Lion of the Blogosphere

Minimum wage increase benefits low-wage workers

Summary is that a year ago, some conservative economists released a study claiming that the minimum-wage increase in Seattle harmed all low-wage workers.

A year later, the same economists backed off their original claim and admit that the minimum-wage increased helped low-wage workers. “On net, the minimum wage increase from $9.47 to as much as $13 per hour raised earnings by an average of $8-$12 per week.”

I have long been on the record for disagreeing with the libertarian position on minimum wage.

To summarize my position:

1. Employees are paid not by the value they create but by how little they are willing to work for. Competition among workers for scarce jobs causes the going rate for low-skill work (which is the most fungible type of work) to decrease below the value they create for employers.

2. Increasing the minimum wage gives low-skill workers greater bargaining power to earn a salary closer to the value they create.

3. Higher labor costs are just passed on to consumers, but it doesn’t cause that big of an increase in prices because minimum-wage labor is only a small component of expenses for most companies.

4. A higher minimum wage could even increase employment by stimulating the economy by putting more money into the hands of workers. That didn’t happen in Seattle, but that’s because the minimum wage increase was so localized. For example, if the minimum-wage worker uses the additional income to buy an iPhone, that doesn’t directly stimulate the Seattle economy. But a nationwide minimum-wage increase could boost the national economy.

Written by Lion of the Blogosphere

October 22, 2018 at 1:13 PM

56 Responses

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  1. Question: If the bottom half (or 3/4, or 9/10) of the bell curve is going to be rendered obsolete by automation and AI within the foreseeable future, does it really make sense to worry over what the minimum wage is? The only real advantages I see to raising the minimum wage are 1. Prices certain types immigrants (mostly low-skilled illegals) out of the market, provided it is consistently enforced and 2. Hastens the switch towards more automated/AI driven systems. 1 is good, but could also be nixed if the government doesn’t crack down on employers hiring illegals. 2 is good insofar as we take automation and AI takeover of previously labor intensive tasks as an ultimately good thing, and want to speed up the transition.

    Georgia Resident

    October 22, 2018 at 2:04 PM

  2. True, “Employees are paid not by the value they create but by how little they are willing to work for”.

    However, this is conditioned on that they get paid less than the value they create, adjusted for risk. (ie, the business is riskier than the steady income). There are jobs where the value the low skilled workers create is less than the minimum wage, and these jobs will simply disappear. You can say that the costs will be pushed on the customers, but it’s not always true. If you compete with some cheap product from China or with some robot, then you’re out of luck. So jobs will definitely disappear. In NYC in particular in the restaurant industry, you compete with jobs done by illegals, who are already illegal and will not complain to getting paid less than the minimum wage. In other words, in this industry it pays to be honest, or follow the law.

    Zack

    October 22, 2018 at 2:36 PM

    • “In NYC in particular in the restaurant industry, you compete with jobs done by illegals, ”

      I have three words: build the Wall.

      Lion of the Blogosphere

      October 22, 2018 at 3:34 PM

  3. It did not have a negative effect because of tax cuts. The tax cuts, designed to reduce capital gains taxes, have vastly increased the return to investment, which leads to more hiring, which leads to more demand for workers.

    Seattle’s minimum wage law simply timed itself with the Trump economic policies, where the minimum wage is just the new market minimum.

    You said it yourself in your first point. Scarce jobs drive down wage rates. Well, the jobs are not scarce.

    map

    October 22, 2018 at 2:36 PM

    • Exactly. This is the tightest job market in over 50 years. So raising the minimum wage probably didn’t have much effect.

      destructure

      October 22, 2018 at 9:03 PM

      • hahaha!


        anti-libertarian

        October 22, 2018 at 11:28 PM

      • In 2006, there was a change in the reclassification of part-time workers into full-time workers.

        map

        October 23, 2018 at 9:28 PM

    • ” This is the tightest job market in over 50 years. ”

      Trump’s luck, or Trump’s policies?

      gothamette

      October 23, 2018 at 4:25 PM

      • Both.

        destructure

        October 23, 2018 at 6:43 PM

      • Policies.

