June 17, 2006

"Minimum" Wage?

Hatched by Dafydd

A pair of quick hits from Robert Novak's column today. First, economics -- Democrat style:

[Seven - Novak mistakenly says six] Republican defections (in the House Appropriations Committee) produced a 32 to 27 committee vote, amending the health and education spending bill, for an increase to $7.25 an hour of the current $5.15 rate that has not been changed since 1997.

Though the bill will evidently not be brought to the floor of the House, let's pause a moment to look at those figures. According to the inflation calculator on the Bureau of Labor Statistics website, $5.15 in 1997 is worth $6.50 in 2006. That is an increase of 26% over nine years, or 2.9% per year.

But the amount that the Democrats (and seven Republicans) want to raise the minimum wage is 41%! That means they are acting as if inflation has been running at more than 4.5% per year the last nine years, rather than the actual rate of 2.9%.

This is the essence of liberalism. This is nothing more than a tax hike on businesses... and guaranteed to cause a massive rise in unemployment, as small businesses -- the backbone of the American economy and the source of the lion's share of the job growth during this excellent recovery -- suddenly discover that five employees next year cost as much as seven employees do this year... with predictable consequences for businesses that typically operate at the bare minimum of profit margin.

Thus, among smaller businesses that employ primarily minimum-wage employees -- and among all businesses whose labor contracts for their employees are negotiated with the union as defined multiples of the minimum wage -- a hike of 41% in the minimum wage could lead to a 25% - 30% layoff rate... especially for unskilled workers, the very ones least likely to find another job... and the very ones that Democrats pretend to be concerned about.

And who are those six Republicans? Novak doesn't tell us, but from the virtually unreadable MSNBC websight, where some advert threatens to engulf and devour the entire page (at least on Netscape and Firefox), we learn who they are:

  • Bill Young (R-FL, 87%);
  • Mike Simpson (R-ID, 92%);
  • Ray LaHood (R-IL, 65%);
  • Jo Ann Emerson (R-MO, 88%);
  • John Sweeney (R-NY, 72%);
  • Jim Walsh (R-NY 65%);
  • Don Sherwood (R-PA, 84%).

If you think they're all liberals, think again. This is an eclectic mix of liberal Republicans (LaHood, Walsh), moderates Sweeny, Sherwood), and conservatives (Young, Emerson, and Simpson.) Sadly, the fundamentals of economics -- what I call "Econ. 101" in the categories here -- elude not just the Left but also many conservative Republicans. Among those who agitate for a much higher minimum wage is the soft-hearted, soft-headed conservative Dennis Prager. (Prager also supports affirmative action -- but "only for blacks," because of the "legacy of slavery and Jim Crow.") Maths and economics do not appear to be Mr. Prager's long suit.

If the conservative Republicans voted on committee for the hike expecting Speaker Hastert to kill it by bringing last year's Health and Education spending bill to the floor instead -- which he did -- then I find that even more reprehensible: it's both dishonest and hypocritical. Dishonest, because they know it isn't going to happen, so they're deliberately raising false hopes among the working poor; hypocritical, because they will go home in August and tell their constituents about their frugality and how much they support a free market.

Novak continues, saying:

Republicans want to avoid a minimum wage floor fight, where Democrats would point out that House members Tuesday, for the eighth straight Congress, raised their own pay. The latest $3,300 increase puts the House's annual salary at $168,500.

But again, do the math: this hike of $3,300 from a base salary of $165,200 is only 2%... which is less than a single year's inflation. So Democrats want to shame Republicans, who accepted a 2% COLA, into voting for a 41% increase in the minimum wage, and the GOP is running scared.

I'm certainly no fan of congressional pay hikes; but I'm also no fan of innumeracy... and the plain fact is that the House's raise is insignificant, while the proposed increase in the minimum wage would be devastating not only for small businesses but for the working poor as well -- Prager or no Prager.

