Economics of the Minimum Wage

Discussion in 'Financial Cents' started by Clyde, Jan 14, 2007.


  1. Clyde

    Clyde Jet Set Tourer Administrator Founding Member

    Gaining Security in the Workforce

    By Diana Furchtgott-Roth



    The New York Sun

    January 12, 2007



    Senator Kennedy will hold hearings on "Economic Opportunity and Security for Working Families" next Tuesday in his capacity as chairman of the Senate Committee on Health, Education, Labor, and Pensions. Following the House's passage of a minimum-wage increase bill earlier this week, these hearings will focus on jobs — their availability, pay and benefits, and security.

    When the minimum wage bill was considered on Wednesday, Rep. Rob Andrews of New Jersey said, "When the tax bill was on the floor, the wealthiest people in the country, people making more than $300,000 a year wanted massive tax breaks. It was their day, and they got it.

    I am sorry to disappoint the opponents of the minimum wage, but this is not your day. This is the day for the people who empty the bed pans, change the bed linens, sweep the floors, and do the hardest work of America.

    After a 10-year wait, even though they don't have the lobbyists here, even though they don't have the political action committees here, this is their day."

    Even though only 1.6% of hourly paid health care support workers were paid minimum wage in 2005 — the majority receives more — Mr. Andrews' concerns about low-income workers are no doubt genuine. But legislating economic wellbeing won't raise incomes and actually could cause them to decline.

    By all measures, America's labor market is in superb shape. The economy has created 1.8 million jobs over the past year, of which 1.6 million are in the private sector. The unemployment rate is only 4.5% — lower than all industrial countries except Japan. Real after-tax incomes are over 3% higher than a year ago. Employment in industries that pay above-average wages, such as professional and business services, has expanded rapidly.

    What concerns Senator Kennedy and Rep. Andrews is the perception of unfairness. Lower-skilled workers earn less and are more likely to be unemployed than higher skilled ones. Hence, the well-meaning rush of the new congressional leadership to pass laws to raise compensation.

    Raising the minimum wage, however, could be counterproductive. An increase from $5.15 to $7.25 would affect about 10 million jobs and cost employers about $14 billion. Employers won't simply absorb the cost. If workers can't produce goods and services worth $7.25 an hour they're just not going to be hired.

    So for many workers the choice is not between a job at $5.15 an hour and the same job at $7.25 an hour. It is between a job at $5.15 an hour and no job at all, because an increase in the minimum wage may cause that job to disappear, as has happened in Europe. Legislating workers out of a job is no path to economic security.

    This is a shame because low wage jobs today are a stepping-stone to higher wage jobs tomorrow. About 1.8 million Americans earn the minimum wage, the majority of whom are under 25 and work part time in the hotel and restaurant industry. After a year on the job, most are promoted.

    When the minimum wage is raised, employers would not immediately fire all of their minimum-wage employees. Rather, the low-skilled workers would not necessarily be replaced when they leave. Supermarkets would open even more self-checkout lines, hotels would hire fewer luggage carriers, and teens would find fewer summer jobs.

    Those leading the charge for a higher federal minimum wage come from states that already have higher minimum wage laws and whose residents wouldn't lose jobs due to the new law. California, home to the speaker of the House, Nancy Pelosi, and Rep. George Miller, and Massachusetts, home to Senator Kennedy, have state minimum wages of $7.50. And Rep. Andrews' state has a minimum of $7.15.

    It's residents of states with no extra minimum wage that would be most adversely affected. These include Oklahoma, Alabama, Montana, and Nebraska, where the incomes and costs of living are lower and where employers are less able to pass on higher wages to customers.

    Other required benefits also won't buy economic security. If Senator Kennedy wanted workers to have paid sick leave, Congress could require that firms provide six days paid sick leave to each employee. But the approximately 144 million workers who have jobs paying above minimum wage would see fewer raises and new job opportunities. The mix of cash and fringe benefits might change, but workers' total compensation would likely remain the same.

    How can we help people gain security in the workforce? The answer is not to price them out of a job, but to improve their opportunities and upward mobility through better education.

    Unemployment rates, at 6.6% for adult high school dropouts, fall to a below-average rate of 4% for those with a high school diploma. For those with a bachelor's degree, the rate is only 2%. Perhaps Senator Kennedy could schedule another hearing.



    Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and director of Hudson’s Center for Employment Policy. From 2003 to 2005, she was chief economist at the US Department of Labor

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  2. RightHand

    RightHand Pioneer in a New World Moderator Founding Member

    I know that it will have a detrimental effect on Connecticut's economy. CT mandates that our state minimum wage is set $2.50 per hour over the federal minimum so we will go from $7.65 to $10.15 for every employee, even the high school kids who come in to empty the trash. Guess what - they will no longer have jobs because small employers simply will not be able to afford them.

