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One of the things that the new Congress just had to get done in its first 100 hours (which weren’t literal, but non-procedural hours) was to pass an increase to the minimum wage. This had to be done, they reasoned, because of the people that work at minimum wage that have to support a family.
However, I find that it actually has more effect on teens and in job losses than what they believe it does.
Example #1:
My father’s church would really like someone to come in and answer the phone. Not a full time thing, it would only be half a day and the person they have in mind is the Associate Pastor’s daughter. However, if they were to actually hire her, they’d have to pay her the minimum wage to sit and do homework and answer the phone if it rings.
This is ludicrous. Because of the minimum wage being what it is, the church can’t afford to do this– and has an ethical alternative. They can have someone volunteer their time, and the church could give that person a gift– if the church so chose. They do not have to give the gift, and the person volunteering should not expect to get anything.
Example #2:
The new wage hike is hurting teens across Arizona. People that even voted for it are realizing the impact. Basically, they raised the wage, which raises the cost of employees, which causes managers to cut back. How does it work, observe this example:
Tom Kelly, owner of Mary Coyle Ol’ Fashion Ice Cream Parlor in Phoenix, voted for the minimum-wage increase. But he said, “The new law has impacted us quite a bit.”
It added about $2,000 per month in expenses. The store, which employs mostly teen workers, has cut back on hours and has not replaced a couple of workers who quit.
Kelly raised the wages of workers who already made above minimum wage to ensure pay scales stayed even. As a result, “we have to be a lot more efficient” and must increase menu prices, he said.
So, the wage goes up. In order to remain profitable, the prices all go up. The wages of workers that are at the new minimum have to go up to see fair. And people had to be let go. And what really did this accomplish for the teens?
- Some learned that it was smarter to wait until after college to find a job.
- One place for a teen to learn responsibility was closed– since there are limited number of positions, and those that are less responsible (i.e. need to be trained) are the first to go.
- Inflation- prices go up, wages go up. “Hey, I’m now making $8.00 an hour. Boy, it still costs ‘a whole hour’ to eat at McDonalds!”
“Workers affected by the minimum-wage increase are less likely to be supporting a family than the typical Arizona worker,” it stated. “For example, 30.4 percent of the workers are living with their parent or parents, while only 7.6 percent of all Arizona workers are in this category.”
That’s why I’m for the market determining the wage. I don’t want to see any mother of five working minimum wage and trying to support her family. But just how typical is that? What’s the percentage compared to the percentage of teen employees? We want our kids off the streets and to learn responsibility, but we keep legislating them out of a job!
If we follow this logic, then you could argue for a differential minimum wage for teens, up to (say) the age of 21.
However, not all the downsides of the minimum wage really exist. If 10 companies all make similar products at similar prices and pay their workers the minimu wage, then if you raise the cost of workers for one company, then they will go out of business. But if the minimum wage is raised for all, then their relative costs stay the same. There is no adverse economic impact.
As you indicate, increased costs will be passed on eventually, and this feeds into inflation – but not in proportion to the wage rise, because only one cost has been raised, not all of them (and the profit margin is presumably not raised either).
So what is the end result? The wage of the lowest paid in society edge a little closer to the average wage – the wage differential is decreased.
Societies with the greatest inequality yield much greater dissatisfaction than the more egalitarian societies. In a recent study, it was shown that the US and UK are the worst places to grow up for children in the industrialised world. The reason for this is largely down to the huge inequalities in our society.
Is your minimum wage $8.00? If so that is lower than in the UK – and yet the UK minimum wage, when it was introduced, did not cause the widespread economic chaos that was predicted for it.
The problem with your logic is that the givens don’t reflect the real world. Rarely do people that pick up a minimum wage job stay at minimum wage. Also, the amount of time it takes to gain the differential from minimum wage is can take some time– only to be eliminated by a forced minimum wage increase.
So, one teen works at minimum for $5.00 and a good performing one works at $6.00. If the government raises the minimum wage to $7.00, it would probably be fair to raise the higher person to $8.50, but more than likely the employer (at least for the short term) would only be able to pay $7.50. They will then tell the employee that they got a good raise!
But, then you need to take this to the higher paid people. The same time that the minimum wage increases to $7.00, the $25.00 an hour worker will probably only get a small raise, say .75 or none at all. Since the prices of good go up, you’ve effectively given these skilled workers a net loss.
So, it’s great if you’re a socialist and do not believe in better pay for more work, but if you’re a capitalist and believe that you should be rewarded for the quality, skill level, and length of time served then this is inequatible.
