In yesterday’s local newspaper, local business owner Alzada Knickerbocker, citing a recent National Federation of Independent Business/California study on the impact of AB 10, which would increase California’s minimum wage to $9.25 per hour in the next three years, argued that the effect of raising minimum wage would be the loss of jobs and economic productivity in the state.
“It doesn’t make sense. Jobs are the need. Why is the state leading with a proposal that will kill jobs?” she writes. “I own an independent bookstore – The Avid Reader, in downtown Davis. I’ve been here 26 years. I have eight employees – four full-time, four part-time. Half are long-term staff and half are recent hires. Because I need staff with knowledge and work experience, my new hires are compensated above the minimum wage.”
She argues, “But that’s not to say that my business isn’t affected by minimum wage levels. Minimum wage is out there and recognized by all as the base line. Candidates for work here know what that rate is and have an idea of what their wages should be relative to that rate. I must choose a rate of pay that comports with their skills above the basic minimum-wage rate.”
One the other hand, Assemblymember Luis Alejo, one of the sponsors of the legislation, noted the rising costs of gas, predicted to go up 13% this year, wheat to go up 67%, and corn to go up 60%. The overall cost of food is predicted to go up 6%.
“For the average household, that’s about $328 per family more than what they spent last year. That’s almost two weeks of take-home pay for a minimum wage workers… just to keep up with the increase,” Assemblymember Alejo said.
“AB 10 is about equity. It is about ensuring that workers can maintain purchasing power year after year. For three years, workers have struggled to get by in light of rising prices while their real wages declined 2.9%,” he said. “The fact of the matter is that raising the minimum wage will help our economy by generating more consumer spending. When minimum wage workers have more money to spend, they spend it. They cannot afford to save it.”
From the perspective of Ms. Knickerbocker, “Minimum-wage jobs are meant as a beginning, not an end. They are intended for the entry-level employee. Minimum-wage earners learn valuable lessons of responsibility that come from doing a job and working with others. They benefit, and so do our state and society.”
“Raising the minimum wage might accomplish a short-term jolt to the economy, but it ultimately will result in constricting hiring and the raising the cost of products in most industries to pay for fewer workers,” she writes. “The net effect will be fewer filled jobs leading to fewer goods being purchased, and California’s economy deteriorating rather than improving.”
But the research on this is mixed, and heavily dependent on both the assumptions and the outcome that the researcher is looking at.
Ms. Knickerbocker cites an industry-sponsored study. Assemblymember Alejo cites a study co-authored by economic professors at the University of California at Berkeley, the University of Massachusetts and the University of North Carolina, which finds that “raising the minimum wage does not eliminate low-paying jobs in either the short- or long-term.”
On the other side of the fence, Mark Wilson of Applied Economic Strategies, in a Cato Institute study argued, “The main finding of economic theory and empirical research over the past 70 years is that minimum wage increases tend to reduce employment.”
He argues that the Department of Labor found that the first minimum wage cost the jobs of 30,000 to 50,000 of the 300,000 workers who were covered.”
John Schmitt, a Senior Economist at the Center for Economic and Policy Research in Washington who has surveyed this issue since 2000, wrote, “The employment effect of the minimum wage is one of the most studied topics in all of economics.”
He says that the impact of the minimum-wage increase is counter-balanced by adjustment: “Reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners (‘wage compression’); and small price increases.”
He writes, “Given the relatively small cost to employers of modest increases in the minimum wage, these adjustment mechanisms appear to be more than sufficient to avoid employment losses, even for employers with a large share of low-wage workers.”
Likewise, a 2010 Study in the peer-reviewed The Review of Economics and Statistics, showed that traditional research approaches, ones “that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated to minimum wage policies.”
Their work focuses instead on “policy discontinuities at state borders” in order to “identify the effect of minimum wages on earnings and employment in restaurants and other low-wage sections.”
Their study finds “strong earnings effects and no employment effects of minimum wage increases.”
A recent study by Texas A&M Professor Jonathan Meer, an assistant professor of economics, and Jeremy West, an economics graduate student, finds that net job growth falls in response to an increase in the minimum wage, but that employee turnover is unaffected.
