Keep ’em Poor; It’s for the Best

minimum-wages-around-the-worldBy Peter Galuszka

The think tanks are spinning their lines now that Congress is considering raising the federal minimum wage.  A Democratic proposal would hike the level from $7.25 an hour to $10.10 by 2016, putting more money in the pockets of 27.8 million people.

As The New York Times points out this morning, think tanks and other professional navel gazers are coming out with the pros and cons of doing what seems to be a no brainer. One Employment Policies Institute in Washington  claims that hiking the wage would increase poverty and unemployment.

Not reported, the Times notes, is that the think tank is run by a P.R. group paid in part by the restaurant industry which has a vested interest in keeping wages low.

So, I guess it is no surprise that on Sunday’s “Commentary” front page in the Richmond Times-Dispatch  is a piece making pretty much the same argument. It was written by A. Fletcher Mangum, managing partner of Mangum Economics in Richmond, who also advises the governor and General Assembly.

Mangum argues that raising the wage is a bad idea because, “If politicians want to help the least fortunate among us, knocking an unlucky number of them into employment is simply not the best way to do it.” Virginia is one of 19 states that follows the federal minimum wage as its own. Twenty states have higher minimum wages and four have lower rates and (of course) are all in the South.

Mangum’s logic is keep ’em poor because they are more hireable that way. Mangum offers no other economic argument, but that should be no surprise since he’s writing for the Richmond Times-Dispatch whose editorial policies tend to represent the Capital’s monied classes and business interests. It was this way when the Bryan family owned the TD and hasn’t really changed with Warren Buffett.

Now I have been an editor and actually used to handle the first reading of some economic opinion pieces like this. If I had been at the keyboard, I would have demanded a higher altitude argument than improving wages will hurt the poor because if you increase the price of something people automatically buy less of it.  One could make a similar argument as justification for usury, penury and slavery that way, but I don’t edit the TD. I do know that Richmond and Virginia in general are rather short on economic forecasters.

The New York Times, which is somewhat more sophisticated than Richmond’s daily newspaper, on the same day refuted conservative arguments that hiking the minimum wage only hurts the lowest working classes. “The weight of evidence shows that increases in the minimum wage have lifted pay without hurting employment. . . ,” the Times says.

But that doesn’t stop conservatives from claiming, as Mangum does, that raising the minimum wage prompts less employment or that it will push up prices for goods. “Those arguments are simplistic,” The Times says.

I tend to agree. The bigger issue facing this country is dealing with the disparity in income and larger gulf between classes. CEO pay has skyrocketed to obscene levels over the past decades while CEO performance has hardly matched it.

Yet there are plenty of people out there, such as Mr. Mangum, who seem to want to keep people making less than $15,000 a year by arguing disingenuously that it’s really the best they can hope for.

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34 responses to “Keep ’em Poor; It’s for the Best

  1. Typical liberal/progressive thinking in so many ways.

    First, the only motive attributed to conservative critics of the minimum wage is that they are hard-hearted greed-heads who want to oppress the poor. An analogous approach would be for me to argue that liberal-progs are demagogic, power-hungry maniacs who jack up the minimum wage (which they are rarely the ones to pay) in order to bribe the masses. Either accusation may or may not be true, but neither one addresses the substance of the argument, whether the minimum wage hurts or helps the poor.

    Second, liberal-progs like Peter studiously ignore the fact that the minimum wage is a mixed bag for the poor. Those who get higher wages and keep their jobs do come out ahead. Those who end up losing their jobs come out behind. These tend to be the least employable because they have the worst work skills. Minimum wage jobs are rarely permanent. Poor people start at the bottom, gain work skills — like learning to show up on time, learning how to interact with customers, etc. — and move up to something better. Cutting off the bottom rung of the ladder doesn’t help the poorest of the poor, it cripples them.

    • Actually, Peter did address the loss-of-jobs issue by citing the NY Times’ supposed refutation of the laws of economics. However, I think the macro-economic conditions have a huge impact on the outcome. Last time the minimum wage was raised was during the 1990s, as I recall. It came after a decade-and-a-half of strong economic growth. Unemployment was way down. The minimum wage in many parts of the country was less than the market wage, so raising it made no difference. Today is a very different story. Unemployment and under-employment are high, there is huge slack in the labor market. Raising the minimum wage would push many people above the market wage. The effect would be much more deleterious now.

  2. I have mixed feelings about minimum wage laws, but am adamant there needs to be some exception for teenagers. My son got a job as bagger at Giant when he was 14. Not only did he get spending money, but, more important, he learned important work skills. Every kid should get a chance at part-time jobs. A high minimum wage will foreclose many of these important opportunities. The question is whether the Democrats care more about teenagers or keeping union bosses happy. I’m hoping its the former.

    • TMT – do you know what the minimum wage is for folks who work for tips?

      I’m all for lower minimum wages for teens but just point out that for some jobs – the “training” period is short-lived and perfunctory though I do agree that learning how to work for and with others is an important skill – and one that can be obtained by working for “free” as an intern or volunteer.

      The thing about the minimum wage is that the dogma being spouted ignores the fact that people who don’t earn the poverty level – get entitlements and if we’re going to “top them off” with a choice of a higher minimum wage (that we all pay for through higher prices) or entitlements (that we all pay for with taxes) – which is better?

      the trouble with the dogmatics is that they pretend the entitlement aspect is not present and that it’s a pure theoretical econ 101 dynamic – and it’s not.

      people who think this way spend way too much time focusing on conceptual theories and way too little time trying to understand the actual reality of real world economics.

      these are the very same folks who would do away with public schools, the FDIC, and the FAA and let the “free market” do it so they blather these tropes about unemployment – but never once admit that one of the possible outcomes of higher minimum wages – is higher prices – marginally higher prices – that we all see in all manner of other economic realities. Got a cable TV bill lately Do you think people stop getting cable TV when prices go up and they have to lay off people? How about gasoline? Do you think WaWa lays off people when gasoline goes up a dime?Do you think people stop buying health insurance when the premiums go up?

