The debate isn't just whether we should raise minimum wage, it's whether we should be cutting it. By allowing it to remain stagnant we're making the default decision to cut.
A certain pay rate creates supply. Conditions make it hard to switch jobs. And every year you ever so slowly reduce the effective pay to those employees and they slowly give up little luxuries to make ends meet. And when demand outstrips supply, you raise the minimum wage, pulling in a new group of people.
If you're paranoid or cynical, you might call this class warfare instead of unintended consequences.
We've had the term "working poor" for a while. I suspect that we'll have "working homeless" in the decades to come.
In the UK several BBC documentaries have covered exactly this phenomenon. I don't doubt it is already more common in the US then you suspect.
"A 2010 longitudinal study of homeless men conducted in Birmingham, Alabama, found that most earned an average of ninety dollars per week while working an average of thirty hours per week[192]"
https://en.m.wikipedia.org/wiki/Homelessness_in_the_United_S...
"Employees at Amazon's base in Dunfermline, Fife, were apparently so worried they’d lose their jobs if they were late they decided to sleep rough in the woods nearby."
https://metro.co.uk/2016/12/10/desperate-amazon-workers-forc...
This line of thinking is what leads to managers firing the entire IT team because they don't generate revenue, and then panicking when the email server crashes.
These workers can easily be moved from “profitable to employ” to “unprofitable to employ” by the increase in minimum wage, either entirely or by cutting those hours which would become unprofitable.
In a micro sense: each company will try to reduce labor costs as much as possible, since costs are the enemy of profit.
But when we look at the macro situation then: employees are much of the demand curve. Less income means less demand.
This is the reason for much of the talk about UBI and job automation.
https://www.kqed.org/news/11690325/thousands-of-californians... https://www.latimes.com/opinion/editorials/la-ed-economicall...
In the "East" and Middle East, many employed young adults live with their parents instead of moving out, even after getting married. In the UAE for example, many expats live in crammed conditions with as many as 6 people in a single room! and sharing a single bathroom.
Employment == Your Own House is largely a first world expectation.
"The wealth gap between rich and poor in the UAE is one of the worst in the world, largely due to the amount of welfare and protection afforded to native Emiratis and the amount of neglect towards migrant workers."
https://borgenproject.org/top-10-facts-about-poverty-in-the-...
Neither "paranoid" nor "cynical" are absolute terms to base your argument on.
As the old saying goes, "Just because you're paranoid doesn't mean they aren't out to get you."
Actively plotting this outcome? That's a movie plot, sure. But negligence - even willful negligence - and microaggression? We know this happens all the time.
You cannot get people to show up for less than that.
Source, wife owns a business and that's going rate to answer phones.
Serious question: Why would you want to run a business that can only survive by paying people poverty wages?
But there are many cases where it make more sense to pay 4 low skilled workers to do a job instead of paying the costs of automation plus the cost of the higher skilled worker to use the automated solution. It's why so many jobs in India are still entirely manual labor -- it is simply more cost effective than a more technical, automated solution.
My wife works in international developmental economics, and providing jobs to the wide swaths of unskilled labor of the world to incrementally lift them out of poverty is an essential part of economic development. Sure, it would be nice if those people could just leapfrog in their education and consequently their levels of development, but that just isn't realistic.
Your comment indicates you are only looking at a very small subsector of the labor market and economy. Not everyone can be software engineers and highly skilled labor in the present.
With the minimum wage I suspect a similar effect. The effects increasing wages have on employers red ink doesn't wholly comprehend the positive effect more money in people's pockets has on black ink & overall productivity. A well invested grand in the hands of the poor is DRAMATICALLY more impactful than in a well invested grand in the hands of the rich due to diminishing returns. A company making a new product can deliver more value for society making some wonderful new invention the poor and middle class can spend their income on rather than some out of reach luxury good.
This logic by the way underpins the very unpopular around these parts notion of affirmative action.
This utterly breaks down at the upper end of income, so why is everyone gnashing their teeth about keeping it intact at the bottom end?
Define "value". Or more specifically, how do you measure "value" for jobs that don't directly generate revenue?
How much value does the janitorial staff create?
How much value does your IT team create?
What's the dollar value of your cybersecurity team?
What about HR?
None of these teams directly create revenue for the company, but certainly they created value. Meanwhile, Amazon has workers that pack boxes. They are directly contributing to revenue by doing the actual work that is core to the business. If cybersecurity, HR, the janitors, or IT were to disappear for a week, theoretically packages would still get sent to customers and Amazon still makes money.
And yet they're having to fight for fair wages? They're the most valuable labor in the company!
