Opinion

Felix Salmon

The minimum-wage stimulus

By Felix Salmon
June 20, 2013

Nick Hanauer has a good idea today: raise the minimum wage to $15 per hour.

The minimum-wage intervention would kill a lot of birds with one stone: it’s a win-win-win-win-win-win.

First of all, most simply and most cleanly, it would immediately raise the incomes of millions of cash-strapped Americans — precisely the people who most need to be earning more than they’re making right now. A whopping 51 million people would benefit directly, along with 30 million who would benefit indirectly: these are enormous numbers.

Secondly, the cost to the government of putting billions of extra dollars into these workers’ hands would in fact be substantially negative: there’s a strong fiscal case for a $15 minimum wage. We currently spend $316 billion per year on programs designed to help the poor, with the lowest-income households receiving about $8,800 per year. Billions of those dollars would be saved as the workers in question saw their wages rise. And no longer would the likes of Walmart be able to take advantage of implicit government wage subsidies, whereby low-paid workers receive substantial top-up checks from Uncle Sam to supplement their direct income.

Thirdly, the move would constitute a huge economic stimulus program: Hanauer says that it would inject about $450 billion annually into the US economy every year. If you like massive stimulus but you don’t like the idea of the government paying for it, then a higher minimum wage is the program for you.

Fourthly, and crucially, a higher minimum wage would be good for employment. A $450 billion stimulus, delivered directly into the hands of the Americans most likely to spend it, can’t help but create jobs across the economy. Of course, as in any healthy economy, there will be a birth/death model: some employers will see demand soar, while others will see their costs rise and their margins shrink. But there’s empirical evidence to suggest that states which raise the minimum wage when unemployment is high — when there’s a lot of slack in the labor force — then you get faster job growth than in the country as a whole.

This is the particular genius of Hanauer’s suggestion: it’s especially effective right now, and we’re at the perfect point in the economic cycle to implement it. At the depths of a recession, a disruptive move like this can have unintended consequences. But the economy is growing now, albeit not as fast as anybody would like, which means the wind is behind our backs to a certain degree. The bigger economic problem is that employment hasn’t kept pace with economic growth: most of the gains in GDP have gone to capital, rather than to labor. A higher minimum wage would redress the balance somewhat.

Fifthly, insofar as a one-off hike in the minimum wage would be inflationary, that’s a good thing, and exactly what the economy needs. We’re well below the Fed’s target inflation rate right now, and the inflation which might result from this policy would give us a healthy short-term boost in the inflation rate, bringing down real interest rates in a world where the Fed is constrained by the zero lower bound. If you’re worried about the unintended consequences of heterodox monetary policy, then again, a rise in the minimum wage might be very helpful indeed in terms of weaning the Fed off QE.

Finally, there’s the global context. There are surely some US jobs which simply aren’t economic at $15 per hour, and those jobs will end up being lost. (In aggregate, as I say, raising the minimum wage is probably good for employment, but the extra jobs at employers taking advantage of all that extra spending aren’t going to be in the same places as the jobs lost at employers who can’t afford to pay that much.) But the point here is that the US has already done a spectacularly good job of exporting most of its exportable low-wage work. As Hanauer says, “virtually all of these low-wage jobs are service jobs that can neither be outsourced nor automated”. As a result, raising the minimum wage will result in many fewer job losses now than it would have done a couple of decades ago.

Of course, given Congressional dysfunction, there’s zero chance that this will happen. But I can easily imagine someone like Ben Bernanke reading Hanauer’s column and dreaming wistfully about how great it would be if we lived in a country where such things were possible. If we want economic stimulus, higher growth, higher employment, and higher inflation — which we do — then raising the minimum wage is exactly the kind of thing we should be doing.

Comments
37 comments so far | RSS Comments RSS

So hike the minimum wage and bring in guest workers. There is a logic in that somewhere, but I fail to get it . . . Well, maybe with the new farm bill, we can have guest workers produce the food that the US citizens buy with food stamps paid for by the taxes garnered from what’s left of the US labor force. The low end is done by foreigners, the higher end pays a tribute to the poor, and the elites can congratulate themselves during the latest charter school fundraiser.

Posted by billyjoerob | Report as abusive
 

It would be interesting to see someone (Sen. Sessions?) propose a $15 minimum wage as an amendment to the current Gang of 8 Senate bill, for entertainment value alone.

