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  1. #141
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Another interesting outcome to minimum wage that I had not thought of until now is presented here by economist Art Carden in which he points out that minimum wage creates an economic rent that forces competition for jobs to take on a destructive nature:

    In addition, a minimum wage creates an economic rent and, therefore, wasteful competition over that economic rent. As I wrote last summer:

    When politicians impose binding price floors on competitive markets, they take prices off the bargaining table. This encourages wasteful forms of competition. To make this concrete, suppose you and another person are each willing to work for $5 per hour but you are not allowed to accept less than $9 per hour. There is only one job opening. How do you make sure you get it?

    Corruption is an obvious option: you can simply bribe your prospective employer. Assuming that isn't an option, though, what can you do? The simplest option is to play the waiting game: whoever waits the longest outside the employer's office gets the job, just like whoever waits the longest for price-controlled gas after a natural disaster will get the gas. This represents pure waste: the time and energy you devote to waiting is time and energy you're not spending doing something else.

    People can also compete by investing in signals that make them more attractive to employers. Maybe they get their hair cut and shave more often. Perhaps they get more college degrees. Maybe they buy nicer suits for their job interviews. On their own merits, these might be nice things. However, they're superfluous if they're used to get artificially-scarce jobs that, in the absence of a minimum wage, could be had just by offering to work for less.

    It's tempting to think that the higher wages for workers is worth it, but it isn't. The minimum wage shifts the margins on which people compete with one another from wages to wasteful competitive endeavors like waiting or investing in too many quality signals. Competition in a price-controlled market can erode the entire value of the difference between the minimum workers are willing to accept and the minimum they are allowed to accept. The cruel irony is that a policy designed to pick the pockets of employers for the benefit of workers ultimately leaves everyone worse off.
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
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  3. #142
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    I tried but I have nothing. Some lib will have to figure it out.
    The U.S. is currently enduring a zombie apocalypse. However, in a strange twist, the zombie's are starving.

  4. #143
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    More data has come out following the minimum wage increases last year designed to keep pace with inflation (or the artificially low number we use to track inflation currently anyway).
    The thirteen states that saw minimum wage increases on January 1 have kept a combined 129,200 workers out of employment opportunities since the beginning of the year, according to data published this week by the American Action Forum.

    “While many assume that it would come out of profits of large companies, in reality it only affects restaurants and retail businesses that have narrow profit margins,” Ben Gitis, a policy analyst at the American Action Forum, explains in the study. “They have no choice but to either reduce their current employment levels or put off plans to expand and make new hires. As a result, the cost of the minimum wage comes out of the pockets of unemployed workers who are denied an opportunity to work.”
    http://www.unitedliberty.org/article...wth-since-the-

    Interestingly, several articles were published around the same time with quite contradictory headlines such as NPR’s “States That Raised Minimum Wage See Faster Job Growth, Report Says.” So why the discrepancy?

    Stats can be an interesting thing and it always behooves you to be very precise in what someone is saying. NPR is pointing out that states with minimum wage increases (MW) have a higher growth rate than states with no increase (NMW). Thus opening up a wide range of state to state comparisons that aren’t accounted for (for example MW states had warmer weather during the winter than NMW which the labor department argued was the largest factor on job growth).

    However, my link is saying that MW states had slower growth than before they were MW states. IE a closer to apples/apples comparison. Meanwhile, NMW states saw their growth rates increase.

    This data shows that there are now 129,000 people in MW states that are unemployed because of this policy. Any guess on what segment of the economic distribution they come from?




    A good point by economist Don Boudreaux concerning the above. Remember, overall employment numbers mask the effects of minimum wage (since it doesn't apply to most workers), what is key is to see the harmful effects on low skilled workers.

    My point there is that trends in overall employment cannot be used to test the economic argument against the minimum wage because that argument is that the minimum wage reduces the employment prospects only of low-skilled workers. (I assume throughout what is empirically the case, at least in the U.S. – namely, that the legislated minimum wage never comes close to being as high as the median wage.) Talking about trends in overall employment when the question involves the employment consequences of minimum-wage legislation is to talk about an irrelevant fact. What matters is the employment of low-skilled workers.

    Anyway…. Suppose that the two lowest-cost options for Acme Co. to produce Q amount of output X are as follows (and reckoned on an hourly cost basis):

    1) 10 hours of low-skilled labor combined with 50 dollars of capital expenses

    2) 11 hours of skilled labor combined with 30 dollars of capital expenses.

    If the prevailing hourly wage for low-skilled workers is $7.25, then Acme Co.’s hourly production costs will be $122.50 if it goes (as it will) with option 1. ($72.50 for ten hours of low-skilled labor plus $50 of capital expenses.) If the prevailing hourly wage for skilled workers is $8.41 or higher, then Acme will produce X using low-skilled rather than skilled labor. (If Acme employs 11 skilled workers at $8.41 per hour, and uses with these workers $30 of capital every hour, Acme’s hourly production costs are $122.51 – higher than the total costs of hiring ten low-skilled workers at $7.25 per hour along with $50 worth of capital each hour.)

