The Minimum Wage Destroys Jobs

The NCPA explains why.

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Creates Unemployment. In a free labor market, wage rates reflect the willingness of workers to work (supply) and the willingness of employers to hire them (demand). Worker productivity is the main determinant of what employers are willing to pay. Most working people are not directly affected by the minimum wage because their productivity and, hence, their pay, is already well above it.

The law of demand says that at a higher price, less is demanded, and it applies to grapefruit, cars, movie tickets and, yes, labor. Because a legislated increase in the price of labor does not increase workers' productivity, some workers will lose their jobs. Which ones? Those who are the least productive.

Minimum wage laws mostly harm teenagers and young adults because they typically have little work experience and take jobs that require fewer skills. That's why economists looking for the effect of the minimum wage on employment don't look at data on educated 45-year-old men; rather, they focus on teenagers and young adults, especially black teenagers. Paul Samuelson, the first American winner of the Nobel Prize in economics, put it succinctly back in 1970. Analyzing a proposal to raise the minimum wage to $2 an hour in his famous textbook, Economics , he wrote, "What good does it do a black youth to know that an employer must pay him $2 an hour if the fact that he must be paid that amount is what keeps him from getting a job?"

While it may sound nice that the Guvernator is raising the wage standards for Californians, the end result is that those jobs are going to be shifted to a labor force that will be able to work for less. Namely, illegals. Sorry, Black People.

The EPI throws in some research to support the conjecture.

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First, we calculate from official government employment data that the October 1, 1996, 50-cent minimum wage increase destroyed approximately 215,000 teen jobs, affecting about 3.5 percent of the 6.2 million teens that were working before the increase. In other words, employment does go down when the minimum wage goes up, and it went down after the 1996 increase despite strong performance in the economy as a whole.

Jam it back in, in the dark.

Even if you could enforce Illegal Immigration you're still faced with the conundrum of outsourcing.

Both problems are a damned if you do, damned if you don't equation, because if you kick out all of the illegals and maintain a minimum wage, then farms that can't afford to mechanize will go under. With outsourcing, American jobs are lost to foreign competitors, but if you illegalize outsourcing then you ruin businesses and increase the price of goods.

I don't really have time to address everything right now, but those are the most immediate things I'd like to point out.

There's nowhere I can't reach.

Which is true, but one also has to consider the appeal of the market independant farmers create. Regardless of whether or not he hires a bunch of Mexicans to pick strawberries a few weeks out of a year, Joe Blo Farmer is going to have an easier time selling his produce in some hippy Farmer's Market. It's not bad economically, but in a way it hurts consumers because it eliminates the availability of a product.

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Possibly, but I don't see much outsourcing of minimum wage jobs. Janitors, fast food people (yeah, we've all heard about the drive-through intercom stuff being outsourced), farm workers, those job require warm bodies.

This is true, but then there's also the argument presented in the article that work-related benefits are cut entirely due to raises in minimum wages. The end result, I think, would be a demand for full-time minimum wage earners superceding part-time workers like high school kids.

Those aren't the only jobs that are entry-level, though. Why do you think people make such a big stink about customer-service jobs going overseas? When there's a will there's a way, and besides, not everybody can work at a fast food joint or be a janitor for every business in the country.

Those positions, still, can be filled by illegal immigrants presuming that we don't secure our borders. People in New England may not consider it a problem, but they'll go where they can find jobs, just like anybody else.

Also, while I may support this fully, if you increase the minimum wage then it encourages industries to seek out ways to automate job functions. I know we won't have robots taking our orders, but we've already got automatic vacuums (as primitive as they are), imagine if entire industries were willing to put in finance for that kind of research to undercut costs.

There's also something I've failed to point out, and that's that people surviving on tips don't make minimum wage as it is. Granted, an employer is required to make up the difference if their tips and $2.15 wages don't add up to the minimum sum, but the majority of that, in theory, still isn't supposed to come out of the employer's pocket.

This thing is sticky, and I don't like it. I don't appreciate it.

That or you'll be fired.

They also don't depend on tips, employers are required by law to make up the difference if tips earned don't add up to the minimum wage.

How ya doing, buddy?

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I'm slightly disappointed with the way that Starbucks intends to compensate for the increase of minimum wage. It's one of the few things that I haven't agreed with them on. But I can also understand how they don't want to affect their bottom line more than is necessary. I just hope they will realize the mistake if/when the quality of workers degrades to the point where it affects business and customer loyalty. Ideally they would maintain a steady 1.50 wage gap over the minimum to keep employees happy and keep the quality ones around.

