Category Archives: Minimum Wage

Globalization and Minimum Wage

Minimum Wage Loss – Not A Progressive Bug But A Feature

Minimum Wage

It is well understood among economists that minimum wage laws drag employment.  There may be debate surrounding the net cost/benefit analysis, but that isn’t the point here.

I saw this over at Coyote Blog.

The point is that among the Left, the loss of jobs is a BENEFIT in and of itself.  Because you know who loses out when wages rise above productivity levels?  The least productive among us.

Imagine how horrified I was to learn that this was a feature:

Progressive economists, like their neoclassical critics, believed that binding minimum wages would cause job losses. However, the progressive economists also believed that the job loss induced by minimum wages was a social benefit, as it 212 Journal of Economic Perspectives performed the eugenic service ridding the labor force of the “unemployable.” Sidney and Beatrice Webb (1897 [1920], p. 785) put it plainly: “With regard to certain sections of the population [the “unemployable”], this unemployment is not a mark of social disease, but actually of social health.” “[O]f all ways of dealing with these unfortunate parasites,” Sidney Webb (1912, p. 992) opined in the Journal of Political Economy, “the most ruinous to the community is to allow them to unrestrainedly compete as wage earners.” A minimum wage was seen to operate eugenically through two channels: by deterring prospective immigrants (Henderson, 1900) and also by removing from employment the “unemployable,” who, thus identified, could be, for example, segregated in rural communities or sterilized.

The notion that minimum-wage induced disemployment is a social benefit distinguishes its progressive proponents from their neoclassical critics, such as Alfred Marshall (1897), Philip Wicksteed (1913), A. C. Pigou (1913) and John Bates Clark (1913), who regarded job loss as a social cost of minimum wages, not as a putative social benefit (Leonard, 2000).

Columbia’s Henry Rogers Seager, a leading progressive economist who served as president of the AEA in 1922, provides an example. Worthy wage-earners, Seager (1913a, p. 12) argued, need protection from the “wearing competition of the casual worker and the drifter” and from the other “unemployable” who unfairly drag down the wages of more deserving workers (1913b, pp. 82–83). The minimum wage protects deserving workers from the competition of the unfit by making it illegal to work for less. Seager (1913a, p. 9) wrote: “The operation of the minimum wage requirement would merely extend the definition of defectives to embrace all individuals, who even after having received special training, remain incapable of adequate self-support.” Seager (p. 10) made clear what should happen to those who, even after remedial training, could not earn the legal minimum: “If we are to maintain a race that is to be made of up of capable, efficient and independent individuals and family groups we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization . . . .”

 

What Is Poverty And Minimum Wage

Minimum WageI am going to borrow liberally from the Coyote and he gives a shout out to Carpe Diem.  The debate concerning isn’t about making the lives of those suffering in poverty better – rather it is the “do gooders” crowd trying to impose their version of “fair” on others:

Note the household income per earner for the lowest quintile.  It equates to something over $14 an hour, well above minimum wage almost everywhere in the US and nearly as high as the $15 national minimum wage proposed as an anti-poverty program.

The problem with most poor households is not wage rate, it is getting full time work.  The household income per earner is nearly as high as the average income of the second quintile.  The problem is that most poor households do not have full-time earners.   The key stat is that only 16% worked full-time and only 30% had any sort of job at all.

Pay attention!  The key metric is not that those in poverty are being paid low wages, it’s that they don’t have jobs.  And raising the minimum wage only makes finding jobs harder.

Characteristics of Income

Who Earns Minimum Wage

Fast Food Minimum Wage

One of my favorite arguments against the minimum wage is that so very few people earn it.  And those that do make the minimum wage are learning much more than the value of any money they might be making.

In short, working for free is darn near worth it at some level – think my young child who would prefer the experience over the money.

Anyway, it turns out that I am not ALWAYS right:

“I personally think we need to get more workers involved and shut these businesses down until they listen to us,” perhaps even by occupying the restaurants, said Cherri Delisline, a 27-year-old single mother from Charleston, South Carolina, who has worked at McDonald’s for 10 years and makes $7.35 an hour.

Now, to be strictly honest making $7.35 is earning more than the Federal minimum (South Carolina has no State minimum wage) but I will stipulate that after 10 years a dime doesn’t make a difference.

