The minimum wage

[Blackjack200]

In the State of the Union address, President Obama called of an increase in the minimum wage to $9.00/hour as well as tying the minimum wage to inflation.

The conventional wisdom is that raising the minimum wage spurs unemployment, as employers release workers that are now too expensive, drives workers underground to cash/"under the table" arrangements, increases inflation as employers' costs go up and the workers have more money to spend, etc.

Alan Krueger is the cheif economic advisor to The President, and he is well known for research in the 90s that supported minimum wage hikes.

The article linked is an interview in which he delves into why he believes an increase in the minimum wage is good policy.

http://www.pbs.org/newshour/businessdesk/2013/02/the-man-behind-the-minimum-wag.html

Summary:

* Prices would only need to increase about 3%, and consumers are generally not sensative to price hikes that small, especially when they know it is because of an increase in wages.

* Employer costs would rise, but turnover would fall, which would result in some savings (worker turnover falls as wages rise)

* Some employers cannot attract workers at the current minimum wage, but don't raise wages because they do not want to have to raise wages for existing workers. When that happens anyway, they be able to hire additional workers.

Krueger believes that because of the effects, a moderate increase in the mimimum wage would result in little change in employment.

Krueger does believe that there is a tipping point, at which point the negative effects of raising the minimum wage will outweigh the positive effects, but he does not believe we've ever gone beyond that tipping point.

Any thoughts from the right (or center)? I would like to see both policies implemented, but then again that's because I'm a Volvo driving, NPR listening, no good liberal who has secret communist meetings in his basement every week.

 

[Charles Kozierok]

It makes sense that minimum wage laws would increase unemployment, and thus lead to more people requiring government services, increasing budgetary costs.

But it's also true that people who don't make enough to live on end up needing assistance from the government anyway.

I don't really know which of these costs more in terms of either dollars or the emotional impact on those affected.

 

[randomrogue]

What business can't afford to pay their employees a few hundred bucks more a week? What industry? Who has profit margins so tight that they are relying on minimum wage employees and can't afford to pay $9 per hour. I never ever hired people at minimum wage since I felt like that was slavery. I could have but I'm fine with a bit of money coming out of my bottom line to let a laborer have an extra grand or so a month. In practical terms what I noticed was that paying people a bit more than minimum wage allows them the funds to buy a car that works instead of either taking the bus to work or driving the most ridiculous beater I've ever seen. When I first started my company all the laborers would carpool together in a hoopty. After a few paychecks they all got reliable transportation. They were loyal as hell and I never ever had to replace them.

 

[Blackjack200]

It makes sense that minimum wage laws would increase unemployment, and thus lead to more people requiring government services, increasing budgetary costs.

But it's also true that people who don't make enough to live on end up needing assistance from the government anyway.

I don't really know which of these costs more in terms of either dollars or the emotional impact on those affected.

Krueger contends that at this level ($7.25 to $9.00) it would have a negligable effect on unemployment.

It should be fairly straightforward to look back at other times when the rate was rasied and the effect it had on unemployment...

 

[waggy]

for a large company it won't effect much.


smaller company's and "mom and pop" type this is going to effect. this will effect hireing on smaller business.

though most places do pay roughly $9 anyway so it won't matter much

 

[Atomic Playboy]

I think minimum wage needs to be decided primarily at the local level, rather than federally. Don't get me wrong, I think that we need an absolute minimum wage established that applies to everyone, but I also think it's ludicrous to mandate a federal minimum wage when the cost of living is so disparate between somewhere like New York or San Francisco and Missoula or Provo. It should fall more on local jurisdictions to determine a proper minimum wage for their residents.

 

[ivwshane]

About 5% of the working populace is paid the minimum wage, raising the wage would have a minimal affect on employers bottom line. In fact one studies showed that employers planned on offsetting the wage increase by raising productivity.

http://www.businessinsider.com/minimum-wage-increase-job-loss-unemployment-workers-2013-2

 

[fskimospy]

It makes sense that minimum wage laws would increase unemployment, and thus lead to more people requiring government services, increasing budgetary costs.