Increasing their current entry-level pay would constitute a massive increase in overhead, though, meaning that they would seek to decrease their overall employment and increase the burden of an already physically demanding job to their remaining employees. The end result is better workers, like you said, but it also means limited opportunities for expansion.

There's also a laughably poor understanding of buying power going on here. If the prevailing minimum is 5 dollars, and then you suddenly increase that by a dollar, you're looking at 1/5th of the current employees on minimum wage losing their jobs. While those remaining have more money to pay for goods, the ones that have been fired have nothing. Alternatively, prices would go up to meet the increase in overhead, which also means that on the net, nobody has increased buying power.

Nothing about a minimum wage increase reflects any real creation of wealth, which is how workers are able to increase their buying power on the net, you're just shifting the burden of production to a smaller amount of workers, or lowering the buying power of consumers on the net.

Also, Lurker, about inflation. The lack of raise in pay to meet inflation is reflected in the overall price in goods. If workers aren't being payed more, then the price of goods provided by the employer will also remain the same, all things being equal. Unfortunately the devaluation of currency raises the price of raw materials, meaning that products have to rise in price relative to commodity prices. The solution isn't to raise the minimum wage, but to end inflation.

I was speaking idiomatically.

That's how it works. Arbitrarily raising the minimum wage without any reflection on the actual productivity of minimum wage workers is zero-sum. Workers on the net aren't any more productive after the minimum wage hike than they were before. So the choice is, either everybody suffers, or the lowest skilled become economic and political losers doomed to cronic unemployment.

Of course, the other solutions would be to not increase the minimum wage and end inflation, but those are laughed at as entirely "unrealistic" by people who think inflation is a force of nature and not a real result of government fiscal policies.

How ya doing, buddy?

It's not the same. In fact it's less. You're looking at a dollar less being circulated in the work place. So I guess my math is pretty off, I made a B in Pre Algebra Plus for Christ's sake.

But yeah, all other things being equal, that extra dollar being earned is of same relative value to the 5 dollars lost.

There's no real increased amount of consumption going on, because you have more money circulating among fewer people.

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Yes, but we're not talking about wealth distribution whose end result is a marginally smaller loss for the CEO, you're talking about wealth distribution that forces a fraction of the population into destitution. People think blacks must be stupid or lazy to be so poor in the inner city, but the fact is that you can't be either to survive ghetto economics! They can't get legitimate work because they simply can't perform well enough to be hired at the prevailing wage! Attempting to justify this kind of "benefit" is inhuman! Socialist bastards and unions have stacked the odds against the poor of this country by denying them the ability to compete and I'm sick of it.

What, you don't want my bikini-clad body?

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Umm...that seems like it's more aimed at the analogy than the actual point I was trying to make. If everyone is going to live in destitution at $5 an hour, but at $6 an hour some people can stop taking those second jobs and working eighteen hour days while one person gets fucked over, then isn't it beneficial to give those people $6 an hour instead of $5 an hour?

It's still not working. Nobody all of a sudden stops taking on a new job because they just earned an extra buck an hour instantly. You're also looking at a zero-sum game. At what point do you have to get before minimum wage workers stop taking on multiple jobs? 9 dollars an hour? 12 dollars an hour? How many people have to become unemployable just so 1/3 of the people at the minimum skill bracket don't have to take two jobs for a "living wage?"

Also, since I didn't clarify, the idea that an employer would keep all of their employees and raise prices is ludicrous. Doing so lowers sales and revenue, and a business owner would much rather keep the same overhead and keep the same product marketability than raise overhead and lose marketability. Like I said a long time ago, minimum wage hikes hurt small businesses and help the large corporate ones like Wal-Mart since they can easily eat the overhead.

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I hate unions, but I also am not about to allow a corporation to justify paying workers $1/hour.

And who's going to work a dollar an hour for, anything? You could make better money mowing lawns. The reason we even get payed higher than minimum wage is because entrepreneurs and other rival corporations compete for labor, and the wage earnings of a position as a result naturally gravitate to the actual worth of the labor.

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You can't claim that raising the minimum wage forces businesses to both fire people and raise prices. It's one or the other (assuming the owner knows anything about balancing a checkbook).

Isn't that what I said? I thought I presented it as an either/or situation, but I could've screwed up the delivery. My bad.

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That's the equivalent of spending $100,000 on a Toyota Corolla. If you feel you were getting a raw deal, you were free to quit. And if enough people shopped their employment services around, then they would be forced to treat their employees better.

You, effectively, are a justification for them paying people who have worked for them for 8 years $7.75 an hour.

