Carpe Diem

Why a living wage will not help the economy

“Moving from the current minimum wage to a ‘living wage’ will not help boost the economy. People who think this will happen must believe that the extra money appears out of thin air. In actuality, the extra wages must be paid with money that was previously income to the business owner (whether an individual or shareholders). Thus, gains to low wage workers are exactly offset by losses to business owners. Economy-wide there is no gain. People are free to believe that the income redistribution that a living wage promotes is beneficial since that is a subjective value judgment, but a living wage will not help the economy.”

~Jeffrey Dorfman writing in Forbes, “Low Wages Can’t Be Solved By Turning Businesses Into Social Service Agencies

85 thoughts on “Why a living wage will not help the economy

  1. Higher wages can come from lower production costs (e.g. a lower turnover rate) and higher productivity (from both new and existing workers).

    Moreover, perhaps, from higher profits and higher wages of other workers. A 50% rise in the minimum wage, over several years, will likely raise prices much less than 50%, e.g. 10% for everyone, and the gap between productivity and compensation may begin to close (if the gap was caused by increasingly underpaid lower wage workers).

    Moreover, I suspect, weak firms will fail and strong firms will gain their market share and also gain from the increased demand, since both the income effect and multiplier effect may be greater than the employment effect, perhaps, up to $15 an hour.

    • Ideas and models are great things as long as they align with reality at some point. Your ‘idea” that higher wages will be paid for with higher production don’t meet that test. I’m a general contractor and hire and fire people constantly. and have for 45 years. I’ve had some very hard working, very productive, low wage workers over the years. The problem is that no matter how productive a laborer is he can’t go any faster than the carpenters for whom he’s laboring so I can’t pay pay more than I already am.
      I’ve also had plenty of well paid, skilled workers who got sent home for not producing. You idea fails the real world test. If you have real world experience to the contrary I’d love to hear it.

      • The labor economics literature, which uses rigorous empirical models and actual data, supports my position.

        Obviously, your comment shows a bottleneck that hasn’t been dealt with, to raise productivity.

        I’ve consulted (with my uncle who’s a millionaire business consultant), and worked for many businesses. Moreover, I have several friends who started and ran many businesses. Here’s one example of business that roughly doubled over the past five years:

        A friend started a firm about 20 years ago and has well over 100 employees now.

        He pays the highest possible wages for his workers, who all earn $30,000 to $60,000 a year, and buys equipment to make the work easier for them. He pays himself $150,000 a year. He could pay himself much more, if he wanted to, but limits his pay.

        That’s always been his business philosophy, to pay his workers as much as possible and make their jobs easier. Attracting and retaining better workers was likely a major factor why he was able to take market share from his competitors.

        • No, the literature does not support your argument. There has never been any example where raising a minimum wage gets paid for by higher productivity; the opposite is what happens. The market has to set wages, not government or some self-annointed busybody.

          • His argument does not support his argument:

            He writes: Attracting and retaining better workers was likely a major factor why he was able to take market share from his competitors.

            Mans it can work for him but only because he is getting the better workers from other firms. All firms cannot have better workers.

        • Peak, you don’t need to appeal to that many authorities.

          If you understood economics you wouldn’t keep re-pasting that laughable story about a “friend” starting a business. Where do you find such nonsense?

          If spending as much as possible was an advantage, why isn’t it more common? Where’s the “race to the top” for wages?

          Your “friend” should understand that it’s pleasing customers that makes a business successful, and paying employees “as much as possible” interferes with his ability to do that.

          But, thanks for the example of an up-sloping demand curve for labor. It will be included in “Peakonomics”.

          • peak-

            do you even realize that your argument here is both self contradictory and also demonstrates nothing?

            1. if folks like your friend are already willing to pay more for good employees, then why does anyone have to make them? the example you cite is an argument against, not for a min wage.

            2. and how do we know that that is good for the overall economy? you are assuming your conclusion. how do we know that it’s better for the economy for your friend to do as he does? what if he paid them less, invested more, grew more quickly, and wound up hiring more people and driving prices down?

            you are just assuming your whole argument here and still managing to contradict yourself.

            further, you have completely misunderstood the labor economic arguments you reference.

            sure, if you increase the min wage, productivity goes up.

            you fire people and hire better ones. you add more capital. businesses go away. only those businesses that have higher productivity can survive that.

            but the low productivity workers and businesses simply fail.

            opportunities that used to be profitable and people that used to be employable now disappear and become permanently unemployable.

            that it NOT the road to prosperity.

            how anyone can be so deluded as to bevel that what you are claiming is either proven or mainstream thought is simply beyond me.

            you make the same claims over and over, get them debunked again and again, then pop up later pretending you proved them and making false appeals to authority.

            we may need to add a whole chapter in peakonomics about using making an appeal to yourself as authority.

            “self referential falsehoods and their uses in spreading false premises”.

        • So you have no real life data to support your argument then?

          I too pay my workers as much as possible but I still can’t pay them for more than they produce.

      • Models and figures apart. Look at history. Higher Keynesian New Policy closed the equality gap better than previous post Industrial, Depression heights. The 50′s to early 70′s were stable economic times with upper mobility and prosperous living. It wasn’t “trickle down”. It was the product of strong minimum wage, unions, and government labor protections that ensured everyone got a piece of the prosperity pie.

