Monday, June 26, 2006

Minimum wage hike defeat


Most of us have started out earning minimum wage and worked our way up. When I started working in 1972, the minimum wage was around $2. 10 an hour. In 34 years, with costs of everything soaring, and wages struggling to keep up with inflation, the current minimum wage is only at $5.15 an hour when a loaf of bread costs $3. An 8-hour paycheck won't even fill up an average-sized car. Most of these jobs do not offer health care, and even if they did, minimum wage employees cannot afford it.

On the other hand, small business owners are also burdened with rising costs, and having to raise employees wages by $2 can cause a bigger strain for struggling businesses. But $5.15 an hour in today's world is a joke.


24 comments:

Lya Kahlo said...

Let's not forget that our asshoel congress refused to increased the minimum wage the week AFTER they voted THEMSELVES a raise of over $3,000 a year.

Apparently, having a 18% job approval is grounds for a raise, whereas being on the bottom rung, barely hanging on, is not.

Also, let's not forget that this oh-so-wonderful congress also passed the newer, stricter bankrupcty laws so that these people making minimum wage, should they be sick for extended periods of time, have their identity stolen or if they lose their jobs they still have to pay back (at least a portion of) their debts.


Ah, the land of the free.

Stardust said...

Let's not forget that our asshoel congress refused to increased the minimum wage the week AFTER they voted THEMSELVES a raise of over $3,000 a year.

This really irks me. What's good for the goose is never good enough for the gander. Those who don't need it, continually take more and they rarely deserve it. How nice for them to be allowed to do a crappy job and then GIVE THEMSELVES a raise.

Speaking of identity theft, my husband is now one of those veterans who have to worry about that since his military information is one of the 26 MILLION veterans who had their supposedly secure information stolen when a government employee had this information on his home computer and his house was burglarized and all that information stolen with his PC. My husband got a nice friendly letter saying, don't worry...but let us know if anything suspicious happens.

Lya Kahlo said...

Star - call experian, equifax, etc and have them set a fraud alert on his profile. I had to do the same thing when my identity was stolen by a former roommate.

This lets the credit bureaus watch for "suspiscious" things as well.

Stardust said...

Thanks Lya, I will pass that on to my husband after work.

My spouse information was also in with his information because they had to do a background check on me when we were married since he was still on active duty and had a top secret clearance.

Isn't that lovely? This just shows how "tight" our national security is. I just read that the personal info of 28,000 Navy personel was somehow posted on the internet for all to see. Social Security numbers, etc. Doesn't that make you feel so safe and secure?

Lya Kahlo said...

Sure is 'safe and secure' means naked in public. ;)

Jason H. Bowden said...

Whether one supports Congressional pay increases or not, note that minimum wages put people out of work. We know this analytically from economics, and anyone with an understanding of price floors knows it.

Stardust said...

There is no evidence of job loss from the last minimum wage increase.

* A 1998 EPI study failed to find any systematic, significant job loss associated with the 1996-97 minimum wage increase. In fact, following the most recent increase in the minimum wage in 1996-97, the low-wage labor market performed better than it had in decades (e.g., lower unemployment rates, increased average hourly wages, increased family income, decreased poverty rates).
* Studies of the 1990-91 federal minimum wage increase, as well as studies by David Card and Alan Krueger of several state minimum wage increases, also found no measurable negative impact on employment.
* New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases. These models recognize that employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale.
* A recent Fiscal Policy Institute (FPI) study of state minimum wages found no evidence of negative employment effects on small businesses.

Ecomonic Policy Institute: Minimum wage facts at a glance

Jason H. Bowden said...

Stardust--

EPI is a leftwing organization, but just because they're leftwing doesn't make them wrong.

The article you presented is high on fact but low on theory. Consider this. If raising the minimum wage was instrinsically good, why not keep raising it? Why not pass legislation tomorrow ensuring that everyone, including janitors and fast food workers, makes twenty dollars an hour? The answer? You'll put people out of work; many businesses will not be able to afford the wages.

When the labor market is modelled classically, as in my link, there is a solid explanation of price. There is a demand curve showing how many workers will be employed at which wages, and a supply curve which indicates how many workers are willing to work at a specific wage. The price will be where the two curves intersect. When a price floor is put in, the labor supply increases, but the amount of people able to hire at that wage shrinks. So we have a labor shortage.

My explanation by EPI's data is this. The price floor was placed beneath equilibrium for most lines of work, which means there is no effect. In principle, raising the minimum wage is a bad idea, though as long as people are ignorant of economics, politicians will continue to demagogue the issue.

Stardust said...

EPI is a leftwing organization

Just to clarify, EPI is a nonpartisan organization.

