A Living Wage

Mario’s boy, Andy Cuomo, has taken to the airwaves to rally the support of the public to his initiative to increase the minimum wage to $15 an hour.  The argument in support is pretty straightforward: people need to eat.  And human experience suggests that Andy may be right about that.

And never one to pass on the opportunity to promote a populist cause that sails over the heads of its beneficiaries, the New York Times chimes in with its support. This is neither new nor surprising, as it previously offered an editorial in favor of a federal $15 minimum wage. This time, it’s the New York state of mind:

The lowest-wage workers in New York could soon get a much-needed raise — if the stingy Republicans who control the State Senate don’t block it.

What? You didn’t think they would pass up the chance to call Republicans stingy?

So far, however, Senate Republicans have opposed the increase, saying the $15 target is a populist ploy rather than valid policy. The Democratic-controlled Assembly supports the increase.

It is the Republicans who are playing politics. By opposing a $15 minimum, they are currying favor with corporations that keep wages low as a way to keep profits high. They ignore the economic arguments in favor of $15. They also are defying the majority of voters in New York who support it, according to recent polls.

The Times is likely right that most voters favor an increase to $15 an hour. Of course, that’s because most voters would be on the receiving end of the benefit, and what idiot wouldn’t prefer to make more money rather that less?  But its strawman explanation of the stingy Republicans does no one, neither the Times nor the public, any service.

First, an increase to $15 an hour is a palliative solution. You can’t live on the current minimum wage? You can’t live on $15 an hour either.

In Alabama and Mississippi, for instance, it takes around $20 per hour for a single parent to raise a child, according to MIT’s living wage calculator. From there, the Times concludes: “Sooner or later, Congress has to set an adequate wage floor for the nation as a whole. If it does so in the near future, the new minimum should be $15.”

Doubling the minimum wage sounds great, until one realizes that it doesn’t solve the problem on the “living wage” side of the equation. Maybe $15 is some arbitrary number that somebody pulled out of their butt. Maybe it was the number that a national poll found to be “reasonable” to the sort of people who answer the phone when a national polling company calls. It is nice and round, and people do so love round numbers.

The Times, smarting from the smack the last time it tried to pull this off, offers a tepid effort at pretending otherwise.

In addition, a $15 minimum in 2021 would meet, not exceed, the benchmarks accepted by most economists. A minimum wage is generally considered adequate if it is equal to at least half of the average hourly wage, which is now about $27 in the state. That means a $30 average wage and a $15 minimum in 2021 would be fair and reasonable.

Cite? Nope. And there are plenty of economists who apparently aren’t aware that that this is what the consensus is, according to the Times. But at $15 an hour, a third less than what’s needed in Alabama, no less New York, to survive, we’ve put a Band-Aid on a very hungry child.  Let’s pat ourselves on the back for being so socially justice-y.

But then, there’s the flip-side of the equation. The Times, as is its wont, points at the greedy corporations, with their CEOs bathing in champagne. While the unseemliness of top corporate executive salaries are certainly cause for castigation, it’s a separate problem, and a facile stalking horse. Most employers are mom and pop shops, and they too are struggling to survive.

More to the point, the New York Times, and wage-earners, ignore a basic idea of business. If businesses do not turn a profit, they have no reason to exist. If they don’t exist, they can’t hire anybody. If they can’t hire anybody, you might as well have a $100 an hour minimum wage, because it doesn’t make any difference if you don’t have a job. Hate business owners all you want, but without them, you don’t work, and you don’t earn a wage, living or otherwise.

How do wages rise to the point where they are sufficient for regular folks to survive, if not thrive?  One theory is that a robust economy creates upward pressure on wages, when employers have to pay more to get people to work for them, because the potential employees have plenty of opportunity to find jobs.  And then these well-paid employees have money to spend, and they spend it, and the economy continues to grow.

But even that doesn’t quite address all concerns, and the implications could prove devastating.

