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Economists agree: Raising the minimum wage reduces poverty

74 points by curtis 13y ago

groovygazza 13y ago
Of course it will, and will also reduce expectation of service industry tips so it's deserved rather than a given.
- jacalata 13y ago
  Only if the service industry exceptions from minimum wage are removed as well.
xname 13y ago
Well, the research studies only tell you: Raising a very little bit of the minimum wage reduces a very little bit of poverty in the short run, without discussing any negative impacts to the society (in the short run or in the long run). It is very different from "raising the minimum wage reduces poverty".
- stretchwithme 13y ago
  I doubt studies connect what happens to employment when a bubble collapses. It is then that the full effects of a drop in demand are felt and the new higher wage really causes demand to collapse. By then, everyone advocating this price control is long gone. Its a time bomb that explodes in the faces of low wage workers, preventing them from repricing their services to mer the new conditions. Of course, smaller, smarter countries like Ireland figured that out and cut their minimum wages in response to the lowered demand.
- lowkeykiwi 13y ago
  and all those who advocate for raising the minimum wage are only asking it to be raised relative to inflation and not much more. its also why the strawman (that's been used twice in these posts already) of 'why dont we raise it to $100 then?' is silly and doesn't help the discussion.
altedork 13y ago
So I hope those skinflints do just raise the minimum wage a tiny bit. They need to raise it a lot. A minimum wage of $50.00 per hour would relieve a great deal of poverty. P.S. http://cafehayek.com/2014/01/the-wages-of-journalist-incompetence.html http://cafehayek.com/2014/01/the-wages-of-journalist-incompe...
- dc2k08 13y ago
  No it wouldn't. The amount of dollars you would need to exchange for goods and services would just increase while the exchange rate for dollars would decrease.
MarkCancellieri 13y ago
Just think how prosperous we would be if the minimum wage was $100 an hour! ;-)
- krakensden 13y ago
  Just because things don't work asymptotically doesn't mean they don't work.
  - jedmeyers 13y ago
    But why would a $15/hour minimum wage work and $100/hour won't? Where between 15 and 100 do you draw the line and why?
    - rfnslyr 13y ago
      When the wage is higher than mine :P
    - rayiner 13y ago
      Why raise the thermostat setting from 40F to 65F? Why wouldn't 100F be better? Where between 65F and 100F do you draw the line and why?
      - cstejerean 13y ago
        I draw the line at about 74. When it starts to get into 75+ it gets uncomfortable for me personally. So instead of being dismissive I think it's actually worth thinking about the question. If $15 could work as a minimum wage, and $100 would clearly not work, where in that range does the transition happen. Or maybe $15 is already too high, but $12 could work. I certainly don't know the answer, but it's an interesting thing to ponder.
    - crdoconnor 13y ago
      Australia's on roughly $15/hour. They have LOWER unemployment. You draw the line when you start getting inflation at about 10-12%. That's when inflation starts to have an effect on economic growth. It could be raised gradually until that point.
derefr 13y ago
If I recall, economists tend to point out that the causation between minimum wage and poverty is actually reversed from its "intuitive" position. What actually tends to happen, is that first, a city/county/state/country's economy improves to the point that everyone is making a certain wage, just because of competition for workers. And then, policy-makers notice this, realize that there's an upside (better civic image) and no downside (workers out of jobs) to raising the minimum wage... and so they do. Thinking of minimum wage as an adjustable variable, rather than an indicator, is trying to use the tail to wag the dog.
- ddebernardy 13y ago
  Not quite. What actually happens is that by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing. There's a virtuous circle in there. It's that thing Ford showed in its early days: paying workers extra so they can buy the cars they produce yields more economic activity for the benefit of everyone -- they also bought fridges and what not. The trouble is stopping just short of the level at which (by minimum wage earner standards) they begin to live in opulence. That meaning, in this case, not so much when they're able to afford a yatch, but when they begin to consider putting on more debt than they can actually afford -- debt that won't get repaid. In that case, a vicious circle creeps in, because the ups and downs in excess debt levels contribute to inordinately sized booms and busts, e.g. like we have now. So the real conclusion should be, since most people in developed countries earn barely more than the minimum wage itself: having a large consumer class benefits everyone in the economy provided that it is solvent.
  - jswinghammer 13y ago
    Ford and a lot of other thinkers thought this way but a basic understanding of how things are actually produced and paid for would tell us that high wages are not what causes prosperity but rather high wages are a sign of prosperity. In a world without continual non-stop inflation higher wages aren't necessary to raise your standard living because falling prices would do it.
dadagaaa 13y ago
Duuuuuuuuhhhhhhh
jswinghammer 13y ago
The basic issue is that economics is not an empirical discipline but rather a deductive one. You cannot test anything in isolation because you cannot have a control. All economists can say is "If you do X when nothing else changes Y will result". It is basic economics that when the government mandates a price floor then anyone who cannot sell their goods for anything below that floor will not be able to sell their goods. Thus it will hurt those it's trying to help. No studies are going to disprove that. It's elementary logic.
- cjo 13y ago
  > It is basic economics that when the government mandates a price floor then anyone who cannot sell their goods for anything below that floor will not be able to sell their goods. Thus it will hurt those it's trying to help. Applying this to the low end of the labor market is pushed in a lot of Econ 101 classes but it requires so many assumptions to be true that the model only has a passing resemblance to reality. To use your own logic, you can't say that raising the minimum wage won't also change other variables important to the model but assumed to be constant (maybe it causes companies to outsource, maybe it causes workers to emmigrate, maybe it raises worker productivity) - so if economists are truly constrained to ceteris paribus situations then they have nothing to say about the effects in reality from a minimum wage increase.
