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What Would be the Effect of a Substantial Hike in the Minimum Wage?
Townhall.com ^ | June 30, 2014 | Mike Shedlock

Posted on 06/30/2014 10:12:29 AM PDT by Kaslin

In response to 100% of U.S. Employment Growth Since 2000 Went to Immigrants, reader Mike wonders what effect a rise in minimum wage would have.

Mike Writes ...

Hi Mish.

Thanks for a very interesting post. I hope the mainstream media will pick up on this.

Here's a question for you: Do you think a rise in the minimum wage would bring more citizens into the workforce and and reduce the welfare rolls?

By the way, I am against laws that restrict the free will of consenting adults, employers and employees alike. But I am curious about the results of a substantial hike in the minimum wage.

Best,
Mike

Predicting the Results

It is not easy to predict the precise results. People on both sides of the debate cite studies that purportedly support their point of view.

Nonetheless we can say certain things, even if we do not know the final result.

A hike in the minimum wage would:

  1. Encourage more people to seek work whether there is work or not. Thus, the participation rate would rise putting upward pressure on the unemployment rate.
  2. Encourage businesses to outsource or seek other means of reducing head count such as employing software or hardware robots.
  3. Encourage more immigration if businesses cannot find ways to reduce headcount.
  4. Ultimately, businesses would have to hike prices, accept lower profit margins, or find other ways to reduce costs.
  5. If businesses chose to hike prices it would put upward pressure on price inflation. In turn, unions would demand still more wage hikes.
  6. If businesses chose to eat the costs, it would put negative pressures on the stock market.


With so many possibilities, some of them conflicting, it is impossible to predict the precise results. Regardless, interference in the free market is not a good thing. Thus, the overall result of a hike in minimum wage must be negative, regardless of what minimum wage advocates suggest.



TOPICS: Business/Economy; Culture/Society; Editorial
KEYWORDS: minimumwage

1 posted on 06/30/2014 10:12:29 AM PDT by Kaslin
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To: Kaslin

Minority unemployment would skyrocket.


2 posted on 06/30/2014 10:14:47 AM PDT by Gay State Conservative (Rat Party Policy:Lie,Deny,Refuse To Comply)
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To: Kaslin

#5 is all you need to know.


3 posted on 06/30/2014 10:14:59 AM PDT by Organic Panic
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To: Kaslin

When this whole up the minimum wage thing got started there was a video of a vending machine that makes gourmet burgers.

OK libs, go for it and watch the uneducated idiots who made bad life choices get replaced,

Of course that is the true lib endgame - total reliance on the gummint


4 posted on 06/30/2014 10:18:57 AM PDT by freedumb2003 (AGW "Scientific method:" Draw your lines first, then plot your points)
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To: Organic Panic

Well, after all, they want their share of the increased “profits” that the evil management folks are placing on consumers. It’s only fair right? For some reason they apparently never think of overhead. Just the mansions that the board of directors live in. Been on both side of the fence in the unions and managing union employees. Some of the folks get it. Others, not so much. Management/admin is ALWAYS trying to screw them over. Be happy you have a job during this “recovery”.


5 posted on 06/30/2014 10:20:00 AM PDT by rktman (Ethnicity: Nascarian. Race: Daytonafivehundrian)
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To: Gay State Conservative

Minority unemployment is already at 50% in some demographics.


6 posted on 06/30/2014 10:20:31 AM PDT by 2ndDivisionVet (The most dangerous man to any government is the man who is able to think things out for himself.)
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To: Kaslin

Many years ago when I worked for the DC Wage Board I learned that Union contracts had their wages tied to the Minimum Wage. In other words, raising the minimum wage hiked MANY wages!


7 posted on 06/30/2014 10:22:07 AM PDT by Ooh-Ah
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To: Ooh-Ah

and THAT is why libs want to raise the min wage..

the people actually making it are just pawns in the game.


8 posted on 06/30/2014 10:23:33 AM PDT by cableguymn (It's time for a second political party.)
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To: Kaslin

Set the minimum wage to $X/hr.

The consequence of that is to make it illegal for anyone with skills worth less to the marketplace than $X/hr to be employed.


