Minimum Wage, Heeyah!

Economist Steven Landsburg says concerns about minimum wages (at realistic rates, anyway) costing jobs are mostly overblown… but they're still a bad idea.

Comments

[BigPhil]

Around here, the buzzword in "Living Wage". It is usually means paying a wage sufficient for the worker to raise a family on, typically $10 - $12 per hour is mentioned. Talk about raising the minimum wage. The scary thing is, this may be catching on.

Welcome to the People's Republic of Ohio.

[zorel]

joe & fyodor,

you can use the "Back" button of the browser to return to the Main page, or wherever you came from. There is also a "Main" link at top ceter that will take to you to the main page.

[Jose Ortega y Gasset]

Landsburg is an economist worth reading and will not neatly fit into any political category. He is "old school," attempting to analyze economic issues without worrying about whose ox, donkey or elephant is gored.

I agree that explicit subsidies are preferable to implicit subsidies. Writing a check requires the government to say, "We are giving amount x to person y for reason z." Implicit policies like minimum wages or income tax laws generally create far more mischief. To use an example, let's say a man's boat sit 10 feet below the dock. A subsidy check is a ladder down to the boat. A tax policy or minimum wage is raising the water level ten feet.

By the way, kudos to Sarah. "Love and kisses" stand like gentle flowers in this dry field of pontification.

[NoStar]

If minimum wage increases don't cause job losses then let's raise it to $50 an hour and we'll all live like kings.

If you read carefully, what the article says is that those who do lose employment don't matter. This is not just cavalier, but in that it is minorities who lose, it is racist.

[Smarter and more compasionate]

You horse and buggy republicans make me laugh. First of all, price controls are smarter than the brute market. Ever wonder what the world would look like without say rent control? Welcome to 19th century slavery.

Second, all capital is stolen from the workers and original owners (ever hear of Native Americans?). So it is only being fair to give a little back to the real owners (the workers).

[fyodor]

Thanks zorel; the "Main" link has reappeared since joe & I made our comments.

Kevin Carson, you are one crazy sunofabitch. Suffice to say I find Russ D's comment a lot more comprehensible and tenable. If anything, government benefits increase labor costs. Assuming, that is, that the benefits are available to those making nothing. If you got benefits only when you had a job, then the charge of subsidization might make some sense.

[Kevin Carson]

fyodor,

Is that good or bad?

[Jason Ligon]

I've always found it odd that in these discussions, the elasticity of the 'living wage' requirements of each laborer are never discussed.

We are asked to presume that we can all agree on what a 'dignified' wage is. A guy with 10 kids and two divorces has more needs. A guy living in Alabama (Alabama Man! Not all men from Alabama are wife beaters ...) has fewer wage needs.

No one has any problem saying that businesses will absorb costs or pass them on through inflation, but I can't help but notice that if people really couldn't function with some jobs existing at $5.00 an hour, you would see labor prices go up due to labor hold outs. People are, it seems, more flexible than some believe.

[JD]

The most bizarre statement in the article, to me, is this one: "The minimum wage kills very few jobs, and the jobs it kills were lousy jobs anyway." Yeah, well, no kidding; being a trial lawyer or CEO rarely pays minimum wage. But this seems like a weird form of third-person sour grapes: "Ah, he didn't really want that job anyway." Isn't it the lousiest jobs that are often taken by the people who really need them most? How many minimum-wage workers have significant financial cushions?

One thing I'd like to see addressed which I never have, so far: to what degree do minimum wage increases cause upward pressure on wages all through the scale? For example, if you had employees start at minimum wage, and after six months you gave them a $0.5/hr raise, a similar increase in the minimum wage would wipe out the differential between your first-tier and second-tier workers and possibly force you to increase wages all up the scale.

[fyodor]

"to what degree do minimum wage increases cause upward pressure on wages all through the scale?

My econ prof in college made that very point, claiming that unions backed minimum wage laws even when none of their members made minimum wage because said laws increase the value of higher priced labor by making minimum wage labor relatively less attractive.

Kevin: Well, both, but I was mainly saying, alas, that I didn't think you were making much sense....

[mike]

see also Roger Garrison's comments at http://www.mises.org/blog/archives/002234.asp#more

[matt]

Landsburg says the "right" reason to oppose the minimum wage is because it transfers income to unskilled workers. That might be true. I don't know for sure.

The "right" reason to oppose the government mandated wage is because the government has no right to dictate what the mutually agreed upon price of employment between business owners and workers will be in the first place.

[joe]

"If minimum wage increases don't cause job losses then let's raise it to $50 an hour and we'll all live like kings."

Not every phenomenon's effects manifest themselves on a smooth slope. For example, there is virtually no difference between the lungs of someone who smokes 1 cigarette every two days, and someone who doesn't smoke at all. That is to say, someone who smokes half a butt per day is not doing 1/20 the damage of a half pack a day smoker, but is doing "no" damage at all. The $50 minimum wage argument, as an attempt to undermine the $7 minimum wage has far less going for it than meets the eye.

[joe]

"My econ prof in college made that very point, claiming that unions backed minimum wage laws even when none of their members made minimum wage because said laws increase the value of higher priced labor by making minimum wage labor relatively less attractive."

Sounds like a lot of econ professors, in that he believes human beings' motivations are as described in econ text books.

[neil young fan]

Alabama Man, hmm. If I may paraphrase, "you got the rest of the union to help you along". Sounds like EITC is the way to go, then.
...
Alabama, you got the weight on your shoulders
That's breaking your back.
Your Cadillac has got a wheel in the ditch
And a wheel on the track

Oh Alabama.
Can I see you and shake your hand.
Make friends down in Alabama.
I'm from a new land
I come to you and see all this ruin
What are you doing Alabama?
You got the rest of the union to help you along
What's going wrong?

[NoStar]

Joe,
You say that the $50 an hour argument has less going for it than meets the eye, but you ignored the second half of my post.

