> Their evidence rests largely on comparisons between neighboring areas with different minimum wages. The seminal study in this vein examined fast-food restaurants on both sides of the Pennsylvania-New Jersey border before and after New Jersey raised its minimum wage in the early 1990s. It found no evidence that employment there fell as a result.
This is often cited in publications that generally support a higher minimum wage. It is unfortunate that this is never challenged as there are studies that show that an increase in minimum wage does in fact result in lower employment:
> Raising the minimum wage would increase family income for many low-wage workers, moving some of them out of poverty. But some jobs for low-wage workers would probably be eliminated and the income of those workers would fall substantially. [0]
Logic itself would suggest that an increase in minimum wage would result in at least some unemployment:
No employer would hire you if you make them less than the amount that they have to pay you. There are people that make more than the old minimum wage and less than the new proposed minimum wage. Therefore, those employment opportunities will no longer exist. It may not happen overnight as there is some momentum, but you can't deny this effect. Also, you can't exactly measure the people that would have been hired with a lower minimum wage.
The other interesting this is how vernacular plays such a strong role in people's opinions. Imagine if "minimum wage" was replaced with "prohibition of employees whose contributions to employers is less than the mandated minimum amount of finding legal employment"
Your assertion may or may not be true, but there's no way I am willing to accept that as "logic". Your assumption is that the profit margin on labor is 0% which logic would suggest is pretty universally false.
Here's my logic, maybe you can help me find the flaws in it: businesses are trying to maximize sales and minimize costs, which means they have the smallest possible workforce required to support their current sales. Less staff means less sales. They are also making some profit. As long as the wage increases are less than their profit margin, they have no reason to fire anyone. They lose revenue if they fire anyone, or they would've already done it.
So to me he relevant question is: what is the ratio between profit and minimum wages at most companies? I looked at Wal-Mart as an example and they make way more in profit than they spend on wages.
In traditional economics you want to look at marginal cost versus marginal revenue. If it costs you $10 to produce another widget you can sell at $10.01, you will in order to maximize profits.
You will hire people up until the point where the marginal revenue that employee provides is equal to that of the marginal cost of that employee.
Of course companies make profit, but that's because the marginal cost curve is upward past a certain point. So on average, the average cost is less than the marginal cost
A visual representation explains it well. When you talk about profits, you're talking about average cost. When you're talking about whether you should hire an extra worker, you're talking about marginal cost versus marginal revenue.
> if you make them less than the amount that they have to pay you
You assume we are already paying everyone fairly for the value they create. That's... possible, but it's also possible that a lot of people are paid far less than the value they create; raising minimum wage makes the job less profitable but not unprofitable.
I find it interesting that when the government distorts a market via pricing controls, taxes, or other means, the law of unintended consequences almost inevitably kicks in and it's result is either "bad luck" or calls to "fill in the loopholes!" Distort the market and people are rational-enough agents and will change their behavior, just not necessarily entirely in the way you hope/want. There is no free lunch.
Either the economic distortion makes it cost-effective to pay people to find ways to dodge the distortion and come up with strange, but legal, means to avoid it, or there are shortages, or the price of things go up.
It's like trying to squish one part of a water balloon -- the other part of the balloon will deform in some way.
Some examples: "The Double Irish arrangement" for tax avoidance, ObamaCare effectively limiting part timers to 30 (or 35, I forget which) hours/week, or strict zoning laws causing property values to skyrocket due to lack of supply of housing in SF.
I don't believe that raising the minimum wage will trigger businesses to cut jobs significantly. They will probably pass the higher cost onto the consumer. Ultimately, it's a method of wealth redistribution, which is sorely needed in our economy.
Passing costs on the client isn't something you can just do. Many products and services have elastic demand. Fast food, for example, has been has found it very hard to raise away from their dollar menu pricing.
Businesses don't have to cut jobs either. They just have to move them.
Edit2: Costumers can also shift to lower cost alternatives. Online retailers have less overhead and lower labor costs. If you make Walmart more expensive than Amazon, Walmart will shutter stores laying massive numbers of people off.
