Minimum Wage Rises, Sky Does Not Fall

When I flew to Seattle last week, airport security gave me trouble over the four pound ham I was carrying. Several TSA officials gathered to consider the question of whether ham is a “gel,” to which I retorted: If ham is a gel, so am I. I suggested that they biopsy it for hidden box-cutters. I offered to divide it into 21 three-ounce chunks, each appropriately stowed in a Ziploc baggie. But no deal.

So I broke down and told them I was flying into what I had been warned would be a food-free zone: Washington, with the highest minimum wage in the country ($7.63 an hour), could hardly be expected to have affordable restaurants or a functioning economy of any kind. Notable conservative economists have almost unanimously predicted that an increased minimum wage would result in wild price increases and mass unemployment, and I had a suitcase full of clippings to prove it.

I would be entering a culinary wasteland, facing fast food meals of $20 and up, and if I tried to fall back on soup kitchens, thousands of unemployed restaurant workers would be lined up ahead of me.

So imagine my surprise when I arrived, ham-less, in Seattle to find it fully functional, if not positively bustling. Restaurants were packed, and I could still get a grilled salmon sandwich for $7.95 at a cafeteria-style place overlooking the sound. My hotel was amply staffed with congenial people and – perhaps only because of the un-Seattle-like cold, no beggars approached me on the streets. Nor can you say the dire effects of a higher minimum wage just haven’t had time to set in: Washington raised its minimum wage above the federal level of $5.15 an hour about a decade ago.

In fact, according to a January 9th article New York Times, Washington’s economy is booming, generating 90,000 new jobs in the last year. Even business groups have stopped griping about the state’s minimum wage. The article quotes a pizza store owner in the western part of the state: ''We're paying the highest wage we've ever had to pay, and our business is still up more than 11 percent over last year.''

My next stops were in California, with a minimum wage of $7.50 an hour, slated to go up to $8 next year. Again, no imported ham was required. Sidewalk taquerias flourished, as well, or so I’m told, as those celebrity sushi spots where you can pay $100 for a bite of fresh chum.

Overall, 29 states have raised their minimum wages above $5.15 an hour, and – lo!—the sky has not fallen. Could we have some apologies, please, from the economists who predicted a retail apocalypse?

Not that a $7 or even $8 minimum wage is utopian. My book Nickel and Dimed is often wrongly described as an account of my attempts to live on the minimum wage. Far from it; I averaged $7 an hour, which, according to the federal government, is well above the poverty level for a family of one. But I couldn’t get by on that, thanks to the high rents even in trailer parks and residential motels, and I never went near pricey housing markets like San Francisco or Seattle. In the Seattle area, a “living wage” (calculated to reflect local housing and other basic costs) is $11.89 an hour for a single person and $25.35 for a family of three – more than three times the current minimum wage.

There is no moral justification for a minimum wage lower than a living wage. And given the experience of the 29 states that have raised their minimum wages, there isn’t even an amoral economic justification either.

Comments

[Rhea]

Great column. Everyone complains what a burden it would be to have the minimum wage rise. But you do things to accommodate it. It's basic arithmetic. If you run a small shop of some sort and you pay your counter workers $20 an hour, then the boss takes home less or economizes in other ways. There has got to be a way for everyone to receive a wage they can live on, one that makes it worth waking up every morning and going to work.

[chris]

There are some 11 million or 12 million illegal aliens in this country.

Do they earn minimum wage? More than minimum wage? Less than minimum wage?

Do any of them work in Seattle restaurants?

Does an increase in minimum wage cause employers to hire more legal workers or more illegal workers?

If raising the minimum wage is a good thing, why not raise it to $25 an hour?

Is there a sound reason the $25-an-hour figure should not be the current wage target?

[Neil]

In San Francisco we are trying. As of January 1, the minimum wage for anyone working in the city is $9.14.

In addition, as the result of a 61% ballot vote last year, as of February 5 every worker in the city (including restaurant dishwashers, etc.) will accrue (at least) an hour of paid sick leave for every 30 hours worked.

It's still not ideal, but I am proud of what my city is doing in this area. Thank you, Barbara, for your books, your blog and your continued diligence.

[Ron Davison]

One of the great fallacies of economic policy is that the "goods" traded in labor markets are little different from the "goods" exchanged in other markets.

[James]

"There is no moral justification for a minimum wage lower than a living wage"

Sure there is - a free person chooses to work for it. There is no better moral justification available. If I think there's no moral justification for books to be sold for less than $100k per copy, will you let me prohibit you from charging less than that for each copy of your next book?

