will removing minimum wage accelerate job growth?

[borosp1]

I was watching 'Forbes on Fox News' this past Saturday and all the panelist (4 out 5 republicans) said removing the minimum wage floor would lower the unemployment rate and that any job is better than no job. I find the argument ridicules as we know by history when you give someone a free reign they will take advantage by hiring the lowest common denominator of wages. Why would a business pay someone $7/hr if they can get away with paying $1/hr.

The biggest issue is that the rich run the Govt policies and its not representative of the people. If there are enough rich lobysist pushing to remove the floor minimum wage than someone (a republican) will propose a law calling it a jobs creation bill!

The sadist part in America is the growing disparity every year of the rich v.s poor. Rich keeping getting richer the poor and middle class keeping getting poorer as there wages do not grow as fast on a % vs the rich. As well the rich have tax advantages poor and middle class do not. Whenever you hear of a CEO making $1 per yr salary take that with a grain of salt as that same CEO makes more than likely many millions in Stock Options and dividend income. Dividends are taxed @15% while income that a majority of people pay taxes on is taxed at much higher rate. Extrapolate millions of dollars in dividend income taxed at only 15% vs. regular income tax rate and you see how rich keeping getting richer and everyone else is screwed.

 

[dmcowen674]

Great post but don't be discouraged as it will be ridiculed by the Rich Republicans that rule here.

 

[Fear No Evil]

They'd pay $7 an hour because they couldn't find people to work for less. The stats I could find point to only about 1.1 - 1.5 million people earn mimimum wage currently - How do you explain that?

Also, if you feel like lowering it will NOT help, will increasing it help? How about $10? $15? $20/hr? Do you think more companies would hire people if forced to pay $20 an hour at McDonalds? What would be the implications of that? How much would a fast food place keep their costs down? Or would they just increase prices? Hello inflation.

The whole 'rich vs. poor' argument gets a bit tiresome when you realize how rich poor Americans really are. Are you really poor when you have cable tv/ipods/internet/computers/xboxes/designer clothes/ etc? It probably IS true the rich are getting richer, but I don't think the poor are getting poorer. Do you honestly think the poor these days are worse off than they were in the great depression? How about the 70's? Did every poor person during that time have a cell phone, cable, large TVs?

Also, before you start wishing for higher taxes on stocks, realize that a HUGE # of middle class Americans have 401k's. The rich already pay most of the taxes, the poor pay almost ZERO taxes. How are the poor getting screwed in taxes when they pay none?

 

[Fear No Evil]

Great post but don't be discouraged as it will be ridiculed by the Rich Republicans that rule here.

Says the guy who's SO POOR he is able to run his own tech website and spend all day spamming on the internet. I guess we we need to redefine the word poor these days. I guess his wife and kids are going without food so he can run the website.

 

[Fenixgoon]

well if you lower the minimum wage, an employer would only hire more people if he thought it was going to increase his profit - the costs of wage offset by the increase in productivity/business. otherwise, your costs as an employer were just reduced by $X/hour for minimum wage people, meaning your profits will go up anyway, and there's little incentive to change that (unless you can do better, as above).

at least, that's what basic economic theory would suggest, IIRC.

 

[blackangst1]

they'd pay $7 an hour because they couldn't find people to work for less. The stats i could find point to only about 1.1 - 1.5 million people earn mimimum wage currently - how do you explain that?

Also, if you feel like lowering it will not help, will increasing it help? How about $10? $15? $20/hr? Do you think more companies would hire people if forced to pay $20 an hour at mcdonalds? What would be the implications of that? How much would a fast food place keep their costs down? Or would they just increase prices? Hello inflation.

The whole 'rich vs. Poor' argument gets a bit tiresome when you realize how rich poor americans really are. Are you really poor when you have cable tv/ipods/internet/computers/xboxes/designer clothes/ etc? It probably is true the rich are getting richer, but i don't think the poor are getting poorer. Do you honestly think the poor these days are worse off than they were in the great depression? How about the 70's? Did every poor person during that time have a cell phone, cable, large tvs?

Also, before you start wishing for higher taxes on stocks, realize that a huge # of middle class americans have 401k's. The rich already pay most of the taxes, the poor pay almost zero taxes. How are the poor getting screwed in taxes when they pay none?

qfmft

 

[Argo]

They'd pay $7 an hour because they couldn't find people to work for less. The stats I could find point to only about 1.1 - 1.5 million people earn mimimum wage currently - How do you explain that?

