Jim Lippard (The Lippard Blog) argues against raising the minimum wage in Minimum wage increase: how to make the poor poorer. The argument is an old one. Lippard quotes approvingly from a Wall Street Journal article,
Although some workers benefit -- those who were paid the old minimum wage but are worth the new one to the employers -- others are pushed into unemployment, the underground economy or crime:Let's think about this for a minute. Is it true that countries with higher minimum wages have higher rates of unemployment and crime than the USA? That's the first question that would occur to a scientist who wanted to test a hypothesis.
We're having a similar debate in Canada. The troglodytes want to keep the poor from rising above their station by paying them as little as possible. Raising the minimum wage will hurt small business who, by implication, profit from exploiting the poor. Since this argument doesn't sit very well in a public forum, they resort to the same argument as Jim Lippard and his friends. Raising the minimum wage will actually harm the poor, according to them.
Isn't it amazing that there are very few poor people who support that argument? You'd think they'd be fighting tooth and nail to keep the minimum wage as low as possible so they won't lose their jobs and be forced into a life of crime!
Anyway, here's an answer from the Canadian left on the effect of raising the minimum wage [The Economics of the Minimum Wage].
The cry from business and the right that decent minimum wages come at the cost of jobs flies in the face of the simple empirical reality that countries with relatively high wage floors compared to the median do not necessarily have low rates of employment or high unemployment. The proportion of full-time workers with low wage jobs (less than two thirds of the median hourly wage) is 22% in Canada, but just 7% in Sweden and 9% in Denmark. In 2005, the employment rate (the proportion of the 15-65 age groups with jobs) was actually higher in both Denmark and Sweden than in Canada. And there is no relationship between the incidence of low wage jobs and low unemployment in OECD countries. (See 2006 OECD Employment Outlook p. 175) In short, the argument of the right that countries cannot have both a decent wage floor and high employment/low unemployment is simply wrong.Makes sense to me. The evidence from other countries suggests that a decent wage is a good thing.
10 comments :
The proportion of full-time workers with low wage jobs (less than two thirds of the median hourly wage) is 22% in Canada, but just 7% in Sweden and 9% in Denmark.
Please define "full-time," and supply similar numbers for part-time workers in those countries. Please also specify the median hourly wages in those countries.
Is it true that countries with higher minimum wages have higher rates of unemployment and crime than the USA? That's the first question that would occur to a scientist who wanted to test a hypothesis.
True. It also so happens that many US states have state-mandated minimum wages that are substantially higher than the federal minimum wage. So I imagine the second question that would occur to such a scientist is "is it true that US states with higher minimum wages have higher unemployment and/or crime rates among unskilled workers?"
Well, is it?
"In 2005, the employment rate (the proportion of the 15-65 age groups with jobs) was actually higher in both Denmark and Sweden than in Canada."
The Swedish "employment rate" is faked, since it counts unemployed people put in studies or on temporary jobs created for that very purpose. The real numbers have been about twice the official ones.
Since artificially raising wages hurts an economy, it shouldn't be done lightly. But the alternative with directed support is worse. We can't starve people, or leave them locked into a hopeless situation.
Check the blog "Angry Bear" for this; also Atrios has weighed in on it -- they're economists. Basically, the anti-minimum wage argument is BS. This Angry Bear post is one of many (a search will turn up lots of minimum wage posts there). Bottom line: actual measures don't turn up this problem, or at best show a very slight problem, along with big benefits for low wage workers.
Basically, the anti-minimum wage argument is BS.
I didn't get that from the Angry Bear post. It says that the conservative argument against the minimum wage clearly will become valid if the minimum wage is raised too high. But no one knows how high is too high because we aren't there yet.
So, suppose that the proposed figure of $7 and change turns out to be too high. Would you minimum-wage-raisers admit the mistake and wind the minimum wage back down?
Wolfwalker asks,
So, suppose that the proposed figure of $7 and change turns out to be too high. Would you minimum-wage-raisers admit the mistake and wind the minimum wage back down?
In 1974 the federal minimum wage was $2.00 an hour. It rose to $5.15 by 1997 and the proposal is to raise it now after 10 years at that level. In some states it is over $7.00. Did you oppose all those hikes on the grounds that it would lead to an increase in unemployment? Would you and your troglodyte friends be willing to admit that you made a mistake when you tried to keep the poor in a perpetual state of poverty by using a silly unproven argument?
"the anti-minimum wage argument is BS"
I assume you mean Lippard's argument ("make the poor poorer"), not mine ("hurts an economy"), since Gorski at Angry Bear argues against arguments like Lippard's.
I'm not well versed in national economy, my claims here rests solely on a claim I heard that I can't support, that long-time statistics show that democracy and free markets has improved the economy fastest, especially for the very poorest (and very richest, of course). So I tend to see disturbances in free markets as bad in general by observation, and should be well motivated either economically or socially.
