Minimum Wage

Are Minimum-Wage Hikers Being Stingy?

They like one-sided research. They don't like that this research paints them as cheap.


SACRAMENTO — Foes of minimum-wage increases often ask supporters why they are so stingy. If a $10 minimum wage is unquestionably beneficial to the workers and the economy, then why not ratchet that number up to $20 an hour or even $50. They don't really want those absurdly high minimum wages, but want to showcase how damaging such an idea can be to the economy.

I used to downplay that argument as hyperbolic, but after reading recent research used to tout the new San Diego measure, I see the logic of these minimum-wage critics. Increasingly, wage-hike supporters claim that there virtually is no measurable down side to their proposal, that giving lower-wage workers more money helps the economy.

If a little boost helps a lot, a bigger boost would help even more, right?

Earlier this month, the union-backed Center on Wage and Employment Dynamics at the University of California, Berkeley, published a short study estimating the effect of San Diego's proposed minimum-wage law. (The increase recently was approved, 6-3. It will likely be vetoed by Mayor Kevin Faulconer, but City Council has enough votes to override the veto. The business community is mulling a plan to put the matter to voters via referendum.)

The report confirms a massive local economic bonanza — of $260 million a year, as lower-income earners gain additional dollars to buy food and other necessities, according to the San Diego-based Center on Policy Initiatives (CPI). It cites the study as proof: "Raising the minimum wage is not only the right thing to do; it's smart economic policy."

The Berkeley labor center report finds that 23 percent to 29 percent of San Diego workers will be "affected" by the wage increase, with an average annual earnings increase of $1,400 a year by 2017. An odd thing jumps out from the data and the commentary about it: These economists are taking a static look at the data, considering only the increased income that people will receive. They don't consider any other possibilities.

For instance, there's no accounting for the likelihood that some businesses will cut back benefits to pay for the additional labor costs. Or the possibility that some business owners — already unsure of what the implementation of Obamacare will add to their cost structure — will hire fewer workers or perhaps even lay off some existing workers. Or that some new businesses might not bother getting started.

How can economists analyze the costs and benefits of any particular policy by only looking at the benefits?

If there's only an upside, then there's a lot of work to do. In its calculator for San Diego residents, the Massachusetts Institute of Technology has determined that the city's planned increase to $11.50 by 2017 (plus five mandated sick days) is barely sufficient. That wage is OK for single people, but the living wage should be closer to $34 an hour for an adult with three kids, according to the calculator.

California's minimum wage, which was raised to $9 an hour in July and will be raised to $10 by 2016, isn't too generous, either. Even in low-cost Imperial County, a decent living wage for a single mom would be close to $20 an hour, based on that same MIT calculation.

"The first step is employers cut back on benefits and try to maintain the same level of employees that they have," said Lawrence McQuillan, an economist at the libertarian Independent Institute in Oakland. "If they still can't get costs under control, they start laying people off. It's a gradual effect. … It's hard for people to get their heads around what they can't see."

That's what good economic analysis should try to do — calculate the unseen costs of things.

CPI's Research Director Peter Brownell admitted that the Berkeley center's data didn't try to wrestle with the costs involved, but he insisted that the broad economic acceptance is that the negative effects are "close to zero." He admitted that "somewhere out there, there's a number that doesn't make sense." But business owners might be afraid to know what that number might be.

It would be nice if economists would at least produce data that analyzed the additional costs and likelihood of cutbacks — and didn't just paint a one-sided picture. But as long as wage-hikers claim higher wages help the economy, it makes sense to wonder why they are being so parsimonious about it.

NEXT: Tonight on The Independents: The Road to Hell

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Instead of a minimum wage, people should just contribute based on their ability, and consume based on their needs.

    1. What happens when the needs of the needy outweigh the abilities of the able?

      1. I don’t know, but I’m sure that Top Men will fix that problem. This time.

        1. We just have to make sure the correct top men are in power, and our utopia will be a reality!

      2. Cannibalism! The more isms the better.

      3. What happens when the needs of the needy outweigh the abilities of the able?

        Not applicable in our post scarcity world. There’s plenty for everybody. Unfortunately the 1% horde it all for themselves.

