The science is (nearly) settled: a higher minimum wage costs jobs

posted at 2:01 pm on December 16, 2015 by Jazz Shaw

A friend of mine who operates a small chain of franchised eateries once told me that saying a higher minimum wage creates more jobs is akin to throwing an anchor to a drowning man because it would really incentivize him to dog paddle faster. While that seems to be common sense whether you’re an employer or an economist, no amount of rational explanation seems to dissuade the Democrats when they get up on their populist horse and begin promising the masses of lower income workers some extra cash. To be fair, it’s not a bad tactic if you’re trying to drum up votes because people love “free” stuff and unfortunately there are far too many voters who don’t want to see the big picture and how it could negatively impact them.

There’s an excellent piece at the Wall Street Journal this week from economist David Neumark in which he explains that the data has been piling up for some time now and the arguments made by the Fight for Fifteen crowd simply don’t hold water in the cold light of day. (Emphasis added)

Economists point to a crucial question: Will a higher minimum wage reduce the number of jobs for the country’s least skilled workers? President Obama says “there is no solid evidence that a higher minimum wage costs jobs.” On the contrary, a full and fair reading of the evidence shows the opposite. Raising the minimum wage will cost jobs, particularly those held by the least-skilled.

Economists have written scores of papers on the topic dating back 100 years, and the vast majority of these studies point to job losses for the least-skilled. They are based on fundamental economic reasoning—that when you raise the price of something, in this case labor, less of it will be demanded, or in this case hired.

Among the many studies supporting this conclusion is one completed earlier this year by Texas A&M’s Jonathan Meer and MIT’s Jeremy West, which reaffirmed that “the minimum wage reduces job growth over a period of several years” and that “industries that tend to have a higher concentration of low-wage jobs show more deleterious effects on job growth from higher minimum wages.”

Much of this falls back on the law of supply and demand, just to put it in terms that most of us can wrap our heads around. When you drive up the price of cars fewer people will buy cars. When you drive up the cost of labor, fewer workers will be hired and employers will seek opportunities to streamline operations or automate. (The cost of automation becomes far more doable as labor costs rise.) So how do some of the Democrats’ pet analysts keep getting this wrong? I was directed to the WSJ piece by Don Boudreaux, who points out that there’s a big difference between actual economists and econometricians.

Among the reasons for the excellence of Neumark’s work is that he is, in addition to being a master econometrician, also an excellent economist. These two disciplines (econometrics and economics), while complementary to each other, are emphatically not the same. Much of what’s wrong with modern-day economics is that people who master econometrics (in part because their degrees are said to be in “economics”) mistake their knowledge of econometrics for knowledge of economics – despite the fact that many of these econometricians know precious little economics. And no amount of mastery of econometrics can compensate for ignorance of economics.

There’s arguably something to that comparison, sticking to the general theme of staying in one’s own lane. But I would suggest that the real reason goes a bit further. You can take any theory and cherry pick a couple of statistics to hang on it and make your argument if you really, really want it to be true badly enough. Liberals have a need to believe that jacking up the minimum wage won’t cause job losses because it’s become part and parcel of their overall bread and circuses strategy of winning elections. It’s really no different than the climate studies question we’ve talked about here recently. Even if the numbers indicate that there’s been a pause in the planet’s warming trends, you can eventually massage the data enough to come up with one set of numbers which supports your claim. At that point you just cling to them for dear life and charge forward.

Unfortunately for most of the lower income workers, they’re only going to find out how badly this minimum wage theory is constructed when a couple of them get a nice raise but the rest are cut loose to the unemployment lines and they can no longer afford to buy what they need because the prices of everything have gone up. Reality is a harsh teacher.

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Comments

Will fall on deaf ears. Weedisgood won’t be satisfied until someone is forced to employ him, and buy all his weed for him.

NotCoach on December 16, 2015 at 2:07 PM

And in other news. Water is wet!!!!!

they lie on December 16, 2015 at 2:07 PM

a higher minimum wage costs jobs

…as does any government action which raises the cost of employment: that’s a main reason why Obamacare is such a drag on the economy.

landlines on December 16, 2015 at 2:10 PM

President Obama says “there is no solid evidence that a higher minimum wage costs jobs.” On the contrary, a full and fair reading of the evidence shows the opposite.

That’s pretty much part and parcel of anything Dear Liar says. Especially when it comes to Islamic terrorism.

rbj on December 16, 2015 at 2:15 PM

In the Obama world the number of people that are not working is at historic highs, but the unemployment rate keeps going down, down, down.

albill on December 16, 2015 at 2:21 PM

The entire idea of a minimum wage is the antithesis of a capitalist society. Why is the government interfering in an employee-employer relationship? This reminds me of the Godfather when the Black Hand’s nephew takes Vito’s job at the deli.

Why not have it be $50/hr or $100/hr?

Why don’t CONSERVATIVE candidates oppose the very idea of the minimum wage? Singapore abolished the minimum wage and unemployment is about 2%.

nazo311 on December 16, 2015 at 2:23 PM

This isn’t true. Wealth is instantly created when minimum wages are raised. The more minimum wages are raise, the more wealth is created. This is true based on economic studies performed by Nobel Prize winners in economics. Who are you to say they are wrong? Do you have a Nobel Prize? In order to maximum the amount of wealth we create, we need to raise minimum wage to $100 per hour! You can disagree with me, but I’m right.

blink on December 16, 2015 at 2:24 PM

We should just make the minimum wage a million dollars per year. No more economic problems.

