Why the fight for minimum wage?

[oldfart]

Virtually every economist agrees raising the min wage is bad.

You seem to travel in very unusual economic circles. How many prominent economists must I list for you to withdraw that unfounded and false assertion? I'll be happy to provide my list when you have provided yours. If "virtually every economist" agrees with your position, you should have no trouble providing the names of 17 or 18 of the last 20 Nobel winners that support you. Take your time, I can wait.

 

[SwimExpert]

Three pages in, and nobody can give even a single goal that raising the minimum wage accomplish.

 

[asterism]

Three pages in, and nobody can give even a single goal that raising the minimum wage accomplish.

I did. Union workers think they are better off.

 

[expat_panama]

...what do you hope to accomplish by supporting an increase in the minimum wage?

What they HOPE to accomplish is some small relief for those working poor. And YES it will provide some relief for a while... until the masters inflate money supply again.

Maybe, or maybe not. When businesses are warned like they were with the recent increases--

--they have time to gear up for the change over and lay people off. What they just did in Panama was the president signed a 27% min. wage increase on Dec. 30, announced it on the 31, and we all got copies of the law yesterday. That way some employers didn't get to find out they were going to be paying more until it came time to write checks for work already done.

 

[The Rabbi]

Virtually every economist agrees raising the min wage is bad.

You seem to travel in very unusual economic circles. How many prominent economists must I list for you to withdraw that unfounded and false assertion? I'll be happy to provide my list when you have provided yours. If "virtually every economist" agrees with your position, you should have no trouble providing the names of 17 or 18 of the last 20 Nobel winners that support you. Take your time, I can wait.

Quotation of the day: James Buchanan on the minimum wage | AEIdeas

Those in favor seem to believe that prices can be set arbitrarily in a market with no effect. That is simply inconsistent with the very idea of economics.

 

[oldfart]

For those who want the minimum wage to be increased.......why?

I've been waiting for someone to give a well thought and researched reply, but I guess it's time I take a crack at it. Bear with me. Before I answer each specific point (they aren't really questions unless you thin "Have you stopped beating your wife?" is an honest question. Shame on the OP!). read the following.

Raising the Minimum Wage: Old Shibboleths, New Evidence

By LAURA D'ANDREA TYSON

Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.

The last several decades have been especially hard on American workers in jobs that pay the minimum wage. Adjusted for inflation, the federal minimum wage of $7.25 an hour today is 23 percent lower than it was in 1968. If it had kept up with inflation and with the growth of average labor productivity, it would be $25 an hour.

Congressional Democrats have proposed legislation to raise the minimum wage to $10.10 an hour and index it to inflation, and President Obama signaled support in a recent speech highlighting the economic and political dangers of growing income inequality. Predictably, opponents of an increase in the minimum wage are once again invoking the hackneyed warning that it will lead to higher unemployment, especially among low-skilled, low-wage workers who are the intended beneficiaries.

I heard the same refrain in 1996 when I served as chairwoman of President Bill Clinton’s National Economic Council, and he worked with congressional Democrats to raise the minimum wage to $5.15 an hour at a time when it had fallen in real terms to a 40-year low. To hear Republican opponents and lobbyists for retailers and fast-food companies, we were about to inflict a cold-hearted fate on young people and minority workers. The same chorus is voicing the same dire predictions today.

As it happened, the United States experienced a spectacular boom in employment and prosperity from 1996 to 2000. Indeed, these years proved to be a rare and all-too-brief period when incomes improved at every wage level. Contrary to the warnings of the naysayers, a higher minimum wage did not impede robust employment growth; it did contribute to healthy income gains for low-wage workers.

Since then, a raft of meticulous economic research, including work by David Card and Alan B. Krueger, who served as chief economist at the Labor Department in the Clinton administration and more recently as the chairman of the Council of Economic Advisers in the Obama administration, has decisively demolished the old shibboleths. The weight of the evidence consistently finds no significant effects on employment when the minimum wage increases in reasonable increments.

For a good overview, look to a paper by Arindrajit Dube of the University of Massachusetts, Amherst; T. William Lester of the University of North Carolina, Chapel Hill; and Michael Reich of the University of California, Berkeley. Using two decades of data and side-by-side comparisons of bordering counties in the United States, they find that higher minimum wages raise the earnings of low-wage workers and have negligible effects on employment levels. According to their estimates, an increase of 10 percent in the minimum wage would have a statistically negligible effect on employment in industries and occupations employing minimum-wage workers.

