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A Minimum Wage Hike as Amnesty-Killer?

My Friday Aspen Institute panel in DC on raising the minimum wage went well, though the discussion underscored the somewhat insular thinking of many of the policy elites who dominate life in our capital city.

As an example, although the audience and participants skewed heavily toward the “economic left,” several individuals mentioned how surprised they were to encounter the suggestion that our federal minimum wage be raised to $12.00 per hour—my proposal—or even higher, a notion that seemed almost unimaginable within their own policy circles. Meanwhile, former Democratic Congressman and Cabinet Secretary Dan Glickman described the politics of raising the minimum wage as being extremely difficult, given the intensity of opposition he had always encountered among many small businessmen.

These two issues are not unconnected. As I pointed out in response to Glickman’s question, a small rise in the minimum wage—such as the $9.00 figure proposed by President Obama—has limited political viability since it generates little of the enthusiasm necessarily to overcome the determined opposition of its ideological or practical opponents. Only a narrow sliver of American workers would directly benefit, their net dollar gains would be relatively small, and they represent an economic stratum that overwhelmingly votes Democratic, whenever it bothers to vote at all. How would such a measure ever stand a chance of passing the Republican-controlled House?

But consider the very different politics of a $12.00 figure. Over 40% of all American wage-workers would benefit, including 40% of the white Southerners who constitute the Republican base, and the mean gains for both those groups would be over $5,000 per year. Such an enormous sum of money would capture the imagination of its potential recipients, and also that of their immediate family members. Conservative ideologues such as Rush Limbaugh would surely denounce the proposal, but many of his ditto-heads are struggling with credit-card and mortgage loans, and for an extra $5,000 per year they’d surely turn a deaf ear to his arguments or even decide to turn their radio dial. The intensity of support for such a minimum wage hike would become every bit as great as the intensity of the regular opposition cited by Glickman. Offering people serious money may get their serious attention.

 

A further sign that these sorts of major economic proposals are rare as unicorns among DC’s affluent, white-collar denizens came from some of the practical objections raised. Various participants and audience members wondered if a large rise in wages might not hurt America’s working classes more than it helped them, by raising the prices they paid for goods and services and cutting their government benefits. Wouldn’t McDonalds have to charge them more for hamburgers, and wouldn’t the working-poor lose access to food stamps and have their EITC checks reduced?

A moment’s thought shows that these tradeoffs are trivial. Only a small fraction of working-class dollars are spent at the sort of labor-intensive businesses whose prices would rise, and even for those companies, only a small fraction of their costs would be impacted. One panelist who had run the numbers explained that a 10% rise in the minimum wage would increase the costs and prices of such businesses by much less than one percent. And if your wages have grown by $4.00 per hour then having to pay an extra dime for the occasional Burger King Whopper is hardly a major burden.

The argument about losing government benefits is even more unrealistic. It is certainly true that our federal agencies direct billions of taxpayer dollars toward improving the lot of the working poor, and those recipients would lose eligibility once their heavier paychecks had lifted them out of poverty. But virtually all those programs are designed so that the benefits lost are be just a small fraction of the extra income achieved, resulting in large net gains. After all, if this were not the case, then surely we would read stories of workers going on strike to demand that their wages be cut so that they can qualify for bigger government handouts. Only in DC would policy experts automatically assume that more generous government programs rather than much higher wages are the best means of uplifting America’s long-suffering working class.

So if a large rise in the federal minimum wage is probably a good policy idea, what can be done to overcome the formidable political obstacles? Even as our panel was meeting in Dupont Circle, just a mile or two away the members of the House were holding a test vote on an amendment attaching a $10.10 minimum wage to a federal job training bill, and the proposal failed miserably, losing by a wide 49 vote margin without a single Republican in support. Unless dozens of Republicans can be brought on board, any hike in the minimum wage is doomed.

 

At this point we should revisit the obvious connection between a rise in the minimum wage, a topic long ignored in policy circles, and the current push for an immigration amnesty, which has attracted overwhelming, bipartisan support among political and media elites, and stands an excellent chance of passage, probably combined with some increases in temporary job visas and perhaps an agricultural guestworker program.

We are endlessly informed that American businesses and their influential lobbyists favor these immigration reforms because they will improve our national productivity through increased “economic efficiency.” But this is merely a euphemism for lowered wages and the greater business profits that result. There is nothing more obvious than that an increase in the number of willing workers will benefit Capital at the expense of Labor, which hardly seems necessary given that Capital has been winning all the marbles for the last forty-odd years.

Strong opposition to these immigration proposals does exist among many grassroots Republicans and conservatives, less for economic reasons than on social, cultural, and ethnic grounds. The hostile House Immigration Reform Caucus boasts some 93 members, and numerous rightwing websites and bloggers have been going all out to block the latest incarnation of a dreaded “Amnesty.” But with Democrats and liberals solidly in support despite any economic misgivings they might have and with Republican business interests riding herd on the other side of the aisle, passage of a sweeping immigration measure now seems reasonably likely unless something dramatic suddenly appears to upend the politics of the issue.

