Minimum Wage Debate A Failure Of Common Sense

[sawdust]

But from the business's standpoint, since raising the MW affects every business in the US including all their competitors, isn't there no change in competitiveness? People still need to eat, after all, and anywhere they go will have been affected by the same MW increase.

The restaurant industry is an easy one to talk about because it's in the news. It's not the only industry that hires minimum wage workers. To a certain extent, from a competition standpoint I'd agree that a rising wage sinks all boats. I could guess about how much disposable income is dedicated to Big Macs but who knows. We have lots of people on fixed income and I'm sure that some of those Happy Meals would be replaced with a 39 cent package of Ramen but I don't have any data. I only know what makes sense to me. What makes sense to me is that wages should have something to do with productivity. In order for businesses to survive there are certain guidelines they have to follow that make their numbers work. If the percentages are off, businesses close. In fact, every business that closes due to financial reasons can be explained just by looking at their percentages. Accounting is a necessary evil.

Minimum wage jobs aren't intended to be the staple that people live their whole lives earning. They are a starting point for unskilled work or work that people settle for as they learn a skill which will become a career.

In an economy where growth is encouraged, unlike the one we are living in at present, employees have more influence in their earning potential because competition for unskilled labor is more prevalent than it is now. Fix the economy and the minimum wage won't be a big topic of conversation.

 

[gavinfielder]

Minimum wage jobs aren't intended to be the staple that people live their whole lives earning. They are a starting point for unskilled work or work that people settle for as they learn a skill which will become a career.

Which would be great, except that it's only really an effective minimum if a minimum wage worker can afford the time to learn a new skill while paying for at least food and shelter, if not also transportation, education, and any number of basic expenses like healthcare and childcare. Minimum wage clearly doesn't cover the cost of living, especially in urban or suburban environments.

There's a certain cost associated with developing or maintaining an educated, socially mobile workforce. It can come from any number of sources (us heterodox folk can get quite creative), but in our present political environment we're basically choosing between taxes and welfare or raising the minimum wage.

 

[274ina]

You credit the labor with making MCD 5 billion or 10 even. The problem is that it is the return on capital where the money is made not the return on labor.

Mcd's is not a loaner of money. No labor, no profits or revenue.

 

[JoeTheEconomist]

Mcd's is not a loaner of money. No labor, no profits or revenue.

So they have no investment? Someone gives them the building for free and builds parking lots for kicks? In order to make the $5 billion a year, the company has to invest in assets, like its brand.

 

[joG]

Increasing the minimum wage is a mind numbingly stupid idea, ....

I looked at the question of minimum wage vs negative income taxes*) vs social programs. As far as I could see, there is very little to say for a minimum wage. A negative tax is almost always more efficient. Same for social programs and social security. Negative income taxes solve practically very problem the social system should solve, but without any bureaucracy.

If we want a social net, the most efficient way to go is with a negative income tax.

*) There are a number of variations to this type of program. But they all tend to have similar qualities.

 

[Mr X]

I looked at the question of minimum wage vs negative income taxes*) vs social programs. As far as I could see, there is very little to say for a minimum wage. A negative tax is almost always more efficient. Same for social programs and social security. Negative income taxes solve practically very problem the social system should solve, but without any bureaucracy.

If we want a social net, the most efficient way to go is with a negative income tax.

*) There are a number of variations to this type of program. But they all tend to have similar qualities.

...and similar criticisms. Increased likelihood of fraud and the increased costs of policing it, and the reduced incentive to work.

Also, why should the taxpayer subsidise wages? The employer should pay a decent wage instead of paying a pittance and expecting the taxpayer to top it up.

 

[Mr X]

So they have no investment? Someone gives them the building for free and builds parking lots for kicks? In order to make the $5 billion a year, the company has to invest in assets, like its brand.

Without the workers, those buildings don't make any money. And the only reason they can buy those buildings and parking lots in the first place is though the money earned via the workers.

 

[joG]

...and similar criticisms. Increased likelihood of fraud and the increased costs of policing it, and the reduced incentive to work.

Also, why should the taxpayer subsidise wages? The employer should pay a decent wage instead of paying a pittance and expecting the taxpayer to top it up.

The comparison I made was under the assumption that government will create some sort of social net, which it actually does already. The question is therefore not whether to do so. The Question is, what instrument is least damaging.

As to your specifics:

- If government wants people to have a minimum amount of money, government should pay and explain the cost to the tax payer instead of leaching on third parties. If we make employers pay, it reduces the propensity to employ. It becomes relatively better to invest in labor reducing machines.
- The policing costs do not increase with a negative income tax, but fall dramatically.
- The probability of fraud is reduce in comparison with both a minimum wage and any social program.

 

[sawdust]

Which would be great, except that it's only really an effective minimum if a minimum wage worker can afford the time to learn a new skill while paying for at least food and shelter, if not also transportation, education, and any number of basic expenses like healthcare and childcare. Minimum wage clearly doesn't cover the cost of living, especially in urban or suburban environments.

There's a certain cost associated with developing or maintaining an educated, socially mobile workforce. It can come from any number of sources (us heterodox folk can get quite creative), but in our present political environment we're basically choosing between taxes and welfare or raising the minimum wage.

Nonsense. Did you ever work as a kid? I had a summer job at a gas station. Once in the summer during college I was a punch press operator which is a job so mundane they now have chimps supervise punch press operators. What I have learned however is you decide you can't do something you can't. Your post makes me kind of sad really.

 

[Redress]

Increasing the minimum wage is a mind numbingly stupid idea, but no one in the debate gets to the point. This idea is a clear manifestation of Ronald Reagan quip : the nine most frightening words in the English language are: I'm from the government, I am here to help.

In theory, supporters generally say that the change is necessary to lift people out of poverty. Opponents generally oppose the idea because it might drive inflation into the system, and push some under skilled workers into the poverty that the change was suppose to prevent.

These theoretical discussions miss the point entirely. Most people who work at minimum wage jobs are not in poverty nor are even poor. Many are college students working part-time while living comfortably at home. Many are the secondary bread winner in the house. Some are people like me who work part-time to get out of the house. Changing the minimum wage law will not lift these people out of poverty because they never were in poverty in the first place.

Even if working minimum wage work was connected to poverty, increasing the baseline will not cure poverty. It is a subsidy which transfers income from producers and consumers to under skilled workers. It does nothing more than make a lack of skills more pleasant. This subsidy does not fix the problem. This solution subsidizes the problem.

If the objective of increasing the minimum wage is to reduce poverty, it makes more sense to deal with this issue through more targeted welfare programs. And, we do. This is where increasing the minimum wage crystallizes the statement of Reagan. As we increase the minimum wage, which doesn't deal with poverty, the additional income triggers reductions in the support provided by programs that do provide resources to those in poverty.

Even if the minimum wage were connected to poverty, the concept of a minimum wage ignores the disease and subsidizes the problem. The problem for these workers isn't the wage. The problem is a level of productivity that fails to command a higher wage. The visible outcome of unskilled workers is poverty. The minimum wage deals with the outcome rather than the cause of the problem.

Supporters put forward a disingenuous response to this criticism of increasing the minimum wage. They argue that wages are not tied to productivity, saying that minimum wage hasn't kept pace with productivity. For example, “If the minimum wage had kept pace with productivity growth [since the late 60's] it would be $16.54 in 2012 dollars.” ~ Dean Baker.

The problem is of course the critic fails to distinguish between productivity of capital and productivity of labor. If GE upgrades a plant to increase productivity 20%, the company is highly unlikely to give the janitor a 20% raise. Capital created the gain, and the economic rents flow to the shareholders rather than the worker.

The contrast between labor and capital productivity are clearly seen in the agriculture market. Since 1940, farmer’s role in the workforce has dropped by more than 80%. That reduced work force covers nearly three times the number of the irrigated acres. While productivity has increased substantially, the National Citizens Council for Migrant Labor says that wages fell by 16% in real terms - and that is seasonal work. Productivity in this case comes from the tractor and not the worker. The rents on the tractor flow to the owner, not the employee.

In the simplistic world of the supporters, if we increase the minimum wage employers will increase the wages of existing workers. The flaw in this view is that as we increase the minimum wage, employers will have a larger pool of workers from which to draw. Overtime, lesser skilled workers may not capture any higher returns. If we increase wages for the clerks of McDonalds' to $15/hr, McDonalds will redesign its positions to $15/hr - and fire much of its existing staff.

If we increase the minimum wage from $7.25/hr to $9/hr, employers will have the option to hire from all of the people willing to work for 7.26/hr to 9/hr. It is unlikely that employers will ignore the more talented workers. Yes, they will pay more, but they will require more. The low wage worker who is worth $7.25/hr isn't magically going to be worth $9/hr.

As is frequently the case, our government is willing to do really foolish things in the name of votes. My guess is that this change will not garner favor with those who actually work for minimum wage, but rather the latte sipping elite who feel compelled to throw other people's money at other people's problems.

The bolded part is where you start going wrong. That is not the argument for an increase in the minimum wage. Your arguments get worse from there, but it all stems from starting with a straw man.

 

[JoeTheEconomist]

I looked at the question of minimum wage vs negative income taxes*) vs social programs. As far as I could see, there is very little to say for a minimum wage. A negative tax is almost always more efficient. Same for social programs and social security. Negative income taxes solve practically very problem the social system should solve, but without any bureaucracy.

If we want a social net, the most efficient way to go is with a negative income tax.

*) There are a number of variations to this type of program. But they all tend to have similar qualities.

The negative tax is more efficient, the problem is that now most people have a negative tax. The negative tax like the EITC is a major player in why we have 47% of Americans with no tax liability.

The One Economic Number That We Need to Talk About: 47%

 

[JoeTheEconomist]

Without the workers, those buildings don't make any money. And the only reason they can buy those buildings and parking lots in the first place is though the money earned via the workers.

Without the bulidings there aren't any employees. This isn't a chicken or egg thing. The investment comes first, and the 5 billion in profits this year started 50 years ago as a money losing investment.

 

[JoeTheEconomist]

The bolded part is where you start going wrong. That is not the argument for an increase in the minimum wage. Your arguments get worse from there, but it all stems from starting with a straw man.

Your thought here is incomplete. If something is wrong, you need to show me what your idea of right is. Of the articles I have read, the issue is poverty. Until then, the bolded part is where you stopped reading.

 

[gavinfielder]

Nonsense. Did you ever work as a kid? I had a summer job at a gas station. Once in the summer during college I was a punch press operator which is a job so mundane they now have chimps supervise punch press operators. What I have learned however is you decide you can't do something you can't. Your post makes me kind of sad really.

Those jobs don't exist anymore, and the low skilled workers aren't 'kids' anymore. Over half of all minimum wage workers are at least 25.

 

[American]

Dear Joe The Alleged Economist:

You are wildly incorrect about minimum wage worker demographics.

Oh, we so trust your word. Please hit us with another morsel, oh master teacher. :roll:

 

[American]

If lowering taxes is good for the economy, why not 0% taxes for all?

Or (entering conspiracy theory territory now) is it downright stupid to extrapolate every argument to such absurd extremes?

This likely breaks every logical fallacy rule in the galaxy. That's strike two.

 

[joG]

The negative tax is more efficient, the problem is that now most people have a negative tax. The negative tax like the EITC is a major player in why we have 47% of Americans with no tax liability.

The One Economic Number That We Need to Talk About: 47%

I think we may be talking about two different things. The fact that we have let the system of taxes and subsidies get out of hand is a probably a problem of our democratic structure. I do not see it has anything to do with the comparison of negative taxes vs minimum wage. It is certainly not an argument to implement a minimum wage instead of a negative tax.

 

[sawdust]

Those jobs don't exist anymore, and the low skilled workers aren't 'kids' anymore. Over half of all minimum wage workers are at least 25.

And that's ok. Minimum wage jobs are temporary as skills and experience grow. The real problem is this economy. Entrepreneurs are reluctant to risk capital, particularly with the changes in health care law, so new enterprises that would employ full time workers are slow to develop. Truth is, nobody knows what the final outcome of Obamacare will be so there is lots of money sitting on the sideline.

The business cycle will eventually kick back in and Obama won't be in office forever. Hopefully the next President won't have his head up his ass.

 

[JP Hochbaum]

You hurt your credability with this statement to the eyes of anyone familiar with the minimum wage in real terms.

Productivity growth of captial and the productivity growth of the worker are two different things.

This "If we only adjust for the cost of living, a minimum wage pegged to inflation would be $10.52." really hurts your credability. The minimum wage has only been more than $10.50 in 2012 dollars once in the 75 year existance of the minimum wage. At $7.25, it is actually above its historic average. You present it as though your baseline was a normal year rather than the absolute high peak year.

Umm yeah no, my credibility is just fine. There is a difference between pegging it to productivity and pegging it to the pace at which is was previously increasing.

 

[JoeTheEconomist]

I think we may be talking about two different things. The fact that we have let the system of taxes and subsidies get out of hand is a probably a problem of our democratic structure. I do not see it has anything to do with the comparison of negative taxes vs minimum wage. It is certainly not an argument to implement a minimum wage instead of a negative tax.

The point is that we already have a negative tax in place for lower wage workers. So you are talking about increase it, not implementing a new one. It has been increased in the past, again and again. At some point, someone has to pay taxes.

 

[JoeTheEconomist]

Umm yeah no, my credibility is just fine. There is a difference between pegging it to productivity and pegging it to the pace at which is was previously increasing.

You are pegging it to productivity that has nothing to do with labor. Your analysis is not terribly different that looking at the income growth of my neighborhood. If my neighbors and I have a wealth growth of 10%, my income should grow 10%. The flaw is that wealth and income aren't the same. My neighbors and I are not the same. The productivity of labor and the productivity of capital have no business being lumped together.

And hiding the fact that you want to use a peak year with the 75 year history as a baseline is credability.

 

[JP Hochbaum]

You are pegging it to productivity that has nothing to do with labor. Your analysis is not terribly different that looking at the income growth of my neighborhood. If my neighbors and I have a wealth growth of 10%, my income should grow 10%. The flaw is that wealth and income aren't the same. My neighbors and I are not the same. The productivity of labor and the productivity of capital have no business being lumped together.

And hiding the fact that you want to use a peak year with the 75 year history as a baseline is credability.

How does productivity have nothing to do with labor? You can't produce a single thing without labor, that's just nonsense.

 

[Grant]

Without the workers, those buildings don't make any money. And the only reason they can buy those buildings and parking lots in the first place is though the money earned via the workers.

Everyone must work, though they may hold different positions in the work force.

But Obamacare, plus a wage of $15 an hour for asking if a customer would like fries with their order, is just piling on. And those same people who expect businesses to give these high wages and benefits will be the first to complain when these same businesses move elsewhere.

 

[joG]

The point is that we already have a negative tax in place for lower wage workers. So you are talking about increase it, not implementing a new one. It has been increased in the past, again and again. At some point, someone has to pay taxes.

What we seem to have in place is less a negative tax than a mess of rules and regulations for social transfers of all types and requires many more bureaucracies, estimates, checks and calculations than a simple negative tax would do.

 

[imagep]

You should check out the work of Art Laffer for the answer to your question about taxes. His theories proved out quite well during the Reagan years. What is really downright stupid is the insistence that "if some is good, more is better" for every situation.

While I agree with his theory, we don't have a clue of what that tax revenue maximizing tax rate is. Most legitimate economists (working in the field of economics with a PhD in economics) think that it is very much higher than it is today. I haven't been able to find a single link to a single statement by a legit economist who believes that todays tax rates are above that tax revenue maximizing rate.

And truthfully, adjusted for inflation, after taxes were cut during the Reagan administration, it took several years before tax revenues recovered to the same rate that they were before the tax cuts. And this was during a period when we were recovering from a terrible recession and we were stimulating the economy with record budget deficits, so many would attribute the growing economy to either normal economic recovery or to deficit spending.

Also, the Laffer curve depends upon who's taxes are being cut (as in income bracket). there are actually an infinate number of laffer curves, one for each income level, tax bracket, and type of government spending.