“Economically, minimum wages may not make sense. But morally, socially, and politically they make every sense because it binds the community together to make sure parents can take care of their kids.”
—–Governor Jerry Brown on April 4, as he signed into law a phased state-wide increase in the minimum wage to $15 dollars an hour.
As Commentary wrote in reaction to this jaw-dropping admission following an irresponsible act, “Good intentions have always inoculated the left against criticisms of the consequences of their policy preferences.” This has become a culture-wide, self-destructive malady during the Obama administration, led by the President. Lately, Obama has become increasingly open about it, as when the President killed the Keystone pipeline citing climate change concerns while admitting that doing so would have no likely effect on climate change, but most of his “signature policies” are similar. The Iran deal bids fair to leave Israel as a smoldering wasteland, and the Iranian government has gone out of its way to demonstrate that it cannot be trusted while already violating, as even Obama admits, the “spirit” of the deal, but God Bless Obama for trying to restrain its nuclear ambitions.
The Affordable Care Act is failing in virtually every respect, fulfilling most of the dire predictions of its opponents, but this is still an “achievement” because, and it’s true, more Americans are insured than before. Obama’s Education Department’s sincere—I’ve no doubt about it—effort to make women feel supported and safe on college campuses seeded extensive due process abuse and discrimination against male students, and the most-gender divided campus community since the Seventies. His civil rights policies and rhetoric have created the worst racial divide since the early 1960’s. The intentions in all of these cases were, at least arguably, impeccable and admirable, and apparently for committed progressives, it is that, and not that the policies in pursuit of Panglossian goals have been societally disastrous, that matters.
The mass insanity of raising the minimum wage is the apotheosis of this mania. Note that I am trying to attribute the best possible motives with this: I have read many conservative writers who believe that the left knows the policy will be catastrophic economically, but because it will be politically useful in the short-term, they don’t care about the long-range consequences. Admittedly, statements like Brown’s makes this difficult for me not to agree with them, except that it is usually considered stupid to tell voters that what you are doing makes no sense.
To state what should be obvious, if large minimum wage increases don’t make sense economically, that means they are bad policy, incompetent, and thus unethical. And we know–know—that they do not make sense economically.
Here’s economist Robert Samuelson:
“Let’s be clear. Some increase in the federal minimum is justified. It’s been at $7.25 since 2009. Inflation has eroded its value 10 percent since then and 24 percent since its peak year of 1968, says the left-leaning Economic Policy Institute. But raising it to $15 (a doubling), or even $12 (a two-thirds increase), would be a radical act that front-loads the benefits and back-loads the costs.
In 2014, about 3 million workers were paid the minimum or less; that’s 2 percent of 146 million workers. If the minimum had been set at $15 — and including workers just over the new minimum whose wages employers would probably raise — the number of affected workers would have been 59 million, or 40 percent…With time, job losses would mount. Some companies would become unprofitable and shrink or close. Others would automate. Some start-ups would be scrapped. How many jobs would be lost is guesswork. The Congressional Budget Office estimated that a $10.10 minimum (President Obama’s proposal) would cut employment by about 500,000. The American Action Forum, a right-leaning think tank that says it followed CBO’s methodology, calculates that a $12 minimum would cost 1.3 million jobs and a $15 minimum would cost 3.3 million.
Moreover, the least-skilled workers might suffer the largest losses, especially if higher wages draw experienced people back into the labor market. Family incomes would rise, but about four-fifths of the gains would go to workers in households above the government’s poverty line — though often not by much — because “many low-wage workers are not members of low-income families,” says the CBO. College students with minimum-wage jobs aren’t all from poor families.”
When some cities jumped into the minimum wage increase pool last year, hesitant populist leaders were given some hard experiment results to observe that should have been hard to ignore. Wherever cities implemented big minimum-wage hikes to $10 an hour or more last year, Labor Department data through December 2015 showed that job creation fell to the slowest pace in at least five years. For example:
- In D.C., job gains had been increasing by 3% in 2014, and restaurants, hotels and other employers went had added 2,000 jobs. The a minimum wage hike began to be phased in. There was zero growth after the wage hike, in a city with a 6.6% jobless rate.
- The Chicago area saw its weakest year of leisure-and-hospitality sector job growth since 2009 after a $1.75-an-hour minimum-wage hike to $10 an hour took effect in July.
- Leisure and hospitality sector job growth in the Bay Area slumped to a five-year low after San Francisco and Oakland adopted what was, at the time, the highest citywide minimum wage in the country of $12.25 an hour last spring.
- In Seattle, the minimum wage rose last April from the statewide $9.47 to $11 an hour for companies with more than 500 employees. Smaller employers were subjected to a smaller increase, to $10, which rose to $10.50 at the start of 2016. Job gains at Seattle-area restaurants fell from 4.6% growth a year earlier to 1.8%, their worst year for employment since 2009. Meanwhile, in the rest of the Washington state, restaurant employment gains accelerated to 6.3%.
