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On Labor Day, more of the minimum wage arguments
Posted by: McQ on Monday, September 04, 2006

According to Bureau of Labor stats, the number of people working in the US (16 or older) is 151,000,000. And the number who earn or are paid minimum wage?

520,000 .

Yup. .003 of the work force earns minimum wage.

Any guess as to how many of them might be teenagers?
About half the workers nationally making the $5.15 minimum wage are teens. But half the workers are older and are supporting themselves and possibly a family on the minimum wage. They shouldn't have to survive on an outdated wage standard.
According to that you have 260,000 workers earning minimum wage.

So why all the clamor to raise it? Why paragraphs in editorials like this across the nation?
Businesses typically argue that higher minimum wages suppress hiring and force employers to cut back on health care coverage or other benefits. But the evidence from a number of studies is that the impact is minor. And higher wages often reduce employee turnover, a benefit for business.
Well in all honesty, it isn't all about just about minimum wage workers. Oh they're the excuse, certainly, but as you can tell, they're really just not that significant a portion of the labor force for that to be a real concern. Most minimum wage earners don't stay there long. It is an entry level wage for an entry level job, and, as the stats show you, not many employers even pay it. And while you may argue that given that number, "the evidence from a number of studies" is probably right ... the impact on business for those earning minimum wage would be minor.

But it won't be minor on up the line where wages are based on a percentage above minimum wage - such as labor unions.

Consider this: if, under a labor union contract, the entry level for a union employee is $5 above minimum wage, what will be the impact on raising the minimum wage on the union wage? Obviously, it too will go up. And the wage level above that? And above that?

IOW, the minimum wage encourages the entire wage scale upward. And even those with a passing knowledge of economics know where that cost will end up - in the price of goods sold. Or said another way, the consumer will pay for the wage increases. That will decrease the consumers buying power.

Eventually, then, any increase in buying power for a minimum wage worker will be overtaken by the increase in price of goods sold and he or she will be in the same economic situation they were before. The only thing that will have moved is the line by which we calculate the poverty rate.

Another point to consider is automation. At some point, where jobs can be automated, the increased cost of labor makes doing so much more likely. Productivity being the name of the game, employers are, at some wage point, able to look at automating their process by eliminating high paying jobs and putting machinery in their place, thereby increasing productivity and, eventually, lowering the cost of goods sold (and increasing profits). As technology becomes cheaper, the likelyhood of being replaced by automation increases. At the point the return on investment exceeds the cost of labor, jobs are in jeopardy. And many of those jobs are not on the minimum wage end of the scale.

So while feel-good legislation like raising the minimum wage may sound good on the surface, and many don't see the potential harm a couple dollar an hour raise might do for such a small group of workers. But when you consider the effect up the chain and to the consumer such an increase will bring in real buying power changes, a minimum wage earners gain is a transitory increase at best.

As Ludwig von Mises said, "If government ... succeed[s] in enforcing wage rates which are higher than those the unhampered labor market would have determined, the supply of labor exceeds the demand for labor. Institutional unemployment emerges."

Institutional unemployment is the result of tampering with the market.

If, in fact, there's a crying need out there, it is for legislation like this:
Instead of focusing on a new employer mandate, Congress should focus on an issue that will directly improve the lives of small-business owners and employees —- helping them obtain affordable health care. According to the Employee Benefit Research Institute, 27 million small-business owners, their employees and their dependents are currently without health insurance. But in May, 45 senators blocked legislation that would enable small employers to join together to negotiate for more choice and affordability in the form of small-business health plans.
Here's a critical problem among our nation's 27 million small-business owners, a problem created by government (proscribing them the ability to buy health insurance as a group through insurance mandates) and screaming to be fixed. What would it do?
Enzi's bill would allow small businesses to purchase health insurance through trade associations such as the U.S. Chamber of Commerce or other nonprofit groups. Unlike the Association Health Plan (AHP) legislation the House passed last July, S. 1955—which creates "Small Business Health Plans"—does not allow the associations to self-insure. Instead, coverage must be purchased through existing insurance companies. This change has gone a long way toward neutralizing the insurance industry's opposition—a critical factor in moving Enzi's bill forward.

