How well do minimum wage increases target poverty?

by on January 13, 2014 at 2:00 pm in Data Source, Economics | Permalink

David Henderson writes:

Economists Joseph J. Sabia and Richard V. Burkhauser examined the effects of state minimum wage increases between 2003 and 2007 and reported that they found no evidence the increases lowered state poverty rates.

Further, they calculated the effects of a proposed increase in the federal minimum wage to $9.50 on workers then earning $5.70 (or 15 cents less than the minimum in March 2008) to $9.49. They found that if the federal minimum wage were increased to $9.50 per hour:

. Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor.
. A whopping 63.2 percent of workers who would gain were second or even third earners living in households with incomes equal to twice the poverty line or more.
. Some 42.3 percent of workers who would gain were second or even third earners who live in households that have incomes equal to three times the poverty line or more.

There is more from David here.

Mogden January 13, 2014 at 2:08 pm

If you want to employ more robots and less black teenagers, raising the minimum wage is an excellent way to achieve this.

Contemplationist January 13, 2014 at 2:31 pm

+1
And then employ some hand-wringing against ‘inequality.’

Rahul January 14, 2014 at 12:16 am

I’ve heard this reasoning often but in reality the jobs robots have replaced are rarely minimum wage jobs. The minimum wage would have to rise astronomically, or robotics to have a revolution, for robots to make a dent in employment for food prep workers, janitors, waiters etc.

There may be good reasons to not raise minimum wages but robots sure ain’t it.

Brian January 14, 2014 at 1:50 am

Capital substitution takes on more forms than just robots. It can be electronic technology and computerized mechanization. For example, ordering food can be done with a mobile app, and a touch screen pad. These kinds of options for employers will be more and more attractive as the minimum wage rises.

Rahul January 14, 2014 at 1:57 am

Agree. A black teen replaced by a touch screen makes sense. By a fancy robot no.

Urso January 14, 2014 at 8:45 am

Is this calculation really that different at 7.50 vs 8.50 an hour though? If this is in the process of happening, seems like, at most, raising the min wage might speed it up a little bit. But it’s all but inevitable either way.

Nate January 14, 2014 at 11:43 pm

13% is a pretty significant marginal difference.

JWatts January 15, 2014 at 11:35 am

“Is this calculation really that different at 7.50 vs 8.50 an hour though?”

“13% is a pretty significant marginal difference.”

Neither of those are really the right metrics. From an automation point of view, a standard metric is how many man hours will be replaced per year and does the savings justify the capital expenditure.

So assume the following:
a) restaurant open 16 hours per day and 365 days a year (5,840 hours)
b) that the automation replaces 1 full time worker equivalent
c) that the overhead associated with a given worker is 25% of his wage compensation
d) that the Hurdle Rate (min rate of return for internal projects) for the given company is 10%

So, if the current automation project (robot or whatever), has a capital cost of less than:
5,840*$7.50*1.25*(1/0.10)= $547,500
Then is economical to replace a worker that is currently paid $7.50 per hour.

If the minimum wage goes to $8.50, then the projects cost must be below $620,500.

If President’s new minimum wage were to be enacted at $10.10 per hour then the project must cost less than $737,300.

Justin January 13, 2014 at 4:06 pm

Too much deduction here.

Yes, minimum wage laws can create incentives to decrease employment, particularly of the lowest quality workers. But that effect is not all. It is offset by the fact that minimum wage laws increase the compensation for those who were not eliminated from the workforce. Thus, minimum wage laws could, on net, increase welfare as a whole while decreasing inequality. Another neglected factor is that mitigates the disemployment effects of the minimum wage is that labor markets are not perfectly competitive and employers may have some measure of monopsony power for a variety of reasons. Thus minimum wage laws could transfer some of the cooperative surplus from firms to workers rather than result in increased unemployment.

What matters is the strength of these effects (and others), and that is an empirical issue.

locke January 13, 2014 at 5:06 pm

If a minimum wage increase causes Peter to lose his job so Paul’s wage can meet the new mandatory minimum, I don’t see how you’ve decreased inequality. Quite the opposite actually.