While it’s certainly possible that the UK and US are surveyed to have more dissastifaction, these two societies also have the highest levels of development, etc. There are more motivation factors, and you do not have a depressed upper class who feels that they can’t make more money for more work.
There should be no reason why the $25.00 p.h. worker should not receive at least an inflationary rise. Labour is only one cost, so even if a rise in minimum wage is ahead of inflation and earnings, the rise for other employees can still be in line with inflation at least.
I don’t think I am a socialist or a capitalist! But I don’t see any justification for low pay with the level of inequality we see in our societies.
You are right that the upper class is not depressed – but there is lower social mobility than ever before, and the richest 1% of people in the US own a third of the country’s wealth. I note, however, that in more egalitarian societies, such as Norway or Denmark, the upper class are no more depressed, and people generally are less dissatisfied, even if the overal national wealth is a little lower.
Oh, I might agree that, hypothetically, there should be no reason that the $25 an hour employee should not get the raise, however, every cost on the employer has risen, so in order to maintain profit, something has to give.
The cost of labor increased (by design), the cost of materials went up, because of the cost of labor down the supply chain, and he’s had to raise the cost of his goods– but (especially in the initial adjustment period) he has to keep competitive otherwise he’ll be out of business all together.
To me, supply and demand should dictate how much people are paid– those that are more in demand get paid better than the jobs that require little to no work. Now, I’m not against charity, but why should the government be the arbiters, on such a sweeping scale, of who is worthy of more pay?
I understand that we cannot trust that business owners always have their employee’s needs at heart, but why should I trust the government to. If your logic is right and all we’ve done is move up the bottom line and almost maintained status quo (except for the “tax on the rich”), what has the government accomplished except to tell itself that it did something?
As far as dissatisfaction, I’d like to see a breakdown there. I once read a study that said that what you really needed to supply your needs was $40K. Yet everyone wants more. Is dissatisfaction because of class envy, or any other envy for that matter? Is the fact that we live in the most wealthy society on Earth where people expect to have everything the problem?
Perhaps, to increase satisfaction, we should mandate some time spent in the Peace Corps or in missionary work to third world countries. Dissatisfaction sound like something that’s a selfishness problem more than a problem with the economic system.
I agree with you, MIN. The most serious consequence of this trend, I believe, can be seen roaming the streets: gangs of youths with nothing to do that’s productive.
The trouble with the thinking that leads to minimum wage increases is thinking that a minimum wage job should equal a family wage job. Not everyone who is able to work and contribute to society needs to be able to make enough money to support a family.
So in practice the teen-age boys end up roaming the streets or playing video games and the teen (or younger) girls get $8 an hour to do child care at church.
As labour is only one cost downstream too, then the rise in labour costs only raises the downstream costs by a fraction of the full percentage rise in minimum wage. We can account for all labour costs in the system, and raise them all by x%, and still the raise in the cost of the final output is y% where y
Hmm…
I must not put less than characters in my comments. I’ll try again.
As labour is only one cost downstream too, then the rise in labour costs only raises the downstream costs by a fraction of the full percentage rise in minimum wage. We can account for all labour costs in the system, and raise them all by x%, and still the raise in the cost of the final output is y% where y < x. This is because there are costs that are not subject to labour costs (such as energy and raw materials, whose price is controlled by supply and demand).
What is more, many of the labour costs these days will come from third world countries, as companies – left to the laws of supply and demand, will use cheap third world labour where they can. We cannot compete with the cheapest labour overseas.
In the UK, the minimum wage translates to a little more than US$ 10.00 per hour. Without such a minimum, and using just supply and demand, employers would pay substantially less, to a point where the worker cannote earn enough money to actually live. At this point the state steps in with income support. The result is that the employer’s legitimate labour cost is transferred to the public sector, and paid for by the tax payer.
The biblical principle is that the workman is worth his hire.
So supply and demand can dictate the level of pay, as long as the level of pay does not fall below some minimum, after which the state would have to step in.
But supply and demand is not particularly fair. In the UK plumbers are in demand, to such an extent that a couple of years ago a University lecturer gave up his job to retrain as a plumber.
When steam transportation was developing, the engineers who drove the trains were highly sought after and highly paid. The result – many people learned to become engine drivers, and wages crashed.
So supply and demand is not a perfect system. It has its merits, but it does not follow that if you work hard then you earn more.
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As to the other points, I will try and get some figures together, but it may well be that envy is part of the reason for dissatisfaction. But it may not be. All I remember is that societies with high inequality are generally more dissatisfied.
As to your point about living in the most wealth society on Earth – don’t fool yourself! The most wealthy society is Bermuda with GDP per capita almost twice that of the U.S.
