SB 1090 is not the bill the Raise the Minimum Wage Coalition would have written. We think the 10 employee carve-out is unfortunate and confusing. We wish the raises started earlier, but we still support swift concurrence by the House.
Rank and file reps on both sides of the aisle are likely to be confused about what to do with this piece of legislation. As a person who has been deeply involved in this effort for the last year, I urge them to support swift concurrence for SB 1090 in the House.
It's a compromise but it's one we can live with. The Raise will apply to the overwhelming majority of low wage workers. The timeline is slow, but it's better than nothing, which is what we might get if we try to fiddle with it more. It will be January before you know it.
Please call your local Representative with the same message. "Please support concurrence on SB1090 this week!" You can look up your local legislator at The General Assembly's site or at Project Vote Smart. If you don't know the Plus 4 on your zip code, go to the Zip Code Finder.
Underway
The GOP Conservatives are trying to torpedo $7.15 in the house right now. They are very tenacious. Calls are still needed. Time is running out.
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BradyDale OnLine
Why Not Expand the Earned Income Tax Credit?
How would you respond to the position that an expansion of the Earned Income Tax Credit would be a much more effective and equitable way of helping the working poor than raising the minimum wage?
EITC
I didn't notice this until just now. DanielUA's take is pretty much what I'd say. I'm all for the EITC, but it's hard for people to make the connection between work and the EITC when the money just comes once a year.
And still a lot of people don't know about it. And the way a lot of them find out about it is by going to paid tax-preparers who scam them out of most of the money anyway.
No, we should just give them the money now.
Look, the fundamental problem with Capitalism at the lowest level is that workers aren't paid on productivity but replaceability. A business can be making money hand over fist, but if the work is easy and the workers easy to replace, they will get paid diddly.
We have to protect against that and show that, as a society, all work is valuable. People can get as self-righteous as they want about people just needing to "get a job," but the fact of the matter is that for many people work so barely pays that it's hard to justify getting a job.
It's also not true that these very low wage workers have an opportunity to rise up. I know a guy who, sadly, has been working at a McDonald's for 10 years. He's making less than $7 per hour.
Opportunity is not what it once was, so we need to make sure people have some chance to set something aside to better themselves with.
Also, EITC presumes that the stae has that money to give up, which is a big assumption. EITC's aint cheap and state budgets are tight, even if ours was not this year.
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BradyDale OnLine
Economics
Theoretically, the EITC beats a minimum wage increase up and down. The credit pushes out the entire budget constraint for eligible workers, making the opportunity cost of leisure more expensive.
Conversely, minimum wage imposes a basement. This not only acts as a tax on businesses, but is a tax, since labor is compensated for more than it is worth in the market. I know that no one here has a problem with that per se, but it has consequences that reach beyond helping needy workers.
Dead Weight Loss, the bane present in every economist's plan, has an exponential correlation with any tax rate. This is due primarily to individuals seeking to avoid the tax. If anyone needs proof on this, I can show you the math. We need only look at France to see the consequences of poor financial planning gone ape, but the problems here are far easier to understand.
Here the Dead Weight Loss corresponds to fewer jobs, as businesses look to avoid the tax by skimping on labor. Employers ultimately hire fewer workers, preferring overtime instead.
Dan, if any data exists on raising the effective wages of workers above the limit, please point me in that direction. Of the one area I have paid attention to with a living wage ordinance--Santa Monica--I haven't heard of much upward pressure on wages generally. It may simply be too soon, given that it was passed in June 2004.
The following I say with no moral judgement whatsoever, merely as an economic argument: a stigma is a good thing. Just as with food stamps, the stigma of the program works to the program's benefit. If people have no problem going on food stamps, then the system perpetuates itself. Here, in the case of the "humanity" argument, a low wage, or EITC check provides incentive for individuals to advance their position. Granted, this could be construed as an argument for a minimum wage hike, and is admittedly a pro-bootstrap line of reasoning. However, it is not empirical, only theoretical.
Lastly, and I promise this as most "dismal scientist" as I will get: providing a subsidy to workers from society is more efficient than providing a subsidy from the business. DWL increases with the square of the tax. This means that less efficiency losses occur over a broader base. Comparing the relative size of society versus small business owners, far less DWL is generated through the EITC.
