While Congress sits on its hands.
On January 1, 2017, minimum wages will increase in some states and cities around the country. In California, the state minimum wage will rise from $10 to $10.50 for employers with 26 or more employees, on its way to $15 by 2022. Smaller employers pay $0.50 less at each step along the way until 2023 when they’ll catch up. From 2024 on, the minimum wage will be indexed to inflation.
Within California, a number of cities have their own, and higher, minimum wages. Here are a few cities in the Bay Area:
- In Emeryville, just across the Bay Bridge from San Francisco, the minimum wage was increased on July 1, 2016, to $14.82 for companies with 56+ employees and to $13.00 for smaller companies.
- In San Francisco, one of the most expensive cities in the US, minimum wage will increase on July 1, 2017, from $13 to $14. On July 1, 2018, it will increase to $15, after which it will be indexed to inflation.
- In Oakland, minimum wage will rise on January 1, 2017, from $12.55 to $12.86 due to a CPI adjustment.
- In Palo Alto, the hyper-expensive center of Silicon Valley, minimum wage will increase on January 1, 2017, from $11 to $12.
- In San Jose, minimum wage will increase on January 1, 2017, from $10.30 to $10.50.
Across the US, according to my count, 28 states have a minimum wage that is higher than the federal minimum wage, and within these states, some cities have higher minimum wages still. Of these states, 19 will raise their minimum wages in 2017. And a number of cities will raise theirs.
At the same time, the Federal minimum wage, at $7.25, has remained unchanged since July 2009, despite seven years of consumer price inflation, including rampant rent and healthcare inflation. For many big urban areas in the country, it was a ludicrously small amount back in 2009, and it’s even more ludicrous today.
Because we don’t like to see working people starve to death in the street, low wage earners are subsidized by the government at various levels via food stamps, subsidized housing, subsidized health care, all kinds of tax credits, and the like. These subsidies in effect transfer payroll expenses from the employer to the taxpayer. It is in fact a corporate subsidy, whereby state and federal taxpayers pay corporations for part of their labor expenses, so that corporations can benefit from cheap labor and pay their executives mega-bonuses for keeping their labor costs down. That’s how cheap labor works.
In addition, the Fed sees to it that the purchasing power of wages gets whittled away via inflation over time. Companies can show higher sales and profits, based solely on price increases. Households get a feel-good illusion [OK, I get it: Companies Clamor for Cheap Labor, Fed Delivers].
Then there’s this: People earning low wages make terrible consumers, in an economy that depends on consumer spending. So low wages are pernicious in many ways.
Yet, a federal minimum wage doesn’t work very well. At $7.25, it might have allowed a single person in a small town in Oklahoma with a low cost of living to live off it without taxpayer subsidies. But even back in 2009, this was an impossibility in more expensive urban areas.
So states and cities have stepped into the vacuum and designed their own minimum wage standards, adapted for their own economies and costs of living. And that’s how it should be.
Cities know how high their costs of living are and what the minimum wage should be that would allow a person to squeak by without taxpayer subsidies. So if you’re currently earning the minimum wage in San Francisco of $13, and you’re working 40 hours a week, you’ll be making about $2,250 a month before taxes, in a city where the median one-bedroom apartment rents for $3,300 a month. So this minimum wage means shacking up with other people or living in a dump, or both.
It also means that San Francisco’s higher wages are attracting workers with longer commutes. Conversely, some companies insisting on hiring only cheap labor might choose to leave San Francisco. Most of these companies left long ago. This type of corporate mobility would perk up the economy of low-cost jurisdictions they move to; and that would be a good thing.
Restaurants, retailers, and others that sell to local customers and tourists will need to be where the money is, and the money is in San Francisco. So they’ll adjust. A high-enough minimum wage creates a level playing field among competitors.
A minimum wage needs to allow the worker to exist; it needs to be large enough to get the taxpayer off the hook for subsidizing corporate labor costs; and it needs to allow companies to thrive. This is not an easy balance to find. A minimum wage at the federal level that’s barely high enough for San Francisco would be a massive job killer in jurisdictions with low costs of living.
So ideally, minimum wage levels should be set by cities, counties, and states – now happening across the country. This will cause some shifts, but it will balance out. And it’s great for consumer spending, and for local businesses that receive it. If a jurisdiction goes overboard, and the economies don’t work out, it will have to deal with the consequences and adjust. Minimum wage is always an uneasy compromise.
That compromise can be found more easily at the local level. At the national level, trying to find a compromise that works in San Francisco, CA, and also in Ada, OK, is an exercise in absurdity.
So a federal minimum wage should reflect something that works in low-cost jurisdictions. Local and state minimum wages should reflect what works in their higher-cost jurisdictions. But in all cases, the minimum wage should be high enough to get the taxpayers off the hook and make companies pay for all of their costs of labor.
When Trump campaigned on how “terrible” the jobs situation was, while the Obama Administration touted the jobs growth since the Great Recession, it sounded like they were talking about two entirely different economies. But they were both right. Read… New Census Data Shows Why the Job Market is Still “Terrible” (as Trump said), but the Numbers Get Hushed up
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Couldn’t disagree more. there should be no minimum wage law. PERIOD. All it does is create unemployment and make it harder for low skilled workers to be hired for their first job. Govt raising minimum wages is why there is so much unemployment and so much money flooding into automation.
Yessss!! With an oversupply of unskilled labor, not just here but globally, and limited demand for such labor, wages of the unskilled could be pushed close to zero. That would be ideal. Free labor for all. I love it….
But wait, we’ve already been there, and it didn’t work out that well.
I thought surely you would know that there aren’t any free lunches. The minimum wage is a stealth transfer of wealth. Let’s be intellectually honest and call it a “welfare” wage that is basically functions as charity. Any time the government gets involved in setting prices, there are usually unintended and demonstrably negative consequences. Most politicians suffer from the “Fatal Conceit” of believing they can improve market outcomes.
I like this “Any time the government gets involved in setting prices, there are usually unintended and demonstrably negative consequences.”
And The Almighty Market never results in negative consequences? Show me the proof that The Market always results in positive outcomes.
“Let’s be intellectually honest” and admit that for any human activity (market or not) especially where money is concerned “there are usually unintended and demonstrably negative consequences.” There’s no good outcome only less worse ones, and minimum wage is one of those.
You missed the key parts of the article. The transfer of wealth goes the other way: from taxpayers to corporations via subsidies of their cheap labor (food stamps, housing subsidies etc.). It’s a huge subsidy, funded by taxpayers, that allows businesses to pay wages that are not sufficient to live on. And the government is then tasked to fill the gap. Cheap labor is an insidious system.
>>> “Most politicians suffer from the “Fatal Conceit” of believing they can improve market outcomes.” The market outcome of an oversupply of unskilled labor and limited demand is a wage of near zero. Is that what you want?
Are any of you paying attention to Venezuela and the government intervention there? They recently raised the minimum wage to $67/hour. Is that going to solve Venezuela’s problems? Perhaps very bad government policies over the last eight years has brought us to this point? Maybe that was their intent all along. Ever think about moral hazard created by these collectivist policies? Has it ever occurred to anybody that before you can redistribute income, it has to be earned first? Let’s have free lunches for everybody!
>>> “They recently raised the minimum wage to $67/hour”
Utter total BS!!!
Venezuela pays in Bolivars, not dollars, and that currency is crashing by the hour due to hyperinflation. So if the government sets a minimum wage today, it will have lost a big part of its value a week later.
On Sep 1, MONTHLY minimum wage rose to 22,577 bolivars, which was at the time around $35 a month at the weaker of two official exchange rates but about $23 a month at the black market rate. Including meal tickets, it will rise to 65,056 bolivars a month, so about $70 a month.
Ongoing hyperinflation shrunk the value of this monthly wage further. So in October, the minimum wage was jacked up again by 40% … to $69 a month.
