Labor Day Confidential: The Misguided Logic Behind Minimum-Wage Hikes

|

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. That's partly because so few people earn the minimum wage (only 3 percent of all workers) and they rarely earn it for very long (most min wage workers earn more after a year on the job). And then there's the simple fact that people earning the minimum wage aren't necessarily poor (in fact, a sizable chunk belong to households making north of $100,000). As economist and Reason contributor David Henderson has noted, a study of the effects of minimum-wage hikes between 2003 and 2007 found no evidence that the increases "lowered state poverty rates."

If you are interested in using government intervention to raise the income of poor people, the most-direct way is to give them money. That goes directly to their bottom lines and doesn't distort labor markets or make low-skilled employees more expensive. More from my Time column:

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:

Advertisement

NEXT: Jesse Walker on Generational Generalizations Gone Wrong

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 Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. My minimum wage job will barely pay for my mandatory health insurance. I blame capitalism.

    1. If there were only some way to get politicians to notice your plight, and take action…

      1. I know, right? That’s is why I also blame Republican obstructionist teabaggers.

    2. What makes you think that a system with mandatory health insurance is capitalism? You are quite confused.

    1. Why didn’t I think of that?

    2. It’s always the hot ones.

  2. Hikes in the minimum wage are routinely sold as a quick and easy way to increase the income of the working poor buy votes from stupid people.

    FIFY

    1. It’s a smart strategy for those who hate freedom. The people who benefit from it will give them back votes, the ones who will suffer for it will not trace it to the policy but will just think ‘the economy’ or worse ‘capitalism’ offers them little.

      1. The best part? They’re the same people!

        /evil Top Man laughter

      2. Remember the DOL mandates that companies post notices about how the minimum wage is THE LAW which your employer must follow. Anyone getting a pay bump from has to know that their Uncle Sam has, over the obstinateness of their employers, got them that bump.

        On the other hand very few employers turning down an applicant will say ‘sorry, we’d love to expand and hire someone like you, but the federal minimum wage makes that impossible.’ In fact the way its most felt is that employers don’t publicly advertise/offer the job in the first place. So people are left to blame some diffuse process.

        1. What you’re saying is some people read Bastiat’s essay on the “seen and the unseen” and use it as an instruction manual on how to score easy political wins?

          We are so fucked.

  3. The two things that make minimum wage hikes politically preferable to direct aid to the poor:

    1) Direct aid to the poor would require spending actual tax revenues, and thus likely require raising taxes. The minimum wage hike, in contrast, self-funds as a de-facto tax on “fat cat” business owners.

    2) Legislators can pretend that the minimum wage hike benefits everyone, because it’s presumed that businesses will naturally raise everyone else’s pay in proportion to the minimum wage hike. If they just gave cash to the few folks actually making minimum wage, the majority of the legislators’ constituents would either not care, or wonder why they’re not getting a piece of the action (see also: expanded food stamp eligibility).

    1. “The minimum wage hike, in contrast, self-funds as a de-facto tax on “fat cat” business owners.”

      No, it doesn’t. It self-funds as increased prices on the customers or it self-funds by reducing the number of jobs that used to pay less.

      1. For the record, I was arguing the intended perception of it, not that I perceived it “good” by virtue of sticking it to the “fat cats”.

        I don’t quite get your distinction, though, inasmuch as actual business tax hikes might very well inspire increased consumer prices and job reduction as well, albeit via slightly different logic.

        1. “I don’t quite get your distinction, though, inasmuch as actual business tax hikes might very well inspire increased consumer prices and job reduction as well, albeit via slightly different logic.”

          I don’t understand your point here.
          No one is discussing taxes.

  4. Increasing the minimum wage is a stop-gap fix for problems caused by the FedGov’s commitment to perpetual monetary inflation.

    A much better situation would be the economic growth in a deflationary environment, such as that experienced during the latter half of the 19th century. That way, workers would be enjoying an increase in the real purchasing power of their wages, even if their greedy boss was able to deny them increases in the wages he paid them.

    An explanation of the detrimental effect of the minimum wage in video form: Edgar the Exploiter.

  5. “$7.25 will not keep my family alive.”

    If you only make $7.25, don’t try to support a family.

    1. What do you want him to do if he already has a family, huh? It’s like you think there is this whole range of government largesse which he could tap, like some sort of food distribution program, government coupons to purchase food and other necessities, provision for housing, etc.

      You heartless, insensitive beast.

    2. His billboard might as well read “I’m a failure”.

      1. +1

    3. maybe he should get another job (or two)

      1. Maybe his wife could get a job.

    4. It is likely that $7.25 an hour will keep his family alive better than $0 an hour.

      $7.25 an hour for 40 hours a week marks him as one of the richest human beings to ever live. Deirdre McCloskey is fond of noting that from the time we innovated agriculture to 1800, human beings lived in an economic homeostasis of about $3 a day with very little deviation even in eras like the Roman Republic. Not only can you keep your family alive for $7.25 an hour plus state benefits, you’ll have a higher standard of living than the Sun King by far.

      This attitude is the bastard child of envy and utopianism.

  6. And then there’s the simple fact that people earning the minimum wage aren’t necessarily poor (in fact, a sizable chunk belong to households making north of $100,000).

