Minimum wage

[johnmann]

Food stamps, Medicaid, Section 8, and other unconditional cash transfers do not subsidize employers. Without them, employers would still pay the same. The EITC can potentially subsidize employers because it’s a wage subsidy, allowing employers to capture some of the credit by lowering wages. One way to avoid this is to remove the work requirement. Of course, that has its own drawbacks.

Paul Krugman argues that the min wage is one way to prevent employers from capturing the EITC. But that’s an argument for a min wage, not raising the min wage. It’s very possible that the current min wage already prevents EITC capture.

 

[shockerfan]

1. Raising it to $15 nationally, especially immediately, is insane. I’d suggest raising the federal minimum wage to $9 over three years.
2. I don’t suggest businesses owe anyone a specific wage, I’m in favor of companies not using the federal government to subsidize their cost of labor.

Thanks for the reply. I do have a few more questions regarding your 2nd point…why do you say that the government is subsidizing business with their labor cost? Does that not imply that there is some minimum wage that should be payed to a person regardless of their value to the business? If I take your comment to the direction its heading, then one could say a business that pays its employee $6 per hour is having the government subsidize the labor cost more than a company that pays its employee $9. AND, a company paying its employee $3 is having the government subsidize the labor cost even more. AND, a company that automates and eliminates the worker all together has forced the government to completely subsidize that labor cost. I struggle with your choice of the word “subsidize”.

 

[Mickey_Finn]

It’s better to be employed at a low wage than not employed at all. Maybe you don’t believe there is a significant disemployment effect but you then need to explain why you believe raising the price of something doesn’t affect the demand curve. Otherwise, you’re basing your position on pure fantasy.

As for who earns the minimum wage, half are under 25 and a third belong to households that earn more than the national median ($60,000). If your goal is to help the poor, the min wage is a very inefficient way to do it. It helps the not-poor and does not help the unemployed at all.

The Dis-employment you mention has been statistically very low. Though it is threatened each time we address the minimum wage question. The end result is always the economy grows, and the sky does not fall.

The long view here being that as the lowest wage earners get a raise so will the rest of the workers. This will enable them to one, get off of public assistance, and two have more money to spend. I would point out that wages in the United States are at dangerously low levels and many are living below the comfort level. Having to decide which bills to pay and when. People who are surviving in such dire straits have no chance of saving for retirement, let alone helping their children with schooling.

Police Officers/ Fire fighters in Detroit, as well as surrounding, and equally challenging communities are making less than $15.00/hr. Something has to give.

ATB

 

[Rau]

Paying them more than the value of the work can’t work forever either.

Our government in the US is subsidizing virtually everone below the top 5%, we aren’t paying anywhere near what we’re receiving in government services. Hence the trillions in deficits.

As for demand for labour being less than supply-- we’re already there. We have the highest number of unemployed in the US ever. Although the unemployment rate has improved, it’s a bogus government statistic since it excludes folks who’ve stopped looking for work.

The distrubition of wealth does need to change-- we need to stop the progressive policies which have greatly increased the gap between the rich and poor. A book just came out that should be an interesting read, “The New Class Conflict”

It may be necessary to pay people well not to work at all.

What “progressive policies” do you have in mind? I’m not American.

 

[Mickey_Finn]

Food stamps, Medicaid, Section 8, and other unconditional cash transfers do not subsidize employers. Without them, employers would still pay the same. The EITC can potentially subsidize employers because it’s a wage subsidy, allowing employers to capture some of the credit by lowering wages. One way to avoid this is to remove the work requirement. Of course, that has its own drawbacks.

Paul Krugman argues that the min wage is one way to prevent employers from capturing the EITC. But that’s an argument for a min wage, not raising the min wage. It’s very possible that the current min wage already prevents EITC capture.

Again we see a problem with one of your post. I wonder if this is intentional, or if you are getting your information from an unreliable source.

Food Stamps (Supplemental Nutritional Assistance Program), Medicaid, and Section-8 are not unconditional cash transfers.

ATB

 

[johnmann]

The Dis-employment you mention has been statistically very low. Though it is threatened each time we address the minimum wage question. The end result is always the economy grows, and the sky does not fall.

