I believe this to be true overall. McDonald's or bigger places wouldn't hire less people, if they could get away with lower staff levels they already would have lowered them.
For small business it's one percent or less change per employee.
> McDonald's or bigger places wouldn't hire less people, if they could get away with lower staff levels they already would have lowered them.
To zeroth order, that seems reasonable. But the added expenses might shift the cost-benefit analysis enough to add motivation to explore automation or other changes to reduce the workforce. The necessary R&D or capital costs might have not been attractive with lower wages, but could become attractive with higher wages.
Do you believe there's a somewhat fixed wage threshold (for now or 20 years later) that when it's passed McDonalds begins to consider replacing workers with self-service machines?
Or that the self-service machines are going to arrive regardless of the wage, with the only difference being McDonalds keeping workers on $10/h wage 3-5 years longer than they would keep the $15/h workers?
What happens when the entire self-serving machinery costs as much as it does to pay one or two employees for a year? Does it make sense for McDonalds to keep human employees at any wage?
Automation is already being explored essentially everywhere, so I'm not sure motivation is a big part of it. The question is more whether it's feasible, both technically and economically, in a given case. In principle, yes, a minimum wage helps the economics of automation by making the "competition" more expensive. But with the kinds of modest wage changes typically proposed, it's a pretty marginal impact: +10% to wages might move up automation that was going to happen anyway by 6 or 12 months, but it's not the kind of change that meaningfully impacts the progress of automation on a larger scale.
>To zeroth order, that seems reasonable. But the added expenses might shift the cost-benefit analysis enough to add motivation to explore automation
Automat restaurants have existed since the 1890s and were first touted as a cost cutting measure.
Ironically enough, they were most popular around the 1930s and disappeared roughly when the minimum wage was highest (1970s) and are now making something of a comeback, when the minimum wage is again, historically very low.
You can't automate to a level to replace them. You can automate order taking, but the human order taker who does it also cleans the store, fills and packages orders, leaves the store to clean the outside and dumps trash, answers customer questions about food, troubleshoots register issues, balances their drawer, and more.
And something as simple as checking straws and napkins or making sure the floor by the soda machine is clean can't be automated cheaply. Automation in general is too fragile to handle the demands of that kind of work.
These are all environments designed for humans. Vending machines already get warm food, and fresh coffee to me. The system once automated will not look just like the current human paradigm.
Agreed. Watch "The Founder". The amount of workplace efficiency brought by the McDonald brothers would have been, and almost certainly was considered inconceivable by other restaurateurs of the era.
"The system" was so good that it revolutionized the fast food market to the point that almost every attempt to buck the trend is now considered some sort of synonym to 'craft' or 'artisanal'.
(Note: I'm taking the movie as canon, which is basically stupid, but I have a grandfather who would gladly tell you the story of his first McDonald's visit, and how revolutionary it was relative to everywhere else he'd been, but for his passage a few years back.)
There's a lot to operating a physical establishment that machines can't do without reducing the experience. Something as simple as cleaning the tables will not be automated. You need people to provide service in a restaurant, which is why automats generally never take on.
And we already have a model of what it will look like, laundromats. That's what people are aiming for, the patron doing a lot of the work with maybe one person to oversee and provide special services like dry cleaning. I don't think that would be an improvement in food service.
At the risk of coming across like a naysayer, this paper omits a lot of crucial details. The obvious, and most usually contested metric is not whether or not the economy goes up or down, but by how much it might have gone up or down in the absence of a minimum wage policy. A year-over-year growth of 82% might be meaningful, but without knowing whether it would have been 60% or 120% otherwise, doesn't really tell us what we need to know.
Less obvious is the effect this has on any individual business. If there are 10 restaurants in TownX, and TownX raises the minimum wage, we don't know how many of those restaurants survived or thrived as the result of the wage increase just because the restaurant economy went up whatever percent. If six of the smaller restaurants had to close, with the other four expanding to fill the holes they left, is it a net good if we're simply concentrating the wealth away from the small business owner into the hands of national chains?
This report suffers from a serious flaw: it uses federal minimum wage increases rather than state or local increases. By doing so, they have no control to compare to and thus cannot show causation. For instance, suppose that federal min wage hikes only occur during periods of economic strength. It would seem that periods following min wage hikes have better outcomes than otherwise. However, the economic growth is not the cause of the economic strenfth but a response.
The proper way to do min wgae testing is by comparing neighboring districts. If one county has a min wage hike its neighbors do not, then you can compare the outcomes of the affected county and use the other as a control.
