I agreed way up thread that raising the MW or instituting a LW probably wasn’t the best way to handle it. But I don’t think simply expanding the EITC will do the job, either. They will never expand it enough to cover everything a just-above-poverty-level worker needs to stay continuously employed. As it stands now, the economic “mobility” for many working poor is back-and-forth between welfare and non-sustainable, bottom-rung employment.
There should be another category where a higher level of support would be provided for working people who need it. Other programs need to be created and they need to refine existing ones. Childcare and transportation are two of the biggest hurdles (in my experience) but there’s a lot more involved in getting a person who was raised on welfare into a working-world frame of mind. As I see it, services would be more beneficial than “not-enough” cash. Money simply doesn’t address many of the problems the working poor are facing.
Yes, context is everything. Generally you will see lots of economists getting behind the idea of raising the MW when it comes up for discussion in Congress. But, that is generally a modest raise, basically palying catch-up with the market (or the states). I know I’ve said (and I think **Sam **has, too) that raising the MW by a buck or so would probably not have a measurable effect on unemployment. And since doing so is politically popular, it’s an easy way to “do something” even if it’s not much. Just look at what’s happening right now-- Congress is just talking about bumping up the MW to where it is in most of the states already.
But we’re talking about a LW in this thread, which is **not **obtained by a modest raising of the MW. Now, I don’t think that instuting a LW would **destroy **the economy, and I doubt that many econmists would either. But that’s not even the main problem I have with the LW-- it would probably do more harm than good to the people it was supposed to help by destroying jobs at the bottom of the economic scale. CEOs aren’t going to lose their jobs because of a LW-- workers are. Sure, many of those low-end jobs would be retained, but so what? Why not keep **all **the jobs and supplement the shortfall the poor have with money from general taxes?
As cruel as it might sound, people do sell their services for money and those services have a market price. If a poor person sells his car, we don’t say he has to get a higher price for it out of “fairness”. Same thing goes for his labor. There is some price elasticity (a there always is), but if you raises the price too much, it stops being of value.
Depends on how much the EITC provides. If we’re talking about making it equvalent to a “Living Wage”, then it should take care of most things-- otherwise that wasn’t a “Living Wage”. But the fact is, there are always going to be some people who just aren’t motivated or who keep making bad economic decisions. If you goal is to turn everyone into a citizen with a strong work ethic, you’re going to fail. I’m not opposed to your idea of economic counseling, I just don’t know if it will actually work. Are there that many people out there who have absolutely no one to turn to for advice? What prevents them, now, from seeking advice and how will you make them do that in the future?
Sure, try it to see if it works. But try it on small scale first before we build up a new bureaucracy that can never be dsimantled. Which brings me back the states-- let the states experiment, and if enough make it a success, **then **lets talk about federalizing it (or, better yet, mandating that it occur at the state level).
Well, just 'cuz I found it irresistible, I did a few calculations to test whether raises in the minimum wage are inflationary. Thinking logically(!), the thing to look at would be the rate of inflation in the two years after a raise in the minimum wage, figuring that would give enough time for the effect to ripple through the economy.
At first glance, the effect is large: the average rate of inflation over two years since 1938, the first year there was a minimum wage, is 8.15%. The average rate in the two years after a raise in the minimum wage is a cool 10.57%.
I looked over the numbers, and noticed that a lot of the raises took place in the seventies and appeared to be a response to inflation. Also, with such a large apparent inflationary effect, you’d expect to see a parabolic rise in the period immediately after the late seventies and early eighties, when there were 7 out of 8 years when the minimum was raised, except that didn’t happen. By the time you get to the last raise in 1981, the inflation rate was falling rapidly, and continued to do so over the next two years.
So it was time to test whether these legislated raises were a response to already inflationary times. I figured if you took inflation in the year before and the year of the raise, you’d be able to see if that was the case. Average inflation for these two-year periods ran to 10.21%, only slightly less than what happened in the two years after. Which means you could quantify the inflationary effect of a raise in the minimum at an average of .36% over two years. Not negative, but not real noticeable either.
The weirdest part of all this is noticing what’s happened in recent times compared to what happened up until 1981: prior and up to that year, inflation shot up 12.22%, on average, after a raise in the minimum, while the rate in the two years leading up to the raise was a mere 8.76%, only a bit more than the average two-year inflation rate. But since then, inflation in the two years leading up to a raise has run at 13.58%, while in the two years after, it’s been running at 6.72%. Every single raise, from 1981 on, has featured lower inflation after the raise than before.