        1. How many are you willing to rob and kill to get it thom? Being some of those folks might be armed be it Smith and Wesson, or with the knowledge of Kung Fu thereby being able to defend themselves, you just might refrain from robbing them due to the consequences you could very well face.

        2. Beachfront villas for everyone!

      4. Camps.
        Really big camps. Hopefully in some cold as shit place. Put those “Ables/wreckers” to work.

        1. Freedom camps! Where every resident is free from the shackles of corporate oppression.

        2. yeah Alaska is roomy

      5. Our betters in the Soviet Commissariat is working on a five year plan. Have faith, Comrade. Five year plans have never failed the people.

  2. Steven Greenhut writes that he to downplay that argument as hyperbolic


  3. Serious answer: because $1-3 is all they can get, and they know it.

    This goes in with a lot of other things, like people buying a new car to get 5 extra mpg, or massively overpriced renovations of government office space while complaining about budget cuts, that show things aren’t anywhere near as bad some people say they are. If most people were feeling the pinch, you wouldn’t need to explain to them why raising the minimum wage was going to cost jobs, or at least cost benefits for new hires.

    1. Er, meant to say that the reason it goes with those other things is that people claim to support a higher minimum wage, but subconsciously know that it’s a boondoggle and therefore limit the increase to an amount they figure is within the fudge factor. If really serious economic issues, that fudge factor would be slim to none.



        This is one of my favorite articles by Rothbard.

  4. If you make the minimum wage $50/hr everybody will be rich, but a lot of them would stop voting for democrats.


    1. good point

  5. Of course, this kind of static analysis also ignores the question of: If there are no negative effects on employment and benefits, and thus the minimum wage hike puts $1400 on average into everyone’s pocket – where did the money come from? Nobody created any new wealth, they just waved their hands and decreed that everyone be paid more.

    The usual Prog answer is that the McDonald’s franchisees and laudromat owners paying minimum wage are all filthy rich, and hold their ill-gotten (of course!) wealth in the form of gold coins buried in their backyard. So raising the minimum forces them to dig up a few bags and return them to circulation. Too many progs get their economic understanding from Scrooge McDuck cartoons.

    1. This is always dumbfounding to me as well. I always ask people who think this where they think rich people keep their money. They never really seem to have an answer. It’s invested in the economy! It is in circulation! The standard answer is that it’s invested in stocks, and since stocks are just traded back and forth the money is only being passed around between wealthy shareholders. Sometimes my head feels like it is going to explode.

      1. I can’t count the number of times I’ve heard a progressive justify breaking investors’ backs financially because all investors do “is move money around.” Apparently if you can roll dice, you can be a wealthy investor.

      2. Actually the Keynesian answer is that people save too much. Savings is actually distinct from investment, though it is not distinct from speculation; saving is just speculating at what is perceived to be very low risk, but it’s all a matter of degree.

    2. Another implication of static analysis is that supporters assume that the demand for the product in question (e.g. Big Mac’s) is constant through time and that all firms that are subject to the law always turn a profit or have sales (and consequently revenues) that will cover the increased costs indefinitely. IOW, businesses never go out of business.

      1. Well of course, the businesses will just pay the extra wage expense out of their obscene profit margins and would never consider raising prices to reflect the increased costs.

      2. The average cost of a Big Mac in the US is approximately 1/2 hour of Minimum Wage. . .

        I wonder what the proponents of increasing the MW will say when the cost of a Big Mac continues to be approximately 1/2 hour or MW?

        1. Pardon my non-typing fingers.

          That should have read, “continues to be approximately 1/2 hour OF MW?”

    3. The same place their other wages come from.

      1. Which is, of course, an unlimited pool of money.

      2. So, if I double your mortgage payment, it won’t affect you at all because you will just pay it out of the same place the rest of your money comes from.

        If you pull that money from the same hole that you pull your replies out of, I’d just as soon you kept it there, TYVM.

