Minimum Wage and Job Loss: One Alarming Seattle Study Is Not the Last Word
nytimes.com
nytimes.com
I'm of the opinion that far too many people on both sides of the issue argue their positions from ideology rather than empiricism, to our collective detriment.
The headline is right - one alarming study isn't the final word, nor should it be. But we seem to be rather quick to let one study confirming our biases to be "the final word" when it confirms our priors, and rather quick to dismiss it as "just one study" when it contradicts them. Neither position is intellectually honest, and if we truly want to help the most vulnerable, we have to do it in ways that are backed by the evidence.
After a 1 minute google, bam, figure 1, a cluster at 0.[0]
[0] http://cepr.net/documents/publications/min-wage-2013-02.pdf
Bear in mind there is a matter of degree.
> The weight of that evidence points to little or no employment response to modest increases in the minimum wage.
What will define "modest"?
In argentina, minimum wage is almost median real income. 40% of workers work under the table. Id be extremely surprised that lower minimum wage wouldn't increase formal employment tremendously.
So, minimum wage increases, worker's comp changes, tax increases, etc. today may indeed spur job losses where that may not have been true before. We are in a brave new world.
Further, if you say that old studies aren't reliable because it's a brave new world, the predictions you make due to some numbers are also unreliable.
My only "prediction" is that, as has been the case since the beginning of recorded history, business owners will always try to reduce their expenses as much as possible, and that capabilities of technology will continue to increase as time goes on. I'd say those are fairly safe assumptions. With those basic and reasonable assumptions in place, minimum wage increases today will cost minimum wage jobs.
I don't need to say that, fewer jobs being lost should have still have had an impact and those studies didn't find one. There are other periods in history where the leaps forward did have something like this level of impact, and jobs didn't disappear then either.
>With those basic and reasonable assumptions in place, minimum wage increases today will cost minimum wage jobs.
Your reasonable assumptions include this same process happening throughout history. It has had the same result throughout history, yet you're predicting that this result will somehow change.
I disagree with this conception of the problem. As the other downvoted comment links the general consensus is that minimum wage hikes of small/medium magnitude are going to have zero/small effect on employment numbers. People like Card/Krueger because there's a lot of good reasoning in it and it's one of the earliest really good studies that showed the effect it did. But they quote it because the effect that it shows agrees with our scientific consensus. This UW study not only goes against consensus but also to an extreme degree:
The UW report nonetheless finds an unprecedented impact of wage increases on jobs, ten times higher than the average in 942 published minimum wage and non-minimum wage estimates, and triple that of minimum wage critic David Neumark. [0]
The UW study also tries to sell it itself (or has been accepted by laymen) as a more definitive study because it doesn't limit itself to one industry. And while it's true that it's pursuing a larger scope the sampling problems in their methodology have made it almost useless. If you refer back to the pdf in the previous citation and you can read about them. So I think people's skepticism about this study is actually pretty well placed.
[0] http://irle.berkeley.edu/files/2017/Reich-letter-to-Robert-F...
The tl;dr from that section is nicely concise:
> The most comprehensive summary that can be made about the minimum wage literature is that while the evidence is sometimes contradictory, small minimum wage increases seem to either have no employment effects or at least quite small employment effects in the short run. Estimates of long-run impacts, or the impact of large minimum wage increases are presently unknown.
Seattle is notable because it was (I believe) the largest MW increase in US history. The research has broadly agreed that with large changes, we don't have evidence predicting what'll happen, which is why this study is of such critical political importance to both sides - if it shows that the MW is a net gain, then the MW proponents get to say "see? no large changes, $15 MW nationwide now!". If it shows a net loss, the MW opponents get to say "see? You can't go past the inflection point without moving backwards, put the brakes on this push".
Card/Kreuger was notable because it was the first robust result that contradicted the consensus at the time. The paper contributed substantially to our understanding of labor economics, and it would have been a major mistake to discount it because it conflicted with the widely-held beliefs at the time. To dismiss the UW study because it contradicts some contemporary research would be just as much a mistake.
There are certainly people in any economy whose labor is not worth the total cost to an employer, for any given price. For an obvious extreme, consider a minimum wage of $1000/hour: this would not magically make everyone rich; instead, it would create a giant black market for labor. Intuition says that $1000/hr is obviously the wrong number. But what really is the justification for saying that $5 or $10 or $15 per hour is the right number? If the goal of such a policy is to help the lower class earn more, then minimum wage seems like a very indirect and blunt instrument by which to effect it.
So minimum wages do create pressure to stay productive enough to keep employed, which is entirely intensional.
Think about it: it's not just the work, it's the quality of the housing and the food, and everything else. Sure, someone could "work" for $1/hour but they could never live on that in a rich country. There is a bottom on labor productivity below which labor is not viable for the minimum standard of living for the country.
Pushing up the min wage forces productivity improvements as well as standard of living increases. Otherwise, we would have something like India, supporting a wider variety of living standards; I.e. We wouldn't be a developed country anymore.
