Making the economic case for more than the minimum wage

[aGameOfThrones]

In his January 2014 State of the Union address, President Obama called for a new federal minimum wage of $10.10 an hour. The year before, in the same speech, he proposed a $9 minimum wage. Obama didn’t provide an economic rationale for the increase so much as a marketing one, ad-libbing: “It’s easy to remember: 10-10!” If instant recall is the primary goal, why not $10.04, in a salute to Smokey and the Bandit? Or $10.66, the year of the Norman conquest of England? Or better still, $10.99 after the IRS form?

Obama isn’t the only party guilty of loose thinking about the minimum wage. His bid to raise the floor from the current $7.25, set in 2009, has reheated a simplistic, dumb-as-rocks debate that’s dragged on for decades. Fiscal conservatives and the libertarian wing of the Republican Party reflexively view any increase in the minimum wage as a job killer. Labor unions and liberal Democrats cavalierly suggest that, oh … doubling it! sounds about right to them.

Raising the minimum wage is certain to be a wedge issue for Democrats in the midterm elections because it’s the rare redistributive measure that enjoys broad popular support. A Washington Post-ABC News poll in December found that two-thirds of Americans support a minimum wage increase. But to opponents, it smacks of Big Government heavy-handedness. That explains why politicians on both sides are loudly reminding their constituents of their ideologies. The back and forth, however, fails to address the real issues: What’s the right minimum wage? And what’s the fairest way for the world’s largest economy—historically a beacon of social mobility—to arrive at it?

The first question is a bit easier to answer. The original minimum wage, 25¢ an hour, was born in 1938 under similar conditions of economic hardship and class resentment. Labor Secretary Frances Perkins and President Franklin Roosevelt had fought for it for five years. The night before signing the Fair Labor Standards Act, in a radio fireside chat, Roosevelt said, “Do not let any calamity-howling executive with an income of $1,000 a day … tell you … that a wage of $11 a week is going to have a disastrous effect on all American industry.”

Free-market conservatives argued during the Depression, and do now, that it’s wrong in principle for government to interfere in work contracts between consenting adults. Even if you don’t embrace laissez-faire libertarianism, they make a more pragmatic case: The minimum wage is counterproductive. It steals jobs from the most vulnerable people—those who could get hired at $5 an hour, say, but not at $7.25 or $10.10.

Generations of students, steeped in neoclassical economics, were taught that setting the price of labor above its equilibrium level causes supply to exceed demand and leads to more unemployment. It makes sense. But as physicist Doyne Farmer once wrote, “If one were to go through any standard introductory economics textbook, and color every statement pink with weak empirical confirmation, most of the book would be pink.”

The argument that a wage floor kills jobs has been weakened by careful research over the past 20 years, beginning with a seminal 1994 study by David Card of the University of California at Berkeley and Alan Krueger of Princeton. The duo compared employment in fast-food restaurants in New Jersey, which had just enacted a minimum wage hike, with fast-food restaurants across the border in Pennsylvania, which had kept its rate the same. The result: no reduction in New Jersey’s employment rolls.

The Card-Krueger study touched off an econometric arms race as labor economists on opposite sides of the argument topped one another with increasingly sophisticated analyses. The net result has been to soften the economics profession’s traditional skepticism about minimum wages. If there are negative effects on total employment, the most recent studies show, they appear to be small. Higher wages reduce turnover by increasing job satisfaction, so at any given moment there are fewer unfilled openings. Within reasonable ranges of a minimum wage, the churn-reducing effect seems to offset whatever staff reductions occur because of higher labor costs. Also, some businesses manage to pass along the costs to customers without harming sales.

So where to set the wage floor? Whether he arrived there by logic, intuition, or dumb luck, there’s a defensible case that the sweet spot is in the neighborhood of Obama’s suggested $10.10 an hour. The Initiative on Global Markets at the University of Chicago Booth School of Business found in a survey last year of leading economists that 47 percent felt the good effects of a $9 minimum wage—the figure on the table at the time—would outweigh any bad ones. Only 11 percent disagreed. Last month seven Nobel prize-winning economists and four former presidents of the American Economic Association, along with more than 600 other economists, signed a letter to Congress urging passage of the $10.10 floor. “At a time when persistent high unemployment is putting enormous downward pressure on wages,” the letter said, “such a minimum-wage increase would provide a much-needed boost to the earnings of low-wage workers.”

