How should minimum wage be determined?

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Quercus
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Re: How should minimum wage be determined?

Postby Quercus » Mon Mar 23, 2015 9:39 am UTC

Sizik wrote:
ucim wrote:I can't think of a system which rewards them for this contribution that they make, that doesn't also reward lots of other nonproductive behavior. I think this is one of the things where individual acts of kindness and charity operate best. It's certainly possible for government to do it on a small scale (e.g. a town where, say, the governor knows his constituency personally), but I do not see it happening well and easily on a large scale (i.e. an entire state, or even a fair sized city).

Jose


Perhaps some sort of system where some portion of your paycheck is a new form of money that you can't directly spend yourself; you have to give it to someone else instead. So, it's essentially only useful for personal exchanges, tips, charity/donations, etc., and not for normally purchased goods and services. To incentivize use, spending them could also grant you that amount of money (so if you tip someone $5, you also get $5 when they redeem it for normal cash).


Wouldn't work (at least not in that form). It has a big loophole: just agree with someone to give them all your "spending on others" money, and they give you all of theirs. You've instantly doubled it and converted it to a more versatile form of currency (any imbalances arising from different incomes can be corrected by exchanging normal money with your partner in profit).

In concept though it's a bit similar to the UK's "gift aid" scheme. That's a tax incentive to encourage charitable giving by individuals - if you make any donations to charity in the UK (I unfortunately can't see how this could work for personal exchanges without being massively abused) and fill in a short form confirming you are a UK taxpayer the charity can claim back the income tax (basic rate) you would have paid on that donation. It effectively means that donations to charity are tax-free (or at least income tax-free) in the UK.

mcd001
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Re: How should minimum wage be determined?

Postby mcd001 » Sat Mar 28, 2015 3:39 pm UTC

As for the facts in the studies you cited, I haven't actually had time to give them more than a cursory review. So, I will take some time and study them in depth before commenting on them further

I promised earlier in this thread I would not comment on any of the scientific studies earlier cited by EMTP until I had reviewed in depth what they said. This was over a month ago (Feb 27, 2015 1:43 am UTC), so I apologize for the delay. In my defense, it's hard to find spare time in my 'real-life' schedule, and the material in question was written by economists and academics, which is an almost certain guarantee of dense and convoluted prose!

Given my limited spare time, I was not able to study all the provided citations in depth, so I confined my efforts to just one. I chose "Why Does the Minimum Wage Have No Discernible Effect on Employment?" by John Schmitt of the CEPR (Center for Economic and Policy Research). My Google searches of minimum wage effects indicate this is a widely cited and influential paper, so it seemed a good choice. ( http://www.cepr.net/documents/publicati ... 013-02.pdf )

Before reading a single word of this study, I investigated the organization sponsoring the paper (CEPR) to determine its funding sources. I did this because (apparently) knowing the source of funding is all that's required to invalidate the findings of a study. I say apparently, because this was the ONLY objection given to the papers I cited. They were (so I read) from an institution funded by the Koch brothers, therefore they are invalid. Never mind what they SAY; that doesn't matter because, you know, Koch brothers. It's a neat trick, really. You make a claim that the source invalidates the content, and Presto! The argument is over and you've won without having to lift a finger or break a sweat.

So I was interested to see that the CEPR is funded primarily by a list of donors that includes AARP, Annie E. Casey Foundation, Rockefeller Family Fund, Streisand Foundation, Ford Foundation, Public Welfare Foundation, and no less than seven labor unions: American Federation of Government Employees (AFGE), American Federation of State, County and Municipal Employees (AFSCME), International Association of Machinists and Aerospace Workers, National Association of Letter Carriers, National Education Association, Service Employees International Union (SEIU), and United Steelworkers (see http://www.cepr.net/index.php/funders for a more complete list.) It would be hard to imagine a more thoroughly liberal/left-leaning bunch as this list of donors contains. But of course this in no way invalidates the study, because it's only *conservative* academics who are swayed by their donor base. Right?

