“The Wages Are Too Damn Low”: Hiking The Minimum Wage Has Little Or No Adverse Effect On Employment
As I mentioned in the lunch link roundup, increasing the minimum wage is all the rage in lefty precincts today. DC is considering a raise, and Democrats generally are smelling a winning issue. (For a deeper look, Arindrajit Dube had a long piece on it over the weekend.)
Conventional economists tend to despise minimum wage laws, because they’re a form of price control, and that gives The Market a sad. Setting a minimum price of labor, according to Econ 101, should increase unemployment, because some people won’t have a marginal product above the wage floor. But as Paul Krugman pointed out in his column this morning, the evidence just doesn’t support this conclusion:
Still, even if international competition isn’t an issue, can we really help workers simply by legislating a higher wage? Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.
It’s important to understand how good this evidence is. Normally, economic analysis is handicapped by the absence of controlled experiments. For example, we can look at what happened to the U.S. economy after the Obama stimulus went into effect, but we can’t observe an alternative universe in which there was no stimulus, and compare the results.
When it comes to the minimum wage, however, we have a number of cases in which a state raised its own minimum wage while a neighboring state did not. If there were anything to the notion that minimum wage increases have big negative effects on employment, that result should show up in state-to-state comparisons. It doesn’t.
As others have noted, there’s good reason to believe that increased wages at large businesses would work out well for the businesses themselves. Businesses would both reduce turnover—the hiring process is expensive, and there is a great deal of churn at the bottom of the labor market—and increase their employees purchasing power, a hefty fraction of which would likely be spent at their own place of employment or somewhere similar. I’d guess that wages are held down out of class panic and a desire for increased profits for their own sake rather than some strict business reason.
Personally, if I had to choose, I would rather see more broad-based economic stimulus through fiscal and monetary action rather than a minimum wage hike. (Though I would still support one on its own merits.) But if they don’t like it, American elites have no one to blame for this but themselves. If the power structure can’t ensure full employment through normal channels, then demands for economic justice through more easily-understood channels will only become more common.
By: Ryan Cooper, Washington Monthly Political Animal, December 2, 2013
“Better Pay Now”: Let’s Give It A Try For The Person On The Other Side Of The Cash Register
’Tis the season to be jolly — or, at any rate, to spend a lot of time in shopping malls. It is also, traditionally, a time to reflect on the plight of those less fortunate than oneself — for example, the person on the other side of that cash register.
The last few decades have been tough for many American workers, but especially hard on those employed in retail trade — a category that includes both the sales clerks at your local Walmart and the staff at your local McDonald’s. Despite the lingering effects of the financial crisis, America is a much richer country than it was 40 years ago. But the inflation-adjusted wages of nonsupervisory workers in retail trade — who weren’t particularly well paid to begin with — have fallen almost 30 percent since 1973.
So can anything be done to help these workers, many of whom depend on food stamps — if they can get them — to feed their families, and who depend on Medicaid — again, if they can get it — to provide essential health care? Yes. We can preserve and expand food stamps, not slash the program the way Republicans want. We can make health reform work, despite right-wing efforts to undermine the program.
And we can raise the minimum wage.
First, a few facts. Although the national minimum wage was raised a few years ago, it’s still very low by historical standards, having consistently lagged behind both inflation and average wage levels. Who gets paid this low minimum? By and large, it’s the man or woman behind the cash register: almost 60 percent of U.S. minimum-wage workers are in either food service or sales. This means, by the way, that one argument often invoked against any attempt to raise wages — the threat of foreign competition — won’t wash here: Americans won’t drive to China to pick up their burgers and fries.
Still, even if international competition isn’t an issue, can we really help workers simply by legislating a higher wage? Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.
It’s important to understand how good this evidence is. Normally, economic analysis is handicapped by the absence of controlled experiments. For example, we can look at what happened to the U.S. economy after the Obama stimulus went into effect, but we can’t observe an alternative universe in which there was no stimulus, and compare the results.
When it comes to the minimum wage, however, we have a number of cases in which a state raised its own minimum wage while a neighboring state did not. If there were anything to the notion that minimum wage increases have big negative effects on employment, that result should show up in state-to-state comparisons. It doesn’t.
So a minimum-wage increase would help low-paid workers, with few adverse side effects. And we’re talking about a lot of people. Early this year the Economic Policy Institute estimated that an increase in the national minimum wage to $10.10 from its current $7.25 would benefit 30 million workers. Most would benefit directly, because they are currently earning less than $10.10 an hour, but others would benefit indirectly, because their pay is in effect pegged to the minimum — for example, fast-food store managers who are paid slightly (but only slightly) more than the workers they manage.
