Minimum Wage And The Real World

There is evidently a lively argument about who authored the much-quoted observation “It Ain’t What You Don’t Know That Gets You Into Trouble. It’s What You Know for Sure That Just Ain’t So.”

The quotation has been attributed to Mark Twain and Will Rogers, among others, but whatever the source and however folksy the articulation, it counts as real wisdom.

I thought about that very human tendency to cling to verities that “we know for sure” are so when I came across some recent research into the consequences of raising the minimum wage, because for a long time, I was convinced by the (very logical, very persuasive) argument that raising wages would depress job creation.

It turns out there was a logical fallacy in the formulation of the argument that, if employer  had to pay his current employees more, he would have less money available to hire additional workers. That actually would be true–all else being equal.  Those of us who accepted the formulation–including your truly–didn’t realize how much else wasn’t equal.

In the real world, putting more money in the pockets of people who don’t have much disposable income actually increases demand and boosts economic growth.

When something they’ve believed turns out to be wrong, reasonable people change their minds. There’s a difference, however, between ideology and a mistaken belief–ideology is stubborn. It rejects contrary evidence, no matter how convincing.

With respect to minimum wage rates, a number of previous, peer-reviewed academic studies have found little to no impact on hiring as states and municipalities have raised the  wage, casting doubt on the “wage hikes will kill jobs” mantra, but the number of states that have recently raised their minimum wage allowed these recent researchers to draw broader conclusions.

Eighteen states rang in 2019 with minimum wage increases — some that will ultimately rise as high as $15 an hour — and so far, opponents’ dire predictions of job losses have not come true.

What it means: The data paint a clear picture: Higher minimum wage requirements haven’t reduced hiring in low-wage industries or overall.

State of play: Opponents have long argued that raising the minimum wage will cause workers to lose their jobs and prompt fast food chains (and other stores) to raise prices. But job losses and price hikes haven’t been pronounced in the aftermath of a recent wave of city and state wage-boost laws.

And more economists are arguing that the link between minimum wage hikes and job losses was more hype than science.

What we’re hearing: “The minimum wage increase is not showing the detrimental effects people once would’ve predicted,” Diane Swonk, chief economist at international accounting firm Grant Thornton, tells Axios.

“A lot of what we’re seeing in politics is old economic ideology, not what economics is telling us today.”

The doom-and-gloom that opponents have predicted, “are part of the political policy debate,” Jeffrey Clemens, an economics professor at UC San Diego, tells Axios.

His research for the conservative American Enterprise Institute is often quoted in arguments against minimum wage increases.

But Clemens told Axios: “People will tend to make the most extreme argument that suits their policy preferences, and it’s not surprising if that ends up being out of whack with the way things unfold on the ground.”

As part of the study, researchers used Bureau of Labor Statistics data to compare the rate of  job growth in four states with low minimum wages against the rate in eight states with high minimum wages. All 12 states saw growth in restaurant, bar and hotel jobs.
Four states had job growth higher than the U.S. median, and three of them have raised their state’s minimum wage; three of the five states having the slowest job growth kept their wage at the federal minimum of $7.25 an hour.

The bottom line: Opposition to higher minimum wage laws is increasingly based in ideology and orthodoxy rather than real-world evidence, economists say.

The evidence says I used to believe something that just wasn’t so. Given that evidence, I don’t believe it any more.

That isn’t so hard, is it?

 

31 thoughts on “Minimum Wage And The Real World

  1. The truth is that businesses have grown accustom (addicted) to low labor costs over several decades. Pew notes that real (inflation adjusted) wages have only increased 3% over the last 40 years for the bottom 10th percentile. The Economic Policy Institute notes that in 2018 the minimum wage was worth 14.8% less in real term than in 2009 and 28.6% less than 1968 when it was at its peak.

