America has never gone this long without hiking the federal minimum wage
washingtonpost.com
washingtonpost.com
UBI, on the other hand, can supplement wages.
https://www.washington.edu/news/2019/02/06/two-new-studies-p... is a good place to start.
1. Minimum wage increase results in basically insignificant price increases, except for...
2. Businesses with high labor costs like daycares are affected and have to either increase prices or reduce staff.
In my opinion, the businesses in #2 are instances where the customer isn't paying the true cost of the service. Rather, the service is being subsidized by providing inadequate wages for its employees based on the fact that the labor is in much higher supply than demand.
It favors large corporate employers over small businesses and self-employed, favoring the upper middle class employee who's got an employer providing extensive benefits already (similar to how you're completely hosed in this country if your employer doesn't provide a good healthcare.
If we want to use subsidies, it needs to be a lot less regressive than that.
And we need to seriously get away from quality of life benefits being tied into one specific employer.
How would you determine the "true cost" in this case?
If you want a tangible metric, let's just say that someone working 40 hours a week making minimum wage shouldn't need to receive government safety net benefits, because that is basically a transfer of wealth from the taxpayer to the company employing that person.
Instead of subsidizing agriculture at the production side, you can combine farm subsidies, food stamps, and ubi into one consumer credit, designed to persuade people to consume mostly free food over luxury food.
Whats the next thing it would make sense to subsidize for everyone without creating some kind of cyclical purchasing power loop?
As economists say "inflation is a monetary phenomenon". So if you pay for UBI by printing money, then of course it would increase inflation. But Friedman's original proposal and most others pay for it by having the rich pay for the poor through taxes and the middle class pay for themselves.
And on the demand side, the poor in America are generally obtaining food and housing somehow. The food's not nutritious and the housing might be a shelter, but only a small fraction of the homeless let alone the working poor are actually sleeping outside.
On the housing side, proponents hope that UBI will encourage people to move out of the expensive areas where jobs are to areas that are cheaper to live in. So a good argument could be made that housing costs will go down.
On the food side, food is a commodity. The price of a commodity is the marginal cost. So as long as the producer costs are similar between producers, demand has very little effect on the price of food.
It would increase inflation in this example not because the government is printing money, but because the source of the money (the "rich") are not in the market for low-end housing, but the recipients of the taxes are.
However, for rent, there is real scarcity in supply AND limited ability to raise production. I expect that UBI will be an inflation ratchet for rent, unless it is paired with a policy that somehow increases housing supply.
UBI could help more inland cities become more attractive to business as their economies would grow with UBI, but have more land to build housing on.
I don't want to be in the location that passes UBT only to see it fail wildly, but we need that data. I would certainly argue an economy the size of the U.S. or China (as if...) shouldn't experiment without better data.
Personally, I seriously doubt UBT will fail wildly, and I want to see it move forward, responsibly.
Basically, replacing people with machines is a long term gain and should be encouraged with a high minimum wage.
There are lots of jobs nobody wants to do, but have to to stay alive. UBI removes the "have to to stay alive" part. If we still need the economic value that those tasks generate, there is no choice but to have machines do them. That, to me, sounds like automation.
Agreed, but partially replacing someone's income would result in a net reduction of hours worked (if UBI is equivalent to half my full-time salary, then why not just work half the hours?) This would still result in a net loss in human productivity and therefore still spur investment into automation.
Over the short/medium term, ww want UBI inversly correlated to total income tax (which I would expect is correlated with total economic health), so it can serve a dual purpose as an economic stimulus.
Setting the UBI should be a matter of monetery policy set by the Fed, within parameters set by Congress.
So that's a very useful feedback loop: if too many people decide that they want to do art instead of driving trucks, the total income tax will go down, decreasing ubi and making more people to work. If someone invents self driving trucks and starts to get huge profits, ubi goes up, helping the drivers to live while they learn new useful skill.
Over the short term, recessions are still not going to be caused by changes in aggregate behavior; they will continue to be caused by business cycles, so we want to have counter-cyclic forces.
(Most reasonable proposals I've seen for UBI include an assumption, stated or unstated, of drastically reduced administrative costs and costs of numerous other more specific programs for both aid and employment. And that also ignores other secondary effects. For the moment, let's treat that as a tangent, please, though.)
