Lion of the Blogosphere

Raising the minimum wage helps the low-wage workers

I’ve been saying so for a long time, and this NY Times article provides proof backing me up.

Simplistic supply-and-demand-curve-based macroeconomics is wrong about a lot of stuff. As I’ve stated over and over again, Michael Porter’s book Competitive Strategy or one of its derivatives, taught at every MBA program, is a much better book for understanding how the economy works than an economics textbook.

Although the economics textbooks do have a term to explain why supply and demand doesn’t work, and it’s called “elasticity of demand.” So if demand for low-wage workers is “inelastic,” then increasing the price of low-wage workers through a government-mandated minimum wage doesn’t cause the demand to become lower by a significant amount, because the demand is “inelastic.”

But if you want to understand why demand is inelastic, then you need to turn to Michael Porter. Compared to workers, businesses have a lot more bargaining power, so although they would hire 10 workers for $12/hour if that were the going rate, they can get away with paying them $7/hour because of their superior bargaining power. The goal of minimum wage laws, therefore, should be to find the correct minimum wage so that workers are getting their fair share of profits without causing unemployment or other disruptions to the market.

Written by Lion of the Blogosphere

November 13, 2019 at 9:36 AM

44 Responses

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  1. Wait, I thought low wage workers were going to be replaced by automation and that’s why we need UBI.

    Mrs Stitch

    November 13, 2019 at 10:15 AM

  2. Minimum wage increases absent effective immigration laws simply mean fewer jobs for Americans and more off the books work. Or on the books immigrants who can be exploited easily (eg work 12 hours and get paid for 8).

    Everything in America is corrupt.

    Peterike

    November 13, 2019 at 10:58 AM

    • Well, effective enforcement of minimum wage laws could be a sneaky way for a jurisdiction to control immigrant labor. Pop employers on wage violations over and over until they hire American. Of course it would never actually work that way.

      bobbybobbob

      November 13, 2019 at 3:54 PM

      • No…the purpose of the minimum wage laws is to drive out the companies that employ many low wage workers…so that the workers move to different states and municipalities. They never become a burden to the state.

        This is basically building a gated community that removes the undesirables.

        map

        November 14, 2019 at 1:00 AM

    • “Minimum wage increases absent effective immigration laws simply mean fewer jobs for Americans and more off the books work. Or on the books immigrants who can be exploited easily (eg work 12 hours and get paid for 8).”

      Yes, and I can’t fathom how Lion doesn’t see that higher minimum wages lead to more automation , more off the books work, and the collapse of marginal businesses. There have been enough municipalities that have raised their minimum wage over the past few years that clearly demonstrate all of these factors come into play.

      Labor is only inelastic until the price point of a kiosk is met.

      Mike Street Station

      November 16, 2019 at 8:38 AM

  3. The need for workers is “inelastic” in the short run because keeping everything going stems losses. In the long run, the new minimum wage might be unprofitable and lead to market exit or automation. The sustainable minimum wage depends on industry.

    Monsieur le Baron

    November 13, 2019 at 11:06 AM

    • automation

      Like self-serve checkout lines. My neighborhood CVS just installed two of them, and they’re the majority at my Walmart, Home Depot, and Lowes, but not yet at Publix. I haven’t eaten at McDonalds in over 30 years but I hear that self-serve order kiosks are there as well; and, if they were at Popeys (see below), there wouldn’t have been a problem.

      E. Rekshun

      November 13, 2019 at 6:21 PM

      • Self serve lines in Popeye’s would just lead to an increase in the Popeye’s to prison pipeline.

        Mike Street Station

        November 16, 2019 at 8:40 AM

  4. People have known this in economics at least since the 60s doing state vs state studies of the minimum wage. The reason it doesn’t go up is politics, not economics.

    The Philosopher

    November 13, 2019 at 11:35 AM

  5. Im calling on everyone here to boycott this website until the host apologises for his racist comments against blacks.

    A FAR BETTER MINORITY TO HAVE AROUND

    November 13, 2019 at 11:38 AM

    • Also for misappropriation of “elasticity of demand”.

      My 2¢

      November 13, 2019 at 3:01 PM

  6. https://www.theguardian.com/technology/2019/nov/13/facebook-discrimination-black-workers-letter

    This is very amusing.