Hatched by Dafydd on this day, June 17, 2006, at the time of 1:54 PM

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» Shock: Sanity From the Senate! from Big Lizards
The crackpot idea to raise the federal minimum wage -- thereby forcing all states to become California -- which we blogged about here... is deader than a Zepplin filled with seawater. The Senate just killed it on a filibuster, and... [Read More]

Tracked on June 22, 2006 3:24 PM


The following hissed in response by: JSchuler

There is a big problem with any comparison between the minimum wage salary and the congressional salary, and that is that raising the Congress's salary doesn't risk making anyone unemployed. Also, there's the fact that Congress's salary is pretty low when you consider that they are expected to maintain two residences, one in their home state and one in DC. It's been cited as one of the many hurtles to high office that discriminates against anyone who is not already wealthy.

Beyond that, I sure do hope that this minimum wage hike will not apply to anyone entering the country under the guest worker program. I mean, that would completely defeat the point, wouldn't it? Apparently we need all this cheap labor, yet if we were to suddenly grant amnesty to all these illegal aliens and make their jobs legal, employers would have to spend %7.25 per hour when they'd been paying less than the %5.15 per hour for jobs that "Americans won't do." Just think about the catestrophic effect this would have on lettuce, perhaps pushing the price up a whole nickle! Plus, let's not even talk about the fact that they would be able to unionize and threaten strikes without the threat of the INS being called in. It'd be so much easier to just higher American citizens, that way management wouldn't need to hire a translator in order to understand labor's demands. No, no, I'm sure this law will not apply to guest workers. Otherwise, even with such a program, we'd still have massive illegal immigration as, according to our betters in Washington, cheap labor is so necessary to our economy.

The above hissed in response by: JSchuler [TypeKey Profile Page] at June 17, 2006 6:08 PM

The following hissed in response by: rightonq

Dafydd, I'm on the same side as you, I believe, in that I don't like wage floors, but I think you go about the argument in a strange way. Perhaps your main point is to call out the "Republicans" -I'm glad to know they are not in my state - but 2 points that you raise are odd.

"This is nothing more than a tax hike on businesses... and guaranteed to cause a massive rise in unemployment". And then you go on to say 25% to 30% layoffs. Not sure what that means exactly. I agree that some people would lose jobs and perhaps some small businesses might even have to close up shop, but I don't think any studies - surprisingly - have shown a significant rise in unemployment associated with min wage hikes.

Further, I'm probably more against congressional pay hikes than min. wage hikes. For God's sake $168k. These are civil servants being paid by our tax dollars but they are making more than 95% of us.

From my perspective the min wage is no different than price controls. In the end, it might help a few individuals, but it probably hurts more people in the end because they either lose their job or can't get one. Further, several states have higher min wages - this makes a lot more sense since standard of living is so different in say CA and NY as compared to GA. Last, I reject the argument libs make that the annual pay for a min wage worker is not enough to "live on" or "raise a family". They are right, but many min wage workers are either teenagers, retirees, second wage earners in a family or unskilled workers just passing through. Those that are stuck there shouldn't be trying to raise a family or even expect to live on their own at that rate and their employers have no obligation to support the employees' lifestyle or poor decisions.

The above hissed in response by: rightonq [TypeKey Profile Page] at June 18, 2006 4:12 AM

The following hissed in response by: Papa Ray

You said:
' $5.15 in 1997 is worth $6.50 in 2006. That is an increase of 26% over nine years, or 2.9% per year."

If I had wrote it, I would have said because of inflation, what cost you 5.15 in 1997, will cost you 6.50 in 2006.

That way people like me with 8th grade educations could understand.

BTW, I don't buy those numbers when it comes to day to day purchases like food (I won't even mention gas) and other common things. Even going to the Dollar stores, I have less spending power every year. I am on a retirement fund that never changes, so I have to manage my money more than most.

I'm for a raise in the minimum wage but not to over seven dollars, and yes, the illegals will get a pay raise out it too.

Papa Ray

The above hissed in response by: Papa Ray [TypeKey Profile Page] at June 18, 2006 8:23 AM

The following hissed in response by: Don

Increase in unemployment? Yes. A massive increase? I don't think so, though I could be wrong.

First, there are the existing state minimum wages. Any state with a minimum more than the new maximum will have no impact positive or negative.

Second - how many workers make the minimum now? I think it's a pretty small proportion of the labor force. Even figuring in the workers at higher than the minimum who will be overtaken by the increase it's fairly small.

