Impact of Minimum Wage

The minimum wage debate is an old favorite.  Another very visible and clear line of disagreement between conservatives and liberals.  There are those on one side that feel we should increase the minimum wage to a level that better represents a living wage.  Other, myself included, feel that wages are best left to the negotiations of the employer and the employee.

There are all kinds of debates raging about that people aren’t able to afford to raise a family on the minimum wage.  Heck, it can be legitimately argued that you can’t raise YOURSELF on minimum wage.  Be that as it may, I don’t wanna get into that.  What I wanna look at is what the impact of the minimum wage, specifically changing it,  has on the folks earning it.

Let’s look.

Minimum wage is that dollar amount that employers pay to their most unskilled labor.  These roles in the company can often be filled by interchangeable employees.  That’s to say that if Bobby decides to leave, Bobby can be replaced with Sally virtually immediately.  Training and on-boarding costs are very low by definition.  If those costs were higher, the employer would be incented to pay Bobby more in order to avoid ‘em.  It is true then, that the employee pullin’ minimum wage is the least skilled labor in the market.  We can see what happens when labor becomes skilled even in a country of billions:

“We have responded to the labour shortage problem by constantly recruiting workers and raising wages by 20-30% compared to last year but even then it is not enough to ensure the supply of labour,” the source said in Mandarin.

So, who is it that represents this most basic unskilled worker in America?  New entrants into the job market.  And which demographic is that?  Teen workers, literally, the new employee.

So how does raising the minimum wage impact this group of people.  Well, at the most basic, labor is a commodity exactly like copper, cotton or steel.  As the price for a commodity increases, firms buy less of it.  They seek more productive uses for it or look for cheaper alternatives.  Labor is no different.  So, we could look at the unemployment rate for teens and track it along the changing minimum wage levels.  But, if we did that, we might be looking at the wrong data.  After all, unemployment, teen or otherwise, is impacted by many MANY things going on, not just minimum wage.

So, in order to better pinpoint teen unemployment changes, I look at “Excess Teen Unemployment”.  That is, I take the unemployment rate for all workers and compare it to the unemployment rate for our teens.  Subtracting the 2 gives you the excess teen unemployment.  When we track this excess unemployment against minimum wage changes, we get this:

With the exception of the times in the mid 90′s when we had a combination of a fantastic economy and stable minimum wage, we see that for every step UP in the minimum wage there is a corresponding step UP in the excess teen unemployment.  It’s a pattern that’s clear in 1990 and again as minimum wage laws ratcheted up the rate in 2007, 2008 and 2009.

As clear as clear can be we see Econ 101.  As the cost of something increases, purchasers of that something will reduce their purchases of that thing.  In this case, teen workers.  And it manifests itself in the increase of teen unemployment.  Which right now is hovering at about 15%.

So, if teens are the class of workers being employed at the minimum wage, is there a group of people even MORE dependent on this wage?  There is.  And, ironically, it’s the very group of people who I suspect folks wanna help when they fight for minimum wage increases.  And the tragedy is the absolute devastating impact those laws have on those very people it’s meant to protect.  The black teen:

The exact same pattern emerges with one crucial difference, the unemployment rate is nearly 3 times higher than the typical teen.

I have no doubt that my Liberal friends have only the most noble of intentions when they plan and institute laws like the minimum wage.  I’m sure, absolutely SURE, they mean to help folks and not harm them.  But the results of their legislation are as clear as they are horrible.  The results of higher minimum wages means that employers hire fewer folks on the margin.  These kids then are left with nothing to do and lose years, in many cases decades, of valuable on the job skill refinement.  The result to themselves is a lost lifetime of wages relegating them to poverty for much of, if not all of, their lives.

