Minimum Wage

Give America a Raise?

Since when does Congress have the power to do that?

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President Obama said something especially perplexing when he implored Congress during his State of the Union address to "Give America a raise."

Since when does Congress have the power to do that?

We live in a nominally private-enterprise economy, so it should strike the ear as odd to hear Obama acknowledge that it's not a private-enterprise economy at all, much less a free-enterprise economy. What we have is an economy dominated by an alliance of politicians and well-connected, mostly corporate, interests.

Obama of course was calling on Congress to raise the minimum wage from $7.25 to $10.10 an hour. But the Bureau of Labor Statistics says that only 4.7 percent of hourly workers made the minimum wage or less in 2012, so those 3.6 million people hardly constitute "America."

Can Congress give those workers a raise? No, it can't.

As economists say, "Demand curves slope downward." This means simply that when the price of something rises, the quantity demanded (other things equal) falls. You know this: You are likely to buy fewer oranges or go to the movies less often when the price rises. This doesn't mean no one will continue to buy their usual quantity (and thus give up something else), but many people will curtail their purchases. It's called economizing.

Labor is a service that employers purchase from workers. It follows that if its price rises because of a government decree, employers will buy less. The minimum wage is directed at low-skilled workers. If government sets or raises the minimum, employers have an incentive to use fewer low-skilled workers; employers will substitute machines where possible (have you seen how automated fast-food restaurants are these days?) or switch to higher-skilled workers. The minimum wage, therefore, harms the people most in need. Some lose jobs, and others looking for jobs won't find them. That is not the only consequence. Some workers might retain their jobs but find that some benefits have vanished: there may be less on-the-job training and fewer workplace amenities.

Most people, including advocates of the minimum wage, understand that a rising price generally discourages purchases. People who want to discourage smoking believe that higher cigarette taxes will accomplish that objective. So why is the pricing of unskilled labor an exception? Is ideology interfering with reasoning here?

Apparently even economists can have their good sense clouded by ideology. If someone believes that a $10.10 hourly wage wouldn't throw vulnerable people out of work or otherwise make their situations less desirable — and that, indeed, it would even be good for business — the advocate of the higher minimum ought to explain why the wage hasn't already risen to that level through normal market forces. Why is it stuck at $7.25? Shouldn't competition be expected to raise the wage if a higher wage is economically justified?

This question is even more interesting when you consider that the higher-minimum lobby points to Costco's success in paying its starting workers $11.50 an hour. Why isn't self-interest driving other employers to offer the higher wage? Their alleged stubbornness contradicts the self-interest model of business owners. If Costco palpably helps its bottom line by paying its workers more, every similar employer should be copying that policy.

The standard economic argument against legislating a minimum wage is that no worker who is unable to produce an equivalent amount of value will find a job at that wage. So any wage mandated above the market-set level would harm the very people that the mandate is supposed to help.

We can see the logic of this argument while recognizing that markets, being composed of people (who in fact don't only care about money), never respond infallibly and instantaneously. Moreover, it may be difficult to ascertain what a given worker's contribution is, so it's possible that he or she might be paid less than is economically justified. But none of that supports a government mandate.

The only way to maximize the market's tendency to accurately reward people for their productivity is to remove all government barriers to competition and self-employment. This includes occupational licensing, land-use restrictions, permitting, intellectual property, and more.

Alternatives, not political machinations, are what maximize workers' clout and ensure their just reward.

This column originally appeared on the Future of Freedom Foundation.

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  1. Anything that can give America a raise is just not safe for work.

  2. Damned libertarians, always wanting to help the poor and unskilled.
    Don’t you know, to paraphrase the past, they are supposed to be the compassionate man’s burden?

    1. I hope that was sarcastic. Haven’t been posting here long enough to know.

      1. Assume everyone not named Tony or Palin’s Buttplug are being sarcastic or making a joke 90% of the time.

        Except Warty cause that’s how he lures in his prey.

        1. It pays to invest in a good irony/pomo meter when you start posting on these forums.

          I’m still not convinced that the Sevo handle doesn’t belong to some hot 28-year-old midwife/tantric sex instructor who makes entrepreneurial bank living in Ojai.