  - jswinghammer 13y ago
    Yes they can. This is because we can discuss what higher prices do-invariably they cause market actors to seek substitutes. If you push a $15 minimum wage it stands to reason that there would be demand for any machinery that would allow for cost savings. It would be good for the sectors of the economy that would supply these cost savings technologies. Ultimately marginal workers would get hurt even further once these technologies emerged.
    - cjo 13y ago
      Sounds like it's a choice between a short period of minimum wage pay and then getting replaced by "cost saving technologies", or a slightly longer period of subsistence wages and then still getting replaced. It's easy to argue that since the cost of technology goes down with time that any replacement of workers due to a minimum wage hike will happen anyways when the tech gets cheap enough. Here's a question. Both market concentration (as in oligopoly) and unemployment have significant downward effects on wages especially in the low end of the labor market. I don't like minimum wage and I wish we didn't have it but it's the best solution I've seen to these problems. Do you have a solution to these problems?
DanielBMarkham 13y ago
Note that this is an opinion column, not a news report or a newspaper-sponsored analysis done by a reporter. Also the author does not do justice to the subject, implying much more agreement than actually exists. I didn't want to go into the political mess of this, however, simply point out that I was a bit confused as to what I was reading.
tsotha 13y ago
I'm pretty sure I can find economists who don't agree.
- DanielBMarkham 13y ago
  Yep, and I'm willing to bet ten bucks that in the next 48 hours at least one of them will write a rebuttal.
jruthers 13y ago
Perhaps, rather than theorize about improving the American minimum wage, look to other countries that have higher minimum wage and evaluate their level of poverty (or lack thereof). Look at Australia and Norway, for example. Granted, the lack of poverty in those countries is not solely caused by a humane minimum wage - but it's a huge factor, and a positive indicator. I lived in the US for 7 years and could never fathom how the country as a whole could tolerate such a system.
- ddebernardy 13y ago
  > but it's a huge factor [credible citation needed]
  - jruthers 13y ago
    m not sure if you'll classify it as "credible" but the wikipedia article on HPI shows a clear ranking of countries that roughly correlates to the minimum wage (higher the wage, lower the poverty ranking). Which.. Doesn't seem like rocket science. http://en.wikipedia.org/wiki/Human_Poverty_Index http://en.wikipedia.org/wiki/Human_Poverty_Index http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country http://en.wikipedia.org/wiki/List_of_minimum_wages_by_countr...
    - harryh 13y ago
      Well, maybe. Or perhaps countries with less poverty are able to support higher minimum wages? http://xkcd.com/552/ http://xkcd.com/552/
      - jruthers 13y ago
        And how did the process start? The poverty situation in the better off countries didn't start improving because of magical fairy dust. One end pushes the other end, sure, but you've got to start it somewhere. People and politicians took action and improved laws, businesses still kept going and the cycle repeats upwards. I don't see that happening in the US. I don't mind if the change isn't minimum wage (not going to happen in America), but at least do /something/ positive.
jbellis 13y ago
It's pretty easy to find research coming to a different conclusion than the Card/Kreuger paper that most pro-minimum-wage-increase people cite: http://gregmankiw.blogspot.com/2006/06/sperling-on-minimum-wage.html http://gregmankiw.blogspot.com/2006/06/sperling-on-minimum-w... http://cafehayek.com/2009/09/new-study-casts-doubt-on-card-krueger.html http://cafehayek.com/2009/09/new-study-casts-doubt-on-card-k... http://rjwaldmann.blogspot.com/2009/12/in-which-i-disagree-with-paul-krugman.html http://rjwaldmann.blogspot.com/2009/12/in-which-i-disagree-w... But the best reasoning I've seen on the subject is Bryan Caplan's: "Suppose you have a weak prior about the disemployment effects of the minimum wage. Suppose further that you think that the best empirical work in economics is very good indeed. Doesn't existing evidence then oblige you to admit that the minimum wage has roughly zero effect on employment? "Hardly. Why not? Because there is far more 'existing evidence' than meets the eye. Research doesn't have to officially be about the minimum wage to be highly relevant to the debate. All of the following empirical literatures support the orthodox view that the minimum wage has pronounced disemployment effects:" http://econlog.econlib.org/archives/2013/03/the_vice_of_sel.html http://econlog.econlib.org/archives/2013/03/the_vice_of_sel....
- cjo 13y ago
  Even if minimum wage does cause some unemployment that's not the beginning or the end of the story. It's a market distortion created to counteract two other market distortions - namely already existing unemployment and market concentration on the employers' side, both of which depress wages. So even proving beyond a doubt that minimum wage causes an increase in unemployment isn't enough to abolish the institution if there isn't a better solution to the problems at hand. Plus, unemployment percentage is not a robust enough metric to base the entire conversation on. I liked Bryan Caplan's piece but to me it was predicated on the idea that minimum wage is based on errors in logic and not based on distortions in markets (especially in his conclusion.) I'm yet to see a better idea for addressing the downward effect of unemployment and oligopolization on low end wages. Caplan's solution seems to be deregulation but to me that's a bit like letting the wolves and the sheep work it out for themselves.
  - harryh 13y ago
tn13 13y ago
As rule always ignore the headlines and focus on the details. Actually the article contains very little details about the actual research methodology and data. If poverty reduction in short term is the only objective then I am pretty sure increasing minimum wages will bring some people above the poverty line set at a time before increasing the wages. But whether that reduction ins poverty is sustainable over a decade or so is the important question.
jmckib 13y ago
Very misleading title, economists absolutely do not agree on this point, just read the responses to Card/Kreuger. My view after taking all of this in: there are valid theoretical models that both support and disagree with the view that the minimum wage reduces poverty, and so far the statistics are not clear either way. Given that we don't know, why not support more effective policies for combating poverty such as the negative income tax (Milton Friedman was a proponent of this), or even unconditional income? Those policies would be such a win-win in terms of both reducing poverty and reducing the costly bureaucracy surrounding welfare programs, but unfortunately they don't seem to be politically viable yet.