9 posted on 06/30/2014 10:29:41 AM PDT by Paine in the Neck (Socialism consumes EVERYTHING)
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To: Kaslin

The REAL reason for the push on Minimum Wage, is most Union Contracts start their scale at a give amount above minimum wage.

So when Minimum Wage goes up, EVERYONE in the Union get an immediate raise. . .


10 posted on 06/30/2014 10:30:31 AM PDT by Salgak
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To: Kaslin
Use of robotics would accelerate and replace jobs. Personally I would prefer a Big Mac prepared by a machine over one prepared by a germ infested pimpled teenager.
11 posted on 06/30/2014 10:31:24 AM PDT by Gabrial (The nightmare will continue as long as the nightmare is in the Whitehouse.)
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To: Kaslin
1. Encourage more people to seek work whether there is work or not.

That's a good thing. Who doesn't want to reduce the welfare and disability roles? The key is to create the environment where there are jobs for them.

2. Encourage businesses to outsource or seek other means of reducing head count such as employing software or hardware robots.

Yes, import tariffs are important to keep jobs from going off-shore. Robotics is coming and we will be dealing with the fall out sooner or later.

3. Encourage more immigration if businesses cannot find ways to reduce headcount.

Failure to address immigration will ruin this country, regardless of what we do with minimum wage. It might ruin it a little faster if we raise the wage but leave the borders open.

4. Ultimately, businesses would have to hike prices, accept lower profit margins, or find other ways to reduce costs.

That's true. The economy will seek equilibrium again. But it is not super fast. Thus the short-term effect of raising the minimum will have real benefits or consequences.

5. If businesses chose to hike prices it would put upward pressure on price inflation. In turn, unions would demand still more wage hikes.

Unions are unions. A zebra is not going to change it's stripes just because you put in a minimum wage hike. Policy should not be based on what unions might or might not do.

6.If businesses chose to eat the costs, it would put negative pressures on the stock market.

Probably. But if the flow of funds to greater numbers of individuals results in increased demand in the marketplace, that would result in positive pressures. Hard to know which will win in the short term or long term.

Everybody in our country would be playing by the same rules, but raising it without restoring the import tariffs is crazy and will result in more off-shoring.

12 posted on 06/30/2014 10:43:20 AM PDT by DannyTN
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To: Gabrial
Actually, I've just recently been to Sydney, Australia where the minimum wage is nearly $20/hour. It is very clear that a high minimum wage, in part, causes prices of everything to go up. So, what has happened there is, prices have gone up to the point where the CURRENT argument THERE is that "The minimum wage isn't a living wage, we need to raise it."
They are chasing a phantom. NO amount of increase in minimum wage will make middle class families out of those in the lower economic strata, ONLY hard work, promotions and raises will do that.
Another impact of the high minimum wage where I was is that the cost of a home is WAY above what young families can afford... that is if they wanted to buy the pretty poor housing I saw... old, run down 2 bedroom 1 bath homes hear train tracks for $480,000.
Why-oh-why can't we learn from what is going on in other countries?
13 posted on 06/30/2014 10:44:23 AM PDT by KenD
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To: Kaslin

If the minimum wage rises, union contracts that are based on a multiple of the minimum wage would rise in response. Right?


14 posted on 06/30/2014 10:46:57 AM PDT by Pearls Before Swine
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To: DannyTN
Probably. But if the flow of funds to greater numbers of individuals results in increased demand in the marketplace, that would result in positive pressures. Hard to know which will win in the short term or long term.

I don't follow your logic here. How would a rise in minimum wage increase the flow of funds to a greater number of individuals? The rest of your points and comments suggest that fewer people would be working. Those that were working would have more dollars in their pockets, but price increases everywhere else (inflation), would allow them to buy fewer, more costly things.

Thus, a raise in the minimum wage would have a negative effect on the marketplace.

15 posted on 06/30/2014 10:53:49 AM PDT by Lou L (Health "insurance" is NOT the same as health "care")
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To: Kaslin

I’d be unable to find a job even more.


16 posted on 06/30/2014 11:08:32 AM PDT by Luircin
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To: Gay State Conservative; Kaslin

Let’s just be done with it, and issue each American a check for a million bucks. Then we’ll all live in paradise city.