        Ones who disagree with a fair wage, please explain to me why exactly corporate profits have rose to record highs over the last 6 years despite drastically reduced investment confidence and stagnant employment? At the same time, we hear stories about how workers across the board are made to do more with less? At the same time, wages for the corporate executives rose by 600% over 40 years while workers have sat around 1-2%. Productivity has doubled, but people, especially younger workers are making less than their predecessors. Please! Enlighten me!

  2. peak-

    this is the same ridiculous argument that has been debunked a dozen times.

    if a company could get more productivity per dollar by paying more and having lower turnover etc, then they would already have plenty of incentive to do so.

    why would they need to be forced?

    your whole argument is predicated on companies not knowing how to run their businesses, the government knowing more about it than they do, and one size fits all thinking as if this optimal wage rate would somehow be the same across firms.

    the rest is just one period consumption uber alles thinking. when you reduce savings and investment, longer term growth declines.

    investment multipliers are higher than those for consumption.

    you keep using terms like “underpaid low wage workers” but have zero justification for making that claim.

    if a worker becomes more productive because i let them use my capital, then why should they be entitled to that gain?

    if you move boxes and become better at it because i buy you a forklift, that productivity is based on capital, not labor.

    your weird semi marxist ignorance of this fact is leading you to consistently draw bad conclusions

    your whole argument here is based on looking at one part of the picture and pretending it is the whole.

    • Morganovich, I find it amazing that even after I answer your questions, many times and in many ways, you still ask the same questions.

      The reality is there are well run and poorly run firms, and many firms cannot afford to pay high wages. Similarly (for whatever reasons), many major league baseball teams can’t afford to pay for talent.

      Economies change over time (they’re not static). Over the past 30 years as a percent of GDP, profits have soared, while compensation has declined. Much of that capital is idle and stored in low risk investments, e.g. money market funds, Treasury bonds, gold, etc., rather than flowing into high-risk investments, e.g. business start-ups.

      In a depression, like the past few years, there are massive idle resources, including capital and labor. The U.S. has a structural problem, built-up over the past 30 years, which you don’t even recognize and remain a “stick-in-the-mud.”

      • peak-

        not as amazing as i find the fact that you still claim to have answered these questions when you never have.

        arbitrarily increasing costs for businesses is not the way to get them to invest.

        you do realize that you have just argued that if we can make it more expensive to start a business, people will be more anxious to do it, right?

        you do realize that you have just argued that if we make existing businesses less profitable, then they will thrive, right?

        profits soaring is not a problem.

        and, as ever, you leave out a key issue: why they soared.

        that’s capital being put to work.

        if i buy a backhoe for my business and it makes you more productive at your job, why should you get the return on that? you claim to have answered such questions, but that is completely false.

        it’s my capital, my risk, and my investment. why should i invest and take risk and then pay someone else for it? and why would being forced to do so make me more interested in investing?

        you are just peddling luke warm marxism and using meaningless phrases like “excess profits” to try to arbitrarily shift the profits from investing in capital to labor and then making luddite claims about capital being “idle” and then proposing remedies for that that would make people less, not more interested in starting a business.

        folks that think like you are the problem, not the solution.

      • The reality is there are well run and poorly run firms, and many firms cannot afford to pay high wages.

        And poorly run firms will go out of business, while well run firms prosper. It’s a constant process.

        And I can tell you that paying as much as possible for inputs, including labor, is never part of those success stories.

        Similarly (for whatever reasons), many major league baseball teams can’t afford to pay for talent.

        See above. No doubt you are aware that businesses, including MLB teams, are bought and sold regularly. New owners acquire the assets the previous owners weren’t able to make the best use of.

        See Adam Smith on this subject. Something about a hand.

      • You say that paying someone more makes them more productive. Then you say that some baseball teams can’t afford talented players. Can you see the discrepancy? In the first you say paying more causes increased productivity. In the second you pay for different and more talented people. If you apply the principle of the second to the first you end up with a lot of under-skilled, unemployed people and a few, really productive companies.

  3. Minimum wages or whatever merely transfer the cost of welfare from the public to employers, who are free to decline the obligation by not hiring those whose wage exceeds their value. So setting lower limits to wages by fiat merely creates unemployment of which the US and the EU now have an abundance.

    The solution, if you want working people to have a living wage — a reasonable idea in a humane society it seems to me — then transform welfare into a system of income supplementation for the working poor, i.e., some variant of the negative income tax as proposed by Milton Friedman.

    Friedman abandoned the idea because it implied a high marginal tax rate on lower paid workers, i.e., workers just above the poverty line, which he thought would provide a disincentive to self-advancement through hard work and education. But that is not necessarily the case. The claw-back of the negative tax benefit that is received by all workers, need not be sharp. For example, if the benefit were, say, $5000 per worker, and the clawback was 100% at an income of $50,000, the total cost of the program would be in the vicinity of two or three hundred billion, which is a heck of a lot less than the social cost of mass unemployment plus the financial cost of welfare.

    A negative tax would eliminate the incentive to illegal immigration since illegals working outside the tax system would be in direct competition with citizens and legal immigrants quite ready to take low-wage jobs at whatever the market rate happened to be.

    By drawing millions of unemployed and part-time workers into full-time work, such a scheme will add a point or two to GDP.