Also, if you feel like lowering it will NOT help, will increasing it help? How about $10? $15? $20/hr? Do you think more companies would hire people if forced to pay $20 an hour at McDonalds? What would be the implications of that? How much would a fast food place keep their costs down? Or would they just increase prices? Hello inflation.

The whole 'rich vs. poor' argument gets a bit tiresome when you realize how rich poor Americans really are. Are you really poor when you have cable tv/ipods/internet/computers/xboxes/designer clothes/ etc? It probably IS true the rich are getting richer, but I don't think the poor are getting poorer. Do you honestly think the poor these days are worse off than they were in the great depression? How about the 70's? Did every poor person during that time have a cell phone, cable, large TVs?

Also, before you start wishing for higher taxes on stocks, realize that a HUGE # of middle class Americans have 401k's. The rich already pay most of the taxes, the poor pay almost ZERO taxes. How are the poor getting screwed in taxes when they pay none?

+1

 

[nobodyknows]

How are the poor getting screwed in taxes when they pay none?

How is it they pay is so low that they can't afford to pay any taxes or set money aside in 401k's?

Even an average person gets screwed when moderately well-off people can afford to invest $100,000/year as cmpared to their $4000/year.

 

[HeXen]

I know how to fix it. Just put a cap on amount any single person can earn per employment, from CEO's to the Mcdonalds worker. No saleries, only an hourly wage. Then a capped year end bonus for all emplyees IF company funds can provide.
So a company could make a fortune but must be forced to pay out capped wages to every person and all other income for the company goes to things like R&D, Ads...etc.
So instead of min. wage, we would have max. wage. Sounds more efficient to reverse it since there is no limit one could make, may even force dropping of prices for alot of stuff too.

probably wouldnt work, but sounds good on paper. CEO's could then afford to hire more employees since they could not take...i mean make any more money.

 

[Genx87]

The min wage is the biggest non-issue in our country right behind the Death Tax.

 

[Genx87]

I know how to fix it. Just put a cap on amount any single person can earn per employment, from CEO's to the Mcdonalds worker. No saleries, only an hourly wage. Then a capped year end bonus for all emplyees IF company funds can provide.
So a company could make a fortune but must be forced to pay out capped wages to every person and all other income for the company goes to things like R&D, Ads...etc.
So instead of min. wage, we would have max. wage. Sounds more efficient to reverse it since there is no limit one could make, may even force dropping of prices for alot of stuff too.

probably wouldnt work, but sounds good on paper. CEO's could then afford to hire more employees since they could not take...i mean make any more money.

Brain drain would kill us as a country and economy.

 

[Ns1]

How is it they pay is so low that they can't afford to pay any taxes or set money aside in 401k's?

Even an average person gets screwed when moderately well-off people can afford to invest $100,000/year as cmpared to their $4000/year.

We must have different expectations of society if you believe "moderately well off" = invest 100k/year

 

[Udgnim]

I do not believe lowering the minimum wage would help much because it doesn't open up jobs that matter

I guess there could be an argument that decreasing costs at the very bottom end positions could open up funds for higher level positions, but I'd think corporations would just pocket the difference as profit or award larger bonuses to the executives

 

[borosp1]

We must have different expectations of society if you believe "moderately well off" = invest 100k/year

I think his analogy was that poor / middle class cannot afford to to live of investments while rich use lower tax strategy to live off. Middle class does not live off there 401k investment which is somewhat of a scam if you look at a 401k @ retirement. The total income is still not enough to live if you plan to retire @ 65. For example if you put in say 5K per year to 401k and your retirement projection is around 200K. Can someone who makes 50k a year now live off 200k @ retirement (65 years old till death). Lets say Social Security will not be around when a lot of us in are 20s and 30s retire and all we have the projected 200K in the 401K retirement account. Is thats enough to live off?

I understand the pension system in most public and private organizations is unsustainable but it seems to me much better for the retirey than a 401k as its guaranteed salary/pension for the rest of your life vs. a 401K account that you can take out at retirement which is one lump sum that may or may not be enough to live of off?

 

[charrison]

I do not believe lowering the minimum wage would help much because it doesn't open up jobs that matter

I guess there could be an argument that decreasing costs at the very bottom end positions could open up funds for higher level positions, but I'd think corporations would just pocket the difference as profit or award larger bonuses to the executives

The point is that minimum wage jobs are entry level, but they are still jobs that must be done. A significant portion of minimum wage earners are those that are young with no experience. The recession coupled with a significant minimum wage hike has really hurt young workers at this point. Teen unemployment is extremely high right now.

