CBO & The Minimum Wage
As I'm sure many of you have heard, the CBO has issued a report that among other findings, noted that raising the minimum wage from $7.25 to $10.10 may cost 500,000 people their jobs. Additionally, it noted that raising the minimum wage from $7.25 to $10.10 may lift 900,000 people out of poverty. So, 1.8 steps forward, 1 step back. Nevertheless, a recent piece in Bloomberg summarizes the reaction to the findings of the CBO's report on the minimum wage well:
Senate Majority Leader Harry Reid, a Nevada Democrat, plans to bring a minimum wage increase proposal to the Senate floor in March. In a statement, he emphasized a finding in the report that the move would increase pay for 16 million Americans.“The Koch brothers made over $18 billion in 2013 alone, but middle-class families have watched their incomes stagnate for decades,” Reid said, referring to billionaire energy executives Charles and David Koch, supporters of the small-government Tea Party.
“With unemployment Americans’ top concern, our focus should be creating -- not destroying -- jobs for those who need them most,” [Brendan Buck, a spokesman for House Speaker John Boehner] said in a statement.
Both of these statements are ridiculous but for wildly different reasons. Reid, obviously, doesn't seem to realize that what the Koch brother earn has nothing to do with what middle class families earn. The economy isn't a zero sum game. While Boehner makes the common mistake that congress can "create jobs" in the private sector. Speaking of which, the piece does note the affect such a change could have on certain private firms:
Bloomberg Government analysis. At least 50 companies and industry groups are lobbying Congress on the issue, including Yum! Brands Inc. (YUM), the operator of Kentucky Fried Chicken and Taco Bell restaurants.The change would most affect leisure and hospitality companies, which employed 51 percent of minimum-wage workers in 2012, according to aCompanies, including Darden Restaurants Inc. (DRI), which owns Red Lobster and Olive Garden, cite a potential minimum wage increase as a risk factor in filings with the U.S. Securities and Exchange Commission. Others, such as Costco Wholesale Corp. (COST), back the change, saying it would help reduce turnover and increase productivity.
From this short passage, it's clear that the results would be something of a mixed bag, skewing negatively for many private firms in leisure and hospitality. However, without a careful look at the companies SG&A lines and their operations, it's tough to say how well this would work out in the long run. I'd be interested to hear what your monkeys who have done said due dilligence think on the subject. Really, how this would/will/could work out economically is, at best, ambiguous from what I can tell. I've consistently found three different views:
Economic theory tells me that raising the price of anything reduces the demand.
People who seem to have ulterior motives tell me that raising the minimum wage will create prosperity and unicorns that crap M&Ms.
Experience tells me that it's entirely too complex to tell exactly what'll happen, but over the long term, raising the price of labor increases the demand for robots. I for one, welcome our new robot overlords.
yes, the economy isn't a zero sum game, but it should be very clear to you why the koch brothers were mentioned it's an attempt to highlight the fact that there is a wide difference between the way americans live, and that we should do something to make it a little more equal
Not really. It's an attempt to (indirectly) make a political jab at Harry Reid's political opponents. I very much doubt he would have made the same comment about Elon Musk, Mark Zuckreburg, or any number of rich billionaires or multi-millionaires out there that are more progressive on the political scale. Or one of his several colleagues in Congress? John Kerry, Diane Feinstein, and Nancy Pelosi all have net worths of several million, far more than any lowly minimum wage employee would make in a lifetime.
I don't discount that income inequality is a growing and important issue, but those vying for a 37% increase in the minimum wage are not doing it solely for the sake of the little guy. The majority of those making noise are looking to make political gains off of populist discord their pandering creates. I personally don't think sacrificing 500,000 jobs is worth only raising 900,000 barely out of poverty (and unless the wage was pegged to something greater than inflation, there's a high chance they would fall back into it). We have far better options to improve the lives of lower income families than just raising the minimum wage.
+1. Could have easily mentioned a number of uber-rich on the other end of the political scale.
Couldn't agree more, but none of the best solutions will see an immediate impact. Therefore the democrats could really careless about those solutions at this point.
I think the question is who the 500, 000 people who will lose their jobs are. Most likely places will finally automate and eliminate positions and other places that cannot do this will demand better workers. When you are paying $10 bucks an hour you aren't going to tolerate some barely literate drop out. You can hire a liberal arts grad for that price.
I think it is important to note, what will happen with production jobs
There is a third variable you are missing - profits. If minimum wage is raised, depending on the elasticity of demand for the product, you will not be able to pass all of the additional costs on to the customer. This will mean that profit margins are reduced and ROIC goes down across the board.
This I believe is the comparison the senator is talking about - owners (like the Kochs) will be earning less profit and the average joe will be taking a cut of that profit in the form of higher take home pay.
