i keep hearing politicians (democrats, generally) talk about raising minimum wage. how does that effect the economy compared with, say, just arbitrarily pumping more money into circulation? my hypothesis - they’re similar. both do nothing but lower the value of the dollar.
You’re talking about two entirely different concepts here. Let’s take them one at a time:
From the “value of the dollar” standpoint, raising the minimum wage will really have no direct effect. If employers have to pay workers higher wages, that money comes out of the employer’s pocket, not the government’s. Say the minimum wage goes up by $10 a day. At the end of the first day, the employee goes home with $10 in extra wages in his pocket. The employer, who had to pay the employee those wages, has lost $10 in profits for the day. The net effect on the economy is zero, since the $10 is still around; the ony change is whose hands it is in.
On the other hand, the secondary effects that flow from an increase in the minimum wage are hotly disputed by economists. (Compare this and this.)
Some claim that employers offset the lost profits by raising prices, which effectively lowers the purchasing power of a dollar. Others say that because workers have more moeny in their pockets, they are able to spend more. Because of this increased spending, employers could keep prices steady (not passing along the wage increase), and yet still make the same profits as before simply by selling more. A third groups says that some employers may not be able to raise prices (say, because of heavy competition), and will be forced to lay off workers in order to offset higher labor costs. With fewer people earning money to spend, there are fewer people buying, and prices may even go down because of reduced demand.
In short, the economic effects of an increase in the minimum wage depend on a lot of things: the size of the increase, the industry you focus on, and the overall economic condition. Any increase in the minimum wage is likely to have some effect on the economy, but the nature and magnitude of that effect is difficult to predict.
“Arbitrarily pumping more money into circulation,” on the other hand, has no real bearing on the value of a dollar. To see why, check out Cecil’s explanation of How much money is there?. As Cecil explains, the amount of actual “money” in the economy represented by bills and coins is insignificant, and printing more money would have no meaningful consequence.
All though college my husband and I survived on minimum wage jobs. He worked as a Night Auditor at local hotels. It was a crappy job that took math skills, good ppl skills and a willingness to work nights and never advance and work over 40 hours a week and still be part time without benefits, but jobs were scarce enough in that town that the job paid minimum wage. All the college workstudy jobs paid minimum wage. In places where jobs are relatively scarce but in high demand raising the minimum wage does raise the standard of living for many people. I remember when it was hiked from 3.35 to 4.25. The change in our lives was drastic.
One of the reasons it is not as disasterous as conservatives believed is that in many of the larger labor markets the low end jobs don’t pay minimun wage. They pay more and raising minimum wage does not raise everyone’s hourly wage by the amount of the hike. There is is some leeway. It does get the money directly to the lowest paid workers.
that’s interesting - could putting more money in the hands of the lowest paid workers cause a higher demand and lower supply on goods and services (and higher prices as a result)? i didn’t see anything about that in the links cited.
Does anyone have real numbers about minimum wage and inflation?
Lee: How drastic an effect on your standard of living would it have been if you lost your job?
If a job is only worth $4.00 an hour to an employer, and the government raises the minimum wage to $5.00, that job will vanish.
Most economists agree that minimum wages cause unemployment. They differ in how much unemployment it causes, and how the unemployment is distributed. But there is no question that some jobs are lost. For example, if automation can do a job for $5.00/hr, then the minute minimum wages go over $5.00 that job is lost forever.
**If a job is only worth $4.00 an hour to an employer, and the government raises the minimum wage to $5.00, that job will vanish. **
This is probably true for big companies. OTOH, there are a lot of minimum wage jobs at small companies doing work that can’t be cheaply automated and may not be very cost-effective, but still needs to be done.
The minimum-wage (well, 10 cents over minimum) job that I had during high school was as a clerk at a pharmacy. Nobody was fired when the MW was raised because the store was already operating as efficiently as possible (one pharmacist and one clerk at all times). The pharmacist had a steady stream of work that only he was qualified to do, but there still had to be another person around to take care of the other jobs that needed to be done. Granted, he could have worked alone and taken care of the cash resgister, the shelf inventory, the stockroom, the cleaning, the deliveries, etc. himself, but it would have slowed things down to the point where the lost business would have far outweighed the $15-$20/day in extra wages. Had he staffed the shop less efficiently, he could have offset the wage increase but cutting everyone’s hours.
