Carpe Diem

Raising minimum wage would be disastrous for minorities, especially black male teens, whose jobless rate is now 44.3%

Probably the most vulnerable, at-risk group in the labor market would have to be black male teenagers, judging by the 44.3% jobless rate for that group in November. In contrast, the jobless rate for white male teens in November was less than half the rate of their black counterparts (19.8%); for male Hispanic teens the jobless rate in November was 26.4%, and for the general population it was 6.6%. (Note: All rates are reported as “not seasonally adjusted” rates because the Hispanic male teen jobless rate is only available without seasonal adjustment.)

A question for proponents of the minimum wage, including President Obama, would be: Given a current jobless rate of 44.3% for black male teens, would that group of America’s most vulnerable and unemployed workers receive any benefits from a 39% increase in the minimum wage from $7.25 to $10.10 per hour?  Or would they most likely suffer from a minimum wage increase?

I would argue that whatever benefits there might be for some workers who might manage to keep their job (or find a job) following a 39% increase in the minimum wage to $10.10 per hour, the nearly 100,000 unemployed black teenage males who are currently looking for, but unable to find a job, would find it even more difficult to find a job than they do now, and the jobless rate for that group would go up, ceteris paribus.  One reason – when the minimum wage goes up, the cost of discriminating against minorities and unfavored groups goes down, which would increase the amount of discrimination in the labor market, ceteris paribus.

As Milton Friedman explains in a video at this link:

The minimum wage law is most properly described as a law saying that employers must discriminate against people who have low skills. That’s what the law says. The law says that here’s a man who has a skill that would justify a wage of $5 or $6 per hour (adjusted for today), but you may not employ him, it’s illegal, because if you employ him you must pay him $10 per hour. So what’s the result? To employ him at $10 per hour is to engage in charity. There’s nothing wrong with charity. But most employers are not in the position to engage in that kind of charity. Thus, the consequences of minimum wage laws have been almost wholly bad. We have increased unemployment and increased poverty.

Moreover, the effects have been concentrated on the groups that the do-gooders would most like to help. The people who have been hurt most by the minimum wage laws are the blacks. I have often said that the most anti-black law on the books of this land is the minimum wage law.

There is absolutely no positive objective achieved by the minimum wage law. Its real purpose is to reduce competition for the trade unions and make it easier for them to maintain the higher wages of their privileged members.

MP: One adverse effect of the minimum wage is its disproportionate, negative effect on minorities, especially African-Americans. And yet we never hear anything from President Obama and other minimum wage proponents about how the increase in the minimum wage to $10.10 would have disastrous effects on our most vulnerable populations, e.g. black teenage males suffering already from a jobless of more than 44%. I would like to hear from minimum wage proponents who don’t think that the law adversely affects minorities. And how can a black president support what Milton Friedman described as “the most anti-black law on the books of this land?

Bottom Line:minwageGraphic via NY18DistrictForum.

176 thoughts on “Raising minimum wage would be disastrous for minorities, especially black male teens, whose jobless rate is now 44.3%

  1. One adverse effect of the minimum wage is its disproportionate, negative effect on minorities, especially African-Americans.

    Baloney. Not much has changed when it comes to the excess* Black teen rate since 1972 and the Hispanic teen rate since rate 1976. If anything, the Black rate has compressed.

    * Excess being the arithmetic difference between the minority and the white rate

    • Except that the minimum wage started in 1938. Your graphs shows a decline in black unemployment at the same time that the real minimum wage (not nominal, i.e., inflation adjusted) has declined, exactly as basic economic theory has predicted. Black teen unemployment was around 10% in the early 1940′s, then a series of minimum wage laws and increases jumped that to around 40% by the early 1980′s.

        • It’s weird that you think a politician should be the one determining the minimum requirements for an anesthesiologist, but think it’s unacceptable for that same politician to determine the minimum requirements for a low skill worker.

          • re: ” but think it’s unacceptable for that same politician to determine the minimum requirements for a low skill worker.”

            1. when the politicians represents voters of which 75% believe an increase is warranted…

            2. when the politicians are also paying entitlements based on the workers pay vs the poverty threshold levels.

            3. politicians don’t set wages on their own – they are advised by economists… a good number who do not buy the “beliefs” of libertarian types.

          • when the politicians represents voters of which 75% believe an increase is warranted

            Southern politicians were merely representing voters when they enacted Jim Crow.

            when the politicians are also paying entitlements based on the workers pay vs the poverty threshold levels.

            This is an excellent argument against entitlements.

            politicians don’t set wages on their own

            False.

      • The unemployment rate for all teens followed the same pattern as black teens – rising in the ’70s and falling in the ’80s and ’90s.

        http://research.stlouisfed.org/fred2/series/USAURTNAA

        Since the minimum wage was established, per capita real GDP has grown at a much faster rate.

        Annual per capita real GDP growth:

        1863-1937 (75 years): 1.33%
        1938-2012 (75 years): 2.44%

        Source: Academic economists, academic papers, Census data, and the BEA

        • wait, i though it was the fed that caused that jump?

          this is just more one factor nonsense.

          you trot out this same hokum for everyhting and assume causality by ignoring the thousands of other things that changed.

          for a guy so enamored of allegedly complex models, you sure trot out some horrifically oversimplified arguments.

        • Wayyyy back in1987 my evil self was born, alone with my Peak Logic, I destroyed any hope for teens jobs and made the graph draw a mountain.MUAHAHAHA.

    • Also, in the 1940′s, black teen unemployment rate was LOWER than for white teens. Since then, the unemployment rate for black teens has skyrocketed past the white teens.

    • Where are your elasticities?

      Have you controlled for family income and composition, drop out rates and other variables?

      I didn’t think so.

        • Absolutely preacher boy. The neoclassical price theory positing a negative elasticity range of 0.1-0.3 do not hold in all empirical minimum wage studies.

          The higher the inverse of the standard error of the study, the lower the negative or positive elasticity. You are aware, of course, that there are studies with positive elasticity.

          Moderate minimum wage increases that the U.S. has experienced since 1938 have small and arguably no statistically significant disemployment effects.

          • Finding no disemployment effects does not mean that the minimum wage law has no adverse effects on low and unskilled workers. As I have discussed before, even employers who employ the same number of workers after a min wage hike, will likely make other adjustments in compensation to offset the higher wages, leaving the workers no better off, or possibly worse off: hours will be cut, employee discounts may be cut, free or reduced cost meals may be cut, free or reduced cost uniforms may be cut, bonuses may be cut, etc. etc.

          • re: ” Finding no disemployment effects does not mean that the minimum wage law has no adverse effects on low and unskilled workers.”

            but the claim is that it always harms low income even if it cannot be observed…

            there are myriad other impacts that can occur beyond just adverse impacts to low skill workers.

            it’s the strident view that impacts to low skill workers are the ONLY impact.

          • there is also a huge flaw in many of the studies that purport to find no disemplyment effects.

            they start their analyses at the time the new wage goes into effect. but this is often 6 months or even years (as was the case in new jersey) after the law was passed.

            employers had known of the impending change for some time and had already adapted to it by he time the law went into effect, thus, the card kruger study design actually failed to include the period in which adaptation to the law took place .

          • marmico

            Moderate minimum wage increases that the U.S. has experienced since 1938 have small and arguably no statistically significant disemployment effects.

            1. “Finding no disemployment effects does not mean that the minimum wage law has no adverse effects on low and unskilled workers.” – M. Perry

            2. “employers had known of the impending change for some time and had already adapted to it by he time the law went into effect…” – morganovich

            3. “And you may be looking in the wrong place.” – F. Bastiat

            It isn’t necessary to discuss “…a negative elasticity range of 0.1-0.3…” or “…the higher the inverse of the standard error of the study, the lower the negative or positive elasticity… to understand that if you arbitrarily raise the cost of something that hasn’t increased in value, you have created a dead weight loss that will appear somewhere else, where you may not be looking.

            Two of those probable unseen places are suggested above by M. Perry and morganovich. I would add consumer responses to higher prices to that list, as such adjustments will almost certainly result in lower demand for the higher priced good or lower demand for some other good, and thus lower future employment *somewhere*.

            Low skilled workers are more affected because for them it may mean the difference between working and not working, rather than just not getting an anticipated raise, or accepting a lower paid position.

            The Idiot Troll actually had this part right when he suggested that to adjust to higher priced hamburgers he would lower his spending elsewhere, perhaps on a cheaper cable TV package, or by cancelling a magazine subscription. The disemployment effects would then be seen in places where no one is looking.

  2. How can a black president support the most anti-black law on the books of this land? Because it’s in his interest to do so. For this President EVERYTHING is about politics and perception, not economic reality. The 44% of black teens that are unemployed largely don’t vote, and one of the reasons they are unemployed today is the same reason they wouldn’t be able to follow the argument you just laid out. They do, however, serve as a nice totem for a President who is constantly campaigning, but seldom governing.

  3. Who cares? They’re black and teenagers! Minimum wage laws will keep them away from us white folk who deserve jobs!

    For the record, I am being sarcastic here.

  4. Walter Williams, back in 2009, wrote a piece that was very influential on me (at that point, a sophomore in college).

    It’s a bit dated now, but the point in it remains.

    • Thanks for the link. For the last several years I have learned a lot by reading the weekly columns of Walter Williams (and others). If you don’t already have a copy of this, here’s an online copy of one of Walter Williams’ early published essays that was influential on me, “Government Sanctioned Restraints that Reduce Economic Opportunities for Minorities.” It was published, revised, in Policy Review, July, 1978.

      http://www.unz.org/Pub/PolicyRev-1977q4-00007

    • Jon

      WW makes so much sense it’s uncanny. After reading a column like the one you just cited, I always wonder why I didn’t know that already. The point seems crystal clear.

  5. Not only that, but this law will only “benefit” a very small part of the total work force (3% in 2005, down from 15% in 1979). The real reason for this push is to benefit those union workers whose wage scales are tied to the minimum wage, either as a percentage (25% above the minimum wage) or as a dollar figure (minum wage plus $X).

  6. let’s see. there are how many OECD countries in the world that have minimum wage laws – and black teenagers?

    Marmico had it right BALONEY!

    the only “study” that is valid is one that clearly shows businesses staffing levels before and after minimum wage. The others are basically tortured hand waving about totally disconnected things as Marmico points out.

    How many “unskilled” people, including blacks get 15.00 an hour at McDonalds in North Dakota?

    how come in North Dakota, it makes no difference how unskilled you are and you still get 15.00 an hour ?

    if the “unskilled” rubric were true – why would anyone pay them 15.00 an hour anyhow?

    no business that has an operator with half a brain is going to lay off people when there is demand for their product.

    why would anyone choose to lay off people and turn away customers for lack of staffing?

    why would you do that?

      • Harold – tell me why in North Dakota – minimum wage workers are not laid off when wages go up?

        how come higher wages are paid rather than laying off people instead?

        why is that?

          • ” That or duh, there is a shortage of workers at the minimum wage price so employers have to offer more.”

            so why don’t they cut staff instead when wages go up?

            the REASON why wages goes up has WHAT to do with a business making decisions about staffing levels?

            do they CARE …WHY wages are higher as long as they have strong demand for their product regardless of wage increases?