And since average joe spends 100% of his paycheck on goods vs. wealthy investor who lets millions sit in liquid cash in the bank not being spent, it actually stimulates net positive demand in the economy, but reduces investment capital (too much of this right now anyways)
Harry Reid's comments should not be taken as a causal statement. I think he meant it as a comparative statement. Something to the effect of "Group A's income has increased 10000% while Group B's income has decreased 30%. We need to look at how we can help Group B."
Boehner's comments can be defended in a few different ways.
While somewhere (accounts vary) in Asia, Milton Friedman saw workers digging a canal with shovels. Perplexed by by the absence of machinery, Friedman asked a nearby official why they weren't using tractors. The official responded by telling him that it was a job program. “Oh, I thought you were trying to build a canal," Friedman replied. "If it’s jobs you want, then you should give these workers spoons, not shovels.”
But this isn't what Boehner meant so I digress.
Boehner is hinting at the (almost true) statement you made about economic theory. If you lower a price (via tax cuts) or barriers to entry (into the employee market) demand will increase.
Agreed. Some economists point at looking to empirical employment/welfare evidence from individual state minimum wage changes compared to those who don't make changes.
Somewhat true (Giffen and Veblen goods). Also, not applicable. Any broad economic theory relies on conditions which are almost impossible to achieve in the real world. Econ 101 concepts are simply too basic to apply to such a complex issue.
Not sure that anyone said prosperity? Raising the minimum wage may get some people off food stamps and end our subsidization of labor for some large corporations.
I'm not coming at you specifically squatz, but this is a thought process that REALLY bothers me. People whine so much about this increasing wealth disparity, and others conclude that this MUST mean Group B's income is decreasing. In fact, standard of living has increased ACROSS THE BOARD. It is just increasing way, way, faster among the wealthy.
Whether you think this trend is okay, or a major problem, is a matter of personal and political preference. But it drives me absolutely crazy when people say the middle class and poor are "worse off" today vs. 30, 40, 50 years ago just because there is a great wealth disparity. It is simply and demonstrably false.
As with anything in economics, there are multiple ways to look at it. In terms of SoL, the poor are doing better. In terms of real value of the minimum wage, it's dropped about $1.75 since 1970.
I'm not saying I necessarily agree with Harry Reid, I'm just clarifying what (I think) he was trying to express.
Problem with a "Federal" minimum wage is rural MS =/= NYC.
It's generally assumed that taxes and transfers are better (more efficient: less deadweight loss) tools of fighting poverty than price controls. Not sure why they don't focus on reforming/extending EITC, unemployment insurance, TANF and in-kind benefits.
http://www.economist.com/news/united-states/21585010-americas-welfare-s…
I think it'll be interesting to see what happens to the morale for those currently making between $11 and $15/hr if there is a minimum wage increase. Before any increase, this group of people is making a few bucks over the minimum wage, which was possibly the result of a few years commitment to the same employer and they probably had a few raises along the way. It probably feels pretty ridiculous to them that their absolute worst coworker has suddenly caught up to them in pay overnight when it may have taken years for good employees to reach this $11-$15 range.
I think there needs to be some minimum wage adjustments to keep up with inflation, especially since those making $7.25/hr don't have a lot of buying power as it is. To me, a near $3/hr increase is pretty extreme and would be bad news for low-margin businesses who rely on low wage employees.
Raising the minimum wage, in fact having any minimum wage at all, is hurting the poor...not helping them. It's simple as that. I'm getting real sick and tired of the ignorance being propagated as fact by those on the left in order to push through their appalling policies.
Haha. You dirty liberal. Get a job
Right, cause those are the same thing. Tell me, do you actually understand economics or are you just another bleeding heart? You can throw monkey shit and make snide sarcastic remarks all you want but you're not proving your point at all. So...
Cool your jets man. People are genuinely suffering on how low these wages are compared to standard of living. Now the solution may not be a increase minimum wages but I would not go as far as to say minimum wage is hurting poor people. Having enough money to live and not having enough money to live is 1 and 0 (I mean like shelter/food). I'm assuming your parents paid for University? So forgive me if I can't sympathize with your view on these "appalling policies" such as minimum wage.
Sure you can argue having no minimum wage increases the amount of income in the hand of less fortunate people. But if everyone is starving it doesn't matter if they are all employed (extreme example I know its not accurate). So don't ask some one if they even understand economics because the relationship you're referring to is a simple one taught in a first year econ class and the real world has MANY MANY MANY more factors that influence these relationships.
I'm plenty calm, thanks. I simply don't agree with you.