      • Not sure of what the minimum wage is for workers who get tips. But my son was able to take his grocery-bagging skills to two restaurants, where he made pretty good money on tips, most especially on weekends. Working at 14 & 15 taught him a lot of transferrable skills that he can build on. There should be some flexibility for kids under 18. And I also worked for minimum wage in my teens and am glad I did.

        Also, I’m tired of the lies coming from the Lefties that raising the minimum wage will help the poor. Most people working for minimum come from households that have income well above poverty. It’s all about keeping unions happy – hoping a boost in the minimum wage will make negotiating contracts easier.

        Despite LBJ’s war on poverty (or because of) that has spent trillions and created the professional caring class, we have created a huge group of people who have no working skills whatsoever. The unemployed don’t benefit from an increase in the minimum wage. We’ve excused our public schools (note I didn’t say teachers) and government bureaucracies from responsibility for not preparing kids to work as adults. A person needs to bring something to the market, even if it’s just showing up on time and following directions.

        • $2.13 an hour TMT.

          re: the “lies”.. did the right tell you the truth about minimum wage

          did the anti-minimum wage folks tell you the truth about tipped minimum wages? why not?

          the “left” basically wants people to earn a poverty wage rather than earn less than poverty and then top it off with tax-funded entitlements.

          do you know who the majority of minimum wage workers are:

          again – do you hear from the right and the anti-minimum wage folks who the majority of minimum wage workers are? Hint – it’s not just teens.

          I think also you misunderstand the “war on poverty” which is no better or worse than the “war on drugs” or other “wars on”.

          Do you know who supported the minimum wage and the earned income tax credit? Mr. Ronald Reagan.

          ” .. “the best antipoverty, the best pro-family, the best job creation measure to come out of Congress.”* Similarly, Mark Everson, who served as IRS commissioner under President George W. Bush, called the EITC “one of the government’s most successful anti-poverty programs.”**

          Now you have to ask yourself – why did Reagan and Bush’s IRS commissioner SUPPORT .. basically giving money to the poor?

          why did two Republican Presidents support that as well as minimum wage?

          If you reject the lefties and you reject folks like Reagan – who do you support in terms of this? Ted Cruz and Rand Paul?

          this is an example of just how far right the politics have moved.

          People like Reagan would be run out of town on a rail by the GOP today as a RINO.

          Every single OECD country on the planet earth has either a govt minimum wage or a de jure minimum wage by letting trade unions decide it.

          We are going to give people who do not earn more than a poverty wage – entitlements.

          we have a lot of loud mouths who say we will not – but the reality is – that we will and the question then becomes – how do you want to do it – with tax-funded entitlements or a minimum wage?

          We’re having a debate on this – and that is good – for us to revisit the issue but the folks on the right live in LA LA Land.. they’re good at propaganda but they are lousy at dealing with realities.

          Right now today, people can be paid 2.13 an hour and yet you’ll never hear this from the LA LA Land types..

          and McDonalds workers in Williston, ND will earn $15 an hour and they will not flip any more burgers than a McD worker in Norfolk.

          McDonalds will receive price increases from potato suppliers What do you think McD will do about that? Do you think they’ll eat the loss? Do you think they’ll lay off people to save costs? Or do you think they’ll pass the increased potato costs onto customers?

          which is more likely? Why would they pass on cost increases for potatoes or increased electricity costs of sales taxes and not labor?

          why would they lay off people if demand remained the same even with price increases?

  3. Walter Williams has made a really good point: The inequality in incomes largely reflects an inequality in productivity. (The argument breaks down for the Top 1% but it applies to the vast majority of the population.) The path to social justice is raising the productivity of the poor. That’s where liberal solutions have failed utterly and completely. The minimum wage does nothing to raise employee productivity. It’s a measure that liberals, insulated from the consequences, can enact and feel good about themselves.

  4. There are two important factors to consider. The first is nominal versus real. nominal is the stated wage real wages are what that wage would buy. The minimum wage is not indexed to inflation so buying power has been decreased over the years. The second is the value of the output per employee. An employer can’t pay more than the value of the production. American productivity has been increasing over the past several years.

    Another factor is the composition of the labor force at the minimum wage level. In the “good old days” it used to be high school kids grilling hamburgers, now the average age is much higher. This is a more political argument but I’m tired to paying taxes to pay benefits to companies like Walmart, many of whose employees receive food stamps. I’d rather subsidize these workers to develop skills that are currently needed in the job market as the Governor of Tennessee has just proposed.

  5. Jim Bacon is absolutely hilarious this morning (I guess it gets worse after a birthday).

    He is trotting out myths that only the nearly worthless make minimum wage. They are young, They are stupid, They can’t hold on to jobs for long. The truth is that their average age is 35, most work full time, one fourth are parents and they earn half of their family’s total income.

    Jimbo, do us and yourself a favor! Switch off Fox News!

    As far as having the worst skills sets, I assume he is including my daughter who makes about minimum wage at a job she has to pay her rent while she pursues art. She graduated last year magna cum laude with a double major. Totally worthless, I know.

