Lion of the Blogosphere

Back to the minimum wage topic

Assuming that raising the minimum wage has no impact on employment because businesses just pass on the costs to consumers resulting in slightly higher prices for products and services which rely on minimum-wage labor, who benefits and who is hurt?

Let’s assume that there’s a 3% increase in the cost of fast food and a 1% increase in the cost of goods at Walmart and at supermarkets. Healthcare and education prices will remain the same because these industries don’t rely on minimum-wage workers. There may also be a 10% increase in the cost of lawn-care services and 5% increase in dry cleaning, but these are unnecessary luxury services for the rich.

Well clearly the working poor benefit, that is people who work at minimum wage jobs. They benefit a lot because their salary goes up by a much greater percentage than the costs of goods and services they buy.

People who make enough money above minimum wage such that they don’t get a salary increase will on the surface appear to be harmed because the price of a Big Mac will increase from $4.00 to $4.12. But there may be hidden benefits such as a lower tax burden because people making a higher minimum wage need fewer government benefits, and they may get better service at McDonalds because the higher minimum wage might attract higher-quality workers.

The people who are hurt are those collecting welfare, because their welfare checks will remain the same but they will have to be more money for fast food and more money at Walmart.

Thus we see that raising the minimum wage is a policy that rewards work but punishes collecting government benefits.

Written by Lion of the Blogosphere

December 26, 2013 at EST am

Posted in Economics

32 Responses

Subscribe to comments with RSS.

  1. But there may be hidden benefits such as a lower tax burden because people making a higher minimum wage need fewer government benefits, and they may get better service at McDonalds because the higher minimum wage might attract higher-quality workers.

    See the better performance of Chick Fil-a’s overwhelmingly white work force, as compared to that at McDonald’s. I have ordered from the CFA drive-thru literally hundreds of times and they’ve never made a mistake in my order, not even once. (believe it or not) The food at CFA is also remarkably consistent no matter where you visit their restaurants across the country.

    Meanwhile, I would guess that McDonald’s has screwed up my drive-thru order about 40% of the time – especially if you order anything outside the normal combo showing in the little picture.

    Also, I find it hilarious to see all of the black McDonald’s workers going on a pitifully attended nationwide strike recently to demand $15 per hour:

    http://www.usatoday.com/story/money/business/2013/12/05/fast-food-strike-wages/3877023/

    Somebody really needs to explain to these people that those types of wages would lead to them being replaced by better workers, maybe even college graduates in some areas of the country.

    Camlost

    December 26, 2013 at EST am

    • That same person needs to do some ‘splainin to the Boeing machinists as well.
      http://www.nytimes.com/2013/11/15/business/boeing-workers-reject-labor-deal-in-washington-state.html?_r=0

      Curle

      December 26, 2013 at EST pm

    • I have to agree with your review of Chick Fil-A. I’m not a frequent fast food user, but hey, I have kids so I’ve spent a fair amount of time in drive throughs over the years, and Chick Fil-A employees are without a doubt the friendliest, most polite fast food workforce I’ve come across. I don’t know if it’s training or they just know how to pick good employees.

      Krystals (like White Castle for you Yankees) is probably the worst workforce. However, as the economists might say, my demand for Krystal burgers is inelastic.

      Mike Street Station

      December 27, 2013 at EST pm

  2. Lion, we are on the same page on this one. Raising minimum wage is only way to prevent widdening gap between rich and poor. A healthy inflation is also good for market and investment.
    https://dl.dropboxusercontent.com/u/163075/Oakland.roughdraft.pdf

    With assortative mating due to wide spread college education, middle class is fading away. Minimum wage is only way to reduce the pain.

    IC

    December 26, 2013 at EST am

  3. the whole “tax burden” thing is a red herring, because the government does not live within its means. it borrows so much and wastes so much on Empire that “tax burden” is an illusion . Taxes are more about controlling us, than collecting revenue.

    mindweapon

    December 26, 2013 at EST pm

    • If the government didn’t remove money from the economy, and just created all it spent, inflation would be even higher than it is now.