After New York’s Governor Cuomo signed into law a similar phased increase to $15,an executive at burger chain White Castle explained what the likely result would be on his company and its jobs:
“What this means for White Castle is we really have to evaluate how we manage our business. About 30 percent of every sales dollar covers the pay of our hourly workers, and that doesn’t include management. It’s our biggest investment, our biggest cost. And it’s one that if we see increase dramatically through fiat, and we don’t do anything — it’s unsustainable. We are in uncharted waters.Is there any room to raise prices to cover costs?We think we’d need to increase menu prices by something like 50 percent. It’s not something we’ve done before. It’d be catastrophic. Candidly, this could create a whole generation of kids who won’t get their first job. We’re in tough neighborhoods — and White Castle hasn’t abandoned those neighborhoods. On the surface, higher pay seems noble, but it’s not — because it denies the reality of the free-enterprise framework that has allowed small businesses like ours to thrive.”
The position of minimum wage wage advocates on the left can only be described as dishonest. They deny that fact, and it is a fact: every hike in the minimum wage has lost jobs, and caused some businesses to close.
But ideology trumps reality here, as it too often does (an example on the right would be assurances that illegal immigrants can all be deported). Thus Think Progress’s Bryce Covert countered the CBO study cited by Samuelson by arguing that the increase in income for millions of lower-skilled workers would result in more spending, which in turn creates jobs. (This is versatile progressive nonsense: it is the same argument given by Nancy Pelosi to justify extending unemployment benefits forever.) National Memo’s Joe Conason (bias alert on my part: after his performance during the Lewinsky scandal, I tend to believe that if Conason says it, it’s a lie) declared that the CBO’s assessment was “fuzzy and unreliable.” To his shame, Barack Obama even spewed the company line, saying, “There’s no solid evidence that a higher minimum wage costs jobs.” The Department of Labor launched a web page to support the President’s lie, the minimum wage equivalent of “If you like your plan, you can keep your plan, period.”
“Myth: Increasing the minimum wage will cause people to lose their jobs,” the Labor Department site said. “Not true.” That’s deceit, straight up. Big minimum wage hike over time do and will lose jobs. Raising salaries by mandate have negative consequences for the very people who think they will benefit.
Now that the lie is well embedded in the minds of the none-too-sophisticated Democratic base, some progressives are laying the groundwork for the harsh morning after to come. “The $15 minimum wage sweeping the nation might kill jobs — and that’s okay,” read the headline on Washington Post journalist’s Lydia DePillis’ report. “For [minimum wage increase] advocates, the question isn’t whether minimum wage hikes will kill jobs, but rather how to help people who end up unemployed when they do.”
Oh. So that’s the plan. “Why shouldn’t we in fact accept job loss?” asks New School economics and urban policy professor David Howell. “What’s so bad about getting rid of crappy jobs, forcing employers to upgrade, and having a serious program to compensate anyone who is in the slightest way harmed by that?”
This is how a lot of these people think. Bernie Sanders thinks this way; Robert Reich thinks this way; Hillary Clinton will pretend she thinks this way until she has the nomination. Better to be a ward of the state than to be struggling to support yourself in a “crappy job,’ and if you don’t think so, too bad. Wiser people will make that choice for you, using the power of the government. This is what Jerry Brown calls making sense “morally and politically.”
It only makes sense politically. Passing laws that don’t work economically–-and that you know won’t work before you pass them—is incompetent and dishonest. There is no such thing as a “moral law” that does more damage than good, yet Brown’s statement is an open admission that the ideology of his party and progressives believe otherwise.
I find that astounding.
It is also terrifying.
Concludes Commentary:
“If there is one particular social benefit to these minimum wage laws, it would be that they have led liberals to let their veil slip. For too many on the left, the ends always justify the means, even if those means are willfully deceptive.”
Meanwhile, Democratic presidential candidate Hillary Clinton appeared with Cuomo at a rally in his state, while Bernie Sanders said in a prepared statement that he was “proud that today two of our largest states will be increasing the minimum wage to a living wage of $15 an hour.”
Ethics Alarms 
I am not an economist and I don’t pretend to be one. I will, however, note two things.
1. There is just as much information out there explaining why raising the minimum wage is good for the economy so it’s hard — without a Masters in Economics — to know which group of economists is right and which group is wrong. E.g., http://www.pbs.org/newshour/making-sense/why-raising-the-minimum-wage-is-good-economics/
2. Putting aside whether the minimum wage is raised or not, it seems to me that we are subsidizing employers who employ workers at lower wages. A full-time minimum wage earner typically is on food stamps and other public assistance because full time wages still equates to being at the poverty line in the United States. It seems bizarre to me that tax payers are adding to these corporations’ bottom line.
