Tag Archives: minimum wage

Repeating My Mantra…

People who have read this blog for any length of time are familiar with some of my preoccupations–civic literacy and civics education, climate change, competent governance, and job creation. (Admittedly, I have a lot of “hot buttons”…)

I have been fairly consistent in my approach to most of these issues over the years, but I’ve changed my tune when it comes to growing the economy and creating jobs. I used to be persuaded by the argument that significant raises in the minimum wage would lead to job losses–it seemed logical that forcing a business to pay more to worker A would leave that business with fewer dollars with which to hire worker B. What I didn’t understand was the unspoken caveat: all things being equal. In the real world, it turns out that all things aren’t equal.

What the real world evidence shows is that paying workers a living wage–and thus providing them with a modicum of disposable income–is what creates jobs. As I now understand, demand is what creates jobs, not the beneficence of the factory owner. The guy who owns the widget factory isn’t going to hire more workers to make widgets if no one has the money to buy them.

A recent article in The Week emphasized the point

For many years, rich oligarchs have posed as the engines of the economy — the entrepreneurs whose beneficence and wise decisions create economic prosperity. In a 2019 article for Fox News, Sally Pipes, president of the right-wing Pacific Research Institute, called for Americans to “celebrate America’s job creators” during Labor Day. “Let’s honor the people responsible for that grandeur — namely, the profit-seeking entrepreneurs and business people who make our economy hum,” she wrote.

This is bunk. The real engine of the economy is the dollars in the pocket of the humble average citizen.

The article goes further, however. Most economists now recognize that putting additional money in the hands of workers stimulates demand, but they tend to think of that demand in the context of a fixed economic capacity–as a mechanism for getting to full employment in existing factories and other enterprises.

In reality, as Skanda Amarnath and Alex Williams argue at Employ America, spending also affects overall capacity. A factory, for instance, is not some immortal thing — at a minimum, it must be continually maintained because of entropy and ordinary wear and tear on equipment. To remain competitive, it must be regularly upgraded with the latest production technologies. But businesses will logically invest in new capacity only if they see a market for the goods and services that capacity would produce. This is especially true with respect to high-tech manufacturing investment, which is very complex and expensive — taking over half a decade to pay off.

Amarnath and Williams argue that slack demand afflicted America’s economy well before the 2008 recession, and that it is only surging again now because of the huge boom in sales of computer products–a boom generated by two things; the pandemic surge in working from home, and government transfers to individuals, also due to the pandemic.

All of the available evidence confirms that giving poorer people more money generates economic growth. When you give rich people more money–through Republican policies like deregulation, union busting and especially the numerous, generous tax cuts so dear to GOP hearts–they disproportionately save it, rather than spending it and boosting the economy.

As the article says, cash in the pockets of the working poor isn’t just good in in a humanitarian sense (giving people money they need to live.) It’s good because spending those dollars is what will keep businesses humming, investment high, and the economy healthy.

 

How To “Gentrify”

Urban planners’ debates about gentrification have been going on for many years. How does a well-meaning local government encourage neighborhood improvement without inadvertently pricing longtime residents out?

If you are reading this in hopes that I have a suggested solution to that dilemma, you’re in the wrong place, although there are certainly some intriguing theories floating about. But there is one approach to upgrading deteriorating neighborhoods that I enthusiastically support. It’s an insight I owe to my husband, from his years as Indianapolis’ Director of Metropolitan Development.

The typical downward trajectory of lower-middle and working class neighborhoods starts with a lack of visible maintenance–houses with peeling paint, unkempt yards, perhaps even broken windows. Lack of maintenance is evidence that leads many disapproving observers to conclude that “those people” just don’t care. My husband’s conclusion was rather different: “those people” were   applying their inadequate incomes to “frivolities” like food, utilities and transportation to work.

What would those neighborhoods look like if we raised the minimum wage to $15/hour? What if desperately poor people, or those on the cusp of poverty, had some disposable income?

There is an often-overlooked connection between economic health and neighborhood revitalization. Regular readers of this blog have read my rants about job creation before, and are aware of my absolute conviction that jobs are created by demand.  The owner of the widget factory isn’t going to hire more people to manufacture his widgets if there aren’t more people willing and able to buy them.

A recent study has added to the already ample evidence for this conclusion–and to the also-ample evidence that “supply-side” economics is, and has always been (as George H.W. Bush memorably labeled it) “voodoo” economics.

“Supply-side” is the economic theory embraced by Reagan and others in the 1980s. That theory dismisses the importance of wages at the bottom of the economy—the demand side. Instead, it rests on the theory that if we “free up” capital at the top—the supply side—wealthy entrepreneurs will create new jobs and a rising tide will lift all boats.

This is the theory that has justified Republicans’ forty-year commitment to tax cuts for the rich. The theory never made sense, and during the past forty years, all evidence has rebutted it. Tax cuts for the rich have never sparked economic growth, although they have certainly made the rich richer.

And that’s what the most recent study has found.

In their study of 18 countries over 50 years,  scholars at the London School of Economics and Kings College concluded that tax cuts do not “trickle down.” In fact, they do little to promote growth or create jobs. Instead, they drive up inequality, by limiting their effects to the people who get the tax cuts.

Focusing on the bottom of the income distribution–ensuring that low-wage workers don’t sink into poverty, that they can afford to put food on their tables, buy diapers for the baby, and see a doctor when necessary (a different but equally pressing issue) and still have funds to fix that broken window and repair the lawn-mower–would do more to “revitalize” neighborhoods than many if not most of well-intentioned government programs. 

Would there still be people who don’t keep their properties up? Sure. Would there still be landlords who are basically stingy slumlords? Yes. But investments in real estate represent a considerable asset to most owners, and the fiscal incentives to protect those investments  by maintaining the properties are strong.