          • why does the REASON for a wage price increase have an effect on what you do about it?

            So in one situation where wages increase – you take one action and in another situation where wages increase, you take a different action?

            Why?

            IF it costs you more to hire a worker in North Dakota you take one action but if it costs you more to hire a worker in NJ you take a different action.

            why?

            If you have to have x number of workers to produce to meet a demand – why would you do anything other than choose the lowest cost workers even if they are more expensive than they used to be but still cheaper than other employees?

            You have to have X number of employers to meet demand.

            what are your options in hiring if minimum wage goes up?

            don’t hire at all?

            hire less people than you need to meet demand?

            let customers wait in line or leave?

            what are your realistic options?

            this whole line of ideology is baloney.

          • @Larry, they do cut staff, but more likely they just don’t hire as many as they would at lower cost.

            I don’t understand your line of thinking. Par for the course though. I think you probably have the same problem. (not understand your line of thinking)

            That is what you get when you live by talking points.

          • @Larry, they do cut staff, but more likely they just don’t hire as many as they would at lower cost.

            I don’t understand your line of thinking. Par for the course though. I think you probably have the same problem. (not understand your line of thinking)

            That is what you get when you live by talking points

            my “line of thinking” is what you’ll hear from other economists who do not agree with the ideologues.

            no business lays off people IN ANTICIPATION of higher costs / reduced demand unless they were already in trouble and saw the latest turn of events as the end.

            but most businesses and their competitors are fighting for their share of that market and if costs go up for all of them – it does not disadvantage any of them relative to the others.

            so the obvious thing is to see if costs can be passed on without seriously affecting demand and if you choose to not pass that cost out – you’re going to get squeezed on your profits – but if you lay off workers – workers you need to meet demand – then you are cutting your own market share because you will not have enough employees to serve your customers. lines will form, people will leave.

            the theory seems to believe that you can cut people without affecting production but that assumes that the people you laid off were not productive to start with and were excess to start with and you did not need them anyhow.

            no business with half a brain EVER keeps on more employees than they need … Does anyone think WalMart does not send folks home when sales slow down?

        • LarryG –

          You write,

          “the REASON why wages goes up has WHAT to do with a business making decisions about staffing levels?

          “do they CARE …WHY wages are higher as long as they have strong demand for their product regardless of wage increases?”

          What you fail to mention is the other side of the ledger sheet, income to the business. If a business is forced to pay more for it’s labor due to a gov’t forced minimum wage increase then it may have to raise it’s prices. The Law of Demand states that when prices rise, more is supplied and less is demanded, so the income to the business may remain the same or go down due to decreased demand. An increase in a gov’t forced minimum wage does not increase the number of jobs, just the wages for those people who have jobs. So the businesses customer base purchasing power is not going to be increasing to the point that it demand won’t decrease.

          But if in a given area a market clearing minimum wage increases due to businesses bidding away low skilled workers from other businesses then that means two important items:

          1) That the area in question has achieved, or is on it’s way to achieving, full employment. In fact, wages will continue to rise until full employment is achieved (Law of Demand again).
          2) That the purchasing power of all workers is rising and it is rising not due to lower prices for goods due to competition but due to increased wages for workers due to demand.

          Combine 1) and 2) and you have a case where business can increase the prices of their products and not suffer any decrease in demand. So now businesses can pass on all their increased labor costs in the form of price increases. And this can continue to happen until the labor supply for that area has reached the point at which the supply of labor has met the demand for labor.

          • “What you fail to mention is the other side of the ledger sheet, income to the business. If a business is forced to pay more for it’s labor due to a gov’t forced minimum wage increase then it may have to raise it’s prices.”

            that’s correct and it’s also correct that other things not connected to the govt may REQUIRE the SAME response.

            ” The Law of Demand states that when prices rise, more is supplied and less is demanded, so the income to the business may remain the same or go down due to decreased demand. ”

            that also correct – in a PERFECT market without elasticities and other real world influences no accounted for in the basic theory.

            “An increase in a gov’t forced minimum wage does not increase the number of jobs, just the wages for those people who have jobs. So the businesses customer base purchasing power is not going to be increasing to the point that it demand won’t decrease.”

            people MAY not buy LESS fast food (for instance) and instead elect to buy less of something else.

            the same thing would happen if the consumer decides to get a smartphone data plan and cuts back somewhere else.

            “But if in a given area a market clearing minimum wage increases due to businesses bidding away low skilled workers from other businesses then that means two important items:

            1) That the area in question has achieved, or is on it’s way to achieving, full employment. In fact, wages will continue to rise until full employment is achieved (Law of Demand again).”

            that’s not necessarily true… certainly not in every case and AGAIN because the theory does not account for other factors that can and do occur in real world markets.

            “2) That the purchasing power of all workers is rising and it is rising not due to lower prices for goods due to competition but due to increased wages for workers due to demand.”

            again – in theory – yes

            “Combine 1) and 2) and you have a case where business can increase the prices of their products and not suffer any decrease in demand. So now businesses can pass on all their increased labor costs in the form of price increases. And this can continue to happen until the labor supply for that area has reached the point at which the supply of labor has met the demand for labor.”

            in theory, yes.

            the problem is .. trying to use the basic theory in markets which have influences that are not accounted for in the theory.

            this is why in many real world situations – they take the theory and incorporate it into a model that DOES account for the influences the theory does not.

            the “goodness” or “badness” or a given model is determined by the fidelity of it’s predictions.

          • JamesD

            Your excellent comment is entirely wasted on your target audience.

            But, you will find that out for yourself if you continue the dialogue.

          • LarryG -

            To my point,

            “An increase in a gov’t forced minimum wage does not increase the number of jobs, just the wages for those people who have jobs. So the businesses customer base purchasing power is not going to be increasing to the point that it demand won’t decrease.”

            You stated,

            “people MAY not buy LESS fast food (for instance) and instead elect to buy less of something else”

            But it doesn’t matter where the decrease in demand occurs just that overall demand in the economy will go down. When overall demand goes down there are going to be resources freed up that can then be used by other businesses and some of those resources will be labor. This increase in the supply of labor would normally decrease the cost of labor but not when a minimum wage exists.

            Thank you for taking the time to deconstruct my comment point by point. I appear to be applying basic economic theory correctly though we are at odds as to which is more important in drawing conclusions, basic theory or model predictions. I’m certain that we will not see eye-to-eye on this as I have the same view of the proper use of fundamental theory as Prof. Boudreaux ( http://cafehayek.com/2013/10/data-is-unlikely-to-settle-this-dispute.html ),

            “Therefore, if a theoretical proposition is firmly established and unquestioned in its application to a certain class of phenomena, peeling out some phenomenon from the class and claiming that the established proposition does not apply in its widely understood manner to that phenomenon requires a powerful and compelling theory to explain why that particular phenomenon happens not to follow the same theoretical rules that are accepted as governing other similar phenomena.”

            A lot of the comments on any blog post regarding the minimum wage focus on the effect of employment due to raising the minimum wage but this post by Prof. Perry specifically addresses the significantly higher unemployment rate for male teens, particularly black teens. Basic theory predicts that having a minimum wage will cause this exact result. So my question is, what is the powerful and compelling theory that predicts that the high unemployment rate of male teens, particularly black teens, is not being caused by having a minimum wage?

          • re:

            ” LarryG -

            To my point,

            “An increase in a gov’t forced minimum wage does not increase the number of jobs, just the wages for those people who have jobs. So the businesses customer base purchasing power is not going to be increasing to the point that it demand won’t decrease.”

            ANY increase in wages does not increase jobs regardless of reason.

            “You stated,

            “people MAY not buy LESS fast food (for instance) and instead elect to buy less of something else”

            But it doesn’t matter where the decrease in demand occurs just that overall demand in the economy will go down. ”

            overall demand does not go down – it reassigns. you buy fast food rather than lottery tickets.

            “When overall demand goes down there are going to be resources freed up that can then be used by other businesses and some of those resources will be labor. This increase in the supply of labor would normally decrease the cost of labor but not when a minimum wage exists.”

            really? I do not think that overall demand goes down.. it just reassigns from one thing to another like if someone decides to get a smartphone and stops spends for something else.

            some resources ARE labor but at that point ..what do you really know?

            “Thank you for taking the time to deconstruct my comment point by point. I appear to be applying basic economic theory correctly though we are at odds as to which is more important in drawing conclusions, basic theory or model predictions. I’m certain that we will not see eye-to-eye on this as I have the same view of the proper use of fundamental theory as Prof. Boudreaux ( http://cafehayek.com/2013/10/data-is-unlikely-to-settle-this-dispute.html ),”

            my view is to remove the ideology and the partisan views when looking at these things. we all have our views on how we think govt should work (or not) but that is a separate issue.. i.e.. what is “right” as a policy (or not) is different from what the economics are (or are not).

            ““Therefore, if a theoretical proposition is firmly established and unquestioned in its application to a certain class of phenomena, peeling out some phenomenon from the class and claiming that the established proposition does not apply in its widely understood manner to that phenomenon requires a powerful and compelling theory to explain why that particular phenomenon happens not to follow the same theoretical rules that are accepted as governing other similar phenomena.” ”

            umm .. okay.. just keep the ideology out of it.

            “A lot of the comments on any blog post regarding the minimum wage focus on the effect of employment due to raising the minimum wage but this post by Prof. Perry specifically addresses the significantly higher unemployment rate for male teens, particularly black teens. Basic theory predicts that having a minimum wage will cause this exact result. So my question is, what is the powerful and compelling theory that predicts that the high unemployment rate of male teens, particularly black teens, is not being caused by having a minimum wage?”

            basic theory does NOT predict this at all. It’s a made-up assertion.

            there are a wide range of possible impacts. How and why can anyone show specifically that only one impact is possible?

            it’s totally bogus.

          • Ron H.,

            Thanks for the heads up. I anticipate as much but I’ve been wanting to jump into the economic topics brought up here at Carpe Diem as well as Cafe Hayek and this seemed like as good a topic as any.

            Though I my dialogue may be with LarryG, I hope that others will point out any inaccuracies they feel I am making in applying economic theory.

          • trying to use basic economic theory in a real world scenario when the basic economic theory assumes real world influences to be null is an exercise in ignorance.

            you have to want to know the answer – not feed your biases.

            that takes a model… more than just a theory.

            don’t listen to me. listen to other PHD economists out there.

            the real world works “like” the theory predicts – on a macro scale.. but not in the details..

            minimum wage disrupts – no question about it.

            but it disrupts in a lot of different ways and the magnitude of the disruption is under disagreement in the economic community.

            because..the theory says nothing about the magnitude nor the types of disruptions.. only that there will be disruptions.

            people make up their own “believed” ‘disruptions’ according to their ideology… that’s not economics.

          • trying to use basic economic theory in a real world scenario when the basic economic theory assumes real world influences to be null is an exercise in ignorance.

            This is called ceteris paribus, Larry.

            All economics assumes this, to varying degrees.

            Indeed, most sciences use standard baselines, such as standard temperature and pressure (STP).

            The fact that you neither understand this, nor use the latin to describe it, is the signal to the rest of us.