Indeed. If you think you're deserving of a raise, nobody is going to negotiate for that except you. (Winter Storm) If you can't negotiate for one, then shop around for a job that will pay you more, and if you can't get a job that pays more then start saving money and go to classes in order to learn a trade. Then later on if you're dissatisfied with the trade you've learned you can use the money you saved from that to go towards a degree.

Addenda: Savings, though are a vicious game. Due to inflation it's being constantly devalued, and since the establishment of the Federal Reserve in 1913 the dollar has dropped in value 90%. Why would anybody want to save in an environment that forces people to constantly spend in order to derive the maximum value from their labor? It's why 401ks and other retirement plans which involve investing in stocks have become so popular. At least in that case your money can make some earnings (or by some horrible twist of fate you lose everything). With CODs and inflationary trends, there's no guarantee that the amount you saved will be worth any more or less by the time the account appreciates.

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There's some wage amount that will get people to stop working a second job in order to get by. I don't know what it is, and I doubt you do either, but do you see the reason why knowing that point could be important?

Also, do you know what zero sum actually means? Taking all the wealth in a country and giving it to one person creates a zero net change in wealth for a country, but I don't think anyone out there would argue the two situations are equivalent from any standpoint other than raw numbers.

That's exactly what I'm saying it means. In your example everybody save one person is a loser of wealth. In the real example of a minimum wage hike, the real losers are in a minority, yet are also the ones who are most purported to be the benefactors. This doesn't seem insane to you? The inability of any central authority to measure such items is why Keynesianism is bullshit.

Knowing the drop off point for when a person stops taking a second job is impossible, because it can only be applied on a case-by-case basis. How much is one man going to be content with compared to another? How much does he need compared to another? These are impossible terms to measure, and expecting somebody working 6 hours a day at one job to stop working the other 6 hours because they're making an extra few bucks is absurd. It won't apply all over the board, and the people who it may apply to aren't going to be significant enough to provide any net benefit. In any case when you increase the minimum wage both federally and at the state level, you create more economic losers, and more chronically unemployed who are incapable of climbing out of their rut without being able to underbid the wages of their competing employees.

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Don't smaller businesses tend to make one of their main selling points their exceptional customer service? You know, it's worth going to your local hardware store over Walmart because even though it's a little more expensive you're going to get expert assistance while you're shopping.

And in order to maintain that expert assistance they'd have to eat expert costs. Which increases with the minimum wage hike. It's an unnecessary burden that shouldn't be placed on small businesses.

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Have you ever ever heard of labor demand elasticity? Have you ever considered that it's not 1, so maybe your calculations are too simplistic? If you're going to argue with math, then you have absolutely no credibility if you can't even grasp one of the most basic parts of the equation, and did no research to find out whether your "intuitive" economics makes any real sense. Research in the last decade and a half has confirmed that elasticity in fast-food businesses (most highly effected by any wage hikes) is virtually zero. (Take this recent report, by an institute that held onto the notion of high elasticity longer than most - check their report archives.) The numbers don't add up, so we fall back on emotional arguments or outright falsehoods, like Brady's.

Ah yes, the EPI report. A document signed on by "scientists" who valued the social impacts of the findings more than the actual real economic ones.

Yes, in the short term the elasticity of labor demand means that small increases in the minimum wage won't be significant. However, what we're looking at is a wage increase that creates no statistically significant level of unemployment. This doesn't account for the affects on the chronically unemployed economic underclass, or how minimum wage hikes actually affect long-term solutions to a loss of real income and buying power among existing workers.

Lurker's statement that the libertarian argument claims that a minimum wage hike will create inflation is false. The argument made by libertarians is that inflation creates a loss of real wages, and the solution to stopping the deterioration of buying power among the poor is to end inflation. Otherwise attempting to peg the increase of minimum wages would constantly involve accounting practices and costs reaching into the billions, which damages the economy on the net, and may even be practically impossible.

As for the Washington example:

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In November of 1998 Washingtonians voted overwhelmingly in favor of increasing Washington’s minimum wage from $4.90 per hour to $6.50 per hour over a two-year period. The law also requires annual cost-of-living adjustments (COLAs) every year thereafter. In January 2003, Washington’s minimum wage is scheduled to increase by 1.6% to $7.01 per hour.

In effect for four years and through times of economic growth and decline, the minimum wage law has had a significant impact on the income of the state's lowest-paid workers and has had no significant impact on job or business growth. Research on Washington’s 1998 minimum wage initiative shows these results:

Considering the recession, it's hard to tell whether the effects of the minimum wage are really that insignificant, or whether the damages were outpaced by the boom following 2001.

In all cases, accounts for the "growth" which occurs in job markets doesn't account for the possibility of a marginal return, i.e. that without the minimum wage these markets would have experienced greater growth and provided even more jobs on the net.