    Lastly, the Chief Baconator’s assertion that CEOS somehow make stratospheric salaries because they are waaay more productive is the most laughable of all. Some are and some aren’t. The likes of Warren Buffett says the fast-growing and huge gap between C-suite pay and that over average workers is down-right scummy and absurd. It has NOTHING to do with productivity. It has to do with what the executive compensation committee of the board comes up with and what the board goes along with. Who controls those directors?

    Jim, if you give me a call, I’ll be happy to give you a basic economics course. You really do need it.

    • First, I acknowledged that the connection between productivity and pay probably breaks down when we’re talking about the Top 1% — and I stated so in my comment.

      Second, As for your daughter, I have no doubt that she has skills that are worth way more than minimum wage — in a different job.

      Third, I don’t watch FOX News. Ever. But maybe you should turn off MSNBC.

      You raise one substantive point in your riposte — the fact that many minimum wage earners are not teenagers, they are adults with families to support. Go ahead, raise their wages. Most will enjoy a nice pay raise. Some will lose their jobs. Enjoy playing God with other peoples’ lives.

      • No one loses their job if burgers go up a dime and demand stays the same.

        You cannot take a real world dynamic with a bunch of different moving parts and understand it with a basic conceptual theory that holds all things fixed except for supply and demand .. everything else, all other factors, that in real life are NOT static, are still assumed to not have an effect?

        that’s not how economics actually works in the real world with lots of different moving parts.

        some things – people will continue to buy even with higher prices – they economize somewhere else.. and that does not necessarily result in less employment. You sell less lottery tickets and you still need the people who run the lottery. When gasoline goes up – you don’t lay off people who run the store – because you still need them to run the store.

        when prices go up at WalMart – even if people buy less of the expensive stuff they just buy more of the cheaper stuff and they still need the same number of people to stock the shelves.

        there may be …somewhere along the line …some impacts from higher wages from minimum wage but it may well not affect the 1st order workers if higher burger prices dont result in less overall fast food demand. You STILL need the workers to sell fries and other things..

        would you walk away from a fast food place because the burgers were 25 cents more than the week before?

        do you even know when prices go up in the dime /quarter scale?

        do you check prices at the dime/quarter level when you pull off the interstate to get a fast-food meal?

    • CEOs are grossly overpaid. I don’t mind when they make a ton of money when goals are exceeded, but why do they make a lot even when they fail?

      But how many times do you vote your proxies against management recommendations? I often do.

      • I have zero problems with CEOs making buckets of money nor entertainers or sports figures.. or for than matter anyone.

        If anyone can get mega bucks for what they do – more power to them.

        and it has zip to do with the poor or the middle class or anyone who is not as fortunate to make that kind of money

        we care about opportunity. Outcomes are what you do as a person not what the Govt should be doing with one proviso and that is what we – as a a people – decide what we want to do about people who live in poverty – and it’s more of a question of how we pay rather than will we pay.

        Similar to the health care issue of whether we want to pay for ER visits for the poor or pay for primary care for the poor – it’s the same issue with wages vs entitlements.

        we won’t let Granny nor Baby Innocent die for lack of food, shelter or health care

        you can call us panty-waists or do-gooders or whatever pejorative you want – but the bottom line is that most Americans – even the ones who claim to be rock-rib Conservatives cannot stomach the idea of Granny or baby innocent dead on the steps of the ER .. or in a card board box or eating out of dumpsters like feral cats.

        Once we are honest enough with ourselves to confront this – the question becomes what do we want to do instead and that’s where the propagandists go bat-crap crazy..trying to pretend we won’t let them die and the adults in the room try to confront that reality in some real way.

        People who work at a full time job and don’t earn enough to live on – will receive entitlements from you and I – and we agree to this because we will not agree to let them die.

        we hate it. we hate the idea of it. We even say we won’t do it. But in the end – we do it.

        but then.. almost in defiance… we insist that we will not do it in an efficient way. Nope. we’re going to do it in a way that will cost us more money but it allows us to continue the fiction that we won’t do it.

        so … we say we’re not going to do a minimum wage .. but we’ll pay taxes for entitlements instead.

        Now my question here is – where is this kind of economics taught in Econ 101 or basic Economy theory?

  6. The problem with the right and libertarian types with this issue is that they fail to acknowledge the most obvious outcome of increasing minimum wage and that is passing that cost along to customers THE VERY SAME WAY that we’d pass along increased caused by increased sales taxes or increases in the cost of electricity or the supplier of beef for burgers.

    you only lay off people AFTER you’ve increased prices and then see decreased demand but we already know that some things are elastic and higher prices for things like fast food does not decrease demand especially at say – an interstate interchange where you really have no idea of what the prices are in the first place, you’re going to get your food and be on your way.

    Only a few honest conservatives and libertarian will admit the obvious – that increased costs – whether they be due to minimum wage or other increased costs – get passed on to the customer – and the customer does not reduce their purchases of fast food – they find other ways to economize – for instance buy one less lottery ticket or reduce their cell phone plan, etc.

    The right has become so dogmatic and propagandist these days that they simply deny other reasonable outcomes from raising the minimum wage.

    This is not about helping the poor from their point of view – it’s about sticking to their dogma… and orthodoxy – no matter what the reality is.

    these are folks who think they know how to govern… that their kind of governing would be good..for the country.

    take productivity – for instance. Does anyone think a McDonalds worker in Williston ND where the Bakken oil is – that makes 15.00 and hour is really more productive than a minimum wage McD worker in Richmond?

    talk to the right and libertarian types and they’ll swear up and down that the McD workers in Williston are more productive and will ignore the other factors present that drive wages higher.

    we are doomed as a country when half of us stick to dogma no matter the realities.

  7. “We are doomed as a country when half of us stick to dogma no matter the realities.”