In 1996, the prevailing view among economists was that an increase in the minimum wage would reduce employment. But opinions have changed in response to the evidence. In a recent survey of a panel of leading economists, only a third expected that an increase in the minimum wage to $9 an hour would make it “noticeably harder for low-skilled workers to find employment,” and nearly half agreed that the economic benefits of raising the minimum wage and indexing it to inflation would outweigh the economic costs.

An increase in the minimum wage would increase the costs of businesses, especially those like fast-food restaurants that employ a large number of minimum wage workers. Higher labor productivity resulting from a reduction in labor turnover brought on by a higher minimum wage would offset a portion of these costs. Businesses would also pass some costs on to their customers in the form of higher prices.

Yet a phased-in increase in the federal minimum wage to $10.10 an hour is not likely to affect business costs or prices significantly. On average, even the costs of fast-food restaurants would increase by less than 3 percent, and a price increase of a few cents on their products could offset a significant share of their higher labor costs. According to a recent estimate, McDonald’s could cover about half of its higher labor costs by raising the price of a Big Mac by about 1.25 percent, or 5 cents.

At the macro level, an increase of 10 percent in the minimum wage is associated with less than half a percentage point increase in the aggregate price level. With short-term nominal interest rates near zero, a transitory increase in the inflation rate from a minimum wage hike would lower the real interest rate, increasing demand and growth.

Another shibboleth of the naysayers of a minimum wage increase is that most minimum wage workers are teenagers. They are not. According to recent research by the Economic Policy Institute, about 30 million workers would benefit from the proposed increase in the minimum wage to $10.10 an hour. Of these workers, 88 percent would be at least 20 years old with an average age of 35; 55 percent would be working full time; 56 percent of them would be female, and more than 28 percent of them would be parents.

At the current minimum wage, a worker employed full time for a full year makes only $15,080, 19 percent below the poverty line for a family of three. So it’s not surprising that many families whose incomes depend on a minimum wage worker need public assistance. More than half of the families of fast-food workers are enrolled in at least one public assistance program at a cost of about $7 billion a year. Recent research finds that an increase in the minimum wage is a powerful policy tool for reducing poverty, with a 10 percent increase cutting the poverty rate by 2 percent .

Putting more income into the hands of minimum-wage workers would not only reduce poverty; it would also stimulate consumer spending at a time when inadequate demand continues to impede a robust recovery and job creation. Using very different methodologies, two recent studies confirm that an increase in the minimum wage to the $10 range would lift spending, gross domestic product and job creation.

Contrary to the warnings of its opponents, a higher minimum wage would, under current economic circumstances, mean more employment, not less.

An increase in the minimum wage would also increase the effectiveness of the earned-income tax credit to reduce poverty and increase demand among low-income households with high propensities to consume. As David Neumark asserts in his recent Economix post, since the mid-1990s, when President Clinton championed a sizable increase in the earned-income tax credit, it has provided much greater income support to low-income families than the minimum wage. But as Professor Neumark acknowledges, the earned-income tax credit and the minimum wage are not substitutes for each another. They work together and can lead to better outcomes than either policy alone.

Unfortunately, it is highly unlikely that a divided Congress will agree to increase the generosity and coverage of the earned-income tax credit any time soon. But the prospects for an increase in the minimum wage look promising because of strong voter support. A recent poll shows that large majorities of Democratic, independent, and Republican voters support an increase in the minimum wage.

As President Obama noted in his speech on inequality, most Americans agree that if you work hard, you should be able to make a decent living and support your family. It’s time to raise the minimum wage and make it real.

I didn't want to break up a good piece of writing, so I have not edited her article.

1) You do realize that businesses will only respond by increasing the cost of goods and services, right?

Unlike you I bothered to check. There has never been any evidence of increases in the minimum wage causing significant inflation, and the overwhelming majority of economists do not forsee this. As Dr. Tyson noted

An increase in the minimum wage would increase the costs of businesses, especially those like fast-food restaurants that employ a large number of minimum wage workers. Higher labor productivity resulting from a reduction in labor turnover brought on by a higher minimum wage would offset a portion of these costs. Businesses would also pass some costs on to their customers in the form of higher prices.

Yet a phased-in increase in the federal minimum wage to $10.10 an hour is not likely to affect business costs or prices significantly. On average, even the costs of fast-food restaurants would increase by less than 3 percent, and a price increase of a few cents on their products could offset a significant share of their higher labor costs. According to a recent estimate, McDonald’s could cover about half of its higher labor costs by raising the price of a Big Mac by about 1.25 percent, or 5 cents.