        Only socialists believe they have bad luck.

        map

        October 23, 2018 at 9:25 PM

  4. Steve Sailer has pointed out -and he’s the only one – that golf caddying, which used to be a good way for black people to make a nice wage, has now become almost exclusively an endeavor of middle class -or-better whites. For example, there are no black caddies at Bloomberg’s club, Deepdale on L.I. So the Trump administratikn should issue an executive order that all private golf clubs will use a minimum number if black caddies, ir else ICE will be checking your groundskeepers’ immigration status.

    Marty

    October 22, 2018 at 2:43 PM

    • I am temporarily living on a private golf course. I can look out my back window and watch the golf carts wiz by during the day. I have not seen a single golf caddie. Rich people use to hire golf caddies to carry their golf bag and clubs around the course. Now they just rent a golf cart to carry their bag and clubs.

      mikeCA

      October 22, 2018 at 7:53 PM

      • that’s one yuge advantage of the putative meritocracy. help is considered bad taste by most of the arrivistes. and it is.

        a gentleman’s gentleman is not a gentleman, and neither is his master.

        anti-libertarian

        October 22, 2018 at 11:22 PM

      • I predict that will change.

        Lion of the Blogosphere

        October 23, 2018 at 6:32 AM

      • The disappearance of golf caddies is a good metaphor for how automation has made life more difficult for Black Americans.

        Peter Akuleyev

        October 23, 2018 at 1:43 AM

      • “a gentleman’s gentleman is not a gentleman, and neither is his master.”

        A good butler typically starts around 40K and hits six figures within five years. One could do a lot worse.

        destructure

        October 23, 2018 at 7:06 PM

  5. What is the ideal minimum wage, and why? Who gets to decide? The politicians? The bureaucrats? You? Me? And if a small increase in the minimum wage is good, is a big one better? If not, why not? How small is “small”? How big is “big”?

    Black Death

    October 22, 2018 at 3:12 PM

    • That’s a great argument for open borders “Who is to decide who gets into the country and who doesn’t? The politicians? The bureaucrats? You? Me?” Obviously we need to leave the border completely open and unregulated, because it’s all just too complicated to even ponder.

      Lion of the Blogosphere

      October 22, 2018 at 3:36 PM

      • Sarcasm is lost on you.

        Black Death

        October 22, 2018 at 4:21 PM

  6. Employees are paid not by the value they create but by how little they are willing to work for. Competition among workers for scarce jobs causes the going rate for low-skill work (which is the most fungible type of work) to decrease below the value they create for employers.

    “This is straight out of Marx so it must be wrong,” he said laughing.

    Marx called the difference between value created and wages paid, “surplus value”. And the iron law of wages says that wages will tend toward subsistence sans unions, a minimum wage, etc.. As long as the worker is paid enough to keep working and not die from whatever…But did Marx ever consider that the capitalist/entrepreneur does labor too and that profits are his wages?

    While Marx was not 100% correct, he was correct in many instances, like the cachorreo system and the perpetual profits of businesses whose founders are long dead.

    Some of that surplus value used to be invested in capital improvements and expansion, but that’s gone out of fashion among S&P 500 companies recently. Their total payout ratio (divs + buybacks) is > 100%.

    The bottom line of the income statement for the US is that the libertarian ideology has done more damage to the American middle class than any government could have.

    anti-libertarian

    October 22, 2018 at 3:29 PM

    • It was not Marx. Different minds came up with the iron law of wages.

      My 2¢

      October 22, 2018 at 6:59 PM

    • I think the “iron law of wages” would apply when 1) there is a surplus of labor and 2) those workers are a commodity. Otherwise, employers are in a bidding war to attract and retain the best skilled and most experienced employees. No one really wants crappy employees because they’re not as productive and cause problems. But that’s what you get when you go cheap. You end up with the people no one else wants.

      destructure

      October 22, 2018 at 9:23 PM

      • Otherwise, employers are in a bidding war to attract and retain the best skilled and most experienced employees.

        What’s that? 5% of the US labor market tops? And very heavily promoted by the main stream media.