The marginal worker who will lose his job may not be significant to you especially because he is probably a member of a minority. The fact remains that if a minimum wage is set above the market rate for entry level wages, jobs will be lost, and new jobs will not be created at that level. That a few minority workers are hurt is just the price to be paid for the good of the rest of us. Your humanist argument conveniently ignores the humanity of the marginal worker who lost his job. But then we all know those shifty (fill in the blank with the slur of your choice) don't really want to work, anyway.

[Jose Ortega y Gasset]

Capital is "stolen" from the workers? Is someone channeling the ghost of Karl Marx? If so, it must be the passionate (and wrong) pre-'48 Marx rather than the grumpy (and wrong) older Marx. In my experience, debating with Marxists devolves into arguing how many angels can dance of the head of pin. It seems more efficient to mention Smith's observations about the pin and move on.

Joe, I believe Landsburg said (and I paraphrase roughly), "People respond to incentives. The rest is just commentary." My commentary (and one I suspect Landsburg would share) is that a minimum wage is broad, inefficient tool of economic and social policy with any number of problems. The research, however, does not suggest that job loss (at modest levels) is not one of them.

If society deems it appropriate to give some people money, I prefer that the government simply write them a check. The process should not be humiliating or demeaning... it should be efficient. To create a Kafkaesque bureaucracy to deter potential welfare recipients strikes me a terribly inefficient (and rather contrary to the spirit of creating a "dole" in the first place.) Personally, the minimum wage strikes me as a terribly inefficent economic policy.

[Jose Ortega y Gasset]

Correction: My sentence on job loss has one too many negatives. The research seems to indicate job loss is not a problem.

[Julian Sanchez]

Insinuating that your opponents are racists is a sign of desperation.

[joe]

Of course, my real goal is to hurt black people. Boy, I sure do hate black people who don't make a lot of money. Sometimes I stay up all night trying to think up complicated ways to hurt black people, that will appear at first blush to be liberal programs that benefit the poor.

This minimum wage thing has been a godsend. Now if you'll excuse me, I have to go beat the snot out of a Catholic judge.

Asshat.

[White & Liberal & Fan of Joe]

You GOP dolts are getting pathetic. So now you go and play the Race card? Sure, some economic textbook might say that mininum wages hure minorities. But who cares? it is still compasionate. You will never know how good it makes us feel.

[matt]

Here's the real issue: Are there multiple trolls on this thread or is it just one guy with nothing better to do?

[Jason Ligon]

joe:

Something else we have in common. I was accused of racism in almost exactly the same way from the other side on Brad DeLong's board. It was just as stupid then.

[Gadfly]

How many minimum wage workers could be hired for the average major corporation CEO's annual compensation ($13 million)?

Answer: 1,180.

I believe in market forces but this is way out of whack. Manipulation at the top requires manipulation at the bottom.

[Jason Ligon]

Meant to say, "... just as stupid here."

[NoStar]

Julian,
I think that ignoring the fact that minimum wage laws hurt minority workers is racist. I was only trying to make people aware of yet another one of those damned laws of unintended consequences.

Or has Reason become a PC haven where you can't call a spade a spade. Oh shit, I mean a shovel a shovel.

NoStar

[Andrew D. Todd]

Economics is not a science. It is as much as anything a form of moral philosophy, and you can analyze economic arguments in terms of the author's definition of Virtue, The Good, etc.

For example, should middle-class teenagers be encouraged to work at places like McDonald s? If you think they should be, then you jigger the economic system to make it worth their while. A related question is whether middle-class teenagers should be encouraged to own and drive automobiles. The job pays for the car, and the car provides the incentive for the job. This is basically what a minimum wage is set up to do.

Again, as applied to the poor, you have to decide whether you want to make them work for the sake of making them work. If you want to do so without humiliating them, you use EITC, or something like it. If you want to humiliate them, you use workfare.

If you decide that you don't want to make the poor work for the sake of working, then you go with a negative income tax, or a "national dividend," modeled on the Alaska Dividend.

I think Landsburg's unspoken value is the idea that if middle-class teenagers have enough time on their hands to have jobs, their school coursework could be accelerated a bit. See Hedrick Smith's _Rethinking America_ (1995) for a fuller and more consciously philosophical exposition of this viewpoint. Smith talks about "mid-kids," meaning kids who aren't going to college, and compares the American, German, and Japanese systems. For example, in Germany, they set up high-level industrial apprenticeships in the larger companies.

[fyodor]

And insinuating that your opponent is desparate is a sign of racism? 🙂 No, accusing someone of racism is not a sign of desperation per se, but unless you can back it up by demonstrating in your opponent's views actual bigotry or a philosophy of racial superiority, it's just plain silly. And stupid.

And Joe, your understanding of human nature is superior to that described in econ textbooks because...? Or is actual debate beneath your inherently superior POV?? Of course you may be right that arguing against a higher minimum wage is a political loser, but let's see you make that coward's argument when the tables are turned, like when the Republicans are thumping their chests over their avowed hawkish courage!

[Gilbert Martin]

"The "right" reason to oppose the government mandated wage is because the government has no right to dictate what the mutually agreed upon price of employment between business owners and workers will be in the first place."

Exactly so.

[joe]

Trying to define the lower-wages side of the argument as the pro-minority side is completely bogus. Poverty correlates with race in this country. If harm was done to very low income workers through the minimum wage, it would undoubtedly accrue disproportionately to racial minorities. Similarly, the good that is unquestionably done to OTHER very low income workers does accrue disporportionately to racial minorities. I could easily come up with a number of minorities whose wage went up because of the last hike, and then claim that people against the hike were motivated by racism. But that would be a flaming asshole thing to do, requiring at least 2 leaps of logic and a willingness to be a prick that I don't have.

[Julian Sanchez]

Rejecting an attempt to tar someone as a racist is now considered a sign that one is "PC"? Now I've seen everything...

[Dan H.]