A study released in March by the actuarial firm Mercer Oliver Wyman found that if S. 1955 is fully implemented, it will newly insure 1 million working Americans, or about 8 percent of the nation's working uninsured. Premiums for employers could be reduced by as much as 12 percent - about $1,000 per employee.
However the states have lobbied against such a bill because it would preempt state insurance mandates which are primarily the cause for most small businesses not having health insurance coverage for their employees:
Preempting state mandates has generated powerful opposition to the Enzi bill. Mila Kofman, an associate research professor at Georgetown's Health Policy Institute, offered sharp criticism at the Alliance for Health Reform briefing, arguing that allowing carriers to offer more basic policies without all of the state mandates is like "selling a car without the engine."
But as Laura Clay Trueman said:
I countered that providing for a "no-frills" option in each state is more like allowing carriers to offer a car "without heated seats, a navigation system, and a sun roof." Currently, in states with dozens of mandates, if you cannot afford the "BMW" of coverage, you get no coverage at all. The Enzi bill hopes to make a "Kia" level of coverage available to individuals and small businesses in every state, regardless of mandates.
As pointed out previously, this legislation has been defeated.

So as you enjoy Labor Day today, consider the two topics presented here and take a moment to think about which of the two would actually have a positive effect for workers. More importantly which would lessen the amount and effect of government intrusion in the market and benefit the most workers. When you consider it that way, the answer is obvious.
 
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Comments
"According to Bureau of Labor stats, the number of people working in the US (16 or older) is 151,000,000. And the number who earn or are paid minimum wage?
520,000.
Yup. .003 of the work force earns minimum wage."

I know you are taking the numbers from the AJC, but I went and looked around the BLS website to try and find the source material used by the AJC writer in his article, since he did not link them, and came across this:

http://www.bls.gov/cps/cpsaat44.pdf
and this:
http://www.bls.gov/cps/cpsaat45.pdf

Both show different figures than what the article claims (which seems odd since the article was advocating in favor of increasing the minimum wage). Or maybe I am misreading the information (entirely possible) or the writer was looking at another chart.

 
Written By: anonymous
URL: http://
Don’t know anon. Didn’t really have the time to chase it down and other than to say minimum wage workers aren’t that large of a part of the labor force, it wasn’t particularly important to my point.

 
Written By: McQ
URL: http://www.qando.net/blog
Given the fundamental laws of supply and demand, to the extent that a minimum- or prevailing-wage law has any effect on wages, it creates unemployment. By that I mean that the wage required by law may actually be under what the market dictates for people of intelligence levels below which their wages would be subsidized by government in sheltered workshops etc.

After drawing the supply and demand curves on restaurant napkins for years, couple years ago I put together an essy entitled Macroeconomics for Compassionate People that demonstrates that these laws hurt the people they pretend to help, while actually protecting the already high wages of skilled unionized workers.
 
Written By: The Monster
URL: http://
Yup. .003 of the work force earns minimum wage.
The statistic quoted are people paid EXACTLY $5.15 per hour based on polling results. Most likely, a lot of people being paid $5.15 per hour rounded down in their survey to $5.00. The real number AT OR BELOW minimum Wage is more like 3%.

From the BLS - According to Current Population Survery estimates for 2002, some 72.7 million American workers were paid at hourly rates, representing 59.6 percent of all wage and salary workers. Of those paid by the hour, about 570,000 were reported earning exactly $5.15, the prevailing Federal minimum wage, and another 1.6 million were reported with wages below the minimum. Together, these 2.2 million workers with wages at or below the minimum made up 3.0 percent of all hourly-paid workers. (The 3% is really more like 2% of the workforce, since it is 3% of hourly wage workers, not 3% of all workers)

This is just a note on the statistic, I don’t believe that the difference makes Q’s argument more or less valid.

I have also found statistics showing that 6% of the workforce is being paid at or below minimum wage and additional 6.5% is less than $1.00 above minimum wage, putting 12.5% near minimum wage or 15 million workers. This statistic is dramatically different than the BLS numbers, and if accurate, has a significant impact argument presented.
Admission - I have not been able to confirm these statistics.
Consider this: if, under a labor union contract, the entry level for a union employee is $5 above minimum wage, what will be the impact on raising the minimum wage on the union wage? Obviously, it too will go up. And the wage level above that? And above that?
Another significant failing in the argument is that myth that union wages are tied to the minimum wage. There is no evidence that one single union’s wage contracts are tied to the minimum wage in any way. I cannot prove a negative, but you are welcome to provide evidence of the positive.
About half the workers nationally making the $5.15 minimum wage are teens
BLS statisics show that the actual number is between 25% and 30% between 16 and 19 years old, not half.

http://www.bls.gov/cps/minwage2002.htm

slightly more than one-fourth were age 16-19.
So while feel-good legislation like raising the minimum wage may sound good on the surface, and many don’t see the potential harm a couple dollar an hour raise might do for such a small group of workers. But when you consider the effect up the chain and to the consumer such an increase will bring in real buying power changes, a minimum wage earners gain is a transitory increase at best.
This is the real question. If one is opposed on ideological grounds to having a minimum wage at all, then the effects are irrelevant, but, if this is a real debate, then the effects of a minimum wage hike are the point of the discussion. Do minimum wage hikes help or hurt the economy as a whole, do they help or hurt workers as a whole, do they help or hurt minimum wage workers as whole?