DocNathan on December 16, 2015 at 2:37 PM

In order to maximum the amount of wealth we create, we need to raise minimum wage to $100 per hour! You can disagree with me, but I’m right.
blink on December 16, 2015 at 2:24 PM

Is that all??? Tightwad! SCROOGE!

Marcola on December 16, 2015 at 2:37 PM

Liberal thought process;

Point deer make horse

Tyrone Slothrop on December 16, 2015 at 2:38 PM

OT

The next president had some entrance to the Mesa gathering.

Arrived on location, literally next to the people, in TrumpForceOne.

Schadenfreude on December 16, 2015 at 2:39 PM

Will fall on deaf ears. Weedisgood won’t be satisfied until someone is forced to employ him, and buy all his weed for him.
NotCoach on December 16, 2015 at 2:07 PM

Nah, employment means work. I think he’d be happy staying in his Section 8 housing, smoking government-provided weed.

Marcola on December 16, 2015 at 2:40 PM

These jobs can’t really be outsourced, but they can be replaced with kiosks and burger flipping robots.

nazo311 on December 16, 2015 at 2:43 PM

Which is PRECISELY why CoC and cronies need all those illegals to work for under-the-table wages. Problem solved!

MistyLane on December 16, 2015 at 2:44 PM

In order to maximum the amount of wealth we create, we need to raise minimum wage to $100 per hour! You can disagree with me, but I’m right.

blink on December 16, 2015 at 2:24 PM

You’re wrong we need a minimum salary, $100,000 per year.

Neitherleftorright on December 16, 2015 at 2:46 PM

The science is (nearly) settled: a higher minimum wage costs jobs

Do the computer models agree? Even without ‘revising’ the data?

otlset on December 16, 2015 at 2:46 PM

What? No Tlaloc or other proto-communist to tell us how great the minimum wage is?

darwin on December 16, 2015 at 2:47 PM

The entire idea of a minimum wage is the antithesis of a capitalist society. Why is the government interfering in an employee-employer relationship? This reminds me of the Godfather when the Black Hand’s nephew takes Vito’s job at the deli.

Why not have it be $50/hr or $100/hr?

Why don’t CONSERVATIVE candidates oppose the very idea of the minimum wage? Singapore abolished the minimum wage and unemployment is about 2%.

nazo311 on December 16, 2015 at 2:23 PM

Government interference on income is based on politics and gaining the votes of the weakest citizens in society who can’t or won’t fend for themselves. Much like the unions who offer to do the dirty work with your employer in exchange for a fee (dues), the politician wants your vote so he gives you other peoples money. Anyone with any sense can prove their value and then negotiate their own pay package with their employer.

tej on December 16, 2015 at 2:48 PM

You’re wrong we need a minimum salary, $100,000 per year.

Neitherleftorright on December 16, 2015 at 2:46 PM

I think this idea has already been implemented in Zimbabwe, a shining beacon of success and prosperity that Obama strives to replicate.

Rix on December 16, 2015 at 2:48 PM

This isn’t true. Wealth is instantly created when minimum wages are raised. The more minimum wages are raise, the more wealth is created. This is true based on economic studies performed by Nobel Prize winners in economics. Who are you to say they are wrong? Do you have a Nobel Prize? In order to maximum the amount of wealth we create, we need to raise minimum wage to $100 per hour! You can disagree with me, but I’m right.

blink on December 16, 2015 at 2:24 PM

HAHAHAHAHAHAHAHAHAHAHA!!!!!

Hank_Scorpio on December 16, 2015 at 2:56 PM

Jobs(labor) are created for two reasons:Lower Cost and higher productivity. When the cost is raised,it does not lead to creating more jobs. A business may add (create) more labor(to increase higher productivity), but it will be due to growth and not to an increase in labor costs. When labor costs increase, ways to reduce the cost will be found.It may mean cutting jobs or hiring fewer people or it may be through other cost cutting means. But, higher labor costs will always cause some action to be taken. And many times that action is the loss of jobs.

they lie on December 16, 2015 at 2:56 PM

These jobs can’t really be outsourced, but they can be replaced with kiosks and burger flipping robots.

nazo311 on December 16, 2015 at 2:43 PM

Already seeing this in the bigger fast food places. Counter help is gone and you order through a kiosk on the front counter. Replaces a couple of people just by doing that alone and saves tons of money for the owners.

Johnnyreb on December 16, 2015 at 2:59 PM

Already seeing this in the bigger fast food places. Counter help is gone and you order through a kiosk on the front counter. Replaces a couple of people just by doing that alone and saves tons of money for the owners.

Johnnyreb on December 16, 2015 at 2:59 PM

Soon Big Labor in collusion with Big Government will regulate that into oblivion. They’re on a mission to destroy the free market and nothing will stand in their way….

“Want a robot or kiosk instead of over-priced human labor? Sure! that’ll just be another 15% of your gross in permits and fees, enjoy!”.

