Minimum Wage Part IV: Uncle Rico, Buzz Lightyear, and Questionable Claims

We have all experienced it. Someone has exaggerated the greatness of something or someone.

Last month, I detailed cited effects I believe are caused by minimum wage legislation. Today, I will detail cited effects I would refute or find unreliable to be caused by minimum wage, much as I believe we all find the claims of Uncle Rico and Buzz Lightyear to be unreliable at best :).


Cited effects I would refute –

1. Increases productivity

• As Governor Peter Shulmin, Governor Dan Malloy, and Mike Konczal have stated (Minimum Wage Part II: Cited Effects), higher earnings encourage employees to work harder and when workers have more to lose, they do their jobs better leading to productivity increases. Unfortunately none of these authors cited the studies they referenced.
• I agree as minimum wage increases, average worker productivity increases. However, I would suggest this occurs as individuals and businesses are forced to find ways to increase average worker productivity to cover increased employee costs. Unfortunately productivity increases often come in the form of automation, outsourcing (China, India), consumer effort (self checkout lines), labor-labor substitution (replacing less productive workers with higher productive workers), and/or increasing prices. All of which primarily affect the least productive workers.
• Much like the price of an item does not affect its function, productivity capacity is not connected to wages. Paying twice as much for the same item does not increase the function or productivity of the higher priced product.

• An artificial wage floor may increase average worker productivity, however it decreases total economic productivity as some workers are priced out of employment. As detailed last month, it is unfortunate those workers most in need are often the ones who find it increasingly difficult to acquire and maintain employment.

2. We should support it because it is popular

• We have all seen it. Just because something is popular does not make it good or truthful.

• I disagree we should pass legislation simply because a majority wants it. Rather, policies should be considered on the basis of sound theory/logic and available empirical evidence demonstrating a measure accomplishes our core desires.
• Enough said, just don’t support something on the sole basis others do. We don’t need to follow the fool’s parade.

Cited effects I find unreliable -

1. Boosts economy

• A general consensus states low income earners spend a greater proportion of their income than they save. The opposite is said of higher income earners who tend to save and invest rather than spend. Subsequently, it is proposed by raising minimum wage, money will be transferred into low income households who will in turn spend their earnings immediately providing an economic boost.
• Many authors cite a study by Daniel Aaronson and Eric French from the Chicago Federal Reserve estimating  raising the minimum wage to $9 an hour would create a $28 billion boost in 2012 GDP.
• I agree with the general consensus and the results found by the Chicago Federal Reserve. However, as stated in Aaronson and French’s conclusion (below), I find the effect of an economic boost unreliable as it depends on what time frame you assess. It is likely a short term economic boost is seen with minimum wage increases. Unfortunately this effect appears unsustainable and potentially detrimental to sustainable economic growth, a core desire of mine (Minimum Wage Part I)
• Aaronson and French conclusion
• “Finally, it’s important to stress that the aggregate household spending response discussed in this article is relevant for only the first few quarters after a minimum wage hike. Beyond that time frame, households must pay off debt they incurred in the short run by spending less. Thus, a minimum wage hike provides stimulus for a year or so, but serves as a drag on the economy beyond that.”

2. Pulls people out of poverty

• A popular cited effect of minimum wage legislation is raising the wages of the lowest income earners will raise people out of poverty through increased incomes. With countless variables affecting the poverty rate, it is difficult to determine the true effect of minimum wage legislation on the nation's poverty rate. Hence I consider it an unreliable cited effect as:
1. Due to efforts to increase average worker productivity (automation, outsourcing, etc.), minimum wage increases the difficulty of workers most likely living in poverty acquiring and maintaining employment, the exact population minimum wage is intended to help.
2. It may push as many people down into poverty as it raises out. Middle class gets a double whammy by paying all the costs of minimum wages (increased prices) while receiving none of the benefits (income is not increased).
3. From 1959 to 2012, in the year of and year after minimum wage was increased, average poverty rates increased 0.9% while in all other years the poverty rate decreased 2.3%.
• Not strong enough data to make a sound judgment, however the data does trend towards minimum wage failing to pull people out of poverty.
• Data Source: United States Census Bureau 

3. Reduces use of public assistance programs

• Similar to pulling people out of poverty, it is cited raising the wages of low income earners will decrease public assistance expenditures. Determining the utilization of public assistance programs has innumerable variables leading me to label this effect as unreliable. I have these concerns why this effect may be unsound:
• Welfare expenditures increased an average of 9.2% in the 2 years following a minimum wage increase while welfare expenditures decreased an average of 1.2% in other years.
• Again, if automation, labor-labor substitution, increased prices, outsourcing, and increased consumer effort (self checkout lines) increase, more workers will find themselves in search of work (CBO study) and therefore utilizing public assistance programs.
• If prices rise, some will be pulled down into poverty who have their expenses increase without a subsequent rise in income (middle class especially).