What I cannot understand is how this aligns with get manufacturing back to US” mantra? Automation? Well, the US is certanly behind on that, but, first, automation requires highly skilled labor force and, second, you cannot automate everything. SMEs simply do not have enough capital to do that.
@DV:
yes, good point.
Let’s make sure the minimum wage is way above the Chinese wage, so we need even more corporate wellfare (in the form of direct company subsidies, tax deductions, tariffs or whatever) to “bring those jobs back to the US” despite high wages ;-(
Otto Maddox
Dec 27, 2016 at 2:17 am
“Are any of you paying attention to Venezuela and the government intervention there? They recently raised the minimum wage to $67/hour.”
No, $67/month.
http://money.cnn.com/2016/10/27/news/economy/venezuela-minimum-wage-hike/
Like all of Latin America, it has long been a victim of economic warfare waged on behalf of U.S. corporations. And as we have seen, it is all too easy to blame the victims.
It’s not charity – it’s a necessity for capitalism survive. Have you ever played Texas Holdum? The game is over when one person has all the chips.
Wolf if 100% correct on this.
I wouldn’t call something charity when it is necessary to keep the economy functioning.
“automation requires highly skilled labor force and, second, you cannot automate everything”
Automation does not require a highly skilled workforce beyond the far fewer than original labor force numbers regional technicians who repair the automation. Keep raising the minimum wage and you’ll only make automation more financially viable. Note the self-checkout lanes at stores. That’s just the beginning.
Federal minimum wage works as a bottom bench mark. For the states a city’s that don’t wish to force employers to pay what is necessary for their workers to exist in their locality.
Any employer willing only to pay minimum wage, is a employer to avoid.
The Microsoft HB1 program and various other large Skilled employee layoff’s, that have seen those jobs filled by a cheaper group of HB1 employees, show why minimum wage legislation is nessecary, it prevents total labour exploitation by Corporates.
Adam Smith once put it this way. When the wages are too low, then workers will starve to death. When enough workers have died off, then labor becomes scarce and wages will necessarily rise. See? The market solves all problems!
I think in theory you’re correct Wolf. Taxpayers are subsidizing corporations with welfare etc. But corporate welfare doesn’t stop at the minimum wage and we all know it. A higher minimum wage means that the smaller companies who are already handicapped through regulation and tax systems that cater to large corporations take an even bigger hit.
I’m a Canadian currently living in New Zealand where they have a $15/hour minimum wage. The differences in the labor market stand in stark contrast to both Canada and the US. (I’m a frequent visitor to Seattle and Oregon.)
Businesses here hire far less people. Noticeably less. Even small businesses who can’t afford to automate have passed on functions usually reserved for low wage workers to customers.
Businesses also choose to keep their doors open fewer hours and days than businesses back home. Try getting a meal at a restaurant in the hours between lunch and dinner…damn near impossible. Late night anything? Forget it unless you’re near a university.
The increased cost of consumer goods is another symptom of high wages. If somebody with zero skills earns $15/hour then everyone from the low-skilled to the educated and experienced demand more as a consequence. Goods are so expensive here that I’d be very surprised if people making $15/hour were able to make ends meet anyway!
I guess the optimist in me would like to see a society that doesn’t believe minimum wage is a career choice instead of a first step. Thanks to your blog and others, I realize that the structural problems in western economies, government, central banking won’t allow that to become a reality.
Right now I’m at the point where I’m wondering if the lyrics to Corb Lund’s “Getting Down On The Mountain” might be the most prudent advice. If you don’t know the song I’d suggest giving it a listen.
Thanks,
John
While the thesis that a higher minimum wage causes unemployment seems plausible, econometric analysis of the aggregate data (regression analysis with the national unemployment rate as the dependent variable, and both the current year dollar and inflation adjusted dollar as the independent variables) does not verify this.
To be sure there may well be select groups [e. g. left-handed red headed Armenian males over 6 feet tall, ages 16 to 35] in specific areas which are adversely effected, but in the aggregate no.
I also included the political party of the administration by dummy coding, which had a more significant correlation [Republican = 1, not Republican (Democrat) = 0], although it was still low, was higher than the correlations of either the CY$ or CPI$ minimum wage.
The following datasets/analysis I created can be opened with either the M$ Excel or Libre/OpenOffice spread sheet programs.
http://mcduffee-associates.us/PE/minwage%26unemp.xls
http://mcduffee-associates.us/PE/minwage-inf.xls
I know the US isn’t Europe, but in Europe there is an obvious relation between minimum wage and unemployment (higher minimum wage = higher unemployment, especially for the youth).
Just compared e.g. Germany and Spain… There are probably exceptions to the rule in EU as well but I’n not aware of any. I’m not claiming that this relation is the same as a ’cause’ but it clearly points to rules in the economies that are counterproductive.
Opinions about the subject vary in Europe too. IMHO it is much better for young people to be almost sure of getting a job and getting some work experience, although with initially low pay (like in Germany), than getting an entitlement to over double the German minimum wage but no job (like in Spain). I’m sure that if someone has worked for 1-2 years at low wage and proven a good worker, the pay will go up unless it is unskilled work with plenty of takers for the job (in which case I guess the job goes to a subsidized migrant/refugee).
It’s already been done. Numerous academic studies disagree: http://www.frbsf.org/economic-research/publications/economic-letter/2015/december/effects-of-minimum-wage-on-employment/
The fallacy is this: at a zero-wage, we’d have full employment. We’d be more competitive even than Bangladesh.
“The fallacy is this: at a zero-wage, we’d have full employment. We’d be more competitive even than Bangladesh.”
Precisely. The paraphrase of this that I use is that the market-clearing price of labor is slavery – i.e., a zero wage. Borrowed from an anonymous commenter on nakedcapitalism.com.
Workers need not be paid at all, merely manipulated, coerced, or forced, and labor efficiency can thus be taken to its logical conclusion. During WWII Krupp worked imported slaves without even feeding them, much less bathroom breaks. His only costs were the expense of having them brought in by boxcar and dumping the spent bodies.
It’s happened before, is fully expected to happen again, and is firmly believed to always be occurring somewhere in the darker corners of the Earth, even now. Think faces on milk cartons.
The Labor market is not a market of “perfect competition” or as layman like to refer the mythical “free market”. Today’s corporate labor market is much more akin to medieval feudalism than it is to some skittle pooping unicorn of a free market. Minimum wage hikes ALWAYS boost the economy. Use the google.
I wonder how the number of illegal immigrants in the USA has impacted wage rates?
Would those ‘jobs nobody wants to do’ be filled by legal workers if the wage rates were high enough?
looking at Germany, there might be a relation between high migrant numbers and low minimum wage ;-(
Marty – Have another drink…..Breittrash is not real news mang!
Aero, if you are talking to me and saying that I read Breitbart, you couldn’t be more wrong. I’ve never brought that webpage up on my computer. Nor do I watch fox news. I am NOT in any way a conservative, if that’s what you surmised.
It seems you have bought into the false left/right, red team blue team nonsense of tptb. That is utter nonsense.
Just curious: are you as concerned when all those poor, poor low skilled workers get canned due to their bosses moving factories overseas? Or does your concern only extend to situations that are also detrimental to their boss?
The studies show that minimum wage increases of the amount we’re taking about have not had significant effects on employment one way or another. But *even if* they cause some jobs to be lost, I’d support it because that’s what’s supposed to happen in a healthy economy: capital is invested to improve productivity, which is shared between the workers and the owners, and the overall economy improves and expands to employ the newly displaced people in new, more productive jobs.
I find it hypocritical that people who extol free trade and shrug about the resulting job losses and devestated communities all of sudden shed crocodile tears for the worker when talk turns to the minimum wage.
