Tag Archives: minimum wage

Another Reason to Raise the Minimum Wage

This research is really troubling.

A 2015 study from Harvard and MIT performed brain imaging on a group of 12- and 13-year-olds, and found those from lower-income families had thinner brain cortex around key intellectual areas. Further, a 2015 study published in Nature Neuroscience, “Family Income, Parental Education and Brain Structure in Children and Adolescents,” analyzed brain surface area — a measure different than cortical thickness — of 1,099 persons from ages 3 to 20 and correlated that with socioeconomic status, representing the largest study of its kind to date. More than two dozen researchers, led by Kimberly G. Noble of Columbia University, performed brain imaging and looked at relationships with household income levels, as well as education levels of the subjects’ parents.

The study found that family income was associated with greater brain surface area, and that the relationship was especially substantial for lower-income children:

 

“For every dollar in increased income, the increase in children’s brain surface area was proportionally greater at the lower end of the family-income spec­trum.”
The researchers could only speculate about the precise reasons for the link between income status and brain structure; they suggested it might stem from “family stress, cognitive stimulation, environmental toxins or nutrition, or from corresponding differences in the prenatal environment.”

 

The researchers concluded that “policies targeting families at the low end of the income distribution may be most likely to lead to observable differences in children’s brain and cognitive development.” The researchers were careful to note that these differences in the brains of poor children were not “immutable,” and that there were variations within all income categories.

 Still, the correlation is profoundly consequential, not just for the children themselves, but for an American future that will require the participation and talent of all of our citizens.

There are all kinds of arguments for a living wage–fundamental fairness, the amelioration of social unrest, the fact that economic growth requires growing the number of consumers with disposable income, the fact that taxpayers end up subsidizing the bottom lines of major companies paying poverty wages. But this research provides another compelling reason to increase the incomes of poor working families.

As a country, we give a lot of lip service to children’s wellbeing. We need to put our money where our mouths are.

 

I Hate It When That Happens!

Everyone (okay, every economic conservative) knows that raising the minimum wage kills jobs. If employers have to pay more per hour, they will hire fewer people. Obvious.

Except real life doesn’t seem to work that way. Washington Monthly recently reported on the experience of states that ignored the conventional wisdom and raised their minimum wages.

Such hikes were not without opposition. Notably, fast food companies sounded the alarm over the possible consequences of minimum wage hikes—namely, that consumers would pay higher prices and companies would be forced to cut jobs….

Six months after California’s minimum wage rose to $9, the state’s job growth continues to outpace nearly every other state in the country. In November, California added more than 90,000 jobs, its highest single-month total in almost two decades.

The Golden State is not alone. Of the 13 states that saw minimum wage hikes go into effect on January 1, all but New Jersey saw positive job growth in 2014. And as a group, those 13 states averaged significantly higher job growth than states that did not raise the minimum wage.

It turns out that decisions to hire more workers are determined more by things like consumer demand than wage levels.

In fact, demand is far and away the most important factor in job creation. So when wages rise, and poorer people have more money to spend, they spend it. Demand increases. The economy improves. Everyone benefits–including the rich. (Except, evidently, in New Jersey…I wonder what/who Chris Christie will blame…)

In 2015, 21 additional states are set to raise their minimum wage. It will be interesting to see what happens–and, if there is a repeat of the experience of 2014– how the ideologues will spin the results.

What Is Wage Theft?

I will admit that until very recently, I’d never heard the term “wage theft,” but it’s a term that I’ve come across fairly frequently in the context of the current debate over raising the minimum wage, so I consulted Dr. Google.

Basically, “wage theft” applies to situations where an employer doesn’t follow applicable wage and/or hour laws–either paying an employee for less time than s/he worked, or at a rate below the legal minimum.

A landmark survey survey of thousands of low-wage workers in New York City, Los Angeles and Chicago found that 26 percent had been paid less than the minimum wage the week before they were interviewed. According to the 2009 report by the National Employment Law Project and two other groups, 76 percent of the workers who put in more than 40 hours did not get paid or were underpaid the required time-and-a-half overtime rate. About 17 percent of the workers put in unpaid time “off the clock” before or after their shifts, another violation. In the three cities alone, the study estimated, low-paid workers were losing more than $56.4 million per week to wage theft.

As one reporter noted, the central problem in enforcing wage and hour laws is that they are basically driven by the filing of a complaint, and most people earning less than minimum wage are understandably unwilling to risk their jobs by complaining, even assuming they know they have that right.

