The Minimum Wage
The minimum wage has been a big part of this year's election cycle, mainly due to Bernie Sander's campaign and his idea of a national minimum wage. There has been lots of discussion of this, but most of it is just, well, bad. There are really two things that one can point to as to why wages above the market wage can be good.
The minimum wage has been a big part of this year’s election cycle, mainly due to Bernie Sander’s campaign and his idea of a national minimum wage. There has been lots of discussion of this, but most of it is just, well, bad. There are really two things that one can point to as to why wages above the market wage can be good. The efficiency wage argument and monopsony.
The efficiency wage argument goes like this, firms paying a wage above the market clearing wage has two possible benefits to the firm. The first is that with wages higher than the market clearing wage the firm can reduce the costs of employee turnover. This part of the story goes something like this, a worker builds human capital that is specific to that employer. He knows “how things work there” and as he learns these things he becomes more valuable to the employer. For example, if he understands how the data systems work and can get data that is accurate and quickly he’ll be seen as more valuable than say a new employee that has yet to learn these things. If this employee leaves that human capital goes with him and the firm loses and will have higher costs until a new employee can acquire that human capital. The second line of this theory is that by paying workers more these workers will be more productive, thus the higher wages “pay for themselves”.
But, there are a number of problems with this story as a justification of the minimum wage and unemployment. The other part of the narrative of the efficiency wage is that it causes unemployment. The advocates of this view argue that one way to check the validity of this hypothesis is that jobs where the efficiency wage hypothesis holds will have more applicants than there are jobs–i.e. there is an excess supply of labor….which is pretty much the definition of unemployment. Second, the efficiency wage does not say that all wages should be the same or even have the same differential between the market clearing wage and the efficiency wage. That is, one market where the market clearing wage is $10 the efficiency wage could be $12 whereas in another market the market clearing wage is $12 and the efficiency wage is $13. Setting the wage in both markets to $15 would result in an inefficient wage. The whole idea of the efficiency wage is that it is efficient for a firm to determine that wage and implement that wage, not have some diktat issued by a guy in a funny shaped room. The last problem is that, even if it turned out that the efficiency wage for every market was $15/hour, if legislation is passed dictating that is the minimum wage everywhere, then the story about greater productivity goes out the window. As a worker I would not have to be more productive to keep that job because that is the minimum wage I am going to get at that job no matter how productive I am. Aaand the story of reducing employee turnover takes a hit too. If the wage is the same everywhere, then as a worker I’ll have less incentive to not switch jobs. The idea behind reducing employee turnover is that unless the other job is also offering a efficiency wage I’ll not want to quit. But if every job has the same wage by government diktat….
And, to be clear, I think there is likely something to the efficiency wage story. After all, what happens at the market clearing price? Markets clear. So for example if you walk into the grocery store where all prices are exactly at the market clearing price what would you see on the shelves? Nothing. Markets have cleared–i.e. there is nothing left to sit on the shelves. So prices have to be such to ensure there is stuff on the shelves when we walk into the grocery store. Why would this not hold for labor as well and wages. Of course, at the same time a permanent full time job could be argued has a lower wage. After all, we could all go out each day to the market and sell our labor services. But, most of us prefer the sure thing vs. the uncertain thing, so we take a full time job at a lower wage rate knowing that we’ll have a steady stream of income. This goes against the efficiency wage hypothesis. They could both be true though. I might be willing to take a permanent position for $12/hour and my employer might be willing to pay me an efficiency wage for $15/hour. In this case, I’m better off and my employer is better off. And that is the beauty of markets they are not zero sum, but positive sum (at least ex ante).
The other story is monopsony which kinda sounds like monopoly and it is kinda the same thing, but a monopsonist is a single buyer of a good. In this case the monopsonist will set the price too low whereas a monopolist would set the price too high. In the case of monopsony a minimum wage or setting the wage higher than what the monopsonist is paying can result in both an increase in employment, no increase in unemployment, and an improvement in the income for those workers affected by the minimum wage. This is the view of David Card (as in Card and Krueger).
However, this story is also not without its problems. Monopsony only works when there is no competition. If there is competition then the story falls apart. If I try and pay a monopsony wage the people I want to hire will go to my competitors. My employees will also see employment elsewhere. And if having a high turnover rate for employees is costly, then I’ll be incurring higher costs. So competition will lead me to increasing the wages I pay whether I want to or not.
Further, note that a minimum wage can result in increasing employment, but that is not the position of those who argue increasing the minimum wage won’t raise unemployment. They do not argue raising the minimum wage will decrease unemployment. Further, they argue their results only hold for small changes in the wage rate, not large ones. But the monopsony argument rests very much on the notion that the demand for labor is inversely related to the wage rate. Or to explain it differently, the monopsony argument not only accepts that was wages go up the demand for labor goes down, it won’t work without it. Whereas a monopolist restricts supply to artificially raise the price and capture economic rents, the monopsonist restricts the number of employees to drive down wages and capture economic rents. One solution for the monopolist is to set a price ceiling, maximum price the monopolist can charge. If this price ceiling is below the price the monopolist would charge absent the price ceiling output will increase as per the law of demand. Similarly with the monopsonist, a minimum price (wage) will result in the monopsonist hiring more workers–i.e. employment goes up and unemployment goes down.
