The CBO report on the minimum wage

by on February 19, 2014 at 5:13 am in Current Affairs, Economics, Law | Permalink

Spin it as you wish, we should not have a major party promoting, as a centerpiece initiative and for perceived electoral gain, a law that might put half a million vulnerable people out of work, and that during a slow labor market.

And the American people will never understand the ins and outs of the monopsony debate and the like.  Overall, what kind of useful lesson is being taught here about the determinants of wages and prosperity?

I’m sorry people, but those are the bottom lines on this one.

prior_approval February 19, 2014 at 5:31 am

‘a law that might put half a million vulnerable people out of work, and that during a slow labor market’

Such touching concern from a tenured member of the GMU faculty.

‘Overall, what kind of useful lesson is being taught here about the determinants of wages and prosperity?’

That the richer getting richer and the poor getting poorer may not be as deterministic as Marxism would have it?

Ray Lopez February 19, 2014 at 5:42 am

PA you are quite intemperate and rude. Ilogical [sic] to boot. You want TC to donate his entire salary to the poor? When he probably already does charity work? And why would rich –> richer and poor –> poorer not be as deterministic as Marxism would have it? This statement by you does not make sense unless you disagree that raising the minimum wage puts poor people out of work. You are guilty of being illogical and/or an illogical troll…the worse kind of troll I may add.

prior_approval February 19, 2014 at 6:06 am

Prof. Cowen, in his work ‘Average Is Over,’ has already provided his opinion about how the future, as it unfolds, will mean increasing numbers of people being out of work.

A few hundred thousand jobless citizens here or there does not compare to the vision of hundreds of millions being unemployed globally, as they inevitably will, due to the natural necessity of the rich getting richer.

His concern may be touching – spin it as you wish – though seemingly more than somewhat beside the point compared to his writing.

economist February 19, 2014 at 6:11 am

You’re a Marxist who thinks raising wages would somehow eliminate poverty. Get the f**k back to your Occupy Wall Street protests.

prior_approval February 19, 2014 at 6:36 am

This is funny, though nowhere near the level of a comment along the lines of Theodore Roosevelt, Nazi.

I am not a marxist, nor do I live in the U.S.

Then again, to the extent I feel any particular political leaning over the last decade or so, it has been towards the concerns of the Piraten in terms of dealing with the political dimensions of the information age, with endlessly extended copyrights, mass surveillance of digital communication along with mass retention of collected data without proof of guilt, and the misapplication of patent law to software and living organisms. ( http://en.wikipedia.org/wiki/Pirate_Party_Germany )

I do disagree with the recent adoption by the Piratenpartei of a position advocating for a basic income, however.

Anyone interested in talking about the Piraten is welcome – after all, their politics and positions are essentially not part of the American political debate in any way, shape, or form. Though anyone familiar with the GPL is acquainted with at least one major aspect of Piraten thinking, and its practical application in creating the Internet we share.

Computer Scientist February 19, 2014 at 8:07 am

“after all, their politics and positions are essentially not part of the American political debate in any way, shape, or form.”

Oh yeah, anti-copyright sentiment and crypto-anarchism has no history in the US. /s

prior_approval February 19, 2014 at 11:40 am

‘Oh yeah, anti-copyright sentiment and crypto-anarchism has no history in the US.’

Name me the American party representing these positions that has won any state level election in the U.S.

The U.S. still does not have any actual political equivalent to the German Greens – the Piraten are a generation newer, by the way.

Peter Schaeffer February 20, 2014 at 12:23 am

p_a,

“‘Oh yeah, anti-copyright sentiment and crypto-anarchism has no history in the US.”

In the 19th century, the U.S. was notorious for ignoring all foreign copyrights. Dickens provides one example. See “DICKENS V AMERICA” (http://moreintelligentlife.com/story/dickens-vs-america). Quote

“In the 19th century publishing battles raged between Britain and the United States. A loophole in American copyright law enabled publishers to reprint British books at will. Until 1891, the intellectual property of non-citizens was up for grabs. Charles Dickens, Alfred Tennyson and other popular British writers lost untold amounts of income as American publishers profited. American writers, too, were commercial losers at home, as a book of poetry by Longfellow or Poe selling for one dollar had to compete with a 25 cent novel by Dickens or Thackeray. ”

Note that all of this was quite legal under the prevailing U.S. laws of the period. Anarchists certainly existed as well. However, the law and public opinion could not have been more hostile. An anarchist, Leon Czolgosz assassinated Preident McKinley on September 6th, 1901. President McKinley died on th 14th. Czolgosz was executed on October 29th, 1901. Incoming President Roosevelt spoke for the overwhelming majority of Americans when he said

“When compared with the suppression of anarchy, every other question sinks into insignificance”

Ray Lopez February 19, 2014 at 6:13 am

Ah, I see. But you cannot say TC’s position is illogical. He may be indeed have pity for the poor, despite what he predicts will happen, akin to an observer on a battlefield who accurately predicts a massacre yet muses on the pity of war. Unless you think TC is responsible, through his writings and the help of his putatively evil backer, the mysterious Mr. Koch, of somehow making the poor poorer?

prior_approval February 19, 2014 at 6:47 am

There is very little mysterious about the Koch brothers, Charles and David – http://en.wikipedia.org/wiki/Koch_family

Nor Richard Fink – http://en.wikipedia.org/wiki/Richard_H._Fink – ‘In the late ’70s, Richard Fink met Charles Koch to discuss founding a research center devoted to teaching Austrian economics thought at Rutgers. Fink met with Koch in Wichita and planned what became the Mercatus Center in 1999.’

Continuing with a bit more detail – ‘The Mercatus Center was founded by Rich Fink as the Center for the Study of Market Processes at Rutgers University. After the Koch family provided more than thirty million dollars[2] to George Mason University, the Center moved to George Mason in the mid-1980s before assuming its current name in 1999.[2] The Mercatus Center is a 501(c)3 non-profit and does not receive support from George Mason University or any federal, state or local government, but rather is entirely funded through donations, including some from companies like Koch Industries[3] and ExxonMobil,[4] individual donors and foundations. As of 2011, the Center shows that 58% of its funding comes from foundations, 40% from individuals, and 2% from businesses.’ http://en.wikipedia.org/wiki/Mercatus_Center

There is absolutely nothing mysterious about any this – unless one wishes willfully to believe there is. I don’t – but then, my employer at the time of that move from Rutgers was GMU’s PR department time. And everything, to the best of my knowledge, was completely above board and legitimate – such amounts of money were contributed (and available in the public record, of course), the center did move, we did write press releases, etc.

Craig February 19, 2014 at 9:33 am

*But you cannot say TC’s position is illogical.*

Sure I can. Anyone who espouses libertarian beliefs yet draws a government paycheck is a hypocrite. I just come here to find out what my adversary believes in order to combat him.

Marie February 19, 2014 at 9:50 am

Craig,
I was very surprised to see Hillsdale won’t take federal money in the form of student loans. I wonder how many other colleges, etc. go this way — I’ve got to think few or none. Wonder how it will work out for them.

Locke February 21, 2014 at 9:42 am

@Craig, how on earth does one come to a definition of a libertarian as being someone who is opposed to any form of government employment?

T. Shaw February 19, 2014 at 8:31 am

PA:

You got in your class war hit.

Can you work into the screed gender, race and sexual orientation factors?

I’ll give extra credit for flinging in global warming and “Bush is worse than Hitler.”

prior_approval February 19, 2014 at 11:36 am

I live in Germany – Bush isn’t even close to Hitler. Only truly ignorant Americans believe that anyone thinks this, including their fellow citizens.

‘Can you work into the screed gender, race and sexual orientation factors?’

I haven’t written any screed – just a couple of observations and a couple of excerpts. All in response to either the original post, or a comment. (Prof. Cowen is a tenured professor at GMU, he did write a book describing the inevitability of mass unemployment due to an increasing concentration of capital, etc.).

‘You got in your class war hit.’

I have yet to figure this out – my beliefs in this area, being a quite conventional child of the 60s who believes their lying memories, are essentially Fordism –

‘Fordism is “the eponymous manufacturing system designed to spew out standardized, low-cost goods and afford its workers decent enough wages to buy them”. It has also been described as “a model of economic expansion and technological progress based on mass production: the manufacture of standardized products in huge volumes using special purpose machinery and unskilled labor”. Although Fordism was a method used to improve productivity in the automotive industry, this principle could be applied to any kind of manufacturing process. Major success stemmed from three major principles:

1. The standardization of the product (nothing hand-made: everything is made through machines, molds and not by skilled craftsmanship)

2. The use of special-purpose tools and/or equipment designed to make assembly lines possible: tools are designed to permit workers with low skill levels to operate “assembly lines”—where each worker does one task over and over and over again—like on a doll assembly line, where one worker might spend all day every day screwing on doll heads.

3. Workers are paid higher “living” wages, so they can afford to purchase the products they make.’ http://en.wikipedia.org/wiki/Fordism

Peter Schaeffer February 20, 2014 at 1:01 am

p_a,

Professed concern about losing 500,000 jobs is just boob bait for bozos. The real issues are free market absolutism and libertarian idolatry. The minimum wage “interferes” with market forces and is no more acceptable than the sight of a ladies stocking in Victorian England. Of course, free market absolutism and libertarian idolatry don’t exist in a vacuum. They are key components of an ideology that extols radical inequality as its highest goal.

Note the critics of the minimum wage don’t see any problem with importing 100 mi9llion poor people to crush the lives and jobs of Americans. They complain about how America has a shortage of shantytowns, if you can believe it. The real issues are a trifling deviation from free market orthodoxy and a genuine fear that an American worker might get a raise when (in truth) he or she should be replaced by a desperate immigrant willing to do the same job for $1 per hour.

Note that market radicalism was also a characteristic of the Victorians as well. Famously, Sir John Bowring stated “Free trade is Jesus Christ, and Jesus Christ is free trade.” He meant it too. Bowring launched the Second Opium War to (further) open China to free trade in narcotics. Really nice guy. A hero of Chinese history.

jpa February 19, 2014 at 12:51 pm

Please don’t feed the trolls

dano February 19, 2014 at 1:22 pm

…and haters gonna hate.

Tim February 19, 2014 at 1:54 pm

Are you referring to Tyler?

James Hare February 19, 2014 at 4:31 pm

If this is trolling the word has no meaning.

Rahul February 19, 2014 at 6:31 am

For completeness, the CBO report actually says this:

“…16.5 million would end up with higher earnings…and 500,000 would end up jobless…”

Historically, haven’t Friedman & other libertarian economists used similar “99%-of-the-population-will-be-better-off” arguments to criticize protectionist policies such as import tariffs, trade barriers & steel quotas?

“So what if a few steel industry workers lose jobs? On net, the majority of us will enjoy better lives due to cheaper steel”

Brandon Berg February 19, 2014 at 6:34 am

The 500,000 job losses isn’t a full accounting of the costs. Consumers will pay more, as well, and business owners will have lower profits.

Brandon Berg February 19, 2014 at 6:41 am

That is, those sixteen million raises aren’t manna from heaven. Every cent is coming out of someone else’s pockets, and on top of that there’s the deadweight loss of half a million lost jobs.

The usual libertarian case for free trade actually understates its benefits dramatically by ignoring the benefits to foreigners.

Rahul February 19, 2014 at 6:44 am

Not so according to the CBO report. Read page 27.

On balance, according to CBO’s analysis, raising the minimum wage would increase demand for goods and services

In effect they are saying that the loss of profits will hurt less than the gain due to rise in purchasing power at the bottom. For all I know this bit is BS, but hey, if you are going to trust the report might as well trust all of it.

handle February 19, 2014 at 9:11 am

(16,000,000*10.10-16,500,000*7.25)*2,000 hours per year = +84 billion AD. Also, the 500k will be receiving transfers from those with a lower marginal propensity to consume, so probably another few billion.