Justin January 13, 2014 at 7:38 pm

Agreed. But your example supposes a very strong disemployment effect (50% of existing workers losing their jobs). If one worker in a million loses his job, then the disemployment effect would be quite weak and it would be easy to support the minimum wage. The truth is somewhere between these two extremes, and that’s what we need to find out. The a priori reasoning does not help.

ed January 13, 2014 at 5:38 pm

As locke pointed out, this increases inequality, not decreases. And someone not being able to find a job is one of the worst kinds of inequality I can think of.

Even if the unemployment effect is small, those hurt will generally be those who are already worst off. Aren’t liberals supposed to like John Rawls?

Also, if you’re concerned about power relationships, making it harder to find another job is about the biggest thing you can do to increase the coercive power of an employer.

Justin January 13, 2014 at 7:41 pm

Locke’s example presupposes a very strong disemployment effect.

Yes, a Rawlsian fundamentalist would reject a minimum wage program that had even a miniscule disemployment effect. But most minimum wage supporters are not Rawlsian fundamentalists.

The power dynamic is itself a function on the strength of the monopsony power vs. monopoly power of workers vs. firms. A minimum wage most definitely could help workers even with a disemployment effect if firms have a lot of monopsony power in the labor marker.

Eric H January 13, 2014 at 8:37 pm

In the short run. In the longer run, … well, let’s put it this way. If computers can drive cars, how far behind can a completely computerized Burger King drive-thru be?

Govco January 13, 2014 at 5:50 pm

What matters is the strength of these effects (and others), and that is an empirical issue.

The empirical issues are not resolved, so how does a person vote (or opine)? I generally like judicial maxims because they’re grounded in humans (i.e., their idiosyncratic personal objectives not their optimum role in fulfilling social utility functions) and their essential trait- truth- has survived centuries of ruthless competition. Here’s a few:

Utility:
That which does not appear to exist is to be regarded as if it did not exist. (i.e., your “effects” are speculative and attenuated).
That is certain which can be made certain. (Will the minimum wage bring those speculative effects into fruition?).
The incident follows the principal, and not the principal the incident. (If you want ideal allocation of “cooperative surplus”, then write a law that allocates cooperative surplus instead of a law that marginally affects one componen.).
The law never requires impossibilities (legislation can’t allocate “cooperative surplus”, people are too clever).
Private transactions are fair and regular. (ordinary course activities should be respected, intervention is for punishing abusers, frauds, etc.).

Morality:
Between those who are equally in the right, or equally in the wrong, the law does not interpose (Are these 3 parties equally in the right or is one or more wrong: Employers, employees who increase income, and employees who lose jobs? Why interpose?).
Where one of two innocent persons must suffer by the act of a third, he, by whose negligence it happened, must be the sufferer.(If your Min. Wage Hike act creates winners and losers, shouldn’t the negligent be the losers? Who’s the negligent party here?).
No one should suffer by the act of another.(don’t force employers to suffer because of whoever caused employees to be worth X dollars; if that’s a problem find out who caused it and make them suffer).

Fortunately for me, superfluity does not vitiate.
The law disregards trifles.

Justin January 13, 2014 at 7:42 pm

“The empirical issues are not resolved, so how does a person vote (or opine)? I generally like judicial maxims because they’re grounded in humans”

Your judicial maxims give you easy answers that fulfill your existing biases. The empiricists among us adjust our priors as new evidence about the efficacy of the minimum wage – such as this one – comes in.

JWatts January 13, 2014 at 8:37 pm

Without any indication otherwise, the precautionary principle suggests that we leave minimum wage at its current level. After all, we have no empirical evidence that indicates this will result in a Net Good.

Cliff January 14, 2014 at 12:12 am

You could say the same thing about every price control. If we don’t have sufficient academic research on a given intervention, do we throw up our hands and say it’s an empirical question we can’t answer? Or can we use logic and data from related interventions to confidently arrive at a conclusion?

Justin January 14, 2014 at 12:46 pm

First, remember one of Tyler Cowen’s laws – there is a literature on everything.

Second, If you are going to internalize a model based on perfect competition (or something reasonably close to it) and then apply logic to related interventions, then you are asking to suffer from the law of unintended consequences.* Human society is a complex adaptive system. There are potentially infinite numbers of models available and they can have radically different implications. The only way to sort between these models is with empirical data, not a priori reasoning.

Third, as a practical point you are somewhat correct. Some markets are simpler than others and for these a presumption (and only a presumption) for free markets is reasonable. Others are more complex and it behooves us to be more cautious. Markets with externalities or principle-agent problems are likely candidates for markets that will not behave like Ayn Rand would have you believe.

