A while back I agreed to comment on a New York Times editorial advocating a rise in the minimum wage. (The editorial, entitled The Clear Benefits of a Higher Wage, is here.)
The brief editorial’s main point is that a minimum-wage increase cannot be reliably expected to cause enough of an increase in unemployment to offset its benefits. In this earlier post, I took a look at the effect of historical minimum-wage rates on unemployment, and in my (admittedly cursory) survey of the data, was indeed unable to see any persuasive correlation. That said, however, this surely must depend on how high the minimum wage is set; if it were to be raised to $100 an hour, obviously a great many employers would go out of business, and a great many jobs would be lost. It may well be the case, though, that a minimum-wage rise of the amount currently proposed — to $10.10 an hour from $7.50 — might strike a tolerable balance in terms of jobs lost vs. more money for those not fired. As the minimum wage rises, however, and technology gets better and cheaper, the threshold at which automation becomes more attractive than human employees will naturally become lower — especially given the ever-increasing incidental cost and bureaucratic burden of hiring human workers. It will be more and more likely that this is what a ten-dollar-an-hour fast-food employee looks like.
A common criticism of minimum-wage increases as a means to assist poor families is that many of the people who earn minimum wage are not adults supporting such families, but teenagers or other members of families that are well above the poverty line (or both). The Times asserts that 90% of minimum-wage workers are over 20 years old, but according to the Bureau of Labor Statistics, this is simply false: the BLS puts the number under 20 at 30.9%, and the number under 25 at 55%. Meanwhile, according to the Congressional Budget Office, only 19% of minimum-wage earners have family incomes below the poverty level. The Times, understandably, doesn’t even comment on this.
We should note also that a great many of the nation’s poor are chronically unemployed; a policy that seeks to ameliorate poverty by raising the minimum wage obviously won’t help these people at all. Indeed, if anything it will hinder them, because it will make entry-level work that much harder to get.
Another consideration is that most minimum-wage jobs are entry-level, temporary positions. Most people earning the minimum wage — the estimates I’ve found are generally around two-thirds — are earning more a year later. But while individuals with minimum-wage jobs tend to move fairly quickly off the bottom rung, minimum-wage increases impose a permanent increase to employers in the cost of staffing these positions.
This brings us to the conservative’s principal objection to minimum-wage policy as a means of addressing poverty: it takes a public problem — the existence of the poor — and uses the compulsory power of law to foist it off onto an arbitrarily selected subset of the private sector. It’s a way for politicians to offer magnanimous sound-bites — “Give America a raise!” — while doing little except bossing private citizens around, interfering with the natural equilibria of labor markets, and placing yet another burden on employers, a burden that, as with all government regulation, falls hardest on small businesses.
Conservatives find this sort of thinking, always in evidence on the Left, particularly offensive. Winston Churchill once summed it up this way:
Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon.
It isn’t, after all, as if the public sector doesn’t have other effective solutions available; as the Washington Post argues here, addressing the problem through the Earned Income Tax Credit is both more effective at getting the results we want, and has the moral advantage of solving a public problem with public money. (At the very least, it would be a blessing to the half-million people who, by the CBO’s estimate, would be out of work as a result of the proposed minimum-wage rise.)
A further disadvantage of minimum-wage increases is that businesses will do what they can to pass along cost increases to their customers, which can cause a general price inflation. Worse, because so many minimum-wage jobs are in local service-industry businesses, particularly groceries and fast-food restaurants, such price increases are naturally borne in large part by members of the same low-income community that the wage increases are intended to help.
Although it is something of a digression, I also think it would be remiss to discuss the minimum wage without touching on its dark origins in the Progressive ideology that prevailed in the first part of the 20th century. The original aim of minimum-wage laws was not to lift the lowest stratum of the underclass out of poverty; it was to starve them out of existence. The idea was simple enough: one might hire a man of the lowest order for the most menial job at a pittance, and so enable him to scratch out a meager existence, but one that was livable by his rock-bottom standards; in doing so, you enabled the propagation of the least fit, to the detriment of society as a whole. E.A. Ross, a prominent Progressive intellectual and eugenicist (the two were generally synonymous), wrote that “the Coolie cannot outdo the American, but he can underlive him.’ The idea of the minimum wage, as understood by the forward-looking intellectuals of the era, was simple enough: nobody, given the choice of hiring a superior or an inferior man for the same wage, would choose the latter, and so the least fit would gradually fade away. (Much the same logic was behind the Progressive crusade for freely available contraception among the lower classes; it was conceived, for want of a better word, as a way to lower the birthrate among the ‘unfit’.) A 1986 working paper by the CBO also acknowledges this effect, saying that the minimum wage will tend to cause employers to hire more experienced adults if they can no longer get teenagers at a discount, thereby depressing employment prospects for young people.