17 posted on 06/30/2014 11:20:57 AM PDT by xzins ( Retired Army Chaplain and Proud of It! Those who truly support our troops pray for victory!)
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To: Gabrial
Use of robotics would accelerate and replace jobs. Personally I would prefer a Big Mac prepared by a machine over one prepared by a germ infested pimpled teenager.

That is some major truthery.

18 posted on 06/30/2014 11:22:07 AM PDT by TangoLimaSierra (To win the country back, we need to be as mean as the libs say we are.)
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To: Lou L
"I don't follow your logic here...."

Well it depends on what the net effect is. You would expect that some employers who are willing to pay $7.25 won't pay $10. And so some jobs will be lost. But we don't know what percent that is.

Let's say the economy has 100,000,000 minimum wage jobs at $7.25, and the minimum wage results in a 50% decrease in those jobs. Those jobs were earning $725,000,000, now you have 50,000,000 jobs earning $10 so that class of jobs after the wage increase is earning $500,000,000. Total wages in the economy dropped by ($225,000,000). In this scenario, you ended up with fewer people working and total wages is less to boot. That's definitely negative for the economy.

But lets assume that only 10% of the minimum wage jobs gets cut. That's leaves 90,000,000 working at $10/hr for total wages of $900,000,000. Total wages went up by $175,000,000. The initial effect is fewer people working, but more total wages flowing into the economy. Those workers may be more likely to turn around and spend those additional wages. Which could fund another 17,500,000 $10 jobs. Resulting in a net increase in employment.

There's a muliplier effect on the wages. Basically the same money muliplier that occurs in banking. Those wages get spent creating wages for others.

Thus the effects of raising the minimum wage are uncertain, and could be a negative or a positive to the economy.

19 posted on 06/30/2014 11:42:43 AM PDT by DannyTN
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To: Lou L
"I don't follow your logic here...."

Well it depends on what the net effect is. You would expect that some employers who are willing to pay $7.25 won't pay $10. And so some jobs will be lost. But we don't know what percent that is.

Let's say the economy has 100,000,000 minimum wage jobs at $7.25, and the minimum wage results in a 50% decrease in those jobs. Those jobs were earning $725,000,000, now you have 50,000,000 jobs earning $10 so that class of jobs after the wage increase is earning $500,000,000. Total wages in the economy dropped by ($225,000,000). In this scenario, you ended up with fewer people working and total wages is less to boot. That's definitely negative for the economy.

But lets assume that only 10% of the minimum wage jobs gets cut. That's leaves 90,000,000 working at $10/hr for total wages of $900,000,000. Total wages went up by $175,000,000. The initial effect is fewer people working, but more total wages flowing into the economy. Those workers may be more likely to turn around and spend those additional wages. Which could fund another 17,500,000 $10 jobs. Resulting in a net increase in employment.

There's a muliplier effect on the wages. Basically the same money muliplier that occurs in banking. Those wages get spent creating wages for others.

Thus the effects of raising the minimum wage are uncertain, and could be a negative or a positive to the economy.

20 posted on 06/30/2014 11:42:44 AM PDT by DannyTN
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To: DannyTN
Danny, your argument discounts inflation across the board for all other goods and services from an increase in the minimum labor cost. You can't just look at wages and say there's an automatic multiplier to the economy, regardless of the percentage of jobs lost. And if there's a multiplier from increased wages, there's a negative multiplier for increased costs and taxes. So yes, those still working will have more money in their pockets, but that's negated by increased costs everywhere: housing, energy, food, transportation, etc.

I respect your input, and I agree with your statement that the effects are "uncertain" from such a raise in the minimum wage. Specific effects, yes, but the general effects are well-known. My intuition and logic tell me that it's not an experiment I want to attempt.

21 posted on 06/30/2014 12:10:25 PM PDT by Lou L (Health "insurance" is NOT the same as health "care")
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To: Kaslin

Re: “A hike in the minimum wage would: Encourage more immigration if businesses cannot find ways to reduce headcount.”

Not sure I understand the rationale for that prediction.

If the minimum wage is $15/hour, no matter how many foreign workers you import, your cost is still $15/hour.

More legal immigration would just increase the number of unemployed workers, and also increase the number of people on some form of public welfare.


22 posted on 06/30/2014 12:28:47 PM PDT by zeestephen
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To: Salgak; Ooh-Ah; cableguymn

Re: “So when Minimum Wage goes up, EVERYONE in the Union get an immediate raise.”

