Picking Up The Tab for Full Service Restaurants
In the news, great attention has been paid to the activities of fast food workers striking to increase their salary up from minimum wage, their plight with fast food restaurants, and their heavy reliance on public assistance to get-by. Included with fast restaurant workers whose employers are represented by the National Restaurant Association are full service restaurant workers who make up the bulk of the worker in the restaurant industry. The plight of full service restaurant workers is documented in an article by Sarah Anderson at IPS.
Of the 4 million people working in the restaurant industry, 50% rely on public assistance to get by at a cost of $9.5 billion. This rivals WalMart and other low wage retailers who also depend on public assistance and communities for their employees. While restaurants like Papa John’s complain about having to pick up the tab for healthcare insurance or having to raise prices 10 cents for a medium pizza, they fail to mention taxpayers are paying the hidden cost to their low wages. 8 of the 10 lowest paid jobs are represented by restaurant workers of which 5 are in the full service restaurant segment.
To supplement underpaid restaurant workers (which also subsidizes their employers) and is paid by taxpayers are public assistance programs such as Medicaid and CHIP health Insurance programs, the federal earned income tax credit (EITC), food stamps (SNAP), basic household income assistance (TANF), the national school lunch program, childcare assistance, low income home energy assistance program, section 8 housing, and housing choice vouchers. What has not been mentioned is a second form of subsidy to full service restaurants through the sub minimum wage, which also requires customers to pay these workers’ wages directly through tips.
The industry is not being decimated by rising costs, employment is expected to grow 10% by 2022 suggesting greater industry growth and translating into higher public assistance costs and less labor productivity. “Full-service restaurant workers are at the core of America’s growing low-wage economy; many of these workers’ earnings are far below what’s needed to meet their subsistence needs.” Greater than 21 percent of all tipped workers live in poverty representing 2.5 times the overall work force in poverty. At a cost of $9.5 billion to subsidize the industry, it may be worthwhile for taxpayers to decide whether to pay the money upfront rather than through government programs.
Table 1 represents the five biggest players in the Full Service Restaurant business segment and the annual cost of public assistance subsidies. Along with Olive Garden, Darden owns six smaller chains: LongHorn Steakhouse, Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s and Yard House. Darden employs 150,000 employees with over 1500 locations and serves 320 million meals annually. DineEquity is better known as IHOP and owns the Applebys chain. With nearly 3600 locations it is bigger than Darden; but, most of the restaurants are franchises. Brinker International is the parent company of the Chili’s as well as the smaller Maggiano’s Little Italy chain. By its name, you may recognize Bloomin Brands as the owner of Outback Steakhouse. Add to this, Carraba’s Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse and Wine Bar. If you have not passed a Cracker Barrel in the southeast or while traveling south; then, your eyes have not been open. These companies are heavily subsidized through public assistance.
Are you going to end up paying more for a nice meal at many of these restaurants, the answer is yes you will. The cost of which will transition from the rear door where it is hidden and to which you are paying it anyways after being handled multiple times to the front door and “potentially” going directly to the restaurant worker serving you. Either you believe in a fair wage for a fair day’s work or you believe in keeping an underground of subsistence existence financed by you in the end and continued subsidizing of companies. It is appropriate to eliminate the tipped sub-minimum wage and raise the minimum wage. This is something ALEC the mouth piece for the National Restaurant Association and state governments have been fighting. A particular emphasis should be placed on raising wages at companies which use public assistance to supplement payroll wages. Continue to provide support programs for minimum wage workers. Actively encourage collective bargaining by restaurant workers as a buttress against large companies which today have legislature and private organizations such as ALEC at their backs. With the renewed emphasis, it is only then can Labor begin to reap some of the productivity gains denied them.
Other References: Picking Up The NRA’s Tab; The Public Cost of Low Wages In the Full Service Restaurant Industry
You actually pay two ways: directly to subsidize the businesses and indirectly since subsidies to low wage employers help keep wages down.
IMAGINE that all fast food restaurants (the only ones I know the numbers for — also, I never see the inside of a full-service :-)) were somehow able to conspire to raise their prices 25% all at the same time (about how much a $15 an hour minimum wage would impact fast food prices). Demand for food is inelastic so it is in the realm of possibility that fast food might make out like gang busters. Possible.
Now imagine that fast food was able to conspire at the same time to have the federal minimum wage raised to $15 except for fast food. Most industries average 10-15% labor costs and don’t pay as low as fast food to start with (fast food 33% labor costs; 25% price hike because not all at minimum) — let’s say average price hikes in other industries that use low wage labor average about 6%; not enough to heavily hurt employment.
Wage levels tend to patronize their own wage levels. Allow me to cite an example from the opposite wage end: from a 1/ll/14, NYT article “The Vicious Circle of Income Inequality” by Professor Robert H. Frank of Cornell:
“… higher incomes of top earners have been shifting consumer demand in favor of goods whose value stems from the talents of other top earners. … as the rich get richer, the talented people they patronize get richer, too. Their spending, in turn, increases the incomes of other elite practitioners, and so on.”
http://www.nytimes.com/2014/01/12/business/the-vicious-circle-of-income-inequality.html?src=me&_r=0
In the double conspiracy case fast food should surely make out like a bandit because its low wage customers would benefit more from the wage hike than the food price hike would hurt them: driving business up …
… driving business up no matter who benefits from the price rise: labor or management.