Enter Minimum Wage, Stage Left. Many dozens of hard-core House conservatives regard their opposition to immigration as a visceral life-and-death issue for their society, while their opposition to a higher minimum wage tends to be much more abstract and based on the pronouncements of the very same free market economic theorists who are suspiciously pro-immigration. Suppose some of those hardcore anti-immigration Republicans chose to attach a $12.00 minimum wage to the proposed legislation.

Suddenly, the politics would become much more complicated, with the unified elite consensus behind immigration reform beginning to fragment. Might such an amendment pass? Sincere liberals would see the clear logic of ensuring that American working wages aren’t destroyed as the collateral damage of immigration reform, and powerful unions would transfixed by the impossible dream of a $12.00 minimum wage almost at their fingertips, with the membership of heavily immigrant service unions being the most enthusiastic. The neoliberal financial and ideological interests that dominate the Democratic party might not like the proposal, but their distaste would probably not be enough to sway more than a handful of members against powerful grassroots enthusiasm. I suspect that Democratic support would be overwhelming.

Meanwhile, many conservative Republicans desperate to stop “Amnesty” would favor the proposal as a classic sort of “killer amendment,” aimed at defeating passage of the entire bill. Business interests and the Republican leadership would do their best to whip them back into line, but if even just half of the anti-immigration Republicans stood their ground, their votes might be enough to carry the day, when combined with overwhelming Democratic support. Suddenly, immigration reform and a much higher minimum wage would have become a package deal, producing much gnashing of teeth among libertarians and business lobbyists.

At this stage, my crystal ball grows murky. The practical and ideological politics of such a combined measure would be quite complex, and difficult to predict. A sharp rise in the minimum wage is enormously popular among the general public, and that would boost the legislation, but is equally disfavored by our dominant elites, whose political power is disproportionately great in our society. Certainly the editorial page of the Wall Street Journal—advocates of open borders and a zero minimum wage—would have conniptions. My guess is that the elite consensus favoring Amnesty is strong enough to allow a much higher minimum wage to hitch a ride on its back, but I might easily be mistaken.

In any event, I don’t really think the anti-immigration conservatives have much choice in the matter. The current correlation of political forces so strongly favors the looming Amnesty that they seem very likely to lose unless they stage a dramatic maneuver to split the ranks of their opponents. And attaching a $12.00 minimum wave to the planned immigration bill seems one of the best possibilities at hand. Anyway, I have previously argued that even if such a combined Amnesty/Minimum Wage were to pass, the result would be to sharply reduce the future flow of illegal immigrants, and some leading anti-immigration outlets have seconded my analysis.

Our history contains interesting examples of how such unlikely political vector-sums have created major American policies. The various federal laws barring discrimination against women are today considered among the proudest achievements of left-liberals, but from what I’ve read they were actually added to the 1964 Civil Rights Act by conservative opponents, who regarded them as “killer amendments” so ridiculous as to doom passage of the complete measure. Major legislation sometimes follows unusual ideological trajectories.

 

On a different matter, I’d noted in my previous column that the diligent research of Prof. Janet Mertz and her colleagues had determined that for decades roughly 95% of all top math students across almost every major country had been male. Alas, her remarkable findings lost some of their impact when she carelessly summarized her paper as indicating that men and women had very similar top-end math ability, and this backwards conclusion was the headline eventually reported by the media.

Fortunately for Mertz, rescue is at hand. My column caught the attention of La Griffe du Lion, a rightwing blogger of renowned quantitative skills, who informed me that years ago he had developed a detailed analytical model of male/female differences in math ability, and was very pleased to discover that Mertz’s international data so strongly confirmed his theoretical predictions, whose validity had previously been restricted to just the American case. The obvious solution is for Griffe and Mertz to collaborate on a new paper combining their individual theoretical and empirical research in math-gender differences, which would surely generate headlines around the world.


(Reprinted from The American Conservative by permission of author or representative)
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27 Comments to "A Minimum Wage Hike as Amnesty-Killer?"

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  1. Jim
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    La Griffe has written a second piece on the topic, which further confirms the male advantage.

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  2. PC
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    Color me skeptical. There are a few major assumptions being made here:

    First is that the 40 percent, the Republican base, in the south that would benefit from a minimum wage hike would in fact keep their jobs.

    The 5K per capita annually has to come from somewhere, and employers would be hard pressed to make payroll without letting anyone go or hiring under the table.

    Since many illegal immigrants work under the table anyway, it would provide an incentive for the underground economy to flourish rather than constrict.

    Second, the idea that working-class people don’t spend their money at labor-intensive businesses is odd.

    I suppose McDonald’s, Home Depot and Wal-Mart are frequented only by celebrities and oil barons these days.

    In addition, Economists who tell you they can predict negligible inflation based upon substantial minimum wage increases should be in the bridge selling business.