    The increased mim. wage will force many employers to purchase more foreign goods and services as we price ourselves out of the market.

    I'm not opposed to people earning a decent living but the dollars will be reserved for those who make a meaningful contribution to the company and they already far exceed minimum wage.
     
  3. Blackjack

    Blackjack Monkey+++

    I don't know guys.... sounds like bull to me. "If we raise the pay for the slaves, it'll actually hurt them"???? ok, whatever.

    Admittedly, ther may be some detrimental effect to the economy, that's why legislation like this must be accompanied by well thought out measures to insure it has it's desired effect... what those are I admittedly don't know.

    All I know is that millions of working people in the US can't afford even the basics while the slavemasters that own the companies have multiple homes and a new beemer every year, it's ridiculous!

    Those poor, pitiful rich people having to reach into their multi million dollar tax deal lined pockets so that the people who made them the money with their labor can afford things like healthcare and decent food. I guess little Johnny the Third will have to wait TIL next year for his rolex and his tour of Europe..... greedy minimum wage ingrates!
    [booze]
     
  4. Clyde

    Clyde Jet Set Tourer Administrator Founding Member

    I never look at these things as a rich versus poor issue...that is what socialists do! I wouldn't want to be in Venezuela right now to see the fruits of government price and salary controls. Its a tried and true recipe for economic disaster.

    I am pretty strict on the economic principal of supply and demand determing the prices and not the goverment. There will be low cost jobs "exported" once again or people will come-up with ways to put more responsiblities on the next wage level up and elimate a job that does not meet the cost-benefit analysis of the new wage.

    Also -- get ready for inflation after this happens. The consumer is the ultimate financier of this salary expense increase! And that is socialism through redistribution by consumption.
    [flush] the economy. Dictate wages/price controls/salary controls and all the rest of the stuff!
     
  5. RightHand

    RightHand Pioneer in a New World Moderator Founding Member

    I can understand your opinion Blackjack but the majority of businesses in the U.S. are "Small" owner operated businesses, not the multi-million dollar enterprises you're referring to.

    The average small business is hanging on by a thread as it is. The every encroaching state and federal taxes, insurance, and regulations are literally killing small American business. I work exclusively with small businesses and every one of my clients works longer hours (usually for less pay) than people working for the company. I was at 2 clients today delivering projects and in both cases, the only ones there working were the business owners.

    These are the businesses that are going to to hurt because they will raise their prices to cover the increased costs and suffer fewed contracts at the higher prices. Eventually, they will lay-off any non-essential employees.

    The following is a littled information about business in the U.S. It's slightly dated but basically remains true today.

    Characteristics of Small Business Employees and Owners analyzes the demographic characteristics of small businesses. Highlights include:

    · Of the 5,369,068 employer firms in 1995, 78.8 percent had fewer than 10 employees, and 99.7 percent had fewer than 500 employees.

    · Small firms (fewer than 500 employees) employed 56.5 percent of the 99.2 million private sector employees in 1996.

    · Part-time employment was 20.5 percent of the small firm work force, and 17.4 percent of the large firm work force in 1996.

    · Small firms employed a higher percentage of workers under age 25 and workers aged 65 and over than did large firms in 1996.

    · Of small firm workers, 53.7 percent had an education of high school degree or less, compared with 44.3 percent of large firm workers in 1996.

    · The percentage of full-time employees in small firm employer pension plans increased 12.9 percent from 1992 to 1996.

    · Of the 11.3 million self-employed individuals with earnings in 1996, 37.4 percent were women, 6.0 percent were black, 5.9 percent had Hispanic origins, 54.5 percent were aged 35 to 54, 75.1 percent earned less than $25,000 and 43.0 percent were in service industries.

    · Of all of the firms in 1992, 73.0 percent were started by original founders, compared to 29.8 percent for businesses with 100 or more employees.

    · Of the firms without employees in 1992, 27.0 percent were started within the last two years, compared with 9.7 percent of firms with 1 to 4 employees.

    · Of all of the firms in 1992, 56.5 percent were home-based when first established, 3.1 percent were franchises, and 75.5 percent of the businesses in 1992 survived until at least 1996.