    Of course, LarryG thinks he belongs in the dogma-free camp!

    • i don’t have dogma – left or right. I abhor it on both sides but it’s particularly virulent on the right/libertarian side these days.

      it’s just plain propaganda.. bogus blather that doesn’t even pass the basic smell test.

      my “dogma” is that the economy is not a conceptual theory.. and that anyone who thinks they can understand it using a basic supply/demand conceptual model is not playing with a full deck.

      I’m NOT a blind advocate of the minimum wage. I do not think that “poor workers” …. “deserve” it. To a certain extent if you are not well educated, the die is cast and you as an individual do have options and doing nothing won’t help you.

      I do NOT buy the idea that we need to “help” the poor as a moral imperative.

      I see it in the context of a society that will not let grandma or a 3 year old die on the steps of the ER. Once you decide you’re not going to do that – you’re in favor of entitlements no matter how loud you blather otherwise.

      If we have entitlements for the poor then minimum wage is not a pure supply/demand issue but rather a trade off between higher prices for higher wages or higher taxes for entitlements.

      it’s not near as “simple”, when the “dogma” has to deal with realities. Most of the dogmatics.. just deny many of the realities and pretend, for instance, that we’re not going to do entitlements.. or worse that in the minimum wage conundrum there is only two things – a labor supply and a demand.

  8. So you guys think a burger flipper should get 10 bucks an hour but people who have been playing the game should only get a little more? I have fellow workers who have bought into the college is great crap and they are honored with a salary of 15 bucks, half of which goes to their benefits, and the other half pays for idiotic ideas like tolls.

    At least in Australia they would get a living wage without being short changed by the employer in a job offer letter. It’s the law there that sets the wage scale, instead of some HR bean counter’s bonus potential.

    Imagine, Civil Service wages for everyone.

  9. I am very skeptical of looking at the past as a basis for understanding the future given our bizarre economy at the moment. We’ve gone from recession to long term stagnation. In a unique turn of events, there seems to be no recovery in sight.

    The minimum wage was increased from $5.25 per hour to $7.25 per hour (as I recall) in three steps – starting in 2007 and finishing in 2009. Now, the proposal is to increase the minimum wage to $10.10 by 2016. That’s a 92% increase in 9 years. Meanwhile, actual and projected inflation over the same period has been 19%.

    It’s hard to imagine a scenario where nearly doubling the minimum wage over a recession / stagnation won’t hurt a lot of people.

    A small business which employed six full time minimum wage workers in 2007 paid $65,520 in direct payroll for these people. By 2016 that cost will be $126,028 with the new proposal – an increase of $60,528.

    If minimum wage labor constitutes 40% of the company’s costs in 2007 then the company had to bring in $163,800 per year to break even. This includes $98, 280 in non-labor costs.

    Assuming that the non-labor costs inflated by the overall nine year rate of 19%, the non-labor costs would be $116,953 in 2016. However, the minimum wage direct payroll costs would be $126,028. The new break even total is $242,981.

    In order to continue to break even the business owner would have to increase prices by 48% over the nine year period.

    As general prices have been rising 2% per year our business owner has to raise her prices 5+% per year.

    A three dollar hamburger in 2007 needs to cost $4.44 in 2016.

    It is mighty strange logic to raise the minimum wage a second time in a recession / stagnation.

    The other X-Factor is the relative cost of living across Virginia. The poorest areas of Virginia are also the cheapest to live. Dramatically rising the minimum wage in those areas will absolutely result in small businesses closing up and a rise in unemployment.

    The average household income in Lee County, VA is $29,889. A $10.10 per hour minimum wage is equal to $21,008 per year. Is it reasonable to think that people in Lee County, VA will be able to pay higher prices at local businesses just “because”? I suspect that in places like Lee County, VA the elasticity of demand for many things is well over 1. A 15% increase in cost (when inflation is 6%) might drop demand by 20%. That is more than enough to push many businesses into bankruptcy.

    • I give DJ credit for putting numbers to the issue.

      but fast food companies, cable companies, any company that provides a needed service – that entire industry segment – if it provides a needed service is not going to go broke and stop offering the service.

      Go back 5-10 years and tell me what you paid for …cable… or gasoline… or cell phone service.. or… health insurance or burgers..

      and tell me which of those industries – not just one or two companies but entire industries went broke and the service is no longer offered.

      Now let’s change gears.

      Tell me how many small businesses go broke entirely as a result of a new competitor – and costs are not the issue – but two businesses going after the same market – compete – and one of them is less effective at controlling costs and goes broke.

      My cable bill in the last 5 years has almost doubled and my question is – how come the cable company is not laying off people and getting hurt financially as a result of the cost increases?

      ditto my cell phone company.

      ditto the gasoline folks…

      I don’t see WaWa laying off people because gasoline costs increase or for that matter, the tax on gasoline going up.

      I don’t see Walmart laying off people even though the price of meat and chicken has skyrocketed in the last two years.

      small businesses go broke – ALL THE TIME – because they are marginal to start with – and they are exceptionally vulnerable to new competitors… ask all the Moms/Pops who died when WalMart came to town.

      My point here is that there are a LOT of moving parts in the issue and you cannot look at it with a sound-bite concept and truly understand it but that’s what some insist on doing.

      McDonalds.. WalMart, Lowes.. has had price increases ..over the last 5-10 years.. (as well as price decreases) but they’re not laying off people – they’re basically passing those increased costs on to customers.

      increased prices DO affect demand – but it may well not be in the 1st order. People economize in different ways. They pay increased charges for cell phones and buy less Starbucks… they buy a fuel efficient car to buy less (reduce demand) for fuel.

      sound bite concepts do not describe a complex economy.