    • I should hasten to add that the proposed negative tax would only work if restricted to those actually working, and it would have to be scaled according to the hours worked, with 100% benefit achieved with, say, a 40-hour week.

      The disabled and those otherwise unable to obtain income from employment would remain dependent on whatever other welfare arrangements existed.

      • Good. This is an improvement on your previous explanations, but you’re not there yet.

        Perhaps everyone could just be paid directly by government, and all that extra accounting between employers and employees would be eliminated.

        Oh, wait! That’s been tried, and those systems always produce dismal results.

        Incentives matter, I guess.

        The disabled and those otherwise unable to obtain income from employment would remain dependent on whatever other welfare arrangements existed.

        LOL. Could you possibly be more vague?

        What happened to getting rid of the entire welfare system and minimum wage? You’ve just suggested a system that’s pretty much identical to the current one.

        • Perhaps everyone could just be paid directly by government

          That’s not a logical extension of the proposal, nor is it consistent with the proposal, which assumes that employers pay market wages down to a penny an hour, according to the supply and demand for labor. That way, all those willing to work should be able find work at a wage commensurate with the value of their labor.

          The aim of the negative income tax is to insure that even the lowest paid do not starve. I realize that to a libertarian such as yourself there is something deeply immoral about a government scheme to prevent mass starvation. On that, obviously, I disagree with you as would the late Milton Friedman.

          • That’s not a logical extension of the proposal, nor is it consistent with the proposal, which assumes that employers pay market wages down to a penny an hour, according to the supply and demand for labor.

            Do you really see a difference between an employer paying a penny an hour and an employer paying nothing an hour? Maybe you could explain that difference.

            If the government paid all wages, then the amount an employer would have paid could instead be collected as a fee for the use of the employee, who for all practical purposes is working for the government. Taxes on businesses already help pay for the the negative income tax, and all other unearned benefits, why not just combine all the little cuts into one big wound?

            I don’t advocate that, but it is the ultimate extension of your plan.

            That way, all those willing to work should be able find work at a wage commensurate with the value of their labor.

            That would be easily accomplished by eliminating the minimum wage. Then the value of an employee’s labor would be determined as the amount to which both worker and employer agree.

            If you favor income redistribution, just say so, but don’t pretend to be concerned about people starving. I don’t know anyone in the very wealthy US or Canada who would allow someone to starve, do you?

            The aim of the negative income tax is to insure that even the lowest paid do not starve. I realize that to a libertarian such as yourself there is something deeply immoral about a government scheme to prevent mass starvation. On that, obviously, I disagree with you as would the late Milton Friedman.

            There is already a negative income tax in the US in the form of the EIC. Welfare benefits are already available for those who can’t work. How is your plan so different?

            What I find deeply immoral is a government scheme to take money from those who have earned it, and give it to those who haven’t. Theft is immoral. Preventing mass starvation isn’t the issue.

            And incidentally, Milton Friedman didn’t disagree with me at all. You might consider refreshing your understanding of what Friedman actually believed.

            You and I disagree about the extent of government’s role in the market in general and the labor market in particular.

    • Still promoting this same old nonsense I see. Something for nothing. You must believe redistributing income somehow creates a positive sum. If you understood economics you wouldn’t write such crap.

      There’s a reason Friedman changed his mind about the negative income tax, and you seem to have missed it. Friedman often used the phrase “There’s no such thing as a free lunch.” but you don’t seem to understand what that means.

      Will we be lectured on the evils of globalization next?

      • “There’s no such thing as a free lunch.”

        Wow, wish I’d thought of saying that. After such profundity, what can one say?

        It is the case, though, that Friedman changed his mind about the negative income tax for the reason Is stated, not for the reason you stated.

        • And of course the claim that there is no such thing as a free lunch is simply silly.

          There are plenty of free lunches. I’ve had a few myself. And as Milton Friedman was at some trouble to point out, most of the free lunches go to the wealthy, not the poor, which is I suppose the way you would like to see things remain.

          In fact, when Friedman talked about free lunches he was referring to the silly idea that government services come at a cost to no one.

          The scheme I advocated to ensure that no worker starves however low the wage they are forced by the market to accept obviously comes at a cost to those who pay the taxes that cover the cost. To those who would rather pay a small tax than see the poor either starve or, more probably, turn to crime that is not a problem.

          Crime is, of course, the natural occupation of those with any spirit who cannot earn sufficient to live on. In Victorian England, when high unemployment was endemic, the criminal class is thought to have amounted to about 10% of the urban population.

          Crime, however, is no free lunch. It is a cost that includes violence, theft, the illicit drug trade, policing costs and the cost of jail incarceration, which together are likely much higher than the cost of a workers’ income supplement.

          • Crime, however, is no free lunch. It is a cost that includes violence, theft, the illicit drug trade, policing costs and the cost of jail incarceration, which together are likely much higher than the cost of a workers’ income supplement.

            Heh! Give them bread and circuses – or maybe a workman’s supplement. They’ll remain docile.

            Or maybe leave the earnings of the productive in the hands of the productive, since they have demonstrated that they can, in fact, produce, rather than taking it from them to give to those who have demonstrated that they can’t produce. Which group do you suppose will create the greater well being, or the most jobs?

            Redistribution isn’t just zero sum, it’s negative.

