Minimum wage - leads to price increases more regressive than sales tax, only 35% of the benefits go to those under 2x poverty line

[Axulus]

The evidence is building up that the minimum wage is simply a counterproductive and ineffective policy to combat poverty. Exactly as I've been saying all along.

Imagine the following scenario:

Hey, poverty is a problem, why don't we do the following?

1. We'll tax employers who hire low wage workers, the amount of the tax will be the difference between what they currently pay and what we consider to be a living wage
2. We'll then transfer 35% of that tax to the working poor: those at or below 2x the poverty line. 14% of this tax will make it's way to only about 14 percent goes to families with children on welfare.

Well, guess what, that's what the minimum wage gets you:

The highly esteemed and extremely proficient Thomas MaCurdy has a new piece in the JPE (jstor) on exactly that question. The news does not surprise me:

This study investigated the antipoverty efficacy of minimum wage policies. Proponents of these policies contend that employment impacts are negligible and suggest that consumers pay for higher labor costs through imperceptible increases in goods prices. Adopting this empirical scenario, the analysis demonstrates that an increase in the national minimum wage produces a value-added tax effect on consumer prices that is more regressive than a typical state sales tax and allocates benefits as higher earnings nearly evenly across the income distribution. These income-transfer outcomes sharply contradict portraying an increase in the minimum wage as an antipoverty initiative.

MaCurdy also writes:

About 35 percent of the total increase in after-tax benefits goes to families with income less than two times the poverty threshold, a common definition of the working poor or near-poor; nearly 13 percent goes to families principally supported by low-wage workers defined as earning wages at or below 117 percent…of the new 1996 minimum wage; and only about 14 percent goes to families with children on welfare.

Unlike most public income support programs, increased earnings from the minimum wage are taxable. Over 25 percent of the increased earnings are collected back as income and payroll taxes…Even after taxes, 27.6 percent of increased earnings go to families in the top 40 percent of the income distribution.

http://marginalrevolution.com/margi...-the-minimum-wage-at-supporting-the-poor.html

It's a dumb idea if your goal is to actually help the poor as effectively as possible on a dollar for dollar basis. Can you imagine a charity that said "donate to us - if you do, $.35 of every dollar you donate will make its way to people in need - if you support our charity, new regressive tax more regressive than a sales tax will also be implemented." Who would ever consider donating? Well, no one would - so, what do they do? They vote to make other people donate instead.

 

[Jimmy Higgins]

Axulus, are you proposing more welfare so that the targeted money goes to those in poverty?

The paper is behind a paywall, but I looked a bit at the other paper cited from earlier. I've only gone through the first portions due to time constraints. Generally it states that only 25% of the poorest quintile of households have someone who is working near the minimum wage. It also states that the average added cost to that quintile due to increased costs for service and products from the '96 minimum wage increase ($4.25 to $5.15) was $84 for the year (or $7 a month).

What the paper indicates is that if the goal is to put money into the pockets of those in poverty, a minimum wage hike isn't the most effective because it is subject to payroll taxes and a great deal of those in poverty wouldn't actually see any change in income because either they work a higher paying job with less hours or simply doesn't work. It would be interesting to find out that if the higher minimum wage made other jobs that weren't worth working (costs to work or daycare couldn't offset it) became worthwhile and they worked those jobs after the hike.

So long story short, the original paper and allegedly this paper make a great argument for conservatives to increase welfare distributions because they are more effective in getting money to those in poverty.

 

[dismal]

Minimum wage has always been more about getting votes and demonizing opponents than sound economics.

 

[dismal]

Axulus, are you proposing more welfare so that the targeted money goes to those in poverty?

The paper is behind a paywall, but I looked a bit at the other paper cited from earlier. I've only gone through the first portions due to time constraints. Generally it states that only 25% of the poorest quintile of households have someone who is working near the minimum wage. It also states that the average added cost to that quintile due to increased costs for service and products from the '96 minimum wage increase ($4.25 to $5.15) was $84 for the year (or $7 a month).

What the paper indicates is that if the goal is to put money into the pockets of those in poverty, a minimum wage hike isn't the most effective because it is subject to payroll taxes and a great deal of those in poverty wouldn't actually see any change in income because either they work a higher paying job with less hours or simply doesn't work. It would be interesting to find out that if the higher minimum wage made other jobs that weren't worth working (costs to work or daycare couldn't offset it) became worthwhile and they worked those jobs after the hike.