The idea that income should be derived from value is incredibly naive. As I mentioned in another comment, that mentality is what leads to managers laying off the entire IT team because they're seen as a money sink.
When the company hires them, the company has decided that the company obtains enough value for the transaction. So does the janitorial staff.
>And yet they're having to fight for fair wages? They're the most valuable labor in the company!
Not if someone else is willing to do the job for the same pay - this is market clearing. They're paid what it takes to fill the position, and they show up for that wage. Both sides benefit, otherwise the side without getting benefit would not show up.
Wages are a function of value created. As a trivial example, wages are capped by total cost to employ, which is driven by wages and legal requirements. There is no way around this on a large scale without a business losing money, i.e., dying.
>which is a completely unrelated number to value
No, this is untrue. Marx had the same thought, but didn't understand that employers also compete for workers, which is why the poorest workers are vastly richer than Marx could have understood.
A simple way you can check it empirically is to take a dataset of companies, compute mean revenue per employee, and correlate to mean wage by company. You'll certainly find that these numbers are completely related.
You can do the same thing using work sectors using BLS data on pay by job type, then revenue generated in those jobs. Again, you'll find a strong correlation between revenue generated per employee and per employee wages.
These empirical tests you can do yourself should convince you wages are tied to value added.
If you then do proper factor analysis to account for other costs varying between companies, such as cost for materials or equipment, the correlation between wages and value becomes stronger.
Edit: here's a dataset to get you started [1]. 1000 companies with # of employees and median wage. Find revenue per company and you're all set to do an initial analysis.
[1] https://www.wsj.com/graphics/how-does-your-pay-stack-up/
On what other basis do you propose it be derived?
Non-revenue generating roles provide value by allowing the revenue-generating roles to generate revenue. This is the basic concept of specialization. You could likely even take a stab at quantifying this: time spent freeing up revenue-generating roles to generate revenue combined with some kind of supply-and-demand factor.
For example, if I'm a one-man widget shop, hiring a janitor to sweep the floors for me means I can spend that time generating more widgets instead of sweeping floors. The value provided by that janitor is proportional to the additional revenue I generated from those extra widgets, scaled by the large supply of janitors in the labor market.
The idea that income should be derived from value is only naive if you take a fixed view of "value == revenue". No doubt some middle managers have this view, but that's a sign of ignorance and incompetence, not a flaw in the underlying theory itself.
This is an ideal with no basis in reality. Wages are, to a first approximation, set by supply and demand, not "value generated". If I hire somebody, I pay the going rate for that type of employee, but only if I estimate that I can still make a profit. I take all the profit, I don't pay more than necessary just because there's more profit, unless I expect to generate even more profit as a result. If I estimate I don't make a profit, I don't hire at all.
Of course I want the most productive workers, so in theory I would be incentivized to reward more productive workers. In practice, actually measuring productivity is extremely difficult in most cases. Also, paying workers differently sows discord. Further, let's say I run an assembly line, I actually have no use for workers that are more productive than the average.
There's a narrow band between minimum wage being completely ineffectual (i.e. real wages are already higher than minimum wage) and pricing people out of the market (i.e. business becomes unprofitable). Only within that band, workers get higher wages, paid for by business profits. There can't be any one "correct" number here for all regions or all professions. Without a safety net to take over those priced out of the market, raising minimum wage is therefore completely irresponsible.
We ran a pottery studio for 15 years whilst we raised our kids; very low wages, below minimum wage but paid our workers minimum wage (despite not needing to, because of age [in UK]).
The market we wanted to serve, a relatively poor UK city, couldn't take higher costs. So to provide that service - which brought us and many others much joy - we could only do it by accepting poverty wages. More money would have been good, but money isn't everything.
In cities, companies almost always have to pay more, so Walmart's wages on average are even higher in Detroit than in the middle of nowhere. They hoover up a lot of labor near or above $15/hr in places like Detroit.
Basically his wife's business is competing with massive labor absorbing machines that will pay at or above $15/hr. They also offer benefits. Small businesses (mom & pop types) that pay low wages and have tight margins often struggle to offer even basic competitive benefits, it's a very large additional cost in a business. So if she wants to take employees away from Walmart in Detroit, she might have to offer $18/hr instead.
Where the point of inflation is to force people to spend or invest their money today over keeping it as a store of value.
But by continually raising the floor, we make sure it doesn't get too far below the median or mean. That should be in everyone's best interest, both in terms of keeping the economy going by consumer spending and in terms of fairness and not having a desperately poor underclass.
The fact that we still have no clarity after looking at this closely for decades suggests that it's probably close to a wash, randomly benefiting some of the poor at the expense of others.