        A libertarian is a man who never wakes up. Reality never persuades him his dream world isn’t real.

        anti-libertarian

        October 22, 2018 at 11:18 PM

  7. A lot of the examples of high minimum wages are in expensive, economically booming cities.

    In booming cities, real estate is expensive, taxes and overall cost of living is high, so unskilled labor is a small part of your cost structure and you can often afford to pay them more. But in rural areas, land is practically free, but money is tight and you might not be able to afford the labor to do anything with the real estate.

    WA state has long had minimum wages that are higher than the Federal minimum (currently it’s $11.50 vs. $7.25), which works fine for Seattle, but in my firsthand experience it often has negative consequences in poorer and more rural areas of the state. In rural places where cost of living is very low, you may be able to support yourself surprisingly well at a $7.25/hour job, but unable to find work if the minimum wage is $11.50/hour.

    In practice, I think central WA just uses a lot of illegal immigrant labor that ignores minimum wage laws. And rural WA in general probably still gets a net economic benefit from belonging to a rich state, even if the minimum wage law itself is bad.

    Wency

    October 22, 2018 at 4:44 PM

    • Good points. I would also add that a federal minimum wage is a sneaky way for more expensive areas on the east and west coast to screw flyover country. Some business might be willing to relocate to a rural state if it lowers labor costs. But enact a federal minimum wage and that no longer applies. So these people (especially unions) aren’t pushing higher minimum wage to help workers. They’re doing it to help themselves.

      As a corollary. The way less developed countries compete is by devaluing their currencies. That makes them more competitive by making their own goods less expensive to others and others’ goods more expensive to them. That retains a balance of trade. The rest of Europe devalued their currencies every single decade after WW2 until they went on the Euro. When they wet on the Euro, they could no longer devalue their currencies. That’s why Germany’s economy is doing so well and the rest of Europe isn’t. That’s also why Germany pushed to have a single currency. Theirs a similar situation with the east and left coast with respect to the rest of the country. Red states would be much more prosperous and blue states much less if they were on two different currencies.

      destructure

      October 22, 2018 at 9:42 PM

      • Red states would be much more prosperous and blue states much less if they were on two different currencies.

        Blue states are not prosperous. They’re dumps where “middle class” people live in rickety old shacks that only poor people in the South would occupy. Who in the hell would want to pay two hundred fifty thousand dollars for some small town eyesore that looks like the Bates Motel? Property taxes are outrageous, the towns and cities are hideous, and everything is more expensive. If that’s called prosperity, then I want no part of it. I laugh my ass off when I read statistics purporting to show how crappy it is in the South and how great it is in places like New Jersey, New York and Vermont. Blue state prosperity looks more like blue state propaganda to me.

        Stealth

        October 23, 2018 at 6:35 AM

      • I was referring to salaries only not standard of living. I agree with you on that point.

        destructure

        October 23, 2018 at 9:37 AM

    • I live in a poor city in Washington State (Yakima). Everyone thought the high minimum wage would hurt jobs but just the opposite happened. Like much of the country, the unemployment rate here is at an all time low. Despite the $11.50 minimum wage (which I believe goes up to $12 in January) lots of new fast food and other minimum wage paying businesses have opened up in the past couple of years.

      This has to be one of the best places to be a working poor person because there is a combination of a high minimum wage with a low cost of living.

      Jay Fink

      October 23, 2018 at 3:09 AM

      • That’s interesting. My experience included a mix of boom and bust years. The thing I noticed was that people who could have easily landed a fast food job elsewhere struggled to find one in that area. I knew some decent kids who had a tough time landing a summer job. Fast food jobs were being worked by reasonably put-together middle-aged white people, crowding out the more marginal sorts.

        Wency

        October 23, 2018 at 8:29 AM

      • “Fast food jobs were being worked by reasonably put-together middle-aged white people”

        This sounds like a benefit for patrons of the fast food restaurants!

        Lion of the Blogosphere

        October 23, 2018 at 10:02 AM

      • Yakima has some really aggressive cops on the highways. Ruins the experience.

