Are recessions a good time to boost the minimum wage?

One empirical regularity is that many minimum wage boosts come during recessions or downturns, as many of you pointed out here.  Yet I take this repeated pattern to be an argument for having a low, zero, or quite “fettered” minimum wage.

Let’s think through the economics.  One of the main pro-minimum wage arguments — arguably the #1 argument — cites labor market monopsony.  Let’s say you have a monopsonistic employer who holds back on bidding for more labor, out of fear that hiring more labor raises the price paid on all labor units of a certain quality (by assumption, there is no perfect price discrimination here).  The minimum wage can get you out of this trap.  By forcing the higher wage on all workers in any case, the employer now doesn’t hesitate to hire more of them because the “fear of bidding up the price of labor” effect is gone or diminished.  And that is how, in some situations, a higher minimum wage can boost employment.

Now let’s say the economy is in a demand-driven downturn, which creates a surplus in the labor market.  Now, to get more workers, the monopsonist firm does not have to raise the wage and it can get more workers at the prevailing wage.  But employers just don’t want more workers, because of demand-side constraints.  So employers could in fact hire more workers without pushing up wage rates at all, once again that is for all units of labor of a particular quality.  Yes there is still monopsony, but the potential wage effects of hiring more labor are muted by the labor surplus.  And that means boosting the minimum wage won’t create the beneficial hiring effects which operate in the more traditional monopsony scenario, explained in the paragraph directly above.

In other words, if you think we are now seeing a slow labor market for demand-side reasons, you should be skeptical of the monopsony argument for minimum wage hikes, at least for the time being.

By the way, demand-side problems often wreck the notion that the EITC and minimum wage are complements.

The bottom line is that a lot of the arguments for a higher minimum wage are inconsistent with or in tension with a demand-driven labor market slowdown.  And I don’t exactly see the world rushing to point this out.

Here is my earlier argument that slow labor markets are the worst times to boost minimum wages.  Here is my earlier post drawing a parallel between minimum wages (government-enforced sticky wages) and privately-enforced sticky wages.  Here is an excerpt from that post:

I know many economists who will argue: “let’s raise the state-imposed minimum wage.  Employers will respond by creating higher-productivity jobs, or by paying more, and few jobs will be lost.”  I do not know many Keynesians who will argue: “In light of the worker-imposed minimum wage, employers will respond by creating higher-productivity jobs, or by paying more, and few jobs will be lost.”

Addendum: By the way, here are some graphs and regressions about the minimum wage and recessions, from  Kevin Erdmann.  I think he is attempting the impossible, but you still might find it instructive to look at some of the pictures.

Comments

How about a maximum wage? What were the tax policies during that radical Eisenhower administration?

You're not allowed to talk about that here. All CEOs are clearly worth the money they're paid.

According to research from Kevin Hallock, they are worth more than what they are paid. Stock markets also bear this out.

Does the list of CEO's worth so much include Financial Companies? Cause the might be a bit overpaid considering how well they performed a few years ago, and they continue to be getting support from the Fed. But then again I'm not an economist. In my opinion large salaries seem to be way out of whack in many companies, when compared to lower wage workers.

Some would say gaining the bailouts was a value adding endeavor for stockholders.

Investing is a long term game. The results over the past few years are exceptional.

If CEO pay were to mimic stock performance, pay would be cut when the stock underperforms. We all know that almost never happens.

Even in the case of a Jamie Dimon, his salary was cut from disgustingly overpaid to just plain overpaid. And he's now just gotten a raise in return for his company having paid record fines.

A CEO should either be held responsible for the good times and the bad times or neither. I think it tends to be neither with some extreme outliers (e.g. Richard Branson, Larry Ellison, Steve Jobs).

Wouldn't the value of stock and stock options capture performance-based compensation?

The criticism that CEOs should suffer when the company suffers is misplaced gobbledygook. Good CEOs are required to make cuts to costs and rescue revenues during bad times. Keeping the company above the hard deck is a tremendous value to stockholders.

It also isn't necessarily the case that when a firm's fortunes turn sour that it is the CEOs fault. It isn't the line worker's fault either, so that must tell you that people don't lose their jobs in a downturn because og 'fault.'

But some CEOs have lost their jobs during bad runs, just as top sports coaches have.

Prove monopsonistic competition? Oh I forgot Liberal economists just assume monopsonistic competition because it confirms their preconceived beliefs.

Tell me again, what has been the the level of corporate profits, or, for that matter, of executive compensation during the recovery?

