Comments (26)

• Bill

  I am from the government, I am here to help you.;-)

  Published: January 15, 2007 9:02 AM

• banker

  And if I say no, then what?

  Published: January 15, 2007 9:44 AM

• Curt Howland

  Then I will make up whatever excuse I think will work, even if self-contradictory, to rationalize forcing it upon you.

  Reason is irrelevant. Only obedience is important.

  If you don't like it, obey anyway. Then fight it in the courts.

  Published: January 15, 2007 10:29 AM

• Bill

  Law of civil service:
  1. Regulation does not place a heavy burden on a business.
  2. Regulation places no burden on a business.
  3. Regulation actually helps a business.

  Funny hearing this from people who have never run a business.

  Published: January 15, 2007 10:50 AM

• RogerM

  The hypocracy of people like is so clear in their desire to raise the minimum wages just $2.10/hr. That still doesn't raise the minimum wage to a living wage. For the minimum wage to be high enough that a family of 4 can live on it comfortably, it needs to be about $15/hr., depending on which part of the country you live in. That Reich proposes a minimum wage of half that amount is not only hypocritical, but down right mean.

  Of course, Reich won't recommend such a high minimum wage because even he isn't so stupid as to think it will "help small businesses."

  Published: January 15, 2007 12:09 PM

• Eric

  I'm more cynical. I believe that nearly everyone that proposes, in public, that the minimum wage is good and should be increased has some political motive. I just don't think these people can be so stupid.

  They do know, however, that in politics where 50% of the voting public has an IQ of 99 or below, and that these people also bother to vote since they're not smart enough to realize that 1 vote is a complete waste of time - unless you have nothing else to do or actually enjoy going through the process.

  To get somewhere in the political process one succeeds by convincing people that 2+2 equals 5 on Tuesdays and 7 on payday if they vote for you. Others are just tring to get jobs working for politicians who need to use the same line of reasoning. Any public attention is like free publicity and is worth money. Just look at all the talentless people that apply to shows like American Idol.

  Lastly, the article didn't mention that businesses have other options besides lowering quality, they can mechanize, and they can choose to violate the law by paying under the table, or they can go out of business. Wage laws cause all sorts of friction in the market.

  Published: January 15, 2007 12:26 PM

• Hard To Swallow

  Robert Reich is just a typical socialist troll who refuses to see, or admit that he sees, the truth.

  
  absurd thought -
  God of the Universe thinks
  socialist trolls are bright
  .
  

  Published: January 15, 2007 12:56 PM

• Daniel M. Ryan

  It sounds to me like the Democrats have decided that the unemployment rate is too low. Were this phenomenon to go on, we'd be seeing "full-employment recesssions," and the consequent further hollowing out of the great Keynesian oak tree.

  If learnings are intellectual capital, after all, then the Keynesians, as a school, have a large investment to protect...

  Published: January 15, 2007 1:08 PM

• Reactionary

  "It sounds to me like the Democrats have decided that the unemployment rate is too low."

  Hmm. Daniel, does this mean the unemployment rate has crept steadily higher ever since the minimum wage was implemented?

  Granted, the idea of a minimum wage is idiotic, but it appears what happens is that producers and consumers adjust their prices accordingly. So after an initial period of adjustment possibly, but not necessarily, including an initial spike in unemployment, there is no raise in terms of real dollars in the nominal minimum wage.

  Published: January 15, 2007 1:38 PM

• Brad

  I'm I to assume that minimum wage earners aren't consumers?

  Has anyone done an analysis of who the consumers are of heavy minimum wage employers? Intuitively I'd think that those with less money tend to shop cheaply, and such places employ lower paid people. So there would be a bulge in the substrata of the employee/consumer - employer/seller cycle for a little while but eventually settles out. And those displaced will be even less able to get by as the relative prices creep up.

  And I have been taught that raising the minimum wage cannot cause inflation directly (as only an increase in the money supply does this) but does raising the minimum wage indirectly fuel more inflation as looser money is demanded by the players in the ecnonomy? If so, then regardless of any substratas, the increase in the minimum wage will lose its value over time.

  And what would Reich say to stopping artificial growth of inflation so that minimum wages wouldn't have to be hiked in the first place? Supporting a cycle of inflation increase/minimum wage increase that itself fuels more inflation eventually is simply to tax savings and give it away. The message being that you didn't pay enough for your purchases at the beginning so it should never have gone into savings in the first place. If an indirect link can be established between the minimum wage and inflation, then it can be assumed that increasing minimum wage is truly a transfer.

  Published: January 15, 2007 3:14 PM

• gator80

  He wants it to be true so badly that he 'reverse engineers' the reasons. Not unusualy amongst partisans. It's just a shame with Reich, since he likes to appear "academic."

  You forgot to point out, in Reich's argument #1, that he is essentially advocating a tax on the consumers of goods and services produced by minimum wage labor. This is a highly regressive tax on those who can afford it least.

