Barbara Kiviat asks
Why do people care so much about the minimum wage?
Which you would think was answered by her own statement
Yes, it’s true, in Econ 101 we all learn that price floors disrupt the most efficient allocation of resources in a marketplace. When it comes to low-wage workers, that leads to companies hiring fewer people than they would otherwise, leaving some folks who want jobs without them.
In fact, in recent years economists have struggled to find explanations for real-world situations in which higher wages do not, in fact, lead to lower employment.
So, all economists agree that in the very basic model minimum wages should lead to lower employment among the low skilled. Recently economists have struggled over whether or not in practice our policies are reducing employment among the most vulnerable members of our society.
But, Kivait says, meh.
If we want to help low-income families, we could do a lot more than change a wage many of them don’t make anyway. And if we want to minimize government intervention in free enterprise, we might choose a battle that is meaningful to companies outside of such a narrow range—half of all minimum-wage workers have jobs in the leisure and hospitality industries.
If we don’t care about providing jobs to the lowest skilled, least employed portion of our society then what do we care about?
I understand that among the politicians the minimum wage really is just a political football to show how pro-worker or pro-businesses they are.
However, you do understand that actual people with actual lives are on the line here. That if we choose unwisely that literally thousands of families will suffer.
We need to get this answer right and so far it looks to me like the weight of the evidence suggests the minimum wage is harmful and it is harmful to the weakest among us.
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Sorry Rebecca if this rubs you the wrong way, but I just couldn’t help it
11 comments
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Thursday ~ October 21st, 2010 at 1:25 pm
Edwin Perello
I think people want to make sure low-skilled workers are paid a fair wage. If the minimum wage has the negatives you mention, and the evidence is incredibly strong, minimum wage proponents are simply glossing over this, as Kiviat is doing. I think this is a bit of cynicism in this passivity. It would be much more difficult to legislatively get rid of the minimum wage due to the potential for political backlash, ensuring that low-skilled workers will be paid a fair wage in the long-term. I imagine, if a minimum wage proponent is trying to reason his or her way out of the negative externalities, they’ll probably argue that general growth will fix the unemployment problem or perhaps minimum wage paying employers can be subsidized by the federal government to lighten their load.
I am sympathetic to the minimum wage on the one hand but recognize the validity of the employment friction argument. If anything, I’d much rather see direct subsidy to minimum wage employees by the federal government in direct payments. Obama’s stimulus wage tax cut, while a political (and probably economic) failure, might be a good replacement for the minimum wage. Perhaps it should be made permanent for low-wage workers, indexed in a way that would bring their income to an acceptable level tied to inflation and cost of living. If their wage is so low that even a cut to their federal taxes wouldn’t make them reach that level, go with a credit to get there. Raising the EITC is a good idea but it doesn’t really alleviate lower weekly wages since it’s expected low-wage workers, living paycheck to paycheck, won’t save that money and live poorly throughout the year.
Just a few thoughts.
Thursday ~ October 21st, 2010 at 1:31 pm
Lord
“If we don’t care about providing jobs to the lowest skilled, least employed portion of our society then what do we care about?”
Yes, why provide benefits and charity when we can let them starve on their wages. That is such an improvement.
Thursday ~ October 21st, 2010 at 1:42 pm
jazzbumpa
You cite two studies that say the minimum wage does not increase unemployment, but end up believing that the minimum wage is harmful.
I guess in a field where you can find some study that will give you any result you’re looking for, you can end up believing whatever suits your fancy.
I have come to believe that 90% of economics is bull shit.
Except for the parts rooted in “free” market ideology. They are 100% bull shit.
Cheers!
JzB
Thursday ~ October 21st, 2010 at 3:54 pm
Steve Hamlin
@Karl – you’re missing, or mistating, Barbara Kiviat’s entire point
Her: “Why do people care so much about an economic policy that doesn’t seem to have much of an impact on the economy?…The problem with using the minimum wage to have this debate, though, is that no matter who wins, the victory will be hollow. If we want to help low-income families, we could do a lot more than change a wage many of them don’t make anyway.”
You: “If we don’t care about providing jobs to the lowest skilled, least employed portion of our society then what do we care about?”
That’s her ENTIRE point – that decisions about the minimum wage have very little to do with providing those jobs.
