Effect of minimum wage laws on job growth

[ArtK78]

Conventional wisdom (especially among so-called conservatives) is that raising the minimum wage will result in a reduction of minimum wage jobs due to the increase in costs to employers. There have been studies that show that raising the minimum wage actually has the opposite effect, and here is another one:

 

Highest Minimum-Wage State Washington Beats U.S. Job Growth

 

http://finance.yahoo...-050001295.html

[Winstonm]

Please stop. Your facts are destroying my fantasies. ;)

[ArtK78]

Please stop. Your facts are destroying my fantasies. ;)

I hate it when that happens.

[kenrexford]

Obviously, there is a lot going into this type of question.

 

One comment, though. I am firmly of the position that national minimum wages is generally a stupid idea. For that matter, national tax rates are stupid.

 

The best way to explain this is to give an example from watching HGTV. I am constantly amazed at the prices of houses in some areas. Comparable houses in different towns might be $150K in one town but $600K in another town. "Location, location, location." But, there is a greater point.

 

It seems rather obvious that for people to have a "middle class" lifestyle varies wildly by region. An income of $100K might be critical for one area, while $50K in another area would do the job.

 

Minimum wage laws make little sense in that type of environment. While $10.10 might be "bare bones" in one city, $10.10 might be undoable in another, but good money in a third.

 

The same thing happens with taxes. Tax rates that do jot account for cost of living as a regional factor unfairly punish people in high-COL areas.

 

Having States determine minimum wages in the States might get closer, but perhaps something else would work even better, like tying "minimum wage" and perhaps even taxes somehow to the cost of living in different areas.

 

Of course, this is wildly unmanageable, which is why many argue that the market takes care of things.

 

 

[hrothgar]

I'm torn about minimum wage laws.

 

I appreciate the goals behind them, however, at this point in time we're rapidly approaching the point where capital investment can substitute for low skill labor.

I worry that increasing the minimum wage will exacerbate this trend.

 

Personally, I think that the earned income tax credit is probably a better way to go, however, I don't believe that congress will fund this in any meaningful manner.

[mikeh]

I tend to think that the inter-relationship between minimum wage rates and job growth is subject to so many confounding factors that no simplistic conclusion is possible, which of course is anathema to the conservatives (and to some liberals) since most conservatives don't like to think about complicated things for too long....see global warming as an example.

 

Minimum wage increases keep the money paid in wages circulating. A minimum wage earner isn't putting money into offshore bank accounts or 401k or buying art, etc. Every additional dollar is being used to buy goods and services, and that increases demand at the low dollar-value range of the market. The Walmarts of the world, ironically, would be the biggest beneficiaries, in terms of sales and job growth, of that sort of thing. Of course, for any employer facing a mandated increase in labour costs it is probably unrealistic to expect that enough of that increase will come back in as revenue, but across the country, such is probably reasonable.

 

Raising wage rates at the low end could easily make the hiring of entry level workers less attractive to a low-margin, barely profitable business, so it is plausible that some jobs would be lost. However, the 'rising tide' of higher wage rates in the community would probably offset some of that, perhaps delayed some months or even years.

 

Raising the minimum wage creates upward pressure on many other hourly paid workers, who had previously been getting more than minimum and want to keep their relative edge, so need raises as well.

 

Once again, that tends to put more money into the economy.

 

How that pans out is probably not possible to model with precision but the fact that Washington State seems to have seen a benefit is not the least bit surprising to me.

 

Btw, I find it fascinating, as yet another example of how idiotic the typical right wing economic arguments are, that conservatives argue that raising the minimum wage, which clearly increases the money in the low end of the economy, costs jobs, but that decreasing taxes for the wealthy increases jobs.

 

The wealthy don't circulate their money, at least nowhere to the extent that a minimum wage earner does. The LSE estimates that some 21 TRILLION dollars is held in offshore tax havens. When someone pays 42 million for a painting, how does that create a job? When someone pays 1 Million dollars for a show horse....well, yes, that probably creates a couple of jobs, but if you gave 1,000 minimum wage earners a $1,000 bonus, that would almost certainly create far more jobs....and of course every job you create has the potential to create others, since now you have added another wage earner to the economy.

 

I am no economist but I venture to suggest that if one coupled a reasonable increase in minimum wage rates with a modest increase in income tax for the wealthy, the US economy would be very solid within a year or two.

 

As a Canadian, that would make me very happy since as a nation we are heavily dependent on the economic health of the US, by far and away our biggest trading partner. In addition, most of my retirement savings are invested in the US :P

 

I just read Richard's post while proof-reading mine. I accept the validity of the concern about automation, but automation is coming anyway and is already killing many jobs including jobs that traditionally pay well over minimum wage.