But like monopoly monopsony is probably not the typical situation. When there are many potential employers of low skilled labor it is hard to argue that any one firm has monopsony power at least everywhere and at all times. It might be true in some locations and for some time periods. So again, if a national minimum wage is set at $15/hour while it might increase employment in those labor markets where there is monopsony power, in those markets where there is competition it would reduce employment. If this is the case, which I find more likely than either competition everywhere all the time and also more likely than monopsony everywhere and all the time, then a one-size-fits-all policy of setting the minimum wage nationally to $X/hour is likely not going to be a good one.
Finally, I’ll address what I consider a non-argument for the minimum wage. This position relies on some variant of the story, “If we pay low skilled workers more money, they’ll spend it, meaning more economic activity and thus the increase in the minimum wage pays for itself.” This is just stupid. Especially stupid because if we replaced minimum wage with “tax reduction” these same people putting forward this story would scoff. But the minimum wage is, in many ways like a tax. Like a tax the minimum wage comes with a deadweight loss. You could get to the minimum wage by also placing a per unit tax on the employer and transferring the money to the worker. So if a tax reduction is unlikely to pay for itself on the tax revenue side, the same is almost surely true for the minimum wage. Further, people making this argument need to go back to Frederic Bastiat’s essay on the cobbler, the glazier and the young lad who likes to throw stones through windows. In that story the young lad breaks the cobbler’s window. The cobbler hires the glazier to replace it and people wrongly conclude, no worries that resulted in increased economic activity. What those people making this argument fail to grasp is that the cobbler could have spent that money buying bread from the baker, meat from the butcher, or any number of other goods or service, but now he cannot so there is no new economic activity–i.e. they failed to take into account opportunity cost. Further, the stock of wealth wealth has been reduced so in the end, society is no better off. Same thing applies here. That money for the minimum wage has to come from somewhere and it is strains credulity to think that that money would not have somehow entered the economy save for an increase in the minimum wage. Sure, maybe it wouldn’t have. Maybe the people with that money would have stuck it in a mayonnaise jar and buried it in the backyard, but absent that it would have somehow gotten into the economy and resulted in economic activity. Further, that part about deadweight loss…yeah, taking the money from whomever had it before and giving it to the workers…you can’t give it all to them due to the deadweight loss. So you also end up with less economic activity. If you make this argument you are basically saying, “I know nothing about economics at all.”
Lastly, I am not opposed to using price floors, ceilings or even price controls when there is sufficient reason to use them. A good case of this was the California electricity meltdown. In that case the market was clearly broken. The solution was quite obvious, set a “soft” price ceiling which was based on the cost of the least efficient generator to clear the market. It took months, but when the FERC finally intervened and did that…the market settled down, rolling blackouts and brown outs stopped being a Thing™ and people got to work figuring out how to fix that market. I am just not convinced that the low skilled labor market is “broken” as the California electric market was.
Steve, where’s the follow up article where you mourn the lost economic activity that comes from inflated public sector CEO salaries and bonuses?
Wow, that was … a lot of words. But all this theory really ignores the important point.
My problem with the Fight for 15 is this. Let us say that the connection between raising minimum wage and increased unemployment is disputed (not “debunked” in any meaningful sense and certainly not for such massive hikes). That, in essence, makes the $15 minimum wage a gamble on economic theory.
But if that gamble fails, the consequences will be devastating. Long-term unemployment is one of the worst things that can happen to someone. On this, the research is not mixed at all. Lower lifespan, worse health, lower lifetime earnings. And if that gamble fails, it will not be paid by the politicians and labor leaders pushing for it, by people at the margins: high school dropouts, convicted criminals trying to get their lives together, etc. And even if that gamble might work in New York or LA, it’s not going to work in small rural towns where a $15 wage could literally price the entire job market out of existence.
So I’m glad we can talk about this theory and that the Democrats’ pet economists will claim a theory seen as absolute a decade ago is now “debunked”. But the downside risk is damaging the lives of hundreds of thousands or millions of people at the margins.
Honestly, this is the Phillips Curve all over again.
So many words…
When employers pay so low that the worker qualifies for government benefits, the employer is being subsidized by the government — and a minimum wage limits that subsidy. The market is distorted, so that some work that could not be done profitably is still done, whether it makes sense or not.
Now, a living wage is not constant across the country — it really should be calculated using a basket of goods (grocery, rent, utilities, used car) on a county by country basis. But the federal poverty line should also be calculated the same way, and benefits that get means tested should use that as the basis.
$15/hr is too low in NYC and SF, but likely too high in Podunk.
Garbage in, garbage out. Bad assumptions a dumb post make.
Government is the currency monopolist. It controls quantities and demand by its own spending. Government is also the national price-setter. It sets a price for money through its central bank, it sets prices for goods and services by the prices it chooses to pay and it sets a price for labor by determining how many hours work are required to purchase a unit of those goods or services.
Business plays a subordinate role in this process, responding to government sector demand by raising or lowering profit expectations for a given level of employment. If expectations are sufficiently higher demand for labor is higher and wages can rise. If expectations are satisfied for a lower level of employment then wages remain flat. The notion of a price for labor set by market-clearing is quaint and 200 years out of date.
No, they wouldn’t. This is made up.
Bastiat’s essay was a moral fable. His point was it’s wrong to go about breaking a shoe-maker’s window to please the glazier. It wasn’t an economic treatise on money, wealth and credit. That vulgar austrians/right-libertarians think it is demonstrates that hyper-simplistic a priori thinking again.
Oh, missed this gem:
This assumes away trade deficits, alternative luxury goods (like art, the purchase of which has no effect on employment) and corporate cash holdings in the trillions of dollars and assumes a primitive, non-existant loanable funds system in which loans must be financed with prior saving.
