The Nahployment 'Crisis'

It seems to me that those on the Red side seem to only complain about “the power grab” when it’s the poor trying to grab from the rich.

I do actually know a few people who are very successful as “gig” workers that involve driving BUT they are also people who are self-disciplined, truly treat it as a business, and have educated themselves on how to handle taxes, business expenses, and so forth. In one case, she’s getting benefits from her husband’s job. So you CAN be successful at it, but it’s a lot of work and the sort of people who actually do well are the sort who could probably run any small business with some success - a skill not everyone has.

This is a wonderful, fabulous example of why the minimum wage DOESN’T need to be raised. The free market has already moved beyond it.

The minimum wage has become utterly irrelevant and should be abolished.

Yes.

This is because, by definition, there will be a segment of the workforce with the least earning power, such as the 10% of the workforce in the bottom tenth of earning power. Those people, those millions of workers with families and dependents, will be earning the least amount allowable. This is unavoidable, an impenetrable part of supply and demand, those millions of workers will not have alternative higher paying opportunities, as those jobs will be filled by the other 90% of the workforce. They get the scraps, the least valued jobs, and will have to make ends meet with it.

As suggested by another poster, we could have means tested support, but that’s been effectively weaponized by Republicans, so really the only way to get these workers the income they need is to pay them higher wages, and everyone is going to get those wages.

Not really my department, but it may be the company needs to leave the employees in the system (usually ADP or similar system) as “inactive” for record keeping purposes. I worked as an employee at an insurance company years ago. Some years after I left, they became a client of mine at the consulting firm where I worked. I was still in the system, which made it easy to provide me with the various systems and physical access I needed.

I don’t agree with your basic premise that immigrant labor takes jobs from Americans. It’s based on some weird model where there are a fixed number of jobs in an area, and more workers means more competition for that fixed number of jobs. But the number of jobs in an area isn’t fixed, it grows as the population grows.

Immigrants spend money. They buy food and clothing, they buy or rent housing. They go to movies and restaurants. They and their families generate economic activity which creates more jobs. The equation isn’t “more jobs for immigrants = less jobs for non-immigrants”, it’s “more people” = “more jobs”.

More people is generally considered a good thing for the economy, as prosperity is associated with burgeoning populations.

The only reason to abolish a minimum wage is that you want to pay less than said minimum—if not now then in the future. If people are paying more on their own, then the law isn’t getting in the way, so why repeal it?

Minimum wage is one of those laws where, once it’s served its purpose, it would no longer be any hindrance.

If this were to ever happen, I suspect that companies will immediately collude to suppress wages across the board. Kind of like price-fixing, but with their workers’ wages instead of their products’ prices, and spanning all sectors of the economy instead of being concentrated in one area such as oil or pharmaceuticals.

I also speculate that even if the government were to pass a law that outlaws wage-fixing, it would be less effective than a straight-up minimum wage. The regulatory agencies will find it difficult to definitively prove collusion, and meanwhile the companies will make out like bandits on their bottom line while their cases are backlogged in the court system.

That’s not the only reason. Furthermore, folks through their purchasing decisions show they don’t really care about wage floors.

This is generally true, which is why the U.S. unemployment rate isn’t 99% even though the US population is a hundred times bigger than it was in 1776.

However, it is certainly possible for immigration to be at least temporarily disruptive to an economy in that

  1. It is highly unlikely that the mix of skills of the incoming population will precisely match the needs of the receiving economy. If in fact most immigration to the USA is low skilled labor - I don’t know if that’s true, but let’s suppose it is - you will have a disproportionate surplus of labor in lower skilled roles, without a corresponding surplus amongst higher skilled roles. Until the economy can adjust, which can take years, even the increased aggregate demand from the new immigrants might not outweigh the downward impact on wages in low skilled positions.

  2. A sufficiently large influx of immigrants can result in there simply not being enough jobs for a period of time. The effect on aggregate demand isn’t totally instantaneous.

I’m hugely pro immigration (I’m Canadian but the issues and economics are the same) but it’s important to be clear that there can be, in the short term, negative effects, depending on the size and makeup of the immigrant cohorts.

Just because the IRS says you can deduct 57.5 cents per mile (for 2020 - I’ll learn the 2021 rate once I need to start preparing 2021 returns) driven on your taxes doesn’t mean it actually costs you that much to operate your car. The IRS figure is for the average car, not the ones more likely to be used by people every day in their business of driving people or food around. If you have a lower cost, more fuel efficient, and more reliable car than average, it can cost you less than you can deduct. I know of several of our clients whose only source of income is from a job on which they deduct mileage such that their Schedule C profit is only a few thousand dollars. Now, that’s pretty bad when it comes time to collect Social Security and you’ve got basically nothing paid in, but it’s certainly possible for people to live normal lives and be able to pay for a CPA just being a driver.

