Minimum Wage Bill: Obama’s $9 Proposal Won’t Increase Unemployment

9 June 2013 — Leave a comment

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My article on minimum wage, originally published on PolicyMic:

In the months following the State of the Union address, in which Obama called to raise the federal minimum wage from $7.25 to $9 an hour, a series of conservative arguments about the negative effects of minimum wage hikes has appeared.

Most of these arguments are false or highly confused. They fail to accurately weigh the positive and negative effects of the minimum wage or they suffer from unawareness of the relevant facts.

One often heard claim is that minimum wage hikes increase unemployment. The standard argument for this, as the editors at the Wall Street Journal put it, is that workers whose skills do not merit a wage increase “will be priced out of the job market and their pay won’t rise to $9. It will be zero.”

This argument is remarkably simple and this gives it some intuitive appeal. But in a field as complex as economics, such simplicity should warrant more suspicion than confidence.

The fact of the matter is that raising the minimum wage does not increase unemployment. According to a study by John Schmitt from the Center for Economic Policy Research published this February, there is “little or no employment response to modest increases in the minimum wage.”

Another influential study from 2010 by Dube, Lester, and Reich found “no adverse employment effects” to minimum wage increases. And many other studies make similar claims. What’s more, even studies with conservative biases admit that the negative employment effects of minimum wage increases are small.

Why is this so? It turns out that when minimum wage goes up, employers react in more subtle and effective ways rather than by simply firing their workers. In response to minimum wage hikes, employers tend to improve efficiency, give smaller bonuses to more highly paid employees, or else absorb the costs of minimum wage increases by accepting smaller margins.

Another common response of employers is to pass on the cost of higher wages to consumers by raising prices. Many people point to this fact in arguing against minimum wage increases. Christina Romer a professor at Berkeley, for example, writes that the burden of higher prices “may harm the very people whom a minimum wage increase is supposed to help.”

But a wider investigation tells a different story. One study by Sara Lemos that reviewed over 30 academic papers on the price effects of the minimum wage showed that most studies find that “a 10% US minimum wage increase raises food prices by no more than 4% and overall prices by no more than 0.4%.” So the negative effects of higher prices are strongly offset.

Another well documented benefit of minimum wage increases is reduced labor turnover. Dube, Lester, and Reich’s study found that turnover rates “fall substantially following a minimum wage increase.” And what’s more, the cost savings associated with reduced turnover “may compensate for some or all of the increased wage costs,” comments Dr. Schmitt.

Indeed it is because the positive effects of minimum wage increases so strongly outweigh the negative that another study by Doug Hall and David Copper estimates that raising the minimum wage to $9.80 an hour by July 2014 would actually add over $20 billion to the economy and create approximately 100,000 new jobs.

The rational for this result is that poor people spend more of their incomes than their affluent counterparts. So when their income is increased through minimum wage hikes, they spend more money and this added spending could boost demand and stimulate employment as a result.

This does not mean that raising the minimum wage is always a good idea. In response to some of the arguments I’ve given, many conservatives often ask the loaded question, “Why not raise the minimum wage to $100 an hour?” An increase that substantial would cause the negative effects of the minimum wage to outweigh the positive and nearly all economists agree that this would do catastrophic damage to the economy. That is not what we should do and nor is it what anyone is suggesting. What I intend to say is, given our current economic conditions, an appropriately sized increase to the minimum wage would be beneficial.

Moreover, by any reasonable standard, the current minimum wage is too low. If the minimum wage had kept up with inflation since 1968, it would be $10.67 today.

Still, some conservative extremists go so far as to say that there should be no minimum wage at all. Milton Friedman said in an interview that when you impose a minimum wage, you “assure that people whose skills are not sufficient to justify that kind of a wage will be unemployed” — a claim echoed by enumerable conservative columnists over the generations.

But I believe this claim is confused. People who work for the minimum wage are paid just enough to avoid starvation and to have somewhat consistent shelter. Many of these people are one accident away from total financial ruin. If we really believe that there are people whose skills are so low that they do not warrant a wage that provides consistent food and shelter, and we ought to offer some sort of remedial education or other program for these people, since the notion that there are Americans whose potential skills are so low that they do not deserve enough pay to fulfill basic physiological needs is absurd.

Picture Credit: Flickr

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Female Usurpers

29 September 2012 — Leave a comment

With the publication of Hanna Rosin’s The End of Men, Liza Mundy’s The Richer Sex, and most controversially, Naomi Wolf’s Vagina, a spate of essays about gender and sex in the modern world has appeared. And the future, according to some, looks grim for men. Just look at some data. In elementary and high school a full three quarters of Ds and Fs are earned by men. Men earn only 40% of bachelor’s and master’s degrees. And now women under 30 out-earn men under 30. What’s more, in 1950, only 5% of men in their prime were not working; today, a startling 20% aren’t. Perhaps the most widely expressed explanation of why this is happening is this: “The information age economy rewards traits that, for neurological and cultural reasons, woman are more likely to posses,” writes David Brooks in his column on Rosin’s book. “To succeed today you have to be able to sit still and focus from an early age. You have to be emotionally sensitive and aware of context. You have to communicate smoothly. For genetic and cultural reasons, many men stink at these tasks.”