    The following isd a link to the SBA study http://www.sbaonline.sba.gov/advo/stats/ch_em97.pdf
     
  6. E.L.

    E.L. Moderator of Lead Moderator Emeritus Founding Member

    What it amounts to is that we are all about to pay a lot more for goods and services. Everyone making more than minimum wage just took a pay cut. Minimum wage is not intended for people to live off of long term. It is for entry level positions.

    Rich owners? Contrary to what you might read, most business owners are not rich. Will this hurt the billionaires with their multi-million dollar bonuses and salaries? No, but it will hurt the mom and pop small business owners. Big business can just pass the cost down to the consumer, but small business has a harder time. The mom and pop grocery store, gunstore, hardware store, etc. might not carry as many employees as they did in the past, and will have to do more with less.

    I think that the minimum wage should probably be raised, but not by nearly 1/3rd .

    Personally, I don't be-grudge the wealthy, especially those that busted their asses and made it own their own. That is the American dream, and democracy in it's finest. My hat is off to those who work hard, save, start their own business and employ others. Small business is the backbone of our country.
     
  7. melbo

    melbo Hunter Gatherer Administrator Founding Member

    As recommended by me in the past, Atlas Shrugged is a great read about how governmental price controls, regulations that run out of control smash the life out of all business, large and small.

    This type of legislation doesn't affect that fat guy in the high backed chair with the cigar in his mouth that blackjack is talking about. It affects guys like me. If I can't afford to hire high school student on summer break as extra labor, I will find another way.

    Problem with the slave analogy is that slaves don't have to look for work like minimum wage earners who can't find a job because I can't afford to hire them. I bet there's a few mexicans around me that would take my cash instead.

    I have decided that the US .gov does not have any aspect of it's decisions and governence in my best interest. Following those lines, I will tend to oppose fiercely any new legislation offered.

    I think this type issue is propaganda to keep all us lab rats at each others throats, expending what little energy we have on useless and mindless debates, while the power brokers of the world continue to do whatever they want while we drool.
     
  8. Clyde

    Clyde Jet Set Tourer Administrator Founding Member

    [imwithstupid1] :sneaky:

    [flag]
     
  9. Blackjack

    Blackjack Monkey+++

    I know you guys are right....... (sigh)

    It's the whole system that's broke, not just a part of it, and the truly rich will never be touched. Just annoy's the hell out of me though.


    Quote from Melbo:
    "I have decided that the US .gov does not have any aspect of it's decisions and governence in my best interest. Following those lines, I will tend to oppose fiercely any new legislation offered."

    Amen Brother!
     
  10. E.L.

    E.L. Moderator of Lead Moderator Emeritus Founding Member

    If there is anything good about having the democrats control congress, and the republicans controlling the presendency, it is that it does guarrantee a certain amount of GRIDLOCK! Which I like. Personally I don't want them passing a lot of useless crap.
     
  11. Tango3

    Tango3 Aimless wanderer

    I really hate to expose my true level of "curmudgeonous" but whenever I hear the"we cant live on ,XXK$ /yr" I want to ask about choices.

    How many cell phones, new vehicles and boats are in the picture??.I/we left the military and both worked 6$/ hour factory jobs ( along with my mil med pension, first I went to 2 years of tech school (granted the va helped with this ), came out at $10 then worked up $18.00 during which my wife went to the tech for a 2year nursing degree, now she's a supervisor (charge nurse).

    We had minimum wage jobs but those jobs are meant as stepping stones not careers...we conserved for alot of years. We live conservatively, and it worked; if these jobs completely dissappear. it'll be that much harder for folks to make the jump...Granted fat cats will not give an inch... any additional costs willl be passed on and make us even less competitive.

    No doubt, this is a tough issue...the "rich manipulate the system but also pay a majority of taxes,and create the jobs."
     
  12. Tango3

    Tango3 Aimless wanderer

    black jack I know where youre coming from they don'rt even try to hide manipulation any more .. the alumininum extrusion plant I worked in had "union labor". whenever there was a contract negotiation going on the union rep flew into town, got picked up by the owners at the airport and taken up to stay at the private fishing lodge "up north" for the week..they came came in and opicked up a copy of the signed contract ..thanks for nothing. All retirement funds went to the union fund, if you left under5 years they still got all your pay ins but you weren't vested, God help you if you suggested we get a different retirement plan...the game is fixed...:mad::mad::mad:
     
  13. Clyde

    Clyde Jet Set Tourer Administrator Founding Member

    Sounds like the dues money could have been made better use of by the employees negotiating a deal for themselves. The reality is the Unions are not much different than the government....they always get theirs first.

    Please don't take this as a personal attack, but simply an observation. Your union rep should be summarily shot for "sleeping with the enemy" in the case of representing his "constituents" and taking handouts from his true owner...the guy who actually pays his union dues.
     