• As James Sherk writes, wages are not the primary barrier to higher incomes, obtaining employment is. 67% of individuals living below the poverty line did not work during the last year.
• Does not account for those who would have earned raises by increasing productivity through experience/training. James Sherk cites an Employment Policies Institute (EPI) study which found 2 out of 3 minimum wage workers received an average raise of 24% within 1 year.
• Of minor note, I consider minimum wage a subsidized wage. It is an indirect form of public assistance that is paid for by private individuals rather than directly by government expenditures (which are also paid for by they public through taxes).
• All things considered, I believe minimum wage will lift some out of poverty, but largely at the expense of the least productive workers being replaced/not hired and higher prices placing an added burden on all, especially low and middle income households. With cost of living rising, more people will find themselves in poverty rather than out of poverty. A trend supported by the subsequent increases in both public assistance program expenditures and the poverty rate in those years following a minimum wage increase.

4. Reduces gender and income inequality

• I am for equal compensation across all demographics (Minimum Wage Part I). I find implementing policies on the basis it favors certain demographics more than others a slippery slope. I believe the means to accomplishing the end of reduced gender and income inequality do matter. Attempting to cater public policy to favor certain demographics over others may reduce quantitative inequality, however I fear it may be detrimental. Rather than giving equal treatment to all, it attempts to favor disadvantaged groups perpetuating the cycle of favoritism.
• While I oppose prospective favoritism to rectify past injustices, I do support retrospective litigation to compensate workers who experienced past injustices.
• In addition, if gender and income inequality exists because of differences in productivity, the least productive workers will find it increasingly more difficult to obtain employment in a world of automation, outsourcing, consumer effort (self-checkout lines), and labor-labor substitution. Thus, minimum wage legislation may actually worsen inequality by enacting a policy that is prohibitive of the lowest productive workers to acquiring employment. Referring again back to James Sherk, 67% of workers living in poverty have not worked in the last year. Thus, employment is a bigger problem than wages.

5. Morally just

• Workers should be paid fair wages and not unjustly employed. However, I believe this should ideally come from generosity, not forced payments (see Private Charities).
• We should desire to care and meet one another’s needs, however I believe this is more effectively and efficiently accomplished by individuals and private charities rather than impersonal public assistance programs.
• I am unconvinced you can force morals upon people. I believe pandering "good morals" will at best change some outward behavior while producing inward bitterness and resentment.

Many states and cities have taken action apart from the federal government to raise minimum wage in its jurisdiction. Most notably, Seattle has passed legislation to raise minimum wage to $15. Seventeen months after President Obama proposed a higher minimum wage in his January 2013 State of the Union Address, minimum wage has remained a prominent topic in the news media.

With a myriad of potential effects, who benefits from minimum wage legislation? My next minimum wage series post will detail who I believe benefits and is harmed by minimum wage. Lastly I will explore viable alternatives to minimum wage and determine which, if any, may more effectively accomplish my original desires.

Next Post Topic: Book Review

Minimum Wage Part III: American Samoa, The Face of Minimum Wage, and Sound Cited Effects

Difficulty finding jobs, frustration over income inequality, annoyed with politicians, jobs going overseas, greater automation, increased difficulty maintaining former standard of living. These are all events I observe in American society.

Can minimum wage laws halt, reverse, or eliminate any or all of these? In my study of cited minimum wage effects (Part II), I am left with more questions than answers.

I need to determine which effects I believe to be sound and those I believe are unsound. After reaching a conclusion on the validity of cited effects, I may compare these effects with my original desires (Part I).

But wait there’s more! One of my pet peeves is to offer support or opposition prior to evaluating and providing alternative solutions. For even if minimum wage does not satisfy all my desires, it remains possible it is the best solution compared with plausible alternatives. Thus, only after weighing the pros and cons of viable alternatives will I make a final decision on if, and why, I support or oppose minimum wage legislation.