> Supply isn't magically going to boom
Not overnight, no. And not without some fixes in housing regulation. (That's also another reason to avoid indexing it to ridiculously-high-cost-of-living areas.) But in general there's no fundamental reason supply can't increase to match demand.
Also, right now supply has a massive constraint created by "proximity to work". If people have a lot more flexibility about where and how they work, the economics of "where do people live" changes drastically.
We should have UBI that is at least sufficient to wholly replace the income of low-paid workers. I think $20,000 a year is a nice round number to start a discussion at.
Giving low-paid workers the freedom to not work levels the playing field. In the classic supply/demand curve, the supply of labor is relatively fixed under the "you must work to live" model. With UBI, the supply of labor and the demand for labor will act in concert to determine a new, fairer price.
Most UBI proposals do not seek to be an income replacement. The bigger question then is what do we do with the 50-year olds that can’t find jobs due to reduced demand if they can’t live solely off UBI and have years before retirement age? I agree we should discourage reliance on labor that can be automated, but there’s also the empathy and humanity side that isn’t being addressed.
We seem to be maintaining the idea that full time employment is necessary for life long after that's no longer been the case. We've arrived at a point and time where the productivity of every able bodied person is not needed to sustain us, so when do we start reaping the rewards of that?
One of the lowest unemployment rates in history and not enough people picking crops seems to disagree with your premise.
> We seem to be maintaining the idea that full time employment is necessary for life long after that's no longer been the case.
Remember even 2.5% inflation still means money is worth 1/2 as much every 30 years. That can only happen if either the economy is smaller every 30 years or new money is created every 30 years.
PS: The velocity of money is one of those odd things that seems irrelevant in simple models but turns out to be really critical.
If someone has a UBI that pays enough for them to live, why would someone do work they don't enjoy for a few bucks an hour? I'd suggest that UBI would encourage efficiency and automation, precisely because it raises the pay threshold necessary to make someone willing to take a job at all. (Effectively, it raises the coefficient of static friction.)
If I were working for minimum wage, and I was offered a choice between a small wage increase right now and a possible shot at a completely new compensation regime whose details have only begun to be worked out, I know which one I would take.
Raising the minimum wage might accelerate that somewhat, but I don't think that is the main concern.
Let's consider only jobs that there will be no good way to automate for the foreseeable future.
The existing minimum wage already eliminates some jobs that cannot be automated but just are simply not worth $7 per hour to the would-be employer. Not many people would be interested in holding such jobs, but probably a few who kind of like that sort of work and only need a very small income. The number of such people could be expected to increase in the presence of a UBI scheme.
There may be a lot more jobs that currently pay $12 per hour, but that the employers will simply forgo rather than pay $15. (Imagine an old man who pays a worker $12 per hour to mow because it makes him happy to have a nice lawn, but whose budget has no room for a $3 raise. If the minimum wage rises to $15, he has to pay nobody, let his lawn go to hell, and live a slightly-less-satisfactory life. Meanwhile, the worker has to find a new gig, if he can.)
On your broader point, I'm not sure that those are viable "jobs" if they can't be done for ever $7.25/hr. What are the jobs going undone today because they are only worth $7.24/hr? Why isn't anyone wringing their hands over that injustice?
The real question is, what would the impact be. Isn't it possible that raising the minimum wage lifts more people out of poverty than it pushes into poverty through joblessness? If yes, it is likely worth trying.
[1] https://blogs.findlaw.com/law_and_life/2015/06/hire-a-kid-to...
edit: had the minimum wage wrong.
Yes. It's possible. Probable even. But not certain.
I’m all for automation, but the greater question is transitioning people gracefully.
I also think UBI is a good solution. For example Andrew Yang "Freedom Dividend" $1k per month UBI plan is like getting paid for working an additional 67 hours a month at $15/hour.
Many economic experts, ignored by this article, consider no minimum wage to be the optimal level.
You're (likely deliberately) omitting a ton of context as well as presenting a bad faith argument in general. Of course there were no minimum wage increases prior to the minimum wage. I also suspect there was no highway funding increases prior to the New Deal, does that in turn mean we shouldn't fund infrastructure now?
> Many economic experts, ignored by this article, consider no minimum wage to be the optimal level.
I'm sure they do, economic experts are the only ones who still think trickle-down economics is a good idea. Our economy is exploding, and our current problems are far more social, so maybe we should be listening to the sociologists and put the economy on the back burner for right now?