The minimum wage in this country should be zero.
No of course the immediate response is going to be this nobody will work for that, and that’s exactly correct.
So comma wage and price controls automatically get handled in the negotiation process between the employer and the employee. No governmental action required. Or for that matter desired.
I must say, it’s an interesting experience to come across nearly 2000 words of ‘analysis’ of the minimum wage question that (1) only considers it from the firm’s point of view, and (2) thinks that’s not a flaw.
@Ben Wolf spotted one key problem immediately. Until you’ve accounted for the cost (and inefficiency) of subsidies to those who are not being paid a living wage, your analysis is simply wrong. You need to either simultaneously argue against both minimum wages and safety nets (which I assume is your actual position, based on past writings) or talk about how to optimize the whole system, not just the pseudo-free-market part of it.
@Hal_10000:I agree with
some of your points. In this area a $15 minimum wage is going to eliminate a lot of the people who are needing the jobs that do not require high skills. A manager will have people with more education, skills, and experience to pick from to hire for fast food, theme park, or store workers. The high school – college students will be out. Another effect would be a move to more automation, such as self serve ordering at the fast food places.
@DrDaveT: I’m akin to a social democrat, favoring both a very strong safety net and a national jobs guarantee. Search “functional finance” if you would like a more thorough understanding. Ah, hell, here’s a decent direct link:
https://en.wikipedia.org/wiki/Functional_finance
Regarding subsidies, there is no state in a capitalist economy in which businesses are not receiving them. Business as we know it would not exist were it not for government’s position as as the top spender/money creator. The only question is what form the subsidies take.
@Eric Florack: Individuals do not have the necessary power to negotiate against an established firm. If they did government wouldn’t so heavily intervene to weaken unions; there would be no demand for them
While I think that we ignore microeconomics at our peril, I also think that the web of subsidies, not just to businesses but to certain classes of workers, is so thick the only way to determine the effect of an increase in the minimum wage is empirically. There are some places where an increase in the minimum wage might even have the effects its supporters claim; others where it won’t.
The world is complicated. A priori solutions won’t work as advertised. As H. L. Mencken wisecracked “there is always a well-known solution to every human problem — neat, plausible, and wrong.”
And through all this discussion, where was the part where we considered the effect on the human beings doing the work?
Sorry, is that me being too liberal-ish? Too non-STEM?
The overlap between libertarianism and sociopathy is great. If I can get a man to work for a crust of bread, gosh, what could possibly be the counter-arguments? Hmmm, let’s ask some dead economists what it means to be 35 with two kids, working like a dog to make less than it costs to feed a dog.
People who reduce human beings to ones and zeros in some grand ideological theory are a plague on the human race. A disease of civilization.
Just amazingly revealing, unintentionally of course. And Libertarians wonder why no one listens to them. Aspergers much?
@Gustopher: @DrDaveT:
The notion that everyone who works full-time should earn enough to support a family comfortably seems extremely reasonable, as does the notion that conglomerates like Walmart shouldn’t be able to foist their health care costs and the like to the taxpayer. But surely not every job is worth a middle class income. Jobs that used to be done by teenagers to earn pocket money are now being done by grownups; they didn’t magically become more valuable.
@Ben Wolf:
That outlook worked out really well for the Soviet Union.
The market determines the value of the dollar, which has a value that floats.
If consumers lose confidence in the currency, then they will turn to barter and foreign currencies. Some nations don’t even have their own currencies because they can’t produce a currency that the markets will support.
The government can’t make you want a currency; the currency itself has to inspire enough confidence so that people will want to use it. The Weimar inflation provides an example of what happens when consumers try to convert their currency into goods as quickly as possible due to their lack of confidence in the money.
If a currency has little value and there aren’t many viable alternatives, then people will respond by doing as little work as possible. Cuba provides a fine example of how this works in the real world.
So no, printing money by itself means little. Money itself is a sort of good and it has to be desirable enough for people to want it. Government can’t just set prices in a vacuum, in spite of what you may believe.
I like articles by economists. They make my avatar laugh.
1. Economist seeks to understand how a pocket watch works.
2. Economist takes a microscope to a cog.
3. Economist declares all gears turn clockwise.
“which is pretty much the definition of unemployment”, indeed.
By that logic a sale at Walmart is the very same thing as a run on the market.
@James Joyner:
Jesus, you too?
You begin from the assumption that the value of a job is entirely an economic calculation. Of course that requires ignoring the human element entirely. Poof! Humans all gone. Now let’s look at the wonderful theoretical construct which will work perfectly. . . so long as we pay no attention to the humans.
Do we have no interest in the welfare of our citizens? Do we ignore the social stability that a job represents? Do we just dismiss the positive effect that jobs have on drug use, suicide, crime? Is there no value in a man or woman being able to support their family? If we require a breadwinner to work 70 hours a week because he’s being paid in table scraps, what effect does that have on the breadwinner’s children? Figure he’s helping them with their homework a lot? Reading to them?
Have you or Verdon ever actually worked a minimum wage job? Or talked to actual humans who work minimum wage jobs other than to say, “I’d like extra pickle?” It’s honest to God like listening to white people talk racism, or men talk about sexism.
Well, in theory this job is only worth 12 cents an hour, so, yeah, sure you’ll starve to death while working but hey, whatcha gonna do? I mean, theories and all. Here, feed your kids this theory. It’s Austrian, so it comes with whipped cream!
@Eric Florack:
Without, of course, benefit of the terrible unions – because “right to work”. Do I have it correct?