XVO February 19, 2014 at 9:14 am

An increase in demand is an increase in price, right? So it’s helping those who get the new minimum wage, hurting those who lose their job and hurting those who would have paid cheaper prices. Helping the working poor at the expense of the less productive working poor and the middle classes. Brandon Berg’s comment was correct.

If it actually was beneficial to raise the minimum wage all told, why stop at $15, why not $1000 an hour? Doing that would get rid of all legitimate work instantaneously.

Turpentine February 19, 2014 at 10:17 am

XVO: “If it actually was beneficial to raise the minimum wage all told, why stop at $15, why not $1000 an hour?”

It’s called “nonlinearities”. Trying to disprove an argument using an absurd extrapolation is only that, absurd.

We live in interesting times February 19, 2014 at 10:19 am

Since more people are on food stamps, and Nancy Pelosi said every $ puts $1.66? into the economy, why don’t we just give everyone food stamps? Those who don’t want to take them can either return it to the government, give it away, or donate to an organization.

This is a back door raise for unions. Just keep squeezing. I expect more “unexpectedlys” reported.

XVO February 19, 2014 at 10:41 am

Turp: Hardly absurd, where does it become absurd. $10.10 is okay? $15 is okay? What about $20? What about $50? What about $100?

I’m sure the chart for minimum wage vs legitimate employment would be exponential but it doesn’t mean that a smaller rise would have no effect, it just means it would be smaller. The absurdity shows that the absurd claim that increasing the minimum wage doesn’t hurt someone or cause unemployment is not true despite dubious studies to the contrary.

Anyways, I appreciate your personal advice on rhetorical tactics.

Turpentine February 19, 2014 at 11:20 am

XVO: “the absurd claim that increasing the minimum wage doesn’t hurt someone or cause unemployment is not true despite dubious studies to the contrary”

Look, we are both gonna agree here: anyone out there who says that raising the minimum wage will have NO adverse effect on ANYONE is totally delusional. And as far as I know, very few make that claim, even on the left.

The point I am making is that what should matter to determine whether it is or not a good policy is to roughly compare the areas W * N under both scenarios. I am with you that N will fall, but the CBO report implies that the fall is small compared to the rise of W*N for those who remain employed. That being said, I don’t think it would too controversial to say that the loss is N will rise exponentially as the minimum wage is hiked higher and higher (you seem to agree with this). BUT THIS IS NOT THE POLICY DISCUSSED! Nobody in their right mind (except marxists) believes the minimum wage should be $100 or even $50 or even $20. So let”s stop discussing absurd hypothetical scenarios that are not even on the table.

It’s like those saying: “what, you want to increase the marginal tax rate from 42% to 43%? what is next? 60%? 80% 100%?”

XVO February 19, 2014 at 12:27 pm

Turp: People do make that claim and it’s made in this comment thread! They could be Marxists but I think they’re reacting to papers that have been in the news recently and promoted by left leaning economists which state there isn’t *clear* evidence the minimum wage reduces employment. It’s a lie and a manipulation.

“but the CBO report implies that the fall is small compared to the rise of W*N for those who remain employed.”

But you also have to take into account the rise in prices, someone will be paying for that. And, this makes those employees less valuable vs technology which will reduce employment further. It’s a very bad solution to help low wage workers which I believe is the aim.

Turpentine February 19, 2014 at 5:06 pm

XVO: “But you also have to take into account the rise in prices, someone will be paying for that. And, this makes those employees less valuable vs technology which will reduce employment further.”

I agree about the technology part. No clue the magnitude of the effect, but point well taken.

About prices, I think it’s very likely to have a big impact, but anyway, that’s just a statement on my part, none of us is basing their opinion on facts. That being said, this brings up an interesting issue: if the effect on price is indeed present, it should be true more generally, for example as a consequence of the rise in inequality. Yet, tell me if I’m wrong, but based on your what seems to be your love for left wingers, I doubt you’d put forward that argument in that case…

XVO February 20, 2014 at 9:04 am

Turp: Seems to me that a rise in inequality is a hollowing out of the middle class. Some go up, most go down. That would result in less demand for middle class items and a higher demand for lower cost replacements so a rise in prices for low cost goods on net. And a lowering of prices and therefore a reduction in supply of middle class goods, which I think is important because middle class technologies get filtered down to the lower classes. So I agree with the left about the problem, but I think their leaders motives are manipulative because their solutions are likely to make our problems worse.

I think that the cause is mainly technological change and free trade. If it were just free trade I could see the problem righting itself if China catches up in GDP/capita. But since it’s also technological not every factory worker or service worker is able to take on responsibilities in the new jobs that will be created and there won’t be as many needed to get the same output.

Clearly it’s bad for the lower and middle classes, but raising the minimum wage is only going to make it worse. Eventually we’re going to get somewhere where the less able among us won’t have any work to do. And I would advocate some sort of income transfer like a minimum income if/when we get to that point or we see it’s upon us (which it may already be beginning hello jobless recovery) and also hopefully policies to lower population so we don’t all end up living in stalls. That’s going to take a very high unemployment rate, or a threat of revolution. And I would also like to avoid complicated things like means testing and market interventions. We need to free people economically (reduce regulations and internal legal barriers to personal trade) so we can continue our technological progress and a minimum income could help with that.

I did a little crunching a while back and if you abolished (under current or recent spending levels) all the types of social welfare (local, state and federal), payed off the debt, and reduced defense spending in the US you could pull out a minimum income of 12k to 15.5k per year per adult which is enough to live off of in low cost areas like the Midwest especially if you supplement with a part time job or live with a spouse/roommate. Right now we have special interests sucking off all of our money either through regulations or political patronage

mpowell February 20, 2014 at 11:12 am

I have to say, this is one of the most unimpressive posts from TC that I can remember. He is usually more reserved. So he makes a bold statement, but is totally and absolutely wrong! We can debate whether the increased wages for 16M are more important than the 500K in lost jobs, but you have to actually have that discussion. You can’t claim that the bottom line is 500K lost jobs and completely ignore the 16M receiving benefits. So TC doesn’t like the minimum wage. It has its pros and cons. Instead of actually advancing an argument he just points to the cons, ignores the pros and then claims that the Dem party is being irresponsible. Although I do like to hear the arguments offered here, I just can’t trust TC’s political instincts. No honesty when the rubber hits the road.

F. Lynx Pardinus February 19, 2014 at 8:51 am

<blockquoteHistorically, haven’t Friedman & other libertarian economists used similar “99%-of-the-population-will-be-better-off” arguments to criticize protectionist policies such as import tariffs, trade barriers & steel quotas?

Free trade policies have “trade adjustment assistance” to mitigate the impact on the few. Could there be a “minimum wage assistance” program? How would it work?

Turpentine February 19, 2014 at 9:20 am

“trade adjustment assistance” is basically progressive taxation. Economists more on the right have countless times told us that progressive taxation is evil because of the disincentives it creates.

So in a “open borders + redistribution to compensate the losers” world, what is largest: the gains from trade or the distortions created by progressive taxation? That’s the relevant question. Yet, as far as I know, very little academic work has been done on that.

Ian Maitland February 19, 2014 at 10:16 am

Rahul says: “So what if a few steel industry workers lose jobs? On net, the majority of us will enjoy better lives due to cheaper steel”

What amazes me whenever trade comes up is the assumption of the Little Americans on the left that only American workers count.

You see the same sort of single-entry bookkeeping when it comes to the estimates of US jobs lost — no allowance is made for the (better) jobs created in the US because foreigners have more dollars (in return for their cheaper and higher quality steel) with which to buy American goods and services.

Sam Gardner February 19, 2014 at 10:46 am

But what are the multiplication effects of the 16.5 million people spending more? Could it lead to 500.000 jobs more. Possibly. Probably?

Jay February 19, 2014 at 11:10 am

It isn’t a straight increase to spending. That money doesn’t come out of thin air and was presumably being spent or invested already by someone else in a better allocated way or came in the form of cheaper prices allowing consumers to purchase more.

Tom West February 19, 2014 at 11:53 am

That money doesn’t come out of thin air and was presumably being spent or invested already by someone else in a better allocated way or came in the form of cheaper prices allowing consumers to purchase more.

Indeed, but I’m going to guess that you’re not advocating that we *all* take a 50% pay cut in order to allow for cheaper prices to consumers, increase employment, and better allocate investment, and I’m willing to bet a *lot* you’re not going to volunteer to lead the way.

No, *my* high wages are good for us all, but their $10/hr wages is a burden to everyone.

Jay February 19, 2014 at 1:06 pm

No Tom, that’s absurd, I advocate for the way not involving skewing or intervention (in either direction in your examples) by a 3rd party NOT bearing the burden of paying the increased wages deciding what is right.

Rahul February 19, 2014 at 11:32 am

The CBO report includes all four second order factors (1) 16.5 million people spending more (2) 0.5 million people spending less (3) Business owners / shareholders spending less due to lower profits (4) Prices rising & hence general population consuming less.

Their net quantitative estimate is that overall demand rises.

Peter Schaeffer February 19, 2014 at 5:33 pm

Rahul, BB,

All standard models of utility assume diminishing returns. In other words, the gain in utility to the 16.5 million who get a raise, more than offsets the utility losses to everyone else who pays higher prices. Of course, you have to deduct the utility loss from unemployment. Not obvious how it turns out.

By the way, your statement

“So what if a few steel industry workers lose jobs? On net, the majority of us will enjoy better lives due to cheaper steel”

Isn’t quite right. The U.S. will only be better off with cheap imported steel if the former steel workers go back to work doing something else. If they remain unemployed, imported steel is wealth and income reducing for the United States as a whole.

Stated differently, all of the Econ 101 theories about gains from trade assume full employment. Take away that assumption and the economics of trade are very different.

derek February 19, 2014 at 11:22 am

The last argument of a fool. Come on, you are smarter than this.

Floccina February 19, 2014 at 11:23 am

Many of us believe that there are non monetary benefits to having a job in the taxed sector. Many of us also believe that a wage subsidy would be a good thing.

Peter Schaeffer February 19, 2014 at 5:21 pm

p_a,

So putting 500,000 people out of work by raising the minimum wage is a crime against logic, reason, faith and decency. However, importing 100 million poor people to destroy the lives and jobs of every ordinary American is a demonstration of ethical and spiritual superiority.

If anyone ever needed proof that Open Borders is about creating a society radically divided by income, race, and class. here we have it. Losing 500,000 low-wage jobs would be a disaster, but somehow drowning America in imported poverty is OK. The Open Borders crowd hides behind a transparent facade of higher morality. The truth is closer to Orwell.

“If you want a vision of the future, imagine a boot stamping on a human face – forever”

Just another MR Commentor February 19, 2014 at 5:32 am

Lots of opportunity for ambitious low wage workers to get in on the new economy by engaging in Bitcoin mining. It’s pathetic, even by the standards of low wage workers, for them to be begging for such huge, undeserved pay increases now.

Ray Lopez February 19, 2014 at 5:46 am

Also the poor can eat beans. Beans are a valuable and cheap source of protein. I myself favor garbanzo beans (chick peas) since they seem to give me less gaaasss. Ahhh. You poor folk in the USA should come and live here in the Philippines for a while, where the average person outside of Manila makes $5 a day to feed their entire family, often up to 10 members a household, with 30% unemployment nationally, and in Manila the minimum wage is about $9 a day, and most people are happy to make it. Good thing rice and beans are relatively cheap, though for some reason the population favors eating chicken and pork (sounds expensive but even the poor manage it somehow).

Marie February 19, 2014 at 7:49 am

What’s rent/mortgage?

And we pay 1/3 to 1/2 our income for insurance. What’s the situation there for life, health, auto, and home insurance? Do most scoff, or does the culture there also insist you are irresponsible if you don’t insure?

Serious questions.

Brian Donohue February 19, 2014 at 11:24 am

Good comment. Subtle.