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Categories: Economics

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11 replies

  1. Good read and good point. I feel, however that you’re missing a great deal when it comes to the minimum wage.

    First, with our jobs having been jacked and sent overseas (thanks NAFTA), the minimum wage has an impact on much more than just teen workers, black or otherwise. For me when I worked at a Citibank call center and MY job got sent overseas, it was minimum wage or don’t work. You’ve missed these folks completely. Not to mention the fact that it’s taking more and more time to find a wage that’s comparable (or even comes close for that matter). This is how big business drives down the cost of labor.

    I’m sure those jobs will come back when the prevailing wage is that of a third world country, but what does that do to America? This is where I split with most conservatives because to have a strong country you have to have a strong middle class. Shrinking it so the wealthy can become more so is unconscionable, giving the wealthy tax breaks to do it more so (especially when those tax breaks have done NOTHING to stimulate job growth), and the wealthy, using what media they own to dupe the low wage conservatives into thinking what’s good for the CEOs is good for them too, is downright criminal. Paying taxes is a patriotic duty, especially when it’s the wealthy’s lobbying to change law for their benefit that’s to blame for the state in which the country currently finds itself. Tax breaks for those most able to pay them is fascism at it’s finest.

    Second, you didn’t even USE the word inflation. When inflation keeps moving and wages stand still it’s tantamount to a hidden tax on those earning the wage. In fact it’s the other (hidden) way that big business drives wages down. When inflation goes up, wages of wealthiest go up, and prices for everyday necessities (food, shelter, fuel, etc) goes up, your wage (whatever it is) does less and less. Upward mobility is a large part of the American Dream. Take that away and what do you have?

    • Good read and good point.

      Thanks.

      First, with our jobs having been jacked and sent overseas (thanks NAFTA), the minimum wage has an impact on much more than just teen workers, black or otherwise.

      I disagree. I think that very few folks that have experience earn the minimum wage. And of those that do, they very quickly get raises or promoted; or find another job.

      For me when I worked at a Citibank call center and MY job got sent overseas, it was minimum wage or don’t work.

      How long did you work that minimum wage job for minimum wage?

      This is how big business drives down the cost of labor.

      We want big business to bring down the cost of labor. This is what allows big business to offer goods and services at a lower price. Further, it allows big business to hire more workers.

      to have a strong country you have to have a strong middle class. Shrinking it so the wealthy can become more so is unconscionable, giving the wealthy tax breaks to do it more so (especially when those tax breaks have done NOTHING to stimulate job growth), and the wealthy, using what media they own to dupe the low wage conservatives into thinking what’s good for the CEOs is good for them too, is downright criminal.

      I haven’t done the analysis, but if I’m correct, the middle class is growing, not shrinking. When people claim that the middle class is shirking, they are doing so based on wage stagnation. There is nothing done in terms of total compensation or on purchasing power.

      For example, tw jobs of equally hard work each paying the same, I’ll choose the job that offers training, sick days, vacation and retirement contributions. In other words, there are many MANY ways to compensate the middle class. Wages ain’t the only way.

      I’ll leave this point by asking you a question:

      How much right do you have to another man’s property? At what point is what he earns safe from even the government? Is there a limit to legislated theft?

      Second, you didn’t even USE the word inflation.

      I don’t. But I alluded to it when I mentioned that excess unemployment trends down. This is because inflation reduced the minimum wage to virtually meaningless. It’s interesting that you would mention that as inflation renders the minimum wage impotent we see the MOST favorable excess unemployment numbers.

      • I don’t. But I alluded to it when I mentioned that excess unemployment trends down.

        Trends down during periods when the minimum wage doesn’t go up. From the early 90′s on…..

  2. When I worked that minimum wage job, I had to do it for over a year because, at the time, I lived in a rather sparsely populated area and had to travel for the bank gig. Fortunately for me I was single and had no children or mortgage or it would have broken me. I ended up moving to NYC for work after that and, after a while, even that dried up.
    You also said “And of those that do, they very quickly get raises or promoted; or find another job.” Have you been out there trying to find a job recently? It isn’t as easy as you make it sound. Right now I know more underemployed people, that is, people working and earning below their skill level/training/education, than people having a good go of it. Sometimes all that is available is a minimum wage job to try to make ends meet once the severance and unemployment runs out. It’s that, starve or the pride beating public assistance, and nobody wants to do that (well, almost). And that’s if they’ll even give you a job. Most are taking past work off their resume so they can at least make something and not be told they’re “overqualified.”