Where is all the extra dough ultimately supposed to materialize from? From higher income employees or agents who have been getting relatively more of what consumers are willing to pay — than lower wage employees in our particular economy who have been getting squeezed unmercifully below what I call their natural market value for decades (minimum wage one-third below peak, double average income later! — time to mark the minimum wage to market).
This “side impact” on fast food businesses from employees of firms that did not have to raise prices relatively as much to meet the same wage hike is probably what Card and Kruger observed in their seminal study. It is probably why business went up in the states that raised their minimum wage.
Run,
McDonalad’s and Wal-Mart do not create poor people; they only hire them. Taking people that are on full welfare and full unemployment and giving them jobs that transition them off such full-welfare schemes is a benefit to the employee (they get skills and the self-respect that comes from having a job)and the taxpayer (who now pays out less in welfare payments while also benefiting from more in economic activity and the taxation that these employees create).
If anything we need more of these types of employers.
In addition, increases in minimum wages do not create jobs but rather simply make illegal jobs below a certain price point. The poor and unskilled are not made better off by having less opportunity. Not to mention that not only are you limiting companies from providing jobs at a wage they are willing to pay, you are also denying the poor and the unskilled the right to sell their own labor for whatever price they see fit. I see this as a huge disservice to the poor; it denies them the rights to liberty (freedom to willingly engage in a contract at a wage they set themselves) and property (their labor).
K
Kai:
Enough of your BS. Where did I say or imply: “McDonalad’s and Wal-Mart do not create poor people.” I guess I did not say either does, now did I? What is the title of the Piece? “Picking Up The Tab for Full Service Restaurants” Go back and read the piece again from start to finish.
If you scroll down in the piece, yu will see a statement by me in it, did you gloss by it Kai in your enthusiasm to got to vigorous print? What does this: “‘Full-service restaurant workers are at the core of America’s growing low-wage economy; many of these workers’ earnings are far below what’s needed to meet their subsistence needs.’ Greater than 21 percent of all tipped workers live in poverty representing 2.5 times the overall work force in poverty. At a cost of $9.5 billion to subsidize the industry, it may be worthwhile for taxpayers to decide whether to pay the money upfront rather than through government programs.”
Scroll down a bit farther and this can be read:
“Are you going to end up paying more for a nice meal at many of these restaurants, the answer is yes you will. The cost of which will transition from the rear door where it is hidden and to which you are paying it anyways after being handled multiple times to the front door and ‘potentially’ going directly to the restaurant worker serving you. Either you believe in a fair wage for a fair day’s work or you believe in keeping an underground of subsistence existence financed by you in the end and continued subsidizing of companies. It is appropriate to eliminate the tipped sub-minimum wage and raise the minimum wage.”
Companies use the subsidies not to pay Labor a fair minimum wage and depend on it to be profitable.
Furthermore, what we are not denying is the right of people to sell their ability to work as much as denying companies who have become wealthy at the expense of Labor who has no power to set their wage. I DO NOT WANT TO SUBSIDIZE WALMART and other businesses as they suck my community dry (different topic). I would prefer to pay the higher minimum wage and allow the worker to make the choice.
Spare me you BS on Labor as you do not know what you are talking about most of the time. There are no limitations on companies in this country. They can either do business in this country which is the largest consumer country globally and support the infrastructure by paying wages to support the people they employ, the environment they exist in, and the bridges, roads or trains or they do not have to do so. In the end, the taxpayer should not have to subsidize their business venture here with the infrastructure or the Labor. Of course they could always go to China and dump Benzene down a river and not tell anyone?
Finally, Bruce has it right. Then to this is not a forum for you to skew what is being said to suit your personal beliefs. Don’t test my patience.
Kai-HK got data for any of those talking points?
Say for numbers of people who are on cash welfare (in most states limited to single mothers and disabled people) who are given jobs at McDonald’s and Wal-Mart?
Or for the rates at which people who do get hired on to McDonalds or Wal-Mart that actually transition to other jobs?
Perhaps you have access to studies that show that minimum wage actually equates to the level at which sub-minimum wage jobs actually pay at actual labor productivity and are not simply rent extraction?
But all I can see is some regurgitation of the same stale talking points that can be found anywhere from Fox News to the first chapter of the most system serving “Principles of Economics” text book.
Is there a State that you can identify where higher minimum wage laws actually make the welfare and working classes less well off? Is it really true that poor people in Washington State (which has had the highest minimum wage in the country for years) are actually LESS well off than those in Mississippi? By ANY metric? Is there a single State, County or City you can find that actually shows LOWER unemployment as a result of Right to Work or sub-Federal minimum wage? I am sure that someone who actually gave a shit about data could find SOME State normally dubbed as ‘Red’ that was actually providing better service (or perhaps in your terms SELF-service) as measured in income or well-being metrics than States dubbed ‘Blue’. But for the life of me I can’t think of one.
I understand the appeal of pure Libertarianism. Because the logic is unassailable. If all you know are the lessons taken from various novels by Ayn Rand while you are a impressionable teen. I mean ‘duh!’. The problem comes when you start measuring those lessons against economic history where ‘history’ is defined as ‘the time up to yesterday at 8 AM’.
