"Raising the Minimum Wage Kills Jobs": A Scam Not a Fact

[Sunstone]

A small army of economists has tried to test this theory over the past few decades. It is tricky, because unlike the simplified models in Econ 101 textbooks, real economies are messy and complex: technologies change, the Fed moves interest rates, oil prices fluctuate, the business cycle swings, a hurricane hits, and so on. The challenge is to isolate the impact of the minimum wage from all of these other factors that might affect growth or employment. Through various sophisticated statistical techniques, researchers have attempted to separate the minimum wage signal from the economic noise, and while economists never agree on anything, they have produced a range of consistent results: from zero to zip to nada to a very small effect. In a 2014 letter to President Obama and congressional leaders signed by more than 600 economists (including seven Nobel Prize winners), the authors concluded that “the weight of evidence now show that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

I am a businessperson, not an economist. But I have had an unusually broad career as an entrepreneur and investor participating in the founding or building of 35 companies across a broad range of industries. And while the idea that higher wages for workers might create jobs, not kill them, may elude the instincts and logic of orthodox economic thinking, as a businessperson, it makes perfect intuitive sense to me. That’s because the first, second, and third most important thing to any business is customers. The more of them there are and the more money they have, the better things get. Without customers, there is no business and no jobs. Period. And while every businessperson would like to keep his or her own labor costs low, obviously, if every business paid poverty wages, whose workers would buy the stuff that sustains the economy?

And this brings us to the main point. The claim that if wages go up, jobs go down isn’t a description of reality at all. Nor, in my opinion, does it reflect legitimate economics. It is a negotiating strategy. It is a scam, a con job, a threat—more precisely, it is an intimidation tactic masquerading as a legitimate economic theory. I believe this is where being a businessperson and not an economist leads to greater clarity. Very few economists have ever run a business or negotiated wages. But the first rule in the businessman’s handbook on wage negotiation and suppression is always, always, when they ask for a raise, threaten their jobs. It works like a charm, and has since the invention of capitalism. You see, the claim if wages go up, employment goes down isn’t made because it is true. It’s made because if people like me can get people like you to believe it is true, I’m going to get richer, and you are going to get poorer. The lower your wages are the higher my profits will be. It’s that simple.

[Source: Well written article by Nick Hanauer. Very much worth the time to read.]

Do you know of any evidence that raising the minimum wage kills jobs? If so, what is it?

Given the weight of evidence against the notion that raising the minimum wage kills jobs, what do you make of the motive(s) of those who espouse the notion? Do you, like Hanauer, see it as a scam designed to keep wages low and profits high?

 

[Altfish]

I have always thought that raising the minimum wage creates jobs.

Reason. When you give low paid workers more money they spend it immediately. They spend it on food, drink, clothes, fuel, maybe upgrade an appliance, a better second hand car, whatever, but they spend it. They spend it in the local economy which means that local shops and bars flourish and take on staff - i.e. more jobs.

If you give the 'well off' more money, they invest it (often abroad) put it in their pension pot, etc. In other words it vanishes into bankers pockets.

 

[TurkeyOnRye]

When wages are low, it becomes increasingly difficult for individuals to generate capital to be used on things like starting a business, college tuition, a new car or home etc. Incidentally, all of these things are on the list of major economic drivers. Raising the minimum wage isn't enough though. Workers need to regain bargaining power to such an extent that it becomes difficult or impossible to run a business that doesn't provide living income. In my opinion, a business has two main responsibilities: (1) providing a quality product or service, and (2) providing its employees with a livable income. If the business can't do both, it doesn't deserve to be in business because its economic contribution is inadequate.

Although it is off-topic, I would add a third responsibility to business; environmental responsibility.

 

[Mindmaster]

Rising wages actually works against people. (All of them, not even just the poor.) What happens is people start spending the extra cash and this new demand gradually raises prices to take up the slack. The cash becomes "no cash" really fast, all of the prices of goods go up to match and they are basically left where they are. Do you want to really help them? Give every single person 2,000 a year in an IRA-type account that they can't touch for 30 years and invests itself in something that pays 10-14% yield per year. Each person will get 350,000ish in 30 years that they cannot use until then so they will no longer be poor OR screw up the prices with the additional money.

