Monthly Archives: May 2015

Some Brief Thoughts on the Minimum Wage

Here are some brief thoughts on the push for a $15 minimum wage, and particularly Robert Reich’s video in favor of that. After devoting diligent consideration to Reich’s seven points, I have come to the conclusion that he is full of it:

1. Yes, there has been inflation since the 1960s, which erodes the value of the minimum wage. Which side of this debate generally supports inflationary monetary policy?… Also, the productivity in the whole economy has increased, but not in the accommodations and food services sectors. In those sectors, the cost of labor has been outpacing productivity. See graph.

Unit Labor Cost

2. Low-wage jobs are not designed to support families; they are designed to give young, low-skill workers experience. And while a majority of minimum-wage earners are not teenagers, a large plurality of them are. Over half are younger than age 25.

3. I’ve heard this a lot lately, and it is completely backwards. When we subsidize the poor through those programs, we make not working a better alternative use of their time than before. This pushes wages HIGHER, since employers now have to compete with that better alternative. This doesn’t mean that we should balloon the welfare state, but if you are intent on helping the poor through government, programs like the EITC are a better less economically damaging way to do that.

4. This claim depends on the inelasticity of demand for labor and is automatically suspect, but even if it were true, there would be no real net benefit since the goods and services that the minimum-wage earners purchase would also increase in price.

5. Before-tax profits for the fast food industry are around three percent. Companies cannot absorb such a drastic increase in labor costs. They will have to raise prices, which will hurt low-wage workers disproportionately. And while it’s true that employers compete for customers, a minimum wage applies to all employers, so each can rest assured that their competitors will face the exact same pressures.

6. So, because Republicans will push for a lower-than-$10.10 minimum wage, Democrats should go for the higher $15.00 to compensate… which will ultimately give us 10.10? I though Reich supported a higher minimum wage than that. Shouldn’t he advocate for $19.90 so he can get what he really wants after the GOP forces a compromise?

7. If raising the minimum wage to $15.00 is right, wouldn’t raising it to $30.00 be even more right? If Reich thinks that’s a good idea, he more obviously reveals himself as an economic dunce. If, however, he responds that doing so would be economically infeasible, which it is, then he is saying that economics trumps morality. But if economics trumps morality, why is he even bringing this up as one of his seven points?