    What this means is that over time, other expenses have increased for businesses (because they can). Expenses such as rent, marketing, executive salaries, technology, depreciation of building improvements, etc have all increased because the cost of labor hasn’t – or has actually decreased. Look at your typical McDonald’s: The physical restaurant is dramatically more sophisticated than 40 years ago. The interior is more designed, the technology is dramatically more sophisticated, the marketing is more extensive, etc. and this has happened because the front-line labor expense has gone down in real terms.

    These changes took place gradually for most businesses – again over decades.

    An increase in the minimum wage could, indeed, result in some reduction of labor (all things being the same). However, what is more likely is that it will result in a re-prioritizing of expenses over time for businesses.

  2. Excellent piece today. When I researched my books, I found the same numbers. I also found that these anti-minimum wage memes were floated by, among others, Reagan/Regan Republicans who embraced the draconian, ultra-capitalistic ideology of Milton Friedman and Friedrich Hayak. Ayn Rand was the writer of fiction that cemented that ideology in susceptible white males like Paul Ryan.

    Why these college educated white males never asked the question: “What happens when more people have more disposable income?” is beyond understanding …. unless one understands what the cult mentality is that affects Republican “thinking”.

  3. If you’re making minimum wage in a universe of 3.5% unemployment, maybe you’re the problem, not the employer.

  4. A couple of comments. the quote about “what you know that ain’t so,” was used by Finley Peter Dunne, a newspaper columnist in Chicago about 100 years ago. He wrote a series of columns about “Mr. Dooley,” an Irish bartender who made a lot of such comments.

    And the last comment, about the effect of minimum wage on the economy. I came across an interesting comment while reading about Karl Marx recently. The author said that Marx used “ideology” to refer to “mythifications” that are convenient for the ruling classes.

  5. Abdul-Hakim Shabazz; please explain your comment. I for one like specific information rather than one-sided statements placing blame on the victims.

  6. Abdul-Hakim Shabazz,

    I understand your point, but I think that view is pretty disconnected from reality.
    To start with, 3.5% unemployment is a very recent thing – not nearly long enough to raise wages- even to 2009 levels (adjusted for inflation). What’s more, for certain populations (for example young black males) it’s much higher than 3.5%.

    And although the minimum wage is an issue – it’s not the only issue. The $11 an hour and random hours (so you can’t get a second job, or plan for child care, or have a life) is also a real problem. It’s why we have people who are working – full time even – but can’t afford groceries.

    And I get that low wages are the labor market’s way of saying, “we don’t need more low-skilled workers”. However, you can’t argue with the fact that real wages for the past 40 years have barely budged for almost all workers except the top percentile.

    The reality is, Abdul, perhaps your “blame the worker” attitude instead of looking at the facts is “the real problem”.

    https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/

  7. Blaming those at the bottom of the wage scale is regrettable. There is significant concentration on the employer side (monopsony) which acts to decrease wages and there are common employment practices (non-compete and non-poaching employment clauses) that drive down wages at all pay levels.

  8. The minimum wage lie isn’t the only one we’ve consistently had to deal with from conservatives. Ladies and gentlemen, I give you “trickle down economics”. The only thing trickling down is the load of BS we’ve gotten from the likes of Milton Friedman and the other supply siders who have nearly ruined our economy on more than one occasion.

  9. David K,

    I agree completely. Recently some of the non-poaching clauses have been determined to be anti-competitive, but it still goes on. And the non-compete clauses for low-level employees is ridiculous. And how many low wage workers are going to go to court to battle a non-compete clause?

    But to Abdul’s point – It’s not just low-skilled workers that have this issue. Wage stagnation has moved up the education / skill scale as more people have “skilled -up”.
    We have seen a massive “Red for Ed” movement because of the low pay for teachers. The job prospect for Architects hasn’t looked great for a while – and law schools are minting attorneys with very expensive law degrees (and student loans) only to discover that the pay / job prospects are not what they thought. Likewise for journalist, media, creative content, and many other skilled professions.

