Workin’ for the Man Every Night and Day
Andrew Cory
Given that a "living wage" is roughly around US$10/hour, and the minimum wage is (rougly) half that, it is fairly safe to say that our current Minimum Wage scale is far too low. Something to keep in mind: even jobs that pay more than minimum wage (such as my own) peg their wage scale to the minimum. And it isn’t often very much higher than minimum itself. My first job, for instance, was set at around US$.50 above minimum, and my current job starts at the same rate. It isn’t just kids doing this-- I work with people who are trying to raise a family on what we pay them, it isn’t pretty...
The question is: do we as a society believe that if someone works 40 hours per week, that should be enough to live on? If we do believe that, we need to set our minimum wage laws in such a manner that this is reflected. I don't want to get all Marxian "dignity of labor" on everyone, but I find supermarkets (pay well) have better service than Wal*Mart/Target (pay poorly)...
Congress seems to agree. At least, the Senate has a bill right now which seems to recognize the inherent strangeness of our employee compensation system. Good ol’ Rick Santorum, though. He has an amendment to really kill things:
WEAKENING FLSA COVERAGE: Employees of businesses with revenues of more than $500,000 and all workers who engage in interstate commerce now have important protections under the Fair Labor Standards Act, such as the right to be paid a minimum wage and to receive overtime pay when they work more than 40 hours a week. The Santorum amendment eliminates FLSA protections for all workers at businesses with revenues up to $1,000,000. In 1997, 6.8 million employees worked at firms with revenues of between $500,000 and $1 million.
There’s more more (PDF), an ugly, ugly more.
Thanks to Heather atExra Klein...
Cross posted over at The Punning Pundit
A better idea would be to reduce the amount required to live on, by lifting controls on such things as housing, medical care, and education, and by properly policing cheap neighborhoods so that people can live there safely.
Then people can stand tall and earn their own way even if their labor isn't worth more than minimum wage.
For most companies, their operating budget isn't all that flexible. If a fast-food place looks at its budget and sees it can afford $30/hour to pay its employees who take orders at the counter, that's $10/hour for three employees, $7.50/hour for four employees, or $6/hour for five employees. The more you pay each person, the fewer you can afford to hire -- and so minimum wage increases lead directly to rising unemployment rates (or at least unemployment rates that fall slower than they would have otherwise). It's not nearly as simple a picture as most discussions I've seen would make it out to be.
The other part that needs to go into considerations of what the minimum wage should be is that the workforce is made up of lots of different types of people. There's working parents trying to feed a family on a single income, and there's also 16-year-old teenagers with no significant expenses besides the insurance on their car. The former group needs a "living wage", the latter group does not. Maybe we should take that into account in our minimum-wage laws and turn the minimum wage on a sliding scale that reflected how many dependants you have?
Of course, that idea would get into trouble with the laws currently on the books that forbid discrimination based on exactly that kind of scenario: we don't want employes refusing to hire a father of six because his medical premiums will be higher than that single guy. So it's complicated. My main point is, I've seen a whole lot of (sometimes quite angry) discussion on this subject that refused to acknowledge that the issue was complicated.
The vast majority(90+%) of people working for minimum wage are teenagers, for whom this is their first job, an entry level position requiring little or no experience. Very few members of that group expect to live on this income. This idea of a living income is pernicious in that it affects every person in this country. Arbitrary wage increases are passed on to every individual in this country as price increases; no company will eat those costs. Do so increases the overall cost of living, which in turn hurts most those at the bottom of the income scale. It doesn't make sense.
Let's dispense with these incremental increases to the minimum wage and go for broke: $25/hour. I'm certain that McDonalds will love paying that price to their newest burger flippers. No word yet on how the general public will react to when a hamburger costs $20.