If raising the minimum wage has no effect on unemployment, there could be several reasons which are not discussed in the article:

1. The minimum wage may already be lower than the 'defacto' minimum wage. If the defacto minimum wage is $6, then raising the legal minimum from $5 to $6 will have no effect on unemployment. It will also do no good. It would be an irrelevancy. Now clearly, many people do make minimum wage. But is it as many as say, 20 years ago when the data clearly showed job losses?

2. Jobs may be lost, but re-created elsewhere. This could be especially true because minimum-wage earners are often teens or young adults living at home. What do you do when you lose your job at Burger King? Well, maybe you go back to school, and you don't show up on the unemployment lists. Or perhaps your parents kick you out and now you're forced to get another job.

3. The demand for labor is inelastic. Someone already discussed this - if the prevailing minimum wage is industry-wide, then raising the minimum wage will just cause the industry to raise prices and keep the people employed. The problem with this conclusion is that it needs a lot more analysis. For instance, the competition for food is not just between fast-food places, but between fast food itself and other dining options. Raise the wage too much, and Whoppers will price themselves out of the market. Then the industry declines, but it's hard to see the causal relationship between the decline and the minimum wage because some time may pass in the interim.

There are other insidious effects of minimum wages. One is that certain jobs never get created in the first place. If there is demand to have people walk around and pick up trash off boulevards for $4/hr, then that trash is just going to stay there. Another is that minimum wages make the economy more brittle in downturns. If the economy slides, people in higher paying jobs can take pay cuts and keep their jobs. If there were no minimum wage laws, a downturn in the fast food industry could be compensated for by reducing wages. If you can't reduce wages, the consequences of a downturn are much more severe because the companies lose cost flexibility. So instead of pay cuts, you get layoffs.

[NoStar]

Julian,
Regardless of the intentions of the government or the backers of such laws, the effects of minimum wage laws that surpass market rates for entry level jobs is to hurt minorities more than other groups.

(In the back of my mind is an Ayn Rand article where she has liberals whining "But, that's not what we meant to happen.")

What is Politically Correct is to divine a person's motives to measure racism. Since one person can never know for sure another's motives, I prefer to use the outcome of one's actions or the outcome of the policies they advocate as the determinant.

You act as if I threw out the term racist like liberals use the word fascist, (i.e. anyone who disagrees with me.) The outcome of minimum wage laws is systematically detrimental to minorities and in my mind that is as good as any definition of racism.

NoStar

[Julian Sanchez]

NoStar-
As I recall, you suggested that Joe probably didn't care about the jobs cost by minimum wage laws because the min. wage worker was likely a member of a minority group. That sounds like imputing a motive, not measuring an objective effect.

Dan-
One other possibility sometimes advanced is that actual low skilled labor markets are characterized by pervasive monopsony. Under those conditions, standard economic logic shows that minimum wages can have the opposite of the usual effect, actually boosting employment:
http://www.tutor2u.net/economics/content/topics/poverty/minwage_monopsony.htm

I find the notion that most such markets are typically monopsonystic more than a little implausible, but it might describe "company town" type scenarios where there's one huge employer in an isolated area.

[NoStar]

Julian,
Imputing Joe's motives was not my intention.
My intention was to use sarcasm as a means to show that the effects of a policy of minimum wage laws could work to justify a racist's wrongheaded view of a minority's work ethic.

NoStar

[Gadfly]

The whole minimum wage argument is bullshit. If it were only the $8.00 an hour there's no problem hiring people.

As an entrepreneur, if I hire people I take on not only the wage but the payroll taxes, the health insurance, the bean counters to keep me out of dutch with the government and a lawyer to cover my ass. Not to mention the foreman to look after the unskilled folks. Another $2 an hour means little.

Hiring people is expensive. I work alone.

[Jennifer]

This whole thread reminds me of a cynical article I read in a sociology book back in college. The gist of it was that society will never completely eradicate poverty because poverty is too useful to society as a whole. There are certain jobs that most people will not want to do because they are too boring, too icky or too dangerous. If you need to fill such a job, there are two possibilities:
1. Pay a high enough wage that people would be more inclined to take it (I personally would be glad to scrub toilets all day, if I were paid $200.00 an hour); or
2. Find someone so desperately poor that they can't afford to be choosy.

The idea that desperately poor people can blithely choose not to work for a low wage ignores the fact that the desperately poor don't have nearly as many choices as the better-off. I fail to see how society will improve if it becomes even more dog-eat-dog than it is now. I'm also idealistic enough to think that if someone has to spend the majority of his waking hours working at a particular job, that should be enough to live decently on, as opposed to the way things are now, when working full-time at minimum wage won't even get a person a decent apartment, let alone enough left over to eat and perhaps enjoy the occasional fun luxury.

[NoStar]

Damn! Gadfly,
It's a wonder anyone anywhere has ever been hired by another.

Your last sentence belies your first two paragraphs.

NoStar

[Lisa Simpson]

Is "monopsonystic" a spelling-bee word or an SAT word? That's a new one to me. For sure, not a Scrabble word... 🙂

I feel left out with all the TMBG refs. Alls I knows o' dem is the Malcolm theme song, and the incredibly annoying "Ana Ng" (thank God it's not 1989 anymore).

[Jennifer]

The spelling is "monopsonistic," and refers to a market with only one buyer.

[Dickie]

Sure, why not raise the minimum wage? Let's make it a real living wage, say, $50 an hour minimum. Or $100. Hell, let's make everybody rich: $1,000,000 an hour! Any business that couldn't afford to do it now could just raise prices to cover the new wage levels. Even if the resulting inflation just ate up the gains at least we'd all be millionaires. That would make everybody happy, right?

[Jason Sonenshein]

Say what you will about Steven Landsburg, but I think he was great in "Barney Miller." 🙂

[Jason Ligon]

I've been over at de Long's place for a few days on this issue. They are all aflutter about the first part of the analysis, but take this to mean "AHA! There is no down side!"