    I sometimes wonder if most tech workers are HBD aware. Surely all that time spent on the internet must have lead them to ask it questions like “why are so few blacks good at coding?” and “why are blacks always poor in the entire world?”

    The Philosopher

    November 13, 2019 at 11:47 AM

    • Most adults actually are HBD aware. It’s just that it is impolite and bad for your career to talk about it. Certainly there are some adults who genuinely do not understand reality in this area, but I think they are in the minority.

      Lowe

      November 13, 2019 at 9:35 PM

      • As I’ve repeatedly said, people DO believe what they say they believe (except for a few sociopaths). It’s your imagination that they don’t.

        Lion of the Blogosphere

        November 13, 2019 at 10:41 PM

      • @Lion

        No, it isn’t in my imagination. You are the one living in your head about this. I have talked to proles and low class people about race before, and while they obviously never read Jensen like you, their views are not politically correct.

        I would say ~70% of white proles are HBD aware at a basic level, and the numbers among prole blacks and Hispanics are high too, like 50%. You might say these people are not HBD aware, but just plain racist, yet that would be a meaningless distinction.

        It’s when we get to white SWPLs that we find people who are moderately intelligent, but whose reasoning fails them in this area, because it’s bad socially and professionally to resist the propaganda. Among SWPLs and the higher level strivers, the number who are HBD aware is ~40%, I would guess. It is much harder to get a bead on these people. You’re right that most of them drink the Kool Aid.

        Anyway, you say that most people believe what they say they believe. But most people never talk about this at all. Not even low class people talk about it. So you wouldn’t ever hear them say what they believe. Instead you hear what Hollywood, politicians, and corporate brand managers say the people believe, and apparently you think that’s accurate.

        Lowe

        November 14, 2019 at 12:23 AM

      • In fact, I think the percentages I gave are conservative. They could easily be 10% higher.

        I think there is even a chance that among dyed-in-the-wool liberals you’d find half of them don’t believe in the blank slate. But you do not know it because this subject is never discussed by normal people, ever. Not only because it’s taboo, but because they are not interested in it.

        We only talk about it because we are high intelligence and deeply socially maladjusted, at least given the reigning social orthodoxy.

        Lowe

        November 14, 2019 at 12:32 AM

      • People typically believe only a couple things they are personally familiar with. For issues they have no strong opinions on, or don’t know very much, they are quite flexible and take cues from high status people in their social networks. This is perfectly rational and efficient, and I do it myself. I really don’t know anything about how to educate young children. I will assume some woman who roughly agrees with me on other issues is probably correct.

        https://scholars-stage.blogspot.com/2019/09/public-opinion-in-authoritarian-states.html

        What Mr. Lion does not understand is that the networks of “high status” are very fine grained and multi-layered. I am “high status” in a certain contexts. I believe people like me got Trump elected. In repeated extended family conversations I presented the trade, China, ME interventionism, and immigration policy talking points. I’ve repeatedly called elections correctly and so now I get text messages asking what’s going to happen. The media matters less than people think. Most Americans have social networks that matter. It’s mostly unmarried white women whom are slaves to the propaganda.

        bobbybobbob

        November 14, 2019 at 12:34 AM

      • “But you do not know it because this subject is never discussed by normal people, ever. Not only because it’s taboo, but because they are not interested in it.”

        They speak about it in code: “good schools”

        Mike Street Station

        November 16, 2019 at 8:42 AM

      • Here’s some data on people’s perceptions of other races’ intelligence:

        http://www.unz.com/anepigone/perceptions-of-average-intelligence-by/

        GondwanaMan

        November 17, 2019 at 2:06 PM

  7. A higher minimum can help employers too, by reducing employee turnover.

    Peter

    ironrailsironweights

    November 13, 2019 at 11:52 AM

    • For jobs that do not require training you do not need to worry about minimizing turnover. A good example is hiring illegals to move your furniture. Do you want them to stick around?

