While looking for something else, I came across this post on the right-wing blog Power Line, attacking a groundbreaking study of the minimum wage by economists David Card and Alan Krueger. From a summary of the study by John Schmitt (pdf link):
The study received widespread attention, not because its findings were unusual (most studies since the mid-1980s have found that moderate increases in the minimum wage have little or no impact on employments), but because its methodology was so careful and convincing. Card and Krueger surveyed 33 1 fast-food restaurants in New Jersey and 79 restaurants in eastern Pennsylvania in the two months before the April 1, 1992 increase. They then reinterviewed the same restaurants about eight months later. The study’s unique design allowed them to use the restaurants in eastern Pennsylvania, where the minimum wage did not increase, as a control group to gauge the response of the New Jersey restaurants.
By comparing changes in employment in the two states (a procedure they referred to as “differences-indifferences”), Card and Krueger were able to estimate the employment effects of the New Jersey increase. Using this approach, they found that the differences in employment growth between the two states were not statistically significant. They concluded, therefore, that the minimum-wage increase did not lower employment in New Jersey.
Tihs is important because the main argument against the minimum wage is that raising the minimum wage hurts low-income workers by raising unemployment among low-wage employers (such as fast food restaurants). If this isn’t true – if small increases in the minimum wage don’t actually hurt employment significantly – then the case against the minimum wage becomes much, much weaker.
(The minimum wage is also especially important to feminists because women are more likely to earn the minimum wage than men. Raising the minimum wage probably has the effect of reducing the wage gap between men and women, and also between some people of color and whites).
To refute Card and Krueger’s study, Power Line quotes a 1995 Reason Magazine article by Benjamin Zychler, which accuses Card and Krueger of using bad data:
Moreover, the Card/Krueger study turns out to have a major flaw: The survey data upon which it depends are lousy.
Suspicious of the Card/Krueger data and findings, the Employment Policies Institute [EPI] gathered the actual payroll records from the Burger King franchises in the Card/Krueger zip codes and compared them to franchises surveyed in those zip codes. The survey data were wildly inconsistent with the payroll records.[…]
So Neumark and Wascher [two right-wing economists working with EPI] reviewed the payroll employment data gathered by EPI. When they applied the payroll data to the same econometric model used by Card and Krueger, they got completely different results. The variation in employment changes declined markedly, and analysis of the new data yields an estimated 4.8-percent decline in New Jersey employment relative to the Pennsylvania sample as a result of the higher minimum wage. Where payroll data could be compared with survey data for specific restaurants, Neumark and Wascher also found numerous errors in the Card/ Krueger data. […]
In short, using the actual payroll data instead of the survey “guesstimates” effectively refutes the Card/Krueger findings yielded by the New Jersey/Pennsylvania “natural experiment.”
That seems pretty damning, doesn’t it? The problem is, Power Line has quoted an article which was written when the story was only halfway through. It turns out that there is “lousy data” here – but the lousy data wasn’t Card and Krueger’s.
The attack on Card and Krueger relies on payroll data gathered by EPI – an anti-minimum-wage think tank funded to a significant extent by the fast food industry. Even Neumark and Wascher had to admit that the EPI was not a neutral party. Normally this sort of problem is solved by transparency; researchers make their data and methods available to the public (or at least to other researchers) to prove that they haven’t cooked the data.
However, EPI has refused to do that. Essentially, the attack on Card and Krueger consists of a biased think tank saying “we have data that proves Card and Krueger are wrong. But it’s super-secret data that we won’t let anyone check, so you’ll just have to take our word for it.”
To get around the “super-secret data” problem, the economists the EPI was working with, Neumark and Wascher, gathered their own data. The results didn’t make the EPI’s secret data look good. From The American Prospect:
When Neumark and Wascher analyzed the Employment Policies Institute sample and their own sample separately, a funny thing happened. The slightly expanded Employment Policies Institute sample indicated that the minimum wage did have a significant negative impact on employment in New Jersey (at least in one of the two statistical tests). But Neumark and Wascher’s own data found no statistical difference in employment growth in the two states. Quite unintentionally, Neumark and Wascher had vindicated Card and Krueger.
Neumark and Wascher scrambled to explain their results. They maintained that the combined data provided the best basis for determining the employment effects. But their position was undermined by major differences in the two samples. The Employment Policies Institute restaurants showed much more uniform employment changes than those in the Neumark and Wascher sample. In fact, basic statistical tests demonstrated convincingly that the Neumark and Wascher sample showed so much more variation in employment changes across restaurants that it was highly unlikely that the two samples were chosen randomly from the same population of restaurants.
In response to the controversy, in 1997 the Federal Bureau of Labor Statistics made relevant payroll data for New Jersey and Pennsylvania available to researchers. The BLS payroll data is the most authoritative data available; it cannot credibly be accused of being gathered in a biased manner, or of being a “guesstimate.” The results? Not surprisingly, the actual payroll data contradicted the “secret methodology” data right-wingers prefer; raising the minimum wage in New Jersey did not lead to decreased employment.
Furthermore, researchers were now able to examine BLS data from 1996 – when an increase in the national minimum wage caused the minimum wage to go up in Pennsylvania, but not in New Jersey (because NJ had already raised their minimum in 1992). Once again, the data showed no increase in unemployment in the state raising its minimum wage, compared to the state that didn’t.
In short, Power Line’s attempted refutation of Card and Krueger’s study is based on a fraud. The best evidence available shows that there are no significant effects on employment caused by reasonable increases in the minimum wage; and the only way the right has been able to refute this is by using data so embarrassing and dishonest that they don’t dare let other researchers examine it.
The right’s cooked “super secret” data aside, the best evidence available shows that low-wage workers benefit from raising the minimum wage. (Well, duh.)
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Thanks for fighting the deception and lies Amp.
What about the time frame? If I were a right-wing economist, I wouldn’t necessarily expect to see significant changes in employment over the 8 months that you mention. Are there any studies that look at longer-term effects?
The part I always find the most perplexing about these stories is that industries spend a bundle on hiring consultants to rebut studies they don’t like– even as they argue ever-more-vociferously that they operate on extremely tight budgets in a cutthroat market that simply can’t, can’t be tweaked to accomodate small increases in the fry cooks’ wages.
