Skip to comments.Economic Reality and the Minimum Wage
Posted on 12/15/2013 12:33:52 PM PST by Kaslin
If you offer people something that is too good to be true, you will always find takers. Ask Bernie Madoff. Or ask Barack Obama. He recently proposed an increase in the minimum wage -- an idea that suits the natural predilections of many people enough to distract them from the unsentimental and unwelcome logic of economics.
One poll found that 63 percent of Americans favor raising the federal floor from the current $7.25 to $10.10, as the president recommends doing over two years. The reasons are obvious. Wages have stagnated, low-income Americans are getting a smaller share of national income and many working people are stuck in poverty despite their best efforts. A higher minimum wage is the obvious solution.
Obvious, but wrong. The proposal rests on the assumption that the government can decree the price of a commodity -- in this case, labor -- in defiance of the dictates of the market, without ill effects. But that view requires a heroic suspension of disbelief.
When stores want to move slow-selling merchandise, they cut prices. When customers clamor for more of an item than sellers can provide, they raise prices. Lower prices result in higher demand, and higher prices do the opposite.
This is not exotic free-market dogma but elementary economics. Any CEO who proposed to boost sales by jacking up prices would see the company's stock price plummet in response to this lunacy.
But supporters of a higher minimum wage would have us believe that low-wage workers are magically exempt from these phenomena. They claim companies will employ just as many employees at $10.10 an hour as they do at $7.25.
But they must doubt their own case. Otherwise, they would propose an even higher amount, confident it will be irrelevant to hiring decisions. If a minimum wage of $20 or $30 an hour would cause layoffs, though, why wouldn't $10.10? At what point on the wage scale does the law of supply and demand take effect?
Even liberal hero Paul Krugman, a Nobel laureate in economics and columnist for The New York Times, has grudgingly acknowledged this reality. In his 1998 textbook, he wrote that "the centrist view is probably that minimum wages 'do,' in fact, reduce employment, but that the effects are small."
In the short run, McDonald's and KFC might have little choice but to keep staffing at current levels and cough up more on payday. But in the long run, employers would have a significant incentive to find ways to employ fewer workers -- by automating tasks, moving to more self-service, demanding more of each employee, cutting back store hours or closing marginal outlets.
Among liberals who have reservations about free trade, the usual complaint is that U.S. companies will migrate to Mexico or Colombia to obtain cheap foreign labor. But if one company will pack up its assembly lines and move them thousands of miles to alien lands to reduce wage costs, why wouldn't another company redesign its operations here to do the same? Why would it passively accept a hit to its bottom line?
It's been argued that restaurants are likely to absorb the increase because they can't move abroad. True enough. But shutting down is always an option. A lot of fast-food outlets are only modestly profitable anyway. Burger King, Wendy's, KFC and Arby's closed more restaurants than they opened last year. Higher labor costs will mean even more vacant buildings -- and fewer jobs.
It's true that the smaller the legislated increase the less the effect on hiring and firing. But less effect is not the same as zero effect. A small minimum wage boost would not cause a big increase in unemployment, but only because it would not produce a big increase in the earnings of the affected workers.
The plausible argument for the change is that the benefit to these workers is large enough to outweigh the effects on the newly unemployed. But even that claim is tenuous. A study by economists Joseph Sabia of American University and Richard Burkhauser of Cornell found that "minimum wage increases between 2003 and 2007 had no effect on state poverty rates."
In the picture painted by Obama and congressional Democrats, raising the minimum wage is an unmixed blessing, helping some people while harming no one. If you believe that, the next Bernie Madoff is out there, and with any luck he'll find you.
If that's not a very big warning sign, then I don't know what it is.
over ten dollars an hour to so nothing whatsoever. the liberal way.
I don’t really care about this issue, but I do wonder what they are going to do with the schmuck who makes 11 dollars an hour. I make 50 dollars an hour, will I get 60 dollars an hour for no reason?
We can certainly do without fast food. Fast food and eating out is an optional expense that is already expensive for us as it is.
He’ll go on unemployment.
When adjusted for inflation minimum wage is 20% lower in 2013 than in the 60’s and 70’s.
