedded&v=jwGWDis2dJw#!
ReplyDeleteCard and Krueger - Wikipedia
ReplyDelete"...the authors concluded that the increase in the minimum wage increased employment..."
Unfortunately, Peak, the description of the paper lacks the details of said paper. What the paper actually shows is the change in employment at the time was moot (which is not the same as non-existent). However, the troubling case of long-term still stands.
ReplyDeleteI dealt with this last year, but okay, let's address it again:
ReplyDeleteCan Increasing the Minimum Wage Boost GDP?
Note that *all* of the jobs that disappeared from the U.S. economy between 1995 and 2010 for young Americans (those between Age 15 and 24, who account for half of all minimum wage earners in the U.S.), were those that were affected by minimum wage increases as it rose from $4.25 per hour in 1995 to $7.25 per hour in 2010.
Also note that after adjusting for inflation, the total aggregate amount of money income earned by individuals between the ages of 15 and 24 was essentially flat between 1995 and 2010. That's your very clear sign that boosting the minimum wage does not boost aggregate income, as the higher minimum wage fails to produce significant revenue for the businesses that hire workers at the minimum wage.
Jon, I was proving your statement is false and increasing the minimum wage can increase employment.
ReplyDeleteIronman, where are the explanatory variables?
Robert Reich, Jeffrey Sachs, Joseph Stiglitz and Laura Tyson are all shills for left-wing politicians.
ReplyDeleteEspecially Bob Reich
In deference to the political left, I would concede that when the unemployment rate is down around 5%, an increase in the minimum wage could be tolerated, at least for a while.
ReplyDeleteBut in any case, the issue should be left up to the states. That's good economics, and good governance
The idiotic papers and studies always assume the worker who starts out earning min wage, stays at the min wage job for the rest of their working life.
ReplyDeleteActually, these types of workers get pay increases after three to six months on the job.
It is almost embarrassing to think that a 16 year old will work at the same min wage paying job for 40 years.
But I digress.
I've got a great idea.
ReplyDeleteLet's go off the "fiscal cliff" next year, meaning $600B in tax increases and spending cuts, then on top of that, raise the minimum wage to $12/hour.
Fantastic!!
One thing to point out, though:
ReplyDeleteEven if you support minimum wage, states with higher minimum wage do also have higher prices. It's a vicious cycle: prices rise, so minimum wage rises to keep up with prices, which rise due to increased demand, so minimum wage rises further, etc. We've been this in Massachusetts. Basically, higher and higher prices with minimal (at best) increases in the standard of living for those who make minimum wage.
Hey Jon,
ReplyDeleteJust curious if you have any thing that supports your wage/price spiral in MA?
I am not doubting this is the case, just wondering.
Unknown,
ReplyDeleteI can't believe so many people make such a stink about the minimum wage. Such a small percentage of the workforce actually *makes* the minimum wage that lowering or raising by 35% or whatever isn't going to make a hill of beans of difference.
Yep, 50% of teenage blacks don't amount to a "hill of beans" and shouldn't be taken into consideration at all, right? After sending young black men through a shitty government monopolized "education" system, the only right thing to do is to price them out of a job. After failing to educate young black men well enough to gain a skill, preventing them from competing effectively for low skill jobs is definitely the right thing to do.
Minimum wage workers are a Giffen Good. Who knew?
ReplyDeleteThere's clearly a political agenda here. Even libtard economists understand which way demand curves slope. These lefties are merely putting forth this argument to be lapped up by economic illiterates in order to rob the very people they whine about being the most disadvantaged so as to create more dependency on the state and to grow the state they imagine will be controlled by pseudo-intellectuals like themselves. They're ignorant little terrorists.
I often wonder if economists find Reich, Sachs, Stiglitz and Krugman as embarrassing as I find Cramer.
This comment has been removed by the author.
ReplyDeleteWell put, Ken.
ReplyDeleteHey Jon,
ReplyDeleteJust curious if you have any thing that supports your wage/price spiral in MA?
I am not doubting this is the case, just wondering.
I can get you links, if you wish, but for now I'll offer this narrative:
I grew up in Mass. In the 8 years I was of working age (13 until I moved when I was 22), we saw the minimum wage rise three times (from $6.50 to $7 to $8, where it is now). During that same time, the cost of living in Mass (as measured by the ACCRA Cost of Living Index) rose as well. There is debate on rising the wage again in MA because prices keep rising. However, the standard of living in MA isn't much different from the rest of the nation. The difference is the price. Some of that does have to do with the desirability of MA. Other has to do with the minimum wage. MA was one of the first states to institute minimum wage. Since then, the cost of living has consistently been higher than the national average.
Why not advocate an even larger increase in the government-mandated minimum wage by 50 or 75% to create an even larger economic stimulus?
ReplyDeleteBecause we don't have data that suggests that such a large increase wouldn't adversely effect employment. We do however have data on a modest increase, like 35%. There's no adverse effect on employment and tons of positive benefits. Why not do it?
If the evidence is that drinking a few glasses of water per day is good for you, does it make sense to say "Well then why not drink 15 gallons if you think water is so great." Because we don't really know that 15 gallons is good for you, but we do know that a few glasses is.
There's no adverse effect on employment and tons of positive benefits.
ReplyDeleteBut there is no data to suggest this.
There is something else to consider in all this:
ReplyDeleteHow can businesses afford to raise wages?
Most of the businesses that pay minimum wage to their employees already have thin profit margins. Wal-Mart, for example, only makes $0.03 for every dollar they earn. Their profit comes not from price, but from volume. How will these guys pay for increases when they are already making pennies on the dollar?
Teen unemployment stands at 26.5% today. By the way, teen unemployment is highest in DC, California, Nevada, South Carolina, Tennessee, and Washington. DC, California, Nevada, and Washington all have minimum wages higher than the national minimum wage - that's 4 of the 18 states that do have a higher one, including the highest (Washington, $9.04) and 2 others of the 8 that are $8.00 or higher (California at $8.25 and Nevada at $8.00).
ReplyDeleteI think it's pretty clear that this will hit teens and young people the hardest. This is important not necessarily because these teens need that money so badly, although in some cases, they do. What's more important in the long-term is that there is an inherent value in "first jobs". These minimum wage jobs are quite often a teen's or a young person's first job. There are many shaping experiences and lessons learned on that first job. It's an opportunity for a young person to prove that he can be punctual, reliable, and roll up his sleeves to get the job done, even if it's not a fun or glamorous job and even if it doesn't pay much.
Another issue here is the Obamacare mandates on small business, especially those businesses located in "blue states".
ReplyDeleteFor companies with more than 50 employees, there will be various mandates that will impose higher costs. Those costs could be offset by lowering wages, but that's where the minimum wage issue comes into play
Prepare for a new normal of permanently higher unemployment, Arbitrage. I am becoming permanently frustrated.
ReplyDeletedoes WalMart pay minimum wage? I thought they paid more.
ReplyDeleteWhy not advocate an even larger increase ...
ReplyDelete=============================
Why not advocate that unskilled workers work for zero? Clearly that will make them better off, by allowing these highly skilled negotiators to work out their own agreement with employers.
step 1.
ReplyDeletemandate upwardly sloping demand curves.
step 2.
raise the minimum wage to $1000/hr
step 3.
prosper.
see economics is easy if you are allowed to change the basic laws.
alas, this will work about as well as:
step 1. repeal gravity
step 2. turn your house into a hovercraft.
step 3. tour the world.
believing that increasing the price of labor increase demand for labor is like believing in magic.
ftp://ftp.iza.org/RePEc/Discussionpaper/dp2570.pdf
flip to the end.
it has a list of dozens of studies and the effects wage hikes had on employment.
"Although the wide range of estimates is striking, the oft-stated assertion that the new minimum
wage research fails to support the traditional view that the minimum wage reduces the employment of
low-wage workers is clearly incorrect. Indeed, in our view, the preponderance of the evidence points to
disemployment effects."
further, this only includes full job losses, not hour cutbacks.
imagine you run a snack bar.
you pay 2 teens minimum wage to work there in the summer.
if the wages go, you just cut back hours. instead of opening at 8 you open at 9. that was a pretty dead hour anyhow, so you cut it out and reduce overall wage costs and hope it does not affect revenues too much.
if the first hour you were open before was the marginal one (where income = costs) then it becomes a loser if costs rise, so you stop being open then. (or raise your prices which diminishes the real income of everyone else)
hydra-
ReplyDelete"
Why not advocate that unskilled workers work for zero? Clearly that will make them better off, by allowing these highly skilled negotiators to work out their own agreement with employers."
what an absurd straw man.
how about we give consenting adults the freedom to make their own economic decisions about who to hire, who to work for, and what wages are acceptable?