It’s not really about money. It’s about being controlling assholes. Makes me sorry that I don’t believe in Hell.
I wrote an article published online here:
http://www.freeliberal.com/archives/000988.html
Theorizing that that a minimum wage is necessary in the absence of a basic income sufficient to allow people to live without working, because capital can leverage its lesser need for labor to gain a greater share of the increased value created by the labor-capital exchange. So I am on the side of those wishing for at least small increases in in the minimum wage (absent a basic income, that is), and I am unsurprise by the results supporting the notion that a small increase in the minimum wage will not significantly reduce employment.
However, one question asked by those opposing raises in the minimum wage is a good one that I would like to see addressed: Why not raise it to $100.00 per hour?
Obviously, that would probably be too high, and would greatly reduce employment. But here is why I think the question is as important for those on the left as on the right: If a small increase does not reduce employment, but $100.00 per hour would, where is the perfect medium? If we can say that a small increase would not reduce employment, obviously not only is the minimum too low now, but it would still be too low after the raise. How high can it be raised? And why do we not raise it that high?
I think that Decnavda may be on to something. I havent read that study yet but I wonder if it mentions what the market wage was at the time the minimum wage was raised. It is possible that the market wage might have already been higher than the minimum wage.
At any rate, I wrote some crazy ideas in my blog on this topic a while ago. I am not sure a minimum wage is the best solution to the problem of low income people not earning a decent living.
In San Francisco, there’s a higher min wage than there is here in NYC. The result, as far as I noticed, was that low paying jobs in SF were livable, whereas low paying jobs in NY are not, so they go to kids who’re living with thier parents, and you get crappier customer service, there’s a vast difference in emplyee turnover rates, and there’s higher theft from employee losses.
Min wage has benefits that go beyond the bottom line. It’s only companies that value bottom line more than long term customer service that see them as a problem.
Alsis## said
In part, yes, they’ve got deeper pockets than they want to admit. But companies will, sometimes, accept losses in order to defeat workers. I expect it’s similar to the reasons some workers will remain on strike even when the wage and benefit increases they demand won’t cover their lost wages from the strike.
There really is a class war going on, and victory or defeat in a particular struggle may be more important in terms of the confidence and organization of our side or theirs beyond the immediate object of the struggle. Unfortunately, while our side isn’t always clear on that, theirs nearly always is.
Did the survey’s authors have any information or venture a guess as to where the money to pay additional wages came from? I haven’t read any of the studies, but it seems to me fairly clear from basic arithmetic that if a commodity (labor) becomes more expensive, whether through natural fluctuations or through artificial price floors, the money to pay for it needs to come from somewhere. Did the data indicate that corporate profits were down, or that business owners skimped on other expenses, or what?
How is it a matter of “well, duh” that the minimum wage benefits low-wage workers? Sure, if you refuse to consider anything beyond the first-order effect of the policy (i.e., that wages are raised). But two additional effects will probably happen when the minimum wage is raised:
(1) Employers will buy less labor. This is the closest thing to a universal law that economics has: When you raise the price of something, people tend to buy less. That’s why it would be simple-minded to say, “Gee, people who sell chewing gum don’t make enough money, so let’s set a minimum price of $2.00 per pack of chewing gum. That way, gum-makers will get more money.” But maybe people will refuse to buy gum at $2.00 a pack. Whoa, what do you know, suddenly the gum-makers aren’t making as much money after all.
Effect 2: Businesses that pay minimum wage will probably raise prices for the goods that they sell. And guess what: People who make minimum wage are likely to shop at places where prices are going to go up. So great job: You’ve raised the minimum wage at Wal-Mart, and you want to wash your hands and turn your attention to another issue, satisfied that you’ve done well. But then Wal-Mart raises its prices, which makes it more expensive for minimum wage workers to buy soap or cereal or t-shirts. Does that happen for sure? I don’t know, but it certainly could, and it is simplistic to ignore the possibility.
So are the minimum wage workers better off on the whole? Maybe they are, but the question is a lot more complicated than “Well, duh.” The Card/Krueger study is certainly not the only or final word.
I seem to recall Barbara Ehrenreich in Nickel and Dimed commenting that her Mal-Wart wages were too low for her to buy a shirt in the store. I realize that this comes perilously close to “debate by annecdote,” but it’s telling if even a minority of Mal-Wart workers can’t actually afford to shop in the store that justifies their abuse in the name of low, low prices. I’m pretty sure that the people who assemble Mal-Wart’s goods can’t afford to buy them, either.
It’s also been repeatedly established that in deliberately underpaying employees, Mal-Wart pushes much of the cost for their care onto already overburdened state governments. Talk about “hand-washing” ! Maybe someone should whip out a calculator and figure out whether fully supporting a particular percentage of the freshly-laid off is really going to be harder on a state’s government than partially supporting a much larger percentage of deliberately underpaid wage workers.
If government and stockholders held enough control over private corporations to place negotiable caps on the prices of goods, the expense borne of raises in worker wages could not be so easily foisted upon consumers. Maybe, just maybe, the impact of wage increases could come out of the hides of overpaid CEO’s, who are responsible for the huge disparities between company head and wage worker in the first place. Not that I’m waiting up, but…
Brian wrote:
Yep. Interesting that Niels is willing to justify corporate losses borne of greed and spite, but unwilling to justify corporate losses borne of a desire to assist workers. I also can’t figure out why a company that sold chewing gum (poor hypothetical product choice, since it doesn’t exactly sustain life as would rice or milk, but all right) would look at a worker making five dollars more an hour and see only the potential for immediate loss to its bottom line, as opposed to seeing the potential for a bigger and better marketing pool to push its chewing gum on. But I’m weird.
Niels:
1) Emploers don’t buy labor because they desire many laborers, so it is overly simplistic to state that they would buy less labor. They buy labor because labor is what allows them to cash profits from customers. If a laborer doesn’t create profits, or enough profits, he/she is fired. If a laborer is assumed to create profit, he/she is hired. Generally in 3rd world countries the gap between the profits created by labor and the wages the laborers get paid is huge. And employers can keep it that way, because the laborers are still slightly better off than the ones who have no job at all and starve.
