$15 Minimum Wage

RobbyPants · Post by **RobbyPants** » Mon Aug 31, 2015 12:14 pm

I've been hearing the idea of a $15-an-hour minimum wage for the US floated around a bit lately. Economics is one of those things I only have a small grasp on. Anecdotally, all I hear in meat-space is people complaining how prices will go up and this will just hurt the middle class and cause inflation. Google is behaving exactly as I'd expect for such a polarizing topic.

What's the deal with this? Are there any good studies or applied theories that can address this?

Stahlseele · Post by **Stahlseele** » Mon Aug 31, 2015 12:29 pm

A Minimum Wage is, technically, a good way to save the economy, as it means people have more money to spend on things, so more things get sold, which means more sales tax for the state and more demand for new things, which could mean more jobs . .
Prices would not go up neccessarely. People might just suddenly buy more expensive stuff than the cheap stuff they bought before, simply because they suddenly have the money to do so.
15$ is 13,38€, which is almost 4,88€ more than the 8.50€ minimum wage germany just got . .
I'd be pretty happy with that minimum wage. 8,5€ is not enough to live on and just too much to get any additional money from the state.

Grek · Post by **Grek** » Mon Aug 31, 2015 12:55 pm

Basically, imagine what you would do if your annual wage went from 15k per year to 30k per year. Then multiply that by the roughly 30 million people making minimum wage in the US. From a macroeconomics perspective, doing this would put an extra 0.45 trillion dollars a year into the economy, most of which would be spent because minimum wager earners are unlikely to save money (they don't have the money to spare to be saving).

Shatner · Post by **Shatner** » Mon Aug 31, 2015 1:19 pm

Relevant Krugman Article

Snippet of that Article wrote:First of all, the current level of the minimum wage is very low by any reasonable standard. For about four decades, increases in the minimum wage have consistently fallen behind inflation, so that in real terms the minimum wage is substantially lower than it was in the 1960s. Meanwhile, worker productivity has doubled. Isn’t it time for a raise?

Now, you might argue that even if the current minimum wage seems low, raising it would cost jobs. But there’s evidence on that question — lots and lots of evidence, because the minimum wage is one of the most studied issues in all of economics. U.S. experience, it turns out, offers many “natural experiments” here, in which one state raises its minimum wage while others do not. And while there are dissenters, as there always are, the great preponderance of the evidence from these natural experiments points to little if any negative effect of minimum wage increases on employment.

Why is this true? That’s a subject of continuing research, but one theme in all the explanations is that workers aren’t bushels of wheat or even Manhattan apartments; they’re human beings, and the human relationships involved in hiring and firing are inevitably more complex than markets for mere commodities. And one byproduct of this human complexity seems to be that modest increases in wages for the least-paid don’t necessarily reduce the number of jobs.

What this means, in turn, is that the main effect of a rise in minimum wages is a rise in the incomes of hard-working but low-paid Americans — which is, of course, what we’re trying to accomplish.

He's actually got several Op-Eds about the effects of raising the minimum wage, this was just the most recent.

RobbyPants · Post by **RobbyPants** » Mon Aug 31, 2015 1:19 pm

What about the complaints of places that primarily hire people making less than that having their prices go up? It seems reasonable that if McDonalds hires people mostly making $7 an hour that prices would have to go up to compensate. Do we know how much they'd go up? Obviously, there's more to the cost of a burger than the wage of the person making it. Do we have any idea what fraction of the operation overhead is wages?

Koumei · Post by **Koumei** » Mon Aug 31, 2015 1:28 pm

If they raise their prices too much, then people just won't buy. There are downward forces acting on their prices as well, after all. Not all of it will turn into a straight loss to them - more people at the lowest end of the income will have that bit extra to "treat" themselves to fast food more often (indeed it becomes easier to justify buying a burger after your shift ends). The rest of the difference won't bankrupt a place like McDonalds, they might just have to suck up a reduced profit margin - which is still massive. Or there might not be a "rest of the difference" at that point, it's hard to tell.

Someone else is going to have to explain the effect on smaller stores that aren't part of a chain and already have to move every time the property rental prices wobble in the area.

angelfromanotherpin · Post by **angelfromanotherpin** » Mon Aug 31, 2015 2:12 pm

Purdue did a study that suggested fast food prices would go up 4-5% if the minimum wage went to $15. So a $4 Big Mac would jump to ~$4.17.