erichocean 13y ago
"Reducing poverty" is a good reason, which is why minimum-wage advocates talk about it. But the real reason minimum-wage advocates want to increase the minimum wage is to increase the pay of union members, who's pay is indexed to the minimum wage. That's the voting block that matters to politicians, not the near poor, who barely vote and certainly don't have the time (or skills) for political activity (unlike the unions).
- crdoconnor 13y ago
  Unions haven't mattered to politicians in decades. However, corporate lobbyists do - they largely control Congress and the executive branch. Wanna know why they're against a higher minimum wage? Because it's inversely proportional to their profits.
logicchains 13y ago
The minimum wage is ultimately always zero; employers can simply choose to not hire you if they think your productivity is not enough to justify paying you the minimum. As an Australian who spent a couple of years in Asia (where minimum wages are much lower than Australia's $16/hour), one of the most stinking things I noticed was how much easier it was to find work there. I have 'unskilled' Australian friends who have spent months looking for work, without luck, whereas in Singapore for instance it seemed rare for somebody to take more than a week or two to find work. While the quality of the work may be lower than that of minimum-wage work in Australia, it at least provides unskilled individuals with an opportunity to develop the experience, skills and confidence necessary to move onto better jobs, while their Australian counterparts are still sitting around at home feeling dejected at being unable to find work.
- crdoconnor 13y ago
  >In Singapore for instance it seemed rare for somebody to take more than a week or two to find work. It took me a LONG time, and the work I ultimately found was much lower paid than it would be in Australia, the US or Europe. Singapore is a perfect example of what happens if you have no minimum wage. The majority of the country's wealth gets diverted towards profits. Wages all around are lower. The only reason it doesn't cause massive social instability in SG is because the government keeps housing, health care and education affordable by rigid price fixing.
paul9290 13y ago
I say cut the ridiculous amount of taxes (34 percent for those making a decent living) & increase the minimum wage. No one can live off of $7.25 an hour and $10.10 is definitely a fair/decent wage. Sure the cost for things will go up when it's increased, but with taxes decreased I'm more then happy to pay the higher costs. A higher cost that keeps people working and earning a living rather then not working and sitting around living off the peoples' tax dollars.
bqpro1 13y ago
Of course I am not an economist at all, but still I see here some paradox. Minimal wedges are paid for the jobs that require low qualifications or in fact no qualifications. So for example if we raise 4$ per hour to 5$ for such jobs, we may reduce the value of 1 dollar. If 1 hour of such job was worth 4$ and now is worth 5$, then now 1$ has less value than it used to have. As a consequence the whole economy may experience inflation. I do not believe in simple solutions to complicated problems. Printing more money do not reduce poverty and rising minimal wedges is for me a little bit like printing money.
- randomdata 13y ago
  > Minimal wedges are paid for the jobs that require low qualifications or in fact no qualifications. Technically, minimal wages are paid where supply of labour greatly exceeds demand for labour. It is theoretically possible to see high skilled jobs pay low wages and low skilled jobs pay high wages, and you do see it happen sometimes, though the reverse is definitely more common.
- crdoconnor 13y ago
  It mostly eats into corporate profits first. Then it starts having an effect on inflation. If you think corporate profits are too low (fwiw they're at record highs right now), and corporations deserve more profit you shouldn't support a raise in the minimum wage. If you're interested in what happens to prices if the minimum wage is hiked, read here: http://164.36.50.178/lowpay/research/pdf/NMW_profits_and_prices.pdf http://164.36.50.178/lowpay/research/pdf/NMW_profits_and_pri... "Our analysis of retail prices in 3 catering industries (canteens, restaurants and takeaways) does not indicate that prices in these industries were differentially affected according to their exposure to the minimum wage. Surprisingly, the only evidence of any price effect is found in the canteen industry where prices rose by a modest 1% in April 1999. "
jedmeyers 13y ago
Can someone please give me his thoughts on this hypothetical situation? Let's say a farmer buys some extra land and instead of hiring 50 people to work on it he buys a fancy tractor. - Would it be right for those 50 people to demand from the tractor factory to stop making tractors because they are out of work? - Would it be right for them to demand from the government the wages they would have received if the tractors were not made in the first place? - Would it be right for everyone to pay a higher price for food because farmer had to hire 50 people instead of a tractor?
mcbaby 13y ago
Skimming over Arin Dube's paper, I can't help but wonder why he doesn't address any of the lurking variables. His time frame, 1990 to 2012, represents a period of vast technological change throughout the US and the rest of the world. I admit I did not read the entire paper, but it seems Mike Konczal and a lot of us are using "causality" and "correlation" interchangeably, which doesn't seem appropriate. This is not an empirical science... lengthy extrapolations don't tend to hold their ground in real-world economics. There are so many other factors and variables working that it seems silly to make these extrapolations. Again, I did not read Dube's entire paper-—he's obviously put much more thought and time into that paper than I have this comment. With that said, that is just my .02
xixi77 13y ago
And how exactly does "there is a paper that claims X" translate into "Economists agree that X is true"? Well, it doesn't. In fact, I would generally be skeptical about any claim that starts with "Economists agree...", such is the nature of the profession. Also, if we actually admit the effect on poverty to be true, the most obvious way to reconcile this is that newly-unemployed (and hence poor) workers move to places with lower minimum wage, where they can find work. Fewer poor people => less poverty.
- crdoconnor 13y ago
  So you're saying Australians who have a MUCH higher minimum wage and MUCH lower unemployment should move to America? Heh.
