Minimum Wage: What's the Other Argument?

[Lexicus]

>>people actually still believe in the classical nonsense that raising wages decreases employment

 

[metalhead]

Modest increases tend not to have a tangible effect on employment, the evidence can't be any clearer on that point. Nobody really knows what going to $15 will do. It seems inescapable that businesses will be forced to close in places where labor and not property makes up the bulk of operating expenses, particularly in the bar and restaurant business where margins are always razor-thin. Whether it will be widespread and an economic bust for some places will become evident soon enough.

The far less predictable aspect is how it will reverberate up the wage chain. Even at $10/hr, you're pretty far down from where people starting out with non-STEM degrees typically find themselves at entry level. $15/hr starts creeping up on the bottom edge of the "career" wage scale. Those wages will likely have to increase. This may also turn out to be a good thing and not a bad thing, but again, we just don't know. California seems like as good a place as any for a test run, given its size and economic diversity.

 

[onejayhawk]

>>people actually still believe in the classical nonsense that raising wages decreases employment

They are called Economics Professors.

J

 

[Zkribbler]

They are called Economics Professors.

J

Why are they always wrong?

 

[Zkribbler]

I'm glad some places are gradually raising their minimum wage to that level, though. It's one of those rare cases where we have a fairly decent economic experiment, and I'd look forward to seeing the results.

I do enjoy being able to make decisions when based upon fact and concrete examples.

Alas, our rightwing warriors when faced with hard facts which prove them wrong will cry foul and shout ever louder their misdirected dogma based upon wishful thinking and concocted talking points.

 

[Lexicus]

We have little to no correlation in some seven decades of side-by-side minimum wage and employment data.

We have economic theory which says increasing the share of income to labor increases consumption which in turn increases investment and employment. Problem with the classical theory is it views the economy as static, confuses the analysis of a single firm or individual with an analysis of the economy as a whole, and its assumptions viz. rational behavior and availability of relevant information are known even by its proponents to be false.

It seems inescapable that businesses will be forced to close in places where labor and not property makes up the bulk of operating expenses, particularly in the bar and restaurant business where margins are always razor-thin.

We can see the first two problems clearly displayed here. Because wages paid out by one employer, typically end up as the revenue of another employer, particularly at lower ends of the wage scale where the propensity to consume is highest.

 

[SupremacyKing2]

>>people actually still believe in the classical nonsense that raising wages decreases employment

Gradual market driven wage increases don't hurt employment. But I think sudden and forced minimum wage increases can hurt employment. For a small business, a $15/hr minimum wage is a big difference in their payroll that they cannot always afford. And given the fact that minimum wage employees are low skill and therefore more easily replaced, it becomes economically advantageous to lay them off. Mid or upper wage employees are different because they are harder to replace. Plus, big companies can afford a higher wage more easily than a small business. So increasing the minimum wage won't really hurt mid size and big businesses but it will hurt small businesses which make up the bulk of jobs in the US.

 

[metalhead]

We can see the first two problems clearly displayed here. Because wages paid out by one employer, typically end up as the revenue of another employer, particularly at lower ends of the wage scale where the propensity to consume is highest.

That ignores some pretty basic economic realities. For starters, a relatively small percentage of what people spend actually stays in the local economy. Little of what people buy is made locally, including food. So the increased spending isn't all or even mostly going to the local businesses, but they're still going to be hit with very large increases in operating costs. On top of that, you'll have economic activity lost to taxes, to landlords, to paying off debt, to savings accounts, coming out of the new higher wages that people will be paid.

There is a practical limit to how high low-end restaurants can price food and still attract customers. It seems highly unlikely that in places where labor makes up most of a business's operating costs, they can double their wages and still sell enough food to get by. The likeliest scenario is they stay open but automate where possible. Which costs jobs, of course.

 

[Lexicus]

That ignores some pretty basic economic realities. For starters, a relatively small percentage of what people spend actually stays in the local economy. Little of what people buy is made locally, including food. So the increased spending isn't all or even mostly going to the local businesses, but they're still going to be hit with very large increases in operating costs. On top of that, you'll have economic activity lost to taxes, to landlords, to paying off debt, to savings accounts, coming out of the new higher wages that people will be paid.