Also, if you raise the price of an essential product, or a product that has alredy addicted the customers, you can keep prices high and people will still buy it. In fact, there was a time in (was it) Ireland where the increase of price on potatoes caused people to buy more potatoes, because potatoes remained the most nutritious food for price and people were so poor that they could not afford meat or other more expensive foods (which were bought less with the rise in potatoes price).
Otherwise you brought some good points, and I agree it’s not well, duh! -issue, but your points aren’t that either.
re: Employers will buy less labor. This is the closest thing to a universal law that economics has: When you raise the price of something, people tend to buy less.”
Yes, that is true. If the price of something rises, the quantity demanded will fall. Therefore, if the price of labor rises, the quantity demanded will fall. That is basic Econ 101 stuff.
But it turns out that the Economy isnt as simple as that. It turns out there is something called “elasticity” that needs to be considered as well when one attempts to decide if something like a minimum wage is a good public policy. For instance, if the demand for labor were very inelastic, one might find that an increase in the minimum wage didnt reduce the number of people employed very much. For instance, in a labor market with a 100 people and a natural equalibrium wage of $5/hr , if implimenting a minimum wage of $8/hr only resulted in the loss of one or two jobs, the demand curve would be very inelastic and a minimum wage would probably be a good idea. However, if the demand for labor in said market were very elastic and the same increase to $8/hr resulted in a loss of say 50 jobs, I probably would think the wage increase wasnt good policy.
So basically what I am saying is that the issue is more complex than many people think and sometimes minimum wages are a good policy and sometimes they arent.
Oh, I just liked to add that I believe a reasonable minimum wage is beneficial to low-wage workers. (You know, the issue of the one with the deeper pockets usually being more confident in poker than the one betting his/her basic human needs like food, a place to live… Thus the one with the more money to bet can play rough and usually “wins” the wage negotiation.)
Exactly. The elasticity of demand is very important too. But what is the elasticity of demand for labor? Anyone know?
Here’s a simple example. If an employer has 50 employees who make $5 an hour, he spends $10,000 per week on labor. If he earns $11,000 per week, that leaves him with $1,000. But if the minimum wage is raised to $6 per hour, suddenly he has to pay $12,000 per week in wages. A losing proposition. So what are his options? (1) Fire some workers; or (2) Raise prices in the hopes that consumers will still buy enough of the product that it will at least cover his labor costs. Saying, “Well, he should just continue to lose $1,000 per week, as a matter of charity,” isn’t a viable option. And it’s even more naive to say, “All employers are rich enough that they can cover any amount of wage increases out of their own personal profits.”
It indeed is. And likewise it is naive to say that employers want the amount of wages that they have to pay to be close to profits they receive from selling their products (why wouldn’t employers want more profits and less expenses?). And it is naive to say that that employers only raise prices because expenses rise (what happened to free-market competition and supply and demand? Wouldn’t employers want to set the prices to a level that produces most profits? In essence, ask any price they can get away with, so to speak, this means that some employes aren’t making profit if the competition gets tough and there is a “price war” between emploers.)
Niels wrote:
If this is mere naivite’, what of the employers who are rich enough, but don’t want to ? As I tried to point out earlier, many of these employers spend huge amounts of money busting Unions and lobbying elected officials to get sweetheart tax deals. Why are these expenditures more worthy than the expenditure of a living wage ?
Also, since free-marketeers are so obsessed with survival of the fittest, why should small employers get off the hook vis-a-vis living wages ? Wouldn’t free-market worshippers want to say, “Well, if you can’t pay your employee enough so that he or she can eke out a living without government aid, you don’t deserve to be in business. Get lost and make way for someone more capable !!”
I guess whether it is a good idea to raise minimum wage depends on the company that it affects, sure smaller companies may not be able to absorb the costs and will go out of business, thus the employer loses too.
but for many lower income people these jobs are only stepping stones to better jobs in the future especially if they are taking a trade or some other education while they are working. but I realize too that can be very expensive to go to a trade school or technical school if only making 5 dollars and hour, which probably would be okay if the government wasn’t so quick to cut education grants to the poor or didn’t make the qualifications so strigent that most won’t qualify.
the government only benefits in the long run by helping these people get the education and training they need to get higher paying jobs because the more people make the more they spend, and the more taxes they pay and the more businesses are encourged, and many in government have stocks or some ownership of businesses too, so they benefit themselves too.
trouble is the government tends not to think in terms of logic but rather in terms of who their friends are, who helped them with contributions who did them favors and now he or she owes them favors and wham it is not about fair but rather who is who.l
enter the corporate welfare and other unfair practices of government. they spend so much on giving money to big already making huge profits companies and other unnecessary expenditures that this leaves less for the poor man. as I read somewhere you never get rich by working for someone else.
you have to know the right people and have the right knowledge on how to exploit the government, provided you have enough clout to get their attention and favors.
regardless in order to level the playing field they would have to double the minimum wage for anyone to make a decent living. and for small companies that is impossible since they have little money to contribute to government to qualify for millions in subsidies and corporate welfare money to get their business to prosper even more.
and with the cost of living going higher than wages it wouldn’t really matter in the long run if they did raise it. more money there is in the system the more everything costs. compare that with a time when a loaf of bread was a nickel or five pounds of flour 15 cents, well if wages are increased teh cost of everything increases, regardless if the company is still making a nice profit after the increase since greed is a problem in this world and it isn’t always about staying in business but rather making a higher profit for every dime you invest.
and after you are already so rich you would never spend all your money the scene tends to change to one of now they want power over others, I guess they become arrogant or something and aren’t happy unless they are controlling others even if it costs them money to push others down to do it.
some wealthy people can’t stand the thought of a poor man getting ahead, or getting wealthy too especially if they are a discrimminated against group. it is arrogance or pride or something and these qualities leave little room for mercy, compassion, or I hope he makes it too mentality, it is rather how can I keep him poor too many wealthy people would put a damper on their power over people.
after all where is the power over most people? isn’t it their pocket books? keep them poor keeps them dependent and that would mean the wealthy can basically treat them anyway they please.
RR
sorry I meant the employee suffers too.
mistyped that word.
RR
Roberta wrote:
Bingo. Perhaps is Niels is so concerned about small businesses, he should consider whether a redirection of corporate welfare away from Mal-Wart and toward the hardware store up the street might be in order. If a small business was freed from other operating expenditures, wouldn’t it be easier for them to consider raising wages and still keep most prices (and employees) where they are ?