So you’re willing to tell an unemployed person, “We had to kill your job because people with jobs need more money?”

Subsidizing oil companies isn’t the end of the world either but it’s bad policy because it is a misallocation of resources that makes the world, and disproportionately the more vulnerable, worse off.

For raising the min wage to be defensible, you have to show that the rise in income for the poor would exceed the income lost due to the disemployment effect. And even then, you would only prove that the policy is better than nothing, not that it’s the best policy.

The long view here being that as the lowest wage earners get a raise so will the rest of the workers. This will enable them to one, get off of public assistance, and two have more money to spend. I would point out that wages in the United States are at dangerously low levels and many are living below the comfort level. Having to decide which bills to pay and when. People who are surviving in such dire straits have no chance of saving for retirement, let alone helping their children with schooling.

Police Officers/ Fire fighters in Detroit, as well as surrounding, and equally challenging communities are making less than $15.00/hr. Something has to give.

Your faulty assumption is that raising the min wage would improve matters. Again, you need to articulate why raising the price of labor doesn’t proportionally depress the demand for labor.

Again we see a problem with one of your post. I wonder if this is intentional, or if you are getting your information from an unreliable source.

Food Stamps (Supplemental Nutritional Assistance Program), Medicaid, and Section-8 are not unconditional cash transfers.

By “unconditional cash transfers” I meant no work requirements. I did misuse the term.

 

[Joie_de_Vivre]

Walmart effectively has the government subsidizing its business - walmart employees are major recipients of food stamps.

The distribution of wealth will need to change. Robotics etc will see demand for labour fall below the supply. How will the displaced millions survive If the economic model is unchanged? To what - I don’t know - but only paying people who work in a job paid according to the “value” of the work output seems as though it cannot work forever.

Robotics would displace people even without the minimum wage increasing.

Food stamps, Medicaid, Section 8, and other unconditional cash transfers do not subsidize employers. Without them, employers would still pay the same. The EITC can potentially subsidize employers because it’s a wage subsidy, allowing employers to capture some of the credit by lowering wages. One way to avoid this is to remove the work requirement. Of course, that has its own drawbacks.

Paul Krugman argues that the min wage is one way to prevent employers from capturing the EITC. But that’s an argument for a min wage, not raising the min wage. It’s very possible that the current min wage already prevents EITC capture.

SNAP is conditional

Employment Requirements

Generally ABAWDS between 18 and 50 who do not have any dependent children can get SNAP benefits only for 3 months in a 36-month period if they do not work or participate in a workfare or employment and training program other than job search. This requirement is waived in some locations.

With some exceptions, able-bodied adults between 16 and 60 must register for work, accept suitable employment, and take part in an employment and training program to which they are referred by the local office. Failure to comply with these requirements can result in disqualification from the Program.

source

Actually due to the fungibility of money it does in fact subsidize employers.

 

[Rau]

Your faulty assumption is that raising the min wage would improve matters. Again, you need to articulate why raising the price of labor doesn’t proportionally depress the demand for labor.

Limiting the discussion for the moment to our current economic system, supply and demand curves are not the smooth lines you might imagine. McDonalds employs about the right number of kids to man a store. This is not because the wage rates stipulated are just perfect for the stores needs.

 

[johnmann]

Actually due to the fungibility of money it does in fact subsidize employers.

The fungibility only effects the utility of the dollar. It’s not how the subsidy occurs. The subsidy occurs because the government is paying for the work that employees are doing for their employers. Very simple. My point though, is that it only subsidizes employers when there’s a work requirement. If you receive a government benefit regardless of whether or not you work, your employer cannot capture that benefit and there is no subsidy.

You are correct that SNAP has partial work requirements. Not sure of the portion of min wage workers would receive SNAP who wouldn’t had they not been working. At any rate, if you want to stop subsidizing employers, you can remove the work requirements.

 

[johnmann]

Limiting the discussion for the moment to our current economic system, supply and demand curves are not the smooth lines you might imagine. McDonalds employs about the right number of kids to man a store. This is not because the wage rates stipulated are just perfect for the stores needs.

Supply and demand curves aren’t just any lines you imagine either.

