Wed. April 3, 2013 in Washington, D.C.
The first attempt at establishing a national minimum wage, a part of 1933’s sweeping National Industrial Recovery Act, was struck down by the Supreme Court in 1935. But in 1938, under the Fair Labor Standards Act, President Franklin D. Roosevelt signed into law a minimum hourly wage of 25 cents—$4.07 in today’s dollars. Three-quarters of a century later, we are still debating the merits of this cornerstone of the New Deal. Do we need government to ensure a decent paycheck, or would low-wage workers and the economy be better off without its intervention?
Cato Institute Vice President for Academic Affairs, and Editor, Cato Journal
Research Fellow, Hoover Institution
Former Chief Economist to Vice President Joe Biden
Former US Ambassador, Organization for Economic Cooperation and Development
Author & Correspondent for ABC News
Cato Institute Vice President for Academic Affairs, and Editor, Cato Journal
James A. Dorn is the vice president for academic affairs, editor of the Cato Journal, and director of Cato’s annual monetary conference. His research interests include trade and human rights, economic reform in China, and the future of money. From 1984 to 1990, he served on the White House Commission on Presidential Scholars. He has lectured in Estonia, Germany, Hong Kong, Russia, and Switzerland and has directed international conferences in London, Shanghai, Moscow, and Mexico City. Dorn has been a visiting scholar at the Central European University in Prague and at Fudan University in Shanghai and is currently professor of economics at Towson University in Maryland. He has edited 10 books and his articles have appeared in numerous publications. Dorn holds a Ph.D. in economics from the University of Virginia.
Research Fellow, Hoover Institution
Russ Roberts is a research fellow at Stanford University's Hoover Institution. He is the host of EconTalk, a weekly hour-long award-winning podcast. His rap videos (created with filmmaker John Papola) on the ideas of Keynes and Hayek have been viewed over 6 million times on YouTube and subtitled in eleven languages. Roberts blogs (with Don Boudreaux) at Cafe Hayek. His latest web-based educational project is The Numbers Game where he discusses data and charts in annotated videos. Roberts is the author of three works of fiction that teach economic principles and lessons and numerous journal articles. Roberts was a professor of economics at George Mason University from 2003 to 2012. He has also taught at Washington University in St. Louis, the University of Rochester, Stanford University, and UCLA. His PhD is from the University of Chicago.
Former Chief Economist to Vice President Joe Biden
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities. From 2009 to 2011, Bernstein was the chief economist and economic adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Bernstein’s areas of expertise include federal and state economic and fiscal policies, income inequality and mobility, trends in employment and earnings, international comparisons, and the analysis of financial and housing markets. Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute in Washington, D.C. Between 1995 and 1996, he held the post of deputy chief economist at the U.S. Department of Labor. He is the author of Crunch: Why Do I Feel So Squeezed? and is an on-air commentator for the cable stations CNBC and MSNBC and hosts jaredbernsteinblog.com.
Former US Ambassador, Organization for Economic Cooperation and Development
Karen Kornbluh recently stepped down as US Ambassador to the Organization for Economic Cooperation and Development where she negotiated international Internet policymaking principles, launched a new OECD gender initiative, and championed the OECD's transition from the "rich man's club" to a global policy network focused on working with developing countries and emerging economic powers. She previously served as policy director for then-Senator Barack Obama, as deputy chief of staff at the US Treasury Department, and in a number of roles at the Federal Communications Commission including assistant chief of the International Division and Director of Legislative and Intergovernmental Affairs. She has been awarded a number of fellowships including a visiting fellowship at the Center for American Progress and a Markle technology fellowship. She founded the Work and Family Program at the New America Foundation for publications including the New York Times, the Washington Post, the Atlantic Monthly, and the Harvard Journal of Law and Technology.
75% voted the same way in BOTH pre- and post-debate votes (17% voted FOR twice, 53% voted AGAINST twice, 5% voted UNDECIDED twice). 25% changed their mind (3% voted FOR then changed to AGAINST, 0% voted FOR then changed to UNDECIDED, 4% voted AGAINST then changed to FOR, 2% voted AGAINST then changed to UNDECIDED, 5% voted UNDECIDED then changed to FOR, 11% voted UNDECIDED then changed to AGAINST) | Breakdown Graphic
The "black hole theory" of the minimum wage:
Physicists theorize that inside a black hole the laws of physics breakdown. When the minimum wage falls far enough below what the market would bear the laws of supply and demand breakdown. Doubling today's federal minimum wage should lead to a disproportionate explosion of demand for the goods of minimum to median wage paying employers.
If we cut today's minimum to median wages in half that wouldn't help McDonald's or Wal-Mart, would it? This wage cut must already have taken place when we would need to triple today's minimum wage to catch up with doubled productivity since 1968 (almost quadruple the early 2007 minimum wage -- the median wage stagnated as productivity doubled too).
