Minimum Magic

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Extolling the benefits of the minimum wage last night, Kerry seemed to believe that you can create affluence by decree:

If we raise the minimum wage, which I will do over several years, to $7 an hour, 9.2 million women who are trying to raise their families would earn another $3,800 a year….We'd put money into the hands of people who work hard, who obey the rules, who play for the American dream. And if we did that we'd have more consumption ability in America, which is what we need right now in order to kick our economy into gear.

If the minimum wage can work this sort of magic, why not raise it to $100 an hour? Then everyone would be well-off, with plenty of spending cash to stimulate the economy.

NEXT: Social Insecurity

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  1. Perhaps he’s planning on raising welfare and unemployment benefits as well. That way, when these 9.2 imllion women are layed off as a result of the minimum wage hike, they really will have more money to consume.

  2. He’ll do this while at the same time he’ll prevent outsourcing of jobs. This is the sort of thinking that makes India more attractive than Alabama.

  3. Can a republican congress prevent Kerry from doing this if elected? Democrats just don’t seem to get it.

  4. I fully expect Mr. Kerry to begin his presidency by telling the U.S. Mint to begin production of the 1 bazillion dollar bill, which shall be distributed to the masses via the United States Postal Service. That’ll fix it!

  5. In a better world, the New York Times would headline their article on Kerry’s comments with, “Kerry to Increase Minimum Wage: Women and Minorities to be Hit the Hardest”.

  6. Calm down, folks (and that includes you, Senator from Massachusetts). Raising it to $7 won’t exactly change the world. It will put more money in the hands of low-income workers (duh!), might cost a few jobs (duh! again), and will probably be more of a modest plus than a detrimental minus.

    And stop pulling the $20 and $100 an hour crap from your asses. No one says “Why don’t we build a dozen more aircraft carriers?” every time the military asks for more money. At least no one with any credibility.

  7. s.a.m,

    If elected, most of Kerry’s proposals would hit the brick wall of a Republican Congress.

    I think that’s been the argument from Reason writers in the past — split government keeping a check on frivolity.

  8. Here in Santa Cruz CA, the discussion is serious about upping our existing city minimum wage to a “living wage.” As I recall, only one candidate for city council made the “what if we raised it to $100?” argument at a recent debate, although the loud murmur of approval from the audience made me think that some people missed the sarcasm of the reductio ad absurdum. Only one other candidate opined that a higher “living wage” would soon and simply mean more income for landlords, who are already getting top dollar for rentals. Everyone else pledged allegiance to the idea of a “living” minimum wage.

    There is a lot of economic ignorance among the general public, apparently, hence on elected boards and councils, such as ours. That is a very good argument, in my opinion, for not giving such bodies much, if any, power over the economy. The power to set minimum wages is positively frightening, when wielded by a local city council — almost as frightening as the tax and police powers.

  9. kmw-
    Seeing how the republicans act when they have full control does give me the sense that a divided gov’t is best. And yet, politcal gridlock typically results in just as much mud to get slinged during election years! (sigh)

  10. Mr. Merritt,

    I agree with you, but can you really blame the local councils for playing the inflation game the central bank essentially forces all of us to play?

  11. jon:

    You?re wrong, period. Minimum wage hikes, not only lead to lay offs of those who can’t afford it, they increase the price of many of the things everyone buys. Universal increases in labor costs are easily passed on to consumers because all producers have to pay them.

  12. it was a stupid statement, like employers have a reserve fund that will magically fill the gap from 5.15 to 7. Bush’s response was stupid too though, basically stating education will solve the problem of the minimum wage earner…..but those jobs won’t disappear. I doubt education levels would drive minimum wage jobs to a higher wage, they’d still be filled with those who can’t/won’t be educated, those ‘shadow’ workers, teenagers, etc…..

  13. There is a lot of economic ignorance among the general public…

    James-
    My experience with basic economics both in high school and college was a class in a threater-in-the-round setting with 200 people. The prof was the guy way down in the center talking into a microphone. The lights were low, the miked voice and PA system hum was loud, the classes were an hour to an hour and a half, prime conditions for sleeping.

    For me, it wasn’t until statistics and econometrics in grad school before I woke up.

  14. RussD-

    Not only do actors such as local councils and state wage-setting agencies PLAY the inflation game, they ACCELERATE it. So yes, I really can blame them. Here in Santa Cruz, one of the biggest reasons for the high cost of living is the high cost of housing. Some of that will never go away: we live in a naturally attractive area, and things would have to get pretty bad for demand to fall below even a radically increased supply. But much of the upward rent pressure comes from no-growth zoning and planning that constrains the supply of housing and the infrastructure that supports housing (such as water hookups and road improvements, etc.). This situation is entirely a creature of local governments, deliberately so, and is something that local governments can affect, with far greater positive effect on the cost-of-living problem than a politically popular but economically impotent minimum-wage adjustment.