There is no place that you can identify where your assertions are actually born out by data. None. Zip. Nada. It is instead a logical construct that only holds together in the Time-Space continuum that we call “Galts Gulch – the 32nd of Never-ember”
For example nowhere in your discussion of “denying the poor and the unskilled the right to sell their own labor for whatever price they see fit” do you leave a place for employer pricing power that would force that down to subsistence. That is the whole argument ignores the fact that the market bargain has a hard lower limit. Meaning that pricing power makes the whole idea of a free negotiation a chimera.
But since I suspect that you never actually spent a second thinking through any of this history or actual economic dynamics but just took everything you know on this out of Chapter 1 of some Principles textbook I wont’ wait for a reasoned response.
My only question is why you would think that your line of bullshit would get any resonance? Do you really think we have heard none of this before and would just bow down under the Wisdom of Kai-HK? That assertions would simply replace any type of data-based argumentation?
Justify your arguments or go away.
Bruce,
You ask, ‘Kai-HK got data for any of those talking points?… Say for numbers of people who are on cash welfare (in most states limited to single mothers and disabled people) who are given jobs at McDonald’s and Wal-Mart?’
Why would I need numbers? The author, run75441, claims that 4 million people in the restaurant industry rely on public assistance at a cost of $9.5Bn (rivaling Wal-Mart). I am simply pointing out that neither Wal-Mart nor the restaurant industry (including McDonalds) creates the 4 million people in the industry that rely on welfare nor would these people cease to exist should Wal-Mart or McDonalds fail to hire them.
The poor exist despite Wal-Mart/McDonalds hiring them not because they hire them. And in hiring them it takes them off full welfare and unemployment and transitions them to less welfare and unemployment, no? If not, why not? Where would these people be should McDonalds not hire them at min wage, working at Google as a Vice President or at home on full welfare or unemployment? How does denying the poor opportunity to work at whatever wage they want help them?
You continue, ‘Or for the rates at which people who do get hired on to McDonalds or Wal-Mart that actually transition to other jobs?’
I didn’t say they did transition to other jobs. That was outside the scope of my argument but since you ask I do recall reading somewhere that 70-80% of Wal-Mart employees self-terminate. I would suspect that it is also high in fast food. It is one of the reasons that it has been hard to unionize these industries. People do not stay with one employer for a long time. Many of them stay until they can get a bigger and better job. I could care less if they quit and go back home and back on full welfare or move onto a better job…like I said it is outside the point of my main argument which is that having an employer taking people on welfare and putting them to work is a good thing for everyone involved even if those people continue to draw on some welfare, no?
You continue, ‘Perhaps you have access to studies that show that minimum wage actually equates to the level at which sub-minimum wage jobs actually pay at actual labor productivity and are not simply rent extraction?’
I have access to almost all research on minimum wage, point?
You ask, ‘Is there a State that you can identify where higher minimum wage laws actually make the welfare and working classes less well off?’
All of them. Less opportunity for the poor at any price point they want to charge makes them worse off in every state. It takes from the poor one of the few things on which they can compete for jobs, wages, and reduces their competiveness against incumbents.
We can all agree that the poor should have more money, but robbing them of opportunity is not the way to go about it.
You continue, ‘Is it really true that poor people in Washington State (which has had the highest minimum wage in the country for years) are actually LESS well off than those in Mississippi?’
There are a lot of geographic, demographic, and historical reasons why the two areas might have disparities in economic outcomes. Not sure how you are making min wage the causal difference. Can you please expound?
You continue, ‘Is there a single State, County or City you can find that actually shows LOWER unemployment as a result of Right to Work or sub-Federal minimum wage? ‘
According to the DOL, only American Samoa and the Common Wealth of Northern Mariana Islands have min wages lower than the federal minimum. States that have no min wage laws or a lower state rate apply the federal minimum. Early proponents of the law came from Northern States who wanted to protect their industry from being hollowed out to the South, all they did was set it up to be hollowed out overseas later. Like I said, min wage laws are designed to protect, to some degree, incumbents (Northern industrial states and other developed coastal states) from wage competition (the South and lesser developed coastal states). Forcing Mississippi to pay a higher base wage reduces its attractiveness to industries in the North. This is a disservice to the poor in the South. Thanks for pointing out how Washington State benefits from this protectionist federal scheme.
http://www.dol.gov/whd/minwage/america.htm
By the way, speaking of American Samoa… and the Mariana’s:
http://www.gao.gov/new.items/d11427.pdf
Min wages were introduced, employment fell 19%, earnings down by 5%.
‘Application of the U.S. minimum wage to American Samoa, pursuant to the scheduled increases mandated by Congress, continues to have devastating effects on American Samoa’s economy. It is causing severe distortions in American Samoa’s labor market. It has driven up labor costs such that businesses are being forced to cut employment, close or relocate.’
Anyway…keep believing that businesses don’t have other options and the only option they have is to either reduce profits or pass on the cost…
The rest or your response devolved into nonsense.
K
Glad I struck a nerve. And thanks for supplying two links. Let’s start from the last one
“What GAO Found
In American Samoa, employment fell 19 percent from 2008 to 2009 and 14 percent from 2006 to 2009. Data for 2010 total employment are not available. GAO questionnaire responses show that
tuna canning employment fell 55 percent from 2009 to 2010, reflecting the closure of one cannery and layoffs in the remaining cannery. Average inflation-adjusted earnings fell by 5 percent
from 2008 to 2009 and by 11 percent from 2006 to 2009; however, the hourly wage of minimum wage workers who remained employed increased by significantly more than inflation.”