While I dont see minimum wage being lowered at this point, I think we should be careful about how much and how fast it is raised in the future.

 

[mav451]

The sadist part in America is the growing desperately every year of the rich v.s poor

I think you meant disparity and not "desperately" in the OP.

 

[borosp1]

I think you meant disparity and not "desperately" in the OP.

yes - Fixed, thanks!

 

[brandonb]

Minimum wage just causes inflation. Every time Minimum wage goes up, so does everything else. I use the McDonalds Index. When I was about 17 years old (15 years ago or so), ever meal deal at McDonalds was $2.99. Now you go there and it's about $5.50-$6.50 for a meal deal. That's about double.

When I was 17 years old Minimum wage was $4.25, now it's $7.25, again, that's not quite double, but close.

In other words, minimum wage scales pretty much linearly with what the company is going to charge you. If minimum wage goes up, prices of materials and labor goes up (materials go up because it costs companies to create those products, and they have to pay labor).

There is a concept out there by business men called Operating Margin... It means, the ratio between revenue and labor costs which generate revenue. Most companies have a goal to get between 40-50% operation margin (from my experiences but could differ from company to company), but this depends on many factors. If the company's goal was $600,000 a month revenue with a 50% operating margin, that mean's they should pay out about $300,000 in labor costs which directly reflect revenue.

That means, that if those figures were from McDonalds, they should be paying out $300,000 in burger flippers, and cashiers. Now figure in beef, rent, the electric bill, training, management, franchise fees, license fees to pepsi, etc. That's where the other $300,000 goes in the revenue. That is called above/below the line costs.

If the operating margin increases, meaning labor is not costing as much, they can hire more burger flippers to try to increase revenue. If operating margin is lower, obviously those workers which are generating revenue are not working as hard, or are getting paid too much. They may need to raise prices to compensate to generate revenue. Usually its the employees who get the axe because in a competitive world, hiring/firing is better for the business.

That's how 99% of all businesses work in the world. It has to, because that's how the bean counters figure out if a business is running smoothly or not, the company will not stay afloat if they do not watch operating margin very closely. Operating Margin is the single most important factor. If you raise mimimum wage, you directly impact Operating Margin, and usually it's the revenue building employees that get the axe.

Yes, lowering minimum wage would accelerate job growth, it would increase operating margin which would allow employeers to increase revenue building employees (burger flippers)... But you also have a side effect, since costs are lower, companies will probably also lower the costs of their products for a competitive edge, and keep the same operating margin. This would essentially deflate the prices, and probably not do much for increasing jobs. They would probably get some help provided they were short to begin with, but when things stablized I think we'd end up nearly the same as we were before. It would have to be regulated, the minimum wage would have to decrease slowly over time much like it's been increasing.

 

[blackangst1]

I think his analogy was that poor / middle class cannot afford to to live of investments while rich use lower tax strategy to live off. Middle class does not live off there 401k investment which is somewhat of a scam if you look at a 401k @ retirement. The total income is still not enough to live if you plan to retire @ 65. For example if you put in say 5K per year to 401k and your retirement projection is around 200K. Can someone who makes 50k a year now live off 200k @ retirement (65 years old till death). Lets say Social Security will not be around when a lot of us in are 20s and 30s retire and all we have the projected 200K in the 401K retirement account. Is thats enough to live off?

I understand the pension system in most public and private organizations is unsustainable but it seems to me much better for the retirey than a 401k as its guaranteed salary/pension for the rest of your life vs. a 401K account that you can take out at retirement which is one lump sum that may or may not be enough to live of off?

Not sure about your math. $5,000/yr over 25 years @ 9%/yr = just over $500,000. If one started in their 20's investing it would be well over $1.3 million.

 

[JS80]

The minimum wage should be eliminated but it probably not do a thing in terms of job growth (or hemorrhaging job loss).

 

[PrinceofWands]

Also, before you start wishing for higher taxes on stocks, realize that a HUGE # of middle class Americans have 401k's. The rich already pay most of the taxes, the poor pay almost ZERO taxes. How are the poor getting screwed in taxes when they pay none?

10-20% of the potential workforce is unemployed/underemployed. Something like 40% of those working have a 401k or equivalent, and 46% of 401ks have less than $10,000 in them. That's hardly a 'HUGE #'. The average amount invested is less now than in '98 by a fair amount. The market exists as a plaything of the top 10% and no longer impacts, or is impacted by any real indicators like jobs or the marketplace.