Objection, irrelevant.

If a corporation is claiming that it's increased profits could not be used to raise workers salaries above the minimum wage, but that it should raise the CEOs salary, how is that irrelevant. The posts premise is that if minimum wages increase that the corporation will go out of business.

Who is claiming that? I haven't heard that argument.

You're confusing "can and could" with "will and would."

And no its not saying min wage increases will put, (or even can put) a corporation out of business, its implying that said business will hire less if the cost of labor increases. They stay in business, but the unskilled laborer is left without a job.

A CEOs salary is a drop in the bucket compared to the combined payroll expenses of a corporation. An increase in minwage can easily put thousands of retail outlets out of business. What does that do for profits?

And you present a false dichotomy; the firm need not collapse to have an enormous impact on shareholders. A failed company does worse for the workers than any direct employment effect, and competition from abroad or the internet can kill a firm.

This is an odd post. You don't think this recession / slow recovery was caused entirely by a shortfall in aggregate demand, so how does your thinking change if some of the weakness is structural? And you've said sticky wages can't be the issue now ... but wait, minimum wages are bad because of sticky wages? I am confused ...

How does this all jive with a dramatically lower labor share (which had been almost constant for decades)? And why is all this a fixed pie analysis? ... These low wage workers are going to put much of the extra income back in the economy. And why talk so abstractly? The question is whether right now the minimum wage should be raised and inflation adjusted going forward. You mention in one of the linked posts that redistribution may have merits but the minimum wage is a costly way in terms of unemployment to do it. Ok, so what would you suggest? I suspect tinkering around at the bottom of the wage distribution has a small effect relative to adjusting some of the pay incentives at the top of the distribution, but it would be interesting to hear you sketch out your policy counterargument.

I would much prefer to hear your proposed solution than a logical smack down of a fictitious opponent. (Not that the latter is without merit.)

It is an argument about the inconsistencies in others' views, taking their claims about the recession and minimum wage as givens.

If one does not think raising the minimum wage is a good policy, then participating in that discussion is inevitably going to take the form of opposing the policy. Because this is not an arena in which everyone thinks there should be a "proposed solution". Saying "hey, look at this unrelated policy proposal!" is not really a contribution to the discussion on minimum wage.

Who cares? What if raising the minimum wage is the "right" policy for the "wrong" reason? If wages have fully adjusted and the structural hit to economy increased the monopsony power ... well then may be it is a good idea. Destructive arguments have their place but they stay in the margins.

If bad arguments go unanswered and policies get advanced on faulty evidence, the destructive potential is enormous. Everyone should care about opposing bad arguments, and such opposition should certainly not "stay in the margins" when major policy proposals hang in the balance.

Of course, one has to do more than that. But this is not exactly the only post about minimum wage (or policies for economic recovery) on this blog.

destructive arguments are necessary but not sufficient. QED

Can someone elaborate on the "in some situations, a higher minimum wage can boost employment" bit? I still don't get that argument. A minimum wage places only a floor & not a ceiling. So why cannot the price of labor still be bid upwards?

Plus there is the fact that monopsony doesn't really exist in the minimum wage labor market.

...and certainly can not be just assumed.

You're basically there. A minimum wage that is above the "natural" wage allows a monopsonistic employer to take slack out of the labor market without affecting their existing worker costs until the natural wage rises to equal the minimum wage.

Minimum wage is implicitly higher, because the government is subsidizing low wages with foodstamps and other.
Making the minimum wage higher at the moment is removing the governments transfer to corporations and moving that money to people, via unemployment benefits.
Minimum wage should be a wage where nobody gets foodstamps. Government should stop subsidizing the corporations. The only reason employers pay "minimum wage" below the substinence level is because workers take those jobs anyway, because they know they qualify for foodstamps and other subsidies. If those subsidies were gone because minimum wage is above the substinence level then workers would not take those useless jobs.

come on...

1) if your choice is between x less than you want to and earning y less and y < x then x is beneficial to you anyway even if it is below what you would want to earn

2) "corporations"? I guess it sounds more evil than "companies"

3) foodstamps is not a transfer to companies. It is a benefit for private people

4) re. minimum wage = no foodstamps, what about not taxing people earning less than the minimum wage level instead?

5) companies can also choose to not employ anyone, how does that help the poor?

6) your entire argument basically confirmation of what Jay said a couple comments up in the thread.