        • Wow, wish I’d thought of saying that. After such profundity, what can one say?

          For starters you could admit that you didn’t think to say anything about free lunches because you’re not as smart as Robert Heinlein or Milton Friedman, and you don’t really understand what the phrase means.

          It is the case, though, that Friedman changed his mind about the negative income tax for the reason Is stated, not for the reason you stated.

          Friedman changed his mind because he realized it would impose a high marginal tax rate on those who lifted themselves out of poverty, thus providing perverse incentives as most such welfare programs do. In other words, he realized there is no free lunch.

          Friedman, as he grew older and wiser, rejected a lot of his earlier beliefs, and as luck would have it, we have a great deal of that later wisdom in the many books he wrote, as well as recordings of the many lectures he gave which are now available on YouTube.

          In fact, when Friedman talked about free lunches he was referring to the silly idea that government services come at a cost to no one.

          Which is precisely the subject we are discussing. Imagine that.

          And as Milton Friedman was at some trouble to point out, most of the free lunches go to the wealthy, not the poor, which is I suppose the way you would like to see things remain.

          Maybe you can provide a reference. Friedman wasn’t known to be a class warrior, and that doesn’t sound like something he would say.

          He did, however say this:

          “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.

  4. Why would a businessman hire a worker for $15/hr (or whatever for a living wage) when the worker only adds $8/hr in revenue? You Utopians need to take the perspective of the business itself.

    • Why would a businessman hire a worker for $15/hr (or whatever for a living wage) when the worker only adds $8/hr in revenue?

      Well, that’s it in a nutshell, isn’t it? And, of course, the answer is that he wouldn’t.

  5. I’ve yet to see a clear definition of a “living wage”. What does that even mean? Isn’t it different for different people?

    Can government planners determine a single Living wage that fits everyone?

    • oh, and let’s not leave out the other issue:

      if you take from the most productive and give to the least, what does that do to the overall possibility for growth?

      wealth redistribution fundamentally disrupts the incentives and capital accumulation that lets growth and innovation, the 2 real drivers standard of living, occur.

      the more you do it, the less you grow.

      from each according to his ability and to each according to need does not work. work output drops to the least common denominator and innovation and risk taking disappear.

      “living wage” is just a milder version. it may be the flu for an economy instead of the plague, but it still makes it sick.

      it’s premised on somehting for nothing entitlement.

      why is it my job to make sure everyone has a TV and can go on vacation?

      • if you take from the most productive and give to the least, what does that do to the overall possibility for growth?

        Wait. I think I know the answer. It’ll come to me in a minute.

        from each according to his ability and to each according to need does not work. work output drops to the least common denominator and innovation and risk taking disappear.

        Does that mean “incentives matter”?

        why is it my job to make sure everyone has a TV and can go on vacation?

        It’s just not fair that you’re so rich, while others have so little. I think when you spread the wealth around, it’s good for everybody.

      • Morganovich,

        “from each according to his ability and to each according to need does not work”

        Don’t know if you caught this, but Walmart hilariously pointed that out to the neo-Stalinist tools at “The Nation” magazine last week:

        “In an email with the subject header, “people who live in glass houses…”, Restivo wrote:
        The Nation—“America’s leading progressive print and online magazine”—recently encouraged its readers to sign an open letter demanding that Walmart increase wages to $12/hour and this article called our company one of the “biggest abusers of low-wage labor.”
        In an ironic twist, ProPublica recently reported that starting this fall, “interns at the Nation Institute will be paid minimum wage for the first time in the history of the 30-year-old program.” As ProPublica noted, The Nation has been paying its full-time interns a weekly stipend of $150 per week—less than the current federal minimum wage rate of $7.25 per hour.”

        http://www.breitbart.com/Big-Journalism/2013/08/07/walmart-knocks-nation-over-low-wages

  6. “Help the economy” and “boost the economy” need to be defined.
    The passage is sloppy and absurd. Assuming money is fixed, nothing can help the economy by this type of reasoning (money always ends up somewhere and comes from somewhere).
    I understand the challenge of discussing economic topics in limited words, but let’s not promote some of the worst examples.

  7. What of the morality of using the violent authority of the police state to ban individuals from trading their laborslabors for a compensation package whose wage component isn’t sufficient for “living”? Are individuals seeking internships, apprenticeships, supplemental family income, an escape from a boring retirement, etc. so evil that they deserve to suffer the wrath of the state? Do, e.g., the existing masses of unemployed teens really deserve what the state has imposed upon them?

    I’d really like to see the moral argument that justifies the use of violence for this purpose.

    • vikingvista

      I’d really like to see the moral argument that justifies the use of violence for this purpose.

      There isn’t one.

  8. Living Wage. What a nice sounding term. Who could possibly be against that? Kind of like Affordable Health Care (Being a curmudgeon, I’m against affordable health care myself, but that’s another story).
    Except that a Living Wage is really just one that is greater than the market price, and like any price floor it results in a surplus (aka unemployment).
    Have we really reached the point where it is desirable to price some people out of the market so that others with greater market value can receive a “Living Wage”?

  9. ” weak firms will fail and strong firms will gain their market share and also gain from the increased demand” I don’t see why this criminalization of the weak serving their niche and being violently denied the opportunity to gain the skills and reputation to expand out and up is beneficial.

