Feb13
The Minimum Wage
on February 13, 2013 at 12:20 pmYes, leftists, it really does reduce employment, among people who need the jobs the most and particularly for black youths. The notion that there should be a federal minimum wage at all, one-size-fits all, in a nation with dramatically different levels of cost of living, is economically insane.
…and in a year when gas will go over $4 a gallon, milk is more than that and a package of hot dog buns is almost $3, $9 an hour is NOT a living wage.
Here’s an idea. Let’s pay EVERYONE who works in Congress, minimum wage. The senators and congressman, their aids, staff in general and all support personnel. I’m betting they’d QUIT calling the national minimum wage, a living wage.
And if you think the national minimum wage is a joke, then try this out my friends.
NC has a state minimum wage, that for years was LOWER than the national average. And every time the national wage went up, they’d raise the state minimum too. But it was ALWAYS less than the national wage.
There are 4 states right now who STILL do this. And I still have no idea what the point is, of having a law like that.
Minimum wage was never intended to be a living wage but rather a starting point. Take some kid with no work experience and few skills. How much value can that kid produce in an hour? If it’s not greater than the minimum wage plus the other costs of employment (worker’s compensation insurance, unemployment insurance, Social Security & Medicare taxes, etc.) then it isn’t worth hiring the kid in the first place. All raising the minimum wage does is make it that much harder to economically hire low skilled people.
My understanding is that the Democrat’s support of of raising the minimum wage has nothing to do with the semi-mythical head of household trying to raise a family at $7.25/hour. The real focus is Rust Belt union contracts that guarantee a floor of 2X, 3X, or 4X the Federal minimum wage.
“Yes, leftists, it [the minimum wage] really does reduce employment . . . ”
Well, it would if the Law of Supply and Demand (in this instance, applied to labor) were a fact of life. But if you’re a leftist, it isn’t. Or if it ever were, certainly Obama could suspend it. After all, he made the oceans rise.
It’s really a moot point. Raising of the federal minimum wage is economic suicide and wasn’t even on anyone’s political radar until Obama brought it up. Him calling for a bump in the federal minimum wage is like his demand that Gitmo be closed. It gets him votes from idiots, but no one will expect him to actually do it. They just like the sound of it.
Not only has the Senate failed to pass a budget since 2009; they also unanimously and bipartisanly reject Obama’s budgets. The rebuttal is simple; raising wages won’t increase jobs and will make the US even less competitive in the global markets. Sequestratian was the President’s idea as a compromise to hold himself responsible for making cuts. He’s still refusing to cut spending. Revenue is increasing faster than GDP but at a slower rate than increased spending. The President needs to quit telling employers how to manage their business and worry about his own business.
Leland,
Don’t say its a moot point to McDonalds shareholders, they already are feeling the pain.
http://www.huffingtonpost.com/2013/02/13/mcdonalds-minimum-wage_n_2679214.html?utm_hp_ref=business
McDonald’s Stock Price Hammered After Obama’s Minimum Wage Proposal
Might be a good time to pick up some shares.
I keep actually wondering about bills with triggers in them.
As in: We find the minimum wage stupid. But. If we’re going to do it, make it an honest test. Make the minimum wage $20.00/hour … but if unemployment tops 10% for any of the four succeeding quarters, it shall immediately be reset to $0.00 until Mickey is out of copyright.
If raising the minimum wage was all it took to make the economy better, then why not raise it to $50 an hour? That would allow every full time employee to gross a bit over $100,000 a year. What could possibly be wrong with the idea? If we really wanted the economy to boom (as opposed to go boom), why not go even higher? Then, everyone could be part of the “evil rich” that Obama wants to tax so much.
As the article points out, another bad side effect of the minimum wage is that it erases the connection between the value of the work done and the amount paid.
Now since Marxists have convinced themselves that labor has an intrinsic value disconnected from the value of the work done, a minimum wage just brings “reality” into line with what they think.
.. but don’t you believe in equal pay for equal work?
Here’s a tip: this is a trick question. If you say no then you’re not only a racist, you’re also at the top of every working woman’s hate list.
Apparently, if you and I are employed in the same job, we should be paid the same amount regardless of race, gender, class, religion, sexual orientation, disability, or skill level.
Don’t believe me? Go work for just about any university, government department or unionized company. Salary tables like this one are the norm:
http://adm.monash.edu.au/enterprise-agreements/academic-professional-2009/s1-professional-salary-rates.html
Want more money? We need to tick a bunch of boxes to make it appear like you have a different job description and then we can change your pay grade.
Minimum wage may try to disconnect value of work from pay, but all it succeeds at it making people who don’t produce a minimum value unemployable.