* Unless uncharitable progressives really are correct and the only goal of conservative economics really is to increase the wealth of the rich.

Ted Craig January 13, 2014 at 2:18 pm

The minimum wage was never meant to decrease poverty. It was a form of internal protectionism.

Walter January 13, 2014 at 2:36 pm

There are people who are currently making, say, $15/hr and feel like they’re doing okay. If the minimum wage were raised to $15/hr, suddenly they’re working at some crappy minimum-wage job.

Boonton January 13, 2014 at 3:40 pm

This seems to assume that wage rates have nothing to do with actual productivity and everything to do with status. In other words, there’s no difference between a $10/hr worker and $15/hr worker. If the min. wage is increased to $15/hr the the boss will give the 2nd worker a raise to $20/hr. Why? If the 2nd guy was worth $20/hr why wouldn’t he command that in the market to begin with? Is he not motivated by money but by just keeping ahead of the $10/hr guy?

If that’s the case then it would seem min. wage workers should be compensated by the gov’t via a tax levied on all employers. After all, they are logically doing a service by holding down everyone else’s wages thereby saving employers millions.

Jane the Actuary January 13, 2014 at 8:29 pm

This is faulty logic: it has less to do with status than with differentiation. If every low- to medium-skilled employee is paid $15/hour, then there’s no benefit to getting that additional training, or even just showing up consistently on time (so long as you don’t cross the line to getting fired). Employers will have to pay their better-performing employees better than their good-enough employees, one way or the other.

JWatts January 13, 2014 at 2:50 pm

I have mixed feelings about the minimum wage. On the one hand a high minimum wage would almost certainly cause a drop in the work force participation rate.

On the other hand increases to the minimum wage that are still less than the average effective minimum wage in a region are pretty minimal. In the last 30 years or so, increases to the minimum wage have tended to be below the effective minimum wage for the majority of the population. So in most cases raises to the minimum wage are merely political drama, and don’t help anyone much nor hurt anyone much.

The current administration proposal is from $7.25 to $10.10. What is the proposed time frame for this to take effect. I haven’t actually seen a date attached to this. Currently California’s minimum wage increase to $10 per hour will be fully implemented in 2016.

I would suspect that if the Federal minimum wage were increased to $10.10 in the same kind of time frame, it would be above the effective minimum wage level for a large chunk of the country. As such, it probably would likely lead to some heavy employment dislocation.

AndrewL January 13, 2014 at 3:04 pm

Combining Mogden’s comment and your’s, it does become a wash. The increased cost of labor drives the development of more automation which further advances society, creating jobs at the higher end, and reduces the number of minimum wage jobs.

So things get cheaper AND there are fewer minimum wage jobs.

The only downside are those people who got left out in the cold, whose jobs were replaced by robots. the poor get poorer, rich get richer.

Rahul January 14, 2014 at 12:19 am

Can you list minimum wage jobs that have been replaced by robots?

AndrewL January 14, 2014 at 10:09 am

It was posted on this site a few months ago: a burger making robot, and noodle making robot, pancake making robot, and some fast food restaurants trialing order taking robots. They are coming…. for your jobs!

AndrewL January 14, 2014 at 10:11 am

oh, and self-checkout lines at grocery stores, home depot, etc.

TMC January 14, 2014 at 12:28 pm

All the warehouse stores are built around having fewer low level workers.

RAstudent January 14, 2014 at 9:46 pm

My mind is open to increasing the minimum wage. That said, robots (machines at least) killed block buster and have already revolutionized the movie rental industry and auto assembly, farming, etc.

Oakchair January 13, 2014 at 3:48 pm

On the one hand a high minimum wage would almost certainly cause a drop in the work force participation rate.

Why would that be? Logically a higher wage would result in more people looking for jobs not less.

As such, it probably would likely lead to some heavy employment dislocation.

Employers employ people to do a service; unless they are being inefficient and employing people to do nothing they would need to retain minimum wage workers or find another way for services to get done.
I don’t see it as a bad thing if a policy results in employers becoming more efficient .

Finch January 13, 2014 at 3:55 pm

> Logically a higher wage would result in more people looking for jobs not less.

Raise the price of something by edict and people will buy less of it. JWatts probably should have said employment would drop, because maybe the number of unemployed people looking for work would go up, at least in the short term. That’s not exactly a ringing endorsement.

