Will raising the minimum wage actually help?

[strawman]

IF we raise the minimum wage, currently W, by a certain multiplier X, that increases the cost of goods, G, by another multiplier, Y.

IF Y < X then minimum wage increases will be helpful to those earning minimum wage. Otherwise the situation doesn't change for them, or possibly becomes worse.

I was thinking about this because an image macro of a local deli chain is surfacing where the co-founder suggests that because they are able to provide high wages and benefits, then everyone else should as well. Meanwhile in five-dollar-footlong land I can't help but notice that Zingerman's is charging twice as much for sandwiches and paying twice as much for employees as the cheaper chains, so the reality is that the equation doesn't actually change.

If they increase minimum wages nationally, then the cost of living goes up for everyone.

Is the cost of living increase known to be lower than the wage increase?

Lets skip possible questions about inflation, and wealth distribution for now. Is a wage increase provably better for minimum wage earners?

 

[PatrThom]

My guess is that the benefit will be directly related to however long the delay is in the cost of living catching up.
If the minimum wage in the US were to rocket up to $1 million/yr, for instance (I don't know, let's pretend the government subsidizes it or something), there would be a massive spending boom as people took advantage of their newfound wealth...until the resulting bidding wars drove up the prices of real estate and other "scarce" goods, at which point equilibrium would start to reassert itself, and then the classes would coalesce again.

--Patrick

 

[figmentPez]

My guess is that the benefit will be directly related to however long the delay is in the cost of living catching up.

I think it's a lot more complicated than that. It's true that there are limits to capital that will make prices rise. There's only so much readily available indium to make electronics out of, so we're not all going to get a new cellphone every couple months, no matter what. But there's a lot more that isn't going to hit a limit like that nearly as easily. There are all sorts of goods and services that could be considerably more active than they are now. In fact, if I remember my US history correctly, a lot of economic depressions have been caused by the workers producing luxury goods not being able to afford those luxuries themselves. Money is only money when it's doing something. When it's being spent, or invested, when it's making or doing something.

 

[GasBandit]

The primary jobs-creation engine for the nation are not the large megacorps that everybody complains about worker treatment/compensation, it's small business which runs on a tight profit margin and for whom the budget is king. These small businesses have a given amount of money to spend on payroll. If the cost per worker goes up, the number of workers they can hire goes down. Thus, there are less jobs to go around at the low income end of the spectrum, at a time when the labor participation rate is already at historic lows (if we use 2007's LPR, the true unemployment rate would be half again what it is).

So, no. The time to raise the minimum wage (if indeed there ever is indeed such a time, which is debatable) is when the LPR is high and unemployment is under 5%... not when we still have de facto 10%+ unemployment.

 

[PatrThom]

Money is only money when it's doing something. When it's being spent, or invested, when it's making or doing something.

it may be obvious to some people, but a healthy economy isn't one where everyone has a lot, a healthy economy is one where everyone does a lot of commerce. It's this flow of wealth that is important, and when it slows/stops, everyone suffers.

Is a wage increase provably better for minimum wage earners?

I have to say yes, IF it puts that minimum wage above a living wage. The trouble will be to keep MW>LW as LW changes.

--Patrick

 

[Sparhawk]

I have to say yes, IF it puts that minimum wage above a living wage. The trouble will be to keep MW>LW as LW changes.

--Patrick

Living Wages depend on where you live. Even in Houston, I would pay much less for an apartment than the equivalent space in NYC. Since I live well north of Houston (more rural area) it's even cheaper. I pay $1065 for a 1300 sq ft 3 br 2 bath apartment here (looks on Google...) in New York it would be around $4000 in Harlem. Where you choose to live plays a major role in what you need for a living wage.

 

[Charlie Don't Surf]

yeah.

 

[phil]

For the most part I feel that the problem is more to do with the cost of living than the amount I make. I don't feel like the cost of most goods or services is beyond me or at a price that is too high for even minimum wage earners. Granted, I don't have kids so maybe that's more of a help than I realize. Still though, the exception to what I feel is priced almost outrageously is the simple cost of keeping a roof over my head. In most places I'll be paying well over 50% of my income to get a small place in a bad neighborhood where I'll be taken advantage of when I eventually do move out.

While I do feel an overall increase in pay will help now, it's still a temporary fix. What we need are more low income housing options.

Right now, if it wasn't for the down payment I could easier afford to buy a place than rent one out.

 

[GasBandit]

In other words, Phil,

 

[phil]

One might say that, yes.

 

[MindDetective]

I suppose it depends on how the costs are passed along. It may be that the market doesn't support a hike in product or service costs, so that increase in wage costs has to be offset somewhere else. If executive salaries are reduced to offset those costs, then I think there is a strong argument that it does actually help. So the equation is not necessarily higher wages -> higher costs for products and services, although that is a reasonable assumption in many cases.