Seems a little too good to be true though. You (and the Fed) believe a little inflation is a good thing. But what happens to the price of a Big Mac when the labor costs nearly double? Maybe it will end up being more than a little inflationary. I wonder how long it will take for the new minimum wage to decline to the current one in real terms.

Posted by Dave_Pinsen | Report as abusive
 

Min wage $15/hr – some substantial number of people will stop hiring house cleaners. Or all house cleaners will become self employed, bid by the job types. All chicken processing will leave the US.

Raise restaurant costs enough, people will stop eating out. Except at the eateries run as partnerships.

The “net gain” for employment can only happen if the flows from people who see a wage increase exceed the losses to people who are fired. You do not convince this will be the case.

You also seem to forget that a large part of the service and other low wage output is consumed by classes of people who would NOT see any immediate wage increase, and might never see it.

In an environment where a very large number of people are unemployed for very long periods, constructing new barriers to employment is very bad idea.

Posted by BryanWillman | Report as abusive
 

Maybe, in the long run, raising minimum wage to $15/hr is good for employment. But, in the short run, there are sure to be major disruptive effects. Minimum wage hike translates into a rise in retail prices of all consumer goods, restaurant meals (especially low-end fast food restaurants, where minimum wage labor is a significant part of the costs). In areas where minimum wage workers are a small part of the population, the increase in retail price of the Big Mac comes without the accompanying increase in demand, which means that fast-food industry in these neighborhoods has to contract.

Posted by Nameless | Report as abusive
 

So you want literally millions of people to become unplayable and replaced with automation?

Posted by QCIC | Report as abusive
 

Great idea! Better yet, why don’t we raise it to $30/hr, or $50/hr?…Why stop at $15?

If it is truly a win/win/win/win scenario, then raising the rate even higher must be better…right?

Posted by SomeGuyToday | Report as abusive
 

I’ve agreed with Felix sometimes, disagreed with him other times, but always seen some economic logic to his points. This idea from Hannauer is economically illiterate.*

It impacts a huge swath of the workforce – per the BLS, the median hourly U.S. wage is $16.71 per hour. The 25th percentile is $10.81 per hour. So what we’ll see is a massive cost increase for labor that constitutes something on the order of 25% to 35%. The increase is significant enough that employers will try to pass on higher labor costs and, if unable to do so, try to find ways to reduce labor hours. For businesses that use large amounts of low-wage labor – large swaths of the restaurant industry, for example – the increased labor costs are enough that their businesses are unprofitable overnight unless they raise prices or reduce labor.

Some combination of 3 things will happen.

Unemployment will increase because there will be a class of low-skill, low-wage workers who are basically unemployable because the minimum wage has priced them out of the labor market. (Multiple mechanisms for this to happen – some will be process improvements or capital investments that remove labor, some will just be that people no longer purchase certain services.)

Massive inflation will inflate away the impact of the minimum wage increase, so in real terms $15 per hour drops back to something like $8 or $10 per hour in current dollars and thus there’s no increase in living standards for those at or near the minimum wage.

The third alternative, if that inflation doesn’t happen, is that off the books work will increase to the level of southern Europe and Latin America as employers and employees conspire to pay for work below the minimum wage.

So, we can get all that, followed by commentators like Krugman blaming the mess on insufficiently loose fiscal and monetary policy with hardly a word about structural issues in the economy. (Though that’s a bit unfair – I think that Krugman would acknowledge that such a big minimum wage increase would increase unemployment and provide an incentive for large-scale evasion.)

*I am well aware of the debate among labor economists about whether increased minimum wages do or do not reduce employment. These studies, however, have focused on changes that are relatively modest in terms of the number of workers impacted and where the minimum wage is set compared to the median wage. $15 per hour is 90% of the US median hourly wage, and a massive increase from the current federal minimum wage of $7.25 per hour. Some states are higher, but the highest state is $9.19 (Washington state). There are a handful of cities higher than that, with the highest being San Francisco at $10.55.

Posted by realist50 | Report as abusive
 

If raising the minimum wage to $15 an hour is win win etc. then I say let’s raise the minimum wage to $85 an hour. Why settle for small benefits when we can have big ones?

Posted by solotar | Report as abusive
 

Why stop at $85 an hour, I say make it $850 an hour!

If it wasn’t apparent before, it’s now clear who dipped themselves in the I’m-a-liberal-glow-in-the-dark-sauce today.