  3. Most people, including advocates of the minimum wage, understand that a rising price generally discourages purchases.

    There are those that think wages do not follow the law of demand. Or should not, depending on how you interpret what they assert.

    The biggest problem with these studies that show that minimum wage increases benefit the economy by raising productivity is that these fail to see the difference between causation and correlation, or simply come to the wrong conclusion due to a lack of knowledge of basic economics – and I say this will all seriousness. The results of studies like the ones I am mentioning, especially the one touted by the Center for American Progress, is that they are the equivalent of concluding that people’s average height improves once we murder everybody with a height below five foot-two. Of course you are going to gain productivity if you place a price floor, but only because employers will be much pickier about the type of employee they’ll hire, leaving many others who are less productive in the unemployment ranks.

    1. The same sorts of studies purport to show that French workers are the most productive in the world. Given that it’s uneconomical to hire French workers, I’ll have to conclude that most ‘performance’ metrics are there to hide something. (also given my experience with gaming the same metrics as an employee when it wasn’t a discrete measure of products produced)

      1. “The same sorts of studies purport to show that French workers are the most productive in the world. Given that it’s uneconomical to hire French workers, I’ll have to conclude that most ‘performance’ metrics are there to hide something”

        As I understand it, French factories are among the most automated in the world, specifically because no company hires a worker if they can buy a machine instead.
        So those few workers oversee the productive machines, making them ‘very productive’.

        1. Okay, that makes sense now. Thanks.

        2. Sounds like my wife’s uncle, the GM MAchine Repairman (RIP Uncle Dick). I loved the old bastard, but Jesus Fuck Me he’d raise my hackles with the, “If I’m sitting, that’s good, because the machine’s running…”

          Well, yeah, it’s good the machine’s running, but NO, it’s NOT good you SIT AND DO NOTHING!

          He knew I was a labor relations guy, I know he was a UAW tradesman – we never argued about it, cause why ruin the family get together? Plus he was a really nice guy.

          But that thought process – he’d be SO productive in France…

          1. why ruin the family get together?

            What, your family gets together and you don’t drunkenly rehash pointless political arguments to the point of having to take forty-five minute walks to cool off?

            I bet you all play Scrabble instead.

          2. …”he’d raise my hackles with the, “If I’m sitting, that’s good, because the machine’s running…””

            To be honest, I don’t have any problem with that, but HE should: That running machine is taking the place of X workers.
            That commie Harry Bridges swore none of ‘his’ longshoremen would ever unload a container ship in SF, and SF complied by building a tiny container-handling port. The containers are handled in Oakland.
            And, natch, the unions (or what’s left of them) gripe that there are no jobs.

        3. France’s unemployment rate is at 16 year high at 11.3%. IIRC, they actually tried cutting the average work week so companies would have to hire more people.

          http://www.zerohedge.com/news/…..-year-high

          1. And the companies responded with a great big “Up YOURS” and bought more machines, ’cause “robber barons”!

            1. Then they moved their money and themselves right out of France.

              Who was it, Firestone that was in France and said, “fuck this shit”, and high-tailed right on out.

              1. There was Titan Tires I believe.

                http://www.slideshare.net/slideshow/embed_code/16626974

                Sir, your letter states that you want Titan to start a discussion. How stupid do you think we are?

                1. Well, that pretty much means it’s not an internet hoax.

        4. “The same sorts of studies purport to show that French workers are the most productive in the world”

          Well they are highly skilled at burning cars and rioting.

      2. And France has an average unemployment rate of 9.5% from 1996 to 2013 and peaked at 11.2% during that period.

        1. Pretty sure France’s UER is even more screwed than the US.
          I think the Danes count someone employed if s/he looked for a job.

    2. show that minimum wage increases benefit the economy by raising productivity

      Waitwut? If you pay a worker more, he is going to be more productive? Is that what they are implying? Not even democrats can be that naive.

      1. …”Not even democrats can be that naive.”

        Ha and HA! You bet they can!

  4. Give America a Raise? Since when does Congress have the power to do that?

    they could cut taxes. that would give America a raise.

