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Free Minds & Free Markets

Minimum Wage Hike Measures Ignore a Dismal Reality

Unions sponsor dueling propositions to raise pay minimums to $15

Polls show a majority of Americans favor raising the minimum wage. It's easy to understand the sentiment, given how tough it is to get by working in a low-wage job. Indeed, support for such efforts is so high in California that two unions are proposing dueling minimum-wage-hike initiatives for the November 2016 ballot, with the emphasis on the size of the benefit boost and, undoubtedly, who gets the credit.

Yet the nature of the debate—who can be against helping the working poor, or policies touted as virtually cost free?—brings to mind 19th century Scottish historian Thomas Carlyle, who is known for calling economics the "dismal science" given that economists were the ones arguing the grim laws of supply and demand should determine wages. (Bizarrely, Carlyle called for the reinstatement of slavery in the West Indies as an alternative, but that's another story.)

Even today, it might take an economist to make the obvious and dismal point that labor is like any other commodity. It is subject to supply and demand, no matter how much we might wish it were otherwise. The big political question as we head into next year's general-election season is whether opponents of these coming minimum-wage-increase efforts will be able to get this point across to voters, or whether happy wishes will trump dismal reality.

The battle between related unions is fascinating. The Service Employees International Union (SEIU)-United Healthcare Workers West had previously proposed an initiative to raise the minimum wage to $15 an hour by 2021. It deals only with wages and has received backing from influential politicians, including Lt. Gov. Gavin Newsom, a Democrat running for governor in 2018. The campaign already has collected hundreds of thousands of signatures.

Now the larger SEIU State Council has filed with the state attorney general a measure that would accelerate the wage boost ($15 by 2020)—but also require employers to provide double the number (six) of mandatory paid sick days and require such days be provided to in-home health workers, also.

Backers of a minimum wage boost fear that competing measures will harm the chances that one of them will pass. Supporters of the wage-only one believe adding a sick-day element confuses matters and therefore undermines its chance of passage. Yet there's already talk that both sides will get together and negotiate an agreement over one measure, and then put their vast resources behind the election push.

Some of what wage-hike backers say is unquestionably true. "Income inequality is a serious economic and social problem facing the state of California," according to the newly filed initiative. "Many Californians work full-time jobs, but earn too little to provide their families with housing, groceries, medical care and other life necessities."

The core issue, though, is how to realistically bridge that gap and provide better opportunities for the poorest workers. That's where these proposals become problematic, and it's easier to grasp when we go from the big-picture macroeconomic to the more-personal microeconomic level.

When I managed a payroll, there was only a certain amount of money available. If costs went up, something had to go down, including the size of our workforce. Free-market economists talk about the "seen and unseen" consequences of policy changes. Some workers might see the impact of a higher wage in their wallet, but it's harder to see the jobs that weren't created or the reduction in employee hours imposed by businesses because of the mandated wage increase. (We all, however, see self-service kiosks, which are one way businesses make do with fewer workers.)

Wage-hike backers tout their own happier form of economics. The Los Angeles-based Economic Roundtable released last month a union-underwritten study claiming an increase to $15 an hour in the city of Long Beach will add $442 million in sales to that region. Yet the researchers didn't seem to spend much time wrestling with the hard issues: What about declines in business spending or employment growth? They mostly measure the benefit rather than the cost.

Still, this clearly is a movement. California cities, including San Diego, have been pushing minimum-wage increases. San Diego's City Council voted last year to override Mayor Kevin Faulconer's veto of a measure that would boost the lowest wage to $11.50 by 2017. But the business community is placing a referendum to overturn the law on the June 2016 ballot. By then, however, the state will be in the thick of an initiative battle that could make the local ordinance a moot point.

However this initiative debate plays out, the real focus should be on policies that help create more high-paying jobs, so that low-wage workers can put their energies into improving their education and skills. That's a better way to get a living wage than advocating for government-mandated pay hikes. That may be dismal news, but it's reality.

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  • MC Guru||

    You can't reason someone out of a position which they didn't reason themselves into in the first place

  • american socialist||

    You can say that again.

  • MC Guru||

    And by "position" I mean specifically "I have the right to use brute force to prevent people from entering into voluntary contractual arrangements I -- a third party or otherwise nonparticipant -- dont like, because FYTW"

  • Rockabilly||

    AS = start your own business, say a shop that sells marijuana. I'll work there and you can pay me $150.00 an hour and all the reefer I can have. Thanks only fair and righteous bro

  • american socialist||

    Hey Steven,

    You forgot to mention that higher wages incentivize work and that people taking home $600/week as opposed to $320/week might have a.) more money and b.) some spare cash to spend on marijuana And uber rides.