Posted by Twinkbait | Report as abusive
 

Is there a minimum wage in America right now? In Canada it’s between $10.50-$12.00 depending on which province – hard to see America trumping that. $10 minimum wage sounds more reasonable – $15 is wishful thinking and most likely more problematic than ANY of the benefits that Felix lists.

Posted by CDN_Rebel | Report as abusive
 

Felix,
As a loyal reader of yours for some years I wonder if I could persuade you to write up a clarification. Realist50 is spot on that the massive repricing of labor Nick Hanauer suggests and you support would lead to an abrupt change in the amount of us labor demanded by the global marketplace.

You seem to be proposing to replicate the GM/Chrysler/Delta/USAIR/Continental outcome on a national scale.

Tell us you want the doubling of minimum wage to happen over a period of 10 years or something like that? Please?

Posted by y2kurtus | Report as abusive
 

We could arguably use a higher minimum wage — as Felix writes, low-wage employers are effectively subsidized by our social safety net. Not clear that $15 is the right figure.

But it is in no way a win-win-win situation. It is a redistribution of income from capital to labor, bad for those business owners who rely on cheap labor to pad their profits. Interesting to debate, but let’s call it what it is.

Posted by TFF | Report as abusive
 

That would reduce Walmart’s profit to zero. The stockholders might let it slide for a year or two. It would be something to see.

Posted by jdmeth | Report as abusive
 

TFF-

Its not even an interesting debate. At $15 an hour a McDonald’s has 3 employees not 10, and ditto lots of retailers. You just unemployed a done of the marginally skilled. Yes we already subsidize those retailers with our social safety net, but we need to. Their employees are not employable without that subsidy, and if you just start letting all those people starve there will be a bloody rebellion.

Much easier to buy off the plebs, and you certainly don’t need to hit $15/hr to do that.

Posted by QCIC | Report as abusive
 

Felix: Exactly how do you know that $15/hr is not above the market-clearing wage? Nick H told you? How lemmingly quaint.

Posted by GlibFighter | Report as abusive
 

@BryanWillman – “All chicken processing will leave the US.”

It’s currently cheaper to process chicken in the US than in China, so that’s unlikely.

But isn’t Felix missing a trick here? If the minimum wage hike is shifting the cost of welfare payments from taxpayers to businesses, shouldn’t we cut business taxes at the same time?

Posted by oblivia | Report as abusive
 

TFF – I don’t think that problem is really solvable, though.

The real issue is that if we’re going to have a social safety net – which we are, for good humanitarian and practical reasons – there needs to be some sort of gradual phase-out of benefits. Otherwise, the effective marginal tax rate on working can be so high – looking at loss of benefits as effectively a tax on work – that it’s a disincentive to work. I don’t see that a $15 minimum wage even solves this problem, because there’s still the potential for part-time work and programs tend to means-tested based on total income, for obvious reasons. Someone working part-time 1,000 hours per year at $15 per hour obviously makes the same amount of money as someone working 2,000 hours per year at $7.50 per hour. (BTW, the ability to keep government benefits will be another incentive for an employee to work off the books at less than $15 per hour.)

y2kurtus – you raise a great point. Most of the labor impacted is in non-tradable sectors, but certainly not all of it. Not long ago, Felix was criticizing starting U.S. manufacturing wages in the $10 to $12 range. I would also predict that some currently non-tradable sectors would become more tradable if this higher wage wasn’t counteracted by inflation or widespread evasion. Retiring to somewhere outside the U.S. would look a lot more financially attractive to upper middle-income retirees, to take one example.

As for automation, that’s a cost benefit analysis that looks dramatically different when wages are at least $15 per hour versus less than $10. I could foresee, as an example, that self check-out lanes at supermarkets become the default option, with a fee charged to a customer who chooses to go to an employee instead.

Posted by realist50 | Report as abusive
 

You can’t run a McDonalds on a staff of three. Employment would definitely fall, but not by nearly that factor. The rest would be made up through higher prices and lower margins.

Realize that there are very few industries which rely universally on the minimum wage. Within those industries there are some employers that pay (somewhat) higher wages while others rely on careful management/training protocols to get acceptable results out of the least skilled segment. Higher wages would blow up McDonalds and Walmart, at least as presently constituted, but they would improve the position of their higher-cost and higher-wage competitors. And yes, costs would increase for consumers, though by less than you might think.

