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FINANCIAL SUPPORT

Minimum Wage

Minimum Wage

Addressing Claims about the Minimum Wage

1. “Increasing the minimum wage will cause unemployment!”

This would be plausible if the market was perfectly competitive. However, the market is monopsonistic and firms can use their monopsony power to reduce the wages they pay workers to below the level in a competitive environment which kills jobs. For example, labor markets are highly concentrated: the average is Herfindahl–Hirschman Index 3,157, which is above the 2,500 threshold for high concentration according to the Department of Justice / Federal Trade Commission horizontal merger guidelines. Going from the 25th percentile to the 75th percentile in concentration is associated with a 17% decline in posted wages, suggesting that concentration increases labor market power and monopsony power. This is corroborated by labor markets in U.S. manufacturing being far from perfectly competitive: the average plant operates in a monopsonistic environment, as it charges a markdown of 1.53. This indicates wages below the marginal product of labor further suggesting monopsony power. So a minimum wage doesn’t actually cause unemployment in fact funnel graphs show that the effects of minimum wage on employment cluster around zero and studies are now showing it has a minuscule effect on employment since David Card and Alan Krueger came out with a landmark study in 1994 showing that a big minimum wage hike didn’t cause unemployment.

2. “But employers will need more experienced and harder workers!”

Minimum wages might instead improve the relative employment prospects of disadvantaged workers For example, barriers to mobility are greater among minorities than among teens as a whole. Higher pay then increases the returns to worker search and overcomes existing barriers to employment that are not based on skill and experience differentials. A higher minimum wage could help disadvantaged workers to cover the costs of finding and keeping a job, including, for example, transportation, child-care, and uniforms. This is corroborated by the employment effect of the minimum wage on white, black, and Hispanic teens as there is no statistically significant effect of the minimum wage on teens as a whole, or on any of the three racial and ethnic groups, separately, after controlling for region of the country. There’s also no evidence that employers change the age or gender composition in the restaurant sector in response to the minimum wage as Dube, Lester, and Reich (2012) demonstrates. Teens from more affluent areas increased their labor supply (and employment) after the 1996-1997 increases in the minimum wage, while employment of teens in less affluent areas experienced no statistically significant change in employment.

3. “Increasing the minimum wage will accelerate automation!”

First of all, automation has already occurred rapidly where technological possibilities permit. Additional automation may occur in manufacturing, but the minimum wage effects will be small because labor costs increases are far outweighed by reductions in technology costs. Employer survey and behavior shows that firms would prefer to raise prices over reducing capacity, by reducing staff and operating hours.

Second of all, this is doubly wrong. On the one hand, there’s little guarantee that increased minimum wages really will increase the pace at which labor-saving technology is developed. On the other hand, there’s no reason to think this would be a bad scenario.If minimum wage hikes really do spur the creation and adoption of high-quality new equipment to automate elements of, say, the food service industry, then that would be a very positive outcome that implies minimum wage hikes are a great idea.

Even better, to the extent that we are able to produce everything we need with less labor, we can afford to let people work less. Right now the retirement age is rising from 65 to 67, and most people think it will have to go up to 70. If robots can do a lot of the work instead, we could put it back down to 65 or even to 62 while still growing the economy. We could give more financial support to college students so fewer of them are doing part-time food service work. We could give new parents more paid leave time and mandate four weeks of paid vacation for everyone.

https://www.vox.com/2016/4/2/11348148/minimum-wage-robots

4. “Raising the minimum wage will hurt small employers!”

First of all, the locations for low wages tend to be smaller areas therefore there are fewer employers therefore more monopsony power. The opposite is actually true. Small employers may benefit from a higher minimum wage because of positive effects on worker retention and productivity and savings on recruitment and training costs. In fact, the number of small businesses across the economy grew by 5.4% from 1998 to 2003 in the higher minimum wage states, compared to a 4.2% increase for the balance of the states.

5. “The cost of living varies among location!”