So, yes, if the public cannot pay another nickel for a Big Mac, McDonald's will go out of business. But that will not happen for the following reason which virtually every economist, businessman, and stock analyst will agree to. There is the famous "Prisoner's Dilemma" of game theory which goes like this. Police are interrogating two suspects in a robbery separately but simultaneously. They have insufficient evidence to support charges without a confession. Therefore they tell each suspect separately that the other is spilling the beans, but because they are nice policeman they will cut a deal with him if he confesses immediately. Of course each suspect has seen this a million times on TV and know the game. If both suspects simply hold out, both will be released. If one or both confess, they both will go to jail. But the one who confesses first will get a plea deal. What's the optimal strategy? How much do you trust your cohort in crime to not confess?

Now businesses face the Prisoner's Dilemma every day. If Firm A installs pollution controls and Firm B does not, Firm A's costs increase relative to B's and Firm A's market share and profits will decline, being diverted to B. But both firms install such equipment as a result of regulation, no one suffers a relative cost disadvantage.

The minimum wage is a solution to the Prisoner's Dilemma. Everybody has to pay the same, so the prices of Big Macs and Whoppers both go up a nickel and everybody stays in business.

2) You do realize that increasing the minimum wage will have a substantial negative effect on small businesses, right?

The minimum wage effects all businesses. Tell me why the above reasoning applies any differently to McDonald's Corporation than to McDonald's franchisees or Joe's Burger Joint.

3) You do realize that such an inhibition upon small businesses will result in increased market share being gained by large corporations as small businesses close shop, right?

Again sport, I see no reasoning in your assertion. Tell me how an increase in the minimum wage for all businesses favors McDonald's Corporation over their franchisees and Joe's Burger Joint.

4) You do realize that corporations will not settle for a smaller share of profits to pay for such an increase, because the people in charge are greedy bastards whose own income is tied to their ability to minimize labor costs, right?

Well I guess we can all pack up and go home, since large firms just ignore all laws they find inconvenient. You just made the case for making violations of minimum wage a capital offense. After you (personal "you" not collective "you" since this is your argument after all) hang a couple dozen of the "greedy bastards" "in charge" as you call them the job should get easier.

Personally I depend on making corporations obey the law through economic sanctions and letting their self-interest guide them as opposed to your dichotomy of exploitation or bloody revolution. Will we see you at the barricades? And on which side?

So what do you hope to accomplish by supporting an increase in the minimum wage?

Nothing except increased economic growth, rising American living standards, decreasing income inequality, and social, political, and economic stability. And you?

You have made this way too easy. Stop dressing up as a straw man and learn to think critically. There are arguments on the other side which I disagree with, but which I have much more trouble answering. Try to find one of them.

Oh, and drop the poseur "virtually every economist" schtick. All it proves is that you are not one.

 

[percysunshine]

Why the fight to abolish the minimum wage, unless you intend to pay your employees less?

Supply and Demand is the law, and the fact that people are different means some people's work is not worth much. Raising the minimum wage does not make anyone's wage higher, it just makes it illegal to hire low value workers. The only way employers can get the work done legally is to rent machines to replace the cheap labor. Minimum wage increases raise unemployment and lower incomes for the general population:

We need to fight to abolish the minimum wage --unless you intend to increase the horrific suffering that those laws have caused in joblessness and lowered incomes.

By subtracting 75 years from the x-axis, we find FDRs wage policies.

What a coincidence.

.

 

[expat_panama]

...FDRs wage policies. What a coincidence. .

Huh. A lot of people pointing out 1933-2009 similarities...

 

[Supposn]

Swim expert, the federal minimum rate’s purchasing power has not generally been retained but our national economy has always benefitted from each of its increases.
I’m an advocate of a federal minimum wage rate annually adjusted similarly to Social Security retirement benefits by a cost-price index.

Opponents of the federal minimum wage, (FMW) believe the federal minimum wage rate is a primary or particular driver of the U.S. dollar’s inflation; that falsehood is one of their rationalizations to support their predisposition to oppose the FMW rate.

FMW rate updates are political determinations and have always been reactions to the U.S. dollar’s inflation over a duration of years. Usually when each increase of the FMW was enacted, it did not keep pace with the reduced purchasing power of the U.S. dollar and it was permitted to lag further behind until the following FMW increase.

Enterprises’ price increases are a reaction to market forces that include but are not limited to additional costs reflecting any increase of the FMW rate. Enterprises generally react quicker than the U.S. Congress. All U.S. spending contributes to the U.S. dollar’s rate of inflation but due to the afore mentioned reasons, the purchasing power of the FMW generally lags behind the dollar’s rate of inflation and thus is less a cause and more (than price increases due to other causes), a victim of the dollar’s inflation.