I would not support $15, but I could get behind $10. We’re already paying workers that, we are just making up the difference from the public purse.

Posted by TFF | Report as abusive
 

TFF, you can’t run a current McDonalds with current levels of production/output. Shut down the dining area (because it’s no longer economical to pay people to clean the restrooms or wipe down the dining tables. Keep the drive through open and serve half the customers at twice the current price. That’s how you run a McDonalds with 3 people and that’s pretty close to what would happen if you move the hourly wage floor to $15. Self checkouts becoming the norm is an excellent example of the marketplace walking away from labor who’s cost exceeds its value.

You are absolutely correct that the public purse is being overused by employers (large and small) who could afford to pay another 1-2$/hour but don’t have to because the supply for unskilled labor exceeds demand by a wide margin. If you want to boost the minimum wage walk it up slowly at twice the level of inflation for a few years.

Posted by y2kurtus | Report as abusive
 

I think minimum wages in most parts of the country should be increased to a level where they do not require indirect subsidies. Maybe $15/hr is too much in most places, but barely above poverty in some cities. So many people want the unemployed to take minimum wage jobs, but they can’t live on them, so what’s the point?

Local and state governments end up subsidizing employers who pay the minimum wage in many places, because those workers don’t pay much (if anything) in taxes and they require financial assistance. What value does a minimum wage employer add to a local economy, when nobody can afford to live on it?

If minimum wage jobs disappear because a business is not viable at $12/hr and that $12/hr is half eaten by low end housing, should we care? Do we want to create an economy where we drive incomes as low as possible? Is that the mark of a great nation? I thought people wanted to live in a country with an ever rising standard of living, not one where we try to get as many people as possible to work for as little as possible.

Jobs that pay less than the poverty level are not worth keeping. They only benefit the owners of the businesses that are able to employ people who get government assistance (who, ironically, complain the loudest about that kind of spending).

McDonalds pays its workers more than $5/hr. They wouldn’t cut their workers by 2/3, or even by 1/2, if the minimum wage was increased. The owners’ profits might be reduced if the wage in increased, but I’d rather that than have to spend more tax dollars on public assistance. And if fast food restaurants go out of business, great, we’ll save money on health care.

Posted by KenG_CA | Report as abusive
 

So you guys want to take a system where the private sector bears 40% of the burden of supporting the poor and turn it into a system where it bears 0% of the burden of supporting the poor (because the will be unemployable). That sounds great!

There is not magically going to be more stuff if you raise wages that much. You will just get a combination of inflation and unemployment and be right back where you started, except with more people out of work and the economy even more automated.

Posted by QCIC | Report as abusive
 

@QCIC, you are badly confused about what it means for a job to be “uneconomic”.

When the minimum wage is $7/hr, and unemployment is high, it is not economic to pay somebody $10/hr for unskilled labor. You have a cheaper alternative. There are a few employers who will strive to pay a living wage regardless, but they are few and far between. The large corporations have no soul.

But if the minimum wage is $10/hr, then that cheaper alternative disappears. You may still have other alternatives, such as automation, moving manufacturing overseas, closing shops, or reducing staffing levels, however all of these also carry costs. In many cases the job CAN’T be automated or moved overseas, the shop is highly profitable even at higher wages, and the staffing is already minimal. Then the alternative becomes some combination of lower profit margins and passing the cost along to consumers.

Again, in any industry there is a diversity of employers. The large corporations have very fat profit margins partly because they have found ways to take advantage of low-cost labor. Smaller businesses often pay higher wages already — they would benefit from their competition losing that advantage.

Yes, there would be some shop closures, and a portion of the higher wages would be passed along to consumers, however every dollar in additional wages is a dollar that the government doesn’t need to spend on social programs. These individuals are heavily subsidized by the public.

And much of the additional cost would come out of corporate profit margins, from operations that would remain wildly profitable even at much higher wages. Please don’t try to sell me a sob story.

There is not magically going to be more stuff if you raise wages, but the stuff produced will be distributed differently. More to labor, less to the corporate shareholders. That strikes me as a fine idea, within reason.

Posted by TFF | Report as abusive
 

I’m writing a book on how to work for free successfully….but, I can’t finish it because they shut off my electricity…!

