Voyager rightly points out that evaluating the MW in terms of “dollars in the economy” is unhelpful and woolly. The question is not the number of dollars in the economy but the demand created by those dollars.
This logic drives tax cuts: the cuts are supposed to be targeted to deliver the maximum demand, not simply the maximum dollars. In other words, you actually have to increase the agents’ marginal propensity to consume in order for the short term demand effects to be observed. Marginal propensity to consume is the rate of change in consumption with respect to change in income. You have to move the needle in order to reap any benefit. The question then becomes, what is the effect of removing a minuscule amount of shareholder value diffused among a large number of individuals and targeting a relatively small number for relief?
Intuitively, I think that the effects will be slightly positive, possibly insignificantly so. This should not be an ideological question, but an empirical one.
Mind you, I’m not a big fan of the MW, but I think our dynamic economy can absorb some wage increases (though, you will have to put up with an underground economy which is readily prevalent, which means increases in tax-avoiders and increases in illegal aliens). The point at issue is how much is too much. Typing in “increase minimum wage increase unemployment” brings a ton of hits, but it’s tough to separate the fanatics from the malinformed. Some of these cites try to answer this question, others just point out that MW increases are bad. In my research and studies, there was only one study that showed that MW increases were good, Card and Krueger (which some cites say is already widely discredited).
The JEC says that Card and Krueger is discredited and makes the claims, that raising the MW: "It takes away jobs, keeps people on welfare, and encourages high-school students to drop out.
This site shows number of jobs lost because of increases in wage. This site, like others, claim that only a few of the population actually works at MW, and I think it said that most of the people at the poverty line are simply not working. This is why I say that we should not raise minimum wage, but rather, increase social safety net if you should not have a job. You can’t force people to work, or to take on workers.
This is a somewhat neutral site that summarizes the points that are made, economically speaking, and view increases in MW as a tax.
Thanks for the cites. They don’t provide the evidence I’m looking for, but I suspect they are the best out there.
Lots of junk in this one. First, they say the Card Kreuger study is wrong because it casts doubt on common knowledge - not much of a reason. Then they give a cite that seems to contradict their data. I’d have to look at both papers to evaluate this - except for the cite, the JEC gives no specific information about job loss in NJ due to the MW increase.
Then they say the MW is unimportant because relatively few MW earners are the sole support of a household. This I certainly believe - how could a person support a household making the MW. How many households have both parents making MW, or one making slightly more than the MW? So that isn’t much of an argument.
They then say that only 9.2 of poor people have full time jobs. I’m not sure of their point here. Would it be better if more poor people had full time jobs - proving that wages are not enough to get someone out of poverty? The living wage argument is that no one working full time should be below the poverty line.
Then they say that mothers on welfare stay there longer in states with higher MWs. Perhaps this is because welfare benefits are also higher in these states? Then they say that it is bad that a raise in the MW means that employers tend to hire better qualified workers for their jobs. Now, maybe this is cruelty left over from when I was a Republican but it seems to me that it is better for the economy, for employers, and fairer that when there is a choice better qualified and skilled people get hired for jobs. Much as I’d like everyone to be able to work, I don’t mind those smarter and/or better motivated being first in line. So this is an odd objection indeed.
Except for one data point in Santa Fe - and I’d like to understand how a MW raise affected city workers at all. Was there a general downturn at the time? If so, poorer workers always do worse. The rest of this page just asserts there is an issue without any evidence that I can see.
Neutral? When he says that the claim that raising the MW helps business is ridiculous? Not hardly. In any case this site contradicts the arguments of your other ones. Those seem to say that many MW workers are teens, so raising their wages won’t help the important people. This one says that raising the MW hurts teen workers. If better qualified people are hired, like cite 2 claimed, then less qualified teens might indeed lose jobs. Sorry, that doesn’t bother me all that much. The cite for the Sabia just says that it claims that the statistical methods of the other one are wrong. Could be, but that is argument #1 for naysaying a study you don’t like. Perhaps the original authors were incompetent, but one would have to read the correspondence to be sure.
The argument against increasing the social safety net is that this would encourage people not to work. I’m all for support for those who truly can’t work, but I’d rather make the difference between working productively and not as great as possible. (Assuming that there are jobs.) I doubt many of the authors of your cites would agree with you on the benefit of making welfare more attractive.
So, the net is one possible example in Santa Fe - but either they or the state still decided that increasing the MW was a good idea in the last election, so the impact couldn’t have been too bad.