There is no dispute over whether it loses jobs, Beth, and the economists who argue it’s “good for the economy” are ideologues rather than objective. It loses jobs. It closes businesses. It raises prices.
And you have a strange definition of “subsidized.” The businesses aren’t helped by public assistance—how do you figure? Moreover, the majority of minimum wage earners are not heads of households. They are kids.
Finally, deal with what Brown said. He apparently believes the economists who conclude the MW is harmful. And still signed the bill.
I wonder if the others in the California Democratic leadership- privately of course- want Brown to resign for “health” reasons.
Jack: “There is no dispute over whether it loses jobs, Beth, and the economists who argue it’s “good for the economy” are ideologues rather than objective.”
That’s quite the claim. Do you have evidence that the many studies which have found little to no job loss from raising the minimum wage are wrong? Even if the economists behind them are ideologues, their methodology may still be sound.
“And you have a strange definition of “subsidized.” The businesses aren’t helped by public assistance—how do you figure?”
If their workers were not receiving public assistance, they would be more likely to demand higher wages, to unionize, etc. Public assistance is a band-aid; it’s enough to stop the rabble from rioting, but not enough to actually solve real problems in the economy, such as falling wages. Public assistance thereby indirectly subsidizes these businesses by shielding them from these social consequences. Simply put: the taxpayer is making up the difference between what Wal-Mart pays its workers and what it costs for those workers to actually live.
“Moreover, the majority of minimum wage earners are not heads of households. They are kids.”
According to BLS, the vast majority of minimum wage workers are over 25. There are more min. wage workers in the 25-34 demo than the 16-24 demo, and almost as many 45-54 year olds as 16-24 year olds working min. wage. I couldn’t find info on how many are heads of household, but most are either married or have been married at some time.
Click to access characteristics-of-minimum-wage-workers-2014.pdf
That said, Brown’s comments were idiotic–the policy isn’t ethical unless it works from an economic standpoint, because if it doesn’t, it’s going to cause more harm than good. He was basically saying “This makes me feel better, so I’m not going to think any further about whether it works,” which is unethical. I personally think raising the min. wage does help the economy, which is why I support it; there is no other valid reason to support it.
1. Find me a legit economist who argues that the MW doesn’t lose jobs when it receives a significant raise, like the one discussed in the post. Whole occupations have been eliminated by the MW, like movie ushers. Obviously as wages rise, the pressure for automation increases and jobs are cut. I’ve run many non-profits: we used to use hoards of interns. As soon as they were ruled MW employees, we ended the jobs. They weren’t worth it. How can anyone argue that when the cost of a worker exceeds the value of his work, the job has to end? The MW favoring economists argue that the job losses are worth it—a position that those who lose jobs tend to dispute.
2. The subsidizing argument is a real stretch. I could argue that public assistance stops people from getting experience and credentials so they are worth paying more. it is an individual’s responsibility to develop skill that have sufficient market value to support that individual. It is not the obligation of either the private sector of the government to make up that “gap.”
3.”Minimum wage workers tend to be young. Although
workers under age 25 represented only about one-fifth of
hourly paid workers, they made up nearly half of those
paid the federal minimum wage or less. Among employed
teenagers (ages 16 to 19) paid by the hour, about 15 percent
earned the minimum wage or less, compared with about 3
percent of workers age 25 and older. (See tables 1 and 7.)”
I guess you’re quibbling with “kids.” 25 or under means starting jobs, and this is what I was talking about. I didn’t mean “minors.” My fault.
4. The post was about Brown’s statement, however, and that no progressive saw anything odd about it at all.
By the way, Chris, I am NOT anti-minimum wage. But a indiscriminate MW hikes based on a weird “morality” is ideology over rationality, and claiming that no MW hike loses jobs is intellectually dishonest. If 15 bucks is so good, why not 20? Why not 100? Obviously at some point, the jobs become untenable.
Chris,
Wal-Mart and other businesses do not factor in government benefits in determining wage levels in their respective business models. The argument that taxpayers subsidize these enterprises by providing benefits so the proletariat does not revolt is specious. Nothing stops a prospective Wal-Mart employee from saying “hell no” that is not enough. Nothing stops existing employees from walking out in droves due to lower wages. You cannot claim that Wal-Mart is exploiting these hapless workers because they can keep them indentured via taxpayer subsidies. If that were the case – lower the subsidy and they will be forced to demand more from the employer. You can also not claim that they are exploitable because the workers have limited opportunities. Did Wal-Mart make their earlier life choices for them? NO! If their opportunities are limited it is a self inflicted wound. No person is denied advanced training if they choose to avail themselves of it. If dad and mom won’t or can’t help with education and training Pell grants and other scholarships are granted without regard to race, sex or anything else. If I am working in Wal-Mart with a BS in interpersonal yoga because I cannot find a job using my degree perhaps I should have been wiser in choosing what I studied.