Tyler Cowen Comments here: http://www.marginalrevolution.com/marginalrevolution/2004/07/minimum_wage.html

de Long here:
http://www.j-bradford-delong.net/movable_type/2004_archives/001170.html

[joe]

On the downside: the author complains that the public good - getting more money into the pockets of very poor workers - is being borne by a small segment of the population (employers who pay their workers minimum wage), when it should be borne by society at large. This is comparable to the "regulatory takings" argument - that the benefits achieved by maintaining a property's ecological value should be borne by society at large (via a payment to the owner), rather than imposed on that owner by reducing his property's development potential w/o compensation.

So the obvious conclusion is a taxpayer funded income support program for low-earners, maybe an expansion of the EITC. Didn't a libertarian economist once recommend such a thing under the title "negative income tax?"

[joe]

Once you post a comment, there is no button to return you to the H&R Main Page. Or am I missing something?

[s.m. koppelman]

Seems to me he says they're a bad idea because they raise wages solely at the expense of wage-paying employers rather than as a tax shouldered by everyone "equally".

I see minimum-wage hikes as a crude corrective for the rollback of collective bargaining and union rights. As companies push the share of revenue put toward rank-and-file employee compensation down (and profit margins and executive and owner compensation up), the minimum wage is a scattershot way to cut the ranks of people who are fully employed but still earning below subsistence level.

His argument against is not exactly a libertarian (or conservative) one. I'm not quite sure how to categorize it. Collectivist? His solution, increasing and broadening the EITC instead, is also a good idea but it doesn't solve the same problem. Lowest-wage workers already pay very little in the way of income taxes.

And I don't buy the idea that burdening empolyers of minimum-wage labor with the brunt of an increased minimum wage is somehow wrong. For every low-margin corner bodega that employs a couple of people at the minimum wage, there are many more people working for large companies that get their competitive advantage through large-scale use of low-wage labor. Their workers often continue to be eligible for food stamps, Section 8 housing vouchers and other entitlements programs to keep them from starving or ending up homeless, all while fully employed. Raising the minimum wage in this scenario effectively reduces a subsidy to these businesses that comes in the form of entitlements paid to their workers as wage support.

[Julian Sanchez]

Joe:
Yep; that was Milton Friedman. And if it were a replacement for the current welfare apparatus, rather than an add-on, I suppose I'd consider it an improvement as well.

[fyodor]

"Didn't a libertarian economist once recommend such a thing under the title "negative income tax?""

I don't know the history of the subject, but I'd say that such a "negative tax" or credit would be preferable to the arbitary nature of minimum wages and bureaucracy-addled welfare systems for the same reason that taxing pollution makes more sense than arbitrary "acceptable" levels. The key is to get the one to replace the other instead of merely accompanying it.

About returning the Main H&R page, I could do that when I posted previously, but not on this thread, so maybe it's a glitch.

[fyodor]

koppelman does the same thing Landsburg does, dismissing the extremely dire effects of minimum wages on some by shifting the focus. That the plight of the working poor should be borne by those employing them is somehow buttressed by the existence of government benefits for the working poor is of course an extreme stretch of logic, but unfortunately a quite trendy one at the moment. To suggest that government benefits for the working poor constitute a "subsidy" for the businesses that employ them only makes sense if those businesses would not be able to hire those same people at the same wages without those benefits, which strikes me as extremely dubious.

[MJ]

"...society will never completely eradicate poverty because poverty is too useful to society as a whole."-Jennifer

I'm not sure I agree entirely with that, but another we won't eliminate poverty is that it is a rather elastic term. What we consider impoverished today would have been considered comfortable a generation or two ago.

"The idea that desperately poor people can blithely choose not to work for a low wage ignores the fact that the desperately poor don't have nearly as many choices as the better-off."-Jennifer

That a wealthy person has resources to fall back on that a poor person does not is a truism, but it also ignores that fact that neither wealth nor poverty is necessarily a permanent condition. A poor person who develops a skill other people will value will not remain poor. A wealthy person who shuns all methods of generating income as being beneath him will not remain wealthy.

The value of work is what people are willing to pay for it. No one is going to pay you $200/hr for scrubbing toilets, no matter what your willingness to do it at that price is. It simply is not a job that is worth that much, since it is relatively unskilled work that almost anyone can do. While you may not, other people are willing to perform that task for less money, why do you seek to deny them the right to work for a wage they consider good enough, instead of your notion of what is "decent"?

[John Hood]

I'd offer a dissent to the view, originally Milton Friedman?s, that a negative income tax is preferable to other means of assisting the poor, if one gives in to the notion that government should do that.

It probably is better than raising the minimum wage but it is worse than a cash-assistance system, I?ve come to believe. If people are going to be on welfare, it should be obvious that they are on the dole. They should know it. Others should know it. They should have to come into a government office and sign up for it, live within its rules (work requirements, etc.). The likely result is a somewhat lower rate of recipiency, and certainly lower long-term recipiency. The administrative costs are worth it to taxpayers, actually, if I?m right about the deterrence effect.

The EITC allows people to think they are getting a tax refund instead of a government handout (there's a bit of complexity regarding payroll taxes, but even if you include them some are getting a net pay-out). It is also subject to significant fraud.

The negative income tax was well-intended but ended up, in mutated form, expanding the welfare state further.

[Jeff Smith]

I am going to be a bit of a dissenter on this
one, as I do not buy the "new consensus" on the
effects of minimum wages, at least beyond the
short term. Most minimum wage studies, such
as the famous Card/Krueger study difference-in-
differences study, essentially look for changes
in employment that occur immediately after the
change in the minimum wage. I am fine with the
conclusions that such changes are small, but it
is not clear to me that that is where we should
be looking.