Hank_Scorpio on December 16, 2015 at 3:03 PM

This isn’t true. Wealth is instantly created when minimum wages are raised.

blink on December 16, 2015 at 2:24 PM

Absolutely true. I was working a minimum wage job once and struggling. The democrats got it raised and by the time I got home I had $651,000 in the bank. Needless to say by the end of the week I was financially independent.

darwin on December 16, 2015 at 3:06 PM

Couldn’t help but notice that all data, state and evidence we behind the pay wall.

Last time we had an argument about this, the alleged job losses were very small in proportion to the income gains, which actually made a case for rainy the minimum wage.

You do realize that if wages go up by 30 percent (for example) but demand for employees drops by only 5 percent, its in the interest of low-wage workers for the moment minimum wage to go up. So details are important.

urban elitist on December 16, 2015 at 3:06 PM

Couldn’t help but notice that all data, state and evidence we behind the pay wall.

Last time we had an argument about this, the alleged job losses were very small in proportion to the income gains, which actually made a case for rainy the minimum wage.

You do realize that if wages go up by 30 percent (for example) but demand for employees drops by only 5 percent, its in the interest of low-wage workers for the moment minimum wage to go up. So details are important.

urban elitist on December 16, 2015 at 3:06 PM

So are you volunteering to be one of the 5% that loses their job? Or maybe you are going to take those people in when they lose their job?

Johnnyreb on December 16, 2015 at 3:17 PM

All the dumb-asses hear is “raise”. Their tiny minds don’t wrap around the fact that with a higher salary, their SS contribution has to go up. So their employers matching contribution has to go up. Since the employee is making more money, the employer also has to pay a higher rate into the unemployment/disability fund.

The numb-nuts don’t see the burden of added costs, over and above their individual “raise”. But they will when they get that pink slip.

GarandFan on December 16, 2015 at 3:18 PM

You know, while I was sitting in my car as the attendants dutifully filled up my car, check the oil and air pressure, then finished off by cleaning my windshields, I was thinking that they must be lucky to be making $15 and hour and enjoying the sunshine.

Later, when I got home, after leaving the valet my car keys and getting my paper from the local paper boy, I mentioned to the door man that it was such a beautiful day to be outside. He told me it was, and that the elevator man was a bit jealous today and had planned to go to lunch with shoe shine, but they were too busy to match their schedules. I laughed a bit as the milk man handed me my night delivery and the laundry service followed me into the house.

LoganSix on December 16, 2015 at 3:19 PM

While I have argued the common sense behind this article for years, a week ago I saw something concrete…

Terminals installed on all the tables at our local AppleBees. They were not yet operational, but to put them on all the tables…

I had to explain to my wife what they were for. I felt bad for the employees who saw them and understood the end game.

dominigan on December 16, 2015 at 3:26 PM

LoganSix on December 16, 2015 at 3:19 PM

[stands and applauds!]

Urban idiot still won’t understand the references.

dominigan on December 16, 2015 at 3:28 PM

If you raise the cost of toilet paper, people will buy less toilet paper … but not much. There’s a huge spectrum of elasticity, and saying that this is an elastic phenomenon is like saying you can die from eating a pretzel and eating arsenic. One’s still got a far greater chance of killing you. Freezing the minimum wage — chained to an ever-depreciating dollar — without gauging the degree of elasticity is like banning pretzels for being deadly. (Or, in another popular conservative move, opposing all tax increases because of the Laffer curve, never mind where we actually are on the curve.)

We should just make the minimum wage a million dollars per year. No more economic problems.

Shades of Malcolm in the Middle (for those who recall that episode).

calbear on December 16, 2015 at 3:30 PM

Not many that work at minimum wage level read the WSJ. You could Clockwork Orange their eyeballs,show them a film on what it does and they still wouldn’t get it.

docflash on December 16, 2015 at 3:33 PM

So are you volunteering to be one of the 5% that loses their job? Or maybe you are going to take those people in when they lose their job?

Johnnyreb on December 16, 2015 at 3:17 PM

That isn’t how it works, is it? I did find, through one of the links, a cafe Hayek piece (I’m in my phone or I’d link: “Neumark hits the Mark in Minimum Wage”) that references a survey that found that for every 10% increase in the minimum wage, there is a 1-2% decrease in low wage or teenage employment.

Let’s run with this — assume that there’s a proposed 33% increase in the minimum wage that will result in a 5% job loss. I’m a minimum wage worker. So I have to bet a 95% chance of 33% raise against a 5% chance of being unemployed. The rational bet is to support the minimum wage increase. And it gets better. Say I’m one of the minority who gets laid off and it takes me two months to find a job. By the time I’ve worked that job for six months, I’ll still be a net winner. And, even better: if you figure that even at the minimum wage level there’s something of a meritocracy — if you’ve worked around minimum wage workers, you know this is true — the relatively more “deserving” workers will get the benefits, while the teen stoner or drunk adult loses out.

Given these (found on a conservative blog) numbers, minimum wage workers should definitely support a hike. As should Demicrats.

urban elitist on December 16, 2015 at 3:33 PM

dominigan on December 16, 2015 at 3:26 PM

At some point investing in automation is more cost effective and efficient than human relations.

tej on December 16, 2015 at 3:37 PM

At some point investing in automation is more cost effective and efficient than human relations.

tej on December 16, 2015 at 3:37 PM

Most farmers in the midwest figured this out in the late 1970’s.

