Conservative reasons for increasing the minimum wage.

[DanieltheDragon]

First I would just like to get a few things out of the way. I am not a huge fan of the minimum wage. It is what it is and the current structure of our economy makes it a necessary component. The current amount of workforce dependent on minimum wage is actually pretty small. The impact of increasing the minimum wage will not end poverty and would likely increase some inflation.

1. I do not subscribe to the idea that increasing the minimum wage will prevent job growth. Although some do the jury is still out on this one however we have recent data from 13 states that recently increased their minimum wage.

http://www.npr.org/sections/thetwo-way/ ... eport-says

2. Minimum wage on inflation

http://www.investopedia.com/ask/answers ... lation.asp

3. Increasing the minimum wage will also increase wages for those working close to the minimum wage.

http://www.hamiltonproject.org/papers/t ... n_workers/





With that out of the way I will move onto reasons why I think the minimum wage should be raised from a conservative backdrop.

A.) It will have a natural effect on reducing entitlement programs.
-----By increasing the minimum wage workers on the lower end of the wage spectrum will have less dependence on entitlement programs and safety nets. Lowering the burden on the tax payer.


B.) The government should not be in the business of subsidizing the workforce
-----Not all companies but some use entitlement programs to subsidize the salary of their workforce. Places like Wal-Mart are examples of this collecting millions in tax breaks and manipulating workforce hours to avoid providing health insurance. These employees end up depending on SNAP, Welfare, Medicaid/Medicare. By increasing the minimum wage this shifts the burden back on to the employer to pay for their employees wages.

C.) Maintaining the free market not destroying it.

The minimum wage is a baseline of employment. All business across all states must at least meet the federal minimum wage. An increase in the minimum wage will not suddenly change the paradigm on how we employ or pay people in this country. It will however maintain it. The minimum wage should rise and fall with inflation. Having fixed arbitrary regulations that are devoid from market impacts has more destructive force than taking the baseline and adjusting it accordingly to these market fluctuations. If inflation rises the baseline needs to rise with that inflation lest we render that baseline moot in the first place.

[Paprika]

C.) Maintaining the free market not destroying it.

Minimum wage does not maintain the free market but highly distorts it, because you're limiting free exchange. In particular you're saying that labourers and employers do not have the freedom to make whatever contracts they might with to make. Limiting freedom and high government interference in the markets is hardly 'conservative'.

When the markets are distorted in such a manner, ie. by raising the minimum wage, many business cut staff, explore alternatives (eg robots for fast food restaurants), or cut benefits (eg business like Walmart hiring people for less hours to avoid extra costs due to Obamacare), or they simply shut down because they cannot afford the increased wages.

[Wootah]

[Replying to post 1 by DanieltheDragon]

A.) It will have a natural effect on reducing entitlement programs.
-----By increasing the minimum wage workers on the lower end of the wage spectrum will have less dependence on entitlement programs and safety nets. Lowering the burden on the tax payer.

Entitlements are for people that have reasons other than laziness for not working. Why will that natural percentage lower?

B.) The government should not be in the business of subsidizing the workforce
-----Not all companies but some use entitlement programs to subsidize the salary of their workforce. Places like Wal-Mart are examples of this collecting millions in tax breaks and manipulating workforce hours to avoid providing health insurance. These employees end up depending on SNAP, Welfare, Medicaid/Medicare. By increasing the minimum wage this shifts the burden back on to the employer to pay for their employees wages.

True enough ... if you want less employees. At least in a low paying job a person can tick off vital things such as is working and willing to work and has worked in the industry. A minimum wage will freeze people out of the market.

C.) Maintaining the free market not destroying it.

The minimum wage is a baseline of employment. All business across all states must at least meet the federal minimum wage. An increase in the minimum wage will not suddenly change the paradigm on how we employ or pay people in this country. It will however maintain it. The minimum wage should rise and fall with inflation. Having fixed arbitrary regulations that are devoid from market impacts has more destructive force than taking the baseline and adjusting it accordingly to these market fluctuations. If inflation rises the baseline needs to rise with that inflation lest we render that baseline moot in the first place.

What it will do is set a baseline for work and the work that is not profitable at that minimum will not get done. We can't say how that will look but imagine washing dishes cost too much then perhaps a restaurant would wash dishes less often. Or if that is not possible because of regulations then there will be less restaurants.

All a minimum wage does is serves and protects big business by freezing out competition and big unions know they can exist with big business by regulating the workforce and freeze out new workers.

[WinePusher]

Here's a decent summary of the issue written by an economist on another board that I visit:

How Minimum Wage Advocates Don't Understand Their Own Theory and Evidence

A. They claim near-zero elasticity in the demand for labor, then go on to cite examples that prove precisely the opposite.

