Lion of the Blogosphere

Minimum wage in the NY Times

In the NY Times Magazine, and article about how raising the minimum wage does not lead to less employment:

About 20 years ago, in the midst of a recession, New Jersey decided to boost its minimum wage to $5.05 an hour from $4.25. Its neighbor to the west, Pennsylvania, chose not to tinker with its wage floor. Two bright young economists at Princeton, David Card and Alan B. Krueger, recognized in that dull occurrence a promising natural experiment.

The two found fast-food joints along the New Jersey-Pennsylvania border, and surveyed them twice over the course of 11 months about how many people they employed. They figured that when New Jersey’s minimum wage went up, Garden State burger joints would hire fewer workers. The ones on the Pennsylvania side, acting as a kind of control, would see no change.

They were wrong. To everyone’s surprise, there was actually no change in employment in the New Jersey restaurants, relative to the Pennsylvania ones. The price of low-wage work had gone up, and somehow, demand had remained the same.

Have the laws of economics been upturned? Is it merely left-wing bull****?

Neither is the case. As I have argued before, the short-run demand for low-wage labor is very price inelastic, and that’s because people making minimum wage are a very small percentage of costs (on account of the fact that their wages are so low in the first place) and they fill necessary roles in the business. It’s like what happens when the price of gasoline increases. Everyone keeps driving to work and there isn’t much of a short-run change in habits, so they keep using the same amount of gasoline. That’s why the price of gasoline doubled since ten years ago, but consumption has remained pretty much the same.

And even if in the long run, an increase in the minimum wage causes less employment, that can be interpreted as a good thing because we should be encouraging investment in labor-saving technologies like robots if we don’t want to fall behind Japan, and it will reduce validity of the argument that we need more immigration to fill all of those mythical jobs that Americans don’t want to do.

Also, I feel that minimum-wage labor is an externality, because the majority believe the a person making minimum wage doesn’t earn enough money to support himself in a manner in which all humans in an advanced nation like the United States are entitled, so they are eligible for a host of government benefits to fill in for their low salary. If business were required to pay workers a proper living wage, this would reduce the tax burden.

Also, it is necessary for people to have money in their pockets in order for the economy to advance, and if the free-market won’t provide such money it is necessary for government to step in. People who don’t understand this are people who don’t understand post-scarcity economics.

Written by Lion of the Blogosphere

December 23, 2013 at EDT am

Posted in Economics

21 Responses

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  1. Something like 60% of minimum wage work is in the hospitality (especially fast food) and retail industries.
    I wouldn’t mind seeing those contact; we don’t need nearly so many choices of places to buy hamburgers and Chinese-made clothing.

    If you aren’t worth $12/hr, you can’t afford to live in a large northeastern metropolis, and shouldn’t.
    And our tax roles shouldn’t be burdened with imported high school dropouts.

    WmarkW

    December 23, 2013 at EDT am

  2. Only if the economy is in average shape does the minimum wage become relevant. If the economy is in strong shape the minimum wage is irrelevant because almost all jobs pay more. If the economy’s in recession the minimum wage is irrelevant because there aren’t any jobs even at that level.

    Peter

    ironrailsironweights

    December 23, 2013 at EDT am

  3. Steve Sailer, who tends to be on point when he bothers to write about economics, explained this. The mystery of the minimum wage not leading to higher unemployment is cleared up by the fact that the minimum wage increases have not kept up with inflation at some time. Its just not that high anymore. The costs of getting to and from a minimum wage job may now be higher than the cash wages.

    So with the minimum wage lower than the market clearing wage, raising it to the market clearing wage will have no effect on employment, or if anything a positive effect by nudging the businessmen too cheap or too dim to offer the market clearing wage. The problem is determining what the market clearing wage is.

    The minimum wage really doesn’t have that much of an effect, as long as its not set super-high, but I think its important symbolically to require businesses to pay something for labor, if we are serious about not going back to serfdom or slavery.

    Ed

    December 23, 2013 at EDT am

    • Correct. Raising the minimum wage to a few dollars ain’t gonna help you much, as a rising COLA (Cost of Living Adjustment) isn’t catching up with our inflation or dollar devaluation. Further, they don’t take taxes, food and fuel into consideration.

      Anyone noticed how $20 gets you very little at the prole markets? They cost just as much as Whole foods.

      JS

      December 23, 2013 at EDT pm

  4. In the 80’s businesses that have a lot of minimum-wage employees, such as retail and fast food, figured out exactly how many employees they needed to function. They can’t really reduce hours because of increases in the minimum wage because they already are at the absolute minimum.

    thrasymachus33308

    December 23, 2013 at EDT am

  5. “Two bright young economists at Princeton, David Card and Alan B. Krueger, recognized in that dull occurrence a promising natural experiment.” “To everyone’s surprise, there was actually no change in employment in the New Jersey restaurants, relative to the Pennsylvania ones.”

    Really annoying how MSM economic articles, even ones about ancient studies like this, now have to be written in this overdramatic TED talk/Freakonomics style.

    Fiddlesticks

    December 23, 2013 at EDT am

  6. When thinking in economic terms, you have to look at both the seen and unseen. In this study, it was found that the resultant higher wages led to higher costs for the consumer to buy the product. Since many of the consumers of fast food are low wage themselves, this led to a lower standard of living for them that they could ill afford. Since they were spending more for fast food, they were also spending less in other areas. The workers employed in those other areas may have lost their jobs because of that. There may have been no less employment in New Jersey restaurants after the law went into effect but there may have been less employment in other New Jersey businesses.