Meanwhile, many folks work off-the-books for less than minimum wage.
ReplyDeleteMaybe we should pay someone minimum wage to track them down and arrest them. The nerve of them to willingly selling their time for less than the government mandated price.
okay an honest question:
ReplyDeleteif the minimum wage applies to all businesses - then why would the ones that agree to pay it not do more business than the ones that do not?
it would seem that at some point that how much you sell depends on how much help you have and if you refuse to hire more people... you cut off your own business expansion.
the other businesses that go ahead and hire (even if they think the minimum wage is totally wrong) will increase their business.. even if they have to charge higher prices because the guy that won't hire more can't sell more no matter how low his prices go... he cannot expand without additional help.
If you want to keep people out of poverty then increase the earned income tax credit and put that directly into their weekly paycheck. This avoids distortions in the labor market.
ReplyDeleteIt hurts unskilled workers and harms the economy. Having activists who have no clue about real world economics lobby for such destructive measures deserves an outcry.
ReplyDelete===============================
Were unskilled workers better off before the minimum wage and maximum work week?
History does not seem to suggest that was the case. What we have here is activists lobbying for a return to previous conditions, which we know were destructive.
Meanwhile the minimum wage has been destroying the economy since the 1930s and has not succeeded yet. Clearly the textbook model has some shortcomings, since it is not entirely supported by the empirical evidence we have.
This comment has been removed by the author.
ReplyDeleteHow is that a straw man? The argument is that minimum wage laws hurt low wage workers. I am following the same logic as the author by suggesting we make the increase larger by going to othe extreme logical conclusion.
ReplyDeleteIf you want to give adults freedom to make their own decisions, then they ought to be free to hire a union to help them negotiate.
The straw man is making the argument that minimum wage damages the poor and the economy in general, when there are so many other factors that loom much larger.
How will these guys pay for increases when they are already making pennies on the dollar?
ReplyDelete===============================
Wait a minute: it has already been argued that WalMart maximises its profit by reducing prices and selling more volume. Now you are telling me that WalMart does not make enough profit to pay decent wages?
My hart bleeds for the Walton Family.
it would seem that at some point that how much you sell depends on how much help you have and if you refuse to hire more people... you cut off your own business expansion.
ReplyDeletethe other businesses that go ahead and hire (even if they think the minimum wage is totally wrong) will increase their business.. even if they have to charge higher prices because the guy that won't hire more can't sell more no matter how low his prices go... he cannot expand without additional help.
You are making the assumption that this business wants to or can expand.
If adding workers was the key to business expansion, why wouldn't businesses just hire more workers and expand? poof! magic.
ReplyDeleteYou are making the assumption that this business wants to or can expand.
If adding workers was the key to business expansion, why wouldn't businesses just hire more workers and expand? poof! magic.
most businesses do want to expand but I'll admit that some may not.
in general if your business sells "stuff" and there is demand for your "stuff" and you want to sell more "stuff", at some point additional help is often needed.
if the premise is that business will rebel because of minimum wage, my view is that not all businesses will stick to the "boycott" and that the ones that bail - and hire more people will benefit and the ones that refuse to hire more will suffer.
no?
Some employers cannot cut employees. McDonald's (or other fast food chains) have more or less consistent fixed price menus. They, probably also have rules on the number of employees needed for a shift and customer volume will dictate the minimum number of employees required.
ReplyDeleteLet's just assume that a hypothetical Golden Arches cannot cut back on the number of employees or the hours and has no choice and must to raise wages, which will cut into the owner's profits.
At best this extra money is going from the owner's low interest checking account to the employee's pockets. As the argument goes these employees will go spend their new money and boost the economy. If the owner is lucky they will spend some of that money buying dinner.
How does this benefit the owner?
At best the owner is giving away a dollar to get 50cents back.
What about the lost economic activity from the owner spending his or her own money? Oh I forgot all employers are like Scrooge McDuck and like to swim in the vault of gold coins
ReplyDeleteAt best this extra money is going from the owner's low interest checking account to the employee's pockets. As the argument goes these employees will go spend their new money and boost the economy. If the owner is lucky they will spend some of that money buying dinner.
How does this benefit the owner?
At best the owner is giving away a dollar to get 50cents back.
What about the lost economic activity from the owner spending his or her own money? Oh I forgot all employers are like Scrooge McDuck and like to swim in the vault of gold coins
I'm not sure McD pays below min wage...but will assume for sake of example.
so.. it's a simple moral proposition of the workers getting more money and the owner less?
no other bad effects?
Is there any statement from employers on this measure? Do economists who deal in the Platonic world of economic theory now have more clout in Washington than business leaders who actually run companies, generate profits, and actually employ people?
ReplyDeleteNo offense Dr. Perry, but when I want to know about employment and labor costs I don't read economists I read what business leaders have to say because economists don't have a dog in the fight and can claim just about anything. As today's letter demonstrates.
Implicit in the proponents' support for a massive minimum wage hike is that to work for less is demeaning and insulting. For these geniuses, workers are better off unemployed and on the dole than earning a "substandard" wage (a capricious figure they decide upon).
ReplyDeleteAnd you know what? They are RIGHT!!!
Sorta.
Well, "right" for the workers making money not working. WRONG for the rest of us who remain working, carrying an ever larger burden of the welfare state. Ultimately this ever-expanding welfare state HAS to fail.
in general if your business sells "stuff" and there is demand for your "stuff" and you want to sell more "stuff", at some point additional help is often needed.
ReplyDeleteYes, a business that sells stuff has a labor cost ... adding 35% to that cost means that adding an employee is only beneficial if they can increase sales by at least the same amount. There is no guarantee that adding labor will increase demand for your goods or service. For low wage workers it might cheaper to pay overtime when necessary instead of bringing on a new hire.
People arguing for increasing the minimum wage act as if there is a giant pot of money from which to pay the increase.
I'm not sure McD pays below min wage...but will assume for sake of example.
ReplyDeleteso.. it's a simple moral proposition of the workers getting more money and the owner less?
no other bad effects?
Many low skill jobs base their salaries on the minimum wage. Raising the minimum wage is going to raise every salary. I know you are not stupid, nor did I ever state the McD's pays less than minimum wage.
Why is it more moral for the employees to get money instead of the owner? What if the owner wanted to expand, or higher one more employee at the previous minimum wage? Is it more moral for the current employees to get a 35% raise and have this potentially new employee remain unemployed? What about the construction workers who are now without a building project? What about the added tax revenue from taxing the owner at a higher rate?
God (if he existed) forbid that the owner wanted to spend the extra money on his or her family, Oooooh the humanity! What if they wanted to spend the money Tiger Woods style and blow it on booze and hookers. Those poor prostitutes and liquor store owners are missing out on all that potential income.
Hydra,
ReplyDeleteWhy not advocate that unskilled workers work for zero? Clearly that will make them better off, by allowing these highly skilled negotiators to work out their own agreement with employers.
It's called an unpaid internships. Young people gain valuable experience and learn valuable skills.
However, to make your argument more inline with arbitrarily raising the minimum wage, you should say that the minimum wage should be dropped to zero. This is exactly what a lot of people are calling for. How private citizens conduct their business is absolutely none of the government's business.
" God (if he existed) forbid that the owner wanted to spend the extra money on his or her family, Oooooh the humanity! What if they wanted to spend the money Tiger Woods style and blow it on booze and hookers. Those poor prostitutes and liquor store owners are missing out on all that potential income."
ReplyDeleteyup. but those workers will need health care, schools for their kids, good, shelter and they'll end up getting govt assistance paid for by guess who?
Larry,
ReplyDeleteit would seem that at some point that how much you sell depends on how much help you have and if you refuse to hire more people
The law of diminishing returns. Your last worker (hiring at the margins) will only be as productive as you pay him. Hiring one more person past this person means you will lose money.
For example, if it takes 1 person to clean your office in 4 hours, hiring 4 people will likely not mean it takes only an hour to clean your office. And certainly, hiring 20 people to clean your office will take longer than 12 minutes.
re: " The law of diminishing returns."
ReplyDeletetrue but I was saying if your business was EXPANDING or it COULD expand if you had more help AND the law applied to all of you competitors so it was basically a choice to expand/hire more or not expand (and probably not sell more unless you paid overtime as suggested...not sure how overtimes compares to new min wage employees.
@Larry
ReplyDeleteyup. but those workers will need health care, schools for their kids, good, shelter and they'll end up getting govt assistance paid for by guess who?
So you are saying I'll pay for it either way? I'm better off paying $15 for my extra value meal so that I won't have my taxes (or more accurately the money my daughter will owe on the debt) go towards providing these things?
$15 dollars becomes a rather cost prohibitive lunch. What if I decide to start packing a lunch instead of going out? Or what If I cut back on something else so that I can pay for those low skill workers for my food? Again, there isn't a giant pot of money sitting around.