Below that level of employability, social services are supposed to take over, but this being America....
The evidence in this study shows precisely the opposite.
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Every minimum wage increase is different!
Even the staunchest free market economist wouldn't claim that a hypothetical minimum wage increase from $.10/hr to $.50/hr in Seattle would increase unemployment. And even the staunchest socialist economist would not claim that a minimum wage increase from $8/hr to $800/hr wouldn't increase unemployment.
Similarly, how can you compare an increase from $5-6 in New jersey in 2005 to one from $11 to $13 in Seattle in 2017? You can't just make blanket statements about this stuff.
The question is not "Are minimum wage increases good in general?" the question is "Given the potential tradeoffs, is this specific minimum wage increase good?"
That still isn't the right question because it's a false dichotomy.
At any interesting wage, a minimum wage increase will increase unemployment. An increase from $.10/hr to $.50/hr does nothing because approximately zero people make less than $.50/hr to begin with. Once you get into wages that people are actually paid, with high probability there will be some jobs that can't be justified at a higher wage.
Imposing a minimum wage is taking from the people at the very bottom (who become unemployed) in order to give to the people at the almost-but-not-quite bottom. Which is why the whole exercise is folly.
It doesn't matter whether the higher wages outweigh the increase in unemployment in any particular scenario because there is a third option -- increase income without imposing the entire cost on employers who hire people at the bottom.
The simplest way to do that is a UBI. The UBI supplements everyone's wages, which brings up the lowest paid workers to the minimum, and is paid for from general taxes, which minimizes the economic damage by spreading out the burden (and having the rich pay their proportionate share).
Obviously the question then becomes how much the UBI should be, but at least it gets us away from the folly of a minimum wage.
This is not obvious. Increasing the income of the almost-bottom could act as a stimulus which drives down unemployment. It is possible that this effect is greater than the unemployment caused by the minimum wage directly.
Having said that, I agree that the UBI is a generally better way of accomplishing this.
You're essentially arguing the butterfly effect. It could also be the exact opposite, if the employees use the money to pay down debts when the employers would have spent it on new consumption. Or various completely arbitrary outcomes that are always possible whenever making any change to a complex system.
But the real flaw in the stimulus theory is that it assumes the conclusion. If the net loss from people losing their jobs to begin with is more than the net wage gain to the people who kept their jobs to begin with then there is no extra money to create a stimulus to recover from that situation. If it isn't then you didn't need the stimulus effect to come out ahead regardless. (Though you're still even better off with a UBI.)
If a company pays 65% of their employees the minimum and wages go up 5% the company doesn't fire most of its workers it grudgingly pays more.
In a lot of cases the existing low wage is actually below market now and subsidized by benefits like food stamps.
It depends on what the company's alternatives are. Many companies have only 5% margins to begin with. And most people who suggest minimum wage increases argue for more than just 5%.
> In a lot of cases the existing low wage is actually below market now and subsidized by benefits like food stamps.
That is one of the problems a UBI fixes. Since the money isn't contingent on employment, employers can't pay less against the leverage that without a job the employee would lose their food assistance.
But it doesn't always hold in small markets or markets with little variety. Consider towns where there are only a few important employers.
I still agree that imposing the costs on the employers is arbitrary.
And some of us just use math. If a company is barely profitable already, being required to pay more for labor probably won't work too well.
This is especially true of manual jobs that could be outsourced or automated for only slightly more than employees are currently paid.
This is a great point. McDonald's and Walmart could paradoxically become more profitable after a minimum wage increase. How? By closing their least profitable stores. Perhaps those stores were just barely making a profit and the increase pushed them into the red. By closing these stores they increase their profitability despite recording a decrease in profit.
I'm well aware of the microeconomics argument. It is basically ceteris paribus except that all things aren't equal. You're leaving out a lot of the beneficial aspects of a MW such as more money spent by the wage earners. You're also ignoring a tremendous amount of empirical experience with MWs around the world.
In particular, Red States with low MWs, basically at the Federal minimum, aren't economic miracles.
Even in non-franchised businesses, if the cost of a location exceeds its revenue, then that location is no longer profitable, and therefore could very well be shut down or at the very least downsized.
Either way, people lose their jobs.
You seem very concerned about these low wage workers. That's quite admirable of you.
Every side of an argument has an element of truth. Businesses will not pay people more than they must, which can be a problem if people don't have enough money to buy propping up the economy. And for every rich philanthropist, there's probably ten donald trumps.
Less people means less commerce which means less demand for buildings. Perhaps those rundown empty buildings have not enough value for someone to invest in fixing them up (and therefor, have no incentive to employ people to do so).
Agreed. To have an honest discussion about minimum wage, it's important to recognize that it's two things at the same time. First, it's a minimum wage which most people are familiar with, but second it's also a law that makes it illegal for low skilled workers to get jobs. Yes, we're helping some people earn a better living, but we're also not allowing people to work if an employer or employee aren't creative enough to find a way to make them more productive. It's a trade off, and that's one reason why it's more complicated that most people realize and why a dialog needs to be created around the topic.