Edit: Some economists have argued that past raises in min wage have not made noticeable impacts in employment. But this is way outsides of a normal rise in minimum wage. Going to 9 or 10 makes a lot sense. 15 dollars will put people in most of the country out of work.
> Costumers can also shift to lower cost alternatives. Online retailers have less overhead and lower labor costs. If you make Walmart more expensive than Amazon, Walmart will shutter stores laying massive numbers of people off.
Yes, that's a good reason why we shouldn't subsidize capital intensive businesses over labor intensive business by taxing capital income less than "normal" income and then adopting additional taxes on labor income on top of normal income taxes, but should instead treat all income alike for tax purposes without regard to source (and also, therefore, for benefit-eligibility purposes for past-income-qualified benefits for which dedicated taxes on income are taken to fund benefits.)
> But this is way outsides of a normal rise in minimum wage.
Not really. The article claims that $12 in 2020 would bring it above its 1968 peak level in inflation adjusted terms (the 1968 peak level, $1.60, is about $10.97 now, so $12 now would be a little bit ahead of it, with 2% annual inflation from now to 2020, $12 would be almost exactly the 1968 peak level.) So, a $15/hr. federal minimum wage in 2020 would be a higher-than-historical minimum wage, but not by a large margin.
And a little-over-doubling from 2009 to 2020 wouldn't be an unprecedented jump over an 11 year period, either (from 1945 to 1956 it got a 2.5 multiple from $0.40 to $1.00 -- and over 12 years, from 1938 to 1950 -- it tripled from $0.25 to $0.75.)
But you also have to compare PPP, cost of living, and unemployment rates.
Australia's PPP adjusted minimum wage is 10.50 USD.
It's very possible that Australia's min doesn't hurt employment and it would in the USA.
It's also plausible that Australia's recent increase in employment (while US is hitting post 2008 lows) is partially caused by too high of a minimum wage.
>15 dollars will put people in most of the country out of work.
So be it. Can't find a job that offers a living wage? We provide a social safety net and increase taxes on the wealthy to pay for it.
Make more than a million dollars a year? 95% marginal tax rate. Tax rates are the lowest they've been in the history of the US, and all we've seen is a disgusting level of income equality.
>Make more than a million dollars a year? 95% marginal tax rate.
That is just a bad plan. You are essentially outlawing income over a million.
If you didn't apply it to capital gains, you are just fucking over lawyers, bankers, consultants, and CEOs. It would actually lower tax revenue. Because all that money that is getting taxed over a million a year would disappear. And the truly mega rich would actually be better off. No more having to pay high priced lawyers, bankers, and CEOs.
If you tried to place that restriction on capital gains, everyone ounce of capital in the this country would flee.
I intend to tax capital gains just as high as well, unless its in a retirement account.
> If you tried to place that restriction on capital gains, everyone ounce of capital in the this country would flee.
Feel free to take your capital out of the country. It'll be taxed with an expatriation tax. Attempting to evade the tax will allow the IRS to confiscate assets anywhere in the world the US has a tax treaty with (ie everywhere).
You realize what would happen right? The rich would divest from all their investments permanently. They'd sell all their assets foreigners[1] who aren't subject to the tax. There is no point risking losing your investment if taxes will take any gain. It fucks the expected value of investment.
Would you take a bet on a coin flip, if when you lost you paid a dollar, but when you won you'd get a nickle.
Banks would implode. The credit market would stop. Any business survive on a line of credit would just fail immediately.
Best case scenario, you'd just replace American rich for foreign rich.
[1] if you tried to tax foreign capital gains on American assets, you'd just destroy the entire economy. There would be huge lack of capital.
Your plan is insanity.
Edit: And some country would be creative and end tax treaties with the US just to get a couple trillion of capital flowing through their economy.
"Make more than a million dollars a year? 95% marginal tax rate."
Great. Then what? Everyone currently making over $1m a year will cut their salary to $1m. Then you gotta start taxing the upper middle class -- what rate do you want to tax people making over $500k? $250k? $100k? Those are the ones that will pay for this program.
As much as you want to tax "the wealthy", there really aren't enough wealthy people to pay for everything, and it comes down to how much you want to tax the moderately successful person who is trying to pay for their 2 kids' college expenses while saving to have a retirement.
