FROM FORBES MAGAZINE: The 7 Most Dangerous Myths About A $15 Minimum Wage
BY Tim Worstall
Over at Salon (you know, where the more progressive Progressives go to reassure themselves that everyone else is both wrong and deluded) they have a post telling us about the seven most dangerous myths concerning a $15 an hour minimum wage. That’s seven myths that turn out not to be quite so mythical in fact, sufficiently so that it’s worth wandering through them all one by one. You know, just to fact check the more progressive Progressives and see whether they we wrong and deluded or whether that might not be the whole, undiluted and accurate truth.
1) Myth: The minimum wage was never supposed to be a living wage
This is probably one of the most dangerous—and easy to debunk—myths about the minimum wage, which was championed by Franklin D. Roosevelt beginning in 1933. During an address FDR gave about one of his many economic salvation packages, he explained that “no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”
At the time, Roosevelt’s Fair Labor Standards Act of 1938—passed as part of New Deal legislation—set minimum wage at 25 cents. Roosevelt intended this rate to be “more than a bare subsistence level.” The minimum wage was created expressly to ensure that people of all skill-levels, if they worked, could “earn a decent living” off those wages—thus, a living wage.
Well, Franklin may have achieved secular sainthood over there on the left but he was after all a politician and as such one who was often capable of shading the truth just a little. He is, after all, the guy who said we have nothing to fear except fear itself which really wasn’t quite true as the Axis armies flooded across Europe and Asia.
But even so it’s worth looking at what he meant by a “living wage”. That 25 cents an hour, if we upgrade it just by general inflation to today would be $4.20 an hour. This is indeed a living wage as it would be possible to live upon it. I don’t say live well, or live not in poverty, but that $8,400 a year puts you into the top 20% of all global incomes. Yes, that is after we correct for the price differences between the US and other countries. So, given that 80% (actually, it’s 82.5%) of humanity earn less than this and very few of them are dying of poverty then this is indeed a living wage.
Agreed, it might not be what we think is societally acceptable for someone in a rich country like the US: I don’t think it is either. Which is why I generally recommend that those of us who think people should have higher incomes than that should pay our taxes so as to subsidise the incomes of those poor. But it really is a living wage in that it is possible to live on it.
If we upgrade it not by general inflation but by the general rise in wages over that time it’s worth $8.86 an hour. Or a little over half that $15 that people are now insisting is the only possible definition of a living wage. One of the differences here is that FDR’s living wage was intended to be something that someone could live off. The demand today is that a family of three can live off that one wage. Which is rather an expansion of what a living wage means really, isn’t it?
2) Myth: An increase in the minimum wage won’t help anyone if all other costs go up, too
One assumption about increasing the minimum wage is that it will force to the cost of living to increase at the same rate, and in doing so, we’d really just be speeding up inflation.
This isn’t really how economics works. A 2013 study by the Chicago Fed found that increasing the minimum wage even just to $9 would increase consumer spending by $28 billion. When spending—i.e. demand—increases, manufacturers and other purveyors of goods and services can actually charge less or at least avoid increasing their prices, because they’re increasing overall revenue.
Well, my word, that is amazing. Really? The contention is that when aggregate demand increases them producers are going to lower their prices? This is some strange new world of economic adventures, isn’t it? Where such a thing is going to happen.
And the point about costs rising: no, she’s right, that’s not the way the economics of it works. Rather, most of the people who get minimum wage are not in poor households (this paper and this). So poor households do not get all, even a majority, of the higher incomes. But poor households are disproportionately the consumers of goods and services made with minimum wage labour (seriously, no one thinks that Walmart’s target market is the upper middle class). So they bear most of the cost of those higher prices. Thus, a rise in the minimum wage can in fact make poor households worse off.
3) Myth: An increase in the minimum wage is bad for employers
Paying a higher wage to employees can also help employers cut costs in other ways, according to the Center on Budget and Policy Priorities. “Beyond simple supply and demand theory,” reads a comprehensive report on the economics of raising the minimum wage, “increasing the minimum wage may also spur businesses to operate more efficiently and employees to work harder.”
Yes, excellent, so, “more efficiently” is the same as saying “using less labour for the same output”. That is, they’ve just said that business will fire some people as a result of the higher wages. Or, as we keep saying, there will be unemployment as a result.
4) Myth: $15 is a random number
“Why not $20 per hour? Why not $50?” critics have asked. And the answer is simple: because those who are fighting for an increase in the minimum wage are being pragmatic, not bombastic. Wages of $10.10 (federally) and $15 (in cities with a high cost of living, like New York and Seattle) are hourly dollar amounts that raise workers above the poverty line and increase their purchasing power, while also being feasible for businesses. Research from the Policy Research and Economic Institute at the University of Massachusetts Amherst proves that these increases are absolutely possible without job loss.