So anyway, tempted though I am to snort dismissively and say "Union funded propaganda" before skipping to the part where I win the argument, I will actually considered the paper's contents.

First, let me remind everyone of the thesis I started with on this thread: Minimum wage laws hurt the least-skilled and most vulnerable workers. Let's take a look at how well this paper disproves my thesis.

Schmitt starts out in his introduction by noting that "the employment effect of the minimum wage is one of the most studied topics in all of economics." He states that "The volume of research is vast and a complete review is beyond the scope of this report." Yet despite the plenitude of studies, there remains no consensus on the impact of minimum wages. Schmitt reports that there are two poles in the debate ('negative effects on employment' versus 'no discernible effects'), and that "The last decade has seen a continued outpouring of research from both camps". Schmitt is firmly in the 'no discernible effects' camp, yet he takes the opposing camp seriously. No sneering remarks about denying science or funding by Koch brothers. Apparently the matter is far from being determined. You may debate my viewpoints. You may NOT wave a study at me and say 'The science is settled!'

Schmitt starts out with a brief history of minimum wage studies. He starts with the four year, $17 million (NOT from the Koch brothers!) study released by the Minimum Wage Study Commission in 1981. This study concluded (among other things) that a 10% increase in minimum wage reduced teen employment from 0 to 1.5 percent. This would tend to support my thesis, since most teenage workers can be characterized as inexperience, low-skilled workers.

Starting in the 1990s (Schmitt reports), several researchers began to take a fresh look at the minimum wage, using "natural experiments", that is, statistical attempts to control the numerous variables affecting the outcomes in the real world. He goes on to describe several papers resulting from this "New Minimum Wage" research, all of which support his conclusion.

I did not delve into any of these studies. First of all, I don't have the time. Second, I lack the rigorous background in applied statistical methods to be able to expose any potential flaws in the methodologies used. I know enough statistics to be dangerous, which is to say I know enough to know how easily statistics can be abused or misapplied. I'm sure were all familiar with the quote variously attributted to Disraeli, Charles Dilke, or Leonard Courtney, but made famous by Mark Twain): "There are three kinds of lies: lies, damned lies and statistics." But these are peer-reviewed studies. Surely any statistical anomalies would have been found and exposed? Perhaps. But I refer you to this link ( http://www.nature.com/news/psychology-j ... es-1.17001 ) reporting on the recent (9 March 2015) action by the Journal of Basic and Applied Psychology banning the use of P values (used in null-hypothesis significance testing) in future papers. This is an example of one statistical technique that is frequently and easily misapplied.

Now, I am not claiming that any of these studies reviewed by Schmitt used NHST to test the validity of their hypotheses (I haven't actually looked at them), or that if they did use it they used it incorrectly. I am merely suggesting a healthy dose of skepticism is in order any time you have such a wide range of mutually contradictory conclusions from different studies of the same data.

To Schmitt's credit, he does review one study (published by Neumark and Wascher in 2006) from the opposing camp. ( http://www.nber.org/papers/w12663.pdf ) They find, among other things, that "...the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups."

Finally, Schmitt provides a detailed examination of eleven "adjustment channels", which are mechanisms that act to alleviate the impact of mandated wage increases on employment. These mechanisms are:
1) Reduction in hours worked
2) Reduction in non-wage benefits
3) Reductions in training,
4) Changes in employment composition (replacing lower-skilled with higher-skilled workers)
5) Higher prices
6) Improvement in efficiency
7) "Efficiency wage" responses from workers (motivation for workers to work harder)
8) Wage compression (cut wages of higher-wage workers)
9) Reduction in profits
10) Increases in demand (minimum wage as stimulus)
11) Reduced turnover

Of this list, 1 and 4 have a direct and negative influence on the least-skilled workers. And 1, 2, 3, 4, 5, and 8 negatively impact all workers. Only 6, 7, 9, 10, and 11 have no direct impact on existing workers (although 9 would tend to reduce the number of any new workers who might be hired.) Schmitt believes the most important channels of adjustment are 5, 6, 8, and 11, although the magnitude of importance is not quantified.