I read that again and again here at Free Republic.

Why would any rational business manager agree to a contract like that?

He would have absolutely no control over a political decision that might bankrupt his company.

Also, I had a union job about 25 years ago, in Minneapolis, which was a big union town in that era.

There was nothing in my contract about the minimum wage.


23 posted on 06/30/2014 12:44:26 PM PDT by zeestephen
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To: zeestephen

You find it alot in public union contracts


24 posted on 06/30/2014 1:01:36 PM PDT by cableguymn (It's time for a second political party.)
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To: cableguymn

That does not surprise me.


25 posted on 06/30/2014 1:31:00 PM PDT by zeestephen
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To: Kaslin

There are many variables that are germane.

I suspect that now, presently, the raise would ultimately be inflationary and that is the goal. To pay for Obamacare, to make it palatable, there needs to be an across the board minimum wage pushed increase.

In the recent past, when we were beyond total employment, the rise in the minimum wasn’t really felt because most were employed at rates at or beyond the increase. That is although the minimum was raised, few actually got a raise.

Today it is different because in theory there are lots of unemployed and there has not been wage pressure on employers. The Democrats began the hue and cry in December 2012 but it has not gained traction. The need to bail out Obamacare is getting serious so the pressure is intense. Several moonbat cities have done their part by increasing the wages locally. If there is no general national increase, they will be in trouble as businesses shed workers to exist.


26 posted on 06/30/2014 1:41:37 PM PDT by bert ((K.E. N.P. N.C. +12 ..... Obama is public enemy #1)
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To: Lou L
"Danny, your argument discounts inflation across the board for all other goods and services from an increase in the minimum labor cost.... "

Yes it does. It's a simplified argument that also ignores that if there is a change in total wages, that money came from somewhere, and is presumably a drain on investment capital, that could have been invested elsewhere.

You're right that there is a negative multiplier for increased costs and taxes. I think the inflation effects will only negate the positive impact in part. At least in the short run.

But I really think the biggest danger is raising it without restoring the import tariffs. That's telling Joe that his labor costs are mandated to go up 30% but his off-shore competitor Chang still gets to compete in Joe's market with labor costing 1/10th the old cost and faces no increase whatsoever.

27 posted on 06/30/2014 1:46:55 PM PDT by DannyTN
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To: Lou L
"Danny, your argument discounts inflation across the board for all other goods and services from an increase in the minimum labor cost.... "

Yes it does. It's a simplified argument that also ignores that if there is a change in total wages, that money came from somewhere, and is presumably a drain on investment capital, that could have been invested elsewhere.

You're right that there is a negative multiplier for increased costs and taxes. I think the inflation effects will only negate the positive impact in part. At least in the short run.

But I really think the biggest danger is raising it without restoring the import tariffs. That's telling Joe that his labor costs are mandated to go up 30% but his off-shore competitor Chang still gets to compete in Joe's market with labor costing 1/10th the old cost and faces no increase whatsoever.

28 posted on 06/30/2014 1:46:55 PM PDT by DannyTN
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To: Kaslin

The black market would grow, and we’d all be rich! Well, one of those two would happen.


29 posted on 06/30/2014 1:48:48 PM PDT by Cboldt
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To: Kaslin

#7. If businesses couldn’t compete while doing 5, and couldn’t recoup the costs in 6, they would close, AND ALL THEIR WORKERS WOULD HAVE A MINIMUM WAGE OF $0.00!!!!


30 posted on 06/30/2014 1:50:40 PM PDT by Alas Babylon!
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To: Organic Panic; All

The short answer to all of is, if you really believe that a minimum wage creates good results then you should raise it to TEN THOUSAND DOLLARS AN HOUR OR MORE. After all, if it really works then the higher the figure the better, it’s just plain common sense. Strangely no one seems to be suggesting a minimum wage high enough to really do some good, almost as if they know deep down that the minimum wage is just a con job.

In reality raising the minimum wage accomplishes about as much as you can accomplish by dipping water with a bucket to try to create high and low places in the surface of a millpond. All you can do is create some small ripples that soon subside and everything returns to its natural state.


31 posted on 07/01/2014 8:00:18 AM PDT by RipSawyer (May the force be with you against the farce.)
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