The Living Wage Report from ResponsibleWealth.org presents a pretty compelling argument.
I’m just in favor of increasing it in general, I’m not involved in any of the living-wage movements. Most of those organizations are talking about (what appear from a middle-class vantage point to be) very modest increases, say $1 or $2 an hour. Some also want the MW set still higher in certain cities to allow for the higher cost of living there. And, still more controversially, they want future increases indexed to inflation so the benefits of winning a minimum-wage increase won’t be eaten away over time. With regard to the comparative effects of raising the MW to $6.15/hr vs. raising it to $20/hr – in principle it ought to be possible for an economist to chart something analogous to the “Laffer curve,”* showing the optimal point where the economic benefits to the working poor of a high MW are offset by the unintended consequences such as a depressed job market.
*But nobody really knows what a Laffer curve (purportedly plotting the optimal revenue-maximizing point at which tax cuts generate the most revenue through stimulating the economy) looks like. It’s supposed to be vaguely parabolic in shape but I’ve never seen a version of it with actual dollar amounts given on the “tax rate” axis or the “tax revenue” axis. See http://en.wikipedia.org/wiki/Laffer_curve.
Interesting article. Not through with it yet, but I like this line: “Living wage proponents argue that employers who pay poverty wages are effectively being subsidized by taxpayers through government assistance programs (e.g., food stamps, Earned Income Tax Credit) which help many low wage employees survive.” I don’t know how true that really is, but it is interesting.
Emphasis added, and there you have the crux of the biscuit. I suspect that a dozen economists would result in a dozen optimal national MWs. Which as you note, would only be relevant in theory, as conditions differ locally.
My instinct: repeal the federal MW, but pass a law requiring states to have one. My guess will be that, on balance, the average nationwide will end up higher than $5.15.
There are all sorts of other problems with trying to devise such a curve. I would expect that different job categories would have different curves. For example, some jobs (like manufacturing) can be easily exported while others (like houscleaning services) cannot. Those jobs that CAN be exported will be more vulnerable. There would also probably be a different curve depending on the overall health of the economy.
Additionally, how do you measure the jobs that never get created because of a MW that is too high? You might be able to make an estimate for large corporations, but not for small busineses.
True. But the question is, is my definition useful? Does it illuminate?
I think it does. Of course, like you say, everything with negative consequences is, to some extent, coercion - but on a sliding scale. If the consequence of a choice is that it will have a 1/100 chance of costing me a penny, the level of coercion is infinitesimal.
The problem with the libertarian definition of coercion is that in a society like ours, coercive actors are limited to governments and crooks. The only insight resulting from that is the knee-jerk “Government is Bad” conclusion that’s inescapable from the premise. Illumination? Zero.
As you probably noticed, I started off by talking about bargains. It’s pretty clear up front that your hypothetical guy isn’t going to find any, right?
That should answer your question.
Darn tootin’. And we’re no longer a colony of Britain because some guys decided to do something about it.
With respect to the toaster on the store shelf, you’re right; with respect to your own labor, you are of course wrong - in the end, you are free to starve rather than take a nickel less than what you believe you are worth. Each of us does in fact have final veto power over anyone else’s determination of his worth, even in the economic sense.
The costs are extremely high, though.
Can’t argue with that - that one’s own valuation of one’s own worth can be extremely fluid. As one who also is certain he’s getting paid more than he is worth (but it makes up for the times I’ve been paid a great deal less than my worth!), I know exactly what you mean. We’re both getting one hell of a bargain right now, but obviously we’re worth that much to somebody else.
With occasional eccentric exceptions (like being Howard Hughes’ personal secretary or some such), employers’ evaluations of worth are a bit less flexible: they’ve generally got to be rooted in whether paying you a certain wage or salary is a winning proposition in terms of cold, hard cash.
So, if you really, really want my puppy, and I don’t give it to you, are you being ‘coerced’?
Defining ‘coercion’ as, “Not getting what I want” is bizarre.
