You've addressed the positive economic impact of a greater spendable income for minimum wage workers previously, but your calculations here do not appear to include this. Would I be correct in that thought?

Yes- I've skipped that here since I'm actually mostly pushing the worst case scenarios on cost. Obviously, more growth and pay increases will obviously offset any price increases, but even without the quasi-Keynesian gains from increased spending power in low-wage communities, the point is that the gains in wages offset any worries about increased costs.

Thanks for these posts on the MW. I can't say you've convinced me, but they are some of the most interesting blog reading I've had in a while.

One of my issues with this latest installment is the generalized mention of the low-income group as pretty much the same thing as the low-wage group. Of course, not all MW workers are pimple-faced guys delivering pizzas, but as I remember, it, of all people making minimum wage, only a small percentage of them were heads of their households (I think the Employment Policy Inst. had it at 3% -- if I had more time I'd find the study), and according to this kind of old data(again, time crunch, and it may have been thoroghly discredited), about a third of the people around or below the poverty line were workers who made the MW (for that time). The rest were above it already. The MW group really isn't the same as the low-income group, since MW workers are spread across all income groups.

On this I also wonder if the working poor consume more, per capita, of the goods affected by a price change relating to a MW increase than higher income brackets. That is, cheaper foods, fast food restaurants, discount clothing, etc. may make up a larger share of expenditures for the low-INCOME group, the people from which may not see a corresponding improvement from the MW increase (if, say, two-thirds of the people who benefit from the MW increase are outside the bottom 20% of the income bracket). The burden in this case is then is not on the MW workers to absorb the price change, but on the low-income people to make up the difference.

Not to comment too much in the wrong place, but this is similar to my thoughts on the last MW post about increasing employment. The job loss is localized, that is, if some job destruction happens as you mention there is a possibility, it is firm-based in those areas that are MW-labor heavy, but (I think) you consider the creation to be generalized. Wouldn't the loss, much like the burden above, be mostly in MW jobs? Firms using similar levels of MW workers might well be similar industries, and might be seen to feel similar effects of the increase in the MW -- a Macdonald's is as likely to lose jobs in this eventuality as a Burger King or Waffle House, and the skill set is similar so the workers are far more interchangeable. This, I think, kills off MW jobs that are used as supplementary income not only by teens, but also by others who rely on low-skill jobs to augment income.

The benefits, though, much as the increased money-in-hand for the MW worker experiencing the increase, don't necessarily accrue to the same group. More jobs may come from places looking for more people to help fill orders for whatever products have replaced the MW worker, but is that new job one a low-skill worker could do? I wonder about the squeezing out of low-skill jobs in favor of high-skill ones.

The above post possibly sees money in the hands of MW workers as money for low-income, whereas it doesn't always go there. Worst-case scenario, low-skill jobs have been reduced in the absolute (holding rates of low-skill workers constant) and the benefits of the MW increase have been dispersed across a diverse area. People looking for ways to agument income have fewer places to look, and don't get the help from increases in wages at their current job. MW workers are heaviest hit by the downsides, and have to share the upsides with everyone else.

Just initial thoughts, and sorry for the length. I'd use Trackback if you had it. (Hint!!)

See the first post on Illinois about what is the character of minimum wage earners. You can get some deceptive numbers in this whole area since a lot of poor people don't have kids, admittedly (shame on them apparently, so they don't deserve a raise), but the bottom-line is that close to half (45.3%) of the affected workers are employed full time, and another third (34%) work between 20 and 34 hours per week. And when you add in all workers making less than $8 per hour, you really are dealing with low-income workers.

As for your more interesting point on who wins, who loses on job shifts, as well as what to do about it -- that's an upcoming post :)

Just the kind of data I was looking for - I've sent a link off to my husband!

Actually I did look through those, but was a bit confused about how those got classified. Mostly because it doesn't classify the ranking of the jobs these people have. A 20-hour a week job is very, very different than 34 hours. One is a few hours in the evening and on the weekend, the other is almost a full week. A second part-time gig versus a full time primary one. I don't mean to be pedantic, but it just seems that some of these aren't mutually exclusive groups, nor are they all that well defined. I think I can assume that when they say the people making MW working full time, that means they are working full time AT the MW (as opposed to working a composite 40+ hours at more than one job), but it doesn't show what percentage of those people working full time are of what age. That the bulk of the people are above 20 yrs of age says little, since these could easily be explained by single-person/single-supporter households in transitional jobs (that is, currently working poor searching for work, going to school, living with roommates, without children, etc). Additionally, the age of people is important because it could help examine turnover; how LONG each person is at a job and what level of pay they move on to from that job. That these people are not teenagers in the majority doesn't say anything about the career progress.

Plus, the data on the effects of unemployment on women doesn't appear to account for the rising rate of unemployment for women relative to men during a period of high employment across a lot of catagories. That it didn't "slow down" the rate doesn't show that higher gains could have been possible without the squeeze placed on MW jobs by raising the MW. Not that I know or think it did; just that this data doesn't seem to show much support for the argument.

Admittedly, I'm talking more about the evidence presented for moderate increases in the MW, and not the shift to $8. Which is another question I'd have. Relying on the models here we are looking at "moderate" increases, raises of much smaller percentage than the move from $5.15 to $8--it's nearly double the change in percentage of starting value of some previous shifts. All of these effects increase with larger moves, affecting more people, but also increasing the damage to those areas that could suffer job destruction.

The assumption is being made that the employer is "pocketing the profits". When in reality he/she is more than likely hiring more employees to provide better service to customers, and lower percentages of mistakes during the "production" phase of industry. Additionally, any objective model will show that raising minimum wage destroys jobs, lowers customer service, and lowers profits.