      • It comes down to the elasticity of demand for the products and services created by people earning the minimum wage.

        Your cable company and your cellular company are oligopolies who, I’ll bet, employ very few people at the minimum wage. The median pay for a cable technician is $17.36 per hour. Those companies make products which have low price elasticity.

        I am not sure how many gasoline stations employ minimum wage people anymore. The stations I go to have a manager, a couple of mechanics and lots of self service pumps. Only in Oregon and New Jersey are you banned from pumping your own gas. I’d guess that those gas stations employ a lot of minimum wage people. However, they wouldn’t employ any if not for Oregon and New Jersey’s regulation forbidding self-service.

        Beyond that, the demand for gasoline is extremely inelastic.

        Here is a list of the occupations which employ the most minimum wage workers –

        Food preparation takes the top spot. Most fast food restaurants already hand you an empty cup when you order a soda. Why? So they can avoid employees spending time filling drinks. The customer does it himself. Ergo, they need fewer employees. Appleby’s has announced they will install 100,000 table top tablets for ordering and payments in 2014. Dominos has television ads which show the challenges of calling in your order and suggest using their web site instead.

        Burritobox has machines in use today that make a custom burrito after a customer swipes his or her credit card and then selects ingredients. Momentum has a gourmet burger making robot that can churn out 360 gourmet burgers an hour. Let’s Pizza is a pizza making bot that serves up pies cooked in an infared oven within 3 minutes. No people required.

        I am glad the economists’ poll showed they didn’t really know what would happen. How many economists said we’d stay in economic stagnation for four years after the recession ended? As of April, 58.6% of the adult U.S. population had a job. The rate has barely budged in the last three years, and the last time it was that low was in 1983.

        Meanwhile, the S&P500 is on a blue, blind tear with all of those overpaid CEOs bringing huge returns to the share holders – which, of course, is exactly their job.

        Compare the “productivity” of public company CEOs based on the returns they are achieving for their stockholders against the “productivity” of the Obama Administration with regard to employment or GDP growth.

        I’d say the CEOs are winning the “productivity” contest hands down.

        • here’s the reality:

          The Real Change In The Cost Of A Big Mac If McDonald’s Workers Were Paid $15 An Hour: Nothing

          …………….
          Thus the price is not determined by the cost of production of an item. Which means that, if we raise McDonald’s production costs by increasing the wages of the workers, the price isn’t going to change. For it’s not production costs that determine prices: it’s competition that does. Another way to put this is that McDonald’s is already charging us the absolute maximum that it can for its current level of sales. Thus it cannot raise its prices if its production costs go up.

          All of which means that the real change in the cost of a Big Mac, or the dollar menu, if McDonald’s workers were paid $15 an hour is: nothing. For production costs simply do not determine the prices that can be achieved in a competitive market.

          http://www.forbes.com/sites/timworstall/2013/08/02/the-real-change-in-the-cost-of-a-big-mac-if-mcdonalds-workers-were-paid-15-an-hour-nothing/

          what products have “elasticity” and which do not is a further intrusion of the fact that in the real world – econ 101 is not pure supply/demand.

          think about this.

          If McDonalds raised it’s prices what would happen? Would people buy less fast food or would they economize on something else?

          Would they get the Big Mack and economize by NOT “super-sizing” it?

          If the Minimum wage went to $15 an hour how much would the big mac go up in price? Well.. you can find that out right now by asking what the price of a BigMac is in Williston, ND where the starting wage right now IS $15 an hour.

          Again, I’m not arguing that there are no impacts to price increases whether it’s due to labor or other factors.

          I’m saying that there is not tight enough nexus that you could – for instance, predict with precision – unemployment at the 1st order if labor costs went up – no more than you could for – the price of beef going up or an increase in the sales tax.

          why would an increase in the sales tax not result in layoffs and more or less than the cost of labor?

          and WHY would anyone lay off anyone UNLESS demand actually had reduced as a result of higher prices?

          it makes no sense – unless you are locked into a dogmatic point of view.

          Prices go up on items in WalMart – every week and what do people do?

          do they buy LESS overall and that in turn results in less demand and then employee lay offs?

          it doesn’t. people economize in all manner of ways when prices increase.

          WalMart STILL has to pay people to stock the shelves even if prices go up.
          they’re not going to lay off people when prices go up if there is still demand for their products.

          this is nothing more than a right-leaning sound-bite concept.

          in the real world – with real mainstream economists who do not lean – right – or left – it’s just like the poll I provided where there is uncertainty as to precisely what the impacts are because the impacts do not occur at the 1st order level but occur in other areas.

          People will continue to buy fast food just like they continue to buy gasoline or cable TV or cell phone minutes – and yes.. someone selling other products will sell less products as the consumer picks where they want to make cuts.

          You have to have electricity and gasoline and some kind of food. But you may buy hamburger instead of steak if the price of labor goes up.

          People will buy the smaller size fries or get water instead of a coke or who knows but for anyone to “believe” that the impact could be only one thing – 1st order unemployment – is just a “belief” not founded in facts and evidence.

          this is something that would be fairly easy to prove especially in areas that have approved minimum wage increases. Do a before and after study of the stores affected.

          that opportunity has been present many times – and the folks who make the unemployment claim have never taken advantage of it and when you ask them, they’ll say – that it’s “too complex” to actually measure – in effect, they are admitting that it’s not that simple to actually prove.