> Great. Then what? Everyone currently making over $1m a year will cut their salary to $1m.
Do wealthy individuals in other countries with a heavier tax burden (Europe, Scandinavia to be specific) do this? Would be nice to see evidence of this behavior before outright dismissing raising taxes.
Yes. Google "millionaires leaving X" and see what the autosuggestions are for X and choose one. While some are US states - NY, Maryland, etc - most are countries.
If the tax rate is 95%, a company would have to pay someone a $21 million dollar salary to pay that person $2m. I suspect that no company would do such a thing, as it's just throwing money away.
5% of a very large number is still a large number. Very few people are going to say "don't give me that extra $20 million because the government will take $19 million." $1 million is still a lot of money.
And of course, there are lots of deductions. You could give that $20 million to a charity and the government would get none of it. You wouldn't get any either, but you could certainly get a lot of indirect value out of giving away $20M.
What company is going to pay that? It's just silly. If you felt that a CEO/athlete/whatever was worth $30m a year, you'd have to pay that person $581 million dollars. They'd find some other way, that money wouldn't go to the government.
This is completely backwards. The wealthy primarily invest their money; it is mainly spent on non-consumer goods (servers, backhoes, research, etc). If we redistribute to people with a higher propensity to spend, then we are shifting wealth from investment to consumption. This will raise demand for consumer goods, hence raising prices, and causing inflation.
Note that an increase in the speculative value of real estate is NOT inflation - inflation incorporates the cost of housing (rent or owner-equivalent rent), not the speculative value of land. Similarly, it's not inflation if FB or MS goes up.
By the way, if you believe that money going into the hands of the wealthy is the best way to cause inflation, it therefore follows that the best economic stimulus is tax cuts for the wealthy. Do you favor such cuts during times of recession?
> By the way, if you believe that money going into the hands of the wealthy is the best way to cause inflation, it therefore follows that the best economic stimulus is tax cuts for the wealthy. Do you favor such cuts during times of recession?
In a recession, you want to stoke demand. Inflation isn't a worry, deflation is. You therefore give tax cuts to the people who are going to spend (ie not the wealthy).
"Overall, tax cuts for the bottom 90% tend to result in more output, employment, consumption, and investment growth than equivalently sized tax cuts for the top 10% over a business cycle frequency."
Yes, that's the point I'm making - I'm disagreeing with this: "The point of taxing them is to mute the inflationary effect of letting them keep their money."
But if crdoconnor disagrees and also is logically consistent, he should also disagree with you. Somehow I suspect he won't.
Also, your understanding of Keynesian economics is slightly confused; the goal is to cause inflation in order to reduce real wages.
>This is completely backwards. The wealthy primarily invest their money; it is mainly spent on non-consumer goods
Have you not noticed that these goods have experienced a considerable degree of price inflation over the last decade? Did houses get cheaper?
>Note that an increase in the speculative value of real estate is NOT inflation
Bullshit. If I'm spending more on rent or mortgage (which I will if property prices increase), I've experienced inflation just as much as if I'm spending more on milk, eggs and bread.
>By the way, if you believe that money going into the hands of the wealthy is the best way to cause inflation, it therefore follows that the best economic stimulus is tax cuts for the wealthy.
Depends on whose economy you are stimulating. If you just want to stimulate the price of property and stock prices, sure, tax cuts for the wealthy all round. If you want to stimulate employment for the middle classes, not so much.
If you want to stimulate general economic growth, tax cuts for the rich are awful because there is a very minimal multiplier effect. The money goes into real estate and the stock market and largely stays there.
The best way to do that is to offer a job guarantee like FDR did in the 30s or increasing the minimum wage. The spending multiplier on both of those is about 3-5.
>Do you favor such cuts during times of recession?
Rent increases are inflation, house price increases are not. Similarly, burrito price increases are inflation but chipotle share price is not. Please, understand inflation and cpi before opining on it. Also google it - inflation has been very low over the past decade.
(In fact, its my belief that we've had deflation for a while, since I believe cpi is considerably overstated. The biggest driver of inflation is health care, which is not hedonically adjusted.)
