In response to Democratic gubernatorial candidate Angel Taveras supporting a minimum wage increase in Rhode Island from its current $8 to a kingly $10.10, both Republican candidates, according to the ProJo, have opposed the idea. Ken Block is quoted as saying, “We have seen repeatedly… that Democrat-driven mandates, like increasing the minimum wage, raise the cost of doing business and ultimately lead to fewer jobs,” while Cranston Mayor Allan Fung declared, “Raising the minimum wage isn’t a solution. It’s a symptom of a larger problem.”
Are Block and Fung right when they say raising the minimum wage will have an adverse effect on Rhode Island’s already struggling economy? The short answer is no, and the truth is that economists have known this since at least 1994 when David Card and Alan Krueger published Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.
Card and Krueger did an analysis in 1992 when New Jersey raised its minimum wage from $4.25 to $5.05. Contrary to what Ken Block seems to believe, the study found “no indication that the rise in the minimum wage reduced employment.”
As to Fung’s position that raising the minimum wage isn’t a solution, one needs to ask, “A solution to what?” If we are looking for a solution to the problem of how to keep workers poor and minimum wage employers rich, then Fung is right. However, if we are looking for a way to potentially lift hundreds of thousands of low paid workers out of poverty, then raising the minimum wage is a solution worth pursuing. A report from ROCUnited shows how this is possible.
Both Block and Fung, it seems, are content with the status quo, in which large corporations and other other businesses underpay their employees. This puts the burden of public assistance for these underpaid workers squarely on the taxpayers. Raising the minimum wage, however, does not put any additional burdens on the taxpayer, and in fact, by getting people off public assistance, tax burdens will be lowered.
To those who think that raising the minimum wage will just benefit a bunch of teenage kids working for date money or people too lazy to find real jobs, this chart, from the AFL-CIO and put together with info from the Bureau of Labor Statistics, should dispel that idea.
Its really a disappointment to me that (ex-moderate?) Ken Block, who I think has some good intentions on some issues of reform and combatting waste, seems so mean-spirited on this by trying to hold down wages of the poorest workers. Perhaps he thinks he needs to be this way to win the GOP primary.
I recall an earlier RIF post about how the problem is not the accumulation of capital – that is enormous – but its not invested here because wages/benefits of working people hasn’t grown enough to sustain demand to justify investment. I also note the Projo non-scientific poll on their site shows 2 to 1 opposition to increasing the minimum wage. What ths shows to me is both that there are a lot of mean spirited folks in our state, and that they have been allowed to dominate this (and all similar) forum. I don’t think it reflects tru opinion of Rhode Islanders.
Barry, if you don’t have a job, how much are your wages? The minimum wage has never been, nor will ever be, a job creator, but will always be a job destroyer. If there are fewer jobs because the cost of those jobs is higher than the return on that job’s existence, how’s that going to help poor people gain the skills and experience necessary to command a higher wage?
Business models in retail and fast food depend on a certain number of workers to make things happen. In a big box store, cutting workers below a certain level cuts down on the stores ability to make sales and increases shrink. Right now, due to the economy, these stores are running at a minimum. Laying off more workers will only cause the store to suffer economically in other ways. In fast food, you need a cashier, fryolater and grill person, at a minimum. Add in someone to work the drive thru and someone to clean the dining area and spot people on breaks, you start to understand why Five Guys got it’s name. You need at least five workers to handle a relatively busy fast food operation.
Raising the minimum wage will not cause either type of company to cut its workers.
“In fast food, you need a cashier, fryolater and grill person, at a minimum.”
Unless of course you have a self-serve kiosk and an automated burger maker. See Steve, the problem with your approach is that employers have the ability to substitute things of relatively higher cost for things of relatively lower cost. Right now investing in the technology to institute kiosks and burger robots is prohibitively expensive as compared to the current labor cost structure. But raise that labor cost structure high enough and the cost difference becomes less of a concern as businesses are able to plan and economize higher-priced labor. So instead of hiring 3 or 4 unskilled workers, a firm may hire just 1 or 2 skilled workers. And what happens to the 3 or 4 unskilled workers? They’re priced out of the market by the artificially high wage and they now have no job opportunities. Just look at the teen unemployment rate for all the evidence you need.
