Posts tagged with: minimum wage

Blog author: jcarter
posted by on Wednesday, February 5, 2014

Over the past few months I’ve become obsessed with the idea that economic principles and arguments need to be explained more intuitively. I’ve assumed that the best way to approach that task would be to create robust metaphors that can be intuitively grasped. But a short parody video by Julie Borowski on the minimum wage has made me realize that sometimes all we really need is to show the obvious conclusions of policy positions.

Borowski’s presentation is silly, her style slapdash and homemade, and her argument well worn to the point of being trite. But there is something about having the argument presented visually that helps to put a fresh spin on an stale (and obvious) point.

Watch the video below and keep in mind that when she talks about “raising your own minimum wage” that this is exactly what we are asking the government to do on the behalf of low-skilled workers — often with the same results.

(Via: Cafe Hayek)

100930_minimum_wageYesterday I mentioned that translating economic principles into intuitive concepts is one of the most urgent and necessary tasks to prevent such evils as harm to the poor. Today, William Poole provides an excellent example of what is needed with his “common-sense thought experiment” on minimum wage increases:

Suppose Congress were to enact a minimum wage $50 higher than the current one of $7.25 per hour. Would a minimum of $57.25 reduce employment? I know of no economist who would assert a zero effect in this case, and recommend that readers ask their economist friends about this thought experiment. Assume that the estimate is that a minimum of $57.25 would reduce employment by 100,000. The actual number would be far higher but 100,000 will do for this thought experiment. Now, consider several other possible increases of less than $50. The larger of these increases would have substantial effects, the smaller ones smaller effects.

But is there reason to believe that a minimum of $10 would have no effect? I have never seen a convincing argument to justify that belief. If you accept as a fact that a minimum wage of $57.25 would reduce employment, and you accept as a fact that some workers are currently paid $7.25 per hour, then logic compels you to believe that a small increase in the minimum wage above $7.25 will have at least a small negative effect on employment.

The only escape from this logic is to believe that there is a discontinuity in the relationship between the minimum wage and employment. No one has offered evidence that there is a discontinuity at a certain minimum wage such that a minimum above that has an effect and one below does not.

Far too often, advocates of minimum wage increases tend to dismiss such thought experiments before giving them due consideration. I think I know why. I don’t mean to cast aspersions on their motives (it certainly sounds like I’m about to cast aspersions on their motives, doesn’t it?), but I suspect they fear that admitting the undeniable logic of this reasoning will cause them to lose the moral high ground.
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Blog author: jsunde
posted by on Wednesday, January 15, 2014

Given the recent and wide-ranging discussion here on the PowerBlog surrounding the the minimum wage (Hunter Baker, Joe Carter, Jordan Ballor, Elise Hilton, yours truly), this short little video offers a nice overview of the seen and unseen effects of such an instrument.

To make its argument, the video assumes the worst about wage-setters, describing Edgar the Employer as Edgar the Exploiter: one who cares only about “making profit” and even dreams about paying his employees less. I have yet to meet such a miser, even in my dark days behind the McDonald’s fry vat, but surely he exists. (more…)

Blog author: jballor
posted by on Monday, January 6, 2014

The following is a letter written in response to a post from my friend Brad Littlejohn on the topic of the minimum wage

Dear Brad,

Thank you for your thoughtful and substantive engagement on the question of the minimum wage. I don’t think the conversation we had on Twitter earlier did justice to your work here, so I’m offering this response in hopes of furthering the conversation. I hope you find it fruitful. I certainly have. I should also note that I have been assuming the context of policy proposals to increase the minimum wage at the federal level in the United States. There are certainly aspects of what we’re discussing that apply to a greater or lesser extent in other contexts and at other levels of government, but at the level of individual states, for instance, the stakes are somewhat reduced and ameliorated by the realities of federalism.

You write that you “want to reflect a bit more fully on what’s wrong with one of the common conservative arguments against the minimum wage: that the laborer is only worth his productivity.” I have significant concerns with equating someone’s worth with the economic value of their labor in the marketplace. I do not argue that the laborer is only worth his or her productive work. I argue that a worker’s work is only valuable in a market setting insofar as someone is willing to pay for it. I agree that there is a subjective element to work that is in some ways intimately identified with and inseparable from the person doing the working. But I do maintain that the worker and the work can, and indeed must, be distinguished. Perhaps what we disagree about is that you think the wage someone is offered is primarily a signal about how much that person is valued. I think that the wage someone is offered is primarily a signal about how much that person’s work is useful to others.
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Blog author: jballor
posted by on Wednesday, December 11, 2013

Broken bank 02In yesterday’s edition of The Transom, which I highly recommend, Ben Domenech included a discussion that places the debates over raising the minimum wage within the broader context of the effects of inflation more generally.