According to you, money in the hands of the poor has a higher multiplier (I.e. causes more inflation) than money in the hands of the rich. How does that not contradict your previous post? In whose hands does money cause the most inflation, the poor or the rich?
Also, your ideas about stimulating different parts of the economy are pretty explicitly not Keynesian.
Speculative property price increases won't cause an increase to rent, that's a function of what prices the market will pay for housing at particular levels of quality. It might cause somebody who'd buy a home to decide to rent instead, but remember that somebody else is currently occupying that home (or better yet, renting it out). In areas with room for development, speculative price increases on housing will make it profitable to build more housing, which will lower rents (i.e. make them rise less quickly).
Note that property price increases are often associated with increases in rent, but they don't cause the increases -- rent increases is caused by influxes of population, decreases in the population's price sensitivity, etc. Property price increases are caused by the same thing, and speculative property price increases are caused by (among other things) expectations of that sort of thing.
The big difference between houses and milk is that houses are durable goods which don't completely depreciate.
"The point of taxing them is to mute the inflationary effect of letting them keep their money."
What? How is it inflationary to let "the wealthy" keep their money vs. artificially raising the wages of the minimum wage workers?
"The primary noticeable effect of taxing the wealthy on the rest of us would be to make property more affordable once again."
Also--what? Being that we're on Hacker News, the majority of people here are probably making $100k+ a year and are solidly in the top 10% of wage-earners in the country. We're the ones driving up housing prices on a macro scale across the country, not the few people that have hundreds of millions to spend.
>What? How is it inflationary to let "the wealthy" keep their money
Because they spend it.
>We're the ones driving up housing prices on a macro scale across the country, not the few people that have hundreds of millions to spend.
Both are. The few people with hundreds of millions of dollars will buy large properties in central locations in multiple cities, shrinking the available housing stock for the rest of us.
So does everyone, they just spend it differently. Bill Gates' money isn't sitting in a checking account, it's in stock certificates. High net-worth people don't put money under their mattresses, they spend it, albeit in different ways. I don't know how to compare consumer spending vs. investments, so I can't say if one is "better" than another, but that money isn't just sitting in bank accounts.
Available housing stock on the whole is just fine in the US. Sure, you and I probably can't afford to live on Park Avenue or overlooking Central Park, but that's because those properties attract worldwide money. We're not there yet. San Francisco's housing problems aren't as simple as "some people have money". Taking money away from people isn't going to solve this.
>So does everyone, they just spend it differently.
Yes, and the wealthy spend more, so the effect of their spending is more inflationary.
>Bill Gates' money isn't sitting in a checking account, it's in stock certificates. High net-worth people don't put money under their mattresses, they spend it, albeit in different ways.
Quite. This is why the price of property is absurd and P/E for the stock market is so low. Unfortunately the middle and working classes get hit by this just as much as they get hit by rises in the price of milk or eggs.
>Available housing stock on the whole is just fine in the US. Sure, you and I probably can't afford to live on Park Avenue or overlooking Central Park, but that's because those properties attract worldwide money. We're not there yet. San Francisco's housing problems aren't as simple as "some people have money". Taking money away from people isn't going to solve this.
Oh yes it would. Hit the wealthy with huge taxes and they would end up selling those properties to pay off their tax bill. That would lead to a spiraling decrease in San Francisco and New York property prices as well as a stock market decline.
A job is not just a job to most people. It's their livelihood and purpose in life. It's very cruel to deny someone their an opportunity to be independent of the state
I don't know what work people will be doing when technology replaces everyone's work.
It's also true that were I around in 1880 I would not know what roughly half of the US population who were then farmers would be doing after automation.
For those new-age luddites who are generally afraid of technology destroying jobs, why stop at tomorrow's technologies? Why not outlaw washing machines? Surely elimination of washing machines would bring back a lot of jobs. Or let's outlaw productivity tools like spreadsheets. If people were forced to do everything by hand, surely this would create a lot of jobs.
Would you propose we eliminate any of today's technology? Why is it always that today's technologies are OK but not tomorrow's? Those will surely be our downfall.
Ironically, increasing the cost of human capital through a minimum wage will surely hasten the replacement of human capital by machines.
Or maybe just a fair flat tax on all new goods and all services at ~8%.