Automation is going to happen anyway. If your idea that people should just be willing to work for less than the operating costs of some future machine, then explain what happened to the bookkeeper replaced by Quicken. Should that person have just volunteered to work for less than $10 a month?
Technology, in our lifetime, has the potential to replace virtually every job currently performed by a human being, except possibly art and politics. That being a nearly inevitable process, it has little bearing on the fact that companies get away with paying their employees too little, and the cost to our society in the form of social safety nets is escalating.
Not having a decent minimum wage is simply corporate welfare.
“Automation is going to happen anyway.”
So your solution is to hurry that process along? I don’t see how that helps anyone.
“Not having a decent minimum wage is simply corporate welfare”
So what’s a “decent” minimum wage?
There’s a lot wrong with your question, “So your solution is to hurry that process [automation] along? I don’t see how that helps anyone.”
First, it is your assumption that raising the minimum wage will increase automation. You support no proof of this contention, just conjecture born out of your understanding of economic theory. “Hurry up with those robots, MIT, minimum wage just went up a few dollars!”
Second, are you suggesting that we slow down on scientific progress because it will keep people employed longer? Other countries will gladly develop the technology to make their economies more efficient. The American South lost any kind of economic advantage by holding onto the institution of slavery instead of modernizing with machinery, (in the process committing a grave moral error that haunts them to this day).
Third, not seeing how developing technology helps anyone is Luddite-inspired nonsense.
I hope you were merely being flippant and not serious.
A decent living wage is one that allows a family to live in dignity and to start building a better future for itself. It includes the means to attain basic human rights such as shelter, healthy food, medical care, clean air, clean water, proper sanitation, education, entertainment and community, for starters.
Again, I assume your were being flippant in asking.
“You support no proof of this contention”
If I have to explain to you again what the substitution effect is in economics then I don’t think we’ll have much more to discuss.
“are you suggesting that we slow down on scientific progress because it will keep people employed longer”
Not at all, I’m trying to show you how the idea of a higher minimum wage runs counter to your stated goals — to help the low income (and by extension, less skilled) earners. By artificially inflating the wage above a market clearing price, not only are you pricing out of the market people who can’t command a wage above the new wage floor, but also decreasing the relative costs of various substitutes.
“A decent living wage”
forgot to ask, can you put an exact number on it and an explanation as to how you arrived at that number? If you can’t then you don’t really believe the snake oil you’re selling
Yes, but Justin informs us that keeping folks poor and underfed (just above the starvation line ideally) keeps prices down for suburban, middle-class white guys, who should be the real concern, no? Paying those folks a living wage really just benefits the rich if you think about it the “right” way.
Raising the minimum wage is mostly a transfer from those who eat at McDonalds to those who work at McDonalds. It would have no effect on inequality. The minimum wage law should only be used as an enforcement mechanism, meaning that if an employer claims that someone agreed to work for $1 per hour or some amount that it would be unreasonable that someone would agree to, then there would be a violation if the worker was being paid only $1.
How could you not expect vast inequality to occur when you make the tax rate on income received by the rich such as: dividends, capital gains and corporate profits much less than the tax rate on wages and eliminate the tax on inheritance tax for 99.9% of all estates.
“..Equally unhelpful in terms of addressing the income and wealth inequality which results in the overinvestment cycle that caused the depression are those who emphasize various non-tax factors. Issues such as globalization, minimum wage laws, outsourcing, free trade, unionization, the increase in single-parent families, problems with our education system and infrastructure can increase the income and wealth inequality. However, these are extremely minor when compared to the shift of the tax burden from the rich to the middle class. It is the compounding year after year of the effect of the shift away from taxes on capital income such as dividends over time as the rich get proverbially richer which is the prime generator of inequality…”
http://seekingalpha.com/article/1543642
One of the most basic and unquestioned economic principles is that people tend to buy less when the price is higher and more when the price is lower. Labor is no different than any other good or service in this respect. That you and others want to believe different does not make it so.