Here, unfortunately, we could play dueling statistics until next Labor Day, nut here is how the evidence plays out in developing my own opinion in this issue.

I have found that many of the studies that claim that the Minimum Wage is harmful are full of holes, for example, the WSJ claimed that a significant part of the problem of high teenage unemployment rates to high state minimum wages (or "maximum folly" according to the editorial). This claim disintegrates, however, under even the most cursory examination. Here’s why. Teenage unemployment rose from 13.1% to 17% between 2000 and 2004. According to the Journal’s argument, the increases in teen unemployment should have been higher in states with higher minimum wages than in those with low minimum wages. What actually happened was the reverse: Teenage unemployment rose 3.4% in the high minimum wage states, compared to 4.2% in the others.


My conclusion, at the moment; Having a minimum wage is good, raising it so much that jobs are lost is bad. raising as much as possible without destroying jobs is good. There are competing and offsetting effects of raising the labor costs and having more cash in the pockets of consumers which increase revenues. In the end. I believe that an increase of $2 will improve the quality of life for low income workers without destroying jobs or increasing inflation.

And of course I have no ideological aversion to such an action, I am agnostic as it were.

Cap


 
Written By: CaptinSarcastic (yeah, that one)
URL: http://
So if I’m following you correctly here, you’re saying that increasing the minimum wage will increase unemployment and decrease consumer purchasing power. Which is fine, except that when we last raised the minimum wage (in 10/96 and 9/97), this didn’t happen - the unemployment rate fell by over a point over the next three years, the inflation rate remained historically low, and consumer purchasing power increased substantially. What gives?
 
Written By: Anonymous
URL: http://
Which is fine, except that when we last raised the minimum wage (in 10/96 and 9/97), this didn’t happen - the unemployment rate fell by over a point over the next three years, the inflation rate remained historically low, and consumer purchasing power increased substantially. What gives?
But did it fall because of a overheated economy which was sucking up labor like a dry sponge and paying good wages, or as a result of increases in minimum wage.

My guess is it was the former and just good fortune the latter happened in that period. The question is did the unemployment rate drop by 1 point among those who the wage is directed? And was their purchasing power substantially increased?
 
Written By: McQ
URL: http://www.qando.net/blog
But when you look at the Official Report from the U.S. Bureau of Labor Statistics it clearly states that the real number is 2.5%.
If you look at the cite, the numbers belong to the AJC and they cite the BLS. Both numbers come from AJC articles and 520,000 divided by 151,000,000 is .003. Now you may not agree with the numbers, but that’s where they come from.

If you want to play the "intellectual honesty" game, take it up with them. It seems odd that a paper which is touting a raise in the minimum wage would go out of its way to dishonestly use a low number.

The number itself is really not that important to the crux of the argument above ... it was more of an entre.

Use whatever number you prefer, but read and respond to the argument.
 
Written By: McQ
URL: http://www.qando.net/blog
There may be some structural adjustments in the economy that may mitigate price increases when the minimum wage is raised; therefore resulting in minimum wage workers achieving a real (inflation adjusted) income boost.

It is possible that some of the "cost" of the raise will be offset by less growth in incomes of owners and incomes of higher wage workers.

Or have I made a fundamental error of reasoning that won’t allow that scenario?
 
Written By: mockmook
URL: http://
There may be some structural adjustments in the economy that may mitigate price increases when the minimum wage is raised; therefore resulting in minimum wage workers achieving a real (inflation adjusted) income boost.
No one has been able to prove the contrary, so my opinion, based on the data, is that a $2 an hour raise IS A $2 AN HOUR RAISE, and there are no proven negative results.

Most of the opposition I have seen is based on a pro-business ideology which prefers interference in favor os business, or libertarians, which oppose all interference, but are usually only successful in preventing interference that advantages workers while consistently failing tostop pro-business interference.

