The Third Debate on the Minimum Wage

The minimum wage debate does not seem to disappear. I am continuing my arguments with fellow Facebookers, and find in these contributions young, very educated and very intelligent college students, who have completely absorbed neoliberal propaganda, a la Greg Mankiw (http://gregmankiw.blogspot.com/2006/04/minimum-wage-debate.html).

This debate was in response to a link that talked about the budget of minimum wage workers. (http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/16/that-mcdonalds-budget-people-are-making-fun-of-isnt-cruel-its-realistic/)

Here is a selection of responses that all happened on July 16.

Marc-Anthony Serrano: It’s entirely unrealistic, but I don’t think we should throw up minimum wages to fix it.

Jake McCoy:  Raising the minimum wage would only cause a raise in unemployment. You can’t expect employers to pay wages to workers who can’t produce what they consume. Some workers aren’t worth $7.50 an hour.

The people that minimum wage creators aimed to help (low productivity workers) are the very same that suffer each time it is raised.

Dillon Weber:  Imran just posted this, and I’m sorry for being lazy but I am going to copy and paste my reply to him:

Read this article: http://stream.wsj.com/story/latest-headlines/SS-2-63399/SS-2-273396/

And if you won’t read it, let me just point some important parts of it out: If the minimum wage were tracked to inflation it would be just over $4 today; the productivity gains in the past decades (shown in the graph) have not come from minimum wage earning jobs like restaurant employees; and 2/3 of workers who start a minimum wage job get a raise within a year.

Something the author could have also pointed out but didn’t, this income fails to take into account the EITC and other Government benefits like Food Stamps which will never show up as income to a government accountant (or to most statisticians) but certainly amount to the same thing.

Just some things to think about.

L Larry Liu: Jake wrote, ” Raising the minimum wage would only cause a raise in unemployment. You can’t expect employers to pay wages to workers who can’t produce what they consume. Some workers aren’t worth $7.50 an hour. ”

This is complete nonsense. Raising the minimum wage will immediately improve the lives of the lowest paid workers. Some businesses will increase their prices with an increase in the minimum wage, but other businesses will expand hiring, because the total demand in the economy is increasing. If the minimum wage was so terrible, then somebody has to explain to me why raising the minimum wage worked until 1968:http://eurekafairwageact.files.wordpress.com/2013/02/actualvshypothminwage.jpg and http://i.huffpost.com/gen/990547/thumbs/o-MINIMUM-WAGE-AND-PRODUCTIVITY-570.jpg?6

While at the same time, the national unemployment rate had about the same average since 1945 (about 5%).http://upload.wikimedia.org/wikipedia/commons/thumb/9/9c/US_Unemployment_1890-2009.gif/383px-US_Unemployment_1890-2009.gif

Jake McCoy:  http://www.youtube.com/watch?v=Ct1Moeaa-W8

What I said makes complete sense. Minimum wage increases will result in a combination of the following: Layoffs, Price Increases, Lack of expanded hiring. Layoffs hurt current low-wage workers, price increases hurt workers across all spectrums, and lack of expanded hiring hurts the already struggling unemployed.

The problem with those first two charts is that it tries to tie minimum wage increases to total productivity. It takes a sector of workers and attempts to praise them for productivity throughout an economy when this productivity could have come from anywhere; from the lowest wage workers to the highest.

And to tie the wikimedia chart to MinWage is absurd. There are variables upon variable that play into an economy’s unemployment rate. Taxes, Regulations, Tariffs, Excises, Subsidies, Population, etc, etc.

Dillon Weber: Jake is spot on with the point of productivity (it’s in the article I posted). Many of the gains in productivity have been coming at high-paying jobs in technology sectors or, at the least, in office desk jobs—neither of which typically pay anywhere near the minimum wage. The average cook or server has not been able to serve spectacularly more customers nor drastically improve their efficiency at completing tasks in the last thirty years or so.

Jake McCoy: Correlation does not demand causality.

L Larry Liu: I will grant you the point that not all the service workers have raised their productivity. But the only thing that matters is what we might call ‘social productivity’, i.e. the productivity of all the workers in the country. Some workers in the manufacturing industries have doubled and even tripled their productivity in the last few decades. But that was not due to their ingenuity or the brow of their sweat, but because the engineers and scientists came up with technology that made labor more productive in the field of manufacturing production.

If we follow the eye-for-an-eye, you-get-what-you-deserve logic, then these manufacturing workers should be super-rich at this point, and the sales clerks and bartenders should remain poor. But this is, of course, socially unsustainable. Whether a society wants to distribute different or same incomes to different workers is a matter of social taste. No highly productive worker can scream unfairness if wages are distributed more equally, because (a.) he is not responsible for technological innovation which raised his productivity, (b.) he is not a bit poorer because of wage-sharing, and (c.) it is questionable whether the manufacturing worker wants to have poor service workers knocking on his door, requesting for help.

The minimum wage sets a floor on the living standard of the poorest workers. With the given average productivity increases we have experienced, the minimum wage should be between $18-22 an hour, i.e. a wage increase which would be affordable to the employer. Again, this is not applicable to all businesses. Those companies with small profit margins will hire fewer workers, but many other companies will increase their hiring, because the purchasing power of the lowest-paid workers and those above will be raised, assuming that the poor workers are spending all of their paycheck (which they usually have to in order to survive). These are two offsetting movements, which make the employment impact of the minimum wage minimal.

What I find so disingeneous about the video is that it assumes that all the good workers will be paid more automatically. This is true for a few specialized workers, whose skills are so rare and so important that the employer is willing to pay a high wage. In most cases, the wages of workers are higher, because they part of a labor union that negotiates generous contracts, which allow more workers to receive a higher standard of living. To pit the skilled against the sem-skilled against the low-skilled workers is of no help to the workers involved.

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