After an in-depth reading of this paper I remain more convinced than ever that my original thesis is correct: Minimum wage laws, even if they somehow lead to an increase in overall employment, will lead to less employment for the least-skilled, most vulnerable workers. If this is so, when is the damage worth the gain?

ShadE
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Re: How should minimum wage be determined?

Postby ShadE » Tue Mar 31, 2015 4:07 pm UTC

mcd001 wrote:He starts with the four year, $17 million (NOT from the Koch brothers!) study released by the Minimum Wage Study Commission in 1981. This study concluded (among other things) that a 10% increase in minimum wage reduced teen employment from 0 to 1.5 percent. This would tend to support my thesis, since most teenage workers can be characterized as inexperience, low-skilled workers.
...
...
...
Finally, Schmitt provides a detailed examination of eleven "adjustment channels", which are mechanisms that act to alleviate the impact of mandated wage increases on employment. These mechanisms are:
1) Reduction in hours worked
2) Reduction in non-wage benefits
3) Reductions in training,
4) Changes in employment composition (replacing lower-skilled with higher-skilled workers)
5) Higher prices
6) Improvement in efficiency
7) "Efficiency wage" responses from workers (motivation for workers to work harder)
8) Wage compression (cut wages of higher-wage workers)
9) Reduction in profits
10) Increases in demand (minimum wage as stimulus)
11) Reduced turnover


I cherry picked some quotes from the previous post to put my own little spin on them for context. While relying on a 30+ yr old study may not be ideal let's just say the '10% increase costs 1.5 jobs' is good enough. So to get the current US Minimum wage up to poverty for a single earner, household of 3 (i.e. my favorite single mother with two children) we need a 33.2% increase ($7.25 to $9.66). 3.32 x 1.5 jobs lost is 5 jobs lost. I am assuming this all happens within the low-skilled tier and everyone was exactly at minimum wage. 95 people are guaranteed to be at poverty (from well below), costing 5 people a job. Interesting dilemma.

From my previous posts I believe there is the most opportunity in 'adjustment channel' #8. 5 & 9 seem to be then next entangled channels where one could help drive the other. Could #8 reduce/eliminate the 5 job loss? At $85K of income per person in the entire labor force it seems to be possible at the macro level. For 100 people making $20K (i.e. poverty, $9.66*2080hrs)... there is $65K per person available for distribution to the higher skilled tiers... ON TOP of their own $85K.

Tyndmyr
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Re: How should minimum wage be determined?

Postby Tyndmyr » Tue Mar 31, 2015 6:44 pm UTC

ShadE wrote:From my previous posts I believe there is the most opportunity in 'adjustment channel' #8.


Well, if we're not seeing increases in lower cost workers, is there evidence that #8 is a significant result?

If the primary coping mechanism was decreased wages for high income workers, you'd expect to see corresponding increases among low income workers, not effects like least-skilled worker unemployment increasing. That lends weight to other channels being more significant.

ShadE
Posts: 19
Joined: Thu Apr 22, 2010 3:51 pm UTC

Re: How should minimum wage be determined?

Postby ShadE » Wed Apr 01, 2015 4:01 pm UTC

Tyndmyr wrote:
ShadE wrote:From my previous posts I believe there is the most opportunity in 'adjustment channel' #8.


Well, if we're not seeing increases in lower cost workers, is there evidence that #8 is a significant result?

If the primary coping mechanism was decreased wages for high income workers, you'd expect to see corresponding increases among low income workers, not effects like least-skilled worker unemployment increasing. That lends weight to other channels being more significant.


Right. I'm not saying we are necessarily seeing this happen today, just that #8 is basically my 'Wage Range' idea. If implemented in law as part of a more comprehensive Minimum Wage & Income Equality grand design it could potentially alleviate some of the other adjustment channels.

I like that list of adjustment channels... it nicely summarizes many of the impacts discussed in this thread. Now if only there were weights for each one!!


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