  Published: January 15, 2007 3:32 PM

• J D

  Here is a proposal in lieu of increasing the minimum wage:

  Using the current federal definition of poverty, release companies paying and individuals receiving that level of wages from all IRS rules pertaining to the income from those wages.

  FICA would require some additional thought.

  Published: January 15, 2007 5:58 PM

• Sam

  Every time there's a push for a minimum wage increase the same ol' arguments resurface. And because there's so much resistance from business groups the increase doesn't occur or is much less then first proposed. Shame that workers on the bottom of the pecking order might want their wages to keep up with inflation. When considering static wages amid inflation is equivalent to static currency and workers getting paid a little bit less each year, it would seem that a lot of business houses would like light inflation as it allows them to pay less to workers over time rather than use a blatant pay cut. I guess there's a silver lining or a cloud, it depends on where you look.

  Published: January 15, 2007 11:42 PM

• Scott D

  Sam:

  I seem to recall Keynes making a similar observation about inflation serving as a pay cut that workers don't notice. It's hardly a silver lining, since all money is reduced in value, and therefore all streams of capital are woth less. There's also revenue, for example...

  Published: January 16, 2007 8:43 AM

• Daniel M. Ryan

  Reactionary wrote: "Hmm. Daniel, does this mean the unemployment rate has crept steadily higher ever since the minimum wage was implemented?"

  It has done so at the low end of the scale, until inflation has eroded it in real terms. (Sam broached this point earlier.) Why do you think that some of the most reliable supporters of it are unions whose members get substantialy more than the legally-mandated minimum rate? Because it doesn't cost them anything. They can play good guy without feeling the resultant pinch themselves.

  To recapitulate: the minimum wage is a prohibitionist intervention. It prohibits people from either offering or accepting a job at a wage rate below the stipulated minimum. Thus, it is a law that brings involuntary unemployment, as the labor-market clearing process is blocked through power of law. How would unemployment not go up as a result of raising it?
  

  Published: January 16, 2007 8:55 AM

• Robert L. Nathan, Jr.

  On the surface, the political motive for increasing the minimum wage appears to be to buy votes. But I think that the underlying motive for wanting to increase the minimum wage may be to add dollars to support the impending bankruptcy of the social security fund.

  Published: January 16, 2007 9:13 AM

• Reactionary

  Daniel,

  I agree that the minimum wage is a prohibitionist intervention, but I've just never seen a business shut down or fire workers because of an increase in the minimum wage. I think everybody just raises their prices.

  Therefore, this is why we can't make everybody rich by increasing the minimum wage to $1K/hr.

  Published: January 16, 2007 10:22 AM

• Daniel M. Ryan

  The reason why it's not often seen, Reactionary is because it takes a positive act to lay someone off, which may have repercussions. It's hard to say, "I have to let you go because your work isn't worth the new hire rate, though it be no fault of your own." There's not only a personal-value-barrier to doing so in many cases, but also it can create a person with an axe to grind, which incurs a risk. So, the direct effect of a raise in the minimum wage will not appear very explicitly.

  [Note that if employers were as heartless as socialist propaganda portrays them, this adjustment process would be very visible. A lot of the 'hypocrisy' in this adjustment process is caused by businesspeople choosing not to act like Scrooges.]

  The way in which the ceteris paribus increase in unemployment occurs is (largely) in the loss of future jobs. Taking down the "Help Wanted" sign merely disappoints, at most; it doesn't anger. Asking the kept beneficiaries to work a little harder instead - "after all, you got a raise through the government, didn't you?" - is a more practicable option than direct layoffs. So is getting rid of people, whose marginal labour product is rendered submarginal by the law, for other reasons.

  Example: "No; the increase in the minimum wage had nothing to do with me letting Joe go. I told him that he'd have a future if he went to college, and he agreed with me, so he quit to go to one. We haven't re-hired because I decided to get a little more hands-on lately" (or, "we got a new gizmo that's helping us out," etc.)

  Businesspeople don't want to make enemies, after all.

  Published: January 16, 2007 11:35 AM

• Daniel M. Ryan

  To be fair, the typical union member does support welfare legislation, even beyond the point of it impinging upon his or her own economic self-interest (as a taxpayer.) I'm sure that the desire to be a good guy is the main reason for it. If union people were completely self-interested, they'd support only employment-related social legislation, and workfare that doesn't compete with union jobs. It isn't only businesspeople who modify economic self-interest through adding non-economic value choices; we all do, to some degree.

  Published: January 16, 2007 12:05 PM

• Paul Marks

  The point of a "market" (indeed the definition of the term) is that prices, quality of goods, wages and conditions of work are determind by supply and demand ("market forces" being these things).

  Efforts to, by statute, increase the wages or improve the conditions of work of some people over what would be the case by supply and demand lead to higher unemployment than WOULD OTHERWISE HAVE BEEN THE CASE.