Health, Monopsony, and Economic Shortcomings
I had little chance to play devil’s advocate this weekend, but I will give it a go:
Monopsony is a HUGE problem. For an example in many communities, one need look no further than Wal-Mart. For many municipalities, particularly in the South, Wal-Mart is the largest employer, and for several is the only place they can get a job. Wal-Mart’s abuses of workers are likely not news to anyone here, but if you haven’t already, read Ehrenreich’s Nickel and Dimed: Or (Not) Getting by in America. This is a perfect example of market perversion, about as far from perfect competition as one can get. $5.15 per hour is not enough to make rent in Georgia, let alone urban Philadelphia.
For this reason, I concede that the minimum wage is necessary, and even inadequate; however, after research, I still dispute increases as the best tool for combating poverty.
I grew up in California, where the minimum wage is $6.75. Every summer, I worked manual labor jobs, and made close to $10 for a couple. Had I not been living at home, I would have been in trouble, as were many of my co-workers. Why? The effective wage is far less than $6.75:
‘"The relative value of the minimum wage has fallen by nearly 20 percent," says Heather Boushey, an economist with the Center for Economic and Policy Research. "These families are already living at the bottom, and you're talking about families who didn't have a lot of frills to begin with."’
http://www.northjersey.com/page.php?qstr=eXJpcnk3ZjczN2Y3dnFlZUVFeXkyOSZ...
I apologize for the messiness of this post. I am not literate enough to clean it up, though I welcome the help from anyone willing. The article goes on to assert that the reason is due to the declining number of affected citizens:
‘But some economists say the minimum wage does more damage than good and see its diminishing value as a sign of its waning importance. After all, they say, the number of people who would be affected by the wage increase has decreased from 10 million in 1996 to some 8 million today, while average wages have risen from $12 to $16 an hour since the last hike.
In fact, they say, upping wages will only create incentives for businesses to hire fewer low-skilled workers -- which is what happened when at least 146,000 restaurant workers lost their jobs after the last minimum-wage hike, according to the National Restaurant Association.’
Percent changes from the Department of Labor are encouraging. From October 1, 1996 to the present day, the minimum wage increased 8.34%, whereas the average national wage increased over 33%. What is the reason for this disparity?
This brings me to my point. In Santa Monica, a municipality with a living wage ordinance, the wage is currently $11.50. However, this is not enough to survive in the community. A studio apartment in Santa Monica, far from the CBD, will run in excess of $1200 a month. The majority of the workers affected by the wage ordinance are forced to live in the San Fernando Valley, or San Bernadino, sometimes commuting as long as 2 hours. Particularly with current gas prices, this eats much of the wage. In addition, health care costs are astronomical, further eroding the purchasing power of $11.50. The effective wage is drastically brought down, even though the real wage goes up. This problem compounds if in fact a higher minimum wage drives up wages, as cost of living increases, inflation increases, and fuel increases.
My personal hobby horse is affordable housing. A minimum wage is necessary, but I find it far more efficient to use the government’s money for housing, while pressuring employers into providing health care for their employees. State governments around the country have recently tried to force Wal-Mart, the biggest monopsonist, to provide health care for employees. There is an economic argument for regulation over taxation; we can discuss that if anyone cares to.
Word
The first time I typed this up I timed out. Had to do it in Word. Took a lot of the flavor out.
Clarification
Completely fair, let me try again:
My point is that raising the minimum wage to combat poverty is not as efficient a tool as is looking for ways to increase the effective wage.
This was convoluted in my last post. First, after researching a little bit, I concede that minimum wage increases apply pressure on the average wage. If the average wage increases faster than the minimum wage, however, inflationary pressures drive up costs of living.
45 million Americans are not covered by health insurance. The 235 million that are are covered primarily by their employer. However, a good deal of employers do not cover their lower wage employees. Further, low wage employees value the opportunity cost of pay higher than provision.
http://www.hbns.org/newsrelease/lowwage10-01-01.cfm
Coupled with the fact that the poor often pay more for all forms of insurance than do the middle class, while paying higher interest rates, it makes moving out of poverty extremely difficult.
http://www.brookings.edu/metro/pubs/20050404_PriceIsWrong.htm
Given these obstacles, pushing general wages higher increases these costs. If average wages continue to grow faster, that means costs increase faster than the minimum wage increases, putting the poor in a deeper hole than they started in.