    Don’t believe the middle class is shrinking? Check this out…
    http://www.businessinsider.com/22-statistics-that-prove-the-middle-class-is-being-systematically-wiped-out-of-existence-in-america-2010-7#83-percent-of-all-us-stocks-are-in-the-hands-of-1-percent-of-the-people-1

    You can read it in the web address. 83% of all US stocks are controlled by 1% of the people. That doesn’t sound like a growing middle class to me. We DON’T want big business to drive down the cost of labor too far because then you get what we have now; jobs escaping to third world countries for a small percentage of the wage of the US worker doing the same job, and money fleeing the country by the boatload. No tariffs = bye bye jobs.

    And it isn’t wage stagnation but wage reduction. What good are cheaper products if you can’t even afford life’s essentials? Middle and lower class wages are dropping (via inflation) and the top 10% of wage earners in this country are seeing their wages grow by more than 200% in the past 5 years!

    How much right do you have to another man’s property? At what point is what he earns safe from even the government? Is there a limit to legislated theft?

    I’ll answer your questions with a question… How much is enough? 1% of the people control almost 50% of the money. Which leads me back to paying your fair share is patriotic, especially when you can afford it.

    • When I worked that minimum wage job, I had to do it for over a year because, at the time, I lived in a rather sparsely populated area and had to travel for the bank gig. Fortunately for me I was single and had no children or mortgage or it would have broken me.

      Wait. Were you young as well?

      The largest group of people who earn the minimum wage are folks who have never been married and are 16-24.

      Right now I know more underemployed people, that is, people working and earning below their skill level/training/education, than people having a good go of it. Sometimes all that is available is a minimum wage job to try to make ends meet once the severance and unemployment runs out.

      Often times losing a job can be disruptive. However, the reason folks don’t have a job is because unemployment has been extended as long as it has. If unemployment ran out at 26 weeks, people would find work at 25. Similarly, when unemployment runs out at 99 weeks, they won’t find work until week 98.

      We DON’T want big business to drive down the cost of labor too far because then you get what we have now; jobs escaping to third world countries for a small percentage of the wage of the US worker doing the same job, and money fleeing the country by the boatload.

      I think you might have it backwards. If we DID drive down wages to levels that matched other nations, those jobs would flow back to the US. For example, just today I had a conversation with a co-worker in Brazil. The whole thing should have taken 5 minutes of time. However, it took more than 35 minutes due to language and other differences. Believe me, if we could have those jobs here, we would.

      What good are cheaper products if you can’t even afford life’s essentials?

      American’s spend the least amount of their incomes on food, clothing and housing than ever before in history.

      Which leads me back to paying your fair share is patriotic, especially when you can afford it.

      In 2009 taxpayers making over $250,000 made 25.7% of all income, but paid 46% of all taxes.

      In a 2008 OECD paper, researchers found that in 2005 the richest 10% of Americans earned about 33.6% of income, but paid 45.1% of all income tax (including payroll taxes). That puts their ratio of taxes paid to income at 1.35, the highest in the sample, which included 24 developed economies. The sample average ratio was 1.11, while the next highest countries were Australia (1.29) and the Netherlands (1.28).

      http://reason.org/blog/show/americas-richest-10-carry-more-of-t

      It would seem your argument would be strengthened if you tried to make the point that the rich earn too much. You have a vastly inferior position when you try to argue that they are taxed too much.

  3. I have been working at a part-time, minimum-wage job for about nine months.

    Before March 2008, I had been a moderately successful IT professional for over thirty years. I have kept my skills up to date and have been looking everywhere, but at the age of 57, I can’t seem to get anybody to hire me for a job in my own field.