Furthermore, wolf is right that our current setup is corporate welfare. I. E. Redistributing wealth from individual taxpayers to corporate shareholders. If you want to abolish the minimum wage as socialist collectivism free lunch BS, then let’s also bill an employer for whatever foodstamps, medicaid, and housing assistance their employees get from the government. The employer can decide whether it’s cheaper to directly pay his employees enough to get those services or whether he prefers to pay inefficient government bureaucrats to do it for him.
I lean more toward Milton Friedman’s philosophy to leave free markets alone. The minimum wage as a form of social engineering is only a benefit during an inflationary period. If deflation or even stagflation sets in, the min. wage can start a rapid death spiral for low margin retail businesses that are tempted to hire cheap labor.
With wages locked in as revenue declines, they would be forced to let people go and/or cut profit margins. Service will drop in stores, with longer lines and fewer helpers. Unemployment could skyrocket even faster than deflation. The only way out for businesses would be to shut down, even larger chains that rely on those lower paid clerks. Malls would start having anchors vacate and for lease signs posted.
Unless we think all people are essentially idiots or slaves, who would not look for higher paying jobs when they could, the minimum wage is a negative. It removes a key buffer that businesses need for slow periods. And any politician who advocated lower the minimum wage to help business survive would be voted out.
I agree with the overall thesis of the post. Where I disagree is in what the purpose of the minimum wage is.
From my perspective as one who (used to; now retired) hire employees, the concept of the minimum wage was a rate for those at the lower end of the learning curve for their jobs. Many of these people were students, and their job duties were such that almost anyone could perform. These were the types of jobs where someone could get their foot in the door as they set themselves for upward mobility within the business. These were not people with financial responsibilities for other family members.
What happened after 2007 is too many people were with household responsibilities were displaced, outsourced and downscaled. It created many people who now depended upon ANY employment income to survive, leading to a downward income spiral that has caused a re-thinking of minimum wage into the concept of “living wage.” This is not what the minimum wage was supposed to address, but it has become the way it is being addressed on the political level since then.
As for who should set it? If there is a national number, I think it should be very low. But the real number should be set at the local level, since this would be the one that would have the impact upon those that count. The idea of setting the only (national) number based upon living conditions in Oklahoma to be the same as the number in San Francisco is utterly ridiculous. But that’s the way the federal minimum wage works in concept.
And one more thing: When the minimum wage increases, so do the resulting tax collections.
There’s nothing that prevents a federal minimum wage from being indexed to local cost of living. The government already collects accurate stats on that and lots of govt payments are already adjusted for it.
We just lack the political will to talk like adults about what constitutes a good minimum wage policy.
Aloha Wolf..the only Major Affects of this massive movement in minimum wages..’Brobdingnagian’ steps towards ‘Robotics and AI’ in both the Service and Production areas of the Marketplace…over time the Economic and Social Costs could literally implode the “Welfare-Nets” of this country. Also,in taking a wider and long-term view,the effective worldwide disruptions would be nothing short of ‘Apocalyptic’…..thanks for reading,aloha
There’s no doubt in my mind that if the Federal minimum was abolished, every business owner in the country would call their employees together and announce “You are all getting 25% pay cuts. Don’t like it? Find a job somewhere else……” Then moan and bitch about “business is bad……no customers”.
What was that old saying that the capitalists will sell you the rope that you will hang them with? I suspect the “rope” will be Donald Trump, after the wretched refuse get four years of “running the country like a business”.
Less than 3% of the workforce make minimum wage. Using your logic, why hasn’t this already happened to people making only $2 or $3/hour more than the minimum wage?
It’s relative. The 3% making minimum wage provide a floor. The people making more than minimum wage because they have a more valuable skill compare their wage to the people making less. If there’s no floor provided by a minimum wage, employers have the ability to depress all wages while maintaining the same ratio that people judge each other’s wages by.
3.9% of the national workforce make exactly (or less than) the federal minimum wage of $7.25. That doesn’t include the millions on higher state or local minimums.
The rope is like Louis XIV’s Versailles. The palace that destroyed the French aristocracy.
Aloha Friend..not to be Argumentative nor Melodramatic…how has NOT=Running the Government as a Business…workout out for the Middle Class over these many decades…? lolol thanks for reading,aloha
Government should be run as efficiently as possible, while meeting its obligations to the citizenry. A business does not have the responsibilities that government does. Saying government should be run like a business is bogus.
Utter unknowing, without facts, opinion pushing. We live in a very rural area of Southern Appalachia (NC), and and I just observed a poster at a fast food outlet offering $12 an hour to start. No industry here, and the biggest employer now is an Indian casino. Minimum wage rates will always in the end be bore by the consumer. Want wages to increase? Stop importing illegal aliens, or any more foreign nationals…as a start.
I wonder if there are cities where they didn’t have a minimum wage yet the pay is higher than the federal level due the supply/demand dynamics?
I think so, yes. Look at wages in Alaska or North Dakota as examples. (States not cities but the example holds.)
Yes, Santa Barbara here, the min wage in Cali is $10.50, but many small mom and pop shops can’t find worker for $12-$15 a hour due to the high cost of living, I see for hire signs everywhere by those small businesses, While downtown State street is flooded with homeless people at night, truly a spectacle.
Indicating yet again that the “problem” is not primarily economic but rather mental health and cultural.
How did you come to the conclusion that the problem is not economical when people don’t want to work for a minimum wage that doesn’t pay for the cost of living…
The mental health problems are not confined to the unfortunates who are unemployed/unemployable. It also includes the people who created and are continuing the policies which largely created the problem in the first place. This part of the problem is greatly exacerbated by the policy makers refusal to admit the social/cultural conditions/situations have changed, which require new policies, not “more of the same only better.”
Something I learned 60 years ago. Late 18th century the Speenhamland system was used in the UK, which basically involved landowners paying their labourers less than a living wage, the difference being made out of the poor rates, which was a fund to which everybody subscribed (taxes and tithes). The result was that a) the labourer got just enough to live on but no more (“thou shalt not kill but needst not strive officiously to keep alive”) b) the landowner was able to get cheap labour without paying the full economic cost and make a good profit because c) everybody else – businesses, shops, traders, retired and all the rest of the middle class – paid the difference.
In the US (and the UK) the poor don’t earn a “living wage” so the difference has to be made by the Guv’mint using taxes contributed by the middle classes, while the rich get ever richer because they can employ cheap labour and they can afford to employ clever lawyers to find ways of avoiding tax.
Since employers won’t pay a fair wage simply using common sense and to stimulate consumer spending, then force it on them.
The free market ideologues in the earlier comments are ignorant. Just as Trickle Down doesn’t work anymore, neither does self regulating capitalism.
America is now run by Kleptocrats and economic narcissists. Or, put it another way, a bunch or angry old men.
“America is now run by Kleptocrats and economic narcissists.”
Can’t say it any better than that.
Oy, the pain, the pain…and the “rich” don’t pay their “fair share,” in taxes. Right?
Right! Glad to see you grasp the problem.
This issue, among a couple of others, is one of the basic ones with free market advocates, of which I am one.
If the market is so efficient, how can there be chronic poverty (e.g. unemployment, underemployment, low wages, and other maladies)? The answer is not easy.
You have correctly identified the flow of wealth/subsidies: the taxpayer subsidizes low wage firms by funding programs for the poor, working poor, etc.: AFDC, Medicare, etc.
It is the responsibility of my true-believer libertarian colleagues to come up with 1. a diagnosis of the root cause and 2. a better, practical system to get rid of wide-spread, chronic poverty/employment issues.
I have some ideas on the subject, but I am not paid to come up with these ideas. The elites, e.g. think-tanks, academics, government experts have done an extraordinarily poor job at studying and problem-solving on this issue. It is truly a disgraceful display more of political ideas than economic ideas: “no subsidies- free market for everything!” vs. “the elite government class knows best-so subsidies for those who are needy- because we care more than the other guys!”.