Doubling today's minimum wage to $15 an hour would add 50% to Wal-Mart's wages but only 5% to Wal-Mart's prices – 100% to McDonald's wages but 33% to McDonald's prices. $15 an hour being today's median wage, half the workforce would get raises percentage multiples of pass through price increases.
This win-win effect could not go on forever. At $30,000 a year consumers would buy a lot more fast food and retail items than they will at $15,000 a year – hugely pent-up demand. Going from a $30,000 year minimum wage to $40,000 would raise prices (3% at Wal-Mart; 11% at McDonald's) but not add much to demand – though some people would have more money to spend -- a wash? Somewhere in between is the edge of the black hole.
News flash Robert: Not only can you not raise a family of 4 on MW, you can't even take care of YOURSELF! I am so sick or hearing people who make significantly more than those who earn the MW offer their thoughts on why we should get rid of it. All of the arguments against it are academic. All of the arguments for it are based in REALITY, not in some economist's mind. I have an idea. With the gap between rich and poor bigger than any time since the 1920's, lets take more from those who can most afford it, not those who can least afford it!! That seems obvious to me.
Summary of arguments against MW:
1 It tends to raise prices
2 It tends to create unemployment
3 It encourages immigration of illegal workers
4 It encourages emigration of jobs
5 It encourages kids to drop out of school early
6 It leads employers to provide less training
Summary of arguments for MW:
1 You cannot raise a family of four on MW
It is true that one cannot raise a family of four on MW, but if someone is on MW, should s/he have a family of four, or 6 or 8 for the rest of us to raise?
Even economists don't get too upset over these arguments because they know that when the wage gets too high, labor will be replaced by capital, i.e. workers will be replaced by machines - elevator operators, service station attendants, waiters (to some extent) There are numerous examples of this, the latest one being replacing checkout clerks with self-checkout. rbm
I like to look at the minimum wage as a limit like other limits the government makes on environment and safety. Will we let people take jobs below the safety standards - just to have a job? It would be "their choice" and "freedom".
The question is will we allow business to take advantage of people at ANY level that person will agree to? So if you are down on your luck they can pay you almost nothing?
I think "civil society" dictates certain minimums of safety and reasonable pay - which allows a certain level of safety in survival AND has been proven IF people are payed too low an income we allow businesses to employ people and have those people supported by the state and federal government through other programs as we see with low paid workers at Walmart and such.
The laws of physics are deterministic, people are not.
An interesting statement was made that 19 states have minimum wages above the federal minimum wage which provides one of the few hopes for measuring long term effects.
The context of the debate was the FEDERAL minimum wage. If the Federal minimum wage were abolished, there would be a wide variety of State minimum wages in place or enacted. Many higher, many lower, some not at all. After a period of time there would be enough comparative data for states to compare with neighbors and make better judgement on the right wage policy in their state. If the goal is figuring out, over the long term, if a particular wage policy helped low wage workers wouldn't you want this data to be collected and this policy experiment to be tried at a smaller scale than at the Federal level?
At what point is a fair wage, as you describe it, controlled by functions outside of the worker's control? Things like owner's/shareholder's wages, market stability, and product cost interference from a slave wage using competitor. Low skill workers will not have the opportunity to excell on a consistent basis. This has been demonstrated with our current rate of upward mobility which is far below other developed nations.
History has shown that as long as there is an excess of workers, wages will drop. At the turn of the last century demonstrated this so well, that policies such as minimum wage, OSHA, and social security were all put in place to protect labor from their employers.
I need to be shown that more jobs will equal an increase in the standard of living before I can support this measure.
We might agree on what should be a livable, dignified wage, but a *fair* wage is one consistent with the value a worker contributes to his/her employer. If wages are artificially increased the point where the cost of a job exceeds the economic value an employer derives, it makes no sense for that employer to preserve that job or create it in the first place. The MW kills low-skill jobs and, perversely, it is unfair to the most vulnerable workers -- businesses will survive without them. The MW limits opportunities for first-time workers, very low-skill people, and even folks who just want a lightweight or fun job that won't exist at MW.
Helping to ensure a dignified living wage for all working people is a noble goal, but the MW is simply the wrong approach because it causes catastrophic harm to some of the very people it's intended to help. It's much better to ensure that all folks who want to work have opportunities to do so, then to help working poor families with programs such as EITC to supplement incomes.
Something that I did not see in this debate was the effects upon standard of living for the society. The reason this law came about in the first place was because of the use of the poor and unskilled workers which drove downward general wages but employers.
If the wages are lower with the redaction of minimum wages but employment rates are higher, will this cause a significant drop in cost of living that would allow a larger percentage of people to enjoy a higher standard? Will this create a more stable economy that will put less stress on the working classes and thereby increase productivity? Or will we have an ever increasing number of businesses that use the Walmart Method of paying low wages and then relying upon government safety nets to allow their employees to survive?
