I don't believe that raising the minimum wage will trigger businesses to cut jobs significantly. They will probably pass the higher cost onto the consumer. Ultimately, it's a method of wealth redistribution, which is sorely needed in our economy.
Businesses don't have to cut jobs either. They just have to move them.
Edit2: Costumers can also shift to lower cost alternatives. Online retailers have less overhead and lower labor costs. If you make Walmart more expensive than Amazon, Walmart will shutter stores laying massive numbers of people off.
Edit: Some economists have argued that past raises in min wage have not made noticeable impacts in employment. But this is way outsides of a normal rise in minimum wage. Going to 9 or 10 makes a lot sense. 15 dollars will put people in most of the country out of work.
So be it. Can't find a job that offers a living wage? We provide a social safety net and increase taxes on the wealthy to pay for it.
Make more than a million dollars a year? 95% marginal tax rate. Tax rates are the lowest they've been in the history of the US, and all we've seen is a disgusting level of income equality.
Great. Then what? Everyone currently making over $1m a year will cut their salary to $1m. Then you gotta start taxing the upper middle class -- what rate do you want to tax people making over $500k? $250k? $100k? Those are the ones that will pay for this program.
As much as you want to tax "the wealthy", there really aren't enough wealthy people to pay for everything, and it comes down to how much you want to tax the moderately successful person who is trying to pay for their 2 kids' college expenses while saving to have a retirement.
Do wealthy individuals in other countries with a heavier tax burden (Europe, Scandinavia to be specific) do this? Would be nice to see evidence of this behavior before outright dismissing raising taxes.
And of course, there are lots of deductions. You could give that $20 million to a charity and the government would get none of it. You wouldn't get any either, but you could certainly get a lot of indirect value out of giving away $20M.
And so we keep closing loopholes.
Here's the top couple using France: http://www.forbes.com/sites/chrisconover/2012/07/23/flight-o...
http://www.theguardian.com/world/2014/dec/31/france-drops-75...
The point isn't to make them pay for everything. The point of taxing them is to mute the inflationary effect of letting them keep their money.
The primary noticeable effect of taxing the wealthy on the rest of us would be to make property more affordable once again.
What? How is it inflationary to let "the wealthy" keep their money vs. artificially raising the wages of the minimum wage workers?
"The primary noticeable effect of taxing the wealthy on the rest of us would be to make property more affordable once again."
Also--what? Being that we're on Hacker News, the majority of people here are probably making $100k+ a year and are solidly in the top 10% of wage-earners in the country. We're the ones driving up housing prices on a macro scale across the country, not the few people that have hundreds of millions to spend.
Because they spend it.
>We're the ones driving up housing prices on a macro scale across the country, not the few people that have hundreds of millions to spend.
Both are. The few people with hundreds of millions of dollars will buy large properties in central locations in multiple cities, shrinking the available housing stock for the rest of us.
So does everyone, they just spend it differently. Bill Gates' money isn't sitting in a checking account, it's in stock certificates. High net-worth people don't put money under their mattresses, they spend it, albeit in different ways. I don't know how to compare consumer spending vs. investments, so I can't say if one is "better" than another, but that money isn't just sitting in bank accounts.
Available housing stock on the whole is just fine in the US. Sure, you and I probably can't afford to live on Park Avenue or overlooking Central Park, but that's because those properties attract worldwide money. We're not there yet. San Francisco's housing problems aren't as simple as "some people have money". Taking money away from people isn't going to solve this.
Yes, and the wealthy spend more, so the effect of their spending is more inflationary.
>Bill Gates' money isn't sitting in a checking account, it's in stock certificates. High net-worth people don't put money under their mattresses, they spend it, albeit in different ways.
Quite. This is why the price of property is absurd and P/E for the stock market is so low. Unfortunately the middle and working classes get hit by this just as much as they get hit by rises in the price of milk or eggs.