Posted by rikfre | Report as abusive
 

I agree with everything you said TFF, but feel you are REALLY soft-peddling the “You may still have other alternatives, such as automation, moving manufacturing overseas, closing shops, or reducing staffing levels, however all of these also carry costs. In many cases the job CAN’T be automated or moved overseas, the shop is highly profitable even at higher wages, and the staffing is already minimal. Then the alternative becomes some combination of lower profit margins and passing the cost along to consumers.”

We agree some portion of the jobs would just be replaced with more equipment or outsourcing. And we agree the remainder would come out in lower prices and higher profits.

So far that is two negative outcomes out of three.

Plus you are going to drive inflation elsewhere. In my major metro area a well educated college grad makes roughly $15/hr. Do you think they are going to settle for that when that is the minimum wage? No. So then we might not hire them at all.

Right now we have a commitment to pay a living wage of $17/hr at my work. Does that mean all the secretaries make $17 an hour? No it means we make do with no secretaries and more professional staff (because each one spends 20% of their time being their own secretary).

So our self imposed minimum wage has probably destroyed 8 $8-10/hr jobs and created 1-2 $25/hr jobs. Maybe you see that as a good thing. I don’t.

Many people really have a hard time generating $15 dollars of surplus value an hour, and I think it unwise to make them unemployable.

Posted by QCIC | Report as abusive
 

“We agree some portion of the jobs would just be replaced with more equipment or outsourcing. And we agree the remainder would come out in lower prices and higher profits.”

Yes. I agree that it isn’t a win-win situation. It is absolutely a redistribution of wealth from capital (especially corporate capital) to labor. Whether or not you believe that is positive depends on how you feel about the structure of the US economy right now. Corporate profits are at record highs — is that a good thing?

Note also that if you adjust for inflation, the minimum wage was $8-$10 through the sixties and seventies. We may have had a different employment structure at the time, but it isn’t at all clear to me that it was less healthy.

BryanW mentioned house cleaning services — yet if you hire a cleaning service, you are already paying $15-$25/hour. Presently half of that goes to the employee and half of that goes to the franchise. Raise the minimum wage to $15 and self-employed cleaners are suddenly able to compete on price (instead of merely competing on reliability and quality). The same houses get cleaned (better) at the same price, but labor ends up with a much greater share of the proceeds.

Or consider the article from the Harvard Business Review last year:
http://hbr.org/2012/01/why-good-jobs-are -good-for-retailers

You can hire a large number of unreliable low-cost workers, or you can invest in a smaller number of productive moderate-cost workers. Corporations can make the former work, as they have the resources to establish “foolproof” systems and protocols (except for when the fools beat the systems — google “taco licking good”). Yet give them a structure in which they are paid fairly and valued, and you’ll find that they are capable of generating much greater surplus value.

“In my major metro area a well educated college grad makes roughly $15/hr. Do you think they are going to settle for that when that is the minimum wage?”

I was discussing a minimum wage of $10, which is a figure that has historical precedent in the US, matches practice in Canada, and is well below the starting wages that a college grad can expect. I do agree that this is an idea that can be taken too far.

What kind of business has one secretary for every $25/hr employee?!? (And what kind of secretary can you hire at $8/hr!!!) If the choice is between hiring every $25/hr worker a personal $8/hr secretary, and asking every $25/hr worker to spend 20% of their time on secretarial chores, then I can see why the latter makes more sense. I have trouble envisioning how the former would work under any circumstances.

Posted by TFF | Report as abusive
 

“Keep the drive through open and serve half the customers at twice the current price. That’s how you run a McDonalds with 3 people.”

Are you serious?!? First, nobody is going to pay $10 for a Big Mac. Second, you can’t even run a drive-through McDonalds with a reduced menu with three people. That’s typical staffing for a donut shop, with on-site food preparation limited to toaster ovens and coffee makers.

Third, McDonalds runs a 20% EBITDA profit margin (on their company-operated stores). Other fast-food chains are even higher. Typical cost structure for a restaurant is 1/3 food, 1/3 labor, and 1/3 capital/overhead/profit. (If anything, the big chains squeeze the first two items.) Raising the minimum wage by 37% from $7.25 to $10 would not double prices. It wouldn’t double labor costs. It wouldn’t even increase labor costs by 37%, since some of workers already make more than the minimum wage (or work in states that have a higher minimum wage). It is obvious that McDonalds could and would continue to be profitable with a $10 minimum wage EVEN IF THEY DID NOTHING DIFFERENT AND DID NOT RAISE PRICES.

