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How Special-Interest Groups Benefit From Minimum Wage Laws
Submitted by Gary Gelles via the Ludwig von Mises Institute,
Those campaigning for a substantial jump in the minimum wage all assert that the purpose is to help working families. Unfortunately, careful students of the evidence come to a different conclusion. As Mark Wilson summarized it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.”
Some workers lose jobs (high minimum-wage states have among the highest unemployment rates); others have hours cut. The least-skilled get competed out of the jobs that remain (e.g., the minimum wage hits teenage employment hardest). It crowds out on-the-job training, impeding workers’ ability to learn their way out of poverty. And those effects are worse in a recession. It also raises costs and prices that workers pay as consumers.
How can we explain support for a policy that harms many of those supporters say they wish to help? We explain it by focusing not on low-income workers, but their substitutes.
Consider an analogy. If the price of ice cream was pushed up, earnings of ice cream producers might go up or down, depending on how much less was bought as a result. But producers of frozen yogurt, a substitute for ice cream, will definitely benefit, because a higher price of ice cream will increase demand for frozen yogurt, clearly benefiting its producers.
Similarly, increasing the minimum wage will raise the cost of hiring low-wage workers. And while it might actually hurt low-wage workers, it will help each substitute for low-wage labor by increasing its demand. Thus, the narrow self-interest of those offering substitutes for low-skill labor, rather than compassion for the working poor, may best explain support for higher minimum wages.
Unions top that list. A higher minimum wage increases the demand for union workers by reducing competition from lower-skilled workers. For instance, if the minimum wage was $8 and the union wage was $40, employers give up 5 hours of low-skilled work for every union worker-hour utilized. But increasing the minimum to $10 means employers give up 4 hours of low-skilled work for every union worker hour.
Union employers benefit as well, because the higher costs imposed on non-union competitors raise the prices they must charge, increasing demand for union employers’ output.
This can also explain why other “altruists” support higher minimum wages.
Non-union workers and employers in high cost of living areas, where virtually everyone earns above the federal minimum wage, benefit, by raising the cost of production imposed on rivals where wages are lower (Which is why many in high-wage areas favor higher federal minimum wages, while those in low-wage states — the alleged beneficiaries — often oppose them). Workers and producers where state minimum wages exceed the federal minimum also gain because it raises the cost of production where the federal minimum is binding, relative to where they are located.
Because all these substitutes for minimum-wage workers will see increased incomes, businesses and politicians in those locations will also benefit, and so join the bandwagon pushing for “doing good” in a way that directly benefits them.
Even Wal-Mart benefits from this effect. Because Wal-Mart already pays more than the federal minimum, in low-wage areas a federal minimum-wage increase raises competitors’ costs, but not theirs. In high-wage areas, supporting a higher federal minimum wage is a costless way for Wal-Mart to demonstrate compassion for workers.
Virtually everyone who supports higher minimum wages asserts their intent to help working families. But it may frequently be a false compassion whose common denominator is advancing one’s own self-interest while harming working families. That would also explain why so many are unwilling to seriously consider whether such compassion actually works, rather than just sounding good.
The same mechanism is at work in the depression-era Davis-Bacon Act, which is still in force. It required the payment of “prevailing wages” on any project that received federal money. But its genesis was the explicitly racist intent to exclude lower-cost southern firms employing black workers from underbidding local white workers for construction projects, by forcing them to pay their workers more.
A similar illustration came from South Africa, under apartheid. White labor unions backed “equal pay” laws for blacks and whites in the guise of helping black workers. But what it really did was raise the price of hiring blacks, who had less education and fewer skills on average, as well as being discriminated against, relative to the price of hiring whites. Whites gained, but black unemployment jumped as a result of that “compassion” on their behalf.
Another illustration from outside the labor market is the support of corn farmers, corn syrup processors, and those in their communities for restrictions on sugar imports from other countries. By substantially raising the price of sugar in the U.S., the policy has driven many candy makers and the jobs they create outside the U.S., harming those workers and their communities. But it has raised the price of a substitute for corn syrup, increasing demand for corn syrup and the inputs that go into making it, benefiting those in corn-producing states.
