Creative Destruction

November 8, 2006

Election results: 1.5 million low-wage workers get a raise

Filed under: Economics — Ampersand @ 10:14 am

The minimum wage was a winner in last night’s election. In the six states (Montana, Ohio, Arizona, Colorado, Missouri and Nevada) with ballot measures to raise the minimum wage, the ballot measures passed. Even better, all six laws are indexed to inflation – meaning that the MW in those states will automatically go up over time, rather than having to be fought for again and again.

Here’s a summary table, from this Economic Policy Institute page:

State

New minimum wage Number of
workers affected
Arizona

$6.75 + indexing 303,000
Colorado

$6.85 + indexing

138,000
Missouri $6.50 + indexing

256,000
Montana $6.15 + indexing

44,000

Nevada $6.15 + indexing 101,000

Ohio $6.85 + indexing 719,000
Total   1,561,000

If trends in these six states mirror national trends, then about 60% of the 1.5 million workers getting the raise will be women. A disproportionate number of the 1.5 million will be people of color.

Interestingly, this is the first time in US history that the majority of states have state-level minimum wages which are higher than the Federal minimum wage. That’s a reflection of how much the Federal government has allowed the real value of the minimum wage to drop, forcing the states to step in:

Real value of the minimum wage, 1950-2004

(Curtsy: Angry Bear).

Plus, new overlord Pelosi has said that raising the minimum wage will be at the top of the Democrats’ national agenda (one of a bunch of items at the top, admittedly). Fresh from a electorial beating, the Republicans may not have much stomach for fighting a minimum wage increase – polls show that raising the minimum wage is popular with voters of both parties.

A couple of links:

Dean Baker points out that when restaurant owners say that raising the minimum wage would hurt them, and anyway waiters may a ton in tips, the numbers don’t add up.

This Economic Policy Institute brief from 1999 — “The Minimum Wage Increase: A Working Woman’s Issue” — is, sadly, still current today. EPI has a bunch of good articles about the minimum wage, by the way.

11 Comments »

  1. Political Slacktivism, or Charity on the Cheap

    On Tuesday, voters in Washington state rejected I-933, an initiative that would have required the state government either to compensate land owners for regulatory takings—regulations which reduce the economic value which a person can derive from his …

    Trackback by Catallarchy — November 9, 2006 @ 5:49 pm | Reply

  2. Opposition to the minimum wage is one of the big issues that has divided the rank and file in the GOP from the activists.

    The activists are reading economics 101 textbooks, but never made it to econometrics. The grass roots are living daily life and discovering the reality that economic theory be damned, the minimum wage, at a reasonably low level, has a very minor impact on the economy, and a very big impact on our own perception of social justice. The winners in our economy, the people the GOP claims to represent, aren’t hurt by a minimum wage increase much, because they have few, if any, employees paid at that rate.

    Comment by ohwilleke — November 9, 2006 @ 8:16 pm | Reply

  3. The strongest argument against the minimum wage is simply that it’s unambiguously inferior to other anti-poverty programs like the EITC, for a couple of reasons:

    1. The minimum wage applies primarily to people who have no dependents or have other income-earning family members.
    2. It distorts the economy. Maybe not by much, but the effect is there.

    Besides, where do you get off scapegoating employers to alleviate your sense of social justice? Isn’t poverty reduction the responsibility of society as a whole, and not something for which an unpopular minority should be held responsible?

    Comment by Brandon Berg — November 9, 2006 @ 11:09 pm | Reply

  4. 1. The minimum wage applies primarily to people who have no dependents or have other income-earning family members.

    If we had to choose between the minimum wage and EITC, this might be a compelling argument. However, there’s no reason we can’t have both.

    2. It distorts the economy. Maybe not by much, but the effect is there.

    By definition, any anti-poverty program could be said to distort the economy to some degree. You’re implicitly assuming a “non-distorted” economy is normative, but I don’t think it’s at all clear that a non-deformed economy is always better than a deformed (or, one might say, “regulated”) one.

    Besides, where do you get off scapegoating employers to alleviate your sense of social justice? Isn’t poverty reduction the responsibility of society as a whole, and not something for which an unpopular minority should be held responsible?

    The costs of the minimum wage are, in fact, to a degree passed on to the economy as a whole through marginally higher prices. Studies of the empirical effects of the minimum wage have not shown that any businesses are driven out of business by the minimum wage.

    Also, it should be pointed out that the minimum wage benefits some business owners. For example, corner markets in low-income areas benefit when their customers have more money to spend. The benefit is obviously greater for businesses with relatively few employees to pay, but all businesses that cater to low-income groups do in theory benefit when low-income groups have more money to spend.