I think we should be looking at longer term
substitution of capital for labor. Think about
the old days at a fast food restaurant. Who
filled your drink? It was the employee, not
you. Now it is you. Putting the soft drink
machine facing the customer instead of the
employees cuts one position on every shift.
It is cheap because the syrup used to make the
soft drinks is approximately free, so most
places just offer "free refills". That
substitution of capital (and, in this case,
customer labor) for employee labor is an effect
of high wage levels for low-skill workers,
whether brought about by minimum wages or
tight labor markets more generally or some
combination of the two. The switch, farther
back, to self-serve gas stations is similar in
spirit.

The existing research does not focus on effects
like these and so misses the medium and long
term effects of changes in low-skill wage levels.

As to the other comments, the fellow worried
about union rights needs to learn some economics;
he has been reading too many union publications.

The person who asked what sort of suggestion
Landsberg is making - it is a suggestion out of
the normative literature on public finance.
You can show that you get the right level of
provision when everyone pays for things, and
the wrong level when the costs are concentrated
on small groups.

Jeff

[Sarah]

If we're not going to raise minimum wage, I'd like to see the burden on the working poor alleviated with some kind of government wage-matching program. That way, there would still be an incentive to get and keep the best job available, but perhaps then many more people would be able to enjoy such frivolous luxuries as going home when sick (without the accompanying worry of not being able to buy groceries because of lost hours).
And that takes the burden off the private enterprises and puts it right on the government, so that should make everyone happy.

Love and kisses,
Sarah

[Russ D]

To suggest that government benefits for the working poor constitute a "subsidy" for the businesses that employ them only makes sense if those businesses would not be able to hire those same people at the same wages without those benefits, which strikes me as extremely dubious.

You could also argue that government benefits reduce the labor pool, thus raising wages. If low-wage jobs are going to the lowest bidder, the wage will still be higher if there are only 5 bidders instead of 10.

[fyodor]

John Hood,

If you don't want to help people through taxed monies, I respect that position. But to weed people out based on their ability versus inability to withstand humiliation and deal with beaucracy strikes me as a poor way to determine need. I'm against right-wing micro-management as much as I'm against left-wing micromangement. I say if they need it, they get it, psychological deterrents be damned. And if the net result was to "expand" government, either that's because more people needed the assistance than was determined previously or becuase the terms of the assistance are now too broad. We can make that determination, but how people "think" about their assistance is no concern of mine, nor should it be of yours. Of course, your desire to attach strings in a way I say is inapprpriate for government activity does help illustrate one of the inevitable drawbacks to all assistance through involuntary means (i.e., taxation).

[KipEsquire]

From the Wall Street Journal recently:

[Santa Fe, New Mexico] last year earned the dubious distinction of passing perhaps the most stringent "living wage" ordinance in the country. It demands that businesses pay a minimum of $8.50 an hour, increasing to $10.50 by 2008. (The federal minimum wage is $5.15.) Unlike "living wage" rules in about 100 other cities, Santa Fe's goes beyond public contracts and applies to any private business with more than 25 employees.

...

The laws of economics suggest that the consequences will not be what this law's proponents expect. Companies with 30 or 35 employees will lay off staff to get below 25. Others will let go of their least-skilled workers and demand more from those who remain. More than a few will leave town, or refuse to expand. The Santa Fe Chamber of Commerce says it's already heard of eight businesses canceling plans to move to, or expand in, the city.

I was an economics T.A. at Cornell for four years. Nothing ever stirred more "there is no Santa Claus?" looks of despair among the budding young Ivy League liberals than a simple supply-demand graph showing how the minimum wage (i.e., a price floor) creates a surplus (i.e., unemployment). Somehow, though, most of them manage to repress those traumatic memories as they grow older.

[Mo]

BTW, great TMBG reference in the post title.

[LibertarianLeft]

YOu have a right to high wages. It is the libertarian way. Vote Kerry. Down with Bush.

[Andy]

Society consists of a group of people who work together because it's in the common interest. If you pay people so little that they no longer believe socity works for them then they will step outside the rules of that society and find other ways to put a roof over their heads. In other words, minimum wage prevents [some] people from becoming criminals.

If it's not worth paying someone to fill a cup then by all means release that person back into the labour market where society can make better use of his abilities. Instead of filling the cup he can be making machines that do it automatically.

[Andy]

I'd argue that even the most illiterate long term unemployed has massive potential value for their society. It's just a question of tapping that potential. Wasting it on low wages and pointless jobs when a machine could do it faster is just inefficient use of the human resource.

[Kevin Carson]

s.m. koppelman,

If you take your argument a step further, it would seem to be a better idea to roll back the legislation that reduces the bargaining strength of labor in the first place, rather than use a new form of government intervention (the minimum wage) to counteract the first intervention.

The state capitalists actually come out ahead by reducing the bargaining power of labor overall, and then subsidizing only the very lowest-paid jobs to prevent absolute destitution. The broad state policies that hinder the bargaining power of labor result in lower income for most producers, including the middle class and skilled workers. Still, they can manage to get by even on their reduced wages. But outright destitution at the bottom of the social ladder could be politically destabilizing. So it makes sense to cap real wages for the majority of people, while spending just enough on a "social safety net" to keep the underclass from getting really dangerous.

I'd prefer to repeal Taft-Hartley, along with a whole body of legislation that makes capital artificially scarce and expensive, and therefore inaccessible to the working population.

fyodor,

"To suggest that government benefits for the working poor constitute a "subsidy" for the businesses that employ them only makes sense if those businesses would not be able to hire those same people at the same wages without those benefits, which strikes me as extremely dubious."

If the minimum sustainable wage rate in the long run is the reproduction cost of labor-power, then it stands to reason that subsidizing subsistence costs of laborers will reduce that minimum rate.

KipEsquire,

As a former economics TA, you must know that demand curves vary in slope depending on the elasticity of demand. The rule that "increased price of labor results in reduced demand" is true, as far as it goes. But it should be qualified by "all other things being equal."