Not trickle down, but Laffer (the guy the Laffer curve is named after) worked for Donald Trump in his 2016 campaign, and currently blames Barack Obama for the Great Recession.
Laffer's curve is 100% real, it's also 100% irrelevant to real world economics. It's as though after explaining about relativity and why it's impossible to accelerate an object with mass to the speed of light, a physicist turned around and told you that therefore they are confident that it's impossible to move at more than a walking pace and so Olympic sprinters don't exist. And then an entire political party pretended to believe them because it would make very wealthy people even richer. The analogy breaks down there actually I guess. Also the part where loads of people die in miserable poverty, that's not really in the physicist analogy either.
In that context, you could look at the data on inequality and still make a principled argument as to why a federal minimum wage is undesirable.
Every State I have ever lived in had their own unique minimum wage laws. The Federal government is more like the EU, much of its policy function is to harmonize the laws of the States. Americans have almost no interaction with the Federal government; the laws they live under, the taxes they pay, and the social programs available to them are almost always specific to the State.
Under both the articles of confederation and the current constitution (with and without amendments), the idea of limited federal government was not personal freedom, but state's freedom (eg. powers not given to the federal government are given to the states).
Arguably, the strenthening of the federal government led to more constitutionally protected individual rights, as it led to the bill of rights being interpreted as restricting states as well.
put otherwise - some people are working 2-3 jobs in order to feed, house, and clothe their children and it still is not enough. i have no ears for any principled argument in favor of the current state of things.
There's a lot to be proud of but there's also a lot to be ashamed of.
if you don't at least pretend to be Christian, or if you're say, gay, or like abortions, you lose access to many charitable funds, reducing your individual liberty when the rubber hits the road
Does this mean growing, shrinking, improving, or failing? I have seen people argue for each of these points right now, and I think they all believed their own arguments.
DJIA grows: yay that means things are good!
Outstanding student loans grow: The bubble is about to burst!
Medical bills and insurance premiums are hampering everyone: Shrug
There was no highway funding before the New Deal because there were no highways.
There were wages in 1790. They chose not to implement a minimum wage, but they could have if they wanted.
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Regarding "trickle-down economics", this isn't a real term anyone actually argues for. It's a sneer term created for the purpose of strawmanning libertarian economic positions to make them easy to attack. Not sure why this became such a meme, or how so many people seem to not realize that they're attacking an Emmanuel Goldstein. But it would be good if you stuck to criticizing positions that real people actually hold.
You're talking about roads.
These are not the same thing and I think you're playing dumb about it (or at least I hope so).
You seem to have misunderstanding about economics and sociology. It seems you think (I am guessing) economists only care about economy growth, and sociologists know how to make social improvement. This thought appears also embedded in other comments.
It is wrong in many levels: 1) economists care about social improvement in general, not just in economics indies. However, many times economics indies are the best measure of general social improvement.
2) sociology is not supposed to be a discipline about making social improvement, before it's taking over by far left scholars.
3) sociologists usually do not know how to make social improvement in general. sociologists seem to understand the problem facing specific group of people, and they seem to know specific methods to make specific improvement, but they usually do not know how to make social improvement in general, because their social change program also never include cost analysis, and also never address side effects, unintended consequences, etc. They may know how to improve the life of a few people, but all their analyses do not care what cost to the rest of the world.
4) our economy is "exploding" in America
I think that sometimes some people forget that actual people with families are impacted by their decisions.
It’s never been easier to discover and apply for new jobs. That is to say, the transaction costs of changing jobs has never been lower.
In a competitive market with low transaction costs of changing jobs, an employee will achieve their highest wage on the open market based on their skill set.
Based on this theory a minimum wage sets a minimum skill level or value proposition a worker must present in order to be entitled to employment. Anyone who performs below that level is denied a job by the Federal minimum value proposition law.
The higher the minimum value proposition of a worker, the higher functioning / more productive individual workers must be, and the fewer people need to be employed.
So the theory is that a minimum value regulation directly hurts the people who are capable of providing the least value. Is it the best thing for society for the least productive workers to be legally unemployable?
Of course this glosses over all the inefficiencies and particularly the power imbalances that exist most dramatically at the jobs with the least skilled workers.