Marginal productivity determines wages. Employee skill sets that are used and the prices of goods determine the maximum wage that can be afforded. Supply and demand for labor set the actual price. Those with skill sets that create little value for the employer are the last to be hired. Increasing the mandated minimum wage rate has no effect on productivity. It does have an effect on prices of goods and on the number of marginally skilled workers that are hired.
If your argument that taxpayers are providing a subsidy is true I can use your argument a bit differently. if Wal-Mart provides lower prices so that more people can afford more goods then the taxpayer is subsidizing all the consumers at Wal-Mart so that it can employ more people at a lower price because the demand for reasonably priced goods is higher than it would be if their everyday prices were higher. If Wal-Mart raised its prices for any reason, the quantities demanded for its goods would fall meaning it would need fewer cashiers, stockers, truck drivers, managers, assistant managers etc. Consequently, price increases at the retail level will affect the entire supply chain. There will be fewer containers of cargo coming through the port of LA, Manufacturers that rely on the mass distribution capabilities of Wal-Mart will see their orders and sales reduced, fewer construction opportunities for new stores, some stores may close leaving a big empty building and lost property taxes. If you think that is good for the economy I would tend to disagree.
It would never happen…and would probably be characterized as a “heartless” approach, but removing the subsidies for people i.e. food stamps, sec 8 would allow supply and demand to dictate the wages agreed to on employment. Less would be accepting positions at current pay rates and employers would need to offer higher wages to attract workers.
That doesn’t seem like it would accomplish anything good… Removing the artificial cheapness of food might motivate poor people as a group to hold out for higher wages, but it’s not just the availability of labor that determines price, but what that labor can actually do for you. If the market price (“wage”) for workers goes up, you can redesign your workflows so you have to hire fewer workers. It might be more expensive than if foodstamps still existed, but still cheaper than sticking with your old plan.
Ultimately, the only constructive solution is to make sure people are equipped to do favors for others (that others actually want) that are valued more than the favors they need to call in to survive and support their families. Money just allows people to call in favors based on the favors they do. It’s not very useful if you can’t do any favors. Any other solution (as far as I can tell) would be dysfunctional and unsustainable.
Beth
You do not have to be an economist to understand the reasoning behind why abrupt large increases in the minimum wage cause harm to the economy.
If the price of any element in the supply chain rises its cost is passed on to the consumer. The speed to which this increase is passed on is determined by how important that item is in its use. Food, housing, clothing, energy and health are quickly passed on to the consumer. Conversely, items that have myriad substitutes cannot increase prices easily such as vacations, new cars, dining out and other entertainment/leisure goods.
If Wal-Mart pays 30% of its sales dollar toward wage costs and wages are mandated to rise 50% then the average price hike for its goods will rise 15% for everyone. This means that $100 of purchasing power of all Wal-Mart shoppers is now $70. If its vendors/suppliers are in a similar situation they will raise the wholesale price of goods Wal-Mart purchases by another 15% as well to stay even. This too will be passed on to the consumer.
Dirty little secret: every $5 increase in the minimum wage will cost the employer about $5.50/hr more because they have to pay 7.5% of that hike in FICA and another 2.5% more in workers comp/FUTA.
So all the non-Wal-Mart employee families that once had a budget of $200/wk for groceries can now only get slightly less than $170 worth of groceries. So instead of being able to afford 100% of what they used to get they must eliminate about $30/week or $130/month less of products for consumption. Are these people better off?
Mathematically, if we assume that Wal-Mart workers are employed FT at 160 hrs/month that is an $800/month raise. If they pay FICA that means that will get a maximum net increase of $740. If we assume the income is federally taxable at the minimum withholding of 10% then we subtract another $80 and they wind up with $660.00. Now they lose 20% of their health care subsidy because they qualified for 100% before, they now have to pay the equivalent of $100/month they wind up with $560. In California a single mother with one child will lose $300 in food stamps if the raise is designed to make them not need food stamps. So the raise nets each Wal-Mart worker about $260/month and we have not even discussed housing subsidies that will decrease because of the higher income.
Who is actually being subsidized . . . the consumer, the worker or Wal-Mart.
If we assume that moving a person from $10/hr and receiving food stamps top $15/hr without food stamps is better for the economy you must subtract the total social welfare losses (consumer surplus) of all the Wal-Mart shoppers from the gains made by a few workers.. I would suggest that at best it is merely a transfer of purchasing power from many shoppers to a relatively small number of employees. I am assuming that there are many more shoppers of Wal-Mart than employees.
You must also subtract the lost income earned of those who lose their jobs when they are no longer needed due to reduced actual sales volume at Wal-Mart or any other business affected by the increased mandatory minimum. As a result, the net effect of the sizable increase in wages will translate into lower economic activity overall in the short, intermediate and long term. This is especially true when the higher wages eliminate the equivalent non-taxable monetary benefits in food stamps and turn the income gains into taxable income.
