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PeakTrader:

The most rigorous empirical models show an increase in the minimum wage up to some level has little or no effect on employment.

Here’s another theory in Wikipedia:

“An alternate view of the labor market has low-wage labor markets characterized as monopsonistic competition wherein buyers (employers) have significantly more market power than do sellers (workers)…Such a case is a type of market failure and results in workers being paid less than their marginal value.

Under the monopsonistic assumption, an appropriately set minimum wage could increase both wages and employment, with the optimal level being equal to the marginal productivity of labor.”

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Hans says: “is not labor subject to the law of supply and demand…”

Yes, up to a point. There’s an imbalance between those with money and those without money.

Prices don’t equal wages, and widgets don’t equal workers.

People respond to incentives. And, the law of supply and demand excludes income and inputs.

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How does the law of supply and demand explain income and inputs?

Uncertainty can create disemployment.

When the minimum wage is actually raised, the uncertainty will be eliminated, and every small business will compete on a level playing field.

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I agree with these ideas by economists:

“The argument that minimum wages decrease employment is based on a simple supply and demand model of the labor market. A number of economists (for example Pierangelo Garegnani, Robert L. Vienneau, and Arrigo Opocher & Ian Steedman), building on the work of Piero Sraffa, argue that that model, even given all its assumptions, is logically incoherent.

Michael Anyadike-Danes and Wyne Godley argue, based on simulation results, that little of the empirical work done with the textbook model constitutes a potentially falsifying test, and, consequently, empirical evidence hardly exists for that model.

Graham White argues, partially on the basis of Sraffianism, that the policy of increased labor market flexibility, including the reduction of minimum wages, does not have an “intellectually coherent” argument in economic theory.

Gary Fields…argues that the standard “textbook model” for the minimum wage is “ambiguous”, and that the standard theoretical arguments incorrectly measure only a one-sector market."

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Here’s a real example (also, I may add, after the increase in wages, few new workers were hired and existing workers rose to the higher standard):

There was a fast growing firm that was also very disorganized, because it was so busy. One of the recommendations was raising the starting wage from $11 to $13 an hour for all factory workers. However, management decided that was a bad idea. One reason was there were always plenty of applicants for $11 an hour, over the past few years, and of course, there was concern profits would fall, substantially.

However, roughly six months later, management raised the starting wage to $13 an hour and something miraculous happened.

Turnover rates dropped like a rock, overtime was almost completely eliminated, including six day weeks, injuries fell dramatically, hardly anyone called in sick, damage to equipment and products almost disappeared, including steep declines in reject rates, quality rocketed, morale was lifted, management no longer had to spend enormous time interviewing workers, with related paperwork and training, supervisors no longer had to cover for sick workers, to do their jobs, and had time to actually do their work, and profits increased substantially.

Experienced workers who rejected the job when they learned it was $1 or $2 less than they were willing to work for took the jobs at the higher rate. Management had much more time to manage and supervisors had much more time to supervise. So, operations became much more organized and efficient.

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

The higher wage attracts better and idle 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 may be absorbed by “excess” wages of other workers (or overpaid workers) and “excess” profits (capital as a share of GDP is at an all-time high, while real wages declined).

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.

Real wages of low income workers will rise more than real real wages of high income workers will fall, through prices. So, income inequality will be reduced.

If the economy was able to absorb a $10 real minimum wage in 1968 (which coincided with a 3.5% national unemployment rate and a much higher teen labor force participation rate), why can’t it absorb a higher real minimum wage with low-wage productivity 25% higher, and the real minimum wage 25% lower, particularly, since per capita real income doubled, profits are much higher as a percent of GDP, and the proportion of real income of the top 20% became much more concentrated, while real median income was stagnant, and then declined since 2000.

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Why raising the minimum wage is a good idea:

1. Stimulate economic growth.
2. Correct a market failure.
3. Lower production costs.
4. Raise productivity.
5. Reverse the collapsed teen labor force participation rate.
6. Expand better managed businesses.
7. Create less income inequality.
8. Reduce the saving glut.
9. Boost weak demand.
10. Create better jobs in capital goods.
11. Reduce government and parental support for low wage workers.
12. Lift morale.

