A Threat, Not a Theory: It’s simply not true that as wages go up, jobs go down.

[n2doc]

It’s simply not true that as wages go up, jobs go down. But trickle-downers need people to believe it.
BY NICK HANAUER


Few issues have moved more quickly from fringe to consensus than the “Fight for $15.” When colleagues and I suggested at a Democratic political conference in early November of 2012 that we should raise the minimum wage to $15, people in the audience literally laughed. When New York City fast food workers first walked off the job two weeks later demanding a $15 minimum wage (more than twice the federal $7.25 rate, both then and now), the number was widely dismissed as overreaching and symbolic—a mere bargaining tactic on the part of workers who had little if any bargaining power at all. Nobody predicted what would follow. As an early and vocal advocate for $15, even I was surprised by how fast the dominoes would fall.

But as remarkable as this political progress has been, the political rhetoric surrounding the minimum wage remains surprisingly unchanged. Minimum wage opponents continue to deride every proposed increase as a surefire job-killer, while reporters and pundits reliably characterize the passage of every minimum wage ordinance and statute as a dangerous experiment that threatens to harm the very people it’s intended to help. “California makes itself a guinea pig in a massive and risky minimum wage experiment” tweeted the New York Times’s Noam Scheiber. “Raising minimum wage risky,” the Lexington, Kentucky Herald Leader’s headline tersely warned its readers following $15 victories in faraway California and New York. “Raising minimum wage hurts low-skill workers,” the Detroit News bluntly chimed in. “Even left-leaning economists say it’s a gamble,” Vox solemnly cautioned (without actually managing to cite a single left-leaning economist willing to pejoratively editorialize $15 as a “gamble”).

No one captured this conventional economic orthodoxy better than Noah Smith, a very smart economist and writer for Bloomberg. Smith, in an article titled “Finally, an Answer to the Minimum Wage Question” welcomed “the fact that, finally, we’ll have some data on how the $15 minimum wage would affect jobs.” In his article, Smith said he considered it a test because “in theory a higher minimum wage should cause increased unemployment.” Smith’s implication is that we have never run a minimum wage experiment before and that the increase is unprecedented in economic history. But the core assumption of Smith’s piece is a so-called “economic theory”—asserted as if it is a law of nature—that if the minimum wage goes up, employment must come down.

To be fair, Smith and the others above are not the first to predict economic Armageddon if the minimum wage was increased. The story of the minimum wage as a job-killing trade-off is deeply rooted in classical economics. It is the Law of Supply and Demand in action: “When you raise the price of employment, guess what happens, you get less of it,” former House Speaker John Boehner explained succinctly.

much more

http://democracyjournal.org/magazine/41/a-threat-not-a-theory/

[-none]

1. Logic dictates that if wages go up, people will have more money to spend.

And spend it they will. Buying and selling will increase, business will expand and hire more people, who will then have extra money themselves to spend and around and around we go in the opposite direction we are going now.
It worked after WWII, why not now?

[Blue Meany]

2. When you have a consumer economy you need to pay people well enough

that they can be consumers. Seems like a no-brainer, but it seems to have taken the IMF decades to discover that their neoliberal policies don't lead to growth. Global growth has stagnated and I think it can only be for one of two reasons: consumers are too poor or we are beginning to run out of "wealth" to extract from the earth's resources. If it's the latter, then growth can no longer be held out as the solution to poverty, so we need to begin redistributing wealth in a more reasonable way. If it's the former, then we need to pay people more or redistribute wealth in some other way to goose the economy.

[bbgrunt]

14. This is very true. We also need to inspect our reliance on markets to solve all problems

we face. An increase in the minimum wage will boost consumer spending but it also provides an incentive to replace labor with technology long term. We really need to be also thinking about how to redistribute wealth in the absence of jobs.

[BadgerKid]

15. We say Henry Ford understood that.

I think our society has forgotten that people can't buy what they can't afford. It seems the lending/credit economy was introduced as a workaround along with its own problems.