      CamelCaseRob

      December 26, 2013 at EST pm

  4. Low wage earners would lose in the short run because of higher prices, the progressive tax rate and lower welfare payouts. Their standard of living will fall.

    In the long run they’d also lose as McDonald’s, Walmart etc replace the lowest skilled workers with apps, kiosks, websites, and a smaller, higher skilled work force.

    It sucks to be dumb.

    dsgntd_plyr

    December 26, 2013 at EST pm

  5. Supermarkets pay above minimum wage. Around here, starting rates vary from about $8.50 to $10 per hour. Raises come fairly quickly, at least from what I’ve heard, and people who stick it out for a few years often get promotions to assistant department managers or similar titles, which pay considerably more.

    Peter

    ironrailsironweights

    December 26, 2013 at EST pm

  6. Unemployment benefits in NY pays a maximum amount of $405/week, and in NJ, they pay a whopping amount of more than $600/week. That’s more than the minimum wage. Many people would rather live off on unemployment until it runs out, instead of hacking it in some gig that pays less than that.

    And there are many people who collect welfare and work off the books, in the case of Mexicans, but not that of blacks. Anyone who has a sane mind will realize that no immigrant group in this country has gotten successful without defrauding the gov’t in some way or the other. It’s really the blacks who play dumb, and that’s because of their inherent lower IQs and future time orientation.

    JS

    December 26, 2013 at EST pm

    • That’s why Lion’s concept of BI (Basic Income) would stop such fraud and waste, when it comes to welfare.

      JS

      December 26, 2013 at EST pm

    • Well, recent immigrants for sure. Before Tammany Hall there wasn’t much help for immigrants except other immigrants. Check out Theodore Dreiser’s novel Jennie Gerhardt sometime.

      Curle

      December 26, 2013 at EST pm

    • Yes, but you can only collect only unemployment if you paid in to the system and actually worked on the books for the prior 4-5 quarters. Our unemployment is not like the UK where you can graduate from school, throw your hands up and say “I don’t have a job” and then run down to the unemployment office to collect.

      Camlost

      December 27, 2013 at EST am

      • Most people on gov’t benefits would not want to relinguish it; they either work off the books to supplement it or wait till they exhaust the funds, and take on a minimum wage job as last resort.

        JS

        December 27, 2013 at EST pm

  7. LotB: “There may also be a 10% increase in the cost of lawn-care services and 5% increase in dry cleaning, but these are unnecessary luxury services for the rich.”

    In FL, nearly every middle-class homeowner, and up, hires a lawn service. It’s actually pretty cheap, $20 per cut, including edging, weed-wacking, & blowing, for as much as 1/3 acre. And the business is very competitive; probably won’t see any price increase w/ a minimum wage increase. Frankly, I think many of the lawn service workers are unemployable in other low-dollar hourly-wage jobs due to criminal convictions and substance abuse.

    E. Rekshun

    December 26, 2013 at EST pm

  8. Do neighborhood kids mow lawns for money anymore? I have never seen or heard of this activity in FL. Everyone’s lawn is cut by grown men w/ a trailer and a mower. Growing up in the ’70s in the northeast, other neighborhood kids and I used to hustle up lawn customers throughout the neighborhood, at $3 – $5 per lawn. When a kid got old enough to get a regular job, he’s sell the lawn customer to a younger kid, who would keep the customer for a couple of years, then sell him to some other younger kid.

    E. Rekshun

    December 26, 2013 at EST pm

    • My teenage nephews mow lawns and clear brush. I think they charge $15 each per job and work together.

      toomanyspiders

      December 26, 2013 at EST pm

  9. Minimum wage is bad policy. People, especially liberals in crowded urban centers, should compete for crumbs. They should have the privilege of actually experiencing the fruition of all of the lax immigration, welfare, student loan, affirmative action etc. liberal policies that they’ve been champions of. Any minimum wage law only one ups all of the bad policies that led up to this.

    I’m not Libertarian, but do believe that the Austrian school has overwhelmingly better predictive theories than Keynesians.

