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The Minimum Wage
Posted by: Jon Henke on Friday, December 29, 2006

I recently objected to a Washington Post claim that about "450,000 Virginians are paid the minimum wage". They have since added a correction to the story, noting that "about 60,000 Virginia residents are paid the minimum wage." They did not mention that the source of their 450,000 figure was the liberal, Democratic Party-aligned think-tank EPI. (they misunderstood the figure, but that was the origin of the figure)

That's much better, but it's far from the whole story. As I pointed out previously, only 22,000 of those 60,000 Virginians actually earn the minimum wage, with the majority of the rest working at restaurants where employer-provided wages are below $5.15/r, but tips generally bring the figure substantially higher than $5.15/hr.

What's more, the EPI guide initially cited by the Washington Post contains some interesting details. For examples...

  • 44% of the gain from an increase in the minimum wage would go to households in the top 3 weekly earnings quintiles.


  • 30% of the people directly affected by an increase in the minimum wage to $7.25 are ages 16-19. EPI lumps all persons older than 20 together, but BLS statistics indicate that 53.3% of the people making at or below minimum wage are ages 16-24.

The minimum wage is a model of bad policy — a triumph of feelings over effectiveness. As Greg Mankiw points out, the policy seems designed with economic inefficiency in mind...
1. A wage subsidy for unskilled workers, paid for by
2. A tax on employers who hire unskilled workers.
Why, after all, should businesses bear the cost of political social welfare programs? If helping the poor is your goal, the minimum wage is the wrong tool.

On the other hand, if getting votes through populist appeals to ignorance and envy is your goal, well....good show, Democrats!
 
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Comments
NEVER FORGET!

The minimum wage increase is a de facto UNION wage increase for Union contracts negotiated to be set at a certain level above minimum wage!

 
Written By: Dave (in Hawaii)
URL: http://
Maybe the WaPo was being cute. I’m a Virginian being paid the minimum wage (and then some).
 
Written By: Xrlq
URL: http://xrlq.com/
What comparisons exist that demonstrate countries without minimum wages are better off than Americans?
 
Written By: Laughter is the best medicine
URL: http://
Stating upfront that I don’t agree with a minimum wage at all, let alone raising it, I disagree (to an extent) with Mankiw on both of his points.

Raising the amount an employer pays for a given job is only a subsidy/tax if the employer continues to hire the same caliber employee he would have hired at the lower wage. However, if by virtue of his paying more, he is able to attract a more talented employee, then there is no subsidy and no tax as the employee is providing services valued at the higher wage.

To illustrate, take an employer who is paying $5.15 an hour. At that wage, he is only going to get some combination of (1) workers who are only worth $5.15, and (2)workers who have skills worth more than $5.15 but for some reason are unable to persuade an employer to pay them what they are worth.

Now raise the wage to $7 an hour. The employer doesn’t have to give raises to the employees in the first group who were making (and earning) only $5.15. He is free to fire those minimum wage employees who don’t have the job skills to support a higher wage and go out and hire those who are worth $7.00 and were out of his price range when he was offering only $5.15. And for workers in the second group, if their skill set is worth $7, there is no tax/subsidy, for the employer is getting what he is paying.

In practice, however, I think many employers of minimum wage employees fail to hire higher caliber employees. They don’t look at a hike in the minimum wage as a government sponsored attempt to get them to upgrade their workforce, but instead resign themselves to simply paying more for the same work. They don’t raise their hiring standards and, as a result, do end up subsidizing those workers... but it is a voluntary subsidy and not one that is forced on them.

And XRLQ: it’s only because you take ten times as long to do the job that it comes out to minimum wage.
 
Written By: steve sturm
URL: www.thoughtsonline.blogspot.com
steve sturm, you are correct in your view that an increase in the minimum wage might let an employer hire a more talented employee. In fact, that’s one of the arguments against the minimum wage: it prices out unskilled labor.