    Why Employers Avoid Hiring the Long-Term Unemployed

    Who are the 99ers?

    No, I am not advocating raising the minimum wage. Instead, I advocate getting rid of all of the tax and regulatory incentives for outsourcing and offshoring. The H-1b visa program should have been permanently ended many years ago.

    • I forgot to mention that I DID NOT wait until unemployment ran out to get the part-time, minimum-wage job. That was the ONLY work that I have been offered in over three years, and I accepted it immediately.

      Your obvious hostility to the long-term underemployed is uncalled for. You assume that we are all lazy and unqualified for anything better, but you are wrong.

      The job I took is a dead-end job. There is no possibility of a raise or a promotion in the foreseeable future, nor even of full-time employment. Yes, I am a good worker, but because I am over 55, that no longer makes any difference.

      • I DID NOT wait until unemployment ran out to get the part-time, minimum-wage job. That was the ONLY work that I have been offered in over three years, and I accepted it immediately.

        That is a testament to your character. I applaud you.

        You assume that we are all lazy and unqualified for anything better, but you are wrong.

        Not at all. However, I am convinced that a majority of people respond to incentives. Consider Denmark and how people responded to it’s changing unemployment benefit durations:

        Denmark

  4. Thank you for proving my point 1389AD. I’m sorry top hear of yet another casualty of free trade.

    I’m not talking about making minimum wage $50k a year, I’m talking about paying people a living wage for God’s sake. What does it matter how old they are or even what they do? And saying that we do want to drive down wages that far in this country is simply ignorant. If wages were that low here WE’D LIVE IN A THIRD WORLD COUNTRY! I’ll pass thank you. If you think people aren’t paying everything they make and having to borrow to make ends meet because they’re lazy or don’t want to work, you need to wake up and smell what you’re shoveling. Just because you happen to be better off than most doesn’t mean people are lazy and don’t want to work. Shame on you for being so condescending. I’m sure your tune would change if the shoe were on then other foot. Granted, there are people that take advantage of the unemployment system but, they’re the exception, not the rule. Most people I know are mortified when they have to take help and do so reluctantly.

    And I don’t care what the people making over $250,000 are paying and what percentage of the tax breakdown it may be. THEY CAN AFFORD IT! And would still be able to live better than most.

    And you never answered my question…. How much is enough? How much does one person really need to live? Especially when it’s at the expense of others.

    • I’m talking about paying people a living wage for God’s sake.

      What is a living wage?

      What does it matter how old they are

      It doesn’t.

      or even what they do?

      Cause people who hit 50 home runs are worth more to the team than someone who hits .190 and 2 home runs.

      And saying that we do want to drive down wages that far in this country is simply ignorant. If wages were that low here WE’D LIVE IN A THIRD WORLD COUNTRY! I’ll pass thank you.

      Have you ever run an organization or managed a team of people?

      I’m sure your tune would change if the shoe were on then other foot.

      Brother, I’ve walked that walk. No phone, no electricity. I’ve had the water turned off and had no heat in the winter in Minnesota. I’ve eaten Raman noodles for 3 weeks straight. Mrs. Dash is my friend.

      I don’t care what the people making over $250,000 are paying and what percentage of the tax breakdown it may be. THEY CAN AFFORD IT! And would still be able to live better than most.

      Again, at what point do you draw the line? How much of another man’s property can you take before even you would puke?

      How much is enough? How much does one person really need to live? Especially when it’s at the expense of others.

      Consider this. No one makes a trade unless they think it’s worth it.

      I don’t buy gas at the posted price unless I think it’s worth it.

      When I buy a gallon of milk, I walk away knowing that the milk is more valuable to me than the money I just spent on it. And the grocer? He too made out because of the trade. For the same reasons.

      Which means that the rich man traded something away to gain that money. And the people he traded with did so voluntarily knowing full well that they were making a good trade.

      Why do you hate the man that provides for the rest of us?

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