4chan February 19, 2014 at 8:09 am

Obvious troll is obvious.

jerseycityjoan February 21, 2014 at 4:30 am

If you volunteer to turn them into supercomputers and pay their fare to Iceland and the setup costs to get them going on answering those complex math problems that somehow result in the production of a Bitcoin, I am sure our poor would be glad to follow your advice.

Benjamin Cole February 19, 2014 at 5:46 am

What do libertarians make of 3.7 million veterans drawing $57 billion a year in “disability” payments—when the DoD reports only 150,000 veterans were injured in battle since and including Vietnam?

That about $15,405 per vet per year, or more than people make working the minimum wage.

You read that right; There are more Americans drawing disability from the VA than there are people in the USA working at the minimum wage, and on average each vet makes more in disability payments than a guy working at the minimum wage.

Astonishing, no? Now when you consider that nancy Pelosi told Bob Gates that they let “VSOs make policy.” A VSO is a veteran service organization.

The number of vets receiving disability is more than double the number of people working at the legislated minimum wage!

I say drop the minimum wage—and convert the VA disability program into a job training program with the goal of eliminating 95 percent of recipients within a year.

Why are “libertarians” more concerned with money people get for working, than they get for being “disabled”?

PS SSDI is probably worse….

Just another MR Commentor February 19, 2014 at 5:55 am

I don’t understand why there are any disability programs at all for Veterans. They recieved their pay during active duty – why exactly are they to be paid again for having a few blisters from marching?

Benjamin Cole February 19, 2014 at 7:02 am

What I don’t understand intellectually—but I totally get PC wise—is why “libertarians” are so fixated on the minimum wage, but pay so little attention to the larger market distortions of veteran’s disability payments—payments that come straight out of income taxes, btw.

You can bet your bottom booty no one at George Mason or Heritage Foundation will touch this with a 10-foot pole—Cato Institute maybe. They have called for cutting military outlays in half…

The modern U.S. “libertarian” is a GOP’er who wants to smoke pot…and must be smoking pot to think the GOP has anything to do with libertarianism….

The Donks are no better….

Just another MR Commentor February 19, 2014 at 7:06 am

True libertarians know that the coming revolution in robotics will make the contemporary army obsolete and in fact the idea of an army obsolete as one will soon be able to purchase private robot security. Just wait – in the current PC environment it is better to bide our time, the GOP is playing it exactly right.
Pot smoking is for small minds.

Z February 19, 2014 at 8:30 am

Are “true libertarians” related to the “true Scotsmen” seen often around these parts?

Marie February 19, 2014 at 8:07 am

Veterans’ benefits are payment for services already rendered.

When you promise to pay someone half now and half later to go and try to die for you, if he comes back, you are obligated to pay him the second half.

If you want to cut military spending, cut it for the guys that you are about to hire. Then the market can determine whether they still want to do the job at the price you’re willing to pay (and with the equipment you’re willing to provide, etc.).

Rahul February 19, 2014 at 8:16 am

You promise to pay, yes, but for legitimate disability. I think the issue here is whether there is fraud.

Marie February 19, 2014 at 8:52 am

Yes, Rahul, but if I sign on to the military and part of my compensation is a promise that if at any time, including after my service is over, I have a disabling injury or illness there is a benefit for that, even if it’s not directly related to combat or service, then how is it fraud if I blow out my knee a year after my enlistment is up and I use that benefit?

If someone is faking an injury or illness, fine, that’s fraud. But it seems likely that if someone serves, then leaves the military at age 30, and he has the legal right to claim disability until he dies, then unless he gets hit and killed by a bus he’s probably going to have a disability in his lifetime. That’s a lot of lifetime, and much of it elderly, for most people.

It may well have been unwise to make the promise (sometimes when you want someone to do something, you make stupid promises), but once you make it , and collect from your end of the bargain, then you have to follow through.

Now, nothing I say is valid if these benefits were added in after most of these vets served, I don’t know enough of the details to know if the promise predated service, but I’d assume it does or the military wouldn’t be paying for all this.

mavery February 19, 2014 at 8:56 am

The exact same argument applies public union benefits as well as programs like SS and medicare. Hasn’t seemed to stop the current political class from going after those, though.

Marie February 19, 2014 at 9:04 am

mavery,
Yes it does. It’s not the same situation, since the DMV worker didn’t, ya know, sign up to get shot at. But, unfortunately, public workers signed on with the understanding that they will get paid some now and some later, and you can’t take their work and then not pay them the second installment.

Now if a private company does that and then goes out of business, that’s the chance you took. So if the state goes out of business, or in the case of the military the feds, that’s that. If the U.S. fell, we wouldn’t expect our genetically modified monkey robot overlords to honor retirement plans.

I don’t like to say it, since it seems to me tons of the promises made to government workers were stupid promises to make, but you’re right.

Brian Donohue February 19, 2014 at 11:11 am

mavery,

The issues with public union benefits is that they are massively underpriced (it’s in nobody’s interest but the taxpayers to get an honest measurement of the promise, so it doesn’t happen) and that, in general, what is legally protected is not simply the benefit earned to date but the right to continue earning the benefit until retirement. Unless this changes, municipalities, and eventually states, will follow the path blazed by Detroit and others.

Peter Schaeffer February 19, 2014 at 5:41 pm

BC,

“What do libertarians make of 3.7 million veterans drawing $57 billion a year in “disability” payments—when the DoD reports only 150,000 veterans were injured in battle since and including Vietnam?”

Good question. Today’s libertarians want to be “popular”. Hence they promote drug legalization, abortion, gay marriage, Open Borders, etc. That make them seem “nice” and “acceptable” to liberals. If they attacked the welfare state (including disability), they would be written out of polite society (no elite media appearances or cocktail party invitations).

Traditional libertarians were fiercely opposed to the welfare state. Since that isn’t PC anymore, they don’t mention it.

Peter Schaeffer February 19, 2014 at 5:58 pm

Marie,

Military disability payments are for service related injuries, not what happens after a soldiers leaves the military. Veterans are provided with VA health care for life, even if the health issues are not service related. For an article on the subject, see http://www.armytimes.com/article/20100502/NEWS/5020307/In-tide-PTSD-cases-fear-fraud-growing

Marie February 19, 2014 at 9:04 pm

@Peter Schaefer,
Thanks, can’t access that (bandwidth issues) but I take your word for it.

Appreciate the info.

Tarrou February 19, 2014 at 8:54 am

Oh, those blisters. The VA never rated me for those. I did get a 5% rating for the two fingers I left somewhere south of Bilal, another 5% for the chunk of skull they replaced with a plate and a further 5% for having my spine bolted back together with titanium screws.

But do go on about the blisters. I smell me some “mood affiliation” with this argument.

TMC February 19, 2014 at 9:25 am

+1

Craig February 19, 2014 at 9:28 am

I know several people who are missing fingers, have fused spines due to workplace injuries. That doesn’t stop some people from wanting to cut workman’s compensation.

Cliff February 19, 2014 at 10:41 am

You’re seriously missing the obvious trolling?

msgkings February 19, 2014 at 2:55 pm

This troll is pretty good, I don’t think everyone here gets it

Norfolk February 19, 2014 at 7:06 am

Applying for disability is part of the retirement process at 20 years and beyond. Injury is just part of it – there’s also hearing loss and all the other normal wear and tear you find on a 40 year old body.

Alan February 19, 2014 at 7:30 am

A friend who is just getting out after 12 years told me; “Everyone gets disability, it’s just a matter of how much”. He was deployed to Iraq twice and was talking about those with similar deployment records.

Marie February 19, 2014 at 8:04 am

I believe for retired veterans (retired) disability is not a payment, it is a reduction in the taxes on their retirement benefits.

So if, for example, you have a veteran who is retired and becomes disabled at 85 years old, if he applies for disability what that does is let him keep more of his retirement income instead of paying taxes on it.

Particularly considering that military were promised free health care for life, then that changed to Tricare, then that changed to “you have to be on Medicare like everyone else once you’re 65″, then that changed to “and if you are on Medicare and earn enough, you have to pay premiums that can be as much as a full premium for a young civilian”, I’m not sure we have much to gripe about if we don’t tax the pension of veterans in wheelchairs at 100% when they’ve spent thousands they weren’t supposed to spend on medical care and premiums during their lives.

In addition, while there is certainly fraud and certainly plenty of folks disabled with no connection to the military, I can tell you a lot of illness later in life can be tracked to our choices earlier in life, and if you choose to work 5 a.m. to 7 p.m. for 30 years in a high stress job where you are deployed into less than healthy regions of foreign countries over and over and nearly die two or three specific times in training or in the field, it does make for some consequences when you’re 60.

I’m not sure this is where we should be cutting our first corners. Although I’m pretty sure most vets would be happy to see their disability cut out as part of an overall plan get America out of debt that cuts across the board.

mavery February 19, 2014 at 8:57 am

It’s worth noting that tons of folks get hurt/maimed in training. I bet that number easily eclipses the number injured in combat, and they’re entitled to disability benefits just like anyone else.

Bruce Cleaver February 19, 2014 at 9:17 am

Injured in battle is not the only criteria to earn disability benefits. Injury during non-battle active duty also counts (training, boot camp, etc).

Bruce Cleaver February 19, 2014 at 9:18 am

Looks like Mavery beat me to it by 30 minutes!

Nathan W February 19, 2014 at 6:06 am

The empirical, real-world connection between minimum wages and negative labour market outcomes has been debunked loads of times.

However, in a bad economy, I’m inclined to think there’s something more to the argument.

Perhaps if they are intent on improving minimum working conditions such as the minimum wage, they could go for a policy of “when economic fundamentals x and y reach x1 and y1, then we will proceed with improvements to the minimum wage”.

It is next to impossible for American workers to band together to negotiate. Markets presumably reach ‘efficiency’ best when all parties have some reasonably similar ability to negotiate. Given all the anti-unionism, I do believe it is the job of government to advocate for those who, by definition of the minimum wage, work for less than everyone else.

They could always push for

Nathan W February 19, 2014 at 6:07 am

Sorry, please ignore those last words.

Nathan W February 19, 2014 at 6:15 am

Sorry again, there is an error in my post. People working for the minimum wage do not work for less than anyone else in the country.

Youth desperate for experience so they can have half a chance to actually start a career sometime and who work in unpaid internships work for less than anyone else in the country.

It should not be allowed for private companies to pay people zero dollars to do their filing and data entry and get their coffee. What’s the point of a minimum wage if it only applies sometimes?

Ray Lopez February 19, 2014 at 6:20 am

@ Nathan W: I think your empirical research is, as you implicitly acknowledge, of the kind that finds no link between minimum wage laws and employment when times are good (boom times). The same is true of high taxes and productivity and labor mobility and income and so forth. But, as you say, when times are bad the marginal effects of either minimum wage or high taxes can bite.

Axa February 19, 2014 at 6:38 am

Look at the link I posted below, the BLS acknowledges the workers earning below the federal minimum wage situation.

XVO February 19, 2014 at 9:23 am

“The empirical, real-world connection between minimum wages and negative labour market outcomes has been debunked loads of times”

Cool, so let’s raise it to $20 or $30 or $1000. I mean it’s been empirically debunked so it must mean we can raise it to whatever with no consequences, right? The studies were flawed, they either aren’t accurate enough or there is a stickiness factor at lower levels of minimum wage raises. Like the minimum wage was just raised, I’m not going to fire all of my below wage employees I’m just going to eat into my profits or refrain from giving raises or reduce benefits to make up the difference. There will always be the marginal employees that lose employment from the minimum wage eventually. You know that raising it to $1000 would cause the end of legitimate work. You know that raising it to $50 would cause severe disruption. But it’s easier to niggle with a raise to $10 because the effects can be hidden.

Cliff February 19, 2014 at 10:43 am

“The empirical, real-world connection between minimum wages and negative labour market outcomes has been debunked loads of times”

This is a lie and an absurd one. There have been lots of studies finding just such a connection, which is of course what you would expect. You think the CBO is full of idiots?