I suppose I could pull some reason out of my ass as to why, but I really don’t know. It is interesting, though.
Carry on.
If the MW were the only variable in the equation then doing that analysis might show us something. But there have been wars, oil crises, drastic action by the Federal Reserve, the information revolution-- all those things taking place since the MW was first introduced. And that’s just listing a few obvious factors. Adjustments to the MW have almost always been tinkering at the margins. I wouldn’t expect us to be able measure any effects of that. But once again, we are not talking about that kind of action in this thread, we’re talking about doing something on the order of doubling the MW, not increasing it by 10-20%. And you’d have to tie the LW to inflation for it to be worth its salt as a LW.
Minimum wage is not a new concept. It has happenened nationally and locally for a long time. Studies have been done many times. The studiies which back the preconceptions are the ones each group cites. To state that it is a fact that a minimum wage causes unemployment is practically dishonest. The jury is out.
Minimum wage is great for companies that make a ton of money. To trot out a small risky business as representative is disingenuous. Should there be a size or profitability requirement for min. wage? Maybe it should be considered. No body wants to put a company out of business.
Some are essentially saying if they are poor screw them, it is their own fault. If they were smart like me they would have a good job. Sweet.
All true.
However, I thought about it a little more, and the proposal here, if I’m reading it correctly, is to raise the MW to the poverty level. This is in fact what happened between 1938 and 1968 (see the second graph on this page), and it was more or less phased in, as someone around here proposed upthread. And, finally, it happened in a period of consistently high productivity. The effect was clearly inflationary: in the raises up to 1968, inflation was running at a mere 3.16% over the two years up to the raise, and 8.97% in the two years after. In other words, those sharp raises that brought the minimum up to the poverty level had the effect of more than doubling the inflation rate.
Notice from that second graph on that page that in the years after 1968 the raises were smaller in real terms, and that’s when the inflationary effect of raising the minimum began to subside. So, looking at the actual evidence, it would appear that raising the minimum to what is regarded as an LW would be inflationary.
We’re a lot closer to the poverty level now than we were at the start of that last push in 1938, so perhaps the effect would be less inflationary.
I think the key thing to look at is how many jobs are affected. Right now, only something like 3% of all hourly workers make MW. If that goes to 5% after a raise, then that’s not going to translate into a whole lot of inflation. If it went to 20%, though, it might very well-- especially if the rate was tied to the inflation rate going foward. That was the feedback loop I mentioned earlier. Wage hikes can cause inflation, so if you tie wage hikes **to **inflation, what do you expect to happen?
Well, I think what we have now is the correct way to go about it, since the cost of living varies very widely between different localities and different states. Let the Federal MW be a floor, raised occasionally to keep it within some reasonable band, and let the states and cities raise it to whatever level they think appropriate. Using the Federally-defined poverty level as a benchmark to set the minimum wage or a “living wage” is inaccurate in both directions, as it’s too low for NYC, say, but too high for rural Mississippi, probably.
So if the LW was set by law they would be the same thing. And MW isn’t really fixed either, many states have a MW higher than the federal MW.
Again according to wiki, the poverty level in the US is determined by calculating three times the annual cost of a nutritionally adequate diet. Sounds reasonable to me. And yes, they could start tweaking the poverty line like they do with MW, but the point is to have a definitive formula rather than moving an arbitrary line around.
I did the calculations earlier in the thread. I think MW should be the poverty level for a 1 person household, which currently is $9000, which comes to $4.50 per hour, which is less than the federal MW.
The flaw in your logic is that only MW workers would assume a rise in wage if the level was raised. Your accelerated rate of inflation would have to include the raise in wages above MW.
The concept of a living wage treats labor as a singular entity. It is not. School-age children represent a substantial percentage of labor. The jobs worked by this demographic group represent the most basic of unskilled labor. There is a synergy that exists between entry level unskilled labor and business.
Children entering the workforce develop a work ethic and gain knowledge that can be used in later careers. Businesses such as McDonalds gain a revolving workforce of cheap labor. Without this arrangement such companies would not exist and so the jobs would not exist. The cost of the product would exceed the convenience of the service.
