ONTD Political

Why Employers Won’t Fire People If We Raise The Minimum Wage To $9

8:11 pm - 02/14/2013
Republicans are responding to President Obama’s proposal raise the federal minimum wage by arguing that requiring businesses to pay their workers at least $9 an hour would lead employers to shed jobs or increase prices and pass the costs onto consumers.

“When you raise the price of employment, guess what happens? You get less of it,” House Speaker John Boehner (R-OH) said at a House Republican press conference on Wednesday. Sen. Marco Rubio (R-FL) agreed, explaining that “the impact of minimum wage usually is that businesses hire less people.” It’s a fairly logical and simple argument: increasing the cost of labor causes competitive employers to cut employment or hours to make up for the additional cost, hurting the very low-skilled workers that the policy was designed to benefit in the first place.

The problem? What sounds perfectly reasonable in theory doesn’t actually hold up in the real world and the overwhelming empirical consensus shows little if any effect of the minimum wage on employment.

For instance, in 2009 researchers conducted a review of 64 minimum-wage studies published between 1972 and 2007 measuring the impact of minimum wages on teenage employment and when they graphed “every employment estimate contained in these studies (over 1,000 in total), weighting each estimate by its statistical precision, they found that the most precise estimates were heavily clustered at or near zero employment effects.” The following year, researchers published a study comparing restaurant employment differences across 1,381 U.S. counties with different levels of the minimum wage” in every quarter between 1990 and 2006. Their conclusion: “The large negative elasticities in the traditional specification are generated primarily by regional and local differences in employment trends that are unrelated to minimum wage policies.”

The findings raise an important question: if employers aren’t responding to minimum wage increases by the seemingly logical action of cutting employment — which is what Republicans predict — then, what are employers doing?

John Schmitt finds the answer in a paper out this month for the Center for Economic and Policy Research. After reviewing the available data, he concludes that employers react to minimum wage increases by adjusting their practices in a wide range of ways, some of which can strengthen their businesses and the economy as a whole:

1. Improving efficiency. An increase in the minimum wage may lead employers to encourage employees to work harder, since they’re now being paid more. Such an adjustment may be preferable to “cutting employment (or hours) because employer actions that reduce employment can ‘hurt morale and engender retaliation.’” A review of 81 fast-food restaurants in Georgia and Alabama found that “90 percent of managers indicated that they planned to respond to the minimum-wage increase with increased performance standards such as ‘requiring a better attendance and on-time record, faster and more proficient performance of job duties, taking on additional tasks, and faster termination of poor performers.’”

2. Increasing demand. Raising the minimum wage may increase demand for goods and services and bolster consumer spending, offsetting the increase to employer costs. One study estimates “that an increase in the minimum-wage from its current level of $7.25 per hour to $9.80 per hour by July 2014 would increase the earnings low-wage workers by about $40 billion over the period” and create some 100,000 jobs.

3. Lowering turnover. A higher minimum wage “makes it easier for employers to recruit and retain employees” and may even “compensate some or all of the increased wage costs, allowing employers to maintain employment levels.” One study found “striking evidence that separations, new hires, and turnover rates for teens and restaurant workers fall substantially following a minimum wage increase…”

4. Increasing prices. A comprehensive review of more than 30 academic papers on the price effects of the minimum wage found that “most studies reviewed above found that a 10% US minimum wage increase raises food prices by no more than 4% and overall prices by no more than 0.4%”; and “[t]he main policy recommendation deriving from such findings is that policy makers can use the minimum wage to increase the wages of the poor, without destroying too many jobs or causing too much inflation.”

As Joel Benoliel, senior vice president and chief legal officer at Costco, told CBS News, “If you have the best people in the marketplace working very hard because they’re being paid better, you end up spending less on labor, not more.” “There’s a fundamental misunderstanding among many employers who focus on how little they can pay. Our philosophy is that we actually pay less for labor per hour when we look at productivity and sales per hour,” he said.

Different employers will react in different ways, some reducing the benefit of the minimum wage for workers, others improving their well-being. The GOP’s doom and gloom predictions, however, are unfounded and contrary to their rhetoric, the majority of low‐wage workers “are not employed by small businesses, but rather by large corporations with over 100 employees.” These companies have largely recovered from the recession and can afford to pay their employees more.

In fact, the three largest employers of minimum wage workers, Wal‐Mart, Yum! Brands (Pizza Hut, Taco Bell, and KFC), and McDonald’s, all are more profitable than they were before the Great Recession and “have awarded their top executives multi-million dollar compensation packages.”

Source
schexyschteve 15th-Feb-2013 03:54 am (UTC)
Republicans are just mad that people might be getting more money, and that they can't keep lining their own pockets anymore.