  15. Check out the cato site (www.cato.org)

    Look at the “gop spending” info.

    There is also a conclusion (in one of the articles) that a split gov’t is the best to curtail spending.

    So maybe Kerry with Rep. Congress is the best a fiscal conservative can hope for…

    http://www.cato.org/research/articles/bandow-040420.html

  16. I worked at a Subway back when the minimum wage was increased from $4.25 to $5.15. As soon as that wage change went into effect, the owner of the store increased the prices of the food.

  17. s.a.m.-

    I was probably one of those asleep in the dark in the back. I remember doing mind-numbing spreadsheet calculations BY HAND in the days before computerized spreadsheets. It was only once I got out into the world that economics came alive for me.

    Still, you learn how the world works or you pay the price. Some people, however, seem to go to places like Santa Cruz, instead. Or Egypt, near that river they have there.

    -J

  18. jon:

    Judging by your statement you seem to think it is no big deal that the government can, by decree, create winnners (those who keep their jobs and make a little more) and losers (the now unemployed workers, the increased cost to businesses, and the consumers who pay more for goods) in the labor market.

  19. Too many libs fail to see the big picture. They just say, “poor people need more money, so let’s raise minimum wage. What, thet’s going to get some of them fired? No prob, we’ll create job training and welfare (as if that solves the problem)! They might move some jobs overseas? We’ll just create penalties for companies that do so!”

    This stuff adds real costs to everything we buy and hurts those who need the low paying jobs in the first place.

    But hey, as long as they can sell it to voters, who cares right?

  20. and by “libs” I mean liberals and greens, not libertarians. Sorry.

  21. It never ceases to amaze me how politicians trot out the minimum wage hike as a ploy to win votes from the downtrodden working class. Had any of these folks actually ever run a business, they would know that an across the board 20% raise in wages equals an across the board 20% raise in the cost of production/delivery of ALL goods and services.

    I might now make $7 an hour but the loaf of bread I bought last week for $1 costs $2 this week, necessitating another raise in the minimum wage to uplift the downtrodden working class.

    Before too long, everyone’s a millionaire but a trip to McDonald’s will set you back $500K.

  22. Bobo,

    This is not advocating for a min wage hike, but please take a reality check from your reactionary thinking. The labor cost of your $1 loaf of bread is likely to be $.20 or so. If wages at the bakery go up 20%, your loaf should go up to $1.04.

    Also, politicians pander to those who vote and give money, not the “downtrodden working class.” I’m sure not voting for Kerry, but I trust he supports a wage hike because he believes its just.

  23. No employer today has more minimum wage employees or slightly above minimum wage employees around than needed. There won’t be a rash of layoffs by these employers.

    So, maybe prices go up a bit. Big deal. I don’t shop at Wal-Mart because of the low wages of its employees, but I do shop at Costco. Costco pays its employees well and has low prices (wages are often a small percentage of the cost of running a business).

    And I will pay more for a product that is produced by people with decent wages. Higher prices aren’t always a bad thing. It’s called inflation, and I certainly want an adjustment in my paycheck each year. If everything gets more expensive, why shouldn’t pay? Maybe the government should, when it decides to do away with wage controls, outlaw price increases.

    Now I’m being absurd.

    And Matt: the government sets all sorts of policies that indirectly determine unemployment rates: interest rates/value of the dollar, spending on roads and bridges, the overall size of government, the number of government jobs, the retirement age, and so on. I don’t think that that’s no big deal, but the minimum wage is pretty small potatoes compared to all of those things.

  24. Since Joe’s not here, I’ll have to play the devil’s advocate to some of the hyperbole here.

    Specifically to bobo. Now I heartily agree increases in the minimum wage increase prices of goods and services. But to say that all prices of goods and services would increase proportionally to the minimum wage increase is silly. Labor is only one of many costs for most any business, and minimum wage labor is only a fraction of total labor. Sure, fast food businesses that depend relatively more on minimum wage labor will be effected more, but it still would not nearly be proportional. And so those minimum wage earners fortunate enough to keep their jobs after a hike will likely be better off. You don’t need the hyperbole though to see that that doesn’t justify the hike for those who lose their jobs and to see that the economy as a whole suffers. And besides, it’s probably mostly only teenagers and job market entrants who are directly effected either way, not “poor people” as a general class.