          • re: “Indeed, most sciences use standard baselines, such as standard temperature and pressure (STP).”

            if you use std temperature/pressure in a trajectory model, you will miss not small but large.

            those things and other things dramatically affect results.

            “science” seeks the real answers.. and that means if you want an accurate model -you have to use detailed temperature and pressure tables – not “std”.

          • do you use indifference curves in minimum wage calculations?

            the thing about std pressure/temperature and issues like that Mesa is that you WANT TO KNOW even if it contradicts your beliefs.

            you seek the answer not the things that satisfy your beliefs.

            as soon as you talk about “indifference” with respect to people, you are assuming that all people react the same way and that’s simply not true.

            it’s a theory ..almost like a hypothetical but if you try to use it in the real word – you’re up against people who are not the same but different in their choices.

          • Indifference curves are the basis of supply and demand curves, Lar.

            You’ve swiped them several times today, without knowing what they are.

            They’re composite reactions across axes. Just like physics.

            So if I can calculate reasonable trajectory at 400 yds with my .338 Lapua, incorporating standard bullet drop gravitational forces (-9.8m/s^2) plus gyro spindrift?

            I’m pretty sure I can calculate the business cost of a minimum wage rise, wouldn’t you agree? Ceteris paribus, and windage stable?

          • the question is – can you model them so that your model can predict?

            if you cannot.. then they are a curiosity more than anything you can really use in a practical way or worse, they are something different folks can twist to suit their arguments.

            I’m agnostic on these things.

            I have no partisan or ideological bias that tugs me to believe one thing or another.

            I’m interested in what is the reality.

            Let me ask you – what specific theory is being used here by folks for minimum wage?

            I have my suspects, but how about you confirm it?

          • There is no “theory” here, Lar. This is micro 101.

            It’s tack-driving, some of it at 800+ yards, and you got spanked.

            These are tautologies backed by thousands of years of economic history.

          • LarryG,

            In response to your question, “what specific theory is being used here by folks for minimum wage?”

            My answer would be the Law of Demand and how that is applied in this case is described by Walter Williams, “Government Sanctioned Restraints that Reduce Economic Opportunities for Minorities”, Policy Review, July, 1978 (revised) ( http://www.unz.org/Pub/PolicyRev-1977q4-00007 ):

            “Federal and State minimum wage laws are an act of governmental intervention in the labor market that is intended to produce a pattern of events other than that produced in a free market. In practice legislated minima specify a legal minimum hourly wage that can be paid. The legislated minima raises the wage to a level higher than that which would have occurred with free market forces.

            “Legislative bodies have the power to legislate a wage increase, but unfortunately, they have not found a way to legislate a worker productivity increase. Further, while Congress can legislate the price of a labor transaction, it cannot require that the transaction actually be made. To the extent that the minimum wage law raises the pay level to that which may exceed the productivity of some workers, employers will predictably make adjustments in their use of labor. Such an adjustment will produce gains for some workers at the expense of other workers. Those workers who retain their jobs and receive a higher wage clearly gain. The adverse effects are borne by those workers who are most disadvantaged in terms of marketable skills, who lose their jobs and their income or who are not hired in the first place.

            “This effect is more clearly seen if we put ourselves in the place of an employer and ask: If a wage of $2.30 per hour must be paid no matter who is hired, what kind of worker does it pay to hire? Clearly the answer, in terms of economic efficiency, is to hire workers whose productivity is the closest to $2.30 per hour. If such workers are available, it clearly does not pay the firm to hire those workers whose output is, say, $1.50 per hour. Even if the employer were willing to train such a worker, the fact that the worker must be paid an amount higher than his output is worth plus the training cost incurred makes on-the-job training an unattractive proposition.

            “The impact of legislated minima can be brought into sharper focus if we ask the distributional question: Who bears the burden of the minimum wage? As suggested earlier, the workers who bear the heaviest burden are those that are the most marginal. These are workers who employers perceive as being less productive or more costly to employ than other workers. In the U.S. labor force, there are at least two segments of the labor force who share the marginal worker characteristics to a greater extent than do other segments of the labor force. The first group consists of youths in general. They are low skilled or marginal because of their age, immaturity and lack of work experience. The second group, which contains members of the first group, are some racial minorities such as blacks, who as a result of racial discrimination and a number of other socioeconomic factors, are disproportionately represented among low skill workers. These workers are not only made unemployable by the minimum wage, but their opportunities to upgrade their skills through on-the-job training are also severely limited.”

            I do not know if you consider that a valid theory or application of the theory but I am still very interested in finding out an answer to the question I posed. Restated, to leave out any mention of the minimum wage,

            What is the powerful and compelling theory that predicts the high unemployment rate of male teens, particularly black teens?

          • @JamesD

            I’ll give this to you. You are polite and articulate for sure.

            re: ” “The impact of legislated minima can be brought into sharper focus if we ask the distributional question: Who bears the burden of the minimum wage? As suggested earlier, the workers who bear the heaviest burden are those that are the most marginal. These are workers who employers perceive as being less productive or more costly to employ than other workers. In the U.S. labor force”

            this is intuitive but is it the ONLY possible impact? Is it possible there are other possible impacts? How do you know which of the impacts occur for a given situation ?
            Is it what you believe or is there some algorithm or equation?

            do you believe that the bottom tier McDonalds works in Williston who receives twice as much in pay than his counterpart in Philadelphia gets paid more than he is worth or more than he is productive compared to other McDonalds workers not in Williston?

            Finally, in terms of the “free market”, do you believe that government laws and regulations affect the free market? Do you believe that because they do that none are justified?

          • JamesD

            Thanks for the heads up. I anticipate as much but I’ve been wanting to jump into the economic topics brought up here at Carpe Diem as well as Cafe Hayek and this seemed like as good a topic as any.

            This is an excellent topic, as there seems to be plenty of discussion whenever something on min wage is posted. Your comments seem very sensible. It’s hard to go wrong reading Profs Perry and Boudreaux.

          • re: ” It’s hard to go wrong reading Profs Perry and Boudreaux”

            A good number of other PHD Economists disagree with Profs Perry and Boudreaux on a variety of issues though and it’s important to recognize that as both Profs tend to be opposed to government on a wide variety of issues because govt, by their nature tend to pass laws and regs that affect the free market. Other mainstream, middle-of-road economists see govt as necessary and regulations as trade-offs – like the minimum wage. Every single OECD country in the world has a government and staffs of economic advisors and every single one of them – sees the minimum wage as a reasonable exercise of govt.

          • LarryG,

            re: “this is intuitive but is it the ONLY possible impact? Is it possible there are other possible impacts?”

            Yes, there are other possible impacts and I do not believe I have stated that there can be only one possible impact. Because you stated this as intuitive and did not state that this is not a possible impact can I assume that you agree that it is a possible impact? If you don’t agree, why not?

            If this is a possible impact it also happens to be an impact that can be used to explain why black male teen unemployment is so high. So absent any other robust explanation as to why black male teen unemployment is so high, I am going to continue to focus my energies on better understanding the theory, data, and arguments laid out by Prof’s Sowell, Friedman, Williams, Boudreaux, Perry, and others.

            Which brings me back to the question I’ve asked a few times, restated again for even more clarity,

            What is the powerful and compelling theory, that does not include effects of the minimum wage, that predicts the high unemployment rate of male teens, particularly black teens?

            Please do not take my continuous journey back to this question as some form of litmus test. I know you are very active commentator on this blog so I assume you seek knowledge from many different sources, one of which may have a explanation worth reading.

            As for the other questions you posed to me, I will answer some of them, but that post is going to be long and I don’t want it to distract from the comments above.

          • re: “this is intuitive but is it the ONLY possible impact? Is it possible there are other possible impacts?”

            Yes, there are other possible impacts and I do not believe I have stated that there can be only one possible impact. Because you stated this as intuitive and did not state that this is not a possible impact can I assume that you agree that it is a possible impact? If you don’t agree, why not?”

            what I do not agree on is anyone saying that is but one possible impact and/or to imply or assert that the primary impact is harm to low wage workers and I disagree because if we admit there are other possible impacts, how an we conclude anything about one in particular without a proper study of the DIRECT impacts to a business – not regional scale impacts that have many other factors in play.

            “If this is a possible impact it also happens to be an impact that can be used to explain why black male teen unemployment is so high. So absent any other robust explanation as to why black male teen unemployment is so high, I am going to continue to focus my energies on better understanding the theory, data, and arguments laid out by Prof’s Sowell, Friedman, Williams, Boudreaux, Perry, and others.”

            because it’s basically a guess that is aligned with one’s biases as opposed to a rigorous study that shows ALL the impacts and their percentages for the business.

            Profs Sowell, Friedman, Williiams, et al are a small group who have an almost religious belief in their views and if you read them – they predominately DO attribute ONE impact.

            a majority of other economists in this country and around the world do not agree with them.

            don’t mistake this. I’m saying that there is not a consensus that there is disagreement and that one school of economics, the Austrian school of which the Profs are adherents basically just assert that it can be the only impact in almost all of their words except of very late that Perry and Bordeaux have acknowledged the possibility of other impacts.

            Which brings me back to the question I’ve asked a few times, restated again for even more clarity,

            “What is the powerful and compelling theory, that does not include effects of the minimum wage, that predicts the high unemployment rate of male teens, particularly black teens?”

            there is no theory that says that. It is primarily a belief of some folks.

            “Please do not take my continuous journey back to this question as some form of litmus test. I know you are very active commentator on this blog so I assume you seek knowledge from many different sources, one of which may have a explanation worth reading.”

            I pretty much reject ideology and zealotry and I am a believer in models that use economic theory but then add the things the theory does not account for that we know exist in the real world.

            so the studies I think that have merit are the ones that look at specific businesses staffing levels – before and after a minimum wage increase – and studying jurisdictions in the same MSA but in different jurisdictions with different minimum wages. (MSA is metropolitan statistical area – basically an urbanized region that is economically related.

            I do not trust “studies” that do what I call “hand waving” about things like regional unemployment because there are so many other things that affect that. I prefer studies that are tightly focused on the specific businesses affected.

            As for the other questions you posed to me, I will answer some of them, but that post is going to be long and I don’t want it to distract from the comments above.

            You are polite and I respect and appreciate that in a person no matter how much we might agree or disagree…

          • LarryG,

            re: “do you believe that the bottom tier McDonalds work(er) in Williston who receives twice as much in pay than his counterpart in Philadelphia gets paid more than he is worth or more than he is productive compared to other McDonalds workers not in Williston?”

            I believe the bottom tier McDonalds worker in Williston gets paid what he is worth, in the Williston economy, and that his counterpart in Philly, more than likely, gets paid more than he is worth in the Philly economy.

            I use the term, “more than likely”, in the case of the worker in Philly because they have high unemployment of low skilled workers in Philly but that high supply of workers who don’t have a place to work doesn’t result in a decrease in labor wages for bottom tier McDonalds workers due to the minimum wage laws. Contrastingly, the minimum wage earned by any worker in Williston is due to the demand for workers and so it is more representative of a true market clearing wage.