n3m6 13y ago
Raising the minimum wage by a little bit?.. oh no, we're looking at civilizational collapse --- typical HN response. tsk
saosebastiao 13y ago
This is silly...of course it reduces poverty for those that do not lose their jobs...and if you operate under the assumption that anyone earning the minimum wage is living in poverty, then of course it would reduce the percentage of people living in poverty in aggregate. There is still a few major problems with it as policy: 1) For those that do lose their jobs, their effect is extremely negative. 2) For those with little to no work history, the possibility of being priced out of an entry level job is a huge problem, leading to the prospect of reduced earnings for the rest of their life. [1] 3) For those who do not lose their jobs, the fact that they didn't lose their jobs is indicative of more major problems...they either don't understand the value of their labor, or they don't know how to negotiate with their employers. A minimum wage increase for these people is like treating the symptoms instead of the disease, and without addressing these issues, these people will likely be underemployed for a long time. For those reasons alone, the minimum wage is a terrible way to reduce poverty. A serious answer is three-fold: 1) Use real programs to reduce poverty. This means a robust welfare system or a negative income tax or a universal basic income. These cost money, but at least their costs are known, as opposed to the mostly invisible costs of the minimum wage. 2) Promote wage transparency laws (which help those who are underpaid to know the true value of their labor). These prohibit employers from firing or retaliating against employees for discussing wages, which is a tactic to keep information asymmetrical in the favor of the employer. 3) Abolish the minimum wage. [1] http://www.nber.org/papers/w5030.pdf http://www.nber.org/papers/w5030.pdf
- crdoconnor 13y ago
  >For those that do lose their jobs, their effect is extremely negative. Raising the minimum wage does not lead to higher unemployment. >For those who do not lose their jobs, the fact that they didn't lose their jobs is indicative of more major problems...they either don't understand the value of their labor, or they don't know how to negotiate with their employers That's paternalistic bullshit. In reality, they can't afford to have a long term time horizon. They usually need a job quickly and cannot afford to hold out for a better one.
- nhaehnle 13y ago
  3) For those who do not lose their jobs, the fact that they didn't lose their jobs is indicative of more major problems...they either don't understand the value of their labor, or they don't know how to negotiate with their employers. Oh, they understand perfectly well about negotiations. Here's the employer reaction when they try to negotiate: "Well, I guess I'll fire you and hire this unemployed person instead." The employer reaction when the minimum wage is raised is to say, well, guess I now have to pay those guys more. So a minimum wage increase helps people perfectly well. You could argue that it would be even better if we as a society decided to eliminate unemployment by making sure that demand for labor was always high enough.
rajacombinator 13y ago
Well if economists agree I guess we should pass laws implementing it and send imperial storm troopers to put down any curs who dare to dissent!
spikels 13y ago
No they don't! [1-6] The author of this piece, Mike Koczal, is an ideological blogger. You can catch him on Salon, MSNBC, TNR, etc. The main economist mentioned, Arin Dube, is not mainstream. He is actually sympathetic to Soviet central planning[7]. And the UMass Amherst Economics department has a well know for its "offbeat" views (e.g. numerous courses that take Marx seriously), not mainstream, not concensus. The truth is this is a controversial, basicly idealogical, issue and if any consensus exists it is that the results will be mixed: some better and some worse off (i.e. unemployed). [1] http://www.intellectualtakeout.org/library/chart-graph/economist-survey-results-whether-minimum-wage-increases-unemployment-among-young-and-unskilled-worke http://www.intellectualtakeout.org/library/chart-graph/econo... [2] http://economix.blogs.nytimes.com/2013/03/04/what-economists-think-about-raising-the-minimum-wage/?_r=0 http://economix.blogs.nytimes.com/2013/03/04/what-economists... [3] http://en.wikipedia.org/wiki/Minimum_wage#Surveys_of_economists http://en.wikipedia.org/wiki/Minimum_wage#Surveys_of_economi... [4] http://www.princeton.edu/~tleonard/papers/minimum_wage.pdf http://www.princeton.edu/~tleonard/papers/minimum_wage.pdf [5] http://www.epionline.org/studies/epi_minimumwage_07-2007.pdf http://www.epionline.org/studies/epi_minimumwage_07-2007.pdf [6] http://www.intellectualtakeout.org/library/chart-graph/economist-survey-results-whether-minimum-wage-increases-unemployment-among-young-and-unskilled-worke http://www.intellectualtakeout.org/library/chart-graph/econo... [7] http://economistsview.typepad.com/economistsview/2012/10/a-nobel-for-planning.html http://economistsview.typepad.com/economistsview/2012/10/a-n...
- nhaehnle 13y ago
  "offbeat" views (e.g. numerous courses that take Marx seriously) Right, how could anybody possibly take one of the most important thinkers in the history of political economy seriously! Marx has important but inconvenient things to say even today. He may not have been right about everything, but a lot is spot on. It's just that lucid writing about class struggles is rather uncomfortable to those who are winning these class struggles. In any case, those who ignore him do so at their own (intellectual) peril.
  - crdoconnor 13y ago
    I find it amusing since Marx is basically a mirror image of Neoclassical economics (the dominant strain in American academia today). They're both awful at making predictions. They're both highly ideological. They're both highly unscientific (making non-disprovable assertions). When applied religiously, both lead to horribly broken economic outcomes. And, ultimately, they both perform similar roles for the dominant power structures of their day. Marxism was taught in the Soviet Union to promote the Soviet State and economic system. Neoclassical is the intellectual justification of our neoliberal system. Both have interesting parts which it is possible to learn from, but they're basically both the ideological opinion forming apparatus of the state. It's not wise to point this out in polite company, however. People get upset.
pkulak 13y ago
We can all argue about weather minimum wage hikes kill jobs, but the fact remains that there are not enough jobs, and a lot of the jobs that are around exist only because labor is cheaper than automation, which hurts efficiency and GDP. The real solution is to not worry about 1 job for every 1 person and guarantee citizens a basic income.

