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The Democratic War on the Dismal Science
Posted by: Jon Henke on Thursday, August 03, 2006

Everybody has a blind spot where science conflicts with ideological aims. To generalize, Republicans seem to believe we're always on the Right side of the Laffer Curve, while Democrats seem to believe increasing the minimum wage has no negative effect on employment. Media Matters argues...
ABC White House correspondent Jake Tapper and Washington Post staff writer Jeffrey Birnbaum both uncritically reported conservatives' argument that a minimum-wage increase will eliminate existing jobs and discourage the creation of new ones. However, several studies show that minimum-wage increases do not hurt employment.
Huzzah! The laws of supply and demand have been repealed! The field of economics is obsolete!
The laws of supply and demand have been repealed!
Seriously, arguing that increasing the price of something — at least, to the degree that Democrats want to increase the minimum wage — will have no negative effect on demand is every bit as absurd as arguing that humans have no negative effect on the environment. If the Washington Post failed to discuss this hypothesis, it's because you shouldn't try to 'balance' settled science with ideological fairy tales.

The studies Media Matters cited were, e.g., (1) the methodologically problematic Card/Krueger study (about which, Paul Krugman said "most of their colleagues are unconvinced"), and (2) an EPI study of the 96-97 minimum wage increases, which were far smaller than those proposed today. There are also unavoidable problems with empirical research into the effects of the minimum wage, which makes it especially difficult to accept these outliers.
"raising minimum wages is at best a crude and double-edged strategy"
Today, the Democrats are pushing for an increase of over $2/hr — about a 40% increase. You simply cannot say that, because a 50 cent increase during an economic boom has only a negligible immediate effect, then a $2 increase will also have no effect over time. As with gasoline, the demand for labor is fairly inelastic over the short term. Over a longer term, though...

Paul Krugman has made two more important points on the topics. First, if you're trying to help the poor, then "raising minimum wages is at best a crude and double-edged strategy". It's not targeted, it distorts markets and it leaves the neediest and least skilled without the higher minimum wage or the lower minimum wages. Second:
So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data. [...] [T]he centrist view is probably that minimum wages "do," in fact, reduce employment, but that the effects are small and swamped by other forces.
Leaving aside the moral and efficiency objections to the minimum wage, I tend to doubt that a modest increase from current levels will lead to much unemployment, but it will certainly reduce the demand for labor over time.

Fundamentally, debates about increasing the minimum wage are not really utilitarian arguments about 'the greatest good'; they are a debate about whether we are economic pro-choice and economic anti-choice. Proponents of an increase in the minimum wage are economic anti-choice.
 
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Jon,

Just for kicks, when we talk about "minimum wage" earners what overall portion of the work force are we talking about and how many workers would be realistically affected? I have a feeling that, despite all the ink being spilled on this matter, we are dealing with a fairly insignificant number of workers, or even of low-income workers. If this is the case then the whole minimum-wage debate would be just another phony wedge issue, kind of like abortion.
 
Written By: D
URL: http://
I have no statistical data, just anecdote, but at least around here (between Denver and Boulder), the fast food joints and the like are already paying well in excess of the minimum wage; I see signs up promising $7/hr.

If labor demand is great enough that people are bidding up unskilled labor anyway, then a minimum wage increase won’t make any difference.

Now.
 
Written By: Charles Martin
URL: http://
Is it true that some unionized, skilled labor is paid based on a multiple of the minimum wage? I’ve heard that before but don’t know if it’s true. If it is, then more workers and employers would be directly affected than just those at minimum wage pay.
 
Written By: Scout
URL: http://
Huzzah! The laws of supply and demand have been repealed! The field of economics is obselete!
That made me laugh out loud.

I mean jeez, haven’t older Democrats noticed that it’s been ten years since they’ve been in a fast food restaraunt and didn’t have to pour their own drinks? From grease monkey who used to pump our gas to movie ushers, their have been entire categories of employment wiped out by the minimum wage.