Finally, I have to say that the whole debate about a minimum-wage increase, and about how best to improve the prospects of low-skilled workers in America, seems a bit surreal when we seem resolutely committed to importing millions of bottom-rung immigrants every year. It seems almost childishly obvious that the very first thing we ought to do to improve the prospects for low-wage Americans is to turn off the spigot of cheap imported labor. Such is the power, however, of the unholy alliance between Republican business interests seeking the cheapest possible workforce, and Democrats seeking new voters and new clients for public services, that the prospects for American workers seeking to rise into the middle class are very bad indeed — and are going to stay that way, regardless of what happens to the minimum wage.
11 Comments
As the concept of a minimum-wage law is at best problematic, Benjamin Franklin intuited that a maximum-wage law for a salaried bureaucracy would finess a much greater problem for our society.
“Where have you gone
Joe DiMaggioBen Franklin?”Uh oh. Having arrived at the end of your next to last paragraph I thought the better of, my not bothering at all to comment.
Then, on to the last.
Malcolm ol’ Hoss? Your suggestion that the Republicans and the Democrats are in cahoots (at all) is definitely gonna get the attention of “we know who.”
Now me, good public minded citizen and all, feels the need to perform my ‘for the General Welfare’ duty
Stand By For Incoming!
It’s a fair point, given that the Republicans still aren’t on-board en bloc, prompting Chuck Schumer to make this audacious threat — which amounts to “give us what we demand or the Executive will simply stop enforcing the nation’s laws.”
The fact is that the Right is far less monolithic than the Left, and immigration is a particularly divisive issue within the GOP, pitting “nationalist conservatives” like Jeff Sessions, who have strong support with the populist base and patriot groups like the Tea Party, against pro-amnesty squishes like John McCain. There’s a lot of money in play here from major business interests, but also a rising tide of anger in opposition to them.
“Patriot groups like the Tea Party?” Does that mean that people who agree with the Tea Party ideology are more patriotic than those who don’t?
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Your first objection to raising the minimum wage is solved by a two-tier system, where new entrants to the work force have a lower minimum wage than others. My daughter works after school at a local retailer for minimum wage. This gives her work experience and pin money. She is in a different situation — and hence should be treated differently — than someone who has to make a living at a low wage job.
While it is true that “minimum-wage increases impose a permanent increase to employers in the cost of staffing these positions,” this cost is passed along to consumers like other costs, such as rising prices of commodities, rent, electricity, and so forth. These consumers are not “an arbitrarily selected subset,” as they are the ones who do business with these employers. Your preferred solution is the EITC, which “has the moral advantage of solving a public problem with public money.” I never eat fast food — why should I subsidize fast food restaurants by providing tax credits so they can underpay their workers? Why is this more moral than letting people who eat baconchilicheeseburgers pay for the labor required to put bacon, chili, and cheese on a burger? (Which begs the question of how you pay for the incremental cost of higher EITC levels, and why the reduction in those payments due to a higher minimum wage is not sufficient justification for increasing it).
Your assertion that “all government regulation … falls hardest on small businesses” would be quickly disputed by Con Ed, DuPont, Merck, General Motors, and many other very large businesses which operate in heavily regulated industries.
The “equilibria of the markets” are upset for many good reasons. That is why we don’t have child labor, companies making unsafe products, workers working in unsafe factories, and so forth: the societal interest in protecting children, consumers, and workers trumps laissez-faire capitalism. As with any public policy issue, there are trade-offs which create winners and losers. In my view, the winners (i.e., the 24 million people who get higher wages and the tax-payers who have lower costs for safety net programs) win more than the losers lose, and hence it is justifiable to raise the minimum wage so that it is within its historical range in real terms.
Oh, let’s not argue about this. What’s the point?