@James Joyner:
Does it? Where did the idea that one income should be enough, or the adjective ‘comfortably’ come from? But I see where you’re going…
…straight to the straw man.
Who has said that every job should pay “a middle class income”? Are you honestly claiming that $15/hour for 2200 hours a year is “middle class” in today’s America? If not, what are you talking about?
@Pch101:
Red-baiting hyperbole.
You’ve confused domestic values with exchange rates.
They aren’t developed capitalist economies with modern central banks.
Yes it can. It taxes you and if you don’t find paid work you will go to jail.
No, it doesn’t. It shows what happens when a nation loses a war, is forced to pay reparations in commodity form and loses its productive capacity when a foreign power annexes factories.
This is now in the “make it up as you go along” phase.
Sure it can. It sets the price for loans via the Federal Funds rate which affects all other prices. It sets the value of the currency by altering the supply via vertical transactions and the prices it agrees to pay for the $4.5 trillion in goods and services it purchases every year.
@Ben Wolf: Also, money cannot be a “good.” It requires no inputs to produce, cannot be liquidated and is not real wealth.
I’d rather get a job as a full-time cat bather than subject myself to Steve Verdon analysis of minimum wages, but I imagine it’s little more than
and Eric at least considered the value of our time.
@James Joyner:
While this is true, if we’re talking about the kinds of employers that usually pay minimum wage, ownership (not necessarily management) gets their “middle class income” -and sometimes better- while the workers don’t. I’ll readily grant that a higher minimum wage makes this kind of business model more expensive, and jobs at those firms more scarce, but that might be a good thing in the big scheme of things.
Not sure this “jobs that used to be done by teenagers” thing is anything but a relic of the baby boom. Before McDonalds and the mall, these teenagers probably went to work at Dad’s factory or Mom’s diner.
@Ben Wolf:
Your description of how a currency allegedly operates would have suited the Soviet view of the ruble. And no, that did not work out well for them because just as you do, they wrongly believed that governments can order you to desire their money.
If a currency isn’t desirable, then people will find ways to avoid using it. And it’s amazing how ones tax burdens are reduced if there is little willingness to earn that money.
That isn’t a theory, but a fact that is readily demonstrated through numerous examples. There is a reason why Zimbabwe can’t produce a dollar that has the desirability of a US dollar and why El Salvador hasn’t had a currency of its own for over a decade. If your views were accurate, then they wouldn’t have the problems that they do — they could simply produce money and require its use.
I can see that you are an adherent of Modern Monetary Theory, which explains why you often don’t know what you’re talking about. As do the glibertarians, you have a strong commitment to believing things that are obviously not true.
@michael reynolds: I think we’re talking two different things here. A minimum wage is a government-imposed requirement on employers. I contend that there are jobs that don’t return $15/hour (plus, presumably, Social Security, unemployment insurance, healthcare, and other costs) in value to the employer. Maybe a McDonald’s or Walmart can simply absorb that out of profits, but Mom and Pop can’t.
Whether human beings deserve a certain standard of living regardless of their ability to contribute to the marketplace and whether our society can afford to give it to them strike me as separate issues. It may be that we’ll have to subsidize more people as the economy continues to shift away from labor-intensive industries.
@DrDaveT: $31,200 is pretty close to a middle income salary in parts of the country. Even at the national level, it’s well above the poverty rate, which is currently $11,880 for individuals, $16,020 for a family of 2, $20,160 for a family of 3, $24,300 for a family of 4. A single individual is at nearly three times poverty on a $15/hour minimum wage.
Regardless, if the argument for a higher minimum wage is one of fairness, it’s relatively unbounded.
@James Pearce: I’m not a baby boomer and teens often worked bagging groceries, flipping burgers, and other low-level service jobs in my memory.
As to the disparity between employer and employee, it doesn’t strike me as a shocking development. Someone earning $75,000 or $100,000 a year can’t afford to pay $75,000 or $100,000 for child care. So, either their child care provider is going to make substantially less than they do or they can’t hire a child care provider.
@James Pearce:
I did not work in a burger joint as a youngster, but I did work at Toy’s R Us for $1.60 an hour in 1970. That $1.60 in inflation-adjusted terms is now $10.04. Which is well above the federal minimum wage of $7.25 and (since it was in Maryland) the Maryland minimum wage of $8.75.
In other words, we are paying less to adults today than we paid to 16 year-olds lying about their age in 1970. Here in Marin, one of the most expensive places on planet Earth, In-N-Out struggles to find help at $12.00 an hour. Can you live in Marin on that? Of course not, our average rent four years ago for a 2 bedroom apartment was $1905.00 a month – and trust me, it’s gone up in the 4 years since. That is literally more – just for rent – than you make working 40 hours at In-N-Out, and they are a relatively exemplary employer. Go next door to McDonalds and people are working for less.
@James Joyner:
It’s wonderful how quick we are to decide that the burger flipper isn’t worth $15 an hour but the CEO of Expedia is worth $94,600,000 a year. Gotta love the free market, right? Let’s say Mr. Khosrowshahi puts in a really long week. Let’s say 60 hours. That’s $30,000 an hour, or 4,000 times what the burger flipper earns at federal minimum wage. And we’re all supposed to nod sagely and mutter nonsense about market clearing wages.
The reality is that the people at the top conspire with their fellow board members to shovel massive piles of cash into their own pockets, then whine because a single mom wants to be able to feed her children. And when they go out of business they throw regular people out of work while the CEO sails away on a huge golden parachute. That’s the system we have, but it is in no way rational.
