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Minimum Wage Hikes Reduced Employment of Low-Skilled Workers

SouthernDemocrat said:
Historically they always have. Its only been since 1980 or so that there has been a disparity. Its mostly due to globalization, the wide spread use of container ships, the decline of unions, technology, and various other macroeconomic forces.
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I'd agree. So you in fact have lots of good reasons why they shouldn't track?

Studies on the minimum wage are all over the place. Some show it hurts employment, others find that the low wage job market is elastic and easily absorbs small increases in the minimum wage. Usually when the minimum wage has been increased it was only increased after most companies were paying more than the current minimum wage was. That is probably why economists are so divided over the impacts of minimum wage increases.
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Studies that focus on the lowest wage segments of society rather than measuring society overall bring back disemployment effects. Studies which include things like college professors come to the startling conclusion that they aren't effected. It's like asking if getting shot is bad for your health, and then coming back with a negative answer by surveying the entire populace (and noticing no significant loss) rather than focusing on the people who are actually shot.
 
poweRob said:
Well in every industry where money and the spending of it applies.
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That's fascinating. So if the price of taco bell taco's shoots up to $100 a piece tomorrow, Taco Bell will sell as many tacos?
 
cpwill said:
That's fascinating. So if the price of taco bell taco's shoots up to $100 a piece tomorrow, Taco Bell will sell as many tacos?
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Ridiculously extreme hyperboles don't make your position stronger.
 
cpwill said:
I'd agree. So you in fact have lots of good reasons why they shouldn't track?



Studies that focus on the lowest wage segments of society rather than measuring society overall bring back disemployment effects. Studies which include things like college professors come to the startling conclusion that they aren't effected. It's like asking if getting shot is bad for your health, and then coming back with a negative answer by surveying the entire populace (and noticing no significant loss) rather than focusing on the people who are actually shot.
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Well here is one of the problems with studies on the minimum wage though. Back in the Clinton years the minimum wage was raised 3 times if I am not mistaken, yet median household income went up every single year, and the poverty rate went down every single year eventually dropping to its lowest rate on record. The same is true with the 60s. You just can't find a consistent correlation between minimum wage increases and any harmful impacts to the economy or job creation. I would imagine that is because we have never really raised the minimum wage by that much, and just about every time we have done so, it was never raised over what overall prevailing low skilled job wages were anyway.

Point being that while just about all economists think that if you raised the minimum wage to say 18 dollars an hour, it would hurt job creation for low skilled workers. That is a given. However, economists are all over the place on whether an increase from say 7.25 to 8.10 in a good economy would hurt job creation at all.
 
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poweRob said:
Ridiculously extreme hyperboles don't make your position stronger.
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:shrug: neither does tossing out the basic laws of supply and demand.
 
SouthernDemocrat said:
Well here is one of the problems with studies on the minimum wage though. Back in the Clinton years the minimum wage was raised 3 times if I am not mistaken, yet median household income went up every single year, and the poverty rate went down every single year eventually dropping to its lowest rate on record. The same is true with the 60s. You just can't find a consistent correlation between minimum wage increases and any harmful impacts to the economy or job creation. I would imagine that is because we have never really raised the minimum wage by that much, and just about every time we have done so, it was never raised over what overall prevailing low skilled job wages were anyway.
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Which is why you need to study not the general populace, but rather our low-skill, low-experience, low-education, lowest-income populace.
 
cpwill said:
Which is why you need to study not the general populace, but rather our low-skill, low-experience, low-education, lowest-income populace.
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Right and that low-skill, low-experience, low-education, low-income populace saw their household income go up for the first time in decades back in the 90s and they saw their poverty rate drop to record low levels back in the 90s, despite "enduring" three minimum wage increases.

If raising the minimum wage always resulted in less jobs for low skilled workers, then we would expect to see the following correlations following a minimum wage increase:

1. A reduction in median income.

2. An increase in the poverty rate.

Yet you can't find any consistency of correlation at all following minimum wage increases despite the fact we have had dozens of them over the course of over 70 years.

Moreover, I will say this. Even if the minimum wage resulted in less jobs for teenagers as a trade off for more money for the adult working poor, I would say that is a pretty decent trade off.
 