Yes, that’s the same research that shows that the minimum wage rise will be paid for by lower profits (thus less future investment in the business and thus lower employment), increased prices (as above, hits poor households worse) and “more efficiency” (as above, less labour employed). Doesn’t matter what language you use to gussy those up that’s not the same as “without job loss”.
5) Myth: It will cost us jobs and raise unemployment
So far, there is no evidence that raising the minimum wage causes an increase in unemployment or job loss. In fact, in a Goldman Sachs analysis of the 13 states which have raised their minimum wage, found that “the states where the minimum wage went up had faster employment growth than the states where the minimum wage remained at its 2013 level.”
“No evidence” is a pretty strict test to have to meet. And that statement is entirely wrong:
We estimate the minimum wage’s effects on low-skilled workers’ employment and income trajectories. Our approach exploits two dimensions of the data we analyze. First, we compare workers in states that were bound by recent increases in the federal minimum wage to workers in states that were not. Second, we use 12 months of baseline data to divide low-skilled workers into a “target” group, whose baseline wage rates were directly affected, and a “within-state control” group with slightly higher baseline wage rates. Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers. Lost income reflects contributions from employment declines, increased probabilities of working without pay (i.e., an “internship” effect), and lost wage growth associated with reductions in experience accumulation. Methodologically, we show that our approach identifies targeted workers more precisely than the demographic and industrial proxies used regularly in the literature. Additionally, because we identify targeted workers on a population-wide basis, our approach is relatively well suited for extrapolating to estimates of the minimum wage’s effects on aggregate employment. Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. We estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.
We review the burgeoning literature on the employment effects of minimum wages – in the United States and other countries – that was spurred by the new minimum wage research beginning in the early 1990s. Our review indicates that there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage. However, the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries. Two other important conclusions emerge from our review. First, we see very few – if any – studies that provide convincing evidence of positive employment effects of minimum wages, especially from those studies that focus on the broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.
There may be evidence you’ve not seen, evidence you don’t know about, even evidence you’d prefer not to believe but the statement that there’s no evidence is simply flat out false.
6) Myth: Only teenagers and uneducated people work for the minimum wage
According to the Bureau of Labor Statistics, about 4.7 percent of the working population make at or below the minimum wage. While a disproportionate percentage are under the age of 25—about 35 percent, according to the Center for Economic and Policy Research—the population who would benefit from a minimum wage increase is—on average—35 years old. Eighty-eight percent are over the age of 20.
Well, yes and no. Once you take out tipped employees (yes, I have indeed been a waiter and a bartender and let me tell you, neither of those jobs are done for the paycheck) then it is disproportionately a young and not quite teenage workforce that is affected.
7) Myth: Seattle already has a $15 minimum wage and it’s terrible
Though conservative news outlets are already looking to Seattle to see if the economy has plunged into chaos, the truth is that the minimum wage in the city has only increased by a small amount, due to the slow transition written into the law. It’s $10 for some workers, and $11 for others, depending on the size of their employer, and many small businesses are actually very happy with it.
No, that’s not the claim at all. And given that I’m one of the people who made the original claim I do know whereof I speak.
Human labor really is an economic good like pretty much all of the others. Raise the price and the demand for it will drop (another way of putting this is that human labor is not a Giffen Good). Please do note though what is the prediction. Not that there’s going to be a wiping out of employment opportunities, nor that the economy of Seattle is going to become a howling wasteland. Rather, that less human labor will be employed at $15 an hour than would have been employed if the minimum wage had not risen to that amount. And for people who would like to have a job but now cannot find one that’s bad news.
Note that the prediction isn’t even that the unemployment rate in Seattle will rise. Because the effects of the minimum wage change are going to be swamped by the general changes in the economy (we have all noted that the unemployment rate has halved nationally over the past few years, yes, without any change in the minimum wage?). It is only that there will be fewer jobs with a higher minimum wage than there would be with a lower one.
So, yes, there are indeed myths about the $15 an hour minimum wage out there. It’s just that it’s not me or “my side” propagating them.
It’s a bad idea and we shouldn’t be doing it. If you want the working poor to have more money then work for full employment: even Karl Marx recognized that that’s the one single thing that improves the wages of the workers the most. And given how much Ol’ Karl got wrong we might as well do him the honour of following his advice when he got it right. Sorry, the one time he got it right.