 

Take a look at an automobile plant. Where 40 years ago the production line was a swarm of highly paid employees, now it is a double row of robots with only a handful of workers. Warehouses now are almost silent in some companies, because the only objects in motion are robots.

 

In fact, I would argue that the minimum wage jobs are amongst the lowest priority aspects of a corporate desire to automate. Automation works by substituting items with a high initial outlay (the robot) and low operating costs for workers with low initial outlay and high operating costs....wages and benefits. Middle income wage earners represent the areas where the employer rates to be able to maximize savings.

 

That's not to say that raising the minimum wage would have no impact, but the reality seems to be that automation is going to shrink the blue-collar labour market no matter what happens to wage rates.

 

It is also happening, to some degree, to white collar jobs as well, and that will undoubtedly intensify if and when artificial intelligence becomes better than it is now...fortunately for people like me that isn't likely to happen until well after our retirement dates.

[mike777]

Just read the article. 2 quick points.

 

 

The reporter confuses correlation with causation.

 

The reporter quotes the CBO but fails to disclose it has a horrible record of predictions. If one is going to use the CBO predictions to justify govt policy at least show why we should trust their predictions. This is just another example of lazy reporting.

 

With all of that said sure raise the minimum wage but I still think a negative income tax is more efficient if your goal is to pump money into the economy.

[dustinst22]

 

Having States determine minimum wages in the States might get closer, but perhaps something else would work even better, like tying "minimum wage" and perhaps even taxes somehow to the cost of living in different areas.

 

 

 

States do determine minimum wage, the federal minimum wage is just a baseline. Every state that falls in the higher cost of living category has a higher minimum wage than the federal wage.

[kenberg]

From the link provided:

Raising the U.S. minimum wage to $10.10 in three steps, as Obama proposes, would reduce employment nationally by about 500,000 workers, or about 0.3 percent, according to a Congressional Budget Office report published Feb. 18. At the same time, the increase would lift 900,000 people out of poverty and add $31 billion to the earnings of low-wage Americans, the report found. While debate persists on the employment effect, "CBO is as qualified as anyone to evaluate that literature, and I wouldn't argue with their assessment," Federal Reserve Chair Janet Yellen said Feb. 27 to the Senate Banking Committee.

 

Not that the CBO is the final word, not at all, but they aren't irrelevant.

 

I tend to favor a decent minimum wage, but I am willing to listen. And yes, maybe an earned income credit is better. But I don't know.

 

 

I have mentioned before that I bought a car when I was 15, completely with money that I had earned. Somehow it was easier then, and that seems crazy to me. The country is much richer now, or I think it is. But in the 50s I could buy a car, go on dates without having to ask my parents for money, I took a trip with a friend, and so on. What the hell happened?

 

 

I realize this is a lament, not a reasoned argument. Sometimes it is good to start with a lament. I'm no economist but a guy who is willing to work and who lives sensibly is supposed to be able to pay his bills. This was the fundamental position of the labor movement oh so many years ago. Some of us haven't changed our minds about that.

 

 

 

 

 

 

[hrothgar]

 

 

The reporter quotes the CBO but fails to disclose it has a horrible record of predictions. If one is going to use the CBO predictions to justify govt policy at least show why we should trust their predictions. This is just another example of lazy reporting.

 

 

Not this bullshit again.

 

Please show me an example of a forecasting group with a significantly better record that the CBO.

Its really easy to sit back from the side lines and complain that someone esle is doing a bad job.

Its a lot harder to actually make projections.

 

All things considered, the CBO's track record is quite good.

Certainly better than Forbes and usual group of idiots who regularly complain about the CBO.

[Cyberyeti]

Minimum wage can destroy jobs, a department I used to work in (not on min wage, but most of the dept was) was disbanded and everybody made redundant with the jobs going to India instead. This was in response to a hike in the minimum wage (the second time Gordon Brown kicked me out of a job with a change in the rules). Clearly you can't flip burgers in India for the UK/US market, but you can do call centre or office jobs there, so it doesn't affect all industries equally.

[kenrexford]

States do determine minimum wage, the federal minimum wage is just a baseline. Every state that falls in the higher cost of living category has a higher minimum wage than the federal wage.

Yes, unless the federal minimum wage is raised sufficiently to negate State variations. The article obviously involved a State decision.

[mike777]

too say the CBO track record is good on predictions is just plain silly. their track record is horrible. I have seen their predictions over decades and decades and they are wrong so very often.

 

What is worse govt policy is based on their predictions.

 

At the very least show why we should trust their predictions if you want to base govt policy on it.

 

To say predictions are hard or that many others do a poor job is a silly defense.

That is a strong argument to do a better job or use different methods or at least make clear the limits or error range and confidence of your predictions!

 

----------

 

With all of that said sure raise the minimum wage but I think the negative income tax is more efficient if your goal is to pump cash into the economy.

