It's an inefficient one. We can do a better job at improving their welfare at a lower overall cost.`
>The idea that removing the minimum wage would result in full employment is ridiculous.
I'm not arguing that at all.
>It would make businesses richer and subject millions of people to worse poverty.
So combine abolishing the minimum wage with a complimentary policy that makes businesses poorer and alleviate the poverty of millions. A minimum wage is not the only way to make employers pay to alleviate the poverty of the working poor.
e.g. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2951110
So while that paper's data and conclusion may be sound, neither that paper nor other research supports the notion that low-skilled labor demand is, overall, strongly responsive to changes in the minimum wage.
That said, there are a ton of problems in that paper. Their estimates on changes in restaurant entry in the same timeframe as exit were statistically insignificant, so they gratuitously look at a completely different timeframe and data set which happens to support their conclusion.
Economies are just too complex and multifaceted to be able to say that a minimum wage bump will clearly decrease employment. It's worth noting that the political pressure to increase wages doesn't happen in a vacuum. For example, presumably the political pressure exerted is a function of wealth inequality and thus of the capacity for the local economy to redistribute income downward.
This incredible complexity is why you get such counterintuitive results, such as that American corporate investments were highest when taxes were highest, decreasing as corporate taxes decreased, so that today both investment and taxes are at their lowest.
https://www.ft.com/content/a4e01ef4-3c8d-11e7-821a-6027b8a20f23If you have specific contradictory evidence, cite it instead of a vague handwavy response.
If you look at all the literature, the results are mixed and equivocal, at least for modest changes in the minimum wage. See the empirical studies section on Wikipedia
https://en.wikipedia.org/wiki/Minimum_wage#Empirical_studies
The Economic Way of Thinking, Paul L. Heyne, et al.
Of course, the paper you cited doesn't make any claims about aggregate labor demand, nor even labor demand in the restaurant industry. It only looks at exists and entries using some novel data sources. The only truly interesting thing about that paper, IMO, is it's novel use of Yelp. That paper raises a ton of questions--good questions--about data sources and methodologies. I wouldn't venture to rely on it's conclusions for any economics argument.
"We then exploit the multiple city-level minimum wage changes in recent years across the Bay Area to implement a difference-in-differences design to investigate the effects of the minimum wage. We find suggestive evidence that a higher minimum wage leads to overall increases in restaurant exit rates – depending on the specification, we find that a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit, although the estimate is only statistically significant in certain specifications.
"Next, we present robust evidence that the impact of the minimum wage varies with the rating of the business. Our point estimates suggest that a $1 increase in the minimum wage leads to an approximate 14 percent increase in the likelihood of exit for the median 3.5-star restaurant but the impact falls to zero for five-star restaurants. These effects are robust to a number of different specifications, including controlling for time-varying county characteristics that may influence both minimum wage policies and restaurant demand, city-specific time trends to account for preexisting trends, as well as county-year fixed effects to control for spatial heterogeneity in exit trends."
Economists disagree about this issue. Lots of the people who are affected by the minimum wage support it.
Remember, it's okay to not know something.
Edit: thanks for the source. I don't think an analysis of the minimum wages affect on restaurant exits answers the question "Is the minimum wage good for those whose skills are in excess supply?". It may be bad for the number of restaurants but is it bad for restaurant workers?
It's better to look at similar localities where there are constrasting costs. There are still stores in Philadelphia and Trenton even though sales tax is 0% in Delaware. Likewise, counties or adjoining states with higher wages than neighbors are still able to compete.
I worked for a retail chain in college and saw the regional numbers. The marginal differences in wages between stores in different jurisdictions was insignificant. Our stores had about 100 employees -- a $1 delta was a few thousand bucks... peanuts that barely registered in the bottom line.
There are smarter people than us who are debating this. Maybe you shouldn't hold this opinion so strongly.
Edit: Downvotes for what?
An ad hominem is not an argument. If we're going with logical fallacies to make our case, I'm going to appeal to authority: I understand this pretty well as I used to work directly on macro-economic reports at the largest broker dealer in Latin America upon which many international institutional investors based their investment decisions. Unfortunately, the citizens of the country whose economy I covered (Brazil) didn't understand these economics issues (among many), which among the reasons why its economy has contracted over 3% for the past 2+ years.
You're assuming that it's a strict wealth transfer where the size of the pie stays the same. It does not. The pie gets smaller when you reduce economic activity, which raising the minimum wage accomplishes as it eliminates jobs and puts businesses out of business. You can lie to yourself by using welfare to prop things up, but that doesn't work so well when the amount of taxes you collect to fund your welfare state drops as the economy shrinks. Eventually that gravy train runs out of steam.