So you are saying I'll pay for it either way? I'm better off paying $15 for my extra value meal so that I won't have my taxes (or more accurately the money my daughter will owe on the debt) go towards providing these things?
ReplyDelete15 is probably an exaggeration, right? I'm not going very far on this other than to point out that people who don't earn enough money for basic expenses usually end up with a wide variety of tax-funded help these days (and I'm not saying it's fair or right either).
$15 dollars becomes a rather cost prohibitive lunch. What if I decide to start packing a lunch instead of going out? Or what If I cut back on something else so that I can pay for those low skill workers for my food? Again, there isn't a giant pot of money sitting around.
has anyone ever actually done a study to show how much a given minimum wage increase would affect the price of a value meal?
my impression (perhaps wrong) is that we're talking about nickels or dimes..not dollars.
"That's untrue"...
ReplyDeleteYou're right pt...
jm should've included the terms, "factual and real world" in his comment...
That's right pt, YOU wanting to spend other people's money as YOU see fit will indeed result in higher unemployment...
"yup. but those workers will need health care, schools for their kids, good, shelter and they'll end up getting govt assistance paid for by guess who?"...
ReplyDeleteWell larry g if that's the case then here's YOUR to put YOUR money where your comment is...
Talk is cheap, just ask Warren Buffet...
From Mark's own blog post in 2008
ReplyDelete"However, hourly-paid workers (76.5 million) in the 2006 BLS study are only about half of the total labor force of about 146 million, and therefore minimum wage workers represent fewer than 1.2% of all workers (not just hourly workers). In other words, only about 1 out of every 86 American workers receives the minimum wage."
As I said, tinkering with the minimum wage one way or another isn't going to make a hill of beans of difference. 1.2% of the workforce amounts to little more than noise, and tinkering with the wage will amount to little more than noise.
Unknown says:
ReplyDelete"1.2% of the workforce amounts to little more than noise, and tinkering with the wage will amount to little more than noise."
Actually, I must disagree. Higher minimum wage requirements will result in LESS "noise," as fewer young folks will be able to find that all-important first job.
More and more young people are becoming young adults without any job experience. The only "noise" that results comes from the video games in their bedrooms in their parents' homes.
ReplyDeleteAs I said, tinkering with the minimum wage one way or another isn't going to make a hill of beans of difference. 1.2% of the workforce amounts to little more than noise, and tinkering with the wage will amount to little more than noise.
Yes, clearly raising the minimum wage 35% will have no affect on other hourly workers whose wages are based on the minimum wage, or other hourly workers in general. How many people earning $10/hr are going to want/demand raises?
On a brighter side, raising the minimum wage might get some higher skilled workers back in the labor force. Of course, this will come at a cost to low/unskilled workers. As an employer wouldn't you rather pay someone with skill/experience $10/hr instead of someone with no skills or experience $10/hr?
"How is that a straw man? The argument is that minimum wage laws hurt low wage workers. I am following the same logic as the author by suggesting we make the increase larger by going to othe extreme logical conclusion."
ReplyDeleteit's a straw man because no one has argued for it. you are taking an absurd position and arguing it as though having a maximum wage is somehow any different than having a minimum wage.
the point of a market is to allow wages to find an equilibrium, not set them arbitrarily and distort the market.
attempting to characterize the argument that prices should be free to move and be agreed upon by market participants as being the same as setting a maximum wage is a pure straw man.
no one argued that and it is a complete distortion of the position.
Note that I did not advocate either a higher or a lower minimum wage, I merely said the number earning said wage are too small for a change in that wage to make any difference.
ReplyDeleteIf they raised the wage, some who earn the wage would be able to keep their jobs but they'd get higher pay, which would be good for them. Others might lose their jobs because of the higher wage. In the aggregate it makes little difference.
On other hand, if they lowered the wage, those who are earning the wage would see their pay go down, which would be bad for them. On the other hand, it might make some employers hire more people as wages become more affordable. Those who get such jobs would be in luck. So once again, it's a zero-sum proposition.
But once again, we're talking less than 2% of the workforce. In the aggregate, this would result in only so much statistical noise.
I might also add that, in the event the minimum wage was lowered, employers might lay off some people who earn a little bit above the minimum wage in favor of new employees willing to take the new (lower) minimum wage. In this case, the people with the existing jobs would be screwed, though the people getting the new (albeit low-paying) jobs would be in luck. So, still again, in the aggregate it's a zero-sum game.
I live in a state (Washington) where the minimum wage is $9.04/hour. There is not some sort of mass-scale suffering among businesses here.
But note that in the letter, the "economists" claim the increase in the minimum wage will benefit 29 million workers, almost 22% of payroll employment.
ReplyDeleteSen. Tom Coburn of Ok says that a federally-funded Oklahoma Job Corps program spent around $76,000 per person to help youth secure minimum wage jobs...
ReplyDeleteJuly 2012:
ReplyDelete"If the minimum wage had kept up with inflation since its highest level in 1968 it would be $10.55 today."
I think, a bigger problem than not rewarding work is rewarding welfare:
Poll: Most Americans Favor Work for Welfare Recipients
18 Jul 2012
"A new Rasmussen Reports national telephone survey finds that 83 percent of American adults favor a work requirement as a condition for receiving welfare aid. Just 7 percent oppose such a requirement, while 10 percent are undecided.
Sixty-five percent of Americans think the bigger problem with welfare programs is that too many people get welfare who should not be getting it...only 24 percent feel the bigger problem is that there are too many people who should receive welfare who are not getting it. Eleven percent are unsure."
In the aggregate, this would result in only so much statistical noise.
ReplyDeleteI agree. A back of the envelope calculation:
29 million workers x $2.50 per hour x 25 hours per week x 52 weeks = $94 billion increase annualized in wages in 2014.
2012 wages are $6.9 trillion. It's like comparing a peanut to an elephant.
New York Times:
ReplyDelete"American businesses reported that third-quarter profits in 2010 rose at an annual rate of $1.659 trillion, the steepest annual surge since officials began tracking such matters 60 years ago."
["The previous record, without being adjusted for inflation, was $1.65 trillion in the third quarter of 2006."]
To you fools who support minimum wage hikes: where have you placed your heads? can you not observe what has been happening to unskilled jobs in America?
ReplyDeleteIncreasing the marginal cost of unskilled labor may not immediately reduce employment. But it will make replacement of workers by machines more feasible.
Fifty years ago, gasoline service stations employed young men who filled up everyone's gas tanks. No more.
Thirty years ago, McDonald's and every other hamburger chain employed a worker to cook french fries. It's all done automatically now.
Twenty years ago, WalMart and other retailers had zero self service checkouts. Now they take up a third of the check out lines and they're increasing.
Unskilled labor is constantly being replaced by machines. Increasing the minimum wage just increases the rate of replacement.
How many low-skilled jobs have been offshored over the past five decades. Does anyone actually believe increasing the marginal cost of low-skilled labor os going to help keep the remaining jobs here.
Rasing the minimum wage is absolutely stupid.
Again, to those of you who advocate minimum wage increases: get your heads out of those dark places and look at what has happened to low-skilled jobs in America.
"I can't believe so many people make such a stink about the minimum wage. Such a small percentage of the workforce actually *makes* the minimum wage that lowering or raising by 35% or whatever isn't going to make a hill of beans of difference".
ReplyDeleteMany union contracts scale the compensation of their members relative to the minimum wage. This is what the authors meant by "spillover effects". This is a very expensive proposition, and the authors' attitude appears to be "the companies have the money, and we want it".
As always a fascinating and polarizing subject with neither side likely to persuade the other of its views.
ReplyDeleteWhat Mark does very well on this blog is mix economic theory with real world experience. A lot of comments have been written about the economic theory so I would like to offer a brief example of how an increase in minimum wages would impact one particular business I am involved.
The business has been open 3 years, employs 70+ people in a depressed, low income neighborhood. Most employees are unskilled, need significant training, and generally start out earning a little above the minimum wage. I have invested a fair amount of risk capital in the business but it has never been profitable.
If wages were forcibly increased by 30%+ in all likelihood the business will close. The idea that my business would grow enough, as a result of the additional money an increase in minimum wages theoretically brings into the community, to offset the increased wages i would have to pay is patently absurd.
i can deal with the loss of my investment but what would be most sad is that a lot of young men and women who chose to work and learn a profession, instead of working the system like a lot of their peers, would be out of a job.
Minimum wage is a price control. History is very clear that price controls do not work. They distort markets with detrimental effects.
ReplyDeleteTo claim that in this one case, price controls on the minimum cost that business' pay for 1 hour of labour do work is absurd.
