I've always thought the national minimum wage is a lot more important than most people tend to think. By definition, it sets a floor on the low end of the job market, though to their credit, many states now set their minimums above the federal level of $7.25 (Washington state clocks in at a cool $9.04). So it's a floor, not a ceiling.
Lots of low-wage workers and their families depend on it, and its long slide, as shown in the figure below, especially over the Reagan years, contributed to wage losses and working poverty for many who toil to this day in low-end services.
Of course, when someone raises the idea of a raise, you hear a huge outcry from some in the business lobby. Their generic argument is that the increase will lead to job losses among those low-wage workers affected by the higher wage level. Such workers, they say, will now be "priced out of the labor market."
Yet, you hear the opposite from groups that represent low-wage workers interests, groups like the National Employment Law Project, or NELP (proud disclosure: I'm on their board).
Now, let's just pause here for a second. The DC lobby that represents low-wage employers say they're against the increase but not because it would raise labor costs and cut into profits, but because it's bad for the workers themselves, who will suffer reduced hours and layoffs. But the workers' groups say "Bring it on!"
Hmmm... who you gonna believe?
In fact, with all this state variation -- and some international variation as well (the UK has seen quite sharp increases in its minimum wage since it was re-introduced in the late 1990s) -- we've had the benefit of natural experiments, rare in economics, enabling econometricians to fight it out as to the job loss effects (here's mine with the great John Schmitt from a few years back).
It's a large, gnarly literature, but I think it's fair to say that most objective parties come away thinking that the hysteria around the increase is overblown. It helps some low-wage workers, most of whom are adults, many of whom have kids. Some studies find small job loss effects, some none.
A much more interesting question, economically speaking, is why don't we see the horrifics that opponents scream about? I mean, the textbook theory implies that a one penny increase in a market wage should lead to massive unemployment, and that, I can say with 100% confidence is not at all what we've seen.
In fact, there are numerous other channels through which the higher wage is absorbed:
- Profits: to the extent that the increase is paid for out of profits, we shouldn't expect job losses. And in an economy where profits have dazzled while paychecks have fizzled, that ain't a bad thing.
- Prices: some studies find that a small bit gets passed through to higher prices.
- Productivity: to the extent that higher wages reduce turnover and vacancies, a higher minimum can partially pay for itself by squeezing out such inefficiencies. It's not wishful thinking -- some studies have found just that.
- Reasonable rates: it matters what the level you raise it to, and historically, increases have affected less than 10% of the workforce, often even smaller shares. With relatively few in the "affected range" we wouldn't expect to see large distortions.
- It's stimulus! Minimum wage workers tend to spend the extra cash, so there's more economic activity than otherwise would occur -- by the way, even under the redistributive scenario described under "profits" above, you'll get this effect if low-wage workers consume more of their last dollar than those in the sky boxes.
Finally, I've got to partially give it up to Gov. Mitt Romney as the dude has taken significant incoming shots from his rivals for advocating indexing the national minimum wage, as is already done in some of those states noted above, so it doesn't lose value over time as prices rise. It's an excellent idea in that a) you avoid the dips in the figure below -- which shows the real value of the national minimum since 1960, and b) businesses know what to expect. I mean, after all, we index lots of stuff like this, including Social Security and EITC benefits.
Why just "partially" in terms of giving it up to Mitt? Again, look at the figure. We don't want to index the national wage to such a historically low level.
So where should we set it? I need to do more research on the question of "affected range" as noted above, but given that a national campaign will take numerous years to gain traction, I suspect I'll end up in the $9-$10 range, phasing it in starting a year or so down the road. That's higher than the historical record as shown below, but of course, average wages have gone up considerably over these years and the divergence between the wage floor and the average is both a symptom and a cause of increased earnings inequality (a graph of the minimum wage compared to the average wage would trend downward; I'll make that soon).
What's that? I'm dreaming!? I don't think so. Surely there's a minimum wage increase out there in our future. The sooner we get to work on it, the sooner that future arrives.
This post originally appeared at Jared Bernstein's On The Economy blog.
(no, i am not a conservative)
(but i think i will vote for Romney after all)
To the author, Jared Bernstein, I don't know you or what you have written about in the past, but sir, I bet based on your initial sentence in the article that you never thought SO much about the minimum wage enough to write about it - UNTIL now........"for what it's worth" honey, it's people like me who have been among the working poor and college grads, who have constantly had to talk about it. For an older person like yourself, who seems to have worked in some area of economics, thanks for FINALLY thinking so much about it now to write about it now. Thanks a lot. Have a nice day.
That's a paradigm shift worth screaming about-you think? I would hope that most people when they begin to realize their mortality & the reality their end is near will be able to look back on their life and know their energies were spent on doing things that gave dignity to humanity.
The use of Temp Agencies has skyrocketed by Employers. Why?? Because large Corporations don't want to pay benefits anymore.