  6. It’s all about buying power. The government screws up the value of a dollar to spend beyond it’s means, the fed deflates the currency and the remedy for low-wage earners? . . . raise the minimum wage. Quit fucking with the value of the money people acquire. If you assume we need a minimum wage (which I doubt) but 3 years later that minimum wage isn’t doing what it did . . . maybe stop messing up the value of $7.25 in the first place.

  7. the living wage should be closer to $34 an hour for an adult with three kids, according to the calculator

    If these mendacious twats would stop pushing the idea that a minimum wage is supposed to support “an adult and three kids”, they would have nothing to bleat about. Better yet, they should just drop the mask and admit that they don’t give two fucks about the single or the unskilled.

    1. You can’t fault them for having kids. It’s not like that was a choice about spending money, like buying a nice car!

      1. And we probably denied them access to birth control, too.

      2. There was a recent article in Slate concerning state laws limiting welfare payments to women who had had an additional child in the last 12 months while already receiving benefits.

        And, yes, there was a quote from a woman, pictured protesting outside the state welfare office, claiming that this amounted to the government “punishing (her) for having children”, and that the government had no right to do that.

        The idea that having a child you know you can’t afford is really punishing yourself, and that you have no right to punish responsible people by making them pick up the tab, of course, never occurred to her.

    2. Every argument they make is an attempt to take the moral high road by denying economic reality. They don’t understand that, of course, as we’re all just evil, greedy bastards who don’t want poor people to have inexpensive, quality housing.

      Without economic education (in the sense of laws of economic behavior), people are naturally prone to these mistakes in fundamentally the same way that cultures are naturally prone to hate and fear outsiders.

      Part of our evolutionary wiring is always working against us economically.

  8. But as long as wage-hikers claim higher wages help the economy, it makes sense to wonder why they are being so parsimonious about it.

    Intentions and feelings are all that matter. Actions and results be DAMNED!

  9. I look forward to you correcting the oversight of not having linked to any evidence whatsoever on employment effects.

    1. You mean like the TAMU metastudy on the effects that I linked for you in one of the umpteen threads on the topic? The one that showed that the most common effect of min wage increases was decreased new hiring, just as all manner of economics would predict? Did you bother to read it? Was that one of your previous handlers?

      What if the Napolitano rhetoric disease is contagious? What if it ends up leading to the end of human civilization?

    2. Here are a few.

  10. Raising the minimum wage too much may help spur on replacing workers with automation, although that may happen regardless. Here’s a funny comic on the topic: AI Replaces Minimum Wage Workers []

    1. It’s cute that they think the robot will do just as terrible job of putting a hamburger together as the human it replaced.

      1. Right? Humans are screwed.

        Idiots don’t understand the only way to beat the machines is to merge with them.

        The Synthesis Ending of Mass Effect 3 is the only option for human survival.

      2. At least the robot won’t expect to be able to support three children with the wages it takes home from its job flipping burgers.

    2. It’s already happening. . . a local Little Caesar’s has replaced it’s sign-spinning person with a machine. . .

      Actually, it has already happened. . . hence, self-serve soda fountains at fast food joints rather than a person to do it for you, or the closing of the “first” drive-thru window that used to take your money before you got to the second window where you were handed your food – the increased wages offset the added value of increased volume & decreased waiting time.

  11. I don’t like minimum wage laws so I’ll build up a straw man that there has to be some minimum wage out there that businesses won’t pay. Gee, steven, ya think? I think you libertarians are fascists… If you had the courage of your convictions you’d be arguing for no government. If less government is fabulous wouldn’t no government be even fabulolouser?

    1. Yes.

      1. Cool! Seiu pool party at the Koch’s place. What’s he going to do ? Call the cops?

        1. Former Navy Seals will do nicely.

        2. Uhm, yeah – the police department he’s contracted with to provide police services.

          *After* the security company he’s contracted with detain you for trespassing he’ll turn you over to the police he’s contracted with who’ll take the case to arbitration.

          1. I’m a Libertarian, but not an Anarchist. What authority does some guy’s private police force have to detain me? Who’s to say I was on his private property? How can he prove it’s his property? What is this arbitration you speak of — can you show me a document I signed where I agree to this hypothetical arbitrator’s power? That’s the consequences of Anarchy (at best).