And yes, I agree that there would be small changes. They might restructure their duty rosters to cut hours by 10%. They might increase prices by 10%. But the one thing that is absolutely certain is that they wouldn’t completely abandon their business model and turn into Dunkin Donuts. That simply wouldn’t make economic sense.

Meanwhile, the small lunch shops that already pay (and charge) 10% more than McDonalds would see their business boom, as they become more price-competitive. Inflationary, possibly, but I refuse to see that as a bad thing!

Corporations suck life out of the economy. Why are we so desperate to push business their way?

Posted by TFF | Report as abusive
 

“If you want to boost the minimum wage walk it up slowly at twice the level of inflation for a few years.”

Sure, that makes sense. Abrupt changes are usually unnecessary and disruptive. Walk the minimum wage up by 10% per year for four years, then index it to inflation.

Posted by TFF | Report as abusive
 

This isn’t terrible satire, but it’s missing a punchline. I’m afraid people will mistake this for a serious suggestion.

Posted by Mar10 | Report as abusive
 

@ TFF…. as you know we agree on 90+% of virtually everything. I cede to your point that not all mcdonalds would alter their business models to that of starbux and DD (both of which have a higer return on equity and sales per square foot than MCD.)

The following sentences are goofy:
“Corporations suck life out of the economy.” -I’ll just leave that red rant alone…

“You can hire a large number of unreliable low-cost workers, or you can invest in a smaller number of productive moderate-cost workers.” -SO NOW IF YOU COULD JUST GO AHEAD AND TURN ON YOUR MACHINE TO TURN UNRELIABLE LOW COST WORKERS INTO MORE PRODUCTIVE WORKERS YOU’VE GOT THIS WHOLE INEQUALITY THING WHIPPED!!!

Posted by y2kurtus | Report as abusive
 

**“Corporations suck life out of the economy.” -I’ll just leave that red rant alone…**

Elaborating on that — when corporate profit margins are at a record high, and corporate taxes are at a record low, and corporations are not reinvesting their profits in growth, you get a deflationary economy that dies a slow death under burgeoning debt.

In the 70s the pendulum swung too far towards labor and entrenched unions, but you surely can’t avoid the conclusion that it has swung too far in the other direction.

**SO NOW IF YOU COULD JUST GO AHEAD AND TURN ON YOUR MACHINE TO TURN UNRELIABLE LOW COST WORKERS INTO MORE PRODUCTIVE WORKERS YOU’VE GOT THIS WHOLE INEQUALITY THING WHIPPED!!!**

Yes, exactly! That is what I do for a living. Haven’t found a way to automate it, though, and I don’t think you will. Like most jobs, there is no replacement for the human touch.

Posted by TFF | Report as abusive
 

In some larger cities black unemployment rates of the 16 to 25 year olds is 75% !!
If these people can’t find work under the current system how is raising the minimum wage going to help them?
It won’t. Even fewer employers will be able to hire people.
There shouldn’t even be a minimum wage law, period.
The government has no more business setting the price of doughnuts than it has setting the price of a person’s labor.
Every single time the minimum wage goes up, more people lose their jobs.

Posted by smg45acp | Report as abusive
 

Raising the basic salary sound good, but it will be catastrophically in long term. It will raise the inflation, and the overall prices of all goods.

Posted by JamesTorres | Report as abusive
 

Comments like “Many people really have a hard time generating $15 dollars of surplus value an hour” abound here. They ignore the fact that there is no intrinsic absolute value to labor. Those $8/hr “plebs” are unemployable at $10 or $15/hr only in an economic system where the 1% have to suck up as large a share of the income and wealth as they do in the US nowadays. That share is a decision, not a law of nature. A $15 minimum wage is meant to change that decision, and the people arguing against it dare not speak their actual opinion: that they like the current distribution just fine so please don’t change it. 90% of us would be very happy to see a more even distribution of wealth and income in the US, and a $15 minimum wage is a great way of moving in that direction.
Rich people love money so much that they will never tire of figuring out clever ways to make some, even if it’s under a system where they have to pay people $15/hr, and have to settle for less than way too much. If McDonald’s becomes an impossible business model, the entrepreneurs and capitalists involved won’t sulk off to the beach to collect driftwood; they will find other places to lead, create, and invest. You can make the argument that they will go to other countries to do so, just as at present the US is a magnet for enterprising, ambitious, and already rich people from around the world. But what rich people don’t seem to understand any more, is that after the society reaches a certain level of inequality and social immobility, we non-rich people hear that argument and think “meh– don’t let the door hit you on your way out.”

