A Conversation About The Minimum Wage

I had a chat with Avery LIBRELLE, a liberal friend of mine at a local coffee shop in Saint Paul; Avery had just gotten off from a shift of answering phones for MPR’s pledge drive.

LIBRELLE:  I’m glad the DFL are talking about raising the minimum wage.  It’s time the working poor caught a break.

ME: Well, that’s kind of untrue.  Most of “the working poor” work for more than whatever the minimum is.  The vast majority of people earning the minimum wage are young, entry-level workers.  Very few people over the age of 16 actually make the minimum wage – and those over 25 that do usually do it because of choices, good or bad or indifferent, that either they or their parents made.

LIBRELLE:  Well, it’ll be good for them, too.  More money is good, right?  It stimulates consumer spending when workers have more money!

ME:   Well, yeah, but where does that “more money” come from?

LIBRELLE:  Employers!

ME:  And…?

LIBRELLE:  They’ll pay more!

ME:  Er…why?

LIBRELLE:  Because the law will say so!

ME:  Um…no, they won’t.

LIBRELLE:  Sure they will.  $9.50 is more than $7.25!

ME:   Well, yeah – any minimum-wage worker will get more money per hour.  But it doesn’t mean their employers will spend more, especially in a tough economy.

LIBRELLE:   Well, that’s Bush’s fault.

ME:   Be that as it may, look at it this way.  Let’s say a store owner has $100 an hour to spend on payroll at her small business.  That’s her labor budget; it’s what she can afford to spend, given the revenues she brings in, on labor, on top of materials, rent, utilities and a modest wage for herself – and just to keep from going crazy, I won’t add in all the service taxes she’ll be paying under Governor Messinger’s Dayton’s tax proposal.  Currently, that allows her to employ about 14 people at minimum wage.   If the minimum wage goes up to $9.50, that means she can employ ten people.

And that’s not even counting the changes to the payroll tax, which bring it down to more like nine.  And that’s leaving out healthcare.  So – nine employees get a raise, and five get laid off.  Meaning the nine who are left are going to have to work a whole lot harder.

LIBRELLE:   The employer can just budget more for labor!

ME:  Yeah, there’s not actually room in her budget to increase her labor costs by close to 50%.  Not unless her business’ revenues zoom upward which, by the way, isn’t happening these days.

LIBRELLE:  She can take it out of her salary!

ME:  Did you catch the part about her having a “very modest” salary after all her expenses?  If she tacks $40 an hour onto her labor costs, she’ll be working for free – which is less than the minimum wage.  She may as well close the business, then – which means instead of laying off five, she’ll be putting all 14 out of work.

LIBRELLE:  Maybe the workers should unionize!

ME:  And that’ll increase revenues how?

LIBRELLE:  Why do you hate children?


18 thoughts on “A Conversation About The Minimum Wage

  1. It would seem natural to inflation index minimum wages rather than have them raised at arbitrary times by the legislature or Congress.

    It’s similar to the reason why the legislature is much more willing to fund projects for new infrastructure than they are to fund maintenance of existing infrastructure: it’s easier to put your name on something new than on keeping up something that already exists.

    I guess economists and others still have trouble accepting the fact that Minimum Wage is the pay for Entry-level Jobs, you know, people who have no skill and need to be trained.

  2. An increase in the minimum wage will have the effect of pushing employers to hire less and automate more. Touch screen orders at McDonalds, coupled with change machines or credit card scanners. There is very little low skilled labor that cannot eventually be automated. Stupid proposals like this make that happen sooner.

  3. Economics knows of just one way to sustain higher wages for workers: worker productivity must increase through training or better tools. Workers are generally paid according to the value of their contribution to output, usually referred to as marginal labor productivity. Paying them more than that value is charity, not work.

    If stores paid more than the marginal labor productivity, they would have to raise prices. Higher prices would reduce demand and force layoffs of workers. Also, higher prices would hurt the poor who shop there the most.

  4. Liberal Handbook says the following: “When, in a debate, it becomes apparent that the economic realities are not in your favor, gently massage the argument towards greed, global warming, or the welfare of women, minorities or children. This tactic won’t necessarily help you win the argument, but it will allow you to exhibit copious quantities of SMARM which, for a low-information voter, is the object of any debate in the first place. You win. Walk away.”

  5. I guess economists and others still have trouble accepting the fact that Minimum Wage is the pay for Entry-level Jobs, you know, people who have no skill and need to be trained.

    Not sure what you’re getting at with this; it’s not so much the economists as the DFL and the left that has trouble with it.