Wow, I’m in an agreeable mood today.
I find no fault w/ Amp’s analysis. Secret data and secret methodology pretty much guarantees bogus results.
I also tend to believe Amp’s conclusion that small increases in the minimum wage benefit (most) minimum wage workers. The employer/employee relationship benefits both parties. As Decnavda notes, minimum wage laws (like collective bargaining agreements) merely transfer more of the benefit of that relationship to the employee and away from the employer. The employer won’t like it, but so long as SOME benefit is left to the employer, she won’t lay people off merely on this basis.
I expect that Niels is correct that minimum wage laws tend to inflate prices for goods and services provided by minimum-wage employees, which may shift consumption to substitutes and depress the demand for low-wage workers. So McDonald’s may put in an automated soda machine rather than hiring another worker. But I also suspect that Lynne is correct that the elasticity of demand for low-waged labor is pretty small.
That said – why should we transfer wealth away from the employer to the employee? If we, AS A SOCIETY, want to ensure a minimum living standard then we, AS A SOCIETY, should pay for it. Instead, minimum wage laws seem to spread the burden of social policy to a pretty narrow slice of society. In effect, minimum-wage laws act like an anti-Good Samaritan law, taxing employers who are willing to employ low-wage workers, while leaving unscathed those employers who will have nothing to do with the poor. Joe Sixpack may not regard McDonald’s as an ideal employer, but Microsoft won’t even give Joe an application form.
(One of the peculiar dynamics of the current obsessions for reducing taxes, but not government programs, is the growth of “stealth” taxes. Drivers pay higher fees to licence cars. Builders pay higher fees to get construction permits. Litigants pay higher court costs. Government research and development programs are imposed on energy utilities and paid for through energy bills. Subsidies to schools, hospitals, and library phone systems, and for rural telephone service, are paid for through phone bills. The safety net provided by emergency room mandates is paid for through health premiums. And the safety net provided by minimum wage laws it paid for through goods and services provided by low-wage workers. Consequently, the all-important “marginal cost” that economists expect to send efficient price signals is instead larded up with hidden taxes at every turn.)
I would hope that simple compassion would cause Walmart to care that its employees stand in line at food shelters. But I see no reason why Walmart should extend more compassion to its employees than to anyone else in that line. Nor do I see any reason why Walmart should exhibit more compassion than Microsoft. Or you. Or me. If compassion is a duty, it is everyone’s duty.
Don’t get me wrong; minimum wage laws may be better than no social program at all. But I suspect that good old-fashioned welfare programs are a better, cheaper, and more efficient way to help the poor, if only we can find a political will to provide such programs. What if Amp and the Employment Policies Institute could join together in supporting social welfare programs in lieu of the minimum wage…?
nobody wrote:
and
I don’t know if these two points are mutually exclusive, or if they don’t wash because it’s Mal-Wart’s current insistance on its right to pay workers diddly that results in those workers having to access the welfare system in the first place. At any rate, something here doesn’t quite wash, nobody-really. I can’t put my finger on exactly why, but they don’t.
Possibly because the ridiculous tax breaks enjoyed by companies like Mal-Wart preclude the possibility that we can maintain those breaks and yet expand the welfare system ? I would find it downright amazing if the same companies that argue that they don’t need to sign onto Living Wage agreements –because they give to charities and isn’t that enough– would suddenly line up in droves for the chance to beef up welfare. Wouldn’t the “Charity Trap-Door” work just as well for them when you bring up welfare ?
re:#14 – the labor economic theory of how many workers an employer in a competative market will hire is basically this: Because of the Law of Diminishing Marginal Returns each additional employee an employer hires adds less revenue. So the first employee hired might produce $20/hr of revenue but the second employee might only produce $19/hr or so. At some point the extra revenue produced by adding one more employee becomes equal to the market wage and that is the point where employers stop hiring.
Employers will hire workers up until the point where marginal revenue product of labor equals the market wage.
In your example above, the employer would not be able to raise prices on the final product because (one assumes) that price is fixed by the market. Therefore the employer has no choice but to reduce workers. That employer will reduce workers to the point where the revenue the last worker hired is equal to the $6 minimum wage.
I actually tend to agree with “nobody really” that social welfare programs would probably do a lot more good than a minimum wage. Certain social welfare programs might even effect the market in such a way that the market wage of low skill jobs rises even without a formal minimum wage.
Or maybe social welfare programs could be used in addition to a minimum wage *shrug*
Niels, there’s an interesting article from the Economic Policy Institute (at http://www.epinet.org/content.cfm/briefingpapers_bp150 ) which addresses the topic in a little more depth. It specifically addresses the “classic economics” argument by noting some of the ways that classic economic tenets don’t apply accurately to low-wage jobs, and theorizes an alternate model that better explains why examination reveals no significant job losses when the minimum wage increases. The argument that minimum wage increases lead to less employee turnover and hiring/retraining costs for the employer, I think, is fairly convincing.
Generally speaking, if you raise the minimum wage, a rational employer responds by increasing automation, and by reworking the job responsibilities so that each job does more, and then raises the bar for holding that job, rather than by raising prices. Raising prices cuts volume of sales, and employers who have lots of low-skill employees are generally quite dependent on their volume of sales.
This can be difficult to perceive when the changes are small; if you go from $5.00 an hour to $5.25 an hour, the quality of the skillset you can buy access to does not go up much.
To use a broader example to make the point clearer, imagine if the minimum wage went up to $20 per hour. What would McDonald’s do? They would automate. Order-taking is a job where a big increase in skills doesn’t translate into a big increase in productivity, so they would replace the $20/hour surly clerk with a touchscreen and a PIN pad for credit card transactions. They would also redesign their work flows so that one highly-trained and capable person would replace two or three high-school kids behind the stove.
Minimum wage laws do reduce employment under the right conditions (highly elastic labor demand) and in places where the minimum wage is higher than the value of the economic output of a minimum-wage worker – but those circumstances don’t prevail very often. Left-wing economic thinkers are generally right about that.