• Example
  
  
  

  

  Minimum wage legislation could be like flying. Sure it would be better to teleport to your desired destination rather than combat TSA agents and crowded spaces. However flying, while not as ideal as teleportation, is definitely better than many available alternative transportation methods such as riding a camel.

Disclosure #1: I am considered young, naive, and well educated with an upper middle class income. According to County Health Rankings and Roadmaps, I live in Minnesota's 3rd lowest social and economic county and work in the 2nd lowest.

Disclosure #2: As stated in Part I, I disagree an individual's value is tied to their income, wealth, or productivity.

Tldr(too long didn't read)

Cited effects I believe to be true of minimum wage legislation –

1. Wages are determined by productivity

• The more productive an individual is, the higher the wage they will attain.
• Example: Peyton Manning’s $20 million annual salary versus Christian Ponder’s $3.5 million annual salary. Even though both athletes are employed in identical positions, no one would argue Ponder should be paid the same as five time MVP Manning. This is a direct result of productivity. NFL teams will pay more for 5,000 yard, 50 TD seasons than 3000 yard, 15 TD seasons marred by injuries and inconsistency.

2. Increases consumer prices

• If you raise production costs (labor), the increased costs must be paid for by consumers via increased prices or investors/owners through decreased profits. For better or worse, prices are more likely to be increased rather than owners/investors taking a pay cut.
• This effect can seen by comparing the Consumer Price Index (CPI) of years minimum wage was increased to years when it was not. Starting with the minimum wage increase in 1974:
• CPI increased an average of 6.3% in years minimum wage was increased
• CPI increased an average of 3.0% in years minimum wage was not increased
• Additional note
  Owners can also choose to reduce other, non-wage production costs. These often include loss of employee benefits, increased automation, reduced service/production hours, and utilizing less expensive inputs (raw materials)
  

3. Increases difficulty of less productive workers gaining and retaining employment (possibly leading to unemployment)

• Laws can demand workers be paid a certain wage. However, to maintain fiscal solvency and remain competitive, employers will choose to not hire, nor retain, employees whose productivity does not cover the cost to employe them. Rather, as Peter Roth writes: 
• “Unskilled workers get laid off, replaced by machines and higher-skill workers who are more valuable. Self-checkout lines appear in grocery stores. Credit card machines take the place of the fellow who used to take the money in the parking lot.” 

Case Study: American Samoa and Commonwealth of the Northern Mariana Islands (CNMI)

Timeline -

• 2007: American Samoa’s minimum wage: $3.26/hour
• 2007: Congress enacts legislation to raise American Samoa’s minimum wage by $0.50/hour  annually until it meets the United States minimum wage ($7.25/hour)
• 2009, May: Minimum wage has risen to $4.76/hour
• 2009, 2011: U.S. Congress passes legislation to halt minimum wage increases until September 2015
• 2011: American Samoa National Emergency Grant 
• March 2011 unemployment rate: 46.9%!
• Historic unemployment rate: 7.0%
• We are now spending public funds to rebuild American Samoa
• 2011: Government Accountability Office (GAO) report found unemployment increased by 14% and inflation adjusted wages fell 11% between 2006 and 2009
• 2011: American Samoa Governor Togiola Tulafona testifying before Congress in September 2011 objected that:
• “this GAO report does not adequately, succinctly or clearly convey the magnitude of the worsening economic disaster in American Samoa that has resulted primarily from the imposition of the 2007 US minimum wage mandate.” 
• Gov. Tulafona pointed out that American Samoa’s unemployment rate jumped from 5 percent before the last minimum wage hike to over 35 percent in 2009. He begged Congress to stop increasing the islands’ minimum wage: 
• “We are watching our economy burn down. We know what to do to stop it. We need to bring the aggressive wage costs decreed by the Federal Government under control. But we are ordered not to interfere… Our job market is being torched. Our businesses are being depressed. Our hope for growth has been driven away… Our question is this: How much does our government expect us to suffer, until we have to stand up for our survival?”
• Samoan employers responded to higher labor costs the way economic theory predicts: by hiring and retaining fewer workers. Congress hurt the very workers it intended to help. Fortunately, Congress heeded the Governor’s plea and suspended the future scheduled minimum wage increases. (Source: James Sherk at the Heritage Foundation)