Willitts January 13, 2014 at 4:29 pm

A price floor above equilibrium wage decreases quantity demanded and increases quantity supplied. The market will set a quantity at the lower of these two – quantity demanded.

So if this classical model holds, labor force participation will likely go up and employment should go down. The unemployment rate should go up for two reasons: 1) lower quantity of labor employed, 2) more people seeking work at the higher wage.

On the other hand, the classical model measures labor in hours, not jobs, so there can be apparent anomalies if you look at employment data.

Opponents to this model claim that the higher wage increases labor participation to a degree, possibly ameliorating some frictional unemployment, and there is no downside risk because employers can’t substitute for labor in the short run.

It is fairly easy to see that minimum wage killed off jobs pumping gasoline. Two states (that I know), NJ and OR, forbid self-service as a job saving measure. It would be interesting to see how many of those jobs went into the gray market and how costs were shifted. Customers likely pay for most of the inefficiency.

Oakchair January 13, 2014 at 5:17 pm

JWatts probably should have said employment would drop
Cross state studies have shown that this is not the case. Perhaps its because when more people look for jobs employers have more applicants and therefor are able to pick better/more productive workers which leads to more jobs, and that a minimum wage increase causes minimum wage workers to work harder due to the perceived notion that they are now getting a fair share. Currently corporations are hoarding cash and a increase in the minimum wage would increase total demand which is the key problem with the economy meaning on net currently minimum wage through increased demand would be worth it.

JWatts January 13, 2014 at 8:46 pm

“Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research

However, the oft-stated assertion that this recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. The overwhelming majority of the studies surveyed in this paper give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages.

JWatts January 13, 2014 at 8:46 pm
JWatts January 13, 2014 at 4:17 pm

“or find another way for services to get done.”

Yes, I agree with this.

chuck martel January 13, 2014 at 3:03 pm

“. Some 42.3 percent of workers who would gain were second or even third earners who live in households that have incomes equal to three times the poverty line or more. ”

Why are the households part of the equation? Individuals have jobs, not households. Does this mean that it would be somehow bad or unjust if a minimum wage worker’s father had a high income? Maybe children of rich parents should work for free.

some guy January 13, 2014 at 3:10 pm

Maybe you’ve heard of the unpaid internship?

Michael B Sullivan January 13, 2014 at 3:11 pm

Nobody said anything about “bad” or “unjust.” The study said “no evidence the increases lowered state poverty rates.”

Whether it’s good, bad or indifferent (my answer: indifferent) for teenagers from wealthy families to be earning minimum wage, increasing their minimum wage will not affect the poverty rate — because they aren’t poor.

chuck martel January 13, 2014 at 3:54 pm

Well, isn’t the goal to decrease poverty? Maybe goals don’t have to be good or just, if it’s one’s goal to shoplift cell phones, that’s not good or just. But raising the minimum wage is probably meant to make somebody’s life better, ie. good. It’s a fact, however, that because the income of a household is at a high level, all the members of that household are not poor on an individual basis. If unemployed uncle Ralph living in the basement eats three times a day and sleeps where it’s warm, it doesn’t mean that he’s not poor.

Michael B Sullivan January 13, 2014 at 7:45 pm

Is the goal to decrease poverty? I don’t know. It’s certainly one goal I’ve heard from advocates of a higher minimum wage. It’s not the only goal. The point, however, is that you came in here saying, “They’re saying it’s bad and unjust to raise the minimum wage if the gains from that wage primarily go to people who are not poor.” They aren’t saying it’s bad or unjust. They’re just saying that it’s not likely to affect poverty levels.

As to your simultaneous argument that the teenaged children of middle and upper-class parents are “poor” because their incomes consist of a part-time minimum wage job… I’m genuinely surprised that anyone would offer that ingenuously. I was the child of fairly wealthy parents. For much of my teenage years, I had no income. I was not poor.

Are there people who are in some meaningful sense “poor” despite living in a household that is not poor? Sure, there probably are. I don’t think that “unemployed uncle Ralph” is usually part of a household for tax purposes, even if he does live in the basement. And if Uncle Ralph is in fact living rent free and getting three squares a day for free, yes, he is much less poor than Non-Uncle Bobby who is exactly like Ralph except that Bobby pays for rent and food.

