Sentences to ponder

Support for redistribution, surprisingly enough, has plummeted during the recession. For years, the General Social Survey has asked individuals whether “government should reduce income differences between the rich and the poor.” Agreement with this statement dropped dramatically between 2008 and 2010, the two most recent years of data available.  Other surveys have shown similar results.

…the change is not driven by wealthy white Republicans reacting against President Obama’s agenda: the drop is if anything slightly larger among minorities, and Americans who self-identify as having below average income show the same decrease in support for redistribution as wealthier Americans.

Here is more.  The researchers, Ilyana Kuziemko and Michael I. Norton, attribute this to “last place aversion,” namely the desire to always have someone below you in the income pecking order:

Which group was the most opposed [to an increase in the minimum wage]? Those making just above the minimum wage, between $7.26 and $8.25.

For the pointer I thank The Browser.

Comments

"Which group was the most opposed [to an increase in the minimum wage]? Those making just above the minimum wage"

That is consistent with them realizing that any significant increase in minimum wage will make their jobs much less secure.

Good point.

But then, the group making exactly the minimum wage should be as or more opposed than those making just above the minimum wage, right? Unless one group is significantly worse at realizing your point than the other.

The people who have just been told they're going to get a raise will be a lot less skeptical than the people who have just been told they're NOT going to get a raise.

It seems like a natural reaction regardless of where you fall in the income distribution.

Suppose minimum wage is $5 per hour, and an increase to $6 is proposed. Assume this will result in a 10% chance of losing your job. Also assume that there is no immediate compensatory increase in everyone else's salary.

The employee making minimum wage has a 90% chance of making 6$ and a 10% chance of making 0--which is a net gain of .40/hr overall.
The employee already making 6$ also has a 90% chance of making 6$ and a 10% chance of making 0--a net loss of .60/hr.

So, at least under the assumptions above, the opinions of both groups are logical, and NAME REDACTED's point stands.

Newerspeak beat me to it.

Because, as we should all know, people making minimum wage frequently do cost/benefit analyses.

That's why I love coming here: proof that most eggheads don't understand the world around them.

The point is that in this case psychology drives reactions, not math or game theory.

Psychology has been proposed as the explanation precisely BECAUSE the reaction is claimed to be irrational otherwise. The point of the cost/benefit analysis is to show that this is not the case. The reaction of the two groups is in line with their interests. Do I think that people are doing the math in their heads? No, but they don't have to:

Minimum wage worker: "Great, I'll get a raise!"
Above-minimum wage worker: "That won't help me any--and I hope they can afford to keep us all on."

Is that so disconnected from reality?

Why are you assuming that the minimum wage worker and the just-above minimum wage worker are employed by the same employer?

Raising the minimum wage won't directly impact the wages or employability of the just-above minimum wage worker if they're not working at the same shop.

This is a story about relativity. You seem confused.

Lots of people making just above the minimum work in places where other workers also make minimum wage. This is all that is needed to explain the effect. It doesn't have to be true of every single worker.

Why do you think that minimum wage workers can't figure this out? A minimum wage worker isn't very valuable but that doesn't mean they are brain dead.

In my previous experience at a minimum wage job, the other employees did frequently figure these things out. Or at the very least, one of the smarter ones would and would tell the others. All it takes is one.

Why would a person, making 6 $, lose his jobb when the employer have to pay 6 $?

If the employer also has workers making less than $6, the minimum wage increase will raise the total payroll cost. The employer may have to cut jobs as a result, and the $6 worker is as likely as any to be cut, all else being equal.

If the employer also has workers making less than $6 and he has to pay more and he is struggling he may go out of business.

Why would that person be cut rather than the people formerly making $5? It's obvious from their earnings prior to the increase in minimum wage that the employer values them more than the guy making whatever the minimum is at the time.

People who make exactly the minimum wage should be more likely to agree with the idea that employers will always pay just whatever the minimum wage is, and be skeptical that they can get raises by increasing their skill.

