Thursday, August 4, 2016

A Bouillabaisse Of Economic Errors On The $15 Minimum Wage

By Tim Worstall. Excerpts:
"And the empirics tell us that it does actually cost jobs. Black youth unemployment rates of 30% sure come from somewhere, after all. And David Neumark has found that 10% rises in the minimum wage lead to 1 and 2% declines in teen employment rates. That is where we’d expect the minimum wage to bind, after all, on the young, untrained and untested."

"That’s another of those empirical questions. Sure, profit is what is left over of the value created after you’ve paid the labour and other costs. But what’s a “lot” in this context? 3% of turnover like retail and fast food seems to make? 8% of all economic activity which is about US domestic corporate profits (no, those higher numbers of 12 and 14% are about profits of American corporations, adding in foreign profits)? And what’s a lot when margins are 3%, labour costs 20% and someone proposes a 100% pay rise?
Today’s low-wage workers are far better educated than in 1968: 46 percent have some college compared to 17 percent in 1968, and 79 percent have high school diploma versus 48 percent in 1968. Yet they earn 23 percent less!
That assertion links to something at the EPI and Komlos seems not to actually understand it. What is being looked at is the educational qualifications of the 20% lowest wage earners. Which have indeed gone up. But what is also being looked at is the minimum wage, not the wage of the lowest 20% of wage earners. That minimum wage is indeed lower than it was back then. But a very much smaller portion of the population get the minimum wage now than then. The earliest year we’ve really got the number for is 1979 when 13% of workers got the minimum wage. Today the number is in the 2-4% range (depends whether you want to include tipped work or not). It wouldn’t surprise that back in 1968 near 20% got the minimum wage of the day although I’d not want to insist that it were true.
When we actually look at wages by percentile we find that they haven’t fallen for the bottom 20% at all. Not risen really either, but they’ve not fallen."
"And today’s economy is characterized by mega-oligopolies wielding stupendous power and making stupendous profits — $2.2 trillion worth in 2015.
Profits are a large number, yes. The US has a large economy too. $18 trillion or so, meaning that this is 12% of GDP. And that’s the number before taxes are paid too and includes those foreign profits of Apple AAPL -0.01%, Google GOOGL -0.19% and the like – Apple’s foreign profits alone are some measurable percentage of GDP.
Here are some examples: Walmart made $19.2 billion in 2015
Quite so. That’s global profits, not just US, but let’s pretend. Walmart has 1.4 million US associates or thereabouts. If they all work full time (they don’t), they all get minimum wage (they don’t) and then we raise it to $15, what happens to those profits? That’s about 3 billion hours of work a year meaning that a $7.75 an hour wage rise more than wipes out the entirety of those profits. That is, Walmart doesn’t have plenty of money to pay such higher wages, it will go bust if it does.
Seattle’s minimum wage jumped from $9.47 to $11 in April 2015. Prior to that, the town of SeaTac, also in the state of Washington, implemented an increase to $15 in early 2014. Yet the unemployment rate did not increase at all; instead it fell in SeaTac from 6 percent to today’s 5.3 percent (in line with national trends), and employment is up by 6 percent since the enactment of the law.
Indeed so. And minimum wage employment is down in Seattle compared to where it would have been without the wage rise.
Raising the minimum wage has not hurt anyone except the boogeyman in the imagination of the 1 percenters and their entourage.
Sadly for the case put forward by Professor Komlos that’s not what the empirical evidence tells us at all."

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