But here’s the rub – why is Ms. Delisline still working at McDonald’s ten years on?  In the last ten years what has she done to increase her marketability?  This, especially in light of the fact that she has, in essence, never been given a raise?

Another example:

“I don’t think $15 will make me rich. … I just want an apartment for my family and be able to have my kids in their own room, to not have to wait for the washing machine or the bathtub, and I don’t want to be behind on bills if I take time off or get sick,” said Salgado, who earns minimum wage after 12 years with the company.

Twelve years making minimum wage – how is that possible?

** Though notice that mandatory 35% wage cut die to Obamacare **

What set of circumstances has taken place that prevents even modest skill improvement that would warrant a raise or a change in jobs/careers?  How much more valuable would these young ladies time be spent learning than protesting?

Finally, whatever the case that may be preventing an ever increasing career progression, there are other life decisions that are being made that is not helping but only compounding the problem:

Delisline said she and her four girls live with her mother…

Nancy Salgado of Chicago said she and her two children…

Given that an individual is making the minimum wage, the idea that they would make the decision to start a family is incredulous.

 

Minimum Wage – Vanishing Jobs

Minimum WageLately Seattle made waves by implementing a minimum wage law that will give the city the highest minimum wage in the nation.

The intentions are sincere – the law is cruel.

This is what will happen:

Meet the robot replacement that will be “hired.”

Research is picking up for such automated replacements for fast food employees — doubtless spurred on by the current massive proposed increases in the minimum wage (and all the related costs tied to wage — social security, workers comp, unemployment compensation, etc.)

There is compensation beyond wages – and by raising the threshold to entry, Seattle is providing a disservice to its residents.

The Impact Of Obama’s Policies On Job Creation

Wanna see how politics in DC can impact job creation?

From IBD via Care Diem:

Proponents of a large minimum-wage hike have ignored its potential interaction with ObamaCare’s employer mandate, which the CBO suggested may result in a bigger near-term job loss than a wage hike by itself.

Firms that do offer coverage, even of the skimpy variety, would face a fine of $3,000 per full-time worker who receives exchange subsidies. This penalty is nondeductible, so for profitable retailers facing a 39.2% federal and state tax rate the fine would equate to $4,930 in wages. That comes to $2.37 an hour for a 40-hour-per-week, year-round worker.

Coming on top of a federal minimum-wage hike of $2.85 an hour, ObamaCare fines could mean a 70% increase in compensation costs for a low-wage worker.

Obama’s message to his base:  “Were here to help you find a job by making you 70% more expensive to hire.”

This is the devastating impact of populism vs. reality.  The brutal reality is that Obama’s base doesn’t understand the basic economics of his policies.

How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.

Minimum Wage – Europe Style

Minimum Wage with without

A quick look at unemployment in Europe with and without minimum wages.

Study In The Minimum Wage: SeaTac

Minimum Wage.1

Minimum Wage

As I mentioned recently, the conversation coming in 2014 politics is going to be the growing, or perceived notion of said growth, of the disparity in income:

You can already sense that the battle line are being formed for the 2014 debate in the lead-up to the November elections.  For better or for worse, the republicans are going to talk about Obamacare and its roll-out while the democrats are going to shift to the middle class, wage stagnation and, perhaps, immigration.

Ignoring the political reasons for now, let’s focus on what I think will be the democrat’s main strategy to gain the upper hand: Income Inequality.

There is little doubt that Obama an the democrats wanna pivot from the absolute devastation that is Obamacare.

And part of that conversation is going to be an old Tar Heel Red favorite – the minimum wage.

What Is The Impact Of The Minimum Wage

To be sure, the folks in support of the minimum wage have the most noble intentions; they wanna be able to provide relief for vulnerable workers.  But the real impact is the opposite:

Teen-Excess-Unemployment.2013.01

That’s teen.

Here is black excess unemployment:

Black-Excess-Unemployment.2013.01

And finally under-educated:

Undereducated-Excess-Unemployment.2013.01

This is the devastating impact of the minimum wage.

SeaTac Experiment

The debate has largely been theoretical; does the minimum wage impact employment or not?