      My 2¢

      November 13, 2019 at 6:10 PM

  8. I agree with you Lion. At the margin, a higher minimum wage results in some job destruction in very low productivity industries, eg where the economy is in direct competition with very low-wage Third World economies, but in the non-tradable sector, such as consumer services, employers can usually afford a higher minimum wage. In the UK, there is something called the Low Pay Commission which publishes highly detailed economic analysis as to what level of the minimum wage is optimal, in terms of avoiding higher unemployment of low-skilled workers. This usually results in a rising national minimum wage relative to average wages.

    lioncub

    November 13, 2019 at 12:01 PM

  9. Duh, everyone knows employers have superior bargaining power AND go into cahoots with each other to keep wages down. But the issue isn’t simply mandating “fair” wages.

    The issue is the open borders and exploding global population. In 40 years, the US population has increased by 100 MILLION PEOPLE! The world population has increased by 3 BILLION PEOPLE!

    Mostly Third World. Brought into the First World as a serf/mercenary class.

    fakeemail

    November 13, 2019 at 12:04 PM

    • “Duh, everyone knows employers have superior bargaining power AND go into cahoots with each other to keep wages down.”

      Everyone except for libertarians.

      Lion of the Blogosphere

      November 13, 2019 at 12:39 PM

      • What certain people don’t get is that there is if you don’t pay workers a living wage, they’ll need public aid which costs tax dollars.

        Libertarians who want to abolish minimum wage just want the cost of worker’s health care and other welfare passed on to other taxpayers. And as much as Ayn Rand hated government, she totally despises businesspeople who expected government to do them favors.

        njguy73

        November 13, 2019 at 4:34 PM

      • @Njguy73

        For someone without dependents you would have to be at or near zero income to qualify for aid. On the other hand a low income worker with kids can have the minimum wage raised time and time again and still qualify for welfare programs.

        Jay Fink

        November 13, 2019 at 10:59 PM

    • “go into cahoots with each other to keep wages down”

      In certain situations, where there are only a few purchasers of a certain kind of labor. It certainly isn’t true for unskilled minimum wage work in which there are millions of buyers and sellers.

      “In 40 years, the US population has increased by 100 MILLION PEOPLE! The world population has increased by 3 BILLION PEOPLE!”

      We’d be richer if both numbers had increased by even more, assuming the increase was uniform across groups, since there’d be more innovation. We are way below the carrying capacity of our planet with current technology.

      Alexander Turok

      November 13, 2019 at 7:44 PM

      • The increase in population has not been uniform. It has been bigger among groups that don’t do any innovation. You know that

        Lowe

        November 15, 2019 at 10:39 AM

      • The actual increase was not uniform across groups, yes.

        Alexander Turok

        November 15, 2019 at 7:47 PM

  10. Companies exist not to look out for workers but to utilize them for their benefit in exchange for a wage.

    The real driving point should be if increasing the minimum wage for lower tier sociopaths (who usually take on these roles and then cause problems for other lower tier individuals who aren’t dysfunctional in the workplace and often individuals dealing with the business) will mitigate undesirable behavior? Lower paid sociopaths act out in ways that are both harmful to the company and their customers/clients. Higher paid sociopaths look out for the company and its clients who are the source of their gravy train.

    Ok, what, who's this again?

    November 13, 2019 at 4:48 PM

    • Lower paid sociopaths act out in ways that are both harmful to the company and their customers/clients.

      You mean like this guy

      E. Rekshun

      November 13, 2019 at 6:16 PM

      • Corporate food and retail outlets hire a large contingent of blacks in multicult cities, pay them low wages, and hence a bigger problem. NAMs, especially blacks are already bad employees and paying them minimum wage, just brings out all sorts of issue with their narrative like “the man is always keeping me down”.

        Ok, what, who's this again?

        November 13, 2019 at 11:45 PM

  11. And what gives business so much bargaining power in salary and wages? An excess supply of workers. And this excess is maintained through immigration and outsourcing. Emphasis on minimum wage laws is merely a deflection from the real cause. That’s why the billionaires who own the left emphasize minimum wage legislation. It’s a red herring.

    destructure

    November 13, 2019 at 10:55 PM

  12. This minimum wage law stuff is magical thinking.

    Of course companies are sensitive to costs everywhere along their supply chain. What is this magical “bargaining power?”

    The question is only how companies will alter their behavior as result of the wage being imposed. Raise the minimum? Company cuts benefits, increases hours, reduces breaks, or simply relocates somewhere else. Workers are very disposable and they will realize the hard way what the costs really are.