When this is done, the effects of min wage hikes become clear: in the short run, employees are not immediately fired because businesses stay open. However, in the long run, fewer employment opportunities are available. This suggests that in some areas, a min wage hike can cause disemployment effects over the long term [0]
This has been done. Dube, Lester, Reich is a very rigorous study that compares all minimum wage increases across all state borders between 1990 and 2006. It controls for most things.
Also worth mentioning is the inverted funnel of Doucouliagos and Stanley, which suggests that there's considerable publication bias in favor of the traditional economic narrative.
Dube, Lester, Reich focused on the short run. The paper I linked (Sorkin) agreed with their findings in the short run
> This short-run employment response is in line with both our estimates in this paper, as well as recent work studying the restaurant industry, such as Dube, Lester, and Reich (2010), Neumark, Salas, and Wascher (2014), and Allegretto et al. (2016)
The disagreement is over the long run effects:
> We find that the short-run employment effect captures only a small share of the long-run employment effect generated in the model.
...
> much of the recent research suggesting that minimum wage hikes barely reduce the number of jobs in the short run should be taken with caution. The longer-run disemployment effects are potentially large.
So when you say "no effect was found" it's because they were only looking in the short run.
That paper does not give a lot of motivation for why it uses the control that most strongly changes the results: heterogeneous (space) time variance. Why would it look like minimum wage increases decrease employment when considering US macroeconomic trends, but not when considering finer grained trends? If you increase your minimum wage you're losing out on employment compared to the US as a whole but locally there's no change in employment levels.
"We show that this heterogeneity is spatial in nature. We also show that in the presence of such spatial
heterogeneity, the precision of the individual case study estimates is overstated. By essentially pooling all such local comparisons and allowing for spatial autocorrelation, we address the dual problems of omitted variables bias and bias in the estimated standard errors"
That states an intuitive statistical fact about spacial unevenness of economics but it does not necessarily correspond to a reasoning why you should add it as a variable.
I am not suggesting the results are one way or the other, but let's all keep in mind that given any statistical phenomenon, we can control for the change.
i.e. if there is an increase in automation due to the minimum wage, which in turn displaces workers, a biased or naive researcher can "control for automation and technology trends"-- effectively eliminating the perceived effect of the price floor.
I'm not saying that this is what is happening here, as I haven't read the studies, but I wouldn't be surprised if this were the case given that they are claiming the law of demand doesn't apply.
Agreed. In a robust employment market, lawmakers will raise the minimum wage to a level that is still lower than the market rate. The effect is pretty much zilch except for the lowest of the low-level employee. For them, the minimum wage acts as a safety net.
No matter the methodology in this report, common sense tells otherwise. It's a basic economic tenet that as the price of a good or service raises, less is purchased (Except for Giffen goods [1]).
As a thought exercise, consider the effect of raising the minimum wage to $100 in a town. What would happen to restaurants in that town? They would have to raise their prices drastically to cover the new expenses. Customers who were accustomed to eating out would flinch at the much higher prices and either eat at home or go to a neighboring town. The end result would be closed restaurants in the town and fewer jobs. Of course with a much smaller raise in the minimum wage in the town, the effect would likely be lost in the standard noise of restaurants closing and opening but the effect would still be true.
I have always thought that spare time is quite clearly a giffen good for significant amount of people. (If it was not, people would work shorter days in sweatshops than western middle class jobs.)
And if spare time is giffen good, it is quite natural that increase in minimum wages does not increase unemployment.
> No matter the methodology in this report, common sense tells otherwise.
And it's common sense that the mercury in vaccines is neurotoxic, no matter what those studies say. We don't need any fancy book-learnins here!
> It's a basic economic tenant that as the price of a good or service rises, less is consumed.
We're all familiar with Econ 101, thanks. But there is in fact a great deal of empirical evidence that the real world in general, and labor markets in particular, do not adhere to these extremely simplistic models.
No matter the methodology in this report, common sense tells otherwise.
Common sense says that complex systems behave in unexpected ways. Seeing wages only as a market is naive. Wages provide money to be expeded in other markets. Unemployed people tend to look for alternative income sources, legal or otherwise, or move. Poor people get sick, commit crimes that in turn causes more needs in other parts of the system.
In a competitive market where less labor is an option, companies that use less labor would have a larger advantage thanks to a higher minimum wage. This would encourage automation and decrease employment.
In a competitive market where using less labor is not an option, wouldn't #2 happen? All businesses would have the same cost increase and could expect to raise prices.