  14. Clyde

    Clyde Jet Set Tourer Administrator Founding Member

    Short story on salary controls/unions:

    A company located in a small michigan town employed about 50 people. After years and years of the union trying to get them to vote for a union, they finally succeeded. A much encouraged employee who led the union charge picked-up the phone and called the owner in his office to schedule an 8:00am Monday morning (the vote was Friday evening) to list the employees demands for their contract. "Ok, replied the owner."

    On Monday morning said encouraged employee walked into the manufacturing facility and marched into the office with his list. The owner looked at the list and stated, "You made a vote for your future and now you control it for you and your members. I see you believe you can operate the company better than me. But, you have one problem....the company moved its headquarters and manufacting plant on Saturday to North Carolina to take advantage of less expensive manufacturing costs. That is the only way I can afford to sell my products and remain competitive with Chinese made products that are sold for less than mine. You have your union, but deliver these final paychecks to all your members. I wish you well."

    This is a true story. A second company I know moved for the same reason to Louisiana. If it isn't North Carolina, Louisiana, Mexico then it will be China, India, etc. We live in a world wide economy and we are on the backside of the econimic wave![dunno]
     
  15. Tango3

    Tango3 Aimless wanderer

    Tossing him in the extrusion press was suggested, we talked about finding another union to charter us.or forming our own. Rumor was they could/would close the plant, reopen under another name next day and offer us our jobs back at less money minus any union..They had cctv everywhere in the plant ,. the control grid was cinched down tight. I left these evil rich bastards quick, for my mental and emotional health and the sake of my nonexistant police record. Quick state records searches showed The family had several corporations registered and ready to go, dad , dad and boys, boys by themselves...
     
  16. monkeyman

    monkeyman Monkey+++ Moderator Emeritus Founding Member

    While I could see problems for some business owners in states where ythe state minimum is X above the fed, especialy by like $2.50, but that can be repealed if needed. As far as the minimum wage going up just as mentioned at the Fed level to $7/hour I dont see it makeing a lot of difference on availability of jobs. McDonalds will still need X number of people to flip burgers and run registers, the gas station will still need someone to be sure stuff dont walk out the door and take money, and the grocery store will still have to have X number of folks to stock their shelves and the more 'self checkout' lines they have the more people they need to take care of carding for age authorized stuff, take care of problems and make sure things are actualy being scanned rather than just being bagged and put in carts. Basicly, the majority of minimum wage jobs are simply not expendable, just the employees can be easily replaced but the positions still have to be filled.

    I have mixed feelings on a minimum wage since I dont really think it is the governments place to set it at all but at the same time, if they are going to set one then I figure it should be set such that a person CAN live off of it.

    I have been on both sides of the wage thing. When I lived in the city I owned and ran my own tree company. Minimum wage here at the time was IIRC $5.15/hr, I still never paid less than $7.50 for manual labor so that I could get folks to work for me who were worth haveing and to do that you generaly have to pay them enouph for them to pay some bills. Now since I moved to where we live now, it is a rural area with only 3 moderate sized towns (big enouph to have any warehousees or factories at all) within 50 miles. In that same area you have 3 collages, several small towns and all the folks on the farms. So the employers get a pick for employees since there are more folks looking for work than there are jobs within a reasonable comute (lots of folks around here comute daily about 60+ miles one way). So minimum wage jobs are still jumped at by folks who need what they can get, like me. Im now working for minimum wage and can say that if I wasnt produceing a lot of my own food and getting most of my clothes second hand and so forth then there is no way I could make it on the $650/hour that we just went up to here.

    Another thing to consider in it is that most employers who pay minimum wage or real close to it to their employees also keep their hours down to make sure that they never have to chance haveing to pay overtime and to be sure they dont have to pay any kind of benifits. So most folks at minimum wage dont even get 40 hours a week of that unless they can get 2 employers to cooperate on scheduleing (good luck) so that they can hold 2 or more jobs that usualy have schedules that change from week to week.