Back to minimum wages: The problem with doing before-and-after empirical studies is that the effects of small changes are likely small, and unpredictable. When you upset the equilibrium of the market by fiat, it will establish a new equilibrium, sometimes in unexpected and undesirable ways.
For example, let’s brainstorm a few possible effects of raising the minimum wage:
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Some people who were going to go back to school may decide they now make enough not to bother. So the populace becomes less educated.
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The makers of labor-intensive goods raise their prices, causing inflation.
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The makers of competing goods that are not so labor-intensive now have a competitive advantage, and force the labor-intensive businesses.
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In the case where minimum wage workers make goods for low income people, the rising price of the product hurts other poor people’s standard of living.
Etc. Ripples upon ripples.
In general, it’s a safe bet that if you raise the cost of something, it will be used less. If you raise minimum wages high enough, either jobs will be lost, or inflation will cause the real wage to go unchanged.
For very modest increases, the effect may be felt not in unemployment, but in marginally higher prices for goods produced by minimum wage workers, or by those workers being worked harder to make up for the increase in pay.
But here’s another possibility: If almost everyone is already making more than the new proposed minimum, then it may have no effect whatsoever. No one makes more, but no jobs are lost. It’s a meaningless gesture. Except for one thing: If the economy tanks, it is no longer as resilient as it was. If productivity and wages fall and there is no minimum wage, people just lose a percentage of their income. But if wages fall below a minimum wage floor, suddenly people lose their jobs entirely. The economy becomes brittle and more vulnerable to economic shocks.
Bad analogy, since one does not need a puppy to survive.
Too bad that wasn’t RTFirefly’s definition. But then, you wouldn’t have much of a rebuttal if you had reflected his position accurately, would you?
Can you show us where **RTF **said that coercion had to involve something needed for survival? It appears to me that you are the one who has modified RTF’s definition. Examples he gave were (paraphrasing): “not making $25/hr if he thought his labor was worth that”, and “repossession of a car”. In neither example does survival come into play, and in the latter example, the car belongs to the dealerhips until it is paid for-- almost identical to Sam’s puppy analogy.
Sorry for continuing that hijack, but I don’t like to see incorrect statements go unchallenged when they are accompanied by snide, thinly veiled personal attacks.
The truth of the quote is dependent on the assumptions one makes. For that to tbe true, one needs to assume something along the lines of “you are not allowed to create a job or hire someone unless that someone can live or support a family entirely on the wages you pay him”. Additionally, one assumes something like: “it is better to have no job at all than to have a job that pays less than a ‘living wage’”.
Of course the hard-core libertarians would tell you that the government shouldn’t be paying welfare in the first place. 
My own view is that if your desire is to fight poverty, then fight it directly with a good welfare system that both provides a reasonable safety net but also discourages “slackers” from taking advantange of it. This would spread the “subsidy” evenly and minimize the introduction of market distorting consequences that are simply impossible to predict.
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Employees are more motivated to obtain a job rather than go on welfare.
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Employees are more productive since marginally, each extra hour gives them more disposable income.
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More disposable income is spent on goods, helping the economy.
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More demand for consumer goods encourages economies of scale, lowering the price for reproducable goods for even the rich.
Now, the effect of most of my hypotheses (other than #8) would not have a net benefit to the economy if it were true that an employees income is a true measure of their marginal productivity. And in most minimum wage jobs it is actually calculable what their productivity is, at least compared to salaried positions.
However, businesses are run by people, too. Sure, you could go to the extra trouble of hiring competent people and pay them a decent wage, but many times someone, somewhere in the chain of command decides to make themself look good to the boss by “cost cutting” and paying the minimum wage. Being penny smart, pound foolish. And it works, too, because the bosses also only look at the immediate bottom line. Not good for their corporate bottom line, not good for the employee.
Granted, raising the minimum wage won’t help lazy managers pick better personnel from the current pool, but will motivate employees due to #5 and #6.
How are you defining productivity? If labor costs increase, productivity goes DOWN, assuming goods are produced at the same rate.