  25. It’s always interesting that almost anyone who is against increasing the minimum wage has never worked for the minimun wage. If you think as bobo would have you believe that an increase to 7 dollars will double the price of goods and servies, you’re fooling yourself.

    Of course, it’s going to affect the bottom line of large companies like McDonald’s (i’m a stockholder BTW) and other large employers that lobby effectively to keep the minimum wage down, but they can raise the price of a Big Mac a few cents, no one is going to stop eating their crap they sell as food, as profits will continue to come in.

    It would nice to think that 100% of the people in this country are going to graduate from college, maybe do some granduate graudate and make 100 grand a year. However, there are always going to be people at the bottom end of the education and economic spectrum who dream of making 10 bucks an hour, a wage, that I bet most of the people who post on this site would be shocked to have to live with.

    We have to give people, even high school dropouts, a decent chance at making a living and supporting their families and the current minimum wage puts people below the poverty line. You can’t expect all these people to work 2 jobs, can you?

  26. I’m sorry, but the reducio just doesn’t make sense. There are plenty of reasonable economists that believe that _modest_ increases in the min wage can have positive effects. Even Steven Landsburg, one of my lib heroes, agrees that there’s too much smoke and not very much fire to the idea that min wage is straight out bad counterproductive Econ 101. It just doesn’t follow that if 100$ min wage is bad, a 6$ one is also bad. I personally am against min wage: the low wage tax credit is a far more equitable way to spread the cost (taking it off of business owners and consumers of just those products) of this form of welfare, in addition to providing better incentives. But modest increases, while certainly no libertarians friend, are also not as monstrous or wrongheaded as we’ve become accustomed to painting them.

  27. I’ve got your misunderstood economics right here:

    “but they can raise the price of a Big Mac a few cents, no one is going to stop eating their crap they sell as food”

    Ugh. Yes they will. Yes some people will stop eating Big Macs if the price goes up relative to everything else. Undoubtedly. To doubt this is to simply spin off into a neverworld where economics is meaningless.

  28. Wow, that’s such an orignal argument! And so fairly and responsibly characterizes the issue, and what the effects of a minimum wage hike could be!

    I guess the $100 minimum wage is the libertoid equivalent of “next thing, they’ll be putting us in camps!”

    What’s next, fart jokes?

  29. There is no doubt that an increase in minimum wage will lead to increase in job loss and I defy anyone to disprove that. And given the fragile nature of employment right now, how can this be viewed as positive, even if those that retain their jobs now have a few extra dollars in their pocket.

    Labor costs affect cash flow, but given the fact most(I would be interested to see some statistics) minimum wage laborers don’t receive benefits ( a substantial part of labor costs, this move will hurt those with the smallest margins i.e. not fast food but the guy who no longer pay the guy cleaning his toliets or mopping floors around the shop.

    And what he will most likely do is hire somebody who is actually willing to work for the actual value of the job. Most minimum wage workers are overpaid anyways.

  30. jon,

    Have you ever taken an economics class? There is a concept known as “the margin.” It’s the boundary between where a decision makes sense and where it doesn’t. Increase the cost of labor, and workers at the margin no longer are profitable for the company to hire. An econ prof or text book can illustrate this to you with various graphs. I suppose you probably just won’t believe me. Do you really think that if the minimum wage was doubled or tripled or increased tenfold that all businesses would keep all those workers? Of course not! How many minimum wage workers get laid off because of a minimum wage hike depends on the amount of the increase and the demand curve for their labor. It may very well be that for relatively modest increases that the group of people effected one way or the other (i.e., those who keep their jobs and make more plus those who lose their jobs as a result of the hike) make more money between them all than they did before. But it sure sucks that some people will lose their job as a result of the government not letting them work for a wage they were ready and willing to work at. That the government chooses winners and losers in other situations where it shouldn’t doesn’t change the inherent unfairness of doing it in this area. And just because you have the power to ask for more money when prices go up doesn’t mean the very people you are trying to help do. After all, if they had that power, they wouldn’t be making minimum wage! Minimum wage hikes also decrease efficiency for the businesses affected and thus for the economy as a whole, meaning less jobs and wealth across the board.

    But sigh, I’m sure you won’t believe me.

  31. jon:

    Wrong again. First, of all labor is often a HUGE percentage of the cost of running a business.

    Second, plenty of employers have labor slack. This slack gets shrunk every time the minimum wage gets raised and once again, people who are supposed to be helped are hurt.

    One situation I did not consider was the plight of the small business owner. Many small businesses rely heavily on minimum wage employees and can be forced out of business when competing with larger companies that can absorb the costs.

