Reallocation Effects of the Minimum Wage

[BeckyDem]

Posted on October 7, 2021 by Yves Smith

Yves here. Classic studies by Andrew Card and Alan Krueger on the impact of minimum wage increases on the income and employment levels of fast food workers came to similar conclusions as this paper: increasing minimum wages does not in fact produce unemployment, and so winds up in a net increase in the income of low wage workers. From Vox after Krueger committed suicide:

In introductory economics courses, students are typically taught that setting price floors — on milk, oil, or, perhaps most importantly, labor — causes supply to exceed demand.

In the case of labor, what that means is that if there’s a minimum wage, employers’ demand for workers falls (because they cost more), and the supply of workers increases (because they’re promised more money), meaning there’s unemployment, with all the costs and suffering that entails.

This conclusion was largely based on abstract theory, but it held sway for decades….
https://www.nakedcapitalism.com/2021/10/reallocation-effects-of-the-minimum-wage.html

[rickyhall]

1. Very convenient "abstract theory" AKA bullshit.

Propaganda supplied by those too cheap to pay decent wages.

[BeckyDem]

2. Exactly, they don't want to pay because they're fine with being greedy.

[TreasonousBastard]

3. As an Eco major at City College, I was in the first lecture on Eco 101...

The chairman of the department solemnly opened by telling us everything we were about to learn was wrong. To this day, every time I hear or see the word "marginal" I get the runs.

If we went on to graduate work, we would find out why it was all wrong. If we fixed it, we would either get the Nobel, or get shot.

The fundamental problem is that all economists can do is observe. Actual guided experiments are impossible. So, no one had been able to set up three populations and experiment with pay to see what happens. But no one seemed to care, either, and anyone dismissing established wage theory was summarily dismissed himself.

(You see why I deeply distrust Modern Monetary Theory.)

One recent observation that should kick some ass is that McDonalds in Denmark pays around 15 bucks an hour, but a Big Mac costs the same as in Alabama. Nothing was said about the profitability of individual stores, though.

What I really learned at CCNY was that I should have majored in accounting.

[BeckyDem]

5. +1.

Americans have begun to understand that all the rhetoric they had heard regarding the price of a Big Mac as it would relate to significant pay rates was a lie. Workers here still have a major fight on their hands but are nonetheless better informed.


Do McDonald’s Workers in Denmark Make $22 an Hour?
The fight over a minimum wage is often centered around McDonald's.

McDonald's workers in Denmark make $22 an hour and have six weeks of paid vacation.

Rated mostly true.
https://www.snopes.com/fact-check/mcdonalds-workers-denmark/

[MichMan]

4. Are any employers actually still paying minimum wage anymore?

All the help wanted or hiring signs I see posted are paying well above that.

[BeckyDem]

6. Many pay more than the minimum but it is worth looking at the details as to what is

also left out of benefits.

How does the minimum wage vary across states?

As of January 1, 2021, there were five states without minimum wage laws, two states with minimum wages below the federal minimum, 14 states with minimum wages at the federal level, and 29 states, plus Washington, DC, with minimum wages above the federal level, according to the Department of Labor. This is a significant change from 1980, when only two states, plus Washington, DC, had minimum wages above the federal level.

State minimum wages in 2021 range from $5.15 per hour in Georgia and Wyoming to $15 per hour in Washington, DC.
Five states have no minimum wage laws, while two states have minimum wage below federal levels.

https://usafacts.org/articles/minimum-wage-america-how-many-people-are-earning-725-hour/

[ShazamIam]

7. The big lie since the creation of EITC instead of a minimum wage increase in 1976, following the

great economic damage rendered by the oil embargo of 1972.
Shock Doctrine policy deployed during a crisis that officially changed us from a nation that built homes for the working class to buy and provided subsidized housing for the laboring class made up of many in seasonal work.
Let the general tax payer support them instead of the federal unemployment insurance program, a program that required an employer tax. Still in effect but mostly replaced for the laboring class by EITC. Which does not lift anyone from poverty but instead tops out at the poverty level income, keeping them in poverty with no stable housing options. And now mostly invisible since most of our current laboring class are refugees and illegal immigrants.


Remember one of Nixon's first acts was to hand over the Poverty funds to urban developers who tore down existing subsidized housing and never replaced it, promising that the, "free market," would take care of the problem and a switch to those housing vouchers that never kept up with the need and have filled our streets with disposed of people.

Some other wage suppression acts: privatization of government services, where a portion of the budget is set aside for profits and the worker transitions from fully benefited government employee to no benefits and low wage, "private," employer.

Not to mention the give away of 200 years of manufacturing and technology expertise to China in exchange for cheap labor, and U.S. job elimination, with the added bonus of China now once again becoming an adversary for power, all brought to you by provate wealth buying the U.S. government. All aided by DEA and locking up millions of poor white and minority young men, to keep them from rebelling, it was necessary to mass incarcerate them, which also keeps them unemployable or limited to low paying work, for life.

[BeckyDem]

8. Excellent post, thank you.

Naomi's, The Shock Doctrine was best detailed explanation for me to understand the vast scope of how the world works.

Which is pretty damn scary.

[ShazamIam]

9. Funny how the two oil embargoes were used to transform the U.S. System but are rarely if ever

mentioned in discussions and articles for the last 30 years when the high inflation of the late seventies and early 80s are discussed.
Nor the link to the official beginning of U.S. wage suppression and destruction of the at the time powerful, unionized and comfortable working class.

[BeckyDem]

10. "We are all in the sacrifice zone now"

In This Changes Everything, Klein presents a dystopian status quo of “climate change fuelled disaster capitalism – profiteering disguised as emission reduction, privatized hyper-militarized borders, and quite possibly, high-risk geoengineering when things spiral out of control” (p.155) and suggests that “we are all in the sacrifice zone now”.

However, she leaves us with the glimmer of hope that climate justice movements and social mobilisation can offer an alternative future: proposing the lifeline idea that “the truth is that there is no business as usual” and that we can determine our own path to change
https://blogs.lse.ac.uk/europpblog/2014/11/23/book-review-this-changes-everything-capitalism-vs-the-climate-by-naomi-klein/



I hope so.

[ShazamIam]

11. I think we are in for some more ugliness but am also hopeful for our future. Even as 9/11 was used

to strip some of the guaranteed individual rights and the Economic Crash was used to attack the middle class, and now the professional class is being decimated via things like mega law practices versus small partnerships, private equity vs medical doctors setting up group practices where the professionals are put on salary while the owners collect premium fees for themselves. Tax funding for scientific work at universities is cut in favor of control by private investment, and privatization of the results.
We have been shock doctrined into submission to the madness of the libertarians and social conservatives.