LoganSix on December 16, 2015 at 3:40 PM

“In philosophy, or religion, or ethics, or politics, two and two might make five, but when one was designing a gun or an aeroplane [or economics or science. ed] they had to make four.”
― George Orwell, 1984

Athos on December 16, 2015 at 3:45 PM

UE – there will always be some winners.

On the aggregate if your surmise was true, you would see wage per hours move up.

Of course, as we know they haven’t.

In the end, there will be fewer jobs. If the cost of the increase in wages is still higher than the savings by cutting positions, they will cut more or cut hours.

Nice try. One of the very few truths in economics is supply and demand. We don’t always know where the curves will cross. But there are no situations found so far where they don’t.

Zomcon JEM on December 16, 2015 at 3:54 PM

Of course the biggest winner are the capital equipment providers who sell automation equipment.

Zomcon JEM on December 16, 2015 at 3:54 PM

What person with normal brain function in the Western hemisphere over the age of 16 with at least a 5th grade education DIDN’T already know this?

I’m not asking rhetorically.

This is literally “sky is blue” level logic.

Agent Cooper on December 16, 2015 at 3:57 PM

urban elitist on December 16, 2015 at 3:33 PM

I thought the goal was raising minimum wage to $15/hr which is 100% raise? Anyway, you are not even considering the crossover point where new automation with financing plans are cheaper than having humans perform a task (job). At some hourly rate for humans it becomes cheaper to let them go and install automation (see applebee example above).

On another angle if the employer pays more for labor then the product he sells goes up in cost to the consumer. So that extra money you think you make you spend paying more for everything you buy.

tej on December 16, 2015 at 4:01 PM

urban elitist on December 16, 2015 at 3:33 PM

Here’s the link

…and a slightly larger excerpt to include the needed context:

Economists point to a crucial question: Will a higher minimum wage reduce the number of jobs for the country’s least skilled workers? President Obama says “there is no solid evidence that a higher minimum wage costs jobs.” On the contrary, a full and fair reading of the evidence shows the opposite. Raising the minimum wage will cost jobs, particularly those held by the least-skilled.

Economists have written scores of papers on the topic dating back 100 years, and the vast majority of these studies point to job losses for the least-skilled. They are based on fundamental economic reasoning—that when you raise the price of something, in this case labor, less of it will be demanded, or in this case hired.

Among the many studies supporting this conclusion is one completed earlier this year by Texas A&M’s Jonathan Meer and MIT’s Jeremy West, which reaffirmed that “the minimum wage reduces job growth over a period of several years” and that “industries that tend to have a higher concentration of low-wage jobs show more deleterious effects on job growth from higher minimum wages.”

The broader research confirms this. An extensive survey of decades of minimum-wage research, published by William Wascher of the Federal Reserve Board and me in a 2008 book titled “Minimum Wages,” generally found a 1% or 2% reduction for teenage or very low-skill employment for each 10% minimum-wage increase.

What’s being proposed is over a 100% increase in the minimum-wage – from a current federal level of $7.25 to $15. Using that ~2% reduction / every 10% of increase, we’re talking about a 20% reduction for low-skill employment. (Why else are those entities already enacting the $15 minimum wage doing so over a 3-5 year time frame if not to mask the negative effects?)

Furthermore – what’s the real purpose of the minimum wage jobs? These are all basically entry level / low-skill jobs. They are supposed to be the stepping stones to better jobs and higher paying jobs. It’s about unskilled unproven workers gaining basic skills – and proving that they are responsible and accountable enough for better jobs. It’s about gaining the skills and knowledge, combined with their education, to get better paying higher skilled jobs. They are transitory.

According to the Pew Research Center, in 2013, only 4.3% of the nation’s 74.9 million hourly paid workers made the minimum wage. That’s 2.6% of all workers.

50.4% of those getting the minimum wage are under the age of 24. Using Obamacare as a model, these are ‘children’ until the age of 26.

The ‘minimum wage’ is little more than a red herring used by the left to a) expand the power of government to control the economy by setting wages; b) cravenly play the class / social justice card; and c) redistribute wealth.

If it weren’t, once again, why is it only being increased to $15 over a 3-5 year phase in as opposed to $25 or $50 all at once?

Athos on December 16, 2015 at 4:03 PM

I’d rather take a bet that there’s a 50% chance of a 1,000% increase against a 50% chance of being unemployed. That’s a rational bet, and even if I do lose my job, then I’m a winner after several months!

blink on December 16, 2015 at 3:53 PM

So, you admit you have no serious counter argument. As I suspected.

Zomcom:

In my scenario — based on numbers that come from a free market website — winners outnumber losers 19-1. Over the long term, the ratio would be higher. It’s not “some” winners, it’s almost everyone.

I’d like to see your numbers on wages per hour, yours is simply an assertion without facts. In addition, aggregate hourly wages would be affected by the General health of the economy and the much higher proportion of wages that are paid to workers earning more than minimum wage. So get back to me when you have some numbers.

And, yes, some people will lose their jobs, but not forever. If you were offered a job tomorrow, but knew that there was a very good chance that you could get a job paying substantially more if you look a month or two longer, what would you do?

The only numbers I have seen show significant net benefit to minimum wage workers if the wage is increased.

urban elitist on December 16, 2015 at 4:07 PM

It’s great you’re on board with raising to $100. Together, we will create wealth in this country!!!!

blink on December 16, 2015 at 3:22 PM

Are you with the Federal reserve?