    JQ

    December 26, 2013 at EST pm

  10. Even if minimum wage were raised to $15/hr, which I believe is what fast food forward is advocating, this would place a family of 4 below the federal poverty level at the part time hours most fast food jobs offer. So there would be little to no savings in handouts. Even at full time hours they would only barely be above the poverty level and probably wouldn’t be able to afford market rate for housing, daycare, a full grocery bill, etc., which would disincentivize people from seeking full time employment.

    toomanyspiders

    December 26, 2013 at EST pm

  11. Have you been following Ron Unz and his efforts to introduce this?

    “However, all these discussions were restricted to the tiny gilded ghetto of opinion journalism and policy presentations, never reaching the news headlines providing most normal Americans with their knowledge of the world between their devouring focus on the latest antics of the Kardashians and Miley Cyrus. Frankly, I doubt if more than one American in ten thousand had ever encountered my proposal of a $12 minimum wage.

    Then, just over a week ago I printed out a one-page sheet of paper with a single operative sentence and took a pleasant Amtrak train ride to the Sacramento office of the California Attorney General, dropping it off there together with my $200 filing fee. And in the twenty-four hours surrounding that insignificant event, the political landscape of America suddenly changed, or at least the media reporting of it did.”

    http://www.unz.com/runz/a-12-minimum-wage-transforming-policy-idea-into-political-reality/

    http://www.salon.com/2013/05/18/the_conservative_case_for_raising_the_minimum_wage/

    Julian

    December 26, 2013 at EST pm

  12. Allerious

    December 27, 2013 at EST am

    • If more then 50% already are net takers from the government, why not just replace all government aid with a guaranteed basic income?

      Lion of the Blogosphere

      December 27, 2013 at EST pm

      • The government aid business employs many, many paper-shufflers. A guaranteed basic income would put many (most) of them out of work.

        E. Rekshun

        December 27, 2013 at EST pm

      • A guaranteed BI would require gov’t paper shufflers to handle the application process.

        BI should not be funds where people go out and spend it all. Rather, a monthly amount payable only towards necessities such as rent, food and fuel. That would require additional staff for oversight and management.

        JS

        December 28, 2013 at EST pm

      • What happens when the screwups blow their BI at the start of the month and turn up on gubmint’s doorstep for help? Surely they can’t be left to starve, die, etc.

        Glengarry

        December 30, 2013 at EST am

    • What happens when the screwups blow their BI at the start of the month and turn up on gubmint’s doorstep for help? Surely they can’t be left to starve, die, etc.

      Again, BI should be something like store credit, not money. It could be used only for basic necessities such as rent, food and fuel. You want a plasma flatscreen or a new Iphone, well go out and get a job to pay for them. The credits should be monthly installments just like other government assistance programs.

      JS

      January 3, 2014 at EST am

  13. As you say, a higher minimum wage would attract better workers and provide better service at fast food restaurants. Consumers, though, already have the option of going to more expensive restaurants and getting better service. A raise in the minimum wage would eliminate the option of accepting worse service from lower quality workers in exchange for lower prices. When the increase in minimum wage enabled fast food restaurants to get better workers, all the current lower quality workers would be thrown out of their jobs. They would be worse off because then they would be on welfare and people who pay taxes would be worse off supporting the extra welfare recipients. Besides providing the pay, many minimum wage jobs also often provide young people with their first job experience and teach them basic things like showing up to work on time, how to deal with customers and so on. They can be the first step on a ladder to a better job but not if the bottom of the ladder is cut off. There will benefits to some people and costs to some people of a raise to the minimum wage. There isn’t a very good past track record for government deciding what wages and prices should be so why not just let the market set wages and prices?

    Mark G

    December 27, 2013 at EST am

    • Yes, but having blacks work at the fast food joints is a lose lose situation, regardless of their pay rate. I’m all for Mexicans/non-Mulatto Hispanics taking over the black workforce. They make better workers than many of the White college students who perform the same menial tasks. In this day of age, proles should not be engaged in low paying jobs. They have better things to do!