Rahul February 19, 2014 at 6:11 am

What’s the accuracy level of an estimate like this? I’m very leery of a figure like “half million lost jobs” that then the whole world will throw around & debate as if it was the product of Newton’s Laws.

Remember we operate with models & analysts that regularly cannot even get the sign of inflation correct.

Axa February 19, 2014 at 6:33 am

Once you look at the numbers, the situation becomes interesting. I’m not an expert at all but the Bureau of Labor Statistics acknowledged the existence of 2.2 million salaried workers in 2011 that earn below the minimum wage. How can this happen?

“The presence of a sizable number of workers with wages below the Federal minimum does not necessarily indicate violations of the Fair Labor Standards Act, as there are exemptions to the minimum wage provisions of the law. Research has shown that a relatively small number and share of salaried workers and others not paid by the hour have earnings that, when translated into hourly rates, are at or below the minimum wage.”

The law….bla bla bla, what’s the point of rising the minimum wage if workers are not earning minimum wage? BTW, these are the most vulnerable workers.

“The industry with the highest proportion of workers with hourly wages at or below the Federal minimum wage was leisure and hospitality (22 percent).”

Not so many people is going to love this……

“The proportion of hourly-paid workers earning the prevailing Federal minimum wage or less declined from 6.0 percent in 2010 to 5.2 percent in 2011. This remains well below the figure of 13.4 percent in 1979, when data were first collected on a regular basis.”

And finally:

“It should be noted that some states have minimum wage laws establishing standards that exceed the Federal minimum wage.”

It certainly could be better if minimum wage was set by state. Rising the federal minimum means settling for an increase that will make business a little uncompetitive in Texas and certainly fast food workers in New York are going to remain poor. From the political side, perhaps fighting for a state level increase won’t get you as many exposure and votes as fighting for the federal increase.

Enjoy: http://www.bls.gov/cps/minwage2011.htm

with estimates any such estimates ... February 19, 2014 at 6:36 am

“Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.”

The report has more on the uncertainty surrounding the CBO’s estimates and the literature they tried to synthesize. See the appendices in the PDF report at the top of the link: http://www.cbo.gov/publication/44995

And for the spin master, I can think of a few laws that the ‘other’ major party opposed that might have helped our most vulnerable people. These are tough problems with difficult (and contested) tradeoffs … but casting stones, really?

Bill February 19, 2014 at 6:18 am

So, increase EITC.

mavery February 19, 2014 at 9:00 am

BUT WHAT ABOUT THE MARGINS!!!!!

Bill February 19, 2014 at 9:28 am

+1

Anyway, if it were the tax code and you were a tax lobbyist, you would find a creative way….such as increase EITC and increase minimum wage less, so you could work at the problem from both sides…supply elasticity (making working more valuable with EITC) and demand elasticity (reducing effect of increasing minimum wage).

I am waiting for someone on this site to propose eliminating the minimum wage to restore full employment. Full employment would be based on Malthusian survival rates.

ummm February 19, 2014 at 6:21 am

Wages are already too high for the US economy to live to its full competitive potential. Why else are tech companies pushing for more h1b visas? If policy makers want to meddle with the free market, companies will respond by raising prices, outsourcing labor, insourcing labor, and laying off American workers. There is a shortage of talent for tech companies like Google and Facebook. Time to staple a visa on the diploma of every high tech diploma.

Just another MR Commentor February 19, 2014 at 6:58 am

+1000

Z February 19, 2014 at 8:35 am

You ask, “Why else are tech companies pushing for more h1b visas?”

Answer: Greed. A billion dollars is not what it used to be. Mark Zuckerberg may be a billionaire, but he still wants more. There are other guys out there with more so he wants more. It is the nature of man.

Poor man wanna be rich,
rich man wanna be king,
And a king ain’t satisfied,
till he rules everything,

Just another MR Commentor February 19, 2014 at 8:58 am

Simple economics: lowering the marginal cost of engineering workers means tech companies can hire more and better engineers. This means Facebook and Google can push the technological frontire further much faster. This means much more access to better forms of entertainment, communication tools so we can communicate in novel new ways, newer forms of payment, a plethora of new tools to connect us better with all sorts of interesting products and experiences. In fact an entire new economy awaits. We’re being held back because engineering talent is too scarce and expensive. Allowing talented people from all over a world a chance to come together and build the future is Win-Win-Win-Win.

Z February 19, 2014 at 9:50 am

Facebook pushing the technological frontier? Hilarious. Maybe that stuff sounds great in the middle-management leadership seminars or in the B-school lounge. More likely they want to re-shore their click farms so they are easier to manage. http://www.youtube.com/watch?v=oVfHeWTKjag

Just another MR Commentor February 19, 2014 at 10:08 am

Well let’s see,

Facebook has undoubtly done more to increase connectivity and interaction and strengthen relationships than any technology in the last 20 years. Facebook helps companies with interesting products to sell connect with consumers and hence helps us better reveal our preferences and lower the cost of connecting with great new products and services.
Mark Zuckerberg has done more than most people in the last several decades to help makes our lives easier, more exciting, and more comfortable.
Don’t knock B-School lounges, the insight and intelligence of future business leaders is not something to take lightly.

Z February 19, 2014 at 10:12 am

Thanks for stopping by Mrs. Zuckerberg.

Cliff February 19, 2014 at 10:46 am

Wow, still missing the trolling?

Marie February 19, 2014 at 10:53 am

I’m slow, I didn’t catch it until “Facebook helps relationships”. Unfortunately, soldiers should stop whining I’ve heard from real people who actually meant it, so I didn’t catch it then. But nobody thinks Facebook helps relationships.

Peter Schaeffer February 19, 2014 at 6:04 pm

u,

Sure tech wages are far to high. Just yesterday, I saw Mark Zuckerberg begging for food on the street. He had a sign “billionaires for imported poverty, please donate”. Somehow I resisted.

ummm February 19, 2014 at 6:29 am

One proposed idea is to pay the unemployed to upload pictures to facebook, tweet, click google ads, and stream movies. It seems like those activities create more economic value than going to work. Give everyone a $10-20 monthly allowance to Netflix and $.05 for each photo uploaded

Just another MR Commentor February 19, 2014 at 6:50 am

Not sure why the obivous idea of having the unemployed do Bitcoin mining isn’t getting discussed more often. With the proper investment in computing equipment they could help get themselves into the new economy.

4chan February 19, 2014 at 8:11 am

Obvious troll is obvious.

prior_approval February 19, 2014 at 9:35 am

Shhh – unless you know an equivalent term to ‘Poe’s Law’ for blog comment sections.

Chi_R February 19, 2014 at 8:54 am

Bitcoin mining isn’t really an option for the average person anymore. With the size of the block chain, and the specialized hardware rigs built to do mining, the average CPU miner has no chance at all.

Rahul February 19, 2014 at 8:57 am

We sorely need more use of the sarcasm tag around here.

msgkings February 19, 2014 at 2:59 pm

Or a troll tag, but what’s the fun of trolling if you don’t let us figure it out?

jerseycityjoan February 21, 2014 at 5:06 am

Why don’t you get into that yourself?

I think the climate of the big data center up in Iceland would agree with you. Wouldn’t you find all that ice and snow invigorating. It would be the perfect environment for stimulating more suggestins to help the world.

Roy February 19, 2014 at 6:48 am

What makes this whole issue so completely farcical is that there is close to zero chance that the minimum wage will be raised before 2017, and everyone actually making policy knows this. There is no way the GOP is going to allow a vote on this while they control the House, and the absolutely ridiculous lefty idea of a discharge petition is just another tactic. This is entirely a propaganda fight for the Senate elections in November.

There is literally no one over the age 25, the new ACA approved age of majority in this country, reading any of this commentary ( or at least any commentary that uses the word “monopsony” and actually expects its audience to understand it) , who has not already made up their opinion. Maybe better data, and better analysis, may just convince an economist or two, but right now the issue is a Rorschach card and it is really just a case of mood affiliation.

rjs February 19, 2014 at 6:51 am

why did what was a matter of debate, with studies cited pro and con for weeks, suddenly become an open and shut case because the CBO issued a report on it?

F. Lynx Pardinus February 19, 2014 at 7:37 am

Because CBO government workers are wise and all-knowing, as opposed to all other government workers who are regularly lambasted by posters here for being lazy and incompetent.

Market Timer February 19, 2014 at 7:22 am

It always strikes me as bizarre that a minimum wage worker can’t afford a Chipotle burrito after an hour’s work.

Marie February 19, 2014 at 8:11 am

I can’t afford a Chipotle burrito. Chipotle is a luxury we hit maybe two or three times a year!
Really yummy. . . .

Cliff February 19, 2014 at 10:48 am

I have noticed the cost of a Chipotle burrito seems to vary in every state, but around here it is $7 and depending on what you put in it can be around 1500 calories. I would hardly consider it expensive.

Marie February 19, 2014 at 11:04 am

It’s a good value, we’ll give up dozens of Burger King runs and thousands of McDs runs for a Chipotle run. But it’s definitely a luxury item, not a reasonably cheap way to eat. If my family of 5 ate only Chipotle and only ate a burrito and a half on average a day that would cost us $1500 a month, right?

Joseph Ward February 19, 2014 at 12:08 pm

dozens as in multiple dozen BK and thousands of McDonald runs are much higher in price than Chipotle, unless you know about menus that I don’t.

I think your notion of what a luxury good is may be a bit skewed.

Marie February 19, 2014 at 1:51 pm

@Joseph,
Sorry, should have said we *would*, not we *will* give up etc.

The Other Jim February 19, 2014 at 9:48 am

It strikes me as odd too, and you should ask yourself why Chipotle burritos are so expensive.

The answer is that he is not just paying for a burrito. He is paying for the very high property tax on the restaurant, the SS tax and Medicare tax and state/federal income tax and unemployment insurance fee and health insurance for the people who cooked it, the salaries of the legions of lawyers and accountants who make sure that Chipotle has filed all its Government paperwork properly, and the very high state/federal taxes on the fuel that it took to get all the ingredients to his neighborhood. And after all that, the profit on the burrito needs to be high enough so the Feds can walk off with 28% of it.

So clearly, yeah, he needs to be paid more. It’s the only answer.

Rahul February 19, 2014 at 11:59 am

The other way to answer that question is: “They are expensive because they can get people to pay for them”

Jon February 19, 2014 at 7:26 am

The news accounts of the reports indicate that the CBO acknowledge the number of job losses could range from 0 to 1M–large uncertainty. Even at the more pessimistic figure a 39% increase in the minimum wage reduces low wages jobs (probably mostly the ones at the lower end) by only 6% (1 million job losses vs 16 million raises) of those who get raises.

These numbers indicate that if the desire is to help the conditions of the lowest paid people, it is a net winner.

Cliff February 19, 2014 at 10:49 am

No, they do not. Not every person getting a raise is getting a 40% raise. Most are getting much less.

Jon February 19, 2014 at 12:49 pm

That still won’t make the numbers even close. Even if the average raise were from the midpoint and people earning 10.10 get no raise (probably way too conservative), it is still beneficial by a factor of 3.

Russell February 23, 2014 at 6:40 pm

The minimum wage is proposed to be phased in over a # of years. How many of those who end up earning more after the phase-in would have been earning more after that period of time anyway? It’s not like a beginning wage is set in stone, never to increase unless the gov’t forces employers to do so by increasing the MW.

ThomasH February 19, 2014 at 7:28 am

I agree. AND we should not have a minority party — for electoral gain — opposing an increase in the EITC equivalent as an alternative to the minimum wage increase and the taxes on upper income households to fund it. Nor should we have a minority party that is — for electoral gain — hostile to greater Fed activity to have maintained ngdp growth in a slow labor market. When will the electorate see through such shenanigans?

Just another MR Commentor February 19, 2014 at 7:30 am

The difference is all of these things are very sensible and purdent policies while the other party is only interested in redistributing resources away from their most productive applications.

