The Minimum wage currently stands at $5.15, for a full time employee this works out to $10,712 per year, well below the poverty line.
Wikipedia, as usual, provides us with a sparkling overview of the topic:
This paper by the UAW attempts to rebutt several critiques leveled by economists. Excerpt below.
• Most minimum wage workers are adults; 87% are over age 20.
• People don't quickly move out of minimum wage jobs. Workers age 25 to 54 have a 38% chance of getting stuck in a low-wage job even after 3 years ("No Way Out"”, Center for Economic and Policy Research).
• In 2002, on average, minimum wage workers earned 68% of their total family income ("“No Way Out", Center for Economic and Policy Research).
• From 1950 to 1982 the minimum wage was usually 45% of the average hourly wage in the U.S. In 2004, the average hourly wage was $15.67; by the 45% standard, the minimum wage should have been $7.05. That wage would lift a single parent with one child out of poverty but still leave a parent with two kids below the poverty line.
Many suggest that raising the minimum wage would be largely negated by the resultant rise in retail prices.
I suggest that while prices would undoubtedly rise to some degree, it would be mitigated by robust price competition. The incentive to keep prices competitive would force companies to cut costs in other areas, something they're doing anyway, minimum wage laws simply decide where those efficiencies will be spent.
Thoughts on minimum wage increases?
HOW TO SCREW THE WORKING POOR BY RAISING THE MINIMUM WAGE: A (LONGISH) PRIMER
ReplyDeleteFrom the Wikipedia article:
The costs and benefits arising from minimum wages are subject to considerable disagreement among economists, though the consensus among economics textbooks is that minimum wage laws should be avoided whenever possible as the costs exceed the benefits.
Economists don't like minimum wage laws because they hurt the working poor by 1) eliminating jobs, 2) draining skilled workers, 3) reducing the value of total compensation to low income workers, and 4) causing inflation.
1) It eliminates low paying jobs.
Australia provided one of the earliest practical demonstrations of the harmful effects of minimum wages... unskilled workers were priced out of the market. These laborers could find work only in occupations not covered by the law or with employers willing to break it. -The Concise Encyclopedia of Economics
2) It reduces total compensation, as employers shift compensation from benefits to wages to avoid paying more. Employers thus stop utilizing economies of scale to purchase benefits, and force employees to fend for themselves. The elimination of some benefits, like advanced on the job training, perpetuates low income status, fueling the cycle of poverty.
In addition to affecting how many people will be employed, minimum wage laws may also leave workers worse off by changing how they are compensated.... To avoid increasing total compensation, employers react to arbitrary boosts in money wages by cutting other benefits. -Id.
3) It attracts higher skilled workers to low skill jobs.
Raising the minimum wage makes minimum wage jobs more attractive. Skilled workers certainly prefer to compete against unskilled workers for less demanding jobs for the same pay. As minimum wage increases, our skilled workers are sucked into unskilled jobs, and our unskilled workers are outcompeted into unemployment. Inefficient job placement leads to faltering productivity, and somehow, everyone loses.
4) Minimum wage causes inflation, which disproportionately hurts the working poor.
The idea at the end of the post that competition between small employers might insulate them from fluctuations in the cost of inputs is fundamentally flawed. Take solace in data:
This paper "critically compares over 20 price effect studies." Turns out minimum wage increases lead to price increases, fueling the wealth gap.
WHY THE DISSENT?
Card and Krueger's 1995 research in Myth and Measurement is relied upon by both the UAW paper and Wikipedia to prop up Minimum Wage increases. Myth used data from teenagers in a couple states during the recession of the late 80s to counter the idea that minimum wage increases lead to increased unemployment. Not only does the paper have enormous sampling difficulties, it may simply support the notion that minimum wage increases induce teenagers to take jobs from working adults.
CONCLUSION
Yes, we should fight to get the working poor everything they need in the most liberal sense of the word: like food, shelter, health care, free culture... But if we choose our methods capriciously, we do so at their peril.
I perrenially feel my arguments are unresearched and largely based on anecdotal evidence.. anyway, without hyperlinks or cites: Social Welfare as an alternative to Minimum Wage
ReplyDeleteAn alternative to a higher minimum wage would be better unemployment benefits, such as provided by Germany. I was quite impressed at the quality of life there, even for poor people. I saw very few people (maybe 2?) who were obviously poor. Granted, they may have been hidden in different parts of town, but I didn't find much evidence for that either.
What's the trade off? Obviously, high taxes, but what's more: fewer jobs. It's common knowledge that unemployment is a big problem in Europe, especially France right now, but to some extent Germany. Part of the problem is the responsibilities put on employers when they hire someone .. but also that job must be better than the social welfare alternative for the employee.
Still, it appeared to help out the poor. Anecdotally and according to the guy sitting next to me on the plane from Frankfurt to Chicago, it's the services that suffer. No baggers, fewer stockers, etc. Companies just don't hire service workers because of those obligations.
If anyone finds any evidence supporting or contradicting this, I'd be pleased to read it.
There's an economics adage/motto/saying/proverb that the right place for the government to intervene (assuming that one accepts that government should intervene at all) is exactly where they want to change things.
ReplyDeleteThe classic example is follows how tarriffs and tax incentives end up having the same effects and tend to be clumbsy tools at that. The punch line goes along the line of, "If you want to give traditional cotton growers of Kentucky money, give the traditional cotton growers."
Ideally, we wouldn't need minimum wages -- if labor could really move freely. But since that's about the same as saying that we wouldn't need cars if we could all fly brooms. The question is - when to raise the "labor tarriff" of the minimum wage. When the people supported by minimum wage are kept impoverished by it. So when does that occur? Has it occured yet? I don't know, maybe it needs to be moved to the state jurisdiction.