    Demand determines price, not economists. And if more people with more money demand the same products, the price will rise. Business owners would be stupid not to raise their prices.

    Businesses should be applauded and encouraged for taking good care of their employees, but foisting unrealistic constraints on their genesis, operation and growth as a political ruse strikes me as extremely irresponsible.

    Spending power matters more than actual amounts of money. Compare housing and food prices in areas where incomes are larger to areas where they are smaller, and cost of living becomes the deciding factor in quality of life.

    One size fits all economic mandates from centralized authority are in no way conservative, no matter how one twists the $12 pretzel.

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  3. beowulf
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    “Glickman described the politics of raising the minimum wage as being extremely difficult, given the intensity of opposition he had always encountered among many small businessmen… So if a large rise in the federal minimum wage is probably a good policy idea, what can be done to overcome the formidable political obstacles?”

    I’ve thought about this, I think the way to get business support is by listening to Aneurin Bevan on how he got UK doctors to support his National Healthcare Service plan, “I stuffed their mouths with gold”.

    Columbia economists Edmund Phelps and Jeff Sachs have proposed giving employers a wage subsidy (that would be taper down for wages north of min. wage), Sachs wrote a NYT op-ed last year stating a $4.50/hr subsidy making effective minimum wage $11.75/hr would cost, once reduced welfare costs are included, about 1% of GDP, call it $160 billion a year. So presumably $200B a year or so would get us to $12.00/hr. If minimum wage is raised to $12/hr at the same time a wage subsidy commences, there would be no net cost to employer and the minimum wage could increase overnight instead of phasing it in over several years as Congress customarily does.

    Personally, I think deficit hysteria is pretty tiresome but the budgetary cost of a wage subsidy could be reduced by limiting it small businesses, tapering off subsidy over several years or by just picking the low-lying fruit of the federal budget— reallocating some of the $6T over 10 years projected to be spent on gross interest (this could be done a couple of different ways, simplest of course, just pay debt service off-budget w/ trillion dollar coin).

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  4. Gaeranee
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    I think a $12 minimum wage hike would lead to the hiring of more illegal immigrants and off the books accounting.

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  5. Adam
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    Capital has been stripping labor for years and it’s time to balance the scales a bit. Raising the minimum wage to 1968 levels when adjusting for inflation is a good start. Think of it as austerity for Capital, a little belt tightening where it really is needed. And since the vast majority of tax revenue is from individual as opposed to corporate income streams, the percentages having diverged long ago, it’s a way to raise revenues without raising taxes, as well as reducing the EITC expenditures that should be viewed as corporate welfare anyway. And never forget the cries of shortages of “trained” or “experienced” workers is almost always a chimera because the real underlying message is a shortage of those workers based on what Capital wants to pay, which is exactly why business is all for unrestricted access to cheap immigrant labor.

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  6. John Gruskos
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    As the cost of hiring on-the-books Americans increases, so does the temptation for businessmen to hire under-the-table illegal immigrants.

    Therefore, the #1 immigration related effect of a massive hike in the minimum wage would be the increased displacement of on-the-books American workers at the hands of under-the-table illegal immigrants.

    Unz’s argument that this would not happen if enforcement were draconian enough is not applicable, given our current president.

    If Obama is such an extreme proponent of increased immigration that he is willing to use the sequester as an excuse to release illegal alien violent criminals, in direct defiance of the clear intent of our current immigration laws, is it sensible to assume that he would enforce legislation of ambigious intent in a manner which would curtail immigration?

    All too often, the hawks amd plutocrats of the Republican party have “dog whistled” the patriotic and social conservative base. They’ve knowingly misled us into believing that their policies would bolster our national identity, rooted in blood and birth, and the traditional morality which maitained our social health from early colonial times until the 1960s. In fact, their interventionist and kleptocratic policies have subverted the very things we hoped to preserve.

    If Ron Unz is hoping to play a similar trick on us, if he is hoping to use the idealism and enthusiasm of immigration restrictionists to advance policies which will actually *increase* population replacement immigration, then shame on him.

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  7. I’m always astounded at the people who dismiss minimum wage hikes as jobs killers. Corporate profits are at all time highs. There is money in the system which simply isn’t getting to the people who labor at the bottom to help create it. The research on whether raising minimum wages costs jobs is mixed at best, so why the absolute certainty that it’s a bad idea? (I’d say its brainwashing at the hands of corporate elites who run everything in this country, but that seems rude.)

    At any rate, I’m sure the economics of ending slavery were terrible as well. Demanding that people work for less than it costs to cover basic food, housing and transportation is unethical and should not be allowed. I really don’t think people who make these arguments have any idea what it’s like to be spending 50% of your income just on rent, living with utility outages due to unpaid bills as just a normal part of life, spend months driving on grinding brakes because there’s no money to buy new brake pads, plan your spending down to the last dime so you have enough for gas or bus fare right before payday. Or forgo glasses because you can’t afford them or let your kids suffer through ear aches for a week until you can afford the co-pay for a doctor’s visit. I mean, it just goes on and on. There is no reason that a person who is working 60+ hours a week in one of the richest, most powerful countries ever to exist can’t make it. A lot of these people are working rather than living on the dole as a matter of pride, but you tell them that if the minimum wage was raised they might not have a job and in the back of their mind, they are thinking that after getting a little help from the government it probably wouldn’t really make any difference to how they are living anyways. It’s an argument you can only make if you don’t understand what it’s actually like to be living on the bottom in this country.