It makes it less likely to hire people who add less value per hour than the minimum (+overhead) but A) that doesn't make it illegal. B) low skill and low value-added are not the same thing. C) there are things in businesses that must be done regardless of generated value (which of course brings up the problem of measuring value). D) training people is and always has been an option.
Which is not say that a minimum wage increase won't cause unemployment of marginal employees but it sure as hell doesn't make employing them illegal. Which is again a hell of a statement to make when asking for honesty
It sure as hell makes it unprofitable. For honesty you're skipping out over a bunch of interesting points to bolster your own viewpoint..
Either you hire them under the table (illegally) to do tasks you're able to get a computer or robot to do but you don't want to make the capital investment, or you hire them for the minimum wage, put them on the books until you've saved enough money to invest in things that would make your business more profitable.
Minimum wage does make it illegal to hire low skilled workers. They're getting replaced by robots and computers. In agriculture, because of a perceived crackdown on immigrants, they're simultaneously raising the wages they pay for workers and investing in technology that will make the workers obsolete.
I'm reminded of this image: http://i.imgur.com/mwfN4cM.jpg
For those using screen readers, the image is of a poster containing the following text:
If you're unemployed, it's not because there isn't any work. Just look around: A housing shortage, crime, pollution; we need better schools and parks. Whatever our needs, they all require work. And as long as we have unsatisfied needs, there's work to be done.
So ask yourself, what kind of world has work but no jobs. It's a world where work is not related to satisfying our needs, a world where work is only related to satisfying the profit needs of business.
This country was not built by the huge corporations or government bureaucracies. It was built by people who work. And, it is working people who should control the work to be done. Yet, as long as employment is tied to somebody else's profits, the work won't get done.
The article gets it completely wrong. A world with a high minimum wage has work to be done, for example, but no jobs.
There's always work to be done. The existence of jobs depends on somebody willing to pay someone the market rate for that job. In many cases, the market rate is too high for the value of the work performed.
Minimum wage essentially outlaws all work that generates less than a certain value.
In theory wages can be negative. So there will always be infinite demand for work to be done unless the government sets a minimum wage.
But the main confusion is between work and job. Works is anyone performing a task. A job is someone paying you for that, and in the strict sense, someone hiring you to do it on a contract.
I am taking time away from work right now, which is possible due to my frugal lifestyle and fairly high skills. I would love to do part time work to keep me on my feet, even below minimum wage. There are endless things around town that I'm sure somebody is willing to pay something for.
There is no such thing as a living wage, there might be such a thing as a living salary. Due to good planning, my expenses are tiny, my living income would be maybe two thirds of the U.S. poverty threshold (in the U.S. I could still afford health insurance at or below the poverty line with my other expenses), and that's in a real city.
And the UC Berkeley study here: http://irle.berkeley.edu/files/2017/Seattles-Minimum-Wage-Ex...
We want jobs replaced by technology. That is, after all, one of the reasons we're all in this technology game. It is what drives forward productivity and leads to an improved standard of living.
The issue is seeing the private sector as the creator of jobs. It is not. It creates jobs only as a side effect of investing capital. If a capitalist can get the entire job done by machine, they will do - unless human labour is very, very cheap.
So to get the investment effect we need labour to be expensive.
And that means that the private sector isn't the place to look for jobs in the long term. The public sector has to create them so there are always more jobs that there are people: https://medium.com/modern-money-matters/running-a-modern-mon... Then the private sector has to compete for labour, and will choose to invest to eliminate jobs more often than not.
The issue was best described by Kalecki in the 1940s.
"It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system."
http://web.archive.org/web/20170202134920/http://mrzine.mont...
It's not hard once you get beyond the mistaken idea that the private sector creates jobs. It doesn't and doesn't want to. It creates them only because it has to.
"But a quick look at the data suggests something else may be going on. Between the second quarters of 2014 and 2016, earnings in Seattle grew by an incredible 21 percent, as opposed to 6 percent in parts of Washington outside the Seattle area. And the first quarter of 2016 was exactly when the very large gap in overall wage growth between Seattle and rest of the state (where the control group comes from) really opened up, coinciding with the timing of the job loss found by the University of Washington team. At this point we don’t know enough, but clearly there are some missing pieces to this puzzle."
And, I'm kind of surprised they are matching to the rest of Washington rather than against Vancouver, Tacoma or Spokane only. The rest of Washington is so different that I just can't imagine it being a useful "control".
If they're going to pick such non-intuitive colors, why not just have a grayscale graphic? Does this help the colorblind?
The fix is to give every one that needs it an income credit. Right now it's only possible through the federal income tax, but you need to qualify, but it should also be in the state income tax too and the qualifications should be income only. Let's say you worked 2080 hours for the year then for every hour you worked you should get some amount that will raise your income to some agreed on minimum.
This has the benefit of stopping the tit for tat raises.