I've seen no study which demonstrated any causal link between raising the minimum wage and technological progress in automation and frankly I'd be very surprised if there were any connection. Research money doesn't tend to come from angry Burger King franchisees.
I have, however, seen restaurant lobby groups threatening an unlikely robot takeover of restaurant labor if minimum wages should rise:
I suspect progress in automation follows it's own path and when it destroys jobs, it destroys jobs such that no amount of wage cutting will impede its progress.
Labor efficiency is not just about having a robot take your order, it's the difference between a McDonald's where all the parts are pre-assembles elsewhere and a mom and pop joint where someone is hand-forming the patties.
Anyway, there is another article in this thread that explains how minimum wage increases tend to force the less efficient mom and pop joint out of business, thus accelerating the labor efficiency progress.
I'm for minimum wage increases, but I also believe that certain jobs will not exist with a high enough minimum wage. Any increase in minimum wage probably needs to be met with an increase in training/education.
Another effect is that wage increases increase retail spending.
The CEO of Walmart says that their customers are "spent out". They have a metric for this - same-store sales throughout each month. Sales decline week by week after payday, until they're down to necessities by the end of the month.
The US economy is demand-limited - there's plenty of excess production capacity and plenty of available capital, but limited consumer spending.
And yet another effect is consolidation -- e.g., small business competitors are priced out due to the increase, only to be replaced with franchisees or larger businesses filling their void. Overall employment might go up, but you might increase wealth concentration for large company CEOs.
And, of course, you neglect to offer the possibility of a mixture of all or some of the above, which is just as likely.
I think you're right, but economics in practice is not always that linear. It is obviously possible to have decent employment results with higher minimums. Other places have this. From the sample range of minimum wages & employment rates that exist in the world, it doesn't seem that minimum wages are a major factor in most cases. That's why the debate keeps coming to the table.
The economic theory is sound, but this is different from other recurring arguments (eg rent controls or fixed pricing generally) in that the real life examples of the theory in play aren't anywhere near as strong.
The problem with this sort of econ-101 analysis is that, sure, "it stands to reason" in a simple economic model. But the question is if it stands to reality where there's a lot more going on.
And even if it is true in a world of sticky wages, regulation and a hundred other things, economists tend to stop their analysis there[1]. What are the second-order effects of the poor having more money? Almost all of that will be spent, so there's a multiplier effect, and I'd expect, e.g., MacDonald's extra dollar in salary to actually cost less, because some of that money will come back. (This isn't different in principle than SNAP, for instance, which generates much more than a dollar of economic activity for each dollar spent.)
Veering in a slightly different direction, if some companies would stop fighting minimum-wage increases so hard, I might have more sympathy for their endless moaning about corporate tax rates. If they didn't use the safety net to subsidize their low wages, perhaps we could unwind some of these absurdly convoluted payment structures[2].
And finally, I'm simply done with arguments like this. There is so much inefficiency, bullshit work (that term used in the technical sense), barely disguised corporate graft on top of a historic shifting of the tax burden away from the wealthy combined with actual market forces that are concentrating wealth that I feel like even if a modest minimum wage bump were to create a noticeable shift in statistical measures[3], it would still be too little done to help those struggling under the weight of the laundry-list above.
[1] "If you want a happy ending, stop the story there." The same holds for sad stories.
[2] Which are the real reason we have waste and graft. If there's one thing investment banks, car payment finance and low-rent advertisements for get-rich-quick scams demonstrate well, if you are in a position make anything involving money complicated enough, you can do quite nicely skimming off the top. Sunlight and simplicity make all that much better.
[3] Notice how little real-world evidence of minimum wage increases causing economic harm there is. Almost all the arguments are instead from first-principles. We've raised it quite a few times, and a lot of people don't like it. And yet, there is almost no evidence it has ever caused harm.
> barely disguised corporate graft on top of a historic shifting of the tax burden away from the wealthy
How does the minimum wage affect taxation on the wealthy? Corporate taxes, high or low, are paid by the consumers, no matter whether what the cost of that taxation is.
> combined with actual market forces that are concentrating wealth
If the paper is correct, and the minimum wage doesn't affect employment, then by proxy, one has to argue that it doesn't affect profitability. If it doesn't affect profitability, then it doesn't help or hinder wealth concentration.
Further, it's worth pointing out that income !== wealth, and while a $1-5 bump in the minimum wage might help the lower income people accrue wealth, it doesn't meaningfully impact the wealth gap -- though it may be more likely to address the lower class having zero or negative wealth, but if the assertion is that more money paid to the minimum wage-class increases velocity in the market (read: it gets spent, not saved) then probably not.