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  8. Annek
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    Raising the minimum wage to $12 per hour would possibly reduce jobs for young people and also probably over-compensate many people for the work they’re actually doing. Why should people be “entitled” to a living wage? I appreciate that job market is tight and that many people are going through a rough time, but forcing employers to pay more for work that is perhaps not worth the higher wages doesn’t seem fair or make sense.

    Here are a few questions regarding the scope of the problems related to our current minimum wage:

    What percentage of minimum wage earners are trying to support families on their earnings?

    Which jobs pay only minimum wage? Are there many of them?

    How long do most minimum wage earners trying to support their families on them usually remain in a minimum wage job?

    How much of the problem of people being stuck in minimum wage jobs could be alleviated if people delayed childbirth until they were married and able to finish their education and support themselves?

    Seriously, not all workers do a good job or seem interested in doing a good job. I am interested in seeing people paid fairly and have a chance of being able to support their families, but I’m not sure increasing the minimum wage is the way to do it.

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  9. Adam
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    @Annek,

    One look at a graph showing production gains going up instead of out should be the starting data point for any questions revolving around whether raising the minimum wage would go to “over-compensating” people. This isn’t new, it’s been disproportionatley happening since at least 1980. That divergence is representitive of capital stripping labor of the monies earned through increased production. It isn’t that we face the moral hazard of overpaying people, it’s that we’ve been starving labor too long and the result is a large percentage of the population not enjoying the fruits of their labor. Balance is necessary and it isn’t going to be just given away. The minimum wage came about for a reason, and it isn’t simply some socialist strategy of wealth transference by the government. It’s more aptly descried as “Capitalist Democracy” which essentially attempts to act as a buffer against the results that unmitigated capitalism can produce. Adam Smith warned about that very thing.

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  10. The minimum wage does nothing to address the problem that is the master-servant relationship. Our founders did not envision a country where so many people would be dependent on another for their subsistence. That the employee gives his labor as consideration for his wage is irrelevant because the employer controls what the employer does during work hours, how it is done and when it is done. To use higher minimum wage and stricter labor law enforcement as some way to deter and discourage illegal immigration, is to invite a police state on the most flimsy of bases. Make no illusion, the current enforcement of the labor laws is sparse and usually the by-product of disgruntled employees and ignorant employers. The minimum wage is defined in terms of hourly compensation, but it covers a broad spectrum of compensation agreements, including non-exempt salaried employees. I understand that as long as the master-servant relationship is a cornerstone of or economy, there will be calls for and answers of regulation. But to see the debate as who can better regulate the master servant relationship is ignoring the real question: how do we get away from the master servant relationship and towards an economy based on self-ownership?

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  11. Fran Macadam
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    The people whose labor makes business owners well off are obviously not getting their fair share, because without them, the owners would not be so well off.

    Taxes paid mostly by those who are low or middle income end up subsidizing employers who don’t. That is socializing costs, while privatizing profit.

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  12. Mike Brown
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    When the lowest-paid worker at a business has their wage increased to $12, the workers who USED to get $12 now have to have their wage raised. All businesses have a hierarchy of wages with the simplest jobs paying less than the harder ones. Why sweat on the loading dock when the security guard makes the same money? A boost in the lowest wage is not the only cost to a business, all wages will have to rise proportionately

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  13. Well, actually there are more illegals employed in Texas than San Jose, San Jose has a min at 10 per hr. Texas is at the federal min.

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  14. Gaeranee
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    You are comparing a state to a city?

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  15. TomB
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    I don’t know why we should, but let’s put aside what seems to me to be the acme of corruption and stupidity which is talking about any amnesty for illegals before you have at the very least demonstrated a very significant ability to stop any future illegal immigration.

    And then, playing further into the game, let’s further blindly put aside the fact that increasing the minimum wage, without at the very least having demonstrated a very significant ability to stop the employment of illegal aliens, what you are doing of course is to even *add* to the incentive for illegals to come here. And as Unz himself admits, going from the present minimum wage to $12 per hour is a simply huge increase, with there being no reason to believe that’s not also going to cause a huge increase in the number of future illegals over the ones already coming.

    After all, our problem *already* is that they are coming like mad for our higher wages. So don’t know claim that no, making them even much higher isn’t going to create a much greater incentive of endless others.

    So what have you done “for” Labor against “Capital” now?

    Well or course “Big Capital” especially responds to increased minimum wages by just laying people off. Big Capital generally has enough other people it can squeeze to cover the gap.

    And what else have you done?

    Well, again for “Big Capital” who use a lot of workers, you’ve mightily inflated the supply of those who it can hire at minimum wage for sure. And while, as someone above has already said, this puts some upward pressure on higher wage jobs, that’s limited, and indeed would seem to have destructive effects that far outweigh that benefit.

    After all with that huge if not endless supply of folks willing to work for minimum wage what’s your incentive to ever pay anyone *more* than that minimum wage? Indeed what’s your incentive to not fire those who are already making more?

    You have, say, someone making $15 per hour, and the minimum wage goes to $12 and there’s lots of takers there. As opposed to the guy making $15 having any great leverage to demand an increase, you’ve actually created a good bit of incentive for Capital to fire that guy and hire *two* minimum wage people. And certainly everyone at or over $20 per hour have to worry.

    Why? After all, the closer you have anyone making $20 per hour the closer you are to paying $32 per hour for his labor and that of the new minimum wage guy. And what’s bad about that? Well of course it’s because you can *fire* the $20 per hour guy and then hire and have the services of *three* (min. wage) people instead of the services of only two people.

    And three can be lots more productive than two.

    And so when it comes to “Big Capital” that’s the situation. But it’s not the situation with “Little Capital”: I.e., those small businesses that don’t employ many people.

    And indeed that’s why Dan Glicksman noted that the biggest objections to minium wage increases are from small businesses: In general but overwhelmingly *they* can’t just lay people off because they don’t have enough others to squeeze to make up the work gap. Nor do they have the numbers so as to take economic advantage of the “firing one higher-wager and hiring two minimum wagers” trick.

    And, it might be remembered, *most* jobs in the U.S. are *still* with small businesses.

    So what have you done but driven ever more of those “Little Capital” people out of business, which business of course then goes to “Big Capital,” and you’ve made Big Capital happy happy happy.

    And while you’ve certainly made some minimum wagers happy, that doesn’t include the ones who have gotten laid off due to your increase, or those who have worked theirssassess off to earn more than the minimum wage and who are going to find themselves forced out of a job because for the price of firing them their boss can hire *two* other people to replace them.

    Is *this* what we want?

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  16. Dave
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    I’ve read a few other posts in Mr. Unz’s heterodox series on extreme minimum wage hikes. I have mostly forgotten his arguments, but I have so much respect for this journal that I allowed myself to give him the benefit of the doubt for most of the way.

    But in this piece, he doesn’t even make a stab at countering the basic economic arguments against the minimum wage, to say nothing of a sizable one. He sort of takes it as a given that it is an economic good and goes right for the political haggling that would get it to pass.

    But like PC, I remain highly unconvinced, especially with the notion that we can somehow magically grant 40% of the country an extra 5 grand a year. And although I am not a low wage white southerner, I have to say that this community, in my distant observation, actually maintains a highly principled stance against the minimum wage and government mandated handouts. This principle is often mixed with an ugly sort of racism, and it would be interesting to see if (and how quickly) they would lap up the goods once they became the beneficiaries. But I wonder. The Limbaugh crowd may have some warts, but they at least have a fundamental sense of how macroeconomics works and where money does and does not come from. I’m not so sure they would welcome this kind of thing as a whole.

    But even if they did, even if somehow “we” were able to increase the nominal wages of 40% of the population, and even if businesses didn’t simply fold or lay off a tenth of their workforce to absorb the hit, it seems to me that what you are basically creating is inflation. You are creating a new baseline definition of what the currency is worth, and thus all prices will rise to absorb the incorrect allocation of value to the now arbitrary number of dollars one earns per hour.

    As with other regulation, the common practice is for businesses to simply pass on the extra costs to their customers. After all, if all the other restaurants in the country just got a 10% cost increase, then you won’t lose any market share to your competitors when you raise your prices 10%. Initially you will have many marginal businesses going under as consumers balk at the price increases they experience. But eventually, it will become the new normal, and all prices will have to rise to compensate for the fact that there has been no real value increase in the economy, only an artificial numerical one.

    It is not dissimilar from the fed’s monetary policy. Simply printing more dollars doesn’t mean that people will become richer in any real way. It means that the value behind the each dollar decreases. And when 40% of the workers “magically” have more dollars for the same value of their labor (based on market availability), then the value of those dollars simply becomes less and we are right back where we started from, only with lots of unnecessary displacement for small businesses and dispensable employees along the way.

    Speaking to some of the commenters, business owners and employers are a minority in this country, because most people lack the courage and boldness to start businesses. And because they are a minority, they are subject to all the normal prejudices and misunderstandings that plague minorities from the outside. If you’ve never been on both sides of the paycheck, you really are resorting to brute prejudice when you characterize business owners in a negative way. And making statements about what should and shouldn’t be the value of work based only on a worker’s perspective is nearsighted at best (although it will always be popular).