    Now let the minimum wage be raised to (say) $8.41 per hour. If Acme continues to produce Q amount of X each hour by employing ten low-skilled workers along, with $50 worth of capital, Acme’s hourly production costs would rise from $122.50 to $134.10. But by instead employing 11 skilled workers at $8.41 per hour, along with $30 worth of capital, Acme’s hourly production costs will be rise only by one cent, to $122.51. Raising the minimum wage in this example causes Acme to fire (or not hire) the low-skilled workers and instead to employ the skilled workers. Overall employment rises at Acme rises, and might well rise for the economy as a whole if the now-artificially higher demand for skilled workers entices enough skilled workers, who would not have been in the labor force, into (or back into) the labor force.

    http://cafehayek.com/2014/08/minimum-wage-minutia.html






    Additionally, two economists out of George Mason wrote a great editorial concerning the devastating effects minimum wage increases have had on the workers of New York, New Jersey, and Connecticut.

    The data are simply no reason to reject this fundamental economic precept: When you raise the cost of hiring, companies will do less of it. Until there’s a sound theory for why raising the price of low-skill labor doesn’t lessen employers demand for it, and until that theory is confirmed by serious, empirical analysis based on adequate data, the only legitimate minimum-wage stance is that it shrinks the employment options for the very workers it ostensibly intends to help: the poorest of the low-skilled.

    http://online.wsj.com/articles/liya-...obs-1408577121
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
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  6. #144
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Adding to the plethora of academic studies this year. http://econweb.ucsd.edu/~mwither/pdf...20Earnings.pdf

    The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers

    First, we compare workers in states that were bound by recent increases in the federal minimum wage to workers in states that were not. Second, we use 12 months of baseline
    data to divide low-skilled workers into a “target” group, whose baseline wage rates were directly affected, and a “within-state control” group with slightly higher baseline wage
    rates. Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers.
    Lost income reflects contributions from employment declines, increased probabilities of working without pay (i.e., an “internship” effect), and lost wage growth associated with
    reductions in experience accumulation.
    Methodologically, we show that our approach identifies targeted workers more precisely than the demographic and industrial proxies
    used regularly in the literature. Additionally, because we identify targeted workers on a population-wide basis, our approach is relatively well suited for extrapolating to estimates of the minimum wage’s effects on aggregate employment. [b]Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. We estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.[b]
    Emphasis mine.
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
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  7. #145
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by Squatch347 View Post
    Another interesting outcome to minimum wage that I had not thought of until now is presented here by economist Art Carden in which he points out that minimum wage creates an economic rent that forces competition for jobs to take on a destructive nature:
    I think this kind of thing is a bit suspect unless you get extreme cases of it like in soviet Russia. People in america "waste" massive amounts of time on things like getting drunk, watching football, and having sex. Jockeying for a job is no more or less helpful than any of that. You are investing time to try and get something you think of as valuable. Hell, attending college for many is little more than putting a shiny badge on your coat that gets you in the door for employers without necessarily proving anything about your job skills.

    Its fun to think of all the little ripples and wrinkles but I think this dead loss is a wash on this kind of situation.

    The pressure to push out lower wage workers I think is a much more central issue.

    BTW: So far here in the land of the $15 per hour wage, the result is mostly meh. The economy at the airport is generally good so its mostly just getting absorbed up in that growth and doesn't seem to be having any strong adverse impact to small or large businesses there. No studies I could find on lower wage unemployment but employment is generally pretty good round here at the moment so its hard to judge. That's always one of the challenges, there are many competing effects going on at any given time.
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  9. #146
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Perhaps, but I think the fact that minimum wage unemployment disproportionately affects low income teens over those from middle to upper class families argues for the effect he is mentioning. There is already competition for the decreased number of jobs, and those with more stable backgrounds or more experience, or more intangible skills (as seen by employers) will be higher on the order of merit list than those who might need the job more, but who are more risky. Those families who are able to get their kid a nice suit, or at least a jacket are more likely to get the job than those who don't. That is a signal whose investment does nothing to indicate marginal productivity of the worker and is therefore economically wasteful.

    We've also seen this very effect in SEATAC (do we still capitalize the whole thing given it is its own city?), where the hike in the minimum wage caused restaurants and hotels to remove the shift meal benefit that was historically common. http://www.thenewamerican.com/econom...med-would-help Those willing (and more importantly, able) to forgo that meal are able to compete for jobs more efficiently, but that ability does nothing to indicate they are a better worker or more productive.

    A while ago, when working for McDonald's myself I saw this as well. When the minimum wage increased we didn't actually fire anyone, in fact we even hired some more people. But we (by we I mean the managers, I was window jockey at the time) did so by decreasing shift lengths, decreasing shift coverage (fewer people per shift) and ending overtime possibilities (prohibitions against working for additional hours, sometimes for additional wage rates). So while there were more jobs in absolute terms, they employment hours on total were less. People had to cover more work stations, no one could count on working extra to make additional money, work was more hectic, the ability to call in sick was almost eliminated (we couldn't afford to not have someone there since we were so lightly manned, and we could always hire someone else). Etc, Etc. These were results of the change that were not shown in overall job numbers. The result was that turnover was higher, which hurt the credibility of those with less of a background since it looked like they couldn't keep a job or were unwilling to work in difficult environments.