  10. This argument has been debunked over and over..Here’s just one such article:

    Five facts debunking arguments against raising the minimum wage – National economic policy | Examiner.com – http://www.examiner.com/article/five-facts-debunking-arguments-against-raising-the-minimum-wage

    If as all the nay-sayers claim, dirt cheap wages and lack of health care lead to a booming economy, please explain how Australia can up their minimum wage consistently with inflation, to its present value of $17.50 per hour, keep full employment and offer free National Health while enduring one of the most vibrant economies in the world? And then explain why we have no decent health care, and pay a 1986 minimum wage and our economy is struggling along?

    • john-

      for the same reason that north dakota can boom while most of the us in in doldrums.

      if you have a small population and a huge pile of natural resources that are very close to an extremely hungry consumer, you can thrive even in the face of bad policy.

      your basic premise is flawed as it both ignores that fact and it assumes its premise.

      where is the evidence that a high min wage is helping australia?

      the most recent hike in min wage cause big job losses among the young and unskilled down under and the jobless rate among them is quite high.

    • John, Morganovich has a simple and wrong answer for everything.

      For example, he doesn’t understand why dollar stores and dollar hamburgers are so popular in the U.S..

      While real income doubled, the real minimum wage declined over 25%, which made going to the Sizzler (for steaks instead of hamburgers) unaffordable for millions of low-wage workers.

      Here’s a source of studies:

      http://www.raisetheminimumwage.com/pages/job-loss

      • Wait a minute. If real income has doubled, how many tens of millions of of worker who previously were stuck with hamburgers are now going to the Sizzler for steaks?

      • what a pile on nonsense peak.

        dollar stores etc are popular because everyone like a good deal.

        of course, if we increase wages, then prices rise, profits fall, and fewer people will be able to create such low priced options.

        it’s seriously like someone put your brain in backwards.

  11. People like Morganovich and Ron make false assumptions and illogical statements faster than anyone can respond to them, and even when you take the time to prove them wrong, in detail, you get the same exact false assumptions and illogical statements again.

    Obviously, they completely disagree with mainstream economics, including the labor economics literature, and always fall back to the same few pieces of pre-20th century economic ideas, to explain a large dynamic macroeconomy with hundreds of major forces, pushing and pulling it, in hundreds of dimensions.

    • a large dynamic macroeconomy with hundreds of major forces, pushing and pulling it, in hundreds of dimensions.

      Just because you don’t understand economics doesn’t mean it’s beyond human understanding, or even all that complicated, unless you believe human nature has changed drastically in the last 150 years.

      Smith, Ricardo., Bastiat, Say, Menger, and many others made major contributions to economic thought that are as valuable today as they were then.

      The basic concepts still apply, and haven’t been falsified by more recent developments. Of course I don’t expect you to understand that.

      Wait for the book: “Peakonomics” will explain it all very clearly. We are even considering a “Peakonomics for Dummies” version so even you can follow along if you wish.

      • lol.

        it’s peak making an appeal to his own fake authority again, just as predicted.

        them he claims “complexity” when he’s the one ignoring it and tryign to ficus on just one factor in one timeframe.

        you are an amazing case of self parody peak.

        • Ron and Morganovich have proven many times they don’t have the capacity to understand how economic variables interrelate and interact in mathematical and empirical models.

          Many people without econ degrees understood my statements, while Ron and Morganovich consistently shown they don’t even have a rudimentary understanding of economics.

          Economists often proved conventional wisdom wrong. Yet, people will cling to what may be intuitive, initially, until it becomes common knowledge they were completely wrong.

          • Many people without econ degrees understood my statements, while Ron and Morganovich consistently shown they don’t even have a rudimentary understanding of economics.

            Who are these many people Peak? Not responding to your nonsense comments doesn’t indicate agreement.

          • We all understood your comments Peakaboo.

            We all understood them to be wrong.

            Except for a few trolls that is, they likely agree with you. Good on you!!

          • peak-

            more silly appeals to authority that does not even exist.

            you are just making a fool of yourself.

            price fixing does not work.

            you cannot engage on the actual facts of the discussion and so make broad false claims and then slink off when asked any serious questions.

            it’s as tiresome as it is dishonest.

            read vedder, neumark, gallaway, scweitzer, wascher, etc.

            the evidence is very clear and compelling, you are just pretending it does not exist and citing badly constructed studies as propaganda.

            “Although minimum wages do increase the incomes of some poor families, the evidence indicates that the overall effects are to increase the proportion of families that are poor and near-poor, and to decrease the proportion of families with incomes between 1.5 and 3 times the poverty level. ”

            http://www.nber.org/papers/w6536

            this is what a well designed study looks like.

            for a guy who claims that others refuse to look at the whole system, you sure seem unable to do so yourself.

            you focus on the guy who gets paid more, but ignore all the folks who get marginalized.

            you cannot legislate productivity.

            min wage hikes are negative sum.

      • Ron, your statement reminds me of my first few days in a grad econ class, macro 5000.

        The instructor wrote the most detailed equations I ever saw as fast as possible using all four chalkboards, and when he got towards the end he had to write smaller and smaller.