That’s certainly better. One could imagine an even more fine-grained approach, with, say, hundreds of different levels, perhaps a penny apart, to be determined by negotiations between employees and prospective hires…
Right, but those costs are organically determined by the market. The cost of wage floors, on the other hand, is imposed by fiat, and only affects those sorts of businesses that happen to use low-skilled labor. (By a startling coincidence, those businesses don’t usually include Washington law firms, lobbyists, etc.)
As citizens, we pay for all sorts of things we never use. Once something is determined to be such a general public interest that it rises to the level of the federal government to provide for it, it should be paid for out of the public fisc — not by foisting the cost onto a random assortment of private businesses.
They already DO pay for the labor required.
From the federal budget, and not by a compulsion on private employers.
Come on, Peter. The cost of compliance with government regulation is, in relative terms, far cheaper on the scale at which these huge companies operate. There are fixed costs of compliance — legal costs, mechanical costs — that a DuPont, which has a dedicated legal team and immense resources, can bear, but which are often enough to sink a small company that’s barely getting by (or even to keep it from getting started in the first place). It’s one thing to take on a ton of extra weight when you’re a supertanker; it’s quite another when you’re a canoe. This is elementary stuff, and you know it perfectly well.
As for the rest of your comment: reasonable people can and do disagree about the minimum wage. You asked me to marshal the arguments against it, and I have. I certainly didn’t expect to change your mind.
In-N-Out Burger is fast food. The one eyed man eats In-N-Out Burgers. Hence, the one eyed man is a liar.
My daughter likes In-N-Out Burger, and I would take her there before she got her car. When she got her car, I told her that getting your first set of wheels was a rite of passage (she thought I said it was a right of passage, as though it is the right of every seventeen year old to own a car). Fatherly love trumps lipid counts every time. That was quite some time ago, and I haven’t been back to In-N-Out Burger since (much as I would like to.)
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1) I find it grossly offensive when Tea Party groups wrap themselves in concepts like patriotism, liberty, and freedom, as though groups with opposing ideologies have any less devotion to country, liberty, and freedom.
2) I do not have a problem with wage floors being set by fiat. If a society values labor, then it has the right to set a minimum level for it. The state also has the right to put its thumb on the scale to mitigate the enormous advantage which capital has over labor, especially when menial and low-level jobs are involved.
3) Building and maintaining highways “rises to the level of the federal government to provide for it,” but it is not paid out of the public fisc, as it is (mostly) paid for by the gas tax, so those who use the roads pay for them. The air traffic control system is paid for largely by the tax fliers pay for their plane tickets. People who camp at national parks pay a fee to do so. The same principle should apply to burger eaters: whenever feasible, it is preferable to have those who use a service pay for its cost.
4) If you want to pay increased EITC costs from the federal budget, you must either raise taxes or increase deficit spending. Both options are non-starters in the current political environment. So in practical terms, you have two options: raise the minimum wage or do nothing.
5) I am in a heavily regulated industry. I have a compliance lawyer, keep detailed records, and file regulatory forms every year as required. It is part of the cost of doing business, but the benefits of regulation make the time and expense well worth it. Because I manage other people’s money, it is easier to build a client base when investors know that their advisor is prohibited from making misleading claims, buying inappropriate investments, or taking custody of their funds. Ditto for other small businesses: because there is a Board of Health, you can be confident that your take-out order of General Tso’s Chicken isn’t sweet and sour tabby. The notion that regulation is a job-killer or a business-killer is often asserted but never proven. Nor is it necessarily true that the burden is greater on small businesses than larger ones: DuPont may have immense resources, but the compliance costs for a chemical company are commensurate with its size.
1) Geez, I feel terrible.
2) You’re entitled to your opinion.
3) This is an argument for a hamburger tax. No wait, it isn’t, because while it’s the government that builds roads and parks, then charges a tax or a fee for their use, it isn’t the one making those hamburgers (in this case, the government simply wants to see to it that a small, oddly defined subset of the population has more money, and to achieve that end, intends to force some private citizens to give it to them). So this isn’t really an argument at all.
4) A fair point. You’ve convinced me. Let’s do nothing.
5) This, for starters.
Quite some time ago does not never make. The inconvenient truth is that one-eye’s pants are on fire.
See also this.
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