            The question you asked is a result of a separate discussion thread to this blog entry in which you stated,

            “obviously the very same “low skill” workers in Williston earn TWICE as much as the very same “low skill” workers in other places, right?

            “in terms of higher prices in Williston – does McDonalds get rid of minimum wage workers to save on costs and keep their prices down?”

            The general principle to apply here is that the price which one producer is willing to pay for labor becomes the price that other producers are FORCED to pay for that same labor. In Williston, the higher labor cost is due to new wealth in the Willston economy that previously didn’t exist. This new wealth from the shale oil industry is bidding labor resources away from other businesses and those businesses have to increase what they are willing to pay for labor in order to get the labor they need. And people who want to continue to buy McDonalds food will pay more for the food so that McDonalds can pay for the higher labor costs. But paying more money for a hamburger, or any other product, in Williston isn’t an issue because of the new wealth in the economy.

            But there is no new wealth coming into Philly if the minimum wage is indexed up by the gov’t and, hence, there is no new wealth which will keep the overall demand for products up if the price of those products increase. We do not know which products will have less demand as prices rise but that doesn’t matter. Regardless of if it’s hamburgers, or cell phone plans, or movie going, the end result is that someone is going to have less money so in the end, the economy as a whole suffers.

          • re: “do you believe that the bottom tier McDonalds work(er) in Williston who receives twice as much in pay than his counterpart in Philadelphia gets paid more than he is worth or more than he is productive compared to other McDonalds workers not in Williston?”

            I believe the bottom tier McDonalds worker in Williston gets paid what he is worth, in the Williston economy, and that his counterpart in Philly, more than likely, gets paid more than he is worth in the Philly economy.

            so even if the guy in Williston is not as productive as his counterpart in Philly – he is still “worth” more?

            “I use the term, “more than likely”, in the case of the worker in Philly because they have high unemployment of low skilled workers in Philly but that high supply of workers who don’t have a place to work doesn’t result in a decrease in labor wages for bottom tier McDonalds workers due to the minimum wage laws. Contrastingly, the minimum wage earned by any worker in Williston is due to the demand for workers and so it is more representative of a true market clearing wage.”

            we agree.

            The question you asked is a result of a separate discussion thread to this blog entry in which you stated,

            “obviously the very same “low skill” workers in Williston earn TWICE as much as the very same “low skill” workers in other places, right?

            “in terms of higher prices in Williston – does McDonalds get rid of minimum wage workers to save on costs and keep their prices down?”

            The general principle to apply here is that the price which one producer is willing to pay for labor becomes the price that other producers are FORCED to pay for that same labor. In Williston, the higher labor cost is due to new wealth in the Willston economy that previously didn’t exist. This new wealth from the shale oil industry is bidding labor resources away from other businesses and those businesses have to increase what they are willing to pay for labor in order to get the labor they need. And people who want to continue to buy McDonalds food will pay more for the food so that McDonalds can pay for the higher labor costs. But paying more money for a hamburger, or any other product, in Williston isn’t an issue because of the new wealth in the economy.

            all true but the question is does the business owner in Williston do anything different about higher wages than the business owner in Philly does about higher wages?

            why? why not? does it matter what caused the higher wages in terms of what the business owner might have to do in response?

            put aside for the moment the “rightness” or “wrongness” of the govt mandating the wage and just look at any business anywhere that is experiencing higher wage rates… regardless of the reason that causes them.

            does a business do anything different in response to higher wages no matter the cause of them?

          • LarryG,

            re: “Is it what you believe or is there some algorithm or equation?”

            I know of no algorithm or equation for this and I would be highly suspect of one if it were presented to me due to the complexity of the interactions it would be trying to model.

            To further explain, through illustration, the complexities to which I’m referring, I’m going to copy this section of Thomas Sowell’s, “Basic Economics”, 4th ed., pp 21-23. This is also where Prof. Sowell explains the principle regarding the setting of prices which I used in my previous post replying to your question about the wages of McDonalds workers in Williston.

            “We now need to look more closely at the process by which prices allocate scarce resources that have alternative uses. The situation where the consumers want product A and don’t want product B is the simplest example of how prices lead to efficiency in the use of scarce resources. But prices are equally important – or more important – in more common and more complex situations, where consumers want both A and B, as well as many other things, some of which require the same ingredients in their production. For example, consumers not only want cheese, they want ice cream and yogurt, as well as other products made from milk. How do prices help the economy to determine how much milk should go to each of these products?

            “In bidding for cheese, ice cream, and yogurt, consumers are in effect also bidding indirectly for the milk from which these products are produced. In other worlds, money that comes in from the sales of these products is what enables the producers to again buy milk to use to continue making their respective products. When the demand for cheese goes up, cheese-makers use their additional revenue to bid away some of the milk that before went into making ice cream or yogurt, in order to increase the output of their own product to meet the rising demand. When the cheese-makers demand more milk, this increase demand forces up the price of milk – to everyone, including the producers of ice cream and yogurt. As the producers of theses other products raise the prices of ice cream and yogurt to cover the higher cost of the milk that goes into them, consumers are likely to buy less of these other dairy products at these higher prices.

            “How will each producer know just how much milk to buy? Obviously they will buy only as much milk as will repay its higher costs from the higher prices of these dairy products. If consumers who buy ice cream are not as discouraged by rising prices as consumers of yogurt are, then very little of the additional milk that goes into making more cheese will come from a reduced production of ice cream and more will come from a reduced production of yogurt.

            “What this all means as a general principle is that the price which one producer is willing to pay for any given ingredient becomes the price that other producers are forced to pay for that same ingredient. This applies whether we are talking about the milk that goes into making cheese, ice cream, and yogurt or we are talking about the wood that goes into making baseball bats, furniture, and paper [or, I will add, the low skilled labor that can be used by either a shale oil company or a McDonalds operating around Williston]. If the amount of paper demanded doubles, this means that the demand for wood pulp to make paper goes up. As the price of wood rises in response to this increased demand, that in turn means that the prices of baseball bats and furniture will have to go up, in order to cover the higher costs of the wood from which they are made.

            “The repercussions go further. As the price of milk rises, dairies have incentives to produce more milk, which can mean buying more cows, which in turn can mean that more cows will be allowed to grow to adulthood instead of being slaughtered for meat as calves. As the price of wood rises, forestry companies have incentives to plant more trees. Nor do the repercussions stop there. As fewer cows are slaughtered, there is less cowhide available, and the prices of baseball gloves can rise because of supply and demand. As forestry companies plant more trees, they buy up more land on which to plant those trees, so that the price of land on which to build houses goes up. Such repercussions spread throughout the economy, much as waves spread across a pond when a stone drops into the water. By the same token, if someone figures out a way to produce cereal more cheaply, or how to create new foods that are cheaper or better substitutes for cereal, the repercussions of that spread out in all directions as well.

            “No one is at the top coordinating all of this, mainly because no one would be capable of following all these repercussions in all directions. Such a task has proven to be too much for central planners in country after country. Economists have won Nobel Prizes for figuring out these complex interactions throughout the economy theoretically, using higher mathematics – and reality is even more complex then theory. In the world of reality, even a modest and temporary set of government controls limited to the American petroleum industry in the 1970s led to thousands of individual regulations to deal with the repercussions of these policies and to innumerable official “clarifications” to deal with the confusion caused by the regulations. The overwhelming complexity of economic repercussions throughout the economy is rendered manageable when millions of people each deal with only a relatively small number of transactions and leave the coordination of the whole economy to the fluctuations of prices.”

          • re: “Is it what you believe or is there some algorithm or equation?”

            I know of no algorithm or equation for this and I would be highly suspect of one if it were presented to me due to the complexity of the interactions it would be trying to model.

            but you’d instead do a seat-of-the-pants guess?

            To further explain, through illustration, the complexities to which I’m referring, I’m going to copy this section of Thomas Sowell’s, “Basic Economics”, 4th ed., pp 21-23. This is also where Prof. Sowell explains the principle regarding the setting of prices which I used in my previous post replying to your question about the wages of McDonalds workers in Williston.

            “We now need to look more closely at the process by which prices allocate scarce resources that have alternative uses. The situation where the consumers want product A and don’t want product B is the simplest example of how prices lead to efficiency in the use of scarce resources. But prices are equally important – or more important – in more common and more complex situations, where consumers want both A and B, as well as many other things, some of which require the same ingredients in their production. For example, consumers not only want cheese, they want ice cream and yogurt, as well as other products made from milk. How do prices help the economy to determine how much milk should go to each of these products?

            “In bidding for cheese, ice cream, and yogurt, consumers are in effect also bidding indirectly for the milk from which these products are produced. In other worlds, money that comes in from the sales of these products is what enables the producers to again buy milk to use to continue making their respective products. When the demand for cheese goes up, cheese-makers use their additional revenue to bid away some of the milk that before went into making ice cream or yogurt, in order to increase the output of their own product to meet the rising demand. When the cheese-makers demand more milk, this increase demand forces up the price of milk – to everyone, including the producers of ice cream and yogurt. As the producers of theses other products raise the prices of ice cream and yogurt to cover the higher cost of the milk that goes into them, consumers are likely to buy less of these other dairy products at these higher prices.

            “How will each producer know just how much milk to buy? Obviously they will buy only as much milk as will repay its higher costs from the higher prices of these dairy products. If consumers who buy ice cream are not as discouraged by rising prices as consumers of yogurt are, then very little of the additional milk that goes into making more cheese will come from a reduced production of ice cream and more will come from a reduced production of yogurt.

            “What this all means as a general principle is that the price which one producer is willing to pay for any given ingredient becomes the price that other producers are forced to pay for that same ingredient.

            not necessarily – have you heard of WalMarts pricing power? they get stuff for cheaper than others because they command a bigger share of the market, right?

            This applies whether we are talking about the milk that goes into making cheese, ice cream, and yogurt or we are talking about the wood that goes into making baseball bats, furniture, and paper [or, I will add, the low skilled labor that can be used by either a shale oil company or a McDonalds operating around Williston]. If the amount of paper demanded doubles, this means that the demand for wood pulp to make paper goes up. As the price of wood rises in response to this increased demand, that in turn means that the prices of baseball bats and furniture will have to go up, in order to cover the higher costs of the wood from which they are made.

            “The repercussions go further. As the price of milk rises, dairies have incentives to produce more milk, which can mean buying more cows, which in turn can mean that more cows will be allowed to grow to adulthood instead of being slaughtered for meat as calves. As the price of wood rises, forestry companies have incentives to plant more trees. Nor do the repercussions stop there. As fewer cows are slaughtered, there is less cowhide available, and the prices of baseball gloves can rise because of supply and demand. As forestry companies plant more trees, they buy up more land on which to plant those trees, so that the price of land on which to build houses goes up. Such repercussions spread throughout the economy, much as waves spread across a pond when a stone drops into the water. By the same token, if someone figures out a way to produce cereal more cheaply, or how to create new foods that are cheaper or better substitutes for cereal, the repercussions of that spread out in all directions as well.