Here’s a section:

There shouldn’t be any debate about the reality of the problem that the costs of basic staples, health care, and higher education are chewing up ever-increasing portions of the median family budget which is, in inflation-adjusted terms, smaller than it’s been since 1995. According to the Bureau of Labor Statistics, over the past five years, the average prices for all goods are 7.7% higher; the average price of bread is 10.4% higher; and the average price of meat/poultry/fish/eggs is 16.2% higher. In the past decade, the average worker has paid 89 percent more toward their health care benefits, while their wages grew 31 percent. The rising costs of the government-fueled higher education bubble makes American parents concerned they can no longer afford to send their kids to college. On top of it all, Americans no longer feel confident about their ability to find a new job which can pay them enough to make up for the costs of these goods and services.

The problem is not that the cost of unskilled labor is too low. The problem is the costs of what workers can buy with the fruits of that labor are too high. And the reason for that is largely due to government and systems which socialize risk and insulate producers from reality, not the realities of a competitive marketplace. http://vlt.tc/16×9 Those who favor a free market response to these inequality-related concerns ought to view the minimum wage push as an opportunity to put forward an agenda that speaks to these real concerns with a gas & groceries agenda. This is not going to be solved by more government requirements which raise the cost of labor and will absolutely lead to more low-skilled unemployment: it is with an agenda that would smash the insulated systems which have led to these higher costs.

Ben goes on to outline in some detail what an agenda might look like, which includes “ending the government’s management Soviet-style programs of dairy and raisins.” Horror of horrors, the Daily Beast and dairy producers would have us believe that the result would be $8/gallon milk. I can’t be the only one who wonders what the market price of commodities from milk to oil and sugar might be without various protectionist measures and subsidy schemes.

Ben ends the section with a key question: “Some Republicans have taken up more populist anti-corporatist and anti-cronyist arguments in recent months, because they can read the same polls we do. But will they stand up to cronyism, or are they just interested in demagoguery on the issue until they hold the reins of power again?”
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minimum_wage_custom-8614e5bd8d516fbadd22d4a09fff441a70ba1596-s6-c301. Both sides of the debate believe they are arguing in defense of the poor. Most people who support or oppose minimum wage laws and/or increases share a common objective — helping the working poor. Because both sides have noble intentions, the merits of the debate over minimum wage laws and minimum wage increases should be based on empirical evidence that it will actually help, rather than harm, the poor.

2. Economists disagree about the effects of small increases in minimum wages. It’s true that economists disagree about the effects of the minimum wage on employment and the living standards of minimum wage earners. But almost all of the disagreement is about relatively small increases (less than 20%). Almost all economist agree that significant increases to the minimum wage or attempts to bring it in line with a “living wage” (e.g., $12-15 an hour) would lead to significant increases in unemployment. (President Obama’s proposal would only increase the federal minimum wage by $1.75 an hour.)

3. The primary argument for minimum wage increase is that is increases the value of the worker’s labor. — The efficiency wage theory of labor holds that higher real wages improve labor productivity by reducing worker turnover and the associated costs of hiring and training new workers, by reducing the incentive for workers to unionize, and by increasing the opportunity cost of being fired—thereby giving the worker incentive to be more productive. Under this view, small increases to the minimum wage will have no deleterious employment effects.

4. The primary argument against minimum wage increases is that it discriminates against those who have low-skills. Milton Friedman once described the minimum wage as a requirement that “employers must discriminate against people who have low skills.” As Anthony Davies explains, “the minimum wage prevents some of the least skilled, least educated, and least experienced workers from participating in the labor market because it discourages employers from taking a chance by hiring them. In other words, workers compete for jobs on the basis of education, skill, experience, and price. Of these factors, the only one on which the lesser-educated, lesser-skilled, and lesser-experienced worker can compete is price.”