So long story short, the original paper and allegedly this paper make a great argument for conservatives to increase welfare distributions because they are more effective in getting money to those in poverty.

By Jove Higgins, I think you've got it. If your goal is to get money to poor people there are better ways to do it than screwing with entry level labor markets.

 

[Axulus]

Axulus, are you proposing more welfare so that the targeted money goes to those in poverty?

Absolutely - I would support strengthening something like the EITC.

The paper is behind a paywall, but I looked a bit at the other paper cited from earlier. I've only gone through the first portions due to time constraints. Generally it states that only 25% of the poorest quintile of households have someone who is working near the minimum wage. It also states that the average added cost to that quintile due to increased costs for service and products from the '96 minimum wage increase ($4.25 to $5.15) was $84 for the year (or $7 a month).

What the paper indicates is that if the goal is to put money into the pockets of those in poverty, a minimum wage hike isn't the most effective because it is subject to payroll taxes and a great deal of those in poverty wouldn't actually see any change in income because either they work a higher paying job with less hours or simply doesn't work. It would be interesting to find out that if the higher minimum wage made other jobs that weren't worth working (costs to work or daycare couldn't offset it) became worthwhile and they worked those jobs after the hike.

So long story short, the original paper and allegedly this paper make a great argument for conservatives to increase welfare distributions because they are more effective in getting money to those in poverty.

I agree - if we are going to have anti-poverty policies (which I think we should have), we should use the most effective ones we can. The minimum wage is such a poor tool to do it (due to distortions it causes to the labor market, and the inefficiency of it as demonstrated by this paper), which has been my primarily objection all along. I have never once objected to it on grounds that we shouldn't be trying to alleviate poverty.

Another objection I have to the minimum wage - to the extent that it reduces employer profits who hire minimum wage workers, it doesn't reduce their profit based on a percentage of their income like a tax would. There is no relation to the amount of profit they earn and the amount their profit is reduced. This is why a tax based on income (or really what I want to see, a progressively designed version of a consumption tax to largely replace the income tax) to fund an increase in something like an increase in the EITC is far more equitable, on top of all the other objections.

 

[Axulus]

Minimum wage has always been more about getting votes and demonizing opponents than sound economics.

The cost of it is also hidden and does not appear on the government books (making it easier for politicians to support) - it's also often portrayed by its proponents as nearly cost free (or, at the very least, when pressed, paid for by rich companies exploiting workers via reduction in their ill gotten gains/profits).

 

[dismal]

Minimum wage has always been more about getting votes and demonizing opponents than sound economics.

The cost of it is also hidden and does not appear on the government books (making it easier for politicians to support) - it's also often portrayed by its proponents as nearly cost free (or, at the very least, when pressed, paid for by rich companies exploiting workers via reduction in their ill gotten gains/profits).

Yes, that's politics - not economics.

 

[Jimmy Higgins]

Minimum wage has always been more about getting votes and demonizing opponents than sound economics.

The cost of it is also hidden and does not appear on the government books (making it easier for politicians to support) - it's also often portrayed by its proponents as nearly cost free (or, at the very least, when pressed, paid for by rich companies exploiting workers via reduction in their ill gotten gains/profits).

It was also established because workers were becoming indentured slaves to corporations, living in corporate housing, shopping at the corporate store, never ever able to catch up.

This idea that minimum wage is some sort of ignorant plot is a right-wing fan fiction. Dealing with poverty may not best be helped via minimum wage hikes, but it seems for many right-wingers, not raising minimum wage should be followed by cutting SNAP and other aids to help those in poverty (see current Republican budget proposal). So you can understand why some liberals may react as they do to such things.

What I do find interesting, and if still true, that only 1 in 4 of the bottom quintile family's has a low wage earner.

 

[Axulus]

The cost of it is also hidden and does not appear on the government books (making it easier for politicians to support) - it's also often portrayed by its proponents as nearly cost free (or, at the very least, when pressed, paid for by rich companies exploiting workers via reduction in their ill gotten gains/profits).

