In 2014, 75 economists signed a letter from Economic Policy Institute to Congress endorsing a small increase of federal minimum wage. The belief that raising minimum wage damage employment is largely unfounded opinion based on old flawed research.
States that have increased their minimum above federal rate have experienced no adverse effects in their job market. According to Center for Economic Policy Research, higher minimum wage lowers employee turnover, and increase consumer spending to boost economy.
On the other hand, higher and higher minimum wages also have snowballing negative effects on employment. At modest levels, economists are increasingly convinced these effects are very small or zero; the added cost of employment gets offset by things like higher consumption and higher productivity. But that doesn't go on forever; a minimum wage of, say, $100 per hour would obviously reduce employment.
For an idea of how split economists are, look at this University of Chicago poll. Researchers asked about 40 leading economists, if raising the federal minimum wage would make it "noticeably harder for low-skilled workers to find employment."
In response, 34 percent agreed with the statement, 32 percent disagreed, and 24 percent were unsure.
"No allowances have been made for the increase in consumption by workers who have just received a raise, and whose marginal rate of consumption is very nearly 100%. This will drive up demand for minimum-wage workers in the fast-food sector, for example."
But the "increase in demand resulting from higher wages", as applied to a minimum wage increase (as compared to wage increases resulting from productivity gains), ASSUMES that there are not corresponding reductions in jobs, and that the money paid in higher wages did not come from somewhere else. Like higher prices.
So explain to me how creating 270,000 fewer jobs than expected in the past two months will increase demand? And you say, not only increase demand, but increase demand for fast food. Does this mean that you think that minimum wage workers eat out more than other people? Even when they don't find a job? Or even when they do?
In 2014, 75 economists signed a letter from Economic Policy Institute to Congress endorsing a small increase of federal minimum wage. The belief that raising minimum wage damage employment is largely unfounded opinion based on old flawed research.
States that have increased their minimum above federal rate have experienced no adverse effects in their job market. According to Center for Economic Policy Research, higher minimum wage lowers employee turnover, and increase consumer spending to boost economy.
On the other hand, higher and higher minimum wages also have snowballing negative effects on employment. At modest levels, economists are increasingly convinced these effects are very small or zero; the added cost of employment gets offset by things like higher consumption and higher productivity. But that doesn't go on forever; a minimum wage of, say, $100 per hour would obviously reduce employment.
For an idea of how split economists are, look at this University of Chicago poll. Researchers asked about 40 leading economists, if raising the federal minimum wage would make it "noticeably harder for low-skilled workers to find employment."
In response, 34 percent agreed with the statement, 32 percent disagreed, and 24 percent were unsure.
"No allowances have been made for the increase in consumption by workers who have just received a raise, and whose marginal rate of consumption is very nearly 100%. This will drive up demand for minimum-wage workers in the fast-food sector, for example."
But the "increase in demand resulting from higher wages", as applied to a minimum wage increase (as compared to wage increases resulting from productivity gains), ASSUMES that there are not corresponding reductions in jobs, and that the money paid in higher wages did not come from somewhere else. Like higher prices.
So explain to me how creating 270,000 fewer jobs than expected in the past two months will increase demand? And you say, not only increase demand, but increase demand for fast food. Does this mean that you think that minimum wage workers eat out more than other people? Even when they don't find a job? Or even when they do?
On the other hand, this does not mean that lowering the minimum wage would lead to significant job creation. We witness wide fluctuations in employment in our macroeconomy, but these are not the result of changes in the wage rate. For example, as explained in an earlier blog post, unemployment jumped from 6.731 million in March 2007 to 15.212 million three years later (No Brainer: Extend Unemployment Benefits). Was there a rise in employee compensation that increased firms’ costs, leading to lay offs? No, demand collapsed. Firms reduced employment not because they had to pay more, but because they had lost customers after the Financial Crisis. And therein lies the real problem, of which wages are but a symptom.
The results of economic studies of the effect of minimum wage laws on employment are actually very mixed. Some show that employment rises, some that it is unaffected, and some that it falls. Furthermore, they are often statistically insignificant (see for example Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research). This is consistent with the above argument. Changes in wages are secondary factors in the national labor market; demand is, by far, the primary one. The falling unemployment of the 1920s was a result of the booming economy (driven in particular by the automobile industry), not a fall in wages; the Great Depression occurred not because wages suddenly jumped, but due to the fact that investment spending collapsed; World War II reversed this not with lower wages, but with rising demand created by the wartime economy; et cetera, et cetera.