And please, spare me the mom and pop baloney. If everyone has to pay $X an hour then no one gains or loses an advantage, it’s a level playing field. If in that environment a mom and pop can’t make it it’s because they don’t know how to run a business. Mom and pop don’t go out of business because they have to pay employees a decent wage, they go out of business because they made bad choices. 90% of big retail or restaurant or service chains do reliably mediocre work, 90% of mom and pops are completely incompetent, that’s why mom and pops fail.
@Ben Wolf:
Well, it sure helps keep an gallery owner in business. And the gallery employees in a job. I spent a fair amount of money on a vintage poster a few months ago. Last week I took the artist out for lunch and then coffee after he signed it for me, that’s economic activity that supports employment. Then I dropped nearly a grand on archival framing yesterday, I think that will probably help the folks at the framing shop stay employed. And I imagine the $$ I spent on dinner a block down the street afterwards in a neighborhood that I would not have visited otherwise did not hurt the restaurant. That’s a fair amount of job supporting $$ being spent associated with a single art purchase.
Don’t know about your neighborhood, but around here art generates a respectable amount of economic activity.
I think you might want to rethink this one.
@michael reynolds:
This. We basically have an elite few – people like Marissa Mayer and Rodger Ailes with employment conditions that literally do not allow them to come out with anything less than fabulous wealth even if they do a horrific job – standing on top of a mountain of money tut tutting over the greedy bastards at the bottom who want to be able to make enough money to eat and pay for their kids prescriptions in return for working full time.
And we wonder why our society is really not functioning so well any more…
@Gustopher:
Yeah, but benefits were deliberately expanded under Bush to help out the working poor; it’s ratchet logic to claim that expanding benefits justifies a higher wage. If you took those away, they’d just lose benefits, not be paid more since low-wage is a very easy market for employers in this economy.
TBF, the labor market was smaller then and the minimum wage was hiked throughout the 1960’s and 70’s to try stay ahead of inflation. Using 1970 as your benchmark is a bit like claiming there’s been no global warming since 1998.
I’m OK with a small increase in the minimum wage since we currently have relatively low unemployment. But I do that with great caution. The prospect of having millions of young unemployed or unemployed people should be daunting, no matter what the economy theory says.
@James Joyner:
Which is to say, it isn’t a middle income salary anywhere, even in Mississippi, and is nowhere close in most places.
Also, I think you’re confusing “middle class” and “median income”. The former is defined by a set of expectations (e.g. leisure time, home ownership, education) and the latter is whatever income happens to be in the middle of the current distribution. $31,200 is not within shouting distance of “middle class” anywhere. Indeed, the difference between the median income and what counts as “middle class” is a big driver of the Bernie Sanders thing.
@anjin-san: Employment created by spending $40 million at an auction is insignificant compared to what is created by spending $40 million on Tupperware.
@Pch101: You’re sweet. But it’s in the mainstream New Keynesian literature. Just ask Simon Wren-Lewis or Karl Whelan.
@James Joyner: A CEO’s compensation is “government-imposed” as well; you just don’t mind it.
The CEO thing is almost a strawman in debates like this, to be honest. Many people who think wages should be left to the market or who at least think that a $15 minimum wage would be problematic will readily agree that there are rents being collected in the rarefied air of CEO-land. It’s also a bit of a non-sequitur in that it really has no bearing on whether or not a livable minimum wage is good policy.
Personally, I think if we as a society decide to pursue a collective goal – in this case, making sure everyone who works is able to maintain a decent standard of living – we should pay for it collectively via direct taxes and direct subsidies. Foisting the cost of common goals on only a particular segment of society – in this case, business owners – is a deceptive and divisive practice in that it hides the true cost from the public and packages it as making “them” (whoever “they” are) pay for it.
TLDR: Increasing the EITC is preferable to increasing the minimum wage.
@R. Dave:
Not when it comes to setting a wage floor while addressing income inequality. EITC allows existing trends to continue while minimum wage diverts income from profits to wages.
@James Joyner:
“Comfortably” is a very loaded word — I would say that the working poor shouldn’t be the working impoverished.
Are those jobs worth being done then? Just from an economic standpoint, they are either needed by the employer (and thus worth the minimum wage), or they aren’t. The employer may have to cut costs elsewhere, or perhaps they are creating a product or service that the market cannot or will not bear the full cost of.
I’m sure there were companies that went out of business when we got rid of child labor, and instituted the 40 hour work week. If your company can only survive by exploiting workers, I don’t think it deserves to survive.
As an aside, I wish we would go back to the 40 hour workweek… I make a crapload of money as a software engineer, but everywhere wants to pay me 1.25 times what I want for 1.25 more work than I want to give. 50 hour workweeks just kind of suck.
@DrDaveT:
I’m going to go all 1950s-1970s, and say that middle class is a single wage earning, making enough to house a family, provide food, health care, education for their kids, and a retirement for themselves and their spouse. Plus a few luxuries, and wincing but not panicking if the car needs major repairs.
I don’t think most of the people who call themselves “middle class” actually hit that anymore. They’re really the working poor, they just won’t acknowledge it.
And libertardians are their idiot enablers.
@R. Dave:
What @Ben Wolf said.
Let’s start by putting an end to the CEO class raping companies to line their own pockets with profits they take out of the hides of working people. If nothing else the politics should be obvious: you aren’t going to get taxpayers to agree to support earnings so long as the entitled super-rich are busy profiteering off slave wages.