[Person 2713]

3. Minnesota vs Wisconsin is an example of the threat vs. how successful raising the min. wage can be

http://www.huffingtonpost.com/carl-gibson/mark-dayton-minnesota-economy_b_6737786.html
Along with taxing the rich , which is a another chicken little threat often heralded

[jwirr]

13. +1

[geardaddy]

17. As a Minnesotan, I wholeheartedly agree.

Last edited Mon Jun 6, 2016, 11:32 AM - Edit history (1)

I love Mark Dayton! I wish he would run again.

[bemildred]

4. It is utter bullshit. When wages go up, the economy hums and the 1% get 10% instead of 90%.

Big deal.

[ProfessorGAC]

5. The Problem With The Threat. . .

. . .is that it's based on a two dimensional, x therefore y, element of classical economics.

But, as a couple people on this thread mentioned, you have things like the uptick in demand that are confounding factors with a simple X therefore Y causative model.

Now, throw in 2 or 3 or 7 or 9 confounding factors and the X/Y relationship is almost a useless explanation of the phenomenon.

The grossly oversimplified Econ 101 "principle" is being touted by people, some of whom should know better.

[n2doc]

6. It has to do with where the money goes

Lets say people spend $100 on burgers at a low wage and a high wage place, all other things like material costs being the same. At the low wage place, say $20 goes to wages and $30 goes to profits. At the high wage place, $30 goes to wages and $20 goes to profits. In both places, as noted, the wages get recycled back into the economy. But at both places, the profits go into CEO salaries and bennies and shareholder pockets. That latter money is not so quickly spent, indeed it may just end up being squirreled away in offshore tax-avoidance havens. Most people in this country do not have significant stock holdings. Even if one takes the ideal capitalistic approach that the higher profits will lead to higher stock prices, that money is not generally spent. If it is in a 401k, it might not be spent for decades.

The profits could come back to the economy if companies used it to expand and improve their physical assets. But most seem content to just suck up profits.

[ProfessorGAC]

8. Not Sure How This Is A Reply To What I Said

We're in complete agreement on what you wrote, but i'm not sure how this connects to what i wrote, since i was criticizing the naysayers for being to simplistic, not making a case for the econ 101 theory.

[n2doc]

11. I wasn't trying to criticize

I guess I just wanted to put in my 2c also. Sorry!

[ProfessorGAC]

18. Nothing To Be Sorry About

We agree. I just got confused and was wondering if you meant to reply to someone else.

If you're happy, i'm happy.

[Wounded Bear]

7. Funny way to look at it that will make conserves go hmmmm...

If all the unemployed people are lazy and unmotivated to find work, wouldn't increasing the incentive to work by raising the amount of money they would make compared to unemployment insurance also increase their desire to find a 'real' job and get off of unemployment?

They always give me a funny look when I bring that up, and mutter something like, "Well, it doesn't work that way." I guess it's too complicated for them.

[ck4829]

10. It's not too different from their complaints about the public sector

They say public sector employees get huge benefits and are overpaid.

I think they want to do everything possible in this regard to try and avoid thinking about the more likely possibility... it's not that the public sector is getting overpaid, they are getting the raw deal from their 'job creators'.

If a job was easier to get, it was made so that losing it doesn't mean a personal apocalypse, make it more satisfying, if there was a guaranteed last resort employment system, and these jobs are better paying... usage of unemployment insurance will disappear overnight. Even though it really is possible, most of our politicians and the right would rather just cut the safety net and kick people in the gut... but call that kick a 'helping hand'.

[ck4829]

9. If this was true, shouldn't we be cutting CEO and executive pay?

If a CEO gets paid 400 times what the entry level guy makes then if we cut his pay, then jobs galore, right?

[n2doc]

12. Only if that money goes into wages for lower level workers, or infrastructure

In any case, that's a red herring. The big issue is do we just allow an unregulated system biased towards profits over all else, or do we change this to decrease the profit incentive? Which is better for the Country?

[Ferd Berfel]

16. Economies always grow from the bottom up

...by people buying things. This is why St. Ronny's Trickle down is and always was a fraud. Raising wages simply injects more money in to cycle.

Local economies grow best when the shit that people buy is manufactured locally, keeping the money cycle as local as possible. THe more money more people have to spend the wider the benefits. The corporate crowd probably understands this but will continue to pretend they don't because they are psychotic and sociopathic - they are sick enough to think they should have or control all of the money