Everybody always pays the same percentage: tourists, bajillionaires, hobos, you name it.
Define "regressive" because when I google it I get "(of a tax) taking a proportionally greater amount from those on lower incomes". Are you talking about the wealthy having greater ability to find tax loopholes or do define "regressive" as everyone paying the same proportion of their income?
8% is going to hurt at different levels depending how much you have to spare - compare the pain caused by losing $8 of the $100 you have for the week to the $800 of $8000 for the week. One of those people is going to have to make real sacrifices, and it won't be the guy with $7200 left over.
As a general rule prices in a capitalist society are already as high as they can be. Any higher and they would be undercut. When a company becomes large and therefore able to produce goods for less money, the price doesn't fall, profit margins increase.
These large businesses are the ones paying employees the federal minimum wage. Only thing that happens is their profit margin shrinks a tiny amount. As long as the profit margin is in the black the business will continue to operate.
It puts more money into the pockets of consumers, who are the drivers of the economy.
It's not a huge number of people on minimum wage that would be affected by an uplift: in the UK in 2014, there were around 1.5M minimum wage jobs, 50% of which in hospitality, cleaning and retail (so, many not full time). The average wage shift would be virtually imperceptible and the extra spending power of those on the minimum wage does not translate to measurably higher prices (in the UK the minimum wage has rarely followed average earnings, and it's difficult-almost-impossible to measure the spending of minimum wage earners separately).
It isn't just the people on minimum wage that would get a raise. Anyone making between the current minimum wage and the new minimum wage would receive a pay bump.
I don't have the numbers, but I would guess that there are more people within a dollar or so of the current minimum wage than there are actually at the minimum wage. The trend in the US is for people to at least get nominal raises that would technically raise them above minimum wage, but well below the proposed new minimum wage.
This assumes that the economy is perfect, which is far from the truth. Prices are not already as high as they can be. Such a thing is meaningless in economics.
Because 100$ per hour is not what labor is currently worth.
The whole idea behind making the minimum wage a livable wage is to stop allowing corporations to keep wages artificially low by having workers augment their wages with government provided subsidies.
So what people are saying is, when you account for the subsidies people currently being paid minimum wage are taking advantage of, the real cost of that labor is much closer to 15$ per hour than the current 7.50$ per hour.
Shifting the minimum wage to 15$ an hour will shift many people with minimum wage jobs off of government subsidy programs, actualizing the real cost of labor on corporations and lowering the burden of our current government programs.
so this is much more than just picking a number and saying 'wages should be at least this high", its more "youre are paying X, we are subsidizing that by Y, we think you should pay all of X+Y"
Its a form of wealth distribution that's going to have the largest negative impact on the lower and middle class. I agree we need to do something to solve the problem of poverty in this country, but this doesn't seem like it would redistribute wealth from the middle class to the poor, not the rich to the poor.
The problem with this type of wealth redistribution is that the poor are often consumers of the same products and services served by min wage jobs.
This is one of many reasons I support unconditional basic income. It allows labor to be accurately priced in the market, without raising cost to the poor.
I'd agree, but raising the minimum wage is a relatively good alternative to doing nothin given unconditional basic income is merely a political dream in most jurisdictions. The US has such a low minimum wage given the wealth within the economy it's hard to see a rise having much of an impact.
1) An EITC fails to realize the efficiencies of consolidating or eliminating other forms of aid that basic income could.
2) The incentive to work under basic income is having more than barely enough money to scrape by. Wages will go up until this is a sufficient incentive. My money's on wages not having to rise much at all, if any, to achieve this. I wouldn't even be surprised if average compensation dropped a bit under basic income.
3) An EITC doesn't support entrepreneurship and small businesses the way basic income could.
> An EITC would more effectively incentivize the poor to work than unconditional basic income.
Maybe, but:
(1) This is an assertion provided without evidence, and
(2) The purpose of the basic income isn't to incentivize poor people to work, anyway, and
(3) Poor people, even before considering EITC or Basic Income, have more than sufficient incentive to work, what they generally lack is opportunity to work with their current skill set, and opportunity to gain the skills needed to work where it is in demand without trading off present necessities.