Cliff February 19, 2014 at 10:50 am

Troll

weareastrangemonkey February 19, 2014 at 7:52 am

Tyler is too pessimistic. If we consider ACA+Minimum wages as a package then involuntary unemployment should not increase.

The ACA is expected to reduce labour supply by about 2 million full-time equivalent workers. This is a much larger fall in labour supply than the 500 000 reduction in the demand for workers.

So the combination of ACA and minimum wages should see a fall in involuntary unemployment; a rise in the take home wages of poorer Americans and greater access to health-care.

Looks like the poor do pretty well when we consider the combination of packages. There are better policy packages that could have been put together, but there are issues of political feasibility.

The Anti-Gnostic February 19, 2014 at 8:03 am

It’s funny how economists wring their hands and weep great tears and quote Kant when the subject is immigration, but when the subject is the minimum wage suddenly they’re all gimlet-eyed dismal scientists again.

Just another MR Commentor February 19, 2014 at 8:36 am

To me both these things are irrelevent the coming virtual world with virtual currencies is going to make both national borders obsolete and minimum wage laws unenforcable. The strong trend towards assortive mating will mean that we don’t need to worry so much about the negative IQ effects of increased immigration.

XVO February 19, 2014 at 9:29 am

See Venezuela for what happens when you have too many low IQ individuals in a society.

Just another MR Commentor February 19, 2014 at 9:48 am

Those concerns are unwarrented. As long as it assured that the productive people continue to engage in strictly assortive mating and the ubiquitous implementation of modern security technology provides a strong check unrest we allow mass immigration without the corresponding problems. Along with the overall aginging population unrest and populist leaders should not be a concern.

Roy February 19, 2014 at 8:37 am

Well if you don’t favor workers born in one country over another, there is no contradiction.

I read all this anti immigration stuff and I honesy don’t disagree with all that much of the data presented, other than the racialist iq stuff, and I just draw different conclusions.

Just another MR Commentor February 19, 2014 at 8:40 am

“other than the racialist iq stuff”

Or you can just use the term science.

Roy February 19, 2014 at 9:13 am

Or I can point out that IQ has some relationship to environment. I certainly believe some people are naturally smarter than others and that this is hereditary, but I can look at the rise in IQ scores as wealth increases from third world to second world conditions, and say, ahh that must be phenotypic variation. The trouble with the whole argument is that you think you have controlled for more factors than you have.

Thinking you have all the repevent data is classic scientific hubris.

Cliff February 19, 2014 at 10:53 am

The fact that IQ has some relation to environment is completely irrelevant

Marie February 19, 2014 at 9:53 am

You forgot to capitalize it.

The Anti-Gnostic February 19, 2014 at 11:56 am

Minimum wage = “Thou Shalt Not Monkey With The Supply-Demand Curve!”

Immigration = “Accident of birth! The global poor!”

The economists’ concern, which happens to dovetail nicely with the concerns of American billionaires, is that American workers take a pay cut, and that immigrant workers get a pay raise.

Ricardo February 19, 2014 at 3:16 pm

“American workers take a pay cut, and … immigrant workers get a pay raise”

I honestly can’t conceive of any decent system of morality in which that *wouldn’t* be the right thing to do.

The Anti-Gnostic February 19, 2014 at 4:53 pm

What is your limiting principle? A lot of Africa would be grateful just to rent your spare bedroom. I can’t think of a good reason to tell them why not.

Ricardo February 19, 2014 at 5:26 pm

I can’t immediately see a limiting principle here. If you’re going to coerce people, taking from the world’s richest and giving to the world’s poorest seems like a reasonable interpretation of “moral.” (That is, if you believe in the morality of coercion in the first place.) But taking from the world’s richest and giving to the world’s second richest… doesn’t sound very moral to me. If you’re going to take $20 from my wallet without my consent, at least use it to buy mosquito netting. If you’re going to take $20,000, at least use it to dig a well.

Peter Schaeffer February 19, 2014 at 6:21 pm

Ricardo,

“I honestly can’t conceive of any decent system of morality in which that *wouldn’t* be the right thing to do”

How about Lincoln at Gettysburg? Let me quote Government of the people, by the people, for the people”

The people means “the people of the United States of America”, not the world.

Of course, I want you to practice what you preach. No more of this Open Borders morality supremacy pretense, without Open Doors.

There are billions of people around the world who would be better off living in your home. Please don’t tell me that you are going to discriminate against them by closing your doors to those in need. I’ve got dozens of folks eager to share your house right now. For a very modest fee they will even cook and clean for you.

Don’t be some kind of closed minded bigot and deny them an opportunity for a better life.

Peter Schaeffer February 19, 2014 at 6:28 pm

TAG,

Why should they have to pay rent? It is unjust that billions of people are living in squalor while Ricardo enjoys his comfy home. So what if Africa’s or Asia’s poor can’t pay. His front door has no more moral standing as a barrier to human betterment than does a fence on America’s borders.

Ricardo February 20, 2014 at 10:30 am

I’m glad we agree that I should be free to employ cooks and cleaners if I want to. I certainly won’t close my doors to anyone who wants to cook or clean in exchange for a fee that is mutually acceptable. (I happen to love Indian food, and having an Indian cook would be a dream come true for me.) But alas, someone else has already closed my door for me, and prevented me from entering into such an agreement. So I’m worse off, and my would-be cooks and cleaners are also worse off.

To me, if a system makes everyone involved worse off, it isn’t a good system.

Now in fairness, I do understand that some people consider themselves *better* off in this situation. People who don’t like having Indian cooks as neighbors, for example, are much better off. But I wouldn’t throw the Indian chef under the bus just to keep those people happy.

XVO February 20, 2014 at 12:44 pm

It’s not that anyone has any problem living next to an Indian cook. It’s that having too many low IQ unproductive people in a society is bad for the society, look at Africa, look at Venezuela, look at the Arabs, look at India. If that’s the society you want to live in then you would want to invite them all here, the people make the society what it is. If you think that them living here is magically going to make them non violent and productive you are a fool. In Venezuela the poor have been fooled into thinking socialism works, they believe all the lies they’ve been told despite their economy crashing. In Africa the people can’t stop raping and pillaging each other long enough to have any sort of modern economy, unless dictated to by Europeans or Chinese. In Arabia the people are clannish, violent, and willing to believe all sorts of supernatural ridiculousness. In India the society is completely corrupt because their caste system literally made different breeds of people who can’t get along.

Blank slatism is a lie. You can’t have a real discussion about immigration without rejecting that lie. People are not completely molded by their environment. The different races to humans are like different breeds to dogs. It’s only your wealth and decadence that allows you to ignore that.

celestus February 19, 2014 at 8:07 am

No. The CBO is not a bunch of experts. What they do is (1) present the conventional wisdom of Econ 101, whether that is correct or incorrect, and favors the red team or the blue team; (2) take a law, and the assumptions which Congress directs them to make, and quantify its impact on the budget.

So, they claim that stimulus creates jobs- not because they have done the Authoritative Empirical Work on the subject, but because they say “Assume that stimulus creates jobs. Therefore, stimulus creates jobs.” The same (well, opposite) is true for raising the minimum wage.

If you already know your Econ 101 then you should pay zero attention to this report.

Jon February 19, 2014 at 8:47 am

Look up the biographies of some of the key authors of the reports. You will see that they are as close to expert as you can find–PhD economists with further academic or industry experience.

While the concepts may be econ 101, the actual measurement and application is much more complicated. Econ 101 only tells you that raising the price will lower the demand, everything else held constant. It does not tell you the key thing that matters “by how much” nor does it tell you whether and how much potential feedbacks that can make everything else change counter this.

Rahul February 19, 2014 at 8:54 am

The basic problem is that the way undergrad Econ is taught is often so diluted & so qualitative that everyone gets the false impression that with a bit of hand-waving & non-quantitative arguments they are totally equipped to analyse even the most complex situations.

@YoungEcon February 19, 2014 at 12:07 pm

I could have sworn I was interviewed by the CBO at the AEA meetings along with a bunch of other Ph.D. economists. It must have been a dream.

http://www.cbo.gov/about/our-careers/our-people

Z February 19, 2014 at 8:39 am

So if I have this right, deliberately driving down the standard of living for Americans is the moral high ground, while trying to lift the standard of living for poor people willing to work is the moral sewer.

Cliff February 19, 2014 at 10:55 am

No, trying to look good to your hipster friends by supporting policy that on the surface appears that it would help poor people, but in reality hurts them, is immoral.

Brian Donohue February 19, 2014 at 11:03 am

well put.

Z February 19, 2014 at 3:07 pm

This is what’s called projection. The open borders types are mostly poseurs. They think it makes them cool to babble on about being citizens of the world. But at least you have your toady Brian Donahue to like your posts here.

Brian Donohue February 19, 2014 at 4:53 pm

Z, My name is right there. Why u no spell so good? You’re as sloppy as the Hispanics you’re endlessly moaning about on your award-winning(!) blog (on the plus side, you seem to have attracted some like-minded toadies yourself. Good for you. Fascinating article titled ‘How Stupid Spreads’. Come to think of it, you may have stumbled on a new title for your blog.)

Peter Schaeffer February 19, 2014 at 6:29 pm

+1

Benny Lava February 19, 2014 at 8:40 am

Looks like Tyler is suffering from mood affiliation.

Roy February 19, 2014 at 9:15 am

Tyrone is emerging here. The trouble with being all Straussian is some mornings you just can’t put up with all the BS and you unmask yourself.

Jon February 19, 2014 at 8:53 am

As for the political end: Tyler is also mistaken. The minimum wage increase is hugely popular. This is unlikely to change. People will either seize the facts that support their viewpoint or dismiss the report as being “lies, damn lies, and statistics.”

Peter Schaeffer February 19, 2014 at 6:31 pm

Jon,

“As for the political end: Tyler is also mistaken. The minimum wage increase is hugely popular”

Raising the minimum wage is supported by most Republican voters. Not as many as Democrats, but a majority.

Please February 19, 2014 at 9:16 am

Where was Mr. Cowen’s moralizing when Republicans opposed the ARRA? According to the CBO failure to pass that law would have cost many times as many jobs as raising the minimum wage.

CR February 19, 2014 at 10:20 am

There is literally no less impressive an argument than “But what did X have to say about Y?!” Relevant commentary or GTFO

RPLong February 19, 2014 at 9:36 am

Most of the above criticism of TC is way off-base. But here’s one I think is worth mentioning: I don’t remember TC saying anything like this about the ACA. Maybe it’s just my selective memory. If so, I’m sure a more attentive commenter will set me straight.

Ad Nauseum February 20, 2014 at 12:04 pm

Did the CBO study the ACA and predict that it would indeed result in a large number of job losses?

Bill February 19, 2014 at 9:37 am

If raising the minimum wage reduces employment, would imposing a maximum wage cap for executives increase employment…afterall, if we have poor corporate governance giving excessive wages to management, and thereby raising the final costs of goods and services, and thereby reducing consumption by an amount greater than the cost of a minimum wage increase, we could be all better off. Prices lower and lower income workers better off.

So, how about a maximum wage limit, unless the company offers wages above a certain minimum wage.

mulp February 19, 2014 at 11:26 am

Nah, simply require that the high income people be forced to consume 90% of the incomes on goods and services. If they make $20,000,000, then they are required to buy $18,000,000 in houses, cars, cheeseburgers, haircuts, clothes, cruises – savings/investments must be capped at 10% or $2 million.

They can give the income away to groups that spend the money, say Habitat for Humanity, which will use their income to buy materials the poor use to build their homes.

RPLong February 19, 2014 at 11:35 am

Why go through all that trouble when we can simply tax and redistribute? Full employment, no income inequality, and a dramatic reduction in national wealth. Where have we seen this before?

We live in interesting times February 19, 2014 at 12:06 pm

The best and brightest are running the show. It will work this time.