Trent, no suggestion was made to pay less to certain people for the same work. The suggestion is that nobody should have claim for pay in excess of the value of their work. Claiming that opposition to a minimum wage is opposition to equal pay for equal work is a gross strawman.
It was the opposite I was claiming.. people who support minimum wage laws almost always support “equal pay for equal work”. The underlying concept is the same: pay is arbitrary and unrelated to any concept of value.
Instead of a minimum wage, why not institute a federal minimum annual income for all citizens? As Hayek said in The Road to Serfdom, “There is no reason why, in a society which has reached the general level of wealth which ours has attained the first kind of security [minimum sustenance for all] should not be guaranteed to all without endangering general freedom.” [Source for quote]
RX for poverty: Set a guaranteed annual income at something like 2X the poverty-level income for every man, woman, and child in America, and eliminate all other forms of federal welfare (and attendant bureaucracy).
But we won’t, because the goal of federal welfare programs is not to eliminate poverty. The goal of federal welfare programs is to extend centralized control into all aspects of American life.
Where does the money come from? If your minimum guaranteed income is $15k, why would anyone want to take a job that paid $14k? Or $18k for that matter?
It would be a big boost to the black market economy–collect $15k for not working, then do $10k under the table.
You could get rid of some of black market incentive by just giving every adult in the us $8k/year, no strings attached. At least then they’d have an incentive to work more. Still no clue where the money would come from. Current US welfare is $650 billion or so, $8k/year would cost in the neighborhood of $2 trillion.
See my reply to Trent – you pay for it by eliminating all forms of government transfer payments other than the guaranteed minimum income, including Social Security. And since in Charles Murray’s formulation, the minimum income is non-taxable, people would take jobs because they wanted more money for a better standard of living – they just wouldn’t be in the trap where their work wouldn’t really get them anywhere because every dollar of work reduces their guaranteed income.
http://www.usgovernmentspending.com/us_welfare_spending_40.html has a nice chart:
1.1 T$ pensions
1.2 T$ health care
0.8 T$ education
0.9 T$ defense
0.6 T$ welfare
0.3 T$ protection (fire, police, etc.)
0.3 T$ transportation
0.1 T$ general government
0.5 T$ other spending
0.4 T$ interest
Of that, defense, general government, and interest should be retained. I expect pensions as well should be kept, but could perhaps be trimmed. Health care + education + welfare + transportation + other is 3.4 T$, well over my 2 T$ estimate. Maybe some extra payout could be made for people over 70 to compensate for the lack of healthcare.
As to whether cancelling social security/medicare/medicaid is a violation of contract, I guess the government could go the Animal House route: “You f**ked up, you trusted us”.
I think this statement, above all others, is what proves Hayek was just a fraud. For an economist to not understand the basic function of money, trade, and the modern economy is disastrous. Is it any wonder that Totalitarianism was able to rise so fast?
A guaranteed minimum income is in no way, shape, or form incompatible with classically liberal (or modern libertarian) government. One of my favorite small-l libertarians, Charles Murray, has argued for such a thing, and it runs along Hayekian lines.
The crucial difference with the welfare state is this: in Murray’s (and presumably Hayek’s) version, you give everybody of age 18 or older a guaranteed yearly non-taxable income of some to-be-determined level (Murray proposed something like $21,000 in his version, IIRC, in the mid-90s). There is no other government assistance for anything else – food, housing, health care, old age pensions, anything. Oh, I almost forgot – he would also make it mandatory that you spend about $3,000 a year on catastrophic health insurance (if you wanted more, that’s fine, but you must have at least the minimum catastrophic coverage).
To me, this is an eminently libertarian / classical liberal position: a society of free people, organized under a just government, can decide that everybody in our society should have a minimum level of income, one that which with good judgement and careful planning will keep oneself in food, clothing, and shelter, because sometimes good people, through little to no fault of their own, find themselves in penurious straits, and we deem it proper to provide everybody a minimum level of support. But once we’ve provided said minimum level of support, it’s up to the individual to make the right decisions – anything less would be an affront to that person’s dignity.
It goes without saying that we currently do not have a government constituted to administer such a guaranteed minimum income, but the concept has been around in libertarian / classical liberal circles for a long time.
And abolish the minimum wage, for practical and moral reasons.
haha.. there is no form of classical liberalism where this is espoused. Anyone who does espouse it is neither a libertarian, nor a classical liberal. Yes, that means Hayek wasn’t a classical liberal. (Neither was Milton Friedman btw.) They never claimed to be.
How would this minimum wage work anyway? You’re going to steal from everyone who earns over a certain amount and give it to everyone who earns below a certain amount? How can you possibly imagine that’s classical liberal compatible?