Could you comment on the articles she references that indicate that the minimum wage does NOT reduce employment? If that IS true, then your conclusory point is incorrect, so must believe those articles are incorrect.
Thursday ~ October 21st, 2010 at 11:57 pm
Karl Smith
So the fact that we are only potentially destroying a small percentage of lives with a policy that is in fact designed to help people is no big deal?
Who cares if its only 10 – 15K thousand families that are ruined, who also happen to be the absolute most vulnerable of the vulnerable?
That seems insane to me.
On the studies. The majority of studies show a negative relationship between the minimum wage and employment,. There are some that show the opposite.
The question is: which are correct. And answering this question is vital because if we get the wrong answer then we potentially lock thousands of people out of a job.
Friday ~ October 22nd, 2010 at 4:06 pm
Steve Hamlin
I think Barbara’s point is there seems to be a limit to the amount of changes in Federal law that can get accomplished in the current political environment within a certain period. And that since both sides of the minimum wage law are rather entrenched, and since the evidence doesn’t appear to be dispositive, that the political time, effort & capital to assist those most vulnerable is better spent on more significant & effective policy changes.
If political will is bounded, then you can’t do everything, and we should pick bigger battles which result in more effect.
That’s not insane, that’s a sane decision in allocating scarce political resources.
Tuesday ~ October 26th, 2010 at 3:21 pm
Barbara Kiviat
Well put, Steve!
Thursday ~ October 21st, 2010 at 3:55 pm
Rebecca Burlingame
Didn’t rub me the wrong way, of course I give a damn about minimum wages! But the reasons I agree are not because of economic theories, but just living in ways that not a lot of government employees do…that is, having worked at minimum wage jobs in recent memory (not like Barbara Ehrenreich did it for her books) and also as a businessperson trying to keep the doors open. Friends tell me that business people can hire now at the current wages, but I see too many people younger and stronger than myself who are not getting the full time wages they need. Society expects a lot of people to quietly walk away when they can’t responsibly work things out, but I never would have dreamed that society – and government, would watch so many business people finally walk away without at least questioning why.
Thursday ~ October 21st, 2010 at 4:02 pm
Rebecca Burlingame
After noting Steve Hamlin’s argument – given that I am not familiar with the studies, I have to ask – do the studies take into account how many people are unable to either go into business, or stay in business, because they cannot afford the employees.
Thursday ~ October 21st, 2010 at 9:56 pm
Edwin Perello
The reason I’m not so concerned with the minimum wage outrage some economists fall into is it raises the price levels of goods. So, what, it balances out regardless? /shrug
Here’s my thing, though, and why I’m not entirely convinced minimum wage is as big a deal as some think — and why I’m still not sold despite the seemingly strong arguments: there are simply not enough case studies to determine exactly why the minimum wage would actually lower employment potential in a business that relies on low wages.
Sure, there is evidence that there is a demand for lower wages — there wouldn’t be a demand for workers willing to take a lower wage than the legal minimum, such as undocumented immigrants. Part of the desire to move business into low cost regions like China and India is because of the price premium of employment in the US for low-wage workers. My concern is this, though: what’s the real motive and where is the benefit going? Obviously, the minimum wage jobs aren’t easily exported. No one’s going to wait a week for their McDonald’s burger shipped in a truck from Mexico or a boat from China. McDonald’s is going to raise prices and maybe some franchises will suffer and employees will be shed but will people eat less at McDonald’s because they had to raise their prices a few cents? They’re still serving millions, as far as I know. Once sales go back to normal, they’ll hire people back. It’s not like turnover in low-wage jobs is that shocking.
What I really want to know from case studies of business caught employing undocumented immigrants at illegally low wages is where the money they saved actually went: lower prices, benefits to their documented resident employees, the owners of the business’ pockets? Until I see this kind of data, I’m going to go with the cynic in me and accept that the declaration the minimum wage makes many low-wage workers unemployable is left neither proven or disproven.
Tuesday ~ October 26th, 2010 at 9:18 pm
Why the minimum wage should go « Modeled Behavior
[...] 26th, 2010 in Economics, Modeled Behavior | Tags: EITC, minimum wage | by Adam Ozimek Karl responded recently to a post by Barbara Kiviat who wondered “why should we care about the minimum [...]