Question about the effect of Minimum wage law on emplyment

[Cr0nJ0b]

Hey guys,

I've been thinking recently about the minimum wage law. There has been some talk about increasing it or keeping it the same...or even getting rid of it altogether.

Here's my question...

How does the minimum wage law really effect total employment? I remember in college econ, there was described to be a 100% correlation between minimum wage and employment...in the theoretical sense. I get that if a business is forced to pay more for input that it will mess with the basic market forces which can have lots of unintended consequences. I also get the idea that as you increase the variable cost for an input that the business could decide to use less of that input or face less profit or it could substitute that input for another cheaper one.

So i can see why in theory that it could have a negative impact on employment, but my question is does it actually reduce employment in the real world? I heard some professor talking head saying that on the news the other day and just realized how often I heard it stated as if were some kind of natural law. "If you increase the minimum wage you will increase unemployment..." But I'm skeptical and thought I would throw the question out to the AT hordes.

Please don't attack me personally for the question...it's just a question looking for some good spirited debate.

cheers

 

[drebo]

Increasing minimum wage will also increase unemployment.

Think about it. EVERYTHING is now more expensive to produce. If minimum wage goes from $8 to $10, it's not just the people making $8 getting raises. People making $9 also get raises. People who used to make $10 are now going to want $12. Et cetera.

Now, think what that does all the way up the production line.

Sure, you can of soup probably only goes from $1.99 to $2.49...but that's a fairly large increase in price...one that a $2/hr raise doesn't really pay for.

 

[zephyrprime]

This is from wikipedia. Apparently, three meta analysis were done and none found a correlation between increasing the minimum wage and increased unemployment.

http://en.wikipedia.org/wiki/Minimum_wage

"Statistical meta-analyses[edit]
Several researchers have conducted statistical meta-analyses of the employment effects of the minimum wage. In 1995, Card and Krueger analyzed 14 earlier time-series studies on minimum wages and concluded that there was clear evidence of publication bias (in favor of studies that found a statistically significant negative employment effect). They point out that later studies, which had more data and lower standard errors, did not show the expected increase in t-statistic (almost all the studies had a t-statistic of about two, just above the level of statistical significance at the .05 level).[54] Though a serious methodological indictment, opponents of the minimum wage largely ignored this issue; as Thomas C. Leonard noted, "The silence is fairly deafening."[55]

In 2005, T.D. Stanley showed that Card and Krueger's results could signify either publication bias or the absence of a minimum wage effect. However, using a different methodology, Stanley concludes that there is evidence of publication bias, and that correction of this bias shows no relationship between the minimum wage and unemployment.[56] In 2008, Hristos Doucouliagos and T.D. Stanley conducted a similar meta-analysis of 64 U.S. studies on dis-employment effects and concluded that Card and Krueger's initial claim of publication bias is still correct. Moreover, they concluded, "Once this publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains."[57]"

 

[s0me0nesmind1]

Hey guys,

I've been thinking recently about the minimum wage law. There has been some talk about increasing it or keeping it the same...or even getting rid of it altogether.

Here's my question...

How does the minimum wage law really effect total employment? I remember in college econ, there was described to be a 100% correlation between minimum wage and employment...in the theoretical sense. I get that if a business is forced to pay more for input that it will mess with the basic market forces which can have lots of unintended consequences. I also get the idea that as you increase the variable cost for an input that the business could decide to use less of that input or face less profit or it could substitute that input for another cheaper one.

So i can see why in theory that it could have a negative impact on employment, but my question is does it actually reduce employment in the real world? I heard some professor talking head saying that on the news the other day and just realized how often I heard it stated as if were some kind of natural law. "If you increase the minimum wage you will increase unemployment..." But I'm skeptical and thought I would throw the question out to the AT hordes.

Please don't attack me personally for the question...it's just a question looking for some good spirited debate.

cheers

Finance/Economics 101.... How old are you exactly?