  10. Abdul Hakim Shabazz,

    Minimum wage might’ve been useful when high school students were working summers and afterschool jobs, but now, that is not the reality! When you have corporations that have taken their corporate welfare tax cuts gratefully, when you have large companies like FedEx paying 0 taxes, when they are buying their stock back instead of paying employees more, when they are not sharing the wealth with their workers, that’s the real world.

    When you have individuals that are able to have a certain amount of discretionary spending, they can purchase electronics and automobiles (used) afford more rent for better housing, maybe entertainment, maybe clothing, maybe healthcare, maybe medicine, although, making more money puts the disenfranchised at risk of not being eligible for some of the social programs. And, I would imagine it’s a wash for some.

    These so-called entry-level wages for entry-level positions, are not filled by high school students anymore, they are filled by adults with families. They are immigrants, they are mothers who are working more than one job to take care of their children. They are folks living in communities where there are no other options, this is no fault of their own.

    When you have a minority constantly working against the disenfranchised, and convincing some of those disenfranchised to fight against their own best interests, this minority is doing a disservice to American citizens. By constantly throwing a wrench into the gearbox of; healthcare, affordable housing, nutrition, higher education, public education, the social safety net, people become so concerned about living the next day that they don’t even notice politics. That is by design! The minority disguising themselves as Angels of light to mislead and keep down the most vulnerable of our society.

    POTUS said he loves stupid people, but POTUS loves desperate people, not stupid! POTUS and his group are the fox in the hen house. They will always fight against the greater good to promote their own well-being! So, Mr. Shabazz, are you indicting a large swath of disenfranchised Americans as being the problem? Because from what I see, they want to keep this large swaths of American citizens as disenfranchised as possible, cutting them out of our civic system is much as possible. They do this so they can keep power and bide their time. And, it’s worked, because now we have OUR (yuck) incredibly intelligent and physically fit, amazingly presidential, militarily heroic, morally gifted (LOL) entrepreneurial genius, who is so brain-dead, he’s destroying the governmental infrastructure as our overlord MUSCOVIAN CANDIDATE.

    So, how does it feel to be parroting ignorance Mr. Shabazz? How does it feel to have so little empathy for your fellow citizens? How does it feel to stand up for grift and graft?

  11. If we were raising the minimum wage from $16.50 to $17.50, there would be some job loss. But we are so far away from the minimum wage being meaningful to any economic class other than the under 20 crowd that we could probably jump it nearly $5.00 before seeing any impact. Roughly speaking, of course.

  12. Abdul is a Koch-ideologue in Indiana.

    For one, we all know that both the employment and unemployment figures aren’t factual and don’t account for reality. Same argument we had the other day about GDP.

    If labor were also a market, real wages would have been going up as the labor market tightens, but guess what?

    The Walton Family worth $200 billion cannot afford to pay employees a wage that lifts their associates out of poverty. Do the employees get double time for working Holidays?

    No, Walmart provides discounts for employees working Holidays to be used at their grocery, under specific conditions.

    Let’s also look at CEO salary growth over the past three decades compared to employee wage growth. Embarrassing!!

    How about dividend and stock market growth over the past three decades?

    Ahh, we start to get a picture of reality under the “market capitalist” system, which has produced the highest income and wealth inequality we’ve realized since the last Gilded Age period.

    Abdul applauds our Republican (Koch-owned) legislature but steps away from the table when the reality is discussed, especially when it comes to why Indiana suffers year after year with the mass exodus of college-educated youth (brain drain).

    Indiana is quickly approaching 50% of the workforce, barely making it from one paycheck to the next. Music to the ears of CEOs and stockholders.

  13. TLentych,

    I don’t completely agree with your statement. The truth is that raising the minimum wage tends to have a ripple effect at the lower wage levels.

    Again, according to the Economic Policy Institute, if the minimum wage was indexed to inflation since 1968 it would be about $10.15 an hour. If the minimum wage reflected productivity gains it would be over $22 an hour (that’s theoretically how much it could be without being inflationary). I haven’t digested all of their info – but I question if that takes into account the inflationary impact on wages up-stream as well as total compensation (while wages have been stagnate, benefits, esp health insurance, have exceeded inflation).