I do not consider myself an expert on this topic. It's good that you do. However, your evidence is weak. You have made a leap from restaurant exits to minimum wage is bad for the workers.
That there is disagreement among people better informed than I suggests I shouldn't hold my opinion strongly without good reason.
The perfect is the enemy of the good.
When you propose an alternate solution I'd like to see it in practice before throwing millions of people to the wolves.
The reason is straightforward - a higher minimum wage disproportionally affects goods and services produced by employees that get paid said wage, or close to it. These tend to be the cheaper products on the market, and so the poorer you are, the more such products are in your consumption budget. Obviously everyone has a substantial amount, so the tax is still spread around - but poor still end up paying proportionally more of it.
For another perspective at the same problem, consider what happens when the wage gets raised. Now your paycheck is higher - but so is the cost of your food, most likely, because the people producing it were also paid little, and are now paid slightly more. So the actual increase in purchasing power is less than the nominal dollar amount - and the difference is proportional to how many cheap (= produced by low-paid labor) products you consume. Whereas someone on the high middle class end of the spectrum will see some minor increases in restaurant bills and such, but it's a blip on the radar compared to their income (and their mortgage, education costs, car loan etc).
The obvious conclusion is that we should stop being half-assed about it, recognize that our existing arrangement, between min. wage and unemployment insurance, is already a kind of UBI, acknowledge that it means that we as a society are already okay with the moral argument behind UBI, and work on implementing it ASAP.
It's pretty obvious why when you look at the near slavery conditions that abused workers doing things like picking tomatos in Florida are subjected to. Shitty businessmen get away with nasty shit when workers lack protection.
The difference between today and 75 years ago is that we now import second class humans again who lack access to basic rights and import goods manufactured by peasants abroad.
But enough outcry about the companies "exploiting" the islanders was enough for the companies to say "uncle," and automate the harvest with machines. I'm sure that had an effect on the economies of the islands.
I can't really explain here why I'm in this situation for a few reasons (particularly anonymity - if my employer finds out I've said any of this I'll be fired and his "friends" will come for a visit), but here's what I can say:
my employer is a thief. Tax fraud, wage theft, copyright violation. Staff are expendable, and routinely fired for not working certain shifts (illegal, because the staff are hired for differing shifts and are not required to work extra). Contract fraud, multiple different types of harassment and abuse of staff, as well as threats against personal safety.
Basically, anything he can get away with to pocket a few dollars, he will do. I'm sure you can imagine that minimum wage is, to him, a target; if it didn't exist, he would pay us much less.
What keeps him in business is powerful friends in government (in a country with "low levels of corruption") who seem to help complaints get lost rather than actioned, and the local gangs who will have a chat with anybody who gets out of line.
That sound horrible.
Is there anything that can be done to bring such people to justice without exposing dvtv75?
It does part of that, but creates a precarious position for most of the workers. If the minimum wage is higher than the market-clearing wage (as might be evidenced by 100s of applicants for every opening at a fast food restaurant), then the employer knows there is little repercussion for firing (or force-quitting) an employee.
"Plenty more where they came from" and the employee knows that they just passed the 100:1 gauntlet to get this job, so they're a bit more inclined to put up with BS.
But it's worse than most other forms of welfare. We can do better. Much better.
The rest of the argument I'm quite sympathetic to. It just always puzzles me, this assumption that labor share will always destroy itself by turning into exactly increased costs, as if owner profit was either nothing, or completely non-negotiable.
Deadweight losses. A bored teenager that'd rather have $3 than an hour of his time sits at home. A retired person would rather tell stories to a bored teenager for an hour than have $3. The law says that it's illegal to make this trade, even though both parties are better off afterwards.
There's other issues from messing with prices - shortages/surpluses, excesses or deficiencies of quality, search costs, and misallocation of resources. It really all boils down to the same thing, though. Prices provide feedback between what buyers want and what sellers provide. Mess with prices, and society starts lying to itself about what it wants or how hard getting it is. Do Not Mess With Prices.
>When you propose an alternate solution I'd like to see it in practice before throwing millions of people to the wolves.
We have an alternate solution, we just reserve it for people who somehow "deserve" to be treated humanely through virtue of being disabled or elderly. Everyone deserves to be treated humanely. Expand the current welfare system to everyone, eliminate the incentive distortions from means and needs-testing people, and pay for it through tax increases.
"Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated." - Thomas Sowell
The perfect is the enemy of the good. Are the inefficiencies you mentioned significant? I suggest you read the empirical studies section of the Wikipedia article.
I think you can have an opinion but I don't think you can treat it as fact.
Note: your example of the teenager seems ridiculous as people get paid under the table all the time.
Edit: prices are always messed with. Inefficiencies are created and removed every day. A minimum wage is just a large union saying we want our share of the value we create. If you want to argue that they are messing with the efficiency of the economy or are shooting themselves in the foot then you should have damn good evidence.
So show us anywhere in the Western world that does that; improves the welfare of the poor without a minimum wage.
But show us with evidence from other countries that are currently employing the system, don't defer to untested and unproven "it could be so if..." claims, please.
There is legislation that binds non-union members at non-union workplaces to union agreements.
Anyway, yes there are angel investors and companies that exist only to match them to those needing the money. Again, probably not on the scale you will find in Silicon Valley.
No, that is entirely unrelated to why it was created.
It was created because The Deep South was unwilling to pay a black man "a white man's wages" and blacks were routinely paid about half what whites made for the exact same job. The policy was initially a failure. Businesses in the South fired blacks en masse rather than pay a black man the same as a white. This did not change until WW2 caused very serious labor shortages.
Minimum wage was an antiracism policy aimed at forcing the Deep South to get more in line with the rest of the nation and stop having Jim Crow bullshit linger on in the form of literally paying blacks half as much as whites. It was intended to put a stop to that practice.
Whatever they do with it now for REASONS, the original federal minimum wage law was passed for the above reason.
Could you offer some support for this claim? There is a recent book called "Illiberal Reformers" that seems to suggest exactly the opposite: that minimum wage policies were put in place with the intent of putting minorities out of work (rather than raising their standard of living).
See some of the quotations here:
http://www.econtalk.org/archives/2016/12/thomas_leonard.html
""" The low-standard or undercutting-of-wages part of the theory, got its start with the violent activism of white Americans against Chinese immigrant workers. The title of a pamphlet published by the American Federation of Labor trenchantly captured the heart of the claim: Meat versus Rice: American Manhood against Asiatic Coolieism, Which Shall Survive? If wages were determined by living standards rather than by productivity, then the meat-eating Anglo-Saxon could not compete with the Chinese worker accustomed to eating rice.
Professor Woodrow Wilson, in his popular History of the American People, preferred the same theory of low-standard races undercutting American wages, adding a fillip of racism to cement the notion that race explained the low standards. White laborers, unable to "live upon a handful of rice for a pittance," could not compete with the Chinese, "who with their yellow skin and strange debasing habits of life seemed to them hardly fellow men at all but evil spirits, rather." """
Many of these things can be read in different ways. The modern interpretation is to read everything through a racial lens, but I don't think that captures the essence of the issue. The initial minimum wage laws really targeted sweatshops and child labor. It was viewed then that these employers had way too much power over labor and were depressing wages overall.
Where to draw the line between anti-Chinese antagonism and pushing out predatory business is subjective. But I think if you look at the circumstances surrounding the issue and the laws, you'll find more of the latter.
It laid this out very credibly. It had a very respectable list of sources. The author talked about getting original copies from someone who was old of some of the papers and what not that he referenced.
Sadly, I cannot remember the name of the book. If I can find it, I will let you know.
Also, I have read a different theory than the one you cite for why Asians ended up working on, for example, the rail lines that were laid across the U.S. It involved the fact that they drank tea, thus they boiled their water. This protected them from getting diseases that often laid up white workers in harsh settings where the water was not always safe to drink without boiling.
The racist explanations you list sound to me like explanations created by people living through the fallout who were expressing their anger rather than genuinely analyzing the situation.
They, in fact, exist outside the United States, period.
Interesting retro-rationalisation, but patently false.
When I talk about the minimum wage, what really matters is what that income can buy you. Rather than discussing nominal wage and associated costs let's just combine them and talk about real wages.
Clearly there is a point where a higher minimum wage (real) is infeasible and detrimental.
In my opinion there is a wide range of minimum wages (real) that raise the welfare of those whose skill is in excess supply.
Economics is complicated and far from reliable. The idea that removing the minimum wage would result in full employment is ridiculous. It would make businesses richer and subject millions of people to worse poverty. There is open debate that the minimum wage even reduces employment [1].
[1] - https://en.wikipedia.org/wiki/Minimum_wage