    The bottom line is, why not let individuals negotiate their own labor rate and let companies compete for labor. You?d be surprised how many companies would pay extra to keep good, reliable low level employees.

  32. “It’s always interesting that almost anyone who is against increasing the minimum wage has never worked for the minimun wage.”

    Got any evidence to back that up? I, for one, have indeed worked at minimum wage, so there — phhhthttt!!!

  33. The minimum wage may be a bad idea, but the argument that if you raise it to $7 you may as well raise it to $100 is ludicrious, and not to be taken seriously.

  34. Now that I think about, I am overpaid too. So I pledge to give back some money from every paycheck to help those with no marketable skills attain a living wage, oh wait! That’s right I do that already.

    It takes skillz to pay the billz!!!!!!!!

  35. plunge,

    “It just doesn’t follow that if 100$ min wage is bad, a 6$ one is also bad.”

    Well y’know, the lower you set the minimum wage, the less effect it has one way OR the other. And as I’ve stated already myself, it’s possible (and often likely) that a modest mw increase will increase the wages paid the entire effected group. But to mean that the hike was “good” still requires some questionable assumptions. Such that it’s ever okay to forcibly prevent people from doing what they would prefer to do if allowed to, i.e., work for less than the minimum wage. Another is that it’s okay for the government to be forcibly choosing winners and losers, including when the losers are plum out of work altogether. Another is that the benefit for those lucky enough not to lose their jobs as a direct result of the increase is worth the damage done not only to those who lose their jobs as a direct result of the hike but also those who lose their jobs or simply don’t make as much or pay more as a result of the decreased efficiency throughout the entire economy.

    Now, maybe some people will honestly look at all these downsides and still say the increase is good. But most who support mw increases are like jon who doesn’t seem to understand why a huge increase would be disastrous.

  36. “That the government chooses winners and losers in other situations where it shouldn’t doesn’t change the inherent unfairness of doing it in this area.”

    That was exactly the point I was getting at fyodor. Nicely done.

  37. What would happen to the economy if we were to REDUCE the minimum wage by a dollar (or two)? Would lots of good things happen?

  38. Curtis:

    Yes. Some prices would fall, unemployment (despite at a crappy wage) would decrease, small businesses could compete more effectively, thereby increasing the flexibility of investment and lowering barriers to entry, thereby lowering prices further.

  39. The economic research on minimum wage is not as conclusive as proponents or opponents would prefer. By the way, what Landsburg said was, “The minimum wage is nothing but a huge off-the-books tax paid by a small group of people, with all the proceeds paid out as the equivalent of welfare to a different small group of people. If a tax-and-spend program that arbitrary were spelled out explicitly, voters would recoil. How unfortunate that when it is disguised as a minimum wage, not even our Republican president can manage to muster a principled objection.”

    As to Mr. Merritt’s fear, in most state, cities are political subdivisions having only those powers given to them by the states. To my knowledge, very few American municipalities have enacted wage or price controls… probably because very few are given this power.

    I am never comfortable with the power to tax, however, I share the Jeffersonian perspective that such power should be vested in government, local and limited. I feel the same way about police. If one is unhappy with a local chief of police, one has a much better chance of resolving an issue than if one is unhappy with the head of the a federal law enforcement agency. In my experience, the federal and state agencies engage in far more mischief (particularly in economic policy) than local governments… thought admittedly not for a lack of ambition.

  40. I have some very liberal friends who supported Nader in 2000 but expressed great dismay at his support for a big minimum wage hike because they knew all their bookstore owner friends would have their mellows seriously harshed by such a proposal being realized. Mugged by reality….

  41. “Now, maybe some people will honestly look at all these downsides and still say the increase is good…”

    When I was a kid, somebody gave me a copy of “Free to Choose”. If I remember correctly, Friedman calls the minimum wage the single most racist policy of the federal government in that book. The racist element of the minimum wage is still the most overlooked aspect of the argument against it. To me, the minimum wage became something of a litmus test for civil rights activists…

    …but that was when I was young and assumed that everyone understood everything I did.

  42. Curtis,

    Actually, such a small and insignificant (mostly teenagers, workplace entrants and temporary workers) portion of the workforce makes only minimum wage now that lowering probably wouldn’t make a very noticeable difference one way or another. That said, yes, the small effect it would have would likely be more to the good.

    Oh, and thanks, matt!! 🙂

  43. One thing that always gets missed with a National Minimum wage is that the cost of living varies widely across our nation. $7 an hour in San Francisco doesn’t get much – but in Klamath Falls, Oregon you can do very nicely (the problem ends up being the employers in Klamath Falls who have to pay a wage way above what the market would support).