>Available housing stock on the whole is just fine in the US. Sure, you and I probably can't afford to live on Park Avenue or overlooking Central Park, but that's because those properties attract worldwide money. We're not there yet. San Francisco's housing problems aren't as simple as "some people have money". Taking money away from people isn't going to solve this.
Oh yes it would. Hit the wealthy with huge taxes and they would end up selling those properties to pay off their tax bill. That would lead to a spiraling decrease in San Francisco and New York property prices as well as a stock market decline.
Note that an increase in the speculative value of real estate is NOT inflation - inflation incorporates the cost of housing (rent or owner-equivalent rent), not the speculative value of land. Similarly, it's not inflation if FB or MS goes up.
By the way, if you believe that money going into the hands of the wealthy is the best way to cause inflation, it therefore follows that the best economic stimulus is tax cuts for the wealthy. Do you favor such cuts during times of recession?
In a recession, you want to stoke demand. Inflation isn't a worry, deflation is. You therefore give tax cuts to the people who are going to spend (ie not the wealthy).
"Overall, tax cuts for the bottom 90% tend to result in more output, employment, consumption, and investment growth than equivalently sized tax cuts for the top 10% over a business cycle frequency."
http://www.forbes.com/sites/taxanalysts/2015/04/24/tax-cuts-...
But if crdoconnor disagrees and also is logically consistent, he should also disagree with you. Somehow I suspect he won't.
Also, your understanding of Keynesian economics is slightly confused; the goal is to cause inflation in order to reduce real wages.
Uh, no. It's entirely logically consistent to agree with him.
Have you not noticed that these goods have experienced a considerable degree of price inflation over the last decade? Did houses get cheaper?
>Note that an increase in the speculative value of real estate is NOT inflation
Bullshit. If I'm spending more on rent or mortgage (which I will if property prices increase), I've experienced inflation just as much as if I'm spending more on milk, eggs and bread.
>By the way, if you believe that money going into the hands of the wealthy is the best way to cause inflation, it therefore follows that the best economic stimulus is tax cuts for the wealthy.
Depends on whose economy you are stimulating. If you just want to stimulate the price of property and stock prices, sure, tax cuts for the wealthy all round. If you want to stimulate employment for the middle classes, not so much.
If you want to stimulate general economic growth, tax cuts for the rich are awful because there is a very minimal multiplier effect. The money goes into real estate and the stock market and largely stays there.
The best way to do that is to offer a job guarantee like FDR did in the 30s or increasing the minimum wage. The spending multiplier on both of those is about 3-5.
>Do you favor such cuts during times of recession?
Clearly not.
Note that property price increases are often associated with increases in rent, but they don't cause the increases -- rent increases is caused by influxes of population, decreases in the population's price sensitivity, etc. Property price increases are caused by the same thing, and speculative property price increases are caused by (among other things) expectations of that sort of thing.
The big difference between houses and milk is that houses are durable goods which don't completely depreciate.
(In fact, its my belief that we've had deflation for a while, since I believe cpi is considerably overstated. The biggest driver of inflation is health care, which is not hedonically adjusted.)
According to you, money in the hands of the poor has a higher multiplier (I.e. causes more inflation) than money in the hands of the rich. How does that not contradict your previous post? In whose hands does money cause the most inflation, the poor or the rich?
Also, your ideas about stimulating different parts of the economy are pretty explicitly not Keynesian.
What work would you like to make up for people when technology has replaced everyone's work? Salespeople? Digging ditches and filling them back in?
It's also true that were I around in 1880 I would not know what roughly half of the US population who were then farmers would be doing after automation.
For those new-age luddites who are generally afraid of technology destroying jobs, why stop at tomorrow's technologies? Why not outlaw washing machines? Surely elimination of washing machines would bring back a lot of jobs. Or let's outlaw productivity tools like spreadsheets. If people were forced to do everything by hand, surely this would create a lot of jobs.