            “No one is at the top coordinating all of this, mainly because no one would be capable of following all these repercussions in all directions. Such a task has proven to be too much for central planners in country after country. Economists have won Nobel Prizes for figuring out these complex interactions throughout the economy theoretically, using higher mathematics – and reality is even more complex then theory. In the world of reality, even a modest and temporary set of government controls limited to the American petroleum industry in the 1970s led to thousands of individual regulations to deal with the repercussions of these policies and to innumerable official “clarifications” to deal with the confusion caused by the regulations. The overwhelming complexity of economic repercussions throughout the economy is rendered manageable when millions of people each deal with only a relatively small number of transactions and leave the coordination of the whole economy to the fluctuations of prices.”

            this is all basic economics … and I totally agree with it but you have to remember – these are theories that are based on the premise of perfect markets with perfect competition and the real world – as you said earlier – is much more complex.

            for instance, a milk producer cannot instantly change his production from milk to cheese.

            He may have committed ahead of time to a certain amount of equipment for cheese that is capped at some percentage and if he wants to produce more, he’ll need more equipment and that takes investment – as well as risk in terms of whether he can count on increased sales of cheese in the future or whether a competitor that already has excess capacity will wipe him out… etc.

            the theories that Sowell and others promote are illustrative and based on simple scenarios that holds nulll many real world influences on purpose so as to keep the theory explanation – conceptual.

            when you actually want to see the theory in action – you need a model – that incorporates the theory PLUS allows the things the theory assumed were static – to vary – as they would in the real world.

            Economists tend to come from different “schools” and Sowell, Bordeaux. and Perry tend to lean towards the Austrian school which does not care for models but tends towards theory -and logic.. “thinking one’s way through something” but they get into fierce arguments not only with others from other schools but even among themselves.

            I prefer the real world… i want to see real data and I want to see a model that becomes honed and improved to the point where it can predict some things.. accurately.

            it’s complex but its not impossible and I show you this to give an example:

            http://icons.wxug.com/hurricane/2013/sandy-historical-tracks.jpg

            every one of these tracks is a model and all of these models are based on the same theory – but each model simulates real world conditions in different ways and while none of the models is perfect – they are still useful and thats why I like models over pure theory.

          • LarryG,

            First let me say that I too respect and appreciate the politeness with which you have responded to my inquiries.

            To my question, “What is the powerful and compelling theory, that does not include effects of the minimum wage, that predicts the high unemployment rate of male teens, particularly black teens?”

            You replied,

            “there is no theory that says that. It is primarily a belief of some folks.”

            I believe you may have misread my question as I don’t think you’re saying that the high unemployment rate of male teens in only some people’s “belief”. I am not asking if you agree with the theory that high male teen unemployment correlates to minimum wage laws, I am asking what theory, or model, have you found that predicts that there should be such a high level of male teen unemployment, that the unemployment rate should be so different amongst races, and have risen and fallen as it has over the last 50+ years.

            If you do not have such a theory or model to present then I am going to have to go with the explanation laid out by Williams even if it might be considered a “seat-of-the-pants guess”. This is because I believe that the high unemployment rates amongst teens, particularly male teens, leds to many other social ills and our society is being hurt because of those.

          • To my question, “What is the powerful and compelling theory, that does not include effects of the minimum wage, that predicts the high unemployment rate of male teens, particularly black teens?”

            You replied,

            “there is no theory that says that. It is primarily a belief of some folks.”

            I believe you may have misread my question as I don’t think you’re saying that the high unemployment rate of male teens in only some people’s “belief”. I am not asking if you agree with the theory that high male teen unemployment correlates to minimum wage laws, I am asking what theory, or model, have you found that predicts that there should be such a high level of male teen unemployment, that the unemployment rate should be so different amongst races, and have risen and fallen as it has over the last 50+ years.

            I do not know of any theory that says if the minimum wage is X then Y teens will be unemployed. I only know of people who say this but other than their belief, there is little real evidence – to the degree that you can say with any assurance that X increase in wages will generate Y decrease in employment.

            If you do not have such a theory or model to present then I am going to have to go with the explanation laid out by Williams even if it might be considered a “seat-of-the-pants guess”. This is because I believe that the high unemployment rates amongst teens, particularly male teens, leds to many other social ills and our society is being hurt because of those.

            “I believe”.. right?

            I also believe that high unemployment rates with teens leads to crime and other ills but I’m not convinced that minimum wage is the sole cause of it.

            the teen unemployment rate seems to be a long term thing and as far as I can tell no real correlation between places with minimum wage rules.

            there are many factors that go into teen unemployment besides one factor. Even if minimum wage is actually implicated.. do we have a clue what increased wage contributes to what percent unemployment?

            People can make up all kinds of stuff …even find correlations but if such a thing were actually true – wouldn’t you be able to predict for a given minimum wage increase the percent of teen unemployment?

            then we have this:

            http://www.minimumwage.com/in-your-state/north-dakota/

            teen unemployment in North Dakota is going DOWN even though wages are going UP.

            doesn’t that imply that regardless of wages or productivity or low skill – that in a tight labor market people WILL hire low skill, inexperienced, low productivity teens for HIGHER than the minimum wage and that in a flush labor market, teens will be the last hired no matter the wage.

            If employers have the option of hiring more experienced, more productive workers, they will and in a flush labor market – that relegates teens to the bottom.

            you wouldn’t hire those teens – in a flush labor market – even if there was no minimum wage – you’d still get the employees that are better than teens…

            this is why I think for any given location – it matters what the labor market is and if you really want an accurate study – you focus on the businesses actually affected by the minimum wage rules not the regional unemployment rates (regardless of wage).

            If businesses truly lay off people when minimum wage goes up – it should be relatively easy to verify.. before and after.

          • LarryG,

            I am a bit confused by this reply of yours ( http://www.aei-ideas.org/2013/12/raising-minimum-wage-would-be-disastrous-for-minorities-espeically-black-male-teens-whose-jobless-rate-is-now-44-3/comment-page-1/#comment-365136 )

            One of my paragraphs ended:

            “And people who want to continue to buy McDonalds food will pay more for the food so that McDonalds can pay for the higher labor costs. But paying more money for a hamburger, or any other product, in Williston isn’t an issue because of the new wealth in the economy.”

            To that paragraph you replied:

            “all true but the question is does the business owner in Williston do anything different about higher wages than the business owner in Philly does about higher wages?

            why? why not? does it matter what caused the higher wages in terms of what the business owner might have to do in response?”

            But the conclusion (i.e. that it isn’t an issue to increase the prices of any products in Williston in order to pay for the increased labor costs in Williston) answers the questions you asked. If the business owner knows that he can pass the higher labor costs onto his customers then that is what he will do (or at least he’ll pass the majority of the increase to his customers). This is possible because there is new wealth in the local economy. The same new wealth that is raising the local labor price. In Philly no such new wealth exists so the business owner is not going to be able to pass on near as much of any new labor costs to his customers through higher prices for the products he is selling. If he tried he would see a substantial greater reduction in demand for his product then would be seen by the same business in Williston.

          • One of my paragraphs ended:

            “And people who want to continue to buy McDonalds food will pay more for the food so that McDonalds can pay for the higher labor costs. But paying more money for a hamburger, or any other product, in Williston isn’t an issue because of the new wealth in the economy.”

            To that paragraph you replied:

            “all true but the question is does the business owner in Williston do anything different about higher wages than the business owner in Philly does about higher wages?

            why? why not? does it matter what caused the higher wages in terms of what the business owner might have to do in response?”

            But the conclusion (i.e. that it isn’t an issue to increase the prices of any products in Williston in order to pay for the increased labor costs in Williston) answers the questions you asked.

            any amount? no matter your competitors?

            are we saying that in some areas of the country that costs and prices don’t really matter, so employers will pay whatever they have to for labor and just increase the price whatever it takes and people will still buy it no matter what price?

            the supply/demand theory types might complain about that.

            “If the business owner knows that he can pass the higher labor costs onto his customers then that is what he will do (or at least he’ll pass the majority of the increase to his customers). This is possible because there is new wealth in the local economy. The same new wealth that is raising the local labor price. In Philly no such new wealth exists so the business owner is not going to be able to pass on near as much of any new labor costs to his customers through higher prices for the products he is selling.”

            I’m not sure about the “new wealth” idea.

            In any section of the country – no matter whether they have “new wealth” or not, there can be cost and price increases for all manner of reasons that employers will have to try to pass on and people, even though not wealthy, may may personal choices to continue to buy higher priced fast food and cut back on something else.

            no business that continues to have demand for it’s products is going to cut employees that they need to meet that demand.

            you cut employees.. you get angry lines of waiting customers who leave.

            so you cut people AFTER demand has actually slowed and you no longer need the extra people.

            if you cut people in advance based on what you think might happen, you actually cut the people you need to meet current demand… you’re basically deciding to cut back without even trying to pass on the increased costs.

            your competitors won’t do that. They’ll try to pass on the costs and if there actually is “elasticity”, and people decide they want fast food even at higher prices than ..say one less lottery ticket.. they’ll make that choice.

            some might say that will cause unemployment of whoever is selling lottery tickets.. maybe.. but you still need people to sell those tickets just like you still need people to stock shelves even though prices on what’s on the shelves has gone up… maybe less hours for the stocker.. maybe people still buy the stuff that went up and cut back by buying less expensive replacement tires, etc, or cut back their cell phone plan…

            they do all of these things anytime prices go up even when prices go up because the company thinks it can raise prices for something people want – like cable TV.. keep adding more and more extra fees because they have decided that people will pay the higher prices..rather than give up cable.

            I just do not think it is so simple as people think it is on minimum wage and it’s not just me.. a large number of PHD economists agree…

            Question B: The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

            (answers from a panel of expert economists):

            strongly agree – 5%
            agree – 42%
            uncertain 32%
            disagree 8%
            strongly disagree 3%

        • In ND, the demand for services is sufficiently high as to support higher wages… higher, even, than what King Obama is calling for.

          But that won’t be true in all cities. People will only pay so much for a burger (for example). That’s not to say that people will stop eating if the minimum wage is raised by 25 cents. But there will be some behavioral change “at the margin”. There’s a continuum. Raise the minimum wage enough, and the rate of growth in the number of fast food restaurants will slow. Raise it some more, and some will go out of business. Either way, fewer jobs will be available at the higher mandated wage.

          • ” In ND, the demand for services is sufficiently high as to support higher wages… higher, even, than what King Obama is calling for.”

            in terms of a business’s NEED for people to produce to meet demand – what difference does it make WHY a business’s costs have increased ?

            and why when wages increase because of a shortage of labor, businesses choose to pass on those costs rather than lay off people – like the claim is with mandated wage increases?

            why in one case -they pass on costs and in the other case they lay off and in both cases wages have gone up?

        • Larry,

          Wages and other production factors represent the price floor for a businesses product, this is the lowest price they can sell at. Consumer demand represents the products price ceiling, the most a company can get away with charging and still make a sale. Profit is the range between the floor and the ceiling, as the floor comes up (for wages or any other reason), the living space in between for the owners shrinks, if the floor meets the ceiling, obviously the business is dead, but long before that, the owners will become uncomfortable with the space and exit it.