In a statement, Professor Meers said, “This makes intuitive sense: firing people is unpleasant and costly, so adjustment takes some time as employers reduce their hiring of new or replacement workers.”
What should we glean from the gluttony of contradictory findings? First, be careful when using one study to assert an effect on something as complex as the impact of minimum wage on jobs. The modeling to do a study like this properly is quite complex and small changes in methodology have huge impacts on the findings.
Second, Ms. Knickerbocker expresses a legitimate concern that business owners have.
As she points out, “Payroll is generally suggested within my industry to be 20 percent of the store’s income, the highest percentage in my budget after the cost of books at 60 percent. In that 20 percent figure is not just the employees’ pay but also health care, vacations, payroll tax and workers’ compensation. Add a cost like higher minimum wage, and I’m over that 20 percent figure.”
“How do I bring what I can pay back into line?” she asks. “Realistically, it comes down to reducing staff hours or store hours, i.e., cutting back on current employee opportunities through my store. That’s the effect on my store as it exists.”
But how is that countered against Assemblymember Alejo’s point that, while minimum wage remains flat, the cost of living goes up? That means two things. First, over time, business owners like Ms. Knickerbocker perhaps unknowingly benefit when minimum wage is held constant, even as other costs, including probably the cost of books, rise.
Second, the impact on the wage receiver is less bang for their buck. Holding minimum wage constant acts as a de facto wage reduction.
Free market advocates would suggest this is a reason to do away with minimum wage and allow the market to dictate wages.
But there is an alternative. One of the problems that may drive some of this data is that minimum wage policy is a form of punctuated equilibrium. It remains constant over a period of years, perhaps decades, and then suddenly the cost increases rather sharply.
If studies are sensitive to the immediate moment that minimum wage is increased 50 cents, then you probably will be measuring job losses. But over time, that minimum wage increase should have diminished impact, as inflation effectively wipes it out. So I am skeptical that they could find any long-term impact on job creation, given the spacing of the wage increases.
The easier way to deal with this is simply allow minimum wage to float with either inflation or the consumer price index. Creating a small way to slowly ramp up minimum wage, so that you are not looking at large chunks at a time, seems like a better way to effect the policy.
—David M. Greenwald reporting
Miss. Knickerbocker has it right. Especially hard hit by a higher minimum wage are teenagers looking for a part-time or summer job.
[i]I’ve been here 26 years.[/i]
Making her opening year 1987, in the midst of the Reagan administration. That year public benefits payments were around 87% of the poverty level, while the ‘minimum’ wage remained stuck around 78%. Meaning the ‘conservatives’ were actually paying to keep poor people out of the workforce, and business owners – as in every single time the wage has been raised – came out of the woodwork to complain.
Here’s the thing: if you can’t afford to pay your employees enough to meet their basic needs, [i]you don’t belong in business in the first place.[/i]
Many if not most of minimum paying jobs are taken by high school or college kids looking for some extra money or someone (a spouse) looking for some extra income to help with the family budget. I doubt that many are taking minimum pay jobs to meet their basic needs, and in those cases the job market will take care of itself. If an employer can’t find a good employee for what they’re offering in pay they will be forced to raise it. All this much higher jump in pay is going to do is hurt teenagers, college students and someone looking to help earn some extra money for the family budget because employers will be forced to cut back.
[i]Many if not most of minimum paying jobs are taken by high school or college kids [/i]
Wrong:
[i]Raising the minimum wage mostly benefits adults, and especially working women: [b]Around 60 percent of workers benefiting from a higher minimum wage are women[/b], and few are teenagers – less than 20 percent. [White House Fact Sheet, 13 Feb 2013].[/i]
Neutral, how many of those women are college students or a spouse earning some extra income for the family budget as [b]I had stated[/b]?
I think the accurate statement is somewhere in the middle.
This is from the Bureau of Labor Statistics.
