Change of mind on minimum wage

[Nickman]

The following video is a quick interview with Ted Cruz. Although I am not a fan, this helped me realize something. Especially from the comments section. My YouTube name is Nickoliatan. See my comments there as well.

Raising the minimum wage to $10 an hour won't change anything. The economy will adjust to make $10 unlivable. The correct way, IMO, would be to deregulate the economy and allow social pressure, supply, and demand to determine the wage of workers. Minimum wage was put in place in 1938, and only for specific minority groups. Prior to this, wages grew with the market. Once a regulation was placed on the economy, wages became stagnant and rose only slightly with more regulation. If we get rid of economic regulation, no person will work for low wages for a job that is difficult, when the public demands higher wages. The corporations will have to meet the demand by supplying higher wages, or otherwise lose productivity and thus, revenue.

In North Dakota, wages are high. Why? Because the demand for workers to work hard, tough jobs. These companies couldn't get workers to move to ND and endure long hours, and in difficult conditions, unless they pay well.

If we let the economy move freely, society will be enough regulation, on its own, to make corporations pay descent wages.

I want to hear from Darius and Winepusher here, but also anyone and everyone. I would like to hear from some of my good friends such as Danmark, Goat, and DI. Everyone's input will be valued.

To debate: minimum wage only. Not other regulations, such as environmental. I would like to debate those as well but in their own thread.

[Youtube][/YouTube]

[East of Eden]

No problem, it seemed like you were implying that since for "162 years of American history that there was no minimum wage and business was booming" was some kind of evidence that minimum wage is bad for business. I was just saying that it might not be a good comparison, since there are many things that have changed in American history and not all of them are minimum wage.

To clarify, the minimum wage law is not 'bad for business.' In fact, the interest of the business class is not of any relevance here. The minimum wage law is bad for low skilled workers. Labor is no different than any other commodity, and just like every other commodity the allocation or labor is determined by prices. We call the price of labor wages. All prices in an economy are determined by supply and demand, and what the minimum wage law does is obscure this because in order to be effective the minimum wage rate has to exceed the market wage rate.

Demonstrated graphically:



The minimum wage acts as a price floor, and the rectangle between point L2 and point L1 on the x axis equals the amount of unemployment that is created by the minimum wage. Literally no economist disputes the fact that the minimum wage creates unemployment. Instead, they argue that even though the minimum wage creates unemployment the benefits associated with minimum wage laws offsets the costs.

I think this is the kind of debate that really needs proper economic simulations for empirical data, or some people properly taught in economics (I'm clearly not). Otherwise we're just asserting what seems intuitive about businesses with regards to minimum wage.

Well, I just provided a standard economic model depicting the impact of the minimum wage. This idea can also be understood intuitively. Imagine that the minimum wage were increased to $20 per hour. Do you really think a restaurant would hire an extra waiter at such a high price?

Exactly, Winepusher. What becomes more expensive, businesses (or anyone else for that matter) will use less of. In the face of these ridiculous minimum wage increases I don't know why every fast food restaurant doesn't offer touch screens for ordering, with a small discount. If a worker is worth $8.50 to a business and the minimum wage is raised to $10, they will simply get rid of that employee.

Let's say 'Joe' minimum wage earner gets a raise due to a higher minimum wage so he now makes $500 more a year. Chances are all services he patronizes will go up in price due to the minimum wage hike, so now Joe spends another $500 in basic living expenses. Where's the gain for Joe? Businesses simply pass these costs on to consumers, including poor ones.

[East of Eden]

If we let the economy move freely, society will be enough regulation, on its own, to make corporations pay descent wages.

Can it be agreeable that a corporation is most often a legally approved entity that uses a legal strategy to obtain a legal advantage while avoiding financial penalty that everyone else must pay through compulsion?

If the corporation rides the waves of legal advantage, what provides the logic that society can "make them do anything?" For the forces that press, then become the new evil to be pressed again. Shall the corporation ride, transform, and mutate with the strategic waves of legal plunder.

