April 3, 2013

Minimum Wage Workers and the Threat of Increases

Justin Katz

A quick update study from the RI Center for Freedom & Prosperity finds that legislative proposals at the state level to increase the minimum wage to $8.25 per hour would cost workers in the state 432 jobs, measured against last year's $7.40 per hour rate.

Even worse would be the proposal suggested by U.S. Congressmen Jim Langevin and David Cicilline to increase the national minimum to $10.10. That would cost 3,466 Rhode Islanders their jobs.

In a press conference this morning, replayed in large part by Dan Yorke on 630 WPRO, the Congressmen presented the image of struggling families working full time in minimum wage jobs just to subsist. That is simply not the profile of this group of people.

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I understand and agree with the premise that raising the wage floor will reduce employment options for those individuals whose productivity falls between the old and new wage floor. It's basic economics and is not challenged by anyone, including Keynesians like Krugman.

But are you arguing that 432 jobs will not be created, or that 432 existing jobs will be eliminated? I can follow you with the former, but to argue the latter, that business owners will fire 432 people for an $0.85/hr "raise" is just silly.

Posted by: jgardner at April 3, 2013 3:18 PM

I doubt an employer would fire somebody in response to an $0.85 minimum wage increase in isolation, but I could see an employer letting somebody go due to multiple contributing factors of which the minimum wage increase was one. The issue with stacking mandates and regulations is always death by a thousand cuts. It's like asking if it was 5-6% COLAs, early retirement, or disability fraud that pushed municipal fire department pension funds to insolvency - the answer is "yes."

Posted by: Dan at April 3, 2013 4:29 PM

Yes, looking at projections of what a policy "will cost" in jobs, the baseline of future jobs is the better standard.

Still, jgardner, I think you dismiss the possibility of layoffs too readily. If I'm a struggling Rhode Island retailer, for example, with 10 minimum-wage employees and I'm forced to give them all an 11.5% raise, it might be necessary for me to lay one of them off.

And then there's the middle-ground consideration of seasonal jobs. The largest industry for minimum wage workers is Arts, Entertainment, Recreation, Accommodations, and Food Services, followed by Retail Trade. If I usually bulk up on my staff for particular seasons, especially the summer in Rhode Island, then I won't do that, in essence laying off somebody who might have expected to have that job lined up.

Posted by: Justin Katz at April 3, 2013 4:39 PM

Hmm. Don't expect common sense to penetrate the dark cloud of liberal dogma. The so-called "living wage" is the golden calf of the morally superior class that doesn't understand economics. But look on the bright side...increased job security for those in the unemployment, SNAP and disability offices!

Posted by: Mike at April 3, 2013 6:41 PM

My problem with "living wage" and most of these minimum wage arguments is that they all assume people live alone and have no other sources of income. Both terrible assumptions.

Posted by: Dan at April 3, 2013 7:09 PM

Quick question, where are these 11% raises going to come from? Is the government going to print more money and give it to the employees or do the employers need to cover this additional cost? I think we know the answer there.

Next question, are the employers required to simply "eat" this increase in wages? They're not. So obviously they'll pass this along to the consumer. So what does that increase in wages do when the retailer also increases the cost of goods to consumers? How does that help the minimum wage worker when the cost of things goes up in amounts similar to the amount of their raise? What has been gained then?

Posted by: Patrick at April 3, 2013 9:58 PM

Another attempt to level the playing field gone awry. Mama govt. is not aware of the law of unexpected consequences. In this case the private sector is once again the target. Rules and more costly regulation driving business out. You might think RI would one day wake up. Instead of raising the tide to lift all boats they are draining the bay to ground the entire fleet.

Posted by: ANTHONY at April 3, 2013 10:14 PM

I stoped reading at
"a study from the RI Center for Freedom & Prosperity"

LOL.. when a right-wing group knows the answer they want BEFORE they ask the question.

Don't even ask for them to provide proof of their numbers

Posted by: Sammy in Arizona at April 3, 2013 10:47 PM

But if we raised the minimum wage then people would have more money to buy things and that would create more demand for goods and services and then that would cause companies to hire more people...

it's a spiralling circle of prosperity.

Can't have that....LOL

Let me take this opportunity to thank the good folks at Anchor Rising for allowing me to comment here. I realize the pressure they are under to have me banned (I won't name names)but you know who they are
With love Sammy

Posted by: Sammy in Arizona at April 3, 2013 11:05 PM

Sammy...why would anyone want you or Russ banned? Your presence(s) bring balance to the common sense posters here. Most of us are Tea Partiers and you are a Kool Aid drinker. There is much common ground. Let us celebrate together record food stamp and disability payment abuse along with Bidens 1 million dollar hotel tab for 2 nights. Let them eat cake Sammy...oops...that might be illegal in NYC.