Posted by Fulicasenia | Report as abusive
 

“You can’t run a McDonalds on a staff of three”

But you can run a Subway with a staff of one. One thing I noticed as I drove across the country, relocating from Maryland to California, is how many small out of the way towns, that did not have any fast food outlets, had a Subway. I attibute this to the fact that if you don’t have to clean stoves and deep fat fryers, and all you are doing is making a sandwich, it is very easy to have only one employee.

Posted by sacramentodan | Report as abusive
 

McDonalds also does 5x the business per shop that Subway manages. There are many food service models — you can run a large cafeteria on a dozen staff. McDonalds is not necessarily the most efficient in terms of labor-hours, however it operates almost exclusively on very-low-skill labor. Working in Subway requires more customer interaction and greater care with the food than working in McDonalds.

From a societal standpoint, I would prefer to encourage a model in which employers invest in their employees rather than dumbing down the job until it can be completed by trained rats.

And Fulicasenia puts it well. The world wouldn’t end if the minimum wage were $15/hr. Yes, it would be inflationary (but those earning the minimum wage would still come out ahead). Yes, it would reduce corporate profits (but they aren’t about to leave). It would be a redistribution and rebalancing of the wealth in our society — which 90% of the people in the country would see as a good thing.

Posted by TFF | Report as abusive
 

This poster sounds a whole lot like one of several people that I argue against just about every day on the MSNBC Newsvine Blog. Either this poster is Roy Wilson, Pro Business, or one of the other regular Republican shills there!

[quote]It impacts a huge swath of the workforce – per the BLS, the median hourly U.S. wage is $16.71 per hour. The 25th percentile is $10.81 per hour. So what we’ll see is a massive cost increase for labor that constitutes something on the order of 25% to 35%. The increase is significant enough that employers will try to pass on higher labor costs and, if unable to do so, try to find ways to reduce labor hours. For businesses that use large amounts of low-wage labor – large swaths of the restaurant industry, for example – the increased labor costs are enough that their businesses are unprofitable overnight unless they raise prices or reduce labor[end quote].

Isn’t that interesting! The median hourly wage is now 20% BELOW 1968 MINIMUM WAGE BUYING POWER against the average cost of food, fuel, rent and the average combined cost of owning a car or riding public transit!!! And you want to try to defend such a proposition???

Moreover, WHY should American taxpayers be forced to subsidize marginal businesses that pay the current minimum wage to the tune of half what those businesses currently pay in wages, in extra social service costs?

[quote]Some combination of 3 things will happen.

Unemployment will increase because there will be a class of low-skill, low-wage workers who are basically unemployable because the minimum wage has priced them out of the labor market. (Multiple mechanisms for this to happen – some will be process improvements or capital investments that remove labor, some will just be that people no longer purchase certain services.)

Against the cost of the average basket of goods and services that includes food, fuel, utility costs, health insurance, rent, and the average cost of transportation, minimum wage buying power is DOWN BY OVER 65% SINCE 1968 when the minimum wage was $1.60 per hour.

Massive inflation will inflate away the impact of the minimum wage increase, so in real terms $15 per hour drops back to something like $8 or $10 per hour in current dollars and thus there’s no increase in living standards for those at or near the minimum wage[end quote]

Roy, since the total wage cost for the average business is about 25%, then a 40% jump in wage costs will only force prices up by 10%, plus the additional half of Social Security and Medicare, which comes to another 7.65% of wages, for a total of 17.65%. If we were to double the minimum wage to $14.50/hour, doing so would result in a 32.65% rise in prices, which would still leave the minimum wage worker with a net pay increase of 67.35%, and a rate of $14.50 per hour would still be 25% BELOW the 1968 minimum wage in terms of buying power.

There will also be an increased sales tax to pay at the retail level, which will cost a minimum wage worker an extra 32.65% against whatever their local sales tax rate is. For example, a sales tax rate of 6% would yield an extra hit to income of 1.96% too. 67.35 – 1.96 = 65.39%, which would still be a healthy increase in minimum wage spending power.

[quote]The third alternative, if that inflation doesn’t happen, is that off the books work will increase to the level of southern Europe and Latin America as employers and employees conspire to pay for work below the minimum wage[end quote]

And if they get caught, they GO TO JAIL.