"Pretty basic economic realities" none of which actually serves to destroy my point. What matters is whether the minimum wages transfers real income share to lower-income people...which it does.
People do not buy things that are all made locally, no, but I was specifically talking about the 'bars and restaurants', which can't be outsourced and sell something that (obviously) must be 'purchased locally.'

There is a practical limit to how high low-end restaurants can price food and still attract customers. It seems highly unlikely that in places where labor makes up most of a business's operating costs, they can double their wages and still sell enough food to get by. The likeliest scenario is they stay open but automate where possible. Which costs jobs, of course.

Yeah...in theory. But there's not even a slight indication that this height is going to be exceeded by the minimum wage increases that are actually on the table.

Unemployment is not a problem caused by wages being too high, it's a problem caused by insufficient spending in the economy.

 

[El_Machinae]

Probably the wrong thread, eh? The next leaping off point would be about where the majority of spending needs to come from in the Haitian economy.

 

[Old Hippy]

That ignores some pretty basic economic realities. For starters, a relatively small percentage of what people spend actually stays in the local economy. Little of what people buy is made locally, including food. So the increased spending isn't all or even mostly going to the local businesses, but they're still going to be hit with very large increases in operating costs. On top of that, you'll have economic activity lost to taxes, to landlords, to paying off debt, to savings accounts, coming out of the new higher wages that people will be paid.

There is a practical limit to how high low-end restaurants can price food and still attract customers. It seems highly unlikely that in places where labor makes up most of a business's operating costs, they can double their wages and still sell enough food to get by. The likeliest scenario is they stay open but automate where possible. Which costs jobs, of course.

the usual scare argument used to justify low wages and therefore a low standard of living for people who serve people

It has some basic contradictions, you say labour makes up most of a business operating costs so will be bad BUT most of the costs come from stuff brought from outside the area. make up your mind. labour is the main cost of low end business or it is not, if it is. it stays in the area and helps locale business if it is not it will have a small cost to business operating costs.

 

[Ajidica]

They are called Economics Professors.
J

Tell me where you find these economics professors who are all in agreement on something.

On the subject of Haitian minimum wage, it is worth pointing out most of Haiti's economy is based around non-commercial agriculture with light manufacturing (clothes mainly) providing the overwhelming majority of exports. These industries would either be unaffected by a minimum wage law (like farmers) or exist largely on a day-laborer system where the person is never actually an employee. Depending on how the clothing industry is structured there might be a greater amount of formal employees there; but as we have seen in Bangladesh and other SEA countries, sewing industries are highly mobile and very quick to set up. If the minimum wage is increased, there are any number of poor Caribbean who are more than happy to welcome in garment industries. (Heck, poor countries anywhere in the world. Ocean shipping is ridiculously cheap right now. Oil is cheap and there is a glut of ships in the market.)
As we have seen in Bangladesh a growing garment industry is not a bad way to stimulate economic growth. When it was first introduced in Bangladesh the garment industry was quite attractive. It paid comparatively well, was not that physically demanding, provided useful skills, and largely was targeted toward women - young women at that. It is also an industry that is easy to grow and more or less independent from changes in commodity prices (ie: metals, oil, etc).
Once the Haitian economy gets going and more people are in formal employment, I don't see why the government shouldn't introduce a minimum wage/robust social program but to do that you need a functioning economy first and I don't see how the Haitian government instituting a minimum wage now would help with that.

FWIW I think that the minimum wage should be replaced with a robust social welfare net that approximates the results of the minimum wage.

 

[metalhead]

"Pretty basic economic realities" none of which actually serves to destroy my point. What matters is whether the minimum wages transfers real income share to lower-income people...which it does.
People do not buy things that are all made locally, no, but I was specifically talking about the 'bars and restaurants', which can't be outsourced and sell something that (obviously) must be 'purchased locally.'

