The Cost of Poverty
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andyt @ Wed May 11, 2011 8:58 am
$1:
Recent studies finding that higher minimum wages
do not result in lower employment have used a
variety of data and methods. Several of them use
long time series of data to estimate the relationship
between the level of the minimum wage and the proportion of teens who are employed. 2 Other research compares employment levels before and after a specific minimum
wage increase. These “difference-in-differences” studies compare the changes in employment among groups strongly affected by a minimum wage hike and relatively
unaffected groups. Several time-series studies of minimum wage effects
on teen employment rates do not find that higher minimum wages are associated with significantly lower employment rates (Neumark and Wascher 1995a; Card,
Katz, and Krueger 1994; Wellington 1991). These studies
use an econometric method called regression to estimate
the effect of the minimum wage on the teen employmentto-population ratio. Wellington (1991) uses national data
from 1954 to 1986, and the other two studies use statelevel data from the 1970s and 1980s. They generally find
a small negative correlation between teen employment
and the minimum wage that is not statistically different
from zero. Their results are in marked contrast to earlier
studies summarized by Brown, Gilroy, and Kohen (1982),
which typically concluded from similar methodologies
that teen employment rates fell by at least 1 percent when
the minimum wage rose by 10 percent. Wellington indicates that the difference in the results is due to including
data from the 1980s, a period when the real (inflationadjusted) minimum wage fell. Card and Krueger (1995),
however, suggest that methodological problems biased
the results in earlier studies
Several studies that use a difference-in-differences
method also find that minimum wage hikes do not significantly reduce employment. These studies compare
the changes in employment between two groups, only
one of which is strongly affected by the increase. Card
(1992a) compares the effect of the 1990 federal minimum wage increase on teen employment in high-wage
states that have a low fraction of teen workers earning
less than the new minimum wage with its effect in lowwage states that have a high proportion of affected teens.
Standard theory predicts that employment should fall
relatively more in low-wage states, but the results indicate similar employment changes in low- and high-wage
states. Card (1992b) finds that employment among teens
and in retail trade in California did not fall relative to
employment in other places after a $0.90 increase in the
state’s minimum wage in 1988.
3
Katz and Krueger (1992)
examine the effects of the 1990 and 1991 federal minimum wage increases on fast-food restaurants in Texas.
They find that employment growth was similar at establishments that had to raise their wages to comply with the
laws and at higher-paying fast-food restaurants. Card and
Krueger (1994, 1998) report that employment at fast-food
restaurants in New Jersey did not decline relative to levels in neighboring Pennsylvania when New Jersey raised
its minimum wage by $0.80 in 1992.
do not result in lower employment have used a
variety of data and methods. Several of them use
long time series of data to estimate the relationship
between the level of the minimum wage and the proportion of teens who are employed. 2 Other research compares employment levels before and after a specific minimum
wage increase. These “difference-in-differences” studies compare the changes in employment among groups strongly affected by a minimum wage hike and relatively
unaffected groups. Several time-series studies of minimum wage effects
on teen employment rates do not find that higher minimum wages are associated with significantly lower employment rates (Neumark and Wascher 1995a; Card,
Katz, and Krueger 1994; Wellington 1991). These studies
use an econometric method called regression to estimate
the effect of the minimum wage on the teen employmentto-population ratio. Wellington (1991) uses national data
from 1954 to 1986, and the other two studies use statelevel data from the 1970s and 1980s. They generally find
a small negative correlation between teen employment
and the minimum wage that is not statistically different
from zero. Their results are in marked contrast to earlier
studies summarized by Brown, Gilroy, and Kohen (1982),
which typically concluded from similar methodologies
that teen employment rates fell by at least 1 percent when
the minimum wage rose by 10 percent. Wellington indicates that the difference in the results is due to including
data from the 1980s, a period when the real (inflationadjusted) minimum wage fell. Card and Krueger (1995),
however, suggest that methodological problems biased
the results in earlier studies
Several studies that use a difference-in-differences
method also find that minimum wage hikes do not significantly reduce employment. These studies compare
the changes in employment between two groups, only
one of which is strongly affected by the increase. Card
(1992a) compares the effect of the 1990 federal minimum wage increase on teen employment in high-wage
states that have a low fraction of teen workers earning
less than the new minimum wage with its effect in lowwage states that have a high proportion of affected teens.