The CEO of Expedia (just to keep picking on this guy) can give 80 million back and still be wildly overpaid. Expedia has 18,000 employees, so if we took back 80 mil we could raise salaries $4,400 and change, which is a hell of a lot to a struggling working person. That’s a $2 an hour raise, right there, and that’s before we start looking at the CFO and the Chairman and the board members.
So, pray tell, why should Joe Taxpayer pony up that extra $2 bucks an hour which could quite easily come from executive compensation? Will Expedia suffer in any way if their CEO makes a mere $15 million instead of $94 million?
This is why the conversation is irrelevant when you dismiss human factors from a consideration of a system which has humans at its center.
Plenty of studies showing that CEO pay has Zero correlation with performance. But they’re the american aristocracy, and it simply wouldn’t do to not pay Marissa Mayer $50 million. And if some poor single mom making $8/hr doesn’t like her lot, well, (sniff) National Review correctly suggests that we should feel no sympathy as those communities fail and die and stop upsetting our betters with their presence. After all, that single mom parasite is making $8/hr, and clearly, morally, wages should be less. Like the very moral and empathetic Mr. Florack said, and Mr. Verdon probly agrees, that’s much more than she deserves.
@James Joyner:
The idea that certain jobs were meant to be educational experiences for teenagers seems like a post-Baby Boom, late 20th Century phenomenon. I mean, sure, working at McDonald’s as a young’un can teach you a few things, but the owners and franchisees know it’s an enterprise, not a school.
Your child care example is a good one, but it’s more like “hiring” someone to work on your car, instead of hiring a mechanic to work at your shop.
@Ben Wolf:
Well, you said that art purchases have “no effect” on employment, which is clearly not the case. And a $40 million purchase at auction is just one facet of the overall art market. My more modest activity also supports the little frame factory in LA that is making the frame, the glazier, and the folks that make backings and archival tape. The frame shop has been in business for over 40 years – a successful business, with all the associated benefits, instead of an empty storefront.
As for Tupperware, well, I dropped about 3K into this project in 90 days. I would not spend that on Tupperware in several lifetimes.
I don’t care much who the CEO of WalMart is, or Ford. I’m not worried much about that $20 million. The real money are the unheard Waltons and the Fords etc who sit back and make 100 million because great grand-uncle so-and-so robber baron left the ownership to them.
The wealthy aristocracy in America exists, and it’s bad for everyone, and the only way to fix it is with a very serious progressive Estate Tax. I’d have a sliding scale that let everyone inherit up to a million, 5 million, 10 million, whatever, and then rose drastically after that.
@Thor thormussen:
And don’t forget the true Libertarian doesn’t want the EITC or any other form of support for the working mom. In Libertarian world she can die in the gutter begging for scraps because: theory!
God I despise ideologues. Ideology is a box that is always smaller than the brain being shoved into it, and never matches reality. But hey, who cares so long as it lines up neatly on paper?
All ideologies work on paper. They are designed to work on paper. Communism is brilliant. . . on paper. The test is whether they work in reality. And there exists not one single spot on planet Earth where people want to live which is ruled by Libertarian precepts. The entire developed world, all of it, every single country, has a mixed economy with government oversight and regulation. There is a 100% correlation between mixd economies and quality of life.
But the Libertarians don’t like reality, reality forces them to pay for the benefits of civilization, and they are narcissistic adolescents sitting in their rooms whining because they’re being asked to take out the trash. The slogan of the Libertarian Party is waaah!
@michael reynolds: Notice how some people only mind government intervention when it benefits the poor. When government laws create corporations, make those corporations huge, and give those CEOs control to stack the boards that decide their compensation the small governmenteers suddenly fall silent.
The Walton heirs, a handful of people, have what – more money than the poorest 20% or so of Americans put together? And Wal-Mart is outsourcing a significant part of its labor costs to American taxpayers.
That conservatives think this is fine and dandy astonishes me.
@Thor thormussen:
That’s a tax increase I could agree with. Per capita income in the US is a bit under $54,000. Set the untaxed inheritance limit at, say, 200 times per cap GDP. That’s $10,800,000. Even my daughter, the world’s single largest purchaser of shoes, should be able to get by on that.
I worked at a telecommunications manufacturer not unlike CISCO which had 62% margins yet they paid their SMT line workers 8.00 hr with .01-.05 cent increases in pay. The parts they manufacturered were extremely expensive. Just how much profit can they make without being greedy?
I know of large defense contractors hiring en mass assembly line workers for $8.00 a hour ,last time I checked they were stilling getting huge margins on those products they are manufacturing.
So your flipping burgers and car washing analogies don’t apply just to those service industries but full scale high margin industries such as telecommunications and defense industries too.
This isn’t the bottom of the barrel, this is real life.
20 years ago I was young and naive and much more conservative/libertarian. Then I spent 20 years studying history and econ and corp fin and etc, and gradually understood some things.
The economic Glory Days of America happened because we let capitalism do it’s thing, then redistributed much of that money from a few rich people to millions of school teachers like my mom and truck drivers like my dad.
Capitalism redistributes wealth upward. Just like markets naturally tend toward monopoly, capitalism naturally trends toward massive imbalances. Winners get more power, which leads to more winning, etc. Simple positive feedback loop. 1) Either government balances things by redistributing money the other way, or 2) after a while, a handful of worthless people own everything, and everyone else is a serf.
America was working great when 1) was happening, kinda fine when Kennedy cut top rates from 90 to 70%, and then started going to shit when Reagan cut that in half.