Minimum wage advocates love to talk about employers who pay far higher wages than the rest of the industry - yet the very existence of these employers and the nature of their business strategy demonstrates an elasticity that is far from zero. Costco, for instance, pays its workers twice as much as Walmart, but has half as many workers relative to sales -- it's clear that Costco is basically hiring from a completely different labor pool than Walmart, one with far superior skill levels, work experience, and so on. If the minimum wage goes up and it becomes more expensive to be Walmart (or perhaps an even lower-paying retailer, since Walmart actually pays almost everybody above the current minimum wage), it is easy to imagine firms switching to the Costco business model. And then the Walmart labor pool will be left out in the cold.

Even if Costco is hiring workers at the same skill level as Walmart, and is simply reaping the benefits of efficiency wages (lower turnover, higher productivity, etc.), the fact that this allows it to get by with a far lower worker/sales ratio means that the extension of this approach to the retail sector at large would be devastating - a lot of jobs would disappear. The "higher productivity will make up for higher wages" line is fundamentally incoherent, because unless demand for workers in low-wage jobs is extremely elastic (something that advocates generally deny), the higher productivity means that fewer workers will be needed, and the rest will go unemployed.

B. They talk a lot about monopsony, but their own evidence is more consistent with standard, classical effects.

The original Card & Krueger paper made waves by purporting to show an increase in employment due to the minimum wage, and attributed this to the possible effects of monopsony. After revising the paper, they found no significant effect on employment, but monopsony stayed in the conversation. Yet the paper's other results are not at all consistent with this: in particular, Card & Krueger found an increase in fast food prices roughly equal to the increase in costs arising from the minimum wage. This is exactly what you'd expect from classical competition, and it is emphatically not what you get from a model where monopsony plays the decisive role.

In general equilibrium, it is impossible for a minimum wage hike to increase employment in the fast food industry unless demand for fast food increases, which would require a relative decline in fast food prices. Exactly the opposite happened. Sure, this increase in prices didn't appear to cause a big drop in demand, but this doesn't reveal any deep facts about the labor market. Card & Krueger should have entitled their paper "Tentative Evidence on the Short-Run Inelasticity of Demand for Fast Food".

C. Their own rhetoric inadvertently reveals why their estimates may be wrong.

In a recent interview, Alan Krueger said:

"A 3 percent increase in prices is hardly noticeable to most customers. So that's one reason why you don't see much of an effect on the product demand side: There isn't a reduction in people going to the fast food restaurants when the minimum wage increases."

One can make an argument that consumer demand for restaurants - and in particular, the kind of restaurants that pay minimum wages - is fairly inelastic. And wages are only a portion of overall restaurant costs. But it's hard to push this argument that far, because simple introspection suggests that the elasticities aren't that low either. In fact, it's extremely hard to believe that the elasticity is below 1; if the price of fast food doubled, I very much doubt that I would increase my nominal expenditure on it. In fact, I'm sure I would dramatically cut back. (Imagine what you would do if the after-tax price of a Chipotle burrito was $15.50.)

How are these high elasticities consistent with the low (indistinguishable from zero) elasticities in Card & Krueger? Well, Krueger inadvertently provides us with a very compelling answer: the short-run elasticity is a highly biased measure of the long-term elasticity, because inattentive consumers take time to respond to small price changes. This is a widely understood problem with short-run elasticities. For instance, Gabaix and Laibson wrote an entire paper on a related issue in the context of asset pricing. It is remarkable that Krueger fails to notice how potentially devastating this is to his body of work.

[DanieltheDragon]

C.) Maintaining the free market not destroying it.

Minimum wage does not maintain the free market but highly distorts it, because you're limiting free exchange. In particular you're saying that labourers and employers do not have the freedom to make whatever contracts they might with to make. Limiting freedom and high government interference in the markets is hardly 'conservative'.

When the markets are distorted in such a manner, ie. by raising the minimum wage, many business cut staff, explore alternatives (eg robots for fast food restaurants), or cut benefits (eg business like Walmart hiring people for less hours to avoid extra costs due to Obamacare), or they simply shut down because they cannot afford the increased wages.

you probably missed this part here :

I am not a huge fan of the minimum wage. It is what it is and the current structure of our economy makes it a necessary component.

The minimum wage exists and because of that it should adjust accordingly to inflation. By letting it stagnate it causes more distortions in the market place. I understand full well how it effects employment and wages.

Unless you propose removing it entirely, that is the only alternative to not doing anything about the Min Wage. However, realistically this will not happen there will never be the votes to remove it. So instead it should be maintained accordingly with the inflation rates to minimize the distortions it has on the marketplace.

[DanieltheDragon]

[Replying to post 3 by Wootah]

Entitlements are for people that have reasons other than laziness for not working. Why will that natural percentage lower?

There is a significant number of working Americans that simply don't have a high enough wage to cover rent food and medical expenses. This is supplemented by these various programs. It will lower by a percentage of those associated with that number.

Not remove but lower.