Standard theory predicts that employment should fall
relatively more in low-wage states, but the results indicate similar employment changes in low- and high-wage
states. Card (1992b) finds that employment among teens
and in retail trade in California did not fall relative to
employment in other places after a $0.90 increase in the
state’s minimum wage in 1988.
3
Katz and Krueger (1992)
examine the effects of the 1990 and 1991 federal minimum wage increases on fast-food restaurants in Texas.
They find that employment growth was similar at establishments that had to raise their wages to comply with the
laws and at higher-paying fast-food restaurants. Card and
Krueger (1994, 1998) report that employment at fast-food
restaurants in New Jersey did not decline relative to levels in neighboring Pennsylvania when New Jersey raised
its minimum wage by $0.80 in 1992.
http://www.frbatlanta.org/filelegacydocs/ACFA7.pdf
andyt @ Wed May 11, 2011 9:02 am
OnTheIce OnTheIce:
BartSimpson BartSimpson:
Andy - I'm curious on your take of Walter William's essay?
The best piece but forth so far. Thanks for posting that
![[BB]](./images/smilies/beers.gif "Beers")
Feel free to also read the opposing findings of other economists that I posted.
andyt @ Wed May 11, 2011 9:33 am
$1:
Abstract
This paper examines the impact of minimum wages on earnings and employment in selected
branches of the retail-trade sector, 1990-2005, using county-level data on employment and a
panel regression framework that allows for county-specific trends in sectoral outcomes. We
focus on specific subsectors within retail trade that are identified as particularly low-wage. We
find little evidence of disemployment effects once we allow for geographic-specific trends.
Indeed, in many sectors the evidence points to modest (but robust) positive employment effects.
This paper examines the impact of minimum wages on earnings and employment in selected
branches of the retail-trade sector, 1990-2005, using county-level data on employment and a
panel regression framework that allows for county-specific trends in sectoral outcomes. We
focus on specific subsectors within retail trade that are identified as particularly low-wage. We
find little evidence of disemployment effects once we allow for geographic-specific trends.
Indeed, in many sectors the evidence points to modest (but robust) positive employment effects.
http://www.iza.org/conference_files/EMW2009/addison_j44.pdf
OnTheIce @ Wed May 11, 2011 10:18 am
andyt andyt:
OnTheIce OnTheIce:
BartSimpson BartSimpson:
Andy - I'm curious on your take of Walter William's essay?
The best piece but forth so far. Thanks for posting that
Feel free to also read the opposing findings of other economists that I posted.
I have.
There's reports from both sides of the fence, however, there are far more from the side you don't agree with.
You guys keep debating a topic that has no end. You're not going to change their mind and they won't change theirs...regardless of how many links to studies from the 80's we all post.
Here's about 50 years worth of studies to consider:
http://www.house.gov/jec/cost-gov/regs/ ... 0years.htm
andyt @ Wed May 11, 2011 10:34 am
I found this:
$1:
Abstract
Based on 70 years of American experience since the passage of the Fair Labor Standards
Act 1938 (FLSA) (and the creation of the first federal minimum wage in the United
States), we conclude that past minimum wage increases have not diminished poverty and
current proposals to increase the federal minimum wage to $9.50 per hour will be even
less targeted to the working poor. The majority of those who gain from a minimum wage
increase do not live in poor or even near poor households. Furthermore, a large share of
the working poor are not affected by such increases since they already earn wages above
the proposed minimum. Finally, the negative employment effects of these minimum wage
increases are sufficient to offset the movement out of poverty by those working poor who
are helped by the policy. Preliminary evidence suggests that Australian minimum wage
increases are no more effective at reducing poverty for the same reasons.
A far more effective method of achieving the goal of assuring that those who work hard
and play by the rules are not poor is via an increase in the Earned Income Tax Credit
(EITC). This work-based program targets benefits based on family income rather than on
a single person’s hourly wage rate. And, unlike the minimum wage, the EITC has a positive
effect on employment.