It was also established because workers were becoming indentured slaves to corporations, living in corporate housing, shopping at the corporate store, never ever able to catch up.

Research suggests that the company towns were set up almost exclusively in isolated areas (mining, or example), where there was far higher risk for a non-company entity to set up stores in these towns and build housing. A town dependent on a single economic activity is high risk - something which a company involved in that activity has far more knowledge regarding and could therefore offer lower prices and/or higher wages when the company owned these other things. Research also suggests that few, if any, of these workers wanted to buy their own home in such a town, largely due to the highly cyclical nature of the industry the town was dependent on - they rented, allowing them to remain highly mobile and leave the town when better opportunities arose or layoffs occurred, and they did.

The company town indentured servitude idea is basically a myth.

This idea that minimum wage is some sort of ignorant plot is a right-wing fan fiction. Dealing with poverty may not best be helped via minimum wage hikes, but it seems for many right-wingers, not raising minimum wage should be followed by cutting SNAP and other aids to help those in poverty (see current Republican budget proposal). So you can understand why some liberals may react as they do to such things.

What I do find interesting, and if still true, that only 1 in 4 of the bottom quintile family's has a low wage earner.

If people acknowledge the ineffectiveness of the minimum wage compared to alternatives and therefore shift their support more so to these alternatives, that I think is a positive step forward, regardless of what you think the "evil" right wingers are trying to do. By the way, the earned income credit has far more support on the right than the minimum wage. There is far less right-wing resistance to it. The program was started under Ford in 1975, strengthened under Reagan in 1986, and again under Bush Sr. in 1990, and again under Bush Jr. in 2001. That is every single Republican administration since Ford in 1975.

 

[Nice Squirrel]

So long story short, the original paper and allegedly this paper make a great argument for conservatives to increase welfare distributions because they are more effective in getting money to those in poverty.

I have access to the paper. It's not a study but a thought experiment and lit review to support a preconceived conclusion. There are no hard numbers only a lot of "shoulds" and "we thinks". I could do the same thing and "prove" the Koch Bros are Bolsheviks.

 

[Tom Sawyer]

So long story short, the original paper and allegedly this paper make a great argument for conservatives to increase welfare distributions because they are more effective in getting money to those in poverty.

I have access to the paper. It's not a study but a thought experiment and lit review to support a preconceived conclusion. There are no hard numbers only a lot of "shoulds" and "we thinks". I could do the same thing and "prove" the Koch Bros are Bolsheviks.

Just the ones who really benefitted from the "more equal than others" part of the equal division of capital.

 

[Axulus]

So long story short, the original paper and allegedly this paper make a great argument for conservatives to increase welfare distributions because they are more effective in getting money to those in poverty.

I have access to the paper. It's not a study but a thought experiment and lit review to support a preconceived conclusion. There are no hard numbers only a lot of "shoulds" and "we thinks". I could do the same thing and "prove" the Koch Bros are Bolsheviks.

So you are saying these statements were pulled out of their ass?

"The analysis demonstrates that an increase in the national minimum wage produces a value-added tax effect on consumer prices that is more regressive than a typical state sales tax"

And

"About 35 percent of the total increase in after-tax benefits goes to families with income less than two times the poverty threshold"

 

[Nice Squirrel]

I have access to the paper. It's not a study but a thought experiment and lit review to support a preconceived conclusion. There are no hard numbers only a lot of "shoulds" and "we thinks". I could do the same thing and "prove" the Koch Bros are Bolsheviks.

So you are saying these statements were pulled out of their ass?

Yes for the most part. These are economists after all. Let me pull some statements.

To depict the circumstances deemed most likely to apply by minimum wage advocates, the analysis below assumes that no employment or profit losses occur as a result of minimum wage increases

"Thus, our simulations make three related assumptions:

• consumers do not reduce consumption as prices rise,
• all increased labor costs are passed on in higher prices, and
• low-wage workers remain employed at the same number of hours after the minimum wage rises.

