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originally posted in:Secular Sevens
1/5/2014 3:37:19 AM
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Economists agree: Raising the minimum wage reduces poverty

[quote]One funny part of watching journalists cover the minimum wage debate is that they often have to try and referee cutting-edge econometric debates. Some studies, notably those lead by UMass Amherst economist Arin Dube, argue that there are no adverse employment effects from small increases in the minimum wage. Other studies, notably those lead by University of California Irvine economist David Neumark, argue there is an adverse effect. Whatever can we conclude? But instead of diving into that controversy, let’s take a look at where these economists, and all the other researchers investigating the minimum wage, do agree: They all tend to think that raising the minimum wage would reduce poverty. That’s the conclusion of a major new paper by Dube, titled “Minimum Wages and the Distribution of Family Incomes.” Let’s first highlight the major results. Dube uses the latest in minimum-wage statistics and finds a negative relationship between the minimum wage and poverty. Specifically, raising the minimum wage 10 percent (say from $7.25 to near $8) would reduce the number of people living in poverty 2.4 percent. (For those who thrive on jargon, the minimum wage has an “elasticity” of -0.24 when it comes to poverty reduction.) [..] Now, this is normally the part where we’d have to go through the counter-arguments, using different data and techniques from different economists, to argue that the minimum wage wouldn’t do this. But this is the fun part: Dube’s paper finds a remarkable consistency across studies here. For instance, in a 2011 paper by minimum-wage opponent David Neumark, raising the minimum wage 10 percent would reduce poverty 2.9 percent (an elasticity of -0.29) for 21-44-year-old family heads or individuals. That’s very similar to what Dube finds. Neumark doesn’t mention this directly in the paper however; Dube is able to back out this conclusion using other variables that are listed. Indeed, Dube digs out the effects of the minimum wage on poverty from 12 different studies in the new wave of literature on the topic that started in the 1990s with David Card and Alan Krueger field-creating research. Of the 54 elasticities that Dube is able to observe in these 12 papers, 48 of them are negative. Only one study has a sizable positive one, a 2005 one by David Neumark, a study that stands out for odd methodology (it lacks state and yearly fixed effects, it assumes quantiles are moving in certain directions) that isn’t standard in the field or in his subsequent work. (Indeed, it is nothing like Neumark’s standard 2011 study, mentioned above, which finds that the minimum wage reduces poverty.) As many economists have argued, the minimum wage ”substantially ‘held up’ the lower tail of the U.S. earnings distribution” through the late 1970s, but this effect stopped as the real value of the minimum wage fell in subsequent decades. This gives us an empirical handle on how the minimum wage would help deal with both insufficient low-end wages and inequality, and the results are striking.[/quote] [url=http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/04/economists-agree-raising-the-minimum-wage-reduces-poverty/]Wonkblog - Economists agree: Raising the minimum wage reduces poverty[/url] An interesting result that, as far as I can recall, seems to quite rarely be the focus of any argument over the minimum wage here - but probably should be. I'm hesitant about the fact that the author was taking implied results from other papers, though, and as I understand things, it's still just a working paper, so I'll be interested to see if much changes when it's published properly. Still, though, it's a perspective to incorporate. A minimum wage increase is a particularly important discussion to have in the United States, where low levels of unionism and substantial unemployment have left the negotiating power firmly in the hands of employers. Thoughts? Comments from the economically-minded?

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  • Sorry, but no. You raise the minimum wage, and companies lay off workers to compensate for the wage increase. Seriously, why do you think America's manufacturing jobs are all overseas? Because in China, Taiwan, India, whatever, they get paid shit. It's cheap labor. If every state in America set their minimum wage to 7.50, our unemployment rate would dramatically decrease.

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    • >mfw literally everything in this thread God I don't know shit about the economy.

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      • >2014 >People thinking if the minimum wage is increased by an absurd amount companies will willingly bend over and cave in Lol no, they will just slash hours, benefits, and lay off people. What honestly makes you think they're going to willingly cave in to a wage increase? Take the McDonald's protests for example, their job is not worth $15 an hour no matter how you look at it. You can bitch and moan about how people can't live off those wages but that begs the question as to why they're trying to in the first place.

