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Comment by jbuzbee | Hacker News Reader

No matter the methodology in this report, common sense tells otherwise. It's a basic economic tenet that as the price of a good or service raises, less is purchased (Except for Giffen goods [1]).

As a thought exercise, consider the effect of raising the minimum wage to $100 in a town. What would happen to restaurants in that town? They would have to raise their prices drastically to cover the new expenses. Customers who were accustomed to eating out would flinch at the much higher prices and either eat at home or go to a neighboring town. The end result would be closed restaurants in the town and fewer jobs. Of course with a much smaller raise in the minimum wage in the town, the effect would likely be lost in the standard noise of restaurants closing and opening but the effect would still be true.

[1] https://en.wikipedia.org/wiki/Giffen_good

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> As a thought exercise, consider the effect of raising the minimum wage to $100 in a town.

This is the same kind of argument as the infamous Laffer curve, which sounds much more profound than it actually is.

"Let's increase tax to 100%: then nobody will be able to earn any money and everyone will be jobless. It proves increasing tax is bad!" -- Umm, no, it merely proved that there's a certain point (somewhere between 0% and 100%) beyond which increasing tax is bad. Crucially, it says nothing about whether the real world is to the left or right of that point, so essentially it tells us nothing useful.

"Increasing minimum wage to $100" is just like that. Everyone can see that's a terrible idea. And it tells us absolutely nothing about what happens if we increase minimum wage by 10%.

The problem with this sort of econ-101 analysis is that, sure, "it stands to reason" in a simple economic model. But the question is if it stands to reality where there's a lot more going on.

And even if it is true in a world of sticky wages, regulation and a hundred other things, economists tend to stop their analysis there[1]. What are the second-order effects of the poor having more money? Almost all of that will be spent, so there's a multiplier effect, and I'd expect, e.g., MacDonald's extra dollar in salary to actually cost less, because some of that money will come back. (This isn't different in principle than SNAP, for instance, which generates much more than a dollar of economic activity for each dollar spent.)

Veering in a slightly different direction, if some companies would stop fighting minimum-wage increases so hard, I might have more sympathy for their endless moaning about corporate tax rates. If they didn't use the safety net to subsidize their low wages, perhaps we could unwind some of these absurdly convoluted payment structures[2].

And finally, I'm simply done with arguments like this. There is so much inefficiency, bullshit work (that term used in the technical sense), barely disguised corporate graft on top of a historic shifting of the tax burden away from the wealthy combined with actual market forces that are concentrating wealth that I feel like even if a modest minimum wage bump were to create a noticeable shift in statistical measures[3], it would still be too little done to help those struggling under the weight of the laundry-list above.

[1] "If you want a happy ending, stop the story there." The same holds for sad stories.

[2] Which are the real reason we have waste and graft. If there's one thing investment banks, car payment finance and low-rent advertisements for get-rich-quick scams demonstrate well, if you are in a position make anything involving money complicated enough, you can do quite nicely skimming off the top. Sunlight and simplicity make all that much better.

[3] Notice how little real-world evidence of minimum wage increases causing economic harm there is. Almost all the arguments are instead from first-principles. We've raised it quite a few times, and a lot of people don't like it. And yet, there is almost no evidence it has ever caused harm.

I run a small business. Seriously, please point me toward some of that sweet corporate graft so I can get some.

> barely disguised corporate graft on top of a historic shifting of the tax burden away from the wealthy

How does the minimum wage affect taxation on the wealthy? Corporate taxes, high or low, are paid by the consumers, no matter whether what the cost of that taxation is.

> combined with actual market forces that are concentrating wealth

If the paper is correct, and the minimum wage doesn't affect employment, then by proxy, one has to argue that it doesn't affect profitability. If it doesn't affect profitability, then it doesn't help or hinder wealth concentration.

Further, it's worth pointing out that income !== wealth, and while a $1-5 bump in the minimum wage might help the lower income people accrue wealth, it doesn't meaningfully impact the wealth gap -- though it may be more likely to address the lower class having zero or negative wealth, but if the assertion is that more money paid to the minimum wage-class increases velocity in the market (read: it gets spent, not saved) then probably not.