My daughters friends, btw, mostly work at MW or near MW retail jobs, with hours carefully set to not pay benefits. Which is fine, since they don’t need them, but this savings no doubt outweighs a MW increase. She walks dogs, and makes over twice the MW - she’s no dummy.
How many times do we have to say: We don’t know the answer to that question.
Let’s turn it around. Surely we can agree that raising the MW by some amount (doubling it, for example, or quadrupling it) would cause a rise in unemployment. You tell us how we can know how much we can back off from that amount and not affect the unemployment. Since you are advocating the raise, it is incumbent on you to tell us the consequences.
And if you can’t answer that question, why would you want to raise it since there are other ways to address the very problem (poverty) that you are trying to address with a MW increase? Unless, of course, that isn’t the real problem you have with a low MW (per the Krugman article linked to by **Sam **several pages ago). If you just don’t think it’s “fair” that people should be paid low wages, then that’s an entirely different argument than the one about unemployment.
It looks like you are correct here. Yet most of the arguments against raising the MW - and not by humongous amounts - are based around an increase in unemployment.
We have many experiments in raising the wage, without undue consequences. I suppose someone advocating quadrupling the wage would have to worry about the consequences there. I’d definitely be in favor of a phased increase, starting with a raise that we know is sustainable (back to purchasing power of the MW in the past, for instance.)
Maybe it is my unsavory conservative past, but I still prefer solutions targeted to those working and those who cannot work. We’ve already had the discussion about the subsidization of low wage jobs by the government, so I don’t see the reason to go over that one again.
Well, we can look at Western Europe. Those countries have a MW almost 2x what the US national MW is, and they have about 2x the unemployment. Now, I’m not claiming cause and effect because there are many other differences in our economies and labor laws, but it probably is part of the reason at least.
Which particular past point are you talking about? Way back earlier in the thread I linked to a graph of the MW over time in constant dollars. IIRC, the peak was something like $9/hr. The average was about $7/hour (which is about where both Bush and the Congress agree to raise it to).
The last sentence is true :), but can explain how the MW helps those who cannot work?
This is, unfortunately, [del]really stupid[/del] reflective of a basic misunderstanding of economics.
Money spent on European stocks and vacations is still “in the economy” - it is spent, just like it would be on hamburgers, still affects the economy, creates jobs (for travel agents, stock brokers, and those who work at the companies in which the money is invested), and so forth. Unless you would like to argue that the European stock market is not part of the economy.
If the effects are “well known”, as you claim, then it should be easy for you to find a cite demonstrating that stock investments are not “in the economy”. Please do so, and try not to make it an irrelevant one like the last one.
This is a hijack, but “very, very slow” is not a very accurate description of the recovery under Bush.
This is the first time I have ever heard someone argue that investment was usually bad for the economy.
Suffice it to say that
And again, the notion that we should be encouraging more consumption rather than investment is not generally shared.
I think the argument is that more poor people should have full time jobs, because full time jobs tend to pay more than MW (and generate a work history that tends to increase wages over time).
But, since less than 3% are working for MW, and many of those are not full time and not working to support a family, that is not exactly proof that “wages are not enough to get someone out of poverty”. What “gets someone out of poverty” with something like a 90% chance of success is: [ul][li]Graduate from high school []Don’t have children until you can support them []Get married and stay married [*]Get a job (any full-time job), stick with it for at least a year, and don’t quit it until you have another job.[/ul] (Cite available on request.)[/li][quote]
Then they say that mothers on welfare stay there longer in states with higher MWs. Perhaps this is because welfare benefits are also higher in these states? Then they say that it is bad that a raise in the MW means that employers tend to hire better qualified workers for their jobs. Now, maybe this is cruelty left over from when I was a Republican but it seems to me that it is better for the economy, for employers, and fairer that when there is a choice better qualified and skilled people get hired for jobs.
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And therefore the less qualified, who get hired now under the lower MW, are SOL. Which is part of what has been argued all along.
You are actually completely wrong here, Shodan. Money spent on international securities is precisely the kind of “leak” that has systematically reduced the effectiveness of tax cuts over the past thirty years. You are still focusing on the wrong thing, “money in the economy”, when you should be focusing on demand.
Here is an extremely straightforward and nontechnical discussion.
My emphasis. As globalization and the ease of capital flows increases (IMO very good things), the effectiveness of tax cuts to stimulate local demand decreases.