The laws do tend to displace low-skilled workers in favor of higher-skilled workers, by making the low-skilled workers uneconomical for employers to hire. This displacement is largely invisible – who tracks the fate of individual stock clerks at Wal-Mart? – but real nonetheless.
The real question any economic policymaker needs to bear in mind is, what will be done with the stupid person who is ill-motivated and has no particularly valuable skills. You can’t have great pools of those folks wandering around idle and broke, or you get very bad social pathologies. Something has to be done so that those folks have access to the elements of life – whether that is preserving low-wage jobs, or social welfare, or what have you.
How about a guaranteed minimum income that everyone gets no matter if they work or not?
The problem with the guaranteed minimum income is that it creates a marginal disincentive to work across the board. For that marginal disincentive to be small enough not to slow down the entire economy, the guaranteed minimum would have to be pretty low; probably so low as to not keep people out of genuine poverty.
I’d prefer an approach of abolishing wage laws (creating a boom in low-end employment) and extend tax credits for working people. So you’d make $8k a year from your $4/hr job, and then the taxman would kick in another $8k (rather than the ~ $4k you get now from EIC and such) – so your job would pay you $8/hr, as long as you were on the books and filing your taxes. It makes much more economic sense for the locus of the subsidy to low-skill people be the state, rather than individual employers.
Robert is technically correct about the work disincentive of a gauranteed income, but I would like to quantify it. A discussion paper about the results of the Negative Income Tax (NIT) experiments conducted by the U.S. and Canadian governments can be found here:
http://www.usbig.net/discussionpapers/086-Levine-et-al-NIT-session.doc
In this paper, Robinson Hollister, a professor of economics at Swathmore College, states:
Labor supply results showed about a 13% reduction of work effort for the family as a whole starting from an initial work effort of 35 hours per week for the entire family . One-third of the response came from the primary earner, one-third from the secondary earner, and one-third from tertiary earner in the family. In most cases, the primary earner worked more hours than the secondary and tertiary earners, and therefore, when measured in percentage terms, there were relatively small responses from the primary earner. Percentage term responses were much bigger from the female spouses in the family and from the third workers in the families. The biggest response overall came in reduction in the female labor supply and that mostly took the form of slower reentry to the labor market after absence. On the question of whether the labor supply response would raise the cost of this income guarantee way over what it would be if there was no labor supply cost, the labor supply response added about 25% to the static costs of a national program with a guarantee level approximately at the poverty line. You could look at these results as either half empty or half full. You could say, that 25% is too much or not too much.
I would also point out the current most popular proposal for a guaranteed income is the basic income guarantee (BIG), which would be given to everyone regardless of wealth or income. The programs in the NIT experiments had an average “take back” rate of 50%, and, as any good conservative would predict, the work disincentives increased with the take back rate. A BIG would therefore presumably have a much smaller work disincentive than the 13% found for an “income tax” rate of 50%.
This is a trick question, right ? Wait !! [snaps fingers] They could all get jobs as CEO’s !! After Mike Ovitz and that Worldcom guy, surely there’s nowhere to go but up, right ?
http://www.commondreams.org/views05/0716-30.htm
I can’t see that a “surly” $20 per hr clerk would be any less of a bargain than the so-called corporate lions.
…When Dean Witter and Morgan Stanley merged, CEO Phil Purcell packed the merged company board with his buddies from Dean Witter. Trouble started and the company faltered. A revolt by ex-Morgan Stanley top executives led to toppling Mr. Purcell this year. He took away a package worth about $106 million, including a new $44 million cash bonus. Lots of people would like to be fired that way for not doing a good job.
But it was his protégé’s pay package that stunned the usually jaded business press. Look at the terms. One Steve Crawford, hardly in his Forties, was appointed by Mr. Purcell and served on the job for three and a half months as co-president. Crony capitalism. He was working in administrative jobs at Morgan Stanley before his windfall elevation. Well, the Board gave Mr. Crawford a guarantee in June 2005 of $32 million in cash compensation over two years or $16 million a year. Then, catch this. The Board said that he could walk away with the entire cash hoard if he quit by August 3… –Ralph Nader 7/18/05
I wonder how much that breaks down to an hour. [rolleyes]
This is a trick question, right ? Wait !! [snaps fingers] They could all get jobs as CEO’s !
Except for the “stupid” part. [I] think that someone who can work things so they pull $106 mil out of their butts for fucking up is pretty damn smart.
“Smart” and “good for the company” being two distinct concepts, of course.
I wonder how much that breaks down to an hour. [rolleyes]
An hourly wage isn’t really the appropriate analytical tool at this level of the economy. Morgan Stanley generates $40 billion in revenue annually. $106 million is 1/400th of their yearly gross. Most analysts wouldn’t think that a quarter of a percent of the gross is too much of a leg to chew off to get rid of an incompetent CEO, once it becomes apparent he was the wrong person for the job. Tell those analysts that the alternative was a bloody intracompany war which would almost certainly destroy shareholder value in the 10 billion dollar range, and the decision becomes even easier.
There are people in Ghana who would think me insane for throwing out a $3 jar of mayonnaise because it tasted weird. That’s a week’s pay; risk the salmonella, fool!
Economic decisions often appear irrational to people who aren’t making them.
[Edited by Amp to remove insulting comment]
Ooo, Decnavda beat me to it.
I actually know Hollister! I had the pleasure of staying with him last February. Not only is Rob brilliant, but his wife Valerie is a most engaging artist with works displayed in universities such as Stanford, Princeton, Williams, etc. She has achieved acclaim for her work on the MacIntosh, and I regularly wear her Evening in Malaysia tie (with a black shirt, naturally).
Ok, ok, back on topic now….
I thought there was a latin saying “Pecunia non olet” (money doesn’t smell). I’d think money out from a CEO:s butt would smell pretty bad. (Or maybe CEO:s have non-smelly butts with their other butt-related superpower?)
Well, Tuomas, there’s always Woody Guthrie:
“…Well you say that I’m an outlaw
And you say that I’m a thief
Here’s a Christmas dinner
For the families on relief.
“As through this world I’ve travelled
I’ve seen lots of funny men
Some would rob you with a six-gun
Some with a fountain pen.
As through this world you travel
As through this world you roam
You’ll never see an outlaw
Drive a family from their home.
The real question any economic policymaker needs to bear in mind is, what will be done with the stupid person who is ill-motivated and has no particularly valuable skills.