Instead the focus should be on helping the poor retain the money they are earning, so as to advance their position, rather than simply throwing money on the fire.
This could be done with housing subsidies to decrease commuting costs, or through shaking the big stick at employers so as to provide health benefits for minimum wage workers, at their cost. These are just a couple ideas.
Any clearer?
For some great looks at how much people really pay for health insurance across demographics, check out this Census Bureau release:
http://www.census.gov/prod/2005pubs/p60-229.pdf
The Minimum Wage Does Not Reduce Poverty
According to a paper published by the United States Department of Health and Human Services:
"Most research suggests that moderate minimum wages increases do not reduce poverty rates. [Italics emphasis in original.] . . . [M]inimum wage hikes increased poverty exits but also increased the probability that previously non-poor families entered poverty. . . . Overall the tradeoffs created by minimum wage increases, more closely resemble income redistribution among low-income families than income redistribution from high-to-low-income families."
Off of the top of my head
1) Saying to businesses that they don't have the responsibility to pay a humane wage, and instead putting the burden on the general public.
2) Many poor people miss out on the EITC altogether.
3) Waiting for a huge end of the year EITC check, as opposed to giving people money as they are earning it, seems like a bad idea. The minimum wage is far from a living wage, and people need that money to live.
4) Setting a decent minimum wage is a signal that we value each our citizens enough to pay them a humane amount of money.
5) Raising the minimum wage will probably lift wages for a lot more people than just those earning the minimum wage, and will push more people into earning enough to live a decent life, which besides being good for the wage earners, is good for the economy, and for society in general.
Uh huh
Ah, the perfect market argument, eh? Just out of curiosity, how do you feel then about monopolies like Comcast in Philly? How do you feel about the government constantly subsidizing business (like, the oil we collect, the mineral rights we literally give away, the roads we build, that whole internet thing, etc)? Think about those deadweight losses!
In fact, when the government was first putting all these "dead weights" on business, like the 40 hour work week, minimum wages, overtime pay, the right to organize, etc., was when America first became an ecomnomic power, and developed a large middle class that made the country what it is today.
And yeah, I would say you are a dismal scientist. If you think people are somehow satisfied making six of seven bucks an hour, you are shockingly out of touch.
As far as wages, and the effect the minimum wage has on other wages, I am not in town, and don't have a ton of access to the internet, so I will have to rely a little bit on others. If no one comes up with it, I will find it later.
I love the dismal science, but...
Look, I'm happy to talk Microeconomic theory all day, but I never let it get in front of the facts.
First fact: you had no facts in your post. Just theory. It's a nice theory but it doesn't hold up in front of the facts.
2nd fact: There's plenty of data that shows that minimum wage increases increase the wages of workers who make an amount near the minimum wage. Check it out. It's so well established that it's one of the reasons people argue against the minimum wage.
3rd fact: the idea that employers cut jobs when the price goes up sounds good, but it isn't born out. We are the 22nd state to increase our minimum wage. All the states that preceded us have increased employment since they did it. I have my theory on why that is, but it doesn't matter... it's a fact.
Economics does a lot of good and it's explained a lot of things, but don't argue against someone with pure theory and then tell them that they only way they can counter you is with "data."
We keep raising our Minimum Wage over time and we continue to be the economic powerhouse of the world. End of story.
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BradyDale OnLine
Economic Parables
Deggeh, the Earned Income Tax Credit (EITC) is ineffective without an inflation adjusted minimum wage. Families that the EITC had initially pushed over the poverty line after the last federal increase in the minimum wage eventually slipped back below the poverty line as the purchasing power of the minimum wage declined in subsequent years.
Deggeh wrote:
You are suggesting that poverty is a function of slothfulness; this is most certainly a moral judgment. It is also an ignorant and naïve point of view but please spare us all the awful comedy of painting it as an amoral argument. There are thousands of people in Pennsylvania who work hard sometimes holding down two or more jobs who find themselves a one pay check away from losing their home or apartment. There are also thousands that live quite prosperous lives. What separates them is not reducible to one group works hard and the other does not but a multiplicity of factors some measurable and some not.
