What Goes Up Must Cause Other Things To Go Up
It's amazing to me the number of people who get elected to high office without the slightest grasp on fundamental economics.
Brad Polumbo, writing at FEE about the $15 minimum wage Democrats are calling for, notes the predictable effects:
The push for a $15 federal minimum wage continues across the country. But new research shows that if the "Fight for $15" wins, the biggest loser may just be your wallet next time you want to chow down on a Big Mac or Egg McMuffin.A recently-released study reveals that past minimum wage hikes resulted in much higher menu prices for consumers.
Princeton economist Orley C. Ashenfelter and Czech economist Štěpán Jurajda studied price and wage data from almost every McDonald's restaurant in the US. They found a "full or near-full price pass-through of minimum-wage-induced higher costs of labor." In English, this means that by vastly increasing production costs, minimum wage hikes resulted in an equivalent increase in menu prices.
A Nominal Minimum Wage Increase Doesn't Actually Mean Workers Are Better Off
What does this mean?
Well, minimum wage hikes are intended to help workers. Proponents say that everyone deserves a "living wage" and argue that a government-mandated wage increase will mean higher wages for workers. In contrast, the most common counterpoint against minimum wage increases is that they lead to unemployment. This is indeed true, and the nonpartisan Congressional Budget Office estimates that a $15 federal minimum wage would eliminate at least 1.4 million jobs.
However, the McDonald's example reminds us that there's another angle to this debate as well. Even if minimum wage hikes didn't shed jobs, they would still cause harm in other ways.
This would happen throughout the economy, not just in fast food.
One poignant example comes courtesy of the Heritage Foundation's Rachel Grezler, who studied how minimum wage hikes would impact the cost of childcare; an enormous expense for many working-class families.
"Childcare costs would increase by an average of 21 percent--an extra $3,728 per year for two children--and up to 43 percent, or more than $6,000, in some states," Heritage reports. "The impacts would be greatest in lower-cost areas; in Louisiana, Oklahoma, and Mississippi, costs would surge between 37 percent and 43 percent."
So, much to the chagrin of progressive legislators hawking minimum wage hikes, working parents wouldn't actually be helped by a nominal rise in their weekly paycheck, because it would simply lead to higher prices for the goods and services they rely on.
If minimum wage had kept pace with inflation, then it would already be much higher than it is.
Unfortunately, it's not as simple as that. When Reagan was in office, he removed the exorbitant tax rates that were expected to keep billionaires in check.
And now that they have unbridled freedom to get as much as they can out of their businesses with no consequence, they're not about to give that up. Raising minimum wage will simply prompt them to move to automation and other strategies to keep them from spending so much on the payroll.
The problem is also, that minimum wage has not been set up to keep pace with inflation. Instead of enacting laws that require minimum wage to automatically go up every year at the same percentage that prices have increased, we basically have to beg the government to raise it each time. The last time minimum wage saw an increase was nearly 12 years ago. Does that sound unfair to anyone else?
Patrick at March 5, 2021 1:56 AM
Patrick, minimum wages aren't about 'fairness,' or about sane economics: they're mostly about emotional coddling for people who wish their own time & attention were worth more (to people besides pandering politicians).
Crid at March 5, 2021 7:16 AM
"Proponents say that everyone deserves a "living wage" "
Why should anyone expect that every job pays a living wage (defined as enough to support a family of 4 by the way)? Many jobs are unskilled or low skill like bagging groceries or cashier at McD's. These jobs give you work experience. McD specifically markets these jobs to young people with that angle--which is valid. My first job 50 yrs ago was at McD. Minimal skill jobs are also handy for someone laid off from a better job or a senior who doesn't want a hard job due to age or a housewife who also doesn't want a hard job due to childcare responsibilities.
Most businesses are not owned by billionaires and punitive taxes on the rich remove incentives to start and grow a business. Jeff Bezos (whether you like his politics or not) did not steal anything from me by becoming rich.
The valid way to increase wages is to increase productivity. The assembly line did that for millions of factory workers, as did electricity. Getting around by horse wagon is very inefficient compared to a truck, so delivery driver productivity went way up with trucks. Forcing companies to pay more than the employees produce creates 1) inflation, 2) incentives to automate, 3) unemployment of low skill or young workers or 4) all of these. None of these are "helping" anyone.
cc at March 5, 2021 8:10 AM
Fair and unfair are purely judgement calls. But people have completely different ideas on what they mean or should mean.
What is fair? Tolls mean those who use the road pay for the road. sounds fair.
flat taxes mean everyone pays x towards that same road, whether they use it or not. some say this is fair.
Progressive tax is those who make more / work harder pay more toward that road that they may never be on. Some say that is fair.
What the woke says is fair is out there too.
Joe J at March 5, 2021 8:44 AM
Deserves? And what did "everyone" do to deserve this "living" wage? You "deserve" what the market will pay for your time and labor.
Conan the Grammarian at March 5, 2021 11:12 AM
The ripple effects of doubling the minimum wage would be huge. Many union contracts are indexed to the minimum wage. An increase in the minimum wage triggers an increase across the board for union contract wages.