You could argue that my boss lost out since he had to pay more in wages but still got the same amount of labor in return. OTOH, he may have made up for it in increased sales, since the store sold a lot of low-price, daily-use items (toothpaste, shampoo, hairspray, etc.) He may even have come out ahead, since he also sold cigarettes and lottery tickets, which tend to be bigger sellers among low-income earners than high. This is purely speculation, however.
–sublight.
Well, having lived through a minimum wage increase and not being laid off or any one i know being laid off due to the increase, I think the risk of mass firing are greatly exaggerated. I think nasty people use the threat to try to intimidate those holding minimum wage jobs. I also asked for real numbers. One reason I asked for real numbers is that I want to lear what has really happened. I know the increase helped me, I want to know how it affected others.
If i lost my job today, judging the speed of which two of my friends replaced their when the company decided to outsource their department, I would find another job quite quickly. Network administrators that are good at working with people and machines and that have experience using mac, windows of all flavors, linux an other types of unix and experience with Lotus Notes and other groupware seem to be in demand. Without the minimum wage increase I don’t know if i could have got the degree that helped open the door to all that experience.
I want figures not mean-spirited intimidation. If you believe that raising the minimum wage had the impact you suggest it did, dhanson, then give me facts. We are far enough past the raise from 3.35 to 4.25 that numbers should be available.
In the UK the minimum wage has been seen as a way to reduce government expenditure.
Certain types of low income benefits are tested against the household income and below a certain amount will trigger payment.
It was striking that there was a significant number of employers who targeted these benefits by making sure that they paid an amount just within those triggers.They were using benefit as a supplement to their staff payroll, in effect benefits became a government subsidy.
You either get the benefits or you do not, it is not like there is a graduated scale, and it was the case that if you earned literally a few pence more than the benfit threshold you were actually worse off than if you earned a little less but got the extra state aid.
Subsidising companies who would not be viable any other way is generally not reckoned to be good for competition, efficiency, or the economy and if they could afford to pay then why should companies use the taxpayer to do so ?
There were doomsday predictions of mass unemployment but these have not materialised, the minimum wages have been specified at a fairly low level and most reputable companies were not affected anyway.
The argument of the doubters was that if the lowest income groups were paid more then the next lowest would demand more in order to maintain wage differances and so on right up the employment chain but I do not recall any industrial action based on this, it looks like black propaganda to me.
If a full-time job cannot produce enough income to pay the employed a survivable wage then all you have is a charity looking after the compnay owners pockets.Every business needs to make enough profit to pay its way in the world or there is no point in it.
The final proof of the wisdom of MW is that the UK economy is growing, so is employment despite a strong pound, the government is able to redirect its spending away from subsidising non-viable employment and on to things that are held to be ‘worthwhile’ by some.
You could ask why pay benefits at all but most of the developed world has some safety net and most people know that employers will pay as little as they can get away with and lowering the benefit levels would reduce wages too.
To quote somebody terribly famous but whose name I don’t have to hand,
“Bad employers are undercut by worse ones who will be undercut by the worst of all”
Probably someone around during the time of the industrial revolution.
Well, think it thru.
If raising the minimum wage reduces poverty, why not just raise it to $100 per hour and eliminate poverty altogether?
This would reduce drug dealing, since few drug dealers (at entry level) can make $800 their first day. It would greatly reduce welfare, since most people would much rather earn $800 a day than the measly benefits of welfare and AFDC.
Why not raise to $500 per hour and make everybody rich?
OK, I’m exaggerating. But all the drawbacks you just thought of to raising the minimum wage to $500 per hour apply to raising it to $6.50, or whatever they are dickering about in the House of Representatives now.
Very few workers actually work for minimum wage. Heck, even McDonald’s advertises (in my area) $7 - $8 per hour to start with. Raising the minimum wage doesn’t have all the bad effects expected because so few jobs pay minimum wage. Unions like it, however, because a lot of union contracts are linked to a certain percentage over the minimum wage. So passing a minimum wage increase doesn’t really benefit the people you want to.
Gee whiz, a well intentioned government initiative that doesn’t do what it says it will. What are the odds of that?
I suspect that casdave is correct in that the dire consequences that many predicted with the rise in minimum wage never happened. I still want numbers. My mother says it happens every time. She is dead set against the minimum wage ever increasing.