    1. Is this your teathuglican obstructionist idea of an alternative solution, you racist?

      1. Oooh! Great minds – mine’s just slower…

        1. I lost points for not invoking hitler however, so we tied.

          1. Not involking Hitler makes you worse than Nicole.

    2. CUT TAXES??!!! You reckless anarchist teathuglihadist republitardarian baby killer!!!

      You are LITERALLY worse than Hitler.

      /derp

    3. But, PRX, that would only give a raise to people who ACTUALLY WORK?

      Where are the raises for the unemployed, the retired and those on welfare, you heartless monster?

  5. I am really sick and tired of being creeped out by creepy pictures of Biden and his hair plugs. Can’t we send him to Sochi?

    1. Sometimes you get the bear, sometimes the bear meets you in Sochi.

      I like the idea.

  6. …so those 3.6 million people hardly constitute “America.”

    That’s a lot of voters, though. And a lot of them are the right voters.

    1. And since they’re sending other peoples’ money, it’s a cheap way to buy votes.

  7. It’s difficult to show that raising the minimum wage causes low-skilled workers to be unemployed because it’s unseen. They’re not necessarily fired, they’re just not hired. How can you prove with hard numbers that they weren’t hired because minimum wage priced them out of a job? You can’t. You can only deduce it. Because of this the people who cannot reason, who require hard numbers to be convinced of anything, can never be convinced that minimum wage prices low-skilled workers out of work.

    1. Rumsefeld should riff on the “seen and the unseen” – it could be Part Two in his series of lectures on opposites.

    2. This is true for most government interventions; the ribbon cutting or whatever makes a great photo opportunity, while the downsides are diffuse (job not created, business not started, opportunity not available). That’s how they getcha.

  8. No no, you don’t understand. These people need a higher wage so they can go out and buy more things: that’s what grows an economy.

    I was feeling rather patriotic myself the other day and went on quite the shopping spree. For the children!

    1. “These people need a higher wage so they can go out and buy more things: that’s what grows an economy.”

      That was pretty good, but points are deducted for not throwing in the MULTIPLIER EFFECT!!!!.

  9. I turned on Morning Joke a couple of days ago just in time to catch some ad talking about how awesome and benevolent Zero is, and how we should praise him for his brave generosity because he wants to give other people’s money away.

    It made me want to puke.

  10. “I turned on Morning Joke….It made me want to puke.”

    Thus endeth the lesson.

    1. Note the unthreaded comment – that was for you, PB. This threaded comment is to poke you in the eye.

      PWND

  11. Give America a Raise?Since when does Congress have the power to do that?

    Since “commerce clause”, “general welfare”, “necessary and proper”. But because DO-NOTHING CONGRESS, the President (PBUH) has to use his Special Powers to grant the wages. Cause DO-NOTHING CONGRESS hates ‘murca.

  12. Alternatives, not political machinations, are what maximize workers’ clout and ensure their just reward.

    Yet you will see time and time again a general support among Americans for minimum wage hikes, if one trusts the poll results. The reason for this is because people place a moral value on a wage level rather than seeing it as the result of a trade (labor for money.) I can only hypothezise as to why this is the case: possibly because of the way wages are paid. Since most of us who work for a business or company receive our wages in a semi-monthly basis or weekly basis, we end up expecting the wage rather than seeing it as the result of our mutually-beneficial trade. If I had to send the company I work for a monthly or weekly bill for my services, I would certainly look at my wage in a much different light, expecting it because I traded and delivered my labor for it, not because I feel I deserve it.

    1. Interesting commentary there, and I can attest to its validity. Some years ago I had to shift to part time status from full time, and suddenly started really having to keep track of my billable hours that I put in for pay. Bookkeeping in that manner means one starts at 0, and counts up, rather than at 40 and subtracts off for vacation, sick, etc. Amazing what a different mindset it gives one.

  13. It’s called economizing.

    It’s economizing when we plebes cut back. It’s heartless austerity when government does it, and opportunistic profit-maximizing inhumanity when businesses do it.

    Oh, and even when the plebes cut back it’s not a rational decision but an imposition by greedy corporations and government programs hobbled by spending cuts.

    So sayeth the progressive collective.

  14. This question is even more interesting when you consider that the higher-minimum lobby points to Costco’s success in paying its starting workers $11.50 an hour.