However, Bermuda is a British dependent territory, so if we exclude it and look only at national statistics, then Luxembourg in fact takes the top place with a GDP per capita about 1.5 times that of the US.
I grew up in Australia and landed my first part-time job at the age of 14yrs 9mos. This was the minimum age you were allowed to go out and get part-time work. There were minimum wage “tiers”, based off your age. A 14yr old might make $5 AU an hour while a 16yr old would make $6 AU (just an example). At some point, probably 18, the minimum wage reached it’s peak and any “adult” thereafter would be paid the same in minimum wages.
I think it’s fair to say that teenagers of various ages have differing needs; but I think it’s also fair to say that a 17yr old teenager ought to be paid more than a 14yr old teenager and so on. At 14 and 15 you’re probably thinking pocket money for CD’s (ahem, MP3’s) and going to the movies. At 17 you are hopefully further along in responsibility and giving some attention to future needs. Essentially the needs of a 17 year old are and should be greater.
I reckon the minimum wage system in the USA should be tiered in such a way. It certainly should be higher for adults; but I don’t believe paying a 14yr old to answer a phone if it rings at the same rate as a manual labourer struggling to provide for them self or their family.
For me, I think it should be pretty much supply and demand. As a business owner, I’d like to be able to agree on a wage without having the government tell me that I have to pay a certain minimum. It I want to hire you to carry a phone that only goes off once a week, I shouldn’t have to pay you minimum wage. It should be fair, but that is what basing it off of supply and demand does.
What it doesn’t do is let you get away with counting on the government to bail you out. Why should farmers get subsidies if they’re over producing? Certainly the government could buy some of the product, but if milk is really only $1.00 a gallon, then let it be that, don’t inflate the price.
It’s the same thing with wages. If I can get a kid or someone to do something for me at a cheap rate, then why shouldn’t I be allowed to? If they do a good job, or there’s someone more expensive that can do it better, why can’t I have that option?
I find it interesting– on Stephen’s part– as someone that argues against IP and uses a free browser to also take the side of government intrusion into worker’s pay.
The only legitimate purpose of government is to protect the populace. Laws that protect corporations from the populace without adding any legitimate benefit to the people are unjust (thus my position on IP) and people who co-operate to share IP make better progress than corporations who restrict their IP for commercial gain (thus my feelings on OSS). But the issue with the minimum wage is protection of the populace from corporations.
Either we allow less than a minimum living wage, in which case the state (and thus the people) must make up the difference – just so the company can swell its coffers and pay the richest people more, or else we can legislate a minimum point, below which companies may not legitimately pay their workers, to protect the workers and the people from the actions of the company.
There is no such thing as a truly free market, and that is a good thing. Companies are also not allowed to sell substandard product that could be dangerous. Why? because if they do, then whilst they can fatten their profits, society picks up the tab in terms of personal injury, damage to property, medical bills, repair bills etc.
Thus there are minimum compliance standards for consumer protection.
Whereas I think you’re spot on about government having a standard as far as quality and safety, I’m still not with you on the government’s need to mandate a minimum living wage. I think I could go as far as to say that the government could be justified mandating a minimum wage, but the fact that they’re taking an approach that forces all sectors to hold a wage that impacts the cost to the same people in that way seems to be anti-incentive and rewards those on the bottom and does not benefit the middle class.
Again, just like you generalize to say that employers will pay next to nothing to the poor and keeping paying the rich more (setting up class warfare), I say that when the minimum wage increases the middle class that’s paid more than minimum but less than the rich ends up not getting that increase in order to cover costs. So, if you’re goal is to eliminate the middle class, then raising the minimum wage is the thing to do.
You know about paying teens based on age… When I was 16 I was a better fast food worker than many 17 year olds. Why shoudl I then have been paid less due to age? We have anti age discrimination laws in the US. I think they apply to this idea.
just my two cents
Being an outsider who lives on the inside; one of the biggest problems with the USA is that every single issue seems to have a divided following of roughly 50%…
Min, I think that the impact of the minimum wage is where the market and supply and demand *do* take over. If there is a mandated minimum wage, and a more highly skilled worker resents the fact that his pay is only marginally above the minimum wage earner, then that worker is going to look for work elsewhere. If those skills are in demand, they will be able to find more highly paid work at the same level through market forces. Thus the minimum wage will generally cause increases for all lower paid workers, including those with higher skills.
Is it the case that the middle class in the U.S. is actually earning close to the minimum wage? I would have thought that they were earning substantially more (in which case the edging up of a minimum wage will not impact them except perhaps in terms of envy. Even then, not so much. I don’t envy anyone in the UK taking home just the minimum wage).