 

[Bowielee]

The primary jobs-creation engine for the nation are not the large megacorps that everybody complains about worker treatment/compensation, it's small business which runs on a tight profit margin and for whom the budget is king. These small businesses have a given amount of money to spend on payroll. If the cost per worker goes up, the number of workers they can hire goes down. Thus, there are less jobs to go around at the low income end of the spectrum, at a time when the labor participation rate is already at historic lows (if we use 2007's LPR, the true unemployment rate would be half again what it is).

So, no. The time to raise the minimum wage (if indeed there ever is indeed such a time, which is debatable) is when the LPR is high and unemployment is under 5%... not when we still have de facto 10%+ unemployment.

I'm not sure what part of the country you live in, but small businesses where I live have been all but decimated by the big box outlets.

 

[GasBandit]

Are you talking about consumer services and goods, such as corner stores and so forth, or are you talking about small entrepreneurial businesses serving other businesses? Because while the consumer space has been largely taken over by mega corporations, I don't think those businesses form the majority of small businesses.

Well, naturally I'm talking Pre-2007. Megacorps have, naturally, weathered the super-recession better than small business.

 

[Bowielee]

Are you talking about consumer services and goods, such as corner stores and so forth, or are you talking about small entrepreneurial businesses serving other businesses? Because while the consumer space has been largely taken over by mega corporations, I don't think those businesses form the majority of small businesses.

I'm talking about all small businesses, from tech distributors, to software sales, to mom and pop stores, to everything in between. Small business enterprise is not strong right now for any medium of the market. Even mechanics are now employees to large chains.[DOUBLEPOST=1400203866,1400203720][/DOUBLEPOST]I think the one thing that GB and I both really agree on is that the collusion of the oligopolies that have taken a stranglehold of all industries are not the way to a fiscally sound future.

 

[GasBandit]

I think the one thing that GB and I both really agree on is that the collusion of the oligopolies that have taken a stranglehold of all industries are not the way to a fiscally sound future.

Quite so. One deviation I have from most libertarians is that I believe the government must serve an essential role as a "trust buster" and force competition. This is not popular with my fellow libertarians, naturally, nor with the 6 companies that control everything we see and hear.

 

[Bowielee]

See, here's the thing, I may be WAY socially liberal, but I want to believe in the great American ideals that you can make your own way with elbowgrease and the sweat of your own brow. I was raised in a small town with the values of hard work and dedication ground into me from an early age. I still believe those things. I just don't believe that they're possible in the world we live in. And it's not just an American thing. We may be the epicenter of it, sure, but with all these corporation becoming multinational hydras, we're well on our way to the corpratization of all government (hell, if we aren't there already).

 

[PatrThom]

I put the question to Kati, and she responded that the idea that:

IF we raise the minimum wage, currently W, by a certain multiplier X, that increases the cost of goods, G, by another multiplier, Y.

...only applies for those cases where X actually leads to Y, citing the fact that a great portion of Chinese manufacturing happens not necessarily because Chinese labor is so cheap (though that is a bonus), but rather because all of the suppliers are right next door, sometimes even right there in the same complex, and it's the proximity that is the main draw.

Also, she suggested that we look to other countries' strategies. Want to know what will happen if we raise the minimum wage? Go find a country where they went and raised the minimum wage and see what happened to them. What a revolutionary idea!

I believe the government must serve an essential role as a "trust buster" and force competition.

I believe that Government should serve as the boot to the rear that compels people to do what they ought to. Nobody wants to clean the airport toilets, but guess what? Today's your day! Now get in there and do a good job, one you'd be proud of.

--Patrick

 

[GasBandit]

I believe that Government should serve as the boot to the rear that compels people to do what they ought to. Nobody wants to clean the airport toilets, but guess what? Today's your day! Now get in there and do a good job, one you'd be proud of.

--Patrick

I disagree. The government having carte blanche to decide what the people "ought" to do is a concept to be reviled and fought.

Enforce laws, yes. Indenture labor, no.

If you want those airport toilets clean, chances are there's somebody who'll do it for a price. That's where the free market comes in. Because chances are there's more than one somebody, and a whole range of prices. And if used correctly, they'll fight to lower their prices until there's one acceptable to the airport's janitorial budget.

 

[PatrThom]

If you want those airport toilets clean, chances are there's somebody who'll do it for a price.

Correct. But for those times when nobody volunteers, it's the Gv't's job to say, "No volunteers for this inglorious task? Well, this is a necessary thing, so you, you, and you get volunteered."