        After a few days of this, a rich Arab student said: “What is this? I thought this was economics? I don’t understand?” and then said to the class “Does anyone understand this?” (no one said anything). The instructor said: “What is it you don’t understand?” The Arab said: “I don’t understand any of it.” The instructor said: “Come to my office after class for further instruction.”

        Of course, you wouldn’t be accepted to a grad econ program in the U.S.. It would’ve been comical to see you in grad econ. LOL.

        There are already many books on “Peakonomics.”

        They’re called Macroeconomics, Microeconomics, Econometrics, International Trade, Public Finance, Labor Economics, Money and Central Banking, History of Economic Thought, etc.

        My degrees are in mainstream economics, i.e. the Scientific Method of NeoClassical Economics.

        • You’ve taken graduate level economics courses, Peak? Your professors must be so embarrassed to now realize how little you learned.

          • peak-

            “wah! wah! respect me even though i’m stupid and cannot argue my points! i have a degree dammit!”

            are you sure that “arab” wasn’t you?

            you would have failed econ 111 where i went to school, much less 5000.

            you’re a fake peak.

            no one who actually understands material needs to resort to so many appeals to authority (authority which is largely imaginary).

            you do not even accurately describe your own school of thought.

            you are just using words you do not understand.

            neoclassicists do not believe in the paradox of thrift.

            they focus on say’s law, interest rate declines due to savings making lending cheaper, and the fact that economies are open.

            you cannot even keep your stories straight.

            you’re not a neoclassicist, you’re some weird miasma of 30′s style fascist based on Keynes and marx.

            you use terms like “partial equilibrium model” that you clearly do not understand.

            you have zero understanding of econometrics.

            hell, you tried to pass off a difference in growth from a decade pre fed to one recently as proof the fed was doing a good job as though nothing else (electrification, automation, industrialization, the information age) had changed.

            you’re not an economist, you a bundle of misconceptions and prejudices that tries to use technical terms you do not understand and purported credentials to mask how little you actually know.

          • John, I believe his professors have even offered to give Peak his money back if he will deny even knowing them.

        • peak-

          have you ever stopped to consider how foolish and self refuting your appeals to authority are on this topic in this location?

          you keep trying to st yourself up as a purported authority by claiming grad school (despite demonstrating that you could not pass undergrad econ at a real school) and claiming that those who disagree could never have made it in your class.

          but what of dr perry?

          recall that he was the one who first advanced the argument that min wages do harm, not good.

          could he not succeed in these classes you claim to have taken?

          hell, he teaches university econ and manages grad students akin to those you claim to have once been.

          so by the bad logic of your appeal to authority reasoning, is he not clearly the superior authority?

          so please, enough with your fallacy based blustering.

          appeal to authority is not a valid form of argument.

          • alternately, perhaps the arab student had simply worked out the math and said “hey, wait, this would imply that demand curves slope up” and failed the indoctrination process for carl marx poly-technical…

  12. A question what is the going wage for McDonalds in Williston, ND? or perhaps Midland, Tx both are boom towns and one can see that given the competition they need to pay more to attact workers (and so the workers can afford a place to live). To boot then how to the prices of the stores compare with nearby areas? This is a real world test, where the fast food places have to pay more to get
    employees, look at the effect.

  13. What is a living wage? If the Scholastics are to quoted then the very least the employer should be obliged is to tend to the worker’s immediate needs. That would mean what goes on in Chinese factories: you essentially work for your meals and a bunk to sleep on while you work 6 days a week, 12 hours per day. Hence how low the amount an American worker would be paid if there was no minimum wage would quite small indeed.

  14. It’s really a very simple issue from two perspectives:

    Supply and Demand

    When government imposes a price floor on any good which is above the market clearing price, consumers of the good demand less than suppliers of the good are willing to provide at that price. A minimum wage of $10 an hour is above the market clearing price for unskilled labor. So employers – consumers of unskilled labor – demand less of that good than unskilled workers – suppliers of that good – are eager to provide. Result: unemployment of unskilled workers. There is nothing difficult to understand about this whatsoever.

    Liberty

    Minimum wage laws are an assault on liberty. Without such laws, unskilled workers have the liberty to work at whatever wage they are willing to work. Minimum wage laws which price their labor above the value of that labor removes the freedom of the unskilled worker to be employed.

    Minimum wage laws are a distortion of markets and an curtailment of freedom. It’s really that simple.

    • Yes, but as Ron pointed out yesterday, when you create a price floor many people will get a “raise”, and the only people who suffer are some poor shlubs who get priced out of a job. They’re not likely to figure out why they can’t find work and probably don’t vote anyway.

      In Venezuela right now you can’t even find toilet paper in the stores because of government imposed price ceilings. Yet the people turn to the same government that created the shortages to “save them”. What’s not to like if you’re part of the government?

    • Yes John it really is that simple. Replace labour in your analysis with any other good or service and you get the same effect.

      That is because as I have said many times, minimum wage is a price control on the price of labour. No different than any other price control tried by any government anywhere in our history, and price controls have never worked, ever. The results are the same, distortion of the market and a shortage/surplus created as a result. In the labour market this translates into a shortage of jobs at the minimum wage price point and a surplus of labour. This results in more unemployment. To think otherwise is foolish.