        Simba of the Blogosphere

        October 23, 2018 at 10:57 AM

      • @Wency It’s just in the last year that unemployment hit a record low. There have been several newspaper articles about how hard it is for employers here to find workers. So maybe the young people you know would have better luck now.

        My guess is the large rise of Social Security disability is what keeps many marginal people out of the labor force. I believe this is a bigger factor than minimum wage increases. There has also been a noticeable increase in homelessness. Some of the homeless would have taken lower level jobs years ago but now they are so drugged up and/or mentally ill there is just no way they would show up to a job each day even if they were handed one.

        Jay Fink

        October 23, 2018 at 3:48 PM

  8. Look, you guys are not understanding why a city pushed a minimum wage law. It is to drive out the population that can’t produce anything valued above $15 an hour. You are not seeing changes in employment because the net effect is to alter the demographics of a city’s population. The businesses that can’t afford to pay $15 bucks an hour are driven out and replaced by the businesses that can. The forced-out businesses eventually remove the population as well.

    That is why you are not seeing declines in employment.

    The problem with this arrangement is that city’s whose infrastructure is built to sustain a certain population are then turning themselves into gated communities. The infrastructure is lost to a smaller population and the ones who are pushed out go to areas that cannot accommodate them. You cannot allow New York City to push its poor population into Camden and Baltimore while remaining New Yorkers get to enjoy the services and infrastructure designed for those poor Americans as well.

    It should be illegal for cities to do this. They are not a private developments with unstated restricted covenants.

    map

    October 22, 2018 at 4:53 PM

    • Agreed. But I think a lot of us are aware of it. It’s another case of SWPL’s virtue signalling and pretending to be compassionate while pushing policies to screw others.

      destructure

      October 22, 2018 at 9:46 PM

    • ‘Look, you guys are not understanding why a city pushed a minimum wage law. It is to drive out the population that can’t produce anything valued above $15 an hour.’

      Correct. In Seattle the left wanted to get rid of the anti-left Hispanic workers and small/home firms that hired them. For good measure they put in a rent control law to dry up cheap apartments and give an excuse to regulate home for firms out of existence, an under-reported story. The whole thing is being driven by immigrant upper-class US-hating socialists from places like India. Because their high minimum wage, rent floors, and taxes worked so well there.

      Most of these studies are worthless because they don’t track the persons directly affected, but stand-in wholes, and don’t track the same jobs, just titles (at best). You have a 100 people, 90 leave, 90 come in for the newly structured jobs (employers typically make the higher forced wage pay by combining two jobs), and presto: Success. Employers also get rid of non-wage compensation: stock options, flexible time, perks like free food, whatever to cut costs. It reminds me of the minimum wage push in the ’60’s that ended informal free employer daycare, causing a ‘daycare crisis.’

      In Seattle’s case (anecdotal from folks I know ther) what is happening is jobs are vanishing among the original businesses (including the businesses) and the remainder of ‘low wage jobs’ are being redesigned to add tasks to now to attract previously unemployed college leftist kids from their Mom’s basement.

      Minimum Wage Laws aren’t even Minimum Wage laws. They’re really maximum wage laws, setting the wage to $0 for those in tasks not supporting the Minimum Wage target, effectively illegalizing certain jobs. A great way of moving out troublesome anti-left workers while pretending to ‘help’ them, and notice that Unions make sure THEY (and their brainwashing) are exempt so they become the only conduit for employment.

      What the left is really trying to do is hijack the libertarian push for a basic income built on retirement deregulations like IRA’s that would make this irrelevant IMHO. I saw this all when the commies were trying to take over Hollywood in the ’50’s.

      Map is right. These far-leftists are trying to create enclaves and exile the ‘wrong’ voting population.

      Robert

      October 23, 2018 at 10:55 AM

      • I should add that another effect and intent of the minimum wage scam is to LOWER wages by heightened enforcement of ‘undesirables’ in the informal economy. Juan is making $20 as an informal hanging drywall and no paperwork gets targeted to have his wage ‘raised’ to $15 and pay taxes to a leftist city government that hates him. Gracias, pero no, idiotas. He splits.

        BTW this is another reason why the studies are junk: they use ‘official’ statistics designed to lie and misrepresent reality.