Now, many economists have a visceral dislike of anything that sounds like price-fixing, even if the evidence strongly indicates that it would have positive effects. Some of these skeptics oppose doing anything to help low-wage workers. Others argue that we should subsidize, not regulate — in particular, that we should expand the Earned Income Tax Credit (E.I.T.C.), an existing program that does indeed provide significant aid to low-income working families. And for the record, I’m all for an expanded E.I.T.C.
But there are, it turns out, good technical reasons to regard the minimum wage and the E.I.T.C. as complements — mutually supportive policies, not substitutes. Both should be increased. Unfortunately, given the political realities, there is no chance whatsoever that a bill increasing aid to the working poor would pass Congress.
An increase in the minimum wage, on the other hand, just might happen, thanks to overwhelming public support. This support doesn’t come just from Democrats or even independents; strong majorities of Republicans (57 percent) and self-identified conservatives (59 percent) favor an increase.
In short, raising the minimum wage would help many Americans, and might actually be politically possible. Let’s give it a try.
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 1, 2013
“Highlighting The GOP’s Worst Qualities”: For Democrats, Raising The Minimum Wage Is Good Policy, Better Politics
As Congress considers raising the minimum wage for the first time since 2009, Democrats have a golden political opportunity to pressure congressional Republicans on an issue that splits the GOP’s base — and highlights the GOP’s worst qualities.
The battle is currently being led by Senator Tom Harkin (D-IA) and Rep. George Miller (D-CA), who have crafted a bill that would raise the federal minimum wage to $10.10 per hour, up from the current level of $7.25. The bill, titled the Fair Minimum Wage Act of 2013, would immediately raise the minimum wage to $8.20 an hour, then to $9.15 an hour after one year, $10.10 an hour after two years, and tie it to the Consumer Price Index thereafter.
There is a litany of evidence backing up the value of such a proposal. The current minimum wage of $7.25 an hour has lagged far behind productivity growth over the past decades, and falls short of most living wage standards. A worker employed full-time at the current minimum wage would make $15,080 for a full 52-week year, 19 percent below the poverty line for a family of three. As over 100 economists agreed in a June 2013 letter supporting a $10.50 hourly minimum wage, raising the wage “will be an effective means of improving living standards for low-wage workers and their families and will help stabilize the economy. The costs to other groups in society will be modest and readily absorbed.”
Opponents of raising the minimum wage generally argue that such a policy would hurt job growth. “When you raise the price of employment, guess what happens? You get less of it,” House Speaker John Boehner (R-OH) declared in response to President Obama’s call to raise the minimum wage at his 2013 State of the Union address. Contrary to the Speaker’s claim, however, there is little to no evidence that modest increases in the minimum wage actually eliminate jobs.
As strong as the economic case for raising the minimum wage is, however, the political case is even more persuasive. The Harkin-Miller bill has almost no chance of becoming law during the 113th Congress; it will almost certainly be blocked in the Senate, and even if Democratic leadership can round up 60 votes, the bill stands no chance in the Republican-controlled House of Representatives. But the GOP could pay a steep price for killing the measure.
Americans strongly favor raising the minimum wage. According to a Hart Research Associates poll conducted in July, an overwhelming 80 percent of Americans support raising the minimum wage to $10.10, then adjusting it for the cost of living, as the Harkin-Miller plan proposes. The basic parameters of the bill are supported by 92 percent of Democrats, 80 percent of Independents, and even 62 percent of Republicans.
The poll also suggests that the issue could prove critical in the 2014 midterms. The Hart poll found that 74 percent of registered voters believe that raising the minimum wage in the next year should be an important priority for Congress, and 38 believe it is very important — 51 percent of registered voters would be more likely to support a candidate for Congress who favored raising the minimum wage to $10.10 an hour, while just 15 percent said they would be less likely. Furthermore, 37 percent believe that — should Congress fail to raise the minimum wage this year — Republicans would be to blame. Just 15 percent would blame the Democrats.
In the wake of the Republican Party’s disastrous government shutdown strategy, it finds itself in a very precarious political position — especially on the critical question of whether they are actually interested in what’s best for the country. A high-profile act of obstruction to block a minimum-wage hike — a raise that is supported by four-fifths of Americans, and almost two-thirds of Republicans — would surely compound that problem. If Democrats want to paint congressional Republicans as elitists who are out of step with the needs of average Americans, this is how they do it.