> As a thought exercise, consider the effect of raising the minimum wage to $100 in a town.
This is the same kind of argument as the infamous Laffer curve, which sounds much more profound than it actually is.
"Let's increase tax to 100%: then nobody will be able to earn any money and everyone will be jobless. It proves increasing tax is bad!" -- Umm, no, it merely proved that there's a certain point (somewhere between 0% and 100%) beyond which increasing tax is bad. Crucially, it says nothing about whether the real world is to the left or right of that point, so essentially it tells us nothing useful.
"Increasing minimum wage to $100" is just like that. Everyone can see that's a terrible idea. And it tells us absolutely nothing about what happens if we increase minimum wage by 10%.
>In the 22 instances when the federal minimum wage went up, the change in total private
employment after one year was positive 15 out of 22 times
>What’s more, looking more closely at the relative handful of instances in which employment
decreased—whether total employment, or employment in our key indicator sectors—it is
also clear that those declines were likely driven by factors other than the higher minimum
wage.
The factor they mention that drove those declines is recession. Good for them for looking at that, but it doesn't look like they checked the flip side of this: those increases in employment they're using as evidence were driven by factors OTHER than the increase of minimum wage.
What was the economy growing at during those years where employment went up? If the falls accompany recession, maybe the increases coincide with crests in growth rates. Was employment starting off a low base? Was the growth rate high enough for employers to easily eat the cost increase? How much was the increase and what was the wage increased from? How does it compare to inflation in the area?
>Significantly, the study finds that, unlike small wage increases, a $15 minimum wage generates billions in new consumer spending that offsets most of the higher costs to businesses.
So they're admitting it doesn't offset all of the higher costs? Why would that then lead to increased employment?
I understand that people making minimum wage find it almost impossible to save money, but this doesn't solve that problem. Even if you have more people making $15 an hour, businesses are offsetting that cost by raising prices. It seems like all you've done is create arbitrary inflation.
So who's better off after the wage increase? Looks to me like the only winner is the government. They just sneakily mandated nominal tax increase. But even then that's just the short term.
The consequences are hard to predict because it involves multiple antagonistic feedback loops, and even whatever you define as "value" at the beginning might end up shifting over time.
Here's one way of looking at it that I think cuts a bit through all that. It starts with the following assumption:
- People earning minimum wage now, as well as people earning the higher minimum wage in the future spend a larger fraction of their income than average.
I believe this is almost axiomatically true: Minimum-wage earners by definition have below average income, and the fraction of income that goes into savings and investments rises with income.
Now answer the following less-obvious question: What (rough) % of jobs currently paying less than 15$ actually produce value exceeding those 15$?
Example: someone at McDonalds get 7.25$/h. Their work serves 16 customers in that hour (in reality they may prepare the food for 30 customers, but split those with a cashier etc, but that doesn't matteR).
That means each customer currently pays $7.25/15 = 50c for that labor.
Raising the minimum wage would double those costs to $1. Let's say the meal comes out at $12.50 instead of $12.
If people still feel they're getting more value out of that meal they will continue to buy. That will result in a net transfer of wealth to below-average earners, who are more likely to spend it, leading to the projected increase in employment.
If people balk at the price and start cooking their own food, people working at McDonalds will lose their jobs.
In reality it's almost certain to be a combination of both
A real net transfer of wealth only happens if their increase in wages outpaces the increase in costs that they pay because of everyone else's higher wages.
Current costs (at least part of them) are a reflection of the cost of unskilled labor. What impact does increasing the nominal cost of unskilled labor have?
The relationship between costs and labor haven't changed. I don't think it's logical to think that without changing that relationship you've somehow managed to make them wealthier.
People already making about what the new minimum wage is will probably be hurt the most by the price increases. Most everyone below it should still benefit even with the price increases. In that sense, minimum wage hikes are sort of a regressive solution to the problem, in terms of where the most harm falls.
Essentially no time at all. May even be quicker than price level increases, since the upward wage pressure may be felt once the minimum wage increase is set and publicly known, and before it goes into effect, and that leading upward wage pressure may be the first driver of price increases.