Based on 70 years of American experience since the passage of the Fair Labor Standards
Act 1938 (FLSA) (and the creation of the first federal minimum wage in the United
States), we conclude that past minimum wage increases have not diminished poverty and
current proposals to increase the federal minimum wage to $9.50 per hour will be even
less targeted to the working poor. The majority of those who gain from a minimum wage
increase do not live in poor or even near poor households. Furthermore, a large share of
the working poor are not affected by such increases since they already earn wages above
the proposed minimum. Finally, the negative employment effects of these minimum wage
increases are sufficient to offset the movement out of poverty by those working poor who
are helped by the policy. Preliminary evidence suggests that Australian minimum wage
increases are no more effective at reducing poverty for the same reasons.
A far more effective method of achieving the goal of assuring that those who work hard
and play by the rules are not poor is via an increase in the Earned Income Tax Credit
(EITC). This work-based program targets benefits based on family income rather than on
a single person’s hourly wage rate. And, unlike the minimum wage, the EITC has a positive
effect on employment.
So great. Let's go with that. I don't think we have a program like that in Canada. Let's bring one in. Who's willing to step up and pay a bit more tax so we can. Or should we raise the corporate tax a few points (still very low) to pay for it?
martin14 @ Wed May 11, 2011 10:44 am
This has been done to death, several times over.
You haven't convinced anyone andy, you never will.
OnTheIce @ Wed May 11, 2011 11:04 am
Lemmy @ Wed May 11, 2011 11:12 am
OnTheIce OnTheIce:
There's reports from both sides of the fence, however, there are far more from the side you don't agree with.
Exactly. It's the same as the climate change deniers. They find a handful of "scientists" that support their claim while ignoring the tens of thousands who's research discredits theirs. The economics community OVERWHELMINGLY AGREES that price floors (minimum wage laws) and price ceilings (rent control laws) do more harm than good. There is very nearly unanimous consensus among the EXPERTS in the field. So, in terms of professional credibility, andy, you're lumping yourself in with climate change deniers. Keep knocking yourself out, dude, but I, for one, am done entertaining any further debate with you on the topics of minimum wages and rent controls.
andyt @ Wed May 11, 2011 11:14 am
Hey, if nobody replies to this post, I promise I won't just have a conversation with myself.
PublicAnimalNo9 @ Wed May 11, 2011 11:59 am
There's one thing that get's missed in all these conversations, a LOT of those minimum/low wage jobs only start that way.
For example, back in '06-07, our friend's son was working at 7-11 starting at the minimum wage of $8.75/hr. However, he also showed us the certification program they offer with the potential for a store clerk to earn over $20/hr. The more areas of store operations you're certified in, the more dough you make. It's all about how much responsibility you want to take on. In our friend's son's case, he was already making $12/hr after 6 months. Turns out a LOT of those corporate low/minimum wage jobs offer similar programs.
Problem is, there's too many people that think they should be making the big bucks simply for handing coffees or food out of a drive-thru window or over a counter. Little realizing they could be replaced by a vending machine.
If all you're willing to put in is the minimum effort your job requires, then all you're gonna get is the minimum compensation for your efforts.
Want to make more money? Then earn it by taking on more responsibility.
As I said, many of those jobs provide the opportunity to do so.
andyt @ Wed May 11, 2011 12:07 pm
PublicAnimalNo9 PublicAnimalNo9:
There's one thing that get's missed in all these conversations, a LOT of those minimum/low wage jobs only start that way.
For example, back in '06-07, our friend's son was working at 7-11 starting at the minimum wage of $8.75/hr. However, he also showed us the certification program they offer with the potential for a store clerk to earn over $20/hr. The more areas of store operations you're certified in, the more dough you make. It's all about how much responsibility you want to take on. In our friend's son's case, he was already making $12/hr after 6 months. Turns out a LOT of those corporate low/minimum wage jobs offer similar programs.
Problem is, there's too many people that think they should be making the big bucks simply for handing coffees or food out of a drive-thru window or over a counter. Little realizing they could be replaced by a vending machine.