Greg Toombs on December 16, 2015 at 4:10 PM

I was directed to the WSJ piece by Don Boudreaux, who points out that there’s a big difference between actual economists and econometricians.

True. Actual economists are econometricians. People who claim to be economists that don’t do econometrics are either professors that regurgitate / develop abstract economic theory without conducting any statistical validation of said theories, or are over-glorified data analysts.

Among the reasons for the excellence of Neumark’s work is that he is, in addition to being a master econometrician, also an excellent economist. These two disciplines (econometrics and economics), while complementary to each other, are emphatically not the same. Much of what’s wrong with modern-day economics is that people who master econometrics (in part because their degrees are said to be in “economics”) mistake their knowledge of econometrics for knowledge of economics – despite the fact that many of these econometricians know precious little economics. And no amount of mastery of econometrics can compensate for ignorance of economics.

While it’s true that knowledge of econometrics is not identical to knowledge of economic theory, the notion that no amount of econometrics can compensate is 100% wrong. In fact, the inability to compensate works in completely the reverse direction. Knowledge of econometrics gives one a far better vantage point from which to make economic arguments because you’re an empiricist. You specify a regression model, and you can calculate coefficients so you know how much one factor contributes to an overall result. You can gauge the interaction effect between multiple variables. You can conduct hypothesis testing, be it parametric or non-parametric, to assess how likely it is that the extremity of your results is simply an aberration, or are actually indicative of something.

While theory is nice, without empirical grounding you don’t actually know whether or not you’re right. With econometrics, you can develop functional forms, address issues like heteroscedasticity, simultaneity bias, multicollinearity, model misspecification, etc, and be able to cite a mathematical groundwork for why you get the results you do. Without econometrics, all an economist can do is say “I suspect X because of reason Y.” Granted, that sort of a priori reasoning will get you far, and you can make fantastic arguments. Heck, I’ve done it myself. But in the end it’s no substitute for actual statistical tests. Anyone who tries to counter an econometrics-based study by resorting only to theory, rather than being able to point to an error in how the econometric research was conducted, hasn’t a leg to stand on. That is the essence of the scientific method — to the extent that any of statistics can be regarded as scientific — reality trumps theory.

Stoic Patriot on December 16, 2015 at 4:17 PM

blink on December 16, 2015 at 2:24 PM

Flunked economics class, didn’t you?

earlgrey on December 16, 2015 at 4:20 PM

Terminals installed on all the tables at our local AppleBees. They were not yet operational, but to put them on all the tables…

I had to explain to my wife what they were for. I felt bad for the employees who saw them and understood the end game.

dominigan on December 16, 2015 at 3:26 PM

Those terminals are a waste of space – seriously. Uno’s has had them for several years. They finally upgraded to the newer ones that can print too. Several other restaurants around here have installed them in the last year. They are not going to get rid of waitresses,most of them are much cuter than a terminal.

earlgrey on December 16, 2015 at 4:24 PM

I thought the goal was raising minimum wage to $15/hr which is 100% raise?

I personally think $15 is too high, but the same logic applies, just plug the new numbers in: 20% chance of unemployment versus 80% chance of doubling your wages.

Anyway, you are not even considering the crossover point where new automation with financing plans are cheaper than having humans perform a task (job). At some hourly rate for humans it becomes cheaper to let them go and install automation (see applebee example above).

One assumes that the conservative labor economists who wrote the studies I referenced were smart enough to include this effect. It should be noted that 1) you have no clue what point is (it will vary, of course) and 2) that process had been underway for decades and will continue regardless of short term wage changes.

On another angle if the employer pays more for labor then the product he sells goes up in cost to the consumer. So that extra money you think you make you spend paying more for everything you buy.

tej on December 16, 2015 at 4:01 PM

But there’s not a straight line relationship between wages and prices in a given product (unless you’re buying labor). The price impact for most goods would be minimal.

For that matter, I’m paying for the explosive growth in CEO and executive salaries. Maybe we should cut their compensation.

urban elitist on December 16, 2015 at 4:25 PM

For that matter, I’m paying for the explosive growth in CEO and executive salaries. Maybe we should cut their compensation.

urban elitist on December 16, 2015 at 4:25 PM

Who is the “we” who can cut CEO pay? You obviously don’t have a clue how this free market thingy works. I think you should vote for Bernie.

tej on December 16, 2015 at 4:34 PM

I personally think $15 is too high, but the same logic applies, just plug the new numbers in: 20% chance of unemployment versus 80% chance of doubling your wages.

That’s the 2 plus 2 equal 5 way of looking at it. The 2 plus 2 equals 4 way says that of the 3.45 million currently working (using 2013 numbers), about 700,000 of those are going to lose their jobs – just if we use that one study. But that study, as Neumark notes in his full essay (Headlines) also ignores the additive effect of other negative economic conditions.

But it’s good to note for someone of the left that since 80% ‘win’, they don’t really care about the 20% who ‘lose’… well, as long as they aren’t part of that 20% (and whom are most likely unskilled minorities).

The price impact for most goods would be minimal.

Really? Based on what? Your wishful thinking? About half of the minimum wage earners in this country work in food service / food preparation – like fast food. You think doubling one’s wage will not have an impact on the prices of the goods a fast food restaurant sells? That there isn’t an impact on the materials that they purchase either?

