Minimum Wage Follies

2013-08-09 Fast Food Strike

One of the perennial conflicts between left and right in the United States is over minimum wage. The left insists that it’s a crime (at least morally) for companies to pay their employees less than a living wage and lauds companies that have business models based on paying workers well (or “fairly”, as those on the left might insist). The right, for its part, has the general attitude that if you’re expecting a living wage for a minimum wage job, there’s something wrong with you, not with the wage. Minimum wage jobs are for teenagers or retired folks looking for a little spending money or are a way for anyone who wants to work to have easy access to the bottom rung of the job ladder. 

Although I always think it’s nice when a company like Costco carves out a niche paying their employees well, I tend to sympathize with the right for simple economics. If you make it expensive for companies to hire employees, they will hire less employees. Thus the impact of minimum wage laws might be to boost salaries in the shot run, but in the long run it has the opposite effect. It reduces the salaries of large swathes of the populace to 0 by taking away their jobs completely.

This whole issue came to mind again when I heard a story about fast food workers striking for better pay. Really, guys? It seems like so much of what the left is about these days is trying to recapture the glory days of 20th century progressivism. And don’t get me wrong: there are some glory days to be proud of, but no matter how you slice it or dice it, striking to earn $15/hour for flipping burgers is not a civil rights issue. It’s just not.

2013-08-09 Fast Food Replacement
To everyone striking for double pay at fast food joints: this is a future without your job in it.

Do you want to know why it’s silly? Exhibit A comes to us from a 2011 CNET article that talked about McDonald’s hiring 62,000 workers in the United States… and buy 7,000 kiosks in Europe (which has legendarily expensive labor regulations). That’s your future, fast food strikers, watching a kiosk get installed to take over your job. Now let’s be real here, automation is not a new trend, it’s not caused by strikes, and it’s not going away. There are benefits from this technology (such as being able to accurately and costlessly track consumer purchase patterns) that have nothing to do with  minimum wage laws. (See also: Luddite.) But the story illustrates two points:

  1. Making labor expensive isn’t going to change the overall trend towards automation, but it’s sure going to get us there faster. You’re not fighting for better pay. You’re literally chasing your own jobs away.
  2. The real civil rights issue is absolutely not minimum wage. It’s education. At this point in human technological development, if a machine can do your job then your education has failed you because it hasn’t trained you with high-value skills.

That’s really the heart of the matter, but I’d like to introduce Exhibit B as well. Some genius over at The Nation decided that it was just a crime how little Walmart employees got paid and decided to do something about it. As Reason reports:

Jobs at Walmart don’t pay a lot. Someone atThe Nation recently noticed this, and decided to make up a new hourly wage for workers at the mega-uber-superstore chain—$12/hour—and declare their desire to see this wage implemented in an open letter to the CEO.

How did Walmart respond? Well, allow me to quote from the open response:

In an ironic twist, ProPublica recently reported that starting this fall, “interns at the Nation Institute will be paid minimum wage for the first time in the history of the 30-year-old program.” As ProPublica noted, The Nation has been paying its full-time interns a weekly stipend of $150 per week—less than the current federal minimum wage rate of $7.25 per hour.


Now hold on, you might say, a Walmart job and an internship at The Nation are not the same thing. There’s some legitimacy there, but let’s end with this final irony. The Nation, due to having to start paying their interns more have realized they need to hire 10 interns instead of 12. I think we should all just stop for a minute to let the full realization of that statement sink in. When The Nation has to pay employees more, then there are fewer jobs. Or, as Reason put it, “No shit.” Keep in mind, by the way, that this is without giving the interns any healthcare benefits. If you added those, you’d probably go from 10 workers to 6 (or something).

If you take a step back and look at the big picture, calls for minimum wage are basically calls for a kind of specialized income inequality. Without minimum wage, everyone has a crap job. With minimum wage, some people have a slightly less-crap job and some people have no job. Which just gets us back to my original statement: the real problem is education. Trying to legislate your way to utopia with a dense web of expensive regulations is something that only people who fundamentally don’t understand where jobs come from would actually advance as a serious policy solution.

And now, in closing, here’s Reason’s contrarian take on “The War on Walmart”.