If here is no way to control the new money the economy basically readjusts itself to the new cash. By the time a poor person could spend this cash the will be used to having it, and holding it more than spending it. Problem solved.

 

[Altfish]

Rising wages actually works against people. (All of them, not even just the poor.) What happens is people start spending the extra cash and this new demand gradually raises prices to take up the slack. The cash becomes "no cash" really fast, all of the prices of goods go up to match and they are basically left where they are. Do you want to really help them? Give every single person 2,000 a year in an IRA-type account that they can't touch for 30 years and invests itself in something that pays 10-14% yield per year. Each person will get 350,000ish in 30 years that they cannot use until then so they will no longer be poor OR screw up the prices with the additional money.

If here is no way to control the new money the economy basically readjusts itself to the new cash. By the time a poor person could spend this cash the will be used to having it, and holding it more than spending it. Problem solved.

Have you any studies to confirm that. I find it hard to believe.
I see what you're proposing really helps the bankers - what do you think will happen in 30-years? Will the sudden influx of vast amounts of cash not lead to hyper inflation based on your model?

 

[Sunstone]

Rising wages actually works against people. (All of them, not even just the poor.) What happens is people start spending the extra cash and this new demand gradually raises prices to take up the slack. The cash becomes "no cash" really fast, all of the prices of goods go up to match and they are basically left where they are.

First off, do you have any actual evidence that raising the minimum wage increases inflation? Not theories or mere speculation -- evidence. Because while that's a popular and often repeated notion. there seems to be rather little evidence for it. In fact, there is evidence against the notion you parrot: For instance, during the 1945 to 1975 period in the US, real wages consistently rose -- which means wages can rise above the inflation rate.

Second off, I notice that you have immediately departed from the OP's discussion of how raising the minimum wage does not kill jobs to bring up the off-topic notion that raising the minimum wage will increase prices and/or inflation. Is that because you honestly concede the point that raising the minimum wage does not kill jobs?

 

[Mindmaster]

Have you any studies to confirm that. I find it hard to believe.
I see what you're proposing really helps the bankers - what do you think will happen in 30-years? Will the sudden influx of vast amounts of cash not lead to hyper inflation based on your model?

Inflation is going to happen somewhat no matter what mostly due to money being constantly created out of thin air. Demand drives prices in a normal market, so if something is "in demand" because there is a lot of new disposable income everything goes up because they buy more of everything. As far as inflation hedging goes, it's better if the government buys out its outstanding loans when it can to boost the currency up. Similar to a home mortgage works you are going to profit more if you pay early, and boost the value of the item that was taken as security.

First off, do you have any actual evidence that raising the minimum wage increases inflation? Not theories or mere speculation -- evidence. Because while that's a popular and often repeated notion. there seems to be rather little evidence for it. In fact, there is evidence against the notion you parrot: For instance, during the 1945 to 1975 period in the US, real wages consistently rose -- which means wages can rise above the inflation rate.

Second off, I notice that you have immediately departed from the OP's discussion of how raising the minimum wage does not kill jobs to bring up the off-topic notion that raising the minimum wage will increase prices and/or inflation. Is that because you honestly concede the point that raising the minimum wage does not kill jobs?

I will concede that it is questionable that many jobs of the blue collar sector even exist, but those would be the ones wage hikes will kill. If labor is cheaper anywhere else that's where the jobs are going as far as industrial work. People tend to look at the problem the wrong way -- it is not the $ number that matters as much as the buying power of the dollar. The rules in 1945-1980 no longer apply due to NAFTA and the trade agreements with China which make it unfavorable to build anything in the USA. We no longer really even possess this industrial sector thanks to Clinton. In the time period that you mentioned the buying power of the dollar was more than twice what it is now. Wages remain the largest expense most employers have, and it is cheaper for them to tear down an operation and move it sometimes than pay more. A one dollar raise for a ten-thousand employee company is seventeen million more expense a year, now stick together how absurd a $5 raise is. (Something around eighty-five million...) It's often cheaper for companies to move than pay those raises, and if they don't move they fire people to make up the money. They have to make the balance sheet black no matter what, so think about that and think about what the responses will be. If the companies move, or they have to fire people I don't really see how this helps. They are in competition with the world, and thus the world market is setting what labor is worth. We could make a legitimate argument that people are getting paid too much. (At least in the context of competing with China, etc.)