Cap
 
Written By: CaptinSarcastic (yeah, that one)
URL: http://
Another significant failing in the argument is that myth that union wages are tied to the minimum wage. There is no evidence that one single union’s wage contracts are tied to the minimum wage in any way. I cannot prove a negative, but you are welcome to provide evidence of the positive.
As far as I know, it’s not uncommon to see provisions such as the following in CBA’s for manual labor type jobs that are unionized:
ARTICLE 8: CHANGE IN LEGAL MINIMUMS

If, during the term of this Agreement, a new applicable federal or state minimum
wage law is enacted or becomes effective which
9
increases the applicable minimum wage hereunder, then the minimum wage set forth
herein shall be automatically increased so that such minimum wage shall be no
less than 15% above any newly-established state or federally mandated legal
minimum.
I’ve seen this in other CBA’s and contracts that use union labor. I don’t think it is at all rare. There’s a reason that the Unions are all for minimum wage legislation despite the fact that no union member is paid anything close to minimum wage.

You can find a lot of interesting information at Union Facts, including some pretty enlighting facts concerning how union dues are spent in the politial arena.
 
Written By: MichaelW
URL: http://asecondhandconjecture.com
First, as mentioned above, some union contracts are tied to the minimum wage, so they will go up if the minimum wage is increased.

Second, it’s hard to argue that increasing to $7.15 would be that much of a harm, since on an inflation-adjusted basis, that’s not much different than it was back when it was last raised. But that doesn’t discount that having the minimum wage at all is bad for low-wage workers.

There is much anecdotal evidence that the minimum wage is circumvented by hiring illegal immigrants, which suggests that the MW law encourages employment of illegals and therefore lowers employment among legal residents.

The BLS stats include employees who are paid less than minimum wage but receive tips. I can’t begin to say how this would effect the 0.3% or the 2.5% numbers.

If increasing the pay for their workers was all beneficial for business, they would just do it — they wouldn’t need a law to do what was good for them. I suppose all businesses could be too stupid to recognize how much better it would be to pay their workers more than what they have to, but I would have to think SOME businesses would figure that out, increase their wages, become better businesses because of it, and trounce their stupid competition.

Therefore, I have to discount any non-business statement that business would benefit from a higher minimum wage.

Oh, but maybe business can’t on their own increase wages, but if everybody had to increase wages then all the costs would go up equally and therefore it wouldn’t hurt. That is possible, but it means that the costs of raising the minimum wage is passed on to the people who buy goods and services from companies who pay the minimum wage. That should mean increased inflation at the low end, which might not be measurable, but may impact people who shop at cheap places that pay minimum wage, which would be people who get paid minimum wage, which may (and I’m speculating here) mean that the increased wage would be partly offset by spending more money on goods and services.
 
Written By: Charles
URL: http://www.twoconservatives.blogspot.com
I do not see how this..
ARTICLE 8: CHANGE IN LEGAL MINIMUMS

If, during the term of this Agreement, a new applicable federal or state minimum
wage law is enacted or becomes effective which
9
increases the applicable minimum wage hereunder, then the minimum wage set forth
herein shall be automatically increased so that such minimum wage shall be no
less than 15% above any newly-established state or federally mandated legal
minimum.
Equates to this...
if, under a labor union contract, the entry level for a union employee is $5 above minimum wage, what will be the impact on raising the minimum wage on the union wage? Obviously, it too will go up. And the wage level above that? And above that?
It seems to me that if a federal minimum wage increase is passed the minimum wage set forth
herein shall be automatically increased so that such minimum wage shall be no less than 15% above any newly-established state or federally mandated legal minimum. Nothing like the construct mcQ came up with, suggesting that that union workers who made for example, $27 an hour, would go up by $2 if the federal minimu wage went up.

The unions would screw themselves if they tied their wages to the minimum wage, and employers are not going to agree to a hike that is based on something as arbitrary as federal legislation.
 
Written By: CaptinSarcastic (yeah, that one)
URL: http://
The unions would screw themselves if they tied their wages to the minimum wage,
They don’t have to tie themselves to anything. Instead they just use it as one of many reasons for wage increases. Nothing says a contract can only have one provision for raising wages.
 
Written By: McQ
URL: http://www.qando.net/blog
They don’t have to tie themselves to anything. Instead they just use it as one of many reasons for wage increases. Nothing says a contract can only have one provision for raising wages.
Agreed, so you do have evidence that any unions tie wage increases to the minimum wage in the manner you have suggested?
if, under a labor union contract, the entry level for a union employee is $5 above minimum wage, what will be the impact on raising the minimum wage on the union wage? Obviously, it too will go up. And the wage level above that? And above that?
Because the contract pointed to earlier does NOT do that.

Cap
 
Written By: CaptinSarcastic (yeah, that one)
URL: http://
I really don’t understand the difference you’re pointing to Cap. If the federal minimum wage is increased, the union wages are increased. It’s really pretty simple. In fact, most contracts are governed by local rules which mandate a minimum wage above the fed. MW.