    If you want to change this equation, it is very easy to do. First of all, decide that you are willing to pay 40% more than you otherwise would for the goods and services you consume. That will raise wages considerably, because it will signal to businesses that they can charge more and therefore pay their employees more. But if you really want to put the screws to business elites, the best way to do that is to become one.

    Business elites are paid more because they are in the minority. Their supply is low, therefore their wages can be high. The supply of labor is vast, and therefore its value is low. If you want to turn the tables, get all of your friends to open businesses, and eventually the business owners will be in the majority, and there will only be a tiny pool of laborers to serve them. At that point, the value for labor will skyrocket, and your dreams of fairness will be realized.

    Regarding Rebecca’s comments about the economic value of slavery, I have to disagree vehemently. Slavery, besides being a moral evil, is a huge economic evil, because it deprives the economy of the full measure of entrepreneurship and quality labor of a particular set of people. Slaves are not able to innovate or work to the fullest degree of their abilities in productive enterprise. They are not able to accumulate wealth and pay taxes to support the society. They are not able to provide their cultural gifts to crete new industries. And overall their labor is put to highly inefficient use, because there is no self-interest motivator in better execution beyond avoiding the whip.

    Look at the African American contribution to the American and global economy over the past 40 and 150 years? Are you telling me that these people are put to better use by being forced to pick cotton? The sports and entertainment industry alone has produced (and distributed) staggering wealth due to the contributions of African Americans – a contribution we denied ourselves for centuries by keeping them enslaved.

    Slavery, to connect it to this essay, is rather akin to a “maximum wage.” A maximum wage of $0. That’s not a 100% exact analogy, but what it is is a description of an arbitrary government-imposed limitation on what level a person may value his or her labor at. It takes someone like Michael Jordan or Michael Jackson and forces them to restrict their inherent value in order meet a government sanctioned economic limit on compensation. The result is that their talented forbears, rather than becoming wealthy entertainers, wasted their time toiling away at work for which they may have been poorly suited, but for which there was no alternative because their compensation levels were fixed.

    The minimum wage does the same thing, only in reverse: It forces businesses to overpay for the value of the services they receive, and the negative incentives are equally bad for innovation, productivity, growth, and the hiring of more productive employees. Businesses squander money and resources through the government enforced minimum wage just as slaves squander their own resources (talents and ambition) through government enforced slavery. Both situations represent a wrong headed and arbitrary intervention into the natural economy by forcing individuals and businesses to act in ways other than their natural gifts and proclivities allow.

    Unz doesn’t do much to counter this kind of argument, but I nonetheless respect his rigor and courage as a writer, and I would be interested in being convinced of his point of view. Like I said, I don’t remember the arguments he used in previous posts, and I’d like to think that that’s because they weren’t convincing rather than because I was too stubborn to accept a revision to my own beliefs.

    What I would like to hear is his defense of a reductio ad absurdum: He cites the Journal’s version of a $0 minimum wage, which is a very defensible one according to many economists. What about an Unz version of a minimum wage of, say, $1000 an hour or $1,000,000 an hour? He seems more interested in the $12 figure because it is like a splash of cold water in the face of the left and a means for injecting some spice into the political sausage making process. But from an economics point of view, why is his number better than the ones I’ve proposed? And if we play the song all the way out to the end with these different number values, then what happens? I’d be curious to hear his response (as well as why my arbitrary numbers are more ridiculous than his).

    Anyway, I will continue to enjoy the stimulation I receive from Mr. Unz and his colleagues at TAC. It’s a rare periodical that welcomes such bold opinions in its pages, and I am grateful to have its contents always close at hand.

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  17. “The 5K per capita annually has to come from somewhere…”

    I think Ron is donating it. A 75% tax on journalistic income should do the trick.

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  18. Adam
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    “maintains a highly principled stance against the minimum wage and government mandated handouts.”

    “The Limbaugh crowd may have some warts, but they at least have a fundamental sense of how macroeconomics works and where money does and does not come from.”

    Raising the minimum wage isn’t a government mandated handout as much as it is a check against the power of Capital, with the big C as a nod towards TomB’s description seperating large corporations from small business, which definitely needs to be noted. You could also effect the same change without using the minimum wage simply by changing the corporate tax code to incentivize wages being paid by giving them a higher write off value. And what we have today is regards to the EITC and various other rent seeking legislation as far as taxation and the regulatory framework already benefit Capital to an extent not found for labor. The second point in regards to the Limbaugh crowd assumes quite a bit, namely that they have a firm grasp on Macroeconomics. They may have a firm grasp on a particular point of view, but I wouldn’t go so far as to say it’s the correct point of view.

    And in regards to increasing inflation with this measure, you’re absolutely correct, and it’s intentional. The particular inflation that has been missing because Capital does capture an outsized portion of production gains over the last few decades is wage inflation. While there has been increases in the cost of things, there has not been a corresponding increase in the ability to maintain a standard of living comparative to previous decades. There is an argument that can be made that we indeed have lots more shiny things than before, but when you’re talking about cars and homes and insurance costs and fuel, etc, the purchasing power of today is less. I’d rather see it addressed through a minimum wage or tax solution than see it addressed as more and more money being taken in by government and then redistributed, with is much less efficient. Set the rules up correctly rather than funnel all the money through government.

