Hello,
Both Posner and Becker demonstrate the amoral reasoning in their position and as well the validity of the comment by an economist "a worker spends what he gets while a capitalist gets what he spends".
Recently a news item stated that capitalist Barry Diller for FY 2005 "earned" $486 million (!)while the share price did not increase for the company. It is always true that capitalists believe competition is for the worker and not them and socialism is good for the capitalist but not the worker. Economists do not have the common sense to know what is good for the economy.

It's hard to argue with you technically.

However, I would surmise that the effect on employment is not that great at the levels the m.w. has historically been raised.

To the extent unemployment does result, there are more customers for the welfare system. Tax and tax and tax. Spend and spend and spend. Elect and elect and elect.

Remind me. Why exactly do we want to spread democracy?

A question On "A higher floor on wages prevents the wages of lower skilled workers from being reduced much, and hence discourages firms from providing much training to these employees."

Shouldn't profit-optimizing firms have just as much economic incentives to provide training to these employess so that higher productivity can be realized? If realized, potentially few employees could be hired and few turnovers would occurs, thus effectively reducing production costs related with labor hiring and retention. I don't see why the "game" could not be played out this way, if you look at the increased training to the existing US-based white-collar workers after a decade of white-collar work outsourcing or offshoring.

Hypothetically, what would be the impact of reducing the floor price of the mimimum wage?

Would you expect a decrease in final product price? I am afraid that the firms would find the price redution less attractive in attracting more customers and would decide to reap the windfall to the firms themselves.

And, would you also expect an increase in hiring? If the question to this one is NO, could I make a reasonable guess that an increase within some careful limit would probably not result in an decrease in hiring.

In response to B. Meehan's complaint regarding an individual's $486 million income: I believe you present another excellent argument for the Earned Income Tax Credit approach rather than the minimum wage approach. A few dollars increase in a minimum wage is barely felt by that high earning individual, but a family-owned small business already barely solvent will certainly feel the effects and be much more likely to fire workers or close down entirely. Use of the EITC forces your super-rich individual to bear some of the burden of wealth redistribution and lessens the burden on the small business which actually employs low-wage workers.

The correlation between real restaurant prices and the minimum wage is 0.1.

So the thesis that increases in the minimum wage leads to higher prices still seems to be a theory in search of any evidence to support it.

Opponents of a rise in the minimum wage always conveniently ignore a painfully obvious issue: If the minimum wage is unchanged, and there is inflation (even low inflation), the wages of the lowest paid workers in society are declining. We can get into side arguments about who receives the minimum wage (heads of households vs. part-time student workers), but let's assume (even though it's not true) that minimum wage workers are only well-off part-time student workers parking cars. Posner and Becker and their ilk need to answer this fundamental question: Why, in a just and prosperous society with positive economic growth and productivity growth, should a valet car parker (or other minimum wage worker) be earning less in real terms than someone in the same job five years ago? Or ten years ago? Economic arguments against a rise in the minimum wage like to speculate about the effects an increase might have on other economic indicators. You'll notice they never say why it's a good thing that the real rate of pay for low-wage jobs is (without a minimum wage increase) is in perpetual decline. (You'll notice also that the Beckers and Posners in arguments on this topic never apply the same market logic to executive pay that they apply to low-wage worker pay, but that's another story.)

S. Zhou,

I suspect most economists, including Becker and Posner, believe that reducing the minimum wage will both decrease prices and increase employment. Indeed, I believe that most economists think the minimum wage should be zero.

This addresses Dave's comment as well, since zero adjusted for inflation is still zero.

Ummm... spencer, doesn't 0.1 correlation support what Becker is saying? You wouldn't expect a large correlation since minimum wage labor is only one factor into restaurant production. But you would expect something positive in a competitive market.

There are other aspects of the minimum wage that are forgotten, specifically from a low-income minority perspective, those are,

1. The minimum wage harms the least productive most

We can argue forever about how much of a raise in the minimum wage will unemploy how many people, but what we all must agree on is that a raise in the minimum wage - in as much as unemployment is created - will fall disproportionately harder on the least skilled. For example, if you had to lay someone off, with all things being equal would you rather lay off someone with or without a high school diploma? With or without the ability to speak english? With or without a criminal record?

Of course this is the opposite for the more skilled employees, for example, those upper middle class students working part time paying their way through college. In addition to having mommy and daddy pay most of their bills, they are more secure in their job than the low skilled high school drop out trying to start anew.

2. The minimum wage harms poor areas over rich areas

I grew up in Compton, California, an area known for poverty and crime, and the city is literally filled with empty lots. Lots where businesses closed down and none opened. While this is due to many other factors as well, a minimum wage law robs businesses of the option of using the price system to recover some of their costs in opening up a business in an area with high poverty and crime. What results is less businesses open there than otherwise would.