SouthernDemocrat said:
Right and that low-skill, low-experience, low-education, low-income populace saw their household income go up for the first time in decades back in the 90s and they saw their poverty rate drop to record low levels back in the 90s, despite "enduring" three minimum wage increases.
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Well, yeah, the poverty rate dropped. We passed welfare reform. However, what happened on the lowest end was that you saw the income of some go up (as MW is increased) but the income of some dropped to zero, and were no longer scored. As the CBO pointed out, that would lead you to conclude that you'd raised wages if you only scored those earning wages, while net income among the group can decrease or grow in a sharply mitigated fashion.

It's also worth noting that the MW only increased twice in the mid-90s (the time of economic growth to which you are referring). In in 1996 it changed from $4.25 to $4.75 and then the year after that to $5.15.

]If raising the minimum wage always resulted in less jobs for low skilled workers, then we would expect to see the following correlations following a minimum wage increase:
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That is a strawman - no one is arguing it: what we are saying is that it reduces demand for low-wage labor relative to the baseline. You are correct when labor is more highly in demand, the effect will be mitigated (if not entirely). But we're not exactly always going to be in good times, are we? Do we want to set a policy in the good times that only screws a few poor people now, in return for screwing over more poor people exactly when things get harder?

1. A reduction in median income.
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On the contrary. You would expect an increase.

Example: you have 100 people making a perfect slope of $1 to $100 dollars an hour. The average is $50. Then you raise the minimum wage to $4. The worker making $3 bumps up, but the workers making $1 and $2 drop out of the work force. Now your average is $51.51. But in order to get that, you completely screwed the two people who are least able to adjust.

2. An increase in the poverty rate.
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Sure so long as absolutely nothing else (like, say, a major reform to welfare, or a tech-driven economic boom) is going on.

Again, what you will get is an increase relative to what you would otherwise have seen.

Yet you can't find any consistency of correlation at all following minimum wage increases despite the fact we have had dozens of them over the course of over 70 years.
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Did you miss all those studies I posted for you earlier? When you look only at the lowest income, you find strong disemployment effects. It's when you look at entire sectors or the broad workforce that you can lose them in the larger mash.

Moreover, I will say this. Even if the minimum wage resulted in less jobs for teenagers as a trade off for more money for the adult working poor, I would say that is a pretty decent trade off.
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competition at that level is much about social capital. Sadly, a middle class teenager with two parents who is en route to college has more of it than a 21 year old lower class high school drop out who was raised by a grandmother and who gets high on occasion.
 
I'll admit, I really don't understand the determination to come to the conclusion that there is such a thing as a free lunch. This must be how liberals feel when debating conservatives who insist that no matter how much you cut taxes, you will always get equal or greater revenue.
 
buck said:
More evidence for those that don't believe basic econ applies to labor to ignore.

Minimum Wage Hikes Reduced Employment of Low-Skilled Workers | CNS News
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I know of no one who claims there is no downside to raising minimum wage. The argument is that the costs associated by raising the minimum wage are outweighed by the benefits. Short term there is likely to be some small reduction in employment and a small increase in inflation. Historically those have both been small enough that they cannot be identified from the normal fluctuations in the measure of both(the "noise" when graphing them). On the other hand, for millions it means a higher standard of living, it raises demand for products since people at the low economic end spend a larger percentage of their pay, it reduces the number of people on welfare.
 
cpwill said:
I'll admit, I really don't understand the determination to come to the conclusion that there is such a thing as a free lunch. This must be how liberals feel when debating conservatives who insist that no matter how much you cut taxes, you will always get equal or greater revenue.
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Who is claiming a free lunch?
 
Redress said:
Who is claiming a free lunch?
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The idea that you can simply increase minimum wages without effecting demand for low-wage labor is a free lunch argument. We can give poor people a raise with no trade offs. Hooray!
 
DA60 said:
The CBO seemed to just fine.

https://www.cbo.gov/publication/44995


And the effects are common sense.

Too many people think (not saying you are one of them) that when you drastically raise the minimum wage that it only effects the burger-flipper types. Not true. IT ripples through much of the entire economy.