Starting from the back forwards. Minimum wage workers who remained employed didn’t suffer, they instead saw real wage increases (“significantly more than inflation”). This being true even tough people earning above that rate saw earnings shrinkage. But all apparently from closure of one cannery and layoffs from another and there being NO indication that these layoffs were the result of actual wage increases as opposed to some collapse in demand for their products. And exactly what could have caused some sort of collapse in demand so and so employment in America Samoa on metrics whose starting and end points are “2008 and 2009” “2006 and 2009”. Hmm maybe a world-wide economic collapse that hit almost ALL economies in 2007-2008? So given that unemployment numbers spiked worldwide in 2008 and that according to your own source that wages actually held up for people earning minimum wage in American Samoa can you argue that increases in minimum wage actually caused one cannery to close and another to curtail operations?
You can’t.
Also the GAO is not really an agency of the U.S. government. It is instead an ideological think tank that serves the interest of the Congressional majority. It always endorses the same shit economic theory that you do.
As to your link the the Department of Labor site not only does it provide no support for your argument that I can see you make no attempt to even advance an argument as to why it does. It is just a blind link to demonstrate, uh, uh, “somethings”. Nice try.
All the rest of your argument is to say that minimum wages only serve to protect the interests of workers in the north from having their employers first locate to the U.S. south to extract extra profits and then later to the Global south when that extraction wasn’t QUITE profitable enough. Somehow you argue that this unrestrained race for the bottom somehow denies “opportunity” for those who managed to collect some just above subsistence income along the way.
Working backwards from that your defenses reduce to the following claims:
“Why would I need numbers?”
and
“I have access to almost all research on minimum wage, point?”
Well the point being that most of that research on minimum wage actually USES numbers and your claim that you have access to those numbers but don’t feel impelled to actually deploy them says all too much about your overall argument.
Put up or shut up. Because your deployment of numbers from American Samoa don’t carry the weight you want them to. Even in context.
Bruce:
Nice piece. Samoa? Is that a suburb of LA? I did a piece on fast food restaurants and the Planning Commission for LA and the concentration of them in one particular area. A different topic; but, it was getting ridiculous how crowded it was getting. Thanks for answering Kai.
Bruce,
You look at the GAO report and rightly point out that workers who REMAINED employed after the increase saw their real wages go up.
No sh*t! hahaha. That is the EXPECTED impact of min wages: those that are worth it (or cane be made to be worth it) get the increase and those that are not get fired. Great of you are worth it or can be made to be worth it (through more productivity increases or cuts in other benefits and expenses related to your continued employment, etc).
You then go onto to point out that other external factors came into play other than the min wage…again…no kidding. You are quite the social scientist! Yet you are quick to extol high min wage rates in non-red states or blue states as being some driver of the better standards of living enjoyed in those states. No outside factors there I take it?
However, the GAO did go onto point out that employers reported that they were reducing workers because of the min wage and employees worried more about job security than an increase in the min wage…however if you believe they are lying what can I do.
You then make this nonsensical point, ‘Somehow you argue that this unrestrained race for the bottom somehow denies “opportunity” for those who managed to collect some just above subsistence income along the way.’
I am not sure what you mean. I point out that having the federal government set min wage levels, protects some workers (mostly the already employed) at the expense of others (mostly the poor and unskilled unemployed). Is that not the case?
I also point out that increasing wages above a market-wage for the work being done forces employers to look for other ways to get that job done at the market rate…one such way is to move that job, if not down South then overseas. Is this not the case? Anyway it is to simply kill that job and push that work onto others, making them more productive and worth the increase. Have three people doing one job, kill one job, and push the work onto the remaining two…they become more productive and worth the increase in wages. Seen it here in my company and I work for a bank where expenses are being reduced via increases in productivity through lower headcount over same volume of work. You see it in restaurants, fewer servers and more automation, etc. And you think that won’t get exacerbated by additional artificial increases in the money wage of employees?
And finally thank you for clarifying your point on the research. If you look at a bulk of the survey literature…it backs up my position not yours.
http://ftp.iza.org/dp2570.pdf
‘However, the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries. Two other important conclusions emerge from our review. First, we see very few – if any – studies that provide convincing evidence of positive employment effects of minimum wages, especially from those studies that focus on the broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.’
http://www.cprn.org/documents/42718_en.pdf
The evidence provided by most of the studies in this survey is consistent with the conventional (supply-demand model) view of a negative effect of minimum wage upratings on employment.
And those are just a few of the surveys of the literature….the actual number of papers supporting my view is too long to list.
But what is the point of going to the literature when, in fact, I am simply arguing the principles not the discrete effects of unemployment. Let’s review those principles again:
(1) Wal-Mart/McDonalds, etc do not create the poor, they only hire them. These people will have existed and will continue to exist DESPITE Wal-Mart not because of Wal-Mart. No?
(2) Hiring an unemployed person at any wage is a benefit to the employee, the employer, and the taxpayer at any level…even $1/hour. It takes people on full unemployment and full welfare and transitions them to less unemployment and less welfare, while also providing them with skills, opportunity, and income that adds to the greater economy. This is win-win-win for all parties. No?
(3) Denying the poor the right to sell their property (their own labor) for whatever price they want is robbery. It robs them of their rights and is a disservice to them all the while protecting others who have jobs from wage competition. For the poor and unskilled, sometimes wage competition is all they have (since they lack adequate skills and experience)…by coming in at the lower wage it provides them with the skills and experience that pay dividends later. You take that opportunity away from them. No?
K
I am simply arguing the principles not the discrete effects of min wage (not unemployment)
Right. “If you don’t have the data argue the principles”. lol
Amateur,
Don’t see you providing the data or refuting the principles. Thanks for living up to your name.
K
I think when talking about the American labor movement wages were originally based on supply and demand sound economic principles. carried over from long ago practices. Now flash forward to todays massive government subsidies. We no longer have an economy that is based on these old school principles while working in America. As labor movements grew so did wages as demand shrinks for labor so will wages. Money floes in economies like water flows down hill . It will always seek the line of least resistance and knows know boundries. .I feel that labor prices and job flows leaving the country is only the result of free labor markets at work but the gov. has greatly interfered in those markets and how they work. One day when China becomes over priced and the U.S. the low labor cost provider the money and wage and jobs will flow back to us again but not if the country goes bankrupt first providing subsidies that they cannot afford to sustain in all those endless social programs that do not reward productivity or efficiency. The pendulum of labor prices will swing back one day but money will also seek the lowest cost labor-provider.
“McDonalad’s and Wal-Mart do not create poor people; they only hire them.
100,000 out of maybe 200,000 Chicago, gang-age males are in street gangs — because no American born worker will take a minimum wage that is one-third less than its 1968 high point ($10.75) when average income (not median) has doubled in the almost half century in between.
“Taking people that are on full welfare and full unemployment and giving them jobs that transition them off such full-welfare schemes … “
The only people I see in Chicago doing today’s (sub!) minimum wage jobs are from Mexico, India — they have never been on welfare — but they are relieved not to be making $1 a day in the steel mill in Pakistan.
The only people I see doing my old Chicago taxi driving job are from Africa, Russia, Pakistan, etc. If they make minimum wage I’d be curious to know how:
meter 50 cent a mile below 1981 when I started;
new subways to both airports;
unlimited limo licenses opened up;
free trolleys put on between all the hot spots downtown;
and 40% more taxis added.
American born wont work these jobs anymore — and these people never had the opportunity to get on welfare.
Time to mark the minimum wage to market (what the consumer would actually pay for their long undervalued work).
Better yet let’s mark the minimum wage to control it according to provisioning a key local resource (i.e. housing). Let the minimum wage be defined such that a specific number of hours is required to cover a months rent and utilities (say 48-50 hours a month).
Since every low wage worker needs a place to sleep when they aren’t working why can’t that resource be guaranteed by a fixed number of hours per month?
So next time we talk about labor income taxes it will be about how corporations pay FICA taxes? Or are you innumerate political blowhard?
Jay:
Who are you talking to? Amateur Socialist?
Here’s the simplest way to look at this wages debate:
If workers are earning less than the cost of living, and they are not dead, then someone or something else is making up the difference.
As Screwtape would say, this is so obvious I am ashamed to have to say it.
So, who makes up the difference?
It might be family. Indeed, if you measured it, family probably contributes the lion’s share of unpaid effort, since it takes a couple decades of work and expense to create one entry-level worker.
It might be other businesses. If someone is working two jobs, earning a higher wage at one and a below subsistence wage at the other, it’s the better job that makes it possible for them to work at the worse one.
It is often the taxpayer, that amorphous conglomerate of persons and organizations, paying for social safety net services, supports, schooling, and (unfortunately) prisons. ( When large businesses manage to cleverly evade taxes, who takes up the slack? Just guess.)
Sometimes it’s other nations. When their working-age citizens survive childhood and manage to make it into the US, the cost in health care, schooling, and their parents’ effort and worry have all been paid for offshore, and America gets their labour for free, without even the cost of supporting them when they become old or infirm.
And finally, sometimes it’s the persons themselves who pay — they scramble to live below subsistence, with the “dowry” of health and youth to fuel them, till they die a decade or more before their luckier, better cared-for peers.
None of this is rocket science — heck, it’s not even algebra.
Noni
So Bruce attacks the GAO as an “ideological think tank”. That’s cool but I wonder what the IPS is? How about HERE and their off-spring ROC-NY?
I also read the study by the ROC and it’s all just “estimates”. I wonder how accepting the data geeks at this site would be if Kai-HK provided some “estimates”?
LJ:
Seriously what do you think the government sponsored GAO favors as opposed to the independent EPI? I certainly would not draw upon the GAO. And where did ROC draw its data from LJ and develop its model? There is a limit to acceptance and Kai is pushing it.
Hai-KH — I followed your link also because I am also very familiar with the minimum wage debate.
So I was not surprised that you link was to Neumark and Waseler.
Of all of the dozens and dozens of peer reviewed articles on the minimum wage over the last 20 to 30 years I have always been very impressed that those two have been essentially the only ones that found minimum wage hikes caused large unemployment , Essentially every other researcher found negligible impact on employment from minimum wage hikes.
If you really are knowledgeable about the minimum wage literature you should be able to cite other authors besides those two.
I’m waiting.
William,
I agree with you that unskilled labor is overpriced in the US. The subsidies are to the individuals not to the companies that employ them. It increases the reserve wage of labor and makes them less willing to work at a market rate. Just because you do not like the market rate for unskilled labor does not mean that you can wave a magic central planning wand and force employers to hire people at a rate that is above the worth of that labor. They will move overseas, shut down, or make labor do more for the same amount of money (robotics or, more likely, just making people do more with what they got). Or they do some combination of the three. and that is what we have seen over the last several decades and will continue to see.
The pendulum is already starting to swing back but China ceases to be the problem…robotics now are becoming the threat to unskilled repetitive labor. Even in China the main competition is fast becoming robotics.
K
Denis,
A few points. Why disingenuously pick 1968 as the cut off. We had less Chicago street gang violence in the early 50’s than in the 1960’s when min wage, in real terms, was lower than today. Regardless, both then and now…McDonalds did not create the gangs it only employs them if they want a job. The real reason there are gangs is more demographic, historical, and cultural. You should read more.
You then point out that Indians and Mexicans Chinese etc are the only ones taking those sub-min wage jobs….and then their children go onto be doctors and the cycle of poverty is broken. Thanks for pointing out that breaking poverty is easy if you are willing to work and instal values in your children’s upbringing.
Then you made the best point of all. It is not Wal-Mart that pay these crappy prices it is other Americans who do not value low skill work and pay accordingly, Wal-Mart is the simply the organisation that passes on that pay. Fair point. I agree.
K
Jay, sorry. I do not understand you point on FICA. Can you please elaborate. Willing to address it but want to make sure I fully understand the point that you are trying to make.
K
John,
Fair point. The back and forth on the data can get pedantic, with both sides of the date producing reams of data, which is why I try to stick to the principles of the debate so as to not get bogged down in that nonsense.
K
Spencer,
Actually Neumark and Neumark/Waseler do not find that min wage causes large disemployment effects. Almost no one does. They all find, as is expected, little to some disemployment effect. But most economists find NEGATIVE effect on unemployment. That is why I provided TWO different links to the SURVEY literature that look at ALL the major studies. In the second link they find slight negative effects, with large effects mostly at the teen level. This is to be expected.
I am familiar with all the literature, which is why I went to the survey literature, It is one way to review all/most of the literature at one time instead of my posting a huge list of links (which this site does not take if you start putting in 30 links—-believe me I have tried at other times in my debates here).
There are many reasons why disemployment effects appear low-to-slight in the research. As someone pointed out above other factors such as secular movements, global movements, employer reactions to changes through cutting costs elsewhere, reducing overtime, cutting benefits, increasing productivity, raising prices, etc all play into diminishing effects. These effects are hard to measure and more importantly most research usually measures the disemployment effect taking the last min wage rate as the base rate. That is the incorrect way to look at the effects of min wage, you need to look at the disemployment effect from whatever the MARKET RATE would be in the absence of a min wage law. In many cases, for low skilled labor it is below the federal rate…hence the higher unemployment for people with low skills, namely teenagers, minorities,etc. Again, that is hard to measure unless you get rid of the min wage to begin with….which is why I have been sticking to arguments on the principles not the quantum.
The demand curve for labor slopes down. There is no denying that. People who do not understand that have no knowledge of minimum wage literature or basic economics and human nature.
K
As a veteran of the minimum wage wars I have come to understand that the opponents to any increase in the minimum wage rely on a number of fallacies and a stubborn refusal to face facts.
They believe like Ryan and Kai-HK that the labor market is a fair market if the government and its laws and regulations like the minimum wage stay out of it. That supply and demand will set a fair wage and provide jobs for all, the wages equal to the true value of the labor.
But like most of the fantasy it doesn’t hold up when you look closely at it. The idea that supply and demand in the labor market determines the number of workers hired is one example of this.
Employers hire workers when their labor is needed to increase production when the demand for the extra production exists. They don’t hire more people when wages go down. They don’t hire fewer people when wages go up.
It makes no sense for employers to lay off worked when wages go up, not only do the employers lose money because of the increase in wages they would also lose all of the profits and overhead coverages of the marginal product lost because of the reduced employment.
The other theory that says that higher wages result in higher unemployment is marginal productivity, the idea that supply and demand drives prices down to the marginal cost of the last product produced. Therefore the employees whose wages exceed their marginal contribution to the product have to be laid off.
There are so many problems with this theory it is hard to list them all in a short post.
They include that in a modern industrial economy with spare production capacity diminishing returns never overcomes the economies of scale, a necessary condition for there to be any profits under marginal productivity. Profits are important in capitalism.
Or that under marginal productivity the economy has to be in general equilibrium, maximum utilization and full employment, for there to be any disemployment from a wage increase.
Or that if marginal productivity is true any wage increase, even the CEO’s, and in fact any increase in costs would result in increased unemployment. Obviously, this not the case.
Or that the market has freely chosen not to set prices by supply and demand, rather to base prices on average costs plus a markup that includes a profit, prices set to produce a sales volume to keep their production facilities operating at a high enough utilization to cover their expenses and to pay a reasonable profit to their investors.