Stahlseele · Post by **Stahlseele** » Mon Aug 31, 2015 2:22 pm

But with a higher minimum wage, people would also maybe not be as dependent on cheap and bad food and may actually start buying good real food which is also more healthy and . . no i can't keep a straight face either . .

RobbyPants · Post by **RobbyPants** » Mon Aug 31, 2015 4:36 pm

Thanks. That was the kind of thing I was looking for.

hyzmarca · Post by **hyzmarca** » Mon Aug 31, 2015 4:57 pm

The most valid complain abut a massive nationwide minimum wage spike is the highly varied cost of living across the country. That is to say, if you live in New York, where a 1 bedroom apartment costs you over $3000, a $15 an hour minimum wage is still utter shit and you won't be able to pay your rent.

On the other hand, if you're paying $400 a month for rent and utilities, a week of work covers your basic needs at that price.

That is to say, a minimum wage increase will have different effects in different regions due to massive disparities in basic cost of living.

Shatner · Post by **Shatner** » Mon Aug 31, 2015 5:18 pm

hyzmarca wrote:The most valid complain abut a massive nationwide minimum wage spike is the highly varied cost of living across the country. That is to say, if you live in New York, where a 1 bedroom apartment costs you over $3000, a $15 an hour minimum wage is still utter shit and you won't be able to pay your rent.

On the other hand, if you're paying $400 a month for rent and utilities, a week of work covers your basic needs at that price.

That is to say, a minimum wage increase will have different effects in different regions due to massive disparities in basic cost of living.

That's true, but that's a feature, not a bug.

People have already shown that when given the means to choose, they would rather live in an apartment in a city than a large house in rural Alabama. And that's fine. Afforded the means to do so, people will gravitate to the places they want to live in and can afford to do so, so the real value disparity (e.g. $15/hour means less in real terms in San Francisco than in rural Texas) gets adjusted for as people leave... or as crappy places improve due to people having more money to spend. To quote Krugman

Snippet of Krugman talking about Puerto Rico wrote:Put it this way: if a region of the United States turns out to be a relatively bad location for production, we don’t expect the population to maintain itself by competing via ultra-low wages; we expect working-age residents to leave for more favorable places. That’s what you see in poor mainland states like West Virginia, which actually looks a fair bit like Puerto Rico in terms of low labor force participation, albeit not quite so much so. (Mississippi and Alabama also have low participation.)

And outmigration need not be such a terrible thing. There is much discussion of what’s wrong with Puerto Rico, but maybe we should, at least some of the time, just think of Puerto Rico as an ordinary region of the U.S.; at any given time, we expect some regions to be in relative and maybe even absolute decline, as the winds of technology and global trade shift.

Count Arioch the 28th · Mon Aug 31, 2015 6:15 pm

Two things I wonder about in regards to the higher wage:

1. My dad works for a charitable organization. This organization cannot pay their bills as it is, let alone pay all of their minimum wage people $15. I'm not sure anyone except the CEO makes $15 or more an hour.

2. The classic stand-by of American business is when expenses go up hire fewer people and make them do more work, then put the extra money in their pockets and still don't hire anyone when expenses go down. Won't this raise unemployment?

Shatner · Post by **Shatner** » Mon Aug 31, 2015 6:40 pm

Count Arioch the 28th wrote:Two things I wonder about in regards to the higher wage:

1. My dad works for a charitable organization. This organization cannot pay their bills as it is, let alone pay all of their minimum wage people $15. I'm not sure anyone except the CEO makes $15 or more an hour.

2. The classic stand-by of American business is when expenses go up hire fewer people and make them do more work, then put the extra money in their pockets and still don't hire anyone when expenses go down. Won't this raise unemployment?

There exists some number you could raise the minimum wage up to that would cause all sorts of problems. While I'm not sure what that number is, fifteen dollars is not that number, nor is the situation of overpaying everyone at the bottom ever really been a serious concern.

As Krugman mentions, there are a huge number of natural experiments that have been performed and studied because states have enacted their own regional minimum wage hikes. And the results of these hikes have not been businesses going under nor falling employment.