I think Hayek (like Friedman) meant a fixed payment, below subsistence level, for everyone, without conditions. Obviously, this will have to be paid for from taxes (or mineral wealth), there’s no such thing as a free lunch. But you could could completely liberalise the labour market, abolish all other forms of income support. I think it would be a very enlightened policy, and much better than what we have today.
If you set that fixed payment to $0/month even you would agree. At $1000/month, I’d be opposed to it. But at $400/month, I think it would be fine.
Trent, you seem to be having a reading comprehension problem; see Martijn’s posts.
I think putting things in labeled boxes may be counter productive here. I’ve proposed something similar myself. What we’re talking about is discontinuing all other government programs including the government departments and people that run them.
Replace it all with a monthly tax rebate, let’s say $400 as Martijn proposes, which may not be enough for a single person to live on, but they will join others to make that possible. I contend that the constitutions general welfare is mostly about military defense and is fluffery that shouldn’t be in our constitution.
Without conditions, people could then improve their lives without a busybody government causing distractions and disincentives.
It has to be coupled with a massive simplification in taxation, a shift to a flat consumption tax and lotteries. It replaces a myriad of social programs with a single program for everyone. This makes the census much more important but eliminates tons of government agencies as well as eliminating the economic drag of red tape and complex taxation.
This allows anyone to earn (and save) as much money as they want without being punished for it. The streamlined government would necessarily spend less money with fewer employees needed, but tax revenue would increase as the economy would go into an immediate boom.
fairtax.org
It also needs to be coupled with a change in the health insurance laws–health insurance needs to be decoupled from the employer and needs to be valid in any state (the premiums may change slightly depending on the state).
I wondered the context of the Hayek quote, if it completely changes the meaning. A quick google search turned up The Road to Serfdom. Looks like the minimum guarantee suggested is the bare essentials, about what you’d get at a homeless shelter. Far less than the “poverty rate”.
A guaranteed income sufficient for comfort is going to remove a lot of people from the workforce, especially if that bonus income is lost when you go out and get a job.
Who cares? The question, which you always have to ask, is: who’s going to pay for it? If you happen to have bunch of altruist farmers (and bakers and candlestick makers) who really want to help these out of work loafers then they’ll help them. The only reason to have a “minimum salary law” is to force the producers to give away their labor to those who are not producing.
The idea behind a basic income is that it is unconditional, so that it is not lost if you get a job. And Friedman proposed a basic income that would not be enough for comfort. It would still reduce the incentive to work compared to no income support, but not compared to the systems we have now, at least where I live. People on long-term unemployment benefits get 800 euros a month in exchange for the obligation to apply for jobs which don’t exist at the wage levels these people’s skills merit.
Friedman’s big thing was recommending “slightly better” systems which are meant to be transitional to wean the country off welfare. Unfortunately, people continue to this day to take these systems and hold them up as the ideal.
A year or so after the minimum wage was introduced in Britain, I saw a TV documentary where they interviewed some office cleaners. Their comments were along the lines of ‘when the minimum wage came in we thought we’d be making a lot more money for the same work, but the evil bosses told us we’d have to do the same amount of work in fewer hours, so we have to work harder and get the same amount of money at the end of the week unless we can get extra hours somewhere’.
And when Poles started moving to Britain en-masse, the local cleaners were immediately replaced by more productive and less surly young blondes.
This is one area where the science really is settled. Why do we have to rehash the arguments? The real question is why the arguments have no impact. How can the political animals continue to beat this dead horse?
What’s the relation between minimum wage, living wage and entry level wage? Why should anyone expect an entry level wage to be a living wage? People are suppose to increase their worth while climbing the ladder. What’s with the political class and unpaid interns?
We know the relationship between wages and employment. Lower wages means more employment. If Obama was about jobs, he’d be calling for a lower minimum wage. Surprise, he’s a liar.
Heh, science. I see what you did there.
It’s always nice to be appreciated. So when are you going to give us more great articles on your blog? I miss ‘em.
As a matter of fact, I would be very pleased if you would analyse and criticise my fanatical mars colonization plans. It’s no good to have a plan that nobody picks apart. Especially from someone I respect like you. So have at it please and kill two birds with one stone by writing up some articles. Thanks.
A lot of well-meaning labor laws end up screwing the poor the most. Consider laws mandating benefits such as health insurance for full-time employees. The result of such laws is that instead of having some full-time employees with no health coverage those employees have their hours reduced so they are just part-timers. And then those folks have to go out and work two jobs to match the hours of a full-time job. They still don’t have health insurance and yet now they have the hassles of working two jobs instead of just one, including the increased commuting costs. The result is that they have less free time and less money.
This is the difference between the two competing economic theories of our time. One theory holds that the government can merely mandate wages or benefits or jobs and they will just magically appear out of thin air without any economic impact.