So why all the fuss about the minimum wage? System Dynamics Modeling (The Field of System Dynamics) argues that our brains tend to focus on straight-line causation in thinking about social problems and that we have a difficult time seeing the feedback effects that are actually dominant. Because of this, we concentrate on symptoms and not causes and we thereby create policies that are ineffective, at best. For example, in the 1960s, the housing shortage in the inner city led analysts to the “obvious” conclusion that the government needed to build more houses. Housing shortage? Build houses! But, the real problem was the economic stagnation in the inner city which meant that people living there lacked the income that would have paid for the housing. Had policy makers focused instead on creating jobs, the houses would have followed automatically. Instead, we ended up exacerbating the problem by creating an incentive (i.e., low-cost housing) to stay in an area that was no longer economically viable.
On the other hand, this does not mean that lowering the minimum wage would lead to significant job creation. We witness wide fluctuations in employment in our macroeconomy, but these are not the result of changes in the wage rate. For example, as explained in an earlier blog post, unemployment jumped from 6.731 million in March 2007 to 15.212 million three years later (No Brainer: Extend Unemployment Benefits). Was there a rise in employee compensation that increased firms’ costs, leading to lay offs? No, demand collapsed. Firms reduced employment not because they had to pay more, but because they had lost customers after the Financial Crisis. And therein lies the real problem, of which wages are but a symptom.
The results of economic studies of the effect of minimum wage laws on employment are actually very mixed. Some show that employment rises, some that it is unaffected, and some that it falls. Furthermore, they are often statistically insignificant (see for example Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research). This is consistent with the above argument. Changes in wages are secondary factors in the national labor market; demand is, by far, the primary one. The falling unemployment of the 1920s was a result of the booming economy (driven in particular by the automobile industry), not a fall in wages; the Great Depression occurred not because wages suddenly jumped, but due to the fact that investment spending collapsed; World War II reversed this not with lower wages, but with rising demand created by the wartime economy; et cetera, et cetera.
So why all the fuss about the minimum wage? System Dynamics Modeling (The Field of System Dynamics) argues that our brains tend to focus on straight-line causation in thinking about social problems and that we have a difficult time seeing the feedback effects that are actually dominant. Because of this, we concentrate on symptoms and not causes and we thereby create policies that are ineffective, at best. For example, in the 1960s, the housing shortage in the inner city led analysts to the “obvious” conclusion that the government needed to build more houses. Housing shortage? Build houses! But, the real problem was the economic stagnation in the inner city which meant that people living there lacked the income that would have paid for the housing. Had policy makers focused instead on creating jobs, the houses would have followed automatically. Instead, we ended up exacerbating the problem by creating an incentive (i.e., low-cost housing) to stay in an area that was no longer economically viable.
As has been said many times. It is simply temporary effect at best. Sure, as has also been pointed out it may even be necessary at times to prevent outright abuse of workers.
But MW is around 2% of workers. Therefore, the results and the conclusions are very mixed at best. The theory is also smaller raises are better than greater raises because of this. The country has timed raises at good times and at bad times to do it as well. The country has also shown an ability to adapt and overcome small changes as well.
The overriding problem is not MW so much as why ppl stay in those jobs. People instinctively feel sorry for poor ppl and wanna help them. But those jobs simply are NOT for a living wage type of job. MW over time keeps falling behind what should be a living wage. And it doesn't matter much---because most ppl with a brain figure out a MW and a LW are two very different things.
If we want to help folks that is fine---this simply is not the best way to do it. Same as tricking ppl into buying homes they couldn't afford because we feel sorry for them renting. Or Cash For Clunkers. Etc. etc. It is mostly a feel good type thing to say and do this. There is a time for it---and this may be it. But it is not a cure all by any means.
Same as the rhetoric about class separation. People continue to feel sorry for poor folks. Instead of trying to show people how to 'fish' their way away from MW they simply bandaid it and wonder why it doesn't help.
The poor will be with us always. Sadly, even in a free society it can become a mindset.