Ontario recently announced raising minimum wage from $11.40 to $15 by 2019. I've seen a negative response to this by everyone I know, as many of them say there will be less jobs available and consumer prices will go up. I thought the change would be great though, so I found it interesting that the first source in the further reading section of this report has this in its conclusion:
> "Businesses will absorb the additional 3.3 percent in payroll costs partly through savings on employee turnover costs, higher worker productivity gains, and some automation (the substitution effect). Most of the increase in costs will likely be passed on to consumers via increased prices. Since labor costs make up only about one-fourth of operating costs, consumer prices will increase only slightly—about 0.14 percent per year over the phase-in period." [0]
So yes, there will be automation, and yes, there will be increased prices, but neither of those negative points come close to negating the huge benefit of increased pay.
> "Based on our analysis, we conclude that the proposed minimum wage will have its intended effects in improving incomes for low-wage workers. Any effects on employment and overall economic growth are likely to be small. The net impact of the policy will therefore be very positive." [0]
My concern with minimum wage increases is that landlords then suck up much of the gains. They stand the most to gain moreso than workers. Is there any truth to that?
Related to raising minimum wages - why is the purchasing power of our current wages always falling?
If the purchasing power of $10 was constant over ten years, minimum wage would not need to go up. If the purchasing power of $10 went UP over ten years, that would be good for the poorest among us, yes?
In addition to the lack of a control and the sole focus on the federal minimum wage which in many cases is simply irrelevant, the basic failure in this study is the use of nominal instead of real wages. The inflation-adjusted federal minimum wage has not changed significantly in decades, falling below, only to be corrected up to, the 1990 level.[1] Honestly, any empirical evidence that challenges the classic economic models by including the potential effects of increased purchasing power on job growth, among other things, must use inflation-adjusted wages. Furthermore, littering a report with quotes from conservatives, as if to show their inexplicable obsessions with an obviously absurd position is pathetic. This is not some crackpot theory bandied around to keep the boot on the poor beggar's neck, it follows from a logically sound, although perhaps overly simplistic, model which is the basis of our understanding of price controls, including minimum wage.
There must be SOME minimum wage level at which jobs would be lost. (If you doubt this, consider how a $100 minimum wage would work.) The question is, what is the maximum minimum-wage before jobs are lost?
I see something like this and first look at the source. My first question is why would I trust a study from any interest group any more than I would trust a study from our favorite boogeyman on biased studies, the Tobacco industry?
Without reading the study I can already guess the conclusion. Naturally, their being an interest group doesn't mean the conclusion is wrong, but it does seem unlikely they would push a study that had mixed conclusions or found something contradictory to their study. I wonder how many times, for example, they rebut nameless "critics" of their position and set out uncited positions of those critics rather than specific examples and studies.
Recently Seattle did a min-wage increase. Many small businesses complained loudly but they are still open, they simply raised their prices. My fav pizza joint had their price increase rolled out before the pay rise went into effect. Which gave the owners a nice little spread for a few months, to invest in tools to reduce labor requirement.
At $12/hr I earn enough to buy 2 lunch specials (at $6/ea). Now at $15/hr I earn enough to buy 1.875 specials at $8/ea! And that one manager I didn't like got fired. Yay economy! /s
This may be me suffering from Poe's law, but it seems to me that you are demonstrably worse off, even if the restaurant stayed open and you kept your job. Before the min-wage increase you could afford 2 lunch specials and now only 1.875, despite your income going up. Inflation gobbled up all of the gains.
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[ 3.7 ms ] story [ 125 ms ] threadFor small business it's one percent or less change per employee.
To zeroth order, that seems reasonable. But the added expenses might shift the cost-benefit analysis enough to add motivation to explore automation or other changes to reduce the workforce. The necessary R&D or capital costs might have not been attractive with lower wages, but could become attractive with higher wages.
Or that the self-service machines are going to arrive regardless of the wage, with the only difference being McDonalds keeping workers on $10/h wage 3-5 years longer than they would keep the $15/h workers?
What happens when the entire self-serving machinery costs as much as it does to pay one or two employees for a year? Does it make sense for McDonalds to keep human employees at any wage?
On the other hand if people like the machines more they might raise prices.
Automat restaurants have existed since the 1890s and were first touted as a cost cutting measure.
Ironically enough, they were most popular around the 1930s and disappeared roughly when the minimum wage was highest (1970s) and are now making something of a comeback, when the minimum wage is again, historically very low.
And something as simple as checking straws and napkins or making sure the floor by the soda machine is clean can't be automated cheaply. Automation in general is too fragile to handle the demands of that kind of work.
"The system" was so good that it revolutionized the fast food market to the point that almost every attempt to buck the trend is now considered some sort of synonym to 'craft' or 'artisanal'.
(Note: I'm taking the movie as canon, which is basically stupid, but I have a grandfather who would gladly tell you the story of his first McDonald's visit, and how revolutionary it was relative to everywhere else he'd been, but for his passage a few years back.)