“Dirty little secret: every $5 increase in the minimum wage will cost the employer about $5.50/hr more because they have to pay 7.5% of that hike in FICA and another 2.5% more in workers comp/FUTA.”
This is an interesting little snippet of truth that I think is under-reported. People really shit on corporations because they don<t pay the same tax rates as private citizens. This is only true if you focus on income tax. At some point in our history, we stopped taxing income as heavily, and we started taxing labor. In Canada, employees are required to pay 4.6% to CPP (Canada Pension Plan) and 1.88% to EI (unEmployment Insurance), what most people realize is that businesses are required to match the 4.6%, pay 1.4x the employee's EI rate or 2.6%, and on top of that, each province has some sort of payroll tax (2.55% in Manitoba) ((They call it the Health and Education tax)) Which means that various government departments take about 10% of what you pay your employees on top of what you actually paid them. (The math on $1000 of employee earnings: 64.80 would be deducted, and 162.35 would be remitted.)
Why are we doing this? Because to use an example: A company that has sales of $55,000,000 might only had a profit of 2,200,000. which could be taxed at about 10.5% or $231,000 Meanwhile, they had payroll costs of 6,000,000 which they tax at 9.75% or $585,000. Even if you only want to count the payroll tax, at $153,000 the total taxes paid ($384,000) still work out to a higher tax rate (17%) than your average citizen (15%).
Why this strikes me as especially stupid is because you've disincentivised labor. "You want to tax my income? Well, I still want income, so this won't effect my production." Is a completely legitimate way to look at taxation, but so is "You want to tax my payroll? Gee… That means I can pay less tax and make more money by reducing payroll! Happy Day!" But why do I think they've done it? Because people are stupid, they generally don't know, and employer portions of deductions don't appear on their pay stubs. It was an easy political sale.
“1. There is just as much information out there explaining why raising the minimum wage is good for the economy so it’s hard — without a Masters in Economics — to know which group of economists is right and which group is wrong.”
Well, unfortunately, I only have a degree in economics. But I’ll try to Magoo my way through this for you. There are a few points from PBS that need addressing.
“The minimum wage has lost ground to inflation.”
It has, good, the minimum wage was never supposed to be a career aspiration. As the article points out, about 2% of working people get the minimum wage, and the minimum wage sustains people at about the poverty level. This is perhaps the best way for a poorly designed concept to function.
Poorly designed, you ask? Why… Yes it is. At least if you want to call the minimum wage a vehicle for upward mobility. What you have to realize is that the minimum wage was designed by racists. It was designed by democrats at a time just after slavery was abolished, and those damn black people were stealing the jobs of all them upstanding white folk. The idea behind the minimum wage was to raise employer expectations about what a worker could do before being hired. This has always, and will always disenfranchise the young and unskilled, both of those demographics at the time (and to an extent still currently) were disproportionately black. So I guess if you look at the minimum wage through the lens in which it was designed, it functions well.
“Our economy is not like foreign economies, and think of the children.”
America isn’t Germany? Holy shit. The article compares youth unemployment rates as if nothing else effects the math. You know what else is different? Their job mix, the drivers of their economy, their average retirement age, and Obamacare, just off the top of my head. Anyone who throws out nuggets like ”But notice that the youth unemployment rate in Germany is 7.8 percent, and in Switzerland, it is 8.5 percent. In contrast, youth unemployment is 15.5 percent in the U.S., even though the U.S.’s minimum wage (using Purchasing Power Parities exchange rates)* is below that of these Germany’s and Switzerland’s $10 and $9.20 an hour respectively.” like they’ve just given you a nugget of wisdom is either ignorant or lying.
*PPP is also stupid when comparing across borders. It’s meant to be an internal measure over time.
I also find these ‘think of the children’ arguments dishonest. You know what is on the rise, and dramatically increases every time there’s a minimum wage hike? Unpaid internships. Remember what I said about employer expectations being built up by the minimum wage? How is a young person supposed to overcome that? Well, they work for free to gain experience so they can be worth what they’ll eventually be paid. There are so many ways minimum wage increases disproportionately, negatively effect the young, it’s sad. It’s sad that they champion it because while it might, MIGHT, be positive for them, it’s negative to the group. And they don`t know better because the adults in their lives either don’t know better, or lie to them. Also: Save for later… Joblessness is a problem here.***
“Companies can afford it.”
A better way to phrase this would be to say something like: ”Over time, employment still increases.” Because SOME companies obviously cannot afford it. Some go under. And maybe those were already teetering and maybe they’ll be replaced by better companies. But an increased minimum wage works against even that by increasing startup costs. ”Over time, employment still increases.” is perhaps accurate, but fails to ask what would have happened had you not increased the price. Increasing the price of something will not cause someone to buy more of it. They may HAVE to buy more, because of increased demand, over time, but they will do so more grudgingly, and in the short term, hours will be cut even if jobs are not actually lost. The argument can be made that the job losses are outweighed by the increased wages paid…. But try telling that to the guy out of a job. ***Joblessness and wage levels are at cross purposes, you cannot by definition address one without negatively effecting the other.