    2. No.

      I could toss the straw man back at you and ask: If more government will make us all wealthier, wouldn’t an absolute dictatorship make everyone a billionaire?

      Having the courage of your convictions involves understanding that there are areas where government is needed (hint: breaking things and killing people are usually involved), and being willing to accept the dangers and need for constant vigilance that go along with them.

    3. “If less government is fabulous wouldn’t no government be even fabulolouser?”


    4. yup we libertarians sure are the embodiment of authoritarian nationalism

    5. Fascism: a political philosophy, movement, or regime that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition.

      I think you socialists need dictionaries.

  12. The report confirms a massive local economic bonanza ? of $260 million a year, as lower-income earners gain additional dollars to buy food and other necessities, according to the San Diego-based Center on Policy Initiatives (CPI). It cites the study as proof: “Raising the minimum wage is not only the right thing to do; it’s smart economic policy.”

    The hilarity of positivist studies like this–which make the mistake of thinking that raising the minimum wage in one locale at one particular point in time in one economic circumstance in one culture, when aggregated with a few dummy stats, will yield empirically sound arguments for or against the minimum wage–is that anyone could possibly believe that they’re a meaningful predictor of the future.

    Ceteris paribus, the minimum wage will reduce incentives for employment by outlawing a range of contracts. There are a billion and one circumstances in which that isn’t guaranteed to happen in the real world–a hyperinflationary economy, for instance, wouldn’t see an increase in unemployment as a consequence of a $5 mw hike if the new market-clearing wage were $80–and even some particular cases where a minimum wage hike might increase employment (to the detriment of investing, but still), but the point is that you cannot possibly predict this empirically.

    1. If we were apply falsificationism to positivist economics with the same alacrity that we do in physics, you’d have a lot of college professors flipping burgers in a few months.

      1. You say that like it’s a bad thing…

        1. No, I’m all for replacing harmful economic effects with positive ones.

          If Keynesians merely died in the Great Sophist Flood of 2014, that would eliminate their net harmful effects to the economy, but having them flipping burgers adds both real products and subjectively valuable entertainment to the economy.

          I mean, who wouldn’t pay $10 to watch Paul Krugman flip burgers for a living?

          1. He wouldn’t actually flip the burgers. He’d sit at one of the booths complaining that the burgers aren’t being flipped, and that the reason is that he isn’t paid enough. When you pointed out that he just received a 25% raise and still isn’t flipping any burgers, he’d claim that the reason is that his raise wasn’t big enough, but that a 50% additional raise would probably work.

            1. Though if that happens and burgers still aren’t being flipped, then he was obviously joking when he said it.

  13. I’m fairly sure that this study also didn’t factor in the amount of economic activity lost due to people being turned away by higher prices. People will spend their money at cheaper places outside the city like the internet, businesses go under due to lack of income. Presto Chango you have the next Detroit.

  14. I regularly make that argument. But I suggest $1,000 an hour as a reasonable minimum.

  15. If you’re run some sort of volume business, you could probably absorb the minimum wage hike. Mcdonlads could raise the price on their cheap coffee and tiny ass cheeseburgers by 15-30 cents and whittle down on other costs, like healthcare. I noticed that some of the coffee shops and pretzel joints at the mall converted to kiosk like setting. Less electricity and water costs.

    There’s no point in ordering a $1.50 cheeseburger on the internet, so online competition is less of a factor.

    For everyone else, any rise in labor cost is bad news. Half of the ethnic towns pays their workers in cash or hire illegal immigrants. You figure either the illegal immigrants will demand a raise of their own (they’ll have leverage), or leftist fair wage groups will start busting small businesses for hiring them or underpaying workers.

    A clash of some sort is inevitable.