Compton politicians keep talking about bringing jobs to the ghetto, but then turn around and support legislation that reduces just that. Of course rich, low crime neighbhorhoods like San Franciso benefit from such legislation...is it any wonder the Nancy Pelosi types are the strongest supporters of the minimum wage? Care for the poor...PLEASE.

3. The minimum wage makes it easier to discriminate

By taking away employees primary bargaining tool, the minimum wage reduces the cost for racists who would enforce their racist views. For example, had there been no minimum wage, if an owner of a restaurant wished to hire only white employees, he would have to pay his employees more to get the same productivity as he would get from, say, newly arrived legal immigrants. However, since this cost him more, this decision of his directly punishes him in the pocket book - a strong incentive to reduce his racist policies. But with a minimum wage law, his costs are reduced and the remaining cost is spread out to his competitors, thus reducing his pocket book cost and also reducing the competitive edge others had over him. All in all harming minorities, and especially low income minorities.

For these reasons and others, I despise the minimum wage - I believe it to be anti-poor, racist, unethical and economically unsound. Few legislations cause as much damage to poor people, poor areas, minorities and less educated citizens, as much as the minimum wage. The primary reason it is pursued despite this is because of politics, pure and simple.

I think there is strong argument for a minimum wage that is ignored by the comments in this blog. The minimum wage is a statement by society that, given our overall wealth level, there should be no jobs in this country that do not at least have a marginal product equal to the minimum wage. Now, if one believes that productivity is intrinsic to a person, i.e. that there is a fixed demand for labor schedule, that makes little sense. However, if labor and capital are scarce resources and are complementary in production, i.e. better workers make capital more productive and vice-versa, there is no obvious way to decide what the "intrinsic" marginal product or appropriate market wage is. Nash-bargaining in search models or matching models such Sattinger (1979) are attempts to resolve this problem. To illustrate this reasoning think of the large wage increases that Mexican immigrants experience when they work in the US rather than Mexico. These are very hard to reconcile with the idea of an intrinsic productivity which is central to most arguments against the minimum wage (and I think they pose a fascinating challenge for economists to explain).

So what do I think could happen in response to the minimum wage? As Posner suggests there will be allocative effects, but they may be desirable. Workers may respond by acquiring more human capital, which in turn is justified by increased investment in physical capital. Similarly, firms may respond by investing in more physical capital and better technology. Clearly, from an individual perspective this is suboptimal (otherwise it would have happened earlier), but from a social perspective it may be desirable. It may not be a Pareto improvement (even though it could be), but it may increase social welfare. For these effects to occur requires both time and will depend crucially on the ability of entrepreneurs to respond. We suspect that the US is better than France at creating new, higher productivity jobs and so a minimum wage here may be far more beneficial than it is in France. This is not to say there are potentially no adverse effects of a minimum wage, but there also potential benefits and I believe it is hence very reasonable to support minimum wage legislation without being a accused of trying to rent seek.

I think there is strong argument for a minimum wage that is ignored by the comments in this blog. The minimum wage is a statement by society that, given our overall wealth level, there should be no jobs in this country that do not at least have a marginal product equal to the minimum wage. Now, if one believes that productivity is intrinsic to a person, i.e. that there is a fixed demand for labor schedule, that makes little sense. However, if labor and capital are scarce resources and are complementary in production, i.e. better workers make capital more productive and vice-versa, there is no obvious way to decide what the "intrinsic" marginal product or appropriate market wage is. Nash-bargaining in search models or matching models such Sattinger (1979) are attempts to resolve this problem. To illustrate this reasoning think of the large wage increases that Mexican immigrants experience when they work in the US rather than Mexico. These are very hard to reconcile with the idea of an intrinsic productivity which is central to most arguments against the minimum wage (and I think they pose a fascinating challenge for economists to explain).

So what do I think could happen in response to the minimum wage? As Posner suggests there will be allocative effects, but they may be desirable. Workers may respond by acquiring more human capital, which in turn is justified by increased investment in physical capital. Similarly, firms may respond by investing in more physical capital and better technology. Clearly, from an individual perspective this is suboptimal (otherwise it would have happened earlier), but from a social perspective it may be desirable. It may not be a Pareto improvement (even though it could be), but it may increase social welfare. For these effects to occur requires both time and will depend crucially on the ability of entrepreneurs to respond. We suspect that the US is better than France at creating new, higher productivity jobs and so a minimum wage here may be far more beneficial than it is in France. This is not to say there are potentially no adverse effects of a minimum wage, but there also potential benefits and I believe it is hence very reasonable to support minimum wage legislation without being a accused of trying to rent seek.

I am concerned that a raise in the minimum wage encourages more students to work more hours. As a mother, I believe that high school and college age youths generally should be focusing their time and effort on their education. An increase in the minimum wage will increase the hours they work. I base this on my training in Economics from Wharton (many, many years ago) and my current experience as the mother of a teenager (which only seems like many, many years). Students may very well be more attractive employees than non-students -- ergo the number of jobs/employees does not go down as there are more available employees, and unemployment may not go up, as more workers become discouraged. What no one seems to care about is an increase in minimum wage will reduce education levels, especially for children in lower and middle class households.