Would you propose we eliminate any of today's technology? Why is it always that today's technologies are OK but not tomorrow's? Those will surely be our downfall.
Ironically, increasing the cost of human capital through a minimum wage will surely hasten the replacement of human capital by machines.
That is just a bad plan. You are essentially outlawing income over a million.
If you didn't apply it to capital gains, you are just fucking over lawyers, bankers, consultants, and CEOs. It would actually lower tax revenue. Because all that money that is getting taxed over a million a year would disappear. And the truly mega rich would actually be better off. No more having to pay high priced lawyers, bankers, and CEOs.
If you tried to place that restriction on capital gains, everyone ounce of capital in the this country would flee.
> If you tried to place that restriction on capital gains, everyone ounce of capital in the this country would flee.
Feel free to take your capital out of the country. It'll be taxed with an expatriation tax. Attempting to evade the tax will allow the IRS to confiscate assets anywhere in the world the US has a tax treaty with (ie everywhere).
Would you take a bet on a coin flip, if when you lost you paid a dollar, but when you won you'd get a nickle.
Banks would implode. The credit market would stop. Any business survive on a line of credit would just fail immediately.
Best case scenario, you'd just replace American rich for foreign rich.
[1] if you tried to tax foreign capital gains on American assets, you'd just destroy the entire economy. There would be huge lack of capital.
Your plan is insanity.
Edit: And some country would be creative and end tax treaties with the US just to get a couple trillion of capital flowing through their economy.
You consider it "fair" because everyone pays the same. Not everyone should pay the same tax. Some people should pay more, some less.
Like it did in Australia?
Australia's PPP adjusted minimum wage is 10.50 USD.
It's very possible that Australia's min doesn't hurt employment and it would in the USA.
It's also plausible that Australia's recent increase in employment (while US is hitting post 2008 lows) is partially caused by too high of a minimum wage.
Much as the National Restaurant Association, Cato and American Enterprise Institute would love for us to believe this, it just isn't true.
It would hurt profits, though, and a lot of those restaurants paying minimum wage would go out of business (and be replaced by other restaurants).
Yes, that's a good reason why we shouldn't subsidize capital intensive businesses over labor intensive business by taxing capital income less than "normal" income and then adopting additional taxes on labor income on top of normal income taxes, but should instead treat all income alike for tax purposes without regard to source (and also, therefore, for benefit-eligibility purposes for past-income-qualified benefits for which dedicated taxes on income are taken to fund benefits.)
> But this is way outsides of a normal rise in minimum wage.
Not really. The article claims that $12 in 2020 would bring it above its 1968 peak level in inflation adjusted terms (the 1968 peak level, $1.60, is about $10.97 now, so $12 now would be a little bit ahead of it, with 2% annual inflation from now to 2020, $12 would be almost exactly the 1968 peak level.) So, a $15/hr. federal minimum wage in 2020 would be a higher-than-historical minimum wage, but not by a large margin.
And a little-over-doubling from 2009 to 2020 wouldn't be an unprecedented jump over an 11 year period, either (from 1945 to 1956 it got a 2.5 multiple from $0.40 to $1.00 -- and over 12 years, from 1938 to 1950 -- it tripled from $0.25 to $0.75.)
These large businesses are the ones paying employees the federal minimum wage. Only thing that happens is their profit margin shrinks a tiny amount. As long as the profit margin is in the black the business will continue to operate.
It puts more money into the pockets of consumers, who are the drivers of the economy.
What you're discounting is that once the minimum wage is raised, the market can bear higher prices, and will move accordingly.
I don't have the numbers, but I would guess that there are more people within a dollar or so of the current minimum wage than there are actually at the minimum wage. The trend in the US is for people to at least get nominal raises that would technically raise them above minimum wage, but well below the proposed new minimum wage.
You: WHY DON'T YOU DRINK 100 LITERS A DAY IF YOU LIKE IT SO MUCH!!