    I think the result Mr. Carden is talking about is definitely there. It is a result we talk about all the time when we talk about corporate downsizing, it makes sense we would see it here too. If a big corporation is forced to make due with fewer workers doing the same number of tasks because revenue is down (or more likely historically, because the cost of employment is up due to regulatory compliance or benefit costs), why wouldn't a minimum wage firm see the same effect when its labor costs go up?
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
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  10. #147
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    A couple of updates for this discussion.

    The first is a point I wish I had thought of, but rather it is from the reliable Prof. Don Boudreaux, whom I’ve referenced before.

    He points out that there is a disparity of study procedural strength between those studies that find a negative employment effect from the minimum wage and those that do not. The latter comprise, almost entirely, of a single kind of analysis. They compare state (or counties) that have a higher minimum wage to those that have a lower minimum wage. This kind of single analytical type means that they finds, in bulk, are less reliable that finds that are found via multiple analytical strategies. Single methodologies can (and we’ll get to this in a minute) all be subject to the same unnamed assumption or flawed design. Multiple methodologies tend to weed out those problems because they approach the problem from a different angle.

    The specific problem Prof. Boudreaux points out from the single methodology “no effect” group is that it ignore economic internalization. http://cafehayek.com/2014/12/the-det...etectable.html
    Employers in the U.S. have now had 76 years to adjust to the existence of this regulation that makes unprofitable the hiring of the lowest-skilled workers. One result is that business and labor practices that would have employed legions of low-skilled workers in the absence of a minimum wage were either long ago snuffed out or never created. Empirical studies today, therefore, can at best detect only changes in employment at existing firms that use existing business practices - firms and practices that, having evolved in an economic environment with a minimum wage, were never suited to employ as many low-skilled workers as would be employed by businesses that evolved in an environment without a minimum wage.
    Raising the existing minimum wage does indeed destroy some jobs.

    Comparing two states who have had the minimum wage around for decades does little to really compare the law’s effect in those states. The states have adapted, low skilled workers have moved away or died off, they certainly aren’t seeking jobs anymore as they are unemployable and are part of the large nonparticipant part of the population in labor force (more on that in a minute). They certainly aren’t seen in the looking for work unemployed numbers.

    Prof. Boudreaux makes a good point here, if we are going to look at the effect of policy, the only way to do it is to analyze short term data as the policy is implemented. For that kind of analysis I move to my second point.



    A great new study came out in December 14 that discussed the effects of some of the most recent changes in the minimum wage rate. http://www.nber.org/papers/w20724

    From the abstract (emphasis mine):

    We estimate the minimum wage's effects on low-skilled workers' employment and income trajectories…Second, we use 12 months of baseline data to divide low-skilled workers into a "target" group, whose baseline wage rates were directly affected, and a "within-state control" group with slightly higher baseline wage rates. Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers. Lost income reflects contributions from employment declines, increased probabilities of working without pay (i.e., an "internship" effect), and lost wage growth associated with reductions in experience accumulation. .. Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. We estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.

    This finding (-0.7 correlation) is far, far more reliable than basing it on unemployment rates because it accounts for workers who have given up. Essentially the finding is that for every three dollars you raise the minimum wage, you lose 1 percent of your work force. In America that is somewhere around 3.2 million jobs for every three dollars of minimum wage increase (assuming the increase is national).

    This report ties directly into my OP because it found that the targeted group was disproportionately affected. This target group was made up of low skilled workers, mostly the young or racial minorities. It is hard to read this and not conclude that the minimum wage, whatever its motivations, directly harms those most vulnerable in our society.





    This is a game I played in grad school that I think tells us a lot about how trade (which is related to the topic here since hiring is trade) makes the poor better off. Indeed it makes the poor disproportionately better off than the rich because they are more likely to engage in trade. Policies that limit their ability to trade, such as the minimum wage, essentially reduce their resources and put them in a poverty trap.

    The Trading Game
    Put five or six small, low-value items more or less randomly into several paper bags; one bag per student. Make sure, though, that there are differences in value among the items – for example, one item might be a tube of toothpaste, while another item is a wrapped piece of Godiva chocolate or an inexpensive flash drive. Then give a filled bag to each student. Ask the students to open their bags and then, on some numerical scale (say, one to ten), ask each student to rate his or her satisfaction (or happiness, or ‘utility’) with his or her bag. Take the numerical sum of the students’ answers.
    Now allow the students a few minutes to trade. Trading isn’t required of any student, just allowed for each and every one who wishes do to so. There are no restrictions on the trading, other than that the trading should be only of things in the bags.
    After the trading is completed, ask each of the students again to rate, on the same numerical scale, his or her satisfaction with his or her new bundle of items. Then sum the total of the students’ answers. Almost always the second sum will be greater than the first sum.
    This fact is evidence that voluntary trading makes people better off.