Robert, when you say “stupid”, do you mean that the person is actually mentally handicapped, or that they have plain old, boring, ordinary intelligence? When you say “ill-motivated”, do you mean that they refuse to put in 8 hours of honest work, or just that they lack the drive to become a rising star? When you say “no valuable skills”, do you mean that they’ve been living in a cave and can’t learn to work a cash register, or just that they have only average abilities without any specialized training?
I could not accept an economic system that considers average folks to be not good enough to earn a living wage. I think that any job that contributes to the society in a real way should be adequately valued and the person who performs it should be decently compensated. That’s what I was trying to express when I blogged that the minimum wage is a pro-life issue.
Draw a bell curve for whatever measure of “stupid”, “ill-motivated” and “low-skill” suits you. I am referring to the approximately 25% of the population who will fall between -1 SD and -2 SD on that curve, assuming a normal distribution.
Even if we go with those numbers, it would depend on whether there are jobs out there that really need doing and can be competently done by people who are more than one standard deviation below.
Draw a bell curve for whatever measure of “stupid”, “ill-motivated” and “low-skill” suits you.
Since you used those terms, why is it up to LAmom to define what you meant by them?
Economic decisions often appear irrational to people who aren’t making them.
So true. And to people who are confident they will never have to make them.
I don’t know that the CEO who gets bucks for failing is necessarily smart as they are immersed in a world where such things are normal. You know, we give Bob a break because someday we may need $100 million too, and it’s not like it’s *our* $100 million. (Of course, you could also argue that Bob was smart enough to get himself into those rarefied realms in the first place, but there is a lot more to that than ‘smart.’ Nepotism helps.)
Even if we go with those numbers, it would depend on whether there are jobs out there that really need doing and can be competently done by people who are more than one standard deviation below.
Right. I tend to be leery of any economic proposal (regardless of ideology) that gets rid of those jobs. I think it’s better for folks to work than be on the dole, if its possible for them to work.
Yeah, it’s funny how the article I clipped distinctly mentions cronyism, but that probably doesn’t exist in Robert-land. There, it’s probably called “merit.” Robert, you have an uncanny knack for simply repeating the point someone else has already made with some kind of solemn air as if you’re breaking through to a horde of unruly savages. It’s quite true– and the article agrees– that the decision “appears irrational” to those not involved in the actual machinations. It’s also worth noticing that the stockholders whose financial health allegedly hangs in the balance in these little minuets cannot –in general– be directly privy to the decision-making process even if they would like to be. It’s also very hard under the proxy system for the average stockholder to have any shot at dislodging the crony system, even when they firmly believe that it would be better for them if they could.
At any rate, I would argue that you understand the average day of that “surly clerk” no better than I understand the average day of the CEO at the top tier of Morgan Stanley. However, I reiterate my earlier point that it’s rather sad to contemplate this: The same people who will shell out what’s essentially blackmail money –in monumental amounts to most citizens– to rid themselves of incompetent leeches of their own class will still scream and tear out their hair at the thought of paying out a living wage to those of a class so far below them that it’s scarcely visible to them from the heights of Olympus. Unless, Heaven forbid, they need a carpet vacuumed or a car tuned up.
All with the cheerleading of the gleefully callous, such as yourself, of course.
It’s also very hard under the proxy system for the average stockholder to have any shot at dislodging the crony system, even when they firmly believe that it would be better for them if they could.
If only they had some mechanism for divesting themselves of their membership in this appallingly undemocratic body, and trading that resource for money, which they could then use however they wished.
At any rate, I would argue that you understand the average day of that “surly clerk” no better than I understand the average day of the CEO at the top tier of Morgan Stanley.
Well, I’ve been the surly clerk within the last couple of years. So my insight probably is tainted with all that dreary first-hand experience.
It’s disturbing, but completely unsurprising, to see you willing to “argue” something that you don’t know anything about.
Robert, why do you get such j0llies at being such a paternalistic pain in the ass ? I think it’s safe to say that I know at least at much about the stock market as you do about pregnancy. I’ve certainly sold stocks and struggled through reading proxy statements and annual reports more times than you’ve ever been pregnant. You would never acuse a male daring to invade your little boys-club of Bell Curves, et al of “not knowing anything about” it, just because they dared to challenge your extremely dubious authority. If you can’t speak to a woman without continually engaging in this sort of passive-aggressive crap, I’d prefer that you follow the lead of your fellow “unapologetic sexists” and just ignore me.
So I guess you were out of the room when your accountant was trying to explain about the funny thing that happens to your income if you sell a bunch of stock in the course of a year. IOW, the average stockholder who finds the practices of the Big Boys (and occasional Big Girl) at the top repugnant has no recourse other than to liquidate their savings and take a huge bath the following April. Or re-invest their money someplace else where the accountability trail is even less-known to them.
Compassion on overdrive. That’s you all over, Robert.
You would never acuse a male daring to invade your little boys-club of Bell Curves, et al of “not knowing anything about” it, just because they dared to challenge your extremely dubious authority.
Alsis, you don’t know anything about what I do for a living. That’s the subject of my claim about your ignorance – your assertion that I wouldn’t understand the life of a clerk.
Since I have no authority, I don’t feel much of a need to defend it against the vagrant hordes of icky women. But I do tend to slap back against people who say ignorant things about me – whatever the shape of their genitals.
IOW, the average stockholder who finds the practices of the Big Boys (and occasional Big Girl) at the top repugnant…
Your plaint for the oppressed stockholder was that they couldn’t do anything about cronyism. Well, it’s pretty darn obvious that there’s cronyism out there, and there aren’t any stockholders for whom this comes as a big surprise. It’s a cost of doing business.
When this is pointed out, you move the goalpost. Now the poor stockholder can’t do anything about the specific person at the top. Well, that is a shame – but once again, the small shareholder knows this going in.
If you can’t speak to a woman without continually engaging in this sort of passive-aggressive crap, I’d prefer that you follow the lead of your fellow “unapologetic sexists” and just ignore me.
The observed patter – exemplified on this thread and dozens of others – is for me to say something to some other participant here, or to the general audience. Then you chime in, usually with snark and either deliberate or unintentional misrepresentation of the argument. Then I respond to you. And then you complain about what an awful meanie I am, and wish that I would stop talking to you.