So what are men supposed to do? Rosin actually argues for a different explanation: That women are more adaptable and men more attached to the outdated mores, to put it crudely. A change in attitude is essentially what’s needed on her view. But I’m not sure that this is right. In elementary and middle school, if boys are 2.8 times more likely to be medicated for some kind of attention disorder and if three quarters of Ds and Fs are really earned by boys, then doesn’t this suggest that the system is rigged against them? Recommending a change in attitude might help someone in his or 30s or 40s, but telling a five-year-old that he’s too attached to the old ways doesn’t seem to make much sense.

At any rate, whatever the true reasons for the male decline are, we can all agree that we are on the horizon of a major change in family structure. Today the average wife contributes 42.2% of her family’s income — up from the 2 to 6% that wives contributed in 1970; and in almost 40% of American marriages today, the wife earns more than the husband. Data suggests this trend will continue. Soon enough, it’s likely that the majority of American households will have a female primary breadwinner, an event that would overturn a social order some six thousand years old.

I think this change should benefit everyone. Anne-Marie Slaughter wrote in her colossal Atlantic article, “Why Women Still Can’t Have It All,” that it is impossible for the most high-ranking and successful women, by today’s customs, to be both good mothers and reliable professionals: that the idea of a healthy work-life balance is a myth. But what Slaughter failed to consider in her article is that men haven’t had it all either. Traditionally, while men have been the breadwinners, they have also not been involved fathers and parents — the brunt of that role was traditionally borne by women. As a follow-up article in the Times says, as more women rise to positions of authority, we can expect changes in the workplace that encourage better parenting by both sexes — more flexible hours, mandatory maternity and paternity leave, and other measures that both eliminate advantages to hiring men over women and enhance family life. In short, changes that benefit men just as much as women.

Interestingly, many of these workplace alterations are enabled by the internet and other technologies. And many female leaders are taking advantage of them. “According to the Women’s Business Center,” Slaughter writes, “61 percent of women business owners use technology to ‘integrate the responsibilities of work and home’; 44 percent use technology to allow employees ‘to work off-site or to have flexible work schedules.’” Since work is not necessarily tethered to the workplace, as it has been before, it is now possible to leave the office at 5:30 to have a family dinner at home and to help the kids with their homework. The work time can easily be made up on the computer after dinner. This is something that wasn’t possible until recently.

Women are more likely than men to bring about changes of these sorts because even women who are primary earners still spend more time raising their children than their male counterparts. It’s still the expectation that women bear the brunt of the parenting. However, the more change that is realized in the workplace that promotes healthy work-life balance for both sexes, the more reason we have to believe that that expectation will change too.

There is a caveat, however. The optimistic outlook I’ve expressed presupposes that, for a significant number of families, the male ego can withstand being out-earned by his spouse. The data on this issue are fascinating. According to “The Weaker Sex,” an article by the Atlantic’s Sandra Tshing Long, a “2010 study showed that when a woman’s contribution to household income tops 60%, the couple is more likely to divorce.” What’s more, “women who are financially dependent on their husbands tend to be faithful, while, paradoxically, financially dependent men tend to stray.” Whoa! There are several questions we should ask about these statistics. Are they indicative of some immutable biological reality? Or are the reactions of financially dependent men more likely to be engendered by our social norms, which are mutable? If the former is true, then this presents a major stumbling bloc for the women’s movement and the trajectory of American culture generally. If the latter is true, on the other hand, (which is what I suspect) then both men and women will have to be involved in altering our norms.

But here cynicism abounds. In Sandra Tshing Long’s article, for example, she expresses frustration about financially subordinate men to whom she and others find themselves attached. She describes a dinner out with her friends — all divorced mothers, except one married mother who recounts the inadequacies of her husband for failing to change a lightbulb in the garage after her repeated plea. “I find Ron in the kitchen, as usual,” she says, “cooking a red sauce from scratch when Prego is just as good. I ask him to take care of it.” Short story: after three nights of asking, he still doesn’t. $275 an hour couple’s therapy ensues.

Later, Long describes her own frustrations with her boyfriend whom she out-earns and with whom she shares a home. “When the 2012 Type A woman listens to you describe a problem in your workday,” Long writes, “she is mentally leaping forward, positing solutions, and also deciding how well or poorly you’ve handled the situation.” Too many poorly handled situations can lead to big trouble: “I made the mistake of asking ‘How was your day?’” she continues, “and he made the mistake of responding, and as I watched his mouth move, I felt my trigger finger twitch and thought those awful words only a woman who needs a man neither to support her nor to be a father to her children can think: How long until I vote you off the island?”