However, one are you’re not considering is this: what if the job is worth only $5.15/hour to the employer? Any employee has to do at least his total compensation in work (wages plus taxes and benefits) to be worth hiring or keeping. When a job is priced beyond its value, then the employer must eliminate the worker (shifting around the other workers to cover the job), or have that worker perform additional tasks (which will mean the employer doesn’t hire someone else in the future).
 
Written By: steverino
URL: http://steverino.journalspace.com/
When a job is priced beyond its value, then the employer must eliminate the worker
You left out, "and hire an ’immigrant’ worker in his place who will work under the table for less" - check out the Swift plant in Amarillo Texas.

http://www.newschannel10.com/Global/story.asp?S=5830287&nav=menu429_2_5

Dave (inHawaii) mentioned unions getting implicit raises when the Minimum Wage goes up, and in at least one telecom company I worked in, that meant all the managment employees got a little bump too! Weeee haaaaaa, more money for everyone! Good thing our money wells aren’t in the Middle East!
 
Written By: looker
URL: http://
What comparisons exist that demonstrate countries without minimum wages are better off than Americans?
Huh!?!

What proof exists that America’s wealth is a result of having a minimum wage?

Jayeeesus!
 
Written By: McQ
URL: http://www.qando.net/blog
" However, if by virtue of his paying more, he is able to attract a more talented employee, then there is no subsidy and no tax as the employee is providing services valued at the higher wage."

The subject is minimum wage jobs. Just how much talent is necessary to sweep a floor, clean a toilet, or rake leaves? Using your logic, a college graduate is a better toilet cleaner than a high school graduate.
Every job requires only a certain level of talent or expertise. Anything over that level may be nice, but is not necessary, and no employer who wishes to remain in business wants to pay for things he doesn’t need. The marginal cost exceeds the marginal benefit.
 
Written By: timactual
URL: http://
NEVER FORGET!

The minimum wage increase is a de facto UNION wage increase for Union contracts negotiated to be set at a certain level above minimum wage!
This is entertaining rhetoric, but do you have any evidence of ACTUAL union contracts that include a tie-in to minimum wage, other than obviously a requirement that they follow federal wage laws?

 
Written By: Captin Sarcastic
URL: http://
Unions support high minimum wages because the higher the minimum wage, the less competition for union jobs. And it’s not going to be paid for by employers of low-skill labor. We’ve been efficiently trained to pour our own drinks, and they can alway have us scoop our own fries too, or perhaps order our Whoppers™ at terminals with a swipe of our ATM cards.

Minimum wage benefits are always at the expense of the least employable amongst us; they are the ones who get replaced by machines, or who see not just their job but their entire category of employment—-and thus every opportunity to work the same job somewhere else—-wiped out of the marketplace.

yours/
peter.
 
Written By: peter jackson
URL: www.liberalcapitalist.com
All these comments fail to take into account: "How can anyone live in the USA earning only $5.50/hr"? The minimum wage has not been changed for over ten years yet job losses continue, union representation is at an all time low, corporate CEO salaries at an all time high and the march of low paid jobs to China doesn’t stop.

1) Fair Wage: Shouldn’t a person who works 40 hours a week be able to support themselves with their earning? Do the math and you will soon realize that min. wage earner lives on less than $10/day - and that doesn’t even assume they are a parent or loaded with debt.

2) Lack of Unions: The reason there is no pressure to raise wages is that there is no union movement in this country. Less than 8% of the US labor force is unionized and that is mostly with government employees (police, firemen) and dying industries (auto, mining, heavy industry - and those industries are dying due to poor management, not unions). Just as there is no control on CEO pay, there is no one to represent the worker in demanding fair pay. Those who work in unions are not affected by minimum wages.

3) Illegal labor: The big reason this country does nothing about illegal immigrants and illegal labor is that it keeps the wage scale depressed and allows employers to avoid Social Security taxes and health care costs. It is classic economics of supply/demand: keep the pool of unskilled, cheap labor growing and you keep the wage scale down. The country is retreating to policies of the robber baron days of the late 1800’s - not a great time to work in the mines or steel mills.

