

California poised to raise minimum wage to $10 - bchar
http://money.cnn.com/2013/09/12/news/california-minimum-wage/index.html

======
AaronFriel
I'm going to head off all the armchair economists, including the two* who have
already replied as of 15 minutes after the article was posted.

[http://www.igmchicago.org/igm-economic-experts-panel/poll-
re...](http://www.igmchicago.org/igm-economic-experts-panel/poll-
results?SurveyID=SV_br0IEq5a9E77NMV)

Here's a real survey of actual economists, who largely agree, weighted by
confidence, that "The distortionary costs of raising the federal minimum wage
to $9 per hour and indexing it to inflation are sufficiently small compared
with the benefits to low-skilled workers who can find employment that this
would be a desirable policy."

And, economists are reasonably mixed (split between schools, I believe) on the
belief that raising the minimum wage to $9 per hour would make it noticeably
harder for low-skill workers to find employment, and _no one_ strongly agreed
or disagreed. The evidence, the science, of economics, is mixed, as has been
demonstrated by a comprehensive meta-analysis by Doucouliagos and Stanley. You
can find a graph and other analysis here:

[http://www.cepr.net/documents/publications/min-
wage-2013-02....](http://www.cepr.net/documents/publications/min-
wage-2013-02.pdf)

So, in summary, economists mostly believe the benefits of raising the minimum
wage outweigh the distortionary economic effects, and none were willing to
make strong assertions on the effect it might have on unemployment. Everyone,
put down your pitchforks and take off your party insignias, let's just raise
the minimum wage a bit and see what happens, because it benefits a lot of
people and there is scant evidence of a downside for a marginal increase in
the wage floor.

QED.

* Perhaps three, if my sarcasm detector is off?

~~~
cynicalkane
I'm going to say the surveyed opinion is wrong and is furthermore asking the
wrong question.

1) There is a welfare trap, and it is real. The more needy you are, the more
your welfare programs are robbed with each wage increase. The marginal rate is
very high and in some situations can exceed 100%.

Here's what the welfare trap looks like for low-wage families, in one graph:
[https://lh3.ggpht.com/-_-6Fsycanmw/ULO_5kk3fxI/AAAAAAAAAU4/y...](https://lh3.ggpht.com/-_-6Fsycanmw/ULO_5kk3fxI/AAAAAAAAAU4/y1PbUElDS34/s1600/marginal-
tax_6.PNG)

taken from: [http://johnhcochrane.blogspot.com/2012/11/taxes-and-
cliffs.h...](http://johnhcochrane.blogspot.com/2012/11/taxes-and-cliffs.html)

If you follow economics there is an astonishing difference in the quality of
discourse between the two sides--the pro minimum-wage crowd does not seem
aware of the data working against them.

2) There is furthermore research suggesting employers respond to minimum wage
by scaling back future employment plans and by causing workers to work harder.
Part of the reason minimum wage jobs are so awful is if they weren't, they
would not be worth the money.

3) People think of minimum wage as a redistribution of wealth from evil
corporate employers and rich consumers to the poor and needy. Notwithstanding
who is evil and who is good, that is basically the effect. You can accomplish
the same thing in a much simpler, market-friendly fashion: pay the poor for
working. A minor version of this program exists--the earned income tax credit.
It does the same thing as minimum wage--redistribution of wealth--without the
overhead, without reducing workers' negotiating power, and without pricing new
low-skill workers out. It can be done in a fashion that greatly reduces the
welfare trap. For a while, this idea had broad bipartisan support, from Milton
Friedman and Paul Krugman among others.

But now economists argue about minimum wage because it's an attractive
_political_ issue. Famously, Paul Krugman's opinion on minimum wage changes
depending on who is president.

Bleh. Imagine if climate scientists or evolutionary biologists made political
compromises. Worse yet, imagine if they started believing their own
compromises.

4) Surveys are not of particularly high interest when it comes to discussing
economics. Talking about theory, data, and consequences is a better use of
time. Surveys are only social proof--backup evidence--when there is not a
confident consensus.