Eventually we’ll get back to those rates, and we’ll have a nice country again, we just have to wait a few years for some of the really stupid conservatives and libertardians to exit the decision-making scene.
@Ben Wolf:
Well, Ben, the rich are rich because they work harder and are more moral and upstanding and virtuous. The CEO of Expedia works 4,000 times harder than the guy who cleans his office at night. And no doubt he’s a saint as well, whereas if that office cleaner made an extra two bucks an hour he’d probably just spend the money on useless crap, like food, rent, medicine, which would be nowhere near as cool as a yacht or a private jet.
@Eric Florack:
So says the parasite who sent his children to public schools, passing the cost on to folks with no children.
@anjin-san:
What’s funny is that due to Wal-Mart’s staffing policies (no more door greeters, skimping on staff at the checkstands) any given Wal-Mart has become any given jurisdiction’s biggest crime problem. Police departments have already informed several stores that they will stop responding to mere shoplifting complaints. They have more important things to do besides make up for the shortcomings of poorly managed Wal-Mart stores.
@Ben Wolf:
I’m not sure that they would be able to explain why you don’t understand New Keynesian economics.
Throwing around labels and names may seem clever to you. Unfortunately for you, that does not explain why a government’s demand for tax payments fail to make a currency desirable.
I’ve named several examples of economies that have done the things that you have prescribed yet failed to maintain sustainable currencies. If you can’t figure out that the Zimbabwe tax authorities can’t save their currency by edict or that an art gallery can contribute to an economy, then you have a lot of homework ahead of you because you are well behind the curve.
@Ben Wolf: @michael reynolds:
Your responses suggest pretty clearly that your actual motivation here is at least as much about taking away from the rich as it is giving to the poor. That, to me, is wrongheaded and counterproductive – I care about absolute inequality all that much as long as there’s a strong safety net and decent upward mobility – but if that’s what you want, the minimum wage still isn’t the right way to do it because it doesn’t primarily take away from the super rich. If what you really want to do is reduce accumulated wealth, then just do it directly via taxation; don’t wrap that very straightforward goal in a minimum wage Trojan Horse. Cynically using the working poor as a tool to extract money from the rich like that is just wrong on multiple levels.
Whoops. That should have read: “I don’t care about
absoluteinequality all that much as long as there’s a strong safety net and decent upward mobility”.I suspect that the CEO types will discover that the percentage of effective taxation will go to infinity if there’s a revolution and they end up being the ones against the wall.
This is why I’m in favor of fiercely progressive estate taxes and fiercely progressive levels of taxation, period. It’s the only way I’ve seen that works, historically, to keep a lid on the continual attempt by the rich to grab even more power and money.
@James Joyner:
No James. Walmart or McDonald’s can’t, and won’t absorb those costs and of course Mom and Pop can’t.
Luckily, there’s the government to absorb them for it.
No it may seem tragic to you if Walmart has to charge $2.99 instead of $1.99 for say, their crappy solar powered garden lights. Or if McDonalds has to charge five bucks for a lousy burger and fries. But that’s what that stuff should cost.
As to this..
The fact that you can’t conceive of a parent enlisting child care that is less than a 1 to 1 ratio of children versus provider shows just how utterly out of touch you are with how 99% of American families live.
@R. Dave:
So, let me get this straight. It would be better if taxpayers subsidized the low wages that shunt money into the pockets of the super rich. You want to protect corporate profits while burdening the taxpayer.
I should pay higher taxes so my betters can afford bigger yachts? Seriously? That’s your plan?
I don’t resent the rich, dude, in terms of income I am the rich or at least the rich-adjacent. But I’ll be goddamned if I’ll eat another tax increase while CEOs and the investor class are left free to rape and pillage. Subsidize the profits of the Walton family? Still?
That’s a political non-starter. Let the CEOs rein it in and if necessary I’ll kick in some more. But you want to reach into my pocket for the benefit of the ruling class? Hell no.
@michael reynolds:
You tell only one side of the story, Michael. Businesses react everyday to consumers who swear, swear, they would like to buy American, buy local, pay for quality etc but then trot right out and buy the lowest price item at low cost venues. Those who don’t are a decided minority. Businesses react by lowering costs else they lose the sales. And they are reacting to consumers, the ultimate boss.
All these comments are just fantasy.
This is completely true. And regarding the first paragraph, Nick Hanauer is trying to remind his rich buddies that whenever inequality gets this bad, violence tends to follow if it isn’t corrected.
So far most of his buddies aren’t listening. Too much greed.
@Guarneri:
Well, to be fair….
Starbucks and Apple, two of the most beloved brands in the world of branding, don’t really fit the “lowest price item at low cost venues.” People will pay for quality.
This was shocking to me at first, but only at first. What did I expect. They screw over everyone whenever possible. Didn’t wal-mart put the majority of their suppliers into bankruptcy over the years? They probly see that as a positive–cancels debt and reduces costs. Here’s an idea: If you made a billion dollars last year, and your employees are on public services, you pay the bill.
@James Pearce:
Costco seems to have a business model that does not involve screwing their employees or the communities they do business in.
All the adult Libertardians I’ve known were of course comfortable privileged white-collar types who all do some form of work made possible by Intellectual Property, a government-dependent concept which is completely anathema to strict Libertardian philosophy.
The only Libertardian i currently know in real life does IT for the county, because “I have to, none of the private employers pay anything.”
It’s all nonsense and stupidity.