    Obviously such people should be prohibited from taking jobs away from people who need more than $7.25/hour to keep their families alive.

    1. It begins to sound as if the minimum wage should be a means-tested entitlement.

  7. I mean, really, standing out on the street with a sign reading ‘7.25 an hour will not keep my family alive’?, that’s not just a little humiliating? Or at least embarrassing? Really? That guy is a fucking pussy with no self esteem, just saying.

    1. Well, if they raise the minimum wage to $15/hr, everything will be peachy for the two weeks it takes management to install burgerbot:

      http://singularityhub.com/2014…..-industry/

      1. Well then I guess the pussy can get a sign saying ‘The burgerbot stole my job!’. Pathetic.

        1. I imagine he’s already getting paid well in excess of $7.25 to hold that sign as it is.

      2. I’m skeptical of that.

        I remember back in the ’80s, there was a fast food place near me that tested out roboticized stuff.

        Just didn’t work very well in practice although at first it was pretty neat..

        That was 30 years ago, true but…

        1. Um, yeah, it was 30 years ago, nuff said. It’s going to work, just trust me on this one, or if you want, don’t trust me, but IT IS GOING TO WORK.

          1. You can already get hot french fries from a vending machine in Japan. In your hotel.

        2. At some point, the capital and maintenance cost of an effective burger making machine is going to be less than the cost of burgers made by humans.

          The technology has definitely improved over the last 30 years. I doubt burgers are more difficult to ‘manufacture’ than automobiles and we have already seen the replacement of assembly-line workers by robotic equipment.

          The manufacture of a car now takes less than 10% of the workers that it did 50 years ago, despite the fact that cars have become considerably more complex. Further, the cost of robotics has dropped as well.

          I expect we will be getting our burgers from Automatic Burger Machines (ABMs?) within 10 years.

          1. Aresen|8.31.14 @ 9:33PM|#
            “At some point, the capital and maintenance cost of an effective burger making machine is going to be less than the cost of burgers made by humans.”

            Right about the time the M/W gets about a buck-an-hour higher than it is now.
            My company doesn’t do robotics, but I’m sure someone has looked at that price delta, licked their chops and said: Yep, we got a WINNER now!

        3. “That was 30 years ago, true but…”

          There is nothing in fast food prep that cannot be mechanized, assuming that the customer has no particular attachment to a human face.
          If so, you add one of those for the luddites and fire everyone else who is now too expensive as a result of the feelz.
          And don’t bother bragging about it since the proggies will try to stab you in the back if you do.

  8. Nick’s article reminds me of this Scott Sumner essay noting how much the American left has moved since the days of Tip O’Neill.

    http://econlog.econlib.org/arc….._unbo.html

    In 1986 Ted Kennedy helped enact a top income tax rate of 28%, despite opposition form a number of GOP senators. In 1987 the New York Times advocated abolishing the minimum wage. In the 1990s lots of liberals favored replacing welfare with workfare. Lots of liberals favored replacing taxes on capital income with a progressive consumption tax. They opposed fiscal stimulus. They thought unemployment compensation created unemployment—it made people lazier. These were all good ideas, and still are. I don’t know whether to be bemused or annoyed by the fact that today’s liberals think any right-winger that holds these views (that the best and brightest liberals once held) are stupid. Just because they’ve “jumped the shark” doesn’t mean that all the rest of us must follow.

    In an era when a couple dozen “Nobel laureates” in economics encourage the president to raise the minimum wage for arcane macro reasons, it’s hard to imagine a time when NYT could have opposed the minimum wage, much less had Hazlitt on the payroll.

  9. It really gets me how so many people don’t understand that if you raise the price of something, people will buy less of it, and be pickier. That means not only lost jobs, but employers will be less likely to hire a high-school drop-out, someone with a ghetto name, an ex-con, etc.: the very people the left claims to be concerned about. Instead they’ll hire Madison and Tiffany for the summer, before they go to college.

    And I don’t think the passed-over applicants will get jobs manufacturing burgerbots.

    1. But, why can’t the government do something! I know, it’s .. rethuglicans!

  10. I’m growing rather tired of the arguments on both sides of this debate that don’t include one fundamental fact: in a fiat money economy, all that raising the minimum legal wage does is result in inflation for all. The economy will always result in an honest wage being paid for the work being done (or an honest amount of work being done for the wage being paid). It does not matter whether you pay a supermarket clerk 10 cents per hour or $10,000 per hour, his wage will always be in just about the same ratio to what the meat manager makes, and the meat manager’s wage in turn to what the supermarket president makes.

  11. 7.25 an hour won’t keep my family alive, either. That’s why I went to college, and took out loans, and got a masters degree, and worked my tail off for 20 years to stay employed and keep moving up.

  12. Based on that (white) dude’s haircut, glasses, and jewelry, I don’t believe for one single solitary second he has ever worked a minimum wage job.

    And who fucking pays minimum wage anymore? I’m looking at getting a part-time job this fall like I do every year (because my work/business slows down in winter) and not even the fast food joints pay minimum wage to start.

    1. HAH! He didn’t say HE made minimum wage, only that $7.25 was not enough to keep his family alive. Although it seems to be enough to keep immigrant families alive.

Please to post comments

Comments are closed.