~~~
cortesoft
Earned income tax credit is amazing. It is one of the few government
initiatives that is an unquestionable success. It is such a good way to
redistribute wealth without creating the negative incentives of welfare and
the like.

~~~
dragonwriter
> Earned income tax credit is amazing. It is one of the few government
> initiatives that is an unquestionable success. It is such a good way to
> redistribute wealth without creating the negative incentives of welfare and
> the like.

EITC, because of the phase out, has the same negative incentives as any other
means-tested social benefit program which has a benefit reduction at less than
a 1:1 level for additional income. (Its true that there are some other social
benefit programs that have worse negative incentives at some or all points
because either they are flat benefit with a sharp cutoff or because they have
some range in which the benefit decline is greater per additional dollar of
other income than EITC has, but its simply not the case that EITC doesn't have
"the negative incentives of welfare and the like".)

~~~
cortesoft
Maybe I was mislead, but I thought that the EITC amount actually INCREASED (up
to a point) as you made more money.

This makes it seem like there isn't a negative incentive:
[http://en.wikipedia.org/wiki/Earned_income_tax_credit](http://en.wikipedia.org/wiki/Earned_income_tax_credit)

------
mullingitover
I'd really like to see an experiment conducted that can put the whole debate
to rest: raise the minimum wage in half of the states, lower it in the other
half. Run this experiment for three years and compare the results, and apply
the strategy with the best outcome to the rest of the country.

~~~
grecy
This has been more or less done, on a more global scale.

Have a look at the minimum wage in every developed country compared to
America. Now have a look at the standard of living for the average person on
the street in all those countries compared to America. You have your answer.

Comparatively, America is a developing country.

------
pkaler
Instead of raising the minimum wage, I'm a proponent of increasing the Earned
Income Tax Credit.
[https://en.wikipedia.org/wiki/Earned_Income_Tax_Credit](https://en.wikipedia.org/wiki/Earned_Income_Tax_Credit)

Rather than paying people more to flip burgers, I think it's better policy to
top them off with cash and incentivize them to earn more money by getting
better jobs.

The EIC is a form of Negative Income Tax that was originated by Milton
Friedman.
[http://www.econlib.org/library/Enc1/NegativeIncomeTax.html](http://www.econlib.org/library/Enc1/NegativeIncomeTax.html)

~~~
dragonwriter
> Instead of raising the minimum wage, I'm a proponent of increasing the
> Earned Income Tax Credit.
> [https://en.wikipedia.org/wiki/Earned_Income_Tax_Credit](https://en.wikipedia.org/wiki/Earned_Income_Tax_Credit)

 _Adding_ a state-level EIC would be considerably more administratively
complex for California than changing the level of the existing minimum wage --
which, even granting for the sake of argument that such an approach would be
desirable _ignoring_ administrative costs, might strongly disfavor that
approach.

> The EIC is a form of Negative Income Tax

No, its not.

The EIC is a means-tested social welfare program that has a benefit curve
inconsistent with a negative income tax (particularly, it has ranges where
more qualifying income _increases_ the beneft, and ranges where it _decreases_
the benefit, whereas the subsidy from a negative income tax is strictly non-
increasing with additional income.)

------
vowelless
Here is a map showing minimum wages across the US:

[http://www.dol.gov/whd/minwage/america.htm](http://www.dol.gov/whd/minwage/america.htm)

~~~
foobarbazqux
Wow... the inequity seems to be concentrated in the deep south. Something else
is concentrated in the deep south too.

~~~
yetanotherphd
"Something else is concentrated in the deep south too."

What are you referring to? It could be republicans, Black people (yes, look at
a map), poverty, etc.

~~~
enraged_camel
He is referring to racism.

------
crsmithdev
$10 might have sufficed over a decade ago.

------
grecy
Hilariously, they're talking about $10 in 2016.

It will be something around $0.70 less than that, comparing 2013 dollars to
2016 dollars.

------
ethana
Why stop at $10? Why not $15? You know people can't live with $10 working at
McDee.

~~~
mjn
It's $20 here in Denmark (de-facto, via the union wage-negotiation system) and
I have no complaints. It means service-industry things like restaurants are
considerably more expensive, but then since everyone makes at least $20/hr,
that isn't a huge problem for affordability. It basically makes everyone
middle-class.

~~~
ahallock
It sounds like all that's happened is a form of inflation.