      JS

      December 27, 2013 at EST pm

  14. If someone is worth more than minimum wage, then they are already making more than minimum wage.

    Southern WASP

    December 28, 2013 at EST pm

  15. America has and wil always have a sizable dependent class; that is, people who even in their physical prime can’t make an even modestly decent living off their own labor. They’re simply too dumb or poorly educated, disorganized, impulsive, substance-abuse prone, mentally fucked up, etc. Given that America remains a high-standard-of-living society with some measure of social cohesion (not to mention fear of underclass violence) we’re going to be supporting these people one way or another indefinitely. Therefore, we should aim to limit the size of the permanent underclass.

    There are a couple of ways to do this. One is to get as many of its salvagable members as possible into the workforce, as soon as possible. There are plenty of low-skill people who could easily be seduced into a welfare lifestyle, with all ts attendant problems, but with the right incentives, they can become accustomed to work and at least partial self-sufficiency, I don’t mind subsidizing these people to some degree, so long as they work at something, and I don’t much care what it is. The somewhat more talented members of this class will pick up enough skills and experience along the way to have a good shot at making a decent, though unspectacular, living. But without early entry into the job market, they’ll become totally dependent on others: the welfare state, their moms, their sisters and girlfriends, their crime viciims, etc. And thirty year olds with three kids working their first job ever, and who’ve never had to be anyplace on time in their lives, don’t make good laborers, So get them working at something just as soon as they drop out of school. I’m fine with raising the minimum wage to something like 9.00 dollars per hour to lure them in, or just paying a cash subsidy to people who go out and get a job, even if it pays the current minimum wage. However, I wouldn’t want to raise the MW too much higher, because these people’s labor has very low productive value, and a lot of them will be shut out of the labor market. I’ve seen fast food workers whose stupidity and indifference wind up costing their employers money. In other words, the value of their labor may actually be below 0 dollars per hour. Now, some will learn to do more and make more, but let’s face it, they won’t ever raise their labor value to an even working class standard. These people are typically doing work that can be mechanised (fast food, for example) or they are providing services that people can actually do for themselves. Anybody can cut his own grass, paint his own walls, or wash his own car if the cost of these services crosses a certain threshold. So, keep the underclass small by encouraging its younger generation to get out and do anything work related, and we’ll pay them more than the current MW, or subsidize their income in some manner, or both.

    The other priority is to limit the size of this undeclass through some PC-acceptable incentives for them to not reproduce. Sure, some people fall from the middle class to the underclass, but not that many. The underclass is more or less self-perpetuating at this point. Pay teenaged girls a stipend to not get pregnant under the guise that this will keep them free to pursue their education. Insist that those drawing welfare make use of an implantable form of birth control, and if they manage some day to get off welfare, pay them a subsidy not to have kids. Of course, I have no expectation of the latter happening, but in the kind of economy we live in, there ain’t much use for illiterate field hands or household servants, and nobody wants a member of the permanent underclass in his house anyway.

    ice hole

    December 29, 2013 at EST pm

  16. The min wage isn’t about helping the poor. Naive people think it is but clever people know better. I say “clever” rather than “smart” because there are plenty of smart people who don’t realize the real effects and motives behind raising it.

    Friedman on the minimum wage

    destructure

    January 3, 2014 at EST am

  17. Ron Unz is getting some traction on the issue.

    “Unz says taxpayers for too long have been subsidizing low-wage paying businesses, since the government pays for food stamps and other programs those workers often need to get by. He posits that the increase — at $12-an-hour, up from the current $8 — would lift millions of Californians out of poverty, drive up income and sales tax revenue and save taxpayers billions of dollars, since those workers would no longer qualify for many welfare benefits.

    He dismisses the notion that countless jobs would evaporate, noting that most of the state’s lower-wage jobs are in agriculture and the service sector, which can’t be easily automated or transported elsewhere. He believes higher wages would make the jobs more attractive to U.S. residents, curtailing a lure for illegal immigration.”

    http://www.politico.com/story/2014/01/california-minimum-wage-ron-unz-102064.html

    http://www.unz.com/runz/rightwingers-for-higher-wages/

    Holtz (@Biorealism)

    January 13, 2014 at EST am


Comments are closed.

%d bloggers like this: