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Re: Re: Re: Re: GOP proposal to raise minimum wage
| quote: | Originally posted by DJMaytag
It's much more than $40 a week, because you have to consider that the minimum wage workers that for go from $5.15 to $6.25 create a problem for those already having gotten raises in the past to put them up to $6.25. Are the $6.25 workers going to want raises so they aren't just another minimum wage worker? Hell yes! The end result is pushing up wages almost across the board for all employess, meaning that the former minimum wage workers are almost certain to be cut.
I can't cite statistics, but few economists would argue that higher minimum wages do indeed increase unemployment. If they don't create much unemployment, then product prices go up, thereby negating the increased wage.
There are studies that show that as minimum wage has gone up, minorities have had their unemployment percentages go up at a much higher rate that caucasian workers. I'll have to do some digging as to where I found that, but I've seen it several places. |
There are also studies that demonstrate a marked benefit for the workers and an insignificant effect on the employers as a whole. And if there is a marked increase in minorities' wages vs. Caucasians, that is only because there is a much greater disproportionate number of minority workers in the lower wage bracket. IOW, it is not a direct tie to minority workers, rather than an actual direct tie to the low wages themselves.
Here's a passage that dispels many of those Cato-claims on minimum wage increases hurting businesses:
| quote: | Opposition to raising the minimum wage
Opponents of minimum wage increases repeat the same misguided arguments against an increase. First, opponents allege that the market should set the minimum wage, not the government. Second, they claim that raising the minimum wage will cost many low-wage workers their jobs. Third, they contend that the minimum wage is not well targeted, with most of the benefits accruing to teenagers and families that already have relatively high income levels. These arguments are refuted in the sections that follow.
The government's role in setting the minimum wage
When it passed the Fair Labor Standards Act (FLSA) more than 60 years ago, the Congress decided that the federal government should set a minimum wage beneath which no worker's wages should fall. In the FLSA, Congress enunciated its goal to reduce "labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers."2
Federalism scholars frequently cite equitable income redistribution as a primary economic function of the federal government (see, e.g., Oates 1972, pp. 3, 6-8), and the minimum wage is precisely the type of policy that requires the uniformity of a national requirement. States are, of course, free to set minimum wage levels higher than the national minimum wage; 12 states and the District of Columbia have done just that.
The Bush Administration and other policy makers have discussed a "state flexibility" proposal that would allow states with minimum wage rates of $5.15 an hour to opt out of future federal minimum wage increases. There is compelling evidence that some states would jump at the opportunity to opt out: seven states have no state minimum wage and two states have a state minimum wage that is lower than the federal minimum wage.3 (A "state" minimum wage rate applies to workers who are not eligible to receive the federal minimum wage because they are not covered by the FLSA.)
Allowing states to opt out of the federal minimum wage would deprive millions of low-wage workers with a much-needed increase in their living standards. Such a loophole would, over time, erode—and ultimately eliminate—the national wage floor. If an opt-out were allowed, states might "compete" with one another to attract business by advertising their low wage rates. Such competition would force all businesses to pay lower wages, even those that wanted to adequately compensate workers by paying higher wages. Converting the minimum wage to an "aspiration" that all states are free to ignore would facilitate a "race to the bottom" that is bad for workers and for the nation as a whole.
The effect of minimum wage increases on employment
A common argument against raising the minimum wage is that wage increases will reduce employment because firms will be forced to lay off workers in order to compensate for the wage hikes. One particularly pervasive myth is that minimum wage increases hurt small businesses. However, as shown on the following pages, empirical evidence and new, more relevant economic models indicate that modest minimum wage increases have little to no effect on job loss.
Traditional economic models fail to predict the employment effects of minimum wage increases.
Standard textbook economic theory predicts that if the price of something increases, purchasers will demand less of it. Based on this theory, some economists instinctively oppose the minimum wage because they believe that raising cost of labor through a minimum wage increase will cause employers to hire fewer low-wage workers. The standard economic model, however, breaks down when it is applied to the low-wage labor market because:
unlike the situation for other commodities, increases in wage rates can actually change worker behavior, uniquely changing the very nature of the "good" (i.e., labor) itself;
firms and workers do not have "perfect information" about wage rates, worker productivity (assumed to be equal across all employees), and job opportunities;
workers can negotiate wages and need not take the "market wage" as given;
there are large transaction costs for workers (who are assumed to exit and re-enter the labor market instantaneously); and
there are large transaction costs for employers (who are assumed to fill their job vacancies instantaneously) (see e.g., Bernstein and Schmitt 1998, pp. 33-36).
Recent empirical research finds that employment has not fallen when Congress enacted previous increases in the federal minimum wage or when states raised their minimum wage above the federal level. The traditional economic model does not explain the labor market response to modest increases in the minimum wage. Newer economic models of the low-wage labor market do, however, explain why there is little to no job loss associated with an increased minimum wage. These more sophisticated models make more reasonable assumptions:
employers are free to set wages because they know workers face substantial costs while unemployed;
employers pay their workers a lower wage than the workers would earn in a competitive market with perfect information;
workers who are paid higher wages have lower turnover; and
lower turnover leads to more experienced workers and higher productivity, therefore lowering recruiting and training costs for the employer (see, e.g., Bernstein and Schmitt 1998, pp. 40-42).
Employers frequently oppose an increase in the minimum wage, claiming they will have to lay off workers if the minimum wage increases. However, this has largely been untrue in the past. While employers may experience higher costs after a wage rate hike, evidence suggests that these increased costs may be offset by other benefits such as lower employee turnover, lower recruiting and training costs, higher employee productivity, decreased absenteeism, and high worker morale (Holmes and Zellner 2004, pp. 76-77; Sklar et al. 2001, pp. 76-79; Bernstein and Schmitt 1998, pp. 40-42).4
Moreover, employers pay their workers less than the actual value of their work, and the difference between the value of the employee's work and the employee's salary is part of an employer's profit. Over the last three years, corporate profits in the United States have expanded by 57.5%, while private wage and salary income has actually decreased by 1.7% over the same period (Price 2004). Employers are likely to retain their workers after a minimum wage increase given this recent surge in corporate profits and the likelihood that the value of their employees' work is greater than the salary they are paid.
Modest minimum wage increases do not result in job loss.
The quality of empirical minimum wage research has increased significantly over the past decade because economists have been able to conduct "pseudo-experiments" based on wage differences between states with higher state minimum wages and states with the federal minimum wage. This natural variation allows economists to isolate the impact of a wage increase instead of relying on economic theory to estimate what the impact of a wage increase might be. This extensive empirical research shows that the employment effects associated with a modest minimum wage increase are close to zero, and in some cases may result in modest employment gains:
David Card analyzed the 1989-1990 federal minimum wage increase (from $3.35 to $3.80) and found that raising the minimum wage had no negative effects on employment (Card 1992, p. 36).
A later survey-based study by David Card and Alan Krueger compared the employment effects of a 1992 minimum wage increase in New Jersey with the employment effects in the neighboring state of Pennsylvania and found that the New Jersey minimum wage increase did not lead to a measurable negative impact on employment (Card and Krueger 1994, p. 792). Card and Krueger subsequently confirmed their survey results with state government data and published their findings in a 2000 American Economic Review article (Card and Krueger 2000).
In 1995, Card and Krueger reviewed seven analyses of separate minimum wage increases from across the country and found that there was an "absence of negative employment effects" and therefore "reasonably strong evidence against the prediction that a rise in the minimum wage invariably leads to a fall in employment" (Card and Krueger 1995, p. 389). Card and Krueger found "zero or positive employment effects for different groups of low-wage workers in different time periods, and in a variety of regions of the country" (Card and Krueger 1995, p. 389).
EPI's analyses of the federal minimum wage increases in 1996 and 1997 came to similar conclusions, finding any employment effect was "economically small and statistically insignificant" and just "as likely to be positive as negative" (Bernstein and Schmitt 1998, pp. 4 and 33).
The 1999 Economic Report of the President reviewed this body of research, finding "the weight of the evidence suggests that modest increases in the minimum wage have had very little or no effect on employment" (Council of Economic Advisers 1999, p. 112).