I won't deny the existence of businesses that are already walking the razor's edge, but a smattering of businesses failing (for-profit and non-profit alike) are a way of life. However, the amount Americans on-average are getting paid has, when you adjust for inflation, gone down since the '60s, so raising the wage to back up to historical levels is more of a correction than an unheard of imposition.

Finally, your spending is my income and vice versa, and people at the bottom of the income pyramid spend more and hoard less than those at the top. This means if you have the choice of giving a pile of money to only one group, you do the most good for the economy as a whole by giving it to the base. A minimum wage hike does exactly that.

Krugman article wrote:First, a few facts. Although the national minimum wage was raised a few years ago, it’s still very low by historical standards, having consistently lagged behind both inflation and average wage levels. Who gets paid this low minimum? By and large, it’s the man or woman behind the cash register: almost 60 percent of U.S. minimum-wage workers are in either food service or sales. This means, by the way, that one argument often invoked against any attempt to raise wages — the threat of foreign competition — won’t wash here: Americans won’t drive to China to pick up their burgers and fries.

Still, even if international competition isn’t an issue, can we really help workers simply by legislating a higher wage? Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.

It’s important to understand how good this evidence is. Normally, economic analysis is handicapped by the absence of controlled experiments. For example, we can look at what happened to the U.S. economy after the Obama stimulus went into effect, but we can’t observe an alternative universe in which there was no stimulus, and compare the results.

When it comes to the minimum wage, however, we have a number of cases in which a state raised its own minimum wage while a neighboring state did not. If there were anything to the notion that minimum wage increases have big negative effects on employment, that result should show up in state-to-state comparisons. It doesn’t.

So a minimum-wage increase would help low-paid workers, with few adverse side effects. And we’re talking about a lot of people. Early this year the Economic Policy Institute estimated that an increase in the national minimum wage to $10.10 from its current $7.25 would benefit 30 million workers. Most would benefit directly, because they are currently earning less than $10.10 an hour, but others would benefit indirectly, because their pay is in effect pegged to the minimum — for example, fast-food store managers who are paid slightly (but only slightly) more than the workers they manage.

Hiram McDaniels · Post by **Hiram McDaniels** » Mon Aug 31, 2015 6:48 pm

Grek wrote:Basically, imagine what you would do if your annual wage went from 15k per year to 30k per year. Then multiply that by the roughly 30 million people making minimum wage in the US. From a macroeconomics perspective, doing this would put an extra 0.45 trillion dollars a year into the economy, most of which would be spent because minimum wager earners are unlikely to save money (they don't have the money to spare to be saving).

Minimum wage earners have a backlog of things they need/want but don't have money for. Any extra money they get goes to that stuff.

I don't exactly live paycheck to paycheck, but every spare amount of cash I had over the past couple of years just went to pay for my wedding and honeymoon. The next bonus I get pays for a new couch we've been needing. After that it's saving up for a down payment on a condo. And so on and so forth.

Maj · Post by **Maj** » Mon Aug 31, 2015 7:23 pm

Well, Seattle just raised their minimum wage - the first step in the wage increase went into effect in June. And in preparation for this, restaurants fired hundreds of people. And then the new wage hit, and restaurants have been hiring new employees in record-breaking numbers. So... Businesses might be the ones taking the first hit when it comes to expenses, but they're making it up once people can spend it.

Sort of related: In the rhetoric, very few people bring up the budgeting responsibility of the business. I didn't think about it until my mom lost her job a few months ago...

Her boss called her into the office to discuss money. He, despite saving $400/month on the cost of covering her health insurance when she became eligible for Medicare, wanted to stop paying for her health insurance entirely. He said the business wasn't making as much money as he was expecting, and because he wanted another new car for his teenage daughter, he needed to have my mom foot the bill for her own insurance.

My mom convinced him to lay her off so she could collect unemployment. She said if she was too expensive to employ, he should just let her go (and she really wanted to be let go because she wants to move). But it made both of us stop and think about those business owners who essentially would rather pocket the money and buy a car than do the ethical thing and pay their employees.

The ironic part of this conversation was that at the end of it, my mom's boss had the audacity to say, "I'm worried about your financial situation." My mom responded with, "You don't get to say that to me," and walked out.