> The problem with this type of wealth redistribution is that the poor are often consumers of the same products and services served by min wage jobs. This is one of many reasons I support unconditional basic income. It allows labor to be accurately priced in the market, without raising cost to the poor.
Yes but labor is less than half of the cost for everything. One of the most labor intensive is food [growing -> market -> consumer] and its still not even 50%.
Its 38.5%. The impacts is similar on other areas where the minimum wage laborer is also the minimum wage consumer.
The pay increase still flows ~60% to the people on minimum wage and is the most effective method that is politically feasible. [e.g. Backed by a large portion of a major political party]
Ideally, raising the standard deduction to the poverty level for 1 person as well would be ideal to spread things out more. Of course, you'd need to raise the marginal tax rates [e.g. Money after $11,700/year would be taxed at a higher rate] to do that since it'll cost hundreds of billions otherwise :p [e.g. $6,300 -> $11,700]
You would also want to have the IRS automatically fill out the tax returns of people making less than 3x the poverty line. Otherwise the poor and frazzled would not take advantage of this.
It isn't super-rich people who shop at Walmart, eat at McDonalds, or patronize most other low-wage businesses, so I don't think your "wealth distribution" theory is correct.
Businesses would generally charge the price that would result in the most profit (revenue - expenses). Businesses can't just raise prices and get more revenue. If they could, they would do that already.
Minimum wage has to do with marginal cost of producing an extra product. Marginal cost generally increases after a while. So producing that last additional unit usually costs more than the one before. When you increase cost in the form of the price of human capital, the marginal cost of producing a unit will increase and the intersection with the marginal revenue (price of the unit) will drop to a lower quantity supplied and higher price.
So yes, prices will go up but the business will also sell less units. Since less units are sold, there will be less capital that will need to be utilized.
Prices aren't arbitrarily set and increase in price will result in less units being sold and less employment. This isn't as controversial as journalists make it out to be.
Pre-political Paul Krugman does a great job explaining it:
> So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data. Indeed, much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages “do,” in fact, reduce employment, but that the effects are small and swamped by other forces.
> What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda–for arguing that living wages “can play an important role in reversing the 25-year decline in wages experienced by most working people in America” (as this book’s back cover has it). Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects.[0]
> Businesses can't just raise prices and get more revenue.
Right, businesses gauge how much consumers are willing to pay. If minimum wages go up and businesses raise prices while citing said minimum wage increases, consumers will likely be willing to pay the higher prices. Consumers generally won't tolerate price increases that are not justified. Those increases that are justified are more readily accepted. This is why I think businesses can and will pass higher minimum wage costs down to the consumer, successfully.
In modern economics the assumption is that marginal cost decreases for a while due to economies of scale, but then increases. It's a bit confusing, but consider this, at first you will devote the best resources to their best appropriate task. If you buy a factory, you'll buy the most cost effective factory and you'll hire the most cost effective people. As you expand, you'll have to maybe get another factory that may not be as well suited (if it were, you would have gone with it in the first place) and hire the second best person, and so on. This is called diseconomies of scale. Similarly, running organizations above a certain size creates plenty of inefficiencies that also contribute to increased marginal cost.
Both economies of scale and diseconomies of scale play a role. Think about it in the extremes. Would a company be able to produce 2x, 10x, 100x the product they currently produce now at the same per unit cost, or less? If not, then there must be some point at which the marginal cost is upward sloping.
I believe this is the reason that large companies don't necessarily lead innovation. For instance, a company like Facebook could have easily created a Snapchat, but it could not. It wasn't even successful imitating the product after several attempts (popularity, not functionality).
I think the minimum wage is a helpful tool or has been historically. But as others have said when you raise the minimum wage, prices increase, and by far the largest groups that consume the same goods/services are also relatively poor themselves (so essentially you increase pay but also costs to the poorest in society).
More as a thought experiment than anything: What would happen if, instead of increasing the minimum wage, we capped the MAXIMUM wage at companies to 500x the lowest? That would effectively cap the CEO's pay at 6.9 million dollars for ANY business which pays the national minimum wage. That might sound like a lot but a lot of CEOs at larger corporations are getting in the order of 20 million right now (and this would have almost zero impact on small-medium businesses, as their CEOs don't make enough yet).