          I don’t have a dog in the minimum wage issue. I’m not convinced that it really makes that much of a difference in the first place and that the bigger problem is an excess supply of uneducated workers fighting for fewer jobs but the unemployment trope is just that – it’s a sound-bite concept for those who are opposed in concept to the minimum wage.

          Credentialed mainstream economists do not have such beliefs. The ones who are most sure – are about 10% of all economists.

          No business owner is going to lay off people BEFORE demand reduces.

          they keep their people as long as they need them to produce what is needed to serve the demand. Only when demand lessens, do they lay off – and there are a wider variety of things that can cause reduced demand – not the least of which is a new competitor across the street from you.

        • there are two more aspects to this.

          1. – technology/robots – are going to happen no matter what – and will be driven by – competition.. where one guy tries to find a way to lower costs and drive his competitor across the street out of business.

          2. speaking of competition. If EVERY competitor incurs the exact same increased costs – how does that disadvantage individual businesses?

          Has anyone made the claim that increased sales taxes causes unemployment for businesses – across the board?

          if the cost of beef for fast food or the cost of electricity or other costs that affect all businesses go up – does that cause unemployment?

  10. By the way this is not just my view:

    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/27/economists-think-the-minimum-wage-is-worth-it/

    this is from the Booth School of Economics and includes a significant number of credentialed PHD economists:

    Question B:

    The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

    Strongly Agree 5%
    Agree 42%
    Uncertain 32%
    disagree 8%
    strongly disagree 3%

    I’m not claiming that this proves economists support for the minimum wage. I’m saying that when you put the question to real economists – their answer is anything but unanimous …

    and if PHD economists are not certain – please tell me why people subscribe to the sound-bite versions?

    the wording in the question demonstrates the complexity of the issue

    The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are

    sufficiently small compared with the benefits to low-skilled workers

    who can find employment that this would be a desirable policy.

    For yourself – where do you think Walter Williams or Thomas Sowell puts themselves on this poll?

    do you think they represent the mainstream views of economists?

    If you want to see the actual economists who participated in the poll, click on the “poll” link in the article.

  11. This is why I don’t generally read the claptrap in Forbes:

    “Thus the price is not determined by the cost of production of an item. Which means that, if we raise McDonald’s production costs by increasing the wages of the workers, the price isn’t going to change. For it’s not production costs that determine prices: it’s competition that does. Another way to put this is that McDonald’s is already charging us the absolute maximum that it can for its current level of sales. Thus it cannot raise its prices if its production costs go up.”.

    By that logic, all double cheeseburgers cost exactly the same. Want to bet on the validity of that absurd idea?

    Every company has a healthy debate over how much “pricing control” the company has. Luxury car makers generally think they have a lot of pricing power, retail gas stations – not so much. Prices are only fully set by the competition in the twisted minds of economics professors who start every sentence with, “Assuming perfect competition and frictionless markets …”.

    However, beyond the absurdity that companies have no control over the prices they set for their products is the return on investment argument. If prices were set by the competition and McDonald’s had to bear higher than industry average production costs then McDonald’s would make disappointing profits. Owning a McDonald’s would be a less attractive use of capital than say … opening a Chipotle where the workers don’t get paid $15 per hour. Or opening a hardware store. Or buying high dividend paying growth stocks or a marijuana farm in Colorado. So, fewer people would put up the money to franchise a McDonalds, there would be fewer McDonalds and McDonalds would employ fewer $15 per hour burger flippers.

    “If McDonalds raised it’s prices what would happen?” More people would eat at Burger King or 5 guys. Fewer people would eat at McDonald’s.

    In the early 1980s I worked for a huge candy making company. Back then a candy bar needed to cost 25 cents. Too many vending machines were set to take 25 cents and a quarter was what you paid for a candy bar. Period. So, when the price of cocoa went up we made smaller candy bars which we sold for a quarter. I was tasked with maintaining a computer model which tracked changes in demand when the candy bars “shrunk”. Even a very small shrinkage of the candy bar caused a big falloff in demand.

    • it’s not just Forbes though!

      no I don’t totally buy the premise but the point they are making is that costs are production costs and prices are determined by your competition.

      companies DO have control over their prices – that’s the essential nature of competition.

      but if BOTH competitors have the SAME increased costs – how does that benefit or disadvantage one “industry” / businesses over the other?

      re: ” So, when the price of cocoa went up we made smaller candy bars which we sold for a quarter. I was tasked with maintaining a computer model which tracked changes in demand when the candy bars “shrunk”. Even a very small shrinkage of the candy bar caused a big falloff in demand.”

      across the industry for all candy bars that used cocoa? or vending machines in general? and did it cause unemployment?

      these are things that make the equation more complex than a simplified econ 101 conceptual model can deal with.

      again, I do not doubt for one minute that higher prices have impacts.

      what I dispute is that one kind of higher price – for labor – has only one specific impact – unemployment.

      that’s just garbage from folks who can only think in sound bites.

      • “across the industry for all candy bars that used cocoa? or vending machines in general? and did it cause unemployment?”

        All candy bars. We made them all in the same five factories.

        When demand went down we cut back on hours and, eventually, shifts. When cocoa got cheaper and we made bigger candy bars we added hours and shifts at the plants. The company tried hard not to lay people off. Better that everybody works 30 hours per week than lay off 20% of the workers and keep the rest at 40 hours per week. After all, cocoa fluctuated. It was not a one time cost hike. Those workers would be needed in the future.