Mathis,

The fact that labor and capital raise each other's marginal products in no way makes it impossible to determine the marginal product of each. You would do well to read more price theory and less game theory on this point.

Your position that the minimum wage can be justified by the fact that "society" prefers it is remarkable for both its questionable premise about the existence of a social-choice mechanism and its utterly circular reasoning.

Mathis

Even if capital and labor were complementary, this isn't an argument for government intervention. My understanding of the data is that low skilled labor and capital are actually substitutes anyway.

Firms face the following problem when hiring their next worker: will the additional production from this worker exceed the age I will pay him? Its not necessarily a straightforward question, but firms that get it wrong will go out of business anyway (or make corrections on the way). But the bottom line is that the marginal productivity of labor is detectable, whether by direct measurement or indirectly through market selection.

So what do I think could happen in response to the minimum wage? ... Workers may respond by acquiring more human capital

No, they won't, since minimum wage lowers the marginal return on investment in capital.

You posit a disconnection between private and social incentives i.e. externalities - what is the source of this externality?

many of the comments that are advocating a rise in the minimum wage are ignoring that wages are best set by a market. if the market for valets is higher than the current minimum, the market demand and supply forces should push wages higher.

most if not all of the minimum wage jobs in this country are low skilled jobs that require little training or education. many restaurants pay minimum wage while they train employees, and find out if the employee will work out, only to raise their wages once they become fully qualified for the job.

raising the minimum wage will hurt precisely the population that the advocates want to help-lower income, low skilled, uneducated workers. the minimum wage rise will price them out of the market so that they will have to resort to not working, or a cash wage that brings them into the black market economy.

raising the min wage will also incite more illegal immigration, as higher mandatory wages will increase foreign demand, and also should increase the wages paid by the underground economy.

raising the min wage also will increase all labor costs-since hourly workers that make more than the minimum will want an increase in their pay to keep pace.

it's a bad idea that should be scrapped. purely symbolic-but he symbolism will hurt the overall working environment.

B. Meehan:

Is it amoral for the state to coerce the capitalist to pay their labor a certain rate?

Responding directly to Becker's reference to the French economists, who "find that the relatively high minimum in France explains a significant part of the low employment rate of married women in France," I would ask: have you considered the possibility that a lower employment rate among women as a result of a higher minimum means that fewer mothers have to work in order to bring in a sufficient family income? Perhaps France's "relatively high minimum" allows individuals to earn enough money to allow one parent to stay home with children, keeping them away from the "underground economy," instilling values, etc.?

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Elliot

The people you are talking about - men fortunate enough to win or keep their jobs at a minimum wage, who's partner is having children - are almost certainly a small minority, so small that there is no justification for imposing it on the rest.

Those not fortunate enough to keep their jobs will, presumably, be more likely to move to the underground economy. I'm not sure you're considering the full set of effects of a minimum wage.

As economists, we can celebrate the minimum wages passed by individuals states in the last election. First, while these are almost certainly harmful, reasonable people on both sides of the argument will agree that a minimum in Massachusetts shouldn't necessarily be the same as the one in Arkansas. Second, labor and capital can more easily adjust to the wage differentials -- moving across a state line to escape the harmful effect of the minimum (or, if you prefer, to capture the benefits of the minimum) is easier than moving out of the country. Third, it's more in tune with democracy. If your state wants a minimum wage, then at least it doesn't hurt me as much as a federal minimum. If my state doesn't want one, then your state can still reap perceived benefits if it wants. And fourth, think of the data we can collect!

How many people are already participating in the underground economy as a supplement to their aboveground jobs because their aboveground employer does not pay them sufficiently? I would like to see states take the minimum wage more seriously, and keep it out of federal legislation, but perhaps a motion towards raising the federal minimum wage slightly could force more debate among state legislators. $7.25? I think not. $5.50? Why not.

Dear Prof. Becker,

Thank you for thoughts. I would like you to comment on the effect of raising the minimum wage at the same time that we are trying to reform immigration. We are telling employers of low skilled workers to stop hiring illegal immigrants, but at the same time we are adding significantly to their incentive to do so. I'm suprised nobody has brought this up.
regards,
Alcibialdes

The objection that small increases in the minimum wage have no noticeable impact is self-defeating.

A higher minimum wage has one of two possible outcomes: it is either high enough that people who would otherwise find a job will not, or it is so low that no-one will be unemployed because of it (if the minimum wage was set to 1 cent/decade this would certainly be the case).

A small increase on the legal minimum will not make many more people unemployed, but will also be of little help to those who benefit from it.

The essence of the problem is the same, though: a number of mutually beneficial transactions was prohibited from taking place. People were necessarily harmed by it.

There is absolutely no reason why one should defend a minimum wage, and many for rejecting such an irrational law, which seeks to impose higher incomes through sheer political will.