74 points by curtis 13y ago

groovygazza 13y ago

Of course it will, and will also reduce expectation of service industry tips so it's deserved rather than a given.

jacalata 13y ago
Only if the service industry exceptions from minimum wage are removed as well.

xname 13y ago

Well, the research studies only tell you: Raising a very little bit of the minimum wage reduces a very little bit of poverty in the short run, without discussing any negative impacts to the society (in the short run or in the long run). It is very different from "raising the minimum wage reduces poverty".

stretchwithme 13y ago
I doubt studies connect what happens to employment when a bubble collapses. It is then that the full effects of a drop in demand are felt and the new higher wage really causes demand to collapse. By then, everyone advocating this price control is long gone. Its a time bomb that explodes in the faces of low wage workers, preventing them from repricing their services to mer the new conditions. Of course, smaller, smarter countries like Ireland figured that out and cut their minimum wages in response to the lowered demand.
lowkeykiwi 13y ago
and all those who advocate for raising the minimum wage are only asking it to be raised relative to inflation and not much more. its also why the strawman (that's been used twice in these posts already) of 'why dont we raise it to $100 then?' is silly and doesn't help the discussion.

altedork 13y ago

So I hope those skinflints do just raise the minimum wage a tiny bit. They need to raise it a lot. A minimum wage of $50.00 per hour would relieve a great deal of poverty. P.S. http://cafehayek.com/2014/01/the-wages-of-journalist-incompetence.html http://cafehayek.com/2014/01/the-wages-of-journalist-incompe...

dc2k08 13y ago
No it wouldn't. The amount of dollars you would need to exchange for goods and services would just increase while the exchange rate for dollars would decrease.

MarkCancellieri 13y ago

Just think how prosperous we would be if the minimum wage was $100 an hour! ;-)

krakensden 13y ago
Just because things don't work asymptotically doesn't mean they don't work.
- jedmeyers 13y ago
  But why would a $15/hour minimum wage work and $100/hour won't? Where between 15 and 100 do you draw the line and why?
  - rfnslyr 13y ago
    When the wage is higher than mine :P
  - rayiner 13y ago
    Why raise the thermostat setting from 40F to 65F? Why wouldn't 100F be better? Where between 65F and 100F do you draw the line and why?
    - cstejerean 13y ago
      I draw the line at about 74. When it starts to get into 75+ it gets uncomfortable for me personally. So instead of being dismissive I think it's actually worth thinking about the question. If $15 could work as a minimum wage, and $100 would clearly not work, where in that range does the transition happen. Or maybe $15 is already too high, but $12 could work. I certainly don't know the answer, but it's an interesting thing to ponder.
  - crdoconnor 13y ago
    Australia's on roughly $15/hour. They have LOWER unemployment. You draw the line when you start getting inflation at about 10-12%. That's when inflation starts to have an effect on economic growth. It could be raised gradually until that point.

derefr 13y ago

If I recall, economists tend to point out that the causation between minimum wage and poverty is actually reversed from its "intuitive" position. What actually tends to happen, is that first, a city/county/state/country's economy improves to the point that everyone is making a certain wage, just because of competition for workers. And then, policy-makers notice this, realize that there's an upside (better civic image) and no downside (workers out of jobs) to raising the minimum wage... and so they do. Thinking of minimum wage as an adjustable variable, rather than an indicator, is trying to use the tail to wag the dog.

ddebernardy 13y ago
Not quite. What actually happens is that by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing. There's a virtuous circle in there. It's that thing Ford showed in its early days: paying workers extra so they can buy the cars they produce yields more economic activity for the benefit of everyone -- they also bought fridges and what not. The trouble is stopping just short of the level at which (by minimum wage earner standards) they begin to live in opulence. That meaning, in this case, not so much when they're able to afford a yatch, but when they begin to consider putting on more debt than they can actually afford -- debt that won't get repaid. In that case, a vicious circle creeps in, because the ups and downs in excess debt levels contribute to inordinately sized booms and busts, e.g. like we have now. So the real conclusion should be, since most people in developed countries earn barely more than the minimum wage itself: having a large consumer class benefits everyone in the economy provided that it is solvent.
- jswinghammer 13y ago
  Ford and a lot of other thinkers thought this way but a basic understanding of how things are actually produced and paid for would tell us that high wages are not what causes prosperity but rather high wages are a sign of prosperity. In a world without continual non-stop inflation higher wages aren't necessary to raise your standard living because falling prices would do it.

dadagaaa 13y ago

Duuuuuuuuhhhhhhh

jswinghammer 13y ago

The basic issue is that economics is not an empirical discipline but rather a deductive one. You cannot test anything in isolation because you cannot have a control. All economists can say is "If you do X when nothing else changes Y will result". It is basic economics that when the government mandates a price floor then anyone who cannot sell their goods for anything below that floor will not be able to sell their goods. Thus it will hurt those it's trying to help. No studies are going to disprove that. It's elementary logic.

cjo 13y ago
> It is basic economics that when the government mandates a price floor then anyone who cannot sell their goods for anything below that floor will not be able to sell their goods. Thus it will hurt those it's trying to help. Applying this to the low end of the labor market is pushed in a lot of Econ 101 classes but it requires so many assumptions to be true that the model only has a passing resemblance to reality. To use your own logic, you can't say that raising the minimum wage won't also change other variables important to the model but assumed to be constant (maybe it causes companies to outsource, maybe it causes workers to emmigrate, maybe it raises worker productivity) - so if economists are truly constrained to ceteris paribus situations then they have nothing to say about the effects in reality from a minimum wage increase.
- jswinghammer 13y ago
  Yes they can. This is because we can discuss what higher prices do-invariably they cause market actors to seek substitutes. If you push a $15 minimum wage it stands to reason that there would be demand for any machinery that would allow for cost savings. It would be good for the sectors of the economy that would supply these cost savings technologies. Ultimately marginal workers would get hurt even further once these technologies emerged.
  - cjo 13y ago
    Sounds like it's a choice between a short period of minimum wage pay and then getting replaced by "cost saving technologies", or a slightly longer period of subsistence wages and then still getting replaced. It's easy to argue that since the cost of technology goes down with time that any replacement of workers due to a minimum wage hike will happen anyways when the tech gets cheap enough. Here's a question. Both market concentration (as in oligopoly) and unemployment have significant downward effects on wages especially in the low end of the labor market. I don't like minimum wage and I wish we didn't have it but it's the best solution I've seen to these problems. Do you have a solution to these problems?