[quote]*I am well aware of the debate among labor economists about whether increased minimum wages do or do not reduce employment. These studies, however, have focused on changes that are relatively modest in terms of the number of workers impacted and where the minimum wage is set compared to the median wage. $15 per hour is 90% of the US median hourly wage, and a massive increase from the current federal minimum wage of $7.25 per hour. Some states are higher, but the highest state is $9.19 (Washington state). There are a handful of cities higher than that, with the highest being San Francisco at $10.55[end quote]

*In Colorado, where I have lived for the last 22 years, our minimum wage is currently $8.03, and that fact doesn’t seem to be destroying minimum wage businesses either.

Frankly, if we were to double our minimum wage we would also have to raise other bottom 80% or 90% wages too, most likely by some declining percentage below double too, which would also increase prices by less than the rate of inflation caused by a minimum wage increase too.

If we were to double our minimum wage I would personally like to see a couple of other legal changes in the offshoring of capital and both income and capital gains taxation too.

#1: We must return both income taxes and capital gains taxes to their respective 1960s-1970s rates, as doing so will force wealthy Americans, wealthy investors, and profitable corporations to reinvest the income and profit in profit-generating business and equipment at home, rather than sending such income and profit offshore, which low tax rates encourage. Doing this would also greatly increase charitable giving too.

#2: We must also enact a stiff penalty for attempting to offshore more than a certain amount of capital too. I personally don’t care if you want to buy a beach house in Aruba or even a designer yacht from Italy, within certain cost boundaries, nothing terribly limiting at all. So how about we enact a 15% tax on offshoring more than $1 million, a 25% tax on any amount offshored that exceeds $10 million, and a 50% tax on any amount of capital offshored that exceeds $25 million too?

#3: While doubling our minimum wage will also greatly increase contributions to fund Social Security and Medicare, my own feeling is that it is way past time to increase the taxable income ceiling subject to FICA taxation to $1 million instead of $113K where it is today. I also think that capital gains largess should also contribute some small percentage of their windfall too. So how about we tack-on a 2% extra FICA tax on capital gains of over $1 million and a 3% extra FICA tax on capital gains of over $10 million, for a total of an extra 5% against windfall profits, just to ensure that such people do not escape contributing their fair share to fund these critical retirement and disability programs that benefit all Americans.

So Roy, there are two sides to every story, and I strongly felt that it was my civic duty to poke a few more gigantic holes in your Republican shill argument again. Moreover, if every wealthy American flees before such laws are enacted there will still be several more wanna-be wealthy Americans waiting in the wings for their chance to work really hard to accomplish their dreams too, so another of your shill talking points is full of holes too.

Perhaps what has been wrong with America over the past 40 years is that wealth addiction has increasingly destroyed the ability of the average Americans family to survive economically? If so, wouldn’t the vast majority of us be better-off without our wealth addict crowd?

What is worse for America, a dope addict who might steal your purse or burglarize your house to feed his addiction, or a wealth addict who might destroy the local economy of dozens of cities and towns, as well as grossly misuse taxpayer-provided bailout funds, to buyout and move an entire industry offshore, just to marginally increase the value of his stock holdings, without a care in the world as to the additional human misery that his addiction causes?

And Mitt Romney also tried to launder his 9-figure profit on offshoring Delphi through his wife’s and kid’s offshore trusts, and you view him as some kind of hero for doing so???

If a kid that sticks-up a liquor store for $100 can get 10 years in the joint, what penalty would you feel appropriate for some wealth addict who destroys over 100,000 jobs in America and not only earns 9 figures doing it, but also rapes the US taxpayer for a huge bailout too, and then attempts to circumvent our tax laws by attempting to illegally offshore his profit too?

I personally feel that America would be far better off without people like this endlessly trying to destroy our standard of living for their own personal gain.

Old Timer – 88224 (MSNBC Newsvine)

Posted by TruckerMark | Report as abusive
 

The problem is that Felix, like a lot of people, are ivory tower folks on this. A $15 min MIGHT work in the Northeast and West Coast, but would cause catastrophic destruction in the rural Midwest and South. And, I wish anybody else who “expertly” comments on this issue would not do so until having lived in said areas themselves. (I’m assuming Felix hasn’t.)

This lack of informedness then carries elsewhere. I’ve had an Australian comment on my blog who simply doesn’t understand why this won’t work.

Posted by SocraticGadfly | Report as abusive
 

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