0
As has been said many times. It is simply temporary effect at best. Sure, as has also been pointed out it may even be necessary at times to prevent outright abuse of workers.
But MW is around 2% of workers. Therefore, the results and the conclusions are very mixed at best. The theory is also smaller raises are better than greater raises because of this. The country has timed raises at good times and at bad times to do it as well. The country has also shown an ability to adapt and overcome small changes as well.
The overriding problem is not MW so much as why ppl stay in those jobs. People instinctively feel sorry for poor ppl and wanna help them. But those jobs simply are NOT for a living wage type of job. MW over time keeps falling behind what should be a living wage. And it doesn't matter much---because most ppl with a brain figure out a MW and a LW are two very different things.
If we want to help folks that is fine---this simply is not the best way to do it. Same as tricking ppl into buying homes they couldn't afford because we feel sorry for them renting. Or Cash For Clunkers. Etc. etc. It is mostly a feel good type thing to say and do this. There is a time for it---and this may be it. But it is not a cure all by any means.
Same as the rhetoric about class separation. People continue to feel sorry for poor folks. Instead of trying to show people how to 'fish' their way away from MW they simply bandaid it and wonder why it doesn't help.
The poor will be with us always. Sadly, even in a free society it can become a mindset.
Job creation comes from demand only..not from lower costs or higher profits.
Employers do not add extra employees if there is no need even if they are making more money and margins improve. If there is a NEED irregardless of margins, profits or costs then employers hire.
All the other stuff about MW and economists surveyed its just irrelevant.
It is the reason why employers are not adding SOLID middle class jobs even in a high profit, high margin environment..the demand is not there, so to make the margins and profits the difference comes from lower input costs..until demand dictates, good solid jobs will not come back.
Low cost service jobs are always here even in a bad economy, because their cost to the employer is marginal..it is not significant. Relative to TOTAL costs, the cost of labor has a very high elasticity, but higher costs such as product or input costs are less elastic because their weight in TOTAL costs is higher.
For example...Burger King will run at a product cost of 40%, between 35 to 45% while marginal labor costs (not managerial) will run below 20%, a higher volume store will have labor costs in the low teens. So with labor being so low relative to TOTAL costs, it has more flexibility..
While higher cost labor jobs maybe like IT, those costs are obviously more for the employee, so in times where demand does not dictate the need, the employer does not hire...and to bump margins in a low demand environment, existing employees are forced to do MORE and raises, bonuses, rewards go down.
No need to discuss MW really because more often than not MW jobs are VERY elastic in nature, so as a few mentioned here an MW employer can "afford" the increase better than say forcing an IT company to provide even a few middle class jobs..
0
It isnt that difficult..
Job creation comes from demand only..not from lower costs or higher profits.
Employers do not add extra employees if there is no need even if they are making more money and margins improve. If there is a NEED irregardless of margins, profits or costs then employers hire.
All the other stuff about MW and economists surveyed its just irrelevant.
It is the reason why employers are not adding SOLID middle class jobs even in a high profit, high margin environment..the demand is not there, so to make the margins and profits the difference comes from lower input costs..until demand dictates, good solid jobs will not come back.
Low cost service jobs are always here even in a bad economy, because their cost to the employer is marginal..it is not significant. Relative to TOTAL costs, the cost of labor has a very high elasticity, but higher costs such as product or input costs are less elastic because their weight in TOTAL costs is higher.
For example...Burger King will run at a product cost of 40%, between 35 to 45% while marginal labor costs (not managerial) will run below 20%, a higher volume store will have labor costs in the low teens. So with labor being so low relative to TOTAL costs, it has more flexibility..
While higher cost labor jobs maybe like IT, those costs are obviously more for the employee, so in times where demand does not dictate the need, the employer does not hire...and to bump margins in a low demand environment, existing employees are forced to do MORE and raises, bonuses, rewards go down.
No need to discuss MW really because more often than not MW jobs are VERY elastic in nature, so as a few mentioned here an MW employer can "afford" the increase better than say forcing an IT company to provide even a few middle class jobs..
But the issue they are surveyed on is he raising of the MW and how much and at what increments does it cause/not cause job loss/creation.
By your last statement I am not clear whether a tripling of MW would matter or not. As has been shown smaller increases usually are overcome. The concern is with a larger increase.