3) If food stamps affect the reservation wage, the minimum wage certainly can affect corporate wage expenses. But it only affects them if labor demand is extremely low. For example, many baby sitters work for below minimum wages. The fact that they get free room and board as well as other expenses paid makes that possible.

yes, that is correct. Now the million dollar question becomes. What if it was not allowed to provide free room and board to baby sitters but they instead had to be paid a "minimum wage". Would we have more or less baby sitters? The obvious answer is that we would have less as a number of the people who could afford to provide a low wage + free room and board to baby sitters cannot afford to pay them a full salary (I could e.g. afford the first but not the latter) and they would therefore seek alternative ways to take care of their children.

The only reason employers pay “minimum wage” below the subsistence level

Subsistence!

Do you actually think that people would die working for $5.00/hour without food stamps? More of the subsidy probably goes to the landlords than to employers and not much goes to the landlords. I think that sans SNAP people would be more motivated and so more likely have a lower reservation wage.

Also many very small businesses pay minimum wage some of these are not even corporations.

Also keep in mind that even with the minimum wage law many people work for less that minimum wage.

“The bottom line is that a lot of the arguments for a higher minimum wage are inconsistent with or in tension with a demand-driven labor market slowdown. And I don’t exactly see the world rushing to point this out.”

Believe the inconsistent argument is based upon: it will work this time, like it didn’t work last time and will not work next time. Intentions are paramount, results to be discarded.

I don't understand this post. We're nowhere near a recession--annualized GDP growth last quarter was over 4% and is set to continue growing for 2014. Why are you talking about recessions now?

1 quarter does not a trend of strong growth make.

No one said it did, Yancey. But the lack of a strong growth trend is hardly the same thing as a recession.

GDP growth has been erratic, and you are cheery about an upswing.

I don't think he is talking about recession, per se, but rather the timing of policy initiative.

The fact that this question - fairly straightforward and probably testable using a computer model - can be argued from both sides without an honest-to-goodness actual true answer, is (further) evidence that econ is on par with witchcraft, religion, or at best archaeology.

Apropos of nothing, my econ professors always told me an R-square > 0.3 was considered good by econ standards.

In general, I am against the minimum wage.

But, the constant harping on the minimum wage also shows that right-wing economists have basically lost their marbles.

We are talking about 1.5 percent of the labor force earning minimum wage, and that wage is down about 30 percent in real terms from the 1960s.

In places like Los Angeles, it is almost impossible to pay minimum wage and retain any sort of workforce. The minimum wage has been eclipsed by reality.

About 1.6 million workers make the minimum wage in the United States.

There are almost as many lawyers--about 1.2 million--as people earning the minimum wage, and every practicing lawyer is licensed, essentially part of guild, and extracting rent.

If you get sued, you basically have to hire a lawyer. If you ever hired a layer, the hourly rates are unbelievable. Seriously, there are lawyers making 100 times the minimum wage. The damage done by lawyers must vastly exceed the economic damage done by the minimum wage.

There are also 3.7 million veterans collecting monthly disability checks from the VA. This is more than double the number of workers earning minimum wage. (Less than 100,000 of those vets collecting disability were injured in battle.) These disability checks are a work disincentive.

But what do "right-wing" economists keep getting steamed about?

The minimum wage. Over and over again, the minimum wage. You know, it is those people making $7.25 an hour who are pulling America down.

Reminds me of the other study focusing on hairdressers & landscapers for licensing burdens and forgetting doctors and lawyers.

I don't think this is a left or right issue. Problem is our debates are far too much ideological and far too little pragmatic.

Got to agree with you on this one. Tyler has become incredibly ideological in just the past few weeks. I have no idea why, but it's sad to see.

I disagree. Tyler has his own preferences, but more than any other economics blogger I've seen, he gives equal time to both sides.

He posts things as he sees them, and if the preponderence of recent literature favors one side, it will appear to be imbalanced coverage. The balance will also be affected by the breadth of his sources.

Again, I frankly don't see many attempts to tell the other side of the story on the blogs of Paul Krugman, Brad DeLong, Mark Thoma, Bill McBride, or Menzie Chenn.

To clarify: I wasn't targeting Tyler. I was criticizing the Justice institute for studying licensing burdens but merely at the bottom. It's like a drug war where you only go after the low value targets like street corner drug dealers.

Yes, I would have to agree. Alex, on the other hand, wears his biases on his sleeve. Perfectly fine - it makes identifying a Tyler vs an Alex post pretty easy to do absent attribution.