Most people don’t seem to recognize this clearly self-interested mechanism behind support for supposedly compassionate or altruistic policies to benefit others, which is why it typically stays under the political radar. But once a person thinks through it, the connection becomes obvious. Further, it suggests the appropriate test that should be applied in such cases: Whenever someone claims an altruistic reason to support a policy, but it clearly advances their narrow self-interest, the latter effect can explain such support regardless of whether it actually helps the supposed beneficiaries. Therefore, a great deal of cynicism is justified. And when their “story” for how supposed beneficiaries are helped cannot stand the slightest real scrutiny, as with the current minimum-wage campaign, there can be no doubt that such cynicism is justified.
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It is completely unfair of you to use logic and reason to fight against bullshit.
So if you presently have a salary of about $30k a year, heads up you're about to be earning minimum wage (if it goes to $15/hr). Raising the minimum wage will not only kill jobs, it will annihilate jobs.
You can bet that foreign lobbyists are pourng money into the campaigns to raise the minimum wage. A rise here will make U.S. workers less competitive.
Dumb article. Sorry.
We are all just one machine away from replacement.
The lack of demand side choice
by way of controlled market is
demand side slavery.
The lack of employment choice,
combined with the lack of collective
bargaining, by way of controlled
market, is supply side slavery.
Privatization by way of control,
where the market's not appropriately
privatized, is slavery, and the privatization
of the absence of risk, by way of control,
is slavery.
In the 19th Century is was simply
called monopoly.
The unscrupulous oligarchs use the
blame game.
The very next QE installment should
actually be half ($US 42.5B)
to student aid/nurses/teachers for
upgrading education and health
and enabling mechanisms, with
their funds mostly reasonably
expected to get spent in the U.S.,
whereas the banks invest in
the greatest adversity available
anywhere in the world.
The guy incarcerating the guy caught
with a joint w/ possibly not enough THC
to do anything could be this guy.
http://www.nature.com/news/2010/101020/full/news.2010.553.html
Judgement making isn't neurologically mature till
later teens, so if anything it's the kids scapegoating
the girl for placating their scapegoating who
obviously who lack judgement and have been
taught the blame game while the scapegoated kid
looks really level and special.
The more unscrupulous oligarchs like blaming
people for the adversity they create.
https://www.youtube.com/watch?v=MsLGw_-NI6Q
(Y would she otherwise even be sent to the
principal's office for placating her scapegoaters?
(opinion.))
She looks a bit weight challenged, which she
was obviously scapegoated for.
Were her abusers mimicing their parents
when scapegoating her for her own adversity?
Weight challenge is complicated, including
sometimes any/all of the following, far from
exhaustive: withdrawal (was she scapegoated
for other?;) hereditary stasis/environmental
geneologic adaptation, incl. possibly
entailing the FTO gene, the setting of
the fat "toggle switch" (more than one,
this:
http://web.ncsu.edu/abstract/science/wms-ferket-metabolism/
different from:
http://med.stanford.edu/ism/2013/august/brown-fat.html
though, generally, it
appears people can with exercise regularly
convert white fat to beige then brown
fat so as to reverse obesity; family behavioral
influence; food chain privatization; including with
unwholesome food; and, a whole lot more
(bottom of comment, for a taste.)
The opposite would have been compassion.
She'll be not simply the compassionate one.
She'll be the expert on these issues.
She doesn't look resentful. She's amazing.
So I simply would say Educate. Don't incarcerate. Save yourselves. Save your planet. http://www.youtube.com/results?search_query=star+trek+iv+voyage+home+tra... Start a gusher of good.
There's UCP1, Orexin, Leptin,
Ghrelin, Ebf2, PPAR-Gamma,
PGC1-?, FNDC5, PRDM16, TRPA1
Eosinophils, BMP8B,micro-RNA 155,
Irisin, And OX2R.
So If Anyone Asks, It's
Up With Leptin, Down With
Ghrelin, Though That Serves
Cognitive Functions, So
Don't Worry About That Last
One.
Orisin And OX2R Enabled
Leptin To Do Its Thing.
PRDM16
Converts White Fat To Brown,
Though Muscular Exercise,
Producing Irisin, Does That Too.