    Of course, CostCo employees are also more productive because its business model is very different than WalMarts. They have a much higher revenue per employee.

    Naturally CostCo’s CEO is for a higher minimum wage. You know, out of the goodness of his heart. The fact that his competition would be hit far harder by a minimum wage hike than his company has nothing to do with it.

  15. Congress gave itself the power over wages long ago. For those who don’t recall, our current health care cost dilemma is directly because of wage freezes during the FDR administration, which I believe were justified under the ICA. Employers couldn’t raise wages or give bonuses, so they started using health insurance and pensions to supplement wages which quickly increased the cost of health care to the point you couldn’t afford it unless you were insured or a government dependent.

  16. It’s called CUTTING TAXES.

    There is only one way Congress can raise American’s take-home pay, and that is by not taking it in the first place.

    1. You’d think this would be obviously self-evident, but somehow the strain of thought by which voters fancy themselves controlling the purse strings completely occludes the fact that they’re paying far more into the system than they’re getting out.

      I had this argument recently with a libertarian-leaning progressive who, despite acknowledging the failures and rampant corporatism at the federal level, insists that cutting income taxes or (God forbid) corporate taxes is tantamount to stealing bread from orphans’ mouths. The conceptual disconnect between the feds are poor shepherds of your money and therefore, leave it in the hands of those who use it best is infuriating.

      1. Every dollar of profit not taken from teh corporations is a subsidy. The only way to stop subsidizing teh corporations is to take all of their profits.

        Likewise every dollar not given to teh poor is theft. Only when teh poor are fully subsidized will the government have stopped taking from them.

        Not taking is giving and not giving is taking.

  17. McDonalds Corporation revenue for 2012 was $27.6 billion. McDonalds labor force is about 1.8 million. This means average McDonalds employee generates about $15,000 in revenue per year. Forget about profits and other operating costs, just on revenue basis alone, anybody who thinks that McDonalds will pay ‘living wage’ or whatever arbitrary number progressives come up, without consequences for its employees is not thinking straight.

    1. You’d have to separate franchise from corporate employees, and domestic from foreign operations. At $15,000 per employee, McDonald’s could not even make its own payroll obligations.

    2. How many aggregate hours worked?

    3. Your mistake is thinking the average minimum wagers will read past that first number (“$27 billion! With a ‘b’!”) before even beginning to contextualize the entire sentence.

      The smarter variety will see the $15k and immediately think that McDonalds can double the salaries of its fry cooks.

    4. This. Of course, anyone with even half a brain knows that McDonald’s was never intended to be a lifelong career that an adult would raise a family on.

      From day one, it was always intended to be a temporary job for teenagers to earn a few bucks for a couple of years while they got an education or prepared for bigger things. The idea that they would pay a so-called “living wage” makes no sense.

      1. It’s supremely ironic, isn’t it? You won’t give “living wages” to employees by forcing employers to pay more than their labor is worth, but you will give them lifelong welfare dependency by obliterating their capacity to find work.

        The party of compassion, everyone.

      2. I don’t know what McDonald’s was “intended” to be, and frankly I’m not sure it matters. If someone’s job is assembling hamburgers or punching a cash register, exactly how much value do you think that adds to the organization?

        Of course, many lefties will immediately come back with a frothing, “Oh yeah? Well, the CEO makes 90 BAZILLION DOLLARS A YEAR, do you think he adds that much value to the organization?” The correct answer to that is “I don’t know or care, since it’s not my money; I guess McDonald’s thinks he does” but what the lefty will latch onto is “I don’t know”, and will extrapolate from that that you don’t and can’t know what the lowest-level employee should make either, completely missing the point that you can pretty safely say that if the company earns $27.6 billion, the CEO’s labor is almost certainly not worth $27.5 billion, and if someone’s labor is limited to punching $5 hamburgers into a cash register all day, their labor is probably not worth $50,000 either.

        BTW, kbolino makes a good point that it’s hard to analyze McDonald’s finances because of the franchising model; most “McDonald’s workers” are not employees of the corporate entity.

        1. And my guess is that most left-wing dipshits have no idea just how much money it costs for someone to buy and start up just one McDonald’s franchise.