True enough ... if you want less employees. At least in a low paying job a person can tick off vital things such as is working and willing to work and has worked in the industry. A minimum wage will freeze people out of the market.

As I pointed out earlier in one of the associated links a raise in the minimum wage hasn't dropped employment in the states that did so. The question here though is should the government be subsidizing the wages for corporations?

What it will do is set a baseline for work and the work that is not profitable at that minimum will not get done.

I look forward to you proving this claim.

washing dishes cost too much then perhaps a restaurant would wash dishes less often.

They raise their prices by a very small percentage. I am not saying to raise the minimum to $20 an hour. I am saying adjust to inflation in most cases this could be a very small change in wage. It is basically going from 7.20 to 8-11 an hour.

[DanieltheDragon]

[Replying to post 4 by WinePusher]

I think those are fair points. Again I am not suggesting to hike the min up to 15 or 18 like chipotle or costco though. Just an adjustment based on inflation. Either increasing or decreasing and adjusted automatically on a yearly basis.

Also what needs to be thrown in the discussion is how to augment the cost to employers. Any increase in the min wage needs to be met with payroll tax adjustments.

[Paprika]

Unless you propose removing it entirely, that is the only alternative to not doing anything about the Min Wage. However, realistically this will not happen there will never be the votes to remove it. So instead it should be maintained accordingly with the inflation rates to minimize the distortions it has on the marketplace.

Leaving it as it is does not increase distortion - in fact it would reduce distortion in real terms since the minimum floor is less (in real terms) and employer and worker have more room to bargain. Remember, the implementation of the price floor is the distortion to the free market, the higher you raise it the higher the distortion.

[WinePusher]

I think those are fair points. Again I am not suggesting to hike the min up to 15 or 18 like chipotle or costco though. Just an adjustment based on inflation. Either increasing or decreasing and adjusted automatically on a yearly basis.

If you think that those are fair points then how can you still be in favor of a minimum wage? In your topic you say that you don't subscribe to the idea that the minimum wage impedes job growth, and yet the post I put up (the post that you appear to agree with) says the exact opposite.

The NPR article you cited does not delineate between different pools and types of labor, which is a fundamental distinction as the minimum wage isn't going to have dis-employment effects across the entire labor market, it will only have severe dis-employment effects among firms that hire low skilled workers. It may be the case that total employment in these states grew in the wake of an increasing minimum wage while, at the same time, employment of low skilled labor fell.

You also present so called 'conservative' reasons to support the minimum wage that don't make much sense. How exactly does the minimum wage reduce entitlements when it creates unemployment among low skilled workers, and these workers who are unemployed because of the minimum wage will presumably go onto collecting unemployment benefits, food stamps, etc. So to the contrary, rather than reducing entitlements a higher minimum wage (which leads to higher unemployment among low skilled workers) will actually lead to more entitlements.

But this is all beside the point. Minimum wage advocates have constantly asserted that a floor on wages will not cause any dis-employment effects among low skilled workers by appealing to an inelastic labor demand curve and the ubiquity of imperfect competition in labor markets. I admit, these arguments make intuitive sense at first but when actually scrutinized they fail.

First I would just like to get a few things out of the way. I am not a huge fan of the minimum wage. It is what it is and the current structure of our economy makes it a necessary component.

Why? What's wrong with the way our economy is structured?

[DanieltheDragon]

[Replying to post 9 by WinePusher]

If you think that those are fair points then how can you still be in favor of a minimum wage?

I didn't list which ones specifically I agree with. I think there are valid concerns that should be looked at. That doesn't necessarily mean I agree with them congruently. Costco probably is benefiting from efficiency wages. However, I have not suggested to meet those wages. Your points don't address an inflation based minimum wage

The original Card & Krueger paper made waves by purporting to show an increase in employment due to the minimum wage, and attributed this to the possible effects of monopsony. After revising the paper, they found no significant effect on employment, but monopsony stayed in the conversation.

I agree with the highlighted bold raising it has no significant effect on employment. It will not generate a noticeable increase or decrease on employment.

It may be the case that total employment in these states grew in the wake of an increasing minimum wage while, at the same time, employment of low skilled labor fell.

This would be worth looking at. I believe Washington State has the most aggressive increase in min wage lets use that as a bench mark and examine its effects on employment.

But this is all beside the point. Minimum wage advocates have constantly asserted that a floor on wages will not cause any dis-employment effects among low skilled workers by appealing to an inelastic labor demand curve and the ubiquity of imperfect competition in labor markets. I admit, these arguments make intuitive sense at first but when actually scrutinized they fail.

I think this is where I am in biggest conflict but it is out of practicality. Is it politically practical to remove the minimum wage? Are we stuck with a minimum wage? If the answer is yes then we have an economy with a floor on wages not matter how much we may be against it. There is simply not the political wherewithal to remove it. So I think the question then becomes not should there be a minimum wage, but what do we do about the minimum wage we have.