Do the supporters of of this idea, to remove the minimum wage, also see the development of unions to be a free market solution to wages; or will they percieve them as a threat to the negotiating power of business versus worker?
The argument made by the abolish advocates is that some employees are not worth 7.25 an hour. I find that offensive. The minimum wage is a statement, by a self respecting society, that no employee, no matter how 'unskilled' is worth a minimum amount. There are no jobs in this country worth say, $4.50 an hour. I cannot think of a job or task whatsoever in this country where a worker should make less than the current minimum, and even that is far too low.
And economics isn't physics, nor is it a natural science. Econ 101. Heck, it's almost laughable to put economics on the same plane as some of the "softer" human sciences.
A US minimum wage, a simple yes or no question. Not so fast NPR.
Those opposing (or in favor of) a US minimum wage have at least three "attached" Siamese questions central to the minimum wage question.
Wage price is a function (minimally) of hours, working conditions, and/or employer, profession/craft, an cultural discrimination.
My guess is that those opposing a US minimum wage also oppose any regulation of hours, working conditions (eg) health/safety/place...or wage regulation based on employer discrimination based on age, sex, race, even competence "source" (school vs workplace.)
Without a minimum wage employees are dependent on the "charity" of employers or patrons/customers. Minimum food service worker 2010 hourly wage in Texas is $2.25 something. You figure. Without minimum wages (government, profession, union, association set) perhaps US lawyers, legislators, physicians, artists, journalists, teachers...should come with a begging cup?
The US minimum wage question/discussion is generally linked to (prospective) employee "skill competence disconnect." The measure of the skill disconnect is most generally "indirectly explained" (eg) education level documentation and unspoken race, age, gender, place of residence employer profiling.
Minimum US wage price should be driven by occupational performance excellence in real time-place doing (eg) making, operating, performing, fixing/repairing/puzzling, real services provided. And not a function of indirect/questionable measures (eg) diplomas, grade point averages, SAT scores, schools attended. Again, workplace skill performance excellence is defined in actual doing, making, repairing, performing.
As long as the US marketplace/US and Global employers depend services provided by employees making/doing in unregulated-minimally regulated: wage price, working conditions, socially discriminatory locations the "Should the US have a minimum wage?" question is hollow. Full stop.
>>>Adam Goul wrote: "you're treating the 'law of demand' like the 'law of gravity'."
In economics, the Law of Demand has exactly the same sort of objective status as the Law of Gravity in physics.
And you cannot get around either one simply by passing legislation.
G, you've missed the mark significantly, in spite of your attempt to sound like you know what you're talking about.
You and Jai observe that negotiating power is a key factor in determining wages, as if this is a novel point being missed. But this is simply another way of stating that because the supply (of labor) is smaller than the demand, the price will be low, a point which is clearly made within the debate. In fact, it is the crux of the matter. As is noted by the proponents of the motion, when you artificially price a product or service (again, in this case labor) higher than the supply/demand curve, more people forego that product or service because it is priced higher than they are willing to pay. Thus you are trading higher wages for the few who are willing to pay the higher wage (those who still remain above the artificial price point on the supply/demand intersection) in exchange for higher unemployment.
A couple of rebuttals to your claims. First, you note that some will be paid the absolute minimum for survival. This may be, but so what? Workers with no skills, experience or education need to start somewhere. Note that it is only a start, and workers who are not opportunistic loafers will inevitably see their wages increase with an increase in experience and skill.
Second, you claim that adding rungs below the current minimum wage requirements will reduce wages for even the higher paid. This is simply wrong. Already most companies offer higher-than-minimum wage starting wages for entry-level positions. Why? If they want to cut costs as much as possible, why would they pay more than they have to? Research has found that employee productivity can be increased with improved pay and benefits (e.g. Costco vs. Walmart). Adding rungs below the current bottom doesn’t change anything for these. Were they to reduce wages, they must expect a reduction in productivity, which is precisely why they offered they higher wages in the first place.
Finally, you suggest that economic activity will suffer because all value will inevitably be appropriated by the employer rather than the employee. First, that employers will appropriate all value is simply false as I have noted above. Second, the notion than excess moneys should be in the hands of individual consumers for economic growth is fallacious. The Keynesian notion of consumer spending being the primary driver of economic growth has been rejected. Research has shown that increases in consumer spending have very little impact on overall economic growth. Instead, it was found that increases in investment have the greatest impact on economic growth. Thus having employers capture all the value in the employee/employer transaction should expectedly increase economic growth, not reduce it. I do not propose we take action to improve firms’ appropriation power, but you can see how your suggestions are damaging rather than helpful.