”One of the reasons that increases in the minimum wage would not have an impact on unemployment is that in today’s economy an increase in minimum wage would come mostly out of profits.”
For large companies, maybe. For ma and pa? Regardless. Never in the history of ever has a company just sucked up increased costs. Never. If the company cannot cut costs, they will increase prices, if they cannot increase prices they will make the operate-close decision. The only way that they’ll continue to operate is if either they can continue to collect an ROI of sufficient volume, or if the cost of closure is so prohibitive it makes operating a better choice. And we’ve seen demonstrated time and time again, mostly because of competition, companies teeter on single digit percentage profit margins. Roll the dice.
I want to correct myself once and expand on something.
”PPP is also stupid when comparing across borders. It’s meant to be an internal measure over time.”
My characterization of PPP is wrong. I stated that it was meant to be used in the only way it could be useful, but it really wasn’t. PPP is just stupid, it’s almost useful if you use it as an internal measure, over time, but we have better tools for that. It WAS meant how it was used, but because there are so many factors it does not take into account, it’s almost useless.
”I also find these ‘think of the children’ arguments dishonest. You know what is on the rise, and dramatically increases every time there’s a minimum wage hike? Unpaid internships.”
And just you wait, the same people pushing the minimum wage also push for interns to be paid, I can think of huge examples of people who found themselves without even interns after their employers were forced to choose whether to keep them on with pay or show them the door.
Oh good grief — it was a general comment, not a request for a lesson. My husband (who I respect — well, most days at least) also as an economics degree and one of my best friends has a Masters in Economics. They both think the minimum wage hike is a good thing — and neither of them are ideologues. Hence, my comment that you can find well-reasoned opinion papers on both sides of this issue.
Silly, assuming she could project from a position of ignorance and not have someone explain to her why she’s wrong.
One of my economics professors thought so as well. (A professor left of center!) I don`t think that I would characterize his views as ”well reasoned” so much as I would ”crippled by lack of scrutiny”. The words that came out of his mouth were so much at odds with the words printed in the textbook sometimes it blew my mind. I can only assume that his politics (because he wore them proud on his sleeve.) (A left of center professor who projected his politics! It’s like a unicorn, I know.) heavily influenced his economic views.
I’m a conservative, Canadian, gay, pro-life atheist. I’m used to my ideas having hammers thrown at them, and I think that has forced me to critically evaluate what i think and why I think it. I would love to talk to either your husband, or your friend, and ask them why they think the way they do. How they reconcile the obvious and glaring inconsistencies between their theory and how the markets treated real stimulus.
I am not ignorant — most likely, I am better versed than 90% (if not more) of the population on economics. That still doesn’t make me an expert — and I was conceding as such to make my point about there being opinions on both sides. What I have observed is that there are very few economists who are political moderates and this issue illustrates this nicely. Lefty economists favor minimum wage hikes and conservative economists oppose it. Both groups are analyzing it through their own political lens and both groups think they are right.
“Both groups are analyzing it through their own political lens and both groups think they are right.”
What if that isn’t true? What if there are some free thinking people out there that read the data, interpreted it rationally, published their thought process, and it happens to be that the minimum wage has a negative impact on wages. What if there is a right answer, and it happens to fall in line with conservative ideologies? How would you be able to differentiate the difference?
I think that I’m right because having spent more than a decade in the field, I’ve seen the market forced described to me in real time, on both a macro and micro level, and come to the conclusion that the minimum wage does very little, if any, good, and will have some kind of negative impact on joblessness. That impact is directly proportionate to the size of the increase, so small increases might have such a small impact as to be unnoticeable. But the increase from 7.25 to 15.00 is 107%., which is, I think, the single largest proportional (and raw value) increase ever. People, young people, black people especially, will lose their jobs.
But you don’t have to believe me. You don’t even have to believe history. We can spend the next ten years watching California sewer itself.
I suppose many people would describe me as socially liberal and fiscally conservative. I came to my fiscally conservative position in much the same way you describe: I considered the theory and data, interpreted it, and it happened to fall in line with conservative ideology. Thus far, my review of the “new minimum wage research” has not produced anything that would convince me that minimum wages are a good thing. The research seems dependent on dubious control groups, official unemployment rates, and otherwise questionable methodology.
Jack,
I have an MS in Econ and the notion that significant abrupt hikes in the minimum wage will be advantageous to the economy is ludicrous. You correctly pointed out that the real wage ( purchasing power) has fallen relative to the 1967 minimum wage and should be increased. If we use the CPI to adjust the current minimum wage to 1967 real purchasing power we would arrive at about $10.25/ hr. Another thing to consider is that in 1967, the level of federal transfer payments to the “working poor” were no where near the level they are today. There were no universal access taxes to support providing free telephones to those that meet federal guidelines. Food stamps were once purchased at a substantial discount by the poor and could be used to purchase only the raw materials to prepare meals such as meat, cheese, vegetables, milk, flour, sugar etc. Today, recipients can purchase overpriced energy drinks, candy and higher priced prepackaged meals with your government provided debit card at no cost to the recipient.