But regardless, both Bobby and Ralph are vastly outweighed by spouses pursuing low-paid second-income jobs for either a modest bump to family income or just to have some independence and purpose, or teenage or college-aged children pursuing low-paid second-or-third income jobs for spending money. We aren’t talking here about non-nuclear family members being taken in by selfless families. We’re talking about spouses and children.

chuck martel January 13, 2014 at 8:24 pm

Don’t think for a moment that I’m defending or advocating a minimum wage, which is indefensible on the grounds of the freedom of voluntary contracts. The problem is using the household as a context for individual income. No definition is given but households in 2013 certainly don’t consist exclusively of a married mom and dad and two children. And only in 21st century America would we consider exceptional “non-nuclear” family members sharing the same digs.

chuck martel January 13, 2014 at 8:27 pm

” I don’t think that “unemployed uncle Ralph” is usually part of a household for tax purposes,”
That settles it. When are you being nominated to the Supreme Court?

Michael B Sullivan January 13, 2014 at 8:46 pm

You seem like you’re arguing two contradictory things at the same time. On the one hand, you seem like you’re suggesting that the Uncle Ralph’s of the world should be considered to be separately poor, even if they are in fact to some large degree being supported by other members of their household. On the other hand, you seem like you think it’s ridiculous to NOT count Uncle Ralph as part of the household, or weird that Americans generally live in nuclear family situations.

To be clear, I am arguing:

1. To the extent that there are Uncle Ralphs in the world, the primary earner(s) of the household that Uncle Ralphs are physically staying in are fairly unlikely to claim Uncle Ralph as a dependent and make him part of the household for tax purposes. This means that regardless of the messy realities of the living situation, probably this study is counting Uncle Ralphs as an independent household all by himself, and thus IS counting him as a poor person being benefitted by the minimum wage (ie, part of the 10% of the minimum wage that goes to households in poverty).

2. To the further extent that there are Uncle Ralphs who are claimed as dependents and aren’t counted as separate households, and thus do not get counted as poor people being benefited by the minimum wage, that seems fairly reasonable to me. If these guys are meaningfully part of a non-poor household, they shouldn’t be counted as separately poor.

but

3. Who cares about 1 and 2, because the reality is that in America, both of those situations are really, really, really uncommon, and what this report is actually revealing is not people who are kind of arguably in or out of the household, but spouses and children who are DEFINITELY not poor.

chuck martel January 13, 2014 at 11:16 pm

I apologize for intimating that you might be a member of the legal profession. The issue is that the relationship between a mandatory minimum wage for individuals and household income isn’t a direct one or even meaningful.

Jane the Actuary January 13, 2014 at 3:13 pm

Households are part of the equation because arguments in favor of increasing the minimum wage are almost always based on the difficulty/impossibility of supporting a family on that wage, not about the theoretical “worth” of an individual as represented in the wage that they must minimally be paid.

Of course, the arguement that a minimum wage must be sufficient to support a family of X size doesn’t have any fundamental principle underlying it. Why should a minimum wage suffice to support a family of four? Why not six or eight?

http://janetheactuary.blogspot.com/2013/12/the-living-wage-and-wal-mart-subsidies.html

Steven Kopits January 13, 2014 at 3:56 pm

+1

Willitts January 13, 2014 at 4:31 pm

How about a Dignity Wage to pay for health care, college education, and trips to Trader Joes?

JT January 13, 2014 at 3:14 pm

CEPR (Schmitt) has already critiqued this study:
“The Sabia, Burkhauser, and Hansen study, however, is subject to the same critique applied to Hirsch, Kaufman, and Zelenska (and Card and Krueger before them). Sabia, Burkhauser, and Hansen analyzed only one experience of the minimum wage. Even if the effects of the minimum wage were, in truth, zero, we would expect to see a distribution of estimates around zero, including both positive and negative estimates. As Doucouliagos and Stanley demonstrated in their large meta-study of employment effects through the middle of the 2000s, the minimum-wage literature on teenagers showed a range of positive and negative effects, but also a large spike of the most accurate estimates at, or very near, zero. Wolfson and Belman’s meta-study, which focused on the period from about 1990 through 2010, confirms Doucouliagos and Stanley’s findings with more recent research. Given how far the Sabia, Burkhauser, and Hansen estimates lie outside this consensus range, the burden of proof would seem to fall on Sabia, Burkhauser, and Hansen to explain why their study of a single experiment with the minimum wage should outweigh the cumulative experience of scores of studies of the U.S. minimum wage since the early 1990s.”