I think that many corporations are quite willing to pay so little that their workers cannot sustain themselves. So long as there are workers willing to take the place of the ones that cannot continue. If a worker cannot pay rent a feed herself on minimum wage, then another worker that is partially supported by others will do the work instead. Apparently in the UK’s case the government was acting as that other partially supporting the worker In other cases the worker just works multiple jobs to fulfill the role herself.
You mean people still WORK at minimum wage? As an employer myself, I can’t get anyone with any brain activity as a sales clerk for under $8.00/hr. I don’t think I’d want to hire the caliber of people who WOULD work for minimum wage, as a willingness to do so indicates that the market value of their skills is not that great…
Most minimum wage workers are second income earners or students working part time. The other large group of minimum wage workers is minorities and Immigrants, and it’s these last two groups that are hit the hardest by minimum wage laws.
You want links? Here you go:
http://www.epf.org/ebyte/eb990510.htm
http://dodgeglobe.com/stories/022599/new_0225990016.shtml
http://www.ncpa.org/hotlines/min/apr98b.html
According to Crouch, a $1 increase in the current minimum wage would result in the loss of between 145,000 to 436,000 jobs.
Note that most of these jobs are ‘entry level’ type jobs, and typically held by young people, especially minorities. By removing access to these jobs, we cut off entry into the workforce and create a whole new class of unemployable people. This is not fair to them. White suburban kids might make an extra $1 per hour, but the black kid in the Watts who is trying to claw his way out of the cycle of poverty may just have the first rung on the ladder yanked out from under him. Just another way that the middle class gets what it wants, at the expense of the poorest.
I’m against minimum wage laws, for compassionate reasons. I come from a welfare family, and there is nothing more destructive to the soul than being unemployable. Minimum wage laws are a barrier to employment. Most people in minimum wage jobs do not stay in them, but get promoted up to higher pay over time.
There are places I have lived where even some moderately skilled jobs only pay minimum wage. Where i went to college, night auditor at a hotel paid minimum wage, no benefits. Even after 5 years experience, it paid minimum wage.
“Some also reported that increases in the minimum wage
were associated with employment increases (Card and Krueger 1995).”
Heh heh heh… perhaps my reply belongs in GD, but in my experience, the only common thread in the prognostications of “most economists” is that they’re usually wrong. What happened to the massive inflation we were supposed to get the minute unemployment dropped below 5%?
Truth is, “most economists” generally are biased toward the interests of Capital, and their numbers are frequently suspect. Please don’t ask me to provide cites, as I’ve been in this argument way too many times before to want to dig it all up again… hell, I’ll pull out now…
http://www.epinet.org/briefingpapers/min_%20wage_bp.html
This is a paper with lots of actual figures from what happened when minimum wage was raised. Funny, it seems to support that minimum wage increases do not cause inflation and unemployment.
By the logic of some here then countries such as India, Pakistan,and all of the third world should be the dynamic engines of the worlds economy since there are no minimum wages.
This surely must mean that businesses are able to start up more easily and take more adventurous paths than developed nations.
The wealth that is generated by such cost controlled environments obviously finds its way into the hands of their citizens who are bound to be rewarded by the appreciative employers.
Since so much of these economies have very low wages then it must be very easy for the unemployed to get on the work ladder and drag themselves out of poverty.
Yes there are plenty of other reasons why these economies do badly but labour costs are the highest overhead for many companies.
The equation n jobs = potential employees/wages does not hold true in all circumstances and is too simplistic.
Why should taxpayers foot the bill for bad employers ? This only serves to increase taxes and so add to inflation as wages rise to meet the added burden.
Lee, did you actually read my links? There is little evidence of a change in employment due to the last round of minimum wage increases, largely because the economy is booming and there is a labor shortage, and because the previous increases were relatively small. The problem with minimum wage laws occurs when the minimum wage is too high for current economic conditions. There is evidence that we’re right on the cusp of that now, and further increases would be detrimental to employment. Certainly a huge increase like the one Congress is suggesting is dangerous.
But the real problem occurs if the economy goes into a recession. Minimum wage laws eliminate employer flexibility. If your employer cannot lower your wage when economic conditions require it, his only other choice will be to fire you. Minimum wage laws create an ‘all or nothing’ dichotomy that can result in massive layoffs rather than small wage decreases when the economy goes sour.
yes, i read them. Did you read my question? Their own figures don’t support thier conclusions well.