You can go to a full service joint like chillis or tgif for almost the same price as fast food.
I think that’s because of international competition.
Back then America was the industrial powerhouse of the world.
When I was a kid, they built large buildings, filled them with machines, and called them factories.
When I was middle aged, they built large buildings, filled them with stuff from China, and called them warehouses.
Now that I’m an old man, they don’t build buildings anymore.
A well documented fact and very clear to most clear thinkers.
But it is also a foul racially based attack on the Black Man in the White House and another egregious example of The Rising Tide of Racism in America (trademark).
(Time to up the credit limit on my race card...)
We went from the arsenal of democracy to the warehouse of socialism.
The “great society” was a huge success for progressives and a huge fail for America.
Certainly, you could become a manager and work your way up but that was for only a few people.
The vast majority of the employees were kids who needed a summer job or extra money or were in college and lived with their parents.
Apparently that has changed.
Bah. Inflation measurements are opinions. It can't be accurately measured. There should never have been a minimum wage to begin with and there shouldn't be one, now.
Of course, there shouldn't be any inflation, either. Yet another government monstrosity.
And between rising female employment and illegal immigration, the minimum wage should be lower due to increased supply.
Apparently that has changed.
Back then they were mostly legal and wanted to get ahead.
Indeed. If one cam forego alcohol in those places a better meal can be had at a similar price then fast food.
I think that it is way past time for the Government to enact a $15 dollar an hour minimum wage and see just what the consequences are! Until these idiots see actual real world consequences, they will never learn! Just try it for a year or so and see what the outcome is. Maybe only then can we get over this stupid liberal nonsense! I say to them, go for it!
The order taker has gotten our order wrong a couple of times because of the lack of English fluency. No, it was just an accident. There was a failure to communicate.
We don’t seem to have much of a problem these days, though.
fast food -—> fast food fast
Yep. It’s now become everyone else’s job to provide you a living because you NEED it, not because you’ve earned it. And if they don’t, well, they’ll just have to be...persuaded.
It is unfortunate and the root of the problem. Hard work is not rewarded any more.
In my day, working in fast food used to be a motivation to do better like learn a trade or go to college. It was certainly a motivator for me. The pay wasn’t that great, the work was okay, but you are treated like an irresponsible kid. And most workers were irresponsible kids.
They still are. At one of my jobs, I was the only person who would show up on time and work hard, come in immediately when called in, pulled doubles and quadruples, and strove to learn everything about the job I could.
It got to the point that my boss couldn’t give me the days off I needed because I was the only one who could do the job on those days.
So, if the employees are still as irresponsible, why should they get a $7/hour raise? That doesn't seem right.
I remember those days well. Exactly what you say. Most of the employees were irresponsible kids and so the good reliable workers would get called 24/7 which was great if you needed the money. However, not so great if you needed some personal time off. It got to the point where I wouldn't answer the phone. Same thing happened to my wife who worked for McDonalds.
Frustrating though now, looking back — why didn't they pay us extra to come in on short notice? Maybe not extra pay but maybe a free meal. They really took advantage in that respect.
What the government should be controlling is the supply. The reason salaries haven't kept up is excess supply of labor caused by the lust for cheap invader labor. If Obama really wanted to raise the minimum wage to &10.00 or so, EVerify would be put in place and invaders would be sent home. In addition to that, corporations who "need" foreign labor to fill gaps would find that not to be the case if it weren't so easy to game the system instead of work for US citizens.
Problem is, nobody wants to solve problems anymore. They want to manage them.
I’d add that it’s best to take a job from a company that promotes from within, and be willing to relocate if an opportunity to move up with them arises.
“Good job! Kudos to you! People put fast food down a lot but it is a perfect first job. It shouldn’t be a lifetime career, though.”
I’m trying to get on a paid fire department or EMS station, but to he!! with me if I know why I’m not being hired. It certainly isn’t for lack of trying.
It is not what you know but who you know. Do you know anyone?
Yeah, I’m on a first name basis with some of the departments I’ve tested for, but honestly, I’ve seen enough to take that idea with a grain of salt. Seen too many guys who didn’t know anybody get on.
All I can say then is good luck!