~~~
elnate
I'm from NZ and lived in Denmark for three months so here's some anecdata.
Some prices increased but most are comparable to home, where the minimum wage
is approximately half. The only things that are increased greatly are ones
with the primary cost in personnel. Clothing and groceries are about the same,
fuel too.

~~~
mjn
That's also my impression. Groceries are about the same as the U.S.,
restaurants considerably more. It's not general inflation, but specifically an
increase in the cost of goods/services where the difference between paying
employees $8 or $20 equals a large proportion of the good/service's total
costs.

For example, a typical 'premium lager' category beer (Heineken or Carlsberg or
the like) typically costs $6-10 in a bar, which is somewhat higher than in the
US, but a six-pack typically costs $4-7 in a grocery store (tax included),
which is somewhat lower than in the US.

An interesting aspect is that you can get quality increments relatively
cheaply, because you've already paid for the labor: a fancy meal costs maybe
50% more than a burger, and a microbrewed fancy beer in a bar costs maybe
20-30% more than a Carlsberg lager— versus in a store, where the microbrew
might be 3-5x the cost of the Carlsberg.

------
jrockway
Interesting thought: say you're a state that's broke and desperately in need
of revenue. What happens if you raise the minimum wage so the extra tax the
minimum wage workers are paying covers the deficit?

~~~
Steko
You'd need a large increase because people making minimum wage are a small
part of the income tax base (many don't pay taxes on net). Large increases to
the minimum wage would tend to be counterproductive at least in the short
term.

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forgingahead
Now watch teen unemployment jump, and prepare for a future generation of
people who couldn't get early work experience, and so become less employable
in the long-run.

~~~
mikeyouse
I don't get this.. Is the theory here that companies have $X in a bucket to
pay staff, Employees each make $Y, so X/Y is the number of employees?

Because that's not how it happens at all. Companies don't hire more staff than
they require. If McDonalds needs 10 employees per shift to operate, they're
going to hire 10 per shift no matter if they cost $8/hr or $16/hr.

The amount of work determines the number of employees, not the other way
around.

~~~
forgingahead
The general principle is that an employee has to cost less than the money they
bring in. The best HN-related example is that if you work for a software
development firm, and if they bill you out to clients at $100 an hour, your
total cost to them (your hourly wage + taxes + healthcare + benefits + extra)
has to be less than $100.

To properly phrase your example, yes it is depend on "work", but work is
dependent on revenue. If McDs needs 10 employees per shift where they generate
$800, each employees total cost per shift cannot be more than $80, which works
out to about $10 CTC (cost-to-company) per hour in an 8-hour shift.

If you now mandate that the worker salary MUST be $12 or higher than $12, McDs
is losing money. So you either pray for an increase in business (sales), or
cut costs (ie, fire people) and automate.

And lower-skilled jobs are easier to automate. It's easier to automate fast-
food checkout by having (for example) iPads for people to place their orders,
so your human workforce can just be the cooks at the back and the janitorial
staff.

~~~
johnsonman
_If you now mandate that the worker salary MUST be $12 or higher than $12,
McDs is losing money. So you either pray for an increase in business (sales),
or cut costs (ie, fire people) and automate._

Or you increase prices. Or a combination of the three.

~~~
sethammons
You increase prices, yes. You might trim the workforce too. But so does every
other business that has a large contingent of low skill, low pay labor. This
means that most things that are "made on the cheap" become more expensive. So
now, the cost of living goes up for everyone who consumes from that pool of
resources. This squeezes middle income families and hurts lower income
families. Does the cost of living for which a minimum wage worker rise higher
than the wage? I don't know. But with a higher cost of living and potentially
greater unemployment, I'm not sure that raising minimum wage is a win.

I'm not aware of all the complex reason for why the following is the case, but
my brother's mom (I know how odd that may sound) was able to rent an apartment
when she was 18 working in fast food without tips. There is _no way in h-e-
double-hockey-sticks_ that that could happen anywhere in America today. I'm
not convinced that raising minimum wage is the solution -- it could be part of
the problem. Models of human behavior and economics can get tricky and
counter-intuitive. It is a hard nut to crack; I'll just stick to writing
software. Now, if someone wants to pay me to make and become familiar with
those models....

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andyzweb
the real minimum wage is $0

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kyledilger
That's fine, I'll replace a part-time employee with an unpaid intern to even
it out.