    All that said, I believe that $11 an hour (1968 level) should be a no-brainer and a phased-in $15 an hour minimum wage is probably very reasonable based on productivity gains in the last 40 years. At that point, some combination of wages, health insurance and retirement should be indexed to inflation.

    https://www.epi.org/publication/charting-wage-stagnation/

  14. you can have all the talk about the dow,low unemployment,gdp,etc,fact,the wages are frozen,they are given to investors,shareholders,and ceos.we have no economic growth,in the working class,its all a fantasy,today its called credit…thats our wage growth,working for a bank..seems UKs healthcare is in american healthcare sights..who wants to pay for health insurance when you have a free healthcare via the nations goverment? seems boris johnson has been in talks with major american insurance companies,to have a trade pact with UK if brexit happens..its all been secret,until Corbyn is sent a copy of the trade talks,he was unaware of.. now, lets see how this plays out,the insurance use of media to convince people to pay for something they get for free,and how much they believe the propaganda. no matter how you see it, these big corps will never have enough clout,and money,to satisfy the reason,power..no one in years has mentioned one item,wages and the working class being stepped on …its all tax cuts and giveaways to the rich,investors,or people like trumps buddies. now to make a pact in order for the UK to trade with us,as agreement,we interfer with their healthcare. murdock must be pissing his pants with glee over the chance to again slant the news for corporate needs.. if we can see that every turn these unregulated entities keep taking from our pockets..they have shown the cards, why do we just accept this?

  15. mr shabazz thinks everyone should be making a great wage,and if they are not,they are the problem? but,alas,someones gotta haul his trash,and gets paid to do it..why not give them a living wage,or,cut the profit margin off his stocks and investments,to aquire that living wage,for your trash hauler?.so,mr shabazz,,,,how many living wage jobs did you create today?

  16. John Sorg, hit the nail on the head, “Minimum wage might’ve been useful when high school students were working summers and after school jobs, but now, that is not the reality!”

    Back in 1965, I was one of those after school minimum wage employees. Back then we could go to low skill work in a factory, making over double the minimum wage after High School. At some point you might be trained for semi-skilled, or a skilled trade. Employers today try all sorts of subterfuges, part-time employees to avoid providing benefits.

    Like Health Care in the USA, access to a higher education is governed by affordability. Oh yes, you can always go into debt.

  17. It isn’t only CEOs who are getting ridiculously high pay. A year ago I found on a public information website a list of Lilly executives indexed according to pay. The list on my monitor exceeded nine pages of single-spaced line entries before anyone on the list made LESS than $1 million, excluding bonuses and stock options. Maybe I found the answer to Where does all this money come from, a question I wonder about every time I drive past a thousand mansions in gated and waterfront communities.

  18. We in the last stages of 2019 are celebrating (?) ten years of no movement in the minimum wage of $7.25 per hour. I invite all to look at the Dow ten years ago and the Dow today. Much of the enormous raise in the Dow is to be found in the stolen wages this last decade.

    As to economics, 70% of the economy is based on consumer demand and aggregate demand is a major component if not the sole arbiter of economic growth, not tax cuts, competition-destroying tariffs etc. I have been a Keynesian since college days leading to a degree in economics prior to law school, and the proof of the pudding is to be found in aggregate demand and aggregate demand is subject to wage growth and inflation.

    I have come to conclude that the rich and corporate class with their slave wage instincts are not only in this game for money but also for power over people that comes with the great but unshared income and wealth our economy produces. The irony is that with a doubling of wages would come such brisk aggregate demand that the economy would boom which in turn would make both the rich and the poor richer, hence my view that power as well as an untaxable accumulation of assets is involved. In Germany and elsewhere there is union representation on corporate boards by statute. If we tried that here we would hear the WSJ scream communist and other such propaganda though, uh, has Germany and others become communist? Ask Merkel. My Keynesian view > A fair share of our economy’s income and wealth devoted to wage earners would make for the holy grail of economic growth to the benefit of rich and poor alike given that the huge jump in disposable income would result in an aggregate demand which would increase economic growth, keep our non-WSJ economists happy and, incidentally, greatly increase government revenues for such things as healthcare, infrastructure, environmental problems etc., as in, when everyone makes more money everyone makes more money. (No, not a misprint). . . .