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ReplyDeleteJet Beagle seems to want to hire three low-wage workers to screw-in a light bulb.
ReplyDeleteWilliam Occam, maybe, you should've invested in one of its competitors. Is it a business or a charity program, i.e. some type of non-profit?
Givemefreedom, obviously, doesn't believe in labor standards, even low ones like the minimum wage.
Peaktrader: "Jet Beagle seems to want to hire three low-wage workers to screw-in a light bulb."
ReplyDeleteWhat is this nonsense you're writing? Please explain that silly statement.
Jet Beagle, U.S. firms can invest lots of money on capital equipment to replace their workforce.
ReplyDeleteProfits are at all-time highs, firms are holding trillions of dollars in cash, and top management is paid hundreds of times more than minimum workers, who are being hired and squeezed for more productivity, while not even earning a subsistence wage.
Your solution: Get rid of the minimum wage.
re: hiring folks that you normally would not hire as long as wages are low.
ReplyDeleteWould employers truly hire marginal and/or marginally-needed workers just because wages were low and get rid of the if wages go up - regardless of whether they are productive or not?
The perception I get is that some employers only hire some people because the wages are low and the issue of whether or not they are truly "needed" is a separate issue.
I'm sure I'm wrong on this but it just seems that way.
I would not think that any business anywhere would hire even one more employee if they did not need them as you'd be paying them a wage and getting no gain in production.
Using McDonalds as an example, if you took the CEO's $3.3M bonus and equally distributed it to the 450,000 hourly employees they would each receive $7.33. If you seized McDonalds annual profit of $1.3B and redistributed it, each hourly employee would get $2,888. In comparison a $1.50/hr increase for the same employees would cost $1.012B or 78% of current profits.
ReplyDeletePeak
ReplyDeleteI can't believe you're going to dredge up that thoroughly discredited Card and Krueger study once again. They based their work on telephone interviews - hardly an accurate measure. Later studies of actual payroll data didn't support the original conclusions, but you know all that already. Why do you continue embarrassing yourself?
Jon says "All the research conducted has found (minimum wage) a negative effect on employment."
ReplyDeletePeak says "That's untrue."
He's right Jon, you should have qualified that by saying "credible research". There IS, after all, that debunked C&K study Peak keeps putting forward time after time.
This comment has been removed by the author.
ReplyDeleteUsing McDonalds as an example, if you took the CEO's $3.3M bonus and equally distributed it to the 450,000 hourly employees they would each receive $7.33. If you seized McDonalds annual profit of $1.3B and redistributed it, each hourly employee would get $2,888. In comparison a $1.50/hr increase for the same employees would cost $1.012B or 78% of current profits.
ReplyDeleteTake. Seize. That is not what free societies do. If people at McDonalds, and let us note that the company pays more than minimum wage, work there because that is the best that they can do. Nobody forces them to work there and they leave as soon as they can a better option.
Peak
ReplyDelete"Card and Krueger - Wikipedia
"...the authors concluded that the increase in the minimum wage increased employment..."
Of course. They concluded that the demand curve for labor slopes up, unlike the demand curve for everything else in the known universe.
I can't believe you write thus stuff, Peak. Not just once, but over and over. Have you no shame?
Jon the Socialist wrote:
ReplyDelete"Because we don't have data that suggests that such a large increase wouldn't adversely effect employment. We do however have data on a modest increase, like 35%. There's no adverse effect on employment and tons of positive benefits. Why not do it?"
What bullshit. Let's see that evidence Jon. Your claim defies all economic logic.
Why not do it? Read some of the other comments on this thread and watch the series of Walter Williams videos at the link provided by Ten Mile Island for your answer.
I would suggest that you learn some economics, but based on your past drivel I know that would be a waste of time.
"Were unskilled workers better off before the minimum wage and maximum work week?"
ReplyDeleteNo they weren't, but improvements in their conditions since then aren't in any way related to those two misguided attempts at social engineering.
"Why not advocate that unskilled workers work for zero? Clearly that will make them better off, by allowing these highly skilled negotiators to work out their own agreement with employers."
You should avoid attempts at sarcasm, as they don't work for you, and only serve to make you sound stupid.
"Were unskilled workers better off before the minimum wage and maximum work week?"
ReplyDeleteNo they weren't, but improvements in their conditions since then aren't in any way related to those two misguided attempts at social engineering.
================================
You believe what you like, but I beleive that if child labor and locked sweatshops were still legal, we would still have them.
We do still have them in fact --- until they get caught and jailed by the social engineers.
"Why not advocate that unskilled workers work for zero? Clearly that will make them better off, by allowing these highly skilled negotiators to work out their own agreement with employers."
ReplyDeleteYou should avoid attempts at sarcasm, as they don't work for you, and only serve to make you sound stupid.
===============================
I agree it looks stupid, so how is it any different from the stupid and sarcastic suggestion that we give really big increases in minimum wage?
It is a parallel argument, no?
Of course it is stupid, that was the whole point. How is it that you can see the stupidity of my argument and not the equal stupidity of the authors argument?
It hurts unskilled workers and harms the economy. Having activists who have no clue about real world economics lobby for such destructive measures deserves an outcry.
ReplyDelete=================================
I think it harms the economy when otherwise bright and productive people waste their time and energy on small potatos problems like this. Attempting to make some kind of an economic sinkhole out of the reasonably moral idea that if you intend to take on the authority of having people work for you, then you need to take on the responsibility to pay them enough to live so they can show up every day.
Of course there is no economic reason to do this. Economically it makes sense to pay them a little less than they need: string them along for years until they finally break down under the accumulated stress, like the Lithuanian family in "The Jungle".
Then you just replace them with some other poor slobs: law of supply and demand.
"If you want to give adults freedom to make their own decisions, then they ought to be free to hire a union to help them negotiate."
ReplyDeleteThey are already free to do that. But if adults are free to make their own decisions, one of those decisions a business owner could make might be to not negotiate with a union.
"The straw man is making the argument that minimum wage damages the poor and the economy in general, when there are so many other factors that loom much larger."
I won't go off track by pointing out you don't seem to know what a strawman is, but the real damage occurs when the minimum wage damages poor and unskilled people, and then the same people who imposed the min wage decide that the poor are victims of something, never realizing that they are victims of minimum wage.
Those same meddlers then take money from productive people who haven't been harmed directly by the min wage, and give it to those who have, never understanding that they have caused all the damage themselves by meddling.
"My hart bleeds for the Walton Family."
ReplyDeleteYou have a hart? I thought they were extinct.
There's no bleeding required. You can do the math yourself - or ask someone to do it for you if you're unsure. Divide Walmart's net profit by the number of employees to see how much headroom there is in there.
Or perhaps you can find out what percentage of Walmart's cost of doing business is labor, then see if that 3% profit margin would make a big difference if it went to employees pay instead.
"Were unskilled workers better off before the minimum wage and maximum work week?"
ReplyDeleteNo they weren't, but improvements in their conditions since then aren't in any way related to those two misguided attempts at social engineering
But they were my friend. Before minimum wage laws anyone who wanted a job could get one regardless of how low his skills. If he wanted to learn and could show that he was reliable and capable he could move up and succeed in ways that are not available today. Many a $0.25 per hour lettuce washer and coleslaw maker wound up being a dish washer, cook, waiter, restaurant owner. Today that job is gone and coleslaw is made by machines and delivered to restaurants who cannot afford to pay someone the minimum wage rate for a job of such low skill requirements.
"Of course there is no economic reason to do this. Economically it makes sense to pay them a little less than they need: string them along for years until they finally break down under the accumulated stress, like the Lithuanian family in "The Jungle".
ReplyDeleteThen you just replace them with some other poor slobs: law of supply and demand."
LOL
What a great story. You should write novels. You have a knack for imaginative fiction.
What happened to the adults making their own choices and negotiating their own wages scenario?
Look, if those poor slobs are worth more than they are paid they will be hired away by competitors.
"I agree it looks stupid, so how is it any different from the stupid and sarcastic suggestion that we give really big increases in minimum wage?
ReplyDeleteIt is a parallel argument, no?"
No.
It is not sarcasm, it's a reductio ad absurdum.
"I think it harms the economy when otherwise bright and productive people waste their time and energy on small potatos problems like this."
ReplyDeleteThis is not a small potatoes problem. At it's core it is the issue of government interference in what should be a freely negotiated contract.
"Attempting to make some kind of an economic sinkhole out of the reasonably moral idea that if you intend to take on the authority of having people work for you, then you need to take on the responsibility to pay them enough to live so they can show up every day."
What is a moral idea is that two competent parties can agree to a mutually beneficial work relationship, and that both parties then meet the commitments they make related to that agreement. One of those commitments is almost certain to be showing up on time.
