Raising the Minimum Wage: Old Shibboleths, New Evidence
.. more research finding for Republicans to discard .. no doubt, in my mind, that most, or all, Republicans, and many business people are content with a recession-like economy, because they believe they can benefit from it ..
Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.
The last several decades have been especially hard on American workers in jobs that pay the minimum wage. Adjusted for inflation, the federal minimum wage of $7.25 an hour today is 23 percent lower than it was in 1968. If it had kept up with inflation and with the growth of average labor productivity, it would be $25 an hour .. http://www.peri.umass.edu/fileadmin/pdf/resources/Minimum_Wage_petition_website.pdf .
Congressional Democrats have proposed legislation to raise the minimum wage to $10.10 an hour and index it to inflation, and President Obama signaled support in a recent speech .. http://www.whitehouse.gov/the-press-office/2013/12/04/remarks-president-economic-mobility .. highlighting the economic and political dangers of growing income inequality. Predictably, opponents of an increase in the minimum wage are once again invoking the hackneyed warning that it will lead to higher unemployment, especially among low-skilled, low-wage workers who are the intended beneficiaries.
I heard the same refrain in 1996 when I served as chairwoman of President Bill Clinton’s National Economic Council, and he worked with congressional Democrats to raise the minimum wage to $5.15 an hour at a time when it had fallen in real terms to a 40-year low. To hear Republican opponents and lobbyists for retailers and fast-food companies, we were about to inflict a cold-hearted fate on young people and minority workers. The same chorus is voicing the same dire predictions today.
As it happened, the United States experienced a spectacular boom in employment and prosperity from 1996 to 2000. Indeed, these years proved to be a rare and all-too-brief period when incomes improved at every wage level. Contrary to the warnings of the naysayers, a higher minimum wage did not impede robust employment growth;it did contribute to healthy income gains for low-wage workers.
Since then, a raft of meticulous economic research, including work by David Card and Alan B. Krueger .. http://press.princeton.edu/titles/5632.html , who served as chief economist at the Labor Department in the Clinton administration and more recently as the chairman of the Council of Economic Advisers in the Obama administration, has decisively demolished the old shibboleths. The weight of the evidence consistently finds no significant effects on employment .. http://www.cepr.net/documents/publications/min-wage-2013-02.pdf .. when the minimum wage increases in reasonable increments.
For a good overview, look to a paper by Arindrajit Dube .. http://www.irle.berkeley.edu/workingpapers/157-07.pdf .. of the University of Massachusetts, Amherst; T. William Lester of the University of North Carolina, Chapel Hill; and Michael Reich of the University of California, Berkeley. Using two decades of data and side-by-side comparisons of bordering counties in the United States, they find that higher minimum wages raise the earnings of low-wage workers and have negligible effects on employment levels. According to their estimates, an increase of 10 percent in the minimum wage would have a statistically negligible effect on employment in industries and occupations employing minimum-wage workers.
In 1996, the prevailing view among economists was that an increase in the minimum wage would reduce employment. But [SOME] opinions have changed in response to the evidence. In a recent survey .. http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_br0IEq5a9E77NMV .. of a panel of leading economists, only a third expected that an increase in the minimum wage to $9 an hour would make it “noticeably harder for low-skilled workers to find employment,” and nearly half agreed that the economic benefits of raising the minimum wage and indexing it to inflation would outweigh the economic costs.
An increase in the minimum wage would increase the costs of businesses, especially those like fast-food restaurants that employ a large number of minimum wage workers. Higher labor productivity resulting from a reduction in labor turnover brought on by a higher minimum wage would offset a portion of these costs. Businesses would also pass some costs on to their customers in the form of higher prices.
Yet a phased-in increase in the federal minimum wage to $10.10 an hour is not likely to affect business costs or prices .. http://opinionator.blogs.nytimes.com/2013/11/30/the-minimum-we-can-do .. significantly. On average, even the costs of fast-food restaurants would increase by less than 3 percent, and a price increase of a few cents on their products could offset a significant share of their higher labor costs. According to a recent estimate .. http://www.peri.umass.edu/fileadmin/pdf/resources/Minimum_Wage_petition_website.pdf , McDonald’s could cover about half of its higher labor costs by raising the price of a Big Mac by about 1.25 percent, or 5 cents.