Or that the market has freely chosen to compete not on price, but on other factors; branding, advertising, quality, features and obsolescence, to name a few.
All of the studies on an increase in the minimum wage and employment agree on one point, the impact on the over all economy is so minor as to be negligible. All of the studies have to study teenage employment to try to see any change in employment and even there little is found, either positive or negative.
What no one can deny is that an increase in the minimum wage results in an marked improvement in the material well being of the minimum wage and the near minimum wage workers and their families. This is why we want to increase the minimum wage. If in the unlikely event that it does result in higher unemployment among teenagers we have to decide how to handle that. I, for one, would prefer to live in a society where teenagers go to school rather than one where teenagers have to work. But that is just me.
The discussions about the disemployment resulting from an increase in the minimum wage seem to have one purpose only, to allow opponents of the minimum wage to be able to say “under the right conditions an increase in the minimum wage results in increased unemployment,” never adding that those conditions never exist. Finally the qualifying statement “under the right conditions” is dropped and that which has no basis in theory or fact becomes an absolute surety.
A sensible increase in the minimum wage has one and only one certain impact, a reduction in profits. This is the real reason for the opposition to an increase in the minimum wage. It is a small toehold in reversing the decades old obsession we have to use the nation’s economic policies to increase the incomes of the already wealthy, at the cost of lower incomes for everyone else. It is that simple.
Don:
The reduction in profits is not that great. You took some time on this and it is well written.
The crux of the argument is who decides this question: what is the worth of a human being?
Worth generally has to do with utility. I may be a priceless mathematician, and still be a worthless ballet dancer.* So then the question is, utility for what? And who decides?
Organized effort is the genius of our species. In groups, we can accomplish things no individual could, and efficiently. Our economy is not one of scarcity (sorry, mainstream economists) but one of unimaginable surplus. So then the question is, to whom does this surplus accrue?
One answer to “The crux of the argument is who decides this question: what is the worth of a human being?
Worth generally has to do with utility. I may be a priceless mathematician, and still be a worthless ballet dancer.* So then the question is, utility for what? And who decides?
Organized effort is the genius of our species. In groups, we can accomplish things no individual could, and efficiently. Our economy is not one of scarcity (sorry, mainstream economists) but one of unimaginable surplus. So then the question is, to whom does this surplus accrue?
One answer to “What is a human being worth?” is, “Their lives are their own, and are more worthy insofar as they become as strong, wise, kind and generous as they can.” By this criteria, we exist to become menschen, true human beings, honourable persons.
On the other hand, if the answer is “A person is worthy if they have a good job, a high income, a skill in high demand, or inherited wealth,” then their worth is dependent on the judgement of others, and is not tied to their choices and efforts. People may say they are “job hunting,” but jobs are given, not hunted down like bison, and can disappear for no reason. High incomes are given, or withheld, not always based on merit. Skill and learning guarantee nothing. And inherited wealth is, by definition, unearned.
So, if people are anxious, angry, have unfocused rage or depression, we may conclude that they know, at some level, that their worth is being assigned or withheld by others, generally others who want the fruits of others efforts to enrich themselves. What is the worth of a mensch in that kind of society?
Roughly speaking, a “left wing” society is one that promotes and respects menschen, and a “right wing” society is one that aggregates human effort to the benefit of a ruthless, judgemental few. By definition, the latter must be more unequal than the former, and at its extreme will exhibit more anxiety, anger, violence (from above downwards,) arbitrary decisions, and a precarious life for the majority.
So, Kai, who assigns you your worth? Who decides if your best efforts will be rewarded or not? Who can ruin your life with one pink slip or hospital bill? You might not know yet yourself, but the US is made up of millions of people who have been shown over the past few decades that it sure isn’t them.
Noni
*Or in my case, rubbish at both.
Simple Don:
As run pointed out, great response.
You state, ‘They believe…that supply and demand will set a fair wage and provide jobs for all, the wages equal to the true value of the labor.’
Though ‘fair’ is subjective, I believe that markets (both buyers and sellers of a product or service) are better arriving at an appropriate price point (or wage) in a manner that more efficient and better for all market participants in the long run than anything a central planning bureau can come up with.
Should people Washington DC set the wages for a pizza worker in New York City and a pizza worker in the backwoods of Mississippi at the same level? Is that a better approach than letting individuals in both markets arrive at a mutually acceptable wage (or not)?
You then make this statement, ‘Employers hire workers when their labor is needed to increase production when the demand for the extra production exists. They don’t hire more people when wages go down.’
Let’s look at both sides of that equation. Let’s say I am buying widgets from that company and the price of their products go up by my income stays constant…would I buy more or less of that company’s products? Now, let’s say, from the company’s perspective, that my labor is artificially increased on me but my demand (and revenue stays constant). My investors need a market-rate of return that is commensurate with the risk of the business. Why wouldn’t I look into reducing labor as a means to ensure that market-return is met? What makes labor so special that the demand curve does not slope down for it?
If it doesn’t slope down and employers are inured to the price of labor then… why are you so greedy? Simply dictate a min wage of $1000/hour and watch all these companies thrive. Why won’t you do that if you (or others unconnected with the business) such a great determiner of a ‘fair’ price and employers are indifferent to whatever you pick?