People who make somewhat about the minimum wage have some evidence that their employers will raise their wages when it merits, without the minimum wage going up.

+1

Why is this surprising? Isn't it the entire thesis of Ben Friedman's "The Moral Consequences of Economic Growth?"

I don't find that too surprising. Most politicians talk about a "helping" the middle class with all the new redistribution. The poor don't really stand to get anything new.

If you read the article, they attribute the "just above poor" having last place aversion--that people just below you moving up if income were in some way redistributed diminishes their status.

When I was a teenager, I was a lifeguard making 7.25 an hour and I opposed an increase in minimum wage because I felt that my job required a skill that I had to spend effort on requiring. A rise in minimum wage would make my skill premium worth less.

An increase in minimum wage does not mean an employer is required to bump everyone else's pay, and thus everyone else's skill premium is devalued a little when the no-skill new person comes in making close to what they do but without all the work.

Should have stuck with it, you could have been been making $200K as a gov't lifeguard in CA.

Ah, envy.

How nice of you to oppose a needed increase in another's well-being just so that you can continue to tell yourself that you're better than them.

How smugly cruel of you to think you know what's needed and to ignore the consequences and harm caused to others by the precise manner in which a clumsy State effects redistribution.

The harm caused to others? In this case, the lifeguard's wages went from $7.25/hr to $7.25/hr. I don't know whether he'll ever recover from being unaffected.

cb = winner

Silly. The increase in the total wage bill means that our friend now has a non-zero chance, greater than it was the day before, of being laid off. And to the extent that the employer now lumps them all into the "minimum wage" category, post-increase, he has also seen an implicit devaluation of his skill-set (though one might hope that an intelligent employer would realize that out friend is no less skilled than he was the day before, and would prioritize laying off one of the new minimum wage scrubs.) Call it _stochastic_ harm. Like how not all smokers develop cancer, but are presumably subject to a much higher _chance_ of getting cancer. :^).

Seriously?

The probability of his being laid off over an increase in the minimum went up by -- what? -- 1 in 10000 over the next year? I don't have the numbers, but it's not as if unemployment shot through the roof after the last time the minimum wage was raised.

We're talking about a stochastic harm of anywhere from a quarter to a few dollars over the year, depending on the probability increase and other assumptions (seasonal work vs. full-year, etc.). I'd fight that tooth-and-nail, too, man. Get your government hands off my pennies!

I don’t have the numbers, but it’s not as if unemployment shot through the roof after the last time the minimum wage was raised.

The last time the minimum wage was increased was mid-2009 (a raise that was known for like a year ahead of time), so actually yes, unemployment did skyrocket.

I point that out not because I believe that the minimum wage was somehow wholly responsible for the economy, but just to show how facile overly simple correlations like yours are.

This is a good example of “last place aversion,” . That is your relative income matters, not just your absolute income. When it is applied to the rich it is called envy, but having a lower/higher income than other people has real consequences not just physiological ones. The high income residents in NYC is a large part of the reason the cost of living is so high in there compared to Omaha..

exactly. anyone who has developed a modicum of skill to warrant a higher pay than minimum wage is going to feel cheated once the minimum wage is raised to their wage. It effectively resets them back to 0. You would be angry if you worked diligently for 5 years at a warehouse and merited a 1 dollar increase over the minimum pay, only to have the minimum pay increased so that the difference was now only 25cents or even 0. You would feel pretty rotten that you are making the same as the new guy.

Why don't you have a previous post link at the bottom of your posts?

I am always skeptical of these sorts of psychological explanations of behavior, because they so much rides on the assumptions of the researchers. At least in this case they do have some behavior research to back it up, but it still seems like a big leap to move from their experiment to real world behavior. Could there be simpler explanations?

-For many people, income redistribution is a perceived luxury that they will support only in times of plenty.

-For most committed liberals and conservatives, support for or opposition to redistribution is a moral position that won't change. Thus, most of the movement on the issue comes from independents, a group that has strongly turned against Obama and the Democrats over the period studied. It is not surprising that support for a key liberal position would decline.

