Inflation's Impact: $15.00 an Hour Minimum Wage Not Enough for Job-Seekers

[Benjamin Frank]

The #1 driver of inflation hasn't been government stimulus or supply chain issues, it's been a tight labor market that has driven-up wages.

Unskilled workers may be able to demand $20/hour now, but that won't last through the next recession.  Higher minimum wages elongate and weaken job recoveries, for this reason.  

Zero economists would agree with your first sentence. First off, it's basically contradictory - we cannot separate "government stimulus" from "tight labor markets". Basically all economists critical of the American Rescue Plan are critical of it because they think it caused the economy to "overheat" and this term is intimately related to labor market tightness. Second, what you're saying is totally unmoored from empirical evidence. It is extremely hard to argue that we are in a "wage-price" spiral when the best measures of wages available (Employment Cost Index) show total compensation rising significantly more slowly than the price index.

The reason why it's important to ignore bluster like the above post is that snake-oil of this variety is usually to forward an agenda. Here, it is being used to argue that the minimum wage increasing would "fuel inflation". I think that's a topic worth studying but I don't think there's an obvious answer here. Since not all employers would find the minimum wage to be "binding", employers with a lower wage workforce couldn't simply pass on price increases to consumers. They'd instead have to reduce the wage bill through cutting hiring. Alternatively, they may be able to absorb the minimum wage increase.

Empirical studies show very small employment effects from increasing the minimum wage. I'm not aware of any study linking it to inflation. Certainly, in a low inflation environment, we'd expect no effect. This might be different in an inflationary environment where consumer expectations have wide variance - maybe employers could actually get away with hiking prices right now. That's why I say it's worth studying. Overall though, your posting history on the economy is riddled with nonsense.

I might have the percentages and years wrong (I'm half asleep) and this isn't directly related but is food for thought, something like 3 of 5 quintiles only have higher incomes than 40 or so years ago due to increased government transfers. If the Republicans take back control of Congress and get their way in cutting social spending via threatening to shut down the government, there will be 10s of millions of Americans (not necessarily the same Americans) worse off than 40 or so years ago, despite all the increases in productivity and wealth. And somehow millions of Americans believe the lie that the Republicans are the party of the working class.

In Gallup surveys on this notion of 'quiet quitting' the numbers are eerily similar, about 50% of Americans say they are doing less in their jobs, I find it a bit hard to believe there isn't some causation between the two.  This quiet quitting also has an impact on overall productivity which likely also explains why inflation has been so persistent.

"Quiet quitters" make up at least 50% of the U.S. workforce -- probably more, Gallup finds.
https://www.gallup.com/workplace/398306/quiet-quitting-real.aspx

I don't expect large cuts in transfers. If the Congressional Democrats were smart they'd finally either eliminate the debt ceiling in the lame duck session or raise it to virtual infinity, however, I except President Biden would call the Republicans bluff if they did threaten to shut down the government otherwise.

Still, it would be interesting if government transfers were cut significantly. Would these large numbers of negatively impacted Americans finally get radicalized in a collective way and stage mass job walkouts? Would they finally realize the Republican Party not only doesn't care about them but is actively undermining their lives to benefit the 'haves and have mores'?

[Benjamin Frank]

The #1 driver of inflation hasn't been government stimulus or supply chain issues, it's been a tight labor market that has driven-up wages.

Unskilled workers may be able to demand $20/hour now, but that won't last through the next recession.  Higher minimum wages elongate and weaken job recoveries, for this reason. 

So you think the trillions of free loans/stimulus given out during Covid (a lot of it to people and businesses that didn't need it) and supply chain issues have had no impact on inflation whatsoever? How did you come to that conclusion?

There was a world wide study that showed that supply chain issues caused about 3/4 of the inflation and excess money printing caused about 1/4. 

[Benjamin Frank]

$15 minimum wage is way too much. Supply and Demand should decide wages not the government

This is a bad post.  I went yesterday to Target to get deoderant and soap and it cost SIXTEEN dollars.  Costs are high. 

I do not think policy should be decided by how we should best pay tribute to The Invisible Hand.  If it's invisible it can do what it wants and it shouldn't care what we think of it.  The minimum wages should be enough for people to pay for things and live a life with some degree of dignity.  I've met people who like to see other people suffer to get their jollies and I just think there's too much of that.  If you can question whether or not I care about how the minimum wage affects the economy I can certainly question whether or not you ACTUALLY DO want to see people in servitude.  Look at all the Youtube videos of people screaming at kids working the register at Taco Bell.  People can be really bad people. 

Best policy would be a form of UBI (or BI) as it wouldn't impare business hiring. However, unfortunately politics usually doesn't allow for best policies.

[Benjamin Frank]

$15 minimum wage is way too much. Supply and Demand should decide wages not the government

This is a bad post.  I went yesterday to Target to get deoderant and soap and it cost SIXTEEN dollars.  Costs are high. 

I do not think policy should be decided by how we should best pay tribute to The Invisible Hand.  If it's invisible it can do what it wants and it shouldn't care what we think of it.  The minimum wages should be enough for people to pay for things and live a life with some degree of dignity.  I've met people who like to see other people suffer to get their jollies and I just think there's too much of that.  If you can question whether or not I care about how the minimum wage affects the economy I can certainly question whether or not you ACTUALLY DO want to see people in servitude.  Look at all the Youtube videos of people screaming at kids working the register at Taco Bell.  People can be really bad people. 

Best policy would be a form of UBI (or BI) as it wouldn't impare business hiring. However, unfortunately politics usually doesn't allow for best policies.

There are political drawbacks, but there is also a massive fiscal issue with UBI, at least in the current economy - in a futuristic, mostly automated economy, I think it would make sense, but currently you're talking about an enormous undertaking.

A proper, genuine, across-the-board UBI would be extremely expensive compared to just about anything else the government spends on. Let's say $1500/month for every American of working age, doing some back of the napkin math here, you'd be looking at just under $4.88 Trillion per year. For context, total federal government spending is $6.27 Trillion in FY 2022. Even with claw backs (for example phasing out food stamps), as well as potential savings in other aspects like healthcare and public safety, you're still talking about an enormous undertaking that would require massive tax increases on a permanent basis.

Now actual UBI advocates aren't as generous as I was, Yang advocated for $1000, and a lot of UBI (or BI as you rightly differentiated) advocates want a different program that isn't universal but gets clawed back with income. You're probably familiar with the pilot project Ontario did under Kathleen Wynne, it was $1500 phased out at a 50% of income ratio after a certain cutoff. That does bring down costs - the PBO estimated that, extrapolating the Ontario UBI proposal to the national level, as of 2020, would cost $46B CAD over a six-month period, so really, $92B a year, in Canada, on a permanent basis, and ideally rising with inflation.

That helps on the cost front, but it takes away from the universality aspect, and it's still bloody expensive. In other words, a means-tested Guaranteed Income takes away the unique benefits of UBI and just makes it a generic, means-tested welfare program. The more means-tested it is, the more it takes away from the unique benefits of UBI - the less means-tested it is, the less financially feasible it is.

Yes, even the most optimal policies still have drawbacks. A UBI is, as you demonstrate, fantasy. A BI, as tested in Ontario (and before that in Manitoba years prior), puts everybody to a minimum level of income, so, does away with the need for a minimum wage.

It also removes a lot of the barriers to the receiving of income assistance. While some/many on the right would not be happy with that (although inconsistently arguing to 'trust the people' in most other circumstances) it would remove a lot of the costs of administering income assistance, though obviously there would still need to be some administration to means test it. However, that actually isn't all that costly.