The only example I'd disagree with is Bill McBride. I might guess his political persuasion but I feel I could be easily wrong.

" forgetting doctors and lawyers."

Not forgotten. 90% of these discussions are about doctors and lawyers.
Once in a while it's interesting to see how licensing affects others.

But there are people who sincerely believe that a higher minimum wage is bad news for unskilled workers. This is not about my willingness to pay an extra 50 cents for a cheeseburger.

1) The number of people making exactly minimum wage is not the relevant figure. It is how many make near minimum wage. When I worked retail, it was not long before I got a .15/hr raise. Incremental raises are quite common in such jobs, as is paying a starting salary slightly above the minimum. If someone is making $7.40 or even $8.40, they will still be affected by a large minimum wage increase. It is not easy to find statistics on how many people make close to the minimum, but it is surely many more than 1.4 million.

2) Raising the minimum will also push the cost of labor up as a whole. Indeed, this argument is frequently made by people in favor of increasing the minimum. Even more than the people working at or near the minimum would be affected.

3) The only reason "right-wing" (to use your term) economists are talking about this now is because the left is pushing a wage increase. To turn around and act like conservatives are the ones always bringing it up is silly.

Benjamin,

It's part of the President's agenda, and there have been people vocally marching recently about the topic. This is hardly a topic being kept alive by the right.

Proponents themselves claim that raising it to $10 will affect 20 million or more workers. We consider it a labor crisis when unemployment increases by just a few million.

I agree with Ben. The data on minimum wage policies is still inconclusive, despite what conservative economists would have you believe. There is one thing that is pretty certain though, small increases in the minimum wage do not have the earth shattering consequences that many interested parties might want us to believe. Let's make working more profitable then finding creative ways to take advantage of government programs.

Also, I don't think monopsony is used all that often from the left. It is often attributed to the left by the right, but that's because real liberal positions are difficult to argue. A minimum wage, like taxes, guilds and interest rates are about wealth distribution. It seems obviously problematic to have small groups of wealthy individuals controlling growing shares of the national economy. Not just ethically, but from the perspective of creating a sustainable system. It would be great to eliminate barriers to entry and guilds and tax shelters, but that's not happening. The poor are the only ones not being represented in this "market place" and libertarians should stop taking the easy win.

The left doesn't use the word monopsony but that is just because they don't know the definition. Their argument is still based on it.

Oh, and by the way: interest rates are not about wealth distribution.

It does not follow from "the data...is still inconclusive" that everyone should just get over it and support the left's position. It does not even follow that you should support the position.

Even if you think we should help the poor and let everyone else take a hit (a perfectly respectable position), it is not clear that raising the minimum wage does that. Many people benefiting from the policy are in non-poor households, and it may be that eliminated jobs hurt the poor more than higher wages help.

Often the appeal is that these wages are somehow 'earned' rather than being a handout like transfer payments. There was a post here several weeks ago about the complementary policies of minwage and thr EITC.

The EITC is paid for through distortionary income taxes, but you are correct that they distort markets far less than minimum wage.

As was talking about by David Henderson over at EconLog, if you truly want to help the poor and unskilled the minimum, while not even being effective (as others have pointed out), it is not FAIR. If we as a society decide we want to get money to these people we shouldn't tax the only people (the employer) actually helping them to begin with to do it. Taxpayers should pay for it if they are going to vote for it as is done through the EITC.

Right wing economists get steamed about government forays in the market, especially when they are unnecessary and harmful. They set a precedent for more adventurism. They are seen as vote buying with taxpayer money.

"In places like Los Angeles, it is almost impossible to pay minimum wage and retain any sort of workforce. The minimum wage has been eclipsed by reality."

And this is why a national minimum wage is a bad idea. Because raising it high enough to be useful in Los Angeles is going to result in higher unemployment in Southern Georgia. Let each state decide what its minimum wage is going to be.

Is it so hard, to allow other people living in other states to make a different choice?

High cost states and cities already do have higher minimum wages. I agree with your sentiment that such policies are better implemented at the state level or lower, and there is a serious constitutional question about whether the federal government is empowered to institute minimum wages. The regulation of commerce might be justified if buyers of low skill labor have market power, but the burden of proof would be on the proponents.

I think discrimination was one of the driving forces of minimum wage. If you observe employers in southern states paying black field workers very low wages, it appears that there may be a federal civil rights interest in local market conditions.