Finally, you missed Daniel’s point regarding markets. Your theoretical arguments are based on an economic model called perfect competition that assumes labor is homogenous, that information is perfect, that there are many buyers and many sellers... The field of Industrial Organization in economics has long used many different models of imperfect competition in recognition of the fact that the predictions of the perfectly competitive model often do not match the empirical facts. Labor economics has been slower to come to terms with the contradiction between the predictions of its models and observed outcomes. The failure to observe the predicted job losses associated with a minimum wage increase has recently lead to the development imperfectly competitive models of labor markets that allow for employer bargaining power and thus in some circumstances for a minimum wage increase to have little or no impact on employment.
Deggeh, the economy is complex and you would do well to begin to try to explore the world that lies beyond the blinders imposed by simplistic parables you have been telling.
Facts never speak for themselves
Internet Esquire, on the posting you reference you argue that raising the minimum wage is a bad idea because the beneficiaries are not poor. The facts are that in Pennsylvania the bottom 40 percent of households (those earning less than $587 a week) account for only 16 percent of total earnings. However these same households account 46 percent of the gains from a minimum wage increase. The top 20 percent of households (those earning more than $2,272 a week) account 43 percent of total earnings. These households would pick up 21 percent of the gains from a minimum wage increase.
In both absolute and relative terms the poorest households in Pennsylvania will absorb the biggest share of the gains from a minimum wage increase. This is a very different and I would argue a much more complete picture than the one you paint of who gains. That some high income households will benefit does not detract from the overall effectiveness of an increase in the minimum wage. As I argue above the Earned Income Tax Credit is most effective when used in combination with an inflation adjusted minimum wage not as a replacement for the minimum wage.
your point is what?
Deggeh, many apologies but I read this twice and I just don't follow what you are trying to say.
A little clearer
Deggeh wrote:
There is good reason to believe that a minimum wage increase will benefit low-wage workers earning within about a dollar of the new higher minimum wage. However there is no evidence that a higher minimum wage ripples through the entire wage distribution raising all workers wages. Economists for example are not going to see their wages increase as a result of a higher minimum wage precisely because low wage workers and economists are in completely different labor markets. The model you have in your head treats all workers as the same but labor markets in the real world are highly balkanized.
There is also no evidence to suggest that a modest minimum wage increase is going to raise the rate of inflation. There is no relationship for example between housing prices in Santa Monica and the city’s living wage ordinance.
To clarify further lets look at how low-wage workers have done over the past quarter century. After adjusting for inflation low-wage workers in Pennsylvania earned $7.23 an hour in 1979 compared to $7.16 an hour in 2004. Low-wage earners here are defined as those with hourly wages above 10 percent of all Pennsylvania workers and below 90 percent of the rest of states workers. Since 1979 the earnings of low-wage workers have gone up in one of two circumstances, when the minimum wage was increased and during the unprecedented tight labor markets of the late 1990s boom.
Contrast this with the experience of high-wage workers whose inflation adjusted wages increased from $24.22 an hour in 1979 to $30.07 an hour in 2004. High-wage earners here are defined as those earning more than 90 percent of all earners and less than 10 percent.
Inflation adjusted median wages also increased from $13.19 an hour in 1979 to $14.08 an hour in 2004.
The point is that we are growing apart; workers at the top of the wage distribution are doing better than low-wage workers. One factor (not the only one but an important one) in this trend is that the purchasing power of the minimum wage is much lower today than it was in 1979. In 2004 dollars the minimum wage in 1979 was $6.99 an hour compared to $5.15 an hour in 2004. Low wage workers are not less productive today than they were a quarter century ago. It is just that they have not been able to share in the wealth created by their increased productivity to the same extent that high-wage workers have.
I do agree with you that low wage workers would benefit from greater subsidies for health care and housing but you are wrong to suggest that providing those subsidies is all that is necessary to improve the standard of living of low-wage workers. Failing to raise the minimum wage to compensate for the effect of inflation does serious harm to the family budgets of low-wage workers.