On Friday, the Obama administration signaled its support for the Harkin-Miller bill, and it would be wise to be very vocal about that position. If the White House throws its full weight behind congressional Democrats’ efforts, then the minimum wage could form the backbone of an effective economic pitch for the 2014 midterms.
By: Henry Decker, The National Memo, November 8, 2013
“Finally, Workers Are Fighting Back”: Low-Wage Employers Have Fought Hard to Keep Their Workers Poor
After decades of seeing their incomes shrink, those at the bottom of the economic ladder are starting to band together and fight back — and it’s one of the most important economic stories of our time.
Between 1973 and 2011, the top 10 percent of American households saw their inflation-adjusted incomes rise by almost $100,000, while the bottom 90 percent – the vast majority of us –actually saw their incomes drop by $4,425 per year, according to economists Emmanuel Saez and Thomas Piketty (XLS). During that time, pensions largely disappeared, and the costs of health care and education shot through the roof.
Today, we’re seeing those at the bottom of the economic pile — the 35 million Americans who make $10.55 per hour or less, representing more than a quarter of our workforce – starting to band together and fight back.
Low-wage workers are demanding a living wage (defined as the minimum required to cover basic necessities) and the ability to bargain collectively. Brief strikes by fast-food workers seeking $15 an hour, a campaign that’s brought together traditional labor unions with local community groups, are spreading across the country – last week, walk-outs reportedly occurred in 60 cities.
“The way that this movement has intertwined itself with community organizing has really helped it spread like wildfire,” says Greg Basta, deputy director of New York Communities for Change. “People are realizing that these low-wage jobs, at companies like McDonald’s, are doing serious damage to their community and to their local economy,” he said.
This week, Wal-mart workers and their supporters with the group Our Wal-mart are planning walk-outs in 15 cities, to protest the retail giant’s retaliation against workers who participated in last November’s Black Friday strikes.
But it’s not just companies like Wal-mart and McDonald’s paying their employees too little. According to a study by Demos, the federal government, indirectly, is the nation’s largest low-wage employer. A coalition called Good Jobs Nation began a campaign earlier this year urging President Obama to sign an executive order requiring federal contractors to pay their employees a living wage. With the stroke of a pen, Obama could lift the living standards of two million American workers.
These campaigns are filling a gap left by Congress, which hasn’t raised the federal minimum wage fast enough to keep up with the cost of living. Poverty wages represent a type of “market failure.” Like selling widgets for less than what it costs to make them, low-wage workers are selling their labor for less than what it costs to cover the basic necessities of life, which is why taxpayers end up subsidizing the profits of low-wage employers with various public benefits. “In today’s economy, the math simply doesn’t make sense,” says Basta. “If you’re paying workers between $10,000 and $18,000 a year, it’s impossible to live in a place like New York City without receiving public assistance.”
Greg Basta explains that before the fast-food workers campaign got underway, “people who were working low-wage jobs didn’t even think about the possibility of organizing or fighting for higher wages. They bought into the mentality that they’re not worthy of fighting back. They bought into the mainstream mentality that their jobs just aren’t ‘good jobs.’ And to see the evolution of these workers from being really fearful to now saying, ‘we’re fighting because this is the right thing to do’ – that transformation I’ve seen on the ground in the past year and a half is the most moving thing I’ve ever been a part of.”
There’s no particular reason why millions of service workers should be paid poverty wages. With the exception of occupations that require rare skills or lots of education, there’s often a loose correlation between what people are paid and how much value they offer to society.
For instance, manufacturing jobs pay decent wages, but not because operating machines in a factory requires some special magic. Over 10 percent of manufacturing workers were covered by a union contract last year, compared with around seven percent of private sector workers overall. And fewer than five percent of food preparation and serving related professions belonged to a union in 2012, according to the Bureau of Labor Statistics.
Throughout American labor history, people working what society viewed as inherently crappy jobs fought hard to make them decent jobs with a modicum of human dignity.
In the last century, the meatpacking industry provides a good case study. In 1906, Upton Sinclair’s The Jungle shocked the public when it exposed meatpacking as a dangerous, disgusting occupation that paid slave wages. Workers organized throughout the 1920s and 1930s – often facing violent retaliation – and in 1943, they formed the United Packinghouse Workers of America (UPWA), based in Chicago, where the country’s biggest livestock yards were located.