2014 GAO Report - Talanei.com Summary

• Both territories (American Samoa, Commonwealth of the Northern Mariana Islands - CNMI) experienced economic downturns between 2007 and 2009, including the complete exodus of the CNMI’s garment industry and the closure of one of two tuna canneries in American Samoa.
• 45% increase in unemployment in CNMI for the entire period from 2006 to 2012, with most of the overall decrease occurring from 2006 to 2009 (garmet industry closed)
• 36% decrease in CNMI's real gross domestic product (GDP) from 2006 to 2012 
• 4.5% decrease in American Samoa’s real GDP from 2006 to 2012
• 58% employment loss in American Samoa's tuna canning industry from 2007 to 2013
• 5% decrease in average inflation-adjusted earnings from 2007 to 2012
• The inflation-adjusted earnings of minimum wage cannery workers who retained their jobs and work hours also fell by ~5% from 2007 to 2012.
• CNMI: Over the entire period from 2006 to 2012, average inflation-adjusted earnings fell by about 2 percent, with an about 29 percent increase in average earnings offset by an about 31 percent increase in prices.
• 2014 GAO Report Conclusion -
• Both American Samoa and the CNMI have experienced decreases in employment, earnings, and GDP since minimum wage increases began in 2007. 
• In 2012, about 36 percent of American Samoa’s workforce worked in the government sector and about 12 percent worked for the canneries.
• In 2005 18.9% of workforce worked in the government sector (American Samoa Department of Commerce)
• CNMI employment dropped every year from 2006 to 2012 (graph on p.73)
• American Samoa response: (Governor Lolo Moliga)
• "Undergoing this exercise [GAO Report] every two or three years is meaningless and a waste of resources. A better alternative would be to have American Samoa develop its own minimum wage schedule with appropriate guidance and oversight provided by the US Department of Labor and US Department of Interior."
• "For reasons stated above, I strongly urge you and US GAO to send a clear and strong message to the Congressional Committees to postpone once more the looming minimum wage increase in 2015. Please bear in mind this federal minimum wage set for 2015 is nothing but a prescription for total economic ruin for the territory of American Samoa."

4. Inefficiently distributes income to those it is intended to help

• Given a desire to increase the standard of living of low income earners from the poorest households, I believe James Sherk and Joseph Sabia are correct in stating the minimum wage is an inefficient method of accomplishing this desire.
• The following numbers assume all of the least productive workers (as measured by income) would retain their positions. An assumption I find unreliable at best, and likely false as seen in American Samoa and CNMI.
• Sherk – Who earns the minimum wage ($7.25)?
• Valid numbers, but somewhat misleading as only accounts for those currently earning the minimum wage, not those who would be affected by increasing it. None-the-less, it does provide some insight into who earns low income wages.
• Only 23% of all workers earning the minimum wage live in poverty while 65% live in households with incomes > 150% of the poverty line
• More than 50% of minimum wage workers are less than 25 years old. Of these 50%, 62% are currently enrolled in school. Only 22% of these live at or below the poverty line.
• 67% of individuals living below the poverty line who were > 16 years old did not work in the last year. Thus, more than 2/3^rds of those in poverty are unaffected by minimum wage.

• Sabia - Will a $9.50 Federal Minimum Wage Really Help the Working Poor?
• 2010 study looking at who would be affected by a minimum wage increase to $9.50/hour. Intriguing study as uses income-to-needs ratio to allow scaling of income to needs based on household size and poverty level.
• 17.7% of all workers earn between $5.70 and $9.50 and would be affected.
• Of the 17.7% in line to be affected by a minimum wage increase to $9.50 an hour, only 11.3% of these come from the poorest households (less than the poverty line), with an additional 12.1% of workers coming from households living above the poverty line, but below 150% of the poverty line. 
• Almost twice as many workers who stand to be affected by a minimum wage increase to $9.50 live in households with incomes more than 3 times the poverty line. (42.3% of minimum wage workers)
• 1 in 9 workers from households under the poverty line would be affected. Less than 1 in 4 workers earning less than 150% of the poverty line would be affected by minimum wage increase.
• 4.4% of the general working population comes from households with incomes below the poverty line. A minimum wage increase to $9.50 will only affect 2.0% of the poorest households.
• Of the 9.5% poorest households in America, minimum wage will affect less than half of these households. (4.1% of the poorest households)
• As for helping families with children, 26.2% of workers earning minimum wage are the highest earner in their family with children under 18 years old.