Minimum wage earners are either on their way up to better paying jobs or they're stuck at the bottom of the wage pool. You don't change the fact that the pool always has a bottom, nor do you effectively change the relative gap in wealth between the various workers in the pool by governmentally-forced increases in wages. The only benefit might be to government itself: a short term increase in sales tax collected and perhaps the movement of many thousands of workers into a taxible income bracket without a real gain in personal weath. The minimum wage has a role, but it's tricky game of unintended consequences.
On the whole there are arguments to be made about the minimum wage, but if you raise it too high then the giant sucking sound you hear will be a massive increase in the number of jobs being outsource and/or being paid "under the table" and thus off the books entirely.
Having a certain minimum wage is a good way to prevent "race to the bottom" conditions for employers who pay wages. But I gotta tell ya: I've worked at minimum wage jobs, the last one being a temporary job I had while between "real" jobs, which was only about three and a half years ago. Yeah it sucks. But if that temp employer had been forced to nearly double what he paid me I can tell you--I wouldn't have had that temporary job at all. I know I wouldn't have.
Somehow that just seems wrong to me.
I do believe that no one working 40 hours a week at a job should be earning under the poverty line (and, as a separate issue, I also believe that the poverty line is unrealistically low). In the late 60s, the federal minimum wage was, in 2005 dollars, about $8.50 an hour, and the economy didn't collapse. We certainly should discuss the full range of economic ramifications of raising the minimum wage to some particular level, but I think it's damn near certain that the economy would not suffer seriously from a significant increase of, say $2 or so.
And, as Andrew pointed out, it's not just people working in minimum wage jobs who would benefit. If you're making $7 an hour now, and the minimum wage becomes $7 an hour, you will get a raise. No question about it. In fact, studies show that this trickle up effect would extend to people making approximately twice the current federal minimum wage.
And, of course, if everyone is so worried about minimum wage workers losing their jobs when the minimum wage increases, why not include increased public spending on skills-development programs, unemployment insurance, etc. No? No takers on that one? I'm shocked.
Raise the minimum wage and all wages rise, prices rise and you're back where you started. You can't regulate the laws of supply and demand, no matter how hard you try.
Only increased worker productivity can justify increased wages...my pay has increased 60% over the past four years, as I've become ever more productive and worthwhile for the company I work for. You can't get it any other way, and any attempt to try another way is doomed to failure.
Besides, "you can't regulate the laws of supply and demand"? What does that mean? We want the price of milk to be artificially high, so we legislate, and the price of milk is higher than it ought to be. So, fine, we can't regulate the laws of supply and demand, but we can raise the price of milk. Similarly, we can raise the price of labor. Or, we can do nothing, and in effect lower the price of labor as inflation continues to erode the real value of the minimum wage.
My own view on the minimum wage is that is serves a valid function, but that it's also fair to note that if it's too high it does indeed create a burden on employers and creates pressure to drop jobs or ship jobs overseas. If the minimum wage is reasonable and not overly burdensome on employers, it's not a problem--and honestly, I'm not sure the minimum wage has ever been too high in my lifetime. Still, on principle, it definitely CAN be, and I've seen economics who concluded that it contributes to unemployment in areas where the cost of living is lower than it is in other places.
Which points to another complication for minimum wage in general: the truth is that $6/hour goes way, way, way further in, say, suburban Shreveport Louisiana than it does in New York City. Which also needs to be taken into account.
A better idea would be to reduce the amount required to live on, by lifting controls on such things as housing, medical care, and education, and by properly policing cheap neighborhoods so that people can live there safely.
I'd just point out that is has more relevance in places like New York City than it does in, say, suburban Detroit.
I believe the question is a non sequitur, in that if someone works 40 hours, or 20 hours, or 60 hours, they should be paid what both parties agree that work is worth. "Enough to live on" is an irrelevant qualitative judgment call. "Enough to live on" for me and for you will never be the same.
As far as Ken's "lowering the cost of living" approach, I too think that this is a viable avenue of exploration, but it's more of a long-term project. I would support efforts along those lines in addition to raising the minimum wage, but not instead.