Not bashing, I'm glad you're asking questions instead of standing in a false utopia all day like liberalism.

 

[dank69]

If your revenue and/or profit margin is so low that a reasonable increase in minimum wage will ruin your bottom line then your business model sucks and labor costs are not your real problem.

 

[nehalem256]

Increasing minimum wage will also increase unemployment.

Think about it. EVERYTHING is now more expensive to produce. If minimum wage goes from $8 to $10, it's not just the people making $8 getting raises. People making $9 also get raises. People who used to make $10 are now going to want $12. Et cetera.

Now, think what that does all the way up the production line.

Sure, you can of soup probably only goes from $1.99 to $2.49...but that's a fairly large increase in price...one that a $2/hr raise doesn't really pay for.

Bullshit. That would only be true if the only cost involved in the can of soup being old was minimum-wage or near minimum-wage labor.

 

[EagleKeeper]

If your revenue and/or profit margin is so low that a reasonable increase in minimum wage will ruin your bottom line then your business model sucks and labor costs are not your real problem.

If there is no room to raise prices to the consumer, then it has a major impact.

Look along the rural roads of this country. You will see gas station that are closed. When the fuel margin is only $0.05/gallon, profit is made by keeping labor cost low and trying to increase aux sales.

Raise costs if items and you can drive customers away.

Think of how many more people would go to an entertainment park if the entry cost was $30 vs $70. Higher prices dig into disposable income.

Increase min wage by 10%, figure everything else goes up when passed onto customer.

$100 fuel bill becomes $110 month. Groceries goes up $40 month. Rent goes up because of increased costs fir maintenance.

A person gets 160/month more gross, $120/month net. Just for food and fuel they are then down $50. Add in $50 for rent increase alone and they str ahead $20. $100/month clothing goes to $110. That left over $10 has to cover increases for everything else. Communication, insurance, repairs.

Now if they work for s company that feels that they can get by with less people by paying min+10% but demand 10% more work because they are going from 10 to 9 in workforce.

9 got raises enough to cover cost of living plus and one gets cut.

Eco 101. Ripple effect

Businesses that require min wage workers do not have high profit margins and have high competition.

 

[Cr0nJ0b]

"Finance/Economics 101.... How old are you exactly?"

Let's say I'm in my 40's and I've taken more than just econ 101.

What I'm trying to figure out is not what the text books say, but what really happens.

If you look back at the last 50-60 years, we have steadily increased employment in real numbers and from a percentage it has fluctuated wildly. We have also increased efficiency of our workforce. If the theory were correct. We should have seen a steady increase in unemployment and more specifically we would likely have seen spikes in unemployment following the inception of the law and each subsequent increase. That's not the case.

Furthermore if you look at the other side of the coin, increase worker efficiency reduces the need for more labor. So you would expect to see even greater unemployment as we further industrialize and automate...but that's not happening either. The economy seems to absorb the increased costs or efficiency and adjust sort of like the climate equilibrium.

it's a complex system and I just don't see how people can be so monolithic in their responses.

I think it works more like this.

If you have a small business and your labor input costs x and MWL comes in and moves that to X*Y, you will look to reduce your need for labor in business or you will look to get more efficiency from that input or you will look for an alternative resource. I think the marginal increases have only effected a relatively small portion of the total economy and have for the most part been absorbed through greater efficiency. In essence, the response from business is "well if I have to pay you more, I'll make you work harder or I'll train you better and make you more valuable"

On the bubble as mentioned earlier, there will be some slough off in favor of reduced business or alternative inputs, but I'm not sure that it's all that feasible for a marginal increase. I mean if you have a company and you are making money today you might go out of business because of a 5% increase in your labor costs, or you might just get rid of 5% of your labor...but I think most find 5% more efficiency or accept 5% less profit until they get more efficiency or more business. maybe...

I would also say that maybe the more you pay your workers, the more they can spend on goods and services that will trickle up the food chain.