        Oddly enough, I got a lot of information on these issues from the NYT back when it accepted that Minimum Wages=Job Annihilation=Discrimination…

        Robert

        October 23, 2018 at 11:05 AM

      • You are violating Hanlon’s Razor.

        The reason they raised the minimum wage is because they thought it was unfair for people to be paid less than that.

        Lion of the Blogosphere

        October 23, 2018 at 11:07 AM

      • I strongly object to your trotting out Hanlon’s Razor as if that settles an argument. Occam’s Razor may have some validity. But naming something after Occam’s Razor doesn’t give that other validity. In this case, Hanlon’s Razor states that one should never attribute to malice what can be explained by stupidity. There’s no basis behind this “law”. It’s just a snarky little quip that Robert Heinlein pulled out of his ass for a novel. And people repeat it because it makes them feel clever. In reality, people are just as likely to be malicious as stupid. People can be one or the other or both. People do malicious things all the time. Especially when it concerns politics, social issues, etc because those trigger people emotionally.

        destructure

        October 23, 2018 at 4:43 PM

  9. I can see the value of a city setting a minimum wage. But a minimum wage that is ideal for Seattle isn’t ideal of Spokane.
    Just as the ideal minimum wage for NY city isn’t the ideal minimum wage for Buffalo.

    Half Canadian

    October 22, 2018 at 5:22 PM

  10. The chain of logic was supposed to be that a higher wage would cause businesses to close, and that would hurt workers. But no business is closing in hyper value seattle, so there is no drawback to raising wages. When the economy can’t support higher costs, there should be a concomitant pull back.

    Joe

    October 22, 2018 at 5:32 PM

  11. Not sure about wage determinants at the lower end cited in the article, but among the yuppie corporate class I’ve always identified three components of salary determination:

    1) amount paid to do the actual work required

    2) amount paid to put up with all the bullshit, corporate politics, and asshole bosses and colleagues

    3) premium paid if they really like you and want to keep you from going elsewhere

    You will NEVER know the exact share of each in your paycheck.

    sestamibi

    October 22, 2018 at 5:46 PM

  12. After five years working at the Major Home Improvement Retailer I earn $12 per hour. At the end of this year Suffolk County’s minimum wage, currently $11, will be going up to $12. That means I will be earning minimum wage, the same as a new hire, despite five years of service.
    Normally I’d be very angry, but I actually don’t care because I make plenty at my main job and don’t need the MHIR money at all. The only reason I stay is because I work in the field at my main job, often alone, and I figure that without being around other workers at least some of the time would turn me autistic or something. Even so, I have the option of quitting the MHIR at any time if I so choose. About a month ago I very nearly did, after getting all sorts of grief from the store manager (a 40-something Latin MILF with curves in all the right places) about wanting a couple days off the schedule in early December, though she finally granted my request. Note: I often fantasize about burying my face between her ample teats until I’m on the verge of suffocation.

    Peter

    ironrailsironweights

    October 22, 2018 at 5:59 PM

    • TMI

      Lion of the Blogosphere

      October 22, 2018 at 6:50 PM

      • It’s no secret that men fantasize about curvy women’s breasteses.

        destructure

        October 22, 2018 at 10:08 PM

      • and i thought only my black standard poodle formed the double plural.

        anti-libertarian

        October 22, 2018 at 11:24 PM

    • Don’t make me laugh now! Illegals, who are worth their salt, make more than $12.

      Yakov

      October 23, 2018 at 1:54 AM

      • Exactly. A friend just hung drywall to finish his basement. He found an illegal in the local convenience store parking lot. He gave him 300.00 to do the taping and sanding. My friend bought the tape, mud, and corner bead. The illegal made 50.00 an hour. Do that for cash five or six days a week and Bob’s your uncle. Especially after you add food stamps etc.

        JMcG

        October 23, 2018 at 7:23 AM

  13. This is one of those topics where there are a lot of opinions and studies but hardly a consensus or definitive answer. Both sides can summon evidence of how minimum wages hurt/help the economy and employees.