An employer can't possibly know what wage an employee needs to live on, only the employee can determine that. If they agree to a particular wage, that must be the amount they require. The employer has a moral obligation to pay the employee the wage agreed to, the employee has a moral obligation to show up when expected and provide the amount and type of labor agreed to.
Based on your comment, do you think government can force moral behavior by setting a minimum wage? What an insult it is to employees to tell them they aren't smart enough to determine their own wage and must be protected by big brother.
"But they were my friend. Before minimum wage laws anyone who wanted a job could get one regardless of how low his skills. If he wanted to learn and could show that he was reliable and capable he could move up and succeed in ways that are not available today."
ReplyDeleteYou're right of course. I was thinking of other working conditions instead of the obvious one.
Ron says: "I can't believe you're going to dredge up that thoroughly discredited Card and Krueger study once again..."
ReplyDeleteThat's a ridiculous and biased statement.
"Several researchers have conducted statistical meta-analyses of the employment effects of the minimum wage. In 1995, Card and Krueger analyzed 14 earlier time-series studies on minimum wages and concluded that there was clear evidence of publication bias (in favor of studies that found a statistically significant negative employment effect). They point out that later studies, which had more data and lower standard errors, did not show the expected increase in t-statistic.
Though a serious methodological indictment, opponents of the minimum wage largely ignored this issue; as Thomas C. Leonard noted, "The silence is fairly deafening."
In 2005, T.D. Stanley showed that Card and Krueger's results could signify either publication bias or the absence of a minimum wage effect. However, using a different methodology, Stanley concludes that there is evidence of publication bias, and that correction of this bias shows no relationship between the minimum wage and unemployment.
In 2008, Hristos Doucouliagos and T.D. Stanley conducted a similar meta-analysis of 64 U.S. studies on disemployment effects and concluded that Card and Krueger's initial claim of publication bias is still correct. Moreover, they concluded, "Once this publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains."
Hancke says: "Using McDonalds as an example, if you took the CEO's $3.3M bonus and equally distributed it to the 450,000 hourly employees they would each receive $7.33. If you seized McDonalds annual profit of $1.3B and redistributed it, each hourly employee would get $2,888. In comparison a $1.50/hr increase for the same employees would cost $1.012B or 78% of current profits."
ReplyDeleteAre you saying if the minimum wage was raised to $10, the over $1.5 trillion a year of corporate profits will disappear?
""Several researchers have conducted statistical meta-analyses of the employment effects of the minimum wage...blah blah blah
ReplyDelete...Card and Krueger...blah blah blah...
...In 2008, Hristos Doucouliagos and T.D. Stanley conducted a similar meta-analysis of 64 U.S. studies on disemployment effects and concluded that Card and Krueger's initial claim of publication bias is still correct. Moreover, they concluded, "Once this publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains."
In other words demand for unskilled and low skilled labor is so inelastic that serious price increases have no effect on it, is that your claim?
Employers have no problem hiring employees at the margin who don't produce as much as they are paid, and the loss is ignored. Is that about it?
Peak:
ReplyDelete"Are you saying if the minimum wage was raised to $10, the over $1.5 trillion a year of corporate profits will disappear?"
You might want to check that number again. You are only off by about 1000x.
peak trader: "U.S. firms can invest lots of money on capital equipment to replace their workforce."
ReplyDeleteLarge firms will only automate low-skilled jobs when it is profitable for them to do so. For some firms, increasing the marginal cost of unskilled labor by 35% will certainly cause some unprofitable investments in automation to become profitable.
peak trader: "Your solution: Get rid of the minimum wage."
I offered no "solution" to anything. I simply explained what the impact will be for a 35% increase in the marginal cost of unskilled labor.
It doesn't matter whether you believe the idiotic Card-Krueger research. The larger impact of minimum wage hikes does not occur in the short term but rather over several years. Automation and offshoring decisions are not usually implemented immediately.
peak trader: "minimum workers, who are being hired and squeezed for more productivity, while not even earning a subsistence wage."
ReplyDeleteSubsistence wage? Please!
In most places in this nation, two minimum wage earners can easily live on $28,000 a year
($7.00/hr X 2,000 hours X 2 workers = $28,000)
If two people do not like the $28K lifestyle, they can gain skills at the local community college.
unknown: "tinkering with the minimum wage one way or another isn't going to make a hill of beans of difference. 1.2% of the workforce amounts to little more than noise"
ReplyDeleteThe BLS study you referred to was done before the minimum wage was increased from $5.15 to $7.25. Many more workers are earning $7.25 an hour now. Furthermore, the increase being proposed will impact not just jobs paying minimum wage but all jubs paying less than $9.80 an hour. All those jobs represent a lot more than "a hill of beans".
has any study ever been done...say for McDonalds or similar that showed how increases in minimum wage would affect the prices of the products and cause layoffs?
ReplyDeleteMy impression is that behind all the ideological sound and fury that the actual impact from increasing minimum wage is not a huge thing.
this is more about the "idea" that it be done (or not) and "interfering" with the market.
Larry G: "My impression is that behind all the ideological sound and fury that the actual impact from increasing minimum wage is not a huge thing."
ReplyDeleteWhy would you believe that, Larry? Doesn't it make sense that increasing the marginal cost of unskilled labor will cause employers to find substitutes? Many employers can automate tasks. Many employers can offshore tasks.
You don't even have to take an economics course to understand that the amount of a good or service consumed is related to the price of that good or service.
McDonald's is testing touch screen ordering systems in European restaurants
ReplyDeleteIs it not very celar that most low-skilled jobs can eaily be automated? Just increase the cost of labor, and employers find ways to use les of it.
JB: Peak Jobs. Time to invent a new paradigm on how to support people when machines are doing the work.
ReplyDeleteDoesn't it make sense that increasing the marginal cost of unskilled labor will cause employers to find substitutes? Many employers can automate tasks. Many employers can offshore tasks.
ReplyDelete================================
But Automation increases the economic activity and the number of jobs, right?
You don't even have to take an economics course to understand that the amount of a good or service consumed is related to the price of that good or service.
ReplyDelete==============================
If you disregard the effects of price elasticity, among many, many, others.
When was the last time you lived on $28,000 a year?
ReplyDeleteYou are not going to have much of a health savings account on that income, or health insurance. It is a long term prescription for eventual failure.
I agree, ther are ways to live that way, but dying is not much of a living, boy.
The BLS study you referred to was done before the minimum wage was increased from $5.15 to $7.25. Many more workers are earning $7.25 an hour now.
ReplyDelete=================================
And we have had almost zero inflation since then, right?
All those jobs represent a lot more than "a hill of beans".
ReplyDelete==================================
Which is precisely why the employers are fighting so hard to keep those beans to themselves.
Employers have no problem hiring employees at the margin who don't produce as much as they are paid, and the loss is ignored. Is that about it?
ReplyDelete=================================
A lot of these workers don't "produce" anything. They are maintenance and cleaning workers. On the other hand, the value of the prevention of bad things such work provides is not easily measured, and might be undervalued.
But they were my friend. Before minimum wage laws anyone who wanted a job could get one regardless of how low his skills.
ReplyDelete================================
What is the point of having a job that allows you to starve to death? So you get a job at ultra low wages: that does not solve your problem.
Today that job is gone and coleslaw is made by machines and delivered to restaurants who cannot afford to pay someone the minimum wage rate for a job of such low skill requirements.
ReplyDelete=================================
You call that crap cole slaw?
They point out that later studies, which had more data and lower standard errors, did not show the expected increase in t-statistic.
ReplyDeleteThough a serious methodological indictment, opponents of the minimum wage largely ignored this issue; as Thomas C. Leonard noted, "The silence is fairly deafening."
=================================
Funny, the experts seem to be divided on this point, but a few blooggers here consider it a done deal.
I believe there is more to be learned on this subject. We have not yet discovered and accepted the objective truth, or else this conversation would not be happening.
hydra: "But Automation increases the economic activity and the number of jobs, right?"
ReplyDeleteYes, it has so far. But the new jobs require more skill.
The solution to low wages is not laws but training.
It is a parallel argument, no?"
ReplyDeleteNo.
It is not sarcasm, it's a reductio ad absurdum.
=============================
Precisely so, and in both cases, therefore the authors suggestion that we have a big increase is an equally false way to make the case.
Ergo, not proven.
Look, if those poor slobs are worth more than they are paid they will be hired away by competitors.
ReplyDelete==================================
Not if tere are more poor slobs than there are jobs. Law of supply and demand, right?
Peak Jobs is upon us, or coming soon to a neighborhood near you.
What a great story. You should write novels. You have a knack for imaginative fiction.
ReplyDelete==================================
If I wrote that story it would be published as nonfiction.
Look, as long as those workers can be replaced at will, there is a perverse economic incentive to pay them less than they cost to operate. The employers get subsidized by all the other support such workers get, from family, food stamps, and they get to keep that large hill of beans referenced above.
For the individual worker it is a few dollars per week, but for the employers it could be millions per year.
this argument seems to be degenerating into deep silliness and unrealistic one factor world assumptions.
ReplyDeleteunless you believe that demand curves slope up, then it's obvious that, all else equal, min wage hikes cause a drop in demand for minimum wage workers.
if you believe that demand curves slope up, then i don't know what to tell you other than enjoy riding your unicorn.
studies can be made to show all sorts of thins because all else is never equal. we do not live in a one factor world. this is why the results of the studies around the employment effects of min wage changes vary so much (and why the basic structure of such studies makes them mostly meaningless).
let's say it's 1998. the economy is booming. oregon hikes its minimum wage. employment rises. this is NOT proof of an upward sloping demand curve or negative price elasticity of demand for labor. all you have seen is that the other forces pushing for in increase in labor were greater than the friction added by price hikes.
arguing that the hike in wages increased employment in such a case is like arguing that opening the window in the winter warmed up the room and ignoring that you also built a huge fire in the fireplace.
if you ignore the fire, you can say, "hey, i opened the window and it got warmer in here even though it is 12 degrees outside. i have discovered a new kind of physics!"
no, you have not. you are just ignoring other factors.
this is the constant peril of data mining.
you can even get variables that are totally unrelated or even negatively related to look positively related if they share a common cause. when a society gets rich, it builds more parks. you see the correlation and say "hey, building parks makes you rich. so you build a huge park and wind up surprised when the money doesn't roll in.
the guys who want to create tainted studies on min wage know this and are being deliberately misleading.
they pick a boom period, find someone who raised min wage, and say "aha, jobs went up! we have an upward sloping demand curve"
this is literally the same complete nonsense as our would be thermodynamicist who discovered that opening a window to the cold outdoors warms a room.
we could prove the converse too. wait for a recession, then look for someone that cut minimum wage (not that you will find one). "aha, cutting the min wage costs jobs!"
these studies are mostly meaningless. to make them meaningful, you'd need to take a large number of periods and look not just at growth after, but growth before and use controls in nearby areas that did not change the min wage.
Person A has position X.
ReplyDeletePerson B presents position Y (which is a distorted version of X).
Person B attacks position Y.
Therefore X is false/incorrect/flawed.
==================================
Person A holds the position that our society needs to support a system in which the lowest paid members are not trapped in a position in which they cannot afford to avail themselves of better opportunities (if they exist). It is a view that he believes maximizes the potential for individual freedom. A minimum wage is part of that system.
Person B attacks minimum wage with an all out assault, as if it was a fair representation of the larger goal or argument.
Since the minimum wage has problems the whole proposed system or larger idea is faulty.
What am I missing? The minimum wage is not what cuases poor people to be poor.
Yep, 50% of teenage blacks don't amount to a "hill of beans" and shouldn't be taken into consideration at all, right? After sending young black men through a shitty government monopolized "education" system, the only right thing to do is to price them out of a job. After failing to educate young black men well enough to gain a skill, preventing them from competing effectively for low skill jobs is definitely the right thing to do.
ReplyDelete==============================
So you agree that minimum wage is not the entire problem?
unless you believe that demand curves slope up, then it's obvious that, all else equal, min wage hikes cause a drop in demand for minimum wage workers.
ReplyDelete==================================
In a hypothetical, perfect economic environment.
In the real world, that theory falls fall short of mimicking reality, and it focuses on too small a piece of the problem.
It is like trying to increas the fuel mileage of an automobile by educing the friction in the bearing on the needl of the speedometer. Sure, it is part of the problem, true enough as far as it goes, but the real losses are someplace else.
"Why not advocate that unskilled workers work for zero? Clearly that will make them better off, by allowing these highly skilled negotiators to work out their own agreement with employers."
ReplyDeleteMore drivel from Hydra. Of course those unskilled workers are not capable of making their own decisions and as such, we the intelligent, benevolent elites need to step in and make those decisions for them so that those cold hearted capitalists don't take advantage of them.
That is exactly how socialism starts.
Read this link that Juandos posted on another thread to understand how your attitudes are extremely dangerous to a society.
http://news.investors.com/specialreport/512665/200911171910/perspectives-of-a-russsian-immigrant.aspx
morganovich: "studies can be made to show all sorts of thins because all else is never equal. we do not live in a one factor world. this is why the results of the studies around the employment effects of min wage changes vary so much (and why the basic structure of such studies makes them mostly meaningless)."
ReplyDeleteAgree completely.
hydra-
ReplyDeleteof course the min wage is not the entire problem. no one has argued that. you are using a straw man to try and get out of a straw man.
it is A problem, but hardly the only problem.
you'll hate it, but try reading this:
http://econlog.econlib.org/archives/2012/07/poverty_and_beh.html
lots of people are poor because of their own choices.
" We can't blame X on poverty because poverty is a reason to avoid X.
This claim makes perfect sense if X=unemployment. If you're poor you need money, and working is a good way to get money. But the claim is equally sensible if X= any of the following:
* alcoholism: Alcohol costs money, interferes with your ability to work, and leads to expensive reckless behavior.
* drug addiction: Like alcohol, but more expensive, and likely to eventually lead to legal troubles you're too poor to buy your way out of.
* single parenthood: Raising a child takes a lot of effort and a lot of money. One poor person rarely has enough resources to comfortably provide this combination of effort and money.
* unprotected sex: Unprotected sex quickly leads to single parenthood. See above.
* dropping out of high school: High school drop-outs earn much lower wages than graduates. Kids from rich families may be able to afford this sacrifice, but kids from poor families can't.
* being single: Getting married lets couples avoid a lot of wasteful duplication of household expenses. These savings may not mean much to the rich, but they make a huge difference for the poor.
* non-remunerative crime: Drunk driving and bar fights don't pay. In fact, they have high expected medical and legal expenses. The rich might be able to afford these costs. The poor can't."
there are lots of reasons for poverty.
i don't think anyone has said otherwise.
but high minimum wages add to the problem. they do not alleviate it.
if you say "you must pay an untrained and unreliable employee with few skills as though he is far more productive than he is" you just won't hire. it's as simple as that.
demand curves slope down. increase price, demand drops. marginal employees get fired/not hired/replaced by machines.
hydra-
ReplyDelete"In the real world, that theory falls fall short of mimicking reality, and it focuses on too small a piece of the problem."
just to be clear here, are you arguing that demand curves slope up?
(that higher prices lead you to consume MORE of something?)
Jet:
ReplyDelete"You don't even have to take an economics course to understand that the amount of a good or service consumed is related to the price of that good or service."
That's true unless your name is Larry.
"JB: Peak Jobs. Time to invent a new paradigm on how to support people when machines are doing the work."
ReplyDeleteI'm sure you are working feverishly on that new paradigm, but you are probably wasting your time. People who are replaced by machines will figure out how to support themselves without any help from you or any other busybody. They have been doing it for as long as machines have been making all our lives easier.
Imagine the fear the invention of the wheel must have caused among workers who carried stuff from place to place on their backs.
A better view of automation and improved productivity might be that it provides us with better lives and more "stuff" rather than fewer jobs.
"If you disregard the effects of price elasticity, among many, many, others"
ReplyDeleteFor someone who claims to have a great deal of education in economics you sure write some ignorant things.
No one is ignoring anything, and Jet's statement is complete in itself. "Demand is related to price" he said. What can you possibly find in that to disagree with?
It's that supply and demand thing. Are you also having trouble with that?
If your argument is that quantity demanded ISN'T related to the price in this case suggests a belief that price is perfectly elastic. Is that your claim?
"A lot of these workers don't "produce" anything. They are maintenance and cleaning workers. On the other hand, the value of the prevention of bad things such work provides is not easily measured, and might be undervalued."
ReplyDeleteAnother ignorant ejaculation by Hydra.
Maintenance workers "produce" maintenance and cleaning workers "produce" cleaning. Are you really having trouble with the word 'produce'?
The value of such activities are very easy to measure. It is the amount an employer and employee agree is correct.
You seem to be looking for some objective value here, but you won't find it as all value is subjective.
"Funny, the experts seem to be divided on this point, but a few blooggers here consider it a done deal."
ReplyDeleteThe fact that the laws of supply and demand apply to labor as well as every other scarce resource in the known universe is not controversial.
There are disagreements over how much demand changes in response to an arbitrary and artificial price change, and obviously nothing happens in isolation so there is plenty to consider, but any of the so called "experts" who claim that the demand curve for unskilled labor slopes up should not be taken seriously.