    Also, you can, when you fill the bag, make sure that one or two (no more than two) of the bags are filled with an especially large number of the highest-valued items (for example, Godiva bars, flash drives, or $10 gift cards to the movie theater). The students who get these bags will be the ‘wealthy’ ones. And the greater is the difference in the value of the ‘wealthy’ bags from that of the majority run-of-the-mill bags, the less likely it is that the students who get these ‘wealthy’ bags will be active traders. This fact shows that trade is not necessarily an activity that benefits the wealthy; trade is even more important for the not-wealthy.
    Of course, on the other side of this phenomenon, if you fill one or two bags only with especially low-value or even worthless stuff, you’ll find that the students who get these ‘poor’ bags also do little or no trading, the reason being that these students have little of value to begin with to offer to others. So while the trading of the other students will not make these ‘poor’ students worse off, it provides no opportunities for them to make themselves better off.* One lesson to draw here is that having something of some value to trade to others is vitally important. In the real-world, even the poorest person almost always has something of this nature – namely, his or her ability to work for others.
    So you might point out here that a government policy that strips poor people of any valuable asset that they might have – most relevantly, government policies, such as minimum-wage legislation, that rob poor people of the ability to sell their unskilled labor services at wages that are attractive to others – excludes the poorest people from the market and keeps them poorer than they would otherwise be.

    http://cafehayek.com/2015/01/a-bleg-...ding-game.html
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
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  11. #148
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    To add to this thread, which seems to be more of a piling on at this point (I’m curious if there is anyone here who still doubts the veracity of the OP’s finding?). Several new studies that are longitudinal in nature (sometimes called environmental scans).

    First, let me describe these types of studies. As we know, with any given academic work the probability for error is not insignificant. Perhaps the experiments’ design parameters were configured incorrectly. Maybe they got an accidental positive due to the law of large numbers. Maybe their conclusion was unjustified given the precise categorical nature of their data and controls. There are hundreds of things that could go wrong either way, which is why replication is so important.

    However, when we take a broad look at all the different papers on a topic in a field we can get a better sense of what the actual consensus on a topic is. We wouldn’t say that Democrats like President Obama because we found a guy who said that in one poll. We would take the whole poll, weigh it against other polls, analyze the methodology, etc. That broader view is far, far more reliable.

    Which is what we have here: http://mitpress.mit.edu/books/minimum-wages

    In this book, David Neumark and William Wascher offer a comprehensive overview of the evidence on the economic effects of minimum wages. Synthesizing nearly two decades of their own research and reviewing other research that touches on the same questions, Neumark and Wascher discuss the effects of minimum wages on employment and hours, the acquisition of skills, the wage and income distributions, longer-term labor market outcomes, prices, and the aggregate economy. Arguing that the usual focus on employment effects is too limiting, they present a broader, empirically based inquiry that will better inform policymakers about the costs and benefits of the minimum wage.
    Based on their comprehensive reading of the evidence, Neumark and Wascher argue that minimum wages do not achieve the main goals set forth by their supporters. They reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital. The authors argue that policymakers should instead look for other tools to raise the wages of low-skill workers and to provide poor families with an acceptable standard of living.
    "Suffering lies not with inequality, but with dependence." -Voltaire
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  12. #149
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    For whatever it's worth, I appreciated this thread. I learned some economic principles that I did not understand before. There clearly is a lot of misunderstand about the issue.
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  13. #150
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Interesting new data out about the effects of minimum wage during the 2009 increases:


    Between July 23, 2007, and July 24, 2009, the federal minimum wage rose from $5.15 to $7.25 per hour. Over a similar time period, the employment-to-population ratio declined by 4 percentage points among adults aged 25 to 54 and by 8 percentage points among those aged 15 to 24.

    ...

    Our analysis harnesses the fact that the 2007 through 2009 increases in the federal minimum wage were differentially binding across states. Between December 2007 and July 2009, the effective minimum wage rose by $1.31 in the states we designate as “bound” and by $0.43 in the states we designate as “unbound.” Of the $0.88 differential, $0.58 took effect on July 24, 2009. We analyze the effects of these differentially binding minimum wage increases using monthly, individual-level panel data from the 2008 panel of the Survey of Income and Program Participation (SIPP).

    ...


    We begin by assessing the extent to which minimum wage increases affected the wage distributions of low-skilled workers. Among workers with average baseline wages less than $7.50 per hour, the probability of reporting a wage between $5.15 and $7.25 declined substantially. We find that the wage distributions of low-skilled workers in bound and unbound states fully converge along this dimension. Further, we estimate that the minimum wage’s bite on our target group’s wage distribution is nearly twice its bite for a comparison sample of food service workers and teenagers.

    We next estimate the minimum wage’s effects on employment. We find that increases in the minimum wage significantly reduced the employment of low-skilled workers. By the second year following the $7.25 minimum’s implementation, we estimate that targeted workers’ employment rates had fallen by 6 percentage points (8 percent) more in bound states than in unbound states.

