Do These Arguments for Raising Minimum Wage Make Sense?

July 6, 2009

I read an interesting piece in today’s Wall Street Journal about the minimum wage. The article mentions two positives for raising the minimum wage:

…many economists also see long-term positive effects for the economy from boosting the income of those at the bottom of the economic ladder. They note that many small businesses may benefit through higher productivity in the form of improved worker retention and less churn.

The Economic Policy Institute estimates that the minimum-wage increase will add $5.5 billion to the economy, and that this money is likely to be readily spent by low-wage workers, giving a boost to local economies. Heidi Shierholz, an economist at the liberal think tank in Washington, argues that “it is actually a good time” for an increase in the minimum wage.

I think those arguments are weak.

Minimum wage jobs are usually given to those with little or no experience and are often spring boards to something better down the road. Increasing their pay won’t lead to better productivity (have you visited Wal Mart lately?). Productivity increases when people are paid what they are worth.

I think the increased spending is a myth because employers who pay minimum wage are usually retailers, who must raise prices in order to pay their workers MORE MONEY to do the same job. Either that or that cut existing employees’ hours, which leads to poorer customer service.

Raising the minimum wage is simply one of those tools politicians use in order to get elected. No self-respecting politician is going to speak out against it for fear of being labeled as someone who doesn’t care for the little guy.

24 responses to Do These Arguments for Raising Minimum Wage Make Sense?

  1. it is not simply a tool for politicians use to get elected… check these arguments out….

    http://www.dol.gov/oasam/programs/history/reich/r

    and , despite an appeal to authority.. (weak, i know, but has some weight…)
    many, if not most economists, including Nobel winners support raising the minimum wage

    http://www.msnbc.msn.com/id/15227667/

  2. I think it IS just a tool that politicians use to get elected.
    It's inflationary, if not a disincentive to employment also….

  3. I'm ambivalent about minimum wage arguments. I prefer for wages and prices to be set in the open market when possible. On the other hand, I'm afraid that removing minimum wage laws would perhaps result in a more efficient economy at the expense of making a lot of poor people a lot poorer. We should always be considerate of the social costs of our decisions, even if putting a dollar figure on them is difficult. I don't have sufficient training in economics to feel confident making judgments about the more technical arguments involving wages vs full employment, etc, especially since labor markets often seem more complicated than basic supply/demand models would predict.

    I guess what I would like to see is a minimum wage more or less at the same level it is now, but inflation indexed to keep it from being such a political football. I regard this to be a conversative position; to wit, a minimum wage apparently hasn't destroyed us yet, let's not rock the boat too hard.

  4. "…and are often spring boards to something better down the road."

    Is this true? My impression is that many many people in this country struggle to support themselves and their family on minimum wage. But I would be interested to see statistics supporting either of our positions/beliefs/impressions.

  5. Greg must live in some kind of alternate universe. Back here in reality, economists are overwhelmingly AGAINST a minimum wage of any kind (let alone increasing one) because it increases unemployment. When the minimum wage is increased, some people are paid more money at the expense of other people, who are laid off. More unemployment is not exactly what we need right now, to say the least.

  6. Whoops…names appear above rather than below the comments. Sorry, Greg! I meant, actually, that omniver must be living in an alternate universe. 🙂

  7. Raising minimum wages would not help small businesses. Requiring employers to pay for health care does not help the employers. Neither of these things significantly help the employees, because their well-being depends on the well-being of those from whom they get their money. The health care especially will severely hurt employees, simply because the businesses employing them cannot afford health care and cannot make a profit if they have to pay into a system of unregulated extortionary prices. Employees hours will be reduced or they will be let go. The single most helpful thing for America and its economy is to overhaul the health care system.

    As far as boosting the economy, yes, raising the minimum wage or just plain handing out welfare checks would do that, because people who do not make enough money put every cent they have into the economy. Their aim is survival, which is not the same thing as profit or gainful employment. Also, raising wages to a still pathetic level does not increase productivity. Minimum wage workers and many others who work for more than minimum wage, like the nurses aides that care for your elder loved ones, do not get paid nearly what they are worth. Nowhere close to it.

  8. I'd venture a guess that those "economists" that favor raising the minimum wage have never had to make a payroll. Spending someone else's money is always easy.

  9. There is no way that increasing the minimum wage can add to the economy, because it does nothing to increase productivity. It only changes who is holding the money, and creates a set of winners at the expense of everyone who has to spend more for the same thing.

  10. FYI, I'm removing this blog from my reader. Lately, it's just become a tirade against all things not "conservative."

    If I want politics, I'll read a political blog. like to read personal finance blogs. I thought you and your readers should know. Thanks but no thanks.

  11. "liberal think tank"

  12. MBH,

    Don't be a sissy!

    There was nothing in my post that was politically-charged other than my statement that the minimum wage is used a political tool (which it is, you know).

    Instead of telling me that you're no longer subscribing to my blog, why don't you BACK UP YOUR POSITION!

  13. Josh wrote:

    "…and are often spring boards to something better down the road."

