Minimum Wage

If You Want to Help Poor Workers, Give Them Money, but Don't Make It More Expensive to Employ Them.


Another Labor Day, another bold plan to increase the minimum to help the working men and women of America!

On Monday, Los Angeles Mayor Eric Garcetti will announce a proposal to jack his city's minimum wage from $9.00 all the way up to $13.25 over three years. That puts him ahead of President Obama, who has called for goosing the federal minimum wage from $7.25 to $10.10.

That's the opening of a new Time column by me. Hikes in the minimum wage are routinely sold as a quick and easy way to increase the income of the working poor, but it's actually a really rotten way to do that.

University of California sociologist Lane Kenworthy, a progressive who has called for a more generous social safety net, argues that virtually all increases in income for poor families in the U.S. and other wealthy countries since the late 1970s have been a function of "increases in net government transfers — transfers received minus taxes paid." That's partly because workers in poor households often have "psychological, cognitive, or physical conditions that limit their earnings capability" and partly because today's "companies have more options for replacing workers, whether with machines or with low-cost laborers abroad."

To be sure, arguing that you want to increase direct aid to poor families doesn't give a politician the same sort of photo-op as standing with a bunch of union leaders on Labor Day and speechifying about the urgent need to make sure an honest day's work is rewarded with a living wage.

But making just such a case could have the benefit of actually helping poor people in the here and now. Certainly a savvy politician could sell that to voters who know the value of hard work — and the limits of economic intervention.

Whole thing here.

Watch "What We Saw at NYC's Fast-Food Strike," from December 2013:

NEXT: Legalize It, but Don't Advertise It: High Times Fights Colorado's Restrictions on Marijuana-Related Speech

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. Not to worry, the Easter Bunny will make sure that the employers get a fresh batch of free money each spring to pass on to their employees.

  2. Just what we need during a period of high unemployment and even higher under employment and, not to mention, a shit economy that looks to get shittier.

    1. What? Certainly, those conditions don’t apply to California!

      1. You know, they have welfare for people, why not for states? The feds should give California a living wage of, say, $100 billion/year.

        1. NOW you’ve done it, Pro Lib.

          1. Pro Lib MIGHT be worse than Nikki.

        2. The federal government just denied money to my city for our streetcar! But other cities have streetcars. That’s unfair!!!

          1. You have a right to living transportation. So a horse in every home!

  3. it’ll work this time!

    1. You know, a lot of employees can’t afford a car. So employers should be required to supply one. New American cars only, of course.

  4. That’s right Nick, giving lazy people more free money is such a better idea…

    1. Let’s be fair. It’s stupid people too. And alcoholics.

      1. Nick is usually more on the ball than to suggest that giving more free money to lazy stupid alcoholics is a better idea that raising the minimum wage.

        He even said himself that only about 4% of people make minimum, that they are under 25, and that they are in relatively well off households. So essentially raising the wage does nothing…

    2. It’s not a good idea, but it would be better than price(wage) controls.

      1. I gotta disagree. Discouraging half the labor force from working by giving them the ability to eat without doing anything is way worse that pushing at most 1% of the population out of the labor force.

        1. There are more problems caused by the minimum wage than just the loss of jobs. For one thing, if it gets raised as quickly as a lot of people want it too, it will start affecting a larger part of the workforce. Also, I think that a lot of union contracts have pay rates that are based on the minimum wage.

          1. The union pay rate argument is interesting. I wasn’t aware of that. I still say that giving people an incentive to sit on their lazy asses is a lot worse for the economy than pricing a small percentage of the workforce out of the labor market.

            1. He said while commenting on a internet publication’s comment board during work…

          2. “Also, I think that a lot of union contracts have pay rates that are based on the minimum wage.”

            The SEIU has many low-paid members and quite a few of the rates are tied to the M/W.
            You don’t think the SEIU is screaming about this from the goodness of the leaderships’ hearts, do you?

        2. “Discouraging half the labor force from working by giving them the ability to eat without doing anything”

          Not really talking about that. That’s welfare. We have that already. Talking about increasing the amount of money working people making minimum wage are making. A reverse tax (like an earned income credit) to make up the difference is “better” (again I’m not advocating any of this) than the wage control. The government is saying you should give more money to people who are not earning it for you. So if the government wants that then the government should pay for it.

          1. I do think that a “small” increase in minimum wage would not make that big of a difference because most people are getting that increase a very short time after they’ve been working anyways. And of course there is an argument as to taxpayers “supplementing” profitable businesses salary expense. And you have that argument now anyways. But then that’s why you stay out of the whole thing to begin with.

    3. Well, whichever entity that’s giving away the money is going down the shitter eventually. Which would you rather have fail, the power company and the grocery store, or your state government?

  5. Naomi Brockwell is speaking in San Francisco on September 9 as part of an all-day, big-name-speaker program on the 25th anniversary of the fall of the Berlin Wall. Tix are just $75 and include lunch.