The occupation got safer. And for a few decades mid-century, it paid more or less the same as a good manufacturing job. But in the 1970s and 1980s, as corporate union-busting accelerated dramatically, meat processors moved their operations closer to cattle and swine lots as the industry shifted transport from rail to truck. Far from its original urban base, and with new high-speed cutting machines making the industry less labor-intensive, the UPWA had a harder time organizing, and the union was gradually decimated. Today meat processing is once again an industry that relies heavily on low-wage, migrant labor. According to a 2005 report by Human Rights Watch, it’s also the most dangerous manufacturing job in America.
Now, another group of low-wage workers who often toil in uncomfortable, under-regulated workplaces are fighting for some basic human dignity. Whether they succeed or fail is just as important for the middle class as it is for the working poor. Not only do rising wages at the bottom exert upward pressure on the earnings of people higher up on the ladder, but poverty and inequality also give rise to a host of social disorders that affect us all. Cheap fast-food ultimately comes with high hidden costs.
By: Joshua Holland, Moyers and Company, September 4, 2013
“Debunking The Myth”: Doable, Efficient, And Necessary, A Higher Minimum Wage Will Not Reduce Jobs
As fast-food workers strike across the nation, progressives must separate fact from fiction in order to secure a living minimum wage.
Fast-food workers are going on strike from New York to Seattle to demand higher wages, highlighting the never-ending controversy over the consequences of raising the minimum wage. Many news stories seem to suggest that economists have decided a higher minimum wage will cause job loss. However, with more analysis, we undercover the truth: there is no clear link between a higher minimum wage and reduced employment.
John Schmitt, a Senior Economist at the Center for Economic and Policy Research, reported in February 2013 that multiple meta-studies (studies that use statistical techniques to analyze a large number of separate studies) found that for both older and current studies alike, there is no statistical significance in the effect of an increased minimum wage. Put plainly, if the effect is not statistically significant, then there is no proven effect— increases in the minimum wage do not cause job loss.
Accordingly, a few weeks ago, over 100 economists at organizations ranging from the Center for American Progress to Boston University signed a petition in support of increasing the minimum wage. They present current research from well-established organizations such as the National Bureau of Economic Research that shows there are no negative employment effects from minimum wage increases. This includes the most comprehensive data available, based on the increasingly accurate testing that has occurred as more and more states increase minimum wage levels. Even more importantly, this recent series of studies uses cutting-edge econometric techniques to control for extraneous variables such as economic downturns and geographic effects. When economists do that, they find that minimum wage increases do not reduce employment.
Logically, this makes a lot of sense. A higher minimum wage is a win-win situation economically: Employees have more money to be consumers and are more productive, while businesses wind up reducing costs in the long run, since they won’t have to spend as much money hiring and training new workers (by analyzing data from five separate studies, economists representing the Political Economy Research Institute found that McDonald’s could easily make up for the costs of a higher minimum wage with a mere five-cent price increase on Big Macs). It’s just as Henry Ford realized—when he paid his workers more, they became part of his customer base, making his company even more profitable. Increasing the customer base and expanding customer pockets helps stimulate the entire economy, badly needed in the current recession.
So if we have no evidence linking high wages to job loss, our next question is: Are higher wages needed as a poverty reduction tool?
Currently, the 2013 federal poverty guidelines stipulate $23,550 for a family of four as poverty level. A $7.25 minimum wage currently nets the protesting fast-food workers $15,080 a year if the workers are lucky enough to work 40 hours a week. In a typical household with two parents and two children, parents who make $7.25 an hour earn far below the living wage of $13.55, according to an MIT wage calculator. The numbers become even starker when you separate out true living expenses: food, medical care, housing, transportation, and other needed expenses add up to a required $37,540 annual income before taxes, which is notably different from the poverty guidelines that the U.S. Department of Health & Human Services set. Even if the two parents worked 40 hours a week for 52 weeks, they would only earn $30,160 in total, significantly below the resources they need to live. Moreover, these estimates are only for a typical nuclear family. The struggle that single-income families, large families, or families living in high-cost cities go through is exponentially higher.
The buying power of the minimum wage has steadily been waning due to the effects of inflation for the past 40 years. When prices increase, a worker’s paycheck buys less and less. To put it in perspective, we look to another brief by John Schmitt: If minimum wage had continued to match productivity growth, it would have been $21.72 per hour in 2012. If we only adjust for the cost of living, a minimum wage pegged to inflation would be $10.52.
A huge bulk of evidence makes the case that increasing the minimum wage is a doable, efficient, and necessary change for the economy. This change needs to happen now. We as Americans have a moral obligation to make sure that other Americans who are working hard to support themselves and their families are able to make a living.
By: Emily Chong, The National Memo, August 8, 2013
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