Help me understand the impact of a $15 minimum wage?

[Anonymous]

Anonymous wrote:Manchin will end up supporting this because for his constituents, its a huge boon.

That said, in places where this has happened at the local level, like Seattle and DC, it has has zero impact on job growth and opportunities.

What is your source?

This headline, “Sen. Joe Manchin (D-W.Va.) said Tuesday that he does not support increasing the minimum age to $15 an hour - a critical roadblock to including the proposal in the final coronavirus relief bill,” was widely reported in multiple news sources just yesterday.

[Anonymous]

Hearts and flowers, OP!

[Anonymous]

Anonymous wrote:The argument that I hear from those opposed to raising the minimum wage is that it will cause employers to cut jobs.
However, it seems to me that the main impact is that it would cause pressure to raise wages for those currently making between $7.50 and $15 an hour.
Someone who currently makes $15 an hour isn’t going to be happy to find themselves as a minimum wage worker.

So if wages increases, inflation will increase causing those who will be making the new minimum to have roughly the same standard of living as they do now.
At least, that’s how it would seem to play out to me.

Can someone who has a better understanding of economics explain why raising the minimum wage wouldn’t significantly increase inflation, thus negating the benefit of a higher salary.

While wage increases do have a positive correlation with inflation, this is only meaningful in a large economic context. During economic boom cycles, unemployment decreases, wages increase in order to compete for dwindling labor supply in order to address strong consumer demand. This strong demand shifts the demand curve, allowing for higher prices for a given demand level. The result is inflation. If the wage increase is the result of regulations rather than a response to demand, then there is no inflation: increases in price will simply result in less demand. Service/product providers will have the choice of providing an inferior product/service while maintaining price; sell less at a higher price, thus requiring less labor; or figure out some other way to improve efficiency to make up for the labor cost increase.

There is a good case study with NYC car wash businesses. When NYC implemented a $15/Hr wage, carwashing by hand became unprofitable almost instantaneously. People looking for a car wash was simply unwilling to pay for the higher cost. There was no inflation in car washes. What the car wash services ended up doing is firing the hand washers and installing automatic washing machines. The car washers who lost their jobs ran "black market" hand washing service, often for less than minimum wage after you factoring in their equipment and supply costs. These black market car washers are doing the washes on public streets, draining chemicals into the sewer system without any treatment. And of course, the individual car washers are not as efficient as shops in terms of procurement, time management, energy usage, and tax remittance.

[Anonymous]

The main problem that I have with this is that the $15 number isn't based upon inflation relative to the old minimum wage or anything like that. It's a made-up number. And, yes, the result will be greater investment in automation (for example, in fast-food restaurants), some businesses closing or reducing hours, and higher expenses for unemployment and welfare programs. I would actually be OK with indexing the old minimum wage to inflation, but that is not what this does.

The other issue is that prices vary widely from one part of the US to another. An appropriate minimum wage in NYC would not be an appropriate minimum wage in Podunkville, Arkansas.

[Anonymous]

Anonymous wrote:Right now we are subsidizing those companies that only pay $7-8 dollars via the subsidies or safety nets for people living below the poverty line such as food stamps, Medicaid etc. I’d love to have the $15 champions identify what could be saved by the government and tax payers if the minimum wage goes to $15.

These are very different things.

A person's wage is determined by the economic value of his/her labor. Economic value is simply how much a consumer is willing to pay for something in a competitive market. If someone working at Wal-Mart is paid $10 an hour, that's the economic value as determined by the marketplace as paid for by shoppers of Wal-Mart. Wal-Mart is deriving only $10/hr of economic value out of this worker. It's not as if Wal-Mart is deriving $15/hr of economic value, pays the worker $10, and the remaining $5 is paid for by the government through social programs. This is simply not the case. If it was this easy, why don't Wal-Mart simply pay their store managers $10 an hour as well, and have the government "subsidize" those store managers?

[Anonymous]

Anonymous wrote:The main problem that I have with this is that the $15 number isn't based upon inflation relative to the old minimum wage or anything like that. It's a made-up number. And, yes, the result will be greater investment in automation (for example, in fast-food restaurants), some businesses closing or reducing hours, and higher expenses for unemployment and welfare programs. I would actually be OK with indexing the old minimum wage to inflation, but that is not what this does.

The other issue is that prices vary widely from one part of the US to another. An appropriate minimum wage in NYC would not be an appropriate minimum wage in Podunkville, Arkansas.

Arguably it would be because that dollar will go further in Arkansas and do more good, and lift some communities up.

[Anonymous]

This is what a $15 minimum wage job looks like

https://www.assetpanda.com/resource-center/blog/the-future-of-automated-fast-food-restaurants/A

[Anonymous]

Anonymous wrote:Econ 101 tells you that raising the minimum wage will reduce employment in minimum wage jobs, but the actual experience of raising the minimum wage is much more mixed. You can find studies that show it does reduce employment, studies that show it doesn't, and generally economists don't agree on this. I don't think there's a good way to know what will happen.