The deal with middle clas jobs you are correct about. But not sure what you are trying to do with tying it to MW or disregarding it altogether?
Flexibility, sure. But if the MW is raised by a larger amount than anticipated---what happens then?
The issue is even the experts are ambiguous at best on this.
But you are correct---there is simply no demand for certain jobs. So, eventually people have to make decisions about their career path and updating their skills. But in the meantime do you raise MW for lower level or simply let market dictate within reason?
0
Sure. The job creation part has truth to it.
But the issue they are surveyed on is he raising of the MW and how much and at what increments does it cause/not cause job loss/creation.
By your last statement I am not clear whether a tripling of MW would matter or not. As has been shown smaller increases usually are overcome. The concern is with a larger increase.
The deal with middle clas jobs you are correct about. But not sure what you are trying to do with tying it to MW or disregarding it altogether?
Flexibility, sure. But if the MW is raised by a larger amount than anticipated---what happens then?
The issue is even the experts are ambiguous at best on this.
But you are correct---there is simply no demand for certain jobs. So, eventually people have to make decisions about their career path and updating their skills. But in the meantime do you raise MW for lower level or simply let market dictate within reason?
I dont agree with "simply let market dictate within reason" because there is no such thing as a free market and unless the parties in question (employees) can unseat the owner, there is no substantial power to influence the "market"..
Free markets is both parties have equal power, equal control, equal say in the transaction..in a MW job, the employee is expendable, the employer does not care if a MW employee comes or goes, that is the nature of the service industry (in general) so free market as it is a total farce anyway does not apply when it comes to the transaction of labor and who owns control of the transaction..
Also your example of tripling MW would change the variables to where it would come close to the product cost and thus it would have a greater influence on decisions..so not a great example.
The conclusion I was making is you cannot force employers to hire even if they have zero taxes, minimal labor costs...that is not how a business owner runs their business if they like having a business. So making the excuse of them not hiring due to higher MW really is not part of the discussion. If a biz owner has demand they will hire whatever the cost is as long as their marginal profit exceeds their fixed costs. If there is more demand then the biz can handle to function then either the business hires or they do not handle the demand and customers will go somewhere else.
0
I dont agree with "simply let market dictate within reason" because there is no such thing as a free market and unless the parties in question (employees) can unseat the owner, there is no substantial power to influence the "market"..
Free markets is both parties have equal power, equal control, equal say in the transaction..in a MW job, the employee is expendable, the employer does not care if a MW employee comes or goes, that is the nature of the service industry (in general) so free market as it is a total farce anyway does not apply when it comes to the transaction of labor and who owns control of the transaction..
Also your example of tripling MW would change the variables to where it would come close to the product cost and thus it would have a greater influence on decisions..so not a great example.
The conclusion I was making is you cannot force employers to hire even if they have zero taxes, minimal labor costs...that is not how a business owner runs their business if they like having a business. So making the excuse of them not hiring due to higher MW really is not part of the discussion. If a biz owner has demand they will hire whatever the cost is as long as their marginal profit exceeds their fixed costs. If there is more demand then the biz can handle to function then either the business hires or they do not handle the demand and customers will go somewhere else.
The power to a certain extent, in a decent market, is employees have the ability to leave much more freely than in times way past.
Sure. We obviously don't have a true free market. Employers don't like having to retrain and hope employees are going to be decent even at MW jobs.
Yes I think you may be correct about the employers being forced to hire. But that is the counter to some of the proMW folks. They feel that it does increase employment. And in a vacuum, and in some cases, they would appear correct.
But yes raising MW does not equate to demand. But I have seen too many MW guys actually use this as a leaping point. They are more interested in the instant gain the current MW workers have.
0
The power to a certain extent, in a decent market, is employees have the ability to leave much more freely than in times way past.
Sure. We obviously don't have a true free market. Employers don't like having to retrain and hope employees are going to be decent even at MW jobs.
Yes I think you may be correct about the employers being forced to hire. But that is the counter to some of the proMW folks. They feel that it does increase employment. And in a vacuum, and in some cases, they would appear correct.
But yes raising MW does not equate to demand. But I have seen too many MW guys actually use this as a leaping point. They are more interested in the instant gain the current MW workers have.
Hot Forum Topics