    The old “Burger-Flipper” job that libs used to sniff derisively about has largely been replaced, at least at McDonalds and Burger King, by pre-cooked patties that get reheated en masse, eliminating need for many “entry level” jobs. The value of the employees dropped below what Macs was being required to pay for them.

  6. I wonder how many “citizen journalists” The UpChuck will have to send packing to accommodate Nick Coleman’s presumptive raise.

  7. I like Mike Adams’ idea. Suspend the minimum wage entirely for a year, see what happens to the economy.

  8. Emery, indexing the minimum wage is a bad idea because it will continually raise the barrier to workforce entry. Eliminating it is a better idea.

    There’s a scene in Back To The Future where Alex pulls into the filling station and about 30 kids race out to check his tire pressure, wipe his windshield, etc. all wearing spiffy white outfits. We laugh at it today but those were real jobs for high school kids needing to learn essential job skills such as Show Up On Time and Treat The Customer Right.

    Paying somebody $7.50 an hour to learn the basics already isn’t worth it to the customer who’s paying that price hidden in the cost of the product. We’d rather pump our own gas and save a nickel a gallon while the kids sit at home unemployed. Indexing it to $10 an hour is exactly the wrong solution.

  9. Classic economics:
    When you increase the cost of a product, you decrease demand for that product.
    When you decrease the cost of a product, you increase demand for that product.
    If the democrats were really interested in increasing the wages of low and unskilled American workers, they would stop importing millions of unskilled and low skilled non-citizen workers.
    On immigration, legal and otherwise, the US Chamber of Commerce and liberal Dems see eye to eye. Both are opposed by the majority of Americans, who understand all to well what immigration is doing to their wages.

  10. Solve all the economic problems, make the minimum wage 100.00 per hour! How could that not work?

  11. Minimum wage has been pretty well studied and studied and studied.

    Paying people more drives up demand.

    Demand, not supply, drives the economy; that is why trickle down economics is such a failure ever time the right tries it. Consistently, since WW II, the strongest economic growth has been under Democrats.

    I took a look at a variety of those many studies, read through them, from both sides. This was the best summary of those studies (pro and con) to raising the minimum wage: http://www.cepr.net/documents/publications/min-wage-2013-02.pdf

    Looks like raising the minimum wage does not inhibit job creation, and is good for economic growth. Obama should have gone for the right amount though, something in the $10 – $11 range, not $9 and change.

  12. And there you go – you google up a study that people were prattling about on the Daily Kos, call it “pretty good”, and declare it “fact”.

    It’s intellectually lazy.

    Have you seen the unemployment rate among low-skill workers?

  13. Tsk, tsk… You don’t really expect DogWhereIsPenalCountyNabbit to actually look outside of her talking points sphere, now did you, Mitch? I am actually surprised, with amount of homework MongrelCur already has, there you go adding to her woes.

  14. I wonder what makes $10-11 the “right amount” instead of $9/$9.50? Why not $12? $13? $15?

    And what makes DG an authority on the economics of low income life that she can determine what the “right amount” should be?

  15. My state senator (Dick Cohen) sent out an email newsletter where he was touting his support of the increased minimum wage, with stimulative effects to Minnesota’s economy a claimed benefit, as well as his support for more school lunch aid, more healthcare aid, etc.

    I replied to him that an increase to $100/hour would be more than 10 times better than 9.50/hour and would have combined effect of reducing the need for school lunch aid, healthcare aid, even more stimulative effect on Minnesota’s economy. For some reason, he hasn’t replied with an enthusiastic agreement. Perhaps he is running out of pixie dust and unicorn farts.

  16. Doggone; now if a minimum wage does not inhibit job creation, why did Nancy Pelosi make sure that the minimum wage hikes of 2006-9 would not impact her investments in a tuna processing plant in a territory in the Pacific? Why the persistent double-digit unemployment among young people, and far higher in the inner city?

    Let’s put that meta-meta-analysis (a dangerous thing, statistically, by the way) into perspective. If “low income workers” is defined as the bottom quintile, and a 10% hike in the minimum wage raises their unemployment rate 1%, what do we see?

    Well, that means that .2% of workers loser their jobs, which is about 10% of the total number of people now working for minimum wage. If the impact scales linearly with the increase in the minimum wage, the President’s proposal would put about 24% of minimum wage earners out of work, and Governor Messinger’s proposal would put about 31% of them out of work.

    And, for what it’s worth, the relationship is probably far, far worse than linear, which is why jobs are so hard to come by in areas where workers are less skilled, like in the inner city. In short, the proposed “raise” for these less fortunate workers would put virtually all of them out of work.

    Why do you hate the poor, Doggone?

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