Tag Archives: minimum wage

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.

 

A Conservative Argument for Raising the Minimum Wage

The American Conservative has a lengthy article arguing for a raise in the minimum wage from a conservative perspective. A couple of highlights:

Although the direct financial benefits to working-class Americans and our economy as a whole are the primary justifications for the proposal, there are a number of subsidiary benefits as well, ranging across both economic and non-economic areas.

First, the net dollar transfers through the labor market in this proposal would generally be from higher to lower income strata, and lower-income individuals tend to pay a much larger fraction of their income in payroll and sales taxes. Thus, a large boost in working-class wages would obviously have a very positive impact on the financial health of Social Security, Medicare and other government programs funded directly from the paycheck. Meanwhile, increased sales tax collections would improve the dismal fiscal picture for state and local governments, and the public school systems they finance.

Furthermore, as large portions of the working-poor became much less poor, the payout of the existing Federal Earned Income Tax Credit (EITC) would be sharply reduced. Although popular among politicians, the EITC is a classic example of economic special interests privatizing profits while socializing costs: employers receive the full benefits of their low-wage workforce while a substantial fraction of the wage expense is pushed onto the taxpayers. Private companies should fund their own payrolls rather than rely upon substantial government subsidies, which produce major distortions in market signals.

—–

Public policy experts sometimes glorify complexity, proposing intricate, interlocking systems aimed at a desired result. But such structures are only as strong as their weakest link, and a proposal too complex to fully understand is also too complex to fix. Our government has sought to ensure a decent living for American workers through an enormous array of income subsidies, public benefits, training programs, and educational loans; at this point, many of these components have accumulated powerful and parasitic side-beneficiaries while leaving the working class behind.

Since this vast and leaky conglomeration has failed at its intended goal, perhaps we should just try raising wages instead.

Reducing the quoted material to its essence, the argument has 3 parts. First, raising the minimum wage will help the economy and the federal budget by increasing demand and tax revenues, by reducing the amount government pays out in various subsidies, and by strengthening social programs like social security. Second, it will be simpler and less costly than the ungainly patchwork of programs necessitated by poverty-level wages.

Third (and in my opinion most compelling), it will require employers to pay their own workers (and not so incidentally, compete with others in the market on equal footing) rather than depending on taxpayers to subsidize those wages as we do now.

Back when the GOP was a genuinely conservative party, it would have understood–and embraced–these arguments.