Companies are profitable because they can pay their employees dramatically less than the value that they produce for the company. Usually that value is a result of the infrastructure and intellectual property of the company multiplying the productivity of the worker to create the added value. But sometimes it’s simply on the backs of the workers being underpaid for the value they are personally creating.
Personally I think the minimum wage is low enough at this point where the overhead for just having the employee dominates the total cost of payroll. If there’s a cost saving to be had, it’s in lowering that overhead, not lowering payroll. This typically is achieved through reducing employment regulations in general, of which minimum wage/value is just one of hundreds or perhaps thousands.
i'm just going to venture a guess, but i suspect you have never worked as a dishwasher. this sort of overly academic language is tone deaf to the reality of working for minimum wage.
Edit: I can write an email with proper grammar, show up on time and can pass a drug test which I know now are two of the major pain points for minimum wage employers so I guess I was privileged in that regard.
Ignoring reality makes it easy to solve all sorts of problem. It simply isn't the case that, for most people, changing jobs is a low cost transaction once you take into account the costs (all of them not just monetary) of changing jobs.
If minimum wage had simply kept pace with inflation it would be > 20 dollars per hour today.
Edit - the 20 dollar amount may not be correct. I need to verify where I got it from so please research it yourself.
The term “transaction costs” is a reflection of the total cost to the employee, including time spent searching, applying, interviewing, potential lost wages if the new start date doesn’t match the end date, even time value for filling out the W-9. All of it.
There’s a lot that can be done on the regulatory side to reduce these costs. The really big one is probably health insurance switching costs, particularly if deductibles are getting reset mid-year.
So my conclusion is the most effective and economically efficient way to improve the conditions for low skilled workers is to reduce overhead costs and reduce transaction costs for switching jobs as much as possible.
Dialing up the legal minimum value proposition of a worker in theory does not help, and can only possibly hurt low skilled employees, if the labor market is competitive and job switching costs are zero (that is to say, in an idealized—not real-world—model).
I just plugged in 1970's minimum wage (1.45) into an inflation calculator (I tried the first several links in Google), and it shows 9.38 in 2018. Of course, inflation varies based on different items in a basket of goods, and there are a number of things we have now that didn't exist in 1970 (cable / satellite TV, internet, cell phones, mobile internet, Netflix). On the flip side, you no longer pay an outrageous per minute fee for long distance.
Will research.
Consider a case like grocery store baggers. A position which has been devastated because it's become too expensive to justify, even though it's something everyone would still like to have.
Stuff like that are great first jobs for teenagers and functions as a low-risk way for them to get introduced to the work force. Learn about money, working with customers, getting to work on time, etc. Useful skills down the line and gives them some spending money in the meantime.
That's in keeping with the article's myopic, misleading, pandering headline that ignores over a century of pre-1938 precedent.
The sugar producers, for instance, have a price floor for the goods they supply. But they have experts who know the danger of price floors, so they made sure their deal requires that the government purchase unsold sugar.
And, of course, even that doesn't prevent sugar consumers from using alternatives, hence the number of products that replace sugar with high-fructose corn syrup.
https://www.fastcompany.com/3052798/can-fast-food-work-ever-...
That to me is the right way to approach this (advocate for workers' interests, but leave the government out of it), but if that was ever considered in the US, a good chunk of the HN readership would go apoplectic and beg for the state to intervene.
Citation needed. It's only optimal (and in a limited sense at that) in the presence of a host of unrealistic assumptions.
https://object.cato.org/pubs/pas/PA701.pdf
(This understanding was popular enough in 1987 that even the NYTimes endorsed it in an unsigned, editorial-board opinion piece – that meaning "this is the consensus opinion of the paper's editors": https://www.nytimes.com/1987/01/14/opinion/the-right-minimum... )
Does any of that research suggest that a zero minimum wage is optimal in some sense? No. But I will grant you that raising the minimum wage might not do what we hope it would do.
[0]: https://www.tutor2u.net/economics/reference/production-possi...
give the rugged individual all the relevant information (wages/benefits, available jobs, hidden risks, corporate strategy, market dynamics, etc.), and then maybe we can talk about labor market deregulation.
Poverty was absolutely horrible before minimum wage for most workers. I can't help but think that such policies you are proposing are historical revisionism at its worst.
Edit: numbers made up to illustrate the claim, not to provide evidence. This claim is a widely accepted principle that you can find in any introductory econ textbook.