        • re: ” When demand went down we cut back on hours and, eventually, shifts. When cocoa got cheaper and we made bigger candy bars we added hours and shifts at the plants. The company tried hard not to lay people off. Better that everybody works 30 hours per week than lay off 20% of the workers and keep the rest at 40% per week.”

          you still needed to make the candy bars and stock them in vending machines and that takes employees to do that unless you’re taking vending machines out of service.

          and even then – you have competitors who are also dealing with the same price increases and instead of making smaller bars – they use less cocoa or a substitute or any number of a wide variety of other possible actions to deal with the problem.

          it’s impossible for you to detail what your competitors did and how that might differ from what you did. You can make candy bars cheaper and keep the size. That’s an option also.

          Let me ask you this DJ. Do you buy less coffee when the price increases?

          do you even notice? Do you have other options if your “favorite” coffee gets too high like different brands? Do you think when Folgers increases in price that people buy less of it or do you think if they are coffee lovers, they’ll continue buying their favorite coffee and cut back on something else?

          can you truly predict that there is a one for one dynamic and nothing else?

  12. “1. – technology/robots – are going to happen no matter what – and will be driven by – competition.. where one guy tries to find a way to lower costs and drive his competitor across the street out of business.”.

    True, but they will happen faster if they are replacing more expensive labor.

    “2. speaking of competition. If EVERY competitor incurs the exact same increased costs – how does that disadvantage individual businesses?”.

    Because of conservation and substitution. You would think that gasoline demand is inelastic. You would be wrong.

    “Espey examined 101 different studies and found that in the short-run (defined as 1 year or less), the average price-elasticity of demand for gasoline is -0.26. That is, a 10% hike in the price of gasoline lowers quantity demanded by 2.6%. In the long-run (defined as longer than 1 year), the price elasticity of demand is -0.58; a 10% hike in gasoline causes quantity demanded to decline by 5.8% in the long run.”.

    If the price of something goes up then people buy less of it.

    The other side of the coin is substitution. If Mickey D’s raises prices then people will eat elsewhere or eat at home. If all fast food costs more then people will eat more food purchased at grocery stores.

    • “1. – technology/robots – are going to happen no matter what – and will be driven by – competition.. where one guy tries to find a way to lower costs and drive his competitor across the street out of business.”.

      True, but they will happen faster if they are replacing more expensive labor.

      for ANY increased costs!

      “2. speaking of competition. If EVERY competitor incurs the exact same increased costs – how does that disadvantage individual businesses?”.

      Because of conservation and substitution. You would think that gasoline demand is inelastic. You would be wrong.

      I would think if two companies incur the exact same higher costs that one is not advantaged nor disadvantaged over the other but each of them will seek to find ways to lower costs.

      but you don’t lower costs by cutting things that you do need to meet your current demand. If you do that – you cut your own business.

      “Espey examined 101 different studies and found that in the short-run (defined as 1 year or less), the average price-elasticity of demand for gasoline is -0.26. That is, a 10% hike in the price of gasoline lowers quantity demanded by 2.6%. In the long-run (defined as longer than 1 year), the price elasticity of demand is -0.58; a 10% hike in gasoline causes quantity demanded to decline by 5.8% in the long run.”.

      If the price of something goes up then people buy less of it.

      that may be true for some things that they can do with less us but it does NOT mean unemployment. If propane fuel goes up in price – you STILL NEED drivers to deliver it. Over time, some people may switch to other fuels but then a particular business may find ways to make storage and delivery cheaper or just be in an area where they gain business.

      it is not a one demand – one supply only dynamic.

      The other side of the coin is substitution. If Mickey D’s raises prices then people will eat elsewhere or eat at home. If all fast food costs more then people will eat more food purchased at grocery stores

      If Mickey D’s and his competitor across the street both have to pay higher minimum wage – how does Mickey D’s only – suffer from it?

      people MAY eat at home but probably not.. most folks eat fast food when it’s convenient.. but again why would someone eat “elsewhere” if “elsewhere” also incurred increased minimum wages?

      you can see from this discussion that it’s not at all a simple one dimensional dynamic – even as each of the different aspect is attempted to be characterized as that kind of simple dynamic.

      it’s not. It’s something that has a lot of moving parts beyond the standard Econ 101 concept.

      the best you can say in my view is that higher prices will cause reduced demand – but not necessarily unemployment.

      if someone decides they’re going to buy less lottery tickets or get a cheaper cell phone plan OR buy something else in a cheaper version so they can continue to eat fast food – the impacts are not at all simplistic as promoted by those who want to claim it is.

      this is the dumbing down of our society by thinking about things in sound-bite terms.. it’s no coincidence that where we fall down in education in this country is in – critical thinking skills … i.e. learning real-world applications of concepts,

  13. I don’t know if the figures Don uses are adjusted for inflation. That could make a big difference.

    I also tend to agree with Larry about the impact of raising the wage rate in rural and poor areas. If you have a convenience store at a cloverleaf on Interstate 81 in the middle of nowhere, it is still going to sell lots of fuel and other things no matter what the wages are. It doesn’t exactly go out of business with gas prices spike.

    Ditto your Wal-Mart in a small town. It probably serves a huge market in terms of geography. It has already put the mom and pop stores out of business years before.

    A new Wal-Mart went up near me in far western Chesterfield. It is ugly as spit but it is the only full-scale shopping available from here to Farmville and maybe Lynchburg.

    If you raise the minimum wage what will happen to the labor force? Probably nothing although I am sure Wal-Mart’s efforts to screw their employees will continue.

    For an example of the fiscal conservatives’ cheerful race to the bottom consider the head of AOL (high tech anyone?) saying he was going to nail 401 (k) plans because the spouse of one of his employees had the bad taste to run up a big hospital bill to pay for her premature child.

    When I think of all these “productivity” arguments i want to throw up.