I realize that at some point you get really out of whack, where like a 200% forced increase in wages would crush any economy, but I don't think that's what we've done in the US. and the employment numbers don't support that.

 

[silverpig]

If there is no room to raise prices to the consumer, then it has a major impact.

Look along the rural roads of this country. You will see gas station that are closed. When the fuel margin is only $0.05/gallon, profit is made by keeping labor cost low and trying to increase aux sales.

Raise costs if items and you can drive customers away.

Think of how many more people would go to an entertainment park if the entry cost was $30 vs $70. Higher prices dig into disposable income.

Increase min wage by 10%, figure everything else goes up when passed onto customer.

$100 fuel bill becomes $110 month. Groceries goes up $40 month. Rent goes up because of increased costs fir maintenance.

A person gets 160/month more gross, $120/month net. Just for food and fuel they are then down $50. Add in $50 for rent increase alone and they str ahead $20. $100/month clothing goes to $110. That left over $10 has to cover increases for everything else. Communication, insurance, repairs.

Now if they work for s company that feels that they can get by with less people by paying min+10% but demand 10% more work because they are going from 10 to 9 in workforce.

9 got raises enough to cover cost of living plus and one gets cut.

Eco 101. Ripple effect

Businesses that require min wage workers do not have high profit margins and have high competition.

And this here is the problem with internet economists.

You just made up numbers. I can do that too. Let's say your $100 fuel bill goes up to $100.02. Not a big deal. Let's say everything in your life goes up .02%. Are you affected? Not at all - you just save a little less off of each paycheque and work an extra 2 months into your retirement.

I took econ in business school and sure, the charts with demand and supply of labour and dead weight loss with straight lines, sharp corners, and rectangles on graphs containing unproductive people sure make it easy to parrot out the "higher minimum wages cause unemployment!" line, but the real world is much more complicated than that.

Let's start with the fact that welfare exists. If people were guaranteed to make more at a minimum wage job than to work under the table and collect welfare, that would DECREASE unemployment.

There are so many other factors that make those neat econ diagrams not applicable to real life and render the 1st order conclusions from them to utter drivel.

 

[buckshot24]

I don't think raising wages artificially ultimately helps those people getting the increases. You're basically telling people that their current level of job skills is worth more than it really is. I believe that "helping" people by giving them more than the market would otherwise give them ultimately stunts their growth. It also stunts the entire country's growth as more people than there otherwise would be stick into low skill jobs instead of growing out of it.

Most people are either going to not want to stick around at the low skill level but the more attractive we make having low skills the more low skill we'll have.

 

[Zorkorist]

And this here is the problem with internet economists.

You just made up numbers. I can do that too. Let's say your $100 fuel bill goes up to $100.02. Not a big deal. Let's say everything in your life goes up .02%. Are you affected? Not at all - you just save a little less off of each paycheque and work an extra 2 months into your retirement.

I took econ in business school and sure, the charts with demand and supply of labour and dead weight loss with straight lines, sharp corners, and rectangles on graphs containing unproductive people sure make it easy to parrot out the "higher minimum wages cause unemployment!" line, but the real world is much more complicated than that.

Let's start with the fact that welfare exists. If people were guaranteed to make more at a minimum wage job than to work under the table and collect welfare, that would DECREASE unemployment.

There are so many other factors that make those neat econ diagrams not applicable to real life and render the 1st order conclusions from them to utter drivel.

Lets also do real world things like say, our Government is 17 Trillion dollars in debt, due to things like welfare.

If neither welfare, nor debt, existed, then of course, minimum wage is a bad thing.

-John

 

[sandorski]

IRL?

Not much. Most of the moaning of the destruction of all that is good before its implementation soon stops, people make more money, few if any lose their Jobs, and Job Creation continues on as if nothing changed.

Years pass, someone wants to raise it again and the cycle repeats itself.

 

[Zorkorist]

Nope.

17 Trillion Dollars in debt.

-John

 

[Zorkorist]

I don't know where you get your debt, but where I get my debt, they fuck me hard for five dollars.