          Consumer demand is completely out of the businesses hands, they can’t control it, they can’t even predict it exactly, they have to guess at it. The price floor items are in their hands, and so when one item is pushed up, rather than increase prices to the consumer, the business will seek items in their control to cut, either they will cut staff, or cut other items in the production factors. The last thing they will do is raise prices for fear that they will kill demand. So why can ND get away with higher wages? Demand is being driven by new money in the area, and businesses haven’t found the upper limit yet and so have more room to offer higher wages. Why can’t other areas do the same? Unless they have some new influx of cash in the area, consumer demand is already pretty well figured out, and any price increase will be punished by consumers. If they are forced to raise wages, they will have to balance that cost on the production side.

          • @Vince

            ” Larry,

            Wages and other production factors represent the price floor for a businesses product, this is the lowest price they can sell at. Consumer demand represents the products price ceiling, the most a company can get away with charging and still make a sale. Profit is the range between the floor and the ceiling, as the floor comes up (for wages or any other reason), the living space in between for the owners shrinks, if the floor meets the ceiling, obviously the business is dead, but long before that, the owners will become uncomfortable with the space and exit it.”

            I totally agree but again – the basic theory does not account for other real world influences – like elasticity nor the fact that a business might sell something at a loss if they can make it up on another product.

            if you were dealing with ONE commodity ONLY in that whole market with every consumer being an exact clone who is shopping ONLY for price and nothing else, then the theory holds.

            businesses exit NOT when they see their costs going up for one item but when all their costs are higher than their ability to pass them on to consumers.

            Even then, it’s the less competitive of the businesses that go first while others actually benefit by getting the sales of the closed business.

            again.. if you had only one business selling only one product and consumers who only bought based on one thing – price – the theory would be 100% correct.

            “Consumer demand is completely out of the businesses hands, they can’t control it, they can’t even predict it exactly, they have to guess at it.”

            agree sort of. A business can and does offer “specials” and a wide range of things to appeal to consumers..

            ” The price floor items are in their hands, and so when one item is pushed up, rather than increase prices to the consumer, the business will seek items in their control to cut, either they will cut staff, or cut other items in the production factors.”

            I agree but they will not cut staff in anticipation… they wait until it’s clear that the demand is insufficient to justify the staff and then fall back.. and they MAY cut the higher income staff to save costs…

            ” The last thing they will do is raise prices for fear that they will kill demand.”

            take North Dakota where ALL of the businesses are subject to the SAME high labor costs. Is any one business disadvantaged competitively in raising prices – as long as their prices are competitive with the other businesses in the area?

            when you exit an interstate and you look at the service stations gas prices, what do you usually see? Sometimes you’ll see higher prices than you’d like but at ALL of the competitors, right?

            ” So why can ND get away with higher wages? Demand is being driven by new money in the area, and businesses haven’t found the upper limit yet and so have more room to offer higher wages.”

            they have competition for wages …

            ” Why can’t other areas do the same? Unless they have some new influx of cash in the area, consumer demand is already pretty well figured out, and any price increase will be punished by consumers. If they are forced to raise wages, they will have to balance that cost on the production side.”

            what if in some other area – ALL of the competitors are subject to the SAME increase in costs?

            how does that change the competition?

            how does that change demand if all competitors increase their prices but they remain competitive with respect to each other?

    • But you can replace folks with automation: For example assume McDonalds put in order taking screens, that also worked like the self service cash registers do for cash. Bingo you don’t need as much counter staff. Do the same for all fast food and a lot of jobs evaporate. Essentially for every job there is a price at which it is cheaper to automate it away.
      As a long term example recall back when long distance calls took an operator, it is the ability to self dial that makes telephone calls that much cheaper (recall back then there was person to person or station to station and the person to person cost more because an operator had to wait on the line until the called party came on line.
      Or consider the demise of most of the domestic travel agent business, to the web.
      One could go on and on, but at some wage a carbon based worker can be replaced by a silicon based worker.

      • And of course when all those Operators were no longer needed AT&T shrunk in size so those jobs were lost forever. (sarcasm)

        With the improvements in technology the telecom industry has more jobs then ever, even as our costs go down!

      • re: ” But you can replace folks with automation: For example assume McDonalds put in order taking screens, that also worked like the self service cash registers do for cash. Bingo you don’t need as much counter staff. Do the same for all fast food and a lot of jobs evaporate.”

        that’s true and I do not discount it – for ANY scenario – but what do you do when those screens go down – and they will?

        • Note that if the computers went down today at McDonalds, they would have to stop its just who pushes the buttons, today an employee, in that scenario the customer, just like who swipes the credit card.

          • the one thing about humans is that they are infinitely more capable of adapting to casualty situations than machines.

            As long as they can fry burgers and fries and take money they can operate. You can’t do that with machines that break down.

            No employer wants increased costs whether it’s electricity or natural gas or new sales taxes or wages.

            but none of them are going to cut back on their employees until and unless they see reduced demand -even with price increases.

            they do the price increases to pay for their increased costs – and if those increases result in less demand, THEN they cut.

            but what and who they cut is not pre-ordained. If minimum-wage gives them more value than a higher paid worker -they may well cut the higher-cost worker instead.

            In all of these studies of minimum wage – there is still no general rule of thumb that.. say for a dollar increase in wage, it will result in some proportional increase in the price of a burger (for instance).

            it would be easier to form an opinion if solid numbers were part of it but we have instead, this idea that no matter what the increase in wages is – that it will result in layoffs and that’s just plain nutty as it’s well proven that increased prices in North Dakota to not result in layoffs.. even though wages are doubled.

          • If you think McDonald employees are low skill, wait until customers try to order themselves, then you will really see low skill. They might need more employees just to show the customers what to do.

            First press the picture of what you want to eat
            Next slide in your EBT card over here.
            Huwah, could you repeat that?

          • re: ” First press the picture of what you want to eat
            Next slide in your EBT card over here.
            Huwah, could you repeat that?”

            they’re doing this right now at Sheetz and WaWa.

            regardless of whether there are new minimum wage rules.

        • In 2013, Idiot Troll scratches nuts and then says: – but what do you do when those screens go down – and they will?

          Derr, them fancy, newfangled compoooters!

          Redundancy. Factor annual loss expectancy when calculating return on investment.

          • It is pretty funny, since the registers they have now are all computers, and are linked to a central computer, which pushes order info to the cook staff on another computer. There must at least some level of reliability or Taco Bell, wouldn’t have the dang things installed.

          • oh they do – and it’s a CONTINUOUS process that is ONGOING for each business not something they do only when there are cost increases.

            every competitor works to squeeze more and more productivity and profit out of their sales pro forma.

          • “every competitor works to squeeze more and more productivity and profit out of their sales pro forma.”

            - and you can’t understand why business owners would hire less low skilled laborers when their cost goes up.

      • Workers have to create, build, ship, install, improve, maintain, operate, and manage those machines.

        Currently, in the U.S., there’s an overabundance of capital and an education boom.

        Do you want trillions of dollars of idle capital kept in unproductive assets, while overeducated Americans work at low-skilled jobs?

        • You have no idea what you just wrote, which is just fine, cuz none of the rest of us know either. You and Larry are on a roll with this free association, string random thoughts together stuff today.

          Are you both hanging out in Uganda or something?

      • the fact that a large number of PHD economists do not agree, not withstanding…

        what’s stupid is ideological beliefs regardless of facts and realities.

        there is no question what so ever that increase in minimum wage has economic impacts. There are huge questions as to what they are and total idiocy to believe they can only be one thing – that cannot even be proven with objective studies.

        http://www.economist.com/news/finance-and-economics/21567072-evidence-mounting-moderate-minimum-wages-can-do-more-good-harm

          • No Larry, there is much. much more that contradicts yours, for the reasons (and more) everyone has shown you here, and on the other thread.

            You would do well to heed their advice and lessons, particularly given the current 14% unemployment rate, resulting from your policies.

          • re: ” No Larry, there is much. much more that contradicts yours, for the reasons (and more) everyone has shown you here, and on the other thread.”

            no MESAIDIOT.. it’s NOT my study guy.

            You would do well to heed their advice and lessons, particularly given the current 14% unemployment rate, resulting from your policies.

            I’m pointing out other studies fool.

            I have no role in policies.

            you idiots are so hard over on your ideology that you’re incapable of objective thought.

          • And most of those studies are flawed for the very same reason we dump on you. Pure confirmation bias on your part, and zero economic analysis ability, because you have no knowledge or even curiosity.

            The unemployment rate is now at least 14% using the very “theories” you espouse.

            What does that say about those theories, Larry? What does that say about you, that you cannot even see the direct effects of your own policies in front of your face?

            Larry, I sincerely hope you take this learning moment, and choose just once to open your mind to the possibility that you, and many if not most of the authors you cite, are wrong.

            Because they are, as are you. The evidence is right there in front of you.

          • re: ” And most of those studies are flawed for the very same reason we dump on you. Pure confirmation bias on your part, and zero economic analysis ability, because you have no knowledge or even curiosity.”

            so all the studies that contradict your “beliefs” are “flawed”?

            “The unemployment rate is now at least 14% using the very “theories” you espouse.”

            what the hell does the unemployment rate have to do with the price of tea in china you dolt?

            “What does that say about those theories, Larry? What does that say about you, that you cannot even see the direct effects of your own policies in front of your face?”

            theories are important because they do form the basis for economics but theories by themselves are incapable of dealing with real world dynamics because the theory itself ignores those influences.

            this is why you have models. a trajectory model incorporates the theory but it goes beyond that to also incorporate the real world influences and you have to do that if you want something that is capable of accuracy and prediction.

            “Larry, I sincerely hope you take this learning moment, and choose just once to open your mind to the possibility that you, and many if not most of the authors you cite, are wrong.”

            the only ‘learning” moment here is just how dumb dumbasses can be in trying to use a basic theory to explain real world events.

            “Because they are, as are you. The evidence is right there in front of you.”

            there are quite a number of real economists in this world that will tell you the same thing. theory alone is dumb – it’s for simpletons.

    • Wages depend largely on worker productivity (not just skills, but how those skills are used to produce profit). For example:

      “One of the busiest McDonald’s in the country is 225 miles northwest of here, in Williston, N.D., population 14,716…Dalrymple said the Williston McDonald’s is the “No. 2 grossing” store in the country”

      [http://www.nytimes.com/gwire/2011/06/29/29greenwire-big-mac-is-king-in-nd-energy-boom-but-other-bu-40014.html]

      That said, the prices of McDonalds items ARE HIGHER in North Dakota:

      “A Big Mac costs a dollar more than a month ago: as wages rise, so, too, do food costs.”

      [http://www.ft.com/intl/cms/s/0/b44c84ea-1889-11e2-80af-00144feabdc0.html]

      So where new McD’s employees are earning $10.50 per hour, Big Mac’s cost a dollar more…

      • re: ” Wages depend largely on worker productivity (not just skills, but how those skills are used to produce profit). For example:

        “One of the busiest McDonald’s in the country is 225 miles northwest of here, in Williston, N.D., population 14,716…Dalrymple said the Williston McDonald’s is the “No. 2 grossing” store in the country”

        [http://www.nytimes.com/gwire/2011/06/29/29greenwire-big-mac-is-king-in-nd-energy-boom-but-other-bu-40014.html]

        That said, the prices of McDonalds items ARE HIGHER in North Dakota:

        “A Big Mac costs a dollar more than a month ago: as wages rise, so, too, do food costs.”

