Effects of Minimum Wage

In My Humble Opinion (IMHO)
#41

Depends on whether you consider youth workers to be a “less desirable employee” - but there does seem to be empirical evidence that higher minimum wages leads to greater youth unemployment, though youth employment in general had declined significantly over the past 30 years and much of it does not seem to be related to US federal minimum wage (there was a pretty steady decline in youth employment over 1999-2003 without any changes in federal minimum wage, not sure if any state minimum wages increased over that period though). In addition, the latter page indicates youth with disabilities have disproportionately higher unemployment when youth unemployment goes up.

It’s debatable whether youth employment in general is desirable (personally, I think working is a valuable experience for many young people and enables them to gain some amount of financial independence), but I think youth employment rates and living wages are at odds. Youth workers generally don’t need a living wage (since most live with their parents), so if minimum wages are raised to living wage levels, it is highly likely that any reduction in jobs will likely come at the cost of youth workers, given that a) they are less experienced, thus likely less skilled than older workers; b) they don’t need to make a wage to survive, thus might have less intrinsic motivation to work, and employers would feel less bad about letting them go.

This is why I’m more supportive of robust welfare/low income support programs (or potentially a universal basic income in the future) rather than higher minimum wages. A common refrain that is repeated on Reddit among other places is “if you can’t afford to pay your workers a living wage, you don’t deserve to be in business”. I disagree with this sentiment - I think it’s society’s responsibility that everyone can live a life of dignity (regardless of whether they are able to work or not), as opposed to just the responsibility of employers. In addition, it seems like small businesses suffer more than large businesses with minimum wage increases, so one of my biggest concerns with raising minimum wages is that it will lead to a corporatocracy where big businesses will leverage their greater access to capital to do things like invest in automation to offset higher labour costs, while small businesses will increasingly go under. I’m sure new small businesses will pop up adapted to a higher labour cost model, but I am worried that larger businesses intrinsically are better able to manage their businesses with less people, and small businesses will intrinsically have to cater to wealthier people (eg. small business retailers can’t compete with the likes of Amazon and Walmart on price; thus they have to try to compete on some other basis like quality of products - but that for sure means that poorer people will have no choice but to shop at Amazon and Walmart). Of course, this might happen anyway regardless of what the minimum wage is, but I think higher minimum wages generally tilt the field towards larger businesses than smaller ones.

#42

Yes, exactly.

It amounts to saying that exploiting people who work for you, and treating them like shit, is fine.

#43

Except we don’t need to imagine numbers here. EPI estimated a $118B increase in annual income for a national $15/h MW, going to 27% of the workforce that tends to spend what they make. That’s a big change from the status quo.

What’s not a big change from the status quo is the average annual change in income to the top 1%, which, while jumpy year-to-year, was similar both before and after the recession. And this is to a population that tends not to spend what they make. And it’s one with a different market basket than mine (or BLS’), with different price trends, if these supposed luxury price indexes are to be believed (e.g. Forbes CLEWI).

#44

It is not economic sophistry to point to the potential upward pricing pressure (real or imagined) of an increase in the MW while ignoring other factors that influence pricing when the OP is asking about effects of the minimum wage and not asking about any of the other factors that influence pricing.

#45

BTW in case nobody found the number (searching the new boards sucks), and because history is fun, the highest (real) historical MW is $1.60 (nominal) from 1968, which translates to (using CPI-U) about* $12.20 today. So if we keep arguing about it without doing anything, it’ll be $15 soon.

*I didn’t bother to check the month, so potentially a bit less.

I like to know this because I find it suspect to make doom-and-gloom predictions about anything near that number.

#46

So if someone in skilled trades makes 5X minimum wage now and the MW doubles, should the skilled worker expect wages to double to stay at the same rate? (Better double the income tax brackets in that case.)

I pass multiple businesses and billboards every day that advertise for help paying 2-3X MW now and several have been looking for years.

#47

That’s silly. Labor is a market, and obeys all the usual market rules of supply and demand.

Right now jobs are tight, which means that there’s little pressure on employers to raise wages. It’s not evil mustache twirling, it’s that for every low-paid cashier out there working, there are several more waiting in the wings willing to work for that same rate, or even less.