This. The conventional wisdom is too simplistic. Higher wages usually mean you can attract better employees and have less turnover, both of which can increase profitability, but not in as easily a quantifiable way.

[Anonymous]

My 50 year old white friend, who has worked for 30 years, will receive a raise to $15, from $11 per hour. Obviously doesn't live in the DC area.

Jobs I am looking for as a part time librarian, and require a master's degree, may want to increase their pay from $15-$20 an hour to a bit more. This is in the DC area!

[Anonymous]

I am a Democrat that supported Biden. But I don't understand why it seems to be $15 or nothing? Can they raise the minimum wage to $10 as compromise? The jump from 7 to 15 seems large, and concerning in terms of job loss and cost of goods. However, I do see the argument of not taking advantage of the lower paid and raising their wages. Why can there not be a happy medium proposed? I have not yet heard of a discussion of compromise.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Its not going to pass, IMO.

Joe Manchin (Senator from West Virginia) is deeply against it. His vote is critical in the Senate. $15 minimum wage requirements would be devastating to his state’s already struggling small businesses. Imagine being a small business owner, barely making ends meet, and your labor costs doubled. Businesses in high cost of living states can absorb more easily, but many service industries are against this proposed legislation. You may raise wage for one worker, but layoff two

This, or just shut down entirely. Even large corporations won't be able/willing to operate at a severe loss and may just decide to close. Anyone been following the story out of Long Beach, CA where two Kroger owned stores will shut down due to the city's new requirement to pay workers an additional $4/hr? The two stores were already underperforming and so management just decided to close them.

I have been following it. They didn't close the stores because Kroger wasn't making a profit.

"Throughout the pandemic, profits soared an average of 39% in the first half of 2020 at supermarket chains and other food retailers nationwide, according to a recent study by the Brookings Institute, a Washington, D.C.-based think tank.

At Kroger Co., the parent company of both Ralphs and Food 4 Less, profits for the first two quarters of 2020 were up 90%, according to the report. Kroger saw its net earnings for the first two quarters jump to more than $2.031 billion compared with $1.069 billion in the same period of 2019."

https://lbpost.com/news/kroger-to-close-a-ralphs-and-food-4-less-in-long-beach-after-citys-hero-pay-mandate

[Anonymous]

Anonymous wrote:

Anonymous wrote:The argument that I hear from those opposed to raising the minimum wage is that it will cause employers to cut jobs.
However, it seems to me that the main impact is that it would cause pressure to raise wages for those currently making between $7.50 and $15 an hour.
Someone who currently makes $15 an hour isn’t going to be happy to find themselves as a minimum wage worker.

So if wages increases, inflation will increase causing those who will be making the new minimum to have roughly the same standard of living as they do now.
At least, that’s how it would seem to play out to me.

Can someone who has a better understanding of economics explain why raising the minimum wage wouldn’t significantly increase inflation, thus negating the benefit of a higher salary.

While wage increases do have a positive correlation with inflation, this is only meaningful in a large economic context. During economic boom cycles, unemployment decreases, wages increase in order to compete for dwindling labor supply in order to address strong consumer demand. This strong demand shifts the demand curve, allowing for higher prices for a given demand level. The result is inflation. If the wage increase is the result of regulations rather than a response to demand, then there is no inflation: increases in price will simply result in less demand. Service/product providers will have the choice of providing an inferior product/service while maintaining price; sell less at a higher price, thus requiring less labor; or figure out some other way to improve efficiency to make up for the labor cost increase.

There is a good case study with NYC car wash businesses. When NYC implemented a $15/Hr wage, carwashing by hand became unprofitable almost instantaneously. People looking for a car wash was simply unwilling to pay for the higher cost. There was no inflation in car washes. What the car wash services ended up doing is firing the hand washers and installing automatic washing machines. The car washers who lost their jobs ran "black market" hand washing service, often for less than minimum wage after you factoring in their equipment and supply costs. These black market car washers are doing the washes on public streets, draining chemicals into the sewer system without any treatment. And of course, the individual car washers are not as efficient as shops in terms of procurement, time management, energy usage, and tax remittance.

of course what happens if we leave the minimum wage low so that the car wash people don't lose their jobs is this: since they cannot actually live on that wage, we have to pay them through social programs like welfare and food stamps. Because a person cannot work more than maybe 18 hours a day. So either we pay by paying more for the service or we pay through taxes. If we leave the wage low, we only have to pay part of their living expenses through salary. if we raise it, we have to pay more. What we cannot do is leave it low and not supplement, so that working people are homeless and without enough food.

[Anonymous]

Anonymous wrote:I am a Democrat that supported Biden. But I don't understand why it seems to be $15 or nothing? Can they raise the minimum wage to $10 as compromise? The jump from 7 to 15 seems large, and concerning in terms of job loss and cost of goods. However, I do see the argument of not taking advantage of the lower paid and raising their wages. Why can there not be a happy medium proposed? I have not yet heard of a discussion of compromise.

The current proposal is a gradual increase not an immediate jump to $15.

If opponents of $15 want to compromise, they're welcome to propose something, but they haven't.

