I have posted several times on this topic and I was hoping to avoid repetition. I'll try to succinctly summarize. One can define the true cost of minimum wage labor as the cost of housing, feeding, clothing, transporting, providing medical and dental care and providing access to the internet and communication, all at the most basic level, for a minimum wage worker. The rationale behind this is simple, If any one of these components is missing the worker will be, by definition, unemployable. There are several ways of estimating this cost and a range of estimates results, depending on locale. It's akin to estimating the poverty level. It is an uncertain estimate; yet economists can do it. This by the way, is not the usual method of setting the wage target, but I think it is better because the "true cost" is defined in a way that guarantees you will have ditched public subsidy of private wages by the time you get to the target, whereas with the usual method, of just discounting present dollars to bring the wage up to what it was in the past, there is no guarantee you've rid the minimum wage market of subsidies. The latter is an insidious form of corporate welfare. As a capitalist and a libertarian, I am opposed to corporate welfare. A helping hand when needed is good, but not hidden, continuous welfare. No two economists will agree on the best method of estimating where the minimum wage target should be set. If, however, the minimum wage target is set at the minimum of the various estimates, the result will be a conservative wage target with little risk of setting it too high. Arbitrarily, one could take the poverty level as the true cost of minimum wage labor. Still another approach is the one I mentioned above. The minimum in constant dollars is adjusted so that it equals what it was at some point in the past. One drawback is sensitivity to the inflation rate used to discount present dollars. And we all know how those inflation numbers can be "adjusted". The macroeconomic effects of raising the minimum is always followed by economists, particularly those at the Fed. The indicators they use, such as the employment metrics are lagging indicators of course. The best approach in my opinion is to go up in increments and monitor the results. There is however absolutely no doubt that the current minimum is far below optimum and is creating a drag on our economy. By delaying so long to adjust the minimum, Congress has boxed our economy into a corner. We have a lot of catching up to do, and therefore it is going to take longer than it should to get up to the target, and unfortunately, because of inflation, some of which may be laid to the increase in the minimum itself, the target may move before we get their.
A simple proof that people in the US are living in despair. The abuse of drugs is going up, the life expectancy is going down compared to the rest of the world: https://go.berniesanders.com/page/share/poverty-is-a-death-sentence
When you look at the actual breakdown of wealth in the country, the wealth curve is too steep in my opinion. Raising the minimum wage does nothing to flatten it.
Hello piezoe: I read the http://www.businessinsider.com/minimum-wage-effect-on-jobs-2016-5 article and also the paper it was based on "Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels." The paper's claims certainly flies in the face of basic economic theory. Kind of like saying perpetual motion machines actually work. And yet the authors cite scholarly studies to back up their conclusions. One has to wonder if basic business math theory still applies, namely can increased costs of labor effect the profitability of businesses so that some businesses cannot absorb the increased labor costs and will go out of business and some businesses will never get started. And for other businesses that would have hired more workers at the old wage they might end up slowing their rate of hiring because of the increased costs. ............................................. The below articles, also citing scholarly studies, dispute the claim of the revisionist literature that "modest increases in the minimum wage had a negligible impact on employment in the low-skilled and teenpopulations" pointing to flaws in the studies. "another major problem as Robert Murphy’s points out, … careful analysts will often summarize the new research in a nuanced way, saying “modest” increases in the minimum wage appear to have little impact on employment. But the proposed increase from $7.25 to $10.10 an hour is a 39-percent increase, which can hardly be characterized as “modest.” Such an increase, therefore, could well destroy teenagers’ jobs, notwithstanding the revisionist studies." .......................... Another argument made is that while raising the minimum wage was accompanied by an increase in employment in many cases. This correlation does not signify causality. One could also say that if there was no minimum wage the increase in employment would be even higher." The Effects of a Minimum-Wage Increase on Employment and Family Income February 18, 2014 https://www.cbo.gov/publication/44995 "Effects of the $10.10 Option on Employment and Income Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent" ........................................ Economists Debate the Minimum Wage Robert P. Murphy, FEBRUARY 3, 2014 http://www.econlib.org/library/Columns/y2014/Murphyminimumwage.html Economists famously argue about everything. Even so, it used to be that economists across the board—whether left, right, or center—generally agreed that the minimum wage was ill-suited to help the poor. As we still teach introductory students in Econ 101, a price floor on low-skilled labor will (at least in the textbook diagrams) lead to unemployment among the very people minimum wage legislation allegedly helps. In addition to the textbook diagrams, economists also used to rely on a seemingly impregnable body of empirical studies backing up the claim that raising the minimum wage would throw unskilled laborers out of work.1 However, starting in the 1990s, this consensus began to unravel. A series of econometric studies, relying on new techniques for holding "other things equal," challenged the existing orthodoxy.2 Once the researchers controlled for other trends, it appeared that in practice, modest increases in the minimum wage had a negligible impact on employment in the low-skilled and teen populations. Indeed, this revisionist literature has grown so influential that, recently, 75 economists—including seven Nobel laureates—publicly signed a letter to prominent federal politicians, urging them to raise the federal minimum wage to $10.10 by 2016.3 In this article, I explain why, even if the revisionist empirical studies are accurate, it still does not follow that the proposed hike in the minimum wage will be a boon for low-skilled workers. I also argue that, because critics have raised many troubling concerns about these studies, we should not accept them at face value. I conclude that economists should maintain the standard view that employers have a downward-sloping demand for low-skilled labor and that raising the minimum wage will tend to destroy job opportunities for many of those whom advocates of the higher minimum wage wish to help. Revisionist Studies Do Not Clinch the Case for Raising the Minimum Wage Let us concede, for the sake of argument, that the new wave of research is correct, and that modest hikes in the minimum wage do not significantly impair teen (or other low-skilled worker) employment. Further, let us put aside any ethical or rights-based objections one might have to government interference in voluntary contracts between firms and workers. Even if we focus narrowly on low-skilled workers, it still does not follow that raising the minimum wage is necessarily a good idea. In the first place, there is the matter of degree. Careful analysts will often summarize the new research in a nuanced way, saying "modest" increases in the minimum wage appear to have little impact on employment. But the proposed increase from $7.25 to $10.10 an hour is a 39-percent increase, which can be hardly be characterized as "modest." Such an increase, therefore, could well destroy teenagers' jobs, notwithstanding the revisionist studies. There is a second, and independent, problem: Raising the minimum wage might represent a drastic harm to the most vulnerable and desperate workers if the specific employees who would be working for $10.10 an hour are different from those who would be working for $7.25 an hour. What could happen is that the higher wage would attract new workers into the labor pool, allowing firms to become pickier and, thus, to overlook the least-productive workers, who would remain unemployed or lose their jobs to more-highly-skilled workers. I illustrate this point by using a supply-and-demand framework in which I have made the demand for low-skilled labor very inelastic. ... However, in our example, the supply curve (by construction) is a more typical shape, such that the large increase in the wage rate leads to a large increase in the number of workers seeking employment—500,000 in our scenario. There is now a significant amount of involuntary unemployment in the market for low-skilled labor; the unemployment rate would skyrocket.4 Even though (by construction) our hypothetical minimum wage has not significantly reduced total employment, it has, nonetheless, drastically impaired the functioning of the labor market. The "glut" of workers on the market means that non-price allocation mechanisms must come into play. Since there are now multiple applicants for a given job opening, employers can rely on other criteria, including racial and class background, to choose which worker gets the job. It is much more likely that an applicant will need to "know somebody" to get hired, and that teenagers from "respectable" backgrounds will be the ones to work at fast food restaurants, displacing teenagers who might be in more desperate circumstances. These concerns are not merely hypothetical. Even many economists in favor of the wage hike agree that raising the minimum wage will affect the turnover of workers. For example, one of the leading revisionist authors, Arindrajit Dube, says that in one of his earlier co-authored studies "we... find that both hires and separations of low-wage workers (teens, restaurant workers) fall in response to [a] minimum wage increase, but employment levels do not change noticeably."5 The Empirical Case on the Minimum Wage Is Far From Settled Thus far, I have argued that even on its own terms, the