    That’s a work day for me, but I was thinking of going just to see if Naomi will run away with me to Tahiti. Don’t tell my wife.

    1. Here’s the Tuesday, Sept 9 agenda, by the way. 3-hour happy hour!

      12:00 p.m. Luncheon featuring Garry Kasparov

      1:45 p.m. Session: The ‘Berlin Walls’ that Confront Americans Today
      – Deroy Murdock (Moderator), Atlas Network
      – Naomi Brockwell, NYC Bitcoin Center
      – John Fund, National Review and Fox News
      – Sally Pipes, Pacific Research Institute

      3:15 p.m. Session: Fighting for Freedom in Difficult Countries
      – Dr. Tom Palmer (Moderator), Atlas Network
      – George Ayittey, Independent Institute
      – Marek Tatala, Civil Development Forum, Poland

      4:30 p.m. ? 7 p.m. Happy Hour Reception

  6. But, but, but if you pay them more then they’ll work harder! And they’ll have more money to spend which will boost the economy! It’s not like it will hurt employers! They’ve got an unlimited supply of profits!

    1. There was a guy arguing like this in a debate about the minimum wage at Freedom Fest last month. The point that he made (and others often do as well) is that a higher min wage “reduces employee turnover” and therefore is “good for employers”.

      There was a microphone line for questions afterwards and I wanted to ask him, “If this is so good for employers, wouldn’t they realize that themselves? Why would you need to be coercive about this?”

      But I was stuck in line behind people who didn’t even have a question, they just wanted to rant about “what the min wage would do to their small factory” and/or “I came from behind the Iron Curtain and you have no idea what it was like,” so I never got to ask it.

      1. Aw come on! Employees need a living wage! And rich employers aren’t paying their fair share! I mean, they’re rich! How can they be rich and pay their fair share? So they need to pay more! Until they’re not rich anymore! Then it will be fair!

      2. “Why would you need to be coercive about this?”

        Coercion, the core of socialism. It’s insane that we have to argue about such things: “Would you please stop forcing and beating people who haven’t commited any crime, it’s fucking unreasonable!”

  7. …”Certainly a savvy politician could sell that to voters who know the value of hard work ? and the limits of economic intervention.”

    Uh, those of us who do already know that.

    1. The problem is, that a large portion of dems don’t know the value of hard work. That’s why Detroit is the biggest shithole in the history of shitholes.

  8. workers in poor households often have “psychological, cognitive, or physical conditions that limit their earnings capability”

    That analysis brought to you by Lane Kenworth, Yankelovich Chair in Social Thought.

  9. BTW, several days ago, a low-watt bulb writer in the Chron quoted Reich that raising the M/W in San Jose only raised the price of one selected item $0.15, so there is NO HARM in raiding the M/W.
    Are you convinced?

    1. Way less harm in raising the minimum wage (something you have to work for) than in giving people an incentive to loiter for a living.

    2. The inflationary harm is limited because the amount of workers on minimum wage is small (about 5%) and is decreasing constantly. But
      1) it only proves there’s no need to artificially raise wages.
      2) you ignore another harm – unemployment, particularly among the poorest and unskilled workers.

  10. The only issue with the article is that it suggests a better solution to enrich the poor is to give them free money. Both ideas are horrible, but at least raising the minimum wage only hurts middle class teenagers. Endlessly expanding the welfare state turns all of the US into Detroit.

    1. I think the reason they want to increase the min wage is not for the teenagers at McD, but the countless union workers whose wages are tied to the minimum wage. If the min wage goes up, everyone gets a raise! And it won’t hurt anyone because it will all come out of billionaires’ excessive profits!

  11. I don’t believe most advocates of higher minimum wages don’t see it will cause unemployment at some level. They will acknowledge, for example, that a $100 hour minimum wage will lead to huge layoffs.
    And libertarians will acknowledge that a one cent increase won’t lead to very many layoffs. But somewhere in between is an unacceptable level of new layoffs that even progs will regard as not worth it.
    Trouble is, they mostly all feel $10 to $15 is not it, that employers can afford it, and that taking money from one pocket and putting it in another will lead to economic growth.

    1. Nuh uh! Raising the minimum wage isn’t intended to cause unemployment! Therefore it can’t cause unemployment! Because intentions are results!

      1. They don’t care because (1) they’re buying votes with the wage increase, (2) for those who are displaced from full-time or any employment by the increase, they simply buy their votes with welfare, and (3) resulting price increases are the fault of greedy corporations or, if that can’t be safely alleged, speculators.

  12. Speaking of the poor

    In Orange County, Calif., the probation department’s “supervised electronic confinement program,” which monitors the movements of low-risk offenders, has been outsourced to a private company, Sentinel Offender Services. The company, by its own account, oversees case management, including breath alcohol and drug-testing services, “all at no cost to county taxpayers.”

    Sentinel makes its money by getting the offenders on probation to pay for the company’s services. Charges can range from $35 to $100 a month.