Rahul February 19, 2014 at 9:39 am

Isn’t one way to frame this question (ignoring second order effects) the following:

For 100 poor people, if a certain policy promised 97 people an annual wage hike of ~$2000 would that be worth having ~3 people out of work?

Ricardo February 19, 2014 at 10:18 am

This is a good way to frame the question. But as someone who leans libertarian, my response would be: whether you answer the question yes or no, what right do you have to impose your preferred answer on third parties?

Urso February 19, 2014 at 1:56 pm

That’s a question of political philosophy, not economics. Of course Rahul’s question is essentially philosophical as well.

Rahul February 19, 2014 at 2:15 pm

Call it what you will, but isn’t it the dual of the issue at question here?

Ricardo February 19, 2014 at 3:19 pm

Most definitely! But in my ideal world, both the question and its dual are moot.

Chip February 19, 2014 at 9:49 am

Higher minimum wage in the face of increasing automation will just accelerate the latter.

Having a government led by old, socialist retreads pandering to an increasingly stupid electorate at the same time the economy is increasingly complex, fast-moving and unpredictable is surely a recipe for collossal failure.

sam February 19, 2014 at 10:02 am

This won’t put half a million people out of work. It will merely put half a million legal US workers out of work.

Legal US workers who become a net cost at the new minimum wage will simply be replaced with either illegal immigrants paid under the table or outsourced workers in foreign countries.

Nick Bradley February 19, 2014 at 10:10 am

to correct you, it would put zero to 1 million people out of work (+/- 1 sig.).

in addition, the studies elasticities were founded on research into teen unemployment — they then extrapolated those for adults.

john personna February 19, 2014 at 10:11 am

Give that “16.5 million would end up with higher earnings…and 500,000 would end up jobless” I don’t think the morality is as clear-cut as Tyler claims.

My impulse is that in a system which mixes minimum wage with direct subsidies for the poor, rather than relying on one or the other, this might be OK. 500K “low marginal product workers” are shifted to subsidies. Presumably the 16.5M rely on them less!!!

Surely the net government transfer to Walmart employees is reduced.

Cliff February 19, 2014 at 10:57 am

Very few people at Walmart work for minimum wage. Mostly retirees who work as greeters (i.e. people paid to stand there)

john personna February 19, 2014 at 11:00 am

“According to market research firm Ibis World, the average wage for a Walmart employee is $8.81 per hour” … and that’s the average.

Jay February 19, 2014 at 11:28 am

“Give that “16.5 million would end up with higher earnings…and 500,000 would end up jobless” I don’t think the morality is as clear-cut as Tyler claims.”

Umm yes it is, even if the above is a trade you’re willing to make, you have no moral right to impose it on the 500,000.

Walmart supports the minimum wage increase, presumably because it won’t affect them as much as their competitors.

john personna February 19, 2014 at 11:49 am

I think you just argued that there is no moral right for any minimum wage. I know they long predated me, existed long before I was born. Go ahead though, if you are sure, take it to the Supreme Court.

Jay February 19, 2014 at 1:08 pm

That’s correct John I did, but the raise was under discussion here. The Supreme Court handles constitutional questions not moral ones.

john personna February 19, 2014 at 1:21 pm

Given the long established pattern of “minimum wage,” I think a discussion of appropriate level is possible without “ZOMG we can’t do it, morality!”

Jay February 19, 2014 at 5:25 pm

You’re the one who brought up morality, I was simply responding.

Dan Weber February 19, 2014 at 11:56 am

How is that weighted?

The greeter is basically charity on WalMart’s part: people who can only perform (or just want to perform, as is their choice) a job that could be done by a chalk board. If WalMart has 18 people pulling a 4-hour shift as a greeter, an average hourly wage weighted by headcount would pull down the average a lot.

Average wage is a really lousy measure. Even more when you compare to places like Costco where some of the people on the floor work for subcontractors so their wages aren’t included in the “average.”

john personna February 19, 2014 at 12:11 pm

Of course “average” is a terrible measure … but especially because it tilts the wrong way. It underestimates the problem. Average wealth in America is more typical of the poor than it is of Bill Gates. For a $8.81 per hour average to be driven by greeters, Walmart would have to be mostly, overwhelmingly, populated by greeters.

JWatts February 19, 2014 at 7:44 pm

““According to market research firm Ibis World, the average wage for a Walmart employee is $8.81 per hour” … and that’s the average.”

I call Bull Shit! There’s no way the average is $8.81 per hour with the current minimum wage of $7.25 per hour.

john personna February 20, 2014 at 10:14 am

IBISWorld is one of the world’s leading publishers of business intelligence, specializing in Industry research and Procurement research. Since 1971, IBISWorld has provided thoroughly researched, accurate and current business information.” … they don’t seem to be any liberal’s sock-puppet.

Ad Nauseum February 20, 2014 at 12:07 pm

Sure, until the next min wage hike comes around…..

Donald Pretari February 19, 2014 at 10:16 am

The Solution is straightforward. Increase the Minimum Wage, and then Help Employers Pay It.

Jay February 19, 2014 at 11:29 am

Are we trying to get the award for most inefficient and roundabout redistribution policy award of 2014? If this were your goal an increase to EITC would be much simpler.

Donald Pretari February 19, 2014 at 1:08 pm

Seriously? In this country, we always do the former. I thought everybody knew that.

Donald Pretari February 19, 2014 at 1:52 pm

I would use the EITC, by the way, or, and even stronger version of it.

leftistconservative February 19, 2014 at 10:37 am

the govt has been putting out fake stats for years. This report is just another lie.

John B. Chilton February 19, 2014 at 10:40 am

Also being touted is the increase in income for those who keep their jobs, resulting in a fall in the poverty rate. In the report, but being glossed by the White House is that of those who keep their jobs and earn more most are in households above the poverty line to begin with. What we have is a policy that will tax all the middle class to benefit some in the middle class. The minimum wage is not a tool for efficient reduction of poverty. It is a tool of demagogues.

spencer February 19, 2014 at 10:54 am

I would love to see TC explain why the trade off of a half million jobs for 16.5 million people getting a real wage increase is a poor trade off.

If I get a 10% wage increase and a 5% cut in my hours work I for one would think I am much better off.

But I have never heard a libertarian agree, why not?

Cliff February 19, 2014 at 10:58 am

Because no one is getting a 10% wage increase and 5% cut in hours??

Nick_L February 19, 2014 at 11:18 am

Cafe Hayek regularly addresses the issues, and the pros and cons surrounding minimum wage legislation. Some good arguments there.

spencer February 19, 2014 at 11:49 am

Essentially every argument made at Cafe Hayek uses made up number from their theory.

Essentially none of them use the actual data that exist in real life.

Pseudonymous February 19, 2014 at 11:55 am

Are you kidding? Don Boudreaux couldn’t find a good argument if it were handcuffed to him.

prior_approval February 19, 2014 at 1:07 pm

But he can find his way into a department chair.

spencer February 19, 2014 at 11:47 am

OK, plug in the right numbers, bu they will not negate my question.

If you use the CBO study it 16.5 get a raise and 0.5. have their hours cut.

John B. Chilton February 19, 2014 at 2:09 pm

Look at the proportion who are getting a raise who are not in households anywhere near poverty. This is not an anti-poverty measure.

Brian Donohue February 19, 2014 at 11:00 am

Tyler and Alex, this comment board is becoming useless.

Some sort of filtering or ranking of comments would come in handy.

Nativists write long repetitive screeds, prior_approval writes long, repetitive screeds, and now, Just Another MR Commentator is everywhere with his hilarious trolling.

Roy February 19, 2014 at 11:25 am

You have to admit it is hilarious, but I really miss E. Barandiaran, his screeds always made me happy.

Donald Pretari February 19, 2014 at 1:59 pm

Man, I always get ranked near the bottom. I don’t need any more negativity in my life right now, and reading and commenting on this blog are a needed tonic for my health.

Urso February 19, 2014 at 2:02 pm

The rule of thumb is, the more comments on any given post, the lower percentage of those comments will actually add value. I have found that this is roughly true essentially across the Internet.

Harsh Agarwal February 19, 2014 at 11:10 am

I just don’t get you, Prof Tyler. The party you support would have cut fiscal spending had they won the 2009 elections, and getting the deficit down would have been the centerpiece of their agenda, along with tax cuts for the wealthy. I am sure you are better placed than me to estimate how many jobs would have been lost due to that.

And yet you say, “we should not have a major party promoting, as a centerpiece initiative and for perceived electoral gain, a law that might put half a million vulnerable people out of work, and that during a slow labor market.”

I just don’t get you.

Just another MR Commentor February 19, 2014 at 11:22 am

I believe that Tyler Cowen foolishly cast all economic reasoning to the wind in 2008 at voted for Obama. I could be mistaken however but if I recall this is the sad case.

mwbugg February 19, 2014 at 11:23 am

Jonathan Chait has a good summary. As for which party promotes policies that put people out of work, here’s an excerpt:

And yet the Congressional Budget Office, now brimming with conservative credibility, has spent the last five years issuing report after report assailing the Republican position. Republicans weeping for the half-million or so jobs that would be destroyed by a higher minimum wage would be shocked to learn that, according to the CBO, they have destroyed 200,000 jobs by blocking the extension of emergency unemployment benefits (which lift the incomes of destitute workers, creating higher demand). Likewise, the budget sequestration they have embraced as their cherished second-term Obama trophy has destroyed 900,000 jobs. What’s more, the CBO has maintained all along that the hated stimulus saved millions of jobs.

http://nymag.com/daily/intelligencer/2014/02/cbo-and-the-bizarre-partisan-jobs-debate.html

We live in interesting times February 19, 2014 at 12:09 pm

If those 900k jobs are in the DC area, it didn’t go far enough. Too much money is flowing there.

Danny February 19, 2014 at 11:24 am

MR is a great blog, but on rare and seemingly random occasions both Alex and Tyler have a tendency to espouse partisan absolutes. On the case for the minimum wage increase – even according to the CBO report – we can say:
i) There are likely to be a small number of first round losers.
Ii) There are likely to be larger number of first round winners.

This doesn’t mean the policy is automatically right. We may judge – in good faith – that the losses, first round or otherwise, outweigh the gains.

And the debate in the comments articulated some of the gains, and some of the losses.

Usually I’d read MR for a nuanced exposition of the pros and cons. But to say there’s a bottom line on this issue that’s so clear that it means we “should not have” one party supporting it is just wrong.

RPLong February 19, 2014 at 11:42 am

But apply that logic to some other issue: Let’s invade Ruritania – there will likely be 35,000 dead or injured, but there might be as many as 50,000 who get to enjoy a better life as a result! Hey, that’s 15,000 net; clearly a larger number of short-run winners than short-run losers. We killed 35,000 to make it happen, but the issue more nuanced than that…

Call it lives or jobs or whatever you want. When there are a large number of immediately losers who are only losers because some policy forced them to be, then what we are really doing is cracking eggs to make omelets. Maybe you’re comfortable with that kind of utility calculus, but prudence suggests to the rest of us that we ought not make X number of lives worse off simply because X + n lives are made better off.

In short: If you know before you even start the trolley that there are people tied to the track, you can always take an airplane instead.

Rahul February 19, 2014 at 11:55 am

But in effect you are describing most policymaking. There’s very little policy that doesn’t generate a loser cohort. There are very few win-win, free-lunch situations.

RPLong February 19, 2014 at 11:58 am

Hence, laissez-faire…

Rahul February 19, 2014 at 12:02 pm

No arguments. That’s indeed a valid position to take, I think. If you do it consistently, of course.

Ricardo February 19, 2014 at 3:25 pm

Ding ding ding!

Danny Callaghan February 19, 2014 at 12:07 pm

I agree 100% with the point that just because there are more winners than losers, it doesn’t make a policy the right one. Making policy requires a more nuanced understanding of the implications than a simple head count of those who gain vs those who lose.