[quote]In 2011, 73.9 million American workers age 16 and over were paid at hourly rates, representing 59.1 percent of all wage and salary workers.1 Among those paid by the hour, 1.7 million earned exactly the prevailing Federal minimum wage of $7.25 per hour. About 2.2 million had wages below the minimum.2 Together, these 3.8 million workers with wages at or below the Federal minimum made up 5.2 percent of all hourly-paid workers.[/quote]
[quote]Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly-paid workers, they made up about half of those paid the Federal minimum wage or less. [/quote]
So yes, many tend to be young. Whether they are high school or college kids, I don’t have that data.
Isn’t it interesting how the controversy “minimum” wage generates, takes “living” wage discussion completely out of the debate ?
Now that does not include those making state minimum wage higher than the federal government. For instance, that would not include anyone in California because california’s minimum wage is higher than the feds.
If you go into most service areas that are likely minimum wage jobs outside of college towns and I don’t think you find a lot of college or high school students.
But I’m left at the so what question here?
College students who work are trying to put themselves through school and avoid some of the debt. It’s not like most are working to buy extra party money.
How many in that number are servers who make minimum hourly wage but make much more because of tips?
Basic economics answers the question in this article:
When you make something more expensive, you get less of it.
Make entry level labor more expensive to hire and society gets fewer jobs for entry level unskilled workers.
But on the plus side, we get to feel more empathetic with the working class as we sip our four dollar lattes.
J. R. “make something more expensive, you get less of it.” Consider fossil fuels, only by increasingly higher prices does society get enough of it. Make the price lower, and the cost of producing petrol is below the revenue. The economics of labor and wages goes the other way, supply is of labor is so far ahead of demand for services that wages are low.
Actually, I read recently that students make up a smaller minority of the minimum-wage workforce than commonly believed (but can’t put my finger on it now.)
Those who want the government out of their wage setting business apparently think it’s just fine for the government to constantly subsidize their businesses by feeding and housing their minimum-wage employees through various programs. It seems odd for business owners to begrudge low-paid staff whose wages considering inflation have significantly fallen in recent decades.
One more look at how the minimum wage and poverty coincide: “If a ($7.25 federal) minimum wage worker is employed full-time (40 hours per week for 52 weeks), that worker would earn $15,080 annually. In 2011, the poverty threshold for a single individual was $11,702 and the poverty threshold for a family of 4 with two children under 18 was $22,881. Thus, a single full-time minimum wage worker has an income above the poverty threshold but if a full-time minimum wage worker is the sole source of income in a family of four, that family’s income is only 66% of the amount required to meet its basic needs.” [Center for Poverty Research UC Davis]
GreenandGolden, you are confusing supply and demand.
At higher wage levels, the supply of labor goes up (more people looking for work) and the demand for labor goes down (fewer employers ready to pay the cost).
Result – more unemployment.
Re: JustSaying,
“Those who want the government out of their wage setting business apparently think it’s just fine for the government to constantly subsidize their businesses by feeding and housing their minimum-wage employees through various programs.”
Great point that you bring up. Since minimum wage does not pay enough for anyone to live decently; without other government programs many minimum wage workers would be living in or on the edge of poverty; perhaps being able to afford living in a bug-infested small apartment with marginally operating plumbing and electricity. In such conditions, it is difficult for the workers to have decent hygeine or morale; so the business interests get the taxpayers to subsidize decent living conditions so they can continue to pay the workers at substandard wages.
Regarding the statistics above; I think it is common at many minimum wage jobs to give a small pay increase (about 50 cents/hr) after 6 months of work for decent performance. I think if the statistics were re-examined at a threshold of minimum wage + ~20% (~$9/hr); the number of such workers would be several-fold larger; and that the majority would be adults over age 21, and not students.
Companies in the U.S. added more jobs than anticipated last month, according to a private sector report. It is only the most recent report to indicate some, but not enough, boost in the flat U.S. economy. You can get a short term loan to help pay for your bills while waiting for the economy to rebound.
President Obam’s “State of the Union” address stay focused on how to uplift our doomed economy. One resolution that he added is the Fair Minimum Wage Act of 2013 in which the current wage will be increase up to $9 per hour from $7.25 . This is not bad at all. But we have to face the reality, business establishment will also raise the costs of services and commodities. We really need to secure our finances ([url]https://personalmoneynetwork.com/[/url])or else we will be end up poor than rats.