revisionist empirical literature does not clinch the case for raising the minimum wage. Yet the situation is even worse for the proponents of hiking the minimum wage, for the empirical record is far from settled. There is currently a healthy ongoing debate in the empirical literature. The fact that a branch of revisionist studies has arisen since the mid-1990s does not mean that the consensus has been reversed; it merely means that the prior consensus has been challenged. I will not attempt an exhaustive survey of the literature, but I do want to explain the main issues. First, a straightforward regression approach seems to validate the textbook treatment: hikes in the minimum wage are associated with a negative effect on the level of employment. This is intuitive, as it simply illustrates that demand curves in general slope downward. However, the revisionist studies argue that such a finding is spurious because of heterogeneity in the states that raise their minimum wage above the federal level. Once we refine the regressions to account for other factors that could affect employment, they argue, it is no longer obvious that hikes in the minimum wage retain any explanatory power. To get a flavor of the disputes, we need to introduce some econometric terms. Introducing more independent variables into the regression for each of the items listed below isolates any remaining effect that could be explained by the minimum wage hikes. Time trends: One can introduce a variable for the time period, so that national trends (such as the business cycle) will not distort the apparent effect of the minimum wage. State-specific fixed effects: One can introduce a variable for each state, to account for permanent differences between them. For example, Florida has nicer weather than Minnesota, and so we would not want to try to explain faster employment growth in Florida solely by the minimum wage in both states. State-specific time trends: One can introduce a variable for each state per time period, to prevent the minimum wage variable from apparently accounting for the changes in employment that are actually being driven by something else. For example, the loss of competitiveness by the Detroit automakers might cause a downward trend in employment in Michigan relative to other states over a certain time period. This is not a state-specific fixed effect because it is not a permanent feature of Michigan versus other states. Yet a national time trend would also miss it. Absent a state-specific time trend—where there are variables for Michigan-2008 first quarter, Michigan-2008 second quarter, etc., if we are using quarterly data—if Michigan just so happened to raise its minimum wage in the middle of the decline, then a regression might unfairly blame this policy move for too much of the (relative) decline in teen employment. Construction of control groups: One of the most advanced techniques is to construct pairs of contiguous counties lying on opposite sides of a state border. This is the favored method of Dube et al. (2010) and subsequent articles; it is a generalization of the "case study" approach of Card and Krueger's famous 1994 paper. Dube and his co-authors argue that regressions run on this smaller universe (rather than on the entire set of counties for which we have data) give a much crisper indication of the true effect of minimum wage hikes. Now that I've reviewed some of the terminology and methodological issues, I can summarize some of the key arguments. Dube et al. (2010) concede that if we rely merely on general time trends and regional fixed effects, we will, indeed, see the old consensus: the minimum wage destroys low-skilled jobs. Yet if we include regional-specific trends indexed by time period, the influence of the minimum wage begins to disappear and, in particular, using their preferred control group method (of contiguous county pairs) completely obliterates the textbook finding. The minimum wage may even have a positive impact on employment. On the other hand, Neumark and Salas (2013) provide a summary and critique of the revisionist studies. For example, they show that the results of Allegretto et al. (2011) depend on a very particular choice of time period and on a particular "functional form" of the state-specific time trend. If Allegretto et al.'s same regression were run on a different portion of the time period they chose (which had recessions at the start and end), then the minimum wage would appear to hurt teen employment after all. Moreover, even using Allegretto et al.'s original time period, Neumark and Salas merely allowed the state trend variable to be a higher order (not just linear), and, once again, the result was that the minimum wage hurt employment. As Neumark and Salas put it, "Thus, [Allegretto et al.'s] claim that underlying trends that vary by state generate spurious evidence of negative minimum wage effects on teen employment is clearly not true. Rather, only with a very specific form of controlling for this spatial heterogeneity" do the revisionist results hold up.6 Neumark and Salas directly tackle the contiguous county control group method, but their arguments are difficult to summarize concisely. What we should note is their general warning about Dube et al.'s desire to control for "spatial heterogeneity....
