A Minimal Minimum-Wage Hike, Ctd

Dec 11 2013 @ 3:54pm

A reader offers a cri de couer against increasing the minimum wage:

You quote a number of academics who seem to have no real-world experience. The minimum wage kills jobs. End of story. I am a perfect example. I run a very successful financial advisory practice, and I would gladly hire two or three teens to work for me personally. But I will not do it at the minimum wage. They simply don’t bring enough economic benefit to warrant me paying them that much. So, what’s the end result? Two or three teens go without a job and instead do nothing. No job. No experience. No learning. Nothing.

I personally know at least a dozen seniors in high school and freshmen in college who would jump at the opportunity to work with me for nothing, let alone $3 per hour or $5 per hour. All of the ancillary skills and benefits would far outweigh any wage they may earn. Yet, the minimum wage laws prevent this from happening. And instead they are just unemployed – economic casualties. I still have a successful business with or without them. They suffer, not me.

The reader sounds like many liberal magazines with unpaid intern programs. Update from a reader:

If he really needs to hire a helper for his business, he would do so, regardless of the minimum wage. But his business, he says, is “very successful,” so he’s obviously prospering without a young mentee. He would, however, as some sort of public service, be happy to pay “two or three teens” less than the minimum wage to work for him. Okay then, let’s take him at his word – if he could pay two teens $5/hour or three teens $3/hour, why can’t he afford to pay one teen $7.50/hour – or even the $15/hour implied by three teens at $5/hour? Since he won’t suffer with 3, 2, 1 or no hires, as he says, the minimum wage should make no difference. So why the discrepancy? Well, that would probably be because he’s completely full of crap.

Another:

The reader who cares not for how many studies have shown the minimum wage is not a job killer is a great example for your epistemic closure files. What could professional economists with centuries of combined training who have spent decades studying this question, bringing together data from a variety of economies across the world know, compared to one man who wishes he could pay low wages? I hope his contempt for data doesn’t extend to his business, as financial advising should be a data-driven endeavor.

Meanwhile, other readers are criticizing Gary Becker for arguing that France’s generous minimum wage is to blame for its jobless problem:

A good deal of the difference between French and American youth unemployment has to do not with the minimum wage but with labor flexibility. By this I mean the ability to easily hire and fire employees, as well as the hiring of temporary employees. This is very difficult to do in France (as well as Spain, Italy, Japan, among others) and has led to a two-tier labor market of nearly un-fireable older employees and a mass of young workers unable to find or maintain employment.

Another adds:

Far more serious is the social obligation that French employers accept when choosing to hire someone. So when it costs a lot in wages, then add to that all the pension, healthcare and other fees and taxes (which in France and most of Europe are significantly higher than in America), businesses don’t look to hire until they’re desperately overworked and have very good prospects for it to continue for the duration of the hiring contract. Even then, why hire inexperienced, possibly unmotivated people into entry-level jobs? The Continental idea of a job for life lives on in more ways than one, and that’s what kills youth employment.

One enterprising reader looked up unemployment rates and minimum wage levels for various Western countries:

Australia: Minimum wage: $16.37/hour (US$14.90/hour); overall unemployment rate of 5.7% and youth unemployment (15-19) of 17.1 %.

France: 9.43 Euro/hour (US $13.01/hour); overall unemployment rate of ~10.9% and youth unemployment (>25) at 25.8%.

United States: $7.25/hour (less for certain professions); overall unemployment rate of ~7% and youth unemployment (15-19) at 16.3% back in July of 2013

Japan: $8.17-$10.65/hour (depends on industry); overall unemployment rate of 4% and youth unemployment rate at 7%.

Great Britain: 3.72L (under 18 years old=$6.10/hour), 5.03L (18-20=$8.25/hour), 6.31 (21+ =$10.35/hour); overall unemployment rate of 7.5% with a youth unemployment of 21%.

His conclusion:

There is no clear relationship between minimum wage levels and unemployment rates, especially when you are comparing two very different labor markets.

Looking at just those five countries, which are all modern industrial nations, we find that the United States has the lowest minimum wage for adults and yet comes in third place out of five for overall unemployment. Japan – with a higher minimum wage than the US – has much lower unemployment for adults and significant lower unemployment for its youth. Australia, with a much higher minimum wage, still has a much lower unemployment for adults and just a tad higher unemployment for its youth.

There is no clear linear rule to take from this – and acting as if there can really be deceptive if one doesn’t try to understand the complexities here.

Another supports an extreme form of wage subsidies:

I know its politically unpalatable, but really, minimum wage of $9 or $10 should be paid directly from the government, with a business-paid minimum wage of 1$ an hour to prevent gaming the system. Think about it: People who are unemployed are going to cost the government one way or another, whether through disability payments or unemployment insurance. And if the cost to business of hiring a new employee is $1 an hour, why in the world wouldn’t they hire more people? You get conservative solutions – more hiring in the private sector, fewer social programs, and leaving individuals with the choice to run their own lives – combined with liberal policy goals, e.g., a living wage.

Recent Dish on wage subsidies and the minimum wage here.