[realpc]

I don't think libertarian-leaning economists predicted a disaster if the minimum wage is raised. They just said it would not help the poor very much, and it would hurt small businesses and contribute to wage inflation. Mostly, they said it would not be a big deal either way, and that Democrats are pinning their hopes on something that will not help attain their goals of decreasing poverty.

If Seattle has a high minimun and a great economy, that does not tell us very much. We would have to know what other factors may contribute to Seattle's current success.

There is always a trade-off between encouraging business and protecting workers. In the long run unions and worker protection can harm the economy, which harms workers as well as business-owners. This does not mean workers should not be protected, only that it's a question of balance.

I think Barbara E. is misrepresenting the opinions of non-leftist economists by assuming they want to go all out in encouraging business and screwing the workers. It's obviously a question of balancing priorities.

In general, America tries to be the dynamic leader in technology and finance. Like anything, this can be taken too far. But going too far the other way, like France for example, would just dull our creativity.

I think the purpose of government is to defend us against external enemies and internal criminals. I don't think the government's purpose is to give us all a good life. I think we each have to find a way to get whatever it is we define as a good life.

[barbsright]

Barbara E., your argument is rather 'ham handed'. I would counter it, but I feel rather 'ham fisted' and possibly could lose control and 'ham' it up! Duh!!! Too late!!!

[Tim Worstall]

No one (at least, no one serious) said the sky would fall. Economists however, did say that the effects would be bad:

http://mjperry.blogspot.com/2007/01/at-least-it-sounds-like-good-idea.html

Empirical evidence shows that for every 10% increase in the minimum wage:
-- Unemployment among minorities rose 3.9%.
-- Joblessness among Hispanics jumped 4.9%.
-- Teenage minority unemployment increased 6.6%.
-- Unemployment among African-American teens climbed 8.4%.

We have another phrase for "empirical evidence". "In the real world".

[Different]

'One of the great fallacies of economic policy is that the "goods" traded in labor markets are little different from the "goods" exchanged in other markets.'

And an immoral libertarian idiot proves your point already, wow, that was easy:

"Sure there is - a free person chooses to work for it. There is no better moral justification available. If I think there's no moral justification for books to be sold for less than $100k per copy, will you let me prohibit you from charging less than that for each copy of your next book?"

NAZI! USING PEOPLE AS THINGS! NAZI!

[Sonya]

"Sure there is - a free person chooses to work for it. There is no better moral justification available."

That is a total non sequitur that presupposes the choice to accept work at a certain wage has no mitigating factors. In the real world, as opposed to the theoretical world, conditions DO matter.

[James]

Chuckle. Ah, yes, I'm an "idiot" and (of course) a "Nazi." I'm not even going to bother with Different, since he/she hasn't said anything worth addressing.

Sonya, you make a point actually worth consideration, and I fully agree with you. Conditions do matter. If I point a gun at you and say "work for $5/hour," that's very different from my saying "I'll pay you $6 an hour - if that's unacceptable to you, thanks for your time." The former involves my coercing you, the latter is a free choice on your part. The fact that you may not have other, better choices, because nobody else thinks your work is worth more than $6/hour to them, really isn't my problem.

EVERYBODY's choices are constrained. We'd all love to work easy hours at incredibly fulfilling jobs for incredibly high pay. Guess what? That's not an option for most of us.

[Hattie]

On a recent visit to Seattle, I took a crosstown bus that was full of people in all kinds of bad shape. The bus had a lift for those who had walking problems or were in wheelchairs. The bus drivers were unfailingly patient and kind. People stood aside and waited politely so slower people could board.
There were also people on the bus with mental problems. One of them I overheard saying, "My case worker isn't doing his job for me."
Then it hit me. My God. In Seattle, even citizens who can't work have rights and believe themselves entitled to services. Amazing.
Pretty civilized place, all in all.
Not quite on topic, perhaps, but I thought some might find this of interest.

[Arwen]

Y'know. The thing I find very interesting is that people who don't support a minimum wage also don't tend to support unions.

Yet unions are a 'free market' solution to the fact that an individual has less bargaining power than a corporation. They are a corporate body of labourers; and in being so, they have the problems that generally go with corporations. They're utterly fair structures, though, as a corporation is a fair structure.