Until then we will have debates on the minimum wage rate, how much health-care subsidy is needed, etc.
Thanks for the post.
Well stated regarding free-market versus minimum wage government mandates. But, look back at history to see what completely unchecked free-market forces have produced int the past.
Do we as a society want to allow children under sixteen years of age to go to work for unlimited hours a week with absolutely no minimum wage? Most readers, I would bet, would answer no, but that has happened in the USA.
By 1899, 28 states had passed laws prohibiting child labor. In 1918 and 1922, Congress passed laws to do the same, but the US Supreme Court ruled these to be unconstitutional. So, in 1924 Congress passed a Constitutional Amendment prohibiting child labor, but the states did not ratify it. Finally, in 1938 Congress passed the Fair Labor Standards Act.
My city of Minneapolis is an interesting one to watch. We had a proposal to put a $15 an hour minimum wage referendum on this past November’s ballot, but it got ruled to be outside the boundaries of what was allowed to be put before the voters on a referendum at the last moment. However, the battle lines had been drawn by union leaders, business leaders and the city’s politicians. The incumbent mayor now a fight on her hands for the 2017 mayoral race as a result of her stand on the issue.
As a person who is for the most part Libertarian, it is indeed difficult to come up with “a better, practical system”, and I would have voted no on the referendum had it been on the ballot. Businesses should treat and pay their workers responsibly, and workers should show up and do good job. In a perfect world the government has nothing to do with this exchange between labor and wages, but the world ain’t always perfect, eh?
An additional problem is how the minimum wage compares with social security.
In my country, people who are on social security ‘hit the jackpot’ compared to those working for minimum wage: they get heavily subsidized housing, countless extras on top of the social security income (which is similar to net minimum wage in my country). The result is that many people who would start working in a minimum wage job are worse off than those who don’t work and collect social security (and FAR worse of that those who are on disability benefits – many of these are working in the black economy plus they collect benefits that are 50-100% above minimum wage).
IMHO the problem is not so much that the minimum wage is too low, the problem is high taxes for workers (and small businesses) and the way too generous structure for our welfare system (which admittedly may be necessary for some, but it is heavily abused by many). People on social security pay very little taxes (they are also exempt from property taxes, water/garbage taxes etc.) while every worker is taxed to the max.
Several EU countries are now experimenting with ‘basic income’ as well. IMHO those experiments are idiotic and can never work. One of the main problems here is again that people who do NOT work qualify for countless goodies like heavily subsidized housing etc. etc. that they would lose as soon as they start working (and that can amount to more than the minimum wage itself). I have no problem with basic income if it means giving up all the goodies that workers don’t have either – but that is clearly not what the proponents of basic income want.
In my country the government likes the basic income idea: give the real parasites a bag of money and don’t bother to check if they are trying to get a job or maybe work in the black economy (“it is cheaper to give them the money without any requirements than spend it on government oversight”). People who game the system are heavily rewarded while those who want to work are punished. Not a good idea, with or without more robots and almost-free migrant workers.
“In a perfect world the government has nothing to do with this exchange between labor and wages”
Seriously? Then who backs the currency (wages?)
In the United States, since 1913, the dollar (currency (wages?)) has been backed by the Federal Reserve. The Federal Reserve is a private cartel of banks who own shares in the 12 regional Federal Reserve Banks. Yes, the Chairperson of the Fed is appointed by the President, but the Fed is a private entity.
Most of the ‘Founding Fathers’ of the US wanted to to keep control of the issuance of fiat currency in the hands of the Treasury, but others, such as Alexander Hamilton sought to give that power to a central bank. In 1791, Congress gave a 20 year charter to “The First Bank of the United States” and handed Mayer Amschel Rothschild a twenty year license to control the dollar. As Rothschild stated a year earlier in 1790,”Let me issue and control a nation’s money, and I care not who writes the laws.”
You know, if we had truly followed the advice of libertarian economists such as Hayak and Friedmen, we would have a basic income system already. There are no coincidence both of those guys who were famous for their endorsement of free market to both come to the conclusion of the need of a basic income.
A very good discussion:
http://jeffweintraub.blogspot.com/2011/01/adam-smith-on-poverty-progress-wages.html
Bottom line= it’s not clear that the free market, as Adam Smith first described, will keep wage rates above subsistence. Of interest is that Smith often relied on a “well governed and civil society” as one of the necessary conditions for free markets to work. The detailed description of this “society” was taken up in his “Moral Sentiments”, as well as it could be done.
Legislated Minimum wages have been around for hundreds of years, and it doesn’t look like we have found a way around that concept yet.
Min wage vs no min wage is another one of those arguments that inevitably turns into the old polarizing Socialism vs Capitalism topic. There’s ample proof everywhere that one without the other is always devastating to any country’s people – and I say people (not economy) because if you belong to the human race, that’s what should matter above economy.
A fully capitalistic system will always impoverish & omit the unwell, aged and disadvantaged. I’d challenge anyone to find a ‘rational business case’ where a 100% capitalist system would willingly donate ‘enough’ profits to care for the significant percent of population that’s unable to work. Especially where there’s zero tax incentive. With exception of Modi’s theft from his people, India is one of the most capitalistic countries in the world yet has a high levels of starvation & poverty with a caste system; designed to hold people down in their birth-rite role. That’s what pure capitalism looks like.
Of course there’s just as many examples where socialism impoverishes entire countries by stealing from producers, businesses and the wealthy to give away to everyone.
So what makes a country like Switzerland prosperous is a healthy dose of democratic capitalism with a basic socialistic safety net that makes a minimum wage unnecessary. So IMO the US ‘requires’ a minimum wage for the sole reason that it’s government is no longer ‘for the people’ and has become wholly corrupted by campaign finance. Remove the ability for corporations or groups to contribute to (i.e. bribe) politicians and eventually the necessity of a minimum wage disappears.
Exactly right, and it worries me that seeing the grey area (on nearly any subject) is becoming less and less common in this country.
In my experience, most people need absolutes to believe in. And not nuanced absolutes, but big, gaudy ones. It’s like Libertarians believing a capitalist economy can work fine without a government, when capitalism is essentially a government creation. Or the socialist who thinks that if you tell a lazy guy that he is an equal shareholder in an economy that suddenly he’ll be out working his butt off. The real world is all gray, and the shade is different for every single person.
Truth. But the world is becoming ever more polar as the days go on. Even those who are well-educated pick sides and leave little room for nuance or discussion.
What is the interrelation between the ongoing theme of minimum-wage increases & the fight for 15 on the one hand, and the ongoing theme of misclassification of employees as ICs on the other? To what extent does the latter story make the former less relevant because W2 status is porous? I don’t have a clear picture. There are always many misclassification suits and state initiatives such as misclassification task forces and MOUs between state Departments of Labor, yet is there a trend? Wolf the careful empiricist, have you tracked this, and do you consider it a material component of minimum wage questions?
As I see it, we could use 1099 reform to go with the minimum wage reform, otherwise there is this one story about minimum wages (tailored to regional economies to a greater or lesser degree, as WR is saying), but with an unaddressed underclass of “involuntary entrepreneurs” as Robert Reich put it, whose wages are even lower than the low end.
Has the idea of misclassification as a “hidden due diligence risk” (http://www.americanbar.org/publications/blt/2013/01/keeping_current_reibstein.html) which might lead to expensive settlements gained any more acceptance relative to how it was viewed 5 or 10 years ago? And would this make employers more reluctant than they used to be to misclassify as a way to do an end run around a rising minimum wage, or is this just something that Reibstein the compliance attorney points out, but that hasn’t particularly caught on?
Wow, this thread is hoppin. But nobody chimed in on 1099 at all. Isn’t independent contractor status one of the elephants in the room when you’re talking about the minimum wage?