A collection of premature ejaculations from Hydra:
ReplyDelete"
- And we have had almost zero inflation since then, right?
- Which is precisely why the employers are fighting so hard to keep those beans to themselves.
- What is the point of having a job that allows you to starve to death? So you get a job at ultra low wages: that does not solve your problem."
And one meaningful contribution:
" - You call that crap cole slaw?"
"Peak Jobs is upon us, or coming soon to a neighborhood near you."
ReplyDeletePeak jobs has been upon us since the invention of the Clovis point.
Prior to that everyone had a full time job working every waking hour to get enough to eat.
"Not if tere are more poor slobs than there are jobs. Law of supply and demand, right?"
ReplyDeleteOnly true if all poor slobs are identical. The one who is working is gaining experience and skills, while his clone blogging all day from his mother's basement is not.
If you are working for someone for $10/hr and producing $50 for your employer you can bet your ass you will get better job offers for higher pay.
Jet Beagle, capital investment creates high-paying jobs, because people have to invent, produce, improve, install, maintain, and operate the equipment.
ReplyDeleteMore investment in capital equipment will facilitate marginal benefits.
Also, I may add, the benefits of a higher minimum wage to society can exceed the costs to society.
Obviously, some people can't get beyond a two-dimensional Econ 101 standard partial equilibrium model.
Higher minimum wage will not benefit the workers who will lose their jobs nor the workers who will now not get jobs. It also will not benefit the companies who will have to pay the higher costs or go without the extra labour that they would have hired. Finally it will not benefit the customers of those companies as they will have to pay higher prices for the goods/services.
ReplyDeleteBut all those are simply sacrifices that all those people should make in the name of the greater good for society, right Peak?
Hydra and you have very dangerous beliefs for our society. You should study this link that I posted earlier and learn from history where your line of logic will take us.
http://news.investors.com/specialreport/512665/200911171910/perspectives-of-a-russsian-immigrant.aspx
Givemefreedom, society can benefit. I stated before:
ReplyDeleteA rise in the minimum wage can increase real economic growth.
The higher wage attracts better workers, with higher reservation wages, to increase productivity.
Minimum wage workers have high marginal propensities to consume. So, a higher minimum wage increases consumption.
Only a portion of the higher minimum wage may be passed along in higher prices, because portions will be absorbed by "excess" wages of other workers and "excess" profits.
Weak or poorly managed firms will lose business or fail. However, stronger or better managed firms will gain their business, and also gain from the increased demand.
It's possible, a 10% rise in the minimum wage (e.g. $10 to $11) may increase real economic growth 5% (e.g. 2% to 2.1%).
However, a 50% rise in the minimum wage may decrease real economic growth 20%, etc.
"Look, as long as those workers can be replaced at will, there is a perverse economic incentive to pay them less than they cost to operate."
ReplyDeleteAnother uneconomic argument.
Of course there is an incentive to pay less than the value you receive. That's not perverse, that's basic human nature and basic economics.
In every exchange you value what you get more than what you give or there would be no exchange.
Every employer pays less than the employee's value to them or there would be no employment.
The very premise of this post - beyond the suggestion that some so-called "experts" are not to be trusted - is that forcing someone to pay more for something than the amount at which they value it, means they will buy less of it. I have no idea why that seems to be so difficult to understand.
"The employers get subsidized by all the other support such workers get, from family, food stamps, and they get to keep that large hill of beans referenced above."
That too is incorrect and not an economic argument. Where did you say you got your vast economic education? I want to make sure my grandchildren don't go there.
Do you really consider Walmart's return of 3 cents on the dollar a "large hill of beans"?
"For the individual worker it is a few dollars per week, but for the employers it could be millions per year."
How is that relevant?
Hancke makes an interesting observation: "Using McDonalds as an example, if you took the CEO's $3.3M bonus and equally distributed it to the 450,000 hourly employees they would each receive $7.33. If you seized McDonalds annual profit of $1.3B and redistributed it, each hourly employee would get $2,888. In comparison a $1.50/hr increase for the same employees would cost $1.012B or 78% of current profits."
ReplyDeleteHe makes a case for corporate taxes and earned income tax credits, because fast food restaurants will pay a disproportionate share of the minimum wage increase compared to most other industries, or prices are too low at fast food restaurants.
U.S. corporations make over $1.5 trillion a year in profits.
ReplyDelete"It's possible, a 10% rise in the minimum wage (e.g. $10 to $11) may increase real economic growth 5% (e.g. 2% to 2.1%). However, a 50% rise in the minimum wage may decrease real economic growth 20%, etc."
ReplyDeleteIt's possible that you might sprout wings and fly to the moon but I wouldn't want to bet our economy on that possibility.
If you can so accurately measure the benefits so that you can state a 10% rise in minimum wage would have benefits and a 50% would not, then you should be able to tell me at what percentage increase in minimum wage are the benefits optimized? Why sell society short with only a 10%? Based on your assertions then there must be some inflection point between 10% and 50% min wage increase where a further increase in min. wage now harms the economy. What is that point?
There is no inflection point because your assertion is incorrect. The true inflection point is the where the min. wage is below the lowest wage that workers and employers would transact a exchange of labour for wages. Hence the point where min. wage does not affect the labour market at all.
Min. wage is a price control. History is clear that price controls do not work. To assert that in this one case price controls do work is a suspenion of logic.
"Person A holds the position that our society needs to support a system in which the lowest paid members are not trapped in a position in which they cannot afford to avail themselves of better opportunities (if they exist). It is a view that he believes maximizes the potential for individual freedom. A minimum wage is part of that system."
ReplyDeleteRight away person A reveals his ignorance of history and logic by suggesting that a top down system can be imposed on society that maximizes personal freedom. There's no evidence it works that way and plenty of evidence that it doesn't.
Person A then show his ignorance of economics by suggesting that the demand curve for unskilled labor slopes up.
"Person B attacks minimum wage with an all out assault, as if it was a fair representation of the larger goal or argument."
It sounds like person B understands that the demand curve for labor slopes down and laughs at suggestions that it doesn't.
Person B hasn't yet discussed the larger argument, and probably disagrees that there should be a larger "goal", since he doesn't believe that top down planning can ever provide better outcomes that individuals choosing for themselves.
In any case person B wouldn't agree that pretending the demand curve for labor slopes up can be a path to ANY goal.
"Since the minimum wage has problems the whole proposed system or larger idea is faulty."
The minimum wage is just a gimmick politicians use to gain support from voters who don't know economics, and can't possibly work any better than any other price control. History shows us they just don't work. Outcomes are ALWAYS worse with price controls.
The overall goal, or at least the idea that it can be achieved through top down planning, is faulty to begin with. It isn't made faulty by introducing minimum wage, but suggesting one bad idea to help support another bad idea doesn't improve it.
"What am I missing? The minimum wage is not what cuases poor people to be poor."
You are missing:
1. The demand curve for labor slopes down like every other demand curve.
2. Top down central planning doesn't produce the best outcomes.
While you are correct that minimum wage doesn't *cause* people to be poor, it helps keep them that way by preventing them from making their own employment choices and gaining experience and skills that would help them become unpoor.
"In a hypothetical, perfect economic environment."
ReplyDeleteThere is nothing like that. Would you make the same comment about the demand curve for beef, or swimwear or any other scarce thing in the world that might be affected by price changes?
"So you agree that minimum wage is not the entire problem?"
ReplyDeleteOf course minimum wage isn't the entire "problem" but it isn't any part of a solution either.
"t is like trying to increas the fuel mileage of an automobile by educing the friction in the bearing on the needl of the speedometer. Sure, it is part of the problem, true enough as far as it goes, but the real losses are someplace else."
ReplyDeleteThat analogy doesn't work.
Peak:
ReplyDelete"Also, I may add, the benefits of a higher minimum wage to society can exceed the costs to society.
Obviously, some people can't get beyond a two-dimensional Econ 101 standard partial equilibrium model."
LOL
Obviously some people can't understand that all demand curves slope down.
Perhaps you believe, as Methinks suggested, that unskilled workers are a Giffen good?
Peak
ReplyDelete"Givemefreedom, society can benefit. I stated before:
A rise in the minimum wage can increase real economic growth. "
Yes, you do a lot of "stating" but you provide no credible support.
Looks like states can set their own rates....
ReplyDeleteand since different states have different rates - it would be easy to do a Big Mac Minimum Wage Index, eh?
http://www.dol.gov/whd/minwage/america.htm
"or prices are too low at fast food restaurants."
ReplyDeleteYes, we all wish we could pay higher prices for fast food but alas, fierce competition forces those outfits to keep margins razor thin, but don't despair. There IS a solution. Each time you buy a Super Combo Meal you can add a dollar or two to the amount charged and inform the employee who serves you that it's a tip just for them. Soon that few dollars will create billions in economic activity due to the multiplier effect, and we will all be rich.