As Social Security goes by what you made when you were working, a Retiring person might be in for more of a shock. I found, after working as an Indiana State Caseworker for 20 years,and working all jobs since I was 17years old, that because they pay less than other States, my Social Security combined with my Retirement, is not enough to live on. (Indiana pays Max of $10,000 in Retirement to Caseworkers). The only bills that I pay are my mortgage and my utility bills for a tiny house.
One Hundred years ago 2/3 of people lived on farms and grew their own food, and owned their own house. The average age that we lived was the early 60's. That is what the Republicans fail to take into account when they want to get rid of food stamps and the minimum wage and social security and medical care.
In my opinion humanity itself must come together in solidarity in massive numbers forcing a paradigm shift in how we use money to acquire what we need to survive.
The same egos that created the nature of having to compete for dollars against each other in a world of perpetual debt continually replacing old debt without causing the whole money system to collapse as a bankrupt by design system must be changed.
Simply look at how this plays out in a much larger way to cast a large dark cloud over humanity, when you consider the energy needs of the planet to perpetuate such a system of living that is unsustainable, as you now have China making alliances for the productive capacity of oil in competing against us for the same in time problem of the spiquet running dry,and building up it's Navy to create a push with us, & building ground laid pipelines to Russia for same-it's all madness.
We all know what that means, and even now with Iran. The entire security of the human race is now at risk by the entire philosophy of how Neoliberal Capitalism works in competing for the same resources.
Cooperation is what we need, & a lot
But when you have a surplus of a commodity, do you really want to raise its cost to those who might purchase it? Summer youth unemployment has been going over 50% lately. If you want the number to go even higher this summer, then raise the minimum wage. If you want unemployment numbers to fall, lower the minimum wage.
"Several decades of studies using aggregate time-series data from a variety of countries have found that minimum wage laws reduce employment. At current U.S. wage levels, estimates of job losses suggest that a 10 percent increase in the minimum wage would decrease employment of low-skilled workers by 1 or 2 percent.
Most noneconomists believe that minimum wage laws protect workers from exploitation by employers and reduce poverty. Most economists believe that minimum wage laws cause unnecessary hardship for the very people they are supposed to help.
The reason is simple: although minimum wage laws can set wages, they cannot guarantee jobs. In practice they often price low-skilled workers out of the labor market. Employers typically are not willing to pay a worker more than the value of the additional product that he produces."
http://www.econlib.org/library/Enc/MinimumWages.html
This asymmetric flow of wealth used to be put forward as "The Will of God" by pharaohs, kings, emperors and their coterie of cronies. Now its seen as a law of nature.
Low wages and lack of basic labour laws leads to the working conditions in China. And if you think everyone is employed in China, think again. In China there are 100 people behind every Foxconn worker that complains of hardship and wants to get out.
Some thrill seekers (and bandits) may prefer a society in which might makes right and bandits may attack at any moment, but I like being able to take a walk without having to avoid exposure and needing to carry an AK-47.
There are two kinds of competition; the kind that benefits societies and the kind that tears societies apart. Creative completion is more likely when the game is wide open and is not rigged.
The employment to population ratio among young adults ages 16 to 24 rests at 45 percent – the lowest level since the Labor Department began tracking this demographic in 1948. More than 17 percent of 16- to 24-year-olds are looking for a job but cannot find one – the highest rate of unemployment in almost 30 years."
http://www.christianpost.com/news/struggling-youth-may-reconsider-obama-allegiance-in-2012-survey-suggests-52165/
With youth unemployment at historic highs, the obvious solution is to make unskilled young people even more expensive to hire.
This job killing regime cannot be fired quickly enough.
So when lobbyist say it will mean job loss, don't believe them. I think the REAL small business owners would disagree.
However:
(a)
In 2012, the 21st Century, there should a - Decent Wage.
Not the old-en days - Minimum - wage.
Who on G-d's Earth can Live on those figures in 1st World Countries??
(b)
And continuing to lower expectations of the Poor, of the Middle Class, is not the right answer/strategy either!!
(c)
We can keep looking for solutions to the Economy, Poverty, and the Financial mess etc., but if we do not look - from a different perspective - at just what it takes to Make, Create, Up Keep and Maintain Profits & Wealth .... We're just going to go round & round for another Century or so, fooling all the people all the time..... !!!!
(d)
And that's the part that surprises the most: How is it we succeed for 20 Centuries with Luxury & Private Wealth for Private Investors but cannot succeed with a Decent Life & Public Wealth for the General Public..... Without 'austerity measurers' for those who can least afford it.... In spite of all the Experts. Hard work, Talent, Experience, etc., available to us in 2012 ??
Some Moms
No extra responsibility should be put on employers to pay minimum wage, just has no citizen is forced to be an employer. For all those that call on a need for a higher minimum wage, I call on those people to go out and create those jobs themselves instead of trying to put their good will on other's shoulders and destroying the economy while they're at it.
http://TheSilverJournal.com