I’m also reminded by this whole debate of my very first college economics textbook. Chapter 1 was "Scarcity," and the first sentence was "Scarcity is not popular."

yours/
peter.
 
Written By: Peter Jackson
URL: http://www.liberalcapitalist.com
"...another phony wedge issue, kind of like abortion."

Uh huh, that’s all abortion is. Damn, someone has finally pulled back the curtain.

 
Written By: Unknown
URL: http://
A question for the economists...would increasing the minimum wage increase inflation?
 
Written By: Harun
URL: http://
A question for the economists...would increasing the minimum wage increase inflation?
Well since I have a degree in Economics I will answer. The answer is yes. In fact there are several things businesses might do, slow down on new hires, hire illegals, eliminate jobs, fail to expand, but mostly they just pass the cost on. Since its across the board and every other company has to adjust to minimum wage, the competition is in the same boat.
So the minimum wage workers might get one or two elevated paychecks and then the costs catch up with them. That is why its such a stupid law. It does no good, and possibly a little harm.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
To generalize, Republicans seem to believe we’re always on the Right side of the Laffer Curve
More to the point, where you are on the Laffer curve is irrelevant for as long as the federal government is spending money on things the constitution does not authorize. Maximizing government revenue is not a proper function of governemnt.

I suspect that a governemnt limited to constitutional purposes would always be on the left side of the Laffer curve. That would be fine.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Fundamentally, debates about increasing the minimum wage are not really utilitarian arguments about ’the greatest good’; they are a debate about whether we are economic pro-choice and economic anti-choice. Proponents of an increase in the minimum wage are economic anti-choice.
Absolutely agreed. TDP, ml, msl, & pfpp

 
Written By: Tom Perkins
URL: http://
Figures, the BLS doesn’t collect data on the minimum wage in their Occupational Employment and Wages report, which would provide more recent data. That’s a stupid decision somewhere along the way.

Did find this report, Characteristics of Minimum Wage Workers: 2005.

http://www.bls.gov/cps/minwage2005.htm
According to Current Population Survey estimates for 2005, 75.6 million American workers were paid at hourly rates, representing 60.1 percent of all wage and salary workers. Of those paid by the hour, 479,000 were reported as earning exactly $5.15, the prevailing Federal minimum wage. Another 1.4 million were reported as earning wages below the minimum. Together, these 1.9 million workers with wages at or below the minimum made up 2.5 percent of all hourly-paid workers. Tables 1 - 10 present data on a wide array of demographic and socioeconomic characteristics for hourly-paid workers earning at or below the Federal minimum wage. The following are some highlights from the 2005 data.
 
Written By: Keith, Indy
URL: http://
Oh, and some important demographic factors...

Minimum wage workers tend to be young. About half of workers earning $5.15 or less were under age 25, and about one-fourth of workers earning at or below the minimum wage were age 16-19. Among employed teenagers, about 9 percent earned $5.15 or less. About 2 percent of workers age 25 and over earned the minimum wage or less. Among those age 65 and over, the proportion was about 3 percent.

Part-time workers (persons who usually work less than 35 hours per week) were more likely than their full-time counterparts to be paid $5.15 or less (about 6 percent versus 1 percent).

By occupational group, the highest proportion of workers earning at or below the Federal minimum wage occurred in service occupations, at about 8 percent. About three in four workers earning $5.15 or less in 2005 were employed in service occupations, mostly in food preparation and service jobs. The proportion of hourly-paid workers whose earnings were reported at or below $5.15 was lowest for persons employed in management, professional, and related occupations and natural resources, construction, and maintenance occupations (less than 1 percent for both).


The proportion of hourly-paid workers earning the prevailing Federal minimum wage or less has trended downward since 1979, when data first began to be collected on a regular basis.

**************

Seems to me this is similar to the Democrats "Assualt Weapons" solution, ie a feel good measure that will get them votes from their consituency (and demonize Republicans), but do little to change any real problems.
 