My understanding is that at least some studies do not show an unemloyment effect so much as an effect on future hiring of low wage workers in relation to increases in the Minimum Wage. Which is still a pretty negative policy income.
But I wonder, how should we see the increase in dispoable income caused by an increase in the Minimum wage? After all, I believe lower income workers spend most of their income, and it is not unreasonable to think they spend much of it at businesses where other minimum wage workers work. So at least some of the negative effect caused by the new higher wages should be offset, right?

A letter signed by 650 U.S. economists, including five past presidents of the American Economics Association and six Nobel laureates, argued that increases in the minimum wage have had little or no effect on employment, and that boosting the minimum wage would actually have a positive effect not just on workers and the labor market but on the overall economy.

And...... for those professing to believe in capitalist principles if the employer does not pay something roughly akin to a living wage.... WHO should make up the difference?? Today.... it's Voila!! you and me..... taxpayers! In the form of EITC, food stamps, low income housing subsidies, and having NO help from them in paying for schools, police, or bombs.

In order for capitalism to work and direct scarce resources to those most efficient users and producers it is THEY who must pay the operational costs of not only their delivery vehicles and plant but the human capital employed.

Both Posner and Becker's essays are nothing but right wing corporate ideology and foggy mutterings indicating they've never opened an econ text. Jack

A letter signed by 650 U.S. economists, including five past presidents of the American Economics Association and six Nobel laureates, argued that increases in the minimum wage have had little or no effect on employment, and that boosting the minimum wage would actually have a positive effect not just on workers and the labor market but on the overall economy.

And...... for those professing to believe in capitalist principles if the employer does not pay something roughly akin to a living wage.... WHO should make up the difference?? Today.... it's Voila!! you and me..... taxpayers! In the form of EITC, food stamps, low income housing subsidies, and having NO help from them in paying for schools, police, or bombs.

In order for capitalism to work and direct scarce resources to those most efficient users and producers it is THEY who must pay the operational costs of not only their delivery vehicles and plant but the human capital employed.

Both Posner and Becker's essays are nothing but right wing corporate ideology and foggy mutterings indicating they've never opened an econ text. Jack

A letter signed by 650 U.S. economists, including five past presidents of the American Economics Association and six Nobel laureates, argued that increases in the minimum wage have had little or no effect on employment, and that boosting the minimum wage would actually have a positive effect not just on workers and the labor market but on the overall economy.

And...... for those professing to believe in capitalist principles if the employer does not pay something roughly akin to a living wage.... WHO should make up the difference?? Today.... it's Voila!! you and me..... taxpayers! In the form of EITC, food stamps, low income housing subsidies, and having NO help from them in paying for schools, police, or bombs.

In order for capitalism to work and direct scarce resources to those most efficient users and producers it is THEY who must pay the operational costs of not only their delivery vehicles and plant but the human capital employed.

Both Posner and Becker's essays are nothing but right wing corporate ideology and foggy mutterings indicating they've never opened an econ text. Jack

"A letter signed by 650 U.S. economists, including five past presidents of the American Economics Association and six Nobel laureates, argued that increases in the minimum wage have had little or no effect on employment, and that boosting the minimum wage would actually have a positive effect not just on workers and the labor market but on the overall economy."

And...... for those professing to believe in capitalist principles if the employer does not pay something roughly akin to a living wage.... WHO should make up the difference?? Today.... it's Voila!! you and me..... taxpayers! In the form of EITC, food stamps, low income housing subsidies, and having NO help from them in paying for schools, police, or bombs.

In order for capitalism to work and direct scarce resources to those most efficient users and producers it is THEY who must pay the operational costs of not only their delivery vehicles and plant but the human capital employed.

Both Posner and Becker's essays are nothing but right wing corporate ideology and foggy mutterings indicating they've never opened an econ text. Jack

" A let ter signed by 650 U.S. economists, including five past presidents of the American Eco nomics Association and six Nobel laureates, argued that increases in the minimum wage have had little or no effect on employment, and that boosting the minimum wage would actually have a positive effect not just on workers and the labor market but on the overall economy."

And...... for those professing to believe in capitalist principles if the employer does not pay something roughly akin to a living wage.... WHO should make up the difference?? Today.... it's Voila!! you and me..... taxpayers! In the form of EITC, food stamps, low income housing subsidies, and having NO help from them in paying for schools, police, or bombs.

In order for capitalism to work and direct scarce resources to those most efficient users and producers it is THEY who must pay the operational costs of not only their delivery vehicles and plant but the human capital employed.

Both Posner and Becker's essays are nothing but right wing corporate ideology and foggy mutterings indicating they've never opened an econ text. Jack

Bravo for Jack posting above! He hits it on the head again: Becker's problem is that he 'never opened an econ. text(book)'!

As for 'foggy mutterings', the prime examples are Jack's copious postings, with apalling material and logical errors too numerous to go into.

Thanks Jack!

