Monthly Archives: February 2013

Does Raising the Minimum Wage Really Raise Unemployment?

Republicans seem to think that just because a business has extra money they will hire a new employee. At least that is the message they sent during the campaign last year with their insistence that tax cuts for the wealthy trickle down to job creation because the wealthy will have a surplus. Now that President Obama has proposed raising the minimum wage to $9.00 per hour they insist again that this will kill the power of businesses to hire employees because of the higher cost. Well, corporate profits are at an all-time high, so where are the jobs again? Not only do we see their theory being disproved in practice, but it is disproved in logic as well. Extra money never dictates hiring patterns, demand does. Regardless how much money a business has they will not hire anyone if they do not need the help. With companies’ profitability continually growing in recent years they can certainly afford a minimum wage hike.

Before you let a Republican tell you that studies show a higher minimum wage leads to higher unemployment you need to know that an equal (or greater from my research) amount of studies show exactly the opposite. The fact is there is no clear evidence to suggest raising the minimum wage will result in higher unemployment. Much of the evidence that I have seen from the right argues that states with a minimum wage that is higher than the federal minimum wage have a higher unemployment rate among younger workers. This, many assert is proof that a higher minimum wage will result in higher unemployment.corporate-profits

But if we break it down we see that this correlation does not compute. The federal minimum wage is currently $7.25, which means if a state chooses to set their minimum wage at $8.25 they are at a competitive disadvantage compared to states that follow the federal rate. Given the option, of course a company will choose to invest in states that will require lower fixed costs, such as hourly rate. This competitive edge takes away jobs from states with higher minimum wages. However, if both the minimum wage were increased, both of these two states would have a $9.00 per hour minimum wage, eliminating the competitive edge. Making this particular cost equal, all else being the same, there is now no reason for a company to avoid opportunities in these higher unemployment states. In fact, because more people are unemployed, one could argue there would be a more skilled candidate pool to choose from, and hiring in a state the used to have a higher minimum wage may increase productivity for a company. Either way, it is clear that it is a competitive advantage, not a higher minimum wage that makes for lower unemployment certain states.

Another popular argument is that an employer will not be able to afford to higher help if they are forced to pay $9.00 per hour (I am actually snickering to myself as I type that). This argument again hinges on the logical fallacy that you hire someone because you have extra money. This is nonsense, as I made clear earlier. Demand dictates how much help you need, and if your demand is high enough to need help, it is also high enough to pay an accordant $70 per week for that extra help, assuming you need that help for a full 40 hours. Moreover, as addressed earlier, corporate profits are at an historical high; companies are doing just fine right now, they can handle it. One last interesting fact on this is that currently only 3.4% of the workforce works for minimum wage.  Clearly, companies are not hiring many people at minimum wage, or, if they are, they can easily afford to give them a raise shortly thereafter. This is another clear indicator that employers can afford a minimum wage increase. This number also shows us that about one out of every 29 jobs pays minimum wage. So people looking for work will still have 96.4% of potential jobs to choose from, even if a minimum wage increase meant companies paying minimum wage would not be able to hire.

It is time to for Republicans to admit their economic philosophies have not panned out. The trickle-down effect does not work; it has never worked. Raising taxes on the rich does not, nor has it effected investment; in fact, there is some evidence to show that it increases it. Tax cuts do not pay for themselves. Leaving businesses (banks in particular) largely unregulated ends up hurting the economy. And a minimum wage increase from $7.25 to $9.00 will not cost millions of jobs. Talk to me when someone proposes a hike from $9.00 to $22.00; that might be something businesses cannot afford. But I do have to give them credit. The Republeconomists are probably on to something with this Obamacare thing.

Anyway, if the minimum wage increase will not hurt jobs, what will it do? Glad you asked. Income inequality (no my good conservative friends, that is not code for class warfare) was a major cause of the Great Depression and the 2008 collapse. Though it is modest, and will only affect maybe five percent of jobs, a hike in the minimum wage will help that. It will also put more money—buying power—into the pockets of the middle and lower income citizens. If the buying power increases, demand will likely increase leading to more companies needing more help. This is real economic growth.