That One's Mediated By
PGC1-?, FNDC5.
Here we go again, like a broken record...
Minimum wage is only one factor in the complex landscape of employee / employer power balancing (the key determinant of price-setting for labor). A study that only considers economic effects of altering minimum wage is therefore pointless and shows nothing valuable.
Very few people in the comments are talking about this power balance, instead naively speaking of "voluntary contracts" as if employees always have enough power to drive a satisfactory outcome. In fact, the power ratio is dynamic and can move to extremes that are morally unacceptable (as demonstrated time and time again throughout history, and right now under our noses).
Without state protection of employees, if left purely to "market forces" in an environment of abundant labor (surplus humans), the demonstrated outcome is a poverty wage on the way to slavery. If you don't support a welfare state, then your solutions to the problem of labor oversupply include either:
A) Accepting a rapidly rising crime level (people have to survive somehow), which you have to pay for as a victim.
B) Accepting a rapidly rising prison population (America), which you have to pay for as a taxpayer.
C) Pushing a wave of refugees out to other nations.
D) Opening the euthanasia camps, or allowing it to play out naturally.
I'm not being extreme. You can't dodge this.
To push for any of these unnecessary outcomes is a demonstration of immorality. This is why, (as inconvenient as it is to corporations and this miserable Misean), we have laws to create floors for labor conditions that we, as a mature civilized society, have agreed upon as morally correct. How this manifests varies from country to country.
Take Germany for example. It has no fixed minimum wage but it is illegal to pay an "immoral" wage, currently defined as less than 75% of the average wage for the given occupation. Strong, legally encoded, worker protection.
Furthermore, Germany has one of the strongest codetermination policies in the world, see: http://en.wikipedia.org/wiki/Codetermination_in_Germany
So Germany doesn't need the protection of a minimum wage, as much as other nations do, because its labor unions are hugely influential in the supervision of company operations.
OK, so you Misean guys want to get rid of the minimum wage. Alright then, how do you feel about adopting the German system of strong labor unions then? *crickets* Yeah, I thought so...
Here's another awkward little fact that these Misean folks never want you to see: http://i.huffpost.com/gen/1359800/original.jpg
American unions have been absolutely gutted over the past 50 years meaning that their power to influence wages has been gutted too. Coincidence that labor share has fallen? I think not.
Here's yet another awkward little interesting factoid: http://research.stlouisfed.org/fredgraph.png?g=s8t
As a percentage of GDP, labor share of income (blue line) is hitting 70 year lows (people are getting paid less and less of the pie), while corporate profits (after tax) are hitting 70 year highs.
Corporations are keeping more of the pie and paying out less as wages, not surprising given the weakness of US unions and the ability of corporations to dodge paying taxes, yet these Misean guys are horrified, just horrified! that workers should be paid more. Heaven forbid that we return to the situatino of decades past when workers earned more and companies profited less, oh how terrible life was in America back then!
Fucking shills for corporate America, nothing more. The prove it time and time again with these bullshit posts. Again I ask, how the hell is this getting airplay on ZeroHedge given what this place is supposed to represent?
Repeating (post: 4385875), productivity is driven by "effective demand" (borrowing the terminology of Edward Lambert). Setting wages to maximize productivity is therefore an optimization problem which is why all those people in these comments saying: "well, if raising the minimum wage is so great then why don't you just raise it to $100, hell, $1000 per hour", are being idiots, and it's also why people saying: "minimum wage is inefficient price-fixing, just eliminate it and let the market decide", are also being idiots.
There is always a power play between employers and employees. Employers want to pay as little as possible, employees want to be paid as much as possible, therefore both parties have an inbuilt bias to destroy productivity, because neither care about optimal effective demand and will seek to push away from it should it accidentally be optimal. This is one of the most powerful forces behind the business cycle.
The German situation described earlier is far more effective than the US one because it puts labor and capital forces on a more even footing, thereby making it less likely that productivity is hampered by changing wage levels to a sub-optimal state. With unions on the board, they are less hostile to executive operations and advocate for worker conditions within reason (generally).