    By-the-way, in Oregon we already have the second highest min wage and we also have the second highest unemployment rate – go figure?

  44. One thing that always gets missed with a National Minimum wage is that the cost of living varies widely across our nation. $7 an hour in San Francisco doesn’t get much – but in Klamath Falls, Oregon you can do very nicely (the problem ends up being the employers in Klamath Falls who have to pay a wage way above what the market would support).

    By-the-way, in Oregon we already have the second highest min wage and we also have the second highest unemployment rate – go figure?

  45. Jose, CA is one of those states that allows municipalities to set their wages.

    I actually prefer state/municipal minimum wages over a national minimum wage. What is a “decent” minimum wage in CA is relatively princely in AL or MS. Also, the jobs would at worst move over a city, county or state border, rather than overseas. If you’re going to have a minimum wage, it’s better, IMHO, to at least have it determined at the level where there is the most accountability and the greatest visibility into what is appropriate for the area.

  46. Patriot,

    Would the lower prices you are claiming would happen as a result of a lowering of the minimum wage be followed by a decrease in the money supply, more goods, a combination, or something else? A decrease in the money supply (deflation) would hurt debtors, which I would wager is a large majority of the U.S. population. If that is true, I don’t see how it would be politically viable.

    My intent is not to be critical, but to learn something.

  47. Ken Shultz,

    Calling the minimum wage a racist policy begs the perennial question of what constitutes a racist policy. Such a charge only makes sense when both a very broad definition of racism is assumed and the view of the effects of the policy is shared. Personally, unless there’s any reliable evidence that minimum wage proponents are intentionally out to screw minorities, which I strongly doubt, I would say calling the policy racist is rather out of bounds and besides the point, even if it does end up harming many minorities. Simply pointing out that it harms many of those it is ostensibly designed to help would likely cover the same substantive ground as the charge of racism without the dubious baggage it inherently carries.

  48. A minimum wage increase affects the wages of more than just those currently making minimum wage. Many union contracts have salary formulas keyed off the minimum wage. If the minimum wage increase, EVERY union salary level increases too. Those costs can be huge.

  49. Some comment matching:

    Luisa:
    “Also, politicians pander to those who vote and give money, not the “downtrodden working class.” I’m sure not voting for Kerry, but I trust he supports a wage hike because he believes its just.”

    Swamp Justice:
    “Many union contracts have salary formulas keyed off the minimum wage.”

  50. Another important factor in a minimum wage increase is that the actual increase in compensation is larger than the wage increase, even without a number of fringe benefits. In addition to basic wages, there are payroll taxes, unemployment, disability, etc.–the hidden taxes and employment costs. Each of these increases as well as the actual wage. So, any increase in the minimum wage is actually a larger burden on employers than it seems.

    Hidden taxes are evil. They are a plot to obscure the actual tax burden on labor. If you think that you’re only paying a 15% rate, you’re more likely to support government programs and tax increases than if you knew that your actual rate was 25%.

    Hah! Kerry won’t be able to get shit passed by a Republican congress. Divided government can be better.

  51. Shawn:

    This is a ceteris peribus model. Assuming the money supply remains the same, prices would go down as the price of labor decreases. This would obviously vary significantly and by industry, but it would affect the economy as a whole.

    The larger point is that it would reduce the barriers to entry for many industries. Let?s say you want to build furniture. You have some excellent designs and raise a small amount of capital. In order to compete with the larger manufacturers who have automated the process (and rightfully so), you will have to hire cheap labor to construct the product. If the cost of labor is held artificially high, you may not be able to gain the economies of scale required to compete. You cannot set your price at the market rate. Now it is true that some economies of scale will always exist; however, minimum wage is an artificial mandate set by the government that can be easily avoided.

    By allowing more entrants, economic rent enjoyed by current manufacturers can be sqeezed. Thus lowering the price for all of us.

  52. This is a very minor and overdue raise in the minumum wage. It’s affect on employment will probally be nil. A study a few years ago showed no loss to employment from a small minimum wage hike. It is a much better way to help the poorest than taxation and redistribution. It is also a regional issue. High wage areas like NY actually increase employment from the minumum wage hike, as they are not as uncompetitive anymore against anti-union low cost states in the south.

  53. fyodor,

    Go look at the Bureau of Labor Statistics. I haven’t looked at the statistics in a while, but, I’ll bet that in most any MSA you look at, the unemployment rate for black urban youth is twice that of white urban youth in the same MSA.