But it is economic common sense. If you raise the minimum wage from say $7.25/hr. to $9.00/hr., then you have to raise a WHOLE bunch of people's wages that have nothing to do with the minimum wage.


Take a large factory. IF you raise Jake's pay from $7.25/hr. to $9/hr. - suddenly, Lauren - who was making $9/hr. is getting paid the same as the far more inexperienced and less capable Jake. So, now the company has to raise Lauren's pay to about $10.50 an hour just to keep the gap going. But now Steve - who was making $10.50 - is getting paid the same as his subordinate (Lauren). So you have to raise his pay to $12/hr..
And so on up the pay chain, so that almost everyone in the company has to get a pay raise or have a worker's revolt from everyone except the minimum wage people.
And that is what you would have all across America. You cannot just force minimum wage up by roughly 25% (without any increase in productivity, btw) and have no ripple effects.
So, this means virtually everything manufacturered or serviced in America will go up in price as the extra pay raises work their way through the country.

But remember, there is ZERO increase in productivity...so these products/services are no better...just more expensive. But since foreign countries that import those goods into America had no such increase in pay, then that instantly makes American-made products even less competitive with imports then they already were. That hurts sales. And that causes layoffs at those American manufacturers. And probably causes increased hiring at foreign manufacturers that import to America.
Sure, the minimum wage people have more pay - but they are not idiots. They are going to buy the product that gives them the most for their dollars. And since American goods are now more expensive - but no better - since the big pay raise, then this new found pay will increasingly go offshore.

On top of all that, those on fixed incomes - like the poor and seniors - are going to be hurt by all this since the cost of American goods and services will go up (you cannot just raise production costs substantially with no increase in prices). So the government will have to step in and give them more handouts to makeup for the dwindling amount they can now buy. And this hurts taxpayers as they have to finance this added welfare.


Nothing is free in life. You cannot magically force people to pay employees more money - with no added increase in productivity - and magically get a better life for everyone. Life just does not work like that.

It could maybe work (to a point - for a while) if the whole world had the same minimum wage. But it does not and all a huge increase in the U.S. minimum wage will do primarily (imo) is a) make U.S. goods and services more expensive and b) force more U.S. consumer dollars off shore to less expensive imported goods manufacturers.
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The CBO report is interesting and about the best report on the topic. I have used this report many times here. You get major credit for linking to the actual report, most link to an article trying to tell what they think the report says.

The data:

Raising the minimum wage to 9 an hour would most likely(2 in 3 chance) result in a small increase in jobs to a loss of about 200k workers when fully implemented. 7.6 million people would see a pay raise directly(the effect ripples, so more would actually see an increase).

An increase of minimum wage to 10.10 an hour would result in(same 2 in 3 probability) "a very slight decrease" to a loss of about 1mil jobs when fully implemented. 16.5 million people would see an increase in pay directly.

The report does not discuss it, but there would probably be a small increase short term of inflation. The report does mention that short term the federal deficit would be very slightly reduced, and that long term there would be a very slight increase to the deficit. AT 9 an hour, 300k people would move above the poverty line. At 10.10, 900k would.
 
cpwill said:
The idea that you can simply increase minimum wages without effecting demand for low-wage labor is a free lunch argument. We can give poor people a raise with no trade offs. Hooray!
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Who says that?
 
cpwill said:
The idea that you can simply increase minimum wages without effecting demand for low-wage labor is a free lunch argument. We can give poor people a raise with no trade offs. Hooray!
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I don't know if it's an accurate of thinking of this situation, but I see it as forced acceleration of the velocity of money(as long as the increase is relatively small). In this case, yes there will be small job losses, and slight inflation(poor people still would have more relative purchasing power than before), yet as a result of the increase in the velocity of money, some of those lost jobs, would end up coming back.
 
cpwill said:
Did you miss all those studies I posted for you earlier? When you look only at the lowest income, you find strong disemployment effects. It's when you look at entire sectors or the broad workforce that you can lose them in the larger mash.



competition at that level is much about social capital. Sadly, a middle class teenager with two parents who is en route to college has more of it than a 21 year old lower class high school drop out who was raised by a grandmother and who gets high on occasion.
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I have seen the studies showing that the minimum wage hurts jobs for low skilled workers. The problem is as I stated earlier the studies on that issue are all over the place. Many economists believe that most the job market for minimum wage jobs in the United States is elastic.