JoblosschartNow, being completely unbiased I have to say that there is also no absolute evidence that raising the minimum wage will not increase unemployment; this entire issue is still one hotly debated by economists everywhere. One thing we do know for certain is that when the minimum wage increased in 2009 the rate of job loss slowed. I am not suggesting it was because of the minimum wage, simply illustrating that an increase does not add to unemployment the way right wingers insist it does. Because businesses can afford this particular increase, because it will help workers, and because recent history suggests it will not, the burden should be on conservatives to prove raising the minimum wage will cause harm. As of yet, nobody has been able to do this.

 

–Matt Young

19 February 2013

The Financial State of the Union

Guns. Yesterday’s analysis of President Obama’s State of the Union address was obsessed with them. Understandably so, it was about the only part of his speech that has not been playing like a broken record for the last 4 years. For fear of beating a dead horse I am not going to write any more about gun control; in fact, that was not even the most important part of the speech that I heard Tuesday night. To me, the most important line was his promise that new programs would not add a dime to the deficit. If we gave President Obama everything he is asking for on gun control it would make no difference regarding violence in America—some research suggest it will make it worse. However, if we give the President Obama everything he asked for in discretionary spending—I counted around 30 separate programs—getting control of our debt and avoiding severe measures like those being taken in Europe seems, at best, a fairy tale.

Crunching the numbers, you cannot actually call President Obama a liar, as many on the right no doubt will. If we were to use all the money from the close of the Iraq and Afghanistan wars, all the money from the recent tax increases, and all the money from the projected slower-than-great-depression-recovery growth the president is right. The programs will not add to our deficit, but our deficit will never come close to the 3% of our GDP level that any worthwhile economist says we need to meet.

In fact, when you factor in the President’s assertion that Medicare and Social Security not face any significant reforms, our deficit will only grow, and grow, and grow. At what point do our creditors refuse to lend us money? Were that to happen, Medicare would end completely.

However, none of this is to say that President Obama’s ideas are bad ideas. High speed rails would be great. I lived in Australia and found their extensive railroad system to be enviable. Though I never rode on high speed rail, even a standard rail at 80mph was an amenity I wish our nation had. I would love to invest more money in our education system. I think government funded research and development is great. I know there are failures like Solyndra, but R&D creates jobs. Without government subsidized research you would not even have the internet to read my ramblings. I live in Kentucky, so I understand as well as any American the need to fix bridges and highways. So many of these ideas would help America.2013 Bidget Breakdown

The biggest problem, and forgive the cliché, is the president wants to have his cake and eat it too. To explain what I mean by this I need to bore you with budget talk for a few sentences. There are generally two broad categories of government spending; discretionary and mandatory. Mandatory spending is the obligations the United States has to retirees and others through our Medicare, Medicaid, Social Security, pensions and so on. Discretionary spending is everything else not mandatory—defense, education, infrastructure, research and development, and so on. We are currently at one of the lowest levels of non-defense discretionary spending in history. In fact, Military and Entitlement spending make up 80% of our budget. You would have to do a whole lot of work to find a President that has cut more discretionary spending than President Obama. Our deficit is driven by the entitlement spending.

My point is, President Obama cannot have both. Leaving entitlements largely untouched and adding 30 new government programs simply is not possible without Greek level debt. If we reach that kind of debt crumbling bridges will be the least of our worries; we may not even have a stable nation for our children to drive around on, let alone worry about the roads they use. My argument is simple; it does not make sense to leave the entitlements untouched if the nation we hand to your children and my children is a shadow of what we have now.Life Expectance Graph

Life expectancy has increased about a decade since the baby boomers were born. This means someone who retires now will receive almost ten more years of entitlements than their parents did, on average. Entitlements are a good thing, but to truly deal with our nation’s problems, we need to raise the age of retirement. With smart tax reform and smart entitlement reform we can afford to invest in critical discretionary programs that will ensure our children have the same opportunity, the same capability, the same playing field, and the same possibilities open to them that our current retirees had; and if that means you and I will not receive quite as much in Social Security than we otherwise would have, so be it. America was built on sacrifice. Asking this small price is the ultimate investment for the future of this country. At this point we can have roads, or we can keep entitlements untouched, but we cannot have both.

Trying to have both is the European philosophy—the continent in a crisis philosophy. Uncertainty is now the thing that restrains our economy most. Debt is the high speed rail that carries uncertainty. Entitlement reform may be the very thing that unfetters our economy. If we try to have both, we may give nothing to our children. Happy Valentine’s Day kids; this nation sure loves you.

–Matt Young

14 February 2013

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