    • None of my figures are adjusted for inflation. However, the 92% hike in the minimum wage between 2007 and 2016 (as proposed) should be compared with a 19% inflation rate (actual and projected) for that same period.

      Saying that rising prices will not dampen demand is simply contrary to the most basic of economic theory. There are certainly cases where the overall labor component of a product’s price is minimal (such as a gas station). In those cases the price increase due to raising the minimum wage is small and drop in demand is minimal. Gas stations just don’t employ many people anymore.

      I have no idea what the CEO of AOL was talking about. It sounded like he was making excuses to explain away a reduction in employee benefits that will raise corporate profits. The fact that he can’t seem to lie with any believability makes me wonder how he ever got into the media / advertising business in the first place.

      Productivity is a very tricky statistic. You really have to watch the denominator. For example, if 10 guys with pick axes can dig a 20 foot ditch in a day and one guy with a backhoe can dig a 25 foot ditch in a day, what are the productivity metrics? Well, productivity of what? The backhoe clearly wins the labor productivity contest but the 10 guys with pick axes win the capital productivity contest. In an odd way, Bush and Obama’s policy of keeping interest rates (the cost of capital) artificially low has made it all the cheaper to replace human labor with mechanized capital.

  14. There’s yet another issue here, look at this list of countries:

    Australia
    Austria
    Belgium
    Canada
    Chile
    Czech Republic
    Denmark
    Estonia
    Finland
    France
    Germany
    Greece
    Hungary
    Iceland
    Ireland
    Israel
    Italy
    Japan
    Korea, South
    Luxembourg
    Mexico
    Netherlands
    New Zealand
    Norway
    Poland
    Portugal
    Slovak Republic
    Slovenia
    Spain
    Sweden
    Switzerland
    Turkey
    United Kingdom
    United States

    Virtually every single one of these countries has a de facto or de jure minimum wage law.

    Each, every one of these countries have their own staff of economists and their own legislatures that have voted in the majority for minimum wage laws, not once, but on a continuum , reaffirming it over the years and decades.

    In order to buy the premise that minimum wage is economically damaging and causes unemployment – and policies to enforce it are economically misguided – one would have to believe that all of these countries, all of their economic advisers and all of their legislatures are economically ignorant boobs.

    Now I realize that that’s a badge of honor for the rabid anti govt types.. but normal folks probably ought to realize that considering their own self as supremely more intelligent than ALL the other OECD countries on the planet Earth put together, as a bit goofy.

    I’d be the first to admit that there have been in the past and will be in the future worldwide conventional wisdom ultimately determined to be wrong … but it still seems a bit of a long shot, HOWEVER, we DO seem to have also taken that same route with Global Warming! Worldwide, Scientists and now joined by Economists have been relegated to lying corrupt SOBSs… by the nouveau intelligentsia (sic)!

    I see this as our long darkness.. a modern return of the Medieval Dark Ages with the standard torches and pitchforks replaced by overheated internet keyboards.

    I pray for the Renaissance but it cannot be rushed!

    • My question isn’t whether we should have a minimum wage. My question is whether it makes sense to raise the minimum wage 92% in the nine year period from 2007 – 2016. During this period, inflation (actual and projected) is 19%.

      How about we raise it 50 cents per year starting in 2014?

      2014 – $7.75
      2015 – $8.25
      2016 – $8.75
      2017 – $9.25
      2018 – $9.75
      2019 – $10.25

      If employment of people earning the minimum wage remains reasonably strong we keep raising the wage up to $10.25. If we start seeing problems with employment of minimum wage people, we stop the hikes.

      In any regard, Virginia should use its own minimum wage scheme. It should vary by region based on cost of living. Some regions may be below the federal minimum, some areas may be above the federal minimum.

      • re: how long since the minimum wage was last raised and does minimum wage today buy the same as it did the last time it changed?

        re: supply/demand

        if you have ONE item of a fixed quantity for which this is ONE fixed market then supply/demand will governed by price as premised by Econ 101.

        but if you change anything and/or add other variables to the equation – there are other possible actions and impacts.

        even if you vary the Quality of something such that you have two quality levels, it can change the Econ 101 to a more complex dynamic.

        I do not deny the basic theories and tenants of Economics in the basic conceptual theories.

        What I object to is trying to use a basic conceptual theory that holds all variables but two – constant – in a real world economic circumstance that has many variables.

        I do not think we necessarily “help” people with a minimum wage.. there are issues… but if, as a country, we have as a de facto policy that we will “top off” pay with supplemental entitlements if the total wages fall below poverty thresholds – then we need to acknowledge that reality when making choices about minimum wage.

        To not do that is, in my view, just as dumb as thinking the rest of us don’t pay for charity care at ERs …

        What I support is dealing with the realities over and above clinging to dogmatic theories that simply do not describe the circumstances people are attempting to use them in.

        This ought to have nothing to do with “right” or “left” but unfortunately it appears to me that the right and the self-proclaimed libertarian types cannot deal with the realities and instead insist that sound-bite thinking is okay for visualizing how the world works. It’s the kind of thing you get from NeoConservative types who think we can “nation-build” or that going to Church on Sunday does not preclude one from supporting kidnapping and torture … etc…

        If we are going to have a policy where we essentially are going to guarantee people a minimum income level with a combination of mandated minimum wages topped off with entitlements – wouldn’t it be better to have a poverty level wage – and no entitlements?

        We pretend that people who earn minimum wage below he poverty level – don’t get supplemental entitlements just like we pretend that people without health insurance don’t use ERS and we don’t pay for it.

        It’s okay to have a Conservative Philosophy. It’s not okay to use that as an excuse to live in LA LA land when it comes to realities.

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