Hello piezoe: Thanks for the answer. Perhaps you basically mean the minimum wage sb a living wage. I don't understand what you mean by the statement. “The rationale behind this is simple, If any one of these components is missing the worker will be, by definition, unemployable.” Please explain. In any case any number the government comes up with is arbitrary and is not determined by market forces but by government fiat. I believe the higher minimum wages improve the economy idea is illogical and the studies referenced in the paper referenced are flawed. See my reply to your earlier post. You say “The best approach in my opinion is to go up in increments and monitor the results.” What results exactly ? Economies have many different variables that can interact in ways that are not always easy to predict. Raising the cost of labor can be accompanied by increased unemployment, reduced increases in employment or no change at all. How can government bureaucrats set a one size fits all wage by monitoring results that can be effected by many other factors than the minimum wage ? Well here's an expected and logical result. The Effects of a Minimum-Wage Increase on Employment and Family Income February 18, 2014 https://www.cbo.gov/publication/44995 "Effects of the $10.10 Option on Employment and Income Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent" …................................................................................................................................. I see in that paper by Hanauer you referenced it says: “When workers have more money, businesses have more customers and hire more workers. That is the virtuous cycle that has always described the way market economies actually work.” That statement is complete nonsense. “Free markets are created by people who disagree on value but agree on price.” The people who make up the economy should make the decisions not some bureaucrats. Hanauer seems to be saying that the government increasing the minimum wage will result in higher paid workers and businesses having more customers and the businesses will in turn hire more workers. So if this is truly the wonderful result of increasing wages, then why don't businesses just pay higher minimum wages on their own with out the government forcing them if it is such a good idea ? The key concept I am missing in your argument and don't understand is how can an arbitrary minimum price of labor make the economy better off ? If maximizing the productivity is the goal of an economy how does a higher minimum wage set by the government make the minimum worker more productive ? It doesn't. Here's another deal breaker for the more than modest increase in the minimum wage idea. If a company has workers making $7.25 an hour and then later has to pay workers $ 15.00 an hour. Will that company keep the minimum wage workers that were only worth $7.25 an hour or will it seek out higher skilled workers who are actually worth $ 15.00 an hour ? In other words the worker worth $7.25 an hour is still worth $7.25 an hour but now he/she has to compete with workers who are actually worth $ 15.00 an hour. Good luck with that scenario. You said earlier “In reality, there is hardly ever a free market where, as in in your scenario, labor and employer are equally free to accept or reject an offer” So how does government intervention in the market make it more free when it sets an arbitrary minimum wage that makes it illegal for people who are willing to work for less than the minimum wage ? You say you are a libertarian. But a libertarian means you should be opposed on principle to state interference in the economy which is anti-free markets and anti-libertarian. There is also a moral aspect to forced government wage price fixing. Namely the idea of theft. The below post I saw sums up that issue quite nicely. And government sponsored theft is most definitely anti-libertarian. https://mises.org/library/yes-minimum-wages-still-increase-unemployment Comment by Edward V2.0 to Jasonnit "... The more important question imho is the principle, whether government has the authority to mandate a wage at all? Employment is, as you say, a mutually agreed upon exchange, formally established by contracts. I'm questioning the government's authority to intervene on behalf of either side. The subject of theft arises when government intervenes, thru use of coercion, on either side of the voluntary agreement."
It does have an beneficial effect on wealth distribution according to economists, but it's taken 30-40 thirty to forty years of supply side economics to create the distribution we have today, it will take decades to correct the imbalance.
This is a very good article on Libertarianism https://en.wikipedia.org/wiki/Libertarianism We disagree on a premise, viz., that free markets actually exist on other than a localized micro scale.
In this usage "true by definition" means, that the proposition that to be employable a worker must be clothed, housed, fed, etc., is an Axiom. It may be useful to assume the axiom is true, i.e., "true by definition," even if the axiom is not entirely true in every case. The requirements of every employer are not identical, however in the macroeconomic world it is only necessary to consider what is true in general. For example a person with rotten teeth, horrible bad breath or visible open sores on their body because of untreated medical conditions might be employable for a few jobs, but in general they would not be employable. A person unable to be transported to their work place would be unemployable. A person who can not be communicated with would, in general, be unemployable, etc.
I could easily be mistaken here, as it has been some time since I looked at the cbo study, but as I recall there was a range of impact on employment given not a definite number. Was it something like between zero and 500,000 perhaps? Let me say that most economic studies of real instances of raises in the minimum wage have concluded that between 1-%5 of minimum wage jobs were lost, with the losses concentrated at the bottom end, i.e., at the actual former wage floor. But of course one expects the overall benefits to considerably outweigh this small number of jobs lost at the low end, or one would not advocate a rise in the minimum at all. A rise in the wage floor is probably an ineffective way to fight poverty.
1. wow... reality... jobs are lost. leftist... that ok because we want to believe its a good thing. Pretty much what Jerry Brown said as he was signing a minimum wage hike. This approach to govt by the left was properly called moral narcissism. 2. Then and this is what really bugs me... you can't even get these economically delusional moral narcissists to engage on the idea that by importing cheaper labor at one million people per year... they are taking even more jobs away from the people they are pretending to wish to help. 3. you have a job shortage... you sell your party out to the business who want cheaper labor... you therefore bring in skilled workers on H1-Bs and non skilled by a million a year... and allow 20 million illegal aliens in. Driving up the costs of living and driving down the wages of constructions workers and restaurant workers... Then you say lets create a minimum wages and destroy more jobs. What the hell is wrong with you all on the left? And instead of also halting immigration you... deport even fewer illegal aliens than you bring in new groups of people who may even be terrorists. 4. And then you wonder why people are voting for an outsider who says he will stop this crazy shit.