The impact of even a little “skimming” by employers can be significant.

The Economic Policy Institute calculates: “When a worker earns only a minimum wage ($290 for a 40-hour week), shaving a mere half hour a day from the paycheck means a loss of more than $1,400 a year, including overtime premiums. That could be nearly 10 percent of a minimum-wage employee’s annual earnings—the difference between paying the rent and utilities or risking eviction and the loss of gas, water, or electric service.” Overall, according to projections based on surveys of low-wage workers, “wage theft is costing workers more than $50 billion a year.”

In our downsized, privatized, anti-government environment, I guess having adequate personnel to enforce wage laws is just too much to expect.

Why is it I think that if pervasive theft was hurting employers rather than workers, the response would be different?

 

It’s the Economy, Stupid!

When Bill Clinton ran for President, James Carville famously posted a large sign in the campaign’s “war room.” The sign read: “It’s the economy, stupid!” Carville wanted to remind his candidate and those working for him to keep their focus where he felt it belonged– on the economy.

Fast forward to the escalating debates over American inequality, the diminishing numbers of people who can be categorized as middle class, and the widening gap between wealthy Americans and everyone else. As Ryan Cooper noted in a recent article in The Week, progressives arguing for measures to reduce that gap have forgotten Carville’s lesson, and in the process have neglected the most potent argument for those measures.

That argument is the economy.

As Cooper notes,

“A growing body of evidence suggests that inequality isn’t just an issue of fairness, but is actually hampering general prosperity. And that, in turn, ought to have enormous knock-on political effects.

 That inequality is choking growth is the conclusion of the new issue of the Washington Monthly, including articles by Heather Boushey, Mike Konczal, Alan Blinder, and Joe Stiglitz. It comes on the heels of several other studies, even one from the IMF, traditionally a very orthodox institution, that reach the same conclusion.”

Modern economic systems depend upon consumption. Many of us are less than enthusiastic about that undeniable fact, and there is certainly much to criticize in consumer culture. But in the system we inhabit, consumer demand is a critical element of economic health. When millions of people are making poverty wages, demand suffers.

When the great majority of people have very little disposable income, there is no mass market. No matter how entrepreneurial a given individual may be, s/he is unlikely to start a business—or get financing to start a business—if the success of that business will be dependent upon mass sales.

It’s not just new business starts, either; when consumers aren’t spending, existing businesses aren’t likely to invest and grow, and they are equally unlikely to be “job creators” hiring more workers.

When debates about growing inequality are framed as issues of fairness (compelling as some of us may find such arguments), we fail to deploy the most effective weapon at our disposal—the fact that the current policies intended to privilege supposed “makers” aren’t just harming those who are scorned as “takers.” They are actually harming us all, “makers” included, by depressing demand and retarding economic growth.

When I was in law school, by far the most valuable lesson I learned was “he who frames the issue wins the debate.”

Take the current debate over raising the minimum wage.

When we argue for raising the minimum wage only on fairness grounds, the typical response is that higher wages will depress job creation. Even though available evidence convincingly rebuts this, it is a widely accepted meme because it seems so self-evident; indeed, it would be true if all else were equal. (In real economic life, it turns out that all else isn’t equal–who knew?) If, however, we frame the argument for a higher minimum wage as an argument for a more robust economy benefitting everyone—an argument that has the added merit of being demonstrably true—we win.

As James Carville reminded us: It’s the economy, stupid!

 

 

About That Minimum Wage Debate….

Who was it who coined the immortal observation that “It ain’t what we don’t know that hurts us–it’s what we know that just ain’t so”?

I thought about that when I read a recent report  about job creation experience in states that had recently raised their minimum wage.

Economists at Goldman Sachs conducted a simple evaluation of the impact of these state minimum-wage increases. The researchers compared employment changes between December and January in the 13 states where the minimum wage increased with the changes in the remainder of the states, and found that the states where the minimum wage went up had faster employment growth than the states where the minimum wage remained at its 2013 level.

When we updated the GS analysis using additional employment data from the BLS, we saw the same pattern: employment growth was higher in states where the minimum wage went up. While this kind of simple exercise can’t establish causality, it does provide evidence against theoretical negative employment effects of minimum-wage increases.

It has always seemed reasonable to assume that higher wages would depress job creation.  What that simple logic missed, however, were the many factors other than wage rates that influence the decision whether to add employees. The cited study joins an overwhelming body of evidence that the simple equation is wrong.

It’s another one of those things we know that just ain’t so.