Taken together, these three assumptions provide a setting for simulating the expected effects of minimum wage increases in a relatively straightforward manner"

They also look at gross family income not selecting out impoverished families or effects on individuals which would better measure effects on those groups. In other words, all teen workers who live at home have their income counted with their families and this waters down the aggregate numbers.
___________

 

[Axulus]

Here is more support for the allocation of benefits of the minimum wage:

Many of the people who would benefit from a higher minimum are secondary workers from more advantaged families. About two-thirds of current minimum-wage earners live above 200 percent of the federal poverty line. Only about a fifth are poor.

http://www.brookings.edu/~/media/re...ing-minimum-wage-redesigning-eitc-sawhill.pdf

The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

But their real income increase is actually reduced due the regressive nature of the price increases to are projected to arise as a result of the minimum wage. 19% of $31 billion is $5.89 billion, however, $.89 billion of that goes to price increases:

Real income would increase, on net, by $5 billion for families whose income will be below the poverty threshold under current law, boosting their average family income by about 3

The average family income of those below the poverty threshold, before the minimum wage increase (to $10.10, in this analysis), will only boost average incomes by a whopping 3%!

And, from what I can tell, this analysis doesn't even take into account federal taxes (payroll and, for some, income), reducing the benefit still further.

https://www.cbo.gov/publication/44995

 

[Nice Squirrel]

Here is more support for the allocation of benefits of the minimum wage:



http://www.brookings.edu/~/media/re...ing-minimum-wage-redesigning-eitc-sawhill.pdf

The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

I see no reason why a member of a wealthy household should make poverty wages either.

 

[Axulus]

Here is more support for the allocation of benefits of the minimum wage:



http://www.brookings.edu/~/media/re...ing-minimum-wage-redesigning-eitc-sawhill.pdf

I see no reason why a member of a wealthy household should make poverty wages either.

It's not about "should", but rather "is it unacceptable to the point that government needs to step in and do something about it? Are any problems in society more pressing that should be solved/prioritized first before allocating economic and political resources to this problem (if it is in fact a problem)?"

 

[Nice Squirrel]

I see no reason why a member of a wealthy household should make poverty wages either.

It's not about "should", but rather "is it unacceptable to the point that government needs to step in and do something about it? Are any problems in society more pressing that should be solved first before allocating economic and political resources to this problem?"

Well minimum wage had bipartisan support in my state and was one of the first things that passed this winter.

 

[Axulus]

It's not about "should", but rather "is it unacceptable to the point that government needs to step in and do something about it? Are any problems in society more pressing that should be solved first before allocating economic and political resources to this problem?"

Well minimum wage had bipartisan support in my state and was one of the first things that passed this winter.

The answer to my proposed question is going to depend on what one's priorities are. Another question is: are the voters and politicians in your state by and large cognizant of which household income groups the minimum wage benefits and by how much, and is that consistent with the underlying reasons why they support the minimum wage. Have they evaluated whether there are more pressing priorities that can be tackled more efficiently (such as people living in households below the poverty line vs. people earning low wages but living in a household comfortably above the poverty line?)

 

[Canard DuJour]

It's a dumb idea if your goal is to actually help the poor as effectively as possible on a dollar for dollar basis. Can you imagine a charity that [..etc]

Well it isn't and shouldn't be. This nonsense does the rounds in one form or another every few years. MW is NOT an alternative to, or a supplement to, welfare (or, indeed, aid for teenagers or black people). It's nearly the opposite. The idea is to maintain the distinction between wages and welfare. Not blur it.

MW earners not needing welfare suggests, if anything, that it's working. A simple thought experiment reveals the nonsense : if some % of MW earners not needing welfare indicates a MW failure, what would a successful MW look like? One in which they were all so poor they needed welfare? There's no possible successful MW under their criteria, because their goal isn't to examine its efficacy but to denigrate it.

There's a sensible debate to be had about "helping poor as effectively as possible on a dollar for dollar basis," but the really "dumb idea" here is the one authors like this try to smuggle in by imputation : wages as welfare.

 

[Nice Squirrel]

Well minimum wage had bipartisan support in my state and was one of the first things that passed this winter.

The answer to my proposed question is going to depend on what one's priorities are. Another question is: are the voters and politicians in your state by and large cognizant of which household income groups the minimum wage benefits and by how much?

Actually, no. The reason they supported the raise is because they believed that a person should not earn that low of a wage for any work. Also, many rural residents know several people who work full time at Wal-Mart and are receiving government aid.