Thursday, September 14, 2006

Minimum wages hurt the people they are supposed to help

There is plenty of analysis showing the effects of raising the minimum wage to be detrimental. People who advocate for raising minimum wages are cynical populists. John Key has a big future as a politician.

Daily Policy Digest

ECONOMIC ISSUES

Wednesday, March 08, 2006

MINIMUM WAGE, MINIMUM SENSE

After humiliation at the polls in November, California Gov. Arnold Schwarzenegger now advocates raising the state minimum wage from its current $6.75 an hour to $7.75 by July 2007, says David Henderson of the Hoover Institution. While Democrats support the idea of helping poorer families, researchers claim artificial wage rates adversely affect lower income people.

Consider the findings of various economists:

* Only 20 percent of the workers potentially affected by an earlier one dollar increase in California's minimum wage were supporting a family on a single minimum-wage income. The other 80 percent were teenagers or adult children living with their parents, adults living alone or dual earners in a married couple.

* Increases in minimum wages actually redistribute income among poor families by giving wage increases to some and putting others out of work. They estimate the 1996 and 1997 federal minimum-wage increase amplified the proportion of poor families by one-half to one percentage point.

* People in their late 20s worked less and earned less the longer they
were exposed to a high minimum wage, presumably because the minimum wage destroyed job opportunities early in their work life.

Also:

* A comprehensive survey of studies of the minimum-wage increase found that a 10 percent increase in the minimum wage reduces employment of young workers by one percent to two percent.

* If this estimate holds for California, Gov. Schwarzenegger's proposed 15 percent increase would destroy 1.5 to 3 percent of young Californians' jobs -- about 35,000 to 70,000 jobs.

3 comments:

backin15 said...

Sigh... stick to your knitting Lindsay, it's clear your knowledge of labour market economics is limited to citing partisan reports from the press.

Key is right on minimum wages and right to distance himself from Brash on this issue.

NZ can ill afford to compete on prices alone and must create incentives for firms to export high value added products. We need a high wage, high skill, high value added industry base, not just a proliferation of small and medium sized service sector employers who can only compete by paying bugger all to low skill workers.

The evidence on the effects of minimum wages is complex and, in some instances paradoxical, despite your obsessive desire to simplify it to suit your philosophical prejudices.

Anonymous said...

Backin15 is the one who needs to return to his knitting and leave economics to facts and reality. You can't pay someone a wage that is higher than the worth of the output he produces and expect to increase wealth...simple maths.

Backin15 no doubt is a fan of that old Alliance party game "Double your cake" where everyone forms a circle and then on the go signal reaches to their right (suprise!) and trys to uplift that persons cake without alerting them in the process.Of course as the person on their left is trying to do the same to them all that happens is that at beat you break even and remain deluded that you are now "better off" having taken cake which you belive is yours from the greedy "rightwingers." But as all this cake grabbing causes "crumbs", which are lost during the back and forth activity, eventually everyone playing ends up with less cake than they would have if they had not "played the game" in the first place."

backin15 said...

Dave/James, I am definitely not a fan of Alliance style policies; they're simplistic and ideological. My point wasn't to encourage workers to upskill, my point was to discourage firms from adopting low skill equilibrium processes/markets. I agree you can't pay someone more than the value of their (marginal) productivity (does anyone here recall Supplementary Minimum Payments?) but you can and should encourage investment in sustainable high value markets/products that demand higher and more skilled workers... this is the goal of industry policy.

James, if you've got a point make it - your cake methaphor is limited.