Of course stores would like to pay less while employees would like to earn more but McDonald’s employs “about the right number of kids to man a store” because the wage rates stipulated are what they are. If the equilibrium rate were lower, McDonald’s might hire potato peelers and offer fresh fries or it might open more stores. If the rate were higher, McDonald’s might invest in automated drive-throughs and eliminate that labor cost or it might open fewer stores. I say “might” only because McDonald’s isn’t the only employer so it’s not certain that McDonald’s specifically would do those things instead of say Burger King or Wal-Mart.

 

[Cat]

styrgwillidar:
You made the comment that employers will not employ teens, but will employ elderly people or young adults who are more reliable.

I can go along with the young adults, although many of the young adults who are forced to accept minimum wage/fast-food-type jobs are single women with children, and they are not reliable because they often have a struggle to find child care, and will stay home with their children if necessary.

But I can’t go along with elderly people taking these jobs because many elderly people aren’t able to manage the physicality of these jobs. I’m only 57, but because of my osteoarthritis in my knee, I can’t stand on my feet for more than about 15 minutes at a stretch. Also, I’m just not as fast as the younger people, and many of the fast-food jobs require speed.

Some older people can handle working at McDonalds, but many can’t.

 

[Cat]

One comment to the group in general–many of us haven’t gotten raises in years. My husband works for a big ol’ computer company (3 letters in the name if that gives you a hint), and he hasn’t had a raise in a long time because the company is trying to save money.

In the last five years, my raises in the hospital (lab) have been around 1%, and we were all grateful to get that. The other hospitals in our cities gave no raises at all to anyone.

Many executives in the companies have voluntarily taken salaries of $1.00 in recent years.

In the hospital where I work, ALL of the upper management and many of the middle management voluntarily accepted a 5% cut in salary a few years ago to try to save money for the hospital.

I realize that some company execs make megabucks, and it does seem unfair that some of their workers get paid squat. But in many of the big companies, the workers ARE well-paid and have good benefits. Don’t just look at the bad boys in this picture.

 

[ProVobis]

The people who object the loudest to raising the minimum wage are the same ones who have no objections to the CEO’s of those same companies making hundreds to thousands of times more money than their workers. And the fact is, CEO’s are raking in larger and larger portions of the pie, while their workers are forced to get by on less and less.

In the 1970’s CEO’s made an average of 40 times more than their workers. Now the average CEO makes hundreds of times more! This is nothing more than unbridled greed. How much money do these people need? How big do their bonuses have to be? Not big enough, apparently, until they have everything.

The complainers of “Oh, they can’t raise minimum wage or we’ll all have to pay more for our burgers and stuff!” really should be saying, “Why are you CEO’s making an obscene amount of money on the backs of your workers? Money that would take you a thousand years to spend?!”

The money to make up the raises to low-wage workers should not have to come out of the pockets of the consumers. It should come out of the bulging portfolios of their greedy executives.

Seems like “bonus” money paid to the incompetent bankers financed partially (if not entirely) by the Federal Reserve System and running up trillions in debt seems a little more of a moral hazard than the typical CEO, who is paid to keep a company afloat and is their main PR guy.

 

[Rau]

Supply and demand curves aren’t just any lines you imagine either.

Of course stores would like to pay less while employees would like to earn more but McDonald’s employs “about the right number of kids to man a store” because the wage rates stipulated are what they are. If the equilibrium rate were lower, McDonald’s might hire potato peelers and offer fresh fries or it might open more stores. If the rate were higher, McDonald’s might invest in automated drive-throughs and eliminate that labor cost or it might open fewer stores. I say “might” only because McDonald’s isn’t the only employer so it’s not certain that McDonald’s specifically would do those things instead of say Burger King or Wal-Mart.

McDonalds stores are manned in very similar ways around the world though the wage structures differ somewhat. Now that might not be the case were kids paid like tradesmen in some countries, but businesses do not adapt themselves smoothly (eg. Cut a few staff) to incremental cost variations. There are multiple levers which can be pulled and changing the business structurally is not the first one pulled.