40 minimum wage employees working a 30 hour week translates to 1,350 hours of work being done in a week. At $8 an hour, their wages are $10,800. At $15 an hour, their wages are $20,350. That’s before any applicable benefits (if any) or federal, state, local taxes. That’s nearly $40K a month in higher wages – $480K in a year, and you think a business can / will absorb that without changing it’s prices? Or if the consumer isn’t willing to pay the higher prices, decide to replace with automation some / most of those minimum wage workers?

This isn’t theory. It’s reality. The left considers economics as a theory far too often – seeing things as they want it to be rather than as it is. 2+2=4 not 2+2=5.

Athos on December 16, 2015 at 4:44 PM

Anybody shocked. This is the modus operandi of the Democratic Party. More people dependent on the government, the bigger it has to become. And tax and spend is the agenda. And unaccountability is their defense.

djaymick on December 16, 2015 at 4:59 PM

Until the labor supply is tightened, minimum wages are necessary. I would prefer a purely capitalist, free enterprise system but the US Govt interferes in the labor market with various visa gimmicks. You can’t have it both ways.

cimbri on December 16, 2015 at 5:00 PM

You think doubling one’s wage will not have an impact on the prices of the goods a fast food restaurant sells?

It will, though not as much as many think. Labor is about 25% of a fast food place’s costs. So raising labor costs by 100% should raise prices by 25%. (Of course, doubling wages and doubling costs are two different things, but they should track well enough for these purposes.)

calbear on December 16, 2015 at 5:10 PM

Athos on December 16, 2015 at 4:44 PM

My numbers add up, my friend. And those 20% unemployed? When they do get back in the job the will re-earn lost wages at a substantial pace and rapidly become net winners — raising average earnings in the poor community, which I care about. Your logic indicates poor math skills and a lack of empathy. Conservatives believe that the poor deserve their lot, please don’t pretend otherwise.

Your hypothetical is awfully vague and has little to do with reality. $40k in wages spread ovet how may Big Macs? And what is the percentage of the total cost of a Big Mac is minimum wage labor versus other labor, materias, rent, utilities, marketing, profits, security, insurance, etc.

And forget fast food — I don’t spend much money on that. What about my car? Pretty much no one involved in automobile production naked minimum wage, so my much bigger expenditure on my car is unaffected. Dane with housing. Same with utilities. Major expenditures? Unaffected.

You’re just ranting. — spiriting out obvious truisms without any context or facts.

urban elitist on December 16, 2015 at 5:12 PM

The minimum wage has always been, and will always be, zero.

Lost in Jersey on December 16, 2015 at 5:12 PM

You know, while I was sitting in my car as the attendants dutifully filled up my car, check the oil and air pressure, then finished off by cleaning my windshields, I was thinking that they must be lucky to be making $15 and hour and enjoying the sunshine.

Later, when I got home, after leaving the valet my car keys and getting my paper from the local paper boy, I mentioned to the door man that it was such a beautiful day to be outside. He told me it was, and that the elevator man was a bit jealous today and had planned to go to lunch with shoe shine, but they were too busy to match their schedules. I laughed a bit as the milk man handed me my night delivery and the laundry service followed me into the house.

LoganSix on December 16, 2015 at 3:19 PM

A thing of beauty.

Well done, sir.

mankai on December 16, 2015 at 5:17 PM

Last time we had an argument about this, the alleged job losses were very small in proportion to the income gains, which actually made a case for rainy the minimum wage.

You do realize that if wages go up by 30 percent (for example) but demand for employees drops by only 5 percent, its in the interest of low-wage workers for the moment minimum wage to go up. So details are important.

urban elitist on December 16, 2015 at 3:06 PM

As I recall, the reason the job loss does not match the wage increase 1:1 is because it is only one of like eight or nine different ways companies absorb the additional cost, only one of which is reduced profits.

Some of the others included reduced benefits, reduced hours, reduced training, etc. In short, the idea that job loss is minimal ergo cost is minimal is a flawed premise, because businesses spread out that cost over multiple areas. And in the end, the workforce as a whole pays for the low-earner’s extra labor cost, because that’s where real money is, as opposed to slashing an executive’s pay to increase everyone’s wages by five cents an hour.

Your hypothetical is awfully vague and has little to do with reality. $40k in wages spread ovet how may Big Macs? And what is the percentage of the total cost of a Big Mac is minimum wage labor versus other labor, materias, rent, utilities, marketing, profits, security, insurance, etc.

Well, thankfully, HuffPo solved that problem for us by making their little Big Mac calculator when the idea of the $15 wage first surfaced, and they calculated that a $4 Big Mac would cost $4.68, presumably to entice people to go “hellz yeah, I’d pay a measly 68 cents to assuage my middle class guilt!”

But let’s take the same amount of money and re-arrange the players involved. Instead of a minimum wage increase, let’s have a federal wage subsidy. Anything less than $15/hr., the government cuts you a check for the difference. And to pay for the cost of this program, the government will enact a national sales tax of 17% on all food items.

It was always interesting to present that scenario, involving the same new take-home pay and the same corresponding increase in price, and listen to progs go on at great length about regressive tax policies that hurt the poor.