At the macro level, an increase of 10 percent in the minimum wage is associated with less than half a percentage point increase .. http://jaredbernsteinblog.com/so-if-the-minimum-wage-doesnt-cost-jobs-how-does-it-get-absorbed/ .. in the aggregate price level. With short-term nominal interest rates near zero, a transitory increase in the inflation rate from a minimum wage hike would lower the real interest rate, increasing demand and growth.
Another shibboleth of the naysayers of a minimum wage increase is that most minimum wage workers are teenagers. They are not. According to recent research .. http://www.epi.org/publication/wage-workers-older-88-percent-workers-benefit/ .. by the Economic Policy Institute, about 30 million workers would benefit from the proposed increase in the minimum wage to $10.10 an hour. Of these workers, 88 percent would be at least 20 years old with an average age of 35; 55 percent would be working full time; 56 percent of them would be female, and more than 28 percent of them would be parents.
At the current minimum wage, a worker employed full time for a full year makes only $15,080, 19 percent below the poverty line for a family of three. So it’s not surprising that many families whose incomes depend on a minimum wage worker need public assistance. More than half of the families of fast-food workers are enrolled in at least one public assistance program .. http://laborcenter.berkeley.edu/publiccosts/fastfoodpovertywages.shtml .. at a cost of about $7 billion a year. Recent research .. http://opinionator.blogs.nytimes.com/2013/11/30/the-minimum-we-can-do/ .. finds that an increase in the minimum wage is a powerful policy tool for reducing poverty, with a 10 percent increase cutting the poverty rate by 2 percent .
Contrary to the warnings of its opponents, a higher minimum wage would, under current economic circumstances, mean more employment, not less.
An increase in the minimum wage would also increase the effectiveness of the earned-income tax credit to reduce poverty and increase demand among low-income households with high propensities to consume. As David Neumark asserts in his recent Economix post .. http://economix.blogs.nytimes.com/2013/12/09/the-minimum-wage-aint-what-it-used-to-be/ , since the mid-1990s, when President Clinton championed a sizable increase in the earned-income tax credit, it has provided much greater income support to low-income families than the minimum wage. But as Professor Neumark acknowledges, the earned-income tax credit and the minimum wage are not substitutes for each another. They work together and can lead to better outcomes than either policy alone.
Unfortunately, it is highly unlikely that a divided Congress will agree to increase the generosity and coverage of the earned-income tax credit any time soon. But the prospects for an increase in the minimum wage look promising because of strong voter support. A recent poll .. http://www.nytimes.com/interactive/2013/11/29/business/americans-views-on-the-minimum-wage.html?_r=0 .. shows that large majorities of Democratic, independent, and Republican voters support an increase in the minimum wage.
As President Obama noted in his speech on inequality, most Americans agree that if you work hard, you should be able to make a decent living and support your family. It’s time to raise the minimum wage and make it real.
Big Oil CEOs on Capitol Hill defend profits, tax breaks *updated* Posted on May 12, 2011 at 10:55 am by Jennifer A. Dlouhy
[...]
Watson said that oil companies don’t need a handout, but do require “a reasonable return on our investment.”
The Senate Democrats’ bill would block the top five major integrated oil companies from claiming:
* A tax credit on payments to foreign governments — including petroleum income taxes — that they pay in exchange for some economic benefit. The five biggest oil companies would still be able to deduct foreign payments.
* A domestic manufacturing deduction, which has generally been available to a broad range of U.S. firms.
* A deduction for intangible drilling costs, such as the cost of repairs, site preparation and hauling supplies. Currently, integrated oil companies can expense 70 percent of the cost of these intangible drilling costs, but the legislation would require the big five oil companies to instead capitalize all of these costs.
* A percentage depletion deduction for oil and natural gas wells, computed using a portion of the revenue from the sale of those hydrocarbons.
The bill also would limit the deduction of certain tertiary injectants, chemicals used to boost the amount of oil and natural gas that can be recovered from individual wells. Currently, companies are allowed to deduct the cost of those injectants, but the bill would force the big five oil companies to instead capitalize those costs and recover them over time.
STIGLITZ writing once again in The Great Divide Series ~
Equal Opportunity, Our National Myth .. excerpt ..