    ...


    In addition to reducing employment, we find that binding minimum wage increases increased the likelihood that targeted individuals work without pay (by roughly 2 percentage points). This novel effect is concentrated among individuals with at least some college education. We take this as suggestive that such workers’ entry level jobs are relatively easy to post as internships. For low-skilled, loweducation workers, the entire change in the probability of having no earnings comes through unemployment.

    We next estimate the effects of binding minimum wage increases on low-skilled workers’ incomes and income trajectories.

    ...


    We find that this period’s binding minimum wage increases reduced low-skilled individuals’ average monthly incomes. Relative to low-skilled workers in unbound states, targeted workers’ average incomes fell by $100 over the first year and by an additional $50 over the following 2 years.

    http://www.cato.org/publications/res...idence-effects



    Take aways on MW? It causes:

    More unemployment

    More unpaid internships

    And lower wage trajectories.
    "Suffering lies not with inequality, but with dependence." -Voltaire
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  14. #151
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Is there an attempt to identify the mechanism through which this supposed causal relationship is made?
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by CowboyX View Post
    Is there an attempt to identify the mechanism through which this supposed causal relationship is made?
    Absolutely and it is pretty simple.

    #1. Value of labor. If minimum wage is such that the cost is greater than the value input of the labor then you don't hire. AKA if the guy greeting people at the door doesn't ad $15 worth of value, you don't hire them at $15 per hour.

    #2. Replacements to labor. Capital automation (machines generally) that replace labor have a cost equation based on the cost of the machine, life of service, and maintenance costs. If those fall below labor costs then business choose automation over labor.

    #3. Loss of business. Sometimes in labor intensive businesses with low margins, increased labor costs can't be effectively passed on in price due to highly elastic demand for the goods. AKA goods that at one price sell well, and at a higher price don't sell at all or not nearly enough to make the business viable.

    #4. Replacement cost of foreign labor. When US labor costs rise, in some industries the cost of manufacture over seas + shipping becomes cheaper than the us labor and you get job flight.
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by Sigfried View Post
    Absolutely and it is pretty simple.

    #1. Value of labor. If minimum wage is such that the cost is greater than the value input of the labor then you don't hire. AKA if the guy greeting people at the door doesn't ad $15 worth of value, you don't hire them at $15 per hour.

    #2. Replacements to labor. Capital automation (machines generally) that replace labor have a cost equation based on the cost of the machine, life of service, and maintenance costs. If those fall below labor costs then business choose automation over labor.

    #3. Loss of business. Sometimes in labor intensive businesses with low margins, increased labor costs can't be effectively passed on in price due to highly elastic demand for the goods. AKA goods that at one price sell well, and at a higher price don't sell at all or not nearly enough to make the business viable.

    #4. Replacement cost of foreign labor. When US labor costs rise, in some industries the cost of manufacture over seas + shipping becomes cheaper than the us labor and you get job flight.

    Ok, so that's your theory. Where is that happening?
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  18. #154
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by CowboyX View Post
    Ok, so that's your theory. Where is that happening?
    It's not just my theory, it's relatively basic market economics.

    It's happening all over the place. Sometimes due to policy like minimum wage, sometimes due to labor negotiations, sometimes due to market shortages, sometimes due to cheaper and more productive technology.

    Honestly my whole career is to wipe out other peoples jobs to a degree. I'm a software developer. Once upon a time they had things like secretaries and account clerks and armies of people who filled out paperwork and filed it for a living. They are pretty well all gone now. It would take armies to do by hand what my software does more or less for free once it's put together. I'm expensive but not as expensive as the hundred people I can replace in a year.

    The cities in America that have the highest poverty were all centers of grand industrial work and solid middle class factory jobs. Much of that work went overseas because the labor was cheaper and taxes lower, not to mention a lot of it is now done by robots and computers.

    The study Squatch posted gives an example of min wage reducing employment.

    Mind you all this stuff has upsides as well. The world is richer, better, more peaceful and more amazing than ever before. Making a decent living at your job is good stuff and computers and robots and what not make it so we can do more than ever before.
    Feed me some debate pellets!

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  20. #155
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by Sigfried View Post
    It's not just my theory, it's relatively basic market economics.
    It's happening all over the place. Sometimes due to policy like minimum wage, sometimes due to labor negotiations, sometimes due to market shortages, sometimes due to cheaper and more productive technology.

    Squatch's story proposes a doesn't explain the causal relationship. Your theory attempts to and does so in a somewhat convincing manner but there could be any number of explanations. What you lack is evidence.
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  21. #156
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by CowboyX View Post
    Squatch's story proposes a doesn't explain the causal relationship. Your theory attempts to and does so in a somewhat convincing manner but there could be any number of explanations. What you lack is evidence.
    THere is only so much one can offer as evidence in economics.

    1. You can show an event corresponding with certain outcomes.
    2. You can explain rationally how an event can cause outcomes.
    3. You can talk to individuals who have experienced these events.