Beyond that, the economy is replete with feedback loops and 2nd order effects which can outweigh the primary. Putting more money in people’s pocket has positive consequences for businesses who see more purchases.

Viewing increased wages as all bad, all risk, is to view the economy as far simpler and far more open loop that it actually is. There is a reason that econometrics has not lived up to expectations.

 

[Erich]

From this article,

Supporters [of an increased minimum wage] hail this as a victory for “fairness” and a benefit for poor people. This, it is alleged, will provide more income to support spending and stimulate the economy. If it works that well, why not make the minimum $50? This would provide someone working 2,000 hours a year an income of $100,000, eliminating poverty and stimulating the economy. Obviously, $50/hour would be detrimental to employment as is $7/hour, it’s just a matter of degree.

The President of the Greater New York Chamber of Commerce suggested that the higher labor cost could be offset by eliminating waste in other aspects of the business. Really? So employers are wasting money that they could eliminate and add to the bottom line but they chose not to, to earn less than they could if waste was eliminated. But, with a higher minimum wage they will suddenly eliminate that waste to cover higher labor costs, adding nothing to the bottom line? This is the kind of absurd thinking that leads to bad policy.

As a poverty program, raising the minimum wage is like killing flies with a shotgun, not very well targeted. About 60% of the officially poor don’t work, so the only thing raising the minimum wage does for them is to make it harder for them to get a job if they ever decide they want one. Workers must bring at least as much value to the firm as they are paid or the firm will fail and all jobs will be lost (no GM bailouts are available to our 6 million small employers that employ half of our private sector workforce). Raising the minimum wage raises the hurdle a worker must cross to justify being hired.

 

[Erich]

There are a number of jobs that require specialized training that pay around $15 right now. What will happen to those jobs if other jobs with less skills required pay the same? (For example: Electrician’s apprentices make $13-15 per hour…have to work outside in the hot sun or freezing cold…would the higher minimum wage make flipping burgers more attractive?)

If someone has so few skills that he/she is only worth $8 an hour to a business, and if Monday morning that business is required to pay him/her $10 an hour, or $15 an hour (as two City Council members in Los Angeles proposed for hotel workers), how long will it take before he/she is let go? In the most basic example, if the minimum wage were applied to the kid you hire to mow your lawn, as the cost rises how long before you will eventually get to the point where you tell him “no thanks” and just do it yourself?

Remember when someone pumped your gas and cleaned your windows and checked your oil/coolant levels? Why do you think those jobs no longer exist (except in Oregon and New Jersey, which I will get to later)? Simple – increases in the minimum wage made them too expensive for the low-skilled service they provided. However, the mechanic, whose skills are much higher, still has his job – because he contributes more to the profitability of the business, and receives substantially higher pay as a result.

What anyone is willing to pay you is based on two factors, the level of skills or talents that you have to offer, and the number of other people in the job market with the same skills. Obviously, very highly skilled workers (CPAs, heart surgeons, IT professionals, etc.) possess desirable skills AND they are in short supply, therefore they get bigger paychecks – much bigger. But unskilled workers have minimal skills which are of considerably less value to an organization, and there are plenty of them – thus the minimal wages they can command.

As for Oregon and New Jersey, it is actually illegal in those states for drivers to pump their own gas. Oregon and New Jersey don’t trust people to not blow themselves up while pumping gas, and would rather leave the job to professionals (gas station attendants), who undergo rigorous training where they learn that it’s bad to smoke while pumping gas, bad to leave the car running, and bad to put gas anywhere except a car’s fuel tank or other approved containers. Yes, this adds jobs (in this case, for gas station attendants).

You know what else would add jobs? Make it illegal for people to cook food at home, and make them go to restaurants for every meal.

 

[johnmann]

McDonalds stores are manned in very similar ways around the world though the wage structures differ somewhat. Now that might not be the case were kids paid like tradesmen in some countries, but businesses do not adapt themselves smoothly to incremental cost variations. There are multiple levers which can be pulled and changing the business structurally is not the first one pulled.

Beyond that, the economy is replete with feedback loops and 2nd order effects which can outweigh the primary. Putting more money in people’s pocket has positive consequences for businesses who see more purchases.