Now, there exists in economic theory what I think economists call elasticity effects, that comes between my claim and Lippards. (Gorski mentions decreased absenteeism and increased morale, for example.) It may be that a specific disturbance can be beneficial for the weakest parts of an economy, but I seriously doubt it.
Gorski suggest a way to quantify this, which I think is an excellent idea. The measure I don't agree with, because it doesn't look at the total economical situation for the workers (and the society at large), which the aforementioned elasticity makes important. But it's better than flying totally blind.
I have no problem with a minimum wage increase.
Professor Moran: "Is it true that countries with higher minimum wages have higher rates of unemployment and crime than the USA?"
I would doubt (without having done the number crunching) that national differences in minimum wage are strongly related to either unemployment or crime. (However, I would expect crime and unemployment to be related.) But such figures are readily available, so this would be easy to investigate for someone with statistical software and some time on his or her hands. Wikipedia has (or could point one towards) a lot of the relevant data. Also see Nationmaster.com.
I think you may be surprised to learn that compared to other Western nations, the United States does pretty well in terms of GDP per capita, minimum wage, living standards (including modal and distribution), unemployment, and crime, including many forms of violent crime (with the exception of homicide rate of course) and other economic and quality of life indicators (including professional career advancement for women and opportunities for immigrants). Yes, the United States has its problems, some of them quite serious, but so does Europe and Canada.
Global Trends in Crime (2003)
http://goliath.ecnext.com/coms2/summary_0199-2687232_ITM
"Overall crime (homicide, rape, major assault, robbery) and property crime ... By 2000, overall crime rates for the U.S. dropped below those of England and Wales, Denmark, and Finland, while U.S. property-crime rates also continued to decline. ...
* Rape. In 1980 and 1990, U.S. rape rates were higher than those of any Western nation, but by 2000, Canada took the lead. ...
* Robbery has been on a steady decline in the United States over the past two decades. As of 2000, countries with more reported robberies than the United States included England and Wales, Portugal, and Spain."
crime rate comparison
http://en.wikipedia.org/wiki/Crime_in_the_United_States
Are mass shootings at schools a uniquely American phenomenon? (the 'Bowling For Columbine' thesis)
http://www.cbc.ca/news/background/school-shootings/
EU unemployment
http://en.wikipedia.org/wiki/Economy_of_the_European_Union#Unemployment
"The unemployment rate in the European Union in January 2006 was 8.5%, however the rate varies by member state, the lowest rates are in Denmark, Ireland, the Netherlands and the United Kingdom at 4-5% to over 15% in Slovakia and Poland, this compares with 4.1% in Japan and 4.7% in the United States"
Minimum wage international comparison
http://en.wikipedia.org/wiki/Minimum_wage
Canada: "The lowest general minimum wage in force as of January 2007 is that of New Brunswick and Alberta (C$7.00 an hour), the highest is that of Nunavut (C$8.50 an hour)"
The Canadian dollar is currently worth about 0.85 of the US dollar.
Canada's unemployment rate is higher than the United States'.
Economy of France (note minimum wage and unemployment)
http://en.wikipedia.org/wiki/Economy_of_France
A comparison of the US and Canada, including economy, by a website that advocates union between the two countries (a cause that I do not endorse). However, it does cite the sources so the figures can be checked.
http://www.unitednorthamerica.org/simdiff.htm
I asked first, Larry. You haven't even answered the questions I asked in my first comment. Why should I turn my attention to answering your loaded questions, and so let you dodge out of answering my quite objective and practical ones?
If you want to improve the plight of the lowest paid workers across the board (including those making more than current and the new minimum wage), it would be far more effective to reduce payroll taxes or increase the Earned Income Tax Credit.
Increasing minimum wage is supported by employers like Wal-Mart which already pay above minimum wage, because it works to their benefit, by increasing the labor costs of their smaller competition. Ironically, it is those who argue that Wal-Mart is destroying small local businesses who also support minimum wage increases.
Federal minimum wage increases have historically carved out exceptions for American Samoa and the Northern Marianas Islands (which have their own local minimum wage laws, which are considerably lower than the U.S. federal minimum). Various states also have differing minimum wages, which allow for a more accurate comparative study then comparing different countries which have many more confounding factors.
This new minimum wage change still carves out an exception for American Samoa, but not for the Northern Marianas (though those islands will be given a longer time to phase in the new requirement). The effects of the change on unemployment will be smaller in locales where the change in relation to the current minimum wage is smaller; larger where the change is larger. But is there really any doubt that there will be an effect?
So let me ask all you pro-government-types a pointed question: Now that minimum wages are higher than they they previously were, has poverty been eliminated? Or more to the point: why do you imagine the minimum wage must constantly be increased?
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