    Comment by Ampersand — November 10, 2006 @ 2:52 pm | Reply

  5. If we had to choose between the minimum wage and EITC, this might be a compelling argument. However, there’s no reason we can’t have both.

    There’s also no reason we should want to have both. We can always do better by rolling back the minimum wage and increasing the EITC to compensate.

    By definition, any anti-poverty program could be said to distort the economy to some degree.

    Fair enough, but I meant distorting the economy in an undesirable way by reducing employment. The Card/Krueger study, to the extent that it showed anything, showed only that a small increase in the minimum wage had no effect on employment in a single industry. It didn’t show that other industries were unaffected, and it didn’t show that large changes in the minimum wage (e.g., doubling it or eliminating it entirely) had no effect on employment.

    The costs of the minimum wage are, in fact, to a degree passed on to the economy as a whole through marginally higher prices.

    True, although advocates of the minimum wage frequently deny this. But if we’re going to subsidize unskilled workers at the expense of everyone else, why not just be honest about it? Why not do it in a way that doesn’t specifically increase the cost of employing unskilled labor?

    And why subsidize people who don’t really need it? According to the EPI, only 25% of workers earning less than $7.25 per hour are parents, and only 9% are single parents.

    [A]ll businesses that cater to low-income groups do in theory benefit when low-income groups have more money to spend.

    Sure, but that just means that other businesses have less money to spend. And insofar as the minimum wage reduces employment, their loss is greater than others’ gains.

    Comment by Brandon Berg — November 22, 2006 @ 1:43 pm | Reply

  6. Deceptive Marketing from the EPI

    Ampersand, celebrating voters’ decisions to raise the minimum wage in several states, points to the Economic Policy Institute’s issue guide on the minimum wage.

    I haven’t read the whole thing, but I have noticed that at least one of their figures…

    Trackback by Catallarchy — November 22, 2006 @ 2:03 pm | Reply

  7. From Brandon’s post (linked in the trackback in comment #6):

    I haven’t read the whole thing, but I have noticed that at least one of their figures is very misleading. Figure 3 (pdf) shows the income of a full-time worker making minimum wage, with and without the EITC, relative to the federal poverty line. It was just above the poverty line in 1997, but has since fallen to just below it due to the effects of inflation.

    The unstated assumption is that the worker has two children and is the sole income earner for his household. Both the poverty line and the EITC shown in the chart are based on this assumption.

    Okay, I’m not following your argument completely. What makes you say that the chart is based on this “unstated assumption”? I’m not saying you’re wrong; I’m just not following your argument, and need you to spell it out a bit more for me.

    Comment by Ampersand — November 22, 2006 @ 5:09 pm | Reply

  8. BLS data shows that black workers age 16-24 have an unemployment rate
    of 24.7% [Source: http://www.bls.gov/news.release/youth.nr0.htm%5D

    The question is, do you expect black youth unemployment will rise or fall when the minimum wage is increased?

    Comment by Mr. Econotarian — November 22, 2006 @ 6:47 pm | Reply

  9. Ampersand:
    The poverty line in that chart is drawn at what appears to be about $16,000. Working full time at $5.15 per hour will get you about $10,700. If you have two or more dependent children and no other sources of income, this qualifies you for an EITC payment of over $4,000. I think it’s about $2,000 if you have one child, and $300 or so if you have none.

    The poverty line in 2005 for a family of three was $16,090. It was $12,830 and $9,570 for families of two and one. So it’s clear that the chart is talking about a single parent with two dependent children. But this isn’t at all obvious unless you have that background information.

    The chart strongly implies that the typical person working full-time at minimum wage is living in poverty. But this simply isn’t true, for the reasons stated in my post.

    Comment by Brandon Berg — November 22, 2006 @ 10:42 pm | Reply

  10. Forgot to include links. The Federal poverty standard is here. EITC figures are here.

    Comment by Brandon Berg — November 22, 2006 @ 10:45 pm | Reply

  11. Good point, Brandon.

    I think you’re right. I suspect the problem was caused by a figure yanked out of its original explanatory context. (See, for example, this page, in which there’s a very similar figure but the surrounding discussion makes it clear that the data applies to a “parent of two”).

    I’ve emailed EPI pointing out the apparent error. We’ll see what kind of response I get (although since it’s Thanksgiving today, I’m not expecting an immediate response).

    Comment by Ampersand — November 23, 2006 @ 9:34 am | Reply


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