Why SHOULD an employer pay more if someone else is willing to work for the wage they post, or even less? The reasons are usually experience, training, competence, education, etc… which are the same reasons anyone makes more money at a job.

The catch here is that minimum wage workers are literally the most fungible workers in the whole system- there’s nothing remotely special about them that would give them any claim to higher wages in a market forces sense.

I’m with Delayed_Reflex; higher minimums are just market distortions and in essence penalize those workers who have proven themselves more useful than the average minimum wage worker, as now they’re back at the starting line, and the less useful workers are right there with them. Better to have a suite of programs to remedy the effects of being a full-time minimum wage worker (does anyone really stay at minimum wage for very long at all? Surely not.).

#48

Unlikely. Without having the UW work open, I recall the indirect increases dwindle substantially for wages as they approach $20/h.

#49

My take on the Reddit refrain is, “if you can’t afford to pay your workers a living wage, then you are being subsidized by the government”. There is a “natural” minimum wage where workers will no longer work for your business, even if no other jobs are available – if the pay doesn’t cover basic needs and you’re going to starve anyway, why bust your ass while you’re doing it? But the many government programs that help alleviate poverty reduce that natural minimum wage, because if workers can rely on SNAP, &c to supplement their income, they can accept lower wages and still have it be “worth it”. And companies definitely take advantage of this.

The government programs are meant to be short-term support for people in crisis, not long-term income support (and implicit business subsidies), so government does have mandate to require businesses to have wages high enough that government support of its employees isn’t necessary. It is a market distortion intended to reverse the market distortion of government assistance programs which naturally depress low-end wages. (And making a distortion to exactly reverse a distortion is basically impossible to do, so the whole thing is a muddled mess).

Under a UBI scheme, where the purpose of the program is to provide permanent income support, I can see dropping minimum wage requirements if the UBI is enough for a basic standard of living. But if an employer can say, “How about I cut your wage in half, and you can go on welfare?” there needs to be something to prevent that.

#50

I might have missed it if this has been mentioned, but low income medical plans (AHCCCS in AZ, Medical in other states) income limits are based on the federal minimum wage of 7.25 per hour. The income limits are not adjusted when a state raises its minimum wage.

As a retired eligibility worker, I cringed every time the minimum wage went up because I knew that I would be denying people health insurance because they suddenly became over income. That extra dollar an hour was enough to disqualify them for public aid, but sure wasn’t enough to allow them to pay for private medical insurance.

The income limit for a single adult to receive free medical care is 1415.00 per month. Privately paid medical insurance starts around 300 per month and comes with very high deductibles and co-pays. Small wonder that so many people are uninsured.

#51

If this is true, you should be able to show how much subsidy my employer gets when I have another kid and suddenly qualify for $100/mo of SNAP benefits (up from zero.) It’s not like I’m going to quit without it; I’ve lived in the red, and less red is better than more red.

For some people in DC, a living wage is >$40/h. For others, it’s $12/h. The notion that the employer paying $20/h is receiving a subsidy for one and not the other, unbeknownst to her, and for reasons largely out of the her control, is bizarre.

For sure, benefits can alter an individual’s reservation wage, a concept I’m assuming you’re alluding to if not naming it. But depending on structure, some increase it and others lower it. And they can also lower the incentive to work additional hours. This all becomes important when designing programs, although often just ends up being something we have to live with, one direction or another, in exchange for making sure people aren’t starving, etc.

#52

This is a common design flaw, that receives frequent complaints but very little useful policy action.

#53

Depends on the number of people supported by one wage earner; but, for a single person or even for one with dependents if they’re not singlehandedly supporting more than themselves and two others, sure it has. Just not recently.

• In the 1960s and 1970s, the yearly earnings for full-time minimum wage workers skirted the poverty line for supporting a family of three. It rose above when the wage was increased and fell below when the new rate languished for a few years. The minimum wage has not supported a family of three above the poverty line since 1980.

• The minimum wage has supported a household of two above the poverty line only during six years since 1984. The longest run came from 2009 through 2012, after the wage was raised 70 cents an hour to its current $7.25.