(As to whether there are losers as well as winners when the minimum wage is implemented, this seems obvious, and I doubt anyone on any side would seriously try to dispute it. The question is the relative effect.)
This, I suspect, accounts for much of the backsliding in the last few decades among black and poor white populations in the US.
We've already got mechanisms to crack down on black-market labor. Tax-dodging, not paying workers minimum wage, and subjecting employees to unsafe work conditions should be punished as such. In addition to punishing employers who exploit immigrant workers by paying them illegal wages, we should have much larger programs to allow unskilled undocumented immigrants to legally participate in the above-ground economy so the legal citizens aren't undercut. It's the same reason why we don't allow employers to pay teenagers below-minimum wage. Sure, teenagers don't have to support themselves (let alone a family) and might be happy to work for less, but if employers are allowed to pay kids five bucks an hour, they'd only hire kids and the minimum wage would completely fail.
In short - the only way to reduce black and gray markets is to punish the exploiters and decriminalize the exploited. Punish the pimps instead of the prostitutes, the drug-lords instead of the addicts, and the business-owners who skirt sensible labor regulations instead of the immigrant workers.
Our current wink-wink scheme, supported by both major parties, is bad for a lot of people, and in many way most harmful to illegal aliens (who are abused and/or are virtually enslaved).
I'll leave the both-sides-do-it argument. It's wrong, but there's no way to argue that on this site without getting myself banned.
[1] A policy very much not "supported by both major parties"...
No, even without the later qualifications; unique illegal border crossers aren't that high, and aren't all “sneaking across the southern desert”. It's not 2000 anymore.
All while necessities like rent / housing has increased faster than inflation.
No wonder lots of minimum wage people have multiple jobs. Pay stays the same, but rent goes up $50/month every year - without any changes.
To expand a bit more on this, large companies in America can negotiate rates with the insurance companies they interact with (assuming they don't own one in house). This creates a scenario where a dollar into the insurance budget yields more than a dollar worth of value and so it makes much more sense to invest heavily in the insurance than in outright wages because a dollar paid to an employee only ever yields a dollar with of value to the employee.
If salaries are going down due to inflation, then you may have a point but it's a perverse one; medical costs are going up way faster than anything else.
Both are reasons to support socialized medical coverage, but they don't really enter into this particular line of discussion.
If you don't like that, it's a social issue and a policy question, but it's not evidence what wage (how much employer is paying for employee benefits) is stagnant or droppiing.
Using this same logic, a better use of that dollar would be spending it on taxes as the even larger government can negotiate even better rates with healthcare providers, providing even more value to the employee.
Instead, the company fights to keep that dollar so they can spend it as they see fit, and the employee wants that dollar so they can use it as they want to.
You could of course do as you propose, but that same logic could also be used to argue that we simply shouldn't let healthcare providers negotiate with employers and instead restrict them to dealing directly with State entities (since otherwise the bargaining power becomes slanted against individuals).
Edit: I didn't clarify well, the reason I mentioned the point about production taxes is because many minimum wage employees work in places like Walmart that sell commonly needed items and thus some of the benefit is lost because you've increased costs for the people you're helping. In theory this isn't a problem for luxury goods but that's more complicated so I haven't talked about those much.
This is nonsensical. If paying that one dollar in taxes necessitated raising the prices, then the company spending it on insurance would also necessitate raising prices.
Yes. Up to a point. It's true that in general, the government currently pays less than private insurers.
What's not clear is what happens if/when the government is the only one paying hospitals to keep their doors open. At the reduced rate, hospitals will have hard choices to make. Only about 20% of hospitals are for-profit. For the other 80%, less money coming in the door will result in changes of some kind. I can't imagine how hospitals can do that, and make things better for patients at the same time. Something's got to give.
What isn't clear about this? The government pays the hospitals to keep their doors open.
Getting rid of this mechanism would be bad.
Perhaps minimum wage should be indexed to median wage or something, but it should absolutely not be indexed to inflation.
This here is the strawman of the argument. Very few employed continuously for ten years continue to make minimum wage / don't move on to better jobs.
The argument is that any minimum wage earner is worse off than a minimum wage earner the year prior, and the year prior, and the year prior, etc. By holding the minimum wage fixed, we are making the default decision that a minimum wage earner tomorrow should have less effective purchasing power than a minimum wage earner today.
A quick Google search says that a dollar in the year 2000 is worth half as much as a 1980 dollar. Yet, during that time, federal minimum wage went from $3.10 to $5.15, an increase of only about 66%. That means my parents had an easier time surviving off of minimum wage than I did.
How is that fair at all?