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In addition, employment in the predominately low-paying restaurant industry increased by 3.6% between 1997 and 2001.

How much more expansion would've been possible in the absence of a minimum wage hike?

There's also something else which the hikes of minimum wage don't account for: automation. When setting a price floor on labor, one encourages firms to seek the increased automation of jobs previously worked by low-skilled labor. While in the short term unemployment may not indicate a noticeable increase, in the long term the increasing automation of an industry means that the employment opportunities for unskilled labor will go down.

Also, how do any of these studies reflect any real increase of buying power amongst minimum earners following a mandated hike in the face of monetary and commodity inflation?

There's nowhere I can't reach.

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If there are more low-wage workers than there are low-wage jobs, theoretically (since Libertarians ideas mostly are just theory), employers could pay whatever they wanted.

Theoretically in a baseline status quo. However, entrants into the market and entrepreneurs keep employers competing for labor in order to avoid a potential staff flight.

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You argue that people should be paid for their productivity, but that wouldn't happen: people would be paid on a market value. Higher skill workers are paid that now, but, with no minimum wage, there's nothing to keep the baseline from spiraling to a point where workers are getting paid well below their worth to a company and we're talking at your levels of destitution.

People are already payed in accordance to their real rate of productivity. The reason we have minimum wage jobs is because they're just barely productive enough to justify the pay. Once you increase the minimum to a certain point, you lose demand for an entire industry. It's why farmers imported illegals to pick strawberries, and contractors imported them to rebuild New Orleans. Cheap, menial labor costs too much to justify a minimum wage.

There's no guarantee whatsoever that companies would attempt a "race to the bottom" in the absence of a minimum wage. If that were the case then why doesn't everybody make a minimum wage?

This thing is sticky, and I don't like it. I don't appreciate it.

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Is McDonald's or Wal-Mart concerned about turnover?

No, which is also why they're not particularly concerned about a minimum wage hike. They are concerned insofar as it affects their competition. Besides, McDonalds and Wal-Mart have undergone massive automation in the past decades, and have severely decreased their overhead as a result. Wal-Mart by an large was paying its minimum earners above the minimum wage before the hike in the first place. Indeed, right around the projected increase.

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Why are you so forgiving of the farmer? Who says that he wants to pay someone what they are worth? The farmer imports illegals because it makes him the most money, not because it is the most fair price to pay for someone to pick strawberries.

Yes, Mikey, 2 dollars an hour is the most fair price to pick strawberries, as it's cheaper on labor costs than automation in the long-term. Do you really think that farmers can afford to pay 40 people 7.25 an hour to pick strawberries for a month?

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Everyone doesn't make a minimum wage because there is high demand for high-skilled workers. If there were too many lawyers or chemists for how many lawyer or chemist jobs are available, they wouldn't get paid as much. They don't get paid as much when that situation arises, which is proof that if more low-skill jobs are available and no wage safeguard, wages would drop drastically.

That's hardly saving anyone from destitution.

Actually the indicators regarding an abundance of high skilled labor isn't lower earnings, but restricted employment opportunities. Cheap education has flooded the labor market for high-skilled workers, which makes it harder for graduates to receive entry-level positions.

Besides, Norway, Sweden, Finland, Denmark, Switzerland, Germany, Austria, Italy, and Cyprus, all have no minimum-wage laws. Most of them do, however, have some form of wage control.

The minimum wage is a myth paraded around by politicians as the new form of bread and circuses for the 1% on minimum wage which never addresses the real cause of loss in buying power.

Here's a summary of 50 Years of Research into the negative affects of minimum wage as of 1995:

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The minimum wage reduces employment. (albeit in the real-world cases marginally - Brady)

The minimum wage reduces employment more among teenagers than adults.

The minimum wage reduces employment most among black teenage males.

The minimum wage helped South African whites at the expense of blacks.

The minimum wage hurts blacks generally.

The minimum wage hurts low wage workers particularly during cyclical downturns.

The minimum wage increases job turnover.

The minimum wage reduces average earnings of young workers.

The minimum wage drives workers into uncovered jobs, thus lowering wages in those sectors.

The minimum wage reduces employment in low-wage industries, such as retailing. (note that the Kruegman study documented the negligible effects in fast-food -Brady)

The minimum wage causes employers to cut back on training.

The minimum wage has long-term effects on skills and lifetime earnings.

The minimum wage leads employers to cut back on fringe benefits.

The minimum wage encourages employers to install labor-saving devices.

The minimum wage hurts low-wage regions, such as the South and rural areas.

The minimum wage increases the number of people on welfare.

The minimum wage does little to reduce poverty.