    Is this true? My impression is that many many people in this country struggle to support themselves and their family on minimum wage. But I would be interested to see statistics supporting either of our positions/beliefs/impressions.

    The term "minimum wage" means that it is the minimum that a company can pay their workers. That to me implies that it is the bottom rung. Those who make minimum wage for a career have decided that they are satisfied with making minimum wage because they…

    1. Either can't make more because they are mentally handicapped or

    2. Have no education (weak excuse in my opinion), or

    3. Simply don't want to improve themselves.

    When I shop in a grocery store, Wal Mart, or Target, I'm not seeing lots of people who want to get ahead. Instead, I see people moving barely fast enough so that you can tell they are moving. They are giving minimum effort and getting minimum pay. Raising the minimum wage only rewards such behavior.

    • I think "minimum wage" is a legal designation, put in place so that companies don't pay even less. I don't think of grocery store checkers as low-wage employees, and working at a grocery store or Target is not a minimum effort. If raising minimum wage rewards the behavior of being employed, it is a good thing.

      Some jobs are very necessary to the recipients of the workers, and sometimes individuals are very suited to the work, even though it doesn't pay a respectable wage. I don't think a person improves himself by abandoning a job well done, one that he is suited to, for greater pay.

      Minimum effort, on the contrary, often goes with high-paying jobs. The hard work is done by the peons for crumbs. Of course that is a general statement; there are some professions that are very hard, specialized work, that also pay big bucks. And should.

  14. Courtesy of JD (and US Bureau of Labor Statistics): "Many workers begin their post-school careers in jobs paying the minimum or something close to it, but…the vast majority of workers move on to higher paying jobs as they accumulate experience. However, there is a nontrivial fraction of workers who spend substantial portions of their early careers consistently working in minimum wage jobs. […] Less educated persons, blacks, women with young children, and workers who reside outside of urban areas are much more likely to have such minimum wage careers." (http://www.getrichslowly.org/blog/2007/10/09/who-

  15. RetiredatForty July 7, 2009 at 2:03 pm

    What is it with Republicans and the minimum wage? Every time this topic comes up, they forecast doom and business continues as usual. The minimum wage has to increase every now and then. This topic is a joke.

  16. Retired,

    You didn't answer my questions.

    Also, this isn't a Republican/Democrat issue. Both parties have voted to increase the minimum wage because they are politicians and want votes.

    Why do you get so angry over this issue? Why is it a joke? Why can't you discuss things without getting angry?

  17. I gotta say I’m with MBH on this one. From your blog header: “…budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management…”

    How does this post fit into that? Just because it’s about money doesn’t make it about personal finance.

  18. RetiredatForty July 7, 2009 at 3:38 pm

    Here is something interesting. The states with the highest minimum wages are Washington, Oregon, Massachusetts, Illinois and California. All Democratic.

    The states with the lowest, the Southern Republican states of Alabama, Mississippi, Louisiana, S. Carolina and Tennessee.

    I’d say the higher wage states are doing better from a strictly economic measure.

    Sante Fe N.M. has a minimum wage of a whopping $9.92 per hour. Having just driven through it, I can attest that it is having no problems with economic growth.

    I found a research report by U of Indiana that said that Illinois actually grew economically when compared with similar sized midwestern states that did not increase their minimum wages after a wage increase.

    The Oregon Center for Public Policy reported
    that analysis showed that “minimum wage cost-of-living adjustments have not led to the dire consequences predicted by the farm and restaurant industries that opposed pegging the minimum wage to inflation.”

    In fact, fast food restaurant jobs increased at 19% per year afterward in the state.

    In the end, this really is a political argument. Only about 7% of the workforce works for minimum wage and most businesses pay more than the minimum because they cannot afford not to. So it does not have much real world implications.

  19. Retired,

    Yeah, I know California is doing great right now! LOL! Sorry…I just had to mention it.

    I wouldn’t say that the Southern states you mentioned are doing poorly.

  20. RetiredatForty July 7, 2009 at 4:15 pm

    Something tells me Californians aren’t ready to move to Mississippi or Alabama or any of the other southern states. They’d rather take their chances. Economically, California is basically a country all by itself even with all its present problems. I believe it would be the 6th largest country in the world economically if I remember correctly.

    In any case, there isn’t much of an argument that raising the minimum wage is much of a factor.

    BTW, this comments things of yours is really weird. It has my comments posted out of order and updates the number of comments but delays the latest comments. Never seen anything like it.

  21. I’m aware of the comment situation. Somehow older comments were assigned later times. That’s why your comments aren’t listed at the bottom.

  22. Also, its not like increasing the minimum wage is eaten entirely by inflation-most of the stuff we buy is imported, and built by people making less money than minimum wage. Increasing minimum wage does not increase costs at a one to one ratio, since labor is only a small part of most production costs, so it doesn’t all get eaten by inflation. Thus, it is a real way to increase the buying power of the poor. Plus, we tested not having a minimum wage. It leads to lots of poverty, and super long working hours. I think this is an easy issue, obviously increasing the minimum wage is a good thing.
    StL Pastor

  23. what are three things that is good about increasing the minimum wage.