From their website: "The Economic Policy Institute is a nonprofit, nonpartisan think tank that seeks to broaden the public debate about strategies to achieve a prosperous and fair economy."

Stardust said...

If raising the minimum wage was instrinsically good, why not keep raising it? Why not pass legislation tomorrow ensuring that everyone, including janitors and fast food workers, makes twenty dollars an hour? The answer? You'll put people out of work; many businesses will not be able to afford the wages.

Seems you are making a far-out scenerio. No one is asking for $20 an hour. They are merely asking for TWO after getting NO increase for TEN years while the cost of everything escalated. Most businesses will pay as low a wage as they can get away with to ensure the highest profits for themselves that they can get while exploiting workers they know need the job. Those who NEED the work, suffer the most.

I may have a Masters degree and am living in a nice home in suburbia, but I haven't forgotten where I came from.

Lya Kahlo said...

Interesting - paying people $7.25/hr would put people out of work, but not paying ceos 700% more than the company's workers?

Maybe if they weren't hording at the top, there'd be breathing room?

Jason H. Bowden said...

stardust--

Authenticity is no substitute for logic. You agreed that a price floor of $20 an hour would put people out of work because it is above the equilibrium market price of labor. On this principle, if the equilibrium price of labor is $7.00, and we raise the minimum wage to $8.00, we put people out of work. Therefore, minimum wages are bad policy.

"Most businesses will pay as low a wage as they can get away with to ensure the highest profits for themselves that they can get while exploiting workers they know need the job."

Go look at the diagram again. This is exactly what businesses do. However, when the wage is set artificially higher, there is a discontinuity between the number willing to work and the number employed. Therefore, the policy causes unemployment.

Lya--

Expressing negative feelings against those with high incomes does not justify minimum wages, which put people out of work. Your policy would crush small companies for the sake of teaching billionaires a lesson, ironically creating the business centralization you seek to oppose.

Stardust said...

You agreed that a price floor of $20 an hour would put people out of work because it is above the equilibrium market price of labor.

I didn't say that. I said no one is asking for $20...they wanted a mere $2.

Stardust said...

Also, you are using a diagram on a blog. I provided a link to a nonpartisan website with information and facts and that research from a credible source that was quite extensive and complete. Maybe you would want to read it again and not skim it. ;)

Stardust said...

Your policy would crush small companies for the sake of teaching billionaires a lesson,

Giving someone a wee bit of a raise will NOT "crush" any small business (unless they are poorly managed and not doing so well to begin with).

Happy employees are more productive employees, which in turn makes more money for that business. Disgruntled workers bring business down. I have experienced this and have seen it first hand again and again over the years. At a company I worked for called Fisher Printing if there was no minimum wage, those cheap bastards would pay Chinese wages. From what I last heard, they are not doing so well and may go under completely.

Stardust said...

However, when the wage is set artificially higher, there is a discontinuity between the number willing to work and the number employed. Therefore, the policy causes unemployment.

Using your logic...we should not have seen the high unemployment rates we have seen during the past ten years since minimum wage has not increased in a decade. So...explain that then.

Lya Kahlo said...

"Expressing negative feelings against those with high incomes does not justify minimum wages, which put people out of work."

Which, had you bothered to read the link Star provided, is completely wrong. But, I know you won't allow anything to dent your predeteremined positions on anything.

"Your policy would crush small companies for the sake of teaching billionaires a lesson, ironically creating the business centralization you seek to oppose. "

The link also debunks this. Good try though.

Jason H. Bowden said...

stardust, lya--

We aren't talking about people making requests. We're talking about Big Brother imposing price floors. While your intent is noble, the policy puts people out of work. If you understand why a $20hr minimum wage puts people out of work when the market price is $7hr, there's no reason you shouldn't understand why a minimum wage of $8hr will put 'x' people out of work when the equilibrium price is $7hr.

Unemployed employees are unhappy employees. Many small businesses will not be able to pay teenagers and moms working part-time your noble minimum wages, and was a result, you WILL put 'x' amount of people out of business with a socialist miminum wage law. This is Econ 101. I can quote a bujillion sources on this, but I don't want people to take the argument on authority; I'd prefer they'd understand it.

Stardust said...

If you understand why a $20hr minimum wage puts people out of work when the market price is $7hr, there's no reason you shouldn't understand why a minimum wage of $8hr will put 'x' people out of work when the equilibrium price is $7hr.

You didn't answer this question:
Then why hasn't no increase in minimum wage prevented people from losing their jobs and high unemployment rates in the last ten years?

Stardust said...

but I don't want people to take the argument on authority; I'd prefer they'd understand it.

You mean accept your point of view.

Stardust said...

Jason - Also, don't you resent giving asshole do-nothings in congress a fat raise? That doesn't bother you at all?

