February 4

More on the minimum wage

7  comments

An economist writes that an increase in the minimum wage won’t cost jobs to those laboring at minimum wage levels.

But though economists still maintain that the axiom is true, it may not be entirely relevant in today’s economy. There are good reasons to believe that it would take a very large rise in the current minimum wage to exact a significant toll on jobs. Raising the floor on pay to $7.25 an hour from $5.15, as Congress is considering, is unlikely to do much damage. Still, American history offers many examples of how raising the wages of low-paid workers will provide a powerful incentive for employers to eliminate their jobs.

A careful reading of the entire article shows that though it may not cause a loss in employment (which is still arguable, in my view) such an increase is not without consequences to us all and especially to those who labor at minimum wage rates.


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  1. I can’t comment on the USA as I’m a Brit, but we have had a minimum wage (in reality, minimum wages according to age) for some years.
    There was a lot in the press from employers saying that they would have to let people go etc etc. This may have happened in individual cases, but overall, the minimum wage appeared
    to make little difference to employment levels.
    This may have been because the minimum wage is so low that it changes nothing, people were already being paid at minimum wage levels. Or, because people with low income are likely to spend any additional income, shops etc benefit.
    I do know that it got up my nose when some employers said that basically, unless they were able to pay a pittance to their employees, they may go out of business. Frankly, I’d question whether such a business deserved to survive.
    Hi Neil–
    If you’re a small business struggling to pay the bills – and some very large businesses now started that way – and the government forces you to pay more in labor, you have three choices: close up shop (in which case everyone loses), raise prices and hope that the price increases don’t reduce demand for your products so much that you lose sales, or get rid of an employee or two and make the remaining ones work harder for their increased wages.  I suppose that there is a fourth possibility for a business owner, which is just to eat the increased minimum wage and reduce your own income.  But if your business is struggling to survive, you’re probably struggling to survive yourself, and can’t really reduce your take from the business.
    How do I know all this.  Because I’ve been there.
    Cheers–
    MRE 

  2. Lawmakers are barking up the wrong tree, as usual. Minimum wage is not the problem, corporate abuse of contingent/temporary workers is the problem.
    This is a sore subject with me since I’m a highly skilled technician who can’t find a permanant position to save my soul. Every listing in my area of the country is through a blood-sucking agency who takes at least 40% off the top and gives the worker whatever is left over. As a result, we’re paid 30-40% below market average. No benefits. No paid time off. No security. Just a paycheck.
    Raising the minimum could have corporations scurrying to reclassify their hourly employees since many retail and clerical jobs are currently paying $7-8 per hour. Or worse, they will claim there is a “shortage of qualified workers” (i.e. no one in their right mind will do the job for the pittance the company is offering) and demand more H1-B visas.
    *sigh* Sorry if this is too off-topic, but I’m just feeling very abused lately with no hope in sight. I really, really hate what the Bush administration has done to this country. Just 2 more years… and then what?
    Hi Tamara–
    Sorry you’re having such a time of it. 
    I don’t know if the corporate situation is Bush’s fault, though.  I think it’s been around a long time before he got there and will be there a long, long time after he’s gone.
    The fact that you have to go through an agency to get hired is an interesting manifestation of the law of unintended consequences.  In the old days, if employers wanted to hire, say, attractive, well-spoken young women as receptionists in their offices, they put ads in the paper requesting such.  Then times changed and employers were sexist if they put such ads in the paper.  They had to advertise for a receptionist and take all comers.  If someone came in who was unclean, had long hair, or was in whatever way not the person the employer wanted representing the business but met the basic qualifications, then the employer could be sued for not hiring this person.  Or let’s say an employer has an engineering company staffed by a bunch of male engineers who have a lot of macho male morale and the employer wants to hire another engineer that will fit in.  The last thing he could do today is put in a help wanted ad for a male engineer.  He would be sued within the hour.  Enter employment agencies.  Now the employer calls, says I want a male engineer with these qualifications or I want a certain type of receptionist, and the employment agency sends several over…and takes 40% of the wages of the one hired.