But I don’t think that means “we can never make any policy that makes anyone worse off.”
Even if we overcame the question of vs what baseline, if we adopted that rule we would soon be in a position where any policy on any subject would be immediately ruled out.

To clarify my claim – I think that in the USA in 2014 there are arguments both for an against raising the minimum wage. To argue -as Tyler does – that the arguments against represent such a bottom line that the policy “should be” beyond the pale politically, is straying in to lazy partisanship.

RPLong February 19, 2014 at 12:13 pm

Danny, I totally agree with your first and second paragraphs. Your third does not appear to follow from the previous two. It stands to reason that any policy that could arguably unemploy “half a million vulnerable people” is not one that “a major party [should be] promoting, as a centerpiece initiative and for perceived electoral gain.”

I thought TC phrased it pretty accurately, and we seem to agree on the basics. Don’t you think TC has it more right than wrong in this case?

Danny February 19, 2014 at 12:35 pm

Hi RP. Thanks for the discussion.

If the only outcome of a policy was to lead to the unemployment of an extra half a million people, then I agree it is not one that a major party “should” be promoting.

However, as with almost all policy proposals, there are other consequences, and other gains that result. The fact that one consequence of a policy is that it increases unemployment, doesn’t mean that policy is wrong.

Ending World War II led to some first round unemployment effects as soldiers were demobilised, but I’m sure there are few who would argue that still means the Allies should be at war with Germany and Japan.

In this instance it’s equally possible to characterise raising the minimum wage as a policy “benefitting 16.5m of the lowest paid workers.” And then say – who could be opposed to such a policy? Such a claim has a place in a political campaign, but it’s not what I come to MR to see.

I’m not even saying that the 16.5m outweigh the 0.5m. My claim is that this is a subject where intelligent people, arguing in good faith, can reach different conclusions. There are gains and losses that would result, and as an MR reader my understanding would benefit from a nuanced consideration of those gains and losses. To say that because a policy has a downside, it’s beyond the pale of what “should” be promoted, without considering the upside, is – I repeat – lazy partisanship.

RPLong February 19, 2014 at 1:13 pm

Danny, actually I think you’ve managed to convince me.

TC’s phrasing could have been better. I’m not sold on a MW increase, but you’re right that there is room for reasonable people to disagree on some of the details here. And if there is room, then I think it probably is fair game for the politicians to make use of it when they play politics.

Well done.

Danny February 19, 2014 at 1:38 pm

Props to you, RP, for the good faith in which you discussed this.

And props for your blog – I really liked your “Scorched Earth” post.

pritesh February 19, 2014 at 11:28 am

What is strange is TC using the 500,000 number as if it’s written in stone, CBO gives a range of 100,000-500,000 I wounder why use the higher rage to make your point. After-all, TC you are part of the ‘The Dismal Science’.

@YoungEcon February 19, 2014 at 12:14 pm

Not true, he was just not being specific. He refers to the middle estimate of the raise to $10.10:

For the $10.10 Option
Central estimate: -500,000 workers.
Likely range: Very slight decrease to -1.0 million workers.

For the $9.00 Option
Central estimate: -100,000 workers.
Likely range: Very slight decrease to -200,000 million workers.

page 2.
http://www.cbo.gov/sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf

If you calculate the elasticities they are right around would you would find in the literature. The reaction to this report is hilarious on both sides.

Jay February 19, 2014 at 11:36 am

Until the left indexes an increase to inflation or some other number, I will not believe they truly intend to raise minimum wage workers out of poverty. They support the ISSUE of minimum wages, not the actual policies.

Brian Donohue February 19, 2014 at 11:40 am

I’m throwing in the towel on political grounds.

Maybe some of you oppose a minimum wage hike on grounds of stinginess, as liberal fairy tales take for granted. You should keep fighting.

If, like me, you think a minimum wage hike is bad news for unskilled (mostly entry level) workers, it’s time to fold the tent. The people on whose behalf you are arguing disagree with you.

Perhaps we can do a better job collecting and analyzing data from the next hike and the economics profession can start earning its keep on this issue.

john personna February 19, 2014 at 11:53 am

I am somewhat sympathetic to your argument, but I don’t see wages/employment as complete system analysis. “More than half of fast food workers have to rely on public assistance programs.” We have to work that in. There are total system consts and benefits to this sort of change. Maybe I missed it … has anyone done a bottom line for government cost of benefits?

Contemplationist February 19, 2014 at 11:57 am

Wishful thinking, though I sympathize.
This sentiment is entirely driven by politics and affirming basic economic concepts will only get you denounced repeatedly as a toadie of [insert billionaire hate figure of the year here].

mulp February 19, 2014 at 12:02 pm

No, it is time to demand that those opposed to the minimum wage support the costs of living and getting to the job to do the work start talking about goods and services price stickiness that is refusing to fall to create the consumer demand to support the food, housing, and transportation needs of the minimum wage worker.

If a single person is working for a minimum wage, then his budget for food, housing, transportation, utilities, cars, etc is $15,000. I defy any economist to lay out a budget for a single minimum wage worker that is realistic.

According to the free lunch economists (like Tyler), without government welfare, food prices will fall to 50 cents for burgers and fries, new cars will fall to $2500, apartment rents will fall to $500 per month, utilities included, gasoline to $1 per gallon, etc, because the market will lower prices to give the minimum wage worker everything he needs to live and get to work on time ready to work serving people like Tyler. The market always solves the problems by lower prices and wages if government does not exist.

Yep, in large parts of Africa and Asia, where no government exists, things are wonderful.

We live in interesting times February 19, 2014 at 12:14 pm

What we may really be talking about here is a mandated tip on the bill from most of the states so certain blue city citizens can maintain their lifestyle.

RPLong February 19, 2014 at 12:20 pm
We live in interesting times February 19, 2014 at 1:09 pm

Thank you! I wrote that because of an experience I had on vacation. Someone put a tip cup out asking for tips so s/he could maintain that lifestyle. We saved, denied, scrimped to go on that vacation and the asker(s) just wanna have no worries.

Herb February 19, 2014 at 12:38 pm

“If, like me, you think a minimum wage hike is bad news for unskilled (mostly entry level) workers, it’s time to fold the tent.”

Yes, I think you’re right. Unskilled, mostly entry level workers are not so unimaginative that they can’t see themselves gaining skills and moving up the ranks. So tell them a certain amount of these jobs will disappear and they’ll shrug. They won’t ALL disappear, and the ones that do….well, probably didn’t want THAT job anyway.

I think it would help to think about this from the perspective of someone who would be employed in one of these jobs. Less useful to tackle it from the perspective of the employer who prefers to pay his people the least amount possible. That preference is not automatically profitable.

byomtov February 19, 2014 at 11:54 am

we should not have a major party promoting,….

Anything else you think it is unacceptable for a major party to promote? Just asking.

prior_approval February 19, 2014 at 1:05 pm

Unions come instantly to mind.

Some Guy February 19, 2014 at 12:01 pm

Let’s remember that we are dealing with a CBO projection, which like its other projections will end up being wrong.

Jay February 19, 2014 at 1:11 pm

In either direction.

collin February 19, 2014 at 12:24 pm

And the American people will never understand the ins and outs of the monopsony debate and the like. Overall, what kind of useful lesson is being taught here about the determinants of wages and prosperity?

And didn’t you just share that liberals should not be concerned about the Comcast/TWC merger? That it really was not going to hurt the consumer. Admittingly I don’t care a lot about cable, what would happen if there was monospony on broadband internet? Comcast is already threatening to remove the ‘Netflix’ button off the cable remote! Talk about poor pubicity.

Just another MR Commentor February 19, 2014 at 3:31 pm

You are confusing monospony with monopoly. A Monopoly is a single seller of a good whereas a Monopsony is a single BUYER of a good. Monopolies are extremely desirable economic organizations as they allow large economies of scale to be captured and they also allow investors to earn the maximum return on their investment thus protecting wealth and more properly awarding the highest achieving people in our society.

Monopsonies are not so desirable but it can depend on the circumstances. For example a company with a monospony in labour would be desirable as they are the only buyer of labour and thus in a position to drive wages down and hence maximize investor profits.

byomtov February 19, 2014 at 6:34 pm

Monopolies are extremely desirable economic organizations as they allow large economies of scale to be captured and they also allow investors to earn the maximum return on their investment thus protecting wealth and more properly awarding the highest achieving people in our society.

Contest over. No one can top this.

David C February 19, 2014 at 12:27 pm

Are we entirely sure that it’s the vulnerable who will lose their job. A significant proportion of those getting the minimum wage are teens who are the 3rd or 4th income in a home. It is possible that those who lose their jobs will come disproportionately from that group. So I think it’s very important to know WHO will lose those 500,000 jobs. Is it single moms or is it middle-class teenagers?

David C February 19, 2014 at 12:37 pm

Read the report and answered my own question. Teenagers would be disproportionally hit. The CBo estimates that the elasticity for directly affected adults is about 1/3 of that for teens. See page 25 & 26 of the report.

http://www.cbo.gov/sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf

Slocum February 19, 2014 at 12:45 pm

Not all teenagers are the same. Some are destined to be high-earning college grads in a few years — call them group A. Others are destined for a much longer spell of low-paid, low-skilled labor. Call them group B. Now, which of these, A or B, are likely to make better employees? Which would you expect to be quicker learners and show up on time consistently? If you had to push them harder to justify paying a higher rate, do you think you’d be better off with teenagers from group A or B?

David C February 19, 2014 at 12:50 pm

Not sure what your point is, so let me restate mine. From page 30 of the report:

“The reductions in employment would be concentrated more among teenage workers than among older workers”

That doesn’t mean that it is a good or bad trade-off (higher wages for some and job losses for others) but it I think it does tilt the scales a little to know that the losers, on average, might not need the money nearly as much.

David C February 19, 2014 at 12:53 pm

A good question to ask is how many of those 500,000 people (or their families) will fall INTO poverty as a result of job losses.

Slocum February 19, 2014 at 12:57 pm

My point is that even among teenage workers, we have reason to expect that the reductions might be more concentrated among the least capable — those who most need the job (and the early job experience). Right now, the minimum wage is below the reservation wage of a lot of higher-ability teens, and an increase would draw more of them into the market.

David C February 19, 2014 at 1:19 pm

And is that a net good or a net bad? We’d be creating a better workforce. That sounds good. But we’d also be pushing some low-skill teenagers out of the workforce. That sounds bad. And of course, that’s with the benefit of pulling 900,000 people out of poverty (according to CBO) and increasing the wages of 16.5 million workers.

Boonton February 19, 2014 at 1:39 pm

An alternative way of looking at it is that the return for developing or acquiring skills becomes higher. For example, I suspect a huge reason why we have fewer high school dropouts today than we did 50 years ago is because the economy doesn’t offer many good jobs for those who ditch school.

We could ask those worrying about this why do they want to lower the incentives for developing human capital?

There are, of course, those who cannot or will never develop many skills not matter what set of incentives there are. I’m not sure the best solution for that is essentially ‘make work’ jobs no matter what.

Floccina February 19, 2014 at 12:28 pm

Many of us believe that there are non-monetary benefits to having a job in the taxed sector and so though the gains to the employed might be greater that the losses of the unemployed we prefer policy that keeps more people employed.

Now I would support the Federal Government writing a check to each adult citizen of between $150 and $200 per week as a wage subsidy and some extension of medicaid plus some programs for the handicapped. I am OK with helping the poor but we should IMO do it in the most efficient way we can think of.

A minimum wage increase seems like a very inefficient way to enable an increase n consumption for the poor.

Keep in mind that:
1. Many people in the USA already work illegally for less than minimum wage.
2. The less capable (as judged by Education level) are much more likely to be unemployed than the more capable.
3. Few full time workers live below the poverty line.
4. In the sort run owners of businesses that employ workers at below the proposed wage will pay for it and in he longer run consumers of goods and services produced by such workers will pay for the increase rather than all of us.