If all you're willing to put in is the minimum effort your job requires, then all you're gonna get is the minimum compensation for your efforts.
Want to make more money? Then earn it by taking on more responsibility.
As I said, many of those jobs provide the opportunity to do so.
For example, back in '06-07, our friend's son was working at 7-11 starting at the minimum wage of $8.75/hr. However, he also showed us the certification program they offer with the potential for a store clerk to earn over $20/hr. The more areas of store operations you're certified in, the more dough you make. It's all about how much responsibility you want to take on. In our friend's son's case, he was already making $12/hr after 6 months. Turns out a LOT of those corporate low/minimum wage jobs offer similar programs.
Problem is, there's too many people that think they should be making the big bucks simply for handing coffees or food out of a drive-thru window or over a counter. Little realizing they could be replaced by a vending machine.
If all you're willing to put in is the minimum effort your job requires, then all you're gonna get is the minimum compensation for your efforts.
Want to make more money? Then earn it by taking on more responsibility.
As I said, many of those jobs provide the opportunity to do so.
If that's true, PA, then great. I have a suspicion tho that most of these jobs don't have any real advancement opportunities. They might get raises of 25 cent every so often. So when BC raised it's min rate from $8 to $10.25 that was a good kick in the pants, and better than a 25 cent raise. And minimum wage raises affect wages up to 25% over the minimum. So at 10.25 that would be up to 12 bucks an hour that gets pushed up a bit. Sounds good to me.
Anyway, I'm off the min wage thing. Let's give working poor refundable tax credits to bring up their standard of living. Supposedly that's a much better approach. Whatever works. But when a CPC senator comes out with:
$1:
If Ottawa and the provinces fail to make this a priority, Tory Senator Hugh Segal predicts, “over time, we will begin to run out of the money that we need to deal with the demographic bulge because it will be consumed in the health care requirements of the poor, which will increase. It will be consumed in the costs of the illiteracy and unemployment which relate to poverty. ... And it'll be unsustainable....” With respect to working-age poverty, our numbers are really bad,” Mr. Segal said. “And that’s where we need to do more.”
you know it's time to do something.
Bruce_the_vii @ Wed May 11, 2011 12:11 pm
PublicAnimalNo9 PublicAnimalNo9:
There's one thing that get's missed in all these conversations, a LOT of those minimum/low wage jobs only start that way.
For example, back in '06-07, our friend's son was working at 7-11 starting at the minimum wage of $8.75/hr. However, he also showed us the certification program they offer with the potential for a store clerk to earn over $20/hr. The more areas of store operations you're certified in, the more dough you make. It's all about how much responsibility you want to take on. In our friend's son's case, he was already making $12/hr after 6 months. Turns out a LOT of those corporate low/minimum wage jobs offer similar programs.
Problem is, there's too many people that think they should be making the big bucks simply for handing coffees or food out of a drive-thru window or over a counter. Little realizing they could be replaced by a vending machine.
If all you're willing to put in is the minimum effort your job requires, then all you're gonna get is the minimum compensation for your efforts.
Want to make more money? Then earn it by taking on more responsibility.
As I said, many of those jobs provide the opportunity to do so.
For example, back in '06-07, our friend's son was working at 7-11 starting at the minimum wage of $8.75/hr. However, he also showed us the certification program they offer with the potential for a store clerk to earn over $20/hr. The more areas of store operations you're certified in, the more dough you make. It's all about how much responsibility you want to take on. In our friend's son's case, he was already making $12/hr after 6 months. Turns out a LOT of those corporate low/minimum wage jobs offer similar programs.
Problem is, there's too many people that think they should be making the big bucks simply for handing coffees or food out of a drive-thru window or over a counter. Little realizing they could be replaced by a vending machine.
If all you're willing to put in is the minimum effort your job requires, then all you're gonna get is the minimum compensation for your efforts.
Want to make more money? Then earn it by taking on more responsibility.
As I said, many of those jobs provide the opportunity to do so.
That would be fine, seems reasonable. I do think that low wages are pervasive and it's not the simple though.