The (positive) income and multiplier effects may be stronger than the (negative) employment effect up to $15 an hour.

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If politicians really wanted to help the poor, raising the minimum wage isn’t enough. Regressive and excessive regulations should be removed and reduced, along with regressive and excessive taxes, fees, fines, fares, tolls, etc., to lower the cost of living and prices, along with spurring economic growth and allowing higher wages.

Raising the minimum wage, in itself, will likely have a small net effect on jobs. However, higher real wages for low income workers mean, for example, they’ll buy more steaks at the Sizzler and fewer burgers at McDonalds. So, the Sizzler will gain jobs and McDonalds will lose jobs.

Jobs at the Sizzler, including related jobs, will likely be better jobs.

Also, I may add, McDonalds (along with dollar stores), in this depression, seems to be a 21st century version of soup lines in the Great Depression (it doesn’t seem like a depression, because the country is much wealthier compared to the 1930s; and even compared to the 1970s, living, labor, or working conditions, and environmental standards are much higher).

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Moreover, I may add, more women work at lower wage jobs, because they’re unwilling to work at some higher wage jobs, e.g. in construction, oil fields, transportation/trucking, etc.. Furthermore, women work fewer hours than men. From Wikipedia:

“Most countries in the developed world have seen average hours worked decrease greatly. For example, in the U.S in the late 19th century it was estimated that the average work week was over 60 hours per week. Today the average hours worked in the U.S is around 33, with the average man employed full-time for 8.4 hours per work day, and the average woman employed full-time for 7.7 hours per work day.”

I suspect, the average workweek of over 60 hours in the 19th century is overstated, because of frequent and severe economic boom/bust cycles, which caused long periods of unemployment for many. However, without today’s kitchen and other household appliances, women worked many unpaid hours in the 19th century.

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Steven Kopits, the labor economics literature shows raising the minimum wage has a small effect on employment:

http://www.raisetheminimumwage.com/pages/job-loss.

Without higher productivity, wages couldn’t rise and the economy couldn’t expand. How do you know low wages, in themselves, don’t reduce productivity? There’s massive idle capital. We need a lot more capital spending. That’s the point – to raise wages for low income workers, including minimum wage workers.

Raising the minimum wage reduces other production costs, e.g. turnover. So, there’s less waste in production. Overall production costs may fall from a higher minimum wage, resulting in higher income and lower costs to raise output = GDP = income; consumption + saving = income rises; and profits rise.

If teens are unwilling to work for low wages now, why would they be willing to work if wages remain low? And what about older and experienced workers? Should they stay out of the labor force just because there’s an oversupply of labor depressing wages? If you’re 25% more productive, should you be paid 25% less?

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%.

Chart – Teen Labor Force Participation Rate

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

You don’t know if there’s a saving glut in the U.S.? Affluent Americans more than doubled in the U.S. over the past few decades. They have high marginal propensities to save (see “paradox of thrift”). And, U.S. corporations are hoarding $2 trillion in cash. Moreover, there’s $2.5 trillion held in excess reserves (collecting interest) in the commercial banking system.

You don’t believe there’s an earned income tax credit or government support for low wage workers? Do you believe they can be independent on $8 or $9 an hour? How can a 20 year old pay for all of his expenses on $8 an hour, unless he lives at home or receives some support?

And setting a labor standard, e.g. a minimum wage, is not the same as unions.

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Also, I may add, the decline in the real minimum wage isn’t the only factor that caused the teen labor force participation rate to collapse. The proportion of affluent households more than doubled, since the 1970s. Why would teens work for less than $8 an hour, when they can stay at home, live off their parents (in a nice house, thanks, in part, to the homebuilding boom from 1995-06), and play with electronic gadgets, which became increasingly cheaper over the past 30 years. And, they can go to college, collect free money, e.g. grants and scholarships, or run-up debt in easy to get student loans. The opportunity cost of giving all that up for a low-paying job isn’t worth it to many teens.