-The decline in support among the poor could be explained by the fact that the poor of 2008 and the poor of 2010 are not the same people. Some middle class people have lost their jobs or taken lower-paying jobs. They are now poor, but their opinions on redistribution have not changed. In other words: when the economy is strong, there are lots of people take opportunities escape poverty. When the economy is weak, lots of people are pushed into poverty. Neither of these effects happens uniformly over the population. Thus, the makeup of the poor differs between a recession and period of growth. This is a classic problem with non-longitudinal studies over time: the group of people you are measuring is not the same.

Just more evidence that people suck in general.

I minimum wage rewards folks for... well, not doing anything to make themselves worth more.

If you spent months or years trying to make yourselves worth more, it'd suck to have the state come in and tell you that it was a waste of your time.

Wouldn't you feel like an idiot for spending your time on life guard training when you could have just been playing video games? CB's cool with paying you the same wage either way, so why bother?

Two things. First, I looked up the data for this and checked out the results; the question has folks give a number 1 through 7; 1 being that they totally agree that the government should reduce income inequality (suggesting that it be done by taxing the rich and providing income assistance to the poor) and 7 being that the government shouldn't do anything. There was a shift of a couple percentage points against government action from 2008 to 2010. There was an identical shift from 1993 to 1994. I don't think there's a statistically significant difference between the answers in 1994 and the answers in 2010. Second, much of the campaign against Barack Obama hinged on his comments on redistribution of wealth. If you spend hundreds of millions of dollars linking someone who half the country votes against to a single issue, you can probably move the dial a couple percentage points on that issue.

But Obama didn't and doesn't support redistribution of wealth.

Obama supports spreading the wealth by giving more people more opportunity with more education and creating better jobs here in the US, while eliminating the special government benefits to the rich that give them the power to eat into the wealth of the middle class.

You can spread wealth without redistributing it?

What "special government benefits to the rich" are those? Letting people keep what they earn instead of treating them as cows to be milked for the benefit of others?

"Last place aversion" is interesting, and certainly deserves at least a footnote in the catalogue of cognitive biases and heuristics, but I find it an unsatisfying explanation for the observations about US attitudes toward wealth redistribution. For one thing, the entire point of last place aversion is that it only affects those in last place, but in a massive country like the United States, everyone can find someone worse off than themselves (with one exception). For another, redistributive policies usually stop short of making those who need government handouts wealthier than those who do not; subsidizing more homeless shelters doesn't risk giving the homeless a nicer house than your own. Finally, many of the policies people oppose, like taxing the rich, don't directly translate to helping those in last place.

I propose a different mechanism, one based on ... wait for it ... signaling.

Consider multi-level signaling and counter-signaling, where each level tries to differentiate itself from the level beneath it. For example, the nouveau riche differentiate themselves from the middle class by buying ostentatious bling, and the nobility (who are at no risk of being mistaken for the middle class) differentiate themselves from the nouveau riche by not buying ostentatious bling.

As a thought experiment, imagine your reactions to the following figures:

1. A bearded grizzled man in ripped jeans, smelling slightly of alcohol, ranting about how the government needs to give more free benefits to the poor.

2. A bearded grizzled man in ripped jeans, smelling slightly of alcohol, ranting about how the poor are lazy and he worked hard to get where he is today.

3. A well-dressed, stylish man in a business suit, ranting about how the government needs to give more free benefits to the poor.

4. A well-dressed, stylish man in a business suit, ranting about how the poor are lazy and he worked hard to get where he is today.

My gut reactions are (1, lazy guy who wants free money) (2, honorable working class salt-of-the-earth) (3, compassionate guy with good intentions) (4, insensitive guy who doesn't realize his privilege). If these are relatively common reactions, these would suffice to explain the signaling patterns in these demographics.

I got opinions

Is it surprising that, say, support for raising the minimum wage is stronger the higher you go up the income scale?