Raising the Minimum Wage Does not

Does Raising The Minimum Wage Kill Jobs? : Planet Money : NPR

Economists disagree on whether the minimum wage kills jobs. Why? - The Washington Post

Why Raising the Minimum Wage Doesn’t Hurt Jobs - US News

From the last article:

So why is conventional economic wisdom wrong? Why doesn’t raising the minimum wages kill jobs? It’s hard to say for sure, but several factors appear to explain the difference:

[See a collection of political cartoons on the budget and deficit.]

1. Employers don’t have much flexibility to reduce staff without cutting their revenues: In the conventional Economics 101 narrative, people switch their buying habits when prices change. If apples become more expensive, you don’t eat less; you simply buy more oranges or grapes and fewer apples. But if you’re running a fast food restaurant, you don’t have that option. You can’t offshore the fry cook’s job to China. You can’t replace the cashier with a robot. You’re not going to diversify into a new line of work like tax preparation, with staff who are unaffected by the minimum wage law. No, the typical fast food owner will retain most of his or her minimum wage employees and compensate by investing in better equipment and work processes that make them more productive. The owner will pass through a small price hike to cover the remaining cost.

2. Higher minimum wages stimulate the local economy and bring in more business: When low-wage workers get a raise they usually spent it rather than sock it away in a mutual fund. In many cases, they will spend the money in the same places that hire a lot of low-wage workers: They spend it in fast food restaurants and low-end retail chain stores which account for many of America’s minimum wage jobs. So these stores get more business, which offsets much of what they lose by paying higher wages.

[See a collection of political cartoons on Congress.]

3. Better-paid employees are more productive and loyal: When employees are paid more, they value their jobs more. They work harder and more productively. They have a better attitude, which means they provide better, friendlier customer service. They are less likely to quit. All of this helps the employer by reducing turnover and training costs, and making customers happier and more likely to return.

4. The minimum wage in the U.S. is quite low to begin with: The risk that a minimum wage hike would reduce jobs depends on the starting point. In France, for example, unemployment among youth is terribly high, in the range of 26 percent. This has been blamed on its minimum wage. But France’s minimum wage is more than 60 percent of the French median wage, so the portion of jobs affected is vastly higher. And France has other structural constraints in its economy that the U.S. does not have; for example, it‘s much harder to lay off workers in a downturn, which makes employers reluctant to add to payroll. In contrast, the U.S. federal minimum wage is 38 percent of median income, which is among the lowest levels in the developed world.

The minimum wage debate reminds us that what sounds good in economic theory does not necessarily turn out to be true in the real world. Raising the federal minimum wage from its current low level would have little if any effect on jobs and employment, while dramatically helping those who labor in these jobs. It’s easy to see why the oversimplified ideas of freshman economics fail to explain the opportunity.
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SouthernDemocrat said:
I have seen the studies showing that the minimum wage hurts jobs for low skilled workers. The problem is as I stated earlier the studies on that issue are all over the place. Many economists believe that most the job market for minimum wage jobs in the United States is elastic.

Raising the Minimum Wage Does not

Does Raising The Minimum Wage Kill Jobs? : Planet Money : NPR

Economists disagree on whether the minimum wage kills jobs. Why? - The Washington Post

Why Raising the Minimum Wage Doesn’t Hurt Jobs - US News

From the last article:
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Good post. What it supports is how marginally beneficial economists are in the grand scheme of things, and equally, how marginally helpful the study of economics is.
 
KevinKohler said:
Minimum wage went up to 9.15 in CT. From 8.25, or something. My company employees a lot of minimum wage workers. None of them got laid off. Not in any of the stores.


The bottom line is this...a company doesn't hire or fire based on the expense of doing so, their primary reason is need. We NEED those employees, so even though the cost to employ them just went up, we can't AFFORD to let any of them go.