I’d be delighted to. Stop coming up to me and starting conversations.
I’m not feeling up to going back in the post to determine who started it (and I hope that no one will feel compelled to explain it to me). But Robert, Amy, please try not to post so many personal attacks – at least, not in my threads. Thanks.
Sigh. Excuse me then. Since you pride yourself on your smarts, next time perhaps you’d like to phrase that a little more clearly.
I’m even more confused now than I was before. Why would you choose clerks as a group of people to whom the observer is to note that they are automatically, by definition, undeserving of $20 an hour ? Do you really think that little of everyone in your own wage-tier ?
Oh, and am I to assume that since I don’t agree with you, your opinion is that if I don’t –through psychic powers– know what you do for a living, I don’t know anything about what it’s like to work for wages ? Please.
Dude, you’re the one who pretended, knowing full well that it’s not the case, that a stockholder can easily deal with corruption on a corporate board by simply withdrawing their interest in the company. You implied sarcastically that this is a walk in the park. I told you that I didn’t agree. Not only is it not a walk in the park, it’s not a meaningful way to deal with corporate corruption. If simply arguing that your point is a distortion of a real-life problem is “moving the goalpost,” I’d say there’s a lot of that on this board and others. It’s part and parcel of discussion.
Try having your discussions in email. Then I won’t have to plow through them to get to the other posters.
At any rate, Amp. I’m sorry for drifting the thread. The point I was originally trying to make with the Common Dreams clipping was that it’s folly for anyone to assume that wages and salary are automatically geared to competence in this great land of ours. Really, I don’t care if someone manning the sour cream gun at Taco Palace has an IQ that’s half mine. They still ought to have a living wage, and there is no stretch of the imagination by which I can see $5.15 an hour as a living wage. A company that can’t pay its lowest tier something other than subsistence wages ought to think twice about whether or not it should be in business at all. >:
A company that can’t pay its lowest tier something other than subsistence wages ought to think twice about whether or not it should be in business at all. >:
And that would help the lowest tier…how?
Oh, I don’t know. Perhaps clearing the way for some more savvy people –those who can reconcile their desire to be in charge with their sense of common decency– to jump into the fray and peddle their own smaller, locally-owned, or at least more worker-friendly brands of chewing gum, et al.
The head of CostCo has been cast by some business leaders as having a screw loose. Not because he’s running his company into the ground, as CostCo is actually doing well. No, he’s been depicted that way because his salary is chickenshit compared to that of most corporate leaders. He channels a great deal of money into generous wages and benefits for his employees. Far more than that provided at other big box stores.
I write this with the caveat that I don’t know what the starting wages at CostCo are. I’ll go out on a limb though and guess that they exceed minimum wage.
If we have to have big box stores, I’d like to see more execs like the head of CostCo.
http://www.alternet.org/story/19014
I see the thread got reincarnated. I’ll tackle this one:
Then it would seem that raising minimum wage encourages effectiveness in job responsibilities, thus requiring effective management, and increasing automation, while causing a net loss of amount of jobs, does create some new jobs and businesses: the ones specializing in the production and maintenance of machines (automation), and thus encourages technological progress. And I think it makes sense: Ask not whether a job that’s done by a machine could be done a human, but ask whether a job done by a human could be done by a machine (as of possible “machine takeover”, automation is a fact ever sense the industrialization, and there are human-only jobs, see below)
Automation also tends to happen anyway, I suppose it all depends which is cheaper, a worker or a machine. And machines tend to get cheaper and better due to aforementioned technological progress, thus some jobs actually are eventually “doomed”. However, there are plenty of possibilities in the field of service industry (providing more care-takers for old people and the disabled etc. machines don’t have empathy. Er, not yet anyway.)
This argument by Robert really seems self-defeating, as he is basically arguing that raising minimum wage encourages effectiveness and innovations in the field of automation.
The New York Times recently had a good article about Costco. I thought it was interested that here you have a retail model that is obviously working and the Wall Street analysts are putting pressure on the company to both compensate the workers less and to raise prices so they can squeeze a little more profit for the shareholders.
Here is a particularly poignant paragraph from the article:
Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.”
I agree with this. Small incremental increases in the minimum wage do not affect employment overall. But it does affect the types of jobs that are available and the amount of work expected of each employee. I work in a grocery store. I remember the last time the minimum wage went up. I think that was back in ’97? Anyway, the store still maintained the same number of workers. You can’t run a store without a set number of people on shift or a set number of hours in service oriented departments. Instead of reducing the numbers of workers, basically, they went through and “re-evaluated” the full time positions. Those deemed not critical, were eliminated. The workers were allowed the option of staying on at reduced wages and few if any benefits or accepting a small severance package. Then they just quit promoting workers to full time.
That meant few, if any part timers could hope to be put on full time with guaranteed hours and benefits like health care, sick days, or vacations. It also meant that department managers were required to go “salary”. Which means they are paid for 45 hours a week, regardless of the number of hours they worked. [Most department mangers work 55 to 70 hours a week.] They did away with overtime for hourly full time workers. One was not allowed to work over 40 hours and could be written up if they did so. The explanation was that they could get 2 or 3 part timers for what they would have to pay a full timer for each hour overtime. So, actually, the number of minimum wage workers increased after the last wage upgrade. And while it may have helped in the short term, it hurt in the long run. Once you were hired as a part time minimum wage earner, that is where you stayed. No hope to advance, no guarantee of number of hours you could work in a week. Plus, the company based the number of hours allowed overall to a store in any given week on estimated “sales per man hour”. On weeks when it looked like they would not meet that goal, full time workers were sent home so part time, minimum wage workers could be called in., because they could have two part timers there for every hour they would have paid a full time worker. Full time was considered by the company to be 32 hours a week. While the norm was 40, they were allowed to cut it to 32 at anytime.
I think that minimum wage locks employees into dead end jobs. Plus, it hurts existing workers when the minimum is raised.
