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Comment by MPLan | Hacker News Reader

Bossler, Chittka and Schank found that after the second minimum wage increase (from EUR to 10.45 to EUR 12.00), average wages of the people who were earning less than EUR 12 went up by 6%. Moreover, there was no noticeable reduction in employment. There was however a slight reduction in hours worked – impacted individuals worked 1% fewer hours, meaning their overall monthly wages went up only by 5% on average. Thus, it appears that a significant minimum wage change had a net positive impact on workers with minimal downsides. (https://www.nominalnews.com/p/minimum-wages-employment-benef...)

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There's the legal minimum and then there's the prevailing market wage for low-skill work. That's somewhat unintuitive to measure, but I think it's really important for these studies.

I'm not familiar with Germany, but in the US, federal minimum is $7.25, but almost no one earns that. I passed by a fast food place in a small town in very low cost Pennsylvania last week and the sign said $17/hr starting to serve fries.

If the minimum wage was raised to $9.25, I assume there would be close to zero job losses and a minimal reduction in hours worked. $11, $14, probably the same. At $20, I'd expect to see problems. At $30, I think these problems would get catastrophic in terms of business closures and price increases.

I don't see in the link that they modeled any of this, but without it, the study isn't super useful except as a talking point.

At the end of the day, minimum wages are a price control, and price controls that impact and artificially shift the naturally occurring intersection point of supply and demand necessarily have consequences. Price controls on bread at $100 wouldn't cause problems. At $0.10 they would.

Those sorts of signs at fast food places are often just to get people to apply and they come back with something just a little over minimum after the interview.

It does not seem like the study took into account inflation, though? If workers overall monthly wages went up 5%, was that offset by inflation in the price of things those workers buy?

If you look at the graph, they did take into consideration real vs nominal. Unfortunately, the jump in minimum wage happened too recently to get a long enough timeline to see the effect over more than 1 year so the outcome is TBD but the early data seems positive.

Additionally, it's pretty obvious that many products wouldn't see price increases proportional to wage increases.

This is especially true the higher the production volume / economies of scale. Imagine a burger joint where a worker pushes out a measley dozen burgers in an hour (I'd be surprised if volumes for most places are this low, but let's imagine). So, 5 min per burger.

At fed minimum wage of $7.25/hr, labor costs for those burgers are about 60 cents. A cheap burger is $2 right now, $3-$5 is much more typical. So even at output volumes as low as a dozen per hour, non-labor costs are a much greater portion of each of these burgers, like 70%-90%.

Double that minimum wage to $15/hr and assume all the cost is passed onto consumers and the price of these dozen burgers goes up by 65 cents. OK, let's assume a complete separation of cooking and register/order duties that requires at least two workers per dozen burgers per hour. We might see an increase of $2 per burger.

And since most people can't eat a dozen burgers an hour (much less the likely much higher output of burgers), a doubling of minimum wage far outpaces whatever price increase is passed on.

This is a simple model but even if you get more complicated, the outcome isn't much different. Generally speaking, even at economies of scale as low as a dozen per hour, wage increases outpace necessary price increases.

Where do wage increases contribute to dramatically increased costs? Lower volume high focus work where skilled labor is most of the cost of producing the product, but generally markets have long since decided these people get paid much more than minimum wage, so minimum wage increases have no effect here.

There's also the case where each unit requires a large team of labor. This tends to be at least semi-skilled in construction / fabrication / manufacturing where labor demands have long since left a legal wage floor behind.

The real question is why the misconception that minimum wage increases result in broad upward price spirals is so common when you can figure out why that's unlikely with math most people have learned by the time they're teenagers.

(I do think there's a good argument that labor markets are so thoroughly regional that it's probably better to have legal wage floors be set at the state and county level, but there's no reason a federal law couldn't be indexed off of local indicators with local guidance.)

> The real question is why the misconception that minimum wage increases result in broad upward price spirals is so common when you can figure out why that's unlikely with math most people have learned by the time they're teenagers.

Owners of companies have an incentive to encourage us to think this, firstly because it’s a distraction from the true cause of inflation (their greed), and secondly because a public resistant to the idea of raising the minimum wage helps them keep their profits higher.

> "Inflation begets inflation. When people are expecting price rises they're also more accepting of them," he says…

> "Greedflation is the idea that corporate profit expansion is contributing to high inflation. This has moved from a fringe view to the mainstream in Europe and the US in the last year, and there's a debate going on about it in Australia,"…

> When the governor of the Reserve Bank of Australia, Philip Lowe, last month told the National Press Club that "rising profits are not the source of inflation pressures we have", he was accused by The Australia Institute think tank of a dereliction of duty. A report from the institute earlier this year said that 69 percent of excess inflation – inflation above the Reserve Bank's 2.5 percent target – came from high corporate profit margins.[0]

[0] https://www.rnz.co.nz/programmes/the-detail/story/2018891366...

even your own article offers a repudiation of this "greedflation" idea

> But not everyone buys the greedflation argument. Professor of Economics at University of Waikato, Michael Cameron, calls himself a sceptic.

> "I don't think that anybody who is promoting the idea of greedflation has given us a really good idea of what it is that they are referring to. Is it any time that someone's raising a price, that might be greedflation?"

> Cameron says some of the factors behind New Zealand's high prices – a lack of competition in key industries such as grocery and building supplies – are not the same as other parts of the world.

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