Written By: Keith, Indy
URL: http://
Seems to me this is similar to the Democrats "Assualt Weapons" solution, ie a feel good measure that will get them votes from their consituency (and demonize Republicans), but do little to change any real problems.
And since Dems were willing to sacrifice minimum wage increase to prevent a reduction of estate taxation Keith, I’d guess you are right.
 
Written By: bains
URL: http://
Seems to me this is similar to the Democrats "Assualt Weapons" solution, ie a feel good measure that will get them votes from their consituency (and demonize Republicans), but do little to change any real problems.
That makes the minimum wage issue the perfect wedge. The problem will never go away no matter what government does. Hence, politicians can always point to it and say "Dammit, we just gotta do something!"

I saw a further piece that demonstrates just how NFI some quarters can be on this issue.
...The two are newly legalized immigrants from the Dominican Republic. For years, she adds, “We didn’t ask for money because we didn’t have our papers.”

They hustled hard for their tips instead, loading bags into carts and pushing them to cars. Every day, they’d place a box near the register. Customers would toss in coins, or the occasional dollar. On average, the couple say, they earned $40 a day, $240 a week. That calculates out to $3.43 an hour, far below the state minimum hourly wage of $6.75 and the federal minimum of $5.15.

Now that they have green cards, the couple have made their own small change: They’ve decided to speak up against what they call their employer’s abuses. They’ve consulted lawyers about their paltry pay and signed affidavits attesting to the store’s poor conditions. On July 17, they testified to the office of New York State attorney general Eliot Spitzer.
Uh, now that you are legal howzabout actually doing something to, like, improve your own skill sets and marketability? Or, why not impress upon other illegals to legalize their status ASAP? If you are here illegally you have no protections like minimum wage, etc. and this is the treatment you should expect. But, no, these folks have bought into the notion that the government has to protect them from themselves and their own negligence. Talk about an entitlement mentality.
 
Written By: D
URL: http://
The Laffer Curve is fundamentally flawed. It’s a static analysis and we’re arguing the dynamic effects.

The problem is that the Laffer Curve plots tax revenues vs. tax rates, a static analysis. Taxes are too high, so people are choosing not to work, and reducing taxes will mean more people work. But the need to work is largely inelastic in the short term. Yet then we supply-siders start making claims like "growing our way out" of the problem. That assumes a dynamic analysis, saying that reduced taxes will increase economic growth. But that’s not what the Laffer Curve plots!

I posted several months ago about this issue here. In my post, I pointed out a different curve, which plots economic growth vs. tax rates. I think this is a much clearer way to think about the problem.

Lower taxes != Higher immediate tax revenues

Lower taxes = higher economic growth = higher future tax revenues.
 
Written By: Brad Warbiany
URL: http://unrepentantindividual.com/
Unknown, abortion *IS* a phony wedge issue, in that, if SCOTUS suddenly struck down Roe v Wade, access to abortion would hardly change at all. Some half-dozen or so states would probably quickly enact (or implement already on the books) laws severely restricting abortions. Probably 30+ states would not change their laws at all, which are currently pretty much identical to what comes from Roe v Wade. The rest would enact some restrictions between these two points.

Thus, abortion, to the extent that it’s an argument over Roe v Wade and elections, etc, is a phony wedge issue. What it is funny to me is that it’s (at this point, anyway) an issue that helps Republicans more than Democrats.
 
Written By: JorgXMcKie
URL: http://
Mimimum wage in the United States, in inflation-adjusted dollars, was normally 70-75% of the Federal poverty line in the high employment 50s and 60s. It peaked at 90% in 1968. In the same year, labor gained 69% of the wealth the US economy produced. The owner class, professionals, and ruling elites got 31%.

http://oregonstate.edu/instruct/anth484/minwage.html

Now the minimum wage has declined in constant dollar value to just under 50% in 2006. At the same time, the wealth of America is increasingly allocated to the richest - almost 50% of the wealth now goes to a small elite.

