CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press How to Report on the Minimum Wage

How to Report on the Minimum Wage

Wednesday, 05 March 2014 17:06

Bloomberg had a very nice piece reviewing the employment history of Washington State which has had the highest minimum wage in the country since 1998. The piece notes that the high minimum wage has not prevented the state from having stronger than average employment growth. It also presents the views of critics of the minimum wage who argue that it has still taken a toll on employment.

This is how it should be done.

Comments (11)Add Comment
global ratio?, Low-rated comment [Show]
Collective Action Problems
written by PJR, March 05, 2014 10:12
Too few people appreciate the concept when assessing economic policies. A businessman as many potential customers as possible with steady, secure jobs and plenty of disposable income--from all of the OTHER businesses.
Keynes and sticky wages
written by Squeezed Turnip, March 05, 2014 10:27
Funny, I just re-read Keynes' General Theory ... and he uses flexibility of wages to show that a fall in wages may NOT lead to greater output and employment, if investment demand simultaneously drops. To say that he was trying to get real wages down is, well, silly. Keynes was arguing that even if you could get real wages down, output might not increase. In other words, making people suffer with lower wages wouldn't solve the problem if investment fell with it (which is kinda what is happening now: real wages remain steady and investment has finally recovered to its 1990 level relative to GDP, still quite low).

Thanks to New Deal and government programs, the US got electricity and potable water to most of its citizens. I don't think India or China are anywhere near that. Are you suggesting that we allow our unskilled workers to work at levels that can't provide them with fresh water, basic sanitation needs, or electricity? That is a very interesting position you're taking, Pete, and one that can only lead to social unrest. The answer is not to let our unskilled workers sink back into some middle ages lifestyle.
empirical evidence for sticky wage hypothesis
written by Squeezed Turnip, March 05, 2014 11:54
Paul Krugman discusses the situation in Spain with this graph:
written by DJB, March 06, 2014 7:37
the article says the minimum wage increase to 10.10 per hour would lift 900,000 people out of poverty

and 500,000 would lose their jobs

i thought the actual figures were it would lift 16.5 MILLION people out of poverty

and that the 500,000 losing their jobs was unlikely

written by DJB, March 06, 2014 8:39

also to Pete

boeing is making mega profits

they are using the local control bit to play one state against another

please lets not substitute corporate greed with saying it is "corporate need"

come on

"DISCOUNT" effect stabilizes minimum wage employment
written by Denis Drew, March 06, 2014 9:25
On the bottom end of the wage scale we may find a "DISCOUNT wage effect": wherein weak bargaining power leaves wages below -- in the American labor market probably far below -- what consumers would have been willing to pay: meaning that today’s consumers are getting a – probably hugely serious -- bargain.

On the other end of the wage scale we may find examples of a "PREMIUM wage effect": where consumers are pressured by market conditions to pay much more than the seller would have been willing to accept had there been sufficient competition or whatever: meaning consumers are getting a -- possibly hugely serious -- skinning.

If a deeply discounted minimum wage is raised to a still deeply discounted level -- in Obama's case ...

... nearly a dollar below LBJ's 1968 minimum wage ...
... almost double the per capita income later (!) ...
... (dragged out over three years; agh!!!) ...

... I think consumers are much more likely to drop some spending on premium wage products (where they are still being skinned) to continue purchasing DISCOUNTED wage products – which are still very much comparative bargains.

Never forget – seems de rigueur for all to forget – that labor costs represent only a small fraction of ultimate price tag – as low as 7% with Wal-Mart – even if sales drop a bit, poverty incomes can soar – everybody seems to serially forget this.
Both Keynes and Hayek agreed that social unrest should be avoided
written by pete, March 06, 2014 3:04
That is in fact the only rational for redistribution within the US from the extremely globally rich to the relatively globally rich. That I think everyone agrees with. That said, I have not heard anyone opine that urban youth unemployment would be helped if only urban employers had to pay more to hire them. Instead, we need to go back to apprenticeship type programs, learning while working, which of course, unions hate. I.e., trade labor for education, get some skills, join the work force.
wierd huh...Krugman wants to get wages down...
written by pete, March 06, 2014 3:09
Very strange. Krugman arguing what I thought was standard Keynesian, that when wages are too high, they can be sneakily driven down by inflation. Clearly, there is some conflict among Keynesians (or new Keynesians) and the minimum wage increase proponents. Or maybe the idea is to raise the minimum wage and then inflate like mad to make the increase non harmful.
written by Squeezed Turnip, March 07, 2014 10:31
... Krugman arguing ... that when wages are too high, they can be sneakily driven down by inflation.

Funny, I can't find him arguing for that anywhere. I did find this. And there's also this explanatory piece by Matt Yglesias. Care to give us a link to a direct source? OR maybe you heard it through a secondary source that had it all wrong?
this is the whole point of his call for 4% inflation....
written by pete, March 08, 2014 11:17
As well as the call for Greece and Spain etc. requiring a Euro inflation to bring down real Greek and Spanish wages. Folks fail to understand the underpinnings of Keynes. The issue is not enough people working. So how to get them back. The classical argument is that workers will take lower wages so that firms will hire them, but this takes a long time, i.e., wage stickiness. The Keynesian argument is to cause an inflation, with artificial demand from the government. This increase prices and thus profitablity, allowing firms to hire at current wages. The increase in prices means lower real wages. Why is this always news when point out?

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.