It’s an ambitious target, $10.10: Correctly adjusting for inflation using the Bureau of Labor Statistics’ best historical data series, it would be the highest minimum wage ever—more potent in buying power than the $1.60 mandated wage in 1968, when middle-class jobs were plentiful, factories hummed, and labor unions ruled. It’s just more than half of the $19.55 median wage for full-time workers, which would put the U.S. minimum-to-median ratio back in sync with that of other rich, industrialized countries.

A lot more to read at link: http://finance.yahoo.com/news/making-economic-case-more-minimum-110007239.html

 

[Anti Federalist]

It’s an ambitious target, $10.10: Correctly adjusting for inflation using the Bureau of Labor Statistics’ best historical data series, it would be the highest minimum wage ever—more potent in buying power than the $1.60 mandated wage in 1968, when middle-class jobs were plentiful, factories hummed, and labor unions ruled. It’s just more than half of the $19.55 median wage for full-time workers, which would put the U.S. minimum-to-median ratio back in sync with that of other rich, industrialized countries.

Ironic quote is ironic.

 

[Anti Federalist]

Last month seven Nobel prize-winning economists and four former presidents of the American Economic Association, along with more than 600 other economists, signed a letter to Congress urging passage of the $10.10 floor. “At a time when persistent high unemployment is putting enormous downward pressure on wages,” the letter said, “such a minimum-wage increase would provide a much-needed boost to the earnings of low-wage workers.”

Heartless bastards.

Raise it to $100.00 and hour.

 

[DamianTV]

http://www.rollingstone.com/politic...t-reveal-the-true-state-of-the-union-20140128

8. What the minimum wage would be if it had kept pace with gains in worker productivity since 1968: $21.72

 

[MRK]

rofl at the last picture.

futer futu future...

Yes... you are less qualified than a high school senior, but desperate enough to stay long term working for minimum wage, which is why you have your job and the high school senior doesn't.

Yet in Vietnam, a flamboyantly proud communist country in a region likely near where that guy or his family is from, the minimum wage is the equivalent of only $90 per month. Judging by the large number of single mothers with children I often see begging for food, I also sincerely doubt there's significantly comparable government handouts for having a family.

Someone needs to forward that guy to an obamaphone agent to help him get signed up for the party bag benefits he's overlooking due to the language and cultural barrier that's preventing him from knowing what's available to him.

 

[MRK]

Lol, I opened up the article to try to find out where that guy's from. Apparently I nailed it; his name's Phi Long Do, a Vietnamese name.

 

[DamianTV]

What is needed is JOBS themselves, not Govt dicking with it even more.

This WILL happen here.
http://bigstory.ap.org/article/greek-seaside-town-highlights-unemployment-drama

 

[Spikender]

If you raise the minimum wage, can you at least lower my tax bracket? No?

What about just get rid of the income tax? No?

Fuck you then.

But seriously, this is going to bite them in the ass. Hard. Considering that about a third of the US's labor force is not working, this is only going to exacerbate the problem.

 

[jclay2]

Obviously the government is completely doing everything it can to destroy the private sector, however, there is one trend that I am surprised hasn't gotten any mention yet: Skill Inequality! The future of the economy is not going to be about providing brainless services. If you want to make a lot of money, you need to differentiate yourself and provide something that is in high demand. I honestly don't understand these people that can even picture a future where they are working the same minimum wage job in the long run. Unless you lack basic brain functions, any person given time and the drive to learn, can vastly improve their marketable skills. Just look at the internet, youtube, etc. The resources to learn new skills is almost endless. More and more, though, I see people that have nothing to offer and no desire to change it. People that are stuck in jobs that are open to everyone because of the low skill threshold will eventually be replaced via automation. Adapt to the times or risk getting run over.

 

[tod evans]

Heartless bastards.

Raise it to $100.00 and hour.

That'll learn 'em, durn 'em!