I will agree with you, though, that studies show slight-to-(less than)-moderate impacts from some increases in min wage. However, this is not unexpected. Very few people work at the min wage level (3%-4%, mostly white and/or under the age 25, mostly from middle-class and affluent families) and slight increases will not greatly affect employment at the margin…even if the expand its impact to near min wage employment. And even it where it does it will be relegated to the least experienced and least skilled in society (namely teens). And that is what we see…like I said, it is as expected. But, as I pointed out above, most of these research studies look at increases in min wage from one min wage level to another, say what happens when it moves from $6.75 to $7.50, etc. This is an incorrect way to measure the impact of min wages on the poor and unskilled. You need to measure it against what the natural market wage would be for them. The reason that unemployment stays high for the unskilled is that successive increases in the money wage or labor at a time when the real value of unskilled labor is dropping has created a value gap to employers, resulted in increased unemployment among low-skill groups. In addition, most studies look at a short time frame for the impact when it is widely known, and argued above, that employers may take time to wind down staff (say not hire new replacement staff when one quits on his own) and/or forestall or cancel expansions that would have led to more hiring. They also fail to measure the new job creation that might have occurred had such an increase not occurred. Researchers are just now starting to pivot that way. I will be interested to see what they find as new research emerges.
http://econweb.tamu.edu/jmeer/Meer_West_Minimum_Wage.pdf
Finally, I am glad that you feel that teenagers should stay in school, and I even agree with you to some extent, but should that be your choice or theirs? Should they get to choose what they decide to do with their future and careers or is that something you and others in the central planning politburo should make for them by pricing them out of the job market?
Personally, I am for more freedom of choice, not less.
K
Noni:
You ask, ‘So, Kai, who assigns you your worth?’
Since we are talking about wages here, the real question should be, should my employer and I get to decide what my labor is worth through mutual negotiation or should some third party unrelated to me or my employer get to decide that for us? I would rather have the power to decide what wage I proffer and/or accept to lie with me (and my employer) not some sleazy bureaucrat.
You continue, ‘Who can ruin your life with one pink slip or hospital bill?’
I can tell who would not ruin my life with one hospital bill. My employer. And what is your problem with employers having freedom of choice and freedom of association in whom they hire (or let go). I enjoy the freedom to quit anytime I want…it is a freedom I greatly value. Who am I to say that my employer should enjoy less freedom than I have? Let my employer issue pinks slips whenever they want. Freedom! Learn not to be so frightened of it.
You conclude, ‘You might not know yet yourself, but the US is made up of millions of people who have been shown over the past few decades that it sure isn’t them.’
A few points on that:
(a) Whose fault is it that these people experienced these things? Is it the fault of the foreign billionaire thinking of investing in the United States?
(b) How does forcing him to pay above a market price for labor induce him to invest in the United States and ameliorate the conditions you lament?
(c) How are the poor workers who have had all this bad stuff happen to them better off by having their choices to employers and wages limited for them?
K
You really don’t get it.
You are assuming that jobs and employment are a resource, like a river or lake, for workers to tap. You also assume that there will be enough liquidity “lake water” for any workers who have the interest and energy to go get some.
You state outright, though you probably don’t recognize it, (in (b) above) that workers who are not needed by businesses at a price point they are willing to pay, are therefore devoid of intrinsic value — that businesses are valid deciders of human value.
There are countries where this is the default, where human life is cheap, and very nearly at the sufferance of those who control the food supply and the weapons. Your wealthy foreign investor — are you saying that he should have the final say over the value of free American citizens? Sure sounds like it.
Not very far away is a time when AI and mechanization can take over the vast bulk of work currently done by living humans. When the pink slips fall like autumn leaves, where is the bargaining power you believe will always be yours? Where is your freedom to choose? I would be interested to hear what your current field is, but almost certainly it is in jeopardy already.
Noni
Noni:
Your right, I find following your points very difficult. Perhaps if you were a little more straightforward in the points you are trying to raise.
But I will do my best to address your points:
Not sure what your point is on lakes and liquidity. Please flesh that out. I would point out that you are making assumptions about what I assume…so…
I never said that because workers are not needed by businesses therefore they lack intrinsic value. In fact, I was clear to state at the outset of my response that I am redefining your question in terms of wages since that is what the topic is about. Value is subjective and means different things for different people. I also state that above in a different comment to someone else. That is why I do not want to expand this conversation to cover value outside of the wage debate. It muddies the water. I have a friend, Buddhist, who doesn’t care about his wages at all or his worth in money terms. He derives and quantifies his value and what is valuable to him on a different scale. But the topic above is min wage, not subject value.
Back to wages, when it comes to my wage, businesses have the least amount input into my labor value. They may help price it for me, but I set my labor value and am the most important person in determining what my labor is worth. Businesses can take it or leave it. Often they leave it for many people do not get to set their own value but instead have the government set it for them. Min Wage robs people from setting their own value for the work they do.
If you are so upset employees can set their own value in negotiations with employers, how does having some bureaucrat setting it for them become an improvement. The government is crap at determining value…why trust them with determining your value.
It also goes to say that the allowing people to set their own wages is not ceding that power to the foreign investor….again, how is allowing some bureaucrat jump in between you and a job by a foreigner willing to invest money into the US better? You now let government dictate what jobs you can and cannot take…as if you are their serf. Why do you hate freedom and individual rights to the point that the poor should not enjoy them?
K