• Refering back to Sherk’s article, one of the primary reasons people live in poor households is not that they are earning minimum wage, rather, it is they do not have work (67% have not worked in the last year).
• Sabia’s findings provide strong evidence minimum wage is an inefficient tool for helping households below or near the poverty line.
• Natalie Sabadish at the Economic Policy Institute 
• 2012 study which is for increasing the minimum wage. Uses similar base data, however data is presented in a way to support minimum wage increase.
• Boasts minimum wage increase to $9.80 an hour would raise the wages of ~28 million workers (20 million directly, 8 million indirectly)
• I agree with this, but as Sabia found, only ~3 million of these 28 million come from households living below the poverty line. (11.3%)
• 23.6% of workers affected by a $9.80 raise live in households that make less than $20,000 while 76.4% of affected workers have higher incomes
• For ever 1 low income earner, minimum wage is helping 3 higher income workers. Ideally a measure to increase the standard of living of low income households would affect a majority of low income households.
• Unlike Sabia, does not take into account household size.
• Cites 28.0% of affected workers live in households with children. This is similar to Sabia’s findings and does not exclude those workers who are not the highest income earners of their household.
• Boasts it would boost the economy, I find this effect unreliable as I will discuss later.
• Boasts would disproportionately help women, minorities, and workers of all ages. I would disagree with none of these.
• An interesting graph highlighting the percent of the population that earns minimum wage (Source: Antony Davies at Mercatus Research)

5. Reduces individual freedom

• I am pro-freedom in I believe individuals should be able and encouraged to make self-determined decisions in their own best interest. (exception being when one’s choices infringe upon the rights of others such as murder, theft, etc.) 
• This includes the voluntary accepting and denying of wage contracts. As Murray Rothbard writes:
• “This [minimum wage legislation] means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed…”
• I acknowledge some freedom must be surrendered to acquire certain securities (Freedom vs. Security Post). Thus, while I believe minimum wage does decrease our individual freedoms, it remains possible it provides needed income security.

6. Popular proposal across a variety of demographics (democrats and republicans, rich and poor)

• Minimum wage legislation has a broad base of support across a variety of demographics as highlighted by recent polls:
• Gallup Poll - 76% of Americans support raising the minimum wage to $9 (Nov. 2013)
• NELP Poll - 80% of Americans support raising minimum wage to $10.10 (July 2013)
• Of note, Emily Ekins at reason.com found minimum wage was significantly less popular if it was assumed to cause job losses or raise consumer prices.
• 67% support increase to $10.10 per hour given no adverse costs
• Drops to 51% support if caused businesses to raise prices
• Drops to 39% support if caused businesses to lay off or hire few workers

7. Decreases our global competitiveness

• Combining increased prices, reduced freedom, and inability to pay low wages, the United States struggles to compete in the production of low skilled and low cost goods and services. This is readily seen in the outsourcing of manufacturing to China and customer service to India.
• Whether or not this is a poor outcome remains in question.

I congratulate you on your perseverance in reading technical jargon and in surviving a metaphorical textbook being through at you. To recap and bring our tldr viewers up to speed, the list below summarizes effects of minimum wage legislation I find sound:

1. Wages are determined by productivity
1. Case Study: Peyton Manning and Christian Ponder Salary
2. Increases consumer prices
1. CPI Historical Data
3. Increases difficulty of less productive workers gaining and retaining employment (possibly leading to unemployment)
1. Case Study: American Samoa and CNMI
4. Inefficiently distributes income to those it is intended to help
5. Reduces individual freedom
6. Popular proposal across a variety of demographics (democrats and republicans, rich and poor)
7. Decreases our global competitiveness

There are many effects cited surrounding minimum wage legislation. Which effects do you believe are true? Why and how did you determine the validity of each effect? Personal experience? Logic? Study results? Other’s opinions?

Minimum wage is complex topic and one size may not fit all (American Samoa and CNMI). In the face of increased unemployment, income equality, difficulty finding jobs, and inability to maintain former standard of living, I believe we can no longer afford to remain ignorant of potential outcomes of minimum wage legislation.