-John

 

[Anarchist420]

It has some effect on employment; I don't really know how much but if the we had a $50 min wage, then I think that would cause unemployment, higher prices or both. That said, EagleKeeper's reply was the best IMO.

 

[Zorkorist]

How you doing, Anarchist?

Keep up the good fight.

-John

 

[EagleKeeper]

And this here is the problem with internet economists.

You just made up numbers. I can do that too. Let's say your $100 fuel bill goes up to $100.02. Not a big deal. Let's say everything in your life goes up .02%. Are you affected? Not at all - you just save a little less off of each paycheque and work an extra 2 months into your retirement.

I took econ in business school and sure, the charts with demand and supply of labour and dead weight loss with straight lines, sharp corners, and rectangles on graphs containing unproductive people sure make it easy to parrot out the "higher minimum wages cause unemployment!" line, but the real world is much more complicated than that.

Let's start with the fact that welfare exists. If people were guaranteed to make more at a minimum wage job than to work under the table and collect welfare, that would DECREASE unemployment.

There are so many other factors that make those neat econ diagrams not applicable to real life and render the 1st order conclusions from them to utter drivel.

People want the min wage to up 10-20%.

That is where I started my adjustment.
If you want the min wage to up 0.02% $0.02 ie two cents/hr. then adjust my numbers accordingly.

A 2 cent per hour is not going to benefit anyone except bookkeepers.

A 10-20 percent ($1-$2) will have an impact on a business, wages and employment

 

[Paul98]

People want the min wage to up 10-20%.

That is where I started my adjustment.
If you want the min wage to up 0.02% $0.02 ie two cents/hr. then adjust my numbers accordingly.

A 2 cent per hour is not going to benefit anyone except bookkeepers.

A 10-20 percent ($1-$2) will have an impact on a business, wages and employment

Except your example is just plain wrong, you just say if you increase the minimum wage by 10%, that increases cost by 10%. Which is flatly wrong, and doesn't make any sense.

 

[nehalem256]

If there is no room to raise prices to the consumer, then it has a major impact.

Look along the rural roads of this country. You will see gas station that are closed. When the fuel margin is only $0.05/gallon, profit is made by keeping labor cost low and trying to increase aux sales.

Raise costs if items and you can drive customers away.

Think of how many more people would go to an entertainment park if the entry cost was $30 vs $70. Higher prices dig into disposable income.

Increase min wage by 10%, figure everything else goes up when passed onto customer.

$100 fuel bill becomes $110 month. Groceries goes up $40 month. Rent goes up because of increased costs fir maintenance.

A person gets 160/month more gross, $120/month net. Just for food and fuel they are then down $50. Add in $50 for rent increase alone and they str ahead $20. $100/month clothing goes to $110. That left over $10 has to cover increases for everything else. Communication, insurance, repairs.

Now if they work for s company that feels that they can get by with less people by paying min+10% but demand 10% more work because they are going from 10 to 9 in workforce.

9 got raises enough to cover cost of living plus and one gets cut.

Eco 101. Ripple effect

Businesses that require min wage workers do not have high profit margins and have high competition.

This is only true if you are assuming that 100% of the cost of fuel is workers making at or near minimum wage.

In the real world this is clearly not true. There are other costs.

To make it obvious how silly it is. Lets say you are an engineer making say 100K. Minimum wage goes up 10% as per your example. Lets say you walk into your bosses office and ask when you can expect to see you extra 10K increase in pay... what do you think your boss will say?

 

[soulcougher73]

And this here is the problem with internet economists.

You just made up numbers. I can do that too. Let's say your $100 fuel bill goes up to $100.02. Not a big deal. Let's say everything in your life goes up .02%. Are you affected? Not at all - you just save a little less off of each paycheque and work an extra 2 months into your retirement.