And we already have a model of what it will look like, laundromats. That's what people are aiming for, the patron doing a lot of the work with maybe one person to oversee and provide special services like dry cleaning. I don't think that would be an improvement in food service.
Less obvious is the effect this has on any individual business. If there are 10 restaurants in TownX, and TownX raises the minimum wage, we don't know how many of those restaurants survived or thrived as the result of the wage increase just because the restaurant economy went up whatever percent. If six of the smaller restaurants had to close, with the other four expanding to fill the holes they left, is it a net good if we're simply concentrating the wealth away from the small business owner into the hands of national chains?
The proper way to do min wgae testing is by comparing neighboring districts. If one county has a min wage hike its neighbors do not, then you can compare the outcomes of the affected county and use the other as a control.
When this is done, the effects of min wage hikes become clear: in the short run, employees are not immediately fired because businesses stay open. However, in the long run, fewer employment opportunities are available. This suggests that in some areas, a min wage hike can cause disemployment effects over the long term [0]
[0] http://voxeu.org/article/long-run-employment-effects-minimum...
This has been done. Dube, Lester, Reich is a very rigorous study that compares all minimum wage increases across all state borders between 1990 and 2006. It controls for most things.
No effect on employment was found, period.
[1] Page 31 of https://pdfs.semanticscholar.org/49f8/49647aec895a598869113b...
[2] Annotated version of the key figure here: http://ethicussions.blogspot.com/2014/05/inequality-and-its-...
> This short-run employment response is in line with both our estimates in this paper, as well as recent work studying the restaurant industry, such as Dube, Lester, and Reich (2010), Neumark, Salas, and Wascher (2014), and Allegretto et al. (2016)
The disagreement is over the long run effects:
> We find that the short-run employment effect captures only a small share of the long-run employment effect generated in the model. ...
> much of the recent research suggesting that minimum wage hikes barely reduce the number of jobs in the short run should be taken with caution. The longer-run disemployment effects are potentially large.
So when you say "no effect was found" it's because they were only looking in the short run.
Umm... no. From the abstract:
>Our findings are robust to allowing for long-term effects of minimum wage changes
Read the paper. Seriously.
"We show that this heterogeneity is spatial in nature. We also show that in the presence of such spatial heterogeneity, the precision of the individual case study estimates is overstated. By essentially pooling all such local comparisons and allowing for spatial autocorrelation, we address the dual problems of omitted variables bias and bias in the estimated standard errors"
Based on the abstract of this paper, we don't know whether adding a variable will decrease or increase the bias: http://www.sas.rochester.edu/psc/clarke/405/Omit.pdf
I am not suggesting the results are one way or the other, but let's all keep in mind that given any statistical phenomenon, we can control for the change.
i.e. if there is an increase in automation due to the minimum wage, which in turn displaces workers, a biased or naive researcher can "control for automation and technology trends"-- effectively eliminating the perceived effect of the price floor.
I'm not saying that this is what is happening here, as I haven't read the studies, but I wouldn't be surprised if this were the case given that they are claiming the law of demand doesn't apply.
As a thought exercise, consider the effect of raising the minimum wage to $100 in a town. What would happen to restaurants in that town? They would have to raise their prices drastically to cover the new expenses. Customers who were accustomed to eating out would flinch at the much higher prices and either eat at home or go to a neighboring town. The end result would be closed restaurants in the town and fewer jobs. Of course with a much smaller raise in the minimum wage in the town, the effect would likely be lost in the standard noise of restaurants closing and opening but the effect would still be true.
[1] https://en.wikipedia.org/wiki/Giffen_good
And if spare time is giffen good, it is quite natural that increase in minimum wages does not increase unemployment.
And it's common sense that the mercury in vaccines is neurotoxic, no matter what those studies say. We don't need any fancy book-learnins here!
> It's a basic economic tenant that as the price of a good or service rises, less is consumed.
We're all familiar with Econ 101, thanks. But there is in fact a great deal of empirical evidence that the real world in general, and labor markets in particular, do not adhere to these extremely simplistic models.
Common sense says that complex systems behave in unexpected ways. Seeing wages only as a market is naive. Wages provide money to be expeded in other markets. Unemployed people tend to look for alternative income sources, legal or otherwise, or move. Poor people get sick, commit crimes that in turn causes more needs in other parts of the system.
1) They come directly from profits
2) They cause a commensurate price rise (inflation)
3) The business shuts down because it can no longer afford labor it requires to operate effectively
If you raised it to $100, #3 would happen for most businesses.