    I’m not saying that this is right–I’m just saying that it’s the way it is.  It seems that every time the government steps in to counter human nature, the law of unintended consequences rears its ugly head.  And, unfortunately, it’s usually the very people the government is trying to protect that end up getting the shaft.
    Best–
    MRE 

  3. I guess a fifth option would be to pay under the table.
    Hi Lyndsay–
    I’m sure many do. Which is a real win-win-win.  The bosses pay less, the workers make more, and the government gets screwed.

    Cheers–
    MRE 

  4. Consider this from Paul Jacobs’s ‘Common Sense’ newsletter…

    “There are only two things a minimum wage law can do: Something, or nothing.
    Suppose an economy is rich enough that even the most unskilled and entry-level employees tend to make at least five dollars an hour. If an employer doesn’t pay at least that, he’s likely to lose workers.
    So the impact of a $5 minimum wage law is nothing in that case, or almost. But what if a minimum wage really increases the cost of labor? Then job-seekers on the margins may be stopped from gaining gainful employment altogether.
    We’re reminded of these realities by a recent story about how commonwealths operating under U.S. governance are being treated by Congress.
    Pre-total-disgrace, lobbyist Jack Abramoff lobbied to prevent federal minimum wage laws from being imposed on the Northern Mariana Islands. He now can’t use his nefarious Republican lobbying power to prevent those businesses from having their contract- making rights violated. But American Samoa has a Democratic delegate, who is also working to protect Samoan businesses from the minimum wage. On Samoa, the legal minimum is half that in the States.
    House Democrats now say they’ll change their minimum wage bill so that it devastates–er, I mean, “applies to” Samoa. Ah, fairness.
    What will happen? Companies will cut back, and some may even close on the island. Samoans will lose jobs.
    It’s awful that bad guys like Abramoff and certain Democrats protecting parochial interests might oppose the minimum wage or say that 2 + 2 = 4.
    But 2 + 2 is still 4.”

    Hi Kevin–
    Thanks for the article.
    Interesting.
    MRE

  5. Dr Mike,
    I’m misplacing this post, but so be it.
    I read your disclosure under the statin post about your income and motivations. I have comments.
    1) I appreciate your commitment to the low-carb solution to metabolic syndrome ailments in spite of the obstacles.
    2) I wish that the public cooking series would have been more profitable, because that’s one of the front lines of this problem. Watch nearly any other cooking show and one encounters carbohydrate-loading worthy of the Boston Marathon.
    3) I wish you and your wife operated a practice near me and my family.
    4) Your efforts in combating the seemingly never-ending stream of lowfat/high carb media messages are appreciated.
    5) I keep PPL in the reading room at home (ahem), to help in reinforce your message, and this also assists me in staving off (sometimes more than others) the flood of temptation. I don’t feel deprived, mind you, but the combination of media-derived, peer, and family influences sometimes overwhelms me.
    Thanks, I continue to read the blog and am grateful that you continue to take the time to respond so conscientiously.
    Richard
    Hi Richard–
    Thanks for the kind words and good thoughts.
    Best–
    MRE 

  6. Hi Dr Eades, I agree that there are/have been instances where a struggling business cannot find the extra, but often the difference between the old wage and the new ‘minimum’ was tiny.
    Still, as you say, when multiplied by the number of employees, potentially significant to a business’s survival.
    Equally though, there are plenty of businesses who do their best to pay as little as they can get away with, and exaggerate the threat of a ‘minimum’wage.
    There were dire predictions of what would happen in the UK re businesses going to the wall, but if it did happen, it was on a minute scale, and the controversy soon died down. Didn’t seem to make any difference to employment levels either.
    If you set a low ‘minimum’ then at least you
    bump up some of the sweatshop pay, which i would argue is a good thing. I’m certainly not advocating (just a wild guess) a minimum of $20 an hour.
    I also believe it’s a good thing for kids to spend some time doing a low paid job, it gives them a sense of perspective shows them what its like to have low status and low pay.
    Neil
    Hi Neil–
    I pretty much agree across the board.  If only a tiny percentage of people make the minimum wage anyway (most make considerably more), then it makes no difference if it’s raised a little.  Under those circumstances it’s a moot issue.
    Cheers–
    MRE

  7. We don’t want you on our engineering team because you’re not one of our kind.
    Really.
    Hi LC–
    Huh?  I guess I’m dense, but I don’t get it.
    Cheers–
    MRE 

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