Ned

First, I'm surprised that there has been little discussion of the elasticity of the demand for low-wage labor. The evidence suggests that a 40 percent increase in the min wage would reduce employment by about 10 percent. The 90 percent who remain employed are better off and as a group, min wage workers total income increases.

Of course, it could be argued that the 10 percent of workers who lose their jobs are much worse off, long-run, becuase they are priced out of the system and have no means for working their way up the economic ladder. But I think it overstates the opposition to the MW by claiming it makes low-wage workers (as a group) worse off.

Second, how much of a total economic cost are we talking about. At $7.25/hour, the min wage will have about the same real value as it did when it was raised to $5.15/hour in 1997. Obviously the economy didn't collapse back then. If as Dr. Posner says, 10 percent of the workforce could be affected, we're talking 15 million workers, each being paid an average of about $2,000 more each year (the average wage of these workers is between the current and new minimums). That's $30 billion of additional cost out of a $13,000 billion economy. And it's not all lost; most of it is just transferred from employers and consumers (and disemployed workers) to min-wage workers. The dead-weight loss triangle is tiny. From a macro perpective, you probably couldn't even see it. I can think of a lot worse public policies that have far less public support (sugar quotas, anyone?) than raising the min wage.

Stepping away from the economics, my feeling is that the purpose of a min wage is to tell people what a lousy job pays so they can go out and get a better one. I know we don't like to assume ignorance, but we live in a society where people won't buy something for $100 until you tell them that it's marked down from $150. Then they think they're getting a bargain. People often make decisions about prices or wages based on a comparision to some completely arbitrary standard such as "full retail price" or what they are paying over at McDonalds.

Peter makes several interesting observations: First I wonder where he got a formula for the elasticity of demand for cheap labor at the lowest echelons of income? And is it reliable at those levels? If the business is a small one of some success the tax deductible cost of $41 going to $58 is about $10/day at 40% in fed and state taxes.

And the system is not static: If, contrary to the conclusions of the 650 economist's letter (posted here) there is a 10% reduction in employment, the productivity of the remaining 90% is increased by definition and perhaps further by investment in more productive equipment purchased from companies who may need to do some hiring.

Assuming that lackluster growth and poor job creation don't soon soak up the other 10% (a very real concern over the last 5 years!) they go on the unemployment rolls where they act as a clumsy signal to the Fed Chairman that it's high time to take his lead foot off the brakes. Ain't America great?

I especially liked Peter's reminder that all the "sky might fall" hoopla is about what should have been the gradual increases to compensate for the declining value of our DEBT backed dollar having been ignored by the Congressional majority for the past decade apparently on cue from their corporate masters? or to maximise the growing wage gap as much as possible while they have the gavel?

Thanks to Ned too, but in the spirit of the board I'd be happy if he pointed out even ONE of the "with apalling material and logical errors too numerous to go into." of my "copious" posts!

Sorry for "over posting" but I couldn't resist; there's quite a trove of hrsht here and even so left more than enough to replenish the soil. Jack

Two points to make here, which I will preface by saying that on balance, I am opposed to increasing the minimum wage and largely agree with Profs. Becker and Posner:

First is a question. The two posts make the point that unions favor a rise in the minimum wage because it decreases competition union workers have from those who get paid below the proposed floor. If that's the case, then the minimum wage would seem to raise union workers' pay as well. So, it would seem to me that that needs to be taken into account as a benefit to raising the minimum wage. In other words, it's not just teenagers who will benefit from a rise in the wage, but lower-middle class and middle class union workers as well. I was just wondering if this actually happens or not.

The second point I wanted to make is regarding the inflation argument and the letter by the 650 economists. First, the letter favored a "phased-in" increase, which is different from some of the Democratic proposals being banted about. The typical inflation argument is that the minimum wage has not kept up with rises in inflation. If that's the case, then what these esteemend economists who signed the letter are favoring, would be useless to stem the tide of inflation. By the time the last phase of the increase is enacted, we are again already behind the inflation curve. So in some sense, the organizers of the letter were disingenuous because I doubt many of those economists would have signed up for an overnight increase to 7.25 or for min wage increases from here to perpetuity.

In some sense the inflation argument is self-defeating. Yes, adjusting for inflation, 7.25 or whatever the proposal is, is the correct number. But remember that inflation, which is computed on CPI data, would be higher had the minimum wage been rising a steady 3 or 4% per year. So, in other words, we'd constantly be behind. Imagine, we base min wage increases on CPI levels, which then cause CPI levels to rise more, which causes another increase, so on, and so forth.

Why does someone become an economist? The answer is the same as for journalists, lawyers, politicians, and the other professions which weigh on public policy. Very few of them approach their education or their work as true scientists, seeking the truth; rather, they seek arguments to support what they already believe.

Sweden, I believe, has a discernible opinion on the capitalism-communism question. Thus I wouldn't put too much stock in a Nobel award. Undoubtedly, the laureates are all exceedingly accomplished, but it may also help if you bat for the home team.