Fun with punctuation.
Internet Esquire, the article you cite is a literature review. The actual research it summarizes is a single paper by Neumark and Wascher, “Do Minimum Wages Fight Poverty?” published in the Journal of Economic Inquiry in 2002.
Internet Esquire quoting Turner who was paraphrasing Neumark and Wascher wrote:
Gotta love those cute three dots, “…” which were inserted in place of the following sentence which ends with the most beautiful seven words: “The estimated increase in the number of non-poor families that fall into poverty is larger than the estimated increase in the number of poor families that escape poverty although this difference is not statistically significant.”
Also in the original paper the following sentence immediately followed our beautiful seven words “We [Neumark and Wascher] also find that minimum wages tend to boost the incomes of poor families that remain below the poverty line.”
Empirical research by Card and Krueger (1995), and Addison and Blackburn (1999) link a higher minimum wage to a small reduction in poverty rates.
Again nobody is arguing that all you should do is raise the minimum wage but it is an important piece of an overall strategy to reduce poverty. And since Internet Esquire you did not address my earlier point I will rub it in with a link to testimony from the Center on Budget and Policy Priorities (CBPP). See Figure 2, for a discussion and illustration of the EITC pulling families above the poverty line immediately following the last federal minimum wage increase. However as time passed even with the EITC family incomes were pushed back below the poverty line as the purchasing power of the minimum wage declined. We need both a higher minimum wage and an expanded EITC.
Internet Esquire, let me congratulate you for having the courage to call yourself a libertarian while also supporting the EITC. It is after all income redistribution! I hope the boys still let you in the lodge or cement bunker or wherever you people socialize. Eewh! Socialize! Sorry I meant freely associate.
One point at a time
In all honesty, I expected my post to be a hot button, but I did not expect DanielUA to start unlacing the gloves. Dan, I respect the fact that you disagree. Yet if the spirit of the site truly is to inspire constructive debate and concentrate a vision for Philadelphia politics, relax.
So as to avoid confusion this time, I will illustrate explicitly this time the theory of economics, then give you my own personal take on those insights.
Government exists because of an entire branch of economics called market failures. These include concentration of market power like monopolies, i.e. Comcast. That said, government does a pretty great job at bungling any attempt at market correction, coddling where it should scold and vice versa.
Monopolistic DWL is different from taxation in that a monopoly under-produces and over charges. In the "perfect market" as you put it, a monopoly will perfectly price discriminate and there will be ZERO dead weight loss, since everyone will pay what they value the commodity for. For good reason, Monopolies are not permitted to price discriminate. This means efficiency loss. Monopolies in this case are bad.
Roads and the internet are almost perfect public goods, and should be treated as such. Roads almost exlusively are, though they can be rival in consumption. They must be provided publically because no one in their right mind would construct a road for everyone, even though the Social Benefit is incredibly higher than the Private cost. The whole net neutrality thing is very scary, in that it could make a public good entirely private. Media consolidation is an interesting corollary that shows why. Hopefully I have significantly thought about these Dead Weight Losses.
I would like to draw a parallel from economics to philosophy. Please bear with me. Modern parliamentary government was based in Mill's Utilitarian theory. However, modern Utilitarian theory dictates that if the organs from one person can save the lives of five people, we should chop him up. This is why we have deontology.
With that in mind, modern economics does not answer all of the ills present in society. It provides a useful framework from which to base financial arguments. The level of abuse of workers present in the Industrial Revolution screamed out for government intervention. Also, business had no idea how to act, since it was growing exponentially from agrarian to industrial, and no limits were in place to handle the growth.
I personally think it embarrassing that CEO's should make upwards of $100m--thank you EXXON--while their employees live in substandard housing. That is why I am a member at this site. I think, however, that living wage ordinances are not the best alternative. Please respond to the merit of the argument, as opposed to a programmed response.
um
What he said.
Huzzah!
Price: great stuff, man. I'd love to get some recommended reading on the imperfect markets stuff. I'm way behind on my economics reading. The assumption of perfect information (or anything anywhere close to that) is so laughable. It really does underlie a lot of the assertions made by mainstream economists and free-market hardliners. Very frustrating.