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  19. With due respect to the critics on this thread, I am prompted to point out that Ron has made an abstract case with hooks into data points which can provide analysis around the validity of his claims. Maybe I’m biased — I support increasing the minimum wage — but I don’t read him making proposals, I read him suggesting courses of action which do require in-depth, on-the-ground analysis of the data.

    Some of the points are covered in this thread but in isolation from the abstract case. We can start with the fallacy that the vast majority of minimum wage jobs are in companies whose owners also work hard and would have to see either significant price increases or significant decreases in their own compensation to comply with the wage increase. I don’t know the actual proportion, but even without the minimum wage argument there is a shrinking middle class whose effective hourly wages have stagnated or gone down when adjusted for inflation. It doesn’t need to be a moral point, it can be simple arithmetic: If the bulk of your consumer public doesn’t have the money to spend, products will not be bought, other businesses will decline and disappear, and the only people who benefit are the ones who would still benefit if somewhat less by taking smaller profits and dividends in exchange for increasing wages.

    Annek opens a nice can of worms: why should we pay them more than they are worth? I am interested in seeing people paid fairly and have a chance of being able to support their families, but I’m not sure increasing the minimum wage is the way to do it.

    The only answer is that a mandated minimum wage is necessary simply because the vast majority of businesses will not voluntarily pay living wages. It is critically important to note that the definition of “living wages” is limited to regions with clear connections of interdependence. It implies a clear definition of the cost of living for that region, the tax burdens in that region, and secondary but still important considerations like mobility (public transit remains a fraction of the expense of a personal vehicle) and market pressures (property values drive rents upwards, never down). If an employer makes the commitment to pay a living wage, it also makes the commitment to redo the arithmetic at least annually.

    Personal note: Our enormous debt, public and private, is a direct consequence of wage stagnation. People were and are convinced to spend borrowed money instead of just not buying, a reaction to wage stagnation that might have done some constructive good well before now. Instead, we spend money that doesn’t exist, and nearly all of it ends up in the pockets of investors.

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  20. Because I was re-reading the source (The Past Through Tomorrow) recently, this quote stuck in my mind while writing my previous post, and I thought I should share it here with the part that prompted me in bold:

    “There has grown up in the minds of certain groups in this country the notion that because a man or corporation has made a profit out of the public for a number of years, the government and the courts are charged with the duty of guaranteeing such profit in the future, even in the face of changing circumstances and contrary to public interest. This strange doctrine is not supported by statute nor common law. Neither individuals nor corporations have any right to come into court and ask that the clock of history be stopped, or turned back.”

    “Life-Line”, by Robert A. Heinlein (1939)

    The defining “ethic” of our age is profits. I submit that the minimum wage is the public interest reaction to placing profits over those whose labor helps create it. So long as employee compensation is seen as a cost of doing business and detriment to profit, we will always need laws including minimum wage, workplace safety and standards for hours worked in a day and week.

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  21. WorkingClass
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    The President and the Congress are for sale to the highest bidder. The working poor cannot offer a competitive bribe. The .01% will continue to redistribute the wealth upward by virtue of their control of Washington.

    Corruption will not be defeated by elections so long as the D’s and R’s retain their political monopoly. The minimum wage makes for interesting discussion but in the end it will not be raised. Not to $9.00 and not to $12.00.

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  22. Fran Macadam
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    Blind ideology has no problem with corrugated metal lean-to’s being erected around cities to house those who are “free” because they have the “right-to-work” to work for the lowest amount the rich are willing to pay.

    Human beings are simply commodities and if they aren’t worth anything to a market, the results of them having no value have nothing to contribute to ideology.

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  23. Amy
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    Why is there a federal minimum wage to begin with, any way? The Constitution does not mandate Congress to establish or regulate labor laws, and a federal minimum wage law simply ignores the variations in economic realities in different parts of this vast country. Alabama is not the same as New York, nor Alaska the same as California. It also ignores the urban-rural divide that is inherent in the United States.

    Almost every state and territory already has its own minimum wage law that necessarily exceeds the federal minimum, so no one in theory is even paid at the federal minimum pay level. This whole debate therefore is simply wasteful and a redundant duplication of efforts.

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  24. TomB
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    From my reading not only of this Unz piece but his last few concerning his minimum wage idea I sort of wonder why he’s gone on about it and can only conclude it’s just simply due to the abstract fun it provides, which is perfectly fine, but leaving it perfectly fine for us to whack at too.

    After all, if I’m not mistaken the *entirety* of the workability and thus smartness of his $12 minimum wage idea rests on the idea of first substantially stopping future foreign illegal immigration. And with the admittedly huge $12 minimum wage hump, there’s absolutely no reason to believe you aren’t hugely incentivizing some *additional* millions to want to come here on top of those millions who already do with our present minimum wage.