Let's assume for the moment the best in people. If I want to make a deal with another man for a price in exchange for his cutting my lawn, and he agrees by his acceptance that what he is getting is, to him, worth what he is giving, then who are you, who is anybody, to second-guess our respective free choices? I see no argument, scientific, economic, or moral, senior to this one.

Yevgeny deserves a standing ovation. What he's describing is utility, which is what anything is worth to anybody at anytime.

'Nuff said!

Correction. Standing ovation to Terry Bennett. Round of applause to Yevgeny.

Yevgeny and Terry: If Demos are forced to settle for a phase-in for catching the min wage up to current levels of inflation, the purpose for the compromise would be that of not "shocking" those who've been benefiting nicely by it falling so far
behind. The phase-in would be substantially shorter than the 9 years in which the former Majority has blocked the less disruptive periodic adjustments.

Yev sez:
But remember that inflation, which is computed on CPI data, would be higher had the minimum wage been rising a steady 3 or 4% per year. So, in other words, we'd constantly be behind. Imagine, we base min wage increases on CPI levels, which then cause CPI levels to rise more, which causes another increase, so on, and so forth.

........ Probably not. It's unlikely that such small increases at the lowest income levels would result in any effect on inflation even if it did tend to push upwards wages of those a tad above the min wage as the increase simply is not enough to move the whole economy of some $13 trillion. I suppose one way to get an estimate of how small a macro issue a $2 raise in the min wage amounts to would be to take a guess at how many would be affected and compare it to, say, the $300 Billion EXTRA we've been paying for just oil alone since our M/E adventurism began, along with the extra for NG, coal and other energy costs.

BTW...... as CEO and upper exec compensation has been soaring at multiples of the inflation rate, I wonder how much longer I'll have to wait to see my first lament as to that being inflationary? Do you happen to know what sort of genius work the CEO of a medical insurance company performed last year to make his contributions worth $150,000,000 or $50,000 per hour?

~~~~~~~~~~~~~~~~~~~~~~~~~~~

Terry sez:
If I want to make a deal with another man for a price in exchange for his cutting my lawn, and he agrees by his acceptance that what he is getting is, to him, worth what he is giving, then who are you, who is anybody, to second-guess our respective free choices?

...... well I suppose that if a guy is a bit down on his luck and can con the neighbor kid into doing his lawn for $5.15.... or? less?? that not much harm is done as perhaps his parents are still feeding and housing him. But, if the kid shows up looking a bit ragged and you think he might be one of the one third of high schools students who work these days, not for fashion sneakers or their first car, but to help their family make ends meet, perhaps it would be sporting of you to skip the latte one day and settle for an Americano with the free cream and loosen up an extra Two bucks for the kid. After all, Starbucks and Panera are doing pretty well and both pay their employees well above the min wage, arguably, perhaps something close to a living wage.

Jack

Yevgeny and Terry: If Demos are forced to settle for a phase-in for catching the min wage up to current levels of inflation, the purpose for the compromise would be that of not "shocking" those who've been benefiting nicely by it falling so far
behind. The phase-in would be substantially shorter than the 9 years in which the former Majority has blocked the less disruptive periodic adjustments.

Yev sez:
But remember that inflation, which is computed on CPI data, would be higher had the minimum wage been rising a steady 3 or 4% per year. So, in other words, we'd constantly be behind. Imagine, we base min wage increases on CPI levels, which then cause CPI levels to rise more, which causes another increase, so on, and so forth.

........ Probably not. It's unlikely that such small increases at the lowest income levels would result in any effect on inflation even if it did tend to push upwards wages of those a tad above the min wage as the increase simply is not enough to move the whole economy of some $13 trillion. I suppose one way to get an estimate of how small a macro issue a $2 raise in the min wage amounts to would be to take a guess at how many would be affected and compare it to, say, the $300 Billion EXTRA we've been paying for just oil alone since our M/E adventurism began, along with the extra for NG, coal and other energy costs.

BTW...... as CEO and upper exec compensation has been soaring at multiples of the inflation rate, I wonder how much longer I'll have to wait to see my first lament as to that being inflationary? Do you happen to know what sort of genius work the CEO of a medical insurance company performed last year to make his contributions worth $150,000,000 or $50,000 per hour?

~~~~~~~~~~~~~~~~~~~~~~~~~~~

Terry sez:
If I want to make a deal with another man for a price in exchange for his cutting my lawn, and he agrees by his acceptance that what he is getting is, to him, worth what he is giving, then who are you, who is anybody, to second-guess our respective free choices?

...... well I suppose that if a guy is a bit down on his luck and can con the neighbor kid into doing his lawn for $5.15.... or? less?? that not much harm is done as perhaps his parents are still feeding and housing him. But, if the kid shows up looking a bit ragged and you think he might be one of the one third of high schools students who work these days, not for fashion sneakers or their first car, but to help their family make ends meet, perhaps it would be sporting of you to skip the latte one day and settle for an Americano with the free cream and loosen up an extra Two bucks for the kid. After all, Starbucks and Panera are doing pretty well and both pay their employees well above the min wage, arguably, perhaps something close to a living wage.