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BradyDale OnLine
Choir Preaching
I am standing smack in the choir. In a previous comment on this post I went out of my way to say that the minimum wage is necessary in the real world, even inadequate. Raising the minimum wage to offset inflation is a good thing. Raising the minimum wage solely to eliminate poverty is a bad thing.
As far as the pressure on the average wage goes, you got me. One of the drawbacks from writing at work is an inattention to detail. When looking for the average wage, I should have verified it was exclusively in the lower wage labor market. Point taken.
My point in Santa Monica is not that the labor market and housing markets are connected, but rather that a living wage will not necessarily buy you housing in the area you choose to work, particularly in Santa Monica. Yearly income before taxes at $11.50 an hour is $23,920. At $1200 a month, rent is $14,400 a year. 23k is above the federal poverty line, but is it enough to live on in Southern California? Need based help is the only way to increase the effective wage in this situation.
With respect to productivity, I wonder how much of those productivity gains result directly from technology gains. In the A(F)Y,N,I sense, how much has the productivity of minimum wage workers increased--that is to say--output per worker, over the past 27 years? I think its fair to attribute salary gains for the top 90% to technological advances. When I was digging trenches for a living, we used the same spade, pick, and flat shovel our foreman bought in '83.
I think this has a lot to do with the purchasing power of the minimum wage. These jobs have remained similar. Jobs requiring technological knowledge have seen pay increases. This could explain median low wages increasing, while minimum wage decreases in 2004 $.
This is not saying that I see pay equity. With monopsonic employers, wages are undervalued, and someone is always exploiting some labor market. For this reason, minimum wage increases are important to ensure pay equity. But for combating poverty, you haven't budged me that subsidies and insurance requirements are a better way to go.
Undervalued
Here's some theory for you. See, I can do both!
Your assertion that workers who make the minimum wage are paid at an overvalued rate is insupportable. When workers are forced to accept a wage that's too low because it's that wage or misery, they are being paid an undervalued amount at the metaphorical barallel of a gun. Which has a cost to society, but that's not my point. The point is that it's an undervaluation.
I know what you're thinking. Whatever the market will bear is the correct value of a product.
If you really believe that, you should have a look at Amartya Sen's work, then. You'll find that Sen has shown that famines usually are not the result of actual shortages, but perceived shortages that lead to price hikes. People pay unbelievable amounts of money for food, because it's that or starve. If a pound of wheat cost $20 because market perception were all fouled up, would you call that a correct valuation?
The low wages of the most powerless workers is the inverse of the same situation (in the US case, to a lesser degree, but just as bad in third world countries). People accept an undervaluation of their work because they are forced to by the need to survive.
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BradyDale OnLine
Hi Brady
You are too kind. Thanks to you, John and all of your colleagues for the very hard and time consuming work of pushing forward the minimum wage increase.
Mark Price of KRC.
not light reading
Monopsony in Motion : Imperfect Competition in Labor Markets by Alan Manning. Not light reading but very good.
who says I take the fun out of a thread
Deggeh wrote:
Ok you can be in the choir. To be fair most progressives on this site agree in principle on the need for universal health care, better housing subsidies, better mass transit, more access to day care and pre-k, more effective job training in addition to raising the minimum wage. Nobody is arguing that raising the minimum wage is the only thing we can or should do. However like the items I just mentioned it is a critical piece of a strategy to raise the standard of living of low-wage workers. You and I do apparently agree it should be higher and perhaps we should leave it at that.
Deggeh wrote:
Is your experience in low-wage construction generalizable to all low-wage work? I certainly don’t think so. Even when it comes to digging trenches there are labor intensive methods and capital intensive methods to dig a trench. Indeed construction is rich with examples of technological innovations which have raised productivity dramatically without raising wages. Think of the nail gun, it has revolutionized home building and yet wages in that sector remain relatively low.
Let’s be clear low-wage workers in Pennsylvania make less today than they did in 1979. So low-wage workers are less productive today than they were in 1979? Hard to believe. I’m willing to bet that high-wage workers have more bargaining power and thus are able to capture a greater share of the gains from increased productivity.
I am highly skeptical that most of today’s low-wage job are the same in terms of their structure, skills and capital as they were 25 years ago.