4) Try to live on $10/day: All of you who criticize paying someone above $5.50/hr by raising the minimum wage, then see how long you can go living on $10/day. You probably won’t even get past lunch.
 
Written By: Acetracy
URL: http://
Shouldn’t a person who works 40 hours a week be able to support themselves with their earning?
That depends on how valuable their work is. I don’t see how sweeping floors or flipping burgers is worth more than $5.15 an hour. And don’t you think that an employer who pays a high wage should get an amount of work equal in value?
Do the math and you will soon realize that min. wage earner lives on less than $10/day - and that doesn’t even assume they are a parent or loaded with debt.
Do the math...hmmm...$5.15/hour, 40 hours a week, that’s $240 a week. Divded by 7, comes out to a little over $34 a day. Your math sucks.

I hate to break it to you, ace, but the overwhelming majority of people on minimum wage aren’t trying to support families. And if they’ve gotten deep into debt while on a low-wage job, it’s their own fault.
All of you who criticize paying someone above $5.50/hr by raising the minimum wage, then see how long you can go living on $10/day. You probably won’t even get past lunch.
And all of you who say the minimum raise should be increased should operate a business, pay your employees twice what their jobs are really worth, and see how long you stay solvent. It’s easy to be generous with other people’s money, but when you’re paying staff out of your own pocket, then you come to realize the true value of their labor.
 
Written By: steverino
URL: http://steverino.journalspace.com/
Oops, my math sucks, too. That’s what I get for responding before caffeine. $5.15/hour, 40 hours a week is $206 a week, or $29 a day. Still much higher than $10.
 
Written By: steverino
URL: http://steverino.journalspace.com/
I WISH I made Minimum Wage, but in this Economy foisted upon us by SCOTUS and Diebold, I find myself forced to work 26 hours a day AND pay the Mill Owner for the Right to Work! I have to get up one-half hour BEFORE I go to bed, licking only the cold gravel from the roadside, before trudging off to my labours....Minimum Wage would....
Wait for it...
LUXURY!
 
Written By: Joe
URL: http://
I think there is more than a little self interest in Acetracy’s advocacy of raising the minimum wage. With his obvious lack of math skills or other knowledge, and his poor logic, he is certainly minimum wage material. If he is as clumsy physically as he is intellectually, he may not even deserve that much.
 
Written By: timactual
URL: http://
As my question about union contracts was not answered, and that point remains an assertion without support, I’ll ask another...

It seems that the argument against minimum wage is that raising it would cause jobs to be lost. the theory is pretty, but can anyone cite any evidence that minimum wage increases have caused a reduction in the number jobs available.

EPI points to numerous studies that rely on empirical evidence and show either no change or a net increase in employment after a minimum wage hike. I understand that EPI is a liberal organization, so I am not asserting that their studies are the final word, so show me.... beyond theories and rhetoric, show me evidence of job loss caused by an increase in the MW.
 
Written By: Captin Sarcastic
URL: http://
Bizarre. Raising the minimum wage is one thing and one thing only. It is politicians using other people’s money to buy themselves votes.

They promise the working poor better wages and they pass an increase to the minimum wage. The current employer of these minimum wage workers receive an immediate increase in the cost of doing business. Not only do they now have to pay more to all those currently below the new minimum wage, they are neatly forced to give similar raises to all of their more senior employees who had earned raises above that level or effectively reward their hard work with a demotion. Bottom line? Increase cost of business.

Now...who pays that cost? Right. We do, or at least those of us who purchase the goods and services provided by minimum wage workers. We pay that cost because all businesses either pass on the cost of doing business to their customers or they go bankrupt.

Now....who buys most of the goods and services provided by minimum wage workers? Fast food restuarants like McDonalds, discount department stores like Wal-marts, and the plethora of convenience stores? Hmmm. Mostly....not all....but mostly.....the minimum wage workers themselves.

Wonderful. The politicians respond to the plight of the working poor by passing a law that effectively makes them pay for their own raise.