"an increase in the minimum-wage from its current level of $7.25 per hour to $9.80 per hour by July 2014"
I just hope employers have the sense to increase everyone else's wages proportionally with that, but lbr, that probably won't happen unless you have an awesome employer.
ericadawn16 15th-Feb-2013 05:26 am (UTC)
We'll probably all end up making minimum wage but when it's 9 bucks, I'm totally okay with that. I'm like a quarter away from minimum wage as it is.
zinnia_rose 15th-Feb-2013 04:06 am (UTC)
John Boehner is an asshole, news at 11.

Seriously, though, this is a good article. I would definitely be more motivated to work harder if I were actually earning a living wage. I don't know why that's such a hard concept.
wowsolovely 15th-Feb-2013 04:21 am (UTC)
I just quit my job yesterday I didn't even make 9 dollars an hour and I live in california where well rent is expensive. I also worked with living creatures where I would get bit, scratched etc I worked very hard it was insane they pay so little because they know it's hard to find jobs right now. Minimum wage definitely needs to go up.
encircleme 15th-Feb-2013 06:38 am (UTC)
California's minimum wage is close to a dollar higher than the federal minimum wage, and our servers get paid the state minimum wage +tips. However, if the federal minimum wage really did increase to 9.80, I'd imagine that our higher state minimum wage wouldn't stay higher than the federal regulations-except in san fran where it's $2 higher than the federal already.
baka_tenshi 15th-Feb-2013 04:30 am (UTC)
to be honest, i was trying to find some way to articulate this because i'm having a discussion with someone who thinks that this is going to hurt small businesses. he's trying to convince me that because of the increased costs, those businesses are going to fail -- and that's somehow bad?? i'm actually not sure what his argument is.
schexyschteve 15th-Feb-2013 04:33 am (UTC)
Idk. If you can't afford to pay you workers a living wage, maybe you shouldn't be in business. Is that cold and heartless?
cinnamontoast 15th-Feb-2013 04:35 am (UTC)
Blah, blah, blah. I have heard the same damn argument so many times through my life. "If you raise the minimum wage everyone will go out of business." My uncle, who owned a couple of businesses whined and moaned for months the last time it was raised. I thought he'd never shut up. Gloom and doom. Somehow the world kept spinning. Somehow he kept right on making a profit.

I'm so sick of greedy people.
alexvdl 15th-Feb-2013 05:12 am (UTC)
Ah, ThinkProgress.org and CEPR. I'm glad we're going with unbiased sources.

EDIT: I'd be just as amused by someone trying to quote Fox News or The Heritage Foundation.

Edited at 2013-02-15 05:46 am (UTC)
encircleme 15th-Feb-2013 06:41 am (UTC)
ontd_p leans pretty left, it's not an unbiased community.
coraki 15th-Feb-2013 05:30 am (UTC)
I don't get why people think it'll be the death of everything. We seem to be getting along quite well here. There has been no downfall of local government. Here being Washington State (min. wage is $9.19 per/hr). Also from what I've read like CA, servers get min wage and tips.
insanitygenius 15th-Feb-2013 06:54 am (UTC)
Yep. The Oregon minimum wage right now is $8.95 and slowly goes up every year. The only difference I've noticed is that the price of Taco Bell meal deals seemed to go up around the same time the last two years (though that might just be a coincidence).

Granted, there's a difference between a gradual 10-25 cent increase yearly and an almost $2 increase all at once, but lbr, a lot of the places with minimum wage that employ large amounts of people can more than afford it (ie fast food chains, Walmart, etc).
coraki 15th-Feb-2013 05:40 am (UTC)
In fact, the three largest employers of minimum wage workers, Wal‐Mart, Yum! Brands (Pizza Hut, Taco Bell, and KFC), and McDonald’s, all are more profitable than they were before the Great Recession and “have awarded their top executives multi-million dollar compensation packages.”

Fuck all of them. I've stopped going to all these places. Why I love Costco. The CEO gets paid 500k a year. That's enough for him, not millions. He's still enjoying life, the employees get paid well and get 92% paid healthcare coverage. And they can still open up new stores across the country. No wonder Costco has a low turn over rate.
romp 15th-Feb-2013 07:12 am (UTC)
I had heard Costco was good but didn't know how good. Wow. No one IMO deserve, let alone needs, more than $500k a year! How cool that he's able to see what is ENOUGH.
romp 15th-Feb-2013 06:51 am (UTC)
I heard this sort of doom prediction before BC raised the min. wage for the first time in over TEN YEARS. As I recall, the min wage was the lowest in Canada and BC has one of the highest costs of living.