Next Post Topic: Minimum Wage Part IV: Unsound Cited Effects

Minimum Wage Part II: Cited Effects

Before proceeding, please write down 3 effects you believe minimum wage laws have on individuals, businesses, and governments. (do not just think, but make yourself commit by writing)




After reviewing 26 articles, I was unable to find high quality research of what effects individuals believe minimum wage legislation will produce. Rather than reliable poll data of large populations, my findings reflect a number of individual authors with a high degree of bias.

Article List

1. Bryce Covert at ThinkProgress
2. Mike Konczal at the Boston Review
3. Congressional Budget Office Study
4. Jillian Berman at the Huffington Post
5. James Sherk from at Heritage Foundation #1
6. James Sherk at The Heritage Foundation #2
7. Samuel Herne at the Acton Institute
8. American Samoa Department of Human Resources 
9. Government Accountability Office Paper
10. Murray Rothbard at Ludwid von Mises Institute
11. Peter Roth at USNews
12. William Schmidter at Cincinnati.com
13. Rachel West and Michael Reich at Center for American Progress
14. James Sherk and Rea Hederman Jr. at The Heritage Foundation
15. Bureau of Labor Statistics 2005 Report
16. Joseph Sabia and Richard Burkhauser in Southern Economic Journal
17. David Cooper and Doug Hall at the Economic Policy Institue
18. Cameron Davis at ThinkProgress
19. The National Employment Law Project with raisetheminimumwage.com
20. Daniel Aaronson and Eric French at the Chicago Federal Reserve
21. Christina Romer at The New York Times
22. Dustin Hawkins at About.com
23. Governor Peter Shulmin and Governor Dan Malloy at CNN
24. Anthony Davis at LearnLiberty
25. Linda Gorman at Library of Economics and Liberty
26. William Dunkelberg at Forbes

Tldr (too long didn't read)

Effect: Reduces number of citizens living in poverty

• Logic concludes by raising wages, citizens will experience greater income levels leading to less poverty and higher standards of living.
• Bryce Covert at ThinkProgress cites a Restaurant Opportunities United study concluding a minimum wage increase to $10.10 an hour would lift nearly 6 million people out of poverty.
• Mike Konczal at the Boston Review cites two figures. The first a Congressional Budget Office study which found increasing the minimum wage to $10.10 an hour would raise 900,000 people out of poverty. Mike then goes on to state an estimated 4.6 million people would be lifted out of poverty. (likely referencing University of Massachusetts-Amherst economist Arindrajit Dube)

Effect: Increases unemployment

• Textbook economic theory observes as production costs go up (labor in the case of minimum wage), the price of goods and services also go up. As prices increase, demand decreases. As demand decreases, less of the product is needed. Less production means less workers producing the good or service resulting in unemployment.
• A February 2014 Congressional Budget Office study estimates 500,000 jobs would be lost by 2016 with a minimum wage increase to $10.10 an hour.
• James Sherk from The Heritage Foundation cites each 10% rise in minimum wage increases unemployment of affected workers by 2 percent.
• Another article by James Sherk summarizes a case study of American Samoa's minimum wage increases.

• Please read Sherk’s article for details, however a synopsis from American Samoa’s Governor Tulafona: Gov. Tulafona pointed out that American Samoa’s unemployment rate jumped from 5 percent before the last minimum wage hike to over 35 percent in 2009. He begged Congress to stop increasing the islands’ minimum wage:
• “We are watching our economy burn down. We know what to do to stop it. We need to bring the aggressive wage costs decreed by the Federal Government under control. But we are ordered not to interfere …Our job market is being torched. Our businesses are being depressed. Our hope for growth has been driven away…Our question is this: How much does our government expect us to suffer, until we have to stand up for our survival?”
• Other American Samoa Resources
• Acton Institute
• American Samoa Department of Human Resources
• Government Accountability Office
• Murray Rothbard at Ludwig von Mises Institute: “This [minimum wage legislation] means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.”
• Peter Roth at USNews: “Unskilled workers get laid off, replaced by machines and higher-skill workers who are more valuable. Self-checkout lines appear in grocery stores. Credit card machines take the place of the fellow who used to take the money in the parking lot.”
• William Schmidter at Cincinnati.com: "According to The Bureau of labor statistics 45 percent of the working age people are unemployed. We are competing with the world for jobs making shoes, shirts, bicycles, televisions, computers, cars and many other things that we use. The world is paying $2.00, $4.00, $6.00 an hour for many of these jobs. Every time we raise the minimum wage we send more of these jobs overseas."