I’m actually surprised you’d reference the Card/Krueger study given it was debunked less than 2 yrs after it was published. The debunking study was done by Neumark and Wascher and was crafted using the actual payroll data from the restaurants C/K used in their methodologically flawed telephone survey, reinforced yrs later by a study done by Hoffman and Trace. The reality is the very people the minimum wage is supposed to help — the relatively young and relatively unskilled — are the very people who are hurt by this misguided policy.
Far from debunking the study, Neumark and Wascher’s own data collection affirmed the results, when proper controls were applied, as a 1998 follow up study showed. Neumark and Wascher were interested only in debunking the study, not doing actual science. The Economic Policy Institute, a right wing think tank, is interested in keeping wages down to the benefit of its monied patrons, the same way the Heartland Institute is only interested in debunking global warming in the service of big industry.
As Moshe Adler says, “We need to turn economics from a weapon that is being used against us into a science that will show us how we can be better.”
And the Hoffman and Trace study? And what about Paul Krugman who co-authored a college economics textbook in 2011 which stated price floors above a market clearing price lead to a surplus of supply and decrease in demand? Is Krugman wrong about the effects of a minimum wage on employment?
“The Economic Policy Institute, a right wing think tank”
Except that wasn’t the group behind the N/W study.
The Hoffman and Trace study found a negative but insignificant effect on teenage employment, but a positive and significant effect on high-school dropout’s employment. In essence, the study did not find the kind of strong correlation between minimum wage and unemployment you seem to suggest.
And though the EPI wasn’t behind the study mentioned, it is groups like the EPI that misuse this kind of study endlessly, bouncing endless editorials and opinion pieces that seem to present weak and non-existent evidence as fact.
As Johnnie suggests, Block, Fung and other conservative act as if the evidence is in and conclusive, and that is far from the case. In fact, the preponderance of the evidence seems to point towards the benefits of raising the minimum wage, which include lifting people out of poverty, putting money into the economy through the people most likely to spend and stimulate it, lessening the burden on government sponsored social services, and it is a solution that does not raise taxes, but generates more a wider tax base.
These are the economic arguments. Moral arguments include lifting people and families out of poverty, paying people an honest salary for an honest days work, moving away from the economic paradigm that suggests unemployment is voluntary and that workers are “shirkers” and reducing in some small way the cast economic inequality that threatens to destabilize democracy.
“Our NJ–PA comparisons show that the 1996 and 1997 minimum wage increases had a negative effect on employment rates in PA for groups most likely to be affected by the increase. While the effects are not always large and are not always statistically significant, they are always in the same direction and they are often stronger for more narrowly defined groups that are arguably more likely to be affected.”
That’s what the economic theory has always been regarding price floors — those who you might expect to be negatively affected by an increase in the price floor are in fact negatively impacted by an increase in the price floor. It’s what Paul Krugman and countless others teach in their college econ textbooks.
You give quite the list of moral arguments you believe bolster your point. Is there any cost to an increase in the minimum wage?
I hope you are aware that “not always statistically significant” is equivalent “to sometimes statistically insignificant” as in, a number that falls into the margin of error or is so small that it becomes equivalent to no effect at all.
I leave it to you to demonstrate a “cost to an increase in the minimum wage.”
If the minimum wage could lift people out of poverty with no adverse effects for anyone, why not raise the minimum wage to $25/hr?
Yes, and if one aspirin is good why not take 100, right?
PHL, but I’m told all the evidence shows that there is no negative effect from raising the MW, so how can 100 aspirin not be better than 1. To claim otherwise is to acknowledge the results of those studies don’t tell the whole story, which Steve has been unwilling to do up to this point.
Can’t say I’ve read the study referenced. Only wanted to point out that simply because a small amount is beneficial, it’s a logical fallacy to suggest that therefore a large amount is similarly beneficial.