    We’re not talking about a huge difference in ability here; when I stopped working at Wendy’s, I was replaced by a kid with Down Syndrome. If the minimum wage makes it so employers can’t discriminate using wage level, by golly, they will use and are using race.

    There are those in the civil rights community, Maxine Waters is one example, who, I would assume, knowing this, continue to agitate for a rise in the minimum wage regardless. If you’re political power is derived from urban blacks who feel like they’ve been discriminated against, what better way to shore up your support than to implement a law that facilitates discrimination against urban blacks?

    Of course, if, as is the case with the minimum wage, it looks like you’re helping rather than hurting your constituents the whole time, few will ever be the wiser. In fact, you can call anyone who opposes you in the community an Uncle Tom, and if someone outside the community opposes your minimum wage hike, you can call him or her a racist.

  54. When minimum wage was $3.25, I was washing dishes in a restaurant owned by, and I can’t help but mention this at least two or threee times, a couple Democrats from Chicago. I was paid $2.75 and got no tips. It builds character – see what a great guy I am now. Kept me in school too – not going to college or a trade school could have meant a lifetime of that sort of work. I remember one time a drunk, er I mean customer, at the bar saying loudly, “minimum wage should be ten bucks an hour”. The bar tender/owner/Democrat didn’t seem interested at all in getting into THAT conversation.

    And I’ve hated Democrats ever since:)

    end life story

  55. JDM,

    Not to mention that when the minimum wage is increased, the unemployment rate for blue collar workers goes up, making union membership all that more important.

    It’s no wonder that the chief advocates for minimum wage increases are Unions and certain civil rights advocates.

  56. Whole industries are moving to China where the minimum wage is $5.15 PER DAY.(or less)
    So you cant win the ‘keep the minimum wage low’ to protect jobs arguement. Those jobs are going/have allready gone. Remember the current president has lost more jobs than any other. period. Not that he has anything much to do with it. But cutting the taxes for the top 5% and saying this will create jobs sort of gives you no wriggle room

    Increasing the minimum wage is pure income distribution which is the same as cutting tax rates. Once you have a minimum wage at all, its a bit cynical to say we are not going to raise it. Plus minimum wage people have a vote, promising them youll raise it is a way of making sure they ecercise that vote.

  57. swami: citation?

    – a former minimum-wage earner (for several years, in fact) who is against the minimum wage

  58. Ken Schultz

    That’s one very plausible theory explaining why black politicians support the minimum wage. But, as Thomas Sowell has said, just because a theory is plausible doesn’t make it true. And while it’s perfectly plausible, it’s not as parsiminous as the competing theory that they simply think the minimum wage helps their constituency. Maybe it seems crystal clear to you that it doesn’t, but if there’s anything I’ve learned in my 46 years, it’s that perfectly intelligent people can disagree vehemently on what’s crystal clear.

    ztev,

    Like jon further up this thread, you need to go to economics class and learn about the concept of “the margin.” Why haven’t those minimum wage jobs all gone to China already, hmm? Because there’s costs to moving those jobs there that counteract the savings. It may not be worth shifting jobs to China if you save X amount of money because of the costs you incur; but if you save X plus an additional 36% of X (the percentage difference between $5.15 and $7.00), then maybe it IS worth it!

  59. Increasing the minimum wage is pure income distribution which is the same as cutting tax rates.

    There are so many things wrong with that sentence, I don’t know where to start.

  60. “Whole industries are moving to China where the minimum wage is $5.15 PER DAY.(or less)
    So you cant win the ‘keep the minimum wage low’ to protect jobs arguement.”

    There’s more to it than that. If I can pay a janitor 5.00 an hour to clean my floors, or I can buy a robot to do it for the equivalent cost of paying someone 5.50, I’m going to buy the robot when minimum wage goes to 5.51 an hour. Or if the value to me of having clean floors is less than the equivalent of 5.40 an hour, I’m going to fire the janitor when minimum wage hits 5.41, and never buy a robot. Either way, any minimum wage increase costs jobs on the margin. Everyone worth between the value of the old minimum wage to the value of the new minumum wage gets fired.

  61. “Maybe it seems crystal clear to you that it doesn’t, but if there’s anything I’ve learned in my 46 years, it’s that perfectly intelligent people can disagree vehemently on what’s crystal clear.”

    Agreed! That’s why I wrote farther above:

    “To me, the minimum wage became something of a litmus test for civil rights activists…but that was when I was young and assumed that everyone understood everything I did.

    It’s frightening how quickly I can fall back into that rut.