I would really like to know what illegal immigrants are paid to better understand what is going on. Do they get sub-minimum wages? Do they have payroll taxes? Do employers violate OSHA and other occupational laws? Or do the eager migrant workers simply provide high labor output for the wages and conditions they get?

"I would really like to know what illegal immigrants are paid to better understand what is going on. Do they get sub-minimum wages? Do they have payroll taxes? Do employers violate OSHA and other occupational laws? Or do the eager migrant workers simply provide high labor output for the wages and conditions they get?"

From what I hear, the answer to all those questions is mixed. And it almost certainly varies depending on the regional effective wages. Here's what I've heard, primarily through family in the construction and landscaping industries:

"Do they get sub-minimum wages?"
Occasionally, but it's not the rule. And it's generally set up as a contract, so it's impossible to prove. IE, lowest bid for lawn care or a house foundation, etc. I've got family in both industries, and many people working in the landscaping industry believe that you can't make minimum wage for basic lawn mowing. They don't even try to compete with those jobs anymore, but specialize in the more complex work that requires some specific occupational knowledge.

Fifteen years ago, the same situation was prevalent for hanging sheet rock, laying block and stick framing (2x4's walls and the like), but many of the non-illegals have moved out of the industry and the prevailing wage is more than minimum wage at this point even for illegals in my area.

"Do they have payroll taxes?" The bids are on a contract basis, but my understanding is that trying to avoid taxes is the easiest way to get caught. From what I've heard, they may actually pay higher income taxes, because the person that negotiates the contract treats it all as personal income, and then pays everyone working under him with cash. So, that person would pay all applicable self employed payroll taxes and it would probably be a wash, unless the person is making more than the SS cutoff point, roughly $115K.

"Do employers violate OSHA and other occupational laws?"

Well, I've actually seen plenty of those examples. But honestly, technical OSHA violations are rampant in the construction industry. Furthermore, OSHA regulations are so tight at this point, that almost everybody not working for a large company is in violation of the rules. Have you seen a crew shingling a house recently? OSHA rules would require them to be tied off at all times for anybody working higher than 24'. (And depending on how you interpret the particular rule, it may be higher than 15', or even higher than 6'). It's quite obvious that most often, no one is tied off. It's also obvious that anybody working on a two story residential house is probably exceeding that height.

https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=INTERPRETATIONS&p_id=23870

"Or do the eager migrant workers simply provide high labor output for the wages and conditions they get?"

Yes, this. The more low skilled immigrants you have the more eager they compete. If they are illegal, they are eager to find work and hesitant to complain about unfair practices.

Thank you. Very informative and rings true.

I have my own legal immigrant at home doing house work. I was afraid I was over-paying her. :) She is definitelty skilled labor.

I was most interested in hearing about the contract. That explains why I see (apparent) illegal immigrants working on public construction projects.

Is it so hard, to allow other people living in other states to make a different choice?

As I keep being told, that's code for slavery.

In the novel Perfume, by Patrick Susskind, a French nobleman around the time of Louis 14th advocates increasing taxes on the poor to encourage them to work harder. I thought this was a parody. I was wrong. That nobleman is alive and teaching economics at an American university.

With a backward bending labor supply curve, that would work. The model usually refers to highly paid people, but when in-kind transfers and a strong preference for leisure dominate, it is possible to see that at low wages.

The pro and anti minimum wage arguments all seem to revolve around economics, which isn't the crux of the issue. Minimum wage regulations inject a third party into voluntary contracts between two parties. Maybe we've managed to get by the prohibition on consensual gay sex because the economics aren't as apparent but macroeconomics can't seem to resist digging into minimum wage, which tends to lend unearned legitimacy to the discussion. Leave people alone.

Fully agreed. This also highlights the point that it is those to want a (higher) min wage that have to prove that it is a good policy and not the other way around.

You are correct inasmuch as this type of law has implications on freedom to contract and limitations on the scope and scale of government.

The economics discussion is appropriate because unlike gay marriage, this is a direct intervention into the economy. Economics is also used in the policy debate. This is mainly an economics blog.

I also agree with Emil on the burden of proof. Any infringement of liberty must, at least, have a well documented and cogent basis in a balancing test.