    >4. A higher minimum wage could even increase employment by stimulating the economy by putting more money into the hands of workers. That didn’t happen in Seattle, but that’s because the minimum wage increase was so localized. For example, if the minimum-wage worker uses the additional income to buy an iPhone, that doesn’t directly stimulate the Seattle economy. But a nationwide minimum-wage increase could boost the national economy.

    I’m sure there is a point of diminishing returns. A simple thought experiment shows how this logic can fail. If Subway pays workers $5/ hour and earns $5 profit for each sandwich sold and then suddenly doubles wages to $10/hour, unless subway raises prices, the only way Subway can recover that loss is if subway gets 2x the business, which is an unrealistic assumption. Even though low income consumers have 2x the purchasing power, they have many choices besides Subway, so maybe Subway will get a small uptick in additional sales, but not enough to offset the loss unless everything stays the same and customers buy 2x the stuff as before. Also, consumer will pay more in taxes and their tastes and preferences will also change, further offsetting this. .

    grey enlightenment

    October 22, 2018 at 10:04 PM

    • Subway has Indians that get their franchises from government subsidies and the employees from their own families.

      This does not apply.

      map

      October 22, 2018 at 11:27 PM

      • Dot or feather? Also care to explain?

        wt

        October 23, 2018 at 2:05 PM

      • Dot.

        Indian businesses qualify at Minority Disadvantaged Businesses under Federal law. This means they qualify for SBA loans in the same way blacks do.

        This is under Executive Order 11625…another gift from Ronald Reagan:

        (a) The purpose of this part is to set forth regulations for determination of group eligibility for MBDA
        assistance.

        (b) In order to be eligible to receive assistance from MBDA funded organizations, a concern must be a
        minority business enterprise. A minority business enterprise is a business enterprise that is owned or
        controlled by one or more socially or economically disadvantaged persons. Executive Order 11625
        designates Blacks, Puerto-Ricans, Spanish-speaking Americans, American Indians, Eskimos, and Aleuts as
        persons who are socially or economically disadvantaged and thus eligible for MBDA assistance. Other
        groups designated are listed below in paragraph (c). The purpose of this regulation is to provide guidance to
        groups not previously designated as eligible for assistance who believe they are entitled to formal
        designation as “socially or economically disadvantage” under the Executive Order. Upon adequate showing
        by representatives of the group that the group is, as a whole, socially or economically disadvantaged the
        group will be so designated and its members will be eligible for MBDA assistance. Designation under
        Executive Order 11625 establishes eligibility status only for MBDA funded programs. It will not establish
        eligibility for any other Federal or Federally funded program.

        (c) In addition to those listed in E.O. 11625, members of the following groups have been designated as
        eligible to receive assistance: Hasidic Jews, Asian Pacific Americans, and Asian Indians.

        map

        October 23, 2018 at 9:23 PM

      • Truly revolting laws. This pool country is run by criminals. A fascist dictatorship is its only hope. Death to the politicians!

        Yakov

        October 24, 2018 at 9:12 AM

  14. It’s ironic that you disregard a law of economics — supply and demand — in this instance while accepting it when it comes to the obvious fact that mass unskilled migration hurts low income workers. In both cases, economic hacks allow the legacy media to create a reality-distortion zone simply because they know it politically benefits Democrats.

    Minimum wage laws chop off the bottom of the employment ladder making it harder for the truly marginally employable to get jobs. Trying to debate it by building multi-variable regression models is fucking insane. It’s like trying to determine if gravity affects feathers when dropped from a plane by modeling the sky without including gravity in the model. Stupid.

    Mercy Vetsel

    October 23, 2018 at 6:07 AM

  15. Lion.

    1. Employees are paid not by the value they create but by how little they are willing to work for. Competition among workers for scarce jobs causes the going rate for low-skill work (which is the most fungible type of work) to decrease below the value they create for employers.

    Btw, this is incorrect.

    Employees aren’t paid their value. Employees are paid for their ability to leverage the work and effort of their employers. Employers pay for this leverage or they do without. Employees choose between work an work and work and leisure depending on the returns.

    map

    October 23, 2018 at 9:37 PM


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