The idea that wages can be regulated in a free-market is a misnomer. Either a business can support a level of wage or it can’t. Raising the MW will not raise the standard of living because wages will adjust up resulting in a rise in the cost of consumer goods.
Treating a wage from the prospect of need is not the responsibility of business. It is the responsibility of labor. Wages are compensation for skill, which is up to the individual. A minimum wage cannot be mandated successfully any more than a minimum profit can.
What this discussion is really about is freedom. In the United States we enjoy a level of freedom that encompasses every aspect of life including the market. It is the free market philosophy that has allowed this nation to grow at the rate it has. It is why immigrants come from all over the world to start businesses from scratch. With the freedom to succeed there is also the freedom to fail. You cannot alter one without affecting the other. Government control of production and labor cannot exist without significant loss of freedom.
Well, I haven’t read the entire thread and that may be a good thing or a bad thing. Usually it’s a bad thing because of the mass of nitpicking and straying off-topic. Instead of not budging and not compromising, how about we institute some sort of compromise? After all, that’s what a real-world application of this would be, right?
Minimum wage = 15 bucks an hour. (We can provide lower levels of wage earning for underage people and the like. We’ll have to hammer out this point, of course)
Government takes the complete burden of health care off the companies and makes it universal.
This helps the bigger companies because they don’t have the burden of health care on their backs. Then they take that money they save and give it to the workers. Ideally, (for illustrative purposes and simplicity’s sake) a company making 100,000 bux a year paying people minimum wage/almost living wage and shouldering all (a vast majority of?) the healthcare burden would make 120,000 bux a year, pay its employees substantially more, and pay no health care (unless they elected to).
Yes, the example is a gross simplifaction, but I hope it pushes my point across that everyone gains. Let’s also assume, for argument’s sake, that if making the extra 20,000 bux a year pushes the company into a new tax bracket and seriously imperils the company because of it, movement to the new tax bracket can be postponed/credited. The spirit of this compromise is trying to find a way in which everyone benefits (including the government, who could pare the defense budget down or be happy with all the previously underpaid folks bumping up into a newly-created tax bracket…one that wouldn’t mean they’d take home the same amount they did before this change).
Long story short, how about we stop bitching and come to a fix? It’s not going to be JUST one side or the other.
15 bucks an hour? How many employees do you think McDonald’s is going to hire at $15/hr?
$15/hr is about $27,000 per year. A two income household would then be guaranteed $54,000/yr, which is WAY above the median household income today.
The median hourly income in the U.S. is $16.94. You propose to make the median the minimum, or close to it. This would cause a wide scale disruption in the labor market. You would cause widespread poverty. Millions of workers would be laid off. Until inflation sorted it all out, there would be dislocations of labor at almost every level (why take on a dirty job that pays $17/hr when you stand around in Best Buy for almost the same wage? Why go to school for several years to become an administrative assistant (median salary: $32,000), when you can just go to work at any non-skilled job and make almost as much?). It would be a disaster.
And huge sections of the population would be permanently unemployable. If you don’t have the skills to be worth $15/hr, no one is going to hire you.
There would be a gigantic black market in labor. Not just illegal immigration, but ‘under the table’ work. With so many people out of work, and so many $10/hr tasks going undone for lack of labor, you’d soon find a massive underground in labor.
Finally, you would force many, many jobs to be outsourced. So are you going to stop outsourcing as well?
You realize that most people making under $15/hr now also don’t get much in the way of health care benefits? So even assuming that universal health care was completely free and didn’t cost businesses a thing, this wouldn’t have much effect on the cost of minimum wage labor.
No, they take that money and give it to the government in the form of taxes. Or does the universal health care get provided by the health care fairy? You can’t legislate prosperity. Health care is expensive. Someone’s going to pay it. You just said that the workers aren’t going to pay for it, and you’ve defined these workers as maybe half the workers in the country. And if the businesses aren’t going to pay for it, that leaves the ‘rich’. But then, they are always the bottomless well that socialists go to when they need to hand-wave away the costs of whatever program they happen to be pushing at any given time.
Did you just make those numbers up? Or do you have calculations behind them? It seems to me that if a company is making $100,000 a year paying people a minimum wage today, and you triple the minimum wage and make it $15/hr, then if this company employs more than 4 people it will go bankrupt. Then those people will make NO income. I hope your math includes dramatically increased entitlement costs as all the displaced workers go on unemployment insurance/welfare…
Gross simplifications with made up numbers prove exactly nothing. I can make up numbers to show that eliminating the minimum wage entirely will make us all rich. So what?