I took econ in business school and sure, the charts with demand and supply of labour and dead weight loss with straight lines, sharp corners, and rectangles on graphs containing unproductive people sure make it easy to parrot out the "higher minimum wages cause unemployment!" line, but the real world is much more complicated than that.

Let's start with the fact that welfare exists. If people were guaranteed to make more at a minimum wage job than to work under the table and collect welfare, that would DECREASE unemployment.

There are so many other factors that make those neat econ diagrams not applicable to real life and render the 1st order conclusions from them to utter drivel.

So the real problem is we pay too much in welfare per month

 

[waggy]

Eaglekeepers post is right though his numbers are off. IF you increas min wage by 10% prices are not going to go up that much..

He is right in they are going to go up (or packages get smaller). That is just a fact of business.

The company is not just going to eat the difference and have lower profits. While that is a huge part of some peoples thinking that is going to happen..

 

[fskimospy]

Why did everyone ignore the actual economic analysis posted in this thread?

 

[dank69]

Why did everyone ignore the actual economic analysis posted in this thread?

Because that doesn't fit with my preconceived notion that minimum wage bad because socialism. As an American citizen, it is my God given right to believe that our duty is to fuck the lower class in pursuit of the holy dollar. Profit margin is righteous, labor costs are wicked. The First Congressional Church of the NYSE tells us so. Besides, how else are my kids going to learn the value of the dollar if they aren't forced to work for slave wages? I certainly can't be bothered to teach them.

 

[fskimospy]

Because that doesn't fit with my preconceived notion that minimum wage bad because socialism. As an American citizen, it is my God given right to believe that our duty is to fuck the lower class in pursuit of the holy dollar. Profit margin is righteous, labor costs are wicked. The First Congressional Church of the NYSE tells us so. Besides, how else are my kids going to learn the value of the dollar if they aren't forced to work for slave wages? I certainly can't be bothered to teach them.

Probably, haha. It is just bizarre to ignore contrary literature while talking about how your position is econ 101.

 

[s0me0nesmind1]

"Finance/Economics 101.... How old are you exactly?"

Let's say I'm in my 40's and I've taken more than just econ 101.

What I'm trying to figure out is not what the text books say, but what really happens.

If you look back at the last 50-60 years, we have steadily increased employment in real numbers and from a percentage it has fluctuated wildly. We have also increased efficiency of our workforce. If the theory were correct. We should have seen a steady increase in unemployment and more specifically we would likely have seen spikes in unemployment following the inception of the law and each subsequent increase. That's not the case.

Furthermore if you look at the other side of the coin, increase worker efficiency reduces the need for more labor. So you would expect to see even greater unemployment as we further industrialize and automate...but that's not happening either. The economy seems to absorb the increased costs or efficiency and adjust sort of like the climate equilibrium.

it's a complex system and I just don't see how people can be so monolithic in their responses.

I think it works more like this.

If you have a small business and your labor input costs x and MWL comes in and moves that to X*Y, you will look to reduce your need for labor in business or you will look to get more efficiency from that input or you will look for an alternative resource. I think the marginal increases have only effected a relatively small portion of the total economy and have for the most part been absorbed through greater efficiency. In essence, the response from business is "well if I have to pay you more, I'll make you work harder or I'll train you better and make you more valuable"

On the bubble as mentioned earlier, there will be some slough off in favor of reduced business or alternative inputs, but I'm not sure that it's all that feasible for a marginal increase. I mean if you have a company and you are making money today you might go out of business because of a 5% increase in your labor costs, or you might just get rid of 5% of your labor...but I think most find 5% more efficiency or accept 5% less profit until they get more efficiency or more business. maybe...

I would also say that maybe the more you pay your workers, the more they can spend on goods and services that will trickle up the food chain.

I realize that at some point you get really out of whack, where like a 200% forced increase in wages would crush any economy, but I don't think that's what we've done in the US. and the employment numbers don't support that.

...You are forgetting one major huge fucking element of economics 101 when you say "we shud have seen more unemployment!11"...

inflation. And we have certainly seen plenty of that.