    I'm for empiricism and not for hoary economic theories so we should probably look at a place like Seattle where they have increased their min. Wage and see what effect it has on unemployment rates. It's probably like 99.9% in Seattle and like 1% in Spokane, right?

  • MC Guru||

    Who the motherfuck gives a shit about theories and TOP MEN calculations?

    You have no right to tell people what contracts they can and cannot voluntarily enter into.

    "American Socialist." How quaint.

    I'm a survivor of the USSR. My grandfather endured backbreaking labor in the gulag for the crime of being a business owner in eastern Romania when the Russians took over.

    THAT is what you stand for.

    FUCK
    OFF
    SLAVER

  • Loki||

    I'm a survivor of the USSR. My grandfather endured backbreaking labor in the gulag for the crime of being a business owner in eastern Romania when the Russians took over.

    It's remarkable how few survivors of communism actually support the idea today. Funny that. You'd think some of our homegrown commies, whose knowledge of what the system really does comes solely from reading about it in a few books, would look at that and maybe ask themselves why that is, but nope: that would require them to actually think about things for more than 5 seconds. Something people like commie kid are incapable of doing.

  • fuckyougotmine||

    Slaver reporting in for duty! I wanna steal the fruits of your labor and giev them to undeserving poors!! Ooga booga!!

  • dchang0||

    Agreed.

    One of my friends whose parents lived in Mainland China were stripped of all their property and sent to state-run factories, where they worked for decades. When they were retired from the factory (too old to keep up), they didn't get anything back from what had been taken from them. All they had were literally the clothes on their backs and shoes on their feet. Obviously no love for communism/socialism in that family.

    Note also that the Vietnamese and Cubans who came/come to America with direct experience of living under Communist rule tend to be extremely anti-socialism and usually end up all voting Republican (although they probably should be Libertarian instead--I figure they did the political math and decided that Libertarians don't win elections).

  • sarcasmic||

    Like most leftists, you get cause and effect backwards. Higher minimum wages don't incentivize people to work harder. They incentivize employers to hire harder workers, leaving the lazy and unskilled in the ranks of the permanently unemployed. It hurts the very people its proponents claim it will help.

  • Seamus||

    Exactly. If you raise the minimum wage to $15.00, then then the only workers who employers will hire are those who are worth $15.00 an hour. Rational businesses never may more than $X for any input unless that input increases their revenue by at least $X. Or maybe you think they make it up in volume?

  • Jimbo||

    By incentivizing workers, you mean robots, correct? : )

  • dchang0||

    The human workers who service the robot workers are going to be well paid for sure... : )

  • Sorgfelt||

    Rather than pontificate, always looks at results. So far, I've seen that higher wages result in more economic activity and do not result in more unemployment. How this has been achieved exactly, I don't know, yet. In regards to the matter of a minimum wage, wages can only follow the law of supply and demand if there is freedom to choose on the part of both employer and employee. If there are no jobs paying $15/hour for people with low or unwanted skills, they cannot simply walk away. It is a matter of survival, not free market choice, that they have accepted less rather than nothing. And, just as employers have fought for laws favorable to their businesses, employees have the right to fight for laws favorable to themselves.

  • Curt2004||

    "So far, I've seen that higher wages result in more economic activity and do not result in more unemployment."

    Links? Where's your data? "I've seen" means exactly diddly squat.

  • MokFarin||

    Small businesses employ the most people in the nation. Most of those small businesses struggle.

    So, if I run a small business and have 6 people working for me, and my costs to employ them doubles, I either have to raise my rates, which will further hurt me in competing with larger businesses in the area, or I have to lay workers off.

    It's a balancing act that almost always axes the workers. So instead of six people taking home "$320/week" you now have 3 people taking home "$600/week." Net change to the economy? Negative Sixty Dollars. And that's without considering the unemployment rate. This is an immediate change because prices will not inflate that much, initially.

    Now, on the other side, because costs are going up prices will inflate across the economy. FIrst prices to jump are usually the labor-intensive products, such as fresh fruits, vegetables, and meats. This then ripples throughout the economy. The small business will eventually be able to charge more and start adding people again, but the initial reaction is negative.

    With all of that being said, look at this from a different angle: If Minimum Wage helps the poor, why hasn't poverty been eliminated? The minimum wage has been set and reset at least 100 times between the federal government and all of the states in the last 70 years. So where and how are we actually helping them?