    • Translation? The good ol’ days of a cosy job are gone and never coming back. If the U.S. is not to slump into abject poverty then it’s time to abolish the minimum wage and similar laws (child-labour laws) so we can recreate the live-in position so we can compete with China’s factories where people are paid via their meals and basic lodging so the business revenue generated can go back into growing the business.

      • huh?

        those good old days never existed except as a brief anomaly right after the second world war when the us had the only intact industrial base on the planet.

        the rest of your argument just seems like an emotional straw man. you make it sound like the us poor, who have bigger homes than the european middle class and are so wealthy by historical (and current global) standards as to be staggering are characters from oliver twist.

        • “you make it sound like the us poor, who have bigger homes than the european middle class”

          Right….

          “and are so wealthy by historical (and current global) standards as to be staggering are characters from oliver twist.”

          Yes, let’s go back to a time in the US when that wasn’t the case. I know, before the minimum wage and the social safety net.

      • Don’t like my factual statement about min. wage Gil?

        Come back with some facts of your own not this “translation” of yours that is not realistic. Minimum wage is not some saviour that is stopping people from having to accept the conditions you describe. What min. wage it though is a guarantee that many people will be priced out of the job market and will then be slaves to the government, relying on welfare for their meals and basic lodging. That is your real translation.

        • The free market is hardly going to roll out the red carpet for anyone who isn’t worth the existing minimum wage. But then considering people apparently live on $1 a day in some parts of the world then $1 would seem like a king’s ransom in comparison.

          • Still don’t get it do you? What does $1 a day in some parts of the world have to do with minimum wage?

            Try to make some logical argument not just some emotional appeal. Some people will not be able to find work because min. wage prices them out of the market. What are those people to do? Their only choice will now be to become welfare slaves of the government. Is that what you are promoting?

          • You mean they get money and stuff for not working and trade that in for the same stuff except now they have to work? Yeah that’s worse . . .

        • “The results are the same, distortion of the market and a shortage/surplus created as a result. In the labour market this translates into a shortage of jobs at the minimum wage price point and a surplus of labour. This results in more unemployment.”
          “Don’t like my factual statement about min. wage”

          Facts, eh? Luckily for us, the minimum wage has been increased more than 20 times since it was implemented, so we don’t need to analyze it using theory; we can use empirical evidence. So tell me, what effects have these increases had on structural unemployment, or even short term unemployment?

  15. Money for nothing and your chicks for free.”

    Mark Knopfler – Dire Straits

    Most evidence, including the “academic” – is merely anecdotal. Wages/salaries are a certain percentage of gross receipts, less Fed taxes, regulatory fees, local taxes and license fees. Having been there and having had to pay of of those gummint (and artificial) “requirements” on top of the actual cost of doing business . . .

    Now – get gummint the hell outta the picture, and maybe we can take about raises.

    Otherwise, stay on welfare and smoke your dope.

  16. How are their people arguing about this? The entire premise of this post is idiotic at best.

    Even if we accept that the relationship between labor wages and corporate income is a zero sum game (which conservative economists have spent decades insisting it is not, making this post all the more strange), then it literally can never matter to the economy what labor’s wages are. Labor could get none of the money they bring in, or all of it. Neither would change anything at all anywhere in the entire economy under this very elementary and obviously incorrect analysis. All you’ve done is claim that the distribution of income between labor and corporation is necessarily arbitrary and up to preference. You’ve claimed that literally the defining issue of all of economic history is simply unrelated to the economy. Pathetic corporate pandering.

    Here’s real life. The rich spend close to 0% of their income, while the lower classes spend close to 100%. Time and time again the data shows that the more money the rich have, the more they stash away and remove from circulation. In economic times like these, the obviously correct answer is to shift money away from non-spenders and toward spenders. It’s hilarious to see you guys prancing around, shilling for your corporate overlords, pretending that stagnation is what’s best for a down economy. Thanks for the laugh.

    • It is “obviously correct” that “more” consumption spending to further deplete the real capital stock is better for this economy than “more” investment spending to replenish it? All that is obvious here is that your thoughtless shallow keynesian anti-saving brainwashing is cemented and incurable.

      Thanks for laugh, drone.

    • Time and time again the data shows that the more money the rich have, the more they stash away and remove from circulation.

      Hmm. Maybe you could provide a reference or two to a few examples of those “time and time again” removals from circulation.

      Do you mean stashed away in cookie jars and under mattresses and places like that?

      You seem to be confused about the nature of money – among other things. Don’t you suppose that if money were being removed from circulation, just like any other commodity, its scarcity would cause the price of money to rise relative to the things you buy it with?

      For example if I can buy a dollar for one apple today, and then the supply of money decreases and it’s price rises, I may have to pay two apples for a dollar next month.

      • Ron, thanks for proving Viking wrong. That paulbot seriously thinks the rich are hoarding cash because it’s “capital stock” that they’re just refusing to do anything capital with, rather than hoarding it because the value of the dollar is being maintained artificially higher than the market dictates.

        I mean, do you think something other than hoarding is happening? Corporations are making all time record profits and simply refusing to expand or hire, the cash they’re hauling in most certainly cannot be described as “capital” anything, not in any meaningful sense of the term capital.

        Cash hoarding = capital stock, hilarious. I guess next you guys will want to claim capital losses for a tax break when the dollar inflates? Please try filing that way, we need some of you economy-ruiners removed from the debate. You’re just big red herrings keeping the grown ups from fixing the economy, you’d be a lot more useful making license plates for us.

