Minimum Wage Wars Round 23

President Obama has proposed increasing the federal minimum wage from $7.25 to $9. Since the demand for low-skilled labor is quite elastic, this will kill off a few jobs that would otherwise have been created. Not very many, because relatively few people would otherwise be paid between $7.25 and $9 anyway (in an economy with an average wage of about $20/hour); but this is a job-killing idea.

The President’s proposal to index the minimum wage to the CPI is nearly excellent (except we should tie it to average wages, not the CPI).  Doing this would end the repeated fighting over the minimum wage that distracts attention from other labor issues that are so very much more important. It would be a great saving of political energy not to have to debate the minimum wage year after year.  I’d even be willing to see it increased to $9 next year if in addition it were indexed as I propose. 


I'd rather see minimum wage be tied to a fraction of that company's CEO's total compensation package (including stock/stock options/benefits/corporate jet/etc). That would put things in perspective and keep things relatively equitable inside a company.

It would vary from company to company based on the CEO's compensation but there would still have to be a base line (maybe the current minimum wage). That would help small business owners hire while forcing companies making record profits to share some of the wealth with the people that actually generated it.

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All that does is promote outsourcing to someone who can pay the baseline. If I'm the CEO of a huge company, and my employees have a minimum pay of $50 an hour, then I just look at the payroll and fire everyone who is paid less than $50 an hour. Then I hire another company, someone with a CEO who is paid much less, to provide me with people to sort the mail, vacuum the floors, answer the telephone, or do whatever else needs to be done but isn't worth paying $50 an hour for. Nobody actually gets a higher paycheck this way. All it does is let you feel righteous.


So, increasing the federal minimum wage will kill jobs, therefore we must make sure that it increases without end? Please explain your logic.

Seminymous Coward

The count of jobs is not the only metric. Perhaps the author simply feels that the "repeated fighting" is a higher cost than the "not very many" jobs lost.


It'd be hard to argue for indexing minimum wage to CPI when many on the left side of the aisle oppose chained CPI for entitlements.


You could just as easily index the minimum wage to Chained-CPI.


What if we have a two-tiered minimum wage? One for under 18 and one for over 18? What do you think this would cause?


Won't raising the minimum wage help the local economy? I fail to see how having more disposal income amongst citizens is a bad idea? Yes, it will increase the budgets of businesses, but it will also increase their potential customer base. People that make a higher minimum wage will have money to spend in local restaurants and other service industry businesses. Precisely the type of businesses that need help these days. It is also stands to reason that this modest $70 a week increase isn't going to be squirreled away by most to take a trip to Las Vegas or Los Angeles for example. So I could be wrong, but raising the minimum wage in a struggling economy actually makes a lot of sene.

big picture

The company has only so many dollars to spend on wages, this is variable but still just a single pool to draw from. So, you can either pay fewer people more or pay more people at the same rate. By paying more people at the same rate that is taking more off of unemployment so it isn't sucking more out of our economy. Maybe not creating more, but slowing a drag at least to hopefully net out ahead. I am not saying we shouldn't raise the minimum wage, but saying your logic on more disposable income isn't right. We can't, contrary yo popular belief with some politicians, just create money out of thin air. If you are creating on one side, then someone else is hurting. Example would be rates today. It is helping those with debts and those wanting to buy a home or refinance by lowering payments and giving them more money to spend. However, we just took it out of retirees pockets bc instead of making 5% on bonds that they could then spend, they are now getting 2-3%. So you can't just put more money into citizens pockets and expect no one else to lose out. Also, if u are making minimum wage and get that extra 70 a week, it is probably going to pay bills and not going to help a lot of other local companies.


Carl C

I like this idea. Or at least, if we're going to have a minimum wage, this would be the best way to do it.

When you say average, is that mean or median?


What purpose does the minimum wage serve, and is the policy well designed to promote that purpose?

Hypothesis 1: The minimum wage is a welfare program designed to transfer wealth to people at the low end of the income spectrum, much like the Earned Income Tax Credit. But if society wants people to have greater remuneration, shouldn’t society pay for it – rather than lumping the cost onto private employers? In short, under this hypothesis, the Earned Income Tax Credit seems like a better policy than the minimum wage. (EITC also avoids the disincentive to hire created by the minimum wage.)

Hypothesis 2: The minimum wage is not only a welfare program designed for the benefit of low-wage earners; it is also a tax on their cheapskate employers that are wrongfully extracting the benefit of people’s labor without paying a fair price. This rationale fits the policy better, but is based on quite arguable premises. Law firms may also exploit young lawyers, paying them at a rate that would never enable the lawyers to pay off the cost of their educations – even as the firms pay more than minimum wage. Similarly, grad schools typically pay grad student teaching assistants serf-wages relative to the value the students provide, yet the schools generally do not run afoul of the minimum wage laws (although some may!). Urban employers may well pay people wages that barely permit people to cover the cost of urban living expenses, even though these wages may exceed the minimum wage. Yet minimum wage laws impinge primarily on employers in lower-skilled (fast food) and/or marginally productive (recycling sorting) industries. It is unclear that these employers are uniquely culpable.

I prefer to let labor markets operate as efficiently as possible – and to make any socially-desired adjustments afterwards.


Seminymous Coward

I don't particularly disagree with your overall point, but I feel compelled to note that the government is also bound by minimum wage laws, so all of society pays for the minimum wage, not just private employers.


While raising the minimum wage might kill a few jobs, it might save the federal government some money. No one can survive off $7.25 an hour unless you are a teenager at home. The adults making this salary will be on benefits. Lets face it, that salary will not get you far. Rent in a smaller city is all it will get you. Being able to make a higher salary would possibly allow you to survive without foods stamps.


Exactly - the people on the lowest of wages could only survive with help from benefits, and therefore the lowest paid workers are in effect subsidized by the government. Upping the minimum wage forces them to pay something closer to their truer cost.


Would tying the minimum wage to CPI/average wage produce additional inflationary pressure?

Or is it something that would theoretically happen once or twice, then end up at a level of stability?


Here's my question for the economists: let's assume that you are correct in saying that a minimum wage increase will kill off some jobs. Is that necessarily a bad thing? Call me crazy, but I think that making less than nine bucks an hour isn't really any better than not working at all unless you are a teenager with no major living expenses.


Would you support abolishing it all together? I know that's not feasible politically, but if it were. Youth black unemployment is devastatingly high, imo largely due to the minimum wage.