[Anonymous]

The impact is pretty large in a positive way. Politically, its an odd ball because the states with the lowest minimum or which only follow the federal minimum wage are generally red states while the few states that have already moved to $15 are generally blue states. Even odder is that economically, the red states and their citizens would benefit the most.

- It enables workers to live above the poverty line. This reduces the amount of social services people require from the state and federal government.
- It can increase the tax revenues of states with many minimum wage workers without ever raising taxes.
-It increases the economic activity within communities. People at this end of the economic spectrum tend to spend the money on local necessities such as food, housing or perhaps a used car from a local dealership etc. It increases restaurant and entertainment activity in lower income areas. This increases local sales tax revenues.
-It increases contributions into Social Security and Medicare at a time when it is most needed due to aging boomers drawing it out.

The change has a smaller impact on blue states that already have a $15 minimum wage. Companies that have already voluntarily adopted $15 wage like Target, Amazon etc are at somewhat of an advantage because they have already built the wage increase into their business model.

In terms of negative impacts, the businesses like Walmart and businesses that are larger that 500K a year but rely on cheap labor have to change their model. This means tasing prices or taking less profits or finding other ways to cut expenses. Most of these businesses do not run with excess labor -even with the $7 minimum wage- so they can't really just cut jobs. This is the donor class that contributes to politicians, especially Republicans and one of the main reasons why you see Republican politicians so against a rise in minimum wage even though it helps their voters and state economies the most. Conversely, the donors to the Democrats tend to have already adopted the $15 minimum wage or voted for it in their own state so this is why Democrats are so supportive it even though it doesn't impact their voters or state economies as much.

Other negatives include some businesses turning more toward undocumented labor and operating outside the bounds of the law. Construction, hospitality and landscaping are examples of industries that already have a track record of this. However, its not a strong argument to avoid paying workers a living wage because industries which already flout the law may want to do it even more. Just enforce the laws in these industries.

In terms of broader impacts, inflation is not risk as the rise in wages is limited to the lowest end of the spectrum. Inflation is also being kept in check now by changes in the supply side of the equations. Things like mass and scalable agriculture, agriculture subsidies, globalization, and even Amazon have changed the models keeping the cost of goods low. Climate change factors or changes in agriculture subsidies are more likely to impact food inflation. Housing inflation is widely a local supply side issue. Energy is rapidly changing. The models from the 70s no longer apply.

One potential impact that the combination of the pandemic and a higher minimum wage may have is an acceleration toward automation. Automation is the real threat not only to unskilled labor but more so to skilled labor. Many administrative back office positions have been and will continue to disappear with automation.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The argument that I hear from those opposed to raising the minimum wage is that it will cause employers to cut jobs.
However, it seems to me that the main impact is that it would cause pressure to raise wages for those currently making between $7.50 and $15 an hour.
Someone who currently makes $15 an hour isn’t going to be happy to find themselves as a minimum wage worker.

So if wages increases, inflation will increase causing those who will be making the new minimum to have roughly the same standard of living as they do now.
At least, that’s how it would seem to play out to me.

Can someone who has a better understanding of economics explain why raising the minimum wage wouldn’t significantly increase inflation, thus negating the benefit of a higher salary.

While wage increases do have a positive correlation with inflation, this is only meaningful in a large economic context. During economic boom cycles, unemployment decreases, wages increase in order to compete for dwindling labor supply in order to address strong consumer demand. This strong demand shifts the demand curve, allowing for higher prices for a given demand level. The result is inflation. If the wage increase is the result of regulations rather than a response to demand, then there is no inflation: increases in price will simply result in less demand. Service/product providers will have the choice of providing an inferior product/service while maintaining price; sell less at a higher price, thus requiring less labor; or figure out some other way to improve efficiency to make up for the labor cost increase.

There is a good case study with NYC car wash businesses. When NYC implemented a $15/Hr wage, carwashing by hand became unprofitable almost instantaneously. People looking for a car wash was simply unwilling to pay for the higher cost. There was no inflation in car washes. What the car wash services ended up doing is firing the hand washers and installing automatic washing machines. The car washers who lost their jobs ran "black market" hand washing service, often for less than minimum wage after you factoring in their equipment and supply costs. These black market car washers are doing the washes on public streets, draining chemicals into the sewer system without any treatment. And of course, the individual car washers are not as efficient as shops in terms of procurement, time management, energy usage, and tax remittance.

of course what happens if we leave the minimum wage low so that the car wash people don't lose their jobs is this: since they cannot actually live on that wage, we have to pay them through social programs like welfare and food stamps. Because a person cannot work more than maybe 18 hours a day. So either we pay by paying more for the service or we pay through taxes. If we leave the wage low, we only have to pay part of their living expenses through salary. if we raise it, we have to pay more. What we cannot do is leave it low and not supplement, so that working people are homeless and without enough food.

We don't *have to*, we choose to as a society. This does not change the fact that the economic value of the carwashing labor is worth less than $15. If we want to affect certain social goals, it's better to implement them through social programs rather than applying heavy handed distortions to the labor market. We already use tax dollars for this specific purpose. Leave minimum wage alone.