I guess what I am asking is: Instead of increasing minimum wage, what would happen if we could align the interests of the poorest employee and richest employee in a business?
PS - I am well aware that CEOs often don't take direct pay and instead take other financial instruments, such as stock. Instead of getting sidetracked into all of the potential workarounds, can we discuss the moral/legal/practical of tying the lowest/highest employee pay together?
Your proposal implies that the CEO of a company like Google or Goldman (most employees are high skill) should be paid a lot more than the CEO of Walmart or Amazon (most employees being low skill).
I don't see any obvious reason why this should be the case or would be remotely beneficial - it's not as if Walmart or Amazon deserve a lower quality CEO than Goldman.
Further, this would create huge disincentives for companies to take on new lines of business which involve low skill labor and would create incentives for managers to eliminate low skill labor. I.e., Steve Jobs and other execs would have the personal incentive to NOT open up apple stores, even though opening up such stores would be beneficial for both shareholders and those who would otherwise be employed by such stores.
Serious question (not flippant): what good does that do? Wal-Mart's CEO makes $35m (I think). They employ 2.1m people. He makes $16.66 per person that he manages (indirectly, of course), per year. His salary is a drop in the bucket of what it costs to employ their workforce for a year. Comparing salaries doesn't showcase anything.
How many of these high-paying CEO jobs are there? Not many! The same is true of sports--there are only so many jobs to go around, and if you're one of the rare people who can do the job, you get paid a LOT of money. Comparing salaries of highest and lowest paid people doesn't really seem useful in any way.
Very few companies have such a large, relatively unproductive workforce as Walmart. You've chosen one of the biggest divisors there is for that calculation.
(I'm not thinking of a good way to phrase the relatively unproductive, but the point is that Walmart doesn't pay their workers a lot)
"when you raise the minimum wage, prices increase"
You state that as if it's a fact when it is not. Prices may increase for some goods/services. But many goods/services prices are not set by the costs involved but by what the market will bear. The other option is that profit margins will narrow. Or, as is more typical, a combination of both.
"by what the market will bear. The other option is that profit margins will narrow"
You say this back-to-back, but seem to completely ignore the fact that the market can bear a higher cost once the minimum wage is raised. Sure, $15/hr won't affect the price of Porsches or Lexuses, but the lower-priced goods that someone making minimum wage is buying will likely be affected.
>I think the minimum wage is a helpful tool or has been historically. But as others have said when you raise the minimum wage, prices increase, and by far the largest groups that consume the same goods/services are also relatively poor themselves (so essentially you increase pay but also costs to the poorest in society).
Minimum wage hikes first eat into profits before increasing prices. It is primarily a transfer of wealth from the wealthiest to the poorest.
Minimum wage hikes do not always increase prices, either. Especially not meager increases.
I imagine that he would get compensated in other means. High marginal tax rates resulted in so called Cadillac health insurance plans to be added as a form of compensation as well as other (IMO) wasteful non-monetary benefits (housing, company car, etc).
IMO one of the interesting ways to think about: "Overall, how does our economy value human-time versus material-goods"?
Even if the cost is passed on to the consumer (many of whom will, in turn, will have more to spend) it represents a shift in how we (implicitly, through costs) balance "1x Acme Appliance" versus "1x hr child care", etc.
I think in some places the people making the new higher minimum will already be priced out of the housing market for the area the job is in. That doesn't rule out housing price increases at the other ends of their commutes, but I wonder if it will diffuse it quite a bit.
It is foolish to think that this won't result in unemployment. We live in a time in which higher labor costs for marginal work can be eliminated through automation and these higher labor costs will only accelerate that transition. You may not like that fact, but that's what will happen. You don't a free ride on planet earth and no foolish government policy can change that.
Indeed. Minimum wage is a hack on labor that barely worked 60 years ago when full employment was some sort of reasonable goal. It's a ludicrous superstition now - better to just institute a basic income, abolish minimum wage entirely, and let employers pay people whatever they want.
This is absurd. The results of raising the minimum wage are perfectly known. Learn from the other countries that have done it in the last 10-15-25 years. Australia, Scandinavian countries, etc. etc.