But it's also true that people who don't make enough to live on end up needing assistance from the government anyway.

I don't really know which of these costs more in terms of either dollars or the emotional impact on those affected.

This also assumes that workers are being paid something close to the marginal value of what they produce. There is a good argument that in areas with such large numbers of applicants, the average worker is producing considerably more than what they cost. The only time you will create unemployment is if you push some workers ' wages past their marginal production value.

From the meta-analysis that I have read, there seems to be a small negative effect on employment, but it is mostly concentrated in teenaged workers.

 

[DrPizza]

I rarely eat at coffee-shop types of places, but a couple weeks ago before a doctor's appointment, I went to a Tim Hortons. There were 15 employees working. 15. For a breakfast crowd. It was sort of busy, but not THAT busy. On the other hand, I worked at a pizza shop that just a couple weeks ago averaged 30 large pizza per hour, 12 hours a day... not to mention selling wings, subs, drinks, etc. - typical pizza place fare. They did it with 5 to 6 employees at the most at any particular time, with very little wait time (a minute or so) for walk-in customers. 15 employees for some coffee, donuts, and simple breakfast sandwiches??!

 

[Exterous]

Small increases to potentially move more money into the economy I am ok with. Raising it to $9.00 in one fell swoop seems a little drastic though.

I am not so keen on tying it to inflation. Seems like a good recipe for problems down the road esp if there were sudden movements in inflation

 

[Murloc]

services that disappear from "high" minimum wage societies:
- grocery baggers at the supermarket
- serviced petrol pump
- overstaffed bars & restaurants

It doesn't mean unemployment increases as long as you do it slowly.

I never saw a grocery bagger in Europe, while I saw serviced petrol pumps in poorer countries like Italy.

You have to give up things like these if you want to be more equal, I don't mind since I never experienced anything else. It would annoy me if someone started touching the stuff I just bought, like putting chicken in a package dirty with salmonella juice together with long-term and non-fridge stuff.

 

[MovingTarget]

Keep in mind that the federal minimum wage is not the same for all workers. "Tipped" employees have a minimum wage of $2.13/hour. Sure, employers are required to track tips and compensate the employees for any deficit between their total wage+tips and the minimum wage, but in reality there seems to be much less accountability. I believe that we need to get rid of this distinction in minimum wage law.

 

[Fern]

What business can't afford to pay their employees a few hundred bucks more a week? What industry?
-snip-

Mom & Pop small businesses, especially small restaurants. I know, I see (heck, I prepare) their books/financials/tax returns.

We have a lot of small landscapes businesses around here, they'd have problems too.

Where I'm at, the economy is still in the dumps for most small businesses. Many are having trouble hanging on because the recession has lasted so long. Keep in mind that many expenses are fixed, no matter that sales are down. Things like rent, utilities and insurance have not dropped. For most businesses the cost of goods sold (CGS) has decreased overall since they're selling less, but CGS per sale has risen thus further eroding profit etc.

About the only 'flexible' expenses is wages (advertising too). So, if expenses need trimming overall wages might be what gets cut. That means fewer people employed, with the remaining employees enjoying a better wage. Not sure that's a good thing in this economy.

Fern

 

[Fern]

Keep in mind that the federal minimum wage is not the same for all workers. "Tipped" employees have a minimum wage of $2.13/hour. Sure, employers are required to track tips and compensate the employees for any deficit between their total wage+tips and the minimum wage, but in reality there seems to be much less accountability. I believe that we need to get rid of this distinction in minimum wage law.

My office (a small accounting firm) does a lot of payroll, including that for restaurant clients.

I can assure you that there is a metric crap ton of "accountability" for restaurant employees. The state Dept of Labor has a 'dog in this fight' and so does the IRS. The IRS watches this (restaurant employees) pretty closely because tips generate withholding revenue, both for income taxes and payroll taxes.