[hrothgar]

The following is a good starter

 

http://www.cbo.gov/publication/43846

 

Let me know if you need to have any of the big words explained to you...

 

Its also worth noting that in many cases, the CBO is forced to make analysis based on whole unrealistic assumptions that are dictated by the congressmen commissioning the a specific report.

[kenberg]

Apparently everyone is so interested in this discussion that the cbo website is overwhelmed. I cant get the link to connect.

[mike777]

Conventional wisdom (especially among so-called conservatives) is that raising the minimum wage will result in a reduction of minimum wage jobs due to the increase in costs to employers. There have been studies that show that raising the minimum wage actually has the opposite effect, and here is another one:

 

Highest Minimum-Wage State Washington Beats U.S. Job Growth

 

http://finance.yahoo...-050001295.html

 

"In the 15 years that followed, the state's minimum wage climbed to $9.32 -- the highest in the country. Meanwhile job growth continued at an average 0.8 percent annual pace, 0.3 percentage point above the national rate. Payrolls at Washington's restaurants and bars, portrayed as particularly vulnerable to higher wage costs, expanded by 21 percent. Poverty has trailed the U.S. level for at least seven years"

 

 

Call me surprised.

 

If raising the minimum wage increases employment I am all for it. If there is a cause and effect lets raise the wage even more if it increases employment.

 

 

If this applies to others cases that raising prices increases demand...this is something.

 

Granted I am a biased economic conservative, whatever that means, but even if it does not increase employment or even if a family of 4 still cannot live on the minimum wage I am in favor of raising it. As a practical political reason it is silly for economic conservatives to choose this issue to fight on.

[mikeh]

 

 

I have mentioned before that I bought a car when I was 15, completely with money that I had earned. Somehow it was easier then, and that seems crazy to me. The country is much richer now, or I think it is. But in the 50s I could buy a car, go on dates without having to ask my parents for money, I took a trip with a friend, and so on. What the hell happened?

 

 

 

The country is infinitely richer. Just ask the owners. Hint: they make up far fewer than the much maligned 1%. I'd say start with the poorer owners of the country....those in the 99.90 to 99.99 percentile and then work your way up.

 

The nation is far, far richer than it used to be and the owners thank you, and their political servants, starting with Mr. Reagan's voodoo economics.

[Bbradley62]

never mind...

[awm]

I really don't understand the popularity of earned income tax credit as a solution to this problem. It seems like:

 

1. EITC is effectively a subsidy to employers, who can pay their employees less than a living wage and expect them to survive using the tax credit. In contrast, a minimum wage hike penalizes employers who pay low wages.

2. EITC requires filling out tax forms correctly. The people needing help are the least likely to get tax help and also possibly the least likely to file correctly. Minimum wage hikes are automatic.

3. EITC has government acting as an intermediary, meaning more bureaucracy and higher taxes. While I'm not necessarily opposed to higher taxes in principle, they never seem to fall on the super-wealthy corporations which benefit most from a low wage environment (and seemingly pay nothing in taxes). Minimum wage hike requires no bureaucracy.

4. EITC can create extremely high effective marginal tax rates (as the subsidy declines with increasing income) and thereby discourage work. Minimum wage hike cannot have this effect, and in fact increases the marginal benefit of working more hours.

 

In an environment where wages are a high percentage of business costs and companies are carrying extra employees beyond what demand supports, there certainly could be a case where minimum wage hikes decrease jobs. However, at this point wages are a small (and declining) percentage of business costs, and most companies have already trimmed employment. Productivity is also extremely high, so it seems unlikely that letting employees go would be a sound business strategy for coping with an increase in minimum wage.

[mike777]

I discussed a negative income tax. Yes it is a subsidy that disrupts capitalism and information in the market place. The point is most don't care. The entire point is to provide a "safety net"

 

"...

In an environment where wages are a high percentage of business costs and companies are carrying extra employees beyond what demand supports, there certainly could be a case where minimum wage hikes decrease jobs. However, at this point wages are a small (and declining) percentage of business costs, and most companies have already trimmed employment. Productivity is also extremely high, so it seems unlikely that letting employees go would be a sound business strategy for coping with an increase in minimum wage. "

 

fwiw if productivity is extremely high that solves so many problems.

also high levels of innovation solves so many problems.

 

As a conservative bias that is our argument.

 

I fully understand that many disagree and say that that advances in productivity and innovation is harmful. That these often lead to destruction of jobs. Thus the whole "creative destruction" discussion. Thus the entire discussion if I must pay you more I replace you with a robot discussion.

 

I mean is there some way in the future people can buy hamburgers, chicken, pizza, books or other stuff without a human order taker? CAn in the future people get gasoline with no humans on site? Can you buy stocks and bonds without a human.....? :)

 

Can the ARchies..nonhuman have a huge huge song because the Monkees(humans)become jerks?