One danger is that a high minimum wage will push some workers out of the labour force for good. A building worker who loses his job in a recession can expect to find a new one when the economy picks up. A cashier with few skills who, following the introduction of a high minimum wage, becomes permanently more expensive than a self-service checkout machine will have no such luck. The British government’s defence of its new policy—that a strong economy will generate enough jobs to replace those lost to a higher minimum wage—is disingenuous: the jobs are still lost. That is why Milton Friedman described minimum wages as a form of discrimination against the low-skilled.

Granted, this post is a gross over-simplification, but the point is that the push to raise the minimum wage, without a meaningful discussion of how economics happen and its implications, is pandering to the populist will without giving thought to the implications of the change.

And that doesn’t begin to scratch the Millennial itch of demanding high pay, no heavy lifting and jobs that value and respect their feelz.  Good luck with that.

And you wonder why Donald Trump’s candidacy has captured the attention of the public, despite the apparent absence of any clue how to fix any problem.  Does the New York Times, does Governor Andy, see the similarities? Pandering to the ignorant is a dangerous game, but it’s one anybody can play.


11 comments on “A Living Wage

  1. Maz

    “How do wages rise to the point where they are sufficient for regular folks to survive, if not thrive? ”

    For many years, by having the worker share in the returns resulting from increased productivity — which also helped offset the concomitant reduction in employment. Unfortunately, around 40 years ago average real income plateaued, even though productivity continued to improve; the gains thus realized pass through to shareholders and executives, while workers found themselves caught between stagnating wages and increasing unemployment.

    How to get back to a living wage? Ending the decoupling between productivity and income would be a good first step, only the argument for doing so is harder to explain, can’t really be legislated, and very well might step on a few toes among the Times’ readership. Increasing the minimum wage might carry the strategic weight of a few more sandbags chucked onto the levy — but the cost of bags and sand are well-documented, and everyone knows what a sandbag is, so: editorial.

    1. delurking

      As someone who has been around for those 40 years of flat average real income, sorry but I don’t see it. Compare the standard of living of an average (preferably median, but I think we’re not being precise here, right?) family or individual now to one 40 years ago? If real income were the same for the standard definition of the word “real”, their standards of living would be the same. Clearly, the median family or individual lives better now.

      Unfortunately, “real income” as you have used it is a term of art economists use for specialized applications in econometrics. It doesn’t tell us as much as we would like about peoples’ lives. Because of the confusion between the term of art and the conventional meaning, though, it makes for great sound bites in political arguments.

      The best answer I can come up with for the plight of the working poor is to give them money, paid for by all of us through our taxes, but that doesn’t seem to fly politically.

      1. Maz

        “Clearly, the median family or individual lives better now.”

        Yeah, Forbes gets this wrong, too.

        First, you don’t get to count universal, rising-tide-lifts-all-boats improvements to quality of life that occurred simply because 40 years went by, rather than 40 years of stagnant growth in real income. After all, we expect there to be a moving baseline. Besides, for the 40 years leading up to the last 40 years, the median family enjoyed real income growth in line with productivity increases *plus* such things as the introduction of television, home refrigeration, rural electrification, widespread acceptance of telephony, municipal water and sewer systems, antibiotics, passenger air service, and the like. The bulk of such advances would have occurred with or without the income plateau; suggesting they represent meaningful increases in real income is like a rooster taking credit for the sunrise.[1]

        That said, that cock has a damn good story compared to the claim that “Clearly, the median family or individual lives better now” — at least when measured by any yardstick other than ‘consumption, opportunities for.’ Even if one were to accept the ability to purchase tons of cheaply made crap from China, passable knock-offs of virtually every product of any sort worth owning, and entire Best Buys of electronic devices assembled in the Third World truly granted a significant-enough boost to the median family’s life style to offset four decades of zero income growth, it still ignores that the median family hasn’t experienced a plateau in overall standard of living, it has actually lost ground by virtually every metric other than, yes, how much nearly worthless shit they own:

        • 1975 single-income family; 2015 dual-income family working 30 – 35% more hours annually
        • 1975 homeownership 64.5%; 2015 homeownership 15%; 2015 annual savings rate less than 5%
        • 1975 $672 average revolving debt; 2015 $7,630 average revolving debt, plus $11,245 average student loan debt and $8,163 average vehicle debt

        To me, the only thing that's 'clear' is the median family in 2015 works a third longer hours for far less (a third? a half?) disposable income than its counterpart of 40 years prior while carrying a debt load dozens of times as large. No amount of iPods and weekend getaways to Branson is going to offset that.