Unless employees have no mobility, firms must compete for skilled labor, and thus offer competitive wages. There are very few who would find their wages reduced due to abolishing the minimum wage. Alternatively, the research is very clear that minimum wage laws increase unemployment. $5/hr is much better than $0/hr IMO.
The politics surrounding this issue leads to a very dishonest frame for the discussion. This is because as Jai observed below, wages are not determined exclusively by a worker's marginal productivity: rather, wages are determined by productivity in conjunction with their respective negotiating power.
Any given laborer can add enormous value to an enterprise and still fail to secure a reasonable proportion of those gains in wages if they have no credible alternatives. With the currently moribund labor market even highly productive workers are frequently unable to sustain serious wage negotiations. This is why I find the arguments in favor of the proposition so tendentious, and the opposition. to a lesser extent, to have simply missed the point. With no public floor on wages, every worker's wages are impacted. How, exactly?
First, it would inevitably lead to a segment paid the absolute least amount necessary to survive in a given milieu. That's already happening to an extent through subsidies in public assistance programs- sub-survival wages supplemented by public healthcare, housing, and nutrition programs.
Second, the opportunity of a better paid workers to sustain their current wages would be significantly eroded. Nearly all minimum wage workers would have their wages cut over some period of time. More importantly, so too would those at higher wage scales, because each additional increment above the minimum wage is offered to secure more attractive workers. Remove the lowest rung in the ladder and you can imagine the effects.
Finally, paradoxically, this would lead to less economic activity despite the surfeit of labor. The deflationary pressure on wages in tension with increasing supplies of goods and services would largely cancel out with any gains accruing to profits. Until marginal propensity to spend evens out at all income levels, this simply leads to less economic activity.
None of this necessarily establishes this process as an inherently bad or good thing. That's to be determined by one's conscience. All it does is repudiate the popular fiction reprised in this discussion that minimum wage workers are necessarily low skilled, and that the abolition of the minimum wage would have no impact on the labor market writ large.
>>>Which is better, fewer workers making a living wage (minimum wage) or more workers making less than a minimum wage and can't afford the basic necessities.
Easy to answer: More workers working, making whatever they and their employers agree to.
The left's notion that every conceivable job that exists — including slinging hash and drying dishes — ought to pay the worker enough to afford a mortgage, a car, a spouse, a family, a college account for his 3 kids, nice vacations, and a home entertainment center — you know, "the basic ncessities" — is silly and Utopian. The economic purpose of low-skilled, low-productivity, low-paying jobs is to learn to show up on time with a suit and a tie and say "Good morning, Mr. or Madam Boss!" That's it. That's the purpose from the employee's point of view. When he has acquired some basic skills, he moves on to a better job that contributes more productivity to the division of labor and hence pays him more.
Until then, young inexperienced unskilled workers will live at home with mommy and daddy where their "basic necessities" are already paid for by those workers who are older, experienced, and skilled.
The left's ability to fantasize and evade reality is truly astonishing! Their ability to slide into utter cruelty while pretending to help a small subset of people is truly impressive. In the post above, Steve understands that fewer workers with a higher guaranteed minimum wage entails a lot of other workers will be unemployed and will now have a guaranteed wage of $0.00. That's obviously not OK with those workers, but it's apparently OK with Steve. I guess his response would be something like, "See? What did I tell you! Capitalism failed! We'll just have to put all those unemployed workers on welfare."
Addie: Nobody is denying the law of demand, it's an issue of redistribution and social welfare. If those individuals that receive an increase in their wages gain more utility than is lost from unemployment and employers' income transfers, then there is a net gain in social welfare. This concept is driven by the Rawlsian utility function.
It's also fair to note the panelists' comment about the semantics of social sciences--you're treating the 'law of demand' like the 'law of gravity'.
For those who think workers who only have skills which qualify for minimum wages can make a living to support a family on that wage are living in a utopia. You cannot support a family on such low skills and the solution is gain those workers skills rather than try to rig the system.
Amazing that neither Mr. Bernstein nor Ms. Kornbluh are economists, that abolishing the minimum wage is such a policy no brainer, and that arguing for a minimum wage is essentially arguing that the law of demand doesn't exist (like saying the world is flat) yet the motion still got creamed. What is wrong with these voters?
Which is better, fewer workers making a living wage (minimum wage) or more workers making less than a minimum wage and can't afford the basic necessities. No minimum wage drives a larger portion of people into poverty. It would be true that more people would have jobs, but fewer people would be able to live on what they make.
I agree that if poverty is increased, crime would also increase. This would result in taxes increasing to pay for more cops and more jails. In addition, taxes would increase to pay for such government services such as food stamps. With minimum wage a person would pay more for a service or product that they buy. Without minimum wage people would pay more in taxes. Either way, the working people would pay.
As for educating more people so that they become skilled labor, that would decrease the income of these skilled jobs because these jobs are limited and as the law of supply and demand dictates, too many people vying for the same jobs decreases their worth.
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