    You can find all 3 for the minimum wage issue; Statistics, theory, and anecdote. Together they are pretty powerful evidence that minimum wages make some people loose their jobs. There is also evidence that those who keep their jobs make more money. (that evidence is prima facie) We all know what it looks like when wages effectively have no floor, child labor, indentured servitude and so on. So there are all kinds of evils any which way you look. I think the real key is finding the right balance for time and place and knowing what you are dealing with.

    Those who are advocating for a higher minimum wage should put thought into what to do to mitigate the pretty well established fact that some people will find it harder to get work. Those who fight against it should put some thought into how we keep people out of poverty even though they have full time employment. To many think any one given policy is a magic bullet that fixes all the problems without causing new ones. The one thing they really pound into you in my econ classes is everything action has a reaction and the interplay in the real world is very complicated.
    Feed me some debate pellets!

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  23. #157
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by CowboyX View Post
    Is there an attempt to identify the mechanism through which this supposed causal relationship is made?
    I first should note that I second everything Sig says, he is absolutely correct. I would only add also that the law of decreasing marginal utility is part this story as well, it is the reason the demand curve is sloped downward (in part).

    Think of it this way, as the price of apples increase, would you eventually decrease the amount of them you buy? Of course. Labor is no different. The higher the cost, the less is purchased.


    I'm also confused when you say: "Squatch's story proposes a doesn't explain the causal relationship"


    Did you not see the OP?

    Quote Originally Posted by Squatch's OP
    I realize this is a bit of a long OP, but I think the amount of research necessary to counter popular feelings needs to be significant.

    The underlying claim that I will deal in this thread is that increases to the minimum wage negatively affect employment. Specifically, the minimum wage negatively affects employment for those workers most vulnerable to economic fluctuations, low skilled workers.

    The minimum wage is a regressive policy that both lowers employment prospects for the lowest skilled workers and prevents those workers from acquiring the experience that will boost them into higher paying jobs.

    There are two broad arguments I will make to support this argument. I will forgo the historical discussion of the racial origins of the minimum wage in the United States, or its current use as a tool of discrimination in other countries around the globe for the present time.

    Microeconomic Law – Downward sloping Demand Curve

    Just like with any other good or service, labor has a downward sloping demand curve. Some times of labor have steeper curves than others, generally lower skilled workers have a much steeper curve than college educated or experienced labor since they are more easily forgone or replaced with substitutes (machinery, etc).

    The concept is quite simple. Would you buy less of something as the price increased? Of course you would. The same is true for labor. For each individual consumer in the normal market they won’t pay more for a good than it is worth to them. For each consumer of labor, the same concept applies, the manager, or owner or supervisor won’t hire someone for more than they contribute to the company’s revenue, known as marginal contribution. Here is a great video explaining it generally, but he concept is simple. It makes no sense to pay someone more money than they make for the company.



    Bryan Caplan has done some interesting work with comparative data to show that labor, like every other demand curve is downward sloping. Specifically, he reviewed data not directly about the minimum wage to glean information about low skilled demand curves.


    He makes several key points:
    1) The effect of low skilled immigration on the wages of native low skilled workers. The lack of wage depression during several large scale immigration events shows that there is a large amount of elasticity in the quantity of low skilled labor employed (it also strongly argues against employer monopsony power, the ability of employers to dictate wages). Large elasticity in quantity demanded implies a steep downward slope on the demand curve.

    2) The effects of increased regulation on low skilled workers. Specifically done in Europe, these studies shown that when regulation increased the cost of employing low skilled workers, a company quickly downsized its low skilled labor market. That is a classic downward sloping demand curve. And since regulation cost and wage cost are identical to an employer, the same principle applies to a minimum wage.

    3) Price Control in general. Again, same point as above. Price controls have a large body of evidence showing that labor markets, especially low skilled labor markets suffer significantly when the marginal revenue is decreased due to a price control. That shows, yet again, a downward sloping demand curve for low skilled labor.

    4) If you are a Keynesian, you have to accept this downward slope because it was central to Lord Keynes’ General Theory. He argued that wages had a downward “stickiness” which led to unemployment and mandated intervention. There is no way to argue that wage stickiness leads to unemployment, but mandated wage increases do not.

    So we can see from this evidence that the idea of a downward sloping demand curve for labor is pretty robustly supported. Meaning that a vote for a minimum wage increase, is a vote against those on the margins of society having a job.

    To overcome this logical point, someone would need to show how labor is the only good or service ever known that does not comply with microeconomic law (that person could then stand by for the nobel prize). That is such an overwhelming hurdle to cross you’ll notice that no one makes the objection. Some will argue that the effect is actually very, very small, but no serious economist argues that it is zero.

    As such we can at least bound the argument on the bottom by saying that the Minimum Wage does, in fact, cause unemployment.

    Macroeconomic Evidence

    This is a relatively rare phenomenon in economics, but agreement with the claim “Does minimum wage hurt employment of low skilled workers” is about as universal as we can find. Recently, David Neumark (UC Irvine) conducted an environmental scan of the current state of economic research on the minimum wage. He reviewed more than 100 major academic studies (since 1992) and found that 85% of them find a negative effect on employment of low skilled workers.