There is a thought that infection eats the wrong part of the body, yet I contend that all infection leads to corporeal death if its allowed to grow or relocate. If the corporation is to be overturned in their advantage to infect, then should not the economy need to be sterile from all lawfully advantaged festering? Yet who wishes to remove despotism in the law? Who will see it as the evil infection that it is, and disallow it to fester with a new strategy?

Ethics hold the key to push back evil corporations

Of course, ethics helped hold back the evil corporations so much in the past.

Frankly, looking at human behavior, the fact that psychopaths are more likely to be CEO's, and the basic greed of people, sorry, that ideology is pretty much falsified by experience.

Where is your evidence about psychopaths and CEO's? IMHO politicians are just as likely if not more so to be psychopaths, and CEO's can't devalue the currency, raise your taxes, or send your kid to war. If you don't like a certain CEO, don't deal with that company. You can't do that with the government.

[micatala]

[Replying to post 63 by WinePusher]

What about a much smaller increase than an increase to $20/hr. Do you think that a minimum wage of $9 could be a net benefit to low skill workers?

Yes, even though a $9 minimum wage is smaller than a $20 minimum wage it would still create unemployment. However, the $9 minimum wage would create a smaller amount of unemployment than the $20 minimum wage, but unemployment is still created nonetheless. Remember, in order for the minimum wage to be effective it has to exceed the going market wage rate otherwise it would be a pointless law.

Personally speaking, I would abolish the minimum wage altogether because I don't believe it has any 'net benefits' for low skilled workers. Destroying employment opportunities for people who desperately need jobs is probably one of the worst thing a government could possibly do. Also, these benefits you speak of would go to many workers at fast food restaurants who are young adults. As Bill Gates pointed out, these young adults often live with other household members who make their own incomes, and therefore the minimum wage wouldn't be increasing living standards of poor individuals, it would merely be increasing the wages of already well off high school/college students.

I understand the deductive argument that a higher minimum wage will lower employment.

Is there empirical evidence to show that that is what actually happens in the real world?

Here is an article by a self-professed 0.01% - er who says we need to raise the wage to $15.

http://topinfopost.com/2014/06/30/ultra ... are-coming



His claims, and I allow he does not include actual data to support this in the article, include:

1) Higher minimum wages on a local basis have not destroyed that locations economy, or hurt its workers.
2) Higher minimum wages are good for business, because it gives more resources to the actual job-creators, middle class workers. He points out that, though he makes 1000 times the median wage, he does not buy 1000 times as many cars, shirts, etc.
3) If the historically high inequality continues or continues to worsen, the pitch forks will be coming. He claims no society has ever escaped turmoil with the level of inequality we are currently experiencing.

Is Mr. Hanauer right or wrong? Why?

[WinePusher]

I understand the deductive argument that a higher minimum wage will lower employment.

Is there empirical evidence to show that that is what actually happens in the real world?

Well, first of all, in the world of economics empirical evidence is obtained through regression analysis. Anyone who's taken a basic statistics course should be familiar with how regressions work. Here is a decent summary of the data showing how the minimum wage leads to less job growth and unemployment. Tons of studies have been carried out on this topic, and virtually only 1 (the David Card-Alan Krueger Study) gives results that are favorable to the minimum wage.

Here is an article by a self-professed 0.01% - er who says we need to raise the wage to $15.

So what? Warren Buffet, another rich guy, argued for higher tax rates. He's wrong, and so is this guy. It doesn't matter if they're in the 1% or not. Economic nonsense is economic nonsense regardless of who is spewing it.

1) Higher minimum wages on a local basis have not destroyed that locations economy, or hurt its workers.

Evidence? Obama increased the minimum wage for federal contractors a while back and that certainly has had negative effects on job growth in those sectors.

2) Higher minimum wages are good for business, because it gives more resources to the actual job-creators, middle class workers. He points out that, though he makes 1000 times the median wage, he does not buy 1000 times as many cars, shirts, etc.

LOL middle class workers tend to earn wages that are already above the minimum wage to begin with. That is why they're in the middle class and not the poor class. And yes, increasing the minimum wage may help already well off, high skilled workers, but it hurts the poor, low skilled workers by destroying employment opportunities.

[micatala]

I understand the deductive argument that a higher minimum wage will lower employment.