        [http://www.ft.com/intl/cms/s/0/b44c84ea-1889-11e2-80af-00144feabdc0.html]

        So where new McD’s employees are earning $10.50 per hour, Big Mac’s cost a dollar more…”

        obviously the very same “low skill” workers in Williston earn TWICE as much as the very same “low skill” workers in other places, right?

        in terms of higher prices in Williston – does McDonalds get rid of minimum wage workers to save on costs and keep their prices down?

        the point is that employers that NEED workers to produce to meet demand WILL pay MORE as long as customers are willing to pay MORE for their burgers…

        Williston, ND proves that.

  7. Let’s make cheaper and more powerful drugs available for blacks and force them to work for $2 an hour.

    If they do a good job, they’ll get a raise, and drive-down all low-income wages even further, while driving-up profits even higher.

      • OK, here’s a real example:

        There was a fast growing firm that was also very disorganized, because it was so busy. One of the recommendations was raising the starting wage from $11 to $13 an hour for all factory workers. However, management decided that was a bad idea. One reason was there were always plenty of applicants for $11 an hour, over the prior five year period, and of course, there was concern profits would fall, substantially.

        However, roughly six months later, management raised the starting wage to $13 an hour and something miraculous happened.

        Turnover rates dropped like a rock, overtime was almost completely eliminated, including six day weeks, injuries fell dramatically, hardly anyone called in sick, damage to equipment and products almost disappeared, including steep declines in reject rates, quality rocketed, morale was lifted, management no longer had to spend enormous time interviewing workers, with related paperwork and training, supervisors no longer had to cover for sick workers, to do their jobs, and had time to actually do their work, and profits soared.

        Experienced workers who rejected the job when they learned it was $1 or $2 less than they were willing to work for took the jobs at the higher rate. Management had much more time to manage and supervisors had much more time to supervise. So, operations became much more organized and efficient.

        • Anecdotal, and as anyone who knows anything about research knows, anecdotal evidence is all but useless.

          Just like you.

          It never fails to amaze me how you can draw infinite conclusions from a single data point. No wonder why your portfolio is worthless.

          • not me Harold..a lot of economists…

            this is not “anecdotal” guy.. do you know know what that word means?

            I’m asking you a direct question. what is your answer?

            You run a fast food place. you need employees to meet demand. the price of labor has gone up. what do you do?

            do you just refuse to hire people because you are pissed off about increased labor prices?

            so you turn away customers?

            why are you such a fool guy? think!

          • It’s applied experience. The recommendation was correct, like I was correct when I bought RMBS calls before they rose from $6 each to $33,000 each in three weeks, traded IMCL calls for over a 40 times return in six months, etc..

            There’s more economics and investing ability involved than you have the capacity to imagine, even with all your delusions.

          • “You run a fast food place. you need employees to meet demand. the price of labor has gone up. what do you do?”

            I buy this and couple it with a few of these and bam! Labor costs are halfed.

            Didn’t make sense to have these when I only paid $7. Now, at $15, it does make sense!

          • re: ” I buy this and couple it with a few of these and bam! Labor costs are halfed.

            Didn’t make sense to have these when I only paid $7. Now, at $15, it does make sense!”

            It might. Burger King had or has a conveyer belt burner for a long time. Machines also break and cannot be repaired usually by minimum wage workers.

            there are quite a number of possible actions that can and are taken besides just laying off people INCLUDING laying off more expensive people and hiring less expensive people.

          • So, Peak (or should I call you Larry?), everything is based on one experience for you? You’re a master at economics because of one business recommendation and you’re a master trader because of one trade?

            Protip, chum: this is why nobody takes you seriously. Well, that, and you make shit up

          • Of course I can give a very old anecdote about raising pay: Henry Ford had a turnover problem in his model T factory in 1914 where because of the job turnover was very high. He raised the wages to $5 a day, and turnover went very low very fast. One lesson is a mind numbing job (which the early assembly lines were) can be attractive if it pays enough.

          • “There’s more economics and investing ability involved than you have the capacity to imagine, even with all your delusions.”

            see, this is precisely the sort of verifiable lie that proves to us what a deluded fraud you are.

            if you have such vast investing ability, why are you down 94% in 3 years during a massive bull market?

            your entire investment style is literally the equivalent of betting on an inside straight draw against a guy who flopped the top 2 pairs.

            you start every hand way in the hole and very likely to lose and them pray for your low probability lightning strike.

            the fact that you yap endlessly about some alleged trades a decade ago is pathetic.

            the fact that those trades required knowledge you could not have had before huge binary events, (and info that turned out to later be wrong in both cases) just makes it even more absurd and demonstrates that, in the unlikely event that they did occur, they were dumb luck.

            your posted track record further proves this.

            to have 100% of your invested capital wiped out 4 or 5 times in 3 years is perhaps the worst trading record i have ever seen.

            only a truly deluded liar would claim to have “investing ability” on the basis of such a track record.

        • I didn’t ask for an example from a story you heard once. I asked you about your real world experience hiring workers. it’s really a simple question. How about it?

          • Rick:

            Translation: I have no clue what I’m talking about, and I think getting angry and insulting people will cover that fact up.

          • Actually, the translation is don’t play cute little games with me, and if you don’t believe me, read the labor economics literature.

        • This example doesn’t have anything to do with minimum wage. Assuming these events were true, the only real conclusion we can draw is that if a company wants to be more efficient, they need to hire more experienced workers.

        • There was a fast growing firm from Nantucket
          Who made all their goods in a bucket.
          Customers thought it was nice
          To get the device
          In their end because they wanted to

          Oh never mind.

        • If that strategy of higher pay to reduce turnover is sensible, then you don’t need a government-mandated wage to encourage that behavior, it will happen naturally and automatically without government interference.

        • wow, and all without a minumum wage hike!

          why, it’s almost as if business can figure out how to get the best productivity per dollar all on their own.

          this story you trot out over and over disproves your own argument.

          it also misses a big part of the picture, as do most of your arguments.

          you argue that higher wages lead to higher productivity.

          to the extent that they allow you to bid for better workers and replace the ones you have, this can be true.

          but you then fail to ever account for the guys who lost their jobs to this more productive gang.

          faced with a high min wage, where are they going to work?

          if they were not productive enough to warrant it before, why would that change?

          and if i need to produce 100 units and i have 100 workers with a productivity of 1, then i raise wages and get workers with productivity of 1.1, don’t i only need 91 of them?

          so just how is this creating jobs?

          it’s absurd that you keep trotting this out as a reason to have a min wage when 1. it happens all by itself and 2. it likely led to a reduction in overall employment if not at that firm, then at those who compete with it and 3. you never account for the folks who were replaced.

          it’s just more of your “half the picture” thinking.

    • “What do you call a person whose labor is worth less than the minimum wage?”

      I call that someone who is making a product whose value to it’s customers is worth less then it costs to make the product at the current minimum wage.

      What do I call the product mentioned above? I call it a product that, even though it might be valued enough by people to actually buy, won’t be available to buy because the gov’t has decided it’s not worth producing.

  8. When Peaktrader had a hedge fund in Peru
    For luck he kissed a gnu
    Though the lips tasted like wine
    All the people opined
    Hey, get a room you two.

  9. When Peaktrader went to see Mable
    They decided to meet by the Gable
    Then he spewed economic facts
    To her that were rather crass
    It turned out they were nothing but Fable.

  10. When Peaktrader disappeared without trace
    They covered his coffin with lace.
    When they sorrowed and cried
    He returned to their side
    And said he was merely visiting N space

  11. When Peaktrader owned a business in Nantucket
    He paid extra to haul produce by bucket
    But when the workers still complained
    And failed to make gains
    He said next time I’m just gonna truck it!

  12. Peaktrader, Ben and Larry were happy
    Their hero Obama was scrappy
    But when he fell on his face
    With the ACA discrace
    They went home and cried to their pappies.

  13. Here is one for equal time:

    Morgonovich wanted to travel to Mars
    Cuz he heard they had great wine and cigars
    The rocket went blast
    But took off too fast
    So now he is stuck in the stars!

  14. Here is one for you Larry:

    No one has ever been able
    To talk Larry under the table
    When presented true facts
    He always comes back
    With some really implausible fable

  15. And for our benefactor (please take it in fun)

    Mark Perry fought hard to pass
    A law to legalize grass
    When he started to light
    to smoke the delight
    He decided it was really quite crass.

      • I haven’t keyed in on you well, and it isn’t about economics, but since you commented, here is one for you:

        Jon Murphy had several clients
        whom he bragged he knew lots about science.
        When he used a kazoo
        To accidentally turn them to goo
        He went hiding under the name of O’Briant.

        • Marque2 assumes something makes perfect sense to him.
          Then reality says something completely different.
          Reality seems all so illogical to him.
          And he never realizes he’s the illogical one.
          That’s what economists are for.
          Often proving conventional wisdom, and Marque2, wrong.

          • Silly me, I didn’t know you were an economist
            I guess I have to defer to you on everything.

            I am not the only one who seems to think you randomly string thoughts together.

            Anyway – I wrote the limericks in honor of you – you should be pleased that someone would pay so much attention to you considering …

  16. If it’s morally acceptable for the government, or even society, to get in the middle of a voluntary agreement between two parties, why, as has often been brought up, not raise the minimum wage even higher, say $20/hr. since we’re being arbitrary?

    • Is allowing market failures that can be prevented morally acceptable?

      Is moving a macroeconomy towards optimization morally acceptable?

      A $20 an hour minimum wage is likely too high. Similarly, a $10 minimum wage is likely too low.

    • If the economy was able to absorb a $10 real minimum wage (with a 3.5% national unemployment rate and a much higher teen labor force participation rate), why can’t it absorb a higher real minimum wage with low-wage productivity 25% higher, particularly, since per capita real income doubled, profits are much higher as a percent of GDP, and the proportion of real income of the top 20% became much more concentrated, while real median income was stagnant, and then declined since 2000.

    • ” why, as has often been brought up, not raise the minimum wage even higher, say $20/hr. since we’re being arbitrary?”

      because it’s not. It’s an opinion from economists and even other businesses.

      there is a level of consensus and when 75% of those who elect you support SOME level of increase – but not any level, it is anything but arbitrary.

      • Where did you pull the 75% figure? Out of thin air.

        If minimum wage were so important it would be implemented by the states without any federal action.

        • I can’t belive how true my Larry limerick is:

          No one has ever been able
          To talk Larry under the table
          When presented true facts
          He always comes back
          With some really implausible fable

          • you’re much, much better at limericks than economics…!!!

            see – THIS is the REALITY:

            http://www.economist.com/news/finance-and-economics/21567072-evidence-mounting-moderate-minimum-wages-can-do-more-good-harm

            I’m not citing this as counter evidence to those who insist that minimum wage “harms”. I’m citing this, and can cite many others, that show quite conclusively that economists do not agree on this yet the zealots here just hand-wave away this obvious reality because they basically want to believe what they want to believe and any economist who disagrees with them is an “illiterate moron”.