The minimum wage helps upper income families.

The minimum wage helps unions. (many unions have pay scales which are tied to multiples of the minimum wage -Brady)

The minimum wage lowers the capital stock.

The minimum wage increases inflationary pressure.

The minimum wage increases teenage crime rates. (black teens can't get work and join gangs? No kidding -Brady)

The minimum wage encourages employers to hire illegal aliens.

Few workers are permanently stuck at the minimum wage.

The minimum wage has had a massive impact on unemployment in Puerto Rico.

The minimum wage has reduced employment in foreign countries.

The costs of a minimum wage go beyond employment.

I am a dolphin, do you want me on your body?

Who said we were basing policy on law-breakers? Why not expand the quotas for unskilled labor and eliminate a minimum wage for imported workers?

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But companies are free to automate now and a person making $2/hour might as well not work at all. So what do you care?

Because what happens between a farmer and an immigrant worker is their business. If an immigrant, legal or otherwise is willing to underbid the minimum wage he should be able to. Denying them the ability encourages both them and their employers to break the law, and denies Mexicans a much-needed income. Yes, the Mexican government needs to get its shit together, but there's no good reason why we should be impeding trade, even in a labor market.

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Not in this thread, no. Any "trade agreement" is a horrible international beurocracy which inevitably redistributes wealth so that the most powerful and wealthiest nations acquire an economic club to use against the disadvantaged parties in the agreement. Plus there's that whole global government thing which I'm having none of.

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If a person does work for pay, that work is by law the business of the government. I'm really sorry if you don't agree with that, but it's not your call.

As a voter, it is my call to make (partially). I don't get what your point is.

What kind of toxic man-thing is happening now?

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You can vote the law to change. Until that happens, any monetary transaction is lawfully the business of the government, and Farmer Joe is going to have to pay his workers minimum wage. Sorry.

So since when have I made a legal argument?

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I don't really see a widespread movement by Libertarians that give a fuck about the inequities of rich vs poor folk.

That's because the inequities are by and large deserved. CEOs get payed exhorbitant salaries because they bring shareholders exorbitant profits. Shareholders are the ones which negotiate CEO salaries, not a Board of Directors. Even in the case that they don't make profits for the company, they're still entitled to an income, as otherwise they wouldn't take the job.

Do you really think that libertarians should unite as one against fraud? Stealing from pensions is fraud, and something that libertarians have despised from day-one. Denouncing fraud is such a non-issue, and one that should be enforced by the government, that there's no point in making a big stink about it. What we do make a big deal out of, is when fraud is committed with government protection and subsidizing, e.g. Enron.

FELIPE NO

Originally Posted by a lurker

From a legal standpoint, that is factually false. That's all I'm saying.

And all I'm saying is nigga I don't give a fuck.

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Very similar arguments were used to argue for slavery. Somehow our economy survived it.

Slaves weren't payed, stupid.

What, you don't want my bikini-clad body?

It's because they were wrong in the face of free market theories. The problem with slavery wasn't that they couldn't afford to pay them real money it was that it created a massive labor force that would passively resist to the point where they would be as little productive as possible and get away with it.

If you can import workers who are willing to work for 2 dollars an hour compared to hiring a bunch of kids to work 7 dollars an hour, you've got the edge on the competition. That's how unskilled labor markets work. The unskilled worker willing to work for the smallest wage is the most attractive, and since the exchange is voluntary the problems of passive resistance do not rear up as they do with slavery.

Jam it back in, in the dark.

Either that or they crunch to automate. Illegal immigration is as inevitable as the drug trade so long as there's a demand for labor which is willing to work below the minimum. Either the solution is to legitimize immigrant workers, or it's to get rid of the minimum wage.

There's nowhere I can't reach.

And in the meantime illegals cause leprosy.

You know I love you guys.

This thing is sticky, and I don't like it. I don't appreciate it.

Some of them say you can see the Virgin Mary in their sores.

I am a dolphin, do you want me on your body?

Of course you can try, but until the legitimate methods are more attractive than human smuggling to the smugglees you can't stop it. Also we're talking about miracle sores here, so get with the program.

I was speaking idiomatically.

At the current state of immigration policy, the only way you could conceivably stop all illegal immigration is to shoot them on sight.

What kind of toxic man-thing is happening now?

It wouldn't be much of a stretch to classify them as invaders and have them shot by the Border Patrol. It would deter all save the most absolutely desperate and dent the Coyote business, but then there's the whole killing people thing.

FELIPE NO

Wut's the matter Jorje, you can't speak inglish good?

What, you don't want my bikini-clad body?

The consensus is I'm fighting windmills.

How ya doing, buddy?