Is there empirical evidence to show that that is what actually happens in the real world?

Well, first of all, in the world of economics empirical evidence is obtained through regression analysis. Anyone who's taken a basic statistics course should be familiar with how regressions work. Here is a decent summary of the data showing how the minimum wage leads to less job growth and unemployment. Tons of studies have been carried out on this topic, and virtually only 1 (the David Card-Alan Krueger Study) gives results that are favorable to the minimum wage.

I am very well-acquainted with regression analysis, and I would agree, it can be very useful in analyzing such questions. A couple of general notes are in order, however.

In general, correlation does not equate to causation. Even if there is a positive correlation between two variables, say the level of the minimum wage in a state and that state's teen unemployment rate, that does not prove raising the minimum wage causes higher teen unemployment. I see your study claims to account for education as an additional variable, and that they employed a non-linear model (since they multiplied two variables). The first of these is a good idea.

However, the general causative link your source seems to suggest is not supported in this source, and is contrary to other findings. See for example:

http://ftp.iza.org/dp7674.pdf

A recent paper by Meer and West argues that minimum wages reduce aggregate
employment growth, and that this relationship is masked by looking at employment levels. I also find a negative association between minimum wages and aggregate employment growth using both the Business Dynamics Statistics and the Quarterly Census of Employment and Wages datasets, and it is sizable for some time periods. However, I show that this negative association is present in exactly the wrong sectors. It is particularly strong in manufacturing which hires very few minimum wage workers. At the same time, there is no such association in retail, or in accommodation and food services – which together hire nearly 2/3 of all
minimum wage workers. These results indicate that the negative association between
minimum wages and aggregate employment growth does not represent a causal relationship. Rather the association stems from an inability to account for differences between high and low minimum wage states and the timing of minimum wage increases. Consistent with that interpretation, when I use bordering counties to construct more credible control groups, I find no such negative correlation between minimum wages and overall employment growth.

The very paper this one responds to also refutes your claim that nearly all studies are generally in line with your claims.

The voluminous literature on minimum wages offers little consensus on the extent
to which a wage floor impacts employment. For both theoretical and econometric
reasons, we argue that the effect of the minimum wage should be more apparent in new employment growth than in employment levels. In addition, we conduct a simulation showing that the common practice of including state-specific time trends will attenuate the measured effects of the minimum wage on employment if the true effect is in fact on the rate of job growth. Using three separate state panels of administrative employment data, we find that the minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers.

In fact, here is another study indicating job growth was greater in states which had increased their wages. I would say I think this one is suspect for a similar reason to yours. It considers one year, and does not take into account lag effects.

http://www.cepr.net/index.php/blogs/cep ... -from-2014

However, I will certainly acknowledge the potential for some job losses, and that there do exist studies which support that. Even the CBO analysis of a potential increase of the federal minimum to $9 or $10 estimates there will be job losses.


http://www.cbo.gov/publication/44995



The question is, how large that impact would be, and how would it affect the overall economy, the number of people in poverty, etc.



I will try to review this study in more detail before responding to the particulars.
However, one additional point I will make now is that they only considered the situation as of 2013. I am not saying the negates their conclusions, but it is a limited conclusion because of the limited time frame.

Here is an article by a self-professed 0.01% - er who says we need to raise the wage to $15.

So what? Warren Buffet, another rich guy, argued for higher tax rates. He's wrong, and so is this guy. It doesn't matter if they're in the 1% or not. Economic nonsense is economic nonsense regardless of who is spewing it.

Why and how is he wrong?

1) Higher minimum wages on a local basis have not destroyed that locations economy, or hurt its workers.

Evidence? Obama increased the minimum wage for federal contractors a while back and that certainly has had negative effects on job growth in those sectors.

I am fine with the request for evidence. Do you have evidence to support your claim?

2) Higher minimum wages are good for business, because it gives more resources to the actual job-creators, middle class workers. He points out that, though he makes 1000 times the median wage, he does not buy 1000 times as many cars, shirts, etc.

LOL middle class workers tend to earn wages that are already above the minimum wage to begin with. That is why they're in the middle class and not the poor class. And yes, increasing the minimum wage may help already well off, high skilled workers, but it hurts the poor, low skilled workers by destroying employment opportunities.