Common sense should tell you that you can’t create wealth with the stroke of a pen.
A) I still can’t figure out how the company winds up making more profit by having its labor costs tripled
B) I don’t believe corporations are in ‘tax brackets’. They pay a flat corporate tax rate.
Where did ‘paring the defense budget’ come from? Somehow increasing the minimum wage causes the defense budget to shrink?
By your logic, why don’t we just increase the minimum wage up to $50/hr? The workers would be rich, they’d be bumped up in tax brackets and pay way more in taxes, so the government would have lots of extra revenue. So it could cut corporate taxes, and everyone comes out ahead!
Yeah, everyone! Just ignore economics and reality, and fix it! Stop complaining that it won’t work! If we just DO it, everyone will benefit!
Whatever happened to the ‘reality based community’? Where did it go?
What you’re suggesting is government control of labor which directly affects the cost of production. That is socialism/communism and it doesn’t work.
That would have to be paid for by taxes which means nothing has changed except a transfer of responsibility from the individual to government. We already have an upward spiral of health care costs because it is not consumer driven. Turning it over to government control will accelerate that. It’s also an entire topic by itself. And the burden of health care is not on the employer, it’s on the employee. It’s not a gift, its part of the employees wages
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Short story made shorter, the skills needed to succeed in life can be taught in school like any other skill. I cannot imagine someone leaving HS with the thought of applying to McDonalds as a career but that is what is happening. How bad is a school system if this is the result of 12 years of instructions?
Increase the standards of someone that “stands around” at Best Buy. I don’t want to put words in your mouth, but you seem like the kind of person that would contend that everyone shouldn’t go to a place of higher education and that the standards of colleges/college graduates needs to be raised. If that is true, then how can we be for increasing standards for getting an education and not for incresaing standards for jobs?
There’s no bottomless well of money that’s here either. The United States generates a vast amount more than any other country does. The money is there, but it’s being appropriated in other/different/bad ways. That’s where “paring the defense budget comes from”.
Your tone also indicates that there’s something wrong with a two-income household making more than the current median two-household income. If that’s accurate, I’d love to know why.
I also did make those numbers up as an illustration for the point I was trying to get across. Like I said, they’re gross oversimplifations, but they’re a chariacture of my point.
Exact numbers of the proposed wage aren’t even important. They’re there for illustrative purposes. Feel free to assign meaning on the numbers that don’t have any meanings assigned to them. My logic isn’t that we should pay everyone eleventymillion dollars an hour. My logic is that we can perhaps find a middle ground in which everyone can benefit in a way. (Trying to) use economics as a club isn’t helping anyone out, and neither is taxing the rich/very successful. I’m not trying to create wealth with a pen. I’m trying to create monetary equality, or working on it.
With regards to creating a black market for labor and people getting paid under the table, then either open up the borders or institute rigid penalties on people that do such things. Then again, we’re having a problem with “closed” borders doing the same thing.
Under a similar plan, we’d have to adopt more protective tariffs and possibly trrade barriers. I haven’t completely worked this part out/lent enough thought to it.
Short story made shorter, the skills needed to succeed in life can be taught in school like any other skill. I cannot imagine someone leaving HS with the thought of applying to McDonalds as a career but that is what is happening. How bad is a school system if this is the result of 12 years of instructions?
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I’m not convinced that socialism/communism doesn’t work. I think that there can be some positive things to take from it, and I think the same of capitalism.
The problem is not with the wage, it’s with the wage earner. It’s flawed logic to assume low wage jobs should be used to earn a living or that someone should relegate themselves to such a job for any length of time. Even as a child I would never have considered working for MW for more than a year. In today’s market a job paying $12/hr often have high turnover rates. That’s substantially higher than MW.
I’m not convinced that socialism/communism doesn’t work. I think that there can be some positive things to take from it, and I think the same of capitalism.
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Communism has failed miserably wherever it is applied. This is not to say government intervention cannot improve things for the common good. It just doesn’t work if market forces are artificially dictated. That’s the difference between socialism and a democracy. It is market freedom that dictates wealth. If wealth (profit) is not generated then an economy cannot grow.