  19. My opinion of Mr Shabazz has dropped somewhat after his comments, but it seems many others are on the mark. There is an element of corporate greed; for small businesses, fear; and for the under employed, struggles.

    There is a growing body of evidence that even in heavily populated areas with sharp borders between higher minimum wages, the effect is mainly positive. Here is a recent article from the NY-Times:

    https://www.nytimes.com/2019/11/13/business/economy/minimum-wage-new-york-pennsylvania.html

  20. “If you buy a roll of toilet paper for 99¢, you’re paying an insanely inflated price – if you’ve got $25 and can get a multi-pack, you’re buying it at 19¢ a roll. And that same economy of scale applies to everything else.”

    The “middle-class poor” don’t have $400 in the bank for emergencies. But they do have access to $50,000 on a credit card, so they can be tempted to keep up appearances.” US household cc debt now over $1 T.

  21. A lively set of comments. Perhaps not related to the subject, but to the fact that so many are not at work today.
    The personal attacks on Abdul are unwarranted. It’s a pity to infect Sheila’s blog with Trump-like speech. No one I know exceeds her in civility and those who comment here should respect her in this space.
    As for the substance of this topic, much of the economics preached in America is religious in nature and abstracted from reality for the instruction of fresh[wo]men. It’s like conducting experiments in a vacuum, knowing that vacuum are rare in nature.

    Increasing minimum wages probably does not increase job growth through a mystical mechanism dependent on the hypothesized marginal propensity of poor people to consume vs that of their richer neighbors. Faster growth in the demand for workers is probably why those places raising the minimum wage showed job growth compared with those that did not grow rapidly. But that is too simple an explanation to gather any headlines. Increased minimum wages, I suggest, have little to do with economic advances for the community at large.

    Put differently, “A rising tide lifts all boats,” even those with serious leaks. A boat that has the advantage of being sound to begin with, will get the full advantage of the rising tide. Poor boat owners can not afford to maintain their boats as well as those who are already proprous. If we focus more on securing the seaworthiness of the boats, the poor will be able to benefit more from the rising tide.

  22. I apologize for the instances above where the verbs do not agree with nouns. But, since few might notice, it seems like pure egotism on my part to mention it.

  23. Kurt,

    I don’t disagree with you. I was carelessly associating the under 20 crowd with the lower wage crowd. In my mind, early this morning that seemed to make sense but I concede that my statement was overly broad and imprecise. My simple point was that the wage stagnation at the lower end of the wage stagnation gives us plenty of room to adjust BUT had this kept pace (at any level), the old economic theorems may have held true with some aggressive adjustment. Truth be told, I have never favored a national minimum wage. I think it should be regional. We should be able to produce such a wage chart.

  24. When businesses are successful they make choices about what to do with the proceeds. They can reward those who are regarded as executives, they can reward labor, or owners of the means of production, they can invest in product/process development, or capacity if the future looks even brighter, they can pay down debt, all of those of course only after their bills for the current year have been paid.

    Today Trump is having a loss leader sale on the government infrastructure that all corporations benefit from by have future consumers pay a hefty share of business taxes.

    The investment industry has convinced executives by giving them huge pay incentives to also lavishly reward owners of the means of investment resulting in what seems to be unlimited market index levels.

    Labor, in the absence of the ability to squeak as a wheel gets, as farmers say, hind tit. That’s what’s left over after everyone else is full.

    Because we’ve become too lazy to self govern we whine a little but those who govern really suffer no accountability for under representing their biggest vote constituency, labor, at the expense of their biggest donor constituency, business.

    We get what we work for. Can we change in 2020?