Liberalism is the religion of the secular, educated, well compensated elites. Raising the minimum wage is one tenet of that religion. Being a religion, it is a matter of faith, not something that is open to persuasion by evidence. It is also not something that liberals have any direct experience with.

Nice talking points you keep mumbling to yourself on your way to and from work.

Worker's rights is one tenet of liberal policy, yes, but those who generally approve include most blue collar union workers, the poor, and yes, some (but certainly not all and perhaps not even a majority of the) super rich.

Your theory of politics must also be a matter of faith rather than evidence. Read Andrew Gelman's "Red State, Blue State, Rich State, Poor State". Within every state higher income correlates with a higher probability of voting Republican. But that's relative to the state average and some states are to the left or right of others. It happens to be the case that many richer states (as Ed Glaeser would put it, industrialization and large scale immigration occurred in these coastal urban areas earlier) are more liberal. Social values are more important to the rich vs the poor (who tend to vote their pocketbook), which reinforces Republican tendencies among the red state rich but cuts against it among blue state rich. But still if you take the U.S overall, higher income correlates with voting Republican.

The 'Engineer' has resolved all further need to think about this with his ultra-elegant, one paragraph summation of the thoughts and motives of millions of people in many places over decades. Imagine, if he chooses to see what he calls liberalism like that, what do his own beliefs get to be?

"Liberalism is the religion of the secular, educated, well compensated elites. Raising the minimum wage is one tenet of that religion. Being a religion, it is a matter of faith, not something that is open to persuasion by evidence. It is also not something that liberals have any direct experience with."

This is a thoughtful argument that has never been made before with such care.

Maybe people automatically think that "the poor" is an unemployed person (ie somebody else, most people have jobs). When times are good, you probably don't mind risking a tax increase for the sake of supporting a cause that signals your magnanimity.

When the ship is sinking, though, @#$@ the women and children, I need to watch out for #1.

The thing about sociology type papers is that they always seem to try to come up with some rationale. I'd like to see authors say "Based on our evidence, which we collected rigorously and upon which we applied the appropriate statistical methods, we have no idea what's going on here."

CB, here is the real harm done to those earning right above minimum wage: Consider that you have worked hard to get a raise from off the floor (Harder than those who haven't thought it worth their time or effort to do so - these people earn minimum wage and cycle through minimum wage jobs). The new increase comes along and bam, all those people from whom you have tried hard to distinguish yourself while working get for nothing what you worked to get (sounds a lot like bailing out the losers). Now that really isn't the worst part about it, because your current employer knows that you work hard and are valuable, but what if you want to move to a new company and ask for a bit more money. Well the government has blotted out your signal of quality - you are indistinguishable from minimum wage workers. In fact, you look observationally the same as a minimum wage worker who bounces around because they can't hold a job. The effect might be that you stay much longer in your current position than you would have before the policy change.

Direct policies are better than indirect ones. The best policy here would be not to mess with the career ladders. I would never have gotten my first job at 13 without a low minimum wage. So stop thinking you are morally superior because you force people to give away their money to others. You ruin the comment section when you do so.

This is evidence that some kind of wage subsidy would be a good form of welfare because it leaves everyone in the same order. A higher minimum wage may put money people at exactly minimum wage.

The government has spent the last few years frantically redistributing wealth from the poor to the rich (not a typo) with gargantuan subventions to big banks and financial firms and their executives ("bailouts"), increased consumption taxes to pay bloated government pensions, subsidies for unionized parasites working for the government or sclerotic automakers, keeping student loans and mortgages non-dischargeable/ cramdownable in bankruptcy, encouraging immigration, etc-etc.

The folks who draft and ask survey questions about "redistribution" assume that all the peasants who answer them agree with the meme that the government will tax and/or confiscate wealth only from "rich" people and give it to "poor" people. However, in real life, the government does the opposite, NO MATTER WHAT THE RHETORIC.

Perhaps the survey participants understand, even if only at a gut level. that during the current economic crunch nearly all government schemes have operated against the interests of the middle and lower middle classes.

