If the minimum wage was raised to $6.00 an hour what would be the results?
I know the obvious, the lowest paid employees would be paid more. More money would flow into the treausry through taxation and these low-paid people would have some more dough.
What else would happen? An increase in product costs? Fewer hours worked? Higher commissions for salespersons?
This is a GD question. Different people believe different things, and I’m not so sure that the question is subject to a simple factual answer - apart from the first claim you make: some of the lowest-paid employees would make more.
Some people will argue that forcing employers to pay people more than they’re worth – that is, more than the market has determined the fair price of their labor to be – will have a deleterious effect, injuring small business owners, hurting minority job opportunities, and actually decreasing the taxes collected from the group of low paid workers by forcing layoffs from businesses that cannot afford to pay the higher wages. A business may decide to relocate out of the United States, where minimum wage laws are scare, to avoid having to pay the new wages.
On the other hand, other people will argue that not only is the decent thing to insure that a person working full-time makes enough money to live above the poverty line, but that previous dire predictions about the effect of creating or raising a minimum wage have been largely unfulfilled.
The subject is complex enough that neither position is done justice by those two simple paragraphs - I write them not to attempt to even summarize the arguments on each side, but to illustrate that there are arguments on at least two sides and that Great Debates is probably the proper forum to explore those arguments in detail.
Moved to GD.
-xash
General Questions Moderator
Golly, a post moved to another forum, even the SD is politically charged on this issue! Are there any objective measures of the consequences of MW changes? I’ll separate the politics for myself.
I have looked at the CPI from the last time the Federal MW increased and I notice no jump in prices, the trend seems to be regular. I also notice no changes in unemployement (federal or local), housing starts or lending rates associated with changes in the MW. Is there a measure of the increase in the prices of goods following an increase? Do any entrepeneur dopers have evidence of MW changes affecting their businesses?
if you raise the minimum wage then you will give people the illusion they have more money when really…the prices of everything are just going to increase and you will have nothing
ekow2kn3. Do you have a citation indicating that prices increased at the last change of the MW?
$5.50/hour is about $10,725 a year.
$6.00/hour is about $11,700 a year.
The poverty line is generally set in around $16,000 (or was the last time I heard it mentioned). People making this much are not paying anything in income tax.
ekow2kn3 is sort of right. If labour costs go up 50cents per hour, thent he cost of a chair will go up 50cents for every hour it takes to make.
But then its a game of chicken or the egg, raising MW will cause the price level to go up–which is true. OR the price level is always going up (due to other factors) so you need to raise MW.
True on its face; however, I believe a large portion of minimum-wage earners who rely on the income to survive (as opposed to a summer job for a teen) either work more than one job of that type or have a spouse who also works, which would push the income to the taxable level.
emacknight - I think you have underestimated the increase in the labor costs, the 50 cent increase would be per employee per hour. So three employees working for an hour would increase the cost $1.50.
I see the trouble not affecting manufacturing, where workers are not as frequently paid the MW. I would expect the difference would be felt in the retail sector where more employees are paid MW. I have no proof and beg for citations to show I am either right or wrong.
Prices may not increase instantaneously, but they will increase. I do know that I used to be able to buy a soda for 50cents, but now I have to pay 60, 75, and a dollar most of the time. I also know that prices way back when were a lot of different. Prices are proportional to the amount of money in circulation
I believe this is misleading in some ways. While the cost of a chair may increase, the perceived value of a chair by those who would pay for it might not accept a higher price. So while it might cost Joe Furniture Inc another $2 to make a chair, he might only be able to raise the price $1.05 without impacting his sales in a negative way.
Raising minimum wage does not correspondingly raise perceived worth of products, and not all demand is perfectly elastic or inelastic so changes in price cannot strictly be counted on to have no impact, or essential impact on the flip side, on the demand.
In this case, raising the MW might be said to have a redistributive effect: some people making less profit and giving it to their workers instead. Everyone’s salary decreased by $1.05, but the lowest paid workers then had a net increase of $0.95.
Obviously even this example is entirely simplistic, so please don’t correct my numbers, they are only meant to illustrate the idea that there isn’t a 100% transmission of production costs.
I suspect both the principles Bricker mentioned are true. If we somehow forced everyone to pay 1,000 $ per hour as the MW, the economy would implode. On the other hand, the market wage might simply be unacceptably low in terms of social significance. So what we have now may be a reasonable compromise, and one that does seem to have hurt us too much.
The economy is such a huge, compex beast, that it’s really not possible to measure the effect of small perturbations. If you want to see what the effect of the MW is, either eliminate it completely, or double it. Then assume that moving it in either direction will do pretty much the same thing, but just to a lesser extent. I can’t see why the effect would not be continuous-- ie, that there isn’t some magical inflection point where nothing happens if you don’t exceed it (in either direction).