I think there is something somewhat disagreeable about Long’s reading of the female breadwinner paradigm. Why do the men in her article seem so pathetic? Is this what we can expect the norm of female breadwinners to be like? Why doesn’t she just vote her boyfriend off the island? And why does the homemaker — male or female — always seem to lose? Consider the situation: A dinner. All attendees but one are divorced mothers. The bias is palpable. I don’t think this is a telling look at the future norm of female breadwinners.

So what will that norm look like? I really don’t know. But one thing is certain: True gender equality will not be achieved until all the various genders come to an understanding of one another. We might as well face facts: Men are not going anywhere and it’s likely that their economic dominance will soon be usurped by women. A healthy and productive series of norms needs to be developed and disseminated — norms that do not disparage the homemaker or anyone’s gender or biology. I don’t think any of the articles and books I’ve read over the passed couple weeks make progress on any of these fronts. We need honest and open discussion about the coming reality. What we don’t need is another spate of provocateur books and articles.

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Vacuous Rhetoric

22 September 2012 — Leave a comment

There have been two sound-bytes mouthed by the presidential campaigns recently. On the Democratic side, there are ads that deride Romney for sending jobs overseas; he is condemned for being an “outsourcer.” On the Republican side, there is the constant assertion that Obama has failed in managing the economy: that his policies have failed to spur economic growth and end the recession. The problem with the rhetoric on both sides respectively is that it is vacuous; neither claim is in any way meaningful.

Take the Republican jibe first. The problem with saying that Obama’s management of the economy has failed is that Republicans have blocked much of his proposed legislation by stonewalling in congress. They haven’t allowed Obama to effectively manage the economy.

Recall the American Jobs Act, Obama’s primary economic initiative since the Recovery Act. The elements of that bill included $50 billion worth of spending on infrastructure projects; $35 billion in funding for teachers, firefighters, and police officers; $30 billion to modernize at least 35,000 public schools and community colleges. All of this — which would clearly reduce the unemployment rate and improve American education and infrastructure — was to be paid for by a 5% surtax on incomes of over $1 million a year. But the bill went nowhere because Republicans were unwilling to ask millionaires to pay more in taxes.

Obama attempted to push the legislation through a second time by breaking the Jobs Act up into three smaller bills. The first of the three was to provide $30 billion in state aid to hire teachers and the second was to provide $50 billion for infrastructure. These bills were to be paid for by a 0.5% and 0.7% tax, respectively, on incomes of over $1 million a year. But again Republicans stonewalled, unwilling to ask millionaires to pay 1.2% more in taxes for the good of the country and to restore economic health, from which everyone would benefit. (By the way, if this is not a suitable compromise for Republicans, then what is?)

The third bill actually passed. That bill, however, merely repealed 3% withholding on certain payments made by government entities. Hardly something that would spur significant growth.

In light of all this, it seems that we have not even seen how good Obama is at managing the economy because Republicans have refused to give him a chance. Yet Republicans somehow claim that Obama’s policies have failed. This doesn’t even make sense. —

Now consider the Democratic barb. The remark that Romney is an outsourcer intends to convey that outsourcing is bad for America and that it is worsening our economic problems. But both notions are probably false.

Imagine you’re advising a business that is having cash-flow problems and outsourcing is an obvious way out of them. If you send some work elsewhere, the company can remain profitable and therefore remain in business. Whereas if you don’t outsource, the whole company goes under. In this situation, not outsourcing would be to throw the baby out with the bathwater. Indeed not outsourcing would actually be worse for the economy.

Another reason that outsourcing isn’t bad for the country is that, when a company moves some of its operations overseas where they are less expensive, that company has more money that it can use to reinvest and grow — money that wouldn’t be available if operations were still done in the States. If you’re in Romney’s former position as a consultant, this is certainly an idea worth considering.

One more thought: It’s not as if the jobs that are outsourced cease to exist altogether. In many cases, I’d presume that the lives of the people overseas that end up getting those jobs will improve more substantially than those of the Americans that would have had them. For the American, the job means perhaps a better place to live or the ability to send his kids to better schools; for the Indian or Chinese, the job might mean the ability to feed his family or to send his kids to school at all. The latter is a far more significant improvement.

What I’ve said about outsourcing is, of course, oversimplified and idealized, but my point is largely independent of these objections. Romney — although deserving defamation for other reasons — should not be defamed for outsourcing. The fact that he outsourced jobs tells us nothing about his true character or about what sort of president he would be.

The trouble with rhetoric like the two examples I’ve talked about here is that citizens will decide who to vote for not based on the facts, but on outright vacuity — on statements that are shown to be meaningless when criticized. The message I hope readers will take away is this: Don’t fall for it, on either side of the aisle.

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