Jason H. Bowden said...

stardust--

"Then why hasn't no increase in minimum wage prevented people from losing their jobs and high unemployment rates in the last ten years?"

I'm not saying minimum wages are the only cause of unemployment. I am arguing that they can contribute to it. I do want you to accept my point of view, but not on faith, but on the basis of the logic and evidence provided.

With respect to Congress, the less they do the better. Do they deserve pay raises? I don't think so.

Stardust said...

With respect to Congress, the less they do the better. Do they deserve pay raises? I don't think so.

I am glad we at least agree on that much.

tscottt said...

Sorry for being late to the party. I was just surfing and came across your interestind discusssion. I'm new at this "blogging" thing, so forgive me if I breech some etiquette:

What if both Stardust and Jason are correct? I suspect you are talking past one another.

Regarding sources:
Just because a think-tank or research institute (e.g. FPI) claims to be non-partisan doesn't mean it is bereft of an agenda, bias or a-priori assumptions. I like to cross-check purported facts, lines of reasoning and conclusions from admittedly partisan sources on either side of the "center". A tool I use to think through issues is to take ideas to the extreme and see what still does (or does not) fit. Listening to substantively different points of view and analysis on an issue can help put "bookends" on the debate.

Regarding Minimum Wage:
From the readings I've done on wage/price controls and economics, both wage and price controls tend to be bad for an economy. The "tend to" is because the impact ranges from harmful, to benign to helpful. Let me give some examples:
1) Free markets are modeled as networked systems wherin each economic agent seeks to maximize its "utility" (or more prosaically, well-being) through rational, well-infomed choices about how much capital to spend and where to spend it. Humans are not always rational, seldom perfectly well-informed and sometimes act not for their own benefit, but specifically to harm others (from which malice they may increase their sense of well-being or satisfaction). Collections of people acting as an irrational mob can affect markets too. That is one of the reasons there are rules in place to limit stock-trading (which really puts the breaks on plunging prices) if market activity takes too sharp a downturn. Price-controls are also used to reign-in monopolies and to incent/disincent certain behaviors (e.g. sin taxes). The inappropriate application of price-controls (say, in communist countries) can cause rampant shortages since manufacturers are not rewarded appropriately for their goods, perhaps to the piont where they are sold at a loss - thus production of the under-priced (and under-revenue generating) good falls.

Wage-controls act at the other end of the economic spectrum. Jason's point that a $20 minimum wage would be harmful is exactly correct and helps lead to instructive thought on the issue, to wit: artificially over-compensating labor in a market economy leads directly to increased prices (so the laborers can be paid). It is unlikely that a company's owners (or shareholders) will acquiesce to smaller profits for the same goods when operations costs (labor) payouts increase. If a company or business is not willing to accept a profit loss, there are exactly two ways to respond. The first is to increase productivity, such that the same goods/services are produced with less labor, keeping total labor costs constant. The second way is to raise prices to cover the labor cost, thus restoring the profit margin to the original level.

With regards to minium wage adjustments, all three avenues of market response are likely to be put in play. For small increases in the minimum wage, and in industries where competition for a good or service is fierce (i.e. there are many producers), there will be a tendency to keep prices flat to maintain competitiveness. In these situations, some hit to profits may be taken, but the preference will be for productivity gains and workforce cuts. For low-competition good/services, the wage increases will go directly to the "top line"- the price.

The situation is more complex for small wage controls because the percentage of effected laborers and industries is small relative to the economy. Raising 3% of the working population's pay by 20% will not have global (or national) economic impact. BUT, it will have a tremendous impact on those 3%. When you provide more money to a poor person, that money is far more likely to be immediately spent on goods and services than it is to be invested or saved. Thus, putting more capital in the hands of the poor will translate directly to increased economic demand - but we're still talking about 3% of the working population here, so the overall impact will be pretty small.

In conclusion, the answer about the costs and benefits of a minimum wage increase is not cut-and-dried, even for a highly rational freethinker. The answer tends to be cloudly exactly because the impact is so small, compared to the whole economy. If we were talking about a $20 minimum wage, we'd probably be talking about a change which would impact 15-20% of the working population (my wild guess), instead of 3%, and the impact would be easier to predict with certainty. As it is there are pros and cons: That's probably why there continues to be debate. :)

BUT - In this specific case, the economic "cons" would be trivial to 97% of us. The "pros" would be tremendous to 3% of us (stated more rigorously - It is trivially easy for 97% of us to absorb the economic impact of a 20% raise to 3% of us). I believe government is at its best when it lives up to the Preamble, providing "life, liberty and the pursuit of happiness" for *all* Americans. Sometimes, this means tinkering with otherwise free markets.