 

[MRK]

Obviously the government is completely doing everything it can to destroy the private sector, however, there is one trend that I am surprised hasn't gotten any mention yet: Skill Inequality! The future of the economy is not going to be about providing brainless services. If you want to make a lot of money, you need to differentiate yourself and provide something that is in high demand. I honestly don't understand these people that can even picture a future where they are working the same minimum wage job in the long run. Unless you lack basic brain functions, any person given time and the drive to learn, can vastly improve their marketable skills. Just look at the internet, youtube, etc. The resources to learn new skills is almost endless. More and more, though, I see people that have nothing to offer and no desire to change it. People that are stuck in jobs that are open to everyone because of the low skill threshold will eventually be replaced via automation. Adapt to the times or risk getting run over.

I'll hopefully regret saying this later after being proved wrong but I think well over 80% of the current world population is unable to grasp or realize this concept in any meaningful way. Dark times are ahead for those who are unable to innovate.

Then again there is something significant to be said about iterating on something that actually makes money and just sticking to that. Innovation until you find a niche is good, but dedication once you find that niche is equally as important. It's very hard to have mixture of both, which is one of the reasons creative entrepreneurs with capital and workers who do best sticking to a routine plan and need capital can work well together.

 

[tod evans]

There's only two ways to earn a living;
1) make or grow something
2) try to profit from that which others make or grow.


There's way more of the second kind of people in this country right now and it can't last.

 

[otherone]

rofl at the last picture.

futer futu future...

Thank God RPF has spell check.

 

[XNavyNuke]

http://www.rollingstone.com/politic...t-reveal-the-true-state-of-the-union-20140128

8. What the minimum wage would be if it had kept pace with gains in worker productivity since 1968: $21.72

What would economic output be if we had kept the federal regulations limited to those in place in 1968?
XNN

 

[otherone]

The government's solution to a government-made problem is always more government. A federally mandated minimum wage is simply price-fixing labor for the underclass. Believe it or not, some "unskilled" laborers are better employees than others. IMO, removing the minimum wage would result in an immediate drop in wages followed by an escalating increase, as retail and service businesses would start to compete for those individuals who are reliable, congenial, and represent their enterprise professionally. When a $4 an hour slacker sees his buddy making $12, he is then motivated to improve his performance. When both employees are stuck at minimum wage, competition suffers.
On a side note, many of the underclass, while robbing the welfare system, participate in the underground economy. Removing the jackboot of onerous regulation would encourage more to become self-employed.

 

[Acala]

There's only two ways to earn a living;
1) make or grow something
2) try to profit from that which others make or grow.


There's way more of the second kind of people in this country right now and it can't last.

This is pretty much correct. And, although there are valuable services that fall under category 2 (like fixing things, health care, and entertainment) there is an ultimately fatal trend within that category to create jobs in which people do basically nothing and get paid for it. And at some point when the burden of paying people to do nothing gets too great, the whole thing collapses and then the people in category one are restored to their rightful position.

 

[sylcfh]

You can raise the minimum wage without any burden on employers by ending the Federal Reserve.

 

[Warrior_of_Freedom]

after taxes that 8 an hour is more like 5

 

[MRK]

Thank God RPF has spell check.

Thank God there is a writing system. It is so much easier for me to learn through words than speech. I think my chromosomes missed out on a speech understanding gene somewhere. For example, the only way I can remember and correctly pronounce new words in a foreign language is if I see them spelled. It's exceedingly difficult for me to remember a word if I don't know how it's spelled. Probably related, I am really good at spelling and remembering specific numbers. Ironically, I misspelled misspell in this post, so maybe I'm not so good. You're right, thank God RPF has spell check, otherwise I'd look pretty funny right about now

 

[MRK]

after taxes that 8 an hour is more like 5

Until the peasants get their tax returns.

I just realized the genius of the tax return system. Forget about the unpaid interest earned by the IRS while they hold your money, that's just a footnote side effect of the real reason they do it.

When you're just starting working, many people will start out in the low tax brackets - qualifying them to get a tax return at the end of the year and get a refund. So in this way, the IRS is training the peasants to submit their forms every year. By the time the peasants start making more money, they are already habituated into the system and accept it willingly. Plus if one year Joe Long-term Taxpayer stops filing his returns and isn't dead, the IRS has a database full of information that could make them decide whether he's a likely suspect of tax evasion.