Well, we may have a real world experiment  on  our hands:

 On Jan. 1, an estimated 1,600 hotel and transportation workers in SeaTac, Wash., will see their pay jump to $15 an hour, a 60 percent increase from the state’s $9.32 minimum wage.

This is important for two reasons:

1.  The increase is substantial – 60% is nothing to scoff at.

2.  The increase is not being phased in – employers are being subject to the rise in wages without the benefit of inflation dimming the impact.

Some of the fall out?

While many workers look forward to the higher pay, employers are looking for ways to absorb the big increase in labor costs. Some plan on eliminating jobs.

“We’re going to be looking at making some serious cuts,” said Cedarbrook Lodge General Manager Scott Ostrander. “We’re going to be looking at reducing employee hours, reducing benefits and eliminating some positions.”

But not every employer is being so ambitious. One has told a trade group it is going to close one of its two restaurants, eliminating 200 jobs.

The plan has also caused Han Kim — who runs Hotel Concepts, a company that owns and manages 11 hotels in Washington state — to shelve plans to build a hotel in SeaTac. The company already has three hotels in SeaTac, and Kim and a business partner were looking to build a fourth on land they own.

Does this deter the supporters?  Not at all:

“There may be a few jobs lost here and there, but the fact is, if we don’t fight for this, then the race to the bottom will continue,” Sawant said.

Fascinating.  Glad I’m not an entry level worker in Seattle!

Characteristics Of Minimum Wage – 2012

Minimum Wage

There conversation surrounding the minimum wage continues.  Some facts:

  •  59% of all salary/wage earners are paid in hourly rates – 75.3 million workers.
  • 1.6 million earn exactly the minimum wage.
  • 2.0 million earn less than the federal minimum.
  • These totals represent 4.7% of all hourly paid workers.

All the debate and all the protest  over 4.7% hourly employees – less if you consider the fact that the 2 million earning less than the federal minimum actually earn significantly more than the minimum wage.

 

Supply And Demand: Labor

Supply DemandThe minimum wage debate is heating up again.  On the Left, we have those that think the minimum wage needs to be raised.  Those of us on the right, disagree – we either think that the minimum wage is set just fine, or, if you are more honest, would like to see the concept abolished completely.

Sadly, the debate doesn’t come down to facts and science.  Rather, one side is using populist rhetoric while the other tries and tries to polish an unpopular message that setting a price floor results in surpluses.

Listen to the debates and you’ll hear what I’m talking about  Just this morning I was listening to The Diane Rehm Show and her panel was discussing the minimum wage.  The two supporters of the law invoked such constructs as “The minimum wage hasn’t kept pace with inflation” and “The purchasing power of the minimum wage is lower than it was 60 years ago”.

These things, while true, have nothing to do with the debate of whether or not a minimum wage is a good thing.

And it doesn’t end there.  I’ve heard the debate move into the fact that as the Holiday Season approaches, the republicans actually wanna end unemployment benefits just as people are trying to pay for heat in their apartments.  That as the gift giving intensifies, the republicans wanna take away the money that a growing number of people are dependent upon.

Again, tugs of populism that have nothing to do with the underlying facts of the minimum wage.

The above diagram is the Supply – Demand curve showing market equilibrium at point P and Q prime; where the two curves intersect.  Slide price up and demand is reduced while supply is increased.  And if that price happens to be above that market clearing price – you end up with a surplus of the commodity; in this case – labor.

This is undisputed.  There is no arguing this.

So, my conversation In Real Life are beginning to change when it comes to the minimum wage.  I’m beginning to point out that minimum wage jobs are NOT MEANT TO SUPPORT A FAMILY.  They are, in fact, meant to be transitory jobs that provide employers with inexpensive labor and provide laborers invaluable On The Job Training.

Looking further into the data suggests that less than 3% of wage earners make the minimum wage.  And of those, a decent number live in a household making the median income.

Another aspect of my conversations is this – and it’s critical – it MUST be acknowledged that both myself and my friend I’m debating admit that each of us is acting in manner that we think would benefit the marginal employee; the guy making the minimum wage.  Without such acknowledgement we are debating intention and not policy.  And when it comes to intention, I have no use for that brand of people who think that I want some people to have a worse life in order that I have a better one.