I don’t disagree with your statement, but I’m working with the arguments presented. Please see Johnnie’s comment <a href=”#comment-11237″>here</a>.
I pulled up one of the papers (“Why Does the Minimum Wage Have No Discernible Effect on Employment?”):
“The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.”
Note that the paper didn’t conclude there were no negative effects but that the effects included “reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners (“wage compression”); and small price increases.” That is, some positive and some negative effects outside of the directly positive effects such as reducing poverty.
This is not about just one study. Ask Allen Fung and Ken Block to site peer-reviewed studies which support their position on an increase in the minimum wage.
A totally unsubstantiated position – just because they happen to think it – doesn’t make it so. Here are a list of studies which say they are full of s**t.
Research Shows Minimum Wage Increases Do Not Cause Job Loss
Extensive research refutes the claim that increasing the minimum wage causes increased unemployment and business closures. (See list below.)
If the cost of something increases, does demand stay the same, increase or decrease?
Labor is not elastic. Wages are “sticky.” We have empirical evidence that refutes your position.
Even if you find a right wing economic article that supports it, there’s a problem. The left wing Card-Krueger paper disagrees. What to do about it?
How about a meta-analysis of minimum wage studies.
Oh, look, it has been done: http://www.cepr.net/documents/publications/min-wage-2013-02.pdf
“Hristos Doucouliagos and T. D. Stanley (2009) conducted a meta-study of 64 minimum-wage studies published between 1972 and 2007 measuring the impact of minimum wages on teenage employment in the United States. When they graphed every employment estimate contained in these studies (over 1,000 in total), weighting each estimate by its statistical precision, they found that the most precise estimates were heavily clustered at or near zero employment effects.”
Rhody, I’m asking what does demand do in response to an increase in price. Only if demand is perfectly inelastic does demand not change, and since there is no such good or service whose demand is perfectly inelastic, it’s not relevant. So my question still stands unanswered.
Oh, and yes, there is elasticity of demand when it comes to labor.
jgardner: You said the minimum wage has always been a job destroyer, but provided no evidence that this is the case. When evidence is produced that the most precise measurements on employment cluster at or near zero, you do not concede the argument, but move the goalposts into the realm of theoretical “elasticity of demand” when it comes to labor, again providing no evidence.
You ask, if raising the minimum wage has no effect, why not raise it to $25, but you could just as easily asked why not $100, or a $1000. The word “minimum” in the term “minimum wage” should provide some clues as to why not. The minimum wage should be set at the level at which a person can provide decent shelter, clothing, education, health care, etc. The exact price may vary depending on a host of factors, so no single number will satisfy every corner of the globe or every region of the United States.
Elasticity of labor demand is determined by dividing the change in employment by the change in wage. If, as the studies show, the change in labor is “clustering around zero” then the labor demand will be <1, and is inelastic.
Of course, this is only true if wages are determined the way John Bates Clark imagines, that workers earn the value of their marginal product. Clark was concerned with undermining what he saw as the natural outgrowth of socialism under the theory of wages introduced by Adam Smith. Smith knew that wages are determined by the relative bargaining power of workers and capitalists. Since capitalists have more power, they can keep wages low. Unions and laws passed by the government can help give workers more power, making the bargaining over wages more equal (and fair).
“You said the minimum wage has always been a job destroyer, but provided no evidence that this is the case.”
The minimum wage is a floor on labor. It prevents the (legal) creation of any job whose value doesn’t exceed the floor. The minimum wage is literally an attack on the unskilled worker. And who are the least skilled among us? The young. Feel free to look up the unemployment rates for those < 24yrs old, especially those < 20yrs old. Pay even closer attention to black teen unemployment rates if you really want to soil yourself.
“then the labor demand will be <1, and is inelastic”
That you can’t see how ridiculous that argument is is beyond me. There is literally no good or service on the face of the earth that has inelastic demand. The very fact that labor substitutes exist is proof of that. That your studies don’t/can’t catch substitutions for the future (building the new plant in a different state than the one being studied or using machine X in new stores going forward) vs the present (closing a factory or eliminating current positions) only points out how imperfect those studies are at capturing the actual effect of minimum wage changes.