In July 2008, the second in a series of minimum wage hikes was implemented.....just after Congress had passed the first Emergency Unemployment Insurance extension in June, because of concerns that laid off workers were having trouble finding jobs quickly. In July 2008, I wonder how many workers were thinking that walking into their boss's office and demanding a raise would be a good career move.

http://idiosyncraticwhisk.blogspot.com/2014/01/minimum-wage-bad-luck-policy.html

I always thought the justification for a minimum wage policy was price inelasticity of demand. By this line of thinking, the minimum wage goes up, labor costs go up, and employers raise their selling prices to cover the increased costs, with returns to capital staying essentially constant. The consumer, however, refuses to change behavior, and continues to purchase the same volumes as before, but at a higher price. Thus, if the price of a Big Mac meal goes up, then consumers will accept this as "it's only a small amount", and in effect, the budget constraint is avoided because, "it's only a small amount". Rounding somehow trumps accounting equivalencies. I confess I've seen such behavior in myself, where my lunch place increases prices and I pretty much swallow it.

The weakness of this argument, however, is that those very same minimum wage people seem to be McDonald's customers, and many of them are subject to very strict budget constraints. Hence the reason McDonald's advertises Dollar Menus--because for some customers, a dollar would seem to be sufficient inducement to get them to patronize the place. Thus, it seems probable the a passed-on price increase would likely lead to decreased selling volumes, and thus most likely to decreased employment (or at least no more employment).

But in any event, I thought the argument rested on the consumers willingness to accept higher prices, rather than the fear by employers of driving up wages. I can't imagine the owner of the local McDonald's in, say, Fairfax would be concerned about driving up wage levels in his area. It's seems quite far-fetched, and I am surprised min wage proponents would have made this case at all.

The relative performance of the S&P index of restaurant stocks has a very strong positive correlation with real wages.

I think the justification for a minimum wage is more so that people fought for and obtained it. Any economic pluses are nice, but in particular at the time that minimum wages became commonplace, I think many would have seen more distributional questions between labour and capital. In a sense, I think many continue to regard it that way.

They fought for a MW to prevent immigrants and non-whites from competing for labor. Is this really a fight worth continuing?

Well so long as the immigrants and non-whites are entitled to the same legally guaranteed minimum working conditions, including wages, then yes. The fight will never be over. Those who pay wages want to pay the lowest amount of wages required to attract the talent they need. Those who earn wages want to earn the highest income they can, ideally without pricing themselves out of the market. This will not change.

Large companies who pay thousands or even hundreds of thousands of workers somewhere near the minimum wage will always want to organize themselves to lobby for the best conditions they can obtain for themselves (generally speaking, I assume they would prefer a lower minimum wage). It is only natural that the rest will want to do the same. This is an important aspect of what we call democracy.

In any case, as we move towards a fully modernized and advanced economy, why would we want to create conditions where major portions of society are competing for low value (or often just poorly remunerated work), when we should prefer (I argue) conditions where businesses should be creating employment of ever-improving quality, including with respect to wage conditions.

Empirically, I doubt recessions are the best time to raise the minimum wage. Politically, I think it's a different story.

Re the previous post, apparently minimum wage increases produce recoveries.

I keep asking the question "Do your local union contracts have a provision for raising wages if the minimum wage increases?" What about your state workers?

The high-cost states want the low-cost states to subsidize their lifestyle. Minimum wage would seem to go farther in lower-cost states, wouldn't it?

I think most minimum wage supporters would support indexing to avoid this. Would any opponents?

The cynic in me says that political supporters would not since it would take the issue off the table for elections similar to open immigration.

I think recessions or labour downturns are a time where governments should be more concerned about enforcing minimum labour standards than raising them. For example, the unpaid intern receiving questionable training value (often similar to that required to begin any position) will not see any gains from a higher minimum wage, because they are paid little or nothing in the first place.

These models seem way to abstract compared to actually running a business. The employer tries to hire as few people as possible and pay them as little as possible. That's just good business. And so when the labor market is slack, it is easier to pay minimum or close to it.

So raising the wage can't directly reduce employment because it is already as low as possible. But it can reduce employment indirectly if the cost increase is passed through and some consumers reject it. On the other hand, the employed have more money to spend (and at that income level they probably will spend it), so that improves aggregate demand and maybe creates some jobs.

Isn't that the whole process at work here, not some decision to hire based on the price of labor?

Raising the minimum wage allows you to buy votes with other peoples' money.

It's called representative democracy. And for a change someone in Washington is actually representing the people who work like dogs every days for very low wages.

As opposed to corporate efforts to buy votes left, right and centre throughout American politics, this is a political effort to attract votes by giving working Americans what they want: a raise.

If you can't afford to pay the minimum, then find a way to organize your business where labour adds more value (in that sense it could function like an incentive for improving actual productivity) or get into a new line of business.

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