I also am appalled by the give always of money to the financial firms and I agree that many Government pensions are too large but it seems likely to me that the money is still mostly coming from the rich.

Would this mean that people just above the Min Wage would like to see the people just below them pay more in taxes? In fact, wouldn't this suggest people would prefer a Regressive Tax System, one that increases their income at the expense of the less fortunate?

piper has it correct. When almost everyone in the middle and lower classes hears "more government redistribution", their life experience tells them "higher taxes for me", not "more benefits for me". In the modern environment, redistribution means take money from the poor and middle classes, and give it to the rich and privileged classes.

Yes, quite so. People are waking up to the understanding that the math of income redistribution from the top 1% to everyone else can't work. Massive increases in government social programs can only come from taxes that reach down further on the income scale, since the top income earners already pay most of the total income tax revenue.

When I hear redistribution I think of the conservative economic policies that redistribute my retirement savings to bankers in fees and capital losses in their now legal ponzi schemes of financial innovation that takes my money market funds and buys AAA junk bonds backed by NINJA mortgages. I think of my retirement savings being redistributed by conservative high profit health insurance public policy to for profit health care CEOs who used their wealth to get into Congress to make sure government redistributes the limited wealth of the many into the pockets of the few health care corporation CEOs.

No one actually forces you to give anything to bankers.

I live and work amongst min wage workers. They need their jobs, and the hours, if not the over hours.
When Ted Kennedy pushed for full time workers to have some benefits, those jobs were either eliminated or kept part time, hurting workers.

People need jobs, more jobs and a more steady work market over time and space.

In the few studies like this that I've read about, the authors inevitably think that in the natural state of things people should desire government intervention in inverse proportion to their income. When this turns out not to be the case, they search for explanations that fit within that assumption. In these explanations they also seem to assume that the low wage earner is the sole support of his/her household. Finally, there is an implicit assumption that low wage earners are stupid simpletons whose only concern is the size of their paychecks. My 16-year-old daughter works very part time at minimum wage for a bookstore owned by a local family with whom she works. She saves half of her income and spends the rest on books. She's intensely aware of the tenuousness of the business, and of the threat that e-publications pose to the industry. The researchers assume she should automatically answer "yes, I believe the government should force my employer to pay me more apart from any increase in my productivity." They would not credit her for being able to think beyond her own paycheck. But she does.

The phrasing is odd. Americans don't believe in redistributing the wealth, but the do believe in more equality.

Obama used the sound bite "spread the wealth" which as a gardener, I think of spreading around the manure of compost, not simply pushing it from one place to another. As capitalists, Obama and I see economic policy as creating ever increasing wealth for everyone.

Those who see reduced economic inequality as redistribution of wealth are those who follow the pillage and plunder economics of zero sum - for the poor to have more, the fixed, but dwindling, supply of coal must be taken from the big pile of the rich and given to the poor to burn.

Obama's words to Joe were quoted as "It's not that I want to punish your success. I just want to make sure that everybody who is behind you, that they've got a chance at success, too… My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody. If you’ve got a plumbing business, you’re gonna be better off [...] if you’ve got a whole bunch of customers who can afford to hire you, and right now everybody’s so pinched that business is bad for everybody and I think when you spread the wealth around, it’s good for everybody."

That's economic "spread the wealth around" as in 1+1 -> 2+1+1+1 -> 3+2+2+1+1+1+1

The fallacy is in your example. You and Obama believe that the economy as a whole will improve when the government seizes more of Joe's productive income and borrows from future productivity, uses some of it to pay government employees, and gives the rest to other people who can then afford Joe's services. There is no net increase in either wealth or production, just more government control. Wealth is not spread; it's just diluted.

Costs of living increase as the general population gets wealthier. One example is with zoning laws. One *has to* keep up with the Joneses, or risk homelessness, because the wealthier segment of society would prefer there be laws that prevent cheap housing from being built... creating artificial scarcity in housing, making those that already own real estate even richer.

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