DanielBMarkham 13y ago

Note that this is an opinion column, not a news report or a newspaper-sponsored analysis done by a reporter. Also the author does not do justice to the subject, implying much more agreement than actually exists. I didn't want to go into the political mess of this, however, simply point out that I was a bit confused as to what I was reading.

tsotha 13y ago

I'm pretty sure I can find economists who don't agree.

DanielBMarkham 13y ago
Yep, and I'm willing to bet ten bucks that in the next 48 hours at least one of them will write a rebuttal.

jruthers 13y ago

Perhaps, rather than theorize about improving the American minimum wage, look to other countries that have higher minimum wage and evaluate their level of poverty (or lack thereof). Look at Australia and Norway, for example. Granted, the lack of poverty in those countries is not solely caused by a humane minimum wage - but it's a huge factor, and a positive indicator. I lived in the US for 7 years and could never fathom how the country as a whole could tolerate such a system.

ddebernardy 13y ago
> but it's a huge factor [credible citation needed]
- jruthers 13y ago
  m not sure if you'll classify it as "credible" but the wikipedia article on HPI shows a clear ranking of countries that roughly correlates to the minimum wage (higher the wage, lower the poverty ranking). Which.. Doesn't seem like rocket science. http://en.wikipedia.org/wiki/Human_Poverty_Index http://en.wikipedia.org/wiki/Human_Poverty_Index http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country http://en.wikipedia.org/wiki/List_of_minimum_wages_by_countr...
  - harryh 13y ago
    Well, maybe. Or perhaps countries with less poverty are able to support higher minimum wages? http://xkcd.com/552/ http://xkcd.com/552/
    - jruthers 13y ago
      And how did the process start? The poverty situation in the better off countries didn't start improving because of magical fairy dust. One end pushes the other end, sure, but you've got to start it somewhere. People and politicians took action and improved laws, businesses still kept going and the cycle repeats upwards. I don't see that happening in the US. I don't mind if the change isn't minimum wage (not going to happen in America), but at least do /something/ positive.

jbellis 13y ago

It's pretty easy to find research coming to a different conclusion than the Card/Kreuger paper that most pro-minimum-wage-increase people cite: http://gregmankiw.blogspot.com/2006/06/sperling-on-minimum-wage.html http://gregmankiw.blogspot.com/2006/06/sperling-on-minimum-w... http://cafehayek.com/2009/09/new-study-casts-doubt-on-card-krueger.html http://cafehayek.com/2009/09/new-study-casts-doubt-on-card-k... http://rjwaldmann.blogspot.com/2009/12/in-which-i-disagree-with-paul-krugman.html http://rjwaldmann.blogspot.com/2009/12/in-which-i-disagree-w... But the best reasoning I've seen on the subject is Bryan Caplan's: "Suppose you have a weak prior about the disemployment effects of the minimum wage. Suppose further that you think that the best empirical work in economics is very good indeed. Doesn't existing evidence then oblige you to admit that the minimum wage has roughly zero effect on employment? "Hardly. Why not? Because there is far more 'existing evidence' than meets the eye. Research doesn't have to officially be about the minimum wage to be highly relevant to the debate. All of the following empirical literatures support the orthodox view that the minimum wage has pronounced disemployment effects:" http://econlog.econlib.org/archives/2013/03/the_vice_of_sel.html http://econlog.econlib.org/archives/2013/03/the_vice_of_sel....

cjo 13y ago
Even if minimum wage does cause some unemployment that's not the beginning or the end of the story. It's a market distortion created to counteract two other market distortions - namely already existing unemployment and market concentration on the employers' side, both of which depress wages. So even proving beyond a doubt that minimum wage causes an increase in unemployment isn't enough to abolish the institution if there isn't a better solution to the problems at hand. Plus, unemployment percentage is not a robust enough metric to base the entire conversation on. I liked Bryan Caplan's piece but to me it was predicated on the idea that minimum wage is based on errors in logic and not based on distortions in markets (especially in his conclusion.) I'm yet to see a better idea for addressing the downward effect of unemployment and oligopolization on low end wages. Caplan's solution seems to be deregulation but to me that's a bit like letting the wolves and the sheep work it out for themselves.
- harryh 13y ago

tn13 13y ago

As rule always ignore the headlines and focus on the details. Actually the article contains very little details about the actual research methodology and data. If poverty reduction in short term is the only objective then I am pretty sure increasing minimum wages will bring some people above the poverty line set at a time before increasing the wages. But whether that reduction ins poverty is sustainable over a decade or so is the important question.

jmckib 13y ago

Very misleading title, economists absolutely do not agree on this point, just read the responses to Card/Kreuger. My view after taking all of this in: there are valid theoretical models that both support and disagree with the view that the minimum wage reduces poverty, and so far the statistics are not clear either way. Given that we don't know, why not support more effective policies for combating poverty such as the negative income tax (Milton Friedman was a proponent of this), or even unconditional income? Those policies would be such a win-win in terms of both reducing poverty and reducing the costly bureaucracy surrounding welfare programs, but unfortunately they don't seem to be politically viable yet.