Yeah...in theory. But there's not even a slight indication that this height is going to be exceeded by the minimum wage increases that are actually on the table.

Unemployment is not a problem caused by wages being too high, it's a problem caused by insufficient spending in the economy.

Unemployment can be caused by wages being too high. It isn't in reality, because wages are far below the level where they would affect employment, but there is a limit to how high you can set wages.

Higher wages will help contribute to the economic health of small businesses, sure, but my point was that it's not a 1-1 relationship. There is no reason to believe that restaurant and bar owners will be able to offset additional wage expenditures simply by selling higher volume. Studies have said that they end up needing on average something like a 2-3% price increase to offset a 10% increase in the minimum wage. Raise it by 100% in some places, and I seriously doubt your fast food restaurants won't be affected by even a 20% increase in food prices.

CBO rated the $10.10 minimum wage as costing anywhere from 100,000 to a million jobs, pegging 500,000 as the most likely outcome. Something like 16 million people will be raised above the poverty line, so even at the high end of the estimate it would be incredibly worthwhile to raise it to that level, but I don't see why we should ignore that a fairly significant increase will at least temporarily cost people their jobs. And of course, at $15/hr, the possibility of temporary pain for many people, and permanent for some, is all but guaranteed.

Wages are an incredibly inefficient method by which to transfer wealth down the economic ladder. They have always been modest enough to have basically no negative impact in terms of employment. $10 would be fairly significant as far as increases go, but even the worst case scenario is likely not to have much of a down side. $15, on the other hand, is a far bigger increase, and could have serious negative impact. As I said, we'll likely know for sure in 5-6 years when California's gets up to $15.

 

[Commodore]

>>people actually still believe in the classical nonsense that raising wages decreases employment

It may have been nonsense in the past, but as automation of most unskilled labor becomes more of a reality, then a minimum wage increases may actually start destroying jobs. Fast food restaurants are already starting to replace their cashiers with automated ordering terminals and Pizza Hut is experimenting with a 100% automated kitchen for making all the food. Those companies have heavily implied that their reason for pursuing such automation is because they don't want to pay their workers $15/hour.

See, before our technological explosion workers really had all the power because companies had to hire people to carry out the day-to-day operations of the business. Hell, even in the beginning of the tech explosion, workers still had all the power because most of the tech coming out was geared towards making workers more productive, rather than the current trend of designing tech to replace workers altogether. Technology is becoming sophisticated enough and, more importantly, cheap enough that it is destroying any bargaining power the workers may have had in the past. The scales are tipping back in favor of the corporations and there's really nothing we can do about it unless we, as a society, are willing to roll back our technological development about 30 to 50 years.

 

[El_Machinae]

We should move to this thread, I think

 

[Bootstoots]

>>people actually still believe in the classical nonsense that raising wages decreases employment

It's not total nonsense. If the minimum wage is extremely low, less than ~1/2 of the median hourly wage in the area, raising it usually doesn't appear to lower total employment. At some level, though, increases in the minimum wage do cause people to get thrown out of work because the standard capitalist process of trying to save on labor costs by reducing personnel gets thrown into overdrive. This is particularly important in an era where automation is increasing rapidly, because jobs that are automated don't usually come back.

For instance, if the minimum wage is increased to $15 for fast food workers, it becomes likely that many of them will be replaced by automated order-taking and burger-assembling machines. These already exist, but the incentive to employ them isn't large enough when workers only cost $7.25-$9/hr. At $15/hr, the incentives would shift dramatically in favor of automation.

If I were Supreme Dictator and Great Leader of the United States, I'd remove tax incentives to replace workers with machines in most circumstances: no more tax write-offs for capital purchased to reduce employment, nor for its depreciation. That would probably only slow the process down a little, though.

 

[Bootstoots]

Moderator Action: Moved a bunch of posts about minimum wage out of the Clinton vs Trump thread and into this one.