There's nothing that prevents a restaurant from paying their employee the higher fixed minimum wage, well nothing other than common sense and good business practice. A restaurant won't get decent wait staff without letting them keep tips. So, we're never going to get around the whole tip issue. In close to 20 yrs of doing restaurant payroll I've only seen ONE claim by wait staff that they weren't getting at least the (regular) minimum wage. And IIRC they were proven incorrect. Most restaurant wait staff make much more than the (regular) minimum wage. If they don't the restaurant will, in almost all cases, be going out of business soon. Low tips mean little-to-customers.

Fern

 

[WelshBloke]

Over here in the UK the introduction of the minimum wage didn't affect unemployment levels significantly if at all.

Also companies employ people because they need to not because they want to. The are still going to employ the amount of people that they need.

 

[ivwshane]

Those saying raising the minimum wage will have a negative affect need to back up their statements, Australia has a $15+ minimum wage and are doing just fine, if not better than us, economy wise and there is plenty of history backing the data.

http://www.politicususa.com/australias-minimum-wage-16-hour-economy-growing.html

 

[waggy]

Those saying raising the minimum wage will have a negative affect need to back up their statements, Australia has a $15+ minimum wage and are doing just fine, if not better than us, economy wise and there is plenty of history backing the data.

http://www.politicususa.com/australias-minimum-wage-16-hour-economy-growing.html

I gurentee you as a small business owner what i posted IS going to happen.

This won't effect large business at all. This is going to hurt (well kinda) the small business with under 10 people.

i have been in the situation where its either hire another or make people work harder and do more myself.

over all though i really don't think bumping the pay up is really going to matter much. it's not a huge increase.

 

[CycloWizard]

The proposed change is $1.75/hour more per employee. Multiply by 2080 hours in a year and we have that each minimum wage employee will earn $3640 more per year (and, therefore, all employers will increase labor expenses by the same amount all things being equal). If 5% of a 120 million member workforce all make this much more, then the additional cost is $21.84 billion per year in new labor costs (about 0.1% GDP). Bearing in mind that employers are already going to be paying significantly more per employee for health insurance over the next two years as all of the trailing provisions of ObamaCare kick in and suddenly the marginal cost increase to add another employee is hardly trivial (over $5k/year) while the contribution to GDP will be negligible even if every dollar is spent immediately.

It seems to me that raising minimum wage when the economy is doing well may have different effects than when it is doing badly. We raised minimum wage by $2.10 (I think) while things were not going well and now we are stuck in a rut of high unemployment. Perhaps Keynesian theory could be augmented by dipping the minimum wage during recessions to boost employment?

 

[waggy]

The proposed change is $1.75/hour more per employee. Multiply by 2080 hours in a year and we have that each minimum wage employee will earn $3640 more per year (and, therefore, all employers will increase labor expenses by the same amount all things being equal). If 5% of a 120 million member workforce all make this much more, then the additional cost is $21.84 billion per year in new labor costs (about 0.1% GDP). Bearing in mind that employers are already going to be paying significantly more per employee for health insurance over the next two years as all of the trailing provisions of ObamaCare kick in and suddenly the marginal cost increase to add another employee is hardly trivial (over $5k/year) while the contribution to GDP will be negligible even if every dollar is spent immediately.

It seems to me that raising minimum wage when the economy is doing well may have different effects than when it is doing badly. We raised minimum wage by $2.10 (I think) while things were not going well and now we are stuck in a rut of high unemployment. Perhaps Keynesian theory could be augmented by dipping the minimum wage during recessions to boost employment?

While the numbers seem small for a small business that is something to look at. it could be the diffrence between hireing that other person to pick up slack or making people work harder.

as for dippin the min wage that won't work either. I found that if i started pay at the min wage i got the worst society had to offer. drug users, lazy, terrible ethics, stupid..etc you name it.

if you pay even a dollar over you get a better selection of people willing to work.

I usually paid 2-4 over min wage. i was greedy but i understand that fuck im dumb as a ox. to make money i need smart, hard working people to make it.

 

[Fern]

-snip-

It seems to me that raising minimum wage when the economy is doing well may have different effects than when it is doing badly.