BTW, remember Glenn Beck’s Libertardian Paradise? A few years back, how he literally said “Hank Rearden’s gonna pour some metal!”? Yeah that completely collapsed too.
@anjin-san:
As do so many other businesses. It’s actually pretty sad to see Wal-Mart and McDonalds and all these other ubiquitous but poorly run companies suck so hard. With just a little tilt in a different direction, they could be so much better.
@Guarneri:
You’re describing a race to the bottom. If everyone has to pay the same minimum then efficiency will decide the winners and losers, rather than leaving it to whoever treats his employees most barbarically. If you run a factory making shoes, and I run a factory making shoes, and we both have to pay the same minimum wage, then the winner is he who manages most effectively. Right?
You cannot pay people too little to survive and be anything but a sociopathic asshole or an incompetent. Those are the only choices: asshole or incompetent. No decent human being will pay a man less than it takes him to survive. And no one but an incompetent would need to.
Put it another way: neither your greed nor your incompetence is an excuse to screw your employees. And neither your greed nor your incompetence is an excuse to require me to keep your starvation-wage employees alive at my expense as a taxpayer.
What you need to do, Mr. Businessman, is figure out how to stay in business while paying a living wage. If you can’t do it, someone else will. If you can’t do, Mr. Walton, then fwck off and we’ll deal with Mr. Costco. That’s the big, grown-up world of business, right? The strong survive and the weak perish?
@James Pearce:
Interesting, isn’t it? I keep being told it’s a difference in business models, as if that justifies everything.
I have never dealt with an unpleasant employee at Costco or In-N-Out or Chik-Fil-A, and I’ve never dealt with a pleasant employee at McDonalds or Wal-Mart.
Some folks can sell household goods and burgers without treating employees like sh!t, and some obviously can’t. And some upthread think the taxpayers are supposed to make up the difference in wages so that the assholes survive and profit? We have to subsidize Wal-Mart while Costco handles its own business? We have to pay the wages for McDonalds while In-N-Out pays its own way?
And this is a free market?
No. Just like you don’t get to dump the toxic run-off from your factory into the town park, you similarly cannot half-pay your employees, dump them on government and demand that the taxpayers make up the difference. These are two things you cannot do, and if you can’t make a go of it under those conditions, then someone else will, and the sooner the better.
@Guarneri:
Please, find me some American made dress shirts — permanent press, because I won’t iron anything, ever, and size 18×38″ because I am physically enormous. Also, not white (French blue or striped, I have standards), and the collars shouldn’t fray after 3-4 months of weekly washing. A shirt that lasts for a year.
Because, I’m not finding them. I would love to have the opportunity to buy American, but it’s not an option. I would pay $150 for a shirt, which is about twice a Brooks Brothers shirt (which is almost the quality of a JC Penneys shirt from 15 years ago)
(Honestly, I would ditch the American made if I could get quality, but I haven’t found that either — it’s the modern inflation, prices hold constant, but quality declines)
When you aren’t presented with options, you cannot choose them.
@michael reynolds: I have the same belief about outsourcing abroad, or in fact moving anywhere. If you as a corporation have decided to move from a locality, it’s up to you to support your ex-employees for a certain number of months or years while they find an equivalent job.
The problem is, the population of the US is now made up of humans (who are supposed to act morally), and corporations, who can act like total sociopaths provided that They Make Money For Their Stockholders.
Not surprising that more humans are saying “the heck with this morality stuff; I’ll act like a corporation.”
@Hal_10000: Well, let’s go with the data from the Economic Policy Institute that starts in 1973.
Not only has minimum wage not gone up, worker productivity has outpaced compensation at an 8:1 ratio by my back of the envelope calculations. Maybe if compensation had kept pace with productivity – across the board – my tax dollars wouldn’t be paying for food stamps for an E-2 in the Army and food stamps and health insurance for a 29.75 hr/week worker at Walmart (who doesn’t get a regular schedule until the week begins and who is required to be available for split shifts; and who will be sent home without pay if there is ‘not enough work’).
@grumpy realist:
It’s of course not surprising that US corporations demand lower corporate taxes, citing various European countries, but absolutely reject the sorts of worker protections those countries have.
If US corps stopped behaving like sociopaths maybe we’d spend less on supporting their neglected workers and could afford to cut corporate taxes.
@Blue Galangal:
That’s a core problem. Give me a powerful laptop, the right software, internet access, and a cell phone & I can replace what was once a 2-4 person department.
@Thor thormussen:
And I bet he never makes the connection, does he…?
@Eric Florack: isn’t it amazing how many people who claim to be for freedom lose their minds when someone suggests providing it
Yes, of course, because the freedom of corporations to pay slave wages and rape and pillage the environment is exactly the same as the freedom of people to try to make better lives for themselves…
@An Interested Party:
Florack and his ilk are the modern-day versions of John Randolph of Roanoke, who famously declared
The meritocracy myth — the idea that those who are well off have somehow earned that on an even playing field — is the modern version of the argument from “good blood”.
Ho Hum…in the meanwhile fast food operations and others are introducing small kiosks that replace low-level food servers. Soon there will be no humans asking if “you want fries with that?” and Amazon leads the pack by using robotics to replace warehouse fulfilment clerks.
Of course no one remembers that the auto giants introduced robot welders, etc. years ago.
Everyone here leaves out education and skill sets from the job equation. Blaming corporate America’s penchant for efficiency is like blaming Silicon Valley for hi-tech..
Of course no one is doing that…what is being blamed is corporate America’s penchant for greed…