            This is like a religious issue for the zealots. They don’t care what the real-world evidence is because the “theory” ….”cannot be wrong”.

            that’s just plain ignorant given the preponderance of the world’s economists and the extent to which virtually all of the world’s OECD countries do have minimum wage policies.

            does not matter to the zealots… they’re “ALL” …wrong.

            there is no pretence of objectivity.. it’s a belief system.

        • http://www.policymic.com/articles/73103/minimum-wage-hike-approval-hits-75-according-to-new-gallup-poll

          re: “denial”

          denial is clinging to a basic theory no matter what is going on in the rest of the real world including the US.

          the problem with the ideologues is they think that the world is like basic theory says it’s supposed to be – and it’s not because the basic theory treats as null – real world influences …

          this is why more than 1/2 of economists do not agree with the minimum wage orthodoxy of the zealots.

    • Oh, no don’t get him going on vectors in N space, and his whole false assertion that raising the minimum wage will suddenly increase the productivity of your workers.

      When pointed out that at higher rates produce higher productivity because all the people not working at that level get fired and replaced – he just goes into his little world of denial.

  17. Another issue relevant to this discussion is the Obamacare mandate. Granted it doesn’t affect all businesses; but for those that have to comply, the penalty for failing to provide insurance is $2000/year.

    Given the Obamacare mandates, the minimum wage (at the federal level) should be LOWERED, not raised.

    • Obamacare forced business to supply
      Insurance that was priced really high
      Now I am out of work
      Because of that pompous jerk
      And use UE for all that I buy

  18. Lord Keynes started to Brey
    I have something important to say
    Have the government spend a borrowed dollar
    And no-one will hollar
    Because everyone will be working and gay

  19. This comment probably won’t be read (in which case, I’ll just repost it at the next place about minimum wage), but I just want to counter an argument I have seen made over and over and over again (mostly by economically illiterate people, but in some cases by really smart people). This argument bugs me so much because 1) it is illogical and 2) the conclusion does not follow from the presented facts.

    Peak Trader made this argument earlier when he talked about the one business he advised. Others have made similar arguments pointing to Henry Ford. Both of them are wrong.

    Real quick, before I get into the meat of my post: relying on one observation and drawing a conclusion from it is illogical. It’s anecdotal evidence and anecdotal evidence, in a formal logical argument, has no place, unless you can show it is systemic and not an anomaly (“One’s an anomaly, two’s a trend, three’s a rule.” Rule 89 of Murphy’s Guide to Logical Arguments, soon to be self-published on Amazon).

    Ok, let’s get down to business.

    Let’s take at face value Peak’s corollary of the Henry Ford story. This may surprise some of you, but Peak offered good advice in this situation. If I were in a similar situation, it certainly would be in the list of recommendations I would make. Furthermore, it is perfectly in line with standard economic theory and labor economic theory. Here’s why:

    Peak said: “There was a fast growing firm that was also very disorganized, because it was so busy.” (emphasis mine). In other words, the productivity of the workers was increasing! Wages, standard theory tells us, move in concert with productivity. As productivity increased, but wages stayed stagnant, workers left to find better uses of their time (opportunity cost, y’all). Raising wages made sense in this situation. The story is the same for Ford (just move it back about a century).

    The conclusion that some draw from this is that you raise wages, productivity increases. But that is the incorrect conclusion! It puts the cart before the horse. In reality, what was happening is that productivity was already rising, and wages followed.

    I can see why a lot of economically illiterate people would come to that conclusion (by the way, I am not using “economically illiterate” as a pejorative here. I merely mean they do not understand. Just like I am musically illiterate or astrophysically illiterate). But it is irresponsible for those who are economically trained to promote such an obvious fallacy!

    Employment (and thus wages) lag productivity. Here is a chart showing this relationship. You’ll notice Employment (EMPLOY, the green line) lags US Industrial Production (USIP, the blue line) by about a quarter through business cycle highs and lows.

    Given the relationship between productivity and employment and wages, as well as the anecdotal evidence provided to us by Peak and others, and the massive amounts of literature on the subject showing the same thing, it would be incorrect to conclude minimum wage has increases productivity. Even Peak’s own story disproves this conclusion. After all, he said the firm was already busy. If the increase in activity came after, then I could believe his conclusion, but it proceeded the hikes.

    This was a very long post, and I suspect many will not read it.

    So, the tl;dr version: productivity gains lead wages, not the other way around. This is consistent with economic theory and suggests, in order for minimum wage to increase, one must first see productivity gains.

    • John,

      So, the tl;dr version: productivity gains lead wages, not the other way around.

      So you’re saying it doesn’t work magically like this?

      Next you’ll be telling me my premiums won’t actually go down $2500 under Obamacare.

    • By the way, I am quite sure there will be some hate-filled responses to this post. I will not engage them. If someone has a question, a legitimate question, I will be happy to answer. But if all you’re going to do is call me names, say I don’t know what I’m talking about, yada yada yada, don’t waste your time.

    • This is a good well thought out example – I could add a few corollaries as well – but you speak the truth. However, most of the folks in this blog are set in their ways (even I am – there is almost no chance that Larry can change my mind about economic truth, though his arguments about Yellowstone – he corrected some misunderstandings I had) So you are never going to convince anybody to change. So if you like to argue with folks, and I admit I like to do this, keep posting, but beware that your effort is probablyl wasted.

      You may as well post limericks.

      I am still waiting for Larry to do a line by line, on one of mine (if he had any sense of humor he would)

      “There was a young lady from Mant”

      Mant is not part of the OECD and is therefore not pertinent to the discussion of minimum wage in regards to …

      “Who like to ride elephants”

      In OECD nations elephants are only available to the rich. Why shouldn’t the government take stipends from those who can afford it to provide the poor with the necessary means to ….

      “When she tried to climbed up its side”

      This is very discriminatory to those who have impaiments, and is further proof that in addition to minimum wages, companies must spend whatever is necessary to provide people in the workforce …

      “It was too tall and too wide”

      And this is yet another argument for goverment regulation of the workplace, forcing people to work with equipment which is not suited to them should be illegal, and what power does the common worker have to affect changes from the employer when …

      “And caused her to fall on her pants”

      Another case for support of unions. If she were part of a Union they could have demanded safe work practices to enforce minimum …

      • Marque,

        Can I play?

        “And caused her to fall on her pants”

        “Basic theory” doesn’t account for the “real world” possibilities of her not falling on her pants. It’s only y’alls ideologue “beliefs” in falling on her pants as the only option.

      • To be perfectly honest, Marque, I am not posting to change anybody’s mind. It’s mostly an ego thing for me. I get to flash a little bit of knowledge, get accolades from like-minded folks, and my big head gets a little bit bigger.

        I am not trying to convince Larry and Peak. Both are complete nitwits. I used to pity Larry and honestly thought he was here to learn, but now I realize that is complete bunk. He refuses to understand and it drives me insane, so I just ignore him. Peak is your prototypical self-obsessed gambler. He’s convinced he has a system that is perfect and, if anyone tries to tell him otherwise, he goes apesh*t. Las Vegas is full of people like him. Both of them are not worth my time, so I generally ignore them.

        Like I said, I mostly post for ego gratification. It may be a sin, but at least I am honest about it.

  20. @Lyle

    > Henry Ford had a turnover problem in his model T factory in 1914 where because of the job turnover was very high. He raised the wages to $5 a day

    No.

    Not every worker was payed the $5/day, and the program was soon ended because of its high cost. More here.

    “The $5-a-day rate was about half pay and half bonus. The bonus came with character requirements and was enforced by the Socialization Organization. This was a committee that would visit the employees’ homes to ensure that they were doing things the “American way.” They were supposed to avoid social ills such as gambling and drinking. They were to learn English, and many (primarily the recent immigrants) had to attend classes to become “Americanized.” Women were not eligible for the bonus unless they were single and supporting the family. Also, men were not eligible if their wives worked outside the home. [...]

    More than 15,000 would-be workers showed up to claim the $5-a-day jobs, though only about 3,000 were needed. Those left outside were angry, and eventually fire hoses were turned on to disperse the crowd.

  21. Taking the current assumptions that come with our economy, what this article is asking Blacks first and the others second is, do you want employment with your poverty?

    Of course this “law” from Friedman works with certain economies and heaven forbid that we use the statistics here to question whether our current economic system is adequate.

    • some here including Prof Perry would have us think that the minimum wage issue is cut and dried among economists and the folks who question it are economically “illiterate”.

      but look at this:

      Question B: The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

      (answers from a panel of about 50 actual expert economists):

      strongly agree – 5%
      agree – 42%
      uncertain 32%
      disagree 8%
      strongly disagree 3%

      http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_br0IEq5a9E77NMV

      and this is repeated around the world at virtually every single OECD nation; the nations with the most advanced and potent economies on the planet.

      The 3% “clump up” on CD and CH.

      • here’s another:

        ” Do Minimum Wages Really Reduce Teen
        Employment? Accounting for Heterogeneity and
        Selectivity in State Panel Data”

        ” Put simply, our findings indicate that minimum wage increases—in the range that have been implemented in the United States—do not reduce employment among teens.”
        page 238

        http://www.irle.berkeley.edu/workingpapers/166-08.pdf

        no the point here is not that those who believe otherwise will call this study and all others with the same conclusion “flawed” and all others that they agree with ” credible”.

        the point is that there is a large body of economists who do not agree on the issue and many who disagree with Prof Perry and his group.

        But Perry – does not promote both sides of the issue in the interest of providing a balanced viewpoint of economists – he takes sides and promotes his own beliefs and assets that in doing so he is “educating”.

        ;-)

        so much for the objectivity of an academic, eh?

    • the blog owner Warren allowed how there were “other” factors also including a mysterious ” vexing litigation harassment” but most business are not going to lay off people in anticipation simply because some price increases may not actually reduce demand but instead cause customers to cut back on other things other than the fast food (or whatever). Why would you lay off people before you actually saw reduced demand? it makes no sense.

      the best, most convincing studies of this would be to look at businesses that would be directly affected – before and after to see what the actual staffing levels of the exact businesses affected.

      most people who buy stuff like fast food are not that sensitive to price increases on the range of 25 cents which is what I understand a 2 or 3 dollar increase in minimum wage would cost if it just applied to one item like burgers – instead of across the board on the menu.

      there are a dearth of studies in fact of exactly how much a dollar increase in minimum wage would actually translate into what specific increased prices and in part because the folks who say it causes unemployment are not at all interested in what the price increases might be much less how it actually affected demand, because that would contradict their basic premise that prices are not involved just anticipated costs to the employer.

      so this is basically a cause celebre of those who basically insist price increases always cause harm and in this case – the ONLY possible impact has to be harm to workers, and specifically teens.

      which is totally bogus from an economic perspective because any economist worth his salt would readily admit that ALL price increases get “expressed” in hundreds of different ways depending on whether it is a single commodity or part of a MENU of things offered or how the consumers value one thing over another when forced to choose… many might choose a fast food burger over a lottery ticket, for instance.. or rather than putting their spare change in a jar.. use it to pay for fast food, etc.

      but any business that starts laying off people in anticipation of price increases is not really planning on staying in business anyhow.

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