Hardly any hourly worker believes that wages are being kept low "mainly for their benefit: and that if minimum wage is raised, it will cause a bad labor situation. They know that the owner class love of illegal labor is to keep labor costs down, displace workers and lower their bargaining power, and maximize the profits and lower wealthy folks "overhead".

Oh, all the warnings of perdition awaiting the poor if increase min wage. Yeah, right. We jack up the minimum wage to 75% of the poverty line and we might have the horrible job market to the 50s and 60s, just you see!

Stern & Service Employees International is showing that what the ruling elites dismiss as discardable workers aren’t so discardable after all, that they can be paid 10 bucks and hour and have health benefits for such jobs as chambermaids dishwashers, janitors, security guards. When Stern organized what the Ruling Elites in the back of their minds consider "lesser, inferior Americans" in Las Vegas....the catastrophe of the "poor,little workers" being thrown out on the streets didn’t happen. Employment increased, crime and the flood of illegal aliens into Las Vegas decreased, businesses still prospered, but yes, the "TAKE" of the owner class diminished somewhat.

And you just gotta love how the Republicans, the de facto Corporate and Plutocrat Bootlickers Party, insisted on minimum wage adjustment be tied to more tax cuts for the wealthy - the estates of multimillionaires...in the name of "fairness".

 
Written By: C. Ford
URL: http://
Let me disagree, not on economic grounds but on moral ones.

To start with, what kind of society do we want? Specifically, what quality of life do we (as a society / taxpayers) want to guarantee to the least well off?

Second, we have a central bank that remains driven to prevent inflation (as it should), so in order to avoid a wage-price spiral the central bank keeps a close eye on unemployment and raises the cost of capital whenever unemployment gets too low.

We could, in theory, eliminate all government regulation of employment while continuing to have an inflation-fighting Fed. But without some form of welfare, a minimum wage, an EITC and OSHA, employers would essentially be able to return to the days of indentured servitude. While this would likely solve illegal immigration, americans rejected this society when we elected FDR.

So, the real question is whether the minimum wage program is an effective anti-poverty program when coupled with welfare, EITC etc. EITC is, from what I’ve read at Brad DeLong’s site, relatively inefficient because it has high administrative costs.

Increases in minimum wage should force up wages across a broad range of jobs. At the low end, so is my understanding, wages are set to a certain extent by the value above minimum wage. So, if an employer needs to set his wages at, say, $2.00 per hour above minimum wage to attract employees of the necessary competence, he will be forced to give raises once minimum wage goes up. This makes increases in min. wages a more effective program than would appear if one looks only at the number (and kind) of people making only the min. wage.

Going from theory to practice, there is quite a bit of data that shows (a) that the share of income going to labor versus going to capital has been declining and (b) that the wealthiest are capturing virtually all the growth in our society.

These two pieces of information suggest that there is room to raise the minimum wage (for the purpose of fighting poverty) without substantial adverse effects on the economy.

One final note: Economics 101 supply-and-demand curves apply pretty poorly to the labor market. As people need to eat, the demand side gets awfully inelastic at the low end. That’s why we created the Great Society. But government programs then distort the low end so radically that the analysis becomes a lot more complicated than simple Econ 101 models.
 
Written By: Francis
URL: http://
What if I told you the only people making minimum wage are illigal aliens? I live in a state that has a very bad economy and no one here could possibly live on the minumium wage even if it was to just support them sleves. The cost of hosing alone would bankrupt them.

Because of the population displacement here the fast food restaurants are still offering 10$ plus a signing bonus of 250$ per month extra and some offer more. They have signs up that say we now are hiring 15 year olds. On the higher end one Car dealership is offering $6000 as a bouns if you are ASE certified.

The price people get paid for work is totally depended on supply and demand. If the supply of workers in your area is allowing the businesses there to get away with paying the absurd minimum wage then there are too many workers at the low end of the scale. I would be inclined to believe that those people don’t have the proper documentation.