--Patrick

 

[blotsfan]

Would the government pay someone to do that? And how much? If its cheaper than an honest employee it doesn't seem farfetched to think that it will lead to "ooops we couldnt find anyone. you have to do this now"

 

[GasBandit]

Correct. But for those times when nobody volunteers, it's the Gv't's job to say, "No volunteers for this inglorious task? Well, this is a necessary thing, so you, you, and you get volunteered."

--Patrick

No, when nobody volunteers, that means you offer more. "What? Nobody wants to clean the bathroom for 50 cents an hour? MAKE THEM DO IT, GOVERNMENT!" Not a good thing. How it works is "Ok, how about for 7 dollars an hour? Eight?.. Nine?... Twelve? We have a volunteer at twelve!"

Hence all the jokes about "the janitor makes more than I do"

 

[PatrThom]

No, when nobody volunteers, that means you offer more. "What? Nobody wants to clean the bathroom for 50 cents an hour? MAKE THEM DO IT, GOVERNMENT!" Not a good thing. How it works is "Ok, how about for 7 dollars an hour? Eight?.. Nine?... Twelve? We have a volunteer at twelve!"

I think our difference of position is that you expect that there will eventually be a taker so long as the price climbs high enough, while I think there are some tasks that nobody will ever want to do, regardless of price.
Ah, philosophy. A class I (almost) failed in college.

--Patrick

 

[GasBandit]

I think our difference of position is that you expect that there will eventually be a taker so long as the price climbs high enough, while I think there are some tasks that nobody will ever want to do, regardless of price.
Ah, philosophy. A class I (almost) failed in college.

--Patrick

You'd be surprised what a human will do for money. Sometimes not even a lot of money.

 

[PatrThom]

You'd be surprised what a human will do for money. Sometimes not even a lot of money.

Not really. I've heard plenty of stories about people trying to get things through US Customs*. I suppose I'm never surprised that someone did a thing, I'm just surprised that someone would do a thing.

--Patrick
*I will not provide links. Just trust me.

 

[AshburnerX]

I think our difference of position is that you expect that there will eventually be a taker so long as the price climbs high enough, while I think there are some tasks that nobody will ever want to do, regardless of price.
Ah, philosophy. A class I (almost) failed in college.

--Patrick

I'm of the opinion that there will become a price where no is willing to pay to get a job done. What do you think is going to happen first? A business offers $30 an hour to clean toilets because no one wants to do it or they just decide that they don't need to clean them if it would cost $30 an hour?

 

[GasBandit]

No, they'll tell an existing employee that, by the way, if they want to continue working there they get to clean toilets in addition to their existing job.

Which is, in a manner of speaking, finding a price someone is willing to do the job for. I've had coworkers who have outright refused to do tasks much less odious that cleaning restrooms because they weren't explicitly in their contract, and management backed down.

 

[GasBandit]

As well they should. But some employees don't understand their rights, fear losing their job, and are easily cowed.

And some people don't get paid as much as they might because they are afraid of the risk or confrontation, and some people don't get hired at all because they don't fill out the ridiculous online application bullshit that everybody's using these days... all this is still preferable to a central governmental authority deciding how people are going to live and work on a micromanagerial basis.

 

[PatrThom]

a central governmental authority deciding how people are going to live and work on a micromanagerial basis.

...now you have me curious as to what price would have to be bid before someone would take this position.

--Patrick

 

[GasBandit]

...now you have me curious as to what price would have to be bid before someone would take this position.

--Patrick

Lately, it seems the price is the illusion of safety.

 

[PatrThom]

I think a lot of it would depend on whether that government's true position ended up being one of altruism or self-aggrandizement.

--Patrick

 

[Krisken]

As well they should. But some employees don't understand their rights, fear losing their job, and are easily cowed.

Have a family to raise, bills to pay, live paycheck to paycheck, taking care of a sick family member, etc etc. There's a lot of reasons people do shitty jobs for shitty pay.

 

[GasBandit]

I think a lot of it would depend on whether that government's true position ended up being one of altruism or self-aggrandizement.

--Patrick

It always ends up being self-aggrandizement. Heck, our system was tailor-made to prevent it, and here we are 250 years later absolutely slathered with it. Power corrupts.

 

[PatrThom]

Swiss voters weigh in, reject $25/hr minimum wage.
Reasons given are pretty much the same ones given here: Lowest-paid workers would probably be let go, prices of goods would skyrocket, etc.

--Patrick

 

[GasBandit]

That's the ticket. Any argument you can make against a $25/hr or $50/hr minimum wage is the same argument you can make against any raise of the minimum wage... or perhaps even having one.

 

[Krisken]

Is $25 an hour reasonable for their economy/cost of living? That seems excessive, but then again I don't know the economy of Switzerland.