  This may not mean a "rise in unemployment" if unemployment was going to drop - it may simply mean that unemployment will not fall as far as it would have if the intervention had not taken place.

  However, to argue that increasing the minimum wage law to a level which increases the wages of a lot of people (over what supply and demand would have produced) will not mean that unemployment is higher than it otherwise would have been........ well such a position is just silly.

  As for the effect of a given level of minimum wage reducing over time, it may do so but this is nothing to do with enterprises "passing on the cost" to customers. IF wages for relatively unskilled work are going up anyway (due to market factors) then a given minimum wage level will keep out of work fewer people over time (unless the increase in the minimum wage level law and other interventions tip the economy over).

  It should not be necessary to write any of the above (it is basic economics), but to judge by the words of politicians, media people and in-the-tank "economists", it seems it is necessary for us to write and say such things.

  Published: January 17, 2007 10:22 AM

• Paul Marks

  Although most people here already fully understand the difference between real and money wages I should point it out anyway.

  In an economy where the government is not increasing the amount of fiat money (or where there is no fiat money and the amount of commodity money is not increasing) money wages will NOT increase over time. However, real wages (what the money can buy) will increase (if the economy is progressing) due to human beings finding better ways to produce things and investing in more and better productive capacity.

  The doctrine of the "money illusion" (i.e. government fiat money inflation tricking workers into thinking they have got wage increases when their real wages have in fact been cut - and this overcomming unemployment caused by government granted union power, minimum wage laws or whatever) depends on people being so stupid that they do not notice what is going on - people may be stupid, but they are not that stupid.

  Published: January 17, 2007 10:30 AM

• Reactionary

  Paul,

  The logic is unassailable, but can it be demonstrated empirically? Anecdotally, I can tell you that I've never seen a business shut down nor workers fired because of an increase in the minimum wage. The counter has been pure speculation by Daniel which is suspect on its face: a minimum wage increase actually creates the perfect excuse for an employer to reduce his workforce without having to bear their personal ire. The other counter is your logic. Again, it's unassailable but I don't see the statistics or the testimony by employers to support it. If you can provide one or both then you will have done what is necessary to support your hypothesis. The fallback position I see is that it results in less jobs being created, but that suffers from the flaw of an inability to be measured empirically as well.

  What I imagine could be empirically demonstrated (to the extent anything in economics can be) is a rise in prices after a minimum wage increase. So at best a hike in the minimum wage means that marginal employees are no better off.

  Published: January 17, 2007 10:42 AM

• Reactionary

  And I don't actually disagree with the hypothesis. Doubtless you would see more black market employment and outsourcing after an increase in the minimum wage. All other things being equal though, I believe the more common response is producers adjust their pricing, just as they would if, say, there were a universal increase in the cost of any other producer good.

  Published: January 17, 2007 10:45 AM

• RogerM

  Reactionary: "The logic is unassailable, but can it be demonstrated empirically? Anecdotally, I can tell you that I've never seen a business shut down nor workers fired because of an increase in the minimum wage."

  That's a very interesting point. Socialists have been very careful to keep the minimum wage (MW) below the radar. Several empirical studies have shown an extremely small effects for MW laws. That doesn't mean the economic principle that MW laws increase unemployment is wrong; it means that the increases in the minimum wage have been so small as to be statistically undetectable. In addition, inflation immediately reduces the real MW wage.

  MW doesn't make sense because it doesn't address the problem of why wages for unskilled labor are so low. The real reason has to do with labor productivity. MW jobs pay so little because the workers have very low levels of productivity. If the gov forces businesses to pay wages higher than the worker productivity justifies, unemployment results. That's a no brainer. Also, gov taxes and regulations leave businesses with less money to pay workers, further reducing wages.

  Let gov increase the MW to say $20/hr., and you'll see statistically significant results. That's why I say that MW proponents are mean and cynical. They know that the raise they're giving low-skilled workers is too small to make a difference to anyone. It neither helps workers no hurts businesses, at least to a degree detectable by statistics. Yet it allows them to take the moral high ground as defenders of the poor and downtrodden. If they really believed that raising the MW would help workers, they would raise it to a decent level, at least $15/hr. How disgusting can you be!

  If politicians really wanted to help the poor, they would reduce taxes and regulations on businesses so they would have the money to hire more people and invest in new, better equipment. The competition for labor and increased productivity would raise wages.

  Published: January 17, 2007 11:28 AM

• Reactionary

  RogerM

  Good points. So we're actually all correct: a raise in the minimum wage can only increase unemployment, and to the extent it does not or cannot be captured statistically, it is because it is not a raise in real dollars at all.

  Published: January 17, 2007 1:44 PM

• Mark J. McGrath

  It is troubling that someone with Reich's academic and political credentials has such illogical views. Typical politburo elitist that creates the appearance of real intellectual thought using economic non sequitirs.

  Published: January 21, 2007 7:43 AM