Count Arioch the 28th · Mon Aug 31, 2015 7:36 pm

Maj wrote: But it made both of us stop and think about those business owners who essentially would rather pocket the money and buy a car than do the ethical thing and pay their employees.

Most small business owners I have come into contact with were shitlords. Very few of them went into business because they have a brand new product or have found a need in the community for what they're selling, they just want to go into business and be a big shot and break employment laws.

Stahlseele · Post by **Stahlseele** » Mon Aug 31, 2015 8:29 pm

That is exactly the reason why we need more minimum wages and higher minimum wages instead of higher prices on everything to fix the economy.
people can't spend money they don't have and spending more money on the same things just means the higher ups get fuller pockes while everybody else has less money because they pay more.

hyzmarca · Post by **hyzmarca** » Mon Aug 31, 2015 8:51 pm

A good chunk of the opposition I've seen comes from middle class workers, and boils down to "I went to school and have specialized skills, burger flippers don't deserve to make as much as I do."

That is, they feel that the effort they spent on education and training would be rendered worthless if the minimum wage was increased.

Shatner · Post by **Shatner** » Mon Aug 31, 2015 9:07 pm

hyzmarca wrote:A good chunk of the opposition I've seen comes from middle class workers, and boils down to "I went to school and have specialized skills, burger flippers don't deserve to make as much as I do."

That is, they feel that the effort they spent on education and training would be rendered worthless if the minimum wage was increased.

I've encountered that sentiment before but it's fallacious. Firstly, a rising tide lifts all boats and giving more to those at the bottom does a lot for domestic economies. Plus, "land of opportunity", "american dream" and all that...

Secondly, pointing at any ratio between "burger flipper's income and skilled laborer's income" and enshrining it as "right" is going to be flawed as that ratio has changed a lot over time and across the globe. If your argument is basically the same as what a reactionary might have used 100 years ago, that's a sign you should seriously reconsider your argument.

And finally, that's some very misplaced resentment. Income inequality is a big deal today, especially-for-but-not-limited-to the US, but this inequality has been driven by the upper decile (and most especially the upper centile) pulling way, waaay ahead of everyone else. If they want to reign in disproportionate income, they really should look upward, not down.

Grek · Post by **Grek** » Mon Aug 31, 2015 9:16 pm

Hiram McDaniels wrote:Minimum wage earners have a backlog of things they need/want but don't have money for. Any extra money they get goes to that stuff.

I don't exactly live paycheck to paycheck, but every spare amount of cash I had over the past couple of years just went to pay for my wedding and honeymoon. The next bonus I get pays for a new couch we've been needing. After that it's saving up for a down payment on a condo. And so on and so forth.

That sort of saving doesn't count as far as macroeconomics are concerned. People spend money either on consumption or on investment. Saving up to buy something is consumption, since on the aggregate you're still spending the same amount of money. It's just happening in larger, more discrete chunks when you make big ticket purchases. In cases like yours, doubling your wage would translate into you making the down payment on your condo sooner and then moving to the next item on your things to buy list. Maybe eventually you get through the whole backlog and then start saving for retirement some day, but in the short term all of that increase goes straight to your consumption budget which directly increases demand.

Shatner · Post by **Shatner** » Mon Aug 31, 2015 9:22 pm

Grek wrote:
Hiram McDaniels wrote:Minimum wage earners have a backlog of things they need/want but don't have money for. Any extra money they get goes to that stuff.

I don't exactly live paycheck to paycheck, but every spare amount of cash I had over the past couple of years just went to pay for my wedding and honeymoon. The next bonus I get pays for a new couch we've been needing. After that it's saving up for a down payment on a condo. And so on and so forth.
That sort of saving doesn't count as far as macroeconomics are concerned. People spend money either on consumption or on investment. Saving up to buy something is consumption, since on the aggregate you're still spending the same amount of money. It's just happening in larger, more discrete chunks when you make big ticket purchases. In cases like yours, doubling your wage would translate into you making the down payment on your condo sooner and then moving to the next item on your things to buy list. Maybe eventually you get through the whole backlog and then start saving for retirement some day, but in the short term all of that increase goes straight to your consumption budget which directly increases demand.