Now I do understand that a rise in the MW is a form of welfare that carries no stigma and that must be considered but never the less I think we can do better.
BTW one other way to raise MW would to exempt low wage workers for FICA but credit their accounts for what they would have paid.

john personna February 19, 2014 at 1:18 pm

I’m with you, but I think this should lead us to balance minimum wage with minimum income. We want to encourage work, but I don’t think we want businesses structured around subsidized employees:

Wal-Mart’s poverty wages force employees to rely on $2.66 billion in government help every year, or about $420,000 per store. In state after state, Wal-Mart employees are the top recipients of Medicaid. As many as 80 percent of workers in Wal-Mart stores use food stamps.

Is that really optimal?

prior_approval February 19, 2014 at 1:22 pm

Apparently – spin it as one wishes.

Floccina February 20, 2014 at 9:29 am

Hi John,
On that, the thing is that I do not see that as a subsidy to Walmart stock owners and managers but as a subsidy only to Walmart employees. I do not see how it could be a subsidy to Walmart stock owners and managers. I would be interested in reading how one might think it would work out to be a subsidy to Walmart stock owners and managers.

john personna February 20, 2014 at 10:12 am

I’ve never been one to frame it as “a subsidy to Walmart stock owners and managers.” I worry more about the economic efficiency. I mean “if it’s only Walmart,” that’s one thing, but … would we want say 20% of the retail economy to follow this pattern? 40%?

john personna February 20, 2014 at 10:12 am

(I should say “I worry about the economic efficiency and growing government burden.”)

Boonton February 19, 2014 at 1:33 pm

Imagine a UFO landed and made the following offer: they will do something that will probably add 500,000 jobs to the economy. BUT this something, they could say with more certainity, would push 1,000,000 people from above the poverty line to below the poverty line. Do you want this something yes or no?

I suspect most people would say no. As nice as half a million jobs would be, it’s not so nice if it pushes a million people down. Yet if you say no then logically you should support the min. wage hike even if you trust the estimate put forth in the CBO report.

Roy February 19, 2014 at 1:51 pm

You are taking people, the 1 million and making them poorer to benefit 500K.

The real situation is taking from 500k to give to 1 million, and this is versus not doing anything and just leaving everybody as they were. The thing is that the 500k who lose are the poorest and weakest group.

These are different situations. How about not using state power to deprive people at the very bottom in order to help people just above the very bottom?

I see no justice in harming one disadvantaged group to help a slightly more privileged group. If this is all the modern Left has, it is morally bankrupt.

Tim February 19, 2014 at 1:51 pm

What if you presented something and said, “This is a model we use in introductory courses. It’s been completely disproven, but we still use it because it’s easy to explain and we’re lazy”. Would it be unethical for an econ professor to keep using it?

Boonton February 19, 2014 at 1:58 pm

Roy,

You’re making assumptions not in evidence. The one million who will move from below poverty to above poverty is a net estimate. By definition those would be the weakest people in society and since that’s a net figure the 500,000 lost jobs doesn’t cause a half million to fall below poverty.

The only way your statement makes sense is if you argue that the 1 million who go above poverty somehow achieve that benefit by causing 500,000 people in poverty to be even more in poverty.

So how would you reply to the UFO making the reverse offer? Put a million people below poverty in exchange for adding 500K min wage jobs to the economy?

Roy February 19, 2014 at 3:05 pm

I would say no, impoverishing people is wrong. I just don’t think it is the State’s role to do this. Either way you are taking something that was already possessed and giving it to somebody else. And you are doing this at the social bottom.

Now if the party paying the price was not driven into poverty or unemployment I would think about the tradeoff, but here you are just swapping one group of downtrodden with another. This is not good policy and it is only being done because you will feel morally better by making someone who is both not you and worse off than you and having them pay for it.

As to space alien hypotheticals, I’ve read “Childhood’s End” and there is no way I’m taking gifts from space aliens.

Boonton February 19, 2014 at 3:40 pm

If we were just swapping one group of down trodden with another it wouldn’t be a lift of one million out of poverty, it would be a lift of zero. Assuming the report is correct it’s a life of a million out of poverty but at a cost of half a million jobs.

Do we work to avoid poverty or do we work for the sake of working? More jobs to me is not a decent tradeoff *unless* it also means fewer in poverty. Here we have a million out of poverty.

Jay February 19, 2014 at 5:34 pm

Do you believe the government has the moral authority to intervene and eliminate half a million people’s livelihood simply to boost a million? What’s the difference between that and the government holding half a million rich people up at gunpoint asking for money and then giving it to a million poor? Its the same answer, no it isn’t fair or moral.

Boonton February 20, 2014 at 5:39 am

CBO says free trade agreement with County X will eliminate 500K jobs, but the income gains will nonetheless lift over a million Americans out of poverty.

holding half a million rich people up at gunpoint asking for money and then giving it to a million poor?

Before you said the problem was that the victims of the policy were being pushed into poverty, now you’re saying they are rich and your’re playing the Ayn Rand card (taking a dollar from a rich person to save a million poor people is no less evil than Hitler!).

Jay February 20, 2014 at 11:57 am

I’ll respond when you can show me a CBO report that says a free trade agreement will eliminate jobs on net as this one does, until then its a straw man. I won’t respond to your last point as it is ridiculous and bears no semblance to what I said.

Boonton February 20, 2014 at 4:23 pm

You seem to confuse jobs with income. If the head of a household who makes $150K a year losses his job, but he and his wife each get two min. wage jobs they work 80 hours a week at to make $60K a year, then on paper that’s ‘creating 3 jobs’ (one lost job + four new jobs). But clearly no one would say that things are better off. So what if we could reverse that and go back to the way things were? Well you would jump and say absolutely not! Going back would entail destroying 3 jobs and we can’t have that!

This is coming from the fact that we use ‘jobs’ as shorthand for income. That’s fine as long as you’re comparing rocks to rocks. If I’m a lanscaper and I ask for 500 rocks to do a project….thinking I’m getting rocks the size of a car tire or so….and the supply company gives me 500 pebbles the size of a pea we are not talking about the same thing.

Jay February 21, 2014 at 11:05 am

This law is in no way like taking a couple making minimum wage and turning it into a single head of household making $150k. This is eliminating 500k jobs from the very lowest rung of the ladder so that the folks barely one rung up can have a raise.

Boonton February 21, 2014 at 3:57 pm

Nonesense, if the 500K jobs were coming from the ‘lowest rung’ then that’s inconsistent with the estimate of 1M people rising above the poverty line.

Tim February 19, 2014 at 1:50 pm

Do you base this on facts, or is this faith based? Like how conservatives believe cutting taxes is the financial equivalent of medieval bloodletting – guaranteed to fix all that ails you.

Jay February 19, 2014 at 5:31 pm

Did you want an answer or merely a wrapper around your cliche partisan jab?

joshua February 19, 2014 at 2:36 pm

Has no one else considered the possibility that Tyler is parodying those who cite the CBO’s projections for Obamacare’s impact on the deficit as “the bottom lines” in that debate?

prior_approval February 20, 2014 at 2:21 am

No – seem a following post linking a minimum wage increase to higher crime.

But identifying parody in this is accurate – it just requires a bit larger view.

mwbugg February 19, 2014 at 5:28 pm

I think you’re right. It makes a lot more sense as parody. In fact parody should be the default assumption on most TC posts.

Neil Bates February 19, 2014 at 6:12 pm

It looks like almost everyone is missing the key issue here: “real dollar” value of the minimum wage. That has been going down for years. To have kept it up with CPI wouldn’t really have “raised” it, and to raise it later to make up for that really isn’t either (altho more stress from *sudden* change, something people here aren’t noticing either. But I don’t need to remind these readers that currency is an exchange medium of no intrinsic value.)) The MW should have been CPI adjusted since about the 70s and left alone. It would be about $9/hr now and none of that would have been “raising” it in honest terms. So most of the debate here is kind of phony. The economy would have adjusted to the maintenance of the real floor. Employers just would have paid other people less. But since the MW wasn’t pegged, we need to adjust it just to get it in line with being *the same as* it used to be.

Also, and there is here the fallacy that the thing asked to be changed is more pertinent or a distortion than other things. But if paying people $10/h instead of $7.25/h raises prices or cuts into profit or whatever, then so much more, that someone gets $300/h that could have been paid $200/h instead. And, if “we can’t afford to pay” engineers or whomever good pay because yadda, then we sure can’t pay CEOs etc such huge salaries.

Jay February 20, 2014 at 12:03 pm

Can you please rephrase your last paragraph, it makes no sense to me and I’m being serious.

To your first point, it isn’t an accident that every MW hike has not been indexed and only goes to show what the true intentions (rather than the do-gooder) of the policy really are.

Boonton February 21, 2014 at 6:21 am

I think the only intentions you can attribute here would be the ones that apply to all legislation. I suspect most advocates of the MW would love to have had it indexed to inflation all along. Fact is laws require majorities to pass and not indexing is probably the price that had to be paid to pass the MW laws.

It does demonstrate the requirement that you address my ‘UFO question’. If you’re against lifting a million out of poverty at a cost of half a million jobs then you must also favor adding half a million jobs at a cost of pushing a million below the poverty line.

Jay February 21, 2014 at 11:09 am

As usual you’re ridiculous on both points you try to make. At no point in any MW-raise debate have I heard that the indexing had to be horse traded so that it can pass. This is easily verifiable, but I’m sure there’s been more than one raise passed in a non-split congress. It is much more plausible that the politicians want to keep this an issue for future elections rather than index it and call it done.

To your second point, no I “must” not be for either one. I’m for the way that involves politicians, not paying any of the burdens, pushing or lifting (attempting to, it rarely happens) anyone out of poverty.

Boonton February 21, 2014 at 3:55 pm

The issue of indexing is raised quite often as well as the argument “this raise simply would restore the min. wage to where it was X years ago”. Clearly the min. wage NOT being indexed is a factor that has helped raises pass in the past. Those skeptical could reason that if raising it was a mistake, inflation would slowly undo that mistake by droping the min. wage year after year and if raising it was a great thing then future Congresses could pass increases as needed.

Actually you have to be for either one or you’re incoherent. Let me give you something more simple than the UFO case. Say this increase was passed and the CBO turns out to be dead on target. 1M people lift out of poverty but there’s 500K fewer jobs. At that point maybe people will say “this was a bad deal, let’s repeal the increase”. If the increase is repealed, then one would expect the process to reverse. 1M may fall below poverty *but* 500K jobs will return.

Are you telling us that if the increase passes you would oppose repealing that passage in the future? That you’d turn from an enemy of the min. wage increase to an enemy of, say, some future Tea Party Congress that would try to reverse it? That sounds like you’re simply supporting the status quo no matter what it is.

uffs February 19, 2014 at 6:49 pm

Here are some “people” for you to consider on this subject.

http://dish.andrewsullivan.com/2014/02/19/the-cbos-two-cents-on-the-minimum-wage/

James Oswald February 20, 2014 at 2:54 pm

Thank you, Tyler for being direct, succinct, and clear on a topic where so many others are not. When Bryan is clear and direct, he signals nothing. When you are, you signal credibly that it’s because the issue really does deserve to be treated as black and white.

Nathan W February 21, 2014 at 6:52 pm

It’s not black and white. A whole host of assumptions, from perfect competition to the values of various elasticities immediately clouds the air, and will never stop clouding the air because the economy is always in flux and this means that elasticities change in time. I.e., no a priori conclusions can be made.

If you disagree with that then I certainly hope you never continued the study of economics beyond third year, because that would demonstrate a very limited ability to make good use of effective critiques relating to common challenges in the field, in this case relating to the study of labour markets.

Significant work is required to obtain credible estimates of the basic inputs into any of these methods, and this has to be redone over and over and over because their values change. Minimum wage hikes can lead to more or less employment depending on what else is going on the economy for workers and companies.

Economics focuses too much of mathematical aesthetics and “nice” solutions and not enough on what’s going on in the real world.

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