  62. Ztev,

    I partially agree. Having a minimum wage of $5.15 a day (or better yet, having no minimum wage at all) would make us more competitive against China and other countries.

    But! Even though the current minimum wage in the US is ridiculously high, there are are reasons for factories to stay here – more educated workforce, lower cost of shipping, better infrastructure, less likelihood of the factory getting nationalized, less chance of cultural disconnect, da da da. Any employer who wants to increase production is weighing these factors right now, and there are situations where at $5.15, outsourcing is not a slamdunk, but at $7 it is.

  63. I am no economic genius, but I did have the advantage of taking Intro to Micro from a department chair who taught from an Austrian perspective. So:

    To say The minimum wage should be $1.00 per hour is equivalent to saying It is illegal to hire anyone whose productivity is worth less than $1.00 an hour, without paying them more than they are worth. Paying staff more than they are worth is not the route for success for a firm. So that kid who might get hired for $0.75 an hour to sweep floors, carry bags to customers’ cars and deliver orders to shut-ins, until he learns enough to get a raise, never gets his foot on the bottom of the wage ladder.

    If the legislature raises the minimum to $1.10 an hour, since the value of the dollar is not fixed, inflation, whether as a deliberate policy of the Fed or through incompetence in trying to restrain it, will eventually erode the purchasing power of that buck-ten to the equivalent of the earlier buck. Meanwhile, the ripples of the wage “increase” from escalator clauses in union contracts and price increases of products in labor-intensive industries will raise nominal expenses of employers, on average. If the sector they are operating in lacks pricing power, the extra expense will come out of the bottom line, with attendant ill effects for investors and owners, who will either reduce spending on expanding the business, or take a smaller profit, or both. Some time x after the “wage increase” a new equilibrium is struck, thanks to the Fed’s magical Inflato. 50 years ago you might have pulled off the Keynesian trick of fooling the consumer into thinking he was better off, resulting in a boost in demand, but nearly a century of inflation has clued people into that game. Better to ditch the minimum wage, and concentrate on matching the increase in the money supply to actual economic growth and purchasing power parity.

    Kevin
    (IANAE)

  64. In a world where you can start working for Walmart at $7-8 an hour, raising the minimum wage to $7 probably won’t have huge effects.

    Of course, it’s effects will be disproportionate. Most hurt will be the illegal immigrants and other people without the skills (like English) to work at a place like Walmart. It will also tend to hurt the urban poor, who live in “progressive” cities where companies like Walmart are banned, so most employment is low efficiency (hence low pay) mom and pop operations or union jobs that are impossible to get.

  65. Andrew,

    I’ve worked for minimum wage, and I oppose raising it.

    Given the prevalence of crony capitalism and corporate welfare, minimum wage increases are very low on my list of things to worry about. But in principle, yes, I am opposed.

    I would agree with those who say labor is exploited under the present system. But the solution to that is to end the forms of government intervention in the market that reduce the bargaining power of labor. For starters, I’d repeal Taft-Hartley. It makes a lot more sense to eliminate the legal framework that makes the labor market a buyer’s market rather than a seller’s market. If jobs were competing for workers, instead of the other way around, the minimum wage would be redundant.

  66. ztev, just curious. If the number employed in January, 2001, is

    137,790,000

    and the number employed in September, 2004, is

    139,480,00

    what backs the claim that jobs were lost?

    Numbers from Bureau of Labor Statistics, which has constructed their website in such a manner that it is not possible to post links to queries.

  67. I worked for min wage, and less than min wage before I joined the Marines.

    I am opposed to a minimum wage for all the reasons noted above.

    Ztev,
    the best way in my opinion to ensure a pay rise of employess is to not tax the buisness. It would also be the best way to ensure that the company not go overseas.

  68. Kevin C.:

    I’ll see you a Taft-Hartley, and raise you a Wagner Act.

    Kevin

  69. Wouldn’t raising the minimum wage force companies that currently use people to do low-skill repetitive jobs to automate the function, or else to change their systems to be more efficient? There would be a temporary blip in costs rising for the capital outlay but long term the economy would benefit from those gains in efficiency.

    As for those laid off it could be considered a blessed relief. As someone who worked for minimum wage for a while and faced bankruptcy as a result, the stress of trying to pay bills was far greater than the perceived stress of ‘travelling’ or sleeping on friend’s floors. Being laid off and bankrupted would have been an incentive to do better and I’d have had the time and opportunity to do it. Working two difficult and energy-sapping jobs back to back meant I was stuck where I was, with no opportunities. Of course having kids might change that balance.

