Over at the Washington Post Catherine Rampell points out some of the complications in increasing the minimum wage as your leading piece of economic development strategy:
Raising the federal minimum wage to $10.10 — a policy change that most Americans support — would likely boost the earnings of about 16.5 million workers while reducing total employment by about 500,000, according to the Congressional Budget Office. This is a trade-off that many allies of low-wage workers are willing to accept — particularly those of us who worry that anti-poverty spending programs may allow employers to further depress worker pay.
But none of this suggests that there aren’t limits. Even the most diehard of labor advocates probably wouldn’t endorse a $50-an-hour minimum, because they know such a wage floor would price pretty much all low-skilled laborers out of a job.
So if a $10.10 minimum probably would help more low-wage workers than it would hurt, and a $50 minimum would almost certainly hurt more than it would help, what about $15?
In some parts of the country, where the cost of living is relatively steep, a $15 minimum wage might put more money into the pockets of workers while eliminating relatively few jobs. Think of cities such as New York, San Francisco, Chicago, Los Angeles, Seattle and the District, all of which have either proposed or already adopted a $15 minimum.
Even in these expensive cities, though, don’t be surprised if you see fewer busboys, grocery baggers and other low-level jobs. The higher wage floor will make at least some such positions cost-prohibitive.
In other, lower-cost parts of the country, however, a $15 minimum — which, remember, is more than double the current federal level — would likely throw many, many more people out of work.
The unintended effects might not show up all at once and they might not be limited to just fewer minimum wage jobs. Minimum wage plus contracts might result in losses of jobs above the minimum wage level. It might increase the size of the black market for labor.
Here in Chicago the Mayor and the City Council have already decided to increase the city’s minimum wage to $13 per hour in stepwise increments taking place on July 1 of each year, presumably on the principle of the “frog in a pot of water”. It may work or it may not. I suspect that prospective business owners are able to read calendars and calculate increases in payroll costs. They’ll need to decide whether opening up shop or adding a new employee makes sense under the conditions the city is establishing.
And employers can also avoid the higher wage by stepping across the city line.
Why not just leave it to the market? Free enterprise works, but we don’t have it . Why don’t you put it to the smart guys here how we can keep the game fair by working (attorney general?) to reduce business lobbying and government collusion. One thought I’ve heard is to allow offsite voting for members of congress, online, so as to allow them to live in their own districts, outside of the Washington cocoon. Oh, and don’t tell me they can’t monitor congressional bribery when they easily trace a dirty photo or comment someone made online 5 or 6 years ago. I think the proper term for the government we have now would be Fascism, which once looked like the answer and to some still does.
Actually, I agree with that suggestion, gray shambler. The way I think I’d approach it is by a) allowing off-site votes and b) defining a Congressman or Congresswoman to be a resident of wherever they sleep more than 50% of the time. You extend the 50% of the time to 200 nights a year but you get the idea.
Our present system certainly isn’t representative democracy (or laissez-faire capitalism) but I don’t think it quite meets the definition of fascism, either. I think that “corporatism” comes as close as anything.
You assume the minimum wage hike is to raise the wages of the lower income workers, but it is far more likely that the objective is to eliminate low income workers by eliminating low income jobs.
If Joe Six-Pack refuses to see the wisdom of his bettors, he will be eliminated. Today’s elite are not so gauche as history’s other eliminators. They will remove Joe Six Pack’s (or his Turkish cousin) means of income by either eliminating the job or replacing him with an illegal worker.
I don’t think that’s the direction that the incentives of those doing the raising points, TB.
The cost of living in Springfield, IL is about 25% less than Chicago, so a $10.10 minimum there is almost equivalent to $13.00 in Chicago. I’m not sure why a cost-of-living adjustment isn’t part of national or state minimum wage isn’t done. Isn’t that the most efficient approach?
BTW/ I tend to credit the studies that find that raising the minimum wage adversely effects future jobs. That seems like a more plausible scenario than drastic changes in an existing business, which may always be facing rising costs, taxes, etc. and may simply receive a lower return or try to raise prices. The new business has more flexibility to make the investment, relocate or walk.
Well, that is the crux of the problem, isn’t it, PD? Current revenue outweighs future jobs.