    As far as its impact on the economy, if it went to a living wage it COULD actualy help the economy due to less need for taxes so SHOULD be tax cuts along with greater taxes going in. The reasoning behind this is simple, a person can live FAR more comfortably and better off by sitting on their butts and collecting welfare than they can by working for minimum wage. If you work for minimum wage you make to much money to qualify for any government help so its all or none, if you sit back they will extort money from the tax payers and give you a free place to live, a food allowance, medical/dental and optical insurance that while many complain about it those on minimum wage could only dream of haveing so good, then they will toss in all kinds of other perks. If you add up all of the benifits other than the insurance stuff an average person can pretty easily get about $12-1400 or more each month plus full insurance for being on welfare OR they can go to work and manage to get 40 hours a week at minimum wage. Figure it up, $6.50/hr x 40 hours - the 15% or there abouts take for taxes (you get the income tax back at the end of the year but employers still hold it and the social security is still gone so about 1/2 that stays gone) It comes up to $1040/month before taxes, soafter taxes for the day to day bills and such that comes out to about $884 per month an NO insurance, if you need a Dr you get the "treat 'em and street 'em" bit from an ER that knows you wont be able to pay but will send creditors after you for a couple years to try to collect and if its dental or optical, to bad just deal. You treat it yourself around the kitchen table or live with it that rotten tooth just has to rot out and you get to deal with it whiule it dose, if it gets an absces you can go get a script for antibiotics from the ER and not pay the bills so you can fill it then deal with the creditors you cant pay or you can lay down and die.

    So you see there is a reasonable idea that increasing the minimum wage to a point where it can at least get you close to living as well as the folks on welfare then more of the folks who dont have a lot of skills or in areas with more workers than jobs and such might be willing to work if they didnt have to go down so far in their standard of living.

    Ok, sorry for the rant, just a little irritable since a couple of the teeth Im 'getting rid of' are starting to get into the nerve areas and not fun tonight.
     
  17. RightHand

    RightHand Pioneer in a New World Moderator Founding Member

    monkeyman, You make a good point about competing with the benefits of welfare. I agree with your assessment of the situation in areas of the country where opportunities for employment are limited. Supply and demand will always regulate wages and prices in a free marketplace.

    However, as I see it, every move by the government to tamper with a self regulating economy is regressive since the cost of living will be negatively influenced. Any benefit people realize by an increase in minimum wage will be lost to rising costs. Everyone will pay more for all goods and services. Business will either make a profit or perish so prices will increase.
     
  18. Tango3

    Tango3 Aimless wanderer

    Sounds like you are in a tough area with few employers....cold up here, but manufacturers are always lookin...
     
  19. TnAndy

    TnAndy Senior Member Founding Member

    In the argument of minimum wage, I see no one has questioned the Feds authority to even HAVE a minimum wage with the possible exception of Federal employees.

    Read Article 1 Sec 8. Congress is given specific powers.....but this isn't one of them.
     
  20. duanet

    duanet Monkey+++

    My problem with all of the "right wing" economics is one of fairness. Why do we have to compete with the ****** world in wages. But when I go to buy a car, it has to be "tested" etc and I have to buy it from a "distribitor. My house has to have so many square feet of living room, so much insulation and a given lot size. I have to go to a "doctor" at a "medical facility" and buy a "perscription" from a licensed "pharmacy" which in New England is owned by some chain that pays their president a "fair" wage of a few $10's of million and a return on their investment. Thus all of my living costs are based on a closely controlled "free" market with patents, trademarks, building codes, health laws, and large scale enterprizes that have put all of the little guys out of business. I am supposed to pay $200 a month for a perscription that costs $20 to make in order to allow for "research" and such. Yet when the subject of minimum wage comes up, it is always attacked as doing away with jobs. Why can't we buy a 1/4 acre and put up a cardboard shack with an outhouse and heat it with burning cow dung like our Indian labor competition? Our wages can't be protected, but they can sure protect our health and neighbors property values until a cheap room rents for $300 a month and medical care is out of reach for the working poor. I don't see the rest of us working people paying for the emergency "free" care with our taxes and health care costs as a positive. Maybe we should be able to go down to the drugstore and buy almost all of our drugs over the counter. 40 years ago I lived in El Paso Texas and most of the native people, the "Mexican-Americans" who lived there at least since the 1600's, tended to go to Mexico for their medical care. When a bug came around, somebody went to the Dr. and got a medicine proscribed. If it worked, their friends and neighbors went to Mexico and bought the drug without a proscription and treated themselves at a small fraction of the cost. If it didn't work, they talked to someone else and tried to find out what did work. I haven't quite figured out why $7.25 an hour is inflationary and will cost jobs, but paying a man $120 million to leave, and who has almost destroyed the company, is a good free market thing. And don't say that the stockholders approved it as I own stocks through a 401-K and can't even figure out what the mutual fund owns, say anything about voteing on the companies pay program in the stocks that I "own". Most of the economic "research" conducted by the various groups, liberal and conservative, is based on "I have this idea of what is right and now I will come up with a theory and manipulate the data to prove that I am right".
     
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