I bet an average federal minimum wage year income that all ‘no free lunch’, no minimum wage defenders live comfortably well above that level.
Who on earth believes minimum wage jobs are there to be ‘lived on’ by independent adults? They’re not and never were. Demand requires any job of remote skill and/or intense work will pay higher. Try to hire a day laborer for 8 bucks an hour in LA you’ll be laughed at for example. Try closer to 15. If we have created a society where burger flipping and Wal Mart checkout gigs are supposed to be ‘careers’ you can support a family on we’re well and truly screwed.
So all those burger flippers and Walmart cashiers should understand that their “jobs” are really just hobbies supplying a little pin money?
Like many of the commenters, you ignore Wolf’s basic argument that if employers can pay less than a living wage, taxpayers make up the difference. In effect, the programs we fund are a subsidy to those businesses. And I’d add, the charities we support. I’ve volunteered at food banks and lunch programs where many of the recipients are working one or two jobs. And nobody stands in line for an hour hoping to get a bag of groceries or lunch for their child if they don’t really need the help.
@Alex X,
We have absolutely created a world where real adults need to live on those minimum wage jobs and raise kids. Millions do. That’s why this has become an important discussion.
One problem I see with ‘local’ minimum wages is that Federal entitlements that are income based like Social Security would subsidize high income areas at the expense of low income ones.
Being a minimum wage earner in San Francisco means you will get a bigger social security check when you retire than if you were a $7.25 minimum wage worker in another state. Since Federal benefits are portable but minimum wages are not people will find a way to game the system. Maybe bring your mother in law to San Francisco to work a few years before she retires so as to boost her Social Security income then send her back to Arkansas when she reaches retirement age.
You can not live in San Francisco on $15/hr, unless you have 4-5 roommates and never, ever do anything besides work and sleep. Thank Tech companies and our local “moderate” politicians for that..
an even worse case of this can be seen in Europe where e.g. people from Morocco who worked for some time in Netherlands (or didn’t work at all and made sure their whole family qualifies for the generous Dutch welfare system …) collect the same social security payments or old age pensions as people in Netherlands when they move back to Morocco – where life is far cheaper and social security etc. doesn’t exist.
Often these former migrants even have homes in Morocco that they own outright which would disqualify them for social security in Netherlands, but the Moroccan authorities make sure the Dutch government cannot check such data. Workers moving back from Germany or Netherlands to cheap Turkey and collecting social security or disability benefits for children that never existed or who died young is another example; there is widespread fraud and gaming of the system, all at the cost of Dutch taxpayers who have to be taxed even higher to make all this possible.
Within Europe the same happened until recently, e.g. Dutch pensioners moving to Spain because the cost of life and especially health care etc. was much cheaper there while they kept their high Dutch pensions (probably similar to Americans moving to Florida). This is gradually being changed and some of the entitlements are now adapted to the cost of living in the new country of residence.
>>>> “Being a minimum wage earner in San Francisco means you will get a bigger social security check when you retire than if you were a $7.25 minimum wage worker in another state.”
Employees pay 6.2% and employers pay 6.2% in federal withholding tax for Social Security. So 12.4% in total of the amount earned. That withholding added up over the years determines how much the employee will eventually be able to collect in SS. Someone who makes $14.50 an hour pays twice as much as someone who makes $7.25 an hour. So yes, they should get higher SS payouts. And they do.
I recognize that a person making the minimum wage in SF would pay more into Social Security but that isn’t the issue. Its the portability of Social Security benefits.
Lets say you are a dentist in San Francisco and you need a receptionist. You can hire a local person for $15/hour or you can hire your 60 year old mother from Oklahoma and have her come live with you. Since you may have to help her out financially in her old age anyway why not hire mom and let her boost her SS payout by a couple of hundred dollars per month. The cost to the dentist is the same while she is employed but he saves down the road when she retires and goes back to Oklahoma.
In this case, given a $2500/ year in Social Security over a 20 year pension payout the Dentist might relieve himself of $50,000 he won’t have to give to mom if he hires her instead of stranger.
Wolf:
You got part way there but not all the way. Increasing minimum wage(s) benefits government first and employees’ second as income taxes increase and payroll overhead increases. That is why governments and government employee unions are beating the drum on this topic.
$15/hour, depending on jurisdiction, can easily be $20/hour cost to an employer.
Our problem isn’t minimum wage(s) per se, it is the true cost of living and being forced to compete with wealthy foreigners (for domestic real estate) and slave wages in polluting countries (Mexico and China).
Wolf:
Compare the take-home pay vs. the all-found employee cost in various states. You might be surprised. Especially at $15/hour.
I wouldn’t expect any move upward in the federal minimum wage with Trump and his White House of Horrors. Especially Andrew F. Puzder as Labor Secretary. Puzder, CEO of Karls’s Jr and Hardee’s doesn’t believe there should be a federal minimum wage. Everyone should beg for their jobs, be happy to work for free, be dependent on Welfare for food, healthcare, housing etc.
For any poor or working person who voted for Trump, merely look at the people he wants to put in his Cabinet positions and you’ll begin to notice that it’s going to be a Wall Street, Lobbyist love fest at the expense of all of the working class in the US.
If anyone thinks Trump has ever cared about poor people at any time in his life, including during the Presidential campaign, the JOKE is on YOU!
Neither party represents the voters. They represent the donors. Trump was a big FU to them. If he fails, he fails big, that’s the only thing that might improve things. Mrs. NAFTA and her super delegates weren’t going to do anything for the working class, except screw them some more.
There is a distinct trend in which party has hiked state and local minimum wages and which one hasn’t. Obama’s Labor department was set to give overtime pay to 4.2m workers for the first time on Dec 1 (by raising the minimum at which employees would be exempt from OT) exempt employees) until the US Chamber of Commerce lobbied a judge in Texas to crush the law.
It’ll be a frosty day in hell before you see Trump and Puzder push to reinstate that change.
Corporatism is rampant and neither major party is labor-friendly but “both parties are the same” is the epitome of lazy thinking.
“Neither party represents the voters. They represent the donors. ”
This is a false dichotomy and part of the problem. There’s no grey, everything is black and white. If Republicans are bad, Democrats are bad too. If Trump is bad, Hillary is bad too. While both may be bad, they are not equal. Look at the party platforms… absurd to believe they want to treat labor the same way.
I kind of get the impression that Trump is choosing people for his cabinet that the Republican leadership are guaranteed to loathe and detest. He seems to be setting himself up in opposition to them. If I am right,expect to see the fur fly on the Hill. I also expect that any changes in Medicaide and ObamaCare will not be implemented until after the mid term elections.
The market-clearing price of labor is slavery. History is replete with examples where employers will pay nothing if they are so motivated and can get away with it.
It should be obvious that there is no such thing as a “free market”, as any market will be dominated by its most powerful participants in the absence of regulation, and either way it is not free. Labor markets are no exception. Adam Smith noted that the one and only way for workers to succeed in a capitalist economy would be to form labor unions, or “combinations” as he called them.
The poor will always be with you. The rich will insist on it.
The minimum wage has always been a below poverty level wage, a floor. I don’t think it matters. In 2009-2012 in Florida, the top of the financial crisis in a historically low wage state, most low wage jobs were paying $10/hr. That wasn’t a livable wage but it was the average low wage offered. The lowest wage was around $8, still above minimum, in a period of extremely high unemployment.
When you raise the minimum wage in an area with a big illegal population, the illegals will get the bulk of the gain, because the employer will pay them at least the minimum with none of the expense of the extra required benefits. Overall, I think these increases will move more jobs to the illegals.
The only reason employers “have to” pay people as much as $10/hour is because social program spending and ZIRP are creating disincentives to accept jobs and are actively suppressing a free market in labour.
Imagine a free world in which wages, job availability, and the true worth of various skillsets were open and obvious to see!