The hurricane has taught me a lot about how the supply of labor effects what people are willing to pay. I am not BS ing you guys about the 10 + an hour to flip burgers and I would be glad to supply pictures because it is every restaurant. It has been a full year since Katrina as of the 29th of this month. The FEMA checks were spent long ago so don’t even go there.

The stores and restaurants can’t even stay open at normal hours even months after the storm. Walmart closes at 8:00PM . It used to be open 24 hours. I think if there were fewer Illegals in the US there would be so much demand pressure on the overall job market that no one would Work for Walmart unless they offered benefits. I don’t even think we would need a minimum wage. The millions of extra workers are effecting the over all demand for labor and that pressure exerts it’s self on many levels. One thing leads to another.




 
Written By: Kevin Watkins
URL: http://www.disposablewisdom.com
Mimimum wage in the United States, in inflation-adjusted dollars, was normally 70-75% of the Federal poverty line in the high employment 50s and 60s. It peaked at 90% in 1968. In the same year, labor gained 69% of the wealth the US economy produced. The owner class, professionals, and ruling elites got 31%.

http://oregonstate.edu/instruct/anth484/minwage.html

Now the minimum wage has declined in constant dollar value to just under 50% in 2006. At the same time, the wealth of America is increasingly allocated to the richest - almost 50% of the wealth now goes to a small elite.
correlation is not causation.
Hardly any hourly worker believes that wages are being kept low "mainly for their benefit: and that if minimum wage is raised, it will cause a bad labor situation. They know that the owner class love of illegal labor is to keep labor costs down, displace workers and lower their bargaining power, and maximize the profits and lower wealthy folks "overhead".
what they believe and what is true often have nothing to do with eachother.

Your Marxist "class warfare" language does little to prove that the laws of economics no longer hold sway in reality.
 
Written By: ChrisB
URL: http://
A question for the economists...would increasing the minimum wage increase inflation?
No. Increasing the money supply faster than output causes inflation. Increasing the minimum wage may cause some prices to increase a little bit, but that’s not inflation.
Lower taxes = higher economic growth = higher future tax revenues.
To some extent and in some circumstances, Brad, that could obtain. Unfortunately, the debt continues to pile up in the meantime. Lower tax rates may produce very long term higher revenue, but so long as spending increases, the eventual higher revenue will be eaten by debt and debt payments.
Mimimum wage in the United States, in inflation-adjusted dollars, was normally 70-75% of the Federal poverty line in the high employment 50s and 60s. It peaked at 90% in 1968.
I would only note that we have neither an actual cost of living index nor an actual inflation guage against which we can really compare the minimum wage. The CPI is neither. Prior to 96, it overstated inflation by an estimated 1.1 percentage points per annum. Since then, it’s still estimated to overstate inflation by between .8-.9 percentage points. Economists from Brad DeLong to Alan Greenspan agree, CPI overstates inflation and has for a long time — and besides, CPI isn’t even a cost of living index, which is the proper measure for the utility of a given minimum wage. So, measuring the minimum wage against CPI is a very loose — and generous — standard.
 
Written By: Jon Henke
URL: http://QandO.net
No. Increasing the money supply faster than output causes inflation. Increasing the minimum wage may cause some prices to increase a little bit, but that’s not inflation.
Not true. Workers paid a minimum wage typically work in the service industry. Such jobs include gas station clerks and grocery baggers - gas and food are typically inelastic goods. Thus, (as kyle N said,) the cost is passed on to the consumer. An increase in the price of inelastic goods generates higher wage demand to offset the increased cost of living and therefore causes inflation when everyone else’s wage increases. So, a higher minimum wage does not affect the money supply, but still relatively increases the cost of one unit of output (thus, less output for the same cost).
However, this effect will be very minor if minimum wage hikes are applied moderately. In practice, as already mentioned, the true effect of such an increase is lost in the quagmire of market volatility.
 
Written By: Mike Anderson
URL: www.eatarock.com
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