    And Prof. Neumark is not the only economist to have done an environmental scan (a review of all academic literature on a subject) in recent years. Congress did one back in 1995 as well and found that the effects go beyond simply not hiring or letting go. At the margin, where people are retained at the higher income, other pecuniary benefits such as training, time off and working conditions suffered as minimum wages increased.

    It will also indicate that the minimum wage has wide-ranging negative effects that go beyond unemployment. For example, higher minimum wages encourage employers to cut back on training, thus depriving low wage workers of an important means of long-term advancement, in return for a small increase in current income.

    Scott Sumner has done some excellent work on the data coming out of Europe, where minimum wage laws vary significantly, and data is relatively reliable.

    There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment.
    There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment.

    Conclusion

    So what does all this economic babble mean? I’ll make it brutally simple. If you support a minimum wage, you support hurting the lowest skilled workers in our economy (generally young minorities) in favor of those who are more moderately skilled. You prevent them from getting a foot on the economic ladder. You prevent them from competing with those who can spend money towards their personal capital.
    To use an illustration, generally, you are limiting the options for a young black female and helping a middle income white male (which incidentally, it was originally designed to do).
    There are plenty of other moral issues with the minimum wage as well, but I think we can start with these.



    Common Objections

    1) But what about Card and Krueger?

    Card and Krueger conducted a study that found there was no noticeable effect on unemployment (not low-skilled unemployment, the broader category) given minimum wage changes.

    I will quote an email from Prof. Don Boudreaux of George Mason:

    Dear Ms. Schall:

    Thanks for your e-mail. You allege that I and other “conservative economists are pigheaded in [our] refusal to recognize the revolutionary findings of scientific political economists.” You describe these findings as “proving beyond a doubt” that “raising minimum wages does not destroy the jobs of poor, struggling workers.” And you single out for praise the research of economists David Card and Alan Krueger.

    Card and Krueger did indeed conduct empirical studies purporting to overturn the proposition that raising the legislated minimum-wage reduces the employment options of low-skilled workers. But I believe that their work falls far short of being the successful revolution in labor economics that you think it to be.

    First, several empirical studies before and since the publication of Card’s and Krueger’s have shown results contrary to theirs.* It’s simply untrue that there is such a bulk of empirical research in support of the Card-Krueger thesis that it has been proven “beyond a doubt.” More importantly, evidence for their proposition is still so tentative that it is, in my opinion, insufficient to justify forcible interference by government in private labor contracts among consenting adults.

    Second, Card’s and Krueger’s method of measuring the effects of raising minimum-wages – which involves surveying employers, before and after minimum-wage increases, to gauge their reactions to higher minimum-wages – is inadequate. To explain this inadequacy I quote economist Thomas Sowell; it’s a lengthy quotation, but worthwhile to read in full:

    “Imagine that an industry consists of ten firms, each hiring 1,000 workers before a minimum wage increase, for an industry total of 10,000 employees. If three of these firms go out of business between the first and second surveys, and only one new firm enters the industry, then only the seven firms that were in existence both ‘before’ and ‘after’ can be surveyed and their results reported. With fewer firms, employment per firm may increase, even if employment in the industry as a whole decreases. If, for example, the seven surviving firms and the new firm all hire 1,100 employees each, this means that the industry as a whole will have 8,800 employees – fewer than before the minimum wage increase – and yet a study of the seven surviving firms would show a 10 percent increase in employment in the firms surveyed, rather than the 12 percent decrease for the industry as a whole. Since minimum wages can cause unemployment by (1) reducing employment among all the firms, (2) pushing marginal firms into bankruptcy, or (3) discouraging the entry of replacement firms, reports based on surveying only survivors can create as false a conclusion as interviewing people who have played Russian roulette.”**

    Sincerely,
    Donald J. Boudreaux
    Professor of Economics
    and
    Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
    George Mason University
    Fairfax, VA 22030

    P.S. I’m not a conservative economist.

    * For example, Richard V. Burkhauser, Kenneth A. Couch, and David C. Wittenburg, “Who Minimum Wage Increases Bite: An Analysis Using Monthly Data from the SIPP and CPS,” Southern Economic Journal, Vol. 67, January 2000, pp. 16-40.

    ** Thomas Sowell, “Minimum Wage Laws,” in The Thomas Sowell Reader (New York: Basic Books, 2011), p. 112 (original emphasis).


    I am more than happy to detail the other statistical problems with Card and Kreuger, as well as to highlight how isolated their findings are if someone would care to defend them. That said, I’ll leave the above as an initial rebuttal.

    2) But it could be worth it, perhaps those who lose their jobs are so small as to make the benefit to those who don’t worth it?

    Laying aside the objection that this still proposes a trade off between the most marginalized in our society for the benefit of those who are less marginalized, the numbers don’t work out.