        And while I realize you're simply taking your cue from media as blinkered and knee-jerk and superficial as the Times — only dressed to the right rather than the left — the proper response to a simplistic and wrong oped, as described in the original post, *isn't* to be simplistic and differently wrong.
        1. I suppose an argument can be made that *some* of Forbes' reasons why today's working and middle classes should STFU represent trade-offs between 'real' income and real income — for instance, although airline deregulation and technological advances were responsible for most of the decrease in airfares that could conceivably be read as an increase in really real income, a small fraction might be attributable to unrealized gains in the not-so-real income of airline employees.
        But, frankly, if your argument hinges on such edge cases as that, you've already lost.

        1. SHG Post author

          Confidential to Maz: I fixed your screw-up, but your need to use code symbols in the body of your comment isn’t my problem, and no, you don’t get to post serial follow-ups to undo your screw-up.

          1. MelK

            I see no preview mechanism provided by your blog.

            Combined with your comment, I can only deduce that those simple math symbols that have been co-opted for different meanings by HTML will cause problems for even the common man let alone one trying to be fancy. … and that the cost (time, effort, software) is greater than the reward.

            If I may indulge in gratuitous pretentious latin via google translate, “cavendum est scriptor”.

            Adding a warning to one comment seems … expensive. May I ask that you add an ‘HTML symbol’ warning to your disclaimers and cautions at the bottom of the reply form?

  2. losingtrader

    “..For many years, by having the worker share in the returns resulting from increased productivity ..”
    Most of these equity sharing deals I seen give employees a very small ownership interest. Much too little for the average worker to care. My last one was $600 about 25 years ago.

    But it’s always news when employees get great profits via an ESOP. Take Sam Zell , for example, getting Tribune employees to finance his LBO of the company. His mad skillz at financial engineering got employees a 100% loss in their ESOP less than a year later.

  3. Eliot clingman

    Election campaigns, like baseball championships and gladiatorial contests, have always been about emotions, not logic, toots! The minimum wage increase is symbolically a declaration of Independence from the Plutocrats. It’s true that some mom and pop bidnizes are too unprofitable or poorly managed to stay in business at $15, the theory is that they would gradually be replaced by more solvent firms.

    Australia raised the min wage to17.29 aud (equiv.$ 13 USD) and the bottoms of bridges are not entirely filled there with the ranks of the unemployed. It’s true ecenomists are split, and much like supreme Court justices their “objective” research matches their partisan loyalties.

    1. Andrew Cook

      It’s true that some mom and pop bidnizes are too unprofitable or poorly managed to stay in business at $15, the theory is that they would gradually be replaced by more solvent firms.

      First, that “declaration of independence” is counterproductive; it just concentrates more clout into the hands of the plutocrats, who have economy of scale (and a larger cash cushion) on their side. Second, while the theory is that they’d be replaced by more solvent firms, the more solvent firms could always just say “Nah, not worth it.” No employers, no resources, no hope.

      With this economy’s death, the thread of prophecy is severed. Restore a saved minimum wage law to restore the weave of fate, or persist in the doomed world you have created.

  4. Dan Gray

    The overall strategy implicit in raising minimum wage laws, recession stimulus spending, and other Keynesian fiscal policies is to borrow now and either tax or inflate our way out of the debt that ensues. Which wouldn’t be bad policy if it ever actually worked in practice.

    Also, I seem to have missed the few day we as a society collectively decided that the minimum wage was supposed to be a “living wage”.

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