The real lesson behind my husband’s long-ago insight, however, is the holistic nature of our communities, and the importance of not limiting our focus when trying to improve one aspect of our common lives.  We need to recognize the inter-relationships of such things as economic development, job creation and neighborhood improvement.

And “bottoms up” isn’t a phrase limited solely to alcohol consumption.

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?

 

Minimum Wage Again

It has long been a GOP article of faith that raising the minimum wage is a recipe for disaster–that businesses will fire some workers in order to raise the pay of others, and that the increased wages will be passed along to consumers and that the higher prices will depress demand.

That last warning has been especially shrill when the effort to raise the minimum wage has focused upon food service workers. (Five cents more for a McDonald’s hamburger? No one will buy it!)

It doesn’t matter that in places that have ignored the naysayers and raised the minimum wage, these disasters have failed to materialize– ideology ignores evidence. (There’s an analogy between the hysteria over raising the minimum wage and the equally fervent belief that cutting taxes on rich people will generate job growth, despite the fact that it has never, ever happened.)

A recent article from Business Insider–not one of those “socialist” publications–confirms the hollowness of these economic chestnuts.

New York City restaurant workers saw their pay increase by 20% after a $15 minimum-wage hike, and a new report says business is booming despite warnings that the boost would devastate the city’s restaurant industry.

As New York raised the minimum wage to $15 this year from $7.25 in 2013, its restaurant industry outperformed the rest of the US in job growth and expansion, a new study found.

The study, by researchers from the New School and the New York think tank National Employment Law Project, found no negative employment effects of the city increasing its minimum wage to $15.

The article noted that numerous restaurant workers saw a pay increase of 20% to 28% as a result of the raise in the minimum wage, and that it represented the largest increase for  low-wage workers since the 1960s. New York’s decision to raise the minimum wage had been met with considerable skepticism and warnings of dire consequences.

Across the US, the restaurant industry has the most to lose from a $15 hike. The Bureau of Labor Statistics found that in 2016 the food-preparation and serving industry employed the most workers paid at or below the minimum wage, at 1.1 million. Sales, the industry with the next-highest low-wage workforce, employed 200,000 such workers.

“New York City’s restaurant industry has flourished overall,” the study said.

Excuse me while I repeat–once again–my mantra: public policies should be based on evidence. Theories are fine–they’re even necessary–but when evidence demonstrates that a theory is flawed, the evidence should prompt revision of the theory.

Apparently, however, that’s just too painful…..

Proving Nick Hanauer Right

I have previously cited Nick Hanauer, the billionaire who has repeatedly pointed out that the belief–embraced by the GOP–that raising the minimum wage depresses job creation is a fallacy.

As Hanauer has emphasized, this economic theory has cause and effect backwards: jobs are created by demand. (If you aren’t selling your widgets, you aren’t hiring more people to produce greater numbers of them.) Pay workers a living wage, putting disposable income in the hands of people who hadn’t previously had any, and increased demand will boost both job creation and the economy.

I get an email newsletter from Axios, (link unavailable) and a recent one included a report on fast-food industry earnings that certainly seems to confirm Hanauer’s thesis.

Between the lines: The fast-food industry’s biggest tailwind is coming from a surprising source — the increased pay of low-wage workers.

After trailing higher-paid workers for years since the financial crisis, earnings for the bottom 25% of workers have been growing at a rate much faster than the national average, and weekly earnings for the bottom 10% of full-time workers have grown even faster, data shows.

Generally, rising wages would be seen as a negative for the industry, but coupled with stable gas prices, the increasing paychecks of low-wage workers means more money spent at fast-food and fast-casual restaurants.

Be smart: Goldman’s research team estimates 70% of the industry’s sales growth over the past 5 years can be explained by rising wages, lower gas prices and a boost from third-party apps like GrubHub and Uber Eats.

Traditional economic theory says that if I have to pay employee A more, I will have less money available and I will thus be unable to hire B.  That makes all kinds of sense–all else being equal. What real life tells us, however, is that all else isn’t equal. As the Axios report shows, the increase in buying power more than compensates for the increase in payroll.

You would think that a political party devoted to the theory that cutting taxes will  generate revenue sufficient to pay for those cuts would understand this.

The theories may be similar, but reality can be a cruel mistress: when the issue is raising the minimum wage, real-world outcomes demonstrate that Hanauer’s approach works, but when the issue is tax rates, the Republican approach– cutting taxes on rich people– doesn’t.

As Paul Krugman has written,

In late 2007 the Trump administration pushed through a large tax cut, whose key component was a drastic reduction in the tax rate on corporate profits. Although most economists were skeptical about claims that this would do wonders for economic growth, conservatives were ebullient. Lower tax rates, they claimed, would give American corporations the incentive to bring back trillions of dollars invested overseas, and foreign corporations a reason to invest huge sums in the U.S.

And Republican politicians bought this argument. Even Susan Collins, the most moderate Republican in the Senate (although that isn’t saying much) declared herself convinced that the tax cuts would pay for themselves.

Krugman followed those opening paragraphs with graphs and statistics demonstrating rather dramatically that the tax cuts did not pay for themselves.  Not even close.

For example,Krugman says

Business investment was 13.2 percent of G.D.P. before the tax cut went into effect. It’s now … 13.5 percent. That’s a rise of around 0.3 percentage points, or less than a tenth of what the tax-cut advocates predicted.

As a result of the GOP’s 2017 tax cuts, deficits and the national debt have ballooned. Republicans would have marched on Washington with pitchforks if debt levels this steep had been generated by a Democratic Administration.

Real-world evidence says: pay working people a living wage, and everyone benefits.

Give the rich a tax cut, they sock their savings away in a tax haven, and no one else benefits.