Because 100$ per hour is not what labor is currently worth.
The whole idea behind making the minimum wage a livable wage is to stop allowing corporations to keep wages artificially low by having workers augment their wages with government provided subsidies.
So what people are saying is, when you account for the subsidies people currently being paid minimum wage are taking advantage of, the real cost of that labor is much closer to 15$ per hour than the current 7.50$ per hour.
Shifting the minimum wage to 15$ an hour will shift many people with minimum wage jobs off of government subsidy programs, actualizing the real cost of labor on corporations and lowering the burden of our current government programs.
so this is much more than just picking a number and saying 'wages should be at least this high", its more "youre are paying X, we are subsidizing that by Y, we think you should pay all of X+Y"
2) The incentive to work under basic income is having more than barely enough money to scrape by. Wages will go up until this is a sufficient incentive. My money's on wages not having to rise much at all, if any, to achieve this. I wouldn't even be surprised if average compensation dropped a bit under basic income.
3) An EITC doesn't support entrepreneurship and small businesses the way basic income could.
Maybe, but:
(1) This is an assertion provided without evidence, and (2) The purpose of the basic income isn't to incentivize poor people to work, anyway, and (3) Poor people, even before considering EITC or Basic Income, have more than sufficient incentive to work, what they generally lack is opportunity to work with their current skill set, and opportunity to gain the skills needed to work where it is in demand without trading off present necessities.
Yes but labor is less than half of the cost for everything. One of the most labor intensive is food [growing -> market -> consumer] and its still not even 50%.
https://www.fmi.org/docs/facts-figures/marketingcosts.pdf?sf... http://www.ers.usda.gov/media/307995/aer780d_1_.pdf
Its 38.5%. The impacts is similar on other areas where the minimum wage laborer is also the minimum wage consumer.
The pay increase still flows ~60% to the people on minimum wage and is the most effective method that is politically feasible. [e.g. Backed by a large portion of a major political party]
Ideally, raising the standard deduction to the poverty level for 1 person as well would be ideal to spread things out more. Of course, you'd need to raise the marginal tax rates [e.g. Money after $11,700/year would be taxed at a higher rate] to do that since it'll cost hundreds of billions otherwise :p [e.g. $6,300 -> $11,700]
As opposed to the kind where the bosses pay absurdly low wages and distribute the profits to themselves?
Update: grammar, typo
Minimum wage has to do with marginal cost of producing an extra product. Marginal cost generally increases after a while. So producing that last additional unit usually costs more than the one before. When you increase cost in the form of the price of human capital, the marginal cost of producing a unit will increase and the intersection with the marginal revenue (price of the unit) will drop to a lower quantity supplied and higher price.
So yes, prices will go up but the business will also sell less units. Since less units are sold, there will be less capital that will need to be utilized.
Prices aren't arbitrarily set and increase in price will result in less units being sold and less employment. This isn't as controversial as journalists make it out to be.
Pre-political Paul Krugman does a great job explaining it:
> So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data. Indeed, much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages “do,” in fact, reduce employment, but that the effects are small and swamped by other forces.
> What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda–for arguing that living wages “can play an important role in reversing the 25-year decline in wages experienced by most working people in America” (as this book’s back cover has it). Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects.[0]
[0] http://www.forbes.com/sites/timworstall/2015/03/02/paul-krug...
That is possible, but I would generally expect the opposite with economies of scale.
Both economies of scale and diseconomies of scale play a role. Think about it in the extremes. Would a company be able to produce 2x, 10x, 100x the product they currently produce now at the same per unit cost, or less? If not, then there must be some point at which the marginal cost is upward sloping.
I believe this is the reason that large companies don't necessarily lead innovation. For instance, a company like Facebook could have easily created a Snapchat, but it could not. It wasn't even successful imitating the product after several attempts (popularity, not functionality).
More: http://www.investopedia.com/exam-guide/cfa-level-1/microecon...