 

https://search.yahoo.com/search;_ylt=AmYTj4CM5JNa.sR5gLDTQlCbvZx4?fr=fp-yie9-s&toggle=1&cop=mss&ei=UTF-8&p=sugar%20sugar%20the%20archies

Big companies..huge companies can disappear ..companies with many many jobs. EVen owners those in the evil 1% can drop out or die.

[blackshoe]

Minimum wage can destroy jobs, a department I used to work in (not on min wage, but most of the dept was) was disbanded and everybody made redundant with the jobs going to India instead. This was in response to a hike in the minimum wage (the second time Gordon Brown kicked me out of a job with a change in the rules). Clearly you can't flip burgers in India for the UK/US market, but you can do call centre or office jobs there, so it doesn't affect all industries equally.

You can't flip burgers in India at all, as far as I know. Something about religious restrictions on killing cows or eating beef.

 

Okay, soyburgers maybe. Yuck.

[mike777]

You can't flip burgers in India at all, as far as I know. Something about religious restrictions on killing cows or eating beef.

 

Okay, soyburgers maybe. Yuck.

 

can a robot replace something...anything even a little... a lawyer does at some point?

 

 

a bridge partner?

 

can robots strike for more money at some point/ join a union?

 

marry/ raise children?

 

all of this is an effect of the minimum wage guys...

 

---

 

 

If you don't know there is a link between human wages and robots you are naïve.

[chasetb]

1.)If you raise the minimum raise, you are just increasing the amount of mininum wage jobs.

 

By raising the minimum wage, you are hurting those people you intend to help by reducing spending power. This doesn't affect solid Middle Class or better, but anyone below that is hurt. For example, before I started classes this Spring, I was working 20 hours a week, making $8.755 an hour after two raises (not a typo). The minimum wage is $7.25, so I was pretty happy. If Obama had his way, I would be at $10.10, and back at minimum wage. In fact, a large number of people who are making between the current federal minimum and that $10.10 would be forced back to minimum wage.

 

To compensate for the rise in salaries, most companies will raise prices / reduce hours. Larger companies will do both, while smaller companies have to raise prices. They won't just stop to break even, they will cut back more than they need to to try and increase profit. So, prices will be based on the new $10.10 minimum wage, so I would expect an average increase of ~30%. Anyone over the minimum wage but under that $10.10 lost whatever hard work they put in to get above dirt. And the people making between $10 and $15 an hour have been majorly put down as well.

 

2.) People aren't supposed to live off of minimum wage.

 

Every job that I have held that has been close to or at the minimum wage are low to no skill jobs that anyone can do. Of course, I lived and am still living with my parents (not by choice, though they are great people), so it was mostly spending money. That's what the minimum wage is made for - younger people who aren't on their own.

 

3.) The standard of living varies greatly in different areas.

 

Like Ken said earlier, even cheaper/smaller houses in a place like San Francisco are hundreds of thousands. Compare that to my area, where housing is 2-3 times cheaper. I don't know particular facts, but I bet raising the federal minimum wage would do nothing for San Francisco. Local and State governments should have more information and knowledge on the situation, and therefore are much better suited for making these decisions. This leads me to my last point.

 

4.)If they can't get Medicaid/Medicare and the debt under control, instituted federal health care that costs a lot more and covers a lot less than before, the website for it was completely broken, my uncle couldn't get covered DESPITE meeting every guideline, and said health care is going to cost 2.5-3 million people their jobs (initial estimates were only 800,000 - 1 million), why should we trust them on this?

 

This isn't a Federal issue in my book. It just seems like a power grab, much like the health care debacle is. And if disagree with me on the health care issue, that this isn't an attempt to force more people under the government's control, then imho we have a bigger problem. Because then, both our Legislative and Executive branches will be proven to be incompetent, the already abysmal job approval rating of Congress will be proven to be too high, and after getting my next degree I'll have to move to New Zealand...

 

EDIT - I forgot to mention our tax code. Why can't we just institute a graduated tax of up to 25% based on earnings, and tax/audit 100% of anyone who has any holdings in the Cayman Islands?

[Cyberyeti]

You can't flip burgers in India at all, as far as I know. Something about religious restrictions on killing cows or eating beef.

 

Okay, soyburgers maybe. Yuck.

 

Probably use lamb as they do in many of the starters they serve in this country.

[mike777]

"By raising the minimum wage, you are hurting those people you intend to help by reducing spending power. This doesn't affect solid Middle Class or better,"

 

 

 

let us just start with your very very first sentence.

 

 

Innovation effects your very first sentence. Drive innovation you effect your first sentence.

 

If you don't think wages effect innovation ok....

 

I just don't think many posters understand what the word destructive means

I just don't think many posters understand what the word innovation means

 

This means upper middle class ...this means top class.

 

And yes wages effect all of this.....you seem to assume zero effect