David R. Henderson January 13, 2014 at 4:38 pm

JT, Here is the response I wrote when you made the same point on my (our) blog, Econlog. (Sorry, Tyler, for double posting, but I want your readers to see it.)

Actually, JT, Schmitt’s paper did not critique this study. It critiqued, as you yourself quote, a different study, that done by Sabia, Burkhauser, and Hansen. Moreover, its critique was about their finding of a disemployment effect of a minimum wage increase. So let’s say that you agree with Schmitt that the destruction of jobs is close to zero. That still doesn’t detract from the main finding that Sabia/Burkhauser and I report: an increase in the minimum wage is not well targeted.

Bill January 13, 2014 at 4:45 pm

Re: “That still doesn’t detract from the main finding that Sabia/Burkhauser and I report: an increase in the minimum wage is not well targeted.”

Not only is it not well targeted, in the eyes of some, but they would prefer, for the benefit of their research sponsors, not to shoot at all.

Ted Craig January 13, 2014 at 5:47 pm

Who sponsors CEPR?

JWatts January 13, 2014 at 8:50 pm

“The Center for Economic and Policy Research (CEPR) is a progressive[1] economic policy think-tank.”

http://en.wikipedia.org/wiki/Center_for_Economic_and_Policy_Research

Not that this necessarily disproves the point, but it’s certainly a factor in how you analyze their data.

chuck martel January 13, 2014 at 3:59 pm

I’ve actually made something of a study of teen-age employment by approaching teen-age girls that are smoking and asking them where they get their cigarettes. The weeds are purchased for them by friends and family members. They work part-time jobs for chiefly two reasons: to be able to buy cigarettes and to pay for their cell phones.

Willitts January 13, 2014 at 4:33 pm

Friends of my elder daughter have jobs solely to pay for their cell phones and God knows what else.

One girl has a $200 per month bill. Executives in my company don’t pay that much.

tt January 13, 2014 at 4:15 pm

senior fellow at EPI:
” Employment Policies Institute (EPI) is one of several front groups created by Berman & Co., a Washington, DC public affairs firm owned by Rick Berman, who lobbies for the restaurant, hotel, alcoholic beverage and tobacco industries.”

RPLong January 13, 2014 at 4:30 pm

What is the world coming to, when sleazy corporate lobbyists have the better arguments on minimum wage?

Bill January 13, 2014 at 4:40 pm

RPL, did you read JTs comments?

RPLong January 14, 2014 at 9:03 am

No, sorry, you can’t do that. You can’t justify a genetic fallacy by bringing up a more reasonable argument. If the study to which Henderson refers is of questionable merit, then say so. But the genetic fallacy will always be a fallacy.

XYZ January 13, 2014 at 6:31 pm

Black males, in particular, are adverse to regular hours and low pay. They rather chase their hood dreams of being ballers, drug dealers, rappers, pimps, or producers.

Charlie January 13, 2014 at 6:47 pm

There’s actually a real discussion going on here so if you want to contribute, great. if not don’t waste our time.

Popeye January 13, 2014 at 6:37 pm

Conservatives and libertarians would have no problem with a policy that intentionally harmed the poorest while benefiting the better off, so why are they are so up in arms about this? Is liberal sanctimony that bad?

JWatts January 13, 2014 at 8:52 pm

I’m a conservative libertarian and I absolutely would have a problem that would intentionally harm the poor… Oh wait, you were attacking a straw man. Never mind.

Tarrou January 13, 2014 at 9:44 pm

No, but I bet you just have to believe your political opponents are all Dickens villains in order to maintain that worldview. Everyone wants the same things, we just disagree on how to get there. I’m not a liberal, but I understand that liberals (as a mass group) are not trying to hurt people. They just do anyway, while telling themselves they are helping. So it is with all ideologies with power, which luckily excludes my ideology. Libertarians don’t do power well, nor are ever likely to. It means we win arguments and lose elections. The price of being right! :P

Popeye January 14, 2014 at 12:49 am

Cutting food stamps and unemployment benefits hurt the poor and benefit the better off. Quick, let’s get David Hemderson on the case.