The federal MW has never, EVER, gone down, so I don’t see how "The unions would screw themselves if they tied their wages to the minimum wage ...." Not to mention that "...employers are not going to agree to a hike that is based on something as arbitrary as federal legislation" reveals a fundamental misunderstanding of how labor laws work with regard to union contracts. Employers of union labor are completely beholden to federal legislation, not just with respect to wages (ever hear of the Davis-Bacon Act?), but also with how they can negotiate, when they can negotiate, the myriad of hoops they must jump through if they simply want to pick up and quit the business altogether, etc.

To be fair, you are right in one sense; unions are at all time low because employers can’t afford to deal with them and go to great lengths to avoid the hassle. In that way, employers don’t agree to be beholden to something as arbitrary as federal legislation.
 
Written By: MichaelW
URL: http://asecondhandconjecture.com
Charles -
Second, it’s hard to argue that increasing to $7.15 would be that much of a harm, since on an inflation-adjusted basis, that’s not much different than it was back when it was last raised.
No, it isn’t hard to say that workers should get a piece of the growing GNP, especially just to get back to where they once were with the value of a minimum wage.
But that doesn’t discount that having the minimum wage at all is bad for low-wage workers.
If we could rely on the good hearts of employers being spread universally through the American economy, yes, we wouldn’t need the "law" of minimum wage. But we are no different than other cultures in the propensity of some employers to rip off and exploit powerless workers. Many libertarians are locked in an ideological battle over the min wage, despite historical evidence that shows businesses not turning masses of workers out when the wage is raised...
There is much anecdotal evidence that the minimum wage is circumvented by hiring illegal immigrants, which suggests that the MW law encourages employment of illegals and therefore lowers employment among legal residents.
The argument that a minimum wage will "force" owners&employers to hire illegals instead of raise wages so as to keep all the productivity gains for capital and executives works only if there is no consequence to the act of employing illegal labor. And for too many years, in Bush’s corporatist-dominant administration, no real effort has been undertaken to go after felonous employer-owners. That is bound to change.
The BLS stats include employees who are paid less than minimum wage but receive tips. I can’t begin to say how this would effect the 0.3% or the 2.5% numbers.
Obviously, it does. Making the 0.3% stat a bad and highly misleading stat. Saying only 0.3% of workers make minimum wage sounds good to those seeking to minimize it’s importance, but deliberately omits the workers making less, which in the underground labor market of 12 million illegals and those just being paid cash under the table with no tax or SS declarations...is far larger than the 2.5% the BLS says is "official".

And it ignores that min wage is pegged to tens of millions of other jobs for compensation levels above min wage, so raising the min wage may directly affect not 0.3%, but 12-15% of the workforce.
If increasing the pay for their workers was all beneficial for business, they would just do it — they wouldn’t need a law to do what was good for them.


No, because that discounts greed. Why would a company with massive profits and enough clout to join with others and set "prevailing wage" in an industry wish to ruin the deal where more and more of the business receipts go into the pockets of the owners and execs, not the workers??

The other argument, and sometimes it is a good one at the core of the min wage argument is that businesses fear their competitors will use cheap or illegal labor to out-compete them unless they keep labor as cheap as possible, no matter how profitable a business is, or how critical they think those employees are. The min wage creates a more level playing field where if someone is bound by law to raise min wage, and they can afford the employees, they will reduce their own skim of the wealth coming in more readily if they know their rivals aren’t permitted to have illegal labor at 4 an hour or employees forced to kickback part of their wages to the boss.
I suppose all businesses could be too stupid to recognize how much better it would be to pay their workers more than what they have to, but I would have to think SOME businesses would figure that out, increase their wages, become better businesses because of it, and trounce their stupid competition.
Some companies have. It’s the ones that have 90-95% of the wealth going to the top as they seek to exploit or repress workers in a conspiratorial consortia with other employers that are the problem. Along with unchecked greed at the top that has pushed CEO pay from 42 times the average workers wage at a firm to 431 times. And "junior executives" from 8 times the average workers wage to 35 times.


 
Written By: C. Ford
URL: http://
"Institutional unemployment is the result of tampering with the market."

And tampering with the market is, not coincidentally, the core economic principle of the Democrat Party.

As is fostering institutional unemployment.

Strange, that.
 