Bruce_the_vii @ Wed May 11, 2011 12:15 pm
It’s interesting to work up some numbers on how much a $12 minimum wage would cost the nation in inflation. In the first place unemployment from immigration has been depressing the de facto minimum wage. In cases where the local economy outgrew immigration and the economy came to full employment the number of adults earning below $12 went down to 7%. If you gave these people earning $10 to $12 an average of $1 an hour raise the cost is very low. Of that $1 some 30 cent comes back to the common good in federal and provincial taxes. In addition there’s some savings from the reduction of the number of small businesses that would occur and also a minimum wage increase is a transfer within families, from inflation on the better off to the wages of the minimum wages earner. Actually that would be most the cost but I’ll call it 10 cents on the dollar as the effect is not even. So we are left with a cost of 60 cents. The $1 for 7% of adults is only 0.35% of the total wage bill in society if the average wage is $20. The total wage bill would be $20 average times 100%. Then the wage bill is only half, 50.4%, of the economy so we correct for that. Finally one should plan to increase minimum wage to $12 in the growth cities half of the country only. So the arithmetic is $1 X .60 X 0.35 X 0.504 X 0.5 for .35% of the nation for 0.053% of the GDP, that’s 1/20 of 1%. That’s $700 million annually in Canada. You get an entire list of social and economic benefits. Different scenarios give you different numbers.
PublicAnimalNo9 @ Wed May 11, 2011 1:00 pm
Bruce_the_vii Bruce_the_vii:
PublicAnimalNo9 PublicAnimalNo9:
There's one thing that get's missed in all these conversations, a LOT of those minimum/low wage jobs only start that way.
For example, back in '06-07, our friend's son was working at 7-11 starting at the minimum wage of $8.75/hr. However, he also showed us the certification program they offer with the potential for a store clerk to earn over $20/hr. The more areas of store operations you're certified in, the more dough you make. It's all about how much responsibility you want to take on. In our friend's son's case, he was already making $12/hr after 6 months. Turns out a LOT of those corporate low/minimum wage jobs offer similar programs.
Problem is, there's too many people that think they should be making the big bucks simply for handing coffees or food out of a drive-thru window or over a counter. Little realizing they could be replaced by a vending machine.
If all you're willing to put in is the minimum effort your job requires, then all you're gonna get is the minimum compensation for your efforts.
Want to make more money? Then earn it by taking on more responsibility.
As I said, many of those jobs provide the opportunity to do so.
For example, back in '06-07, our friend's son was working at 7-11 starting at the minimum wage of $8.75/hr. However, he also showed us the certification program they offer with the potential for a store clerk to earn over $20/hr. The more areas of store operations you're certified in, the more dough you make. It's all about how much responsibility you want to take on. In our friend's son's case, he was already making $12/hr after 6 months. Turns out a LOT of those corporate low/minimum wage jobs offer similar programs.
Problem is, there's too many people that think they should be making the big bucks simply for handing coffees or food out of a drive-thru window or over a counter. Little realizing they could be replaced by a vending machine.
If all you're willing to put in is the minimum effort your job requires, then all you're gonna get is the minimum compensation for your efforts.
Want to make more money? Then earn it by taking on more responsibility.
As I said, many of those jobs provide the opportunity to do so.
That would be fine, seems reasonable. I do think that low wages are pervasive and it's not the simple though.
Oh I agree to some extent. There is no shortage of small businesses that can't really afford to do something like that. But many corporate enterprises can and do. I know that's not a panacea cure for low wages but I'm willing to bet that a lot of people working those types of jobs can certainly improve their take-home pay if they really wanted to by taking advantage of those opportunities.
I mean, how many people would have actually thought a person could get a 25% raise in just 6 months working at a convenience store?..Ooops sorry, my wife just corrected me, it was 8 months.
Bruce_the_vii @ Wed May 11, 2011 1:28 pm
These days the formal education level is high, youth want better jobs and education is highly subsidized, so there's something of "educational warfare" going on to get qualified for the better jobs. An alternative, a traditional alternative, is to get some experience in a field by working in it. So that makes sense, take advantages of the opportunities in the area you work.
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