15 thoughts on “Minimum Wage Follies”

  1. Agreed on all points. I had a conversation with a left-leaning person about the minimum wage issue a little while back when it first started gaining new attention and, honestly, I had never really thought about it very much but it took me about 2 minutes of reasoning to show him how demanding an ever-higher minimum wage (beyond that accounting for inflation, I assumed) would only ever result in fewer jobs.

    It really doesn’t take an economist to figure that out. But I’m glad to see my instinct on the matter is backed up by one. :)

  2. well, is the argument though, no minimum wage at all or just that $15/ hr is too high a minimum wage (which I also tend to agree with because my wife has to hire a team of young mormons to help her clean stalls, and that shit gets expensive). Because I think you are right that there is a trade off in employment, but at what poimt is there a trade off between a person having one job that can support them and having to go out and get a second? You can deride minimum wage jobs as one for teenages, but the truth is that most of these jobs are held by adults, . shouldn’t we try and agree on some % standard of poverty level and mark it to inflation or something? I’ll even let you use the Chain CPI.

    I think the more interesting question to be asked is to ask how much of a measurable difference it makes for adults who make minimum wage vs someone who makes the $10/hr that min wage advocates generally cite as where min wage should be if it had kept up with inflation . Poverty guideline which help determine your level of benefits from foodstamps and other safety net programs generally consider you below poverty with a family of 3-4 if you are making less than that anyway. so what is the real effect of someone who has 2 kids and makes $9/hr vs the guy who makes $7.75?

  3. This is a perfect example of how the nihilism of hard right know-nothings has so thoroughly paralyzed and intellectually bankrupted today’s Republican party. Rather than actually performing the job they’re paid for (governance!), whack jobs like Ted Cruz continue to scam supporters by railing against the evils of things like price floors. They do this while offering nothing but empty words and embarrassingly silly alternatives in a world ruled by their paranoid monetary policy preferences such that erroneous inflation fetishes of old men are prioritized over the full employment of all other human beings. Expanding social security to function as insurance against not just illness and oldness, but any other economically enfeebling condition, would get us much closer to the truly conservative vision of a Friedmanian Guaranteed Minimum Income. The idea that any non-marginal good faith GOP actor could even begin to publicly explore and discuss introducing this kind of legislation is comical. And that’s really sad and terrible for the country!

  4. Daniel-

    is the argument though, no minimum wage at all or just that $15/ hr is too high a minimum wag

    Both, really. I mean, if you put a minimum wage of $2.50 into effect, nobody cares because that’s so low that it has no practical impact. And some one argue that the ~$7.50 (or whatever, it varies and I’m not sure what it is right now) is also not really having an effect. So that’s fine.

    But once you actually create an effective price floor you’re creating economic inefficiency because you’re preventing transactions from taking place that otherwise would have taken place. Which is a fancy way of saying that all the jobs that would have existed below the price-point disappear. Obviously this is going to impact people who get minimum wage jobs, not the rich, so you’re hurting the people it’s meant to help.

    so what is the real effect of someone who has 2 kids and makes $9/hr vs the guy who makes $7.75?

    Whatever that is, you also have to take into account the real effect of someone who has 2 kids and makes $0/hour vs. making $7.75/hr.

  5. galen-

    Here’s the reality: minimum wages are harmful. It’s born out by elementary, non-controversial theory, and also by research. Miles Kimball (faculty on Michigan) cites Isaac Sorkin (who was in my Phd cohort) with the headline: Don’t Be Too Reassured by Small Short-Run Effects of the Minimum Wage. The gist? Short run predictions of job destruction are damped by the fact that hiring is tied to equipment, so companies tend to wait for their current machines to be phased out before reducing their workforce by building more automated equipment. Job destruction is delayed, but it is real.

    Europe is a great example of this because their labor environment has been so slanted towards protecting jobs for so long that companies have had time to start making long-term capital decisions like McDonald’s buying 7,000 kiosks instead of hiring humans. For a conservative to point out “Hey, minimum wages hurt job growth” is valid even if they don’t go on to solve all social ills to your satisfaction. You want to move ahead and conservatives are saying “I don’t know what the right path is, but that path has landmines… and then you throw a fit about “the nihilism of hard right know-nothings” while marching blithely ahead on that road paved with good intentions and landmines…

    All your post accomplished was to try and sweep a legitimate, self-standing concern under the rug and then grandstand about how evil Republicans are. Disappointing.