 

[Altfish]

Inflation is going to happen somewhat no matter what mostly due to money being constantly created out of thin air. Demand drives prices in a normal market, so if something is "in demand" because there is a lot of new disposable income everything goes up because they buy more of everything. As far as inflation hedging goes, it's better if the government buys out its outstanding loans when it can to boost the currency up. Similar to a home mortgage works you are going to profit more if you pay early, and boost the value of the item that was taken as security.

Well, I never mentioned inflation - it doesn't affect the low paid in normal circumstances anyway; they get paid and it is spent before it has chance to devalue!
Demand does indeed drive prices up, well in the short term anyway. Until supply can be adjusted to meet demand and then prices revert.
It is a bit of a red herring though because it will be demand for a wide range of products. One person buys new shoes, another more food, another a new radio, etc., etc.,
People with money in their pockets that they intend to spend stimulate the economy

 

[Sunstone]

Inflation is going to happen somewhat no matter what mostly due to money being constantly created out of thin air. Demand drives prices in a normal market, so if something is "in demand" because there is a lot of new disposable income everything goes up because they buy more of everything. As far as inflation hedging goes, it's better if the government buys out its outstanding loans when it can to boost the currency up. Similar to a home mortgage works you are going to profit more if you pay early, and boost the value of the item that was taken as security.



I will concede that it is questionable that many jobs of the blue collar sector even exist, but those would be the ones wage hikes will kill. If labor is cheaper anywhere else that's where the jobs are going as far as industrial work. People tend to look at the problem the wrong way -- it is not the $ number that matters as much as the buying power of the dollar. The rules in 1945-1980 no longer apply due to NAFTA and the trade agreements with China which make it unfavorable to build anything in the USA. We no longer really even possess this industrial sector thanks to Clinton. In the time period that you mentioned the buying power of the dollar was more than twice what it is now. Wages remain the largest expense most employers have, and it is cheaper for them to tear down an operation and move it sometimes than pay more. A one dollar raise for a ten-thousand employee company is seventeen million more expense a year, now stick together how absurd a $5 raise is. (Something around eighty-five million...) It's often cheaper for companies to move than pay those raises, and if they don't move they fire people to make up the money. They have to make the balance sheet black no matter what, so think about that and think about what the responses will be. If the companies move, or they have to fire people I don't really see how this helps. They are in competition with the world, and thus the world market is setting what labor is worth. We could make a legitimate argument that people are getting paid too much. (At least in the context of competing with China, etc.)

I asked for evidence and you gave me theories and speculations backed by nothing substantial.

 

[Mindmaster]

Well, I never mentioned inflation - it doesn't affect the low paid in normal circumstances anyway; they get paid and it is spent before it has chance to devalue!
Demand does indeed drive prices up, well in the short term anyway. Until supply can be adjusted to meet demand and then prices revert.
It is a bit of a red herring though because it will be demand for a wide range of products. One person buys new shoes, another more food, another a new radio, etc., etc.,
People with money in their pockets that they intend to spend stimulate the economy

This stuff is really all tied together directly - wages, inflation, and economic health. We could probably argue that the increased spending will help the local businesses and it probably will on the short term until the money devalues and equalizes to the new levels. The number one reason that all poor people are poor is not the wage, but the lack of savings - most people under say 40k income spend every dollar they earn. They are not taught how to preserve or build their wealth themselves, and that is the #1 issue.

 

[Mindmaster]

I asked for evidence and you gave me theories and speculations backed by nothing substantial.

It's not my job to Google what is easily Googled. I personally don't care what people care to believe. Politics and religion are about the same, lol.

 

[Sunstone]

It's not my job to Google what is easily Googled. I personally don't care what people care to believe. Politics and religion are about the same, lol.