(from the Times article, courtesy Lynne)
According to etrade, Costco closed at 45.95 a share yesterday. Maybe it’s all an elaborate plot to encourage Costco’s employees to buy stock in their own workplace. Oh, my. Poor Mr. Dreher. Somebody fan him and bring him a mint julep. :p
I think that sometimes those Wall Street types sit there and think “Hmmm the stock price is 45.95 but if we could talk them into treating their employees like crap, we might be able to get that price all the way up to $46.” They forget that stock prices are based on profits and that the equation for profits includes *both* costs and revenue. They act like well paid workers are just as productive as poorly paid workers. They act like well paid workers have no effect on revenues.
I think this kind of attitude on Wall Street illustrates for me why it is important to vote with one’s dollars both as a consumer and as an investor. I would encourage anyone who likes what Costco is doing shop there and buy stock in the company. It shouldnt be too much of a hardship either. I shop there all the time and love it. And the stock is rising so it isnt like it is a bad investment.
Lynne wrote:
Well, like I said above, there’s also the distinct possibility that long-term profits are less important than just putting one’s foot down and reminding the peons who’s boss. Otherwise, it seems that practicality would dictate desire for a stable, healthy, loyal workforce, not one in constant turnover.
Another example of this dynamic would be over at Starbucks, where the IWW has been trying to organize NYC workers for a little over a year. Starbucks has spent a fortune to curtail the drive, even as they obstensibly can’t afford to give workers enough hours to access their purportedly generous benefits package, much less a higher hourly wage than $8.25/hr (which doesn’t last long in NYC, given average living expenses).
http://newyorkmetro.com/nymetro/news/features/12060/index.html
http://www.iww.org/en/node/1151
mousehounde wrote:
mousehounde, I think that I followed you up until this point. Are you saying that sub-minimum, or unregulated wages would encourage upward worker mobility ? I don’t see how that could be, given the current employment climate in the U.S. Also, wouldn’t the removal of wage floors act to bring down wages across the board ? So a worker who once made $5.15/hr clerking at Dollar Bargains is now making $3.50/hr. She bolts to the local big-box chain in hopes of damage control, but Big Box is no longer constrained by Minimum Wage laws, and now will only pay her $3.75/hr. Sounds like a pyrrhic sort of “mobility.” :(
You also pointed out in your post that the grocery chain you worked for needed a certain number of employees no matter what they were paid. Wouldn’t that remain the case if wages went down, rather than up ?
Otherwise, it seems that practicality would dictate desire for a stable, healthy, loyal workforce, not one in constant turnover.
It depends on your goals. If your company expects results now, saying “But this will pay off in five years” is going to need a lot of convincing.
The workers were allowed the option of staying on at reduced wages and few if any benefits
Benefits are the real cost.
On the subject of a guaranteed minimum income, they have something like that here in the UK, and I’m a recipient. To make sure as many people work as possible, they a) set the income so low that recipients typically have to have other living costs paid by the state in addition and b) force all recipients to jump through hoops to prove they’re really trying to find work (insufficient effort can be grounds for stopping benefits).
In practice, people see the hoops as something to circumvent (I was advised by a friend to “apply for jobs you know you won’t get, and don’t worry, no-one will employ a pregnant woman anyway”) which seems to render the whole thing as pointless as most government initiatives.
[groan] Yeah, mythago, tell me about it. I just recently went back to temping after being out of work for a month. I haven’t forgotten the constant teeth-baring at Union meetings between the shop stewards for full-time and those for part-time workers when I was still a public employee. The pt’s resented– rightfully, I think– that they paid more for their medical benefits (and other stuff as well, perhaps). This was true even if they worked somewhere like the County Library. There, as with the job mousehounde talks about, Management was all about trying to keep workers below the “magic 32” hours they’d need to qualify for a full-timer’s benefits. Even if a staffer is scrounging and begging for more hours, (not unusual as Library Staff is close to the bottom rung of County wages) she/he had no guarantee from week to week;She/he had to hustle nonstop. Management’s usual insistance is that they are not budgeted to have full-time library staff.
Meanwhile, the Management at the Tax Office, where I used to work, informed me more than once that I couldn’t cut back my hours to the borderline of pt/ft because THEY couldn’t afford THAT. Just thinking about it all again makes my head hurt. :(
I think it was a Suzy Orzman (sp?) show the other night that brought up the fact that our fixed expenses, as a whole, are a higher proportion of our income nowadays than they used to be. For instance, you used to be able to plan on your housing making up about 30% or less of your budget, but now many families are in situations where housing is 75-80% of their budgets. So if the Average Jo/e only has 5-10% (I think those were the numbers she used) of income that is NOT dedicated to fixed expenses, how on earth are minimum-wage workers supposed to get by, let alone have anything to do any kind of financial planning with?
I’m bumping this thread to share this little gem from EPI:
http://www.epinet.org/content.cfm/newsflash_051019_minwage
@#$%!&**+@!!!
Share it with someone you love. >:
Fortunately, the Enzi proposal was defeated. Unfortunately, so was a worthwile increase in the minimum wage that Kennedy proposed.
Yeah, I knew that emailing that den of theives was pointless, but I did it anyway. Bah. When do we bring back the guillotine ?
When do we bring back the guillotine ?
When leftists realize that violence and force are the only way to induce people to accede to their totalitarian vision of the future, simultaneously with growing a crop of leaders who have the stones to do it.
It’ll work out about as well as the last time y’all went down the guillotine road.
Robert, the “guillotine” bit is a joke. And your toddler-esque attempts to Red-bait are as tedious as nearly everything else you post.
No, wait. I take back the toddler part. It’s unfair to the toddlers who appear from time to time on this board.
Piss off.
Amp, if you insist upon removing this quote, I request that you remove Robert’s tiresome trolling as well.
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you want so badly for the minimum wage to be a good idea that you ignore logic and implications. i won’t rehash all of the (valid) traditional arguments against a minimum wage. instead i will ask: what will the minimum wage do for the legions of unemployed, mostly minority youth in the inner city? they can’t find work at 5.25, what do you think will happen at 40% above that?? now they are condemned to hanging out, tempted into gangs, you know the story. if they could work, learn responsibility, get off the street for $4 or $3 an hour, why is that a bad idea? do you think the shopkeepers in the inner city are making so much money they can afford to ADD new workers at $7 an hour? and who shops at minimum wage establishments? rich people? i don’t think so. try people struggling to scrape by. you want them to bear the price increases resulting from minimum wages? with friends like you…