Meanwhile, the current situation in America is deeply sub-optimal, where wages have been pushed far too low by overly empowered corporations that have captured the legislature.
In this environment, the only way that corporations are able to preserve profit margins (given that they have eroded incomes so badly), is to rely on consumers running up debt to make purchases. For this reason, you can forget about ultra-low interest rates ever going away voluntarily, (corporate profits need it).
Then when consumers are finally under such a heavy debt burden that they're no longer able to borrow, (even at historically low rates), then corporations must rely on the government to borrow on the public's behalf and push money to consumers in the form of welfare payments. For this reason, you can forget about the welfare state ever going away voluntarily, (corporate profits need it).
The proper solution is never discussed: pay workers a bigger slice of the pie and DE-GLOBALIZE, thereby allowing interest rates to rise and welfare to be cut back. In other words, admit that the neoliberal agenda that took over the world starting with Reagan and Thatcher is wrong.
Here is what killed America in a nutshell: products made overseas under conditions that would be illegal in America are allowed to compete equally with products made in America. US products, complying with US law, are then more expensive, consumed less and jobs then entire industries are subsequently lost overseas. The primary solution must therefore be, shock, horror, that dirty word: protectionism.
Those laws were created for a reason, representing what America defines as an acceptable ethical framework, yet the neoliberal, anti-protectionist economic system doesn't give a flying fuck about laws and just overrides the whole thing. How is this acceptable? By allowing products made under an oppressive regime onto US shelves, the US is tacitly supporting said regime.
Now the miserable Misean answer is: "eliminate the minimum wage to boost competitiveness", because they're perfectly happy with the societal race-to-the-bottom that globalization provides. They want a nation of Americans working at Chinese wages, thereby being "competitive", nevermind that this added competition will push wages even lower and force both private debt (credit) and public debt (welfare) higher, (and push crime higher too).
In other words, the miserable Miseans are siding with already dominant capital, want to destroy labor even more, therefore killing productivity further and ruining the economy even more, with the added bonus of a less stable, more violent society. Holy fuck:economics fail, ethical fail, humanity fail. FAIL.
Here's a better idea. Instead of dragging US workers down to a foreign standard (fuck you very much globalization), how about we drag foreign workers up to a US standard which means throwing the globally dominant neoliberals out on their asses and blocking the shit out of foreign goods and services until they start treating their people to the standard we demand for our own people.
US unemployment would fall, manufacturing would rise, the trade deficit would shrink, rates could rise, capital misallocation would be reduced, welfare would fall, debt would be reduced, etc. In other words, we'd be returning to the improved living state of the 1950-70's (before the destructive neolibs took over), and with the benefit of modern technology.
If you give a shit, buy local. Cheap foreign goods aren't cheap when you lose your job to the cheaper foreign labor.
Outstanding comment. Spot on.
Von Mises, Von Meeses, I hate meeses to pieces.
Prices go up no matter what people are paid. Blaming rising prices on minimum wage is BS. You still can't live on ten bucks an hour in 2014. Couldn't do it in 1980 either. This country didn't get fucked up because minimum wage goes up.
B4 min wage African Americans had a lower unemployment rate that whites. After, it has always been higher
Min Wage violates African American civil rights
Correlation does not equal causation. But then 70% of the posts and charts on this site depend on that confusion. And thanks for needlessly injecting race into the debate.
Race is the issue here. Please explain how it is not?
Yeah, "special interest groups" like the American worker would be helped. Please...
In fact one thing that would help the economy is if real people had more money to spend. Higher wages would also help to end the deflationary spiral. Don't tell me these corporations who are booking record profits, paying CEOs record salaries and bonuses, can't afford to pay their workers a living wage. Walmart, anyone?
"As Mark Wilson summarized it, 'evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.'”
Nope. See--
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/04/economists-ag...
http://www.latimes.com/business/hiltzik/la-fi-mh-minimum-wage-increase-2...
http://nation.time.com/2014/01/02/10-10-minimum-wage-would-lift-4-6-mill...
The evidence is just the opposite from what the "economist" from the Heritage Institute says.
BTW, since when did Austrians rely on data and evidence?
Stuff and nonsense!