I'm so glad you called my past into question. Because this is exactly the opportunity I was looking for to make this point. My parents did not pay for my college education. I paid for it by working my ass off in high school and getting good grades, taking AP tests, and doing well on the ACT. That's how I paid for it. That and lots of loans that I am now on the hook for. My parents actually don't really pay for anything but my cell phone bill currently, although that's simply because we are all on the family plan and it simply keeps costs to a minimum. That's literally it. I grew up not having much at all, and still don't. So when I am speaking about minimum wage being the problem here, I am not doing it as some rich kid who has had life handed to him. I am doing it as someone that has worked in one capacity or another since I was 13 years old mowing lawns, and saved money to buy all the things I need or want. I am not biased. I have worked plenty of minimum wage jobs in the past.
As someone pointed out below, this story that is told of the suffering family living on minimum wage is bullshit. Only a tiny fraction of the work force (which our wonderful president has gutted in the last 5 years) actually earns minimum wage. Out of that small percentage, only a fraction are the primary income earner in the household. A very small percentage. And on top of that, very few are supporting more than themselves and one other person, aka a child. There are not hundreds of thousands suffering at the hand of minimum wage as the democrats and the left would have you believe. It's a false narrative. It's a lie. It's a lie that they are propagating in order to prop up support for increased measures of socialism as time goes on. Which only creates more income inequality, increases poverty, decreases productivity, and decreases quality of life.
Here's an interesting stat...I believe it has been calculated that at least half of minimum wage earners work in fast food. I believe I saw a number close to 56%. We here the argument all the time that productivity has increased in the economy, wages should increase to reflect this. Well, yes, as a whole productivity has gone up. But, in the fast food sector, productivity has actually been declining for years now...and in addition, wage increases have far outpaced the small productivity increases in this area. So, honestly, these people literally don't deserve to make more. They just don't. Artificially keeping wages high only creates even more unemployment. It's simple supply and demand. It's so insanely easy to understand that I'm really honestly having a hard time trying to figure out how people haven't figured it out. And then I realize we don't make anyone take even a 101 econ class. That's the reason for lots of problems.
You're so wrong I don't even really see the point in arguing with you, I'll never convince you. You'll have to read and research yourself. It's simple math and physics. It's not hard to get, but I can understand that if you've only been exposed to a socialist view of economics your entire life to this point, you might not be able to see it at first.
Unemployment benefits are based at $5.50/hour.
This means that working a 40 hour week will net you about 4-5k/year vs being on an unemployment.
Not sure if this is an indictment of min wage or unemployment benefits but something has to chance because the current system is total bullshit.
$10/h is still a crap salary. $7.25 is a mockery.
I'd imagine this would also increase outsourcing for new project investments in some industries (i.e. new auto plants being built in Mexico rather than Alabama)
I think a huge point is being left out in this whole debate. For reference, take a look at this annual report by the Bureau of Labor Statistics concerning the "Characteristics of Minimum Wage Workers: 2012". (The 2013 report has not been published yet but I would be surprised if it is substantially different from this).
http://www.bls.gov/cps/minwage2012.htm
I do not disagree that there is a sizable income disparity in the United States but I think Reid's use of the middle class in his example is incorrect. Frankly, the middle-class in general is not overly effected by minimum wage. I'm also not sure where he is getting his number of 16 million Americans.
As you can see in the report from the BLS the first sentence says that 75.3 million Americans age 16 and over are paid hourly, which represents about 59% of all wage and salary workers (in 2012). It goes on to say in the next sentence that 1.6 million of those workers were paid exactly the prevailing minimum wage of $7.25 (again, in 2012). Another 2 million had wages below the federal minimum.
In the first bullet point it says that about one-fifth of hourly workers are under the age of 25 and those individuals make up about HALF of those paid at the federal minimum wage or less.
This makes sense and in my opinion the high school and college kids that make up most of these people would be happier getting $7.25 an hour and having a job versus potentially getting $10 an hour but many of them not having a job.
Just my $0.02.
I support increasing the minimum wage, but people who use income inequality arguments simply do not understand how it works. Countries with high immigration also have high inequality. You have a constant influx of poor, lowly educated, non-english speaking people who take a generation or two to meet normal income levels.
And this isn't an "income" issue, it is a wealth issue. The poor and middle class have their house as their largest "asset". The rich have stocks, bonds, etc. So the bottom half have seen their asset stagnate or decline in value and the rich have seen their assets increase in value. This can be attributed to lax Fed policy intended to help the poor and unemployed.
Increase minimum wage, but do realize that it will hurt plenty of people and drive automation. As much as people want to curse businesses for doing this, rational people react the same way. Just like how everyone curses tax cheats, but buy shit online to avoid sales tax.
just for a little perspective, the minimum wage was higher than $10.10 in 1967,1968, and 1969 once you adjust for inflation, which is what you should be doing.
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