erichocean 13y ago

"Reducing poverty" is a good reason, which is why minimum-wage advocates talk about it. But the real reason minimum-wage advocates want to increase the minimum wage is to increase the pay of union members, who's pay is indexed to the minimum wage. That's the voting block that matters to politicians, not the near poor, who barely vote and certainly don't have the time (or skills) for political activity (unlike the unions).

crdoconnor 13y ago
Unions haven't mattered to politicians in decades. However, corporate lobbyists do - they largely control Congress and the executive branch. Wanna know why they're against a higher minimum wage? Because it's inversely proportional to their profits.

logicchains 13y ago

The minimum wage is ultimately always zero; employers can simply choose to not hire you if they think your productivity is not enough to justify paying you the minimum. As an Australian who spent a couple of years in Asia (where minimum wages are much lower than Australia's $16/hour), one of the most stinking things I noticed was how much easier it was to find work there. I have 'unskilled' Australian friends who have spent months looking for work, without luck, whereas in Singapore for instance it seemed rare for somebody to take more than a week or two to find work. While the quality of the work may be lower than that of minimum-wage work in Australia, it at least provides unskilled individuals with an opportunity to develop the experience, skills and confidence necessary to move onto better jobs, while their Australian counterparts are still sitting around at home feeling dejected at being unable to find work.

crdoconnor 13y ago
>In Singapore for instance it seemed rare for somebody to take more than a week or two to find work. It took me a LONG time, and the work I ultimately found was much lower paid than it would be in Australia, the US or Europe. Singapore is a perfect example of what happens if you have no minimum wage. The majority of the country's wealth gets diverted towards profits. Wages all around are lower. The only reason it doesn't cause massive social instability in SG is because the government keeps housing, health care and education affordable by rigid price fixing.

paul9290 13y ago

I say cut the ridiculous amount of taxes (34 percent for those making a decent living) & increase the minimum wage. No one can live off of $7.25 an hour and $10.10 is definitely a fair/decent wage. Sure the cost for things will go up when it's increased, but with taxes decreased I'm more then happy to pay the higher costs. A higher cost that keeps people working and earning a living rather then not working and sitting around living off the peoples' tax dollars.

bqpro1 13y ago

Of course I am not an economist at all, but still I see here some paradox. Minimal wedges are paid for the jobs that require low qualifications or in fact no qualifications. So for example if we raise 4$ per hour to 5$ for such jobs, we may reduce the value of 1 dollar. If 1 hour of such job was worth 4$ and now is worth 5$, then now 1$ has less value than it used to have. As a consequence the whole economy may experience inflation. I do not believe in simple solutions to complicated problems. Printing more money do not reduce poverty and rising minimal wedges is for me a little bit like printing money.

randomdata 13y ago
> Minimal wedges are paid for the jobs that require low qualifications or in fact no qualifications. Technically, minimal wages are paid where supply of labour greatly exceeds demand for labour. It is theoretically possible to see high skilled jobs pay low wages and low skilled jobs pay high wages, and you do see it happen sometimes, though the reverse is definitely more common.
crdoconnor 13y ago
It mostly eats into corporate profits first. Then it starts having an effect on inflation. If you think corporate profits are too low (fwiw they're at record highs right now), and corporations deserve more profit you shouldn't support a raise in the minimum wage. If you're interested in what happens to prices if the minimum wage is hiked, read here: http://164.36.50.178/lowpay/research/pdf/NMW_profits_and_prices.pdf http://164.36.50.178/lowpay/research/pdf/NMW_profits_and_pri... "Our analysis of retail prices in 3 catering industries (canteens, restaurants and takeaways) does not indicate that prices in these industries were differentially affected according to their exposure to the minimum wage. Surprisingly, the only evidence of any price effect is found in the canteen industry where prices rose by a modest 1% in April 1999. "

jedmeyers 13y ago

Can someone please give me his thoughts on this hypothetical situation? Let's say a farmer buys some extra land and instead of hiring 50 people to work on it he buys a fancy tractor. - Would it be right for those 50 people to demand from the tractor factory to stop making tractors because they are out of work? - Would it be right for them to demand from the government the wages they would have received if the tractors were not made in the first place? - Would it be right for everyone to pay a higher price for food because farmer had to hire 50 people instead of a tractor?

mcbaby 13y ago

Skimming over Arin Dube's paper, I can't help but wonder why he doesn't address any of the lurking variables. His time frame, 1990 to 2012, represents a period of vast technological change throughout the US and the rest of the world. I admit I did not read the entire paper, but it seems Mike Konczal and a lot of us are using "causality" and "correlation" interchangeably, which doesn't seem appropriate. This is not an empirical science... lengthy extrapolations don't tend to hold their ground in real-world economics. There are so many other factors and variables working that it seems silly to make these extrapolations. Again, I did not read Dube's entire paper-—he's obviously put much more thought and time into that paper than I have this comment. With that said, that is just my .02

xixi77 13y ago

And how exactly does "there is a paper that claims X" translate into "Economists agree that X is true"? Well, it doesn't. In fact, I would generally be skeptical about any claim that starts with "Economists agree...", such is the nature of the profession. Also, if we actually admit the effect on poverty to be true, the most obvious way to reconcile this is that newly-unemployed (and hence poor) workers move to places with lower minimum wage, where they can find work. Fewer poor people => less poverty.

crdoconnor 13y ago
So you're saying Australians who have a MUCH higher minimum wage and MUCH lower unemployment should move to America? Heh.