For example, UFCW and SEIU index their contracts to the minimum wage as they typically represent hourly retail and service workers. UFCW represents workers in several large retail chains -- Kroger Albertsons, Macy's, CVS, Rite-Aid, Bloomingdales, H&M, and Zara, to name a few. SEIU and its subsidiaries represent workers in the healthcare, security, and childcare fields, and more. That's gonna be a big ripple.
What's more, even non-unionized hourly retail and service workers compare their wages to the minimum as a means of benchmarking their compensation against others at their socio-economic level. When those workers are making 20% more than minimum ($8.70 at $7.25), they expect to get a similar bump if the minimum is raised (to $18.00 at $15.00).
If they were to be bumped from 20% above the old minimum to the new minimum, they'd be happy with the increased wages, but only temporarily. Eventually, they'd become disgruntled when they realize that they're back at the minimum wage, that all their work to get beyond their peers was for nought. So, to keep the existing employees happy, companies would have to increase wages across the board. Another big ripple.
Conan the Grammarian at March 5, 2021 1:28 PM
> That's gonna be a big ripple.
Good lord.
It could happen, though. AOC & KH & Bernie and a hundred million others don't think money is real… Prices are just a tool for oppression by The Man.
Crid at March 5, 2021 1:35 PM
US grocery chains averaged a 2.2% profit margin in 2017. There's not enough slack in those margins to absorb a big labor cost increase without raising prices.
We'd all like to find some magic bullet that would raise the living standards of the working poor without causing problems for the rest of the economy. Arbitrarily raising the minimum wage and forcing employers to pay more for unskilled labor ain't that magic bullet.
Conan the Grammarian at March 5, 2021 2:34 PM
I am so thankful that your dumb ass wants to pay me more for the exact same job.
Did that sink in?
Because that what's going to happen.
Stupid people think they can vote themselves smarter and to untold luxury. They're gonna starve themselves by dragging down the economy by insisting on countless unproductive measures.
(Laughs in Chinese)
Radwaste at March 5, 2021 2:38 PM
"US grocery chains averaged a 2.2% profit margin in 2017. There's not enough slack in those margins to absorb a big labor cost increase without raising prices." ~Conan
Ah, but the non-union stores would have to absorb a much smaller increase. Thus leading to a further collapse in union private sector jobs.
Horay for cutting yourself off by your own knees.
The true minimum wage is always zero.
Ben at March 5, 2021 3:32 PM
"We'd all like to find some magic bullet that would raise the living standards of the working poor without causing problems for the rest of the economy."
We have that: capitalism. We just don't recognize it because we see it every day and have nothing to compare it to.
When people get more money they tend to send more on themselves. So not so much in savings but in things. So being poor now means has a car, tv or two, refrigerator etc. So we redefine what poor means, and no one notices poor here would be middle class in most of the world. But if it wasn't so no one would be trying to immigrate here.
Joe J at March 5, 2021 4:19 PM
👍🏼
The problem for most people is that capitalism is not a "magic" bullet. It requires that put some effort into it.
Conan the Grammarian at March 5, 2021 4:44 PM
> ain't that magic bullet.
Agreed, but that won't stop these forces from surging. Politicians, indistinguishably corrupt and/or idiotic, contend that more money can always be printed; and their daydreamy voters believe Mr. WalrusMoustache from Monopoly has all the money, and can be caused to share it with others.
Neither voters nor their public servants have any idea how wealth is created, or even that it is created.
Have I mentioned Bitcoin in here lately? Basically, if you're another nation on Earth, and you don't want to be pestered by the United States or by China, Bitcoin is something you're looking at carefully.
The world's made more of grocery stores than it's made of Facebook et al.
So when Google starts deciding what the world will accept as truth, well, some people will consider their options.
Crid at March 5, 2021 4:48 PM
For the record, I don't think any of us meant to harsh Patrick too severely today.
But the American heart pumps instinctive resentment at the idea that there's a level of compensation to be expected by every person who wants a paycheck no matter how well or weakly they perform. Everyone reading this blog knows what it's like to carry their responsibilities around a chair, office or division of dead weight.
Can't even remember the hourly rate of the first dishwashing paycheck in '75 ('76?)… Four bucks, maybe? Four and a quarter?
A performer of my industriousness, bearing and proficiency was easily worth $3.07 - $3.09.
"And keep your paws off the Coke machine, kid...."
Crid at March 5, 2021 6:30 PM
People don't understand that when their employer is forced to (for example) increase their pay from $10/hour to $15/hour they are going to have to do 50% more work.
iowaan at March 7, 2021 3:14 PM
Sorry I am late to this.
Notice tax tables aren't changing so more taxes will be owed.
Also other expenses go up...the person driving the truck delivering the food to McD's... they are going to be paid more too.
A few years ago when there was a push to up the state's minimum wage it was pointed out that much like many union jobs, most state employee pay rates are also indexed against to min. wage. The state might have trouble managing the increased wages.
The Former Banker at March 10, 2021 5:48 PM
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