I think that world was called the Middle Ages.
Without socialist redistribution and some ethos of “collectivism” among the ruling classes you have no freedom, no democracy and only slavery for the vast majority of laborers, with of course frequent famines to balance labor against industry.
Like other Libertarians you live in a delusional hallucinatory dream world. A libertarian world cannot exist in reality.
“Imagine a free world in which wages, job availability, and the true worth of various skillsets were open and obvious to see!”
There are hundreds of millions of Chinese who, in a “free world” (YOUR words) would move to the US in a heartbeat and work for pennies on the dollar. Oh, you don’t want those Chinese working in America… what happened to free world? And so goes the slippery slope.
I notice that almost all of the comments are from folks that have obviously never been an employer ie. job maker in a 1st world country. I highly recommend Why I Will Never Hire Anyone, Even at $1/Hour by Charles Hughes Smith http://www.oftwominds.com/blognov15/labor-scarcity11-15.html
At least in Europe that ‘never hire anyone’ is not so much related to wages but far more to the difficulty getting rid of an employee once they get a fixed contract (over here this happens almost automatically after 1 year, or even if a person has been hired several times for short periods).
Even if you negotiate a strictly commercial agreement with a self-employed individual or small company for a specific job, you have the risk that authorities will consider this an employment contract with all the legal and tax risks that go with it.
I do have some experience as employer; I paid my employees a bit above the average for their age/qualification. For me trying to get the better workers was more effective than saving a bit of money on wages; but I guess that varies strongly depending on the type of work.
However, nowadays I would try to avoid hiring people like the plague due to all the socialistic regulations that we have (even worse than in the nineties when I was hiring for a fast growing business; for small companies it is a nightmare).
I don’t know about Benelux, but in all the countries I know there are lots and lots of perfectly legal ways to avoid hiring full time employees… and screwing them over pay with full blessing from the government.
From “interinal” workers working in Italian and Spanish malls to job agencies supplying “on demand” labor to German manufacturing firms, the list is not only long, but growing, as everybody is grasping at straws to solve the structural job debacle only people like Mr Richter speak about while at the same time not push potential employers into accelerating the inevitable automation even further.
Yes, there are options in Netherlands as well using shady “employment agencies” that operate on (or over) the edge of what is legally acceptable. It is quite common e.g. for temporary agricultural workers, cleaning jobs etc. that employ illegals of people who are paid way below minimum wage because they are ’employed by a foreign company”.
You can get away with that if you have the right connections or good lawyers, but for small companies the risk is very high. And I would not want to use such tricks anyway …
Anyway, our current government has been very active in trying to force small/medium size companies by law into handing every worker a fixed contract after doing just a bit of work (and making it even more expensive to get rid of the workers when there is no work for them or if they simply don’t perform). And it works, just not exactly as they had in mind: many companies have decided that with these conditions they will not hire anyone ;-(
Near everybody believes that things are getting worse. Wrong
https://ourworldindata.org/a-history-of-global-living-conditions-in-5-charts/
But give it a few months.
I say raise the wages for mini mums. They have to work a lot harder than regular size mums.
Seems we are missing the more macro outlook. If indeed employers will make oversized profits by exploiting the cheap minimum wage labor costs, it would seem at some point they would attract competition. If the competition needs access to the same labor pool, at some point the cost of labor will be bid up. Unless there is an unlimited supply of labor (immigration?), the bidding for labor is bound to drive real wages up.
While in theory the “market” will indeed eventually balance things out, the time scale is a problem. Market “re-balancing” of labor supply and demand is likely to take years if not generations, while the unemployed workers will starve/freeze to death, or succumb to preventable medical conditions in days or weeks.
There is also the significant problem of political influence being used to prevent such re-balancing if it involves higher wages, for example by increasing the number of H1b visas.
YES, THANK YOU!!!!!!!!!!!!!!!!
First we’re talking about minimum wage jobs. Cite one example of a company or business entering the labor force that drove up wages at the bottom of the ladder. As manufacturing and increasingly service oriented jobs are leaving this country more and more of the labor force is being pushed downwards into these jobs (or close to them). The myth your perpetuating is completely undermined by the fact that real wages for the vast percentage of Americans has actually decreased over the last 3 or 4 decades while virtually the entire gains in the economy have gone to the ownership class. In the meantime the cost of housing & healthcare has risen dramatically. Not coincidentally housing costs have skyrocketed due in part to the investment of those gains in single family & multi unit homes; in an attempt to reap more profits off the backs of the poor & working class. The myopic view that the economy is some magical force that will set things straight by itself is delusional at best. But this is what is marketed on the big screen by those who stand to profit the most.
What you refuse to contemplate is the almost unlimited amount of labor available due to open immigration. If you have an unlimited supply of almost any commodity the price will drop to near zero.
“What you refuse to contemplate is the almost unlimited amount of labor available due to open immigration. If you have an unlimited supply of almost any commodity the price will drop to near zero.”
Right… that’s part and parcel of “the free market.” Start slapping labor laws and hiring restrictions and you’re now in “socialism” territory, and you can’t have that now, can you!?
You want an example? How about Henry Ford? A true hero of Capitalism in my view.
The first and last time I made minimum wage was at age 16…in 1971. I worked at a gas station evenings and in the shop one day per weekend. After I put in a few months my wage was increased about 15%. I worked my ass off for that owner and always did the best job possible.
That was a time when company owners were ashamed to just pay the minimum wage. Nowadays, people like Trump think it is a badge of honour to rip off their workers. It seems like we have lost our humanity in this capitalist world.
My son has a small but very busy electrical contracting service. He pays his first year apprentice $30.00/hour, almost 3X the minimum wage in BC. His employee is in his thirties and is in the process of transitioning from carpentry to electricial. He is able to work on his own which allows son to take on more than one job at a time. It is also a good deal for customers because he charges them a lower rate for his apprentice, (unlike car dealerships and the like who collect the full shop rate while putting their lowest paid employees possible on every job).
Like I said, I remember when employers were ashamed to pay the minimum wage and ashamed to pay LESS than others in their field.
In the mid 70’s, just out of high school, I was working as a third year apprentice building apartments. At that time the 3rd year Union rate was $6.49/hour. My employer paid me $7.00. When the Union business agent came around and checked up on the job he was surprised and astounded we were paid more than the collective agreement. When he asked me about it all I said was, “Ron (the owner) is a good guy. We work hard for him”. And Ron went on to become a very wealthy man.
This new way of doing business epitomizes the ever-present, “race for the bottom” and income inequality. Ron not only took pride in paying us more, he had no staff turnover and very good crews.
When I used to work as a bush pilot 20 years ago I worked for one company in Yukon that paid far and above every other company. We were paid piece work and it was very lucrative for me. One day one of the owners handed out the pay cheques as the bookkeeper was away. he looked at my cheque and said, “ah, that’s what I like to see. When you’re making money I know we are too”. They were in business almost 40 years. Obviously, they did something right.
If my son paid his employees as little as possible I would be ashamed of him, to be honest. It would very much affect our relationship. It’s called values. He was raised with them.
Paulo,
Your experience is like mine. In the 60’s in high school I worked for Nebraska farmers in the summer putting up hay. The going wage for this at the time was $1.25 and hour. I was paid $1.75 an hour and had all the work I could handle – I always worked my ass off.
In the early 70’s I worked driving a truck across country. I gained a reputation for getting loads delivered on time and in good condition. The result was that I earned significantly more than other drivers and always had plenty of work.
For the last 15 years I’ve worked as a software engineer here in Silicon Valley. I’ve kept getting paid significantly more as I continued to work my ass off. Incidentally, I have never asked for a raise in my entire life.
As an employee, if you provide real value to your employer, you’ll make real money.
“As an employee, if you provide real value to your employer, you’ll make real money.”