    Mark G

    December 23, 2013 at EDT am

    • Given that poor people are fat, no harm will come if they eat less “fast food.”

      Lion of the Blogosphere

      December 23, 2013 at EDT pm

    • Since they were spending more for fast food, they were also spending less in other areas.

      Because the poor are always struggling no matter what economic policy is favored, the minimum wage should be judged by how it affects the white middle class.

      Ron Unz estimated consumers of goods and services staffed by minimum wage workers would see a 1-3% price increase, a hit middle class whites can afford. In exchange for a small rise in fast food prices, whites get better service from lower class whites and white teens who would be displacing worthless blacks and immigrants. Unless I’m missing something the benefits outweigh the costs. I’d be willing to go up to $14.50/ hour ($30,000 a year) to disincentive immigration.

      The Undiscovered Jew

      December 25, 2013 at EDT pm

  7. 20 years ago was 1993. We were undergoing economic growth in the 90s. More jobs at higher wages would’ve occured without legislative changes. I remember $300 signing bonuses at KFC.

    The minimum wage should be adjusted to county level cost if living, and it should be lower your teens. Say $10/hr in DC for people 21+, $8/hr for 18-21, $6/hr under 18. Then move it up or down in other counties.

    I’d also adjust it downward for a person’s recent unemployment history. Immigrants would have a much higher minimum.

    dsgntd_plyr

    December 23, 2013 at EDT pm

    • This study doesn’t show what Lion is claiming it does. The recession ended in March 1991 and New Jersey raised it’s minimum wage in April 1992. By that time, the economy was already going pretty good. In fact, that was the best time to wage the minimum wage since the economy went full blast for the rest of the decade and it was common for fast food places to offer salaries above minimum wage to attract employees.

      Mike Street Station

      December 26, 2013 at EDT pm

  8. In China some provinces believe it or not actually have minimum wage laws. Expecting a business owner to pay employees $350 per month instead of $300 can mean the difference between a factory job staying in China or being outsourced to Vietnam in search of cheaper labor. It’s already happening. Nike gets more of it’s T-shirts and tennis shoes manufactured from Vietnam instead of China.

    Getting back to the USA, you can’t outsource a hamburger restaurant to Bangladesh so I agree there is a certain amount of price elasticity for low wage labor. However I’m still not a supporter of minimum wage laws in the USA for other reasons…

    Ode

    December 23, 2013 at EDT pm

  9. “Also, it is necessary for people to have money in their pockets in order for the economy to advance, and if the free-market won’t provide such money it is necessary for government to step in.”

    If that money in their pockets wasn’t earned through productive work, then that money will not advance the economy (whatever the hell that means) — it will merely increase prices and make everyone’s standard of living decline if done on a nationwide scale. You really don’t understand econ, do you, Lion?

    yerwrong

    December 23, 2013 at EDT pm

    • Well after the minimum wage went up, the employers still kept paying them, so obviously their labor was productive even at the higher wage.

      Lion of the Blogosphere

      December 23, 2013 at EDT pm

  10. First job: 1977; 13 y/o; dishwasher in a busy Italian restaurant; minimum wage $2/hour except I got paid in cash, no deductions, no W2.

    E. Rekshun

    December 23, 2013 at EDT pm

  11. “…so they are eligible for a host of government benefits to fill in for their low salary. If business were required to pay workers a proper living wage, this would reduce the tax burden.”

    In theory. This is like the libertarian position on immigration, i.e. open borders would be no problem if we got rid of the welfare state. No one believes the welfare state is going away within the lifetime of anyone reading this blog, so assuming the government would voluntarily shrink in size and the tax burden would lighten in response to a hike in the minimum wage is, shall we say, overly optimistic.

    Sgt. Joe Friday

    December 23, 2013 at EDT pm

  12. Companies should not be told how much to pay their employees nor should they be expected to shoulder the burden of providing the poor with livable wages. It’s better to just have a guaranteed income (negative income tax) so all Americans have a basic safety net, and then businesses would be forced to pay decently to make it worthwhile to work at all.

    Bottledwater

    December 23, 2013 at EDT pm

  13. he’s not always right, but there are fellow travelers out there.

    On the Phenomenon of Bullshit Jobs:

    http://www.strikemag.org/bullshit-jobs/

    jorge videla

    December 24, 2013 at EDT am

  14. I think the analogy to gasoline is decent. If someone has invested a lot in a car-dependent life (buying a car and a house in the suburbs) then they will probably keep buying gas even if the price goes up.

    In the same way, a fast food restaurant requires considerable investment to obtain land; construct the restaurant; buy equipment, etc. So an increase in the minimum wage gives the restaurant owner little choice but to accept a reduction in his profits.

    Rather than looking at employment in already existing restaurants, the researchers should look at investment in new restaurants.

    fortaleza84

    December 26, 2013 at EDT am

  15. So an increase in the minimum wage gives the restaurant owner little choice but to accept a reduction in his profits.

    If they raise prices they can keep existing profit margins. The question then is can the middle class afford the increased prices? Unz says most national fast food chains would only have to raise prices by 1-3%. Smaller businesses might need a bigger increase because they don’t enjoy the sophisticated supply chain management systems national brands do.

    * The poor will suffer the worst impact, but why base policy around them? The poor are overwhelmingly non-white immigrants and blacks.

    The Undiscovered Jew

    December 26, 2013 at EDT am

    • The WORKING poor benefit from having a higher minimum wage. So this hurts (1) slackers who don’t have any job at all (2) people making above minimum wage such that the minimum wage hike doesn’t increase their salaries.

      Lion of the Blogosphere

      December 26, 2013 at EDT am


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