Recently (over a year ago) Santa Monica rose the minimum wage to $10/hour. Several resturants closed, being unable to cope with paying servers, dishwashers, cooks this salary.

You may not like these facts, but they are plainly obvious in our daily lives today. Why does no one check your oil and pump your gas when you go to the service station? Why is there no longer someone to seat you when you go to the movie theatre? The influx of a minimum wage has removed not only the ability of empolyers to pay a "fair wage", buy has caused an increase in the price of products that consumers/fair wage earners pay.

Economics 101.

Austin- One, you are confused about the facts on Santa Monica. The proposed law was never implemented, since after a lot of misinformation (such as yours), it was voted down at the ballot.

But it's typical of anti-minimum wage propagandists to claim that non-existent laws caused non-existent restaurants to lay people off.

And citing to Economics 101 is the problem-- it shows the simplistic mindset, since there are a lot of advanced parts of economics that makes the simple assumptions in 101 wrong. As someone with a Physics degee, I'll tell you that anyone who engineers aeroplanes based on the limited assumptions of Physics 101 will kill a lot of people.

Austin - Movie ushers disappeared as movie attendance and revenue dropped. Gas stations disappeared as self-serve stations came into being and forced price competition. Meal and drink service on airlines is currently disappearing due to cutthroat price competition and weak revenues.

Economics 102.

Even though the Santa Monica thing didn't go through, here's an interesting study on it from some folks from UCLA and Northwestern. Didn't go through it all myself, but I did read enough to know that they didn't like the idea much.

Ian- Of course no study promoted by the Employment Policies Institute-- the low-wage corporations' propaganda wing-- is going to like any minimum wage or living wage. They spew out studies attacking them. They have their limited models of the labor market, they feed in their numbers, and presto-- bad news every time. But look at who's paying the bills.

Ehh...ok. Thanks.

What happened to the customers of these imaginary closed restaurants? If they're spending less on eating out, then their money must be going elsewhere, leading to increased sales and new jobs in other industries. No net loss.

I for one am very glad that we have to pump our own gas, find our own seats at the theatre, etc. I don't approve of a society where a wealthy minority has armies of poor workers to carry out tasks for them that they're perfectly capable of performing all by themselves.

hi there,

Is there any info available on the pros and cons of MW from countries where it has been in existence for a long time (as here in the Netherlands and most if not all other countries in Europe) Might be interesting to see how discussions around implementing MW there went, and which of feared or hoped effects turned out to be the case.

just a picky note: you want "affected" not "effected" throughout -- it's the kind of thing that can keep readers from reading you all the way through (or from viewing you as a credible source).

thanks for the good week of mulling.

Another interesting post Nathan, though I have some issues with one thing you mentioned:

The classical model assume that employees are paid exactly the value of their marginal production, so an increase in costs will lead to some level of higher prices depending on the elasticity of demand for the product in question. Rarely will all costs be passed onto the consumer under such models, so some of the costs will invariably come out of profits.

I don't think you've followed your logic to its own conclusions here. The classical argument is far more flawed than you specify here.

The classical model assumes that workers are payed their marginal product because it assumes perfect competition in goods markets, and therefore also in labour markets (perfect competition in goods necessitates a large number of small firms who are price takers, therefore, unless they collude on hiring, they must similarly lack market power in labour markets). If this is the case, then the increse cannot be passed on the consumer, as they are price takers, and furthermore it cannot come out of economic profits because they don't have economic profits (i.e. profits that exceed the opportunity costs of the owners). Therefore, they must be additional expenses against revenues that either force businesses to close until the supply for all firms in that sector shifts such that equilibrium is at a higher price and lower quantity, or lower their costs in other areas enough to offset the increase (i.e. though capital investment in labour saving technology, etc). For those that close, they are then free to enter other industries.

Now, the workers no longer employed will either fall within the natural rate of unemploymnent created in a perfectly competitive market distorted by a minimum wage, or they will find other employment.

As you can see, the existence of profit as a normal aspect of business immediately renders this argument nonsense with no connection to reality. Any argumnet based on classical economics that argues it will hurt profits and increase prices firms charge shows that the person making the argument doesn't understand the very economics they are basing their argument on.

Can anyone tell me what is presently considered to be " the minumum wage" ???

Your logic does make sense i'll give you that, its just the facts seem to tell another story. With every hike in (real) minimum wage employment among low wage workers has fallen. It doesn't take a genious to know that if you employ 10 people and the cost of those people goes up enough to where its cutting into your profit significantly, then eventually your going to end up with nine. The market seems to do well with determining product prices why all this fear that when it comes to wages it will return us to sweat shop economy?

Roberto-- Some facts to go with your assertions?

Multiple studies have shown that hikes in the national minimum wage have had no discernible effect on employment.

Remember-- the real value of the minimum wage was much higher than today back in the late 60s, yet employment was in better shape. Those who complain about the minimum wage never explain that.

I agree with your theories. They make good sense. Where I disagree is with the thought of redistributing wealth to low income people. At what point are we going too far in transfering money to the least productive?

We own a small single price point ($1.00) retail business that allows no price leverage to offset vast increases in expenses (ie. increasing the minimum wage). Although we realize this is a very small piece of the employment picture, we will not be able to offer benefits to employees when the minimum wage raise takes affect abd will likely try to do with less people or hire individuals under 18. This will put us and the employees that stay with us at a disadvantage to other businesses and could jeopardize the viability of the business and the 75 jobs associated with it. Please comment on how the minimum wage increase helps the employees associated with our type of business.

Also, since our businesses are located close to the borders of states where the minimum wage is not increasing, the logical 1st step is to relocate across the border. How can this help the Illinois economy and the people of Illinois?

Regards

advantages and disadvantages of implementing the minimum wage scheme