Jack

Terry

Agree completely with the second part of your post. (I suspect most economists would) The first, however...

Why does someone become an economist? ...they seek arguments to support what they already believe.

I don't think this point is relevant, or correct. Even if you're right, then you should be able to demonstrate the faulty reasoning - so why not just post on that?

But I suspect you're wrong. I believe a good number of economists start out left-leaning but, upon understanding that incentives matter, abandon the socialist model because it operates in defiance of those incentives. Well, that's how it was for me and a couple of others I am aware of.

Does anyone know of a single economist who says that our best (point, long-term, all else equal) estimate of the effect of a higher minimum wage is to raise employment?

Robin asks: Does anyone know of a single economist who says that our best (point, long-term, all else equal) estimate of the effect of a higher minimum wage is to raise employment?

...... No, about the best we have, and posted here is a suspicion within the margin of errors that raising the min wage 10% results in a 1% - 3% increase of unemployment. And that is most likely a short run or static snapshot rather than a long term effect. Were we to have raised the min wage in by 3% steps the effect, if true, would be .03 - 1.0 And making the assumption that the work would get done anyway, there'd be a similarly negligible increase in the productivity. But, if t some small amount of unemployment would that effect be the compelling "end of the debate?

I'd think not, and would again try to point out the distortion effect of employer's using human labor at but one third of the cost of maintaining life. And, ask any remaining, principled capitalists who they think should pick up the costs not paid by the employer? Or why it should be a taxpayer/insurance premium payer's job to pitch in what the employer and direct beneficiary of the employees labor does not pay?

Econ does not exist in a sterile laboratory environment but in a community and in concert with a democracy. Where the theory breaks down and leaves people who do a job necessary to the community we're not likely to let them starve in the streets, so we've a question, only as to whether the employee should cover those costs or whether by skill or lobbying in Congress he should get away with foisting these costs off to others of our community. Are there many here who lean toward socialism for the benefit of corporations which I think is called is called national socialism or facism. Jack

I have studied all the arguments carefully and conclude that a min wage increase WILL help the poor. Why?

Well, a higher min wage will make it harder for the US to compete overseas, widen the account deficit, force a run on the dollar as a world reserve currency, cause an economic collapse, kill 95% of government programs, and force a return to the gold standard.

Yes, I never thought I would be a fan of higher taxes and a higher minum wage, and more social security, and medicare, but IMHO we have reached a tipping point. The sooner we crash the whole freaking economy into the dirt, the sooner the younger generation and poor will be able to enjoy real economic liberty, opportunity, and success.

David: It's likely social training rather than a clear view of reality that would have you "believing" that a couple buck increase of the min wage would have ANY effect on the admitted lack of our ability to compete in the global village we helped to design:

David Sez:
Well, a higher min wage will make it harder for the US to compete overseas, widen the account deficit, force a run on the dollar as a world reserve currency, cause an economic collapse, kill 95% of government programs, and force a return to the gold standard.

Income
Top 1 percent Next 19 percent Bottom 80 percent
1982 12.8% 39.1% 48.1%
1988 16.6% 38.9% 44.5%
1991 15.7% 40.7% 43.7%
1994 14.4% 40.8% 44.9%
1997 16.6% 39.6% 43.8%
2000 20.0% 38.7% 41.4%

Note that it's the top ONE percent who makes 20% of all the income and that the top 20% take 49% of all the income? While the bottom 80% share in the remaining 41% And dare we mention CEO pay having soared by 300% since 1990? For now I'll leave it to others to provide the share earned by those at or near the min wage or what $2 at the lowest 10% would amount to.

BTW since the top 20% own 85% of the wealth of the nation if we do continue to "blow it" than do the other 80% with their token holdings of the other 15% so if they're in positions of power it would be wise of them to try to return us to something of a sustainable plan.

Perusing these charts could quickly give you a better handle on what is happening.

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

Jack

Why does CEO pay keep getting raised Jack? It has nothing to do with minimum wage. Nothing.

Let me re-phrase: Why do you keep bringing CEO pay into the discussion?

Ben: CEO pay is related to a discussion of our min wage having been "bid down" 40% lower than it was a decade ago for these reasons:

I've brought to the board the generally known economic fact of "the market" being greatly flawed in the case of setting prices for: A. generic or low skilled labor B. undifferentiated commodities.

CEO pay has risen at such an enormous rate that it should be obvious that the massive run-up is due to "SOMETHING" other than working "market forces". At least for those who DOUBT that CEO skills have become 300% more scarce? or they've learned to be 300% more productive since 1990?? Would you want to make a case for this being an example of the "efficient" functioning of "the market?"

Also, I mention CEO compensation and the similarly high rates of pay increases of upper management for the benefit of those posters here who've been been trained to "feel" that even a miserly $2 increase in the min wage, much less paying a living wage at the bottom, would result in inflation and/or, ha-ha-ha "further erosion of our ability to compete" in the global village that we incompetently designed and refuse to address. (The $750 Billion of trade deficit is QUITE a hole to fill!)