    Again, cities that impose minimum wage laws simply want the low-wage people to leave.

    map

    November 14, 2019 at 1:09 AM

    • Good points.

      destructure

      November 15, 2019 at 12:20 AM

  13. Lion, have you ever owned a business which hired employees on a permanent basis? I am guessing not, because in such a scenario you would have seen the minimum wage very differently.

    Roli

    November 14, 2019 at 3:13 AM

    • As long as every other business faces the same hiring costs, we all just pass the costs along to our customers, so no great loss for us.

      This is common sense. It’s RELATIVE employee costs that matter, not the absolute costs.

      Lion of the Blogosphere

      November 14, 2019 at 10:35 AM

      • If costs are going to be passed to customers then the low wage workers’ expenses are going to go up, and the minimum wage will need to be raised again, etc.

        Lowe

        November 15, 2019 at 10:42 AM

      • The vast majority of stuff that low wage workers buy is made in China and is not affected by the U.S. minimum wage. Or they are buying stuff made with high-wage labor like healthcare or education that’s also not affected by a minimum wage increase.

        So if the worker gets a 20% wage increase, but prices go up by 1%, it’s a great deal for the worker.

        Lion of the Blogosphere

        November 15, 2019 at 11:34 AM

  14. Raising the minimum wage has caused restaurant workers in New York to lose hours and jobs (Look here:

    In New York, raising the minimum wage has caused restaurant workers to suffer job losses and reduced hours:

    The left achieved what it considers a major victory in New York when the minimum wage was raised to $15 an hour. In the aftermath of this victory, however, New York City has experienced its worst decline in restaurant employment since 9/11. So reports the Foundation for Economic Education (FEE).

    It doesn’t take much economic education to understand what has happened. As FEE explains:

    Restaurants tend to operate on famously low profit margins, typically 2 to 6 percent. So a. . .mandatory wage increase [from $11 an hour to $15] over a two-year period is not trivial.

    In response to the minimum wage hikes, New York City restaurants did what businesses tend to do when labor costs rise: they increased prices and reduced labor staff and hours.

    How much labor force reduction has occurred? Mark Perry of the American Enterprise Institute has the numbers:

    December 2018 restaurant jobs were down by almost 3,000 (and by 1.64%) from the previous December, and the 2.5% annual decline in March 2018 was the worst annual decline since the sharp collapse in restaurant jobs following 9/11 in 2001.

    ….

    Some workers do indeed get raises, but others lose hours or even jobs. When it was pointed out to Bernie Sanders that some of his campaign workers were being paid less than the $15/hr minimum wage that he supported, he gave them raises – and then cut their hours! Feel the Bern!

    BTW, what should the proper minimum wage be, and why? If $15/hr is good, is $20 better? How about $25? If a small increase is good, is a larger one better? If not, why not? Who gets to decide? Politicians? Bureaucrats? I’m sure people have a lot of faith in those folks to do the right thing!

    Black Death

    November 14, 2019 at 8:01 AM

    • “December 2018 restaurant jobs were down by almost 3,000”

      In a city of millions, it’s not that many jobs.

      To the extent this means that fast food places install ordering kiosks that are more efficient than waiting in line and talking to a surly minimum wage worker, then it’s a big plus.

      Lion of the Blogosphere

      November 14, 2019 at 10:36 AM

      • How many truly, surly proles do you find behind the counter of a fast food joint? Surly is usually a feature among black workers even in an expensive market like Whole Foods.

        Ok, what, who's this again?

        November 14, 2019 at 3:06 PM

      • Trying to “help” poor workers by increasing the minimum wage is wooly-headed liberal fluffery. And what should the “ideal” minimum wage be, anyway? In economics, as in physics, there’s no free lunch.

        Black Death

        November 15, 2019 at 11:58 AM

      • “To the extent this means that fast food places install ordering kiosks that are more efficient than waiting in line and talking to a surly minimum wage worker, then it’s a big plus.”

        So in other words, you support increased minimum wage because it WILL eliminate jobs. So you don’t deny supply and demand, you just hate low wage workers and want them unemployed. At least that clarifies your original post.

        Mike Street Station

        November 16, 2019 at 8:48 AM


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