No matter the methodology in this report, common sense tells otherwise.

Common sense says that complex systems behave in unexpected ways. Seeing wages only as a market is naive. Wages provide money to be expeded in other markets. Unemployed people tend to look for alternative income sources, legal or otherwise, or move. Poor people get sick, commit crimes that in turn causes more needs in other parts of the system.

> No matter the methodology in this report, common sense tells otherwise.

And it's common sense that the mercury in vaccines is neurotoxic, no matter what those studies say. We don't need any fancy book-learnins here!

> It's a basic economic tenant that as the price of a good or service rises, less is consumed.

We're all familiar with Econ 101, thanks. But there is in fact a great deal of empirical evidence that the real world in general, and labor markets in particular, do not adhere to these extremely simplistic models.

And I guess We don't need any fancy book-learnins here when it comes t basic economic principles either

I think you're right, but economics in practice is not always that linear. It is obviously possible to have decent employment results with higher minimums. Other places have this. From the sample range of minimum wages & employment rates that exist in the world, it doesn't seem that minimum wages are a major factor in most cases. That's why the debate keeps coming to the table.

The economic theory is sound, but this is different from other recurring arguments (eg rent controls or fixed pricing generally) in that the real life examples of the theory in play aren't anywhere near as strong.

There are three effects minimum wages can have:

1) They come directly from profits

2) They cause a commensurate price rise (inflation)

3) The business shuts down because it can no longer afford labor it requires to operate effectively

If you raised it to $100, #3 would happen for most businesses.

In a competitive market, if you raised it a few dollars, #1 would happen.

In a non-competitive (monopoly) market, if you raised it a few dollars, #2 would happen.

In a competitive market where less labor is an option, companies that use less labor would have a larger advantage thanks to a higher minimum wage. This would encourage automation and decrease employment.

In a competitive market where using less labor is not an option, wouldn't #2 happen? All businesses would have the same cost increase and could expect to raise prices.

I've seen no study which demonstrated any causal link between raising the minimum wage and technological progress in automation and frankly I'd be very surprised if there were any connection. Research money doesn't tend to come from angry Burger King franchisees.

I have, however, seen restaurant lobby groups threatening an unlikely robot takeover of restaurant labor if minimum wages should rise:

https://mgtvkron.files.wordpress.com/2014/07/bad-idea-billbo...

I suspect progress in automation follows it's own path and when it destroys jobs, it destroys jobs such that no amount of wage cutting will impede its progress.

I didnt say anything about robots.

Labor efficiency is not just about having a robot take your order, it's the difference between a McDonald's where all the parts are pre-assembles elsewhere and a mom and pop joint where someone is hand-forming the patties.

Anyway, there is another article in this thread that explains how minimum wage increases tend to force the less efficient mom and pop joint out of business, thus accelerating the labor efficiency progress.

I'm for minimum wage increases, but I also believe that certain jobs will not exist with a high enough minimum wage. Any increase in minimum wage probably needs to be met with an increase in training/education.

Another effect is that wage increases increase retail spending.

The CEO of Walmart says that their customers are "spent out". They have a metric for this - same-store sales throughout each month. Sales decline week by week after payday, until they're down to necessities by the end of the month.

The US economy is demand-limited - there's plenty of excess production capacity and plenty of available capital, but limited consumer spending.

And yet another effect is consolidation -- e.g., small business competitors are priced out due to the increase, only to be replaced with franchisees or larger businesses filling their void. Overall employment might go up, but you might increase wealth concentration for large company CEOs.

And, of course, you neglect to offer the possibility of a mixture of all or some of the above, which is just as likely.

I have always thought that spare time is quite clearly a giffen good for significant amount of people. (If it was not, people would work shorter days in sweatshops than western middle class jobs.)

And if spare time is giffen good, it is quite natural that increase in minimum wages does not increase unemployment.

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