We have also not raised prices....well, except for beef. Beef is skyrocketing all over the place, though.
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Sounds to me that you're one of the few that actually DO pay their employees less than they're worth unless the government demands they give them a raise.
 
ocean515 said:
Good post. What it supports is how marginally beneficial economists are in the grand scheme of things, and equally, how marginally helpful the study of economics is.
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Well try to tease any type of real correlation out of this stuff and you can see why they are all over the place. Take the late 90s, two minimum wage hikes, yet the poverty rate dropped to record low levels:

Economist A Says - See the minimum wage increases did not kill job creation for low skilled workers as evidenced by the fact that poverty rates went down to record low levels and we had high job creation rates.

Economist B Says - Yeah but that was because of welfare reform, not the minimum wage increases. Welfare reformed moved more people into the job market.

Economist A Then Responds With - Wait a second, welfare reform put more low skilled workers into the job market and the minimum wage increases killed job creation for low wage workers but at the same time poverty rates dropped and the unemployment rate was near record lows??
 
Redress said:
Who is claiming a free lunch?
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The only one I know that claims there is a free lunch is Disney World during their free dining promotions. ;)
 
SouthernDemocrat said:
Well try to tease any type of real correlation out of this stuff and you can see why they are all over the place. Take the late 90s, two minimum wage hikes, yet the poverty rate dropped to record low levels:

Economist A Says - See the minimum wage increases did not kill job creation for low skilled workers as evidenced by the fact that poverty rates went down to record low levels and we had high job creation rates.

Economist B Says - Yeah but that was because of welfare reform, not the minimum wage increases. Welfare reformed moved more people into the job market.

Economist A Then Responds With - Wait a second, welfare reform put more low skilled workers into the job market and the minimum wage increases killed job creation for low wage workers but at the same time poverty rates dropped and the unemployment rate was near record lows??
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You nailed it. In the end, these analysis rarely avoid a potential agenda bias. A crystal ball should be included with every diploma handed out related to the field.
 
cpwill said:
Um. See: previous 39 posts of this thread, and pretty much the vast majority of MW discussions on this forum?
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No, that is not what they said.
 
SouthernDemocrat said:
I have seen the studies showing that the minimum wage hurts jobs for low skilled workers. The problem is as I stated earlier the studies on that issue are all over the place.
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Yes, mostly due to their inputs, as I pointed out.

From the last article:

So why is conventional economic wisdom wrong? Why doesn’t raising the minimum wages kill jobs? It’s hard to say for sure, but several factors appear to explain the difference:

[See a collection of political cartoons on the budget and deficit.]

1. Employers don’t have much flexibility to reduce staff without cutting their revenues: In the conventional Economics 101 narrative, people switch their buying habits when prices change. If apples become more expensive, you don’t eat less; you simply buy more oranges or grapes and fewer apples.​
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I sure eat fewer apples. When we moved to Okinawa the fruit bill shot through the roof and you know what we did? We reduced our fruit diet. To answer his point, though, if you can hire multiple low skill workers, or buy some machines and one or two medium-low skill workers, then which path you choose will depend upon your relative return for each.

But if you’re running a fast food restaurant, you don’t have that option.
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You have lots of options, particularly over time.

You can’t offshore the fry cook’s job to China.
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Ah yes. That is why none of (for example) Krispy Kreme's donut-making processes are automated. You have to have a person to stand there and flip those donuts, doncha know.

You can’t replace the cashier with a robot.
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This is where I stopped reading. Of course you can replace a cashier with a machine. Has this man not been in a store that features a self-checkout machine? Do you know when they started incorporating that technology? Right after the last time we raised the minimum wage.

images



The jobs that you can't replace with machines and that you can't offshore are typically ones whose value-added comes from both knowledge and physical access. So, for example, you can out-source analysis of X-Rays (it only requires knowledge), you can automate a cashier (you require only physical access) but you cannot outsource or automate an electrician (he requires both knowledge and physical access).


Skimming through the rest, he also buys into the Spending>Saving fallacy (there is no such thing as time, apparently) as well as "Businesses make it back through increased business" fallacy (you cannot get back more of what you put out when you are guaranteed to lose portions of it). This man would be wrecked if he tried this argument on this site.
 
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