Therein lies the problem, though. All these people– they CAN’T provide “real value” to their employers. Millions of Americans don’t have the skills or education to provide “real value.” And being realistic, they never will. So what do you do with them?
I have always thought that the people who pick up my garbage (and others’ as well of course) are worth more to me than the doctor I see once a year. Without those folks who pick up the garbage there would be so many more visits to that doctor in a year. The doctor would burn out, and lobby for garbage collection to lessen his/her work load.
What do we really value?
Yes, isn’t it strange that some of the nicest (or even lousiest) jobs have the highest pay?
Doctors should be doing mainly ‘preventive’ work which in a way is similar to the garbage collector, but physically less stressfull so you can do it until old age – probably the doctor has the psychologically more stressful job though, in the current health care system. Also, I have to add that I know from discussing the subject with some people in low wage jobs that many DO enjoy their job despite the low pay, e.g. because they are outside all day, get some exercise, have a very low stress level because of low responsibilities etc.
Maybe some day, when robots have taken over most of the current jobs, you have to pay to get a nice/creative job and only the less attractive jobs are actually ‘paid’?
Minimum wage is better set by the local government representing the area. The logic is inescapable.
I have spent the past 40 years teaching management in the companies that I controlled to fight the source of the problem and not the symptoms. The entire minimum wage argument exists only because of a continual devaluation of money and the purchasing power it provides. The Federal Reserve guarantees this argument will occur continually with an effort to decrease the purchasing power of wages by a targeted 2% per year. The federal government has the nation focused on the wrong cause while they raise tax receipts through inflation.
One partial [because the CPI is cooked/understated] solution is to index the minimum wage by the CPI-U.
As the minimum wage tends to act as a floor from which the prevailing wages are derived, this should tend to equalize the entire wage structure over time.
A second effect of inflation is tax bracket “creep” because of the higher nominal wage. One ameliorative procedure for this problem would be to set the tax bracket break points as multipliers of the median wage from the prior year federal tax returns.
Wolf’s analysis of the social safety net as largely subsidies for cheap minimum wage labor appears to be spot on. Would it be worthwhile to require the employer to pay the 6.75% FICA tax on the value of the social services their employees receive?
the CPI as we know is bs–Shad Stats and Chapwood point to a much higher CPI. Employers “get to” follow cpi for annual wage increases, thereby restraining increases. By the same token govt restrains cola for soc security –if it did not rather than 1.2 trillion a year in soc sec payouts it would be 6 trillion a year.
so now the govt has to come up with a fix which is to increase min wage. The govt starts with one problem and creates another.
and then the govt tries to take credit for helping people-its like putting a virus on your PC and then being able to fix it.
our govt is a bigger problem than its worth. It can be changed, but these folks do not want to lose their influence and power.
I ask, just who got the US to 20 trillion in interest bearing debt and annual increases now in debt approaching 2 trillion. Who did not fix entitlements 7 years ago after the bowles simpson committee.
it goes on and on.
Of course the Free Trade deals only exacerbate the downward pressure on wages. Forcing
US workers to complete with Third World labor while dealing with First Workd expenses.
Capital wants all the advantages of Free Trade but denies any responsibilities. Corporations
have become Uber citizens under the current laws.
“Yessss!! With an oversupply of unskilled labor, not just here but globally, and limited demand for such labor, wages of the unskilled could be pushed close to zero. That would be ideal. Free labor for all. I love it….”
I don’t think so. I run a staffing agency here in the bay area. You can barely get people out of bed for $20hr for low skill work.
We also have an area where undocumented workers gather for day jobs – and are typically paid under the table – they won’t work for less than $15-20hr.
Unless you “Wolf” are talking about forced labor, no one in the US is going to be working for near zero!
Minimum wage is just a bunch of political BS. Notice how they have changed the language. They now are calling it a “living wage”. What a bunch of crap.
Your employment agency is in the hottest job market in the country. You show your bias – and your silliness – by generalizing from there to all other areas of the US. The Federal min. wage has long ago ceased to be reality in the Bay Area.
Conversely, despite the higher min. wages in the BAY Area, the job market is still HOT.
You’re personally extracting your fees from that hot market. So be happy…. But it’s not that way around the country.
it would be interesting to see if companies in the
SAN FRAN area pay MORE than minimum wage
since the labor market is so “hot”. this would have
rendered the statutory increase unnecessary.
Also what happens when the economy is not
so robust ? companies are stuck paying the higher wage.
The San Francisco (and Silicon Valley) economy is boom-and-bust. Always has been, starting with the Gold Rush. Now is the boom (starting to fade?). After the boom comes the inevitable bust, with layoffs, wage cuts, and the like. People leave in droves because this place is too expensive if you’re out of a job. Minimum wage protections will come in handy for those able to hang on during the bust, but it might not be needed during the boom.
I’ve heard from restaurant owners – there are over 7,000 restaurants in SF! – who complain about the difficulties of being able to hire lower level staff (kitchen, etc.) because they cannot afford to live anywhere near the city, even at the higher prevailing wages here, and they have long expensive commutes (fuel, bridge tolls, time spent driving, etc). So the cost of living is a real issue for businesses in SF on all fronts.
Charles Schwab (which I don’t think has minimum wage jobs) is not the only company that has moved a big part of its operations to cheaper areas of the US.
thanks for the response (see below) .
maybe you may have changed your perspective.
Let mr. market determine wages. The federal levels have already been rendered moot. Non skilled labor rates in the Dakotas where at SAN FRAN levels during the fracking boom without statutory intervention. Let the San Fran restaurants close.
Also one needs to address the overhead cost
of hiring someone (i.e workman’s comp, failure to comply with government rules ,fines and litigation)
Here’s the elephant in the room of minimum wages/living wages: automation.
Take a close look at what sorts of “jobs” minimum-wage workers do. By or even before 2030, robots and AI’s will be doing those jobs. Machinery can go 24/7, and never call in sick or demand special treatment because they claim they’re a “protected” group. Robots don’t join unions, or take maternity leave.
As we transition from an era of “labor” to an era of “robotics” there are going to be a billion “job” dislocations around the planet. No one is preparing for this. No politician can.
That’s why I think Trump’s rallying cry should have been “A 3D printer in every home!” At least a step in the right direction.
One thing that inhibits automation is the fact that you cannot exploit machinery. It justs stops working if you skimp. A large part of the big profits that manufacturing corporations enjoy comes from labor exploitation, making workers work longer hours for less pay and fewer benefits. A large part of the huge transfer of wealth from the middle class to the upper crust results from this. But you cannot do this if you employ robots. You are stuck with what you got. If the government removed tax incentives from automation it might put something of a brake on it.
“It is in fact a corporate subsidy”
Not at all: it’s a (usually involuntary) transfer from taxpayers to (allegedly “underpaid”) labour. It’s designed to prop up an unearned and undeserved standard of living and to suppress a free market in labour.
If there WEREN’T a minimum wage we’d find that a)everyone would have SOME kind of job, and b) we’d know what each job was actually worth…
Why would everyone have some kind of job?
Lower wage costs make more business activities economically viable.
If a worker can only produce a profit for his employer at, for example, $6/hr., he won’t be hired if his “minimum wage” is forced by government diktat to exceed that figure, and the job will never be created at all.
Should be obvious that minimum wage laws kill jobs. Simple logical deduction.
Your “simple logical deduction” is a little too simple. There are far too many variables in the real world for simple deduction. And then, there are the moral and ethical issues of what kind of world we want to live in.
And if you can only be profitable in your business paying slave wages, you don’t really have viable business idea after all.
But what if people aren’t willing to work for $6.00 per hour? Maybe because transportation or childcare costs are too high?
Or what if people are, but the economic activity is profitable at $100/hour? Yesterday folks don’t have the bargaining power to get past $6.00?
And quite wrong!