 

[Carmen813]

It would probably accelerate job growth eventually but I think it would also probably cause absolute chaos for at least a year, possibly longer. Prices on goods wouldn't drop overnight, and some (all?) people would be making less money.

People seem to forget that over-employment isn't a good thing either.

 

[drebo]

I do not believe lowering the minimum wage would help much because it doesn't open up jobs that matter

I guess there could be an argument that decreasing costs at the very bottom end positions could open up funds for higher level positions, but I'd think corporations would just pocket the difference as profit or award larger bonuses to the executives

This is exactly the mentality that has caused virtually all manufacturing positions to be driven off-shore. What, exactly, is a "job that matters"? The management level jobs?

Not everyone is qualified for management, or even skilled labor. Minimum wage hurts unskilled labor more than it helps. If a company has a choice between paying unskilled labor $8.25/hr in California or $2.25/hr in Mexico, they're going to go to Mexico to build their manufacturing plant. That hurts Californians.

The $1/hr argument is bullshit because no one, not even unskilled, will work for that unless they believe that they can live off of it. If wages did fall to that, the prices of products would also fall. If average income fell, average prices would fall as well. The labor market, as any other market, needs to find its own equilibrium on the supply/demand curve, and intervention such as minimum wage hurts that.

Wealth is a relative thing. $100,000 per year is worth much less if gas costs $10/gal and a can of soup is $15, the same as $10,000 is fairly well off when a gallon of gas is only $0.50 and a can of soup is $0.75. The former is where we're headed if liberals keep driving minimum wage up. The latter is where we should be.

 

[Carmen813]

The biggest problem I have with a minimum wage is that it assumes cost of living is equal in different areas. Obviously not true. It also tends to hurt small businesses.

 

[drebo]

Minimum wage just causes inflation. Every time Minimum wage goes up, so does everything else. I use the McDonalds Index. When I was about 17 years old (15 years ago or so), ever meal deal at McDonalds was $2.99. Now you go there and it's about $5.50-$6.50 for a meal deal. That's about double.

When I was 17 years old Minimum wage was $4.25, now it's $7.25, again, that's not quite double, but close.

In other words, minimum wage scales pretty much linearly with what the company is going to charge you. If minimum wage goes up, prices of materials and labor goes up (materials go up because it costs companies to create those products, and they have to pay labor).

There is a concept out there by business men called Operating Margin... It means, the ratio between revenue and labor costs which generate revenue. Most companies have a goal to get between 40-50% operation margin (from my experiences but could differ from company to company), but this depends on many factors. If the company's goal was $600,000 a month revenue with a 50% operating margin, that mean's they should pay out about $300,000 in labor costs which directly reflect revenue.

That means, that if those figures were from McDonalds, they should be paying out $300,000 in burger flippers, and cashiers. Now figure in beef, rent, the electric bill, training, management, franchise fees, license fees to pepsi, etc. That's where the other $300,000 goes in the revenue. That is called above/below the line costs.

If the operating margin increases, meaning labor is not costing as much, they can hire more burger flippers to try to increase revenue. If operating margin is lower, obviously those workers which are generating revenue are not working as hard, or are getting paid too much. They may need to raise prices to compensate to generate revenue. Usually its the employees who get the axe because in a competitive world, hiring/firing is better for the business.

That's how 99% of all businesses work in the world. It has to, because that's how the bean counters figure out if a business is running smoothly or not, the company will not stay afloat if they do not watch operating margin very closely. Operating Margin is the single most important factor. If you raise mimimum wage, you directly impact Operating Margin, and usually it's the revenue building employees that get the axe.

Yes, lowering minimum wage would accelerate job growth, it would increase operating margin which would allow employeers to increase revenue building employees (burger flippers)... But you also have a side effect, since costs are lower, companies will probably also lower the costs of their products for a competitive edge, and keep the same operating margin. This would essentially deflate the prices, and probably not do much for increasing jobs. They would probably get some help provided they were short to begin with, but when things stablized I think we'd end up nearly the same as we were before. It would have to be regulated, the minimum wage would have to decrease slowly over time much like it's been increasing.

The problem with your analysis is that, while correct, the current administration and legislature (and previous administrations and legislatures of the last 20 years or so) do not believe that businesses should be making profit. They believe that businesses should do one thing: support families.

If a business is making a profit, it's a horrible company that's taking advantage of its employees. Maybe that's why some banks were "too big to fail"...they were supporting all of their employees at the cost of themselves.