Opponents pretend that minimum wage only affects the very poorest of the working poor. Except in the cases of jobs requiring labor that’s in short supply, purchasing powers of ALL WAGE SCALES are related to each other. The rising tide raises all boats), but they do not proportionally affect all wage scales equally. The FMW’s affect upon any wage scale is proportional and inverse to the differences between their purchasing powers;
[i.e. the lesser wage rates benefit more and the greater wage rates benefit less from the purchasing power of the FMW].

The relationship is inverse to the difference between the FMW's and job rates’ purchasing powers; (i.e. proportionally the minimum rate is of greater benefit to lesser earners and of lesser benefit to greater earners' purchasing powers but all employees somewhat benefit from the minimum rate).
Thus the minimum rate significantly increases the earners’ purchasing powers for no less than the lowest quarter of USA’s entire full time employee population.

Respectfully, Supposn

 

[SwimExpert]

Three pages in, and nobody can give even a single goal that raising the minimum wage accomplish.

I did. Union workers think they are better off.

But considering that the prices will just go up, they won't be better off.

 

[Supposn]

Why the fight to abolish the minimum wage, unless you intend to pay your employees less?

Supply and Demand is the law, and the fact that people are different means some people's work is not worth much. Raising the minimum wage does not make anyone's wage higher, it just makes it illegal to hire low value workers. The only way employers can get the work done legally is to rent machines to replace the cheap labor. Minimum wage increases raise unemployment and lower incomes for the general population:

We need to fight to abolish the minimum wage --unless you intend to increase the horrific suffering that those laws have caused in joblessness and lowered incomes.

Expat_Panama & Swim Expert, we need a federal minimum wage because individual job applicants or earners of the lowest wage jobs cannot negotiate from equally advantageous positions as employers enjoy.

Expat_Panama, your post implies otherwise but I do not believe you to be ignorant or illogical. If you actually hold to your implied position, I must conclude your post’s a dishonorable act of duplicity.

When due to wages higher purchasing power we have induced increased automation and lesser priced domestically produced products, it has always been a net benefit to our nation’s economy.

Regarding USA’s trade deficit of goods, refer to:
http://www.usmessageboard.com/econo...ade-deficit-increase-gdp-and-median-wage.html
and
http://www.usmessageboard.com/econo...always-detrimental-to-their-nations-gdps.html

Regarding elimination of the minimum wage, refer to:
http://www.usmessageboard.com/economy/232006-consequences-of-repealing-minimum-wage-rates.html

Supposn

 

[Norman]

When due to wages higher purchasing power we have induced increased automation and lesser priced domestically produced products, it has always been a net benefit to our nation’s economy.

So basically, businesses are too damn stupid to know when to use automation or when to not to. But somehow with minimum wage their decision will be better. Makes total sense...

Anyway, I don't see why to make this so hard. All we need is an actual trial (even though I think this has been proven many times already). Let's increase the min wage to 15 per hour, immediately.

I don't understand why anyone would be against this. Both sides think they are right, so let's prove it!

 

[oldfart]

When due to wages higher purchasing power we have induced increased automation and lesser priced domestically produced products, it has always been a net benefit to our nation’s economy.

So basically, businesses are too damn stupid to know when to use automation or when to not to. But somehow with minimum wage their decision will be better. Makes total sense...

Anyway, I don't see why to make this so hard. All we need is an actual trial (even though I think this has been proven many times already). Let's increase the min wage to 15 per hour, immediately.

I don't understand why anyone would be against this. Both sides think they are right, so let's prove it!

We are already doing this as a "natural experiment" in the considerable number of cities and states that have higher minimum wage laws than the federal minimum. So far it doesn't seem to have had any of the dire consequences predicted.

 

[Norman]

When due to wages higher purchasing power we have induced increased automation and lesser priced domestically produced products, it has always been a net benefit to our nation’s economy.

So basically, businesses are too damn stupid to know when to use automation or when to not to. But somehow with minimum wage their decision will be better. Makes total sense...

Anyway, I don't see why to make this so hard. All we need is an actual trial (even though I think this has been proven many times already). Let's increase the min wage to 15 per hour, immediately.

I don't understand why anyone would be against this. Both sides think they are right, so let's prove it!

We are already doing this as a "natural experiment" in the considerable number of cities and states that have higher minimum wage laws than the federal minimum. So far it doesn't seem to have had any of the dire consequences predicted.

So let's rise it and see... higher the better right?