In a competitive market, if you raised it a few dollars, #1 would happen.
In a non-competitive (monopoly) market, if you raised it a few dollars, #2 would happen.
In a competitive market where using less labor is not an option, wouldn't #2 happen? All businesses would have the same cost increase and could expect to raise prices.
I have, however, seen restaurant lobby groups threatening an unlikely robot takeover of restaurant labor if minimum wages should rise:
https://mgtvkron.files.wordpress.com/2014/07/bad-idea-billbo...
I suspect progress in automation follows it's own path and when it destroys jobs, it destroys jobs such that no amount of wage cutting will impede its progress.
Labor efficiency is not just about having a robot take your order, it's the difference between a McDonald's where all the parts are pre-assembles elsewhere and a mom and pop joint where someone is hand-forming the patties.
Anyway, there is another article in this thread that explains how minimum wage increases tend to force the less efficient mom and pop joint out of business, thus accelerating the labor efficiency progress.
I'm for minimum wage increases, but I also believe that certain jobs will not exist with a high enough minimum wage. Any increase in minimum wage probably needs to be met with an increase in training/education.
The CEO of Walmart says that their customers are "spent out". They have a metric for this - same-store sales throughout each month. Sales decline week by week after payday, until they're down to necessities by the end of the month.
The US economy is demand-limited - there's plenty of excess production capacity and plenty of available capital, but limited consumer spending.
And, of course, you neglect to offer the possibility of a mixture of all or some of the above, which is just as likely.
The economic theory is sound, but this is different from other recurring arguments (eg rent controls or fixed pricing generally) in that the real life examples of the theory in play aren't anywhere near as strong.
And even if it is true in a world of sticky wages, regulation and a hundred other things, economists tend to stop their analysis there[1]. What are the second-order effects of the poor having more money? Almost all of that will be spent, so there's a multiplier effect, and I'd expect, e.g., MacDonald's extra dollar in salary to actually cost less, because some of that money will come back. (This isn't different in principle than SNAP, for instance, which generates much more than a dollar of economic activity for each dollar spent.)
Veering in a slightly different direction, if some companies would stop fighting minimum-wage increases so hard, I might have more sympathy for their endless moaning about corporate tax rates. If they didn't use the safety net to subsidize their low wages, perhaps we could unwind some of these absurdly convoluted payment structures[2].
And finally, I'm simply done with arguments like this. There is so much inefficiency, bullshit work (that term used in the technical sense), barely disguised corporate graft on top of a historic shifting of the tax burden away from the wealthy combined with actual market forces that are concentrating wealth that I feel like even if a modest minimum wage bump were to create a noticeable shift in statistical measures[3], it would still be too little done to help those struggling under the weight of the laundry-list above.
[1] "If you want a happy ending, stop the story there." The same holds for sad stories.
[2] Which are the real reason we have waste and graft. If there's one thing investment banks, car payment finance and low-rent advertisements for get-rich-quick scams demonstrate well, if you are in a position make anything involving money complicated enough, you can do quite nicely skimming off the top. Sunlight and simplicity make all that much better.
[3] Notice how little real-world evidence of minimum wage increases causing economic harm there is. Almost all the arguments are instead from first-principles. We've raised it quite a few times, and a lot of people don't like it. And yet, there is almost no evidence it has ever caused harm.
How does the minimum wage affect taxation on the wealthy? Corporate taxes, high or low, are paid by the consumers, no matter whether what the cost of that taxation is.
> combined with actual market forces that are concentrating wealth
If the paper is correct, and the minimum wage doesn't affect employment, then by proxy, one has to argue that it doesn't affect profitability. If it doesn't affect profitability, then it doesn't help or hinder wealth concentration.
Further, it's worth pointing out that income !== wealth, and while a $1-5 bump in the minimum wage might help the lower income people accrue wealth, it doesn't meaningfully impact the wealth gap -- though it may be more likely to address the lower class having zero or negative wealth, but if the assertion is that more money paid to the minimum wage-class increases velocity in the market (read: it gets spent, not saved) then probably not.
This is the same kind of argument as the infamous Laffer curve, which sounds much more profound than it actually is.
"Let's increase tax to 100%: then nobody will be able to earn any money and everyone will be jobless. It proves increasing tax is bad!" -- Umm, no, it merely proved that there's a certain point (somewhere between 0% and 100%) beyond which increasing tax is bad. Crucially, it says nothing about whether the real world is to the left or right of that point, so essentially it tells us nothing useful.