  25. We thinking people are all worried about the lack of increase in minimum wage for so many years for so many hard working people. Consider the fact that Trump is contemplating…well thinking about, he is unable to contemplate…cutting Social Security by $26 BILLION. People receiving SS and Disability continue paying for Medicare, we pay the same amount for food, gas, utilities, prescriptions, paper products, personal care items, etc., that those with minimum wage and higher paying jobs pay but many of us don’t receive minimum wage amounts. I added my SS check and my retirement check amounts monthly; then figured my income working a 40 hour week, I am “making” $6.64 an hour and feel fortunate to be getting that. Many I know receive lower SS check amounts and no retirement to supplement their income; this is our “real world” and we see the benefits across the board to increase minimum wage. More money for working people to spend, even on necessities, gives us a better chance of receiving a COLA yearly; we never know till December IF and IF our Medicare premium has been raised again while our benefits have been cut. This is our “real world” as our health declines and our needs increase.

    Thank you, Gerald, for your always on point observations. I asked Abdul a question which he has not yet responded to; those who disagreed with him were not necessarily personal attacks as much as personal observations strongly in disagreement. “These are the times that try men’s souls.”…and women’s. We are all testy and on edge as we are living in a world we have never seen before or have personal experience dealing with the issues of today; and Trump always provides us with a new “today is the tomorrow we dreaded yesterday”, and it is another Friday.

  26. And OT, but maybe not: digbysblog.blogspot.com/2019/11/fail-that-must-not-be-named-by.html by Tom Sullivan.

  27. One of our contributors today suggested a regional minimum wage arrangement and I am all in favor of such an arrangement so long as the regional wage was at or above one established federally. Given rents and other costs of living in Silicon Valley vs. rural Nebraska as a for instance argument can be made for regional minimum wage laws or even with county and/or municipal ordinances with the differential justified by the enormous difference in living costs. Some statistical whiz (which I am not) could come up with a formula that would take such differences into account since ten dollars an hour in rural Omaha is a poverty wage in San Jose.

  28. Monotonous Languor

    Thank you! I’ve noticed, a commentor who brought up the inflationary finger on the scale, but if anyone was waiting for corporations to do the right thing, it wouldn’t happen, ever. Corporate CEOs however, definitely have their financial piracy adjusted way above the inflationary rate. Some actually make more than all their employees wages and benefits combined. For what? They can’t be intellectual wizards, our POTUS proved that. It’s just part of that good old boy network, they tend to recycle themselves all over the place until they can take advantage of their golden parachute. It’s nice to have the crumbs swept off the table, that is, if you’re a rodent.

    FedEx, and numerous other corporations pay 0 taxes, but those of us who are disabled, or the elderly, get taxed off of our property! And if you’re fortunate enough to have something you’ve worked for your entire life, they take away some of your tax deductions on property taxes. This was done to stick it to the liberal/metropolitan parts of the country, it must be nice for the GOP to be that vindictive. All it took was the activation additive (Trump) and they were off and running. They have revealed their true desires and selves, they can’t hide it anymore.

  29. Like Mr. Marcus, I don’t have much confidence that a higher minimum wage, by itself, is going to increase a demand for labor. Beyond that, I disagree with his post – including the premise that we have been uncivil.

    The problem with his “rising tides lift all boats” argument is glaringly obvious to most of us:
    It hasn’t actually happened in the past 40 years.

    Minimum wage earners have lost purchasing power over 50 years. Everyone making the median wage or less have seen real wages increase only about 3% total in the last 40 years. Nobody except the highest wage earners have participated in the productivity gains of the last 40 years – including the huge advances in productivity due to technology (which is really stunning).

    https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/

    Mr Marcus, we may not have noticed when your verbs disagree, but we certainly notice when we are being talked down to. “Economics preached in a vacuum” indeed.

  30. Many, many kudos to Mr. Marcus regarding the tone of comments on this blog. We live in such a hyper-divided culture that I have had to do such “callouts” on Linked In!

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