 

[SwimExpert]

Expat_Panama & Swim Expert, we need a federal minimum wage because individual job applicants or earners of the lowest wage jobs cannot negotiate from equally advantageous positions as employers enjoy.

Straw man. Please stick to the topic at hand.

 

[Supposn]

So basically, businesses are too damn stupid to know when to use automation or when to not to. But somehow with minimum wage their decision will be better. Makes total sense...
... So let's rise it and see... higher the better right?

Norman, basically, businesses make cost/price determinations. There’s little inducement to develop or invest to automate tasks that can be performed at little or no greater per unit cost by less costly labor.

I’m unaware of a minimum wage rate being detrimental to any nation’s economy but I don’t know precisely how and why but do not doubt that an extraordinary enforceable minimum wage rate would be detrimental to a national economy. I’m unaware of such a national occurrence anywhere at any time.
I ‘m aware that an insufficient minimum wage rate promotes poverty and poverty is detrimental to any nation’s economy.

Pegging the federal minimum wage to the cost/price index, (similar to the annual cost of living adjustment of Social Security retirement benefits) is certainly not an extraordinary minimum wage rate.
The timing and extent of the federal minimum wage should be updated by civil servant statisticians rather than by political determinations.

Swim Expert, the justification of the federal minimum wage is not germane to this discussion?

Respectfully, Supposn

 

[oldfart]

We are already doing this as a "natural experiment" in the considerable number of cities and states that have higher minimum wage laws than the federal minimum. So far it doesn't seem to have had any of the dire consequences predicted.

So let's rise it and see... higher the better right?

Well, I support raising the minimum wage to $15 an hour and indexing it for inflation, which I believe would economically beneficial and a fair test in the "natural experiment". I did not know that "rise" was a transitive verb.

 

[oldfart]

Expat_Panama & Swim Expert, we need a federal minimum wage because individual job applicants or earners of the lowest wage jobs cannot negotiate from equally advantageous positions as employers enjoy.

Straw man. Please stick to the topic at hand.

In what way is pointing out that unequal bargaining power in the labor market, often amounting to monopsony, not a valid reason for using the minimum wage as a counterbalance? Historically all labor law has been founded on the premise that government intervention is justified by the inequality of bargaining power so that issues like minimum wage, child labor, working conditions, overtime pay, and so forth should not be left strictly to the market. Even if you oppose this view, you should admit the reality that this is indeed the foundation of all government intervention in the labor market. Calling it a straw man is a red herring.

 

[oldfart]

So basically, businesses are too damn stupid to know when to use automation or when to not to. But somehow with minimum wage their decision will be better. Makes total sense...
... So let's rise it and see... higher the better right?

Norman, basically, businesses make cost/price determinations. There’s little inducement to develop or invest to automate tasks that can be performed at little or no greater per unit cost by less costly labor.

I’m unaware of a minimum wage rate being detrimental to any nation’s economy but I don’t know precisely how and why but do not doubt that an extraordinary enforceable minimum wage rate would be detrimental to a national economy. I’m unaware of such a national occurrence anywhere at any time.
I ‘m aware that an insufficient minimum wage rate promotes poverty and poverty is detrimental to any nation’s economy.

Pegging the federal minimum wage to the cost/price index, (similar to the annual cost of living adjustment of Social Security retirement benefits) is certainly not an extraordinary minimum wage rate.
The timing and extent of the federal minimum wage should be updated by civil servant statisticians rather than by political determinations.

Swim Expert, the justification of the federal minimum wage is not germane to this discussion?

Respectfully, Supposn

Sorry I stepped on your reply!

 

[expat_panama]

We need to fight to abolish the minimum wage --unless you intend to increase the horrific suffering that those laws have caused in joblessness and lowered incomes.

...we need a federal minimum wage because individual job applicants or earners of the lowest wage jobs cannot negotiate from equally advantageous positions as employers enjoy...

While that may be what populist politicians say to get votes, it's now how pay negotiation works.

The way pay negotiation works is you get paid the pile of money that the employer can pay from the bigger pile of money that he gets in profits at the end of your work day. You can get whatever raise that you want as long as you can prove that your labor gives the employer a profit that's bigger than the raise. Sure, down at the looney-lefty union hall the thugs will say the employer would rather fire you than make more profit, but that's just how looney-lefties talk and it's not true.

The way min. wage laws work is that the law makes it illegal to hire low value employees and still make a profit. Sure, we all know anyone can hire a low value employee at a loss and go out of business if he wants. Once. After that one time there's no more business. OK, so down at the looney-lefty union hall the thugs will say the employers are willing to go out of business by hiring low value employees, but that's just how looney-lefties talk and it's not true.