Minimum wages increase the amount of money in consumers’ hands and increase the flow of money in the economy, the real source of wealth in the economy. The increased commercial activity increases profits and the need for labor. Allowing employers to suppress wages has the exact opposite effect and the situation gets worse. Employers will start competing with each other on who can pay the lowest wages until the society is ruined. \
This is the basis of our current predicament in fact. Massive amounts of money have been taken out of circulation from society. This suppresses demand which suppresses manufacturing, transportation, world trade, government tax revenues and all that good stuff. And you want to make things worse by letting employers depress wages to the point of starvation? You just aren’t thinking!
Of course you are right Ebenezer! American workers don’t deserve the good life they enjoy! They should see cardboard or plywood above their heads instead of a roof! They shouldn’t expect to eat every day. They should have rags tied to their feet instead of shoes! If they get sick. let them die and decrease the surplus population!
There is no “free market in labor”. Employers can effortlessly collude to supress wages, and with the decline of the unions, workers have no way of fighting back.
How did you ever get so heartless?
Blithe and ideological. What a lovely combination.
“It’s designed to prop up an unearned and undeserved standard of living and to suppress a free market in labour.”
And who determines what a deserved standard of living is? What’s the standard of living for someone born with down syndrome?
“If there WEREN’T a minimum wage we’d find that a)everyone would have SOME kind of job, and b) we’d know what each job was actually worth…”
A) Totally false… and just stupid. No logic there. I’d say good try but it wasn’t, this is just a downright dumb statement on so many levels.
B) So what? You’d be living in some dystopian nightmare where everyone made the absolute bare minimum for their job.
Idiocy with a side of smugness and… I think I tasted a little Nazism? Yes. How delightful.
Setting a minimum wage higher than what a typical low end worker can produce won’t work, and whatever minimum wage is set will surely be less than a living wage. I don’t see any way to help keep these people afloat without them in some way being a cost to the economy as a whole. To try and dodge that cost is to be morally bankrupt. Well, I’m just trying to offset the venom I see in some of the replies to this excellent post.
One way or another the cost to live for the less affluent will be covered. It can be done by taxes on those better off, by higher minimum wages, or some combination of both.
“I don’t see any way to help keep these people afloat without them in some way being a cost to the economy as a whole.”
Of course, that’s the point of the discussion. What do you do with these people, who will continue growing in size?
It’s not like these people, much to the dismay of many, will just disappear.
No, history has shown us what these people do… heads will roll. Literally. Maybe not in 10 years, maybe not 20, maybe not 50, but things will not work out well in the long run by ignoring the problem.
The Great Irish Famine shows how this sort of thing works out in the long run. works out in the long run. The British ended up losing Ireland, or most of it anyway. It took a long time but the Irish people never forgot or forgave the British on this. I remember a powerful British political cartoon from the late 19th Century. It shows Queen Victoria in all her billowy maternalness. The various colonies are shown as contented babies crawling on her bosom. But off to one side is an angry young man representing Ireland, ungrateful Paddy. With a bundle of dynamite in one hand a rifle in the other, he glares with unquenchable hatred.
Productivity over the last 40 years is up over 70 percent but wages, adjusted for inflation,
are up only 11 percent and yet there are still people who can’t see anything wrong.
If you want people to work, reward them for work. Unfortunately it looks like the beatings
will continue until morale improves.
How do you define “productivity”?
Your definition obviously does not take labour costs into account.
Western economy wages, regulatory costs and mandatory benefit “contributions” by employers are horrendously expensive in comparison to that obtainable elsewhere.
So it’s rather difficult to call the US or Canada “productive” given that…
Output per hour . Nothing new .
How do you define productivity? Your comments suggest that it’s synonymous with profit. As a nation there is a moral imperative to protect & provide for all of it’s citizens and we do this through laws, legislation, tax policy, public works, defense spending, etc. Capitalism, or even commerce in general does not exist without government. The minimum wage, or any wage for that matter has value only because the US Treasury backs those dollars. Getting back to productivity, is the building of roads productive? Civil defense, the build out of the energy grid, roads, dams, municipal governance, the courts & the penal system? Essentially everything that makes commerce & quality of life possible. There is no way to accurately measure this but if the “Government” hadn’t invested in these life would be very bleak on this planet. Yes Western wages & benefits are higher than in 3rd world countries. Is that what you envision the US becoming? This is government of the people, by the people and for the people. I realize that globalization has turned this on it’s head but if we don’t start reversing this trend we will be a 3rd world nation. Back to the point of this post; by mandating a minimum wage we are taking action to absolve the taxpayer from carrying the burden that should be borne by the employer. To your economic point – there may be an employer of two that may be out of business because if this (that’s theoretical of course) but one thing is guaranteed – every dollar extra paid out as a result of the increase will be put back into the economy and some other employer will benefit.
Of course you cold hearted monster! You want to reduce the standard of living in advanced countries to the same level as Haiti, Bangladesh or the Phillipines!
Wow! What a wonderful world that would be!
Aug 24, 2016 If Voting Made Any Difference, They Wouldn’t Let Us Do It
Don’t be fooled into thinking that the only road to reform is through the ballot box. Whether you vote or don’t vote doesn’t really matter. What matters is what else you’re doing to push back against government incompetence, abuse, corruption, graft, fraud and cronyism. After all, argues John W. Whitehead, there is more to citizenship than the act of voting for someone who, once elected, will march in lockstep with the dictates of the powers-that-be.
https://youtu.be/oVZX_amgLnc
Minimum wage is, “minimum wage”, regardless of how high you raise it. Employers not only pay the additional hourly rate mandated by the Gestapo, they also see increases in UE insurance, SS contributions and workers’ compensation. They will not eat these costs and prices for goods and services will rise, nibbling away at any “increased buying power” the raise is intended to effect. As a landlord, I pay more for my burger, you pay more for your rent. Net affect of minimum wage raise, workers pay more for everything including income taxes and most likely end up with less disposable income.
Fact #1. People who cannot afford things, cannot buy things.
Fact #2. Artificially setting the minimum wage will result in people being unemployed, and not being able to afford things.
The Rogers solution: Rework the tax code so that human labor is an incentive. I’m sure we can find a group of mathematicians that could create a tax formula that taxes on the basis of profits and people.
Profits÷employee salary= tax rate?
One solution is for the government to hire millions of unemplyed at $15 an hour to work on badly needed infrastructure projects. The competition for workers will force up marginal wages. This will markedly increase the circulation of money which will stimulate business activity and this profits which will offset the increased labor costs. Government revenues as well which helps offset the cost to government of creating those jobs.
Good luck finding anyone willing to work for $15 a hour doing backbreaking work in the States, the only one willing to do them is the illegals themselves, not even second generation Mexicans are willing to do that kind of work for that little pay anymore.
This all smoke and mirrors–addressing the symptom instead of the problem: The privately held “Federal Reserve” . Banks get to conjure up fiat currency and “loan” it to the US govt. at interest. They also get to invent currency through fractional reserve lending. This is a guaranteed inflation generator. END THE FED, then start adressing all the other problems.
Free markets aren’t free and have never been free. No such thing. Was it a free market when the British forced the Chinese to accept trade in Opium? Was it free when the US forced Japan to trade by bombarding their ancient cities if they didn’t? There have always been guilds, govt, trading companies, mass corruption, deception, and outright force and murder to propel “free markets”. “Studies” show nothing, because a free market is all THEORY. There is no such thing as the unimpeded transfer of goods, services and information. Competitve advantage no longer exists due to global flat trade.
A country must defend itself through some protectionism in order to survive as a country and not become a fief of corporatocracy. You can simply require foreign importers to manufacture some of their goods inside the border where they sell and put trade barriers on those that don’t. The finance class makes billions off of outsourcing , so they lobby for it. The solution is obvious common sense.
+10
Wolf – we need a way to rate posts.