Also, what is lost in the argument is what happens to those who were employed at the margin when they earned $15/hr? All of a sudden, a lesser skilled group will be earning the same rate of pay as a relatively the more productive workers. Should they be relegated to the same pay rate? How do you think they will perform when the lower paid minimum wage workers earn as much as the assistant manager or manager of the fast food franchise. There will soon be a demand for by the higher wage individuals for pay increases to maintain the wage differential. This is why unions support raising the minimum wage; it helps drive up union worker’s pay demands. Is Governor Brown willing to sign legislation that increases the wages of all state workers so they can maintain their wage differential over those earning the minimum? If not he has effectively cut the pay of all state employees in California because they will bear the burden of increased prices of goods and services.
When you add in the growing level of costs associated with increased regulation, higher levels of litigation and the ridiculously inflated punitive damage awards it s no wonder that wage growth has been stagnant for the last decade and median incomes declining over the last six years. Wage growth can only be sustained with commensurate increases in marginal productivity.
This all results in what is termed cost push inflation which stifles growth, and ultimately reduces the purchasing power of all workers whose wages do not rise commensurately. Even if all wages rose to protect purchasing power of all it would be a wash.
Is Governor Brown telling those receiving public assistance that they may lose their benefits when their new wage increase makes them lose eligibility or is he going to increase the family income guidelines for assistance and have to raise taxes to support helping the needy to afford higher prices for food, housing and other real necessities? The most unethical thing that he is doing is creating a false sense of wellbeing among those who have the least understanding of basic economics. Giving them a raise, so he looks good, that ultimately results in the working poor being less well off over time is nothing short of unconscionable. If he wants to help the working poor he needs to help them achieve greater productive capacity.
I think the weird, hurried, frantic push to increase the minimum wage way beyond what it was intended to be and do is being driven by the public employees unions. A large minimum wage will turbo-charge the increases public employees union negotiators will be able to shake down from, er, demand from local and state governments going forward. In the unions minds, it will also likely generate a ground swell of enthusiasm for unions among non-unionized workers.
I think the unions have been orchestrating this for at least the last five years or so, ever since the McDonald’s “protests” of a few years ago. (I’m always suspicious whenever impromptu demonstrations involve the use of professionally designed and printed placards.) Restoring the unions to their rightful place in the pantheon is one of the main Obama administration objectives. Right there next to calming the seas.
It’s the union involvement that his pushing these politicians to make such obviously silly statements. It’s as if Jerry Brown is simply pushing a button on a cash register and opening up the cash drawer and helping himself to some more public employees campaign contributions, which have been drained out of the taxpayers’ pockets. He does not care in the least that he sounds like Governor Moonbeam. Again.
Gov. Jerry Brown is an unethical partisan hack pandering to the blind ignorance of the masses.
I live in a small bedroom community relatively close to a medium size city. Our little town has 9 “fast food’ish” kind of places and one very nice coffee shop in town and all these places hire lots of local people to fill their staff, none of these places existed here when I moved to town in 1986. I can tell you with very reliable confidence that if the minimum wage went up to $15/hr in our community that most of those places will be forced to drastically raise prices just to stay open, close their doors permanently, or cut their staff down to the point where they can still provide service but it will be really slow due to the lack of manpower.
The smaller communities will be the worst hit by these drastic increases. The customer volume in small towns is simply not there to support these higher minimum wages; for instance, the customer traffic for a McDonald’s in a small community like ours might be somewhere between 40%-50% of the traffic in a metropolitan area 15 miles away and yet the costs to have the doors open can be relatively the same. People that promote and support these higher minimum wages have a severe case of tunnel vision, they want to treat small businesses across the entire United States like they are in the financial district of New York City, they don’t give a damn if thousands of people across the United Stated cannot find a starter jobs close to home, they don’t give a damn that small businesses will close their doors, they don’t give a damn that people will loose their jobs, they only want to BUY those coveted votes from the ones that will pocket their $15/hr today and yet have to dig deeper in their collective pockets later to cover their increasing cost of living or spend the money at the pump so they can get to their $15/hr job that’s now 15 to 30 miles away because they lost their jobs in the community where they live.
Tell me why should ignorant state house occupants be able to dictate that the minimum wage jobs in Canton, NY be the same as New York, NY or that the minimum wage in Twentynine Palms, CA be the same as San Francisco, CA, or the minimum wage in Eltopia, WA be the same as Seattle, WA, or the minimum wage in Centralia, IL be the same as Chicago, IL or the minimum wage in Wiota, WI be the same as Milwaukee, WI? Now expand that; why should ignorant White House occupants dictate that everyone should pay San Francisco, CA wages? Get the point.