  • Curt2004||

    You forgot to mention that the increased inflation devalues those higher wages back to what they were worth originally...

  • Jordan||

    You forgot to mention that higher wages incentivize work

    Yes, increasing the cost of labor increases the supply of labor. Congratulations, you have shown that you have a glimmer of economic understanding. Now, what do you think that increasing the cost of labor does to the demand for labor, especially in a context of double-digit unemployment (see U6, which is itself overoptimistic)?

  • SimonD||

    Welfare payments and eligibility rules distort the supply curve of labor, however. There is anecdotal evidence that increasing the minimum wage rate may actually decrease the supply of labor from the working poor (i.e.: the wage hike will cause the employee to demand to work FEWER hours so they can continue to receive welfare benefits).

    That's just more proof that government can fuck up ANYTHING.

  • Rasilio||

    "Wage and see what effect it has on unemployment rates. It's probably like 99.9% in Seattle and like 1% in Spokane, right?"

    I am astounded that someone who was so obtuse that they could type this sentence out was actually capable of operating a computer in even the most basic fashion.

    Here's a clue...

    City limits are not iron borders that workers cannot cross.

    Seattle has relatively low unemployment because it is significantly more expensive to live there than the surrounding suburbs. Raising the minimum wage inside the city limit would have very little impact on Seattle's unemployment rate because there were very very few people living inside the city limit who were making the minimum wage. The people working the minimum wage jobs in Seattle mostly lived outside of the city and commuted in.

    Further even to the extent that Seattle could raise it's minimum wage to $15 without causing a significant impact on employment it is important to note that it hasn't gone into effect yet. The wage has only gone up to $11 per hour and will not hit $15 per hour for 2 more years.

    It is also important to note that Spokane is not Seattle. It is just barely possible that Seattle can sustain a $15 minimum wage because the mean hourly wage there is $28 per hour. In Spokane where the mean hourly wage is just $22 per hour there is no way they can carry a $15 per hour minimum wage

  • NotAnotherSkippy||

    Your entire philosophy is nothing but theory and rejection of empiricism.

    And just how IS Seattle doing?

  • Christophe||

    Skippy, you're bringing facts into a discussion powered by wishful thinking. Not gonna work.

  • Scarecrow & WoodChipper Repair||

    That's fine that you have so much fun arguing the benefits ad nauseum. But to repeat what has been said many times, you are arguing only the seen benefits, not the unseen costs.

    You may as well argue the benefits of skydiving naked without a parachute, the freedom of falling without the encumbrance of any clothes or harness or having to decide when to pull the ripcord.

  • american socialist||

    The studies I've read on the subject basically say two things: First, there may be some effect on unemployment rate by increasing the minimum wage (not all of them find a link, though) but it's hard to measure and depends on how high you raise it. Second, people who get paid more money are happier when they get a raise. CATO libertarian analysts dwell on the first point-- usually cherry-picking what studies they cite-- and then ignore the second effect. So, yeah, I think its fair to at least mention that a person who is making $15/hr may be significantly better off than when he was making $8/hr. You don't?

  • Scarecrow & WoodChipper Repair||

    You are still ignoring the unseen consequences of who gets fired, who doesn't get hired, who remains employed but for fewer hours and with fewer benefits.

  • Sorgfelt||

    Fewer hours make room for a second job.

  • sarcasmic||

    So, yeah, I think its fair to at least mention that a person who is making $15/hr may be significantly better off than when he was making $8/hr. You don't?

    The person making $0/hr is significantly worse off than if he was legally allowed to work for $8/hr, is he not?

    Or is he just an egg in your omelet?

  • Chip the Chipper||

    Those are the people we need homeless shelters for.

  • sarcasmic||

    Yeah. I suppose it's better to live off handouts than be allowed to work for anything less than a living wage. Dignity? Who needs it.

  • JWatts||

    I'm sure am_sock supports a generous welfare benefit for that guy. Paid for by the 1%, of course.

  • Chip the Chipper||

    Your argument doesn't matter anyways. We can argue the benefits of higher wages and the like, but the point of the matter is that the government has no fucking right to tell employers what they should be paying their employees. End of story.

  • blcartwright||

    Check what's happened to the labor participation rates for under 21 year olds since 1990. The higher minimum wages have priced high school and college part time workers (the beginning jobs) out of the market.

  • Curt2004||

    Exactly.

  • fuckyougotmine||

    Aw, man. Seattle increased their minimum wage? Welp, nice knowin' ya, Seattle. How can they possibly survive increasing their minimum wage when the kind libertarian is informing us that this will rend society asunder??