You either have to have unions or worker supporting legislation. One or the other. Otherwise, there will be no reason NOT to have children working in machines while their parents make a buck for a 12 hour day. The race to the bottom is all that can happen without some worker protection, because an impoverished person has far, far less risk tolerance built into their household economy than do the corporations. Most people will do whatever they need to do to feed their kids, and if they don't have a non-compete agreement with everyone in their neighbourhoods, it will be a race to the bottom. That's not moral; that's the current legal and economic difference between an individual and a corporation. A corporation won't watch its children starve, not having, you know, children.

And there's a real danger to desperation. Things like revolutions and general strikes and uprising. It's not a long term solution to let the market decide; the market would be happy to have slavery and children back in the labour force.

[Sonya]

The point you're missing James is that when employers ALL say " I'll pay you $6 an hour, take it or leave it." that does not give a worker much choice. Rent has to be paid, food has to be purchased, basic needs need to be attended to. If basic needs weren't an issue, certainly a worker would be free to say "well thank you very much but I think I'll choose an employer who values me appropriately." But they are. And if the standard wage that employers in an area are offering is $6 per hour, the worker really doesn't have much of a choice. Starting conditions matter when discussing real-life economic issues.

[realpc]

Employers need workers as much as workers need employers. Employers cannot get the kind of workers they need unless they offer a fair price. The trouble with unions is they demand more than a fair price for their labor. This eventually bankrupts corporations or sends them overseas to get cheaper labor, so the workers get screwed anyway.

You can't assume child labor would still be legal if not for unions. Yes we need organized labor advocates to get legislation passed, but that's not the same as unions.

And why is Seattle such a paradise? Could it be the taxes paid by wealthy corporations and their high-skill workers? In other words, doesn't it all eventually depend on successful free enterprise? You won't find anything like Seattle in North Korea or Cuba -- not because their governments are evil, but because they are broke.

[Sonya]

"Employers need workers as much as workers need employers. Employers cannot get the kind of workers they need unless they offer a fair price."

So what happens when employers don't care about the quality of the workers they have? There are many large corporations that find it cheaper to hire new employees than to keep quality employees happy. Workers (in general) aren't rewarded for their skills or loyalty anymore, they are just replaced.

[chris]

Sonya, you wrote:

"So what happens when employers don't care about the quality of the workers they have?"

Employers do care. They care that people hired to operate cash registers can, in fact, handle that task. They don't care, generally, if the employee becomes bored and quits in a few weeks or months.

Why? Because there's alway another person ready to take the job. With low-skill or no-skill jobs, an employee's loyalty means nothing.

You wrote:
"There are many large corporations that find it cheaper to hire new employees than to keep quality employees happy."

You are partly correct. Hiring new employees, by which I assume you mean young entry-level workers, is always good for a company.

For instance, computer and electrical engineers suffer from outdated knowledge after only a couple of years on the job. And it doesn't take a new engineering grad long before he's an important contributor to the company's goals.

But if you're suggesting that a person who performs the same tasks year after year should receive an increasing paycheck simply for hanging around the old shop, well, that's a little harder to justify, even though I know it's the general employment practice.

I've never noticed employees refusing to accept offers of higher pay from decent companies who have hired headhunters to lure workers from their current employers to new companies.

You wrote:
"Workers (in general) aren't rewarded for their skills or loyalty anymore, they are just replaced."

Wrong. Workers are ALWAYS paid for their skills. But loyalty is not a skill, nor is it worth much since many employees are always on the lookout for a new company to which they can hop.

[Anarcissie]

Tim Worstall: "... 3.9% ...."

I went to the indicated blog and asked the author how he came up with the figure. I myself haven't been able to discern any change in economic indicators from minimum wage changes that wasn't drowned out by noise from other sources, and I tried, because I have my theories. So I asked, and I'll see if he comes up with anything.

Chris: "... Workers are ALWAYS paid for their skills. ..."

If that were so, there could be no labor market. You would have to have some kind of totalitarian authority to determine everyone's skill level (by testing? repute? divine oracle?) and require that they be compensated accordingly. I can't imagine how such an economy could function very successfully.

[amira perera]

Love the topics you write about. I see from the comments you have, that people are extremely passionate about these topics....from different points of course.

[realpc]

"You would have to have some kind of totalitarian authority to determine everyone's skill level"

Anarcissie,

Skill level is obviously somewhat relative and subjective. But we don't need any totalitarian authority to determine it. Like all prices, a worker's value is set by the market. Yes I know you think that's terrible, but actually it's great. The market is an amazing gigantic computer that not even experts can fully comprehend, and it does all those impossibly complex calculations for us. We should be in awe of it, but instead it is often feared and distrusted. Like a powerful force of nature beyond our control -- which it sort of is.