And since the minimum wage is imposed by legislation and applies to an entire industry (fast food) with pretty much the same wage structure, it has the same effect as a wage-setting cartel. The result is that fast-food and other labor-intensive service industries are able, across the board, to pass their increased labor costs on to the consumer without the wage increases entering into price competition between firms. So ultimately any decrease in employment will depend on the elasticity of demand of fast-food consumers. And since labor cost is only one component of price, and since the portion of the population that consumes fast food is much larger than the portion that works flipping burger, the effect probably will be minimal.

[JD]

Jennifer - "...working full-time at minimum wage won't even get a person a decent apartment, let alone enough left over to eat..."

It all depends on where you live.
Full time at minimum wage:
$5.15/hr * 40 hrs/wk * 50 wks/yr = $10300

(not counting taxes or anything)

When I lived in Phoenix, I had a nice studio in a very nice complex in a good part of town, for $400 a month. I would be willing to bet that if you were willing to split a place, and live in not such a nice part of town, you could get it down to half that.
$200/mo * 12 mo/yr = $2400

So yeah, I think you can afford an apartment. Phoenix isn't even the cheapest place in the US to live, after all. I am by no means saying you'll be living the life of Riley, but you'll be living. A "decent" apartment? Well, that all depends on what your definition of "decent" is. Now we're edging into the whole "living wage" morass. People like the "Coalition on Human Needs" point out that you can't feed and house a family of three on the minimum wage, but I'd have to ask what the hell you're doing trying to feed three on a single minimum-wage job anyway.

[jc]

People like the "Coalition on Human Needs" point out that you can't feed and house a family of three on the minimum wage

Which is probably why this should be taught in FIRST GRADE fer crissakes! Some people think that economics is too much for little kids, which is part of the problem.

[joe]

That's for the stroll down memory lane, fyodor. Quite the prick today, eh? It's rather a stupid tactic to assume ignorance merely because of disagreement, since it usually comes back to bite you in the ass. Like so:

I'm aware of the concept of utility, thanks. I'm also aware that economists recognize that the non-profit maximizing element of utility is outside their field of study. Good economists take this as a sput towards a humane humility; bad ones, and their libertoid groupies, toss it aside as not relevant to economic questions, merely because they can't meausure it.

If I "seem to be ignorant about economics," it's because you are so determined to be among the latter.

And the issue here is not microeconomics, whether it makes sense for a certain business to hire a certain worker at a certain wage, but macroeconomics, the impact on the economy as a whole of a universal increase in the lowest wage that can be paid. If I were paying bills for people who educated me, yours would be returned unopened.

And yes, I'd call the old libertarian notion that people who choose poverty wages over starvation are, in any meaningful sense, free to choose about as stupid as a political idea can get. Say a prayer of thanks that you're too ignorant to have learned the truth of this first hand.

[NoStar]

Joe,
In your note to Fyodor, you make it seem like macro-economic policy has no effect at the micro-level. Where did that disconnect come from?

[joe]

I claimed no such thing, No Star. My point was that the question of whether whether the gas station owner will add another clerk at a $6.50 minimum is of only limited usefulness in analyzing the overall impact of a wage hike on the labor market. The gas station owner's decision won't make any difference in the number of people stopping to buy gas, but the minimum wage hike very well could. That's not to say that the question of how much a gas station clerk is worth per hour is irrelevant; just that an analysis of the macro impact requires the consideration of variables that don't come through when you narrow the question as fyodor chose to.

Oh, and are you willing to admit yet that actions that benefit low wage workers are just as likely to go disproportionately to minorities as actions that harm low wage workers? Or are you too ignorant (or RACIST!) to notice that poor black workers could use more money, and benefit when their wages go up?

[NoStar]

Joe,
I cannot see how losing one's job or not being able to find one because of wage controls brings one more wages and benefits.

You seem unwilling to understand that if a $50 an hour minimum will cause many employers to no longer employ entry level workers, a $10 minimum will cause less harm than $50, but it will still cause harm to someone. And usually it is someone that many in our society care nothing about.

[Jennifer]

MJ-
I will agree that for some people poverty is not a permanent condition, but for many it is. If you have to spend nearly all of your working hours just earning enough to survive, how will you have time to learn any new skills? Even more importantly (at least by the warped standards of today's society), how will you have the time and money to go to school long enough to get the piece of paper certifying that you have those skills?

Bear in mind, I'm not saying the wage should be high enough that a person working part-time should live like a king; I'm saying a person working full-time should be able to live. Incidentally, I notice that a new post praising Barbara Ehrenreich has appeared at the top of this blog. Her book "Nickel and Dimed" demonstrates how, once a person is below a certain threshold of wealth, it's all but impossible to rise above it.

[Ludwig]

The distinction between macroeconomics and microeconomics is, as far as terminology is concerned, borrowed from modern physics' distinction between microscopic physics, which deals with systems on an atomic scale, and molar physics, which deals with systems on a scale appreciable to man's gross senses. It implies that ideally the microscopic laws alone are sufficient to cover the whole field of physics, the molar laws being merely a convenient adaptation of them to a special, but frequently occurring problem. Molar law appears as a condensed and bowdlerised version of microscopic law. Thus the evolution that led from macroscopic physics to microscopic physics is seen as a progress from a less satisfactory to a more satisfactory method of dealing with the phenomena of reality.

What the authors who introduced the distinction between macroeconomics and microeconomics into the terminology dealing with economic problems have in mind is precisely the opposite. Their doctrine implies that microeconomics is an unsatisfactory way of studying the problems involved and that the substitution of macroeconomics for microeconomics amounts to the elimination of an unsatisfactory method by the adoption of a more satisfactory method.

The macroeconomist deceives himself if in his reasoning he employs money prices determined on the market by individual buyers and sellers. A consistent macroeconomic approach would have to shun any reference to prices and to money. The market economy is a social system in which individuals are acting. The valuations of individuals as manifested in the market prices determine the course of all production activities. If one wants to oppose to the reality of the market economy the image of a holistic system, one must abstain from any use of prices.