Third, there may be a bit of a ripple effect at higher wage levels. That is that workers at somewhat higher levels of pay may get increases. But surely this will peter out at around 10-12$ an hour. It's difficult to see any impact on IT contractors making $20 an hour and up for instance. Other than (perhaps) some inflation - assuming that employers can pass on any increase - they may not be able to, and will make up the additional costs by lowering costs in other ways.

So I'd conclude that this may have a considerable effect at the bottom end - those just entering the workforce and the low skilled. But not a 'massive' one, as most of the US workforce isn't lowly skilled any more. I don't love the idea of raising the bar for people entering the labor force - but it's not an economic tsunami about to sweep all before it.

The above hissed in response by: Don [TypeKey Profile Page] at June 18, 2006 7:26 PM

The following hissed in response by: cdquarles


There will be a massive increase in the number of currently unemployed people who will simply not be offered jobs at the new rate. Most of those who are employed at the old rate will not necessarily lose their jobs, but those employers will be much more reluctant to add any new employees. A wage hike cannot, I repeat, cannot cause inflation. Inflation is, and will always be, a monetary phenomenon.

The above hissed in response by: cdquarles [TypeKey Profile Page] at June 18, 2006 10:28 PM

The following hissed in response by: Dan Kauffman

Has it ever occurred to anyone if the Government has the power to mandate minimum wages, that implies they also have the power to mandate Maximum Wages? Now if we want the type dynamic economy that exists in France and Germany, let's just trot on down the Socialist path.

The above hissed in response by: Dan Kauffman [TypeKey Profile Page] at June 18, 2006 10:35 PM

The following hissed in response by: Dan Kauffman

PS during the adminstration of Ronald Reagon the median income of the lowest 20% (the working poor) increased by about 12% In CONSTANT Dollars.

That's a lot better than a minumum wage that might replace workers with automation.

Hmm yeah go ahead and hit the economy with a massive minimum wage hike, workers will be replaced with machines and productivity will go up. That is the market places responce to such an event.

The above hissed in response by: Dan Kauffman [TypeKey Profile Page] at June 18, 2006 10:38 PM

The following hissed in response by: Dan Kauffman

I will give you an example years ago I had a small roadside nursery, I had a young boy from the Easter Seal Center working, he was a schizophrenic, GOOD worker. I could only give him one task at a time.

Water the plants, John. After I showed him how he did it perfectly until I would tell him to stop. Rake and clean up the lot John, He would do that until I told him to stop.

I could not tell him do this and when you are finished do that. He could not make those connections.

So water, clean up, hold boxes for little old ladies load purchases in cars, that was about it, and at $5.00 an hour it was worth it,
There started being talk about rasing the minimum wage, actually at that time I was paying a bit more than minimum, but I gave it some thought and figured at a certain hourly salary, I would have to replace john with a few hundred feet of black water line and drip waterers that you stick down in pots. I would not have liked it but for much more money I would need an employee who could do everything that boy did AND wait on customers and run the cash register.

The above hissed in response by: Dan Kauffman [TypeKey Profile Page] at June 18, 2006 10:44 PM

The following hissed in response by: Dafydd ab Hugh

Nobody has noticed the nifty new HTML "quick keys" at the top of this text box?

Yeesh. I knock my self out the whole weekend implementing these things. Nobody comments, nobody calls. Or even writes.

Never mind, I'll just sit here in the dark and suffer....


The above hissed in response by: Dafydd ab Hugh [TypeKey Profile Page] at June 19, 2006 3:58 AM

The following hissed in response by: Don


My experience of the minimum wage is that the legal minimum is not quite the actual minimum. I came of working age in a very rural area with a mixed economy of farms and tourists, with formal jobs for youngsters very limited outside of the summer months. I didn't make the legal minimum wage until my 4th or 5th job, I think.

Note that most of this stuff was very part time and catch as catch can. There were summers when I worked 70 hour weeks on a combination of jobs. Farm work and/or guiding during the day, cooking or dishwashing at night.

Sometimes I drove a tractor eating dust in May and June. The pay for that was particularly poor - but my mother wanted me out of her hair and out of the house so she arranged this with a family friend who farmed. He paid me $30 for an entire month work. Kind of a bummer until I learned the trick - which was to make it into a game and try to figure out how to get more done every day while expending the same or less energy.