    There are currently 3,355,098 Americans working for minimum wage. (Calc: (US Population 313,914,040, working age pop: 58.5%, Labor Force Participation rate: 63%, percentage of workers working for minimum wage, 2.9%.)

    Generally, the low end of the research above indicates a 1% unemployment increase for every 10% raise in minimum wage. That would mean that 1,156,930 leave the labor force. Their wage goes from $7.25 to $0.

    This means a loss of $8,387,744 per hour.

    Meanwhile those who stay employed would gain .725 cents an hour. There are 2,198,168 who remain in the work force.

    This means a gain of $1,593,672 per hour.

    Total net loss of the policy is $6,794,072 per hour.
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
    Also, if you think I've overlooked your post please shoot me a PM, I'm not intentionally ignoring you.


  24. #158
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Yes, I saw it. Do I have to watch the video too?

    It is filled with many generalities, are there even any anecdotes in there?

    Let me give you an example of what I'm asking for. "At the margin, where people are retained at the higher income, other pecuniary benefits such as training, time off and working conditions suffered as minimum wages increased."

    Why?

    "these studies shown that when regulation increased the cost of employing low skilled workers, a company quickly downsized its low skilled labor market."

    Through what mechanism? Firings? Attrition? Was it a conscious decision or inflexible policy?


    Ok I watched the video halfway, who calculates how much each of the workers produce? I don't even have to guess...it's Edgar.

    Is Simon privilege to that information?...NOT!
    "Real Boys Kiss Boys" -M.L.

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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by Cowboy
    Through what mechanism? Firings? Attrition? Was it a conscious decision or inflexible policy?
    Oh, I think Sig and I were both confused because when you said mechanism, we assumed you were talking about the economic mechanism driving the observed effect, which was detailed on numerous occasions in thread. What you're asking is about the business mechanism businesses use to reduce their labor consumption right?

    That differs from employer to employer. The single largest determinate of that is company size. Smaller companies tend to simply shut down operations (see the examples in this thread from Seattle where smaller Pho and Pizza joints are closing operations or switching only to family labor to avoid the increased cost). In larger companies this is often accomplished more gradually via initial layoffs, divestment of operations (selling off or shutting down operations), outsourcing overseas (there is a reason so many tech call centers are overseas), or automation. The last mechanism generally takes some time and so the initial impact is not seen for a year or so as the company draws on its capital reserves to fund the automation.

    Of course one of the largest mechanisms, one we only have a little data for (and which I posted earlier), but which hurts the most vulnerable in our society the hardest, is the opportunity cost of MW. Remember that many entrepreneurs will forgo starting a business, or will adopt a lower labor model for their business because of the increased cost. This depressing effect tends to operate to slow economic growth over time, and reduces opportunities for low skill workers, especially in areas of low economic activity. An orange juice stand that has to pay a higher minimum wage might be profitable in the suburbs (and hence wealthier teenagers will get the work) than it would be in the inner city where there is less disposable income.

    To answer your last question, yes these are generally conscious decisions made by managers and owners driven by the hard math of the situation.






    Ok, now back to the economics discussion.


    Quote Originally Posted by Cowboy
    Ok I watched the video halfway, who calculates how much each of the workers produce? I don't even have to guess...it's Edgar.
    Well Edgar can calculate that. There are economists in many large companies that specialize in doing just that. In smaller companies it is usually done at the aggregate level (making product x gets me Y revenue, and costs me z via these laborers). But more often Edgar gets that information from the same place Simon gets it.


    Quote Originally Posted by Cowboy
    Is Simon privilege to that information?...NOT!
    Actually, he is. In any even vaguely competitive market the difference between marginal productivity and wages is pretty low (you can back into in any financial statement and see that it usually averages below 5%). Simon can get this information by discovering the market price for labor of the type he is offering. There are literally dozens of sources for that information from glassdoor.com to BLS data to talking to friends or trade unions.

    Now, unfortunately that market price isn't exactly the marginal productivity, it is actually the marginal productivity minus the regulatory cost of labor (the amount of money it costs the company to comply with governmental employment reporting and other requirements). But since Regulatory Cost of Labor applies to all companies (more or less) we could well call it a factor in the marginal productivity of labor, we can at least accept that it isn't lost value that Simon could be capturing at a different employer.
    "Suffering lies not with inequality, but with dependence." -Voltaire
    "Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton
    Also, if you think I've overlooked your post please shoot me a PM, I'm not intentionally ignoring you.


  26. #160
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    Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

    Quote Originally Posted by Squatch347 View Post

    Well Edgar can calculate that. There are economists in many large companies that specialize in doing just that. In smaller companies it is usually done at the aggregate level (making product x gets me Y revenue, and costs me z via these laborers). But more often Edgar gets that information from the same place Simon gets it.
    Seems to leave out a whole bunch, including management, administration, how would you factor in, say, an employee in human resources?

    How could Simon find that information? There's so much Simon couldn't possibly be privileged to, or know how to manipulate it even if he was.
    "Real Boys Kiss Boys" -M.L.

 

 
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