[Ludwig]

In other words, joe, where did this money come from to pay for the increased wages?

[Xmas]

I have to read Nickle and Dimed at some point to see where she went wrong trying to work out from the bottom of the wage scale.

[Evan McElravy]

" The problem with this conclusion is that it needs a lot more analysis. For instance, the competition for food is not just between fast-food places, but between fast food itself and other dining options. Raise the wage too much, and Whoppers will price themselves out of the market."

Is this true? I think at every level in the food service biz, there are plenty of minimum wage workers. Go back in the kitchen at your local Chez Snob and make inquiries, and I suspect you'll find the busboys, dishwashers, et al. are all making $5.15.

"Imputing Joe's motives was not my intention.
My intention was to use sarcasm as a means to show that the effects of a policy of minimum wage laws could work to justify a racist's wrongheaded view of a minority's work ethic."

Being "sarcastic" about racism to win an argument is sort of a cheap, prick thing to do, don't you think? And I certainly don't think it's possible to do without imputing someone's motives: an accusation of racism is an imutation of someone's motives by definition. Maybe you should just keep it in your hat from now on.

[joe]

fyodor, "your understanding of human nature is superior to that described in econ textbooks because...?" ...because it takes into account the fact that there is more than one variable (maximization of profit) that comes into play in human decision making.

[joe]

MJ, what makes you think poor people consider $5.15/hr "good enough?" If you put a gun to my head and give the choice of a bullet or a kick in the groin, I'd choose the kick.

[fyodor]

Joe,

Well then you seem to be essentially ignorant about economics, which is no surprise. In fact, one of the very first principles introduced in my Econ 101 class was that individuals have preferences that are utterly up to them and which the discipline of economics takes as a given. This concept of personal preference was called utility, and the prof went on to refer to "utils" as an abstract measure of what utility individuals expected to gain from any particular choice they made. Sure, profit maximization is assumed to be a nearly universal goal of business, which only makes sense cause why the hell else would you start a business if you weren't out to make money?? Now before you conveniently misconstrue my words, an individual will likely have an essentially infinite number of reasons to start a particular business, but making money is likely to always be one of those reasons or else he would probably start a hobby or something. Therefore, understanding what produces profit maximization is often key to understanding business behavior. And if you don't think so, I'd say you're a fool. But you're also a fool if you think the discipline of economics somehow posits that that's the only motivation any individual ever has. Perhaps there are economists somewhere who lose sight of common sense realities in their ivory tower, but again, it's ridiculous to suggest that such an absurdity is taught in economics textbooks. Not the ones I read, that's for sure. Anyway, as this applies to the topic at hand of the minimum wage, sure there are reasons to hire someone (or not fire them) other than profit maximization, but prof max is going to universally be part of the equation, and so when hiring more employees is good for prof max more employees will be hired and vice versa, regardless of what other motives may be at play for any of the individuals making the hiring/firing choices.

Make sense yet?

Now Joe, please send me your address so I can bill you for this introduction to Economics.

[fyodor]

Joe,

Put another (and more succinct) way, what is taught in "economics textbooks" in the real world, if not in your fantasy world, is that individuals are always maximizing their utility, but OF COURSE there other ways to maximize utility than through increasing money -- hell, otherwise we would never SPEND any of it!! But just as obviously, making more money is a nearly universal desire that becomes a PART of nearly all business transactions. And therefore understanding it is essential to understanding business behavior.

Any disagreement with any of that?

[fyodor]

"MJ, what makes you think poor people consider $5.15/hr "good enough?" If you put a gun to my head and give the choice of a bullet or a kick in the groin, I'd choose the kick."

Joe, in truth, almost everyone considers what they make to be not good enough in the sense that they would like to make more. Now maybe you'll accuse me of insensitivity to in a sense compare a CEO's desire to make more in order to buy a bigger yaught with a minimum wage earner's desire to make more in order to pay off the electricity bill. But the ugly (to you) truth is that we all want more (all other things being equal, and with a few rare exceptions) no matter how much or little we have.

Therefore, when MJ talks about a worker thinking that $5.15 is "good enough," what he or she is referring to is that damn old stupid libertarian notion of the voluntary nature of the transaction, meaning that if someone is WILLING to work for a particular amount, the State shouldn't be telling that person they can't. And even if a Landsburg arbitrarily dismisses the effect of minimum wage laws on employment as "tiny," there are going to be people who would be willing to work for less than the minimum wage who are denied that right because of the law. And so to back that law is to take the decision OUT of the hands of those most affected. Perhaps better than to say that $5.15 is "good enough" is to say that they're willing to work for that, yet those who want the minimum wage higher don't want them to be able to make that decision for themselves.

[NoStar]

Hey Evan,
Ignoring the plight of marginal workers who will find less economic opportunities while reinforcing racial stereotypes about work ethics by increasing minimum wages is what I call a cheap, prick thing to do.

So far, the extent of the concern where it exists is to support more welfare. Well excuse me, but some people don't want to be "fort indians" existing on hand outs.

My own personal experience is that entry level jobs are important. If not for a 9 month min wage job in a taco shop, I wouldn't have been hired for $2 more an hour to work at a hotel front desk. The hotel work lead to a job that pays me three and a half times minumum wage. If the minimum wage had been set above the market rate for my level of inexperience, I never would have gotten that first job.

Sorry you don't like my sarcasm, but the point remains, Joe or anyone else who supports minimum wage laws is supporting a policy that systematically hurts minorities. The policy is racist. Now I can think of only two reasons anyone would support a racist policy: ignorance or racism. Amazing how those two attributes so often go hand in hand, but I will refrain from making a value judgement.

I am keeping nothing in my hat, but you can shove it up where the sun won't shine truth on a racist policy.