 

[Lexicus]

It may have been nonsense in the past, but as automation of most unskilled labor becomes more of a reality, then a minimum wage increases may actually start destroying jobs. Fast food restaurants are already starting to replace their cashiers with automated ordering terminals and Pizza Hut is experimenting with a 100% automated kitchen for making all the food. Those companies have heavily implied that their reason for pursuing such automation is because they don't want to pay their workers $15/hour.

See, before our technological explosion workers really had all the power because companies had to hire people to carry out the day-to-day operations of the business. Hell, even in the beginning of the tech explosion, workers still had all the power because most of the tech coming out was geared towards making workers more productive, rather than the current trend of designing tech to replace workers altogether. Technology is becoming sophisticated enough and, more importantly, cheap enough that it is destroying any bargaining power the workers may have had in the past. The scales are tipping back in favor of the corporations and there's really nothing we can do about it unless we, as a society, are willing to roll back our technological development about 30 to 50 years.

What you are describing has been operative more or less since the beginning of the industrial revolution, and even earlier. Marx recognized it all the way back in the 19th century.
But, I think you're completely off-base if you represent the minimum wage level as having a major effect on the processes that cause this to happen, considering how few workers are actually affected by the minimum wage.

It's not total nonsense. If the minimum wage is extremely low, less than ~1/2 of the median hourly wage in the area, raising it usually doesn't appear to lower total employment. At some level, though, increases in the minimum wage do cause people to get thrown out of work because the standard capitalist process of trying to save on labor costs by reducing personnel gets thrown into overdrive. This is particularly important in an era where automation is increasing rapidly, because jobs that are automated don't usually come back.

For instance, if the minimum wage is increased to $15 for fast food workers, it becomes likely that many of them will be replaced by automated order-taking and burger-assembling machines. These already exist, but the incentive to employ them isn't large enough when workers only cost $7.25-$9/hr. At $15/hr, the incentives would shift dramatically in favor of automation.

If I were Supreme Dictator and Great Leader of the United States, I'd remove tax incentives to replace workers with machines in most circumstances: no more tax write-offs for capital purchased to reduce employment, nor for its depreciation. That would probably only slow the process down a little, though.

It's nonsense when it's used to object to raising the minimum wage to $15 over the next four years.
Where is the actual evidence that minimum wage increases really cause these effects? In theory, sure, you could raise the minimum wage to $100 or more, but is that even remotely on the table? No.

http://www.npr.org/2016/04/01/472716129/one-year-on-seattle-explores-impact-of-15-minimum-wage-law

 

[Zelig]

If I were Supreme Dictator and Great Leader of the United States, I'd remove tax incentives to replace workers with machines in most circumstances: no more tax write-offs for capital purchased to reduce employment, nor for its depreciation. That would probably only slow the process down a little, though.

Why do you want to sentence people to working menial jobs which could be automated away?

It's like trying to encourage employment of human alarm clocks or switchboard operators.

 

[El_Machinae]

It may have been nonsense in the past, but as automation of most unskilled labor becomes more of a reality, then a minimum wage increases may actually start destroying jobs. Fast food restaurants are already starting to replace their cashiers with automated ordering terminals and Pizza Hut is experimenting with a 100% automated kitchen for making all the food. Those companies have heavily implied that their reason for pursuing such automation is because they don't want to pay their workers $15/hour.

See, before our technological explosion workers really had all the power because companies had to hire people to carry out the day-to-day operations of the business. Hell, even in the beginning of the tech explosion, workers still had all the power because most of the tech coming out was geared towards making workers more productive, rather than the current trend of designing tech to replace workers altogether. Technology is becoming sophisticated enough and, more importantly, cheap enough that it is destroying any bargaining power the workers may have had in the past. The scales are tipping back in favor of the corporations and there's really nothing we can do about it unless we, as a society, are willing to roll back our technological development about 30 to 50 years.

It's a minimum wage problem, but it's also a living wage problem. And 'rolling back technology' is obviously not the way we want the worm to turn.

But a technology that can replace a $15/hr minimum wage worker is only one tick of the Moore's Law clock from replacing a $7.5/hr worker. So if you see the problem at $15/hr, it's already worth worrying about.