I agree that the minimum wage could be too high, but I doubt seriously that it has ever been too high in the USA, and certainly not recently. Remember, in today's dollars, 1968's minimum wage was $8.50 an hour. I'm no expert on history, and certainly not economic history, but I think that worked out more or less all right.
Abstract
"Recent work on the economic effects of minimum wages has stressed that the standard economic model, where increases in minimum wages depress employment, is not supported by empirical work in some labor markets. The authors present a general theoretical model whereby employers have some degree of monopsony power, which allows minimum wages to have the conventional negative impact on employment but which also allows for a neutral or positive impact. Studying the industry-based British Wages Councils between 1975 and 1992, they find that minimum wages significantly compress the distribution of earnings but do not have a negative impact on employment. Copyright 1999 by University of Chicago Press."
Emphasis added.
I'm not at all sure the British system in question is anything like the US labor market.
I do recall that the economists are pretty clear that in the US minimum wage increases do cost jobs, for precisely the reasons others have stated - when you make labor more expensive without making it more productive, that loses jobs at the margins of profitability. That seems unavoidable outside of the monopsonic situation the Labour Councils evidently have.
The problem I see with a low minimum wage is that too many employers structure jobs to be filled by minimum wage workers rather than automating, changing business processes to use skilled workers, etc. I don't think that a good future for the United States is having lots and lots of low-skilled workers working for minimum wage. That's a formula for eroding the middle class.
Something about seeing the words "economists" and "empirical" in the same sentence leaves me laughing.
If economists were any good at math, they'd have gone into finance instead.
And again, if you're really that concerned about the fate of low-wage workers, there are all manner of responses to that problem, should it in fact develop. Quite apart from issues of minimum wage increases, I think we need to expand the social safety net in terms of unemployment insurance. This would also cushion us against the well-documented negative employment effects of international free trade and globalization.
And what's the problem with that? The supply of skilled workers is limited, and the fewer of them that are occupied with routine work and the more of them that are available to do new things, the faster we all advance.
The whole point of changing business processes is to use fewer skilled workers to do the same thing. Skilled workers are expensive, and when you get to the point where any idiot can make a given widget, we all enjoy an abundance of that widget. And the smart people get to work on the next miracle instead of making the same crap they've been making so far.
And having those smart people work on automating low-skilled people out of jobs isn't the best use of their talents. They should reengineer jobs so that low-skilled people can do them, then produce the next miracle for a while until they figure out how to simplify its production to the level of low-skilled workers as well.
"I don't think that a good future for the United States is having lots and lots of low-skilled workers working for minimum wage. That's a formula for eroding the middle class."
I suppose having lots and lots of unemployed low-skilled people is better?
Yes, we should all support the low-skilled, but under no circumstances must they ever be able to stand tall and earn their own way. It's just not fair that any idiot can say that they're not on welfare - that distinction should be reserved for their betters...
minimum wage is plenty to live on. Food and water is incredibly cheap, and so is 1 set of clothes.
What you're asking is "should that be enough to live with some minimum amount of comfort on."
I've got a flip question for you: should people have some minimum skill set which is extremely useful to those around them?
Do people have the right to not be able to do anything of significant value?
(note: this is meant only to provoke thought, not to argue for any position; in particular, I am not espousing that the minimum wage should be abolished, or that there are people who deserve to be poor, and especially not that there are people who deserve to suffer. I'm playing Devil's Advocate.)
You quote us a 1998 study about a 1996-97 raise in minimum wage as proof that it had no deletrious effects? Come on, you can do better than that....1998 was a boom year, too; in other words, a raise in the minimum wage right before 1998 would have the least possible effect, and might very well be entirely overborne by the rapidly increasing economy...what cannot be measured, of course, is how much faster the economy in 1998 would have grown absent a regressive increase in the minimum wage (keeping in mind that my definition of "regressive" is anything which places an added, non-investment cost upon the economy...because such costs are invariably borne by the poorest).