I guess my point is that the legal minimum isn't necessarily the cutoff point - there is an informal economy out there which doesn't get reported much. If the Feds can't be bothered to chase down illegal immicrants do you really see them trying to cut this out? I think not. So people will get into the workworld by hook or crook. A higher minimum will probably mean more 'crook'. It will also mean more automation, such as the story Dan Kaufmann wrote. I'm sorry about the poor kid - but it doesn't amount to a national disaster. It's possibly a personal disaster for the kid. It may make it more difficult for some of the people at the very bottom.

But look at it this way. Where are those jobs going to go? Let's say you have two employees, one making $5.15 and the other $7.00 an hour when the increase hits. Assuming the business isn't on it's uppers already, what may happen is that you drop the lower-priced worker and raise the pay of the better skilled guy to the minimum. Take on less work or automate to an extent. possibly drop a slow-paying customer or two to manage the workload. The impact will be at the very bottom.

I'd be shocked if these people are more than 5% of the workforce, and in many states they are already making more than $5.15 an hour because of the state minimum. In most of the West Coast states and Hawaii the state minimums are at $7.50 - so no impact. New York is at $6.75 and headed up next year - so minimal impact.

So there will be an impact on the unemployment rate but it won't be a disaster even at the bottom - except possibly in places where the minimum wage is very well-policed and informal systems aren't in place to rope around it.

The above hissed in response by: Don [TypeKey Profile Page] at June 19, 2006 9:42 AM

The following hissed in response by: Dafydd ab Hugh

Don, et al:

There currently are a number of states that have minimum wages far above the federal one, even above the proposed new federal rate; and a couple of people here have suggested that therefore, those states will not be affected.

What makes any of you think that, if the federal rate were raised 40%+, that these liberal states would not respond by raising their own rates another 40%? The Democrats in California are already trying to do that... we could end up seeing a "minimum wage" here of $10.50 per hour.

Also, a lot of union jobs are negotiated as a multiple of the minmum wage; raise the minimum wage by 40%, and every other wage of the non-management workforce could also raise by the same percent.


The above hissed in response by: Dafydd ab Hugh [TypeKey Profile Page] at June 19, 2006 1:27 PM

The following hissed in response by: Don

Dafydd, the world is a strange and weird place. Particularly in economics. The stereotypical economist contantly goes around constantly saying 'ceteris paribus' which means roughly 'all things remaining the same'.

A rise in the mimimum wage will lead to more automation and investment in efficiency in low-wage jobs. McDonalds will further automate it's kitchens and cut the number of cooks. Not completely a bad thing everything considered as it increases the labor efficiency of the economy.

It may be a bad thing for people trying to enter the labor force - particularly for those who lack skills or good work habits.

My general feeling is that the minimum wage has a smaller impact on long-term employment than regulation. France has a higher minimum wage than the US does - but it's not the French minimum wage primarily supressing French job creation. It is the regulation - the fact that a French employer can't dump a loser employee without profit busting costs.

That kind of regulation puts an almost insuperable barrier in the face of new low-skilled employees - particularly from groups regarded as 'risky' for whatever reason. A minimum wage by itself does not - it only raises the threshold which a new employee has to meet to be considered a success and 'worth it'.

A lot depends on the supply of labor. A high minimum wage may well be an utter disaster with unemployment rates of 25% - but much less so at 4.2% (the current US rate I believe).

The above hissed in response by: Don [TypeKey Profile Page] at June 19, 2006 2:14 PM

The following hissed in response by: Dafydd ab Hugh


I should come clean with my own position: I oppose all minimum wage laws, as well as any other regulation on what an employer can pay (including "equal pay for equal work" laws); I oppose nearly all regulation of the workplace, beyond requirements that dangerous environments be clearly marked and understood by the employees -- and even that is better handled via the civil courts.

So you're certainly not going to get an argument from me supporting the regulatory nightmare that employers must endure... allowing, e.g., members of one race but not another to run to the EEOC and complain about being fired for just cause.

(And no, I have never been fired for being white, and I have never been laid off or denied a promotion in favor of a minority; I have no personal animosity or dog in the fight.)

On this issue, I'm libertarian (on others, particularly regarding the projection of force, I break with them rather violently.)


The above hissed in response by: Dafydd ab Hugh [TypeKey Profile Page] at June 19, 2006 6:23 PM

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