Exactly.

I work with small business owners. When the economy is zooming along the minimum wage isn't even an issue. Competition for decent employees can be so intense they pay above min wage anyway.

Now that it sucks and businesses are just trying to hold on, a whole different dynamic occurs. It will impede hiring and may lead to cutbacks, whether work hours or number of employees.

And I think the discussion of minimum wages needs to take changes from Obamacare into consideration. The increased cost of Obamacare for some employers is already exerting pressure for reduced working hours. These type of changes should not be analyzed independently, they need to be looked at holistically.

Fern

 

[darkxshade]

The thing I dislike about these things in government is the simple fixes they try to put on complex problems. Like oh lets just make it $9 flat across the nation so we screw businesses that can't afford such a hike.

They should make it almost like income taxes where there are brackets of say profitability where minimum wage for business A is set to X while minimum wage for business B is set to Y such that the less profitable you are, the lower the min wage is that you're required to pay. So while a mom and pop diner can pay $5/hr, your typical McDonalds has to pay $8/hr. Not only does promote competition, it promotes employment and as a job hunter, it's absolutely on you to try for the job at McD if you want a better living but there will be those who won't mind going for the lower $5/hr if you won't.

 

[Sonikku]

* Prices would only need to increase about 3%, and consumers are generally not sensative to price hikes that small, especially when they know it is because of an increase in wages.

They might only "need" to go up 3% to cover it, but rest assured they would be raised far more. Corporations not wanting to pay more than the minimum would raise their prices significantly higher than that percentage, pointing to the government as the cause in hopes of undermining and turning public opinion against the legislation aimed at mitigating their behavior to the weakest of us. Potentially even succeeding in making the very people it is aimed at helping think that it is in their own interest to keep the status quo.

There really isn't anything the government can do to stop the businesses race to the bottom at this point. They simply have far too many knobs they can turn to circumvent the governments slow and clumsy moves. Try to make them pay more than 0 in taxes and they use tax loopholes and tax havens. Try to plug the loopholes and they call in favors bought with politicians with campaign donations to sneak in new ones. Try to make them provide some kind of health care to their employees and they start hiring every veteran they can get in place of civilians for their cheaper Tricare, all while championing a false banner of patriotism.

There is no protecting the people from this monster. The people that are supposed to be in place to protect us have instead become their minions.

 

[Craig234]

They might only "need" to go up 3% to cover it, but rest assured they would be raised far more. Corporations not wanting to pay more than the minimum would raise their prices significantly higher than that percentage, pointing to the government as the cause in hopes of undermining and turning public opinion against the legislation aimed at mitigating their behavior to the weakest of us.

No, they wouldn't.

There's no evidence for your claim.

History does not support your claim.

And competition prevents your claim. If they do, competitors will beat them on price.

 

[Craig234]

The thing I dislike about these things in government is the simple fixes they try to put on complex problems. Like oh lets just make it $9 flat across the nation so we screw businesses that can't afford such a hike.

They should make it almost like income taxes where there are brackets of say profitability where minimum wage for business A is set to X while minimum wage for business B is set to Y such that the less profitable you are, the lower the min wage is that you're required to pay. So while a mom and pop diner can pay $5/hr, your typical McDonalds has to pay $8/hr. Not only does promote competition, it promotes employment and as a job hunter, it's absolutely on you to try for the job at McD if you want a better living but there will be those who won't mind going for the lower $5/hr if you won't.

You're right, the minimum wage like many government policies is a blunt instrument.

But that's often the best available solution doing more good than harm, deserving support.

No policy is 'perfect', they all can be criticized.

But that's not a reason not to support a policy when it's better than not having it.

 

[Sonikku]

No, they wouldn't.

There's no evidence for your claim.

History does not support your claim.

And competition prevents your claim. If they do, competitors will beat them on price.

Competition? Maybe in a free market. Ours is not a free market. As more politicians, regulators and feds are bought off, collusion will increasingly become the rule and less the exception.