You’re just ranting. — spiriting out obvious truisms without any context or facts.

urban elitist on December 16, 2015 at 5:12 PM

This from the guy who pronounces as a Known Fact that conservatives are, to a man, a miserable pile of Ebenezer Scrooges, sending the poor off to the prisons and workhouses where they belong.

The Schaef on December 16, 2015 at 5:31 PM

WHAT?? Why would $15 be too high. If you plug in the numbers, then the higher the raise the better!
The “20% chance of unemployment versus 80% chance of doubling your wages” is linear – regardless of how high wages are raised. The relationship never changes, so we should be much more aggressive about raising than you are proposing. Why are you proposing such an ineffective raise?

blink on December 16, 2015 at 5:18 PM

I know you’re having your fun, and it’s easier to get sarcastic than to come up with real numbers. I’m using what I have, based on academic studies and published in a conservative website. I will conced that there’s clearly some sort of curve. Now it’s your turn: quantify it.

urban elitist on December 16, 2015 at 5:32 PM

Hey, UE, good news! I found the HuffPo article I was referring to above!

But it turns out that the link has been made a bit… well, obsolete. Turns out that the ACTUAL cost of a Big Mac under a $15 wage would increase by $1.28!

So, how does that 30-35% national sales tax on food items to fund a federal wage subsidy strike you now?

The Schaef on December 16, 2015 at 5:37 PM

My numbers add up, my friend. And those 20% unemployed? When they do get back in the job the will re-earn lost wages at a substantial pace and rapidly become net winners — raising average earnings in the poor community, which I care about.

urban elitist on December 16, 2015 at 5:12 PM

This, also, is an interesting thing to say in the same paragraph as you claim to be on the caring side of the equation.

I don’t know if you’ve ever been on a household budget that basically survives check to check. Or a situation where being out of work for even three months can have such a deleterious impact that you are still feeling the impact five years later, even with tons of local help, and even after effectively doubling your salary in that time frame.

When you have a wife and children to feed, and every dollar counts, I don’t think you’re quite as cavalier about having other people gamble your job, your home, your entire livelihood on even a significant chance that you’ll come out ahead, and get to continue living your dream career of flipping burgers.

The Schaef on December 16, 2015 at 5:43 PM

Rather than using the blunt instrument of government imposed minimum wages, why not control immigration and the flow of labor as tightly as the interest rates are managed. It’s bizarre that’s the govt so closely watched these other metrics, and then crashes wages with all this cheap labor.

The minimum wage is another example as to why Republicans lose the common man voter. Both Rs and Ds are for high immigration but the Ds, listening to their voters, raise minimum wages and do other things to mitigate the damage from cheap labor. Republicans really need to break out of this longstanding trap. The way to do it, is to reduce immigration. The LIVs are starting to understand this. That theme has to keep being hammered.

cimbri on December 16, 2015 at 5:44 PM

You’re just ranting. — spiriting out obvious truisms without any context or facts.

urban elitist on December 16, 2015 at 5:12 PM

LOL, from the same person who believes cause and effect don’t exist and 2+2=5. Only in your fantasy world will a fast food restaurant eat a near doubling of their wage costs and not pass those higher costs onto the consumer. And those consumers will happily pay 30-35% more for a Big Mac or other foods that are picked / prepared / packaged / served by minimum wage earners.

Try re-reading the article quoted. Here’s a hint from it’s full title:

The Evidence Is Piling Up That Higher Minimum Wages Kill Jobs: President Obama says there is ‘no solid evidence.’ Yes there is—lots of it.

Higher minimum wages kill jobs. That’s what the article states. You seem to arguing that it says that higher minimum wages don’t kill jobs – along with a dose of ‘well, if it does, it’s an acceptable number to me’.

From the article:

But let’s not pretend that a higher minimum wage doesn’t come with costs, and let’s not ignore that some of the low-skill workers the policy is intended to help will bear some of these costs.

From UE:

And those 20% unemployed? When they do get back in the job the will re-earn lost wages at a substantial pace and rapidly become net winners — raising average earnings in the poor community, which I care about.

Who says they do get another job? They are minimum wage earners. No skills / low education. In 2013, that pool was only 3.5 million large – and the left and GOPe want to give 15 million illegal immigrants legal status – many of whom are low skill / low education. You seem to think that pool is limitless. It isn’t. No, you don’t care about raising the average earnings in the poor community. If the wage decline / stagnation that has become endemic in the Obama recovery hasn’t motivated you…

And forget fast food — I don’t spend much money on that. What about my car? Pretty much no one involved in automobile production naked minimum wage, so my much bigger expenditure on my car is unaffected. Dane with housing. Same with utilities. Major expenditures? Unaffected.

It ultimately comes down to, with all committed leftists, to how it impacts ‘me’ and F*** the others. You don’t eat fast food or use businesses that employ minimum wage earners, so since it doesn’t impact you – but makes you ‘feel good’ about helping the downtrodden, even though you don’t help all of them and hurt a number of them – it doesn’t really matter. Perception trumps reality. 2+2=5. Works for you. Also callous, contemptuous, and hypercritical of you.

Keep up the projection UE. Leftist economics doesn’t work in the real world. But as long as you’re not impacted, that doesn’t really matter, does it? Great example of compassion and tolerance for one’s fellow man.