I’d suspect that the other European labor issues are far more significant than the MW. I
Raising it in steps to $8.50 or so would be a start. Then we could see the impact. As for the living wage, unless someone has defined it after I dropped out of this thread, it is not clear where it is supposed to be set.
I meant welfare solutions for those people. There are four subpopulations of the poor
Those who work full time. Raising the MW will help get these people out of poverty.
Those who can’t work. These are the people welfare is for.
Those temporarily out of work. Most people on welfare are not on it forever, but drop in and out. We need something to support these people and connect them to new jobs, but with incentives.
Those who don’t want to work. I don’t think this is a big population, but I’m okay with dropping support for them. I suspect many of these people are actually working in the underground economy anyway. The problem is that many anti-welfare people confuse category 3 with category 4.
Why? And how much unemployment would you be willing to trade off for “x” amount of increase in the MW?
$8.50 for every place in the US? If there was “impact” what do you think the chances would be to get the MW lowered? What if there was “impact” in one sector of the US but not in others?
Unfortunately, we weren’t talking there about tax cuts or local demand. gonzomax posted a cite that claims that money paid in dividends is not part of the economy, while increases in MW are. This is wrong, given that we are in a global economy. Non-local investment is just as much part of the economy as any other type, since (as you mention) capital flows now in ways it never did before.
I shouldn’t have tried to counter Voyager’s misstatement about the recovery. The Bush-haters on the SDMB are too easily distracted by the mention of his name to be able to stick to a topic after he is mentioned.
In the last round of discussion on this, someone linked to graphs showing job and economic growth after the past several recessions. Though the latest recession was short and mild, recovery took a lot longer than in the past. You might remember the anemic job growth that was an issue in the 2004 election?
Not what I said. Investment is not very useful when the problem with the economy is over-capacity. Intel, or example, cancelled a fab in Austin when the predictions of growth in the PC market were clearly going to be wrong. Would that investment have been good for the economy? Cisco wrote off a whole boatload of inventory. Contract manufacturers saw their orders plummet. Should they have built more factories?
That’s the general case. I’m talking about the specific case of over-capacity. Building more product which no one can afford to buy is not a very good way of ending a recession. Putting more money into consumers hands is.
Not to mention that full time jobs pay better than part time ones. A MW increase will also tend to raise hourly wages for the next few tiers up (there is likely to be compression) which will also help the working poor who make more than MW.
Are you arguing that we should increase the MW because we are currently in a period of over-investment, or a recession?
AFAICT, you are advocating that an increase in MW in general is a good thing, but that encouraging investment as an alternative is not because of special circumstances.
I am arguing more in general.
Actually, it would seem to me to reduce demand for jobs that currently pay more than MW. Suppose someone is earning $5.15 per hour, and works twenty hours a week. Now he gets a mandated raise to $7.25 per hour. But $5.15 is enough to put gas in his car and buy pizzas (or feed himself while he paints for a living, or whatever). Now he needs to work 15 hours a week to make the same money. Why would he seek a higher paying job?
Or flip it around. If I am now making $7.25 per hour doing whatever, it is usually because the job is harder in some way than a MW job. But I can seek a less stressful MW job now, earn the same, and thus reduce demand for whatever I am doing now and increase it for the MW jobs.
I know some union contracts are tied to some multiple of the MW. Did you have a cite (or an explanation) for this phenomenon apart from that?
So we have a quantity of money in the economy. The question is how to distribute this money most efficiently from the perspective of social welfare. Suppose you can choose only between shareholders and minimum wage employees for sake of argument.
Think of raising the minimum wage as if it were a form of tax relief financed by shareholders. We know that by stimulating local demand, we drive increased production and generate wealth. So what course of action generates more wealth, leaving the money with shareholders or redistributing it to poor folks?
Gonzomax’s point, though feebly argued, is kind of right. Money left in the hands of shareholders, while still in the economy per se, can very easily leak. This does not stimulate local demand and does not create wealth in the form of greater production of goods and services. Can it do other good things? Sure. If the primary shareholders are financial institutions, in theory they could lend their dividend earnings out to prospective small business owners, etc. But strictly speaking, money redistributed to the working poor probably does more to stimulate local demand than does leaving the money with a diffuse body of shareholders.
Whether or not this is actually a good thing is an empirical question, as is how strong are the offsetting benefits of leaving the money with shareholders. I simply do not believe that this is a question that can or should be answered ideologically.