Posted by: ANTHONY at April 3, 2013 11:35 PM

Sammy, I for one am glad to have you here. You often provide a humorous counterpoint to reasoned argument.

I don't know why the effort is made to make economic analysis of the minimum wage question. It is a political question. The Democrats know who was responsible for the election of the only president we have. They wish to maintain their bona fides as the "Party of the Poor".

Posted by: Warrington Faust at April 4, 2013 11:00 AM

So... Elimination of the minimum wage would add how many jobs? Are they jobs worth having, or do they just make people work AND still rely on the safety net?

There's a whole big part of the equation that's missing here:

If a low-skill minimum-wage job provides for a significantly better standard of living than welfare and SSDI, then it will pull people back into the productive workforce and eventually reduce demand on the government coffers. Right now, there's very little incentive for people to work at or near those wages.... It's better to develop a mental or musculo-skeletal 'disability'.

Living off the government should ALWAYS be SIGNIFICANTLY worse than working a full-time job. Right now, it's not.

I like the idea of indexing the minimum wage to something that makes sense. Instead of assuming that the worker is a single mom of two, maybe it should be a new index that reflects the actual costs of living frugally and responsibly in a given area.

Posted by: mangeek at April 4, 2013 11:58 AM

Mangeek - I agree with you for the most part on the problem, but I see that more as a failing of the welfare state to police itself and function as intended rather than the minimum wage not being high enough. Your suggestion of a "living wage" mandate could easily lead to a progressive feedback loop of reactive laws being passed to correct unintended consequences of other laws, and so on.

Kick everyone who isn't disabled off disability. Kick everyone who isn't unemployed off unemployment. If the choice is between working and starving, it will be amazing how many of the jobs "nobody wants" will somebody become attractive. If the progressive narrative were true, I don't know how we got to be three hundred million people in this countrybecause everyone who immigrated through Ellis Island would have just curled up and died on the street without the nanny state to take care of them.

Posted by: Dan at April 4, 2013 1:18 PM

Dan. I worked a few years making $17K because my job was 'on demand' and I wasn't getting enough hours. The health insurance cost more than my paycheck, I had to drive a VERY unreliable vehicle (required for work), and all I could afford for rent was a friend's basement.

That life was the kind of hell I wouldn't wish upon anyone. I can see why so many of my peers who weren't as upwardly-mobile fell onto 'disability' instead.

Posted by: mangeek at April 4, 2013 5:25 PM

They didn't curl up and die in the streets but they were going to protest in the streets for revolution. Marxist type revolution. Go back and check your history. The welfare state is protection from a revolution.

Posted by: David S at April 4, 2013 5:29 PM


You cannot ensure that no young adults ever have to have difficult periods in their lives. You cannot ban adversity. You can only make life more difficult for those striving to transcend it by distorting the economy to cater to those who are willing to exploit it.

It seems economically too many young adults are like skittish co-eds who flee a classroom because somebody says a three-letter word starting with G.

Brace yourself. The path we're on, trying to make sure our society is a safe romper room is going to ensure that it's ultimately much, much more difficult for everybody, and bleak with hopelessness.

Posted by: Justin Katz at April 4, 2013 5:49 PM

I don't need society to be a safe romper-room, just for someone working a 'full time' job to be able to afford to put gas in the tank, food on the table, keep a roof over their head, and see a doctor. Nothing special.

Not so incidentally, the woman I lived with at the time is currently living on disability, SNAP, subsidized housing, Medicaid costing the state and federal governments hundreds of thousands, and she probably won't see the age of 40. That's because for years she had to skimp on medical care and insulin, she could afford neither at $7/hour.

I wish there were some leeway for states to 'play around' with this sort of thing, I'd love to see a few states have no minimum wage set, so we could see what happens to them.

Posted by: mangeek at April 4, 2013 6:05 PM

Well, now you've modified your position. We've gone from "the kind of hell I wouldn't wish upon anyone" to "someone working a 'full time' job to be able to afford to put gas in the tank."

Given our ages and your relative success (from what I've been able to gather over the years), I suspect I spent a fair bit more time trying to find some way, any way, to put gas in the car. Working construction with inadequate shoes has me limping more often than not, and until I'm about to die of something else, I'll be expecting my doom to be from the things I've inhaled. Frankly, I think I took more good from the experience than bad, but with as clear eyes as I'm able to apply, I can't see how forcing employers (who were often cutting corners to stay afloat) to pay more for employees would have helped me out of that situation. I can see how forcing them to tackle regulations that they faced helped keep them struggling, and I can see how forcing them to pay even more for employees would have left me without the entry-level job that allowed me to find a way to prove my worth and to advance.