"Increasing minimum wage to $100" is just like that. Everyone can see that's a terrible idea. And it tells us absolutely nothing about what happens if we increase minimum wage by 10%.
>What’s more, looking more closely at the relative handful of instances in which employment decreased—whether total employment, or employment in our key indicator sectors—it is also clear that those declines were likely driven by factors other than the higher minimum wage.
The factor they mention that drove those declines is recession. Good for them for looking at that, but it doesn't look like they checked the flip side of this: those increases in employment they're using as evidence were driven by factors OTHER than the increase of minimum wage.
What was the economy growing at during those years where employment went up? If the falls accompany recession, maybe the increases coincide with crests in growth rates. Was employment starting off a low base? Was the growth rate high enough for employers to easily eat the cost increase? How much was the increase and what was the wage increased from? How does it compare to inflation in the area?
>Significantly, the study finds that, unlike small wage increases, a $15 minimum wage generates billions in new consumer spending that offsets most of the higher costs to businesses.
So they're admitting it doesn't offset all of the higher costs? Why would that then lead to increased employment?
I understand that people making minimum wage find it almost impossible to save money, but this doesn't solve that problem. Even if you have more people making $15 an hour, businesses are offsetting that cost by raising prices. It seems like all you've done is create arbitrary inflation.
So who's better off after the wage increase? Looks to me like the only winner is the government. They just sneakily mandated nominal tax increase. But even then that's just the short term.
Here's one way of looking at it that I think cuts a bit through all that. It starts with the following assumption:
- People earning minimum wage now, as well as people earning the higher minimum wage in the future spend a larger fraction of their income than average.
I believe this is almost axiomatically true: Minimum-wage earners by definition have below average income, and the fraction of income that goes into savings and investments rises with income.
Now answer the following less-obvious question: What (rough) % of jobs currently paying less than 15$ actually produce value exceeding those 15$?
Example: someone at McDonalds get 7.25$/h. Their work serves 16 customers in that hour (in reality they may prepare the food for 30 customers, but split those with a cashier etc, but that doesn't matteR).
That means each customer currently pays $7.25/15 = 50c for that labor.
Raising the minimum wage would double those costs to $1. Let's say the meal comes out at $12.50 instead of $12.
If people still feel they're getting more value out of that meal they will continue to buy. That will result in a net transfer of wealth to below-average earners, who are more likely to spend it, leading to the projected increase in employment.
If people balk at the price and start cooking their own food, people working at McDonalds will lose their jobs.
In reality it's almost certain to be a combination of both
Current costs (at least part of them) are a reflection of the cost of unskilled labor. What impact does increasing the nominal cost of unskilled labor have?
The relationship between costs and labor haven't changed. I don't think it's logical to think that without changing that relationship you've somehow managed to make them wealthier.
No, because they'll see the next highest (after those currently below the minimum) degree of upward pressure on their wages.
> "Businesses will absorb the additional 3.3 percent in payroll costs partly through savings on employee turnover costs, higher worker productivity gains, and some automation (the substitution effect). Most of the increase in costs will likely be passed on to consumers via increased prices. Since labor costs make up only about one-fourth of operating costs, consumer prices will increase only slightly—about 0.14 percent per year over the phase-in period." [0]
So yes, there will be automation, and yes, there will be increased prices, but neither of those negative points come close to negating the huge benefit of increased pay.
> "Based on our analysis, we conclude that the proposed minimum wage will have its intended effects in improving incomes for low-wage workers. Any effects on employment and overall economic growth are likely to be small. The net impact of the policy will therefore be very positive." [0]
[0] http://irle.berkeley.edu/files/2016/The-Effects-of-a-15-Mini...
If the purchasing power of $10 was constant over ten years, minimum wage would not need to go up. If the purchasing power of $10 went UP over ten years, that would be good for the poorest among us, yes?
[1] https://fredblog.stlouisfed.org/2015/07/the-real-minimum-wag...
(Edited wage level analysis and cited source.)
Without reading the study I can already guess the conclusion. Naturally, their being an interest group doesn't mean the conclusion is wrong, but it does seem unlikely they would push a study that had mixed conclusions or found something contradictory to their study. I wonder how many times, for example, they rebut nameless "critics" of their position and set out uncited positions of those critics rather than specific examples and studies.
At $12/hr I earn enough to buy 2 lunch specials (at $6/ea). Now at $15/hr I earn enough to buy 1.875 specials at $8/ea! And that one manager I didn't like got fired. Yay economy! /s