5. The minimum wage redistributes wealth from the low-skilled poor to the more skilled working poor and middle class. Many supporters of minimum wage increases mistakenly believe that increases in wage rates are transfers of wealth from employers and investors to the workers. But as Anthony Davis explains, the money to pay for the increased wage must come from at least one of four places: higher prices for consumers, lower returns to investors, lower prices to suppliers, or a reduced work-force. Empirical research has shown that the primary effect of minimum wage increases is reduced employment, which essentially transfers the wealth (in unearned wages) from the less skilled to the more skilled working poor and middle-class teenagers.
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Blog author: jsunde
posted by on Thursday, September 12, 2013

In his latest column, Tyler Cowen points out that whatever economic recovery we’ve experienced has “largely bypassed young people,” arguing that such a development is bound to have an impact for years to come:

For Americans aged 16 to 24 who aren’t enrolled in school, the employment picture is grim. Only 36 percent are working full time, down 10 percentage points from 2007. Longer term, the overall labor-force participation rate for that age group has dropped 20 percentage points for men and 14 points for women since 1989.

This lack of jobs will damage the long-term careers of a big chunk of the next working generation. Not working after you finish school very often means missing out on developing the skills and habits that will serve you well later on. The current employment numbers are therefore like a telescope into the future labor market: a 23-year-old who is working part time as a dog walker, yoga instructor or retail clerk may be having fun, but perhaps will receive fewer promotions as a 47-year-old.

Cowen notes a higher minimum wage as one potential culprit, but argues that “the root causes run much deeper,” ranging from increasing uncertainty to expanding globalization to a newfound pickiness among employers. Arnold Kling offers some additional hypotheses, including the idea that decreases in child-rearing among the young-and-able will likely lead to decreases in a need or desire to work full-time. (more…)

Blog author: jcarter
posted by on Wednesday, September 4, 2013

UntitledAmerican Samoa is an unincorporated territory of the United States located in the South Pacific Ocean. It has a total land area is 76.1 square miles, slightly more than Washington, D.C., and a total population of about 55,000 people. It also has 18 different minimum wages by industry, mandated and enforced by the US Department of Labor. Oh, and an unemployment rate of 29.8% (about 10% of the total population is out of work).

Minimum wage advocates would likely say that American Samoa is an anomaly since it has too small a workforce to draw any representative conclusions. And they might be right about that. But as Mark J. Perry asks, why wouldn’t proponents of the US minimum wage support an American Samoa style multiple wage structure:

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Blog author: jballor
posted by on Thursday, August 29, 2013

noun_project_8671For this week’s Acton Commentary, ahead of Labor Day weekend, I write about “working harder and smarter,” lessons we can learn from Ashton Kutcher and Mike Rowe.

One of the implications of connecting hard work with smart work is that the difficulty of work on its own does not determine its value in the marketplace. It isn’t a question of how hard you are working, but how hard you are working in productive service. This is why Lester DeKoster writes,

The paycheck follows upon work. Often the harder we work, the larger the paycheck—though, as many workers know, this unfortunately is not an invariable law. That is because, as we shall see, work and wage are not related as cause and effect.

He refers to money as the “bait,” which induces us to work and which tends to direct our work in service to others. But the bait can become a “trap” if we conflate the meaning of work with the wage: “Work endows life with meaning because of what work is, not because of what it earns. Paychecks buy goods and services provided to us through the gift of selves by others, but money buys no meaning. Life’s meanings are not for sale!”
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wmartIn light of the ongoing discussion over fast-food wages, I recently wrote that prices are not play things, urging that we reach beyond the type of minimum mindedness that orients our imaginations around artificial tweaking at the bottom instead of authentic value creation toward the top. Prices don’t equip us the whole story, but they do tell us something valuable about the needs of others and how we might maximize our service to society.

But though I have a hearty appreciation for the role that low-wage employers like McDonald’s play — due in large part to my 5-year stint working for The Ronald — I’m also grateful that other companies like Costco are able to provide higher wages to many low-skilled workers.

When we observe such differences — one prosperous company paying $7 per hour while another pays $12 — it can be easy to get worked up, pointing our fingers at greedy executives, idols of efficiency, unwise allocation of company funds, etc. Yet while any assortment of these drivers may indeed contribute to how wages are set, and though executives bear heavy moral responsibility on such matters, it’s helpful to remember that (1) we’re greatly limited in understanding the books of the companies we critique, and (2) executives aren’t the only ones influencing prices.

Over at Bloomberg, Megan McCardle does a marvelous deep-dive on this very sort of thing, starting with a comparison of Costco and Walmart wherein she ponders why the former offers higher wages than the latter.

A summary:

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