In the first item that caught my eye this morning Robert Samuelson writes about the movement to increase the minimum wage. After noting that the poor, by and large, are unemployed and, consequently, their situation can’t be improved by increasing the minimum wage, a sizeable proportion of those earning the minimum wage don’t live in poor families, and the consequences of increasing the minimum wage on jobs is hard to measure, he concludes:
In the short run, even sizable increases in mandated wages may have moderate effects on employment, because businesses won’t abandon their investments in existing operations. But companies that think themselves condemned to losses or meager profits won’t expand. Not surprisingly, a study by two economists at Texas A&M finds that the minimum wage’s biggest adverse effects are on future job growth, not current employment. To this defect must be added another: An excessively high minimum will attract more skilled workers, denying the less skilled an entry point to work and on-the-job training.
The minimum wage seems a shortcut to social justice. It isn’t.
The intended beneficial effect of increasing the minimum wage is ensuring that everyone who works full time can earn a living wage. The prospective unintended secondary effects of increasing the minimum wage include:
- It may reduce the number of jobs. But it may not. The results are obscure.
- It will probably reduce the rate of job growth.
- It will incentivize a black market in sub-minimum wage jobs.
- It may grant a raise to individuals already working for more than minimum wage but working under minimum wage multiple contracts, proliferating the secondary effects of increasing the minimum wage far beyond entry level jobs.
and, as noted by Samuelson, it won’t solve the problems of the poor. There are other solutions, some of which would help the poor, including:
- A negative income tax.
- Subsidized employment programs.
- Reducing the barriers to entry for a wide variety of businesses.
- Reducing the subsidies being granted to the largest businesses.
These, of course, would have unintended secondary effects of their own.
In the final analysis IMO the discussion of an increase in the minimum wage is a red herring. We aren’t producing enough jobs at any rate of compensation and to the extent that increasing the minimum wage would reduce the rate of job growth it would actually be counter-productive. Focus on more jobs.
Isn’t a negative income tax just mean the taxpayer is paying McDonald’s wages for them? Isn’t that a subsidy for big business?
“Isn’t a negative income tax just mean the taxpayer is paying McDonald’s wages for them? Isn’t that a subsidy for big business?”
No. It is simply the most administratively efficient and direct way to put cash in the hands of the poor to do with as they see fit; the claimed goal of many. Others may have proposed it, but Milton Friedman proposed and wrote extensively on it more than 30 years ago.
However, its efficiency and directness mean it hasn’t a chance in hell, for the real goal of politicians is a) to create government departments with employees who reliably vote for them and b) to hold the treats out for their pets and say, “jump” (vote for me) and you get a treat.
Isn’t the Earned Income Tax Credit already a form of negative income tax, at least for some of its recipients?
CS
Yes, although it is in my opinion needlessly complicated and different in kind from the negative income tax in that its a low wage earner tax offset.
Shorter: distorted, and does not eliminate bureaucracies.
There are tons of papers out on minimum wage effects. It is not really clear what its effects are on unemployment, though I suspect it has a small negative effect on youth unemployment. I think supporting a minimum wage is mostly a matter of personal preference rather than any real economic efficiency or growth issue. I would agree with Drew about the negative income tax.
Steve
If raising the minimum wage didn’t have a negative effect on employment, why not just make it $100/hour?
Of course it has a negative effect. Imagine a graph of employment vs minimum wage. At some high wage, jobs would virtually cease to exist. At a minimum wage of $0, there would be no effect on employment. Those who claim that raising the minimum wage from $7.50 to $15 per hour, for example, have the burden of showing that the curve does not fall monotonically the $0 to $100 minimum-wage levels.
Fewer people will be able to enter the job market because they do not have the education or experience needed. Removing these people provides less competition for the remaining workers, and most of the advocates’ children will have the necessary education or experience. Therefore, their children will have little chance of being unemployable.
The difference between this and the “robot scenario” is that the robots will not use the experience they gain from an entry level job to get a better job.
I am always skeptical of those benefiting from their “good deeds”.
Its also worth noting that in addition to the ‘black market,’ there is also a ‘grey market’ for jobs – like domestic workers, where labor laws don’t apply, and contract/per item work. Raising the minimum wage affects the markets for these jobs.
Raising the minimum wage will provide workers with more money to spend. This will increase the aggregate demand. The increased demand will increase the workers needed. Employers competing for these workers will need to raise wages. Raising the minimum wage should increase jobs and raise wages. The minimum wage will never need to be increased, and wages will continue to rise without increasing the minimum wage.
Liberals are like a dog chasing its tail. They never understand why they cannot catch it.
Let me throw something out there and see how many actually get it, in the context of this issue: capital, as a governor.
Now, something actually important: Blackhawks in 3 weeks.