Investments exist beyond stocks and bonds. A family that can suddenly afford a reliable car or daycare is able to better themselves economically since they can pursue lines of work farther away or have an additional spouse enter the workforce. They haven't purchased a single thing we'd classify as "capital" but they're still improving their lot in life and in so doing, improving the economy (assuming the economy in question has a crisis of insufficient demand and problems of wages at the lower end, which ours most certainly does).

Grek · Post by **Grek** » Mon Aug 31, 2015 9:58 pm

Investment is being used as a technical term in that post, where it means "a method for turning real dollars now into real dollars in the future at a favourable ratio" and not the colloquial meaning of "anything I spend money on now so that I can get more back in the future". Most things that fall under that colloquial meaning (including access to daycare or owning a reliable car) really are just purchasing capital. And the good news is: as far as increasing aggregate demand goes, money spent on capital goods and money spent on consumer goods both count toward consumer demand in the economy. It doesn't matter what you're buying or why you're buying it or even how you're buying it, just that you're willing to pay someone money to create goods and/or perform services.

DSMatticus · Post by **DSMatticus** » Mon Aug 31, 2015 10:02 pm

Maj wrote:Well, Seattle just raised their minimum wage - the first step in the wage increase went into effect in June. And in preparation for this, restaurants fired hundreds of people. And then the new wage hit, and restaurants have been hiring new employees in record-breaking numbers. So... Businesses might be the ones taking the first hit when it comes to expenses, but they're making it up once people can spend it.

I don't think there was any actual mass firing. There were a bunch of conservative articles talking about how some restaurant owners said they were firing people, and the articles blamed that on the upcoming minimum wage hike, but then some actual journalists bothered to call the those business owners and they said the firings had fuck all to do with that (1 in 3 restaurants close in their first year - if you want to find examples of restaurants firing people, you will never not have examples, no matter what the economic situation). Meanwhile King County's employment stats have been consistently some of the best in the region (and nation) throughout the whole ordeal.

RobbyPants wrote:What about the complaints of places that primarily hire people making less than that having their prices go up? It seems reasonable that if McDonalds hires people mostly making $7 an hour that prices would have to go up to compensate. Do we know how much they'd go up? Obviously, there's more to the cost of a burger than the wage of the person making it. Do we have any idea what fraction of the operation overhead is wages?

Count Arioch wrote:Two things I wonder about in regards to the higher wage:

1. My dad works for a charitable organization. This organization cannot pay their bills as it is, let alone pay all of their minimum wage people $15. I'm not sure anyone except the CEO makes $15 or more an hour.

2. The classic stand-by of American business is when expenses go up hire fewer people and make them do more work, then put the extra money in their pockets and still don't hire anyone when expenses go down. Won't this raise unemployment?

A lot of "libertarian" economic (mis)understandings - which establishment Republicans call upon as needed to further the endless transference of wealth upwards to their plutocratic overlords - are based on the idea of perfectly competitive markets. In a perfectly competitive market, it is impossible to extract a profit from overcharging your customers or underpaying your employees. If you do so, your perfectly rational customers/employees will abandon you for one of your (effectively) infinitely many competitors. In a perfectly competitive market, employees are already being paid exactly as much as their employer can afford to pay them - a minimum wage below that does nothing, and a minimum wage above that creates unemployment (because hiring those last few employees goes from "break even" to "lose money").

You have never lived in a world with perfectly competitive markets and you never will. They are a childish fantasy and an economic fairytale. In the real world, virtually all major markets split >50% share between less than <6 firms. You live in a world where prices are high and wages are low because of the power of implicitly collaborating oligopolies. And it turns out that because demand curves are a thing, oligopolies usually lose more money (through decreased volume) if they pass 100% of the cost of the minimum wage onto consumers than if they let just let it hurt their profits directly.

Occluded Sun · Post by **Occluded Sun** » Tue Sep 01, 2015 1:15 am

Shatner wrote:However, the amount Americans on-average are getting paid has, when you adjust for inflation, gone down since the '60s, so raising the wage to back up to historical levels is more of a correction than an unheard of imposition.

Because market forces mean nothing, the differences in the markets between now and then mean nothing, and wages should be what you decide they should be.

Ancient History · Post by **Ancient History** » Tue Sep 01, 2015 1:18 am

...and when that was the case you had kids as young as 4 working ten-hour shifts in the local coal mine. Minimum wage laws are there to protect the most vulnerable people from being exploited financially by their employers.