There are two things I'd like you to do - answer what would be a "too high" minimum wage; secondly, provide us an example of an adult who has worked 366 or more days at the same job and is still earning the minimum wage.
The first part, of course, is a trick question - you can't answer it because "too high" in Akron, OH might be "too low" in Newport Beach, CA - of course, what is "just right" in Newport Beach, CA might be "too high" in Irvine, CA (about 10 miles away). Here we get into the problem that no one can ever solve - it is the fundamental problem with full-blown socialism/communism, but it applies to any attempt by the State to regulate economic activity: no matter how smart you are, you can't figure out what everyone needs or desires.
The second part you will not be able to provide because such does not exist - and this exposes the fundamental fallacy of those advocating an increase in the minimum wage: it is cast as a means of helping the working poor, when all it amounts to is a bit of feel-goodism dressed as economic policy. The raise in the minimum wage doesn't actually help anyone who is working at minimum wage, but it does make the proponents of a hike feel better about themselves.
you are attempting to argue against research with a "what if..." question that is not answerable. In short, you're arguing a hypothetical against historical realities. No points on that one.
The question of unskilled labor vs. automation is something to consider vis a viz illegal immigrant labor. The argument (blogged about before by Michele Malkin, among others) is that the black market in aliens keeps wages so low that farmers have no incentive to automate processes that could have been automated years ago.
And while the minimum wage can be too high, I believe it's also time to crank it up a quarter to a half dollar. It's been about 10 years.
The employment effect is an article of faith. It's a perfectly reasonable theory, it makes intuitive sense, and it should be true, but like so much from Econ 101, it frequently isn't. In the real world. According to the data.
I work minimum wage jobs. I'm a full-time student pursuing a law degree, so for me, working a min wae job is no big deal. But right now, I work at a video store for $6.00/hr (technically above minimum wage, but low enough that it would be effected by even a small min wage hike). One of my co-workers is a single mother of two who has to look after her elderly mother. She makes $6.00 an hour, and has been for 18 months.
My last job was at a liquor store making $6.50 an hour. One of my co-workers there was laid off from a well-paid job at a bank as some sort of financial analyst. He got the job at the liquor store just to bring in a little cash while he found a new job. It took him well over a year to find a new job.
But this is all irrelevant. It's anecdotal evidence. I don't know why you asked me to provide it, but there it is. These people would definitely benefit from a min wage hike. How can you possibly argue otherwise? Sure, you can say that as labor costs increase, prices increase, thereb increasing the cost of living. Sure, that happens. But there's no magic wand. Economies don't just instantly adjust to new equilibrium points. That's more Econ 101 nonsense. The benefit of a min wage hike will be slowly eroded overtime by inflation, sure. In the meantime, millions of low wage workers, many of them supporting families of their own, will benefit tremendously.
There are plenty of good arguments against raising the minimum wage, but "it doesn't help anyone" is not one of them.
I have personally been placed in a situation where I could not hire another person because of minimum wage laws. There was a fixed amount of money in a limited budget that I could not change. I had work to be done and I had someone who was eager to do the work, but I could not pay them what was required by law. So instead of making money while getting hands-on experience in a valuable skill, they had to take an unskilled job they hated. Where was the benefit in that?
Of course, the common solution to this problem (which I wasn't willing to do) is to simply pay the person cash under the table and conveniently bypass all the labor laws, taxes, and other controls we love to debate about. I suspect that the huge underground economy is part of the reason that economists have trouble quantifying the effect of minimum wage laws. It absorbs the potential damage and compensates. (While making everyone a criminal in the process.)