Date of article is 2014; but of course the historical data doesn’t change.

#54

They mention the 1968 high point I referenced. So that we have the numbers, $12.20 today x 2080 h works out to about $25k. The HHS poverty line for three people for 2020 is $21,720. $26k for four people.

Although the poverty line is generally much lower than whatever people are talking about when referencing a living wage. At least until I’m told they’re using a different model than the MIT one.

#55

If it would support three people above the poverty line in 1968, it was clearly a living wage at the time for one or two people, and arguably for three. Trying to make direct comparisons to costs of living in 2020 (which doesn’t really work, because we don’t even have the same necessities to function in the workplace, and because some expenses have increased much more than others) doesn’t change the fact that in 1968, and for much of the 50’s, 60’s, and 70’s, the minimum wage was enough for many people to live on.

#56

Oh but we do. There is rampant inflation in the stock markets. That’s why we see–or saw–a Dow of 30k. After a while what else are the 1% going to do with all their money.

Inflation requires two things: too much money and too few goods. I don’t think there is any evidence that the US produces (or imports) too few goods.

#57

Which is why the market is up.

There is too much money, and not enough places to invest it.

You need consumer demand to justify investment, and consumers need money to demand goods and services. Businesses don’t hire people because they can afford to, they hire people because they have more demand for their goods and services than they can accommodate with their current work force. Shoveling money at the wealthy does not increase employment. But increasing the earning power of the lowest earners does.

People talk about MW increases as if they will increase unemployment, but they do not factor in the fact that a MW increase means that there will be more people demanding more goods and services, requiring more people to fulfill those needs.

Most people making MW now cannot or can only barely afford to purchase the goods or services that they are the ones providing. If they are able to, then that means that the job that they are in needs to hire more people, not fewer.

#58

Most assuredly not a living wage as most people define it. For the poverty threshold, USCB merely looks at the minimum cost of food in 1963 and adjusts for inflation for any given year. Most living wage models consider far more than that. Appropriately, I think. Census does have a supplemental measure (SPM), which includes clothing, shelter, utilities, but it doesn’t go back that far – only to 2011 I think.

My point was that if federal MW were adjusted for inflation based on the 1968 high, it would still today be above the poverty threshold for a household of three, regardless of whether the threshold is particularly useful. It is currently far below that.

#59

Ah. Yes, I’m not trying to disagree with that.

I was originally addressing the post below; and thought you meant to agree with HoneyBadgerDC, who I took to mean that previous increases didn’t cause problems because the raised minimum was never enough for anyone to live on, and was only suitable for people with other means of support.

#60

That’s a fair point, but we don’t see relatively affluent people being blamed for driving up the stock market.

And … yet … as I mentioned earlier in this thread … those investment dollars aren’t in mason jars in the yard, in mattresses, or in piggy banks. They’re in the pipeline and are somewhat traceable.

As is money put in banks and other savings vehicles.

Meaning … that money is being spent. In the process, it creates upward pricing pressure.

But we aren’t blaming the wealthy for their tendency to create inflation – inflation that can starve the least well-heeled among us or render them homeless as already unaffordable housing grows ever more out of their reach.

We blame the lowest rung for trying not to fall even farther behind on the very basics. We also wonder why they tend to stay on the lowest rung, generation after generation.

Food, clothing, shelter, health care, education.

Automation and outsourcing put a serious hurt on what used to be the jobs you could reliably get if you weren’t college-bound. It left a feeding frenzy for entry-level jobs with undocumented immigrants added to the pool of seekers.

We took away well-paying jobs – jobs that could put you in a modest house, feed your family, send your kids to college, and provide a reasonable retirement (either because of, or in spite of, strong labor unions).

In exchange, we gave the people who used to do those jobs WalMart, Dollar General, and no end of government assistance (we’ve privatized profit and socialized loss) and convinced them to be pleased as punch with the trade-off.

Those at the bottom are daily affected, in profound ways, by the activities of those at the top. But a) the impacts of those at the top on those at the bottom are rarely discussed … particularly in stark or pejorative terms, and b) those at the bottom don’t get to vote on the incomes of those at the top.