Viewing increased wages as all bad, all risk, is to view the economy as far simpler and far more open loop that it actually is. There is a reason that econometrics has not lived up to expectations.

There are may be fewer McDonald’s in countries with relatively higher min wages. The McDonald’s may be smaller in size. It might lack a drive-through. It might have fewer offerings. These are real variations.

The mechanics of raising the min wage is straight forward. It has a disemployment effect. That effect may be blunted by other factors. Proponents necessarily have to believe that something prevents disemployment. I have not come across a convincing “something” though I’m open to convincing.

Raising the min wage to $20/hour also puts more money in some people’s pockets. But it would certainly shrink the employed pool as well raise the cost of business. Despite your statement to the contrary, everyone believes raising the min wage will put more money in the pockets of some. But some, supported by classical economics, argue that it will take more money out.

 

[Rau]

… It has a disemployment effect. That effect may be blunted by other factors.

That’s the point.

Disruptive moves, like tripling min wages, are not sensible because they are “disruptive” - they deprive enterprises at large of the means to adjust.

Ultimately, employment will have to migrate to where jobs add value greater than alternatives. This latter problem, the risk of shrinking requirements for employment, is the greater social and economic challenge. The current economic and social systems do not cope with this.

 

[ProVobis]

Of course stores would like to pay less while employees would like to earn more but McDonald’s employs “about the right number of kids to man a store” because the wage rates stipulated are what they are. If the equilibrium rate were lower, McDonald’s might hire potato peelers and offer fresh fries or it might open more stores. If the rate were higher, McDonald’s might invest in automated drive-throughs and eliminate that labor cost or it might open fewer stores. I say “might” only because McDonald’s isn’t the only employer so it’s not certain that McDonald’s specifically would do those things instead of say Burger King or Wal-Mart.

While it may be very well true that all jobs will become eventually automated to some extent, if not entirely, there is the customer service aspect that will continue to draw customers. That can’t be simply dismissed. People like to have an actual human to do business with or complain to.

 

[Zoltan_Cobalt]

…

So that is the way I feel about the issue right now but I thought I would post it here because there are so many intelligent and thoughtful people that visit this forum. Surely, some of you have arrived at the opposite conclusion. What do you think I am failing to see? Why shouldn’t unskilled workers demand more money from people who can afford to pay it and are not inclined to do the labor themselves? Why should unskilled workers believe that labor is worth very little when it is known that “time is money” and labor takes time. Time that wealthy people would be willing to pay more for. Why should low paid workers believe it when someone tells them, “If I pay you more money you will end up poorer or exactly the same”. Why should low paid workers sit back and watch as other Americans get yearly raises from their employers but do nothing to force their own employers to pay more for labor? Anyways, without good answers for these kinds of questions, I will have to give my support to the democrats in respect to labor wages.

Let me use good old McDonald’s as an example.

James, when you walk into a McDonald’s, do you ask the employee, “Am I paying enough here so that you can get a livable wage?”

When you buy a Big Mac do you look at the price and wonder are the employees are receiving a livable wage?" Or do you just get a little upset when you think it’s a little too expensive?

Lets say the average wage for an entry level McDonald’s employee is $10.00 per hour. Now if someone will take that job for $7.00 per hour…then that is what that job is worth.
Sure $10.00 is better but let’s say the minimum wage goes to $15.00. (That would be great…right?) But why stop at $15? How about $20.00, $25, $30…???

At some point, you and everybody who believes in a minimum wage will say, “No, wait a minute. That’s too much,” and at that point, you have demonstrated that there is no market relationship. You’re just talking emotion. You’re just talking “fairness.” You’re just talking being nice, and that’s not how the market works.

Employers don’t pay wages to be nice. They pay wages because there is work that needs to be done so they can make a profit. Employers are not buying support or loyalty. They’re buying “work”, and they’re paying what the market says it’s worth.

You and the democrats will sit around and demand that the evil owner pay a “fair wage” to people. But when you walk in there, are you making sure you’re paying enough for whatever you’re buying so that the evil owner can pay a “fair wage”? Do you do that when you go to Walmart? Do you do that when you buy gasoline at the gas station?

No…you want the lowest price.