Middle class adult workers certainly are not making minimum wage, and that is a fair point. However, your source highlights the impact on teenagers, and a lot of those teenagers would be from middle-class families.


I would agree raising the minimum wage is not a panacea, but the general point made by the author is that middle and lower class workers have a greater job creation impact because they spend their 'marginal dollars' at a higher rate than the very rich.

[WinePusher]

I am very well-acquainted with regression analysis,

Yes, I believe you said you're a math professor right? Much respect. Mathematics caused me insurmountable amounts of stress and grief during my undergrad years. My real analysis class all but killed me.

In general, correlation does not equate to causation. Even if there is a positive correlation between two variables, say the level of the minimum wage in a state and that state's teen unemployment rate, that does not prove raising the minimum wage causes higher teen unemployment.

Yes, but it shows that the two variables move in unison which is good enough. While regressions cannot establish the causal link between minimum wages and unemployment economic theory can.

A recent paper by Meer and West argues that minimum wages reduce aggregate employment growth, and that this relationship is masked by looking at employment levels. I also find a negative association between minimum wages and aggregate employment growth using both the Business Dynamics Statistics and the Quarterly Census of Employment and Wages datasets, and it is sizable for some time periods. However, I show that this negative association is present in exactly the wrong sectors. It is particularly strong in manufacturing which hires very few minimum wage workers. At the same time, there is no such association in retail, or in accommodation and food services – which together hire nearly 2/3 of all
minimum wage workers. These results indicate that the negative association between
minimum wages and aggregate employment growth does not represent a causal relationship. Rather the association stems from an inability to account for differences between high and low minimum wage states and the timing of minimum wage increases. Consistent with that interpretation, when I use bordering counties to construct more credible control groups, I find no such negative correlation between minimum wages and overall employment growth.

The very paper this one responds to also refutes your claim that nearly all studies are generally in line with your claims.

Many of these newer minimum wage studies are merely outgrowths of the Alan Krueger-David Card study that I referenced earlier. I don't have the time to dissect the whole paper, but I suspect the sampling techniques and statistical models they employ are no different than what was employed in the Krueger-Card study.

Also, the paper was conducted by the University of Massachusetts at Amherst. The economics department at Amherst is very left wing and socialist, and is home to left wing economists like Richard Wolff and Nancy Folbre. It's essentially the left wing counterpart to the economics department at the University of Chicago. I'm not saying that the study is invalid because of this, I'm just saying that anyone who reads it needs to read it with a grain of salt.

The question is, how large that impact would be, and how would it affect the overall economy, the number of people in poverty, etc.

Right, and here are the answers. It would negatively impact the overall economy and it would harm people in poverty. You acknowledge that the minimum wage leads to some job loss, but will you also acknowledge that these job losses occur at the very bottom of the labor market? The jobs that are destroyed at low skilled jobs that low skilled workers occupy, and these low skilled workers are the exact people we should bb trying to help.

Here is an article by a self-professed 0.01% - er who says we need to raise the wage to $15.

So what? Warren Buffet, another rich guy, argued for higher tax rates. He's wrong, and so is this guy. It doesn't matter if they're in the 1% or not. Economic nonsense is economic nonsense regardless of who is spewing it.

Why and how is he wrong?

Because a $15 is way to high. There is tons of labor that is substantially worth below $15, and by mandating all wages be paid at $15+ you are putting everybody out of work who labor is worth $14.99 or less. Even Obama hasn't argued for such a high increase.

1) Higher minimum wages on a local basis have not destroyed that locations economy, or hurt its workers.

Evidence? Obama increased the minimum wage for federal contractors a while back and that certainly has had negative effects on job growth in those sectors.

I am fine with the request for evidence. Do you have evidence to support your claim?

Uh, you haven't provided any evidence for your claim. And I will try to find the link.

[Goat]

And, further eroding worker's rights,

http://www.latimes.com/business/hiltzik ... olumn.html

So, workers might not get days off anymore. We know what 'voluntary' means.. do it or get fired.

One way to turn us back into a third world country.