Written By: Good Lt
URL: http://www.aredphishhead.blogspot.com
Because the contract pointed to earlier does NOT do that.
I’m with Michael ... I don’t understand your point. I offered it as something that is done, but I certainly didn’t expect anyone to take it as the literal wording in a contract which is why I said:
Consider this: if, under a labor union contract, the entry level for a union employee is $5 above minimum wage, what will be the impact on raising the minimum wage on the union wage?
"If" is the qualifier. It is an example to be used for understanding how MW could and would move the wage scale upward with an increase depending on how it was used within a contract for wage increases.
 
Written By: McQ
URL: http://www.qando.net/blog
"What actually happened was the reverse: Teenage unemployment rose 3.4% in the high minimum wage states, compared to 4.2% in the others."

What other variables were involved? Is there something else in common in these states other than mimimum wage differences?

"In the end. I believe that an increase of $2 will improve the quality of life for low income workers without destroying jobs or increasing inflation."

Others believe differently. Whose belief is correct? It is probably unwise to make laws contrary to basic economic theories(supply/demand) based on belief rather than evidence. It seems to me that if the minimum wage is violated with seeming impunity, why bother? What are the costs of enforcing it?

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

"Which is fine, except that when we last raised the minimum wage (in 10/96 and 9/97), this didn’t happen - the unemployment rate fell by over a point over the next three years, the inflation rate remained historically low, and consumer purchasing power increased substantially. What gives?"

Evidently there are other variables involved which don’t seem to be taken into consideration.

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

Speaking of Davis-Bacon, does the minimum wage factor into its calculation?


 
Written By: timactual
URL: http://
It is an example to be used for understanding how MW could and would move the wage scale upward with an increase depending on how it was used within a contract for wage increases.
I get that it is an example, what I am looking for, and have been unable to find, is evidence that anything remotely comparable to this example exists in the real world. If it does not exist, or you cannot that it exists, then this element of the argument is invalid.

The one example shown relates to union employees that are actually paid the minimum wage, which of course would have to be increased if federal or state law mandated it. That contract clause may as well have said that if the law says the legal minimum wage goes up, for those below the new legal minimum pay will rise to the new legal minimum.

If you search the web, you will find a lot of instances of Boortz and others SAYING that anywhere from some to all union contracts are indexed to the minimum wage, I cannot find one single example of that being true.

I have even read through some of the largest union contract, AFL-CIO and CWA, and there is no reference to any indexing to the minimum wage.

Basically, I think this is purely an invented argument.

But if you can show me proof, I will of course update my position accordingly.

Cap
 
Written By: CaptinSarcastic
URL: http://
Basically, I think this is purely an invented argument.
So you’re saying wage pressure from the bottom would never force up other wages and unions would never use a raise in the MW as a basis for demanding a raise in union wages then?
 
Written By: McQ
URL: http://www.qando.net/blog
"I suppose all businesses could be too stupid to recognize how much better it would be to pay their workers more than what they have to, but I would have to think SOME businesses would figure that out, increase their wages, become better businesses because of it, and trounce their stupid competition."

This is called efficiency wage theory; you can read about it in any intermediate microeconomics textbook. And this is NOT done out of the good will of executives, despite their best attempts to make you believe that is the case. When a company either is pioneering new production methods that require workers to specialize in certain tasks and ’learn by doing’, or is trying to compete through product differentiation rather than cost reduction, paying the efficiency wage is a common option. Workers paid the efficiency wage tend to be frightened by the threat of job loss, and therefore do better and harder work in order to keep their jobs.

How does this relate to minimum wage? The key characteristic of the efficiency wage is that it is GREATER than prevailing market wages. If these prevailing market wages are at or near the minimum wage and the minimum wage increases, then the efficiency wage MUST also rise. In my opinion, most wages above-but-near the minimum wage would have to increase upon the minimum wage’s increase, but the instance of the efficiency wage is irrefutable based on economic theory. Thus an increase in the minimum wage will encourage wage inflation to a greater extent than that caused by the lowest wages rising to comply with the new MW.
 
Written By: AMacG
URL: http://
We have come a long way from this, in your initial commentary....
"But it won’t be minor on up the line where wages are based on a percentage above minimum wage - such as labor unions."
To this...
So you’re saying wage pressure from the bottom would never force up other wages and unions would never use a raise in the MW as a basis for demanding a raise in union wages then?
I am not using words like "never" or "always", but what I am saying is that I dispute your assertion that union wages are tied to the minimum wage. I can find no evidence of this and none has been provided. If they NEVER do it, or RARELY do it, then it invalidates this part of your argument.

As to whether a raise in minimum wage would affect wages from the bottom up, it would not. It would affect wages that in proximity to the minimum wage, obviously those are minimum wage, those at wages above the current MW but below the new MW, and then some slightly above the MW would be increased.