I can see why the minimum wage is such a bad idea, you are totally correct.
You can change the numbers and the details, but the general principles of microeconomics will prefer the free market every time.
So the moral of the story is minimum wage should be raised to the point where total employment is still at an acceptable level.
No minimum wage would definitely increase GDP, I don’t think there’s a lot of debate on that, but there really isn’t solid evidence or theory to know what effect it would have on unemployment. (1)
The other goal, the one most focused on by people who support increasing the minimum wage, is ensuring that minimum wage earners are making enough that they have a decent quality of life and don’t also need government benefits.
(1): It depends on the slopes of the demand and supply curves for labor and measuring those is really hard. People who want to raise the minimum wage usually claim that the demand curve for labor is relatively flat. People who want to get rid of the minimum wage usually claim that the demand curve is steeper.
Whether a job guarantee would be good idea, I don't know. But a good policy needs to be comprehensive. It shouldn't let people slip through the cracks.
EDIT: I found a paper [2] from the Netherlands (who also use an age-dependent minimum wage) suggesting that such a system can increase job termination rates close to employees birthdays.
Here in Canada, the provincial minimum wage is consistent regardless of age and yet I still see plenty of employed high school students. I also don't think that its fair to make policy-affecting assumptions regarding peoples financial responsibilities based on their age alone. I know plenty of independent 20 year olds who have significant financial responsibilities as well as 25 year olds who are voluntarily financially dependent on their parents etc. In this situation I believe an age-dependent minimum wage can actually increase inequality by determining wages based on an arbitrary metric such as age.
Alberta is introducing a lower minimum wage for ages 16–18. I don't particularly like having a minimum wage that discriminates based on age, but we already have a bunch of special employment laws for minors. I actually lost my job as a concessions cashier to one of those restrictions when I was 17.
1: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=141003...
I view the problem through this lens. That essentially we have a labor surplus because the current regulatory environment is designed around salaried office workers - barring a few holdovers in the form of labor unions. The total size of the labor market is larger than the carrying capacity of office jobs. As the environment has aged firms learned how to play the game and have pushed a lot of small competition out. Meanwhile laborers compete for a smaller pool of office jobs or hope they land on their feet.
This is really the nature of regulation though, it can rarely be meant to last forever and should receive continuous development and audits.
And we have very low unemployment, rising wages, and a roaring economy. We've also got low inflation and a robust stock market.
This bears further consideration. The economy may be close to optimal.
The metrics we use to measure inflation (e.g. CPI) have grown slowly, but that doesn't mean that inflation is low.
Not everyone is a single mother trying to make ends meet for her two children. We should not make economic policy as if they are.
"So why don't we take care of them?" Single mothers trying to make ends meet have access to a wide array of social programs already. We are already not abandoning them to the tender mercies of minimum wage and nothing else.
> Not everyone is a single mother trying to make ends meet
In the meantime, student loans are at an all time high!
Whether or not you had college paid for by somebody else who saved or even if you didn't need to go; Teenagers need more than pocket money, afterall, in 2 years they will, for the median, be committing to loan terms that will take 10+ years to pay off, if they ever do.
A 16 year old also may not have a college opportunity and may decide to go straight to work, may decide to go straight to having a family with a high school sweetheart. At that point, the 16-18 year old needs a liveable wage too.
Able bodied people that choose to do nothing deserve to receive nothing.
It would be nice if they could pay for a semester or 2 (or 8) of college instead of using student loans.
You also assume that their parents are able to put healthy food on the table every night; which statistically, doesn't hold for 100% of Americans.
There are a lot of reasons for decreased teenage employment:
- Older employees who should be retired hanging on to jobs longer because they can't afford retirement
- Students finding part time work an inferior return on investment compared to college preparation and other resume-building activities like volunteer work
- College costing so much that high school summer jobs can't possibly pay for a significant fraction of it, essentially making it a less time efficient option than just using future wages to pay for it (loans)
- Lengthened academic years with shorter summers
https://www.apnews.com/66a5d6cade1743fb897aad56e300c99c
I do think that it might make sense to have a lower teenage minimum wage than the normal adult minimum wage. I personally don't assume that a low minimum wage is good for low-skill employees, that just doesn't add up to me.
The inability to pay a living wage equates to all of us not paying the real cost of a good or service.