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One reason employers tend to have market power is they have the jobs and many employees are desperate for jobs.

The data you cite explain nothing. Not all European countries are the same and the U.S. is not Europe.

Some European countries have more natural resources, including oil & gas reserves. So, they can afford higher wages or more government subsidies to support low income workers.

It’s possible, countries, and U.S. states, with lower minimum wages also tend to have lower tax rates and less regulation.

The U.S. has a minimum wage and U.S. per capita income is over $10,000 a year more than Germany and other large European countries.

Here’s a poll on the experts (the trend for a higher minimum wage has increased):

“Surveys of labor economists have found a sharp split on the minimum wage. Fuchs et al. (1998) polled labor economists at the top 40 research universities in the United States on a variety of questions in the summer of 1996. Their 65 respondents were nearly evenly divided when asked if the minimum wage should be increased. They argued that the different policy views were not related to views on whether raising the minimum wage would reduce teen employment (the median economist said there would be a reduction of 1%), but on value differences such as income redistribution. Daniel B. Klein and Stewart Dompe conclude, on the basis of previous surveys, “the average level of support for the minimum wage is somewhat higher among labor economists than among AEA members.”

Since the minimum wage was established, U.S. per capita real GDP has grown at a much faster rate (of course, there are other factors that contributed to faster growth).

Average annual per capita real GDP growth:

1863-1937 (75 years): 1.33%
1938-2012 (75 years): 2.44%

Source: Census data and the BEA.

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Kevin, it seems, there should’ve been an employment boom, since productivity more than doubled, while real hourly compensation was generally flat, compared to the 1970s, when the relation between productivity and real hourly compensation broke down. Yet, the unemployment rate has generally been flat, since the 1970s, and has trended higher, since WWII.

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Kevin, it’s highly unlikely a $10 minimum wage keeping up with inflation would result in millions of lost jobs. Many other variables would adjust to prevent those job losses. Whether the net effect, on the economy, is positive or negative is uncertain.

However, the evidence suggests a market failure in low wage income. So, it’s likely an increase in the minimum wage, up to some level, will have a positive effect on the economy.

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Kevin's link: http://idiosyncraticwhisk.blogspot.com/2014/05/revisiting-minimum-wage-workers-as.html

It’s amazing how someone can jump to conclusions with so little information. The only value (perhaps) is determining the “natural minimum wage” (somewhere above zero), where the minimum wage is ineffective as a policy tool.

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Baffling, yes, people are living longer. So, they can start working later. A college degree today is equal to a high school diploma 50 years ago.

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“While traveling overseas, Professor Milton Friedman spotted scores of road builders moving earth with shovels instead of modern machinery. When he asked why powerful equipment wasn’t used instead of so many laborers, his host told him it was to keep employment high. If they used tractors or modern road building equipment, fewer people would have jobs was his host’s logic.

“Then instead of shovels, why don’t you give them spoons and create even more jobs?” Friedman inquired.”

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Anonymous, an Austrian economist once said:

“What do you call a person whose labor is worth less than the minimum wage?:”

“Permanently unemployed.”

My reply was:

Under 16 or disabled.

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Also, I may add, the same Austrian economist stated: “One’s understanding of the minimum wage law in particular (and price controls in general) is an extremely accurate litmus test for basic economic literacy. Anyone who doesn’t understand or ignores the negative consequences of government-mandated price controls like the minimum wage has flunked the most basic economic literacy test, and cannot be taken seriously.”

My reply was: It’s not that economists who favor raising the minimum wage (many of them top economists, including Nobel Prize winners) don’t understand supply & demand, it’s that many economists who are against the minimum wage live in a vacuum and are void of the knowledge how the other 99.9% of economic forces interrelate and interact.

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PeakTrader:

The labor force participation rate of men has been falling, since at least the 1950s:

http://research.stlouisfed.org/fred2/series/LNS11300001

The labor force participation rate of women has been rising, since at least the 1940s, and began to decline after 2000:

http://research.stlouisfed.org/fred2/series/LNS11300002

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