It was a hypothesis. It assumes the increase in their output more than makes up for their increased cost, since every extra dollar above the bare minimum requried to just get by can go directly to their pleasure rather than not seeing any benefit from it. Not the best hypothesis but on par with your #1.
But it’s an unreasonable hypothesis. If the government mandates a 50 cent higher minimum wage, and everyone makes it, there is no incentive whatsoever to be more productive. It’s far, far more likely that productivity will go down, because the cost of labor goes up without a corresponding increase in per-worker output.
Now, if the new government plan was that a company must submit the names of all their minimum wage employees, and that half must be given a raise of $1.00 per hour instead of all getting 50 cents an hour, you might have a point. The government would be offering an new incentive for better work. But note that a mandatory minimum wage increasse actually has the reverse effect, by making people more comfortable at the lowest possible wage. I would think that if it does anything at all, it would make people work less hard, because they wouldn’t feel as much of a need to get raises.
It was Sam’s #1, not mine. But you seem to be using “productivity” in a way contrary to the way it is used in economics-- that it somehow is related to how much a person spends instead of how much a person produces. There is no reason to think that granting everyone a raise will make them produce more. The only obvious way that raising the MW will increase productivity is that employers will cut back on hiring new workers and try to squeeze more output from the ones they retain. Why anyone would think that was a good idea is unclear to me.
No, I was using in output per hour or dollar. And I withdraw the suggestion that raising the minimum wage might increase average productivity, for the reasons mentioned. However, it might raise total output because wage workers would be more willing to work more hours, because they would get more for every “extra” hour.
If anyone wants to dispute this, I would kindly ask them to reassess their position on tax cuts for the wealthy, as one of the main arguments for that is that people are more motivated to work when they get more for their work, point blank, no questions asked, no shades of grey. Not to say you believe that, but it is a cornerstone of the tax cutting argument.
I haven’t looked at the low-wage market in almost a decade but back then, I remember constant signs proclaiming “we’re hiring!” outside places that had a reputation for paying poorly. If they truly were hiring, an increased minimum wage might increase total economic output as more of those extra hours would go filled. Totally free markets do not always come to optimal economic conclusions.
Sam:
Now, this also might have the effect of putting more people on welfare, because the most motivated workers take all the hours. But this would also tend to refute Sam’s #1, since it would create people who are more motivated to further their education.
And education-wise, there are more options than just dropping everything and going to school. Making more money might let you send a child to a better school, or take more time off to attend classes, or pay for your attendance at classes.
Personal anecdote:
For a couple years, circa 95-97, I worked two wage jobs for a total of 50-60 hours a week, bicycling a total of 30 miles a day to get to them. When the bosses asked me to work extra hours, I jumped at the chance, since I was making $7 an hour on average. My frame of mind was not “gee, I want to seem motivated to my boss, so I will get raises and keep my more than minimum wage job,” it was just that I was more motivated to work more hours at $7 than at $5.
Also, when the time came that I was offered a job in IT, I was a little nervous since I didn’t have much of a “safety net” in case the job fell through after I had made living arrangements in the new city. I only had several thousand in the bank: had I been making only $5 instead of $7…well, I would have asked to borrow from my relatives. But I can see a situation in which someone stays in an economically inefficient position because they are unsure of the fiscal safety of moving on.
Now, I realize that most of my posts here have addressed the effect on the economy as a whole rather than the job market, but I believe that a strong economy will result in more jobs.
Update from the St. Petersburg Times, January 13, 2005, http://pqasb.pqarchiver.com/sptimes/778507641.html?MAC=eaeb135d9c10b2e32ad82b09c5cca96e&did=778507641&FMT=FT&FMTS=FT&date=Jan+13%2C+2005&author=STEVE+BOUSQUET&printformat=&desc=Minimum+pay+fight+resumes+in+Capitol:
That’s a pretty significant increase (almost 20%). You guys might supply a good data point to the question posed in the OP.