No, I’m sorry, you are still confusing “local demand” with being in the economy in general. This is a global economy. Indeed, as a national initiative, an increase in the federal MW by definition cannot be limited to an impact on “local demand”.
Same mistake. Please show how dividends “leak”, in the sense of not being spent/invested and affecting demand.
I am sorry as well, for your are still laboring under the assumption that a dollar “in the economy” should be an end in and of itself. It shouldn’t. The only way to take a dollar out of the economy is to flush it down the toilet. All functions that a dollar serves once it is already in the economy are not equal. Some are empirically better than others, depending on the disposition of current economic factors.
Any national fiscal initiative is *supposed[i/] to increase local demand. This is the basic theory that underpins tax cuts. Local demand can be stimulated in a lot of different regions. In the case of MW, it is supposed to increase demand wherever MW workers are concentrated.
The link in my last post pretty clearly explained the concept of leakage. Reinvested dividends do not stimulate demand, and proceeds invested abroad or used to purchase imported goods are also leaked. Do they stay in the economy, as it were? Sure, they aren’t being incinerated. Are they as efficient in generating further wealth as local demand stimulation is? Maybe yes, maybe no. Again, it depends on the circumstances and again, it is an empirical question and not an ideological one.
Well, again, no, and I am not sure how you could have gotten that impression. I have mentioned several times that dividends get spent, just like increases in MW.
This sounds rather self-evidently wrong. If a stock holder uses his dividends to buy more stock, that increases demand for stock. If he buys a yacht, that increases demand for yachts. If a MW worker spends his increase on gas for his car, that increases demand for gas.
Correct, which is why gonzomas’s cite is clearly wrong that a MW increase pumps money into the economy.
I expect we are not going to arrive at a empirical conclusion if we assume that this is not a global economy.
I assume you agree that a MW increase is not as efficient at generating wealth as alternatives under some circumstances. What do you think those circumstances are, and why do you believe they mean that we need a MW increase?
Increases demand for stock? So what? A diffuse piece of a diffuse corporation’s future income stream is neither a good nor a service. The stock market was humming along nicely when tax cuts were implemented to revive our dragging economy. Domestic consumption is by far the biggest and most important driver of the US economy, not the performance of the stock market.
It seems pretty self-evident that the difference between a dividend paid by a company with minimum wage X and that of an identical company with minimum wage X+3 is not going to buy a plasma TV for its average investor. Investors are further discouraged from cashing out to consume by our tax structure.
Why would I want to pay a premium on consuming somethign whose value is destroyed over time versus pay no premium on something whose value tends to trend upwards?
I know what each of these words means, but together, I do not understand the argument you are making.
Second question first. I am not arguing that, in general, we need a federal MW increase. In fact, I am not even sold on the idea that we need a federal MW any more whatsoever.
I am arguing against the kind of woolly thinking that I am seeing that, quite coincidentally, says that we do not need such an increase across the board. I don’t need to spend my time refuting gonzomax for reasons that should be self-evident.
As to what the circumstances might be that would justify a MW? Hard to speak in anything other than generalities. These sorts of decisions need to be made on the data, not on imputed logic. Nevertheless, here is what I would look for.
I would look for cases in which raising the MW would positively change the recipients’ marginal propensity to consume but would not change the MPC of the people who finance the increase. I would look for cases where the teenage recipients of a MW increase could reasonably finance their college educations with less debt, and thus with less default on government student loans. I would look for cases where the MW would be raised enough to enable workers to live closer to their workplaces, thus driving savings, decreasing dependency on foreign oil, and decreasing environmental impact.
It bears repeating that these are all notional. In order to make MW work, it should improve the situation of MW workers without substantially harming those who finance it. I do not believe this is best done at the federal level, since the goal is to stimulate local demand. Federal MW becomes less relevant as our economy further moves away from low value-added work under dangerous working conditions.
Here is the cite for the weakness of the current recovery. If you are measuring the recovery by corporate profits, I acknowledge that this has been a good one. Any other measure (except household worth, high due to the housing bubble) it hasn’t been so hot. In fact they note that many recoveries have run into recessions by this point, but the current one is worse than even recoveries including recessions.
but it seems to me that it is better for the economy, for employers, and fairer that when there is a choice better qualified and skilled people get hired for jobs. Much as I’d like everyone to be able to work, I don’t mind those smarter and/or better motivated being first in line. So this is an odd objection indeed.
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