        • DD

          You didn’t actually respond to my comment, and you haven’t explained how you think cash is “stashed away and taken out of circulation”. Are you aware of the effect a smaller money supply has on the value of a dollar? I gave you an example.

          In addition, it’s not clear why you think someone who earns a profit is under some obligation to use the cash they haul in in some manner that meets your approval.

          Other than a vague emotional appeal to class warfare, An information free reference to capital, and some tax filing advice, I didn’t find anything in your comment I can respond to. Is there some point you wish to make that relates to economics in some way? This is an econ blog, after all.

        • “Ron, thanks for proving Viking wrong.”

          Interesting standard of proof. Explains why you believe the things you do, as well as your hyperbolic use of “obviously”.

          “That paulbot seriously thinks the rich are hoarding cash because it’s “capital stock””

          And you think you can read my mind…
          And you think cash is the same as “real capital stock”…
          And you think Ron H. believes the rich are stashing cash away in proverbial cookie jars…

          “Cash hoarding = capital stock, hilarious.”

          Not so much hilarious as profoundly ignorant. But the only one around here I’ve seen assume that equation is DoctorDistracto.

          “You’re just big red herrings keeping the grown ups from fixing the economy”

          And you apparently think an internationally-integrated economy of hundreds of millions of unique independent-minded individuals making countless trillions of decisions is something akin to coordinating the spark plugs on a ’57 Chevy.

          Please. Keep writing.

  17. It never ceases to amaze me how people speaking from a position of comfort continue to claim that the people who work for them are not “worth” the wages they paid. That to compensate them fairly in accordance with the economy they live in or comparably to the wealth their labor earns, is some kind charity. I must say that in light of the ever increasing profits being reported (and not reported) and ever increasing wealth of this country , that some folks still expect the working class to believe that their labor is not worth what they are paid, never mind a raise. It is a self conflicting to claim wages and benefits are too expensive while simultaneously banking increased profits. It worse than dishonest frankly, to profit from the labor of others and then claim those others are only a drain and undeserving of the same expectations and hope for their own future. It seems that a raising tide does not lift all boats after all. And what about those who have no boat? I am not a business owner, but neither do I get something for nothing. It seems though, as if business owners and even at times the government do. Or for as little as possible anyway. Also, by sense of fair play the pension funds repeatedly stripped away from workers. Stripped by unscrupulous companies, courts and governments. I would bet some rather comfortable folks would not be so smug if the tables were turned. Isn’t that really the conversation we are carefully avoiding? It seems the working class are viewed as being ignorant (if not stupid), incapable of remembering or just plain powerless and not worth worrying about.

    • It never ceases to amaze me how a person educated enough to type a complete sentence is so dim as to be incapable of understanding the most elementary of economic arguments.

      It never ceases to amaze me how advocates of the cruelest of policies against the most disadvantaged can profess their monstrous beliefs with such gushing sanctimony.

      It never ceases to amaze me how someone can be said to “claim that the people who work for them are not “worth” the wages they paid” when in fact every opponent of government bans on low wage labor clearly and repeatedly claims *EXACTLY* the opposite.

      It never ceases to amaze me how over two centuries after Adam Smith, such rank ignorance prevails that people still don’t even know what a price is.

      Why it is that you, JOE, so passionately wish to impoverish entire generations worth of people–why you are so callous against the plight of struggling men and women wishing to improve their economic circumstances, I’m sure has something to do with how banning such folks from working benefits your own personal circumstances. Which is why…

      It never ceases to amaze me how blithely and openly a person will sacrifice, for his own economic gain, innocents less powerful than himself.

      It never ceases to amaze me how utterly devoid of a conscience people like you can be.

      • I am very sorry to have upset you so, vikingvista. You seem to be, if I understood you, working from the belief that paying a fair wage for the society in which a person lives will result jobs being lost. I don’t happen to believe that. In regards to ignorance, here are some interesting words from Adam Smith…

        http://economistsview.typepad.com/economistsview/2008/09/adam-smith-and.html

        “Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society?*38 The answer seems at first sight abundantly plain. Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged… (WN I.viii.36: p 96)”

        “The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious, than where they are low (WN I.viii.44: p 99).”

        • “I am very sorry to have upset you so”

          Peculiar thing to say. I suppose it is either your way of confessing that your use of the same language was a regrettable response to how upset you were, or you just have about as acute a sense of irony as you do an understanding of economics.

          For me, upset is what I get when I see the victims of the policies you advocate, or even just reports on the sheer magnitude of the suffering. And it isn’t so much at barking dupes like yourself, but rather the biting thugs with the power to actually kick the poor and struggling while they are down. I know that there is no shortage of sociopaths and misanthropes, but it is still hard to get used to the wreckage you guys leave behind.

          “interesting words from Adam Smith”

          I am familiar with the WofN, having my own personally annotated version. And I couldn’t agree more with the quotes you provided. But how you can advocate brutally severing people from entering a workforce that enables them to achieve the kind of wages and personal savings that Smith writes about, while you simultaneously claim to support Smith’s notion of free prices efficiently allocating resources to that end, requires a level of neurosis few psychoanalysts are likely encounter.

          Although, if there is a cure, it is for you to read Smith’s entire work.

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