Problem solved.
Givemefreedom, you're talking about a market wage, e.g. the wage a worker is willing to accept to avoid starvation.
ReplyDeleteObviously, you don't believe in labor standards, including low standards, e.g. the minimum wage.
Just because you declare something is true doesn't mean it's true. There've been many rigorous studies by labor economists.
Ron, unfortunately, not everyone will tip $7 an hour workers. So, to be fair, prices rise 10% (for everyone) and then they can make $15 an hour or more.
ReplyDeleteI'm sure, they'll squander the additional money on rent, food, clothing, an auto, etc.
Peak:
ReplyDelete"Givemefreedom, you're talking about a market wage, e.g. the wage a worker is willing to accept to avoid starvation."
No, a market wage is that wage an employer must pay to attract the worker he needs for a particular job.
At least admit that there are two forces at work that determine the market wage. You sound really ignorant of economics when you write stuff like your comment above.
"Obviously, you don't believe in labor standards, including low standards, e.g. the minimum wage."
I believe, and I suspect Givemefreedom believes, in freedom of contract.
"Just because you declare something is true doesn't mean it's true. There've been many rigorous studies by labor economists."
Those are two separate statements that aren't connected. Was there a point?
Ron says; "all demand curves slope down."
ReplyDeleteOnly in your two-dimensional world.
Ron says: "No, a market wage is that wage an employer must pay to attract the worker he needs for a particular job...You sound really ignorant of economics."
ReplyDeleteAnd there's only one example in your "economics."
"Ron, unfortunately, not everyone will tip $7 an hour workers."
ReplyDeleteThem you must be one of only a few people that think fast food is too cheap.
I think Chinese products sold on the internet are too cheap so I always pay double the asking price. (heh)
"So, to be fair, prices rise 10% (for everyone) and then they can make $15 an hour or more."
That's cruel. Their $15/hr will soon look like the $10/hr they're making now as they begin paying the higher prices necessary to support the higher cost of their labor.
Those low skilled workers can make $15/hr already by working hard and acquiring valuable skills. No do-gooder central planner needs to do anything at all.
As I pointed out, you are free to pay low skilled workers whatever you wish, but don't steal from me to do it.
peak-
ReplyDeleteso wait, are you arguing that an increase in the price of labor increases the demand for labor?
because that's what an upward sloping demand curve means.
the studies you cited earlier are fatally flawed in that respect.
they assume a one factor world.
read my earlier argument.
they are pretending that opening a window in the winter warmed the room by ignoring the fact that you built a fire.
they have no control group.
all you need to do is pick a time of economic boom and find someplace where min wage went up and you can find a rising min wage and rising employment, but that is not causality.
it's like my saying the emergency brake made you roll down the hill when it was really slowing you down
.
"Givemefreedom, you're talking about a market wage, e.g. the wage a worker is willing to accept to avoid starvation."
ReplyDeletePeak, no, a market wage is just that, a market wage. A wage that is agreed upon between the worker and the employer. You included the part about starvation.
"Obviously, you don't believe in labor standards, including low standards, e.g. the minimum wage."
It is obvious only to you. We are talking about whether the price control, min. wage, works or not. I stated that price controls do not work, history shows that clearly. This has nothing to do with "low labour standards". I've not given you my beliefs on this topic but since you brought it up: I believe that the working conditions of low wage workers and unemployed low wage workers would be improved if the government did not have price controls on wages. Just like every market improves when price controls are removed.
"Just because you declare something is true doesn't mean it's true. There've been many rigorous studies by labor economists."
What I stated is true because history has proven it to be true, time and again. Price controls do not work, the distortions to the market cause detrimental effects. Those labour economist may have been rigorous in trying to prove what they started out to prove but none the less they are wrong. There is no proof that in this one case of price controls, min. wage, things are different than all the other cases and because of that the net effect is positive.
Just because it is called "minimum wage" does not make it a good policy. I could just as easily call it minimum unemployment because that is what it does, create a floor so that there is a minimum unemployment level. Namely, every worker whose productivity is valued below the minimum wage.
"And there's only one example in your "economics."
ReplyDeleteHow many do you need? I thought one would be enough. Didn't you understand it?
Ron says; "all demand curves slope down.""
Peak says: "Only in your two-dimensional world."
And there it is! He admits to believing in upward sloping demand curves. What do you feed your unicorn, Peak?
Raise the price and demand goes up. Who knew?
Or maybe labor is a giffen good. What substitute for labor is rising in price even faster to make labor a Giffen good?
Please explain the *mechanism* that causes labor to apparently defy the immutable laws of supply and demand.
Note that I'm not asking for references to mega-studies or "expert" opinions.
morganovich
ReplyDelete"all you need to do is pick a time of economic boom and find someplace where min wage went up and you can find a rising min wage and rising employment, but that is not causality."
Thinking a little more about that, if there IS any causation, it's more likely that rising employment and market wages causes minimum wage to rise, as a min wage below market has no effect on anyone, and therefore no political value as a vote getter.
Morganovich, you don't believe there are any (non-linear) conditions where an increase in wages increases employment?
ReplyDeleteGivemefreedom, are you saying workers have more leverage or a better advantage in bargaining for wages?
I've shown an example above that labor standards (what you call price controls) can and likely work well.
Also, "distortions" worked many times before, e.g. smoothing-out business cycles.
Peak
ReplyDelete"Morganovich, you don't believe there are any (non-linear) conditions where an increase in wages increases employment?"
How about a credible example?
"I think, a bigger problem than not rewarding work is rewarding welfare"...
ReplyDeleteThat's an easy problem to fix pt, the harder problem is finding the politicos who have the backbone to get rid of that vote buying scheme...
"2012 wages are $6.9 trillion. It's like comparing a peanut to an elephant"...
ReplyDeleteWell marmico why don't YOU step up and buy that peanut?
Its truly amazing how some folks here think they can spend someone else's money better than the person who supposedly owns it...
Are we dealing with government employess or what?
"Jet Beagle seems to want to hire three low-wage workers to screw-in a light bulb"...
ReplyDeleteWhereas pt would rather leave three people who's only skill so far is in screwing light bulbs on the street with no job...
Great idea pt!!!
"That's a ridiculous and biased statement"...
ReplyDeleteSad to say pt but yes, the Cand & Krueger Study has been discredited more than once...
"You believe what you like, but I beleive that if child labor and locked sweatshops were still legal, we would still have them.
ReplyDeleteWe do still have them in fact --- until they get caught and jailed by the social engineers"...
Are they being forced to work there hydra?
Is someone physically threatening them if they don't work at one these 'strawmen palaces' you and your fellow travelers seem capable of seeing everywhere hydra?
"Morganovich, you don't believe there are any (non-linear) conditions where an increase in wages increases employment?"
ReplyDeletei'm not sure exactly what you are asking.
are you trying to claim that you can increase demand by increasing price?
if so, why don;t you walk me through how you imagine that could work.
it's possible that if the minimum wage were so low that it was irrelevant, increasing it might have no effect (raising it from 4c to 5c 10c for example) but if people on the margin are actually getting paid minimum wage, then raising it will, all else equal, cause a drop in employment.
as i said above, all else is never equal and you can have other trends that offset this, but the basic relationship is firm and set: increase price, decrease demand.
price fixing does not work.
it prevents markets from clearing.
set a minimum price and demand sinks and you risk oversupply. set a maximum price and supply drops and you risk shortages.
i presume you are not in favor of fixing prices in other areas, yes? would you support a maximum oil price or a minimum price for DRAM or steel?
why not?
what makes labor special?
""Morganovich, you don't believe there are any (non-linear) conditions where an increase in wages increases employment?"
ReplyDeletei was thinking about this some more and i think you are confusing some concepts here.
lots of things can drive an increase in wages. if it is created by productivity, then you get growth in wages and real output at the same time which is part of a growth cycle. such a cycle likely creates jobs.
but they are not created by wages rising in and of themselves.
it's productivity that is creating jobs. wages rising are a by product.
at any given level of productivity, increasing wages does not and cannot create jobs.
further, if we accept that businesses hire at the margin where wages productivity (p=mc) then, if we hike the min wage over that level, it will destroy jobs.
i think this is where you are getting confused in your analysis.
you look at a period where productivity is rising and see wages and employment going up. you then assume that it is wages driving employment when, in fact, it is productivity driving both.
Any study on the issue that does not take account of the paper money scenario we are in is worthless.
ReplyDeleteThe effects of minimum wage are always awful for the economy. Only through inflation the costs are spread through society and the effects reduced.
In a sound money scenario the monetary interference would be eliminated and the effects of such increase woud be truly and painfuly shown.