The Working Families party called the other night soliciting a contribution for their campaign to raise the minimum wage. The New York State minimum wage is currently set at $5.15 an hour--a proposal in Albany would raise it by $2 to $7.15 an hour. I'd given them a contribution for this cause before, but the act sent me back to my microeconomics textbook--wasn't raising the minimum wage one of those policies that hurt more than it helped?
According to Pindyck and Rubenfeld of MIT and Berekely, respectively, when the government imposes a minimum price, the workers who find work enjoy a higher wage, but some who want to work will be unable to. The policy increases unemployment. What's a good liberal to do? Pay some people more money, but at the expense of leaving others without jobs? Not a very good tradeoff.
But a study conducted in the 90s by other economists found an *increase* in employment after New Jersey raised its minimum wage. Of course, other economists disagreed with their findings, which is why policy making, like life, remains interesting--there are many choices and the outcomes that result from choices are not always clear. Does increasing the minimum wage increase unemployment? Maybe. Would increasing the wages of someone making $5.15 an hour to $7.15 an hour make their lives better? Absolutely. It would mean more food on the table, perhaps a new pair of gloves or a scarf. The economic data is open to interpretation and morality tips the argument in favor of increasing the wage. I gave a few dollars to the cause.
Related Links:
Debating the Minimum Wage from the Economist.
No good liberals don't have to listen to their father but I wanted to get my 2 centts worth of experience in on this one. An interesting little side note, there is no "cents" key on this keyboard. Oh well, I guess now my reasoning on why we still need "cents" as in "pennies" took another hit.
Let me explain, please. It really does have something to do with the minimum wage, it also has something to do with business which is what this minimum wage thing really is.
You mentioned microeconmics, good, lets think that way, put away the big picture and focus on "running a business" whatever that is.
When pennies were worth about 4 times what they are now, I had the task of managing a cash draw. I used to clear it at the end of the night, really the time after 12 hours or so to be counting money. Anyway....if you added up the receipts, added up the money and it came out to the "penny," you could pretty much call it a night and go home, no sweat, no worry, just put the money in a bag, take it to the bank and go home. On the other hand if the match of receipts and revenue didn't hit the "penny," most time it didn't hit the dollar either and you know what the "cents" it was off made it easy to find the error. See we are looking through a microscope and focusing on real world, real situations. All you out there that balance cash draws, don't try it now, most people have been taught to toss the penny thing, Oh well a big "Oh well" at that.
Anyway........ back to eco 501.
So here we are back to why minimum wage is no good being raised, just my opinion. Most businesses fall into two categories, especially in their retail operations. They are "small" by either being that way because they are a "mom and pop" type operation or small because they are a "profit center" of a much larger business. At any rate they maintain individual balance sheets and income statements of some sort.
So what has that got to do with it? Let's look a t a typical "small" operation that has maybe 10 or so people in it who put in 40 hours per week and 6 hours overtime. Pretty typical huh? let's do the math:
40 hours per week times 52 weeks equals 2080 hours at $5.15, $10,712 plus 312 hours at $7.73 eguals another $2411 for a total of $13,123.
2080 hours at $7.15 equals $14,872 plus 312 hours at $10.73 equals another $3,347 for a total of $18,219.
OK, so we have a difference of $5,096. With 10 employees that amounts to $50,960.
I think we need a little common sense here. Hey that's almost 5 times as much as the guy was making before he was working any overtime at the minimum.
Put yourself in the place of a business owner of the manager of a profit center of a large entity. Could you afford it? Did you even make that much money after all expenses and taxes in prior years.
Let's assume that you did make that much, could you justify giving it away? See, I think what happens is that most people that look at wages look at each individual, they never do the multiplication excercise. You know the old, penny from everyone at the Garden State toll plaza on Friday night thing. It adds up! as they used to say.
I think also there is a bit of a jeolousy thing, as wages for "minimum wage people" get closer to that of management there is a tendency to, like, expect more, you know.
So....... now that the minimum wage guy is getting almost the managers pay, he may have to count the pennies, or do some other perceived dumb thing at the beckoning of others. Faced with these consequences, does his life "really" get better?
I hav e left out a lot of other variables like whether unions are involved or that payroll is commensurate with geographics. There are a lot of implications of either factor, but one idea at a time.
Oh well, I wonder what they think of this one.
Posted by: Ted | December 07, 2004 at 06:37 PM