Here’s a fun graph:
http://sullydish.files.wordpress.com/2013/09/public-sector-jobs.jpg
So, apparently the politicians who did the most of this nefarious activity were Ronald Reagan, George W. Bush and Bill Clinton, each adding well over a million. Though it looks like GHW Bush would have caught up had he stayed in office.
I guess the fact that under Obama government jobs have actually declined in real terms for the first time since, well, ever, must explain your love for Obama.
Government jobs declining, deficit declining, stock market up and up, the rich getting ever richer. . . Yep, it’s just the socialist hell you have so long predicted.
“Of course it has a negative effect.”
Then it should be easy to show that. That is not what you see in the literature on the topic. It either has no effect or it is so small it is hard to measure. (I hope I dont need to address the straw argument.)
Steve
You are devolving into, as Monty Python would say, a silly-man, Michael.
If you want to stake out the claim that employment, government finances and foreign policy are all in good shape you go dude.
Oh, and for the umpteenth time – the stock market is not the economy. Do you understand its current valuation dynamics? A simple yes or no will do as a start. But if yes, please elaborate.
Michael:
Sadly, the statistics you’re citing do not adequately identify public sector jobs. Let’s say you have two workers. You put one worker on a public sector payroll. A second worker receives his W-2 from a private company that derives 100% of its revenues from government contracts. Only the first worker is counted in the statistics you’re citing although, obviously, there’s no real difference.
The number of “contractors” has grown enormously over the last twenty years or so. No one really knows how many there are but they may well be a multiple of nominal public sector workers.
@ jimbino
We don’t mandate a $100 per hour minimum wage because that would push aggregate demand beyond productive capacity and we would have a monetary inflation problem on our hands. Strange that people believe increasing the incomes of those at the bottom of the income structure would damage employment, but increasing incomes at the top is beneficial.
Yes, the number of contractors has grown. Enough to explain a gap between the million plus jobs added by Mr. Bush against the more than half a million lost under Mr. Obama? I doubt it. Especially since I seem to recall that it was under the previous Mr. Bush that we really saw the first explosion of contractors. Which would mean that at best his graph would go sharply up and Mr. Obama’s might go flat.
Red:
Here’s what I wrote:
Here’s what you came back with:
See how I never made any such claim? What I said was that it should be your economy. I mean, you are investor class, right? The 1% and the 10% are better off than ever.
It sucks for unemployed people. It sucks for the working poor. But it’s great for thee and me, right? So, why so glum, sugarplum?
Is it because we never had that double dip recession you were predicting?
Is it the failure of Detroit to fail as you also predicted?
Is it the way US energy production is growing despite your incessant whining about environmentalists so that we are now about to take the number 2 spot away from Russia?
Is it the way the federal deficit dropped and is now half what it was in Mr. Bush’s last year despite your predictions of trillion dollar deficits forever and ever?
Is it the fact that you’re pretty much never right despite your alleged expertise?
As I see it, the deficit dropping may be influenced a tad by the fact the purse strings are held by the dastardly republican House, who have actively tried, but rather impotently obstructed discretionary spending sprees by the dems. Also, the current sequestration has acted as a spending wet blanket, reluctantly causing bureaucrats to review monetary ledgers and manage their allotted funding more prudently (like the rest of us have to).
As for the wealthy being ‘healthy’ during these poor financial times — Michael has a point. The one-percentagers are not only not feeling any pain, but actually have seen gains in their financial portfolios over the past 5 years. Their good fortune, though, does not bode well for the country’s overall well being, as it is the middle class, small entrepreneurs who, when achieving prosperity, are the ones responsible for economic growth and job creation. However, in an environment encrusted by thousands of new rules and regulations, it’s become a hazardous waste of time to navigate all the red tape and cross-referenced prerequisites required to even open the doors of a business.
Then you have money loitering outside the U.S. because of our high corporate taxes — something that, if brought down to a level playing field which other countries enjoy, would help encourage a back home flow of some of these stashed funds.
Finally, have we avoided a double dip recession? Statistically, we have. But, there are many who refute the numbers used to calculate UE or how robust our economy really is. Just look at the new/improved way to come up with growth and GDP.
It’s basically a wacky world of deception these days, making it difficult to ascertain a real picture of where we stand. Only those without jobs, and few options of finding one, seem to have a firm grip on economic reality. However, if one continues to pound the rationale of how great things are by citing our blazing stock market, I would caution them to consider what will happen when QE stops artificially shape-shifting the market. I will assure them that it won’t be pretty.
“Living wage” is what exactly? The idea that there is a “living wage” ignores the fact that individual circumstances are different.
As for the minimum wage, my opinion based on my experience in construction, is that the biggest problem with raising it is that it pushes out entry level jobs. If you have to pay $15 an hour, you might as well hire someone with a bit of talent.