John Mace, not all products have minimum wages built in to their pricing. The instruments my company manufactures isn’t really based on minimum wagers anywhere in the chain, for example. On the other hand, raise minimum wage and expect fast food prices to go up a bit. But will the transmission really be 100%? I don’t know. My guess is not. Perhaps in the long term we could argue that prices will raise in small increments to match up to the shift, and eventually the cost of all goods will raise. But think about who minimum wage affects: not everyone. My salary doesn’t blink an eye at minimum wages shifting, yet I will pay the slight increase in costs.
Of course we’re not getting something for nothing, but I think it is more than intuitive that raising minimum wage isn’t simply devaluing the dollar.
We’ve got a few economist-types here, though; I’d like to hear their thoughts on the matter. I rapidly go out of my league in economic discussions. I should learn to keep my head low. Of course, I also learn more by doing so. Better to know I’m wrong by sticking my neck out than think I’m right and keep quiet.
I agree, we are all being far too simplistic in our approaches.
I think a more appropriate question is: who can respond quicker to the changing needs of employees, government or business?
By this I mean, if the price level goes up such that people make $5.50 an hour now need to make $6.00 an hour to afford the SAME standard of living, would their employer pick up on this?
In more technical wording, would market forces increase their pay proportionately or lag and force them into poverty?
Without making myself sound like a bleeding heart lefty, I don’t believe that businesses will do what’s right for their employee at the expense of the employer.
EM:
You’re kidding, right? You’re going to argue that the gov’t is faster at reacting to changing market demands than business? You are also making the assumption that there is some identifiable “right” action for the employee. If there were, we could just dispense with the market mechanism altogether and just legsilate this “right” action to begin with.
I’ve actually heard a few different arguments in favor of/against raising the MW. The people who argue against it say that it would lead to job losses as employers who couldn’t afford the increased labor costs laid off workers.
Can’t remember where I picked up the statistic, and I’m too lazy to hunt it up right now (I have not yet mastered the art of using search engines, and don’t want to slog through the irrelevant hits trying to find what I’m looking for), but every increase in the minimum wage leads to an initial job loss of 1% of the work force, followed by a 3% increase of jobs as people have more money to spend, which creates demand for goods and services, and laborers are needed to supply the demand.
As for the argument that increasing labor costs will lead to an increase in prices, I say, ‘taint necessarily so. The call for an increase in the MW stems from the fact that the cost of living is increasing while workers’ wages remain stagnant, so obviously the cost of labor isn’t what’s driving inflation. If the MW were increased, the profits lost in the price per piece sold could probably be more than recouped in volume sold.
As you might guess, there are countless studies from many different sources, and all claim to be objective while dismissing their oponents as biased. You can get a lot of different interpretations of data just by tweaking the frame of reference a little bit. For instance, consider this question of whether the majority of minimum wage earners are adults or children. If you define adult as 19 or older then you find that the majority are adults. If you define it as 25 or older you get the opposite result.
Personally, as I see it, changing the minimum wage isn’t going to affect prices much. Even places like retail and fast food actually pay minimum wage to only a small percentage of their workers, so raising it will not affect all labor costs. McDonalds and others spend a huge amount of effort figuring out what balance of costs and advertising expenses will get the most sales, and a deflection of a couple cents per burger in labor costs (remember that an employee is supposed to serve one customer every 90 seconds) won’t cause them to raise a Big Mac from $3.99 to $4.01. The $3.99 looks a lot better on the menu board.
This is wrong: businesses paying more in salaries does not increase the government’s take of income taxes. The reason for this is that businesses deduct the amount of compensation they pay, so the payment of compensation only changes the identity of the person paying the tax, not the total amount of tax that ultimately gets paid.
Example: Business makes $100 of gross income in Year 1 and pays $20 in wages to Employee. Keeping this simple with appropriate assumptions, Business has $80 in taxable income and Employee has $20 in taxable income, for a total of $100 in taxable income.
Business also makes $100 in Year 2 but pays $25 to Employee. Business now has $75 of taxable income and Employee has $25, for a total of the same $100.
A couple of complications: (1) as was already mentioned, really poor folks don’t pay any tax (some actually get a “refund” when they didn’t “fund” in the first place); (2) social security taxes (FICA and FUTA) are paid on wages, so they DO increase the more wages are paid, but they aren’t technically income taxes and are theoretically put in a specific account, so the government still doesn’t just get more money by increasing the minimum wage.
Google will find you lots of viewpoints on this issue from all kinds of folks. My opinion is that the less the government monkeys around with the economy the better.
ITR:
I tend to agree with your McDonalds example. The more likely reaction from employers is to hire fewer workers, all things being equal. Anyone who doesn’t think so has never had to meet a payroll (speaking as someone who has).