Effect: Reduces use of public assistance programs (food stamps, subsidized housing, etc.)

• Rationale: The majority of public assistance programs are income based. Raising individual incomes will reduce the number of public assistance recipients and therefore lower welfare expenditures.
• Rachel West and Michael Reich at Center for American Progress found a 10 percent increase in the minimum wage reduces SNAP enrollment by 2.4-3.2% and reduces program expenditures by an estimated 1.9 percent.
• “Our results imply that the effects of the Harkin-Miller proposal on wage increases ($10.10 per hour) would reduce SNAP enrollments by between 6.5 percent and 9.2 percent (3.3 million to 3.8 million persons). The total anticipated annual decrease in program expenditures is nearly $4.6 billion, or about 6 percent of current SNAP program expenditures.”

Effect: Only helps a small percentage of those who are in poverty (inefficient method for eliminating poverty)

• Economists Joseph Sabia and Richard Burkhauser concluded in their 2010 study: 
• “Assuming no negative employment effects, only 11.3% of workers who will gain live in poor households… Our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor.”
• James Sherk and Rea Hederman Jr. at The Heritage Foundation found in 2005:
• 1.3 million Americans earn the minimum wage or less per hour, or 1.1 percent of the total working population
• 19.5% of minimum wage workers are at or below poverty line with 56.1% living in households > 2 x the poverty line
• 61.7% of minimum wage workers only work part time (or not at all)

Effect: Boosts economy

• David Cooper and Doug Hall at the Economic Policy Institue write:
• “Economists generally recognize that low-wage workers are more likely than any other income group to spend any extra earnings immediately on previously unaffordable basic needs or services. This results in an immediate economic boost as money is transferred from individuals more likely to save to individuals more likely to spend.”
• “At the same time, it [minimum wage increase] would provide a modest stimulus to the entire economy, as increased wages would lead to increased consumer spending, which would contribute to GDP growth and modest employment gains.”
• Bryce Covert at ThinkProgress, Cameron Davis at ThinkProgress, and The National Employment Law Project with raisetheminimumwage.com all cite a study by Daniel Aaronson and Eric French from the Chicago Federal Reserve estimating  raising the minimum wage to $9 an hour would create a $48 billion boost in 2012 GDP, $28 billion if account for potential job loss.
• One important caveat to note is the authors concluded:
• “Finally, it’s important to stress that the aggregate household spending response discussed in this article is relevant for only the first few quarters after a minimum wage hike. Beyond that time frame, households must pay off debt they incurred in the short run by spending less. Thus, a minimum wage hike provides stimulus for a year or so, but serves as a drag on the economy beyond that.”
• None-the-less, short-term economic boosts can get the ball rolling to continued growth.

Effect: Increases consumer costs

• Another textbook economic theory. Raising production costs (cost of labor) will require producers to increase prices which will be paid for by the end user/consumer.
• Christina Romer from the New York Times and Dustin Hawkins from About.com cite increased consumer prices as a consequence of minimum wage legislation. In addition, Romer further argues passing along production costs to consumers in the form of higher prices will disproportionately affect low income earners as they are more likely to purchase those low cost goods and services which would be most affected by a minimum wage (McDonalds, Wal-Mart, etc.).

Effect: Increases worker productivity and decreases employee turnover

• Governor Peter Shulmin and Governor Dan Malloy in a CNN article: “In fact, recent studies conclude that raising the minimum wage makes workers more productive and therefore helps businesses retain profitability.”
• Mike Konczal of the Boston Review: “The minimum wage becomes an incentive for bosses to do a better job managing their employees. Higher earnings also encourage employees to work harder. Economists call this the ‘efficiency wage’: when workers have more to lose, they do their jobs better in an effort to keep their gains.”

Effect: Increases difficulty of low skilled workers finding entry level jobs to acquire skills, experience, references, etc.