We can accept the power of the market and try to get along with it, or we can fight it and try to go our own way.

Do you accept that our lives depend on nature, and that we should do our best to work with it? Most leftists agree with that idea. Well we have a similar relationship with the free market, but many leftists do not accept that idea at all.

A worker's value is not only determined by his/her skill, experience, motivation, talent, etc. It also depends on how much demand there is for a particular skill, and on how many others are doing the same thing.

It might seem unfair that you can have a great talent yet not get paid a lot, since there isn't enough demand for it. Poets, actors, novelists, musicians, etc., often have that problem. Even if they're very talented, society doesn't need a lot of them.

You can have the government subsidize every artistic person, but then it's hard to determine each artist's talent, since the market is not involved. Also, it raises the taxes of workers who might like to be artists also, but are doing something less glamorous that society needs more.

Anyway, you get into all sorts of problems when some government agency determines the value of workers. Why should that agency be fair and objective anyway? At least the market is objective. It has no political reason to prefer one person over another.

It's accurate, objective, apolitical. It gives you the answers you need -- "Am I a great tap-dancer?" Well, see if you can get paid for it.

[realpc]

And yes, there are all kinds of exceptions and problems. You may wonder why some people are celebrities, and the market rewards all kinds of ugly things. But overall it is a relatively fair way to determine value. And there is no better way.

[chris]

Anarcissie, you wrote:

"If that were so, there could be no labor market."

Your response to my comment is a non-sequitur.

In simple terms, a market is a meeting ground of buyers and sellers. By what logic do you claim NO labor market exists when an employer makes a public offer to pay a specific wage for a specific job and an individual worker willingly accepts the offer?

If the worker were in chains, were given no pay, and forced to perform labor or face beatings, starvation and possible death, I would agree that NO labor market exists. Or if the worker lived in a centrally-planned economy. Or a dictatorship.

You wrote:

"You would have to have some kind of totalitarian authority to determine everyone's skill level (by testing? repute? divine oracle?) and require that they be compensated accordingly."

True enough. Cuba, North Korea, and the Soviet Union employed this model. Hasn't worked for them. Venezuela may give it a shot.

If the US retreats militarily from policing the world, you can bet on a rise in the number of dictators around the globe. They will attempt to force their unhappy subjects to work in accord with their failed economic vision. Then, as in Zimbabwe, work will disappear because the people who seized control of the enterprises do not acknowledge that SKILL is essential to the success of any enterprise. And, as we are witnessing, Zimbabwe's economy is in free-fall, unemployment is soaring and hyperinflation is roaring.

You observed:

"I can't imagine how such an economy could function very successfully."

So you are a capitalist and a believer in free markets after all.

[Ron Davison]

You know, Barbara, I really like the way you think but I wonder if you might not be wrong on this one. I've been to Seattle. It rains A LOT! Are you absolutely sure that the sky ISN'T falling up there?

[elaine]

Hey Tim,

Researched a bit into the statistics you gave and surprise surprise! They come from the Employment Policies Institute. Who are they?

The Employment Policies Institute is one of several front groups created by Berman & Co., a Washington, DC public affairs firm owned by Rick Berman, who lobbies for the restaurant, hotel, alcoholic beverage and tobacco industries.

Oh my goodness? Well, I'm totally sure that a lobbyist for restaurants and hotels would definitely be incredibly objective when talking about minimum wages right? Yeah! It's not like those industries were ever opposed to anything like that.

Please.

[Anarcissie]

Chris -- in an unregulated market, something is worth what the seller is ready, willing and able to sell it for and the buyer is ready, willing and able to pay for it. The value placed on the thing traded may have very little to do with any particular quality of the product, such as the skill level of a person selling labor (or more exactly, labor time or power, since that is usually what is hired). As I am sure you are aware, even inert material commodities like gold, wheat and oil may vary radically in price from one day to the next. Additionally, in the case of labor, besides the effect of external conditions, we often observe that the price a laborer can command has little to do with such rational considerations as skill or energy, but instead seems to depend on appearance, personality, ethnicity and family, and so forth.

To "rectify" this situation you would need some kind of omnipotent, totalitarian board of labor to establish everyone's skill level according to some evaluating system I can't even guess at, and then enforce payment for its exertion.

Skill is a useful bargaining chip in negotiations about labor, but it's hardly the only one, and in my experience seldom the most important.