      3. And IF you were going to make a career of it, you moved into management. The idea of making a living wage as the cash-register-person-for-life is pretty silly.

        I had the same debate with my fellow grad student instructors back when I was in grad school during the battles over unionizing – they complained that we weren’t making a “living wage,” etc., etc. I (and the University) pointed out that these were inherently temporary positions, only open to students who would soon graduate, and were, by definition, not career positions.

        It didn’t make me many friends. I’m in construction now.

      4. I have a friend who started at McDonalds at $2.05 an hour. He’s never worked anywhere else. He’s a millionaire now.

        1. I do believe they pretty much always promote from within, don’t they?

    5. editorial note:

      change “will pay” to “can pay”. One implies desire, the other indicates objective reality.

  18. This threaded comment is to poke you in the eye.

    I’ll get you for this!

    *massages eye gently*

  19. Naturally CostCo’s CEO is for a higher minimum wage.

    That would be the same CEO who borrowed money to conduct a share buyback program in order that he and his little helpers on the Board of Directors could cash out a bunch of shares before the evul BOOOOSH capital gains rate expired.

    Go ahead, progressives, kiss his feet and tell us how awesome he is.

    1. The cap gains rate doesn’t even really matter. Corporations are levered up, and it ain’t going into CapEx. It’s going into M&A and buybacks and some dividend payments. This is the “new normal”, baby. Guaranteed to end as badly as it has in the past.

      We know that buybacks are contrarian indicators, occurring at the top (and not the bottom) of the market. Why, we ask, are companies leveraging up now and not 12 months ago, when equity prices were much lower? We conclude that (contrary to what we read), US dividend payments are not enjoying a revival relative to cash flows and that buybacks remain the distribution channel of choice for corporates wishing to boost EPS and limit the effects of option dilution. Indeed, some of the biggest US names have issued debt to pay for buybacks (Home Depot, Microsoft, Amgen, Hewlett Packard, McDonalds, DirectTV, to name but a few) but there are also firms in Europe that have been doing the same (Siemens, Telenet, Adecco). In the current economic climate, you may find this surprising ? we do too! A buyback in this form is not a return to shareholders ? it?s called gearing or balance sheet risk and will come to haunt some firms when the economy enters a downswing.

    2. “That would be the same CEO who borrowed money to conduct a share buyback program in order that he and his little helpers on the Board of Directors could cash out a bunch of shares before the evul BOOOOSH capital gains rate expired.”

      Pretty good bet Gore’s sale of his loser TV network was timed for that also.
      For the ‘good of the people’, of course!

  20. Did Joe Biden really make that face while the President was speaking or was it photo shopped?

    If it is real, than that guy really is touched in the head.
    Now would be a good time to abolish the Vice Presidency. The odds of another President dying in office are high and getting higher everyday.
    And if he did, so what? What would be so urgent that we couldn’t wait thirty days and have another election?
    Nothing.

    1. Have you ever actually watched Joe Biden live for more a couple of seconds?

      1. No, my toxicity alarm went off and I had to leave.

    2. You don’t know a born leader when you see one, huh? He’s the second coming of King Charles II of Spain… only he throws more poop.

    3. Every time I see an image, I gotta think that Dunham saw him just before he had Walter made.

  21. After reading all of this, I am convinced that a raise in minimum wage will help create more jobs for middle class people at the expense of the very poor.

    Business owners may find it comparable to automate rather than hire employees. That will create some IT jobs.

    Slightly higher skilled workers will re-enter the workplace, bumping out the current low skilled workers. If a business owner has to hire someone, I think they would rather have someone with a little more skills.

    Most minimum wage workers are not very bright. If they were, they would not be minimum wage workers. At least for very long.

    I do have to think of my poor uncle. He is mentally retarded and holds a minimum wage job assembling parts. This may hurt him. Though I think the company he works for does a lot of charity work, so it might not.

    1. Re: Brain2000,

      After reading all of this, I am convinced that a raise in minimum wage will help create more jobs for middle class people at the expense of the very poor.

      This is the exact same argument used against the idea of paying interns or making companies pay their interns for work performed. This was mentioned in a Stossel show a couple of years ago: if you make companies pay their interns for the work they perform, then the only interns they would accept for work would be those that LEAST want the work experience: those students from the best and most expensive schools, or those that already had previous working experience, leaving the poorer and inexperienced interns on the curb.