NoStar

[fyodor]

brooklyn dave,

No point in calling you names, but who's going to make the decision to do the things you call for? If you're saying that shareholders should make better decisions about the companies they own, well, maybe you should tell them, but then, everyone should always be making better decisions, so what? But if you're saying the government should be involved, the problem (besides the inherent restriction of liberty, a bad thing in and of itself) is that there'll be unintended and undesired real world consequences that will hurt people even if such meddling might make you and some others (temporarily) feel better.

[Dan H.]

In any discussion of minimum wages, it's important to remember that a disproportionate number of minimum wage workers are young people, students, or second income earners. Sure, there are some people scrabbling on minimum wage trying to raise a family, but they are the exception, not the rule. (The other exception being migrant workers who really don't qualify for higher paying jobs, and for whom minimum wage represents a significant increase in their standard of living over the country they came from).

Similarly, when discussing poverty it's important to remember that there is significant income mobility in America. I started out poor, went through minimum wage jobs, up into jobs that paid a living wage, and finally into professional jobs that have given me a standard of living significantly above average. And this is the norm, not an exception.

There is nothing wrong with some people making very low wages, as long as those wages are a stepping stone to something better. And in fact, I'd argue that low paying jobs are essential to giving us the incentive to educate ourselves and become more productive.

And there's the other hidden problem with minimum wages - make them too high, and they act as a disincentive for excelling. For example, when I was in high school, I worked a minimum wage job in a grocery store. I hated it. The work was easy, but the pay sucked. It taught me a valuable lesson - if I wanted to get ahead, I had to figure out a way to go to college or at least learn a trade.

A friend of mine got a union job in a bakery around the same time, making three times minimum wage. It was unskilled labor, but the union got him a great salary. He had no incentive to go to college, and in fact I used to hear from him constantly about how I was going to go off and live like a pauper for four years while he lived the high life, and after I got out he'd still be making more than me.

Well, he lost his bakery job after about five years. Then he was 23 years old, with no skills. Today he works as a laborer.

When you 'protect' the poor by raising the minimum wage too high, you will not only erect a barrier to people entering the job market, but once they are there the high minimum wage will act as a disincentive to becoming more productive.

[kevrob]

Before the "living wage" movement we had the plain, old "minimum wage." The minimum wage was was based on an idea called "the family wage." A factory worker, laborer, shop clerk, whoever, should, by this theory, be paid enough to support his entire family. I'm talking about an old-fashioned family, too, with a Mom and Dad and kids, and possibly Granny living with you, with or without a pension or savings. The family wage was an explicit piece of social engineering aimed at moving women out of the paid workforce and back into their roles of wives and mothers. Does this seem to match any reality you have visited lately? Oh yes, they did have minimums planned for women, too, that were lower than that for men. That would fly.

A century or so ago, when these were still proposals and not laws, those in favor expected to put a stable floor under the lowest wage. After all, if the law said "pay a dollar a day", after 20 workdays you'd have earned an ounce of gold, right? Using today's price for a gold eagle, your gross for 10 1/3 days would bring in the same. If we doubled the minimum wage, does anyone not think that inside of mumble-mumble years the Fed will have pumped the money supply so that it will take roughly...oh... twice the little green FRN's they print up to equal that shiny gold coin?

Without a fixed unit of account, a "minimum wage" is a fraud. I expect that is why interventionists like it as a political issue, as it arises like a phoenix every 4 or 5 years or so, once enough inflation has eroded the buying power of the statutory minimum.

The other objection I have, besides the ones previously mentioned, is the incentive a higher minimum wage is to marginal students. Some kids will drop out of school if they judge the paycheck they can get as attractive enough. A few will overcome the lack of formal education, but many will get stuck in the proverbial dead end. Once they actually start families we are back to the whole "living wage" problem.

Kevin

[MJ]

"...what makes you think poor people consider $5.15/hr "good enough?" - joe

Because, for instance, sometimes you are willing to accept a low wage now in order to concentrate on other priorities. In my own experience, I had a hard time breaking into my profession, everyone told me they could not hire because of lack of experience. Eventually I took a $6/hr (in '93, and in fact the pay was worse than it sounds as I was also technically self-employed and had to pay both sides of FICA out of it)position in order to gain experience and wedge my foot in the door. Within six months, I had a better job and a good understanding of what was expected of me in that job. If the gentleman who offerred to let me work for him had been forced to pay a "living wage" I do not think he would have hired me, and I wouldhave lost on that opportunity. By concentrating soley on wages you ignore the other reasons why a person may take a relatively low paying job. I do not think you, I, the government, or anyone else is in a position to judge another person's decision on what wage they are willing to work for.

[joe]

"I cannot see how losing one's job or not being able to find one because of wage controls brings one more wages and benefits." There's nothing that screams "I'm losing this argument" louder than deliberate obtuseness, NoStar. The benefits accrue to those who do not lose their jobs, and see their wages increase to the new minimum (or to higher than the new minimum, in the case of second tier workers who were earning the old minimum). Whether these benefits outweigh the (alleged) loss of jobs is an open question, but pretending not to get what's weighing on one side of the scale just makes you look stupid.

"In other words, joe, where did this money come from to pay for the increased wages?" Through a more decent allocation of payroll resources, with those at the bottom receiving a larger slice of the pie, and executives and stockholders getting a little yes. No new money, just a better way of dividing the old. The open question is whether the slight decrease in profitability (payroll for people earning low wages is a small and shrinking % of business' costs) is offset sufficiently by the stimulus from increased comsumer spending (the poor spend a higher % of their income on goods and housing than the wealthy).

Good post, kevrob. Though I disagree with one point - those of us who seek to raise the minimum wage occasionally do so as a consequence of inflation, not in order to cause it.

[NoStar]

Well Joe,
Yet again you demonstrate your disregard for those in the lowest castes in our society.

Your argument boils down to this: since more important people will benefit, we can ignore the adverse side effects of increasing the minimum wage on entry level job creation.

Funny, I looked up obtuse and saw your picture, Joe.