    But who believes we are going to substantially stop that future illegal immigration? Certainly as smart as he is I can’t believe Unz does.

    And if it isn’t just for the abstract fun I just do not see why Unz would put himself anywhere near into the position that I think, say, Alan Simpson occupies. That is, a guy who at a minimum ought to be in prison if not boiled in excrement.

    After all, what is the nature of our greatest problem today? Well of course it’s our unbelievable financial situation.

    And who is responsible for this?

    In the overwhelming main obviously it was those politicians in the past who either knowingly or lightly sacrificed the future for their short term benefit. And Alan Simpson seems to me to can be the absolute poster boy for this, although of course he’s just in a cast of thousands.

    Simpson, it will be remembered, was the snotty know-it-all Senator from Wyoming back in the 1980′s who came up with the Simpson-Mazzolli amnesty, remember? And remember further the condescending sneering at those who said it wouldn’t work at stopping future illegal immigration? And remember how opponents were called stupid or racist or both to such great delight?

    Well thank you, Mr. Simpson, for the probable 20-30 *million* we have now that are causing us some difficulties. The 11-13 conservatively estimated million of illegals that is, and then their additional off-spring born here who are not illegal simply by dint of being dropped here.

    Thank you, Mr. Simpson, for the 40% of federal prisoners who are illegals who we pay millions for each day to house. And thank you for the challenge to and change in our very national culture that we never even got to debate much less agree on that our illegals seem to have caused. And I’m sure that those millions of Amerians displaced from their jobs—or who never got them, or who never got any raises—due to those millions you encouraged to come in because of your last amnesty would like to thank you too in some very particularly special way too.

    Like I say, if there were any justice in the world Alan Simpson ought be daily paraded around to be spit at for either his stupidity or his self-serving behavior at all this incredible cost to us.

    But at least Simpson knows who he is and what he did. Knows that if he were put up in front of all the citizenry that he betrayed and confronted with all the damage he caused it would only be right that he’d be spit upon and regarded as either a self-regarding moron or beneath-contempt individual.

    So why again would Unz wanna even come anywhere even *near* to any of this?

    Like I said, it’s just gotta be the abstract, intellectual fun of it for him.

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  25. Geoff Guth
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    Just out of curiosity, Senator Warren has lately been talking about where the minimum wage would be if it had been indexed not to inflation, but to productivity (with the assumption being that the share of the income that accrues to workers from the sale of goods or services ought to be static). This produces much greater figures for the minimum wage (about $22).

    Any comment on that particular line of thinking?

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  26. Dave
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    Hi Geoff. I have a comment on that. It’s slightly speculative, but, really, what isn’t?

    First thought: Productivity is difficult to index, because it’s different in different industries. Technology lifts all ships, but certain technologies lift certain industries farther and faster. Also, if you go to your local government office, you will notice that many have not even availed themselves of 1980s productivity tools to say nothing of the range available to us all now.

    But putting that aside, I’d wager that the minimum wage – because it has been fixed and sent down from on high – has probably had a somewhat perverse effect in depressing wages due to the fact that people (as evidenced by how radical Unz’s proposal sounds) tend to herd around a certain figure once they hear that figure. It’s a peculiar phenomenon, but once a number is announced, say, in a negotiation, most subsequent bids relate very strongly to that number as a “locus” of price. Even more bizarrely, there have been studies where people are asked first to guess what year Genghis Kahn invaded China (or wherever he invaded), and then choose some other number that was completely unrelated to the invasion date. The researchers found that whatever number was believed to be the invasion date became the locus figure around which the subsequent – completely unrelated – number was chosen. Bizarre. [This study is much better explained in the marvelous Teaching Company course on Critical Decision Making.]

    So it wouldn’t surprise me at all if the minimum wage would be another classic case of a self-defeating liberal policy that ensures that the poor remain poor (and keep pulling the lever for the Democrats). Because without the government authorized number of $7-9 an hour, employees might actually believe their value could float upwards in line with whatever productivity meant in their line of work.

    For the rest of us, however, it’s likely that the fact that the minimum wage hasn’t kept up has helped the economy to be not so flattened by it – particularly as globalization has kicked in and the US no longer enjoys the post-war status it had of the sole developed country not brought to its knees by WWII.

    As with outsourcing, the poor also reap the benefits of lower labor costs, and they have benefitted from a relatively (to Geoff’s number) minimum wage in that it keeps the prices of their goods and services down as well.

    Anyway, those aren’t much more than musings, but I would be disappointed if no one took Geoff up on his reasonable challenge.

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  27. Jan
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    The individual who are earning minimum wage are probably on benefits such as food stamps. Increasing it to $12 dollars obviously would result in some losing their jobs. It could also result in less people on benefits because they would be earning too much to qualify. It’s either the government subsidizing low wage earners or businesses paying workers more. I will take the higher pay. Goods and services have already increased in price but not what people earn.

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