In 2004, the Fiscal Policy Institute (FPI) compared total employment in states with a state minimum wage set above the $5.15 federal level to all other states. FPI found that aggregate employment in the higher minimum wage states increased by 6.1% between 1998 and 2004, whereas employment in states with only the federal minimum wage increased by only 4.1% (FPI 2004, p. 8).
There is no evidence that, because the economy is currently experiencing a slow recovery, this is a bad time to increase the minimum wage. Historical experience shows that raising the minimum wage during periods of slow growth does not reduce employment. When the minimum wage was increased from $3.35 to $3.80 during the economic downturn of 1990, a highly regarded analysis of that increase found that "there is no evidence that the rise in the minimum wage significantly lowered teenage employment rates" (Card 1992, p. 36). Finally, there is no evidence that an increase in minimum wages affects other non-wage characteristics, such as reduced employee benefits or increased prices. Moreover, even if there are minor job losses associated with an increase in the minimum wage, the research indicates that the benefits of increasing the wage far outweigh its associated costs as measured by job losses.
Small businesses are unlikely to be hurt by modest increases in the minimum wage.
Opponents of minimum wage increases also argue that an increase will disadvantage small businesses in particular by rendering them unable to compete and forcing them to lay off workers. Based on this argument, some have suggested that a small business opt-out is appropriate for any future minimum wage increase. Permitting any such piecemeal opt-out undermines the goal of the federal wage floor and erodes the effectiveness of the minimum wage. Furthermore, there is no reliable evidence that a modest minimum wage increase would force small businesses to reduce employment. In fact, available research is to the contrary.
Not only does empirical research show a lack of employment effects during previous federal minimum wage increases, but FPI recently found that small businesses experienced higher employment growth in states with a minimum wage above the $5.15 federal minimum (FPI 2004, pp. 1, 8, and 11). Specifically, FPI found that, between 1998 and 2001:
the number of establishments with fewer than 50 employees rose twice as quickly in states with a higher minimum wage (3.1% in higher minimum wage states versus 1.6% in states with the federal minimum wage);
the number of employees in small establishments grew by 4.8% in higher minimum wage states but only by 3.3% in all other states; and
small business annual and average payrolls grew faster in high minimum wage states (Fiscal Policy Institute 2004, pp. 11-12).5
Sklar et al. recently considered the impact on small businesses as well. They calculated the increased cost associated with raising the minimum wage to $8.00 as a percentage of net receipts (i.e., total receipts less payroll and benefits) by firm size and industry. The analysis found little variation in the cost of the wage increase relative to receipts across firm size and concluded that small businesses "should not be disproportionately affected by a minimum wage increase" (Sklar et al. 2001, pp. 81-83).
Recipients of the minimum wage increase
Some opponents have argued that the minimum wage is poorly targeted and does not benefit the working families who need it most. That contention is simply not true. The 1999 Economic Report of the President reviewed the empirical evidence and disputed this argument, stating that "most minimum wage workers are adults from lower income families, and their wages are a major source of their families' earnings" (Council of Economic Advisers 1999, p. 111)
The income gains from an increase in the minimum wage flow primarily to the bottom of the income scale. For example, 35% of the income gains generated by the 1996-1997 increase went to the poorest 20% of working households and 58% of the gains go to the poorest 40% of working households (Bernstein and Schmitt 1998, pp. 7-8).
Prior minimum wage increases have also raised the wages of minorities, who disproportionately earn at or slightly above the minimum wage (Bernstein and Schmitt 1998, pp. 5-6). Of those affected by the 1996-1997 minimum wage increase, 71% were adults (20 and older) and 58% were women (Bernstein and Schmitt, p. 6). Finally, "there is a nontrivial fraction of workers who spend substantial portions of their early careers consistently working in minimum wage jobs" and "there is an identifiable subpopulation of workers [namely, women, minorities, and the less educated] whose lifetime income and employment is likely to be associated with minimum wages" (Carrington and Fallick 2001, pp. 17 and 26).7 For these workers, a minimum wage increase raises their lifetime earnings potential.
http://www.epinet.org/content.cfm/briefingpapers_bp151 |
More info. on minimum wage can be found here:
http://www.epinet.org/content.cfm/i...minwage_minwage
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Whence September dusk grows crisper still,
with leaves all crimson conquered,
I yearn to shout,
and dance about,
and stick pickles in my honker...
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