And, that, for ALL who are in the lower half of the income scale, whether it is Reagan, Bush Sr, or Jr the "trickle down" of income growth seems to dry up somewhere in the range of $75,000 plus and all that does trickle down to even the middle class wage earner/taxpayer it the D E B T and interest payments.

For those of us who recall the first page of most econ texts; "study of what will be produced by whom, and for whom, at what price" along with the precepts of our nation and nearly every state "that our resources will be developed for the benefit of our people" and have not yet chucked the concept that a working economic system benefitting all the citizens of our community in favor of some amoral construct that pretends that capitalism is some sacred, god-designed machine of perfection when it is obvious to all that it falls far short of any such devine perfection.

I'll leave you with a real world case to mull:

Currently tomato pickers are trying to organize collective bargaining to improve their wage from $60/day to $100/day. (A day being 10 hours of being paid by the crate under a scorching sun.)

A. Why do you suppose they'd individually agreed to work for less than a living wage? Or the converse? Why does the grower "feel" his is entitled to hire a man for less than it cost to feed and house him?

B. Why should they have to resort to organizing?

C. If Taco Bell is "able to pass on the cost increase to THE market" the proposed raise will increase the price of a taco by three cents. Is this increase likely to disrupt markets and cause many to make their tacos at home?

D. Is there some means you have of determining that picking several TONS of tomatoes per day represents precisely $60 worth of "productivity?" (Please do not use the canard of "the market" or we'll have to review the real world issues of: A. the market not working at this level. B. Bernanke standing on the monetary brakes with both feet to ensure a labor surplus.)

E. Amd lastly IF your devine economic model continues to increase the numbers of our neighbors who are making but a fraction of a living wage is it wise of us to keep praying to the false god of "market perfection" and while waiting for them to hear our prayers, passing the collection box to cover the living costs of those at the bottom while pretending not to notice having our pockets vigorously picked from above? Jack

Ben: CEO pay is related to a discussion of our min wage having been "bid down" 40% lower than it was a decade ago for these reasons:

I've brought to the board the generally known economic fact of "the market" being greatly flawed in the case of setting prices for: A. generic or low skilled labor B. undifferentiated commodities.

CEO pay has risen at such an enormous rate that it should be obvious that the massive run-up is due to "SOMETHING" other than working "market forces". At least for those who DOUBT that CEO skills have become 300% more scarce? or they've learned to be 300% more productive since 1990?? Would you want to make a case for this being an example of the "efficient" functioning of "the market?"

Also, I mention CEO compensation and the similarly high rates of pay increases of upper management for the benefit of those posters here who've been been trained to "feel" that even a miserly $2 increase in the min wage, much less paying a living wage at the bottom, would result in inflation and/or, ha-ha-ha "further erosion of our ability to compete" in the global village that we incompetently designed and refuse to address. (The $750 Billion of trade deficit is QUITE a hole to fill!)

And, that, for ALL who are in the lower half of the income scale, whether it is Reagan, Bush Sr, or Jr the "trickle down" of income growth seems to dry up somewhere in the range of $75,000 plus and all that does trickle down to even the middle class wage earner/taxpayer it the D E B T and interest payments.

For those of us who recall the first page of most econ texts; "study of what will be produced by whom, and for whom, at what price" along with the precepts of our nation and nearly every state "that our resources will be developed for the benefit of our people" and have not yet chucked the concept that a working economic system benefitting all the citizens of our community in favor of some amoral construct that pretends that capitalism is some sacred, god-designed machine of perfection when it is obvious to all that it falls far short of any such devine perfection.

I'll leave you with a real world case to mull:

Currently tomato pickers are trying to organize collective bargaining to improve their wage from $60/day to $100/day. (A day being 10 hours of being paid by the crate under a scorching sun.)

A. Why do you suppose they'd individually agreed to work for less than a living wage? Or the converse? Why does the grower "feel" his is entitled to hire a man for less than it cost to feed and house him?

B. Why should they have to resort to organizing?

C. If Taco Bell is "able to pass on the cost increase to THE market" the proposed raise will increase the price of a taco by three cents. Is this increase likely to disrupt markets and cause many to make their tacos at home?

D. Is there some means you have of determining that picking several TONS of tomatoes per day represents precisely $60 worth of "productivity?" (Please do not use the canard of "the market" or we'll have to review the real world issues of: A. the market not working at this level. B. Bernanke standing on the monetary brakes with both feet to ensure a labor surplus.)

E. Amd lastly IF your devine economic model continues to increase the numbers of our neighbors who are making but a fraction of a living wage is it wise of us to keep praying to the false god of "market perfection" and while waiting for them to hear our prayers, passing the collection box to cover the living costs of those at the bottom while pretending not to notice having our pockets vigorously picked from above? Jack