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What if a $1 increase in the minimum wage reduces $1 in the turnover rate, raises taxes $0.25, reduces social services, e.g. food stamps, parental services, payday loans, and other dependencies?

PeakTrader:

Some people ignore significant factors, including recessions and depressions. When the real minimum wage was above $8 an hour, roughly between 1960 and 1980, the teen labor force participation rate rose from below 60% to above 70%, and when the real minimum wage was at its highest level, in 1968, the unemployment rate for the country was 3.5%.

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Marmico

Charts:

http://research.stlouisfed.org/fred2/graph/?g=fEh

http://research.stlouisfed.org/fred2/graph/?g=fEy

The 1994 minimum wage increase did not raise the unemployment rate differential expressed as a percent between the teen rate and the overall rate; it is specifically omitted from the chart because it does not support the narrative. That is my “litmus test” of rational thinking.

FWIW, the teen unemployment rate to the overall unemployment rate ratio is roughly 3:1 across all times in the last 25 years.

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http://www.aei-ideas.org/2013/02/lets-review-the-adverse-effects-of-raising-the-minimum-wage-on-teenagers-when-it-increased-41-between-2007-and-2009/#comments

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PeakTrader

Neoclassical Synthesis

Microeconomics

Austrian economist: It’s very simple. Raising the price of labor will reduce the quantity demanded for labor.

Neoclassical economist: What about giving workers the flexibility of cash instead of fixed benefits, cutting pay for overpaid workers, raising prices only 2% for a 10% increase in the minimum wage, and all firms will have to pay at least the minimum wage to level the playing field, reduce our historically high profit margins a little, workers may stop pretending to work when we stop pretending to pay them, more productive workers will take jobs (my teen looks at any job below $10 an hour as a joke, although there are desperate people), and we can reduce the costly turnover rate substantially.

Austrian economist: Don’t bother me with details.

******

Macroeconomics

A rise in the minimum wage can increase real economic growth.

The higher wage attracts better workers, with higher reservation wages, to increase productivity.

Minimum wage workers have high marginal propensities to consume. So, a higher minimum wage increases consumption.

Only a portion of the higher minimum wage may be passed along in higher prices, because portions will be absorbed by “excess” wages of other workers and “excess” profits.

Weak or poorly managed firms will lose business or fail. However, stronger or better managed firms will gain their business, and also gain from the increased demand.

Also, I may add, a combined increase in higher wages and unemployment benefits (if unemployment rises) can facilitate a virtuous cycle of consumption-employment.

Or, the income effect may be stronger than the employment effect. to have a net positive effect on growth and employment.

******

Whose work is worth sleeping in a car and eating at McDonalds? Maybe, you want him to get another job panhandling.

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http://www.aei-ideas.org/2013/02/socrates-and-the-minimum-wage-2/#comments

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PeakTrader:

I’ll follow-up on a prior comment to show why some labor standards, e.g. the minimum wage, are needed.

I stated before:

I know someone who runs a business delivering baggage at airports.

When potential employees ask how much they can make, he says there are two or three people who make $150,000 a year.

After people are hired, they find out they actually make less than $10 a hour and quit after two or three weeks.

The owner and his son make $150,000 each.

To follow-up:

If I was advising the business (for a fee), I’d find ways to “string-along” the employees longer, e.g. say it’s a slow season or there should be some big contracts soon.

The owner and his son may be able to get $50,000 of work out of them for $5,000.

******

Also, John Dewey made a point that the Vietnam War explains the rising teen labor force participation rate. I’m sure, that’s one significant factor, among many.

Yet, that doesn’t explain why the teen labor force participation rate was much higher in the late ’70s, than in the late ’60s, when the military was at its smallest size, since the Great Depression, and the real minimum wage remained above $8.

******

John Dewey says: “I don’t believe participation in the workforce in the late 1960s and the late 1970s were much different at all.”

http://research.stlouisfed.org/fred2/series/LNS11300012?cid=32449

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Givemefreedom, the minimum wage isn’t a price control like trying to control inflation.

I would tell the boy, you can’t afford to pay rent, buy food, own a car, buy insurance, buy gasoline, etc. on $8 an hour, for a “number of years.” If you plan to mooch off your parents, other 19-year old high school dropouts will be at a competitive disadvantage.

If you don’t need a job, you can learn all you want from the electrician.

If you need a job, the electrician by offering you a low-wage either believes you’re a poor investment, there are better investments, there’s not enough money to pay you a decent wage, etc..

******

Why can’t the electrician hire him at $10 an hour part-time?