Athos on December 16, 2015 at 6:06 PM

Yes pay fast food employees who can’t put cheese on a burger properly as much as a technician who crawls through asbestos has to properly wire a 30k system and navigate countless laws…idiots I started 5.15 an hour picking chicken was promoted cause I worked hard moved to a new field and worked hard and make decent money. Just automate BK machines probably better than their current employees

LeeBelieu on December 16, 2015 at 6:17 PM

Hey, UE, good news! I found the HuffPo article I was referring to above!
But it turns out that the link has been made a bit… well, obsolete. Turns out that the ACTUAL cost of a Big Mac under a $15 wage would increase by $1.28!

So, how does that 30-35% national sales tax on food items to fund a federal wage subsidy strike you now?
The Schaef on December 16, 2015 at 5:37 PM

The health benefits of a consumption tax on fast food make this a win/win. More seriously, I don’t think doubling the wage is politically radiative or economically sound, but I am not put off by a price increase in One sector of the economy, which is been thriving on brutally explicative labor policies for a half century anyway.

To your other points: the costs are indeed spread through the economy, but that’s beyond the scope of this rather limited wage/employment debate and, again, we are hampered by lack of data. (Thanks, btw, for actually using real numbers.) there are multiple benefits as well. Do you delete to build equity in the home or savings account. Better access to healthcare. Better educational outcomes. One could suggest that a shift in income from wealthy shareholders to poor communities would have significant social and economic benefits. We could argue this all day. But unti one or the other of us has more than theory, or ideology, to support the “broader effects” argument, I think we should let it drop.

Finally, as far as generalizations go, I see 100 of them locked in my direction, or liberals direction, every day. Sometimes I like to employ them myself. I will stipulate that not all conservatives are Scrooges, if you will admit that not all liberals are out to destroy America.

Good now, to dinner at a non-fast food restaurant. Cheerio.

urban elitist on December 16, 2015 at 6:19 PM

Plus, a $15 minimum wage, assuming that entitlement benefits were held constant, would be a significant work incentive.

urban elitist on December 16, 2015 at 6:31 PM

Sorry elitist but your whole premise, data gathering and figure crunching is more socialist drivel. You act like the private sector employer goes by some rule when the fact is he or she is generally a savvy person who puts up all the money and risk to start a business to fill a need. Business owners generally will do whatever is necessary to satisfy employees who make themselves invaluable and get rid of those employees that prioritize the money before the value.

I can’t say I have met many liberal business owners but the ones I have could only make it performing regulated inflated federal government work. 90% of liberals are out to turn America into Europe and the other 10% are just lazy and ignorant.

tej on December 16, 2015 at 6:52 PM

The health benefits of a consumption tax on fast food make this a win/win.

First of all, you incorrectly limit it to fast food, forgetting (conveniently?) that those downtrodden single mothers bagging your groceries will also be making $15. So it’s a 30+% consumption tax on all food.

Secondly, a reference to “health benefits” implies that the higher price will have a chilling effect on sales. What happens when food businesses aren’t selling food, urban?

In essence, you are giving a tacit acknowledgement that raising the minimum wage will have a negative impact on the industry by significantly lowering demand.

I don’t think doubling the wage is… economically sound…

Why not? If the short term impact is negligible and the long term impact is a net gain, what possible reason would there be not to raise everyone’s wages to middle-class or better?

I am not put off by a price increase in One sector of the economy, which is been thriving on brutally explicative labor policies for a half century anyway.

I’m going to presume you meant exploitative, since I doubt you think it brutal that someone might explain something to someone else in a logical fashion. But what’s revealed here is that you don’t care for the way some particular company or another conducts their business, so you support the use of economic policy as a punitive and confiscatory measure despite the fact that they are complying with state and federal corporate laws on the books. It’s okay to use the law as a bludgeon against law-abiding citizens, despite the negative impact it might have on others, because you don’t like them?

the costs are indeed spread through the economy, but that’s beyond the scope of this rather limited wage/employment debate

The steps a business will take to absorb added cost is not a macro discussion. If I wanted to go that direction, I would start a discussion about what would happen in the wider economy if the food and retail industries started trending downward.

Do you delete to build equity in the home or savings account. Better access to healthcare. Better educational outcomes.

There aren’t a lot of places you can own real estate on $30k/year ($400-500/mo for the mortgage alone, and not a lot of house for that money).

If businesses reduce benefits, the company’s entire labor force has reduced access to healthcare.

How do you tie educational outcomes to people who are already out of school?

I see 100 of them locked in my direction, or liberals direction, every day.

Woe is you. I guess that makes it okay to treat people that way, then.

I will stipulate that not all conservatives are Scrooges, if you will admit that not all liberals are out to destroy America.

urban elitist on December 16, 2015 at 6:19 PM

I never said they were, so I have no accusation to recant.

If there’s anything else I didn’t say for which you want me to apologize, save your breath.

The Schaef on December 16, 2015 at 7:37 PM

The static thinking of libs never ceases to amaze me. They think raises sales taxes X amount will simply raise Y amount of income without once considering the likely reduced sales. Same thing with minimum wages, user fees etc. etc. Taxes and fees should always be viewed as a punishment (consider the “sin” taxes many are fond of). The intent is to alter behaviour. Increase income tax, you ultimately get less. It always goes back to supply / demand and cost/demand econ 101

animal02 on December 16, 2015 at 8:00 PM