But wages that are far above MW would not be affected because these wages were never based on the MW anyway, they were based on what employers believed they needed to pay for these workers and what workers believed they needed to be paid for this work. Consider the reality that wages above the MW have gone up in the last 9 years without the MW being increased. I would suggest that a MW increase would just bring the MW more in line with general wage increases over the last 9 years, not as you suggest, that the MW drives wages.

Cap
 
Written By: CaptinSarcastic
URL: http://
I am not using words like "never" or "always", but what I am saying is that I dispute your assertion that union wages are tied to the minimum wage. I can find no evidence of this and none has been provided. If they NEVER do it, or RARELY do it, then it invalidates this part of your argument.
It invalidates absolutely nothing. It’s nitpicking in order to ignore the bigger picture.

If a union worker is making $7.25 an hour and the MW goes to $7.25 an hour are you asserting that the union will do nothing concerning an increase for that union worker (whether tied to the MW in contract or not)?

And if that worker gets an increase, are you asserting that the union won’t demand raises for those in (formerly) higher paying positions which are now making less money in relation to the lower paid worker who has gotten a raise. Say $7.25 is raised to $9.25. Now the guy making $9.25 says, "hey, what about me?" And the union says "you’re playing my song").

I’m not sure how anyone can argue that artificial wage scale pressure from the bottom won’t cause commensurate increases on up the wage scale and be taken seriously.
But wages that are far above MW would not be affected because these wages were never based on the MW anyway.
Michael Wade produced a provision (above) in a union contract from Liz Clairborne, INC. and Union of Needletrades, Industrial and Textile Employess which says precisely that (i.e. their minimum wage will always be 15% above the federal minimum wage). MW creates pressure to raise wages simply by increasing, and that is clearly illustrated by the provision in the union contract cited.
They don’t have to tie themselves to anything. Instead they just use it as one of many reasons for wage increases. Nothing says a contract can only have one provision for raising wages.
Well UNITE certainly did. They tied their minimum wage base with Liz Claiborne to 15% above the MW. If you read the document, however, that isn’t the only way wages are increased. Which is why I stated:
They don’t have to tie themselves to anything. Instead they just use it as one of many reasons for wage increases. Nothing says a contract can only have one provision for raising wages.
Now ... Why not quit thrashing around in the weeds on a non-point and address the valid issue of the upward pressure a rise in the MW is going to create in relation to other wages.
 
Written By: McQ
URL: http://www.qando.net/blog
Now ... Why not quit thrashing around in the weeds on a non-point and address the valid issue of the upward pressure a rise in the MW is going to create in relation to other wages.
I thought I did...

As to whether a raise in minimum wage would affect wages from the bottom up, it would not. It would affect wages that in proximity to the minimum wage, obviously those are minimum wage, those at wages above the current MW but below the new MW, and then some slightly above the MW would be increased.

But wages that are far above MW would not be affected because these wages were never based on the MW anyway, they were based on what employers believed they needed to pay for these workers and what workers believed they needed to be paid for this work. Consider the reality that wages above the MW have gone up in the last 9 years without the MW being increased. I would suggest that a MW increase would just bring the MW more in line with general wage increases over the last 9 years, not as you suggest, that the MW drives wages.

I believe your argument that it would be a domino affect throughout all pay scales across the country is fallacious. There is no evidence that this has occurred in the past, so there is no reason to assume it would in the future.

I think it is naive to think that someone making $12.50 an hour would have a good argument for a pay raise if the minimum wage went from $5.15 to $7.00. If it is not in the collective bargaining agreement, it won’t happen. If the minimum wage of a union is 15% above the federally mandated MW, that does not mean that ALL wages increase by the dollar or percantage increase in the MW, unless it is in the collective bargaining agreement.

And we are ONLY talking about union workers here, which outside of government, which is NOT tied to the federal MW, amounts to what 9% of the workforce?

No, the upward wage pressure would be insignificant for any workers who’s pay is not in proximity to the current or new MW.

Cap
 
Written By: CaptinSarcastic
URL: http://
No, the upward wage pressure would be insignificant for any workers who’s pay is not in proximity to the current or new MW.
Heh ... you keep telling yourself that Cap.
 
Written By: McQ
URL: http://www.qando.net/blog
Heh ... you keep telling yourself that Cap.
I’m from Missouri, show me!

We have had minimum wage increases many times in the past, every other industrialized country has minimum wage laws, so this should be a simple matter to show a causal relationship.

Hell, I’d like see a correlation if you could even find that.