    The company boasts of having contracts with more than 200 government agencies, and it takes pride in the “development of offender funded programs where any of our services can be provided at no cost to the agency.”

    Sentinel is a part of the expanding universe of poverty capitalism. In this unique sector of the economy, costs of essential government services are shifted to the poor.

    In terms of food, housing and other essentials, the cost of being poor has always been exorbitant. Landlords, grocery stores and other commercial enterprises have all found ways to profit from those at the bottom of the ladder.

    I couldn’t make any farther. Pounding my head on the desk has made my vision blurry.

    1. But not giving is taking and not taking is giving! So when you don’t give free shit to the poor, you’re taking from them! And when you don’t hike taxes on the rich, you’re giving to them! Not taxing the rich to feed the poor is the same thing as robbing the poor and giving to the rich! So what if poor people by definition don’t have any wealth to steal, it’s still stealing!

    2. Sentinel makes its money by getting the offenders on probation to pay for the company’s services. Charges can range from $35 to $100 a month.

      Collection of these charges has been outsourced to a private company, Sentinel Dunning Services.

    3. the cost of being poor

      What? Do poor people pay more for food and housing?

  13. People arguing that the minimum wage needs to be raised demonstrate no understanding of cause and effect. They never consider that minimum wage increases are reactive to the effects of inflation. When you have a run of roughly 50-60 years of inflation taking place (no matter how small), those increases accumulate over time and destroy people’s buying power. Inflation only helps big banks and people with huge debts, which is probably why Krugman loves it so much. Everyone else gets screwed, especially folks trying to save up for a rainy day.

    1. They see poor employees, rich employers, and have an emotional reaction about how it’s just not fair. That’s it. No thought at all. Just emotion.

      1. Pretty much. The FEELINGZ overwhelm everything else. There are some who will listen, but the FEEELINGZERS tend to have such an either/or mentality (in my experience, anyway) that any time you try to explain your position, you’re:

        A baby-killing/woman-hating Republican.

        Hate the poor.

        Think you’re better than everyone else (or “mansplaining” it’s called now, I guess…)

        Might as well just have fun talking to the FEELINGZERS. Just sucks that they have political power…

  14. Wage inflation is the Holy Grail of modern post-Keynesian economics (see every Krugabe column for the past six years, including today’s). The vast ripple effect of a minimum wage hike on virtually every other paycheck in the country is exactly what they want.

    “By hook, or by crook, we’ll get it.”

  15. “Union Support for Minimum and Living Wage Laws Based on Self-Interest”
    “First, numerous union negotiated collective bargaining agreements (CBA) tie union member wages to increases in the minimum and living wage. Center for Union Facts research uncovers a number of these contracts. In addition, many CBAs include provisions that reopen contract negotiations whenever there is a change to the federal or state minimum wage.”…..4oNCC.dpuf

    There’s more.

  16. The living wage bullshit is rooted in the traditions of serfdom. It’s suitable for a relationship between guardian and ward, not equals.

    1. Employer and employees are equals? What?

  17. The easiest way for the government to raise the minimum wage is to lower the taxes paid by workers. Its the tax burden that is killing the net imcome of workers.

    1. ^This.

      But get rid of taxes? How will the politicos get their coffer money then?

      1. Let them go to the Fed. Ditch taxes altogether and have the Fed print all the money the federal government needs.

        Then we can all see how stable a fiat currency really is.

  18. Instead of raising the minimum wage, why not reduce the payroll taxes low wage workers pay?
    Don’t take any payroll deductions until the employee has reached a certain threshold, say $30,000.
    Just an idea.

    1. And let old people drop dead in the streets?

      The fact that progressives don’t even consider reducing the hugely regressive payroll tax–I can’t even remember the last time we discussed that idea, compared to the dozens of times minimum wage comes up–is a good indication that they aren’t serious about putting more money into the pockets of the poor if that entails the left making sacrifices in their precious social programs.

      The ridiculous thing is that the federal government could finance Social Security a billion other ways than taxing poor laborers’ earnings. They could even ditch the payroll tax altogether and just monetize SS payments like they’ve done with so much else. But instead of taking this seriously, they want to continue this cynical (or if we’re being charitable, economically illiterate) obsession with wage fiddling.

  19. Don Boudreaux had a typically insightful take on this the other day.

    If raising the price of labor will help minimum-wage workers by redistributing profits into pay for the poor–meaning that we don’t believe that there’s a market-clearing price for labor, but that it’s a monopsony where employers dictate worker pay and the workers must accept–why didn’t the US government dictate an increased Minimum Automobile Price when the American automotive industry was struggling as a means of redistributing wealth toward a struggling industry?

    Just imagine how much better off GM might have been if the car it previously sold for $12,000 was now selling for $20,000. With GM’s profit margins increased by government fiat, the bailouts might not have even been needed!

Please to post comments

Comments are closed.