    Needless to say I support raising minimum wage. I do however feel that the gap between minimum wage and state benefit should be significant and act as a powerful incentive to go back to work. This is from a Brit too.

  70. A while ago, Tyler Cowen over at Marginal Revolution was looking at this issue: http://www.marginalrevolution.com/marginalrevolution/2004/07/minimum_wage.html

    Bottom line from his perspective, there’s still no free lunch, but the cost is not necessarily absorbed as job loss.

    Certainly one option for an employer is to consolidate jobs so that one person simply has to do more work, creating marginally fewer jobs. The employer can also ‘turn down the A/C’, which could also be reflected as a reduction in benefits. In a market where all of the competition would be equally affected by a minimum wage increase (i.e. labor costs are roughly the same percent of total costs across the competitive spectrum), you may be looking at a simple price hike. What if, though, all of those businesses are already operating on thin margins? Innovation, and specifically innovation to reduce labor costs, is the only way to recover from a government mandated price per head.

    In any of these possibilities, the only one in which the laborer ‘wins’ is where price is increased, but not enough to reduce demand. This is a very narrow range of cases.

    The $100 / hour minimum wage needs to be hammered home, because it prevents snake oil salesmen from telling everyone that they are getting something for nothing.

  71. Andy:

    Not all job functions can be automated. And most certainly can?t be at a reasonable cost. Ask Subway what it would cost to have robots putting together your sandwich. My guess is the minimum wage would have to be raised to some where around $40 per hour before this became a viable option. And at that point they would simply close up shop.

    And despite your assertion that being laid off is an ?opportunity?, the government shouldn?t be making that choice for you. Suppose you had kids and you lost those two minimum wage jobs because your employer went out of business due to the minimum wage increase. Would you still view that as an opportunity? I?m glad you made the effort to improve your skills; however, many don?t have this luxury.

    Finally, how could the government create a significant distance between minimum wage and welfare? The minimum wage is an attempt to create a ?living wage.? If welfare were significantly below this, how could it support anyone?

  72. Has John Kerry ever run a business, met a payroll, ever had to figure out a company balance sheet?

    Just asking.

  73. See the attached discussion for of the latest economic research on the issue, small increases in the minimum wage, if the wage is at a low level as it can be argued it is now, do not cost jobs. Increases to high levels will cost jobs. David Card of Princeton study of the minumum wage showed this and challenged the simple model shown in microeconomic textbooks.

  74. See the attached discussion for of the latest economic research on the issue, small increases in the minimum wage, if the wage is at a low level as it can be argued it is now, do not cost jobs. Increases to high levels will cost jobs. David Card of Princeton study of the minumum wage showed this and challenged the simple model shown in microeconomic textbooks.

    http://resurgence.home.att.net/41More.htm

  75. The study is pretty much debunked in the link you provide.

    I will concede that raising the minimum wage from 2 cents to 6 cents will not make much difference because no one is making that little. However, plenty of people make $5.15 and raising the minimum wage from this level will have a more significant effect.

    I’m not saying the world win end, prices will go through the roof, or all of our jobs will be shipped overseas. I’m simply saying let individuals negotiate their own salaries with their employers and let companies compete for labor in the market.

  76. swami:

    See Tyler Cowen’s comments in my previous post. Actual loss of jobs may not occur, but forcing each worker to do more work to earn the higher wage may, as may decreasing benefits. No free lunch.

  77. “…the best way in my opinion to ensure a pay rise of employess is to not tax the buisness.”

    Thanks, Kwais! I needed a good laugh today.

  78. Xboy, what’s so funny about that? Sounds like a great idea to me. And while we’re at it, cut my taxes, too, and I might even be able to afford a made once a month or so…

  79. Xboy, pray tell what is your solution. I think the minimum wage as a way to improve the lives of those who would earn it has effectively been debunked on this page. If a basic understanding of economics didn’t do it for you.

  80. Ah, the mating call of the knee-jerk libertarian:
    “Lower taxes will solve everything!”
    Seriously — you ought to stop gabbing about theories you’ve cribbed from Friedman, Hayek, Rand, or whomever, and look at some actual events in the real world.
    Did the raise in the minimum wage in the 1990s result in mass layoffs and increased inflation? No.
    Have George Bush’s endless tax cuts resulted in more jobs for Americans? No.
    And the last thing an employer will do with a tax cut is pass it along to his employees, Lowdog’s fantasies about maids notwithstanding.
    My solution, Kwais, is a modest raise in the minimum wage. Why? Because it’ll work, that’s why, and if your theories tell you different there’s something wrong with your theories.
    And just for the record, I, too, have worked for minimum wage, and it sucked.

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