Brian January 14, 2014 at 2:07 am

Unemployment benefits subsidize being unemployed. Direct cash transfers are less distortionary than food stamps. Being for the cutting of food stamps and unemployment benefits is not on net harmful to the poor.

Popeye January 14, 2014 at 9:03 am

Direct cash transfers are hypothetical and by your reasoning about unemployment benefits they just subsidize being poor. But yeah, obviously people receiving food stamps and unemployment benefits are going to be better off without them, duh, just ask them.

I’m not sure what’s so hard about this, I’m just saying that conservatives are generally unmoved by the fact that policies do not help the poor unless we are discussing some liberal policy supposedly aimed at helping the poor, at which point it becomes a moral outrage that the policy is not more efficiently targeted.

Jay January 14, 2014 at 11:47 am

So liberals raise spending on UI and food stamps with money we don’t have and when conservatives try to reign in the spending they didn’t vote for they get to be called heartless? Both of these programs have ballooned exponentially in the last decade with questionable at best results and with attitudes like Popeye’s its no wonder nobody on the left seems to care about actual results or being responsible with money (not that conservatives when they do hold power are paragon’s of it either but I’m not going to chide them when they do try to be responsible).

Brian January 14, 2014 at 2:28 pm

When high unemployment is now becoming the norm, and assuming we would want a world where this is not the case, it is liberals who are unmoved by the fact that they favor policies that will keep this reality true into the forseeable future, all while sounding the trumpet that they are the party to help the poor. It is true that food stamps and unemployment benefits help those that get them in the moment – “duh” as you say. But it is not clear that this will help them in the longer run, and less probable that it will help the economy as a whole. It probably aids the great stagnation.

I agree with your point that libertarians have a habit of continually moving the goal posts toward a more and more efficient targeting of these policies, all until there is no government whatsoever. But this is not my position here. Let’s substitute food stamps and unemployment insurance for direct cash transfers.

a new jobs agenda for the right has some good ideas for conservatives that do not have the goal post problem you are citing.
http://www.nationalaffairs.com/publications/detail/a-jobs-agenda-for-the-right

jon January 13, 2014 at 9:00 pm

More interesting subject to research would be whether higher minimum wage decreased government assistance. I.E. did these people stop being eligible for welfare, and has subsidization of corporation decreased during those years?

Floccina January 14, 2014 at 9:47 am

Food stamps do not subsidize employers of low wage workers, they do subsidize food producers and those that rent to and sell to low wage workers but mostly they subsidize low wage workers.

Jay January 14, 2014 at 12:12 pm

Don’t waste your time. Proggers are too stupid to comprehend why elasticity of supply/demand determine who benefits from subsidies/pays taxes.

jon January 13, 2014 at 9:24 pm

The reason I am wondering is because foodstamps are basically an implicit minimum wage, subsidization of corporations. Theres a minimum level that either gets paid by the taxpayers, or the corporations.

Keith January 13, 2014 at 11:25 pm

It probably wouldn’t do much good the people at the top are greedy and could careless about their fellow human beings. If the minimum wage is raised these companies will only raise the price of there services or products. Meaning if you get a 25% raise everything else will go up accordingly so you will take home more pay but pay more for the things you need. Which means your quality of life will not change. This could also negatively affect everyone’s income. Only the people making minimum wage would be getting a raise but everyone would be paying higher prices.

Axa January 14, 2014 at 6:39 am

So, poverty is caused by unemployment not by low salaries. Is this right?

Floccina January 14, 2014 at 9:43 am

It seems to me that there are always some restaurants and retailers on the verge of going out of business. An increase in minimum wages would tend to push them into bankruptcy a just a little quicker which should have some effect on overall employment.

Urstoff January 14, 2014 at 10:26 am

With the evidence being so muddled on the effects of the minimum wage, it’s still astounding that people argue for it. There are many better ways to help the poor, and that we actually know help the poor. The minimum wage may help or it may hurt; we simply don’t know. Thus, to argue in favor of it on the grounds that it helps the poor is either ignorant or dishonest.

Popeye January 14, 2014 at 11:04 am

Right, and because the evidence is so unclear arguing that it *doesn’t* help the poor is *not* ignorant or dishonest. Also, as long as there are other theoretical ways of helping the poor, it’s not good to push for the minimum wage. It doesn’t really matter if these other theoretical policies are actually implemented or not, their theoretical existence is sufficient to make proponents of a higher minimum wage bad people.