The problem is you can't Google much in the way of evidence to support your "theories". And a "theory" is just speculation until it's backed by a solid weight of evidence.

 

[Altfish]

This stuff is really all tied together directly - wages, inflation, and economic health. We could probably argue that the increased spending will help the local businesses and it probably will on the short term until the money devalues and equalizes to the new levels. The number one reason that all poor people are poor is not the wage, but the lack of savings - most people under say 40k income spend every dollar they earn. They are not taught how to preserve or build their wealth themselves, and that is the #1 issue.

Well, saving sounds good. BUT you must be able to satisfy your basic needs, food, clothing and shelter and in this age a modicum of entertainment before you even consider saving.

 

[Ouroboros]

Do you know of any evidence that raising the minimum wage kills jobs? If so, what is it?

Wendy's is working on replacing workers at the burger joints with automated systems, because of the raised minimum wage, or at least so they claim.

http://www.techinsider.io/wendys-workers-will-lose-jobs-to-robots-2016-5

 

[Mindmaster]

Well, saving sounds good. BUT you must be able to satisfy your basic needs, food, clothing and shelter and in this age a modicum of entertainment before you even consider saving.

Actually, it works the other way. Your savings let you afford things, but people often make this mistake.

Entertainment can be the place you waste the most of your cash. Save first, save often, get rich. It really does work that way. Even small amounts (like the $5 fee from accidentally paying bills late) become hundreds of dollars over the year. Most people bleed out tons of money on useless things. I went through my own finances a few years ago and my jaw dropped.

 

[Ouroboros]

Restaurants are figuring out how to hire fewer people by hiring more advanced workers who will do multiple jobs: http://www.toledoblade.com/Economy/...raise-prices-as-state-minimum-wages-rise.html

Walmart store closes over $15 minimum wage: http://www.breitbart.com/big-govern...almart-closes-la-stores-over-15-minimum-wage/

 

[metis]

A pattern has been noticed that there sometimes is a slight drop in employment in areas where this is done, but the in a short time hiring usually picks up again so that there not only is no net loss in the long run, there usually is some gain. People who make more money tend to spend more money: Economics 101.

 

[Ouroboros]

A pattern has been noticed that there sometimes is a slight drop in employment in areas where this is done, but the in a short time hiring usually picks up again so that there not only is no net loss in the long run, there usually is some gain. People who make more money tend to spend more money: Economics 101.

Actually, in economics, we learned that there's a balance. The cost-supply curves do play part in it. There's nothing wrong with raising minimum wage, but raising too much (however much that would be is the tricky part) would affect supply. If the cost goes up too much for a certain product, the supply will diminish. With that said, I think only certain industries will be affected by this minimum raise, like restaurants and fast food joints, kiosks in the malls, and other currently low-pay jobs. They're paying low to keep the costs low to provide low-priced products. We will most likely see more of the automated kiosks for iPhone cases, chargers and such like that have in the airports now. While most other companies won't be affected so much. For instance, I don't think Disney land will cut down on employees because of this. They can afford it. Their problem is that they can't keep people out and not buying their insanely priced tickets.

 

[Altfish]

Actually, it works the other way. Your savings let you afford things, but people often make this mistake.

Entertainment can be the place you waste the most of your cash. Save first, save often, get rich. It really does work that way. Even small amounts (like the $5 fee from accidentally paying bills late) become hundreds of dollars over the year. Most people bleed out tons of money on useless things. I went through my own finances a few years ago and my jaw dropped.

You have obviously never been poor. I can assure you it doesn't work the other way.
You start with no money, you start with no savings. At the end of the week you still have no money and no savings.
I agree, it can be argued that entertainment is a waste; but it is good for the mind and body and gives you an escape from the day to day drudgery of life on the minimum wage.

 

[Ouroboros]

Berkeley University is cutting 500 jobs, mostly because of budget cuts, but there's speculation that the $15 raise forced it to be a higher number.

http://redalertpolitics.com/2016/04/20/uc-berkeley-just-cut-500-jobs-due-15-minimum-wage/