Monday, May 08, 2006

Minimum wage.

No Longer Getting By: An Increase in the Minimum Wage Is Long Overdue

Amy Chasanov's Economic Policy Institute briefing paper explains why minimum wages are a good idea and refutes the usual conservative/libertarian arguments against them.

Added to the Government And Economics index.


Glen said...

The silliest thing in that briefing paper is "Figure 1" charting the minimum wage versus average hourly earnings. Is that the right metric? Do we really want it to be illegal to offer somebody a job at less than half the average wage, no matter how ludicrously high the average wage gets in the future relative to what it was in 1950?

Then there's this bit:
"In 2004 dollars, the 1995 minimum wage was worth $5.19, compared to current $5.15 minimum wage....This decline in the real value of the minimum wage over the last seven years translates into lower real wages for millions workers and contributes to the income gap between poor working families and the middle class.

Gee, that sounds like a powerful argument in favor of...increasing the minimum wage to $5.19? After all, those pennies add up! In this case, they add up to a whopping $80/year. Heck, let's make it $5.20! What, you want how much? $7? Why, exactly?

And then they use the Card/Krueger study without mentioning any of the problems with it. If anyone actually believed increasing the minimum wage couldn't increase unemployment, they'd argue for a minimum of $100/hour. Hey, let's make everybody rich! Fortunately they don't swallow their own arguments, so I don't see why the rest of us should.

Why on earth should the minimum legally allowable wage be "enough to raise a family", given that most of the people making that rate aren't trying to raise a family with it, given how few people subsist on that rate alone for a significant length of time, and given the existence of other programs to help those very few who are trying to raise a family on such a low wage?

The bottom line is that raising the minimum wage hurts the poorest people in society by cutting off the bottom rungs of the economic ladder.

Mike Huben said...

Glen, you're very good at putting words into other people's mouths. They explained Figure 1 as illustrating "widening the gap between low-wage workers and the middle class". That happens to be a valid social justice issue.

The $5.19 is obviously a typo: you'd expect significant inflationary reduction of the value of the $5.15. In another document, I found: "$5.15 today is the equivalent of only $4.23 in 1995." So, likely they meant $6.19.

By the way, $80/year may seem like nothing to you, but to a poor person it can mean a significant difference. Read "Nickled and Dimed", for example.

Since the difference is really closer to 20%, almost a dollar an hour, and increasing with inflation every year, we're talking roughly a $2000/year difference. 20% is important even to well-off people like you.

I notice your cited criticism of Card and Krueger doesn't reference any study within the past 12 years. There's been a great deal of corroborative evidence gathered since then. I can't believe you haven't updated your propaganda.

As for the measure of raising families, perhaps you think that should only be allowed to the rich?

Glen said...

Can you recommend a good source on this "great deal of corroborative evidence?"

The original study struck me as looking under the lampost. That is, there's no a priori reason to think a small increase in the minimum wage should noticeably decrease the number of jobs at major fast food chains. I understand why they chose to look there - it seemed possibly relevant and easy to measure - but I don't see why failing to find an effect on that metric should convince us the standard minimum wage arguments are wrong. That said, I didn't read their book. Is their book the best source on this topic, or do you have a better, more recent source to offer?

I would have expected job losses to be in truly marginal employment. Major fast-food chains have so much investment in process and technology that their workers tend to be far more productive than the minimum wage, so even if they were making less than the new wage there's wiggle room to reduce the quality of the job - less free food, less on-the-job training, reduced hours, fewer benefits - to make up for a requirement to slightly increase the rate.

I'd expect to see a decrease in the rate of increase of job hours actually paying near the minimum, mostly at mom&pop stores and restaurants. If the less efficient non-chain restaurants are negatively impacted and have to raise prices, cut hours, or close, the chain restaurants will be positively impacted and might even gain employment, just like C&K found.

Regarding your last sentence, what I actually think is: (1) You shouldn't justify a policy that impacts a big group by the impact to a small subset of that group. In this case, a third of minwage workers are living with their parents while only a tenth are trying to raise kids. (2) Even if you do, making it harder to find a good job is a bad way to help people who are trying to raise a family.

marxbites said...

Why not raise the min wage to $20/hr, surely all that extra cash would boom the economy?

But how does raising it to $7 from $5 help the guy who's lack of experience or productivity that makes it hard for him to get a job even at the $5 level, when his production isn't also improved 40%?

He won't be hired.

So once again the redistributionists fall flat on their faces, especially when the Unions which have zero min wage earners are in such strong support. Why?

Because 80% of those that will benefit from the hike already earn $40K+/yr. And that would be all the union employees both public (growing) and the shrinking private sector union members.

Unions are just another Govt cartel granted privileges beyond the individual who pays up to 30% more for the overhead of unions on goods and services he buys not to mention his total loss of right to practice his trade in non right to work states - he either joins the union, or suffers their wrath.

BTW, historically, only 2% of the considerable violence perpetrated by unions ever gets prosecuted. OTOH, almost every single day some union manager gets caught stealing from the working membership.

And while the Sweeny's brag about how much they give to the DNC in public, their later and usually late political contributions filings curiously list about half the amount publicly admitted to.

Progressivism is, was and will remain the very statist policies and power they envied overseas. It is a regression back to that enrichment of political and financial elites we faught the revolution to cast off.

BTW, only 6 of the Declaration's signers also signed the Constitution - do you know who this new group of men were? And why the majority of the Declaration's signers were against the Constitution and refused to sign it?

As a British scholar upon reading our new constitution said, "It's all sail and no anchor". While de Tocqueville posited we'd reach tyranny in 200 years.