You don't need to wish for state experimentation. Take a look:


By the way, I'm curious what else is included in the "nothing special." Games? Nights out? Movies? I know that there are many things I could have done without --- and been better off --- if I hadn't left my formative years feeling so entitled.

Posted by: Justin Katz at April 4, 2013 6:31 PM

"The welfare state is protection from a revolution."

Really DavidS? So productive workers should pay extortion money or get mugged? I think not. By the way check your history. The country you are living in is a product of a revolution against English tyranny (mostly taxation). There was a Stamp Act then but not food stamps.

Posted by: ANTHONY at April 4, 2013 7:26 PM

David - The poor are too busy with their smart phones, cars, DVDs, music, internet, and cable television to violently overthrow anything. Our capitalist system has produced so much wealth across society that even our poor enjoy a higher standard of living than the middle classes of most other countries. Even our homeless population has a bigger problem with obesity than with starvation. The only question now is how much waste and abuse we are willing to tolerate in our new de facto welfare system (SSDI) by looking the other way with a wink and a nod.

Posted by: Dan at April 4, 2013 7:45 PM

"The welfare state is protection from a revolution."

"Really DavidS? So productive workers should pay extortion money or get mugged?"

Anyone old enough to remember the burnings and riots on TV with the threats of "long hot summers" from "community activists" and the consequent flow of money into inner cities will not doubt David. That has been going on so long that politicians no longer question the wisdom. Are we paying to "keep the lid on"? Absolutely.

Posted by: Warrington Faust at April 5, 2013 9:59 AM

Justin, if the problem employers not being able to afford employees, then the answer is to bump things like health care from the backs of employers to the employees and taxpayers. When wages are so low, the overhead is probably much more of a burden than a dollar or two an hour.

Posted by: mangeek at April 5, 2013 1:21 PM

What if, in their own unique circumstances, a particular employer and an particular employee can most effectively meet each other's needs by setting pay below minimum wage and offering health care? Why should that be against the law?

I happen to agree that deliberately coupling health insurance and employment is a bad idea, but that doesn't mean that deliberately decoupling them is a good idea.

Look, a wage is a price, and prices are nothing but monetary expressions of value. Minimum wage laws inflate the price by adding the value of not breaking an enforceable law. The government is not in a position to proclaim a single labor price that must be true for everybody within its power, because the government cannot possibly know whether or how often particular employees will be more valuable (to the employer and to society at large) than some other possible use of the money.

Posted by: Justin Katz at April 5, 2013 1:35 PM

"That has been going on so long that politicians no longer question the wisdom. Are we paying to "keep the lid on"? Absolutely."

Keep the lid on what Warrington? Exploding welfare, food stamp and "disability" rolls? The "War on Poverty" started in the 60's by LBJ has led to.....more poverty. Now there is your absolute. Check todays employment numbers. 90,000,000 dropped out. The social net payments are an absolute failure.

Posted by: ANTHONY at April 5, 2013 7:31 PM

"What if, in their own unique circumstances, a particular employer and an particular employee can most effectively meet each other's needs by setting pay below minimum wage and offering health care?"

That's not really too far off from reality. I have more than one relative who lost their job and ended up taking a much lower position in customer service just for the insurance. After insurance is deducted, they're taking home $3/hour. $120 a week is not enough to even begin to live on.

'Rational players' bail out of the system when things go in that direction and seek SSDI (which will pay more than $1,200/month in cash AND cover health insurance).

Look maybe employers ought to be able to get 'waivers' from minimum wage in order to hire folks to do seasonal labor typically associated with teenage summer jobs. Outside of that, there's really no kind of viable economic activity that can't afford to pay the laborer $9 an hour. $9 an hour isn't even enough to get a thirteen year-old to come to my house and watch my kid for two hours.

You're trying to solve a problem that isn't there. Employers aren't avoiding hiring because employees are too expensive, they're avoiding hiring because they don't have enough orders for their products OR enough certainty that the demand will stay steady enough to beat the marginal cost of adding a new employee vs. paying an existing one overtime.

Posted by: mangeek at April 6, 2013 9:53 PM

"there's really no kind of viable economic activity that can't afford to pay the laborer $9 an hour"

Oh? Did you find this written on a stone tablet somewhere, or is there some other source of your universal economic expertise? Really, on what grounds to you claim to be able to make such a statement?

The questions especially valid when you proceed to contradict it, logically. Employees ARE too expensive to be worthwhile in the context of existing orders and market risk. If employers could pay less for labor, perhaps they'd take the market risks necessary to cultivate and otherwise find new labor.

And you're factually incorrect about pay rates: tens of thousands of Rhode Islanders work for less than $9 per hour. It would seem the source of the problem may be the abundance of wealth redistribution schemes.

Posted by: Justin Katz at April 7, 2013 7:50 AM
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