But hey, it gets even better! In order to pass the law, the politicians make any number of speeches demonizing the business owners who they will now blame for raising the prices. And the wheel goes round and round. Only each time it goes around, you can subtract a few more small business owners from the economy.

Like I said. Bizarre.
 
Written By: Bob Forsythe
URL: http://
It seems that the argument against minimum wage is that raising it would cause jobs to be lost.
That’s not the argument that I’ve made. The very odd Card/Krueger study suggests that jobs may not be lost, and there’s plenty of reason to believe that a very low minimum wage — or a minor increase in a low minimum wage — would not result in significant job loss. But I don’t think good measurement is really possible in that, so I’ve always focused on the ridiculousness of the MW as a tool.
 
Written By: Jon Henke
URL: http://QandO.net
OK the increase will have some inflationary effect...because Union wages ARE tied to multiples of the minimum. HOWEVER, union membership and contract power is at an all-time low, so whilst it MAY raise some wages, beyond the minimum crew, it won’t affect the economy too much. In most major metropolitan areas the increase isn’t going to do much, but restrict some profit margins, as the REAL minimum wage is GREATER than $5.15 an hour. It will hurt folks in towns like mine, a college town, smallish, where the minimum wage IS the minimum wage. In places like that you will see some DECREASE in employment and an increae in prices. But in MOST places the wage is ALREADY greater than $5.15.

The real point of the increase, IMO, is POLITICS. The Democrats and Dubya want to show, "We care, Man." The increase will have very little REAL effect, positive OR negative. The Democrats get "Major" legislation out in their 100 hours and Dubya gets to be "Compassionate" and "work with" Congress. Meanwhile we get very little, good or bad.

Bottom-Line: this is something we can all get behind because the upside is great and the downside tiny, because it’s fundamentally IRRELEVANT.
 
Written By: Joe
URL: http://
Here’s a good overview Captin:

http://reason.com/news/show/29707.html

The laws of supply and demand are such a bummer.

yours/
peter.
 
Written By: Peter Jackson
URL: http://www.liberalcapitalist.com
"EPI points to numerous studies that rely on empirical evidence and show either no change or a net increase in employment after a minimum wage hike."

I would be very interested in these studies that show an increase in employment due to a minimum wage increase. Could you point out one or two, or ane you going to make me do all the work?
 
Written By: timactual
URL: http://
Cap, you ask a lot of questions, so I’ll ask a few of you:

Have you ever run a business with more than one employee? How did you come upon the pay rates of your employees? What would your response be if the government came in and told you that you had to raise everyone’s pay rate by 40%?
 
Written By: steverino
URL: http://steverino.journalspace.com/
I guess Steverino and timactual assume that minimum wage earners don’t pay taxes. After taxes (and don’t forget your sales taxes that in some states are over 10%), 10 to 15% that a check cashing firm will take, at least $5.00 round trip to get to work, the minimum wage earners are left with nearly $10/day. Oh, and you assume that they can work 52 weeks a year? That’s really progressive thinking.

Timactual - a person doesn’t have to be poor to have compassion and understanding of the underclass. With an MBA from Columbia and and a six digit income from Wall Street, I hardly need to be concerned about minimum wage. I just think people deserve a fair wage versus the cost of living.

But now I see the gist of the mentality that writes on this board: the poor are that way because they deserve it. I guess that goes along the same lines that those who are ill and sick are being punished by God. Glad to see 19th century mentalities are still kicking around in the 21st Century.
 
Written By: Acetracy
URL: http://

" With an MBA from Columbia and and a six digit income from Wall Street,"

Am I supposed to be impressed? If so, that reinforces my statement.
 
Written By: timactual
URL: http://
10 to 15% that a check cashing firm will take
Guess how much my bank charges me to cash my paychecks.

0%

Just a quick look on-line indicates that isn’t abnormal. Some have minimum balances of $1.

I now know the stupid tax is 10 to 15%.
 