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More Debate:

http://www.aei-ideas.org/2013/02/the-minimum-wage-is-unfair-to-small-business-owners/#comments

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PeakTrader:

The (positive) income effect may be stronger than the (negative) employment effect, particularly when unemployment benefits are added to the higher wage.

“In discussing the minimum wage, Robert M. Solow, a Nobel laureate in economics at the Massachusetts Institute of Technology, recently told the New York Times, “The main thing about (minimum wage) research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small.”"

“In 1987, Robert Solow won the Nobel Prize for his analysis of economic growth.”

******

Per capita real income was $20,000 in 1968 when the real minimum wage was $10 an hour.

Yet, unemployment was 3.5% and the teen labor force participation rate was rising.

Preventing a cold is easier than curing a cold. I suspect, if the real minimum wage was $10 an hour before the 2008 financial crisis, a higher floor would’ve been placed on the economic downturn.

And, without periodic increases in the minimum wage, who knows how far the real minimum wage can fall?

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Ron:

Let's find out.

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PeakTrader:

Why wouldn’t some people make $2 an hour or less (because they had to or it worked out that way), while other people refuse to work for less than $10 an hour.

******

“Who knew it was so easy?”

What’s easy is a partial equilibrium model in a static economy.

A minimum wage may be too high or too low depending on economic conditions.

A change in wages (unlike grades) is a zero-sum game initially.

When there are massive idle resources (like in this depression), people hoard money, e.g. corporations, store it in metals, like gold, buy bonds at 1%, bury it in the backyard, etc..

Instead, idle capital can shift or income redeployed into a higher minimum wage, for consumption, and therefore production, that may be powerful enough to begin generating a self-sustaining consumption-employment cycle.

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Juandos:

OK pt I can understand the labor bit but money sitting in accounts whether domestically or in somje off-shore account or even an off-shore tax haven is being utiliized, right?

Maybe its not being utilized to its full extent…

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PeakTrader:

Juandos, I’m sure, my bank accounts are being utilized, because my interest rate is lower than inflation.

When you start or expand a business, labor and capital are needed. When a business fails or contracts, labor and capital aren’t needed.

Currently, there’s a surplus of labor and capital.

******

It’s much harder to start a restaurant today, even with a low minimum wage and an abundance of teen labor:

Subway Founder Blasts Gov’t Regulations: ‘Subway Would Not Exist’ If I Started My Business Today
Feb. 27, 2013

“Fred Deluca founded Subway in 1965…said if he tried to start the very same business today “Subway would not exist” due to burdensome government regulations that seem to continuously increase.”

******

McDonalds may be the soup line of the 21st century depression.

******

I see a lot of businesses giving more work to employees, finding ways to boost productivity, and paying more overtime.

Those workers don’t have time or are too tired to cook.

And the unemployed & under-employed? I don’t know if they’re buying fast food with food stamps.

******

They may need a job first.

I’m sure, at least one person believes that evil minimum wage, created in 1938, is why there’s been so much joblessness.

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http://www.aei-ideas.org/2013/02/todays-economic-reports-restaurant-performance-up-weekly-rail-traffic-up-and-financial-stress-down/#comments

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http://www.aei-ideas.org/2013/02/huffington-post-discovers-the-economic-holy-grail-raise-the-minimum-wage-and-economic-prosperity-will-follow/#comments

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In response to article:

http://www.aei-ideas.org/2013/02/why-naive-enviornmentalism-is-like-religous-fundamentalism/#comments

PeakTrader:

I guess, those “litter bug” commercials back in the ’70s were a waste.

Fortunately, Joe, the garbage, blow, who people perceive his time as less valuable, is getting $20 an hour to sort your trash, and may be getting more overtime.

The girl will be a job creator when she dumps her trash in the McDonalds parking lot for an illegal alien to pick-up.

We need to stop the “mass hysteria” on the War on Drugs, like the War on Crime.

A little pot smoke or pickpocketing is no big deal.

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More Debate and Comments"

http://www.aei-ideas.org/2013/02/more-challenges-to-proponents-of-the-minimum-wage/#comments

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More Comments:

http://www.aei-ideas.org/2013/02/quotation-of-the-day-minimum-wage-law-is-compulsory-unemployment-it-provides-no-jobs-it-only-outlaws-them/#comments

http://www.aei-ideas.org/2013/02/a-challenge-to-proponents-of-a-minimum-wage-of-9-per-hour-what-theory-or-analysis-justifies-that-sprecific-wage/#comments

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More Comments:

http://www.aei-ideas.org/2013/02/another-question-for-proponents-of-a-higher-minimum-wage/#comments

http://www.aei-ideas.org/2013/02/world-industrial-output-reached-a-new-record-high-in-2012/#comments

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