  • sarcasmic||

    You ripped that straw man a new asshole. Good job.

  • plusafdotcom||

    So, AS, could you please link to the research of many past decades that basically said that wage increases at Best are a short-term influence on work output?

    I heard those reports throughout my last 30+ years in 'the real world' so if the earlier reports have been refuted, could you please tell us more?

    Thanks!

  • blcartwright||

    and where does the owner of the store get the money to pay those wages?

    An employer is purchasing labor. They make a market estimate of how much that labor is worth to them. To pay more, they have to bring in more. Higher quality employees bring in more, through more productivity and/or happier customers.

  • JPyrate||

    Keep posting your ignorance on economics AMSOC. Every post you make is just one more inch of rope you are going to hang yourself with. =)

  • DenverJ||

    ...it might take an economist to make the obvious and dismal point that labor is like any other commodity. It is subject to supply and demand, no matter how much we might wish it were otherwise

    So you agree; a massive influx of labor from south of the border must, by the law of supply and demand, drive down wages.

  • Rasilio||

    No because a massive influx of new workers also raises demand. Giving low paid workers a raise does not create a corresponding increase in demand because the new money they are paid must first be extracted from somewhere else so whatever new demand the minimum wage workers create with their now higher pay it is at least mostly counteracted with lower demand elsewhere.

    Immigrants however bring new demand with them and so while a rapid influx of them may have some short term distortions of the labor market temporarily lowering wages in some sectors over the medium term the increase in demand for goods and services will actually create at least as much demand for new labor as the number of new workers.

  • NotAnotherSkippy||

    That assume perfect elasticity and the world isn't perfect. A classic argument against occupational licensing is that it suppresses supply and drives up costs. So if we removed supply constraints then costs(wages) would go down. According to your logic they wouldn't because the flood of new workers would create offsetting demand and keep their wages high.

  • Scarecrow & WoodChipper Repair||

    Eh? What does occupational licensing have to do with immigration?

  • sarcasmic||

    If you remove supply constraints for licensed workers, the total number of workers does not change. Neither does the amount of goods and services consumed by those workers. Things may shift around a bit, but that's it. So your analogy doesn't fit.

    The argument that immigrants suppress wages assumes demand for workers remains static. But how can it? Those new workers will consume goods and services, which will increase demand for those goods and services, which will increase demand for people who produce those goods and services. Total supply of workers increases, but so does the total demand. The argument fails because one of the key premises (demand for labor remains static) is false.

  • Scarecrow & WoodChipper Repair||

    It is also arguable than an influx of poor immigrants would increase demand more than normal, because all those poor immigrants have to start from a lower base and start accumulating all the things they see on TV and in the new world around them.

    But to ignore immigrants' demand entirely is willful ignorance.

  • sarcasmic||

    I don't think it's really willful. The demand created by immigrants is unseen, and not everyone reads Bastiat. And even then, not everyone who reads Bastiat understands it. The unseen is a hard thing to grasp for most people.

  • DenverJ||

    Oh i grasp it. But wages still fall. You may have more demand, bit that demand is at a lower price point. This is why went level construction wages are they same s when i was entry level, some 20+ years ago.

  • sarcasmic||

    I've seen the same thing in restaurants.

  • SoCal Soccar Mom||

    "...which will increase demand for people who produce those goods..."

    Agreed with most of what you said, but the quoted portion above. What if the goods are produced in a foreign country? Jobs to import, distribute and sell the goods may increase, but jobs to produce the goods would not necessarily increase. So, maybe the demand for lower paying jobs increases.

    You also have to make an assumption that people doing the importing, distributing and selling jobs are currently working at 100% capacity. A new employee to import, distribute and sell goods will only be hired when the current employees are outpaced by the new demand placed on them. I suspect that some (A significant amount? Don't actually know.) portion of the new demand created by immigrants will be satisfied by people already employed, so the net gain in demand created by new immigrants won't necessarily mean new job creation at a pace sufficient to maintain current unemployment rates or reduce unemployment.

  • sarcasmic||

    They're gonna need food. They're gonna need shelter. They're gonna need medical care. They're gonna need a plumber. They're gonna need a mechanic. There's lots of stuff that they're gonna need that isn't imported. As far as them buying stuff that is imported, so what? Then those people overseas will have more dollars to use to import American goods or invest in American capital, which helps the American economy. That whole trade deficit thing is a myth based upon merchantilist fallacies.

  • SoCal Soccar Mom||

    My point wasn't that they aren't going to need goods and services. My point was that some of their demand will be satisfied by current employees and, therefore, there may be a net increase in unemployment due to immigration.