Written By: Mark A. Flacy
URL: http://
Without a minimum wage, wages can fall and keep on falling. This is what happened throughout the 1890’s and the 1920’s as new immigrants competed to get employment. In the 1920’s, the standard of living went up as wages fell because prices fell even faster, but in the 1890’s, prices stayed up, and the poor become poorer.

Without a minimum wage, at the margin, someone will always be willing to work for less, and that lesser amount will then become the prevailing wage for all.

The argument that minimum wage laws reduce total employment is false. The areas of the US with the highest labor force participation rates and the highest employment rates are those that have the highest minimum wages (NYC metro and California). When the least of us get more, they spend what they have to improve their lives. The funds they expend have a much greater multiplier effect in the overall economy than the funds spent by the wealthiest among us.If a 100,000 poor people have an extra $10 income, they spend it to eat a little better, or to pay their utility bills a little sooner. That $1 million will circulate and recirculate a great deal and more people will get work.

In contrast, the top 1/100 of 1% of us who earn over $10 million obtained over $1 million in additional after-tax income since W came into office. That additional income was most often invested in real estate or the stock market and had very little multiplier effect in the marketplace.

Many of the very wealthiest among us did not use their additional income to help our economy at all and there was no multiplier effect at all. Investing here has not the most conservative or lucrative place to invest. Buying Gilts (British government bonds) or Canadian government bonds doubled investors wealth because interest rates declined and the US dollar declined, but those investments had no multiplier effect at all in our economy, since they were not invested in US dollars.
 
Written By: Boleslaw
URL: http://
"The argument that minimum wage laws reduce total employment is false. The areas of the US with the highest labor force participation rates and the highest employment rates are those that have the highest minimum wages (NYC metro and California)."

What would the employment and participation rates have been without the minimum wage?


"When the least of us get more, they spend what they have to improve their lives. The funds they expend have a much greater multiplier effect in the overall economy than the funds spent by the wealthiest among us."

Got sources? My recollections from the econ. courses I took are a little different.

"Many of the very wealthiest among us did not use their additional income to help our economy at all and there was no multiplier effect at all."

Yeah, like that b*st*rd Scrooge McDuck, who put all that money in a vault.
 
Written By: timactual
URL: http://
"Many of the very wealthiest among us did not use their additional income to help our economy at all and there was no multiplier effect at all."

Yeah, like that b*st*rd Scrooge McDuck, who put all that money in a vault.


Note Example given: purchasing Canadian and UK government bonds.
 
Written By: Boleslaw
URL: http://
Without a minimum wage, at the margin, someone will always be willing to work for less, and that lesser amount will then become the prevailing wage for all.

The argument that minimum wage laws reduce total employment is false.
So labor is exempt from the law of supply and demand? Perhaps you could explain that.

yours/
peter.
 
Written By: peter jackson
URL: www.liberalcapitalist.com
"Note Example given: purchasing Canadian and UK government bonds."

Right, sorry. I shall rephrase.
Yeah, like those b*st*rd Canadians and Brits who put all that money in a vault.
 
Written By: timactual
URL: http://
So labor is exempt from the law of supply and demand? Perhaps you could explain that.

yours/
peter.
========================================================
Yes, labor is different. Immigration and domestic births produce more labor than our economy demands. Assuming little inflation, that’s why wages will nearly always be driven downward unless there’s a minimum wage. That’s what happened repeatedly here until we established a minimum wage.

Immigration has been used to break unions and reduce wages in the meat packing industry. 15 years ago, the average wage was about $19 an hour; now it’s less than $10.
==========================================================
"Note Example given: purchasing Canadian and UK government bonds."

Right, sorry. I shall rephrase.
Yeah, like those b*st*rd Canadians and Brits who put all that money in a vault.

Written By: timactual
===========================================================

My point is that the very wealthiest among us who benefited the most from W’s tax cuts did not necessarily invest in our economy. They could have obtained very good returns by converting their dollars into British pounds and then investing those pounds into British government bonds. Many did just that. With our declining dollar, making that investment was less risky than buying US treasuries and provided a better return.
 
Written By: Boleslaw
URL: http://

 
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