Without substantial policy changes, our self-image, and the image we project to the world, will diminish — and so will our economic standing and stability. Inequality of outcomes and inequality of opportunity reinforce each other — and contribute to economic weakness, as Alan B. Krueger, a Princeton economist and the chairman of the White House Council of Economic Advisers, has emphasized. Americans are coming to realize that their cherished narrative of social and economic mobility is a myth. Grand deceptions of this magnitude are hard to maintain for long — and the country has already been through a couple of decades of self-deception. .. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=84743814
The nation's lowest paid workers have been granted a 2.5 per cent pay rise with the Fair Work Commission announcing a more modest rise to the minimum wage than last year's increase.
More than 1.8 million people who are on the minimum wage will have their pay packets increased from July 1, from $640.90 per week to $656.90.
It means a pay increase from $16.87 to $17.29 an hour.
Gemal Babiker, 61, arrived in Australia from Sudan in 1998 and works as a shopping centre cleaner.
He said the increase was a drop in the bucket.
"A $16 a week [increase] doesn't cover a cup of coffee every day. A cup of coffee costs around $4," he said.
Mr Babiker said after working as a cleaner for 16 years, his superannuation balance was only $60,000 because his wages were so low.
Fair Work Commission president Justice Iain Ross said the increase was lower than last year due to a range of factors.
"The most significant change in economic outcomes since the last review is the reduction in inflation and aggregate wages growth," he said.
"Each measure of aggregated wages growth reflected a continuing moderation over the past year.
"The 12-month increase of 2.3 per cent and 2.8 per cent respectively for the wage price index and average weekly ordinary time earnings over the year to the March [2015] quarter is the lowest for the last decade."
Justice Ross said the lower inflation and aggregate wages growth favoured the more moderate increase.
"We have had particular regard to the lower growth in consumer prices and aggregate wages growth over the past year because they have a direct bearing on relative living standards and the needs of the low paid," he said.
Justice Ross said unemployment was on the rise with the Federal Government predicting a slower than expected transition to non-mining investment.
But Justice Ross also indicated there was evidence to suggest businesses could afford to pay higher wages.
"Business bankruptcy rates fell significantly in 2013/14 to the lowest level since 2008/09," he said.
"Business entry rates for all industries in 2013/14 at 13.7 per cent exceeded business exit rates at 12.7 per cent."
He said the relative living standards of minimum wage earners had risen over the past few years.
Business groups concerned by increase
The Australian Retailers Association, which represents business employing 1.2 million workers, had been calling for an increase of $5.70 per week.
"If the economy is travelling well and inflation is on the up, we're being told we have to exercise wage restraint. Now inflation is down, yet again it's exercising wage restraint. We just can't win." Dave Oliver, ACTU secretary
The association's executive director Russell Zimmerman said the decision to increase wages by more than triple that figure will lead to job losses.
"Many small to medium enterprise retailers are reliant on a minimum wage workforce and the announcement today to increase wages during this time of low consumer confidence and low growth will sadly result in further job losses and business closures," he said.
"The minimum wage increase, coupled with weak trade figures and penalty rates, will only cause further damage to retailers who are struggling to keep their heads above water as it is."
The Australian Chamber of Commerce and Industry (ACCI) has also raised concerns some small businesses will have to cut back on staff further contributing to an already rising unemployment rate.
The chamber's employment, education and training director Jenny Lambert said most businesses were already running on lean margins.
"Most small businesses operate in a price-sensitive environment and are unable to pass these costs on to consumers," she said.
"So there is a real prospect it will lead to firms reducing staff numbers or the hours offered."
"ACCI had sought an increase of no more than $5.70 per week so Australia was better placed to navigate challenging times ahead as structural shifts reallocate demand for labour."
In contrast, the Australian Council of Trade Unions (ACTU) had been calling for a $27 increase, from $640.90 per week to $667.90.
That would have meant a pay rise for lowest paid workers from $16.87 to $17.58 an hour.
ACTU secretary Dave Oliver has expressed disappointment at the decision.
He said $16 is not enough to relieve the stress on low income households at a time when health care is going up by 4 per cent, education by 5 per cent and childcare by 7 per cent.
"We are extremely concerned that every year that gap is getting wider and wider and we're heading down the path of the US where we could have an entrenched class of working poor in this nation," he said.
"If the economy is travelling well and inflation is on the up, we're being told we have to exercise wage restraint.
"Now inflation is down, yet again it's exercising wage restraint. We just can't win."
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