      It would be the same thing if you raise the minimum wage, as you said: it would benefit those people that are perceived by the employers to be more productive, e.g. middle-class youngsters, people with a few years-worth of experience on their belt, but not the poor and inexperienced.

  22. Wasn’t the reason for the minimum wage in the US to set wages higher than what employers would pay black people?

    1. Yep. Minimum wage was originally intended to put Negroes out of work. Now it’s intended to give them a raise. Changing intentions magically changes results.

    2. I think that was union wages. But, minimum wage was invented by the unions in order to justify their own high wages.

  23. Economics 101 shows that the wage rate will always equal the marginal product of labor. If the wage is higher the employer can increase profits by firing/laying off people. The loss in their output being less than the reduction in the labor expense. And if the marginal product of labor is higher than the marginal cost of labor they can increase profits by hiring more people, either permanently or temporarily depending if the circumstance is temporary or permanent.

    So government cannot merely wave a magic wand and increase wages. The market left on its own will do everything positive that can be done. Government can only make the system LESS efficient, never more.

    Recent black teen unemployment: 43%. The unemployment rate among minimum wage ‘earners’ (or who would be if they had jobs) is the highest of any segment of the economy. This is a DIRECT result of the minimum wage laws ‘intended’ to help people.

    The real problem is unskilled people in Congress. The real solution is for the American people to wake up and only vote for candidates with an actual education in the area, rather than, say, lawyers.

  24. I have an easy way to give working Americans a raise: eliminate the personal income tax.

    1. lunacy.

      Don’t you know if you increase their pay you increase how much the government can take in taxes?

  25. Remember that the people who believe this change is needed also buy into may union and socialist ideals regarding the power of the worker.

    Worker’s do have power to demand higher wages and if they are justified they will be successful. What’s missed by the “living wage” group is that the point of business isn’t mass employment. People don’t start businesses thinking you know I’d really like to create some jobs. Maybe I can pay them more than they’re worth and provide some expensive benefits just because I should. What could be wrong with that business model.

  26. I imagine also that raising the minimum wage for these folks would just mean they qualify for fewer transfer payments. While that may be good from a taxpayer prospective, it would be canceled by those who lose their jobs. But my point is that for those working at the minimum wage, they won’t suddenly have a @ increase in total income and start spending like crazy and increasing overall demand (multipliers, etc.)

  27. Not exactly relevant but I thought it was funny:

    “Negotiating with Obama is like playing chess with a pigeon. The pigeon knocks over all the pieces, shits on the board and then struts around like it won the game.” ?

    Vladimir Putin-2013

  28. Another way the minimum wage hurts that is not mentioned is it squeezes together wages. If I run, for example, a fast food restaurant, a high turnover rate with regard to employees is expected. If I can start employees off at a lower wage, I can reward my long term employees with a higher wage. However, as the minimum wage rises, what I can afford to pay my long term employees drops, punishing those I would like to reward and making it more difficult to retain good help.

  29. The problem is that in the American private sector thus far this century, real GDP per worker has risen 3.7%/year, while compensation per worker has risen only 1%/year. This situation is unprecedented since the data began in 1929. 1970-2000, compensation kept pace with real GDP. 1945-70, compensation grew 11.5% more than real GDP.

    However, there is no reason to believe that a rise in the minimum wage will address this situation.
    The main role of the minimum wage is to prevent employers $2 to $6/hour more than the minimum wage, from being undercut by firms paying just the minimum wage.

  30. I want my raise!

    Since it has already been established that guns and violence are viable means of giving people wage increases, I demand that they be used to give myself (and I suppose the rest of the people who work as silage haulers) a raise to $150/hr – we’re licensed professionals, and deserve a wage that takes that into account! We have to renew our licenses every 4-to-5 years, maintain a certain level of physical health (required to pass a physical every 2 years), and refrain from using all illegal (and many legal) drugs even when we’re at home or on vacation and nowhere near smelling/hearing range of a truck.

    I WANT MY RAISE, DAMMIT!

    Make it so.

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