  6. On the merits, any governmental assistance to the poor is going to be somewhat distortionary. And the push for a higher minimum wage doesn’t exist in a political vacuum. Given the unprecedentedly diminished operating room afforded this president by today’s revanchist minority, it’s reasonable for a second or third best tool to be considered in lieu of first-best option. Policies that area good for the country and working American families (and were thoroughly uncontroversial before 2008!) are mostly non-starters if any successes can be traced back to party enemies.

    So the observation isn’t invalid at all. There’s just such a paucity of seriousness on the part of those political actors who would see the minimum age done away with that making the observation sans context is a bit like noting that when it rains we get wet and this is sub-optimal vis-a-vis sunny days.

  7. thegalen-

    No. Look, economically speaking lump-sum taxation is the most efficient. So income taxation is sub-optimal because it’s distortionary. But, since lump-sum taxation is not practically feasible, it makes sense to move to something else (like income taxation). That argument makes sense.

    But minimum wage isn’t “sub-optimal”. We’re not talking about a second- or third-best tool. We’re talking about something that is a net negative for those it is supposed to help. We’re not talking about trying to use a wrench as a hammer because we don’t have a nail. We’re talking about trying to use a flamethrower as a hammer. It’s not just “not as good”. It’s bad.

    You need to at least understand that this is the argument to realize why your charge of “the nihilism of hard right know-nothings” is so ridiculous. Your inability to realize that, in this specific instance the right actually has the weight of theory and evidence on their side is troubling. Trying to excuse a policy that is counter-productive on the political climate isn’t just spin, it’s delusion.

  8. thegalen-

    Just look at the arguments I’ve already made.

    1. The elementary theory is absolutely unambiguous: a price ceiling creates deadweight loss.

    2. Evidence of the deadweight loss in the wild has been sparse, leading to the survey results you cited. However, recent research (which I’ve already linked to, by Sorkin and quoted by Kimball, neither of which are conservative) explains that this has to do with the costs of capital switching. In the short run, minimum wage works because replacing machines is expensive, but in the long run the basic theory holds out.

  9. You misunderstand me. The nihilism of the know-nothings isn’t in reference to them (mostly accidentally) being on the right side of a narrow technical question about whether modest and repeated -but temporary, relative to inflation!- increases of the real minimum wage have negative long run effects that are slight, albeit it at least observable (sidenote: Sorkin’s language is a far cry from the stark terms you use in your post and comments, and I doubt very much that a substantial number of folks in that IMG poll would switch their votes had they read his paper).

    Rather, the nihilism of the know-nothings lies in a perpetual loop of cynicism and ignorance that leaves them with a working policy space that’s approximately the size of a pea. For the pittance of a few mild concessions and some reigning in of the frothy, fevered hathos, they can get a free lunch followed by a desert of magical cake that they can both have and eat.

    It would take the White House all of 2 or 3 seconds to agree to a price floor freeze in exchange for expansion of social security towards something like a GMI. This, coupled with entitlement consolidation, would be a big win for small government types. Especially those who are cognizant of and worried about defined benefit benefits plans built around sketchy actuarial practices and accounting tricks, undersaving workers with high-fee 401ks who are unprepared to foot their own medical bills, etc etc.

    So there’s a bipartisan glidepath by which the minimum wage can go away. The problem of course is the President would get some kind of credit for this, and that’s been deemed to steep a cost. So it’s all about as likely as the 41st Obamacare repeal bill not passing the House.

    This is, in an environment where other vehicles for growing wages and employment have been stymied by inflation and spending haws, the full context of the push for a minimum wage increase. To avoid getting caught outside on rainy days it’s instructive to consider how and why rain falls, and what you can do to avoid it. Lamenting that it’s wet won’t keep you dry!

  10. thegalen-

    This discussion continues to disappoint me because we’re on the fringe of a productive discussion of it, but it’s your perpetual loop of cynicism and ignorance about the alleged perpetual loop of cynicism and ignorance that is preventing this conversation from being more productive. Nothing says “self-fulfilling prophecy” like a partisan who is convinced that it’s the partisanship of the other partisans that is the only obstacle to progress.


    Rather, the nihilism of the know-nothings lies in a perpetual loop of cynicism and ignorance that leaves them with a working policy space that’s approximately the size of a pea.