  • sarcasmic||

    I see what you're saying. Some employers will be able to absorb the increased demand and not hire new people. Though some that were already at peak output would have to hire new people, and then be in a position to absorb increased demand like the ones that didn't hire people. In the end why couldn't it come out a wash? Or even with more new hires by companies that were just barely able to keep up before demand increased?

  • Fairbanks||

    True in the aggregate. But wages could be adversely affected in some sectors based on what types and numbers of workers are introduced.

  • sarcasmic||

    That is true assuming the supply of jobs is static. However those new workers are going to consume goods and services, which will create new jobs.

  • sarcasmic||

    Or what Rasilio said.

  • american socialist||

    Only a socialist asshole communist like bernie sanders would make that kind of argument. People like you should be burned at the stake in a fire stoked by Murray rothbard publications.

  • Christophe||

    Only the wages of the people they're competing with. Even the average unskilled native has a significant advantage in many industries simply due to local knowledge.

    The overall wages will go up due to increased specialization of labor.

  • JWatts||

    This seems like good news. Let California experiment with a significant hike on minimum wage so that everyone can see the results. Ideally, they would make the hike in an even shorter time frame. Just make it $15 per hour starting 01/01/2016 and let's see what the economic results are.

    If the supporters are right, the good should clearly out way the bad, if they're wrong, the outcome will be bad.

  • Fairbanks||

    There's no such thing as a bright line good or bad result. Some will be better off and some will be worse off. What's more, it's impossible to measure the results because we don't know what would have occurred in the absence of the minimum wage hike.

  • Jimbo||

    "Many Californians work full-time jobs, but earn too little to provide their families with housing, groceries, medical care and other life necessities."

    So move if you can't afford it.

  • fuckyougotmine||

    You seem nice.

  • Intraveneous Woodchipper||

    ^Did his meaness trigger you? Do you need a safe space?

  • fuckyougotmine||

    Wow, you're right, libertarian, living wages are for suckers! People should continue working more hours for shittier wages because economics!

    You'll get nothing and you'll like it, now take us seriously as a political party.

  • sarcasmic||

    You do have a point. Most people are ignorant of economics, so they don't understand that minimum wage laws relegate those with the least responsibility and skills to the ranks of the permanently unemployed. Most people just assume that employers will pay any worker that living wage without considering what happens to those who lack the skills and responsibility to actually earn it. You know, the people who are let go or never hired in the first place. So as a result of this economic ignorance, they will support a proponent of minimum wage over a libertarian.

  • Jimbo||

    I think FYOU is worth about $5.00/hour, if you know what I mean...

  • Intraveneous Woodchipper||

    ^You're funny. Now off to the gulag with you!!!!

  • Sir Chips Alot||

    if you feel you are not being compensated appropriately, you could simply get another job? After all, you must have some valuable skill set in high demand? Or are you a Professionally Licensed Street Sweeper whose ability to use a broom is unrivaled in the world?

  • blcartwright||

    Living wages are for people who have developed their skills and worked hard enough, so that their labor is valuable to someone.

    If you need $15/hr, apply for a job that pays that. If you don't qualify, you need to work on your skills.

    No one gets paid what they need, they sell their labor for what their employer thinks that labor is worth.

  • DesigNate||

    You're absolutely right sock puppet/troll, we should totally just make employees pay a living wage. There couldn't possibly be any bad side effects to that whatsoever.

    And as we all know, small businesses are run by greedy Bilderbergs who just horde all that dirty fucking profit.

    Eat the rich I say.

  • MSimon||

    A hike in the minimum wage will create some high paying jobs. For robot designers and tenders.

  • CarmelaBurchard||

    Im making over $9k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do,

    ---------- http://www.onlinejobs100.com

  • blcartwright||

    That's even more than $15/hr!!

  • XM||

    The nail salon fiasco is a reminder that wage hike and other measures that "protect" employees will hit immigrants and the democrat base harder.

    I don't believe for a second that economies of blue cities will universally adapt any sort of living wage that's passed by the local government. There will be under the table transactions and off the books employment.

    So the only question is, who strikes first - the government regulators, or labor activist groups who will sting small businesses for "wage theft"?

  • DesigNate||

    Of course what our resident retards continue to fail to grasp is that the government has no right to dictate employment terms.

    But by all means, let's play who can get screwed the fastest for .9% of the population.

  • Glide||

    I reckon if the government fixed the price of coffee at $15 a cup under the premise that sellers of coffee needed protection from greedy coffee buyers, we might see a few people suddenly become free market capitalists.

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