The Curious Reality of the Minimum Wage

Posted on by

Big Red Car here on a glorious ATX day. On Earth as it is in Texas, y’all. Today, we turn our focus on the minimum wage.

The current Federal minimum wage is $7.25/hour.

Individual states may have legislation setting another standard within their states. As an example, California has a $10.00/hour minimum wage which will increase to $15.00/hour by 1 January 2022 (1 Jan 2023 for businesses with 25 or fewer employees). Thereafter, it increases annually with inflation and the Governor of California may suspend increases if economic conditions suggest such a course of action is prudent.

Note that for all of California’s goofiness, it takes six years to get to $15.00/hour.

You may be tempted to suggest that the new California law feels like a head fake. Maybe so?

Who gets paid minimum wage, Big Red Car?

The minimum wage issue applies only to 2.8% of all workers in the United States.

Of that 2.8% of all workers, 50% are aged 16-24.

The young people are almost exclusively working a first job and all are at the beginning of their work careers.

No craftsmen or construction laborers or skilled workers are making such a low wage.

Some qualitative observations

In addition to the numbers, there are some qualitative aspects of minimum wage implications that must be considered.

Employers expect a better skill set from more highly compensated workers. It dampens hiring when wages go up.

Employers will attempt to reduce labor when the cost of labor is increased. Jobs will be eliminated.

The minimum wage might be more fairly described as a “first job” wage based on age, industry, and skill level. It is a beginning point, not an end point.

There is ample evidence that the increase of the minimum wage results in a decrease in total jobs and the destruction of marginally profitable businesses.

Even its most ardent supporters concede that the level of the minimum wage does nothing to address a stagnant economy which is struggling to create jobs, the decline in average family incomes (these are not minimum wage workers), the inequality of wealth creation, or the other economic issues which are at the core of the challenges facing the country.

The minimum wage is a sideshow issue — well, unless, you are one of those who actually loses their job in the process. To you, it’s a big deal.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car.cropped-LTFD-illust_300.png

3 thoughts on “The Curious Reality of the Minimum Wage”

  1. My guess is still that we are still in the Great Recession and have been in it, now, for about
    eight years, that is, 2/3rds as long as we were in the Great Depression.

    The way we got out of the Great Depression was, once people started shooting at us, to move to war mobilization where we solved the unemployment problem, IIRC, in 90 days when everyone had at least one job and some two or three.

    For a credit economy, deflation is poison, and my view is that with the Great Recession and more, we are in deflation. E.,g., look at what has happened to computer parts — much faster, smaller, cooler, cheaper. That’s great, but, still it is deflation. Look at Google — it’s terrific, for some fantastic productivity, but is putting a lot of reference librarians out of work and beating other means of search — deflation. And the productivity increase from Google apparently don’t show in the GDP figures. Really, better tools, raw materials, etc. that raise productivity tend to be deflationary. Right, smarter robots, deflationary. Serious work on self-driving vehicles to replace professional drivers — deflationary. Good work with sensing, computers, and smarter farm machinery to get more bushels per acre? Deflationary. A Ford truck with aluminum body panels that won’t rust out? Deflationary. Smaller, more fuel efficient cars? Deflationary. The effect of the Internet on movie theaters? Yup,
    you guessed it, deflationary. Lots of Internet mail instead of USPS, UPS, or FedEx — the same, deflationary.

    So, our Great Recession is deflationary. And after eight years we are still no coming out of it.

    How to come out of it? Stop the darned deflation. How to do that? Easiest thing in the world to do —
    just print money. How? The US Treasury sells bonds to the Fed which buys the bonds with money that the Fed put on its ‘balance sheet’ — that is, printed money. The Treasury gets the money. Then just write everyone a check. Wait a quarter. If that is not enough caffeine, then write more checks. Keep it up until get the economy going again, out of deflation.

    We were willing enough to print lots of money to fight in Viet Nam and inflate the hack out of the
    economy until Volker went for 22% interest rates. Bummer.

    We should be willing to print some money to get us back to growing again, right, with little or no inflation.

    Why have to print it? Because the fractional reserve banking system with its multiplier effect in effect prints money, but since the crash of 2008, with some of the biggest banks losing money and nearly all the banks being severely regulated, the banks are not creating the needed money. So, have the Fed do that. So, we need to print money to replace what was destroyed.

  2. Raising the minimum wage is a give away to unions. Many of their contracts are pegged to it-so when the minimum wage goes up guess who else gets a raise? Raising the minimum wage CREATES more unemployment. It also adversely affects the people it is designed to help. In microeconomics, they would call it a price floor. There is dead weight loss-which means the labor market is not as efficient.

Comments are closed.