  16. Sarcasm Button On:
    Comrades! Raising the minimum wage is a necessity in the never ending war against the capitalist pigs! As we all know, raising the minimum wage will create more unemployed which aids in the development of an angry populace. Nothing but good will come from this. Thousands will be laid off from small business because they have a limited budget. The unemployed will be envious (a necessity in the war against capitalism) of their fellow workers who were not selected to be laid off and will be easily recruited into our socialist belief system. The workers who are still employed will have to worker harder and longer to pick up the slack of the newly unemployed. Think of this on the grand scale. You will add to the unemployment rates, dissatisfaction with capitalism and contempt for freedom. Then, hopefully, with the help of Marx almighty, perhaps the entire economic system of the USA will collapse ushering in an era of such enlightened, honest and trustworthy socialists like Hillary Clinton and Elizabeth Warren to follow in the footsteps of Dear Leader Obama. These freedom loving totalitarians will introduce America to concepts of redistribution of wealth on a grand scale, crushing dissent and finally start a cult of personality like they have in socialist paradises as North Korea, Cuba and Zimbabwe. So let the minimum wages increase, open the gulags and destroy free enterprise. Our glorious totalitarian socialist utopia awaits!
    Sarcasm Button Off

  17. workers! do not love those greedy old men, those capitalists who hired you and pay you “market price” for your labor. they take advantage of you!

    love me, instead, your altruistic, benevolent patron, your hero. i, who love you so, I will protect you. give me power to punish those who have wronged you. give me control, just for a year, perhaps two, and I will compel the miserly class to give you more, so much more: infinitely more!

    1. Winner.

  18. “but he insisted that the broad economic acceptance is that the negative effects are “close to zero.” ”
    Bullshit and he knows it. Serious economists who believe the minimum wage rise is worth it know that there are downsides. If they didn’t they’d be screaming about all the research that shows it does, which is all of it. Now not all research shows that the downside is bigger than the upside, but they all show a downside.

  19. American Socialist: “I think you libertarians are fascists… If you had the courage of your convictions you’d be arguing for no government.”

    First, the only straw men being built is the ideas of socialism, which requires violence in order to survive. You are generalizing when you assume all libertarians believe there needs to be a violent government, as all governments require violence and need to use force against an individual whom peacefully refuses to consent to be governed.

    Socialism boils down to having a government big enough to shield your *meow* @$$ from facing the consequences for your desires to rob from individuals, or to force them to pay for things against their will (extortion) or to stand by and watch as the arm of the state engages in violence against others your behalf.

    Your ideas are morally corrupt, and there is nothing compassionate about socialism, and the ideas you espouse. Why not man up, and go rob folks yourself? Why not attempt to rob someone, and give that money to someone else? Why not buy a house with monopoly money, and if the homeowner refuses to engage in such an asinine exchange, proceed to beat them, and then jail them if they resist. After they continue to resist, try and kill them. Who knows, you may not even have a chance to flinch before they knock your sorry ass out, or Kujo tears you to pieces for trying to kill it’s best friend.

  20. How can economists analyze the costs and benefits of any particular policy by only looking at the benefits?

    Because they are looking to fit their ideal, their vision, their agenda. They do not seek truth. They seek to confirm their preconceived notions.

  21. Minimum wages serves to cut anyone out of the market whose labor is not worth the minimum wage.

    Lets say the new minimum wage is $20/hr. If I’m a low skilled, poorly educated person just out of high school, I need to be able to produce at least $20/hr worth of labor to be worth hiring.

    Large companies that generate huge profits can usually absorb this change – albeit by reducing benefits, raising prices, and hiring fewer people. Smaller businesses that can’t absorb a doubling of wage will be forced to fire people and raise prices.

    Now you have higher unemployment, higher prices on goods and services – particularly those provide by the small business community – and reduced benefits for the lowest skilled workers.

    What people fail to realize is that the NOMINAL value of your income is meaningless – the only thing that matters is the spending power of your income. For instance, I can get a 10% raise but that doesn’t do me any good if the average cost of living goes up by 10%.

    By artificially inflating people’s nominal income, you have the consequence of increasing the cost of living as well (including the costs of replacing benefits, increased prices, etc.).

    Without a solid model of how the nominal increase will outpace inflation, there’s no point in even talking about it.

Please to post comments

Comments are closed.