Hint - you can’t find a causal relationship between minimum wage increases and wages that are not in close proximity to the minimum wage, except of course in conservative blogs, where the theoretical causal relationship is 1:1, and of course, wrong.


Cap (not really from Missouri)
 
Written By: CaptinSarcastic
URL: http://
I could see an increase in the minimum wage leading to upward pressure on wages. I could see it failing to do so. Economies are complex, and a change in one fctor in isolation is often disregarded in the final results. Captain Sarcastic’s 1997 example is a good example of this.

But, let’s take McQ’s argument at face value and say that a minimum wage increase will put upward pressure on wages.

And why is this bad? This is a great thing, if you believe in the American Dream. Without upward pressure on wages, upward mobility would hardly exist.
Another point to consider is automation. At some point, where jobs can be automated, the increased cost of labor makes doing so much more likely. Productivity being the name of the game, employers are, at some wage point, able to look at automating their process by eliminating high paying jobs and putting machinery in their place, thereby increasing productivity and, eventually, lowering the cost of goods sold (and increasing profits). As technology becomes cheaper, the likelyhood of being replaced by automation increases. At the point the return on investment exceeds the cost of labor, jobs are in jeopardy. And many of those jobs are not on the minimum wage end of the scale.
This is one of my favorite mind puzzles. So, if you had your way and the minimum wage was eliminated... the cost of automation would continue to fall anyway, and human workers have healthcare costs that far exceed the maintenance cost of machinery. So, long story short, our economy is going to be relentlessly drained of jobs either way, with or without minimum wage costs.

What is the Republican party’s answer for this?
What is, frankly, the world’s answer for this?


 
Written By: glasnost
URL: http://
But, let’s take McQ’s argument at face value and say that a minimum wage increase will put upward pressure on wages.

And why is this bad? This is a great thing, if you believe in the American Dream. Without upward pressure on wages, upward mobility would hardly exist.
Indeed. But when these wage increases are the effect of government mandates rather than labor productivity growth, the upward pressure on wages tends to just be nominal, resulting in an eventual upward pressure on ALL prices. The way to get real, lasting upward mobility is for the labor pool to be in great demand and short supply. Any attempt to artificially induce this process will come with deadweight efficiency losses. This is no novel idea—it’s widely accepted economic theory. Thus the burden is certainly not on those arguing against MW increases to prove their side. The burden is on those advocating these increases to describe what the negative efficiency impacts will be and why they are outweighed by social benefits. This is, of course, quite impossible: if proponents of MW increases could properly understand—let alone develop—such an argument, they would understand why increasing the MW is such a bad idea in the first place. So let the nitpicking continue.
 
Written By: AMacG
URL: http://
The burden is on those advocating these increases to describe what the negative efficiency impacts will be and why they are outweighed by social benefits. This is, of course, quite impossible
No, sorry, I’m not buying.

We have millions of people trying to get by at or near the current minimum wage. If we increase the MW by $2, their quality of life will improve.

Since their is no evidence of job loss as a result of minimum wage increases, and there is no evidence of any damaging efficiency impacts, and there is no evidence of inflation as a result of MW increases, I would say that the onus is on the people who want to prevent the improvement of the lives of millions of Americans because of what they DON’T know.

If we can invade a flippin’ sovereign nation based on what we don’t know, we can certainly improve the lot of a few million Americans.

Oh, and by the way, when you increase the MW, let’s say by an average of $1 an hour for just 5 million people, that’s not just $200 Million a week that vanishes from the profits of businesses, that $200 million that WILL be spent, enhancing the revenues and profits of businesses.

If a business can’t survive paying their employees $7 an hour, they are pretty much dead anyway.

I understand the libertarian viewpoint, which is essentially "leave it alone" and I understand the new conservative viewpoint, which is essentially "enrich the rich and they’ll crap money on you serfs", but the fact is that we have a highly manipulated economy, and raising or not raising the MW is not going to change that, but it will be the one thing that this government can do that actually, and directly, helps working poor people to live a little bit more like, well, Americans.

Get over the whole libertarian thing, from the top down our economy is manipulated and regulated, the biggest winners and losers aren’t decided in the marketplace, they are decided in legislatures (and city councils for you Walmart fans). You don’t have to like it, I sure don’t, but I’ll be damned if I am going to pretend that manipulating the market to the benefit of the poor is somehow wrong when we admittedly do it for the well connected and well heeled every day.

Warren Buffett said, "If there’s been class warfare in this country, my class won."



Cap
 
Written By: CaptinSarcastic
URL: http://

 
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