Socialist minded Democrats are literally trying to BUY votes with these drastic minimum wage increases; and you know what, the Democrats will succeed, the ignorant sheeple will follow these economic dolts right over a cliff if they “think” it might put a couple of extra nickles in their pocket even if it’s just temporary and they will vote for it over and over again regardless of the economic consequences.
Gov. Brown sure “did his damn job,” didn’t he?
So now, let’s have those U.S. Senators do their damn jobs, too, and fill that vacancy on the Supreme Court NOW. (I’m being sarcastic.)
I don’t get it?
Was that just supposed to be some kind of completely pointless and useless deflection?
In a moment of pure, unabridged schadenfreude, I came across this story at Breitbart. Because Breitbart is Breitbart, I wanted to confirm it, and while I was confirming it, I came across this.
http://news.berkeley.edu/2010/12/01/minimumwagejobs/
Imagine those author’s surprise then, when this happened today:
http://www.sfgate.com/education/article/UC-Berkeley-to-eliminate-500-staff-jobs-7244049.php
The false dichotomy here is almost palpable. Let’s think like engineers here: What is the problem that we’re actually trying to solve? As far as I can tell, we’re trying to make it more likely that people can get jobs that pay enough to support their families. A minimum wage will hurt that, yes.
If the government decided that ice cream trucks “deserved” to make more money, and so enforced a minimum price they could charge, fewer people would think that having ice cream at a moment’s notice was worth it. Some would even stop being able to afford it. It’s like an electrical circuit; a component (worker) with a tiny resistance (price) will have a very low power output (income) despite having a high current (number of customers). Raising the resistance (price) will raise the power output (income) at the cost of lowering the current (customers). But with too high a resistance (price), the power output (income) starts to drop back down because the current (customers) drops too far. There’s an optimum resistance (price) for maximum power (income) for a given voltage (demand). Bottom line: A rule that says, “If people pay you, they must pay you more,” has the gaping loophole of people just deciding to not pay you in the first place, and it is foolish to think that they won’t exercise that right. You don’t have a right to make people buy what you’re selling (unless you’re the government, but that’s another topic).
The reason people try to confabulate the minimum wage being good is because they seem to think it is the only option, or they think that by definition anything contributing the liberal ideology must be good, and admitting anything about it is wrong would create cognitive dissonance and lose ground. I do agree that one point in favor of minimum wage versus welfare is the job experience provided by actually working, but it doesn’t make up for the minimum wage putting more people out of work in the first place. There are other ways to get people job experience and keep them paid, such as a mandatory minimum per-person income provided by the government. That may turn out not to be the best option. However, the fact that it hasn’t even entered the national conversation, let alone supplanted the minimum wage in it, despite the latter being self-defeating (in theory and practice) and the former not, reflects badly on humanity.
You want to solve poverty? Start off with an intellectual exercise: when talking about the economy, do not mention money. Money is a useful mechanism for keeping the economy efficient, but labeling people and things with numbers leads people to overlook their important qualities. People get money by doing favors for other people. They want money because giving it to other people gets those people to do favors for them. It does that because those other people want to call in favors, too. Money gets people to do favors for others who have never done favors for them, which is very handy. It rewards cooperation and establishes consistency, which generates confidence. Thus it leads to a more productive economy.
However, the concept of money also lets you forget that it’s not “getting money” you want, but “calling in favors”: getting people to give you things and do things for you. It lets you forget that society is a network of interdependent people, that in order for others to want to do you favors, you generally need to do favors for others in turn. You want people to start earning more money? Equip them to do people favors. No matter how much money there is in the economy, people who don’t do very good favors won’t get much of it, unless we either set up institutions to provide them with money anyway (not a bad idea), or twist incentives by fiat to pretend people are more useful than they really are, causing them to be rejected by the system.
What socialists notice that is disturbing, though I doubt they can articulate it, is that even though only a tiny portion of the population needs to work in the “life-sustaining” sector of the economy, the part that helps people survive and stay safe, in some ways that actually makes things harder. The money system means that you can only call in the favors you need to survive if you can convince people to want the favors you can provide. Much of the “life-affirming” sector of the economy (the part that fulfills desires for mental stimulation and comfort) has become parasitic, designed to lead people to desire things that are harmful (e.g. cigarettes) or gratuitous (e.g. mass-produced collectible toys), simply because the people selling those products fear they can’t provide any other favors.
In order for the economy to become healthier and more prosperous as a whole, we need to create institutions that can help people defeat their fear and develop their ability to do favors, by teaching them to apply growth mentality to continue overcoming their limitations. With humans’ current productivity and their even greater potential, there is no reason so many people should be afraid they can’t earn a living.