I haven't heard that the province has been affected yet.

spiritoftherain 15th-Feb-2013 07:14 am (UTC)
As a B.C. resident, we seem to be doing okay, though I'm looking for work at the moment myself. Small businesses don't seem to be dying off in droves by any means, though I could be missing the whole picture as a university student.
mingemonster 15th-Feb-2013 09:32 am (UTC)
$9?!

Google tells me that's 56 SEK. I was making more than that when I was 14 and raking leaves, that's insane.
ljtaylor 15th-Feb-2013 10:23 am (UTC)
Dang, 56 SEK is about £5.70. When I was 17 and a waitress i made £4.50 an hour and my boss tried half-jokingly to ask if I could leave it at that rate when I turned 18.

I work part time right now in Sweden and earn as much as I did in my last full time job back at home (after tax!) so I guess y'all pay very well...
zhenek_kreker 15th-Feb-2013 10:48 am (UTC)
I think there's a lack of figures: how many people in US currently receive minimum wage?
metanoiame 15th-Feb-2013 02:21 pm (UTC)
I don't get why more progressives don't advocate for a negative income tax (and tax reform in general). Even with my basic, basic understanding of economics, it seems like a good way to help those who need it most without all of the messiness and arbitrariness of paying everyone more.
lone_concertina 15th-Feb-2013 02:53 pm (UTC)
I'll be interested to see how a $9 minimum wage plays out in cities like Austin, where admin jobs pay $10/hr (and almost always require at least a bachelors degree). Wages here have NOT kept pace with cost of living increases across the board, so I'd love for the whole city to start getting a little more if the minimum is bumped up so high.
velvetunicorn 15th-Feb-2013 03:34 pm (UTC)
As a foreigner I can't believe how low the minimum wage is in the US. Ours is currently at $10.25 and I have no idea how anyone could live on that. Not to mention that most places that pay minimum wage never guarantee that you'll get 40 hours a week anyway. It reminds me a bit of watching Suze Orman explaining to a caller that she shouldn't go to an expensive university because her student loan payments would be $1K a month. My mind was blown like how could anyone be expected to pay that much on anything?
mollywobbles867 15th-Feb-2013 04:29 pm (UTC)
jfk. Would it really be that much a month? Mine are going to be about $130 a month, but I went to a fairly cheap state university.
sunoftheskye 15th-Feb-2013 05:04 pm (UTC)
How anyone can possibly live on 7.25, is beyond me.

I remember when I had a job at Holiday Inn at 14 and I was happy to be getting paid 5.15 an hour (which was minimum wage at that time), but I was a teenager using it for spending money with no bills to pay. I just don't know how people get by making that kind of money, especially when minimum wage jobs are usually jobs where you're not working a full 40 hour week.

I would think raising the minimum wage would reduce the number of people collecting government benefits?
coraki 15th-Feb-2013 07:46 pm (UTC)
My first job too was $5.15 an hour. I bagged groceries at a local store. I didn't have any bills and when I got treated poorly I was able to leave without worry of paying bills.
kitbug 15th-Feb-2013 09:21 pm (UTC)
I work in retail management and the corporation I work for has a really shitty way to determine how we get to staff. Basically, we get a set percentage of the sales (generally about 10-12%) estimate for the week of business and then we staff based on that. If we don't make sales, we have to cut hours, and it's much cheaper to staff the store with part-time recent hires. The way the company is run, there is a lot of turnover to keep the staff at mostly minimum wage to get the most hours out of our payroll. (Yes, it's incredibly stupid in the long run but they only care about the bottom dollar that they're getting right now.)

I can't help but feel the company will refuse to devote a larger percentage of sales to payroll to make up for the minimum wage increase and we'll have to go even more understaffed.

(For the record, I hate the company I work for.)
baked_goldfish 16th-Feb-2013 12:42 am (UTC)
I'm way more interested in the idea of tying the minimum wage to the cost of living than the actual dollar amount. If I recall, one of the problems with the last raise was that by the time it was implemented, the actual buying power was lower than the prior minimum wage was when it was implemented. So someone earning $7.25 in 2009 was able to buy less than someone earning $5.15 in 1997 (though obviously more than someone earning $5.15 in 2008, so it's not like it was pointless). It didn't go up enough to keep up with the cost of living - having it actually track this time might make it a little less frustrating.
lizzy_someone 26th-Feb-2013 06:50 am (UTC)
And if only we just lowered the minimum wage to a penny an hour, why, then we could get rid of unemployment altogether! What a great idea!

Seriously: sheer employment isn't enough if it doesn't pay a living wage.
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