Why isn’t this collusion happening NOW?

Companies like Walmart, Target, Amazon, etc. could be saving untold millions of dollars by colluding to hold wages down to minimum wage. And yet they’re not. That ought to tell you something, but apparently it doesn’t.

Do you think that the mere existence of the minimum wage is some sort of magic talisman that forces companies to be on good behavior? Please explain your thought process by which you think companies are willing to outbid the minimum wage by $5-8, due to market forces, but suddenly won’t be if the minimum wage disappears. Why is Walmart willing to pay a starting minimum of $11 NOW, instead of $7.25?

The word you’re looking for is “monopsony” and it’s a real thing that happens in the world all around us.

South Carolina has joined Montana in eliminating the extra unemployment benefits. I expect every other red state will follow.

Hmm you may have a point, but first off, are you sure the companies that “outbid the minimum wage by $5-8” aren’t already located in states with minimum wages higher than the federal one? Because my scenario kinda presupposes that all minimum wage laws, federal and state alike, are abolished.

Except that “increased wages” does not apply to all jobs in all areas in all locations. Just because the free market has moved beyond it in some areas does not mean it’s irrelevant everywhere else.

Absolutely not. Nor should industrial health and safety regulations be abolished, or fire departments ended because most of the time there’s no fire.

Minimum wage is the absolute floor.

Haven’t read up on South Carolina, but with my understanding Montana is also offering a $1200 bonus for getting a job, payable after you’ve been at the job for 4 weeks, which is an interesting carrot to go along with the stick.

I don’t think that’s likely as most jobs don’t pay minimum wage due to market forces.

So the restaurant can increase it’s sales by 28% after a minimum wage hike, but wasn’t doing so before? Let’s go with the idea that the burger restaurant will attempt to have it’s sales volume remain static, which by the way it won’t if they diminish the product by cutting down the burger size or making people ask for tomatoes. You’re calculating that the burger price will need to go up from $5.00 to $6.40 in order for the business to achieve it’s new goal of having $1.2 million of sales total. But unless burger demand is inelastic to price changes, sales volume is going to go down.

Let’s assume that for every 1% increase in price, there’s a 1/4% decrease in sales volume. That’s a fairly low degree of price elasticity. Price is going up by 28% so the restaurant’s sales volume is going to drop by 7% and they’re going to have a sales total shortfall of $89,600. That won’t do, so they’ll have to raise prices again. The new target price is $6.88. But that’s nearly another 10% increase over the original price. Demand, and sales volume are going to go down again. Do the recalculation through a few more iterations and you end up with sales volume of 180,000 and a burger price of $7.11. So a 42% increase in price.

So basically, your point’s right that the increase in wages won’t have a corresponding effect on price if the price demand elasticity is low when the restaurant increases prices to absorb the wage increase. Using your wage increase assumptions and your sales total target and my assumption that that for every 1% increase in price, there’s a 1/4% decrease in sales volume, wages would increase by 87% while prices would only increase by 42%. However, put in the price demand elasticity figure that I picked and the price increase (42% versus 28%) was 50% higher than what you predicted. Also, if the elasticity assumption was that for every 1% increase in price, there’s a 1/3% decrease in sales volume, then it’s going to be much closer to parity between the wage increase percentage and the required price increase percentage to maintain sales total. Keep increasing the number used for demand price elasticity and you’re going to find that it’s impossible to achieve the new sales total goal. At that point, you can start lowering you’re gross profit expectations, but if demand price elasticity is high enough, it’s going to be impossible for a business to make a profit with increased wage costs. Maybe at that point, you’re happy for employees to move onto other businesses/industries and for the burger restaurant to shut up shop. That’s fine, but don’t make the assumption that businesses can simply increase prices based on their total cost structure in order to maintain profits after wage increases. Any model you use has to take into account that price increases will reduce sales volume, which will lead to further price increases if a business seeks to maintain it’s profit margins.

Why would we assume that? Every person in the market still needs to eat, and the substitutions to a fast food burger are either a different fast food burger impacted by an identical increase in labor cost, making food at home, or not eating at all. You are also ignoring the impact of the higher minimum wage giving people who previously couldn’t afford to eat out, who took the ‘not eating at all’ or ‘wait till I get home’ options who now can choose to indulge in a burger.

The reality of MW increases is that exactly zero of the nightmare scenarios proposed by opponents have ever happened. Businesses don’t shutter in large numbers, unemployment doesn’t skyrocket, we’ve increased MW many times and we still have Burger King.