Why can't America look outside it's own borders and learn from what other countries have done and are doing?
i.e. watch this John Oliver video on gun control [1] where it's stated Australia is not on this planet and America can't learn anything from what they've done, because Australia is not the real world. Why do people think this way?
Please don't bring generic ideological tangents into already-controversial topics. Any vector that runs through the points "minimum wage studies", "American self-centeredness", and "gun control" is guaranteed not to lead to substantive discussion.
The OP may be wrong, but it's hardly absurd. Let's stick to the substance.
Is your contention that there's no difference in raising wages in small countries with largely centralized populations vs. a country of 320M with massive regional differences? Sweden and New York City are roughly the same size. California is quite a bit larger than Australia, so we will soon see how these experiments compare in real life.
Factor in culture. People of Scandinavian descent do even better financially in the US than they do in their home countries. Even if true in a textbook sense, I'd bet the sense of social cohesion that comes from a small culture has an outsize impact on that country's economic output.
But lets watch the experiment play out. Maybe the book stores in SF that are closing due to the new wage are just abberations or unfortunate side effects.
If an employee is paid $10/h and produces $12/h of value for the employer, the employer makes a profit of $2/h and will want to keep the employee. If they must pay $15/h this becomes a $3/h loss, and the employee will be fired.
It's hard to see where the size of the country would enter into this.
Of course, if a raised minimum wage causes higher unemployment etc, this will have macro economic effects, but that's secondary effects.
¹ A more descriptive name for this branch of Economics would be "Price Theory", but we're stuck with the name.
> Why can't America look outside it's own borders and learn from what other countries have done and are doing?
The doomsaying about minimum wage increases occurs every time this is discussed in the US, and the doom fails to materialize every time. This isn't an issue about the people doing to doomsaying not learning from what other countries are doing; they are ignoring the US as much as any other country.
Its true that, if you assume no impact on spending behavior (and, therefore, on demand), minimum wage increases will be expected, in net, to make certain jobs that are currently net benefits to employers into net losses, resulting in them being eliminated, without any compensating effects.
OTOH, the contention of those that support any particular minimum wage increase is that, in the range actually proposed, the increased pay to those whose jobs remain net benefits to their employers will increase demand in sectors which drive employment less than the reduced retained employer profits will decrease demand, such that demand will be increased enough in fields with sufficient impact on employment that the benefit provided by employees working will increase enough that, while their may be shifts in the sectors of employment, net employment will not decrease.
And the facts of historical minimum wage increases have never shown the fears sold by the doomsayers being realized.
Did you read the article? You can't compare the effect of economic change in two vastly different countries like that. As the article stated, even within the United States, within the state of New York, the policy would have vastly different effects between cities such as New York City and Buffalo.
You are wrong. The world isn't as simplistic as you suggest. Just because something works in Australia or in some Scandinavian countries doesn't mean it would work in the US.
All of the countries you list have huge costs of living. I went to Australia last year and a coke and a small bag of chips at 7-11 was ~$12.
Instead of raising minimum wage (which is a short-term bandaid, because inflation will eventually catch up), we should be focusing on educating those that can only get a minimum wage job.
This is often cited in publications that generally support a higher minimum wage. It is unfortunate that this is never challenged as there are studies that show that an increase in minimum wage does in fact result in lower employment:
> Raising the minimum wage would increase family income for many low-wage workers, moving some of them out of poverty. But some jobs for low-wage workers would probably be eliminated and the income of those workers would fall substantially. [0]
Logic itself would suggest that an increase in minimum wage would result in at least some unemployment:
No employer would hire you if you make them less than the amount that they have to pay you. There are people that make more than the old minimum wage and less than the new proposed minimum wage. Therefore, those employment opportunities will no longer exist. It may not happen overnight as there is some momentum, but you can't deny this effect. Also, you can't exactly measure the people that would have been hired with a lower minimum wage.
The other interesting this is how vernacular plays such a strong role in people's opinions. Imagine if "minimum wage" was replaced with "prohibition of employees whose contributions to employers is less than the mandated minimum amount of finding legal employment"
[0] https://www.cbo.gov/publication/44995