Urstoff January 14, 2014 at 12:17 pm

Uh, what? I’m not arguing that it doesn’t help the poor. I’m arguing that we actually don’t know. Why would anyone promote a policy if they don’t know it has a good chance of achieving its desired effects? You would think people genuinely concerned about the poor would spend their time and energy pushing for policies that actually help them.

Popeye January 14, 2014 at 1:07 pm

It clearly helps a specific group of people, people with minimum wage jobs. They get paid more money as a result of the policy. The question is if it imposes substantial costs on the others, such as consumers, business owners, and people who have a harder time finding jobs because of the additional constraint on hiring.

chuck martel January 14, 2014 at 1:22 pm

No, that’s not the question. The question is if it is morally right and consonant with our concept of freedom for the state to intrude into a voluntary contract between two individuals. That’s the question.

Popeye January 14, 2014 at 1:53 pm

Go bitch to Tyler and Henderson about that. The title of this post is “How well do minimum wage increases target poverty?” A completely orthogonal issue.

Urstoff January 14, 2014 at 2:12 pm

No, there’s also the question of whether it makes some people unemployable because they are longer worth the wage, whether it decreases working conditions, etc. I’m not saying that we don’t know the net effect of the minimum wage (although we don’t), I’m making the stronger claim that we don’t know the net effect of the minimum wage on the poor. If you have strong evidence to the contrary, I think you would have quite the publishable paper.

Spencer January 14, 2014 at 12:10 pm

the latest multiple increases in the minimum wage was accompanied by the second worse recession in US history.

Yet, when I read the paper there was no discussion of how the recession impacted minimum wage employment.

Does anyone .know how they adjusted for this?

I see example after example of minimum wage opponents seeming to assume that recession only impact higher wage employees and have no impact on minimum wage employment. They conclude that all declines in minimum wage employment is due to the hike in the minimum wage, and the business cycle has no impact..Is Henderson guilty of this?

If you look at the long term record since WW II minimum wage increases accompanied by a recession cause minimum wage employment to fall but minimum wage increases during an economic expansion do not seem to have any impact on minimum wage employment. About half the minimum wage hikes have occurred in business expansions. and half in recessions.

Spencer January 14, 2014 at 12:15 pm

If you regress teen age unemployment against adult — over 25 –employment to capture the business cycle impact — and the minimum wage the regression concludes that virtually all changes in teenage employment is due to the business cycle and the impact of higher minimum wage are insignificant.

Spencer January 14, 2014 at 2:40 pm

Henderson claims higher minimum wages causes employees make working conditions worse.

I’ve seen many libertarians make this claim, but I have never seen anybody show any data or studies to support this claim. it seems to be something libertarians made up and take as a fact”.

Can anyone show me a study supporting this thesis?

It is actually contrary to economic theory and economic data. In theory if an employer has to pay larger wages they will want employee productivity to improve and this usually requires improved working conditions.

Moreover, low wage workers productivity does appear to improve after a minimum wage hike–again
just the opposite of Henderson’s thesis.

Henderson appears to be reporting opinion as fact, can anyone prove me wrong.

Spencer January 14, 2014 at 2:48 pm

Henderson says

This estimate overstates the gains to households from increasing the minimum wage. Why? Because, to the extent they are able, employers will offset the higher minimum wage by reducing non-money components of worker compensation. Burkhauser notes that such an effect will not show up in the government data because the data do not measure these non-money parts of the compensation package.

Does anyone have any data to support this claim?

It looks like anther example of reporting opinion as fact.

ThomasH January 15, 2014 at 9:15 am

Compared to what? An increase in the EITC? Actually, this seems to go against the usual criticism of the minimum wage as producing a net loss for the poor. Maybe 11% is not so bad.

Justin January 15, 2014 at 9:28 am

Poverty is almost certainly the wrong metric, since the very idea of the minimum wage (for proponents) is that no one who works a full week should be poor, and the minimum wage is set such that a single worker will not be officially poor with a full time minimum wage job. Many EITC recipients are not poor either.

For that reason, the 200% cutoff is much more interesting (and realistically, those numbers–37.8% if I read it correctly) are still ones that minimum wage advocates should think hard about. I am not trying to dismiss this data, but the summary strikes me as headline bait above all else.

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