• James Sherk at The Heritage Foundation: "A higher minimum wage helps only those workers who actually wind up earning that wage and further disadvantages lower-income workers, who suffer fewer job opportunities and working hours."
• Anthony Davis at LearnLiberty: “It [minimum wage] helps the more productive workers as the expense of the less productive workers. What’s worse is the more productive workers normally don’t need the help.”
• Linda Gorman at Library of Economics and Liberty: "In practice they [minimum wage laws] often price low-skilled workers out of the labor market. Employers typically are not willing to pay a worker more than the value of the additional product that he produces. This means that an unskilled youth who produces $4.00 worth of goods in an hour will have a very difficult time finding a job if he must, by law, be paid $5.15 an hour.
• William Dunkelberg at Forbes: "Firms cannot pay a worker more than the value the worker brings to the firm.  Raising the minimum [wage] denies more low skilled workers the opportunity to get a job and receive 'on the job' training.  The impact of raising the minimum wage in 2009 on teen employment makes it very clear that this is especially harmful for young teen workers looking for their first opportunity to have a job. Raising the cost of labor raises the incentive for employers to find ways to use less labor.

Effect: Reduces gender and racial income inequality

• Mike Konczal at the Boston Review: "The minimum wage affects women disproportionally, especially women of color. According to the Center for American Progress, more than 64 percent of those earning the minimum wage or less are women. African American and Latina women are 15.8 and 16.5 percent of female minimum wage earners, respectively, though only about 12.5 percent of employed workers.
• David Cooper and Doug Hall at the Economic Policy Institute: "Women would be disproportionately affected, comprising 56 percent of those who would benefit. Although workers of all races and ethnicities would benefit from the increase, non-Hispanic white workers comprise the largest share (about 54 percent) of those who would be affected."
• Bryce Covert at ThinkProgress: 
• "It would help close the gender wage gap: Women make up two-thirds of the minimum wage earners in the country, which is why 13.1 million would be impacted by a raise. Evidence already suggests that a higher minimum wage is related to a smaller gender wage gap at the state level, pointing to a raise as a good way to help change the fact that women make 77 cents for every dollar a man earns."
• "It’s an important racial justice issue: Three and a half million people of color would be lifted out of poverty with a minimum wage raise to $10.10, representing the majority of those lifted out of poverty. People of color are much more likely to work minimum wage jobs, making up 42 percent of those workers even though they make up 32 percent of the overall."

Effect: Majority want it

Bandwagon

• Governor Peter Shulmin and Governor Dan Malloy in a CNN article: “common sense” 
• "We'll do so [raise minimum wage] with the benefit of having the American people on our side. Democrats, Republicans and independents alike overwhelmingly support raising the minimum wage. A recent Wall Street Journal/NBC poll shows 63% of Americans support it."
• Bryce Covert at ThinkProgress: "Americans support a raise: A poll released on Wednesday shows that 80 percent of Americans support a raise to $10.10 an hour, including more than 90 percent of Democrats and even two-thirds of Republicans, as well as 83 percent of low-income adults and nearly 80 percent of those who make more than $100,000."

Effect: Morally just

• Mike Konczal of the Boston Review: "Catholic doctrine provides a religious case for a minimum wage, which is all about balancing the needs of the family with those of the marketplace. As Pope John XXIII argued in a 1961 encyclical, the wage of the poor 'is not something that can be left to the laws of the marketplace,' as 'workers must be paid a wage which allows them to live a truly human life and to fulfill their family obligations in a worthy manner.” In the words of Pope John Paul II, 'A just wage is the concrete means of verifying the whole socioeconomic system.'"

Tldr:

Positive Effects: Reduces number of citizens living in poverty Reduces use of public assistance programs Boosts economy Increases worker productivity and decreases employee turnover Reduces gender and racial income inequality Majority want it Morally just

Negative Effects: Increases unemployment Only helps a small percentage of those who are in poverty Increases consumer costs Increases difficulty of low skilled workers finding entry level jobs to acquire skills, experience, references, etc.

Minimum wage legislation is a complex and highly emotionally charged issue polarizing many individuals and groups. How do the effects you wrote down compare to these? Which effects do you find valid and which do you question? Referring back to my previous post, what are you for and against? Poverty alleviation? Fair and just wages to reduce income, gender, and racial inequality? Economic stability? Based on the above cited effects, do you feel minimum wage legislation is an effective method for achieving your desired outcomes? Why or why not?

Next Post Topic: Minimum Wage Part III: My Thoughts