n3m6 13y ago

Raising the minimum wage by a little bit?.. oh no, we're looking at civilizational collapse --- typical HN response. tsk

saosebastiao 13y ago

This is silly...of course it reduces poverty for those that do not lose their jobs...and if you operate under the assumption that anyone earning the minimum wage is living in poverty, then of course it would reduce the percentage of people living in poverty in aggregate. There is still a few major problems with it as policy: 1) For those that do lose their jobs, their effect is extremely negative. 2) For those with little to no work history, the possibility of being priced out of an entry level job is a huge problem, leading to the prospect of reduced earnings for the rest of their life. [1] 3) For those who do not lose their jobs, the fact that they didn't lose their jobs is indicative of more major problems...they either don't understand the value of their labor, or they don't know how to negotiate with their employers. A minimum wage increase for these people is like treating the symptoms instead of the disease, and without addressing these issues, these people will likely be underemployed for a long time. For those reasons alone, the minimum wage is a terrible way to reduce poverty. A serious answer is three-fold: 1) Use real programs to reduce poverty. This means a robust welfare system or a negative income tax or a universal basic income. These cost money, but at least their costs are known, as opposed to the mostly invisible costs of the minimum wage. 2) Promote wage transparency laws (which help those who are underpaid to know the true value of their labor). These prohibit employers from firing or retaliating against employees for discussing wages, which is a tactic to keep information asymmetrical in the favor of the employer. 3) Abolish the minimum wage. [1] http://www.nber.org/papers/w5030.pdf http://www.nber.org/papers/w5030.pdf

crdoconnor 13y ago
>For those that do lose their jobs, their effect is extremely negative. Raising the minimum wage does not lead to higher unemployment. >For those who do not lose their jobs, the fact that they didn't lose their jobs is indicative of more major problems...they either don't understand the value of their labor, or they don't know how to negotiate with their employers That's paternalistic bullshit. In reality, they can't afford to have a long term time horizon. They usually need a job quickly and cannot afford to hold out for a better one.
nhaehnle 13y ago
3) For those who do not lose their jobs, the fact that they didn't lose their jobs is indicative of more major problems...they either don't understand the value of their labor, or they don't know how to negotiate with their employers. Oh, they understand perfectly well about negotiations. Here's the employer reaction when they try to negotiate: "Well, I guess I'll fire you and hire this unemployed person instead." The employer reaction when the minimum wage is raised is to say, well, guess I now have to pay those guys more. So a minimum wage increase helps people perfectly well. You could argue that it would be even better if we as a society decided to eliminate unemployment by making sure that demand for labor was always high enough.

rajacombinator 13y ago

Well if economists agree I guess we should pass laws implementing it and send imperial storm troopers to put down any curs who dare to dissent!

spikels 13y ago

No they don't! [1-6] The author of this piece, Mike Koczal, is an ideological blogger. You can catch him on Salon, MSNBC, TNR, etc. The main economist mentioned, Arin Dube, is not mainstream. He is actually sympathetic to Soviet central planning[7]. And the UMass Amherst Economics department has a well know for its "offbeat" views (e.g. numerous courses that take Marx seriously), not mainstream, not concensus. The truth is this is a controversial, basicly idealogical, issue and if any consensus exists it is that the results will be mixed: some better and some worse off (i.e. unemployed). [1] http://www.intellectualtakeout.org/library/chart-graph/economist-survey-results-whether-minimum-wage-increases-unemployment-among-young-and-unskilled-worke http://www.intellectualtakeout.org/library/chart-graph/econo... [2] http://economix.blogs.nytimes.com/2013/03/04/what-economists-think-about-raising-the-minimum-wage/?_r=0 http://economix.blogs.nytimes.com/2013/03/04/what-economists... [3] http://en.wikipedia.org/wiki/Minimum_wage#Surveys_of_economists http://en.wikipedia.org/wiki/Minimum_wage#Surveys_of_economi... [4] http://www.princeton.edu/~tleonard/papers/minimum_wage.pdf http://www.princeton.edu/~tleonard/papers/minimum_wage.pdf [5] http://www.epionline.org/studies/epi_minimumwage_07-2007.pdf http://www.epionline.org/studies/epi_minimumwage_07-2007.pdf [6] http://www.intellectualtakeout.org/library/chart-graph/economist-survey-results-whether-minimum-wage-increases-unemployment-among-young-and-unskilled-worke http://www.intellectualtakeout.org/library/chart-graph/econo... [7] http://economistsview.typepad.com/economistsview/2012/10/a-nobel-for-planning.html http://economistsview.typepad.com/economistsview/2012/10/a-n...

nhaehnle 13y ago
"offbeat" views (e.g. numerous courses that take Marx seriously) Right, how could anybody possibly take one of the most important thinkers in the history of political economy seriously! Marx has important but inconvenient things to say even today. He may not have been right about everything, but a lot is spot on. It's just that lucid writing about class struggles is rather uncomfortable to those who are winning these class struggles. In any case, those who ignore him do so at their own (intellectual) peril.
- crdoconnor 13y ago
  I find it amusing since Marx is basically a mirror image of Neoclassical economics (the dominant strain in American academia today). They're both awful at making predictions. They're both highly ideological. They're both highly unscientific (making non-disprovable assertions). When applied religiously, both lead to horribly broken economic outcomes. And, ultimately, they both perform similar roles for the dominant power structures of their day. Marxism was taught in the Soviet Union to promote the Soviet State and economic system. Neoclassical is the intellectual justification of our neoliberal system. Both have interesting parts which it is possible to learn from, but they're basically both the ideological opinion forming apparatus of the state. It's not wise to point this out in polite company, however. People get upset.

pkulak 13y ago

We can all argue about weather minimum wage hikes kill jobs, but the fact remains that there are not enough jobs, and a lot of the jobs that are around exist only because labor is cheaper than automation, which hurts efficiency and GDP. The real solution is to not worry about 1 job for every 1 person and guarantee citizens a basic income.