You didn't provide what I asked for - a person earning minimum wage as an adult after 366 days in the same job. No fair bringing in a low wage, yet higher than minimum wage, employee as an example. Additionally, I find it amazing that you've even found a person who is working for the same wage, regardless of what it is, after 18 months. I guess its possible - since you've brought it forward - but this must be the exception that proves the rule; work at a job and do well (ie, well enough to remain employed for 18 months) and you'll earn more - your friend must be stuck in the most bizarre of circumstances.
Your friend is also, as you say, a single mother of two who looks after her mother - there is no way in God's green earth that she's supporting 4 people on $6 an hour; ergo, there must be other income coming in. Such as, SS and other benefits for the mother, welfare benefits for the children, possible child support from the father of the children, money made on the side by the mother in other activity - in short, she's not living on minimum wage, even if you count her main employment (the video store) as a minimum wage job. No one lives on a minimum wage - and neither can a minimum wage ever be set at what it takes to live. First off, you can't determine that with sufficient accuracy (regional variations in the cost of living are astoundingly large in the United States), secondly if you make the minimum "living" then "living" will become minimum in short order and you'll be back where you started.
The song and dance about the minimum wage is that we've actually got adults working full time for a substantial period of their lives and trying to support a family of four on the minimum wage - and that is why we must raise it; but such does not exist except, perhaps, in very odd and temporary circumstances. Hard cases make bad laws.
The empirical evidence, so-called, that you bring forth for no net affect is also suspect; I haven't read them in a few years, but they always seemed to me to be studies which simply ignore contrarian data - ie, they were built with "proving" that a raise in minimum wages is a net benefit....but this cannot be true; a company which can afford three people at 5 dollars an hour cannot afford three people at 7.50 an hour unless there is a gigantic increase in worker productivity and thus profitability. To willy-nilly say, regardless of economic circumstances, that a company must pay higher wages simply has to have a deletrious effect - and no amount of studies purporting to show otherwise can contradict the common-sense here; even if the effect isn't immediate. A small business owner may the loath to fire one of his three workers after a rise in the minimum wage increases his labor cost - but what you can't study is what might have been done with that additional money...the purchase of new equipment, the development of a new technology, the investment of the money in new enterprises; there is a bad effect, no matter what - you just might not be able to definitively state it.
Anecdotal evidence about a small business owner. He didn't have a problem paying above minimum wage, but health insurance was not an option, even though he wanted to purchase it for his one employee.
but this cannot be true; a company which can afford three people at 5 dollars an hour cannot afford three people at 7.50 an hour unless there is a gigantic increase in worker productivity and thus profitability.
B.S. Large companies regularly post profits in the 20 percent range. I've no doubt that a significant number of small companies do likewise. A company could afford those three people by taking a cut in gross profit.
To willy-nilly say, regardless of economic circumstances, that a company must pay higher wages simply has to have a deletrious effect - and no amount of studies purporting to show otherwise can contradict the common-sense here
This is truly a contrarian argument. Let's ignore studies because common sense tells us otherwise. In short, there's no reason to argue, Mark has already discovered the truth!
I think this ends the discussion.
No, the examples I gave are not people making min wage, but they are people who would benefit from an increase in the min wage. In other words, they are precisely the people that you said don't exist. They do, and there are millions of them. Approx. 10 or 12 million, actually, according to most studies I've seen.
Personally, I don't rely on the "adults supporting a family" argument. Even if all min wage and near min wage jobs were held by teenage children of affluent families, I would still support increasing it. Because every day that we don't increase it, we decrease it. It's already lower, in real terms, than it was before the last increase. It's long past time to raise it, and I'm glad to see that many states and cities around the country are taking it into their own hands.
And I'm also glad to see that they're not suffering any measurable employment effect.
Do the math, Bryan -- Your expenses are going up 50% in that case, which blows your 20% margin all to hell. The issue isn't even if the company can make money at all -- it is whether or not the company can make more money than they could if they simply closed shop and invested the money. If they make more money on bank interest, then they would have to be (fiscally) insane to stay open.