PD
In your first comment, imagine a Ministry of Regional Cost of Living. I’d suggest it be located next to the Ministry of Silly Walks.
In your second, you absolutely hit the nail on the head. And this is what people just don’t understand. If you are currently in business of such and such magnitude with all the attendant sweat equity and invested money capital,you probably make accommodations. If you are simply contemplating an investment………you don’t have to do jack squat. I’ve been trying to convey that point, perhaps clumsily, for a good 5-7 years now.
Why not just leave it to the market? Free enterprise works, but we don’t have it .
Most wages aren’t determined by a competitive market any more than most prices are. One of Keynes insights was that both of these are sticky downward and resist falling: workers and price administrators understandably balk at taking voluntary cuts to their incomes while the latter also resist increases in wage levels. In economic terms this means the “labor market” doesn’t actually meet the requirements for a functional market. Strangely, Phase Two of Nixon’s wage and price controls (never reached as it was delayed so long Phase One had broken down) would have simulated the missing market correction mechanisms.
Which in turn is why the Fed is so frustrated because it isn’t able to produce enough inflation without take the risk that it will get out of hand.
The more I look into the events of the late 60s and the 70s, the more convinced I am that a flexible incomes policy is the only method for properly functioning labor markets and price stability over the long-term. Our current policies and dominant theory continue to assume inflation is entirely a matter of spending (Friedman’s concept of it as a monetary phenomenon is the same thing), whereas much more sophisticated theories of inflation have been completely forgotten.
I just saw this over at the Zero Hedge guy’s site:
Obama’s Minimum Wage Utopia Just Hit A Brick Wall
These are the same guys who think Greece is getting screwed. So, I do not think they are a bunch of bleeding heart liberals. To me, they are not carrying water for any party.
Also, I realize that the “proof” is from Fox News, but I am not sure why they link to a Fox affiliate channel. (The first line of the affiliate link will take you to the Fox News story. I prefer the primary source.)
The last blockquote is from a self link to an earlier post is interesting. If I am not mistaken, wages are subtracted from revenue to obtain taxable income, and if so, an increased minimum wage will lower a company’s taxes. Under the right circumstances, they can end up with tax credits for the future, and larger companies could absorb initial the losses. As they were able to raise prices, they could use the tax credits to offset the increased revenue.
Meanwhile, their newly enriched employees would pay higher prices for goods, lose welfare benefits, and fill in the tax hole created by the people buying their vote.
There is one party who claims low/no income people are a bunch of lazy layabouts, and the other party who does not think any of them have enough sense to come in out from the rain. One party is going to waterboard them, and the other is going to trap them in the tar pit of poverty.
One claims all low/no income people need is to climb out of the tar pit, and the other claims all they need is to stop being waterboarded. Each one assures them that this is all that stands between them and a middle class life. Of course, they never address the fence, gate, and access card keeping low/no income people out.
Through this all, low/no income people are supposed to be quaking in their “Closeout Sale” Payless boots because some Muslim terrorists are pissed off at the Americans who are better off than them, and it just so happens, these same Americans are better off than low/no income people, also. Let me help everybody out. Johnny Jihad ain’t coming to the projects, the trailer park, the inner city, the forgotten rural town, the corner liquor store, the Walmart, or any other place that low/no income people go.
The terrorists are probably the only honest people out there. At least they admit they hate us and will kill us as soon as they can.
Anyway, back to the topic.
There needs to be a way to wean people off of the benefits as their income increases, but it needs to be such that employers do not use it to lower pay. The entire structure needs to be re-engineered, and it needs to be done in-place without being shut down. This requires a plan, cooperation, and coordination. It requires installing temporary stents, struts, and spans during the re-engineering phase.
There will always be a hardcore percentage of people at the bottom, and there is nothing that can be done to get them off the bottom. Some of these people are mentally ill, mentally challenged, or handicapped. Some may be lazy layabouts. For most of the people, it should be a temporary place. They may start out there, or they may fall down there.
A lot of programs designed to help people also hurt a lot of people. When trying to get a job, most people want somebody who is working or has a good reason for not working. The 500,000 people who will be unemployed will have far more trouble finding a new job, and it gets worse the longer they are unemployed. I know a certain somebody who has some experience in this area.