“The word “minimum” in the term “minimum wage” should provide some clues as to why not”
Stop hiding behind the word Steve. If there are no negative effects associated with an increase in the minimum wage as you like to point out, and increasing the minimum wage has all of these wonderful benefits like lifting people out of poverty then why are you being so cheap? Logically you should be arguing for a much higher wage. Think of the millions of people who would benefit and all the additional jobs that you’d create if the minimum wage was higher (and yes, you have to come up with an exact number for the country, no hiding behind regional variations).
If I follow your argument, then increases in the minimum wage always lead to greater unemployment, even in the absence of any real evidence of this effect, because no study yet devised is good enough to show what is so obviously true based on what you believe with no evidence.
Further, calculations done with economic formulas using numbers gleaned from reality are not valid if they show values that you disagree with.
Lastly, I am now required to provide a number that answers a question you have asked that has ridiculous constraints, so that you can point out how ridiculous such an answer will be.
I think we have reached an impasse.
“because no study yet devised is good enough to show what is so obviously true based on what you believe with no evidence”
Then go complain to Paul Krugman and every other economist who writes econ textbooks and teaches in their classes exactly what I’ve stated. Tell them what they know of supply and demand is utterly wrong and that, at least when it comes to labor, demand curves slope upward or are inelastic. Tell them that the economic substitution effect doesn’t exist and given demand is inelastic we can increase the minimum wage infinitely without a single negative effect. Let me know how long it takes them to laugh you out of the room.
“I am now required to provide a number that answers a question you have asked that has ridiculous constraints”
You’re the one arguing for an increase in the minimum wage. I’m simply asking you put your money where your mouth is.
As McDonald’s goes, so goes the nation . . .???
Science is not synonymous with technology. Technology has become the mechanical rabbit at the greyhound track.
I look at all the power equipment used to keep the postage stamp properties on the East Side neat and trim with nary a leaf in November; the noise pollution, the air pollution, intimidating workers brandishing their leaf blowers and weed wackers while their bodies vibrate at who knows how many cycles per minute, the dirt and dog poop rising up in plumes, making it so you have to close the car windows as you pass by them at work. One wonders why these flat lots can’t be cut with push mowers, why the yards can’t simply be raked, why driveways can’t be swept with push brooms, why low tech wouldn’t be an improvement and mean more jobs; and, one wonders, most of all, why these people who are so important and busy, who need other people to perform their menial tasks can’t pay a fair wage or just do the work themselves. Then there is the issue of bicycles and cars in the city center. Do those who encourage low tech modes of transportation deserve to be described as luddites? Technology is good as long as it exists in service to humankind, all of human kind; not as a means to eliminate the livelihoods of losers in a social Darwinistic competition.
I am definitely not a fan of the R I Foundation but I think one of the most important pieces of legislation passed this year was Gayle Goldin’s family leave bill. Unfortunately, I have trouble believing it will benefit anyone not working in a very stable middle class or upper middle class occupation. Outside of make work projects, there isn’t as much work that needs to be done as there used to be before this age of technological advancement. What to do with the redundant? Take a laissez-faire approach and watch shanty towns develop with people foraging at garbage dumps, more and bigger prisons, or establish a public policy involving euthanasia? There has to be sharing of work, serious economic redistribution, shorter working hours, less competition or there will have to be greater repression. The repressive apparatus is already in place at great expense – the military and the militarized domestic police. That is pretty much the name of the tune, as things stand today.
A raise in the minimum wage is a modest proposal. If McDonald’s stockholders do not want to share some of the profit and would either raise prices or replace workers with automated equipment to pay for an increase in wages, an intelligent population would boycott them. I guess that’s where the commercial media comes in – sustain the system by dumbing down the population.
[…] ahead. Google the issue and see what stuff comes up. If it doesn’t quite match what I said above, it’s usually […]