    This reminds me of my high school government teacher who, unable to hide his political biases, advanced the argument that conservatives are bad at government because they believe that government should have a minimal role, which means that they fail to take advantage of the full powers of government to do good. Catch that? It’s a circular reasoning and you might as well state “conservatives are bad at governing because they believe in small government” or just “conservatives are bad at governing because they are conservative”. Ok…

    Dismissing “a working policy space that’s approximately the size of a pea” is just code for “I like an expansive and optimistic view of government’s ability to do good”. That’s fine: we can all have our opinions, but you’re substituting your ideological preference for some kind of objective reality. The essence of conservatism–from Mises to Hayek to Friedman–is skepticism of centralized power. And yes, if you are intrinsically opposed to centralized power you’re going to have limited policy options, but for you to dismiss that just because you’d like expansive policy options is a tragi-comedic collision of hubris and ignorance. Why not just say “But I’m a liberal!!!” It would take fewer words. And yes, we get it.

    But is the effective, positive policy space the size of a pea or larger? That is, itself, one of the core ideological bones of contention. You don’t get to assume that it is large as an axiom, my friend.


    It would take the White House all of 2 or 3 seconds to agree to a price floor freeze in exchange for expansion of social security towards something like a GMI… The problem of course is the President would get some kind of credit for this, and that’s been deemed to steep a cost.

    Yes, those evil Republicans and their evil political motives, unlike the pure and lilly-hearted liberals of the Obama campaign who would never, ever worry that if Rand Paul suggested this (let’s just pretend) that it might be anethma because it came from the far-right. If you’re going to honestly cling to this fundamental assertion that that your team is the good guys and my team is the bad guys, then, well… see above about my disappointment.

    The reality is that this isn’t just about politics. The way Bowles-Simpson (oops, was that your President who ditched his own panel’s recommendations? I thought that couldn’t possibly happen…) got dropped was primarily politics because in that case the exact policy specification is fairly clear and well-understood. “Lower rates, broaden the base.” Everyone gets that. But just as Republicans can’t let Obama get credit for anything, Obama lowering rates (e.g. “lowering taxes on the rich”, as it would play in public perception, has been deemed “too steep a cost”).

    A GMI, however, is a different matter entirely. I ran some basic numbers to try and figure out what it would cost because, as we’ve talked about before, I like the idea of a GMI in principle. So did libertarians like Hayek and Friedman. But, unlike “broaden the base, lower the rates”, setting up a GMI is a massive, massive undertaking that no one has really tried before on a large scale. There are legion practical and theoretical problems that make a proposal like this an incredibly undertaking without any political considerations whatsoever. Pretending that it’s just selfish ideological parisanship that prevents us from rolling out a GMI is like pretending that the only obstacle to cold fusion is political dickering about funding. Err… no. The primary problem with cold fusion is the physics. And the primary problem with a GMI is the economics.

    I’d love to see it get talked about and I’m very interested in the idea, but the silly and cartoonish way you’ve described it above renders it just a political weapon and not a legitimate policy consideration. You can do better.

  11. But it has nothing to do with the size and power of government in that the nuttiest members of the House do not get to decided such things unilaterally because they did not win the Presidency and the Senate. So they can work within the framework of reality to compromise and effect actual conservative policies that may not be 100% to their liking, or they can keep pretending the election was stolen, fraudulent, skewed or generally invalid such that the existence of our Republic depends on rejecting everything forever and ever until they’re back in power.

    And, just so we’re clear, the nihilistic know-nothings don’t represent all conservatives or all republicans, but they DO exist and they DO exercise inordinate power in a caucus that’s become historically and unprecedentedly out of control. It’s essentially unwhiappable at this point with a substantial bloc of members *relishing* a shutdown or even a credit default and, supposedly if you trust GOP congressmen, enough votes to impeach the President. That’s madness, irrespective of whether or not Obama erred in passing on a Simpson-Bowles plan that never made it out of Paul Ryan’s committee and would have been rejected as socialism or killing seniors if Obama had dared endorse it.

    Besides, none of this really has anything to do with normative claims about good versus evil or your side versus my side. The election ended 10 months ago, but the descent into anti-empirical, emotionally paranoid governance in the House continues. Don’t you think everything else is just kind of tinkering at the margins until this ends? I mean it’s really worth discussing and thinking about stuff like this in general, but if we’re going to talk about things the left and right do or don’t do well relative to one another we should do it clearly and honestly. Step one seems to be acknowledging and fighting back against the crazy, the anti-empirical, etc.

Comments are closed.