Congress discussed including a Southern differential in the debates leading up to the Fair Labor Standards Act of 1938. In 1938, wage and living cost differences between the South and the non-South were much greater than they are today. But in the end, Congress decided to establish a single national minimum wage floor. By establishing a single national floor at a time of other major economic transformations, Congress set in motion a series of substantial positive economic changes in the South. In particular, the isolated economies of the rural South became more linked to the national economy. The South prospered in succeeding decades, and the southern regional wage differential became much smaller. A similar development occurred as a result of the civil rights revolution and the associated extension of Fair Labor Standard Act coverage to more of the South’s industries. So, Congress did authorize states to set higher floors. States began to do so in the 1980s and with increasing frequency, especially as Congressional inaction has allowed the real value of the minimum wage to decline over time. The patchwork of state minimum wages today allows states to adjust their minimum wages to reflect living cost differences among the states.

6. “The minimum wage won’t lead to increased productivity!”

First of all, the minimum wage hasn’t even kept of with productivity. Workers today who are paid the federal minimum wage of $7.25 an hour are, after adjusting for inflation, paid 29% less than their counterparts 50 years ago. This is despite the fact that the economy’s capacity to deliver higher wages has doubled in the last 50 years, as measured by labor productivity, or the amount of output produced by workers. Had the minimum wage kept pace with labor productivity growth since 1968, this year it would be more than $20 per hour.

Actually, a higher minimum wage may increase productivity from a managerial standpoint and an employee standpoint. For example, fast food managers (at about 90%) indicate that they plan to respond to the minimum-wage increase with increased performance standards such as “requiring a better attendance and on-time record, faster and more proficient performance of job duties, taking on additional tasks, and faster termination of poor performers.” Roughly the same share of managers said that they sought to “boost morale” by presenting the minimum-wage increase as a “challenge to the store” and using this as a way “to energize employees to improve productivity”

Additionally, from a minimum wage increase may improve productivity independently of any actions by employers to increase productivity. According to “efficiency wage” theory, wages above the competitive-market rate may elicit greater work effort for several reasons. One is that efficiency wages could reduce shirking. Higher pay increases the cost to workers of losing their job, potentially inducing greater effort from workers in order to reduce their chances of being fired. From a more sociological point of view, workers may see higher wages as a gift from employers, leading workers to reciprocate by working harder. According to James Rebitzer and Lowell Taylor (1995)’s model, a minimum wage in the context of efficiency wages “may increase the level of employment in low wage jobs.” This is corroborated by the fact that a 6% increase in the minimum wage, worker productivity (i.e. output per hour) in the bottom 40th percentile of the worker fixed effects distribution increases by about 4.6% relative to that in the higher percentiles.

7. “If the minimum wage goes up then everything you have to pay for goes up!”

This is only true for a perfectly competitive economy. Both because of the relatively small share of production costs accounted for by minimum wage labor and because of the limited spillovers from a minimum wage increase to wages of other workers, the effect of a minimum wage increase on the overall price level is likely to be small, which it is: a 10% US minimum wage increase raises overall prices by no more than 0.4%.


UBI and Redistributive Cash Transfers

UBI and Redistributive Cash Transfers

Yeah it’s socdem but there’s utility in defending it, especially considering how advocating for UBI could move rightists further left (see how Yang temporarily brought over some republicans, for example). Regardless, UBI and RCT do seem to be effective at reducing poverty without causing many other problems, making it a viable policy in a capitalist system.

This doc is good to cite if you’re in a hurry

Yang’s stuff on it might be useful too, plenty of links are included. Also addresses a lot of questions not covered here

Redistributive Cash Transfers

UBI Reduces Poverty:

UBI trials:


Welfare

Welfare

https://docs.google.com/document/d/1jM3CK34U64Bsp_vdNkZBGI3VWcI9LkdZKgca27oC20c/edit

Food Stamps/SNAP

Medicaid/Medicare

Public Transportation and Health


Government Assistance Doesn't Make People Lazy

Government Assistance Doesn’t Make People Lazy

You can also cite this doc for easier convenience

Government Spending and Macroeconomic Growth