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        • I'm done with this rot. I'm using cryptocurrency from now on.

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        • Edited by MoReCoWbELLx2x1: 1/5/2014 4:07:41 AM
          Raising minimum wage won't help much. Where are you going to get all the money? Answer: The government prints more. What does that do? Answer: Cause our money to be worth less. What does that do? Answer: Make prices rise. In the end, it won't help much. It may at first, or actually it will seem like it is helping at first, but then it will not help at all. Or you have the other option. Raise minimum wage Effect: Fire more people to compensate Third option. Raise minimum wage Effect: Prices rise because people can afford more

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          • tl;dr

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            • Edited by Bucket of Tears: 1/5/2014 5:17:21 AM
              Why not make the minimum wage $100 an hour? Everyone would be rich right? Sounds stupid now, doesn't it?

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              • [i]Economists agree: Raising the minimum wage reduces poverty[/i] I mean really? Of course it reduces poverty. This is like a no brainer. More money = less people living on the edge of bare minimum. The cost of living is more than what a minimum wage job pays. It's like a sick joke imo. I'm just glad that I have a job that pays well above minimum wage and never would have to deal with getting paid less than what cost of living is. I can't imagine having to live paycheck to paycheck.

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              • I agree that the minimum wage should be increased, but only proportional to the inflation rate. If the MW would, let's say, jump to $10 right off the bat, the wages would become sticky.

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              • The way I see it is if you have a minimum education (like a high school diploma or GED), which gives you minimum skills for your minimum skill job why should you get payed more than minimum wage?

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                • Edited by Section Ratio General: 1/5/2014 5:10:40 PM
                  Again, with what I said earlier last year: With all the economists of the Off-Topic, I don't need to worry about it since they [i]obviously[/i] know what they're talking about and know more than people who have degrees in economics.

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                  • Well no shit; i don't have to be an economist to tell you that poor people getting slightly more money will make them slightly less poor.

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                  • Thats actually not true, raising the minimum wage drives up the minimum cost of things and thus sending the poor back to where they started making the same value, just with a bigger numerical value

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                    • Edited by Mently Wently: 1/5/2014 5:44:06 AM
                      and here come the Republicans with their bullshit arguments. Refer to Math's post if you're considering replying to mine.

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                      • Okay, I'm seeing some terrible economics ITT. Mainly with two claims: 1) raising the minimum wage will cause layoffs, and 2) raising the MW will cause prices to go up, effectively not helping the poor purchase more consumer goods. 1) The reason corporations can make a profit is because they are able to pay workers at a rate far lower than their actual productivity. Anyone being paid MW, which is $7.25 USD in the US, is only employed because they produce more than $7.25 an hour. Raising the MW would not cause these employees to be laid off, unless the MW were higher than their productivity. As to whether that may be the case, we should look at empirical data (something free-market economists rarely do). And, looking at such data, it would be clearly beneficial to raise the MW; just look at places such as San Fransisco and Australia, which have higher minimum wages but lower unemployment. 2) Workers' wages only account for a fraction of the cost of goods. Let's say, on average, 50% of the cost of a product is the wages of the workers who create it (this number is arbitrary, but this argument works so long as the number is less than 100%). Now the MW is doubled. Doing some math, this means that workers have twice as much money, whereas the price of good has, on average, been raised by 50%. Workers who are on minimum wage are now able to purchase more good than before, in other words, real wages have increased. I'm a novice in economics, so anyone, please point out flaws in my arguments.

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                        • Does anybody here know why inflation occurs?

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                          • Of course it does. Basic logic

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                          • Wait... giving people more money makes them less poor? Who could've seen [i]that[/i] one coming?

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                          • People who live off of minimum wage are retarded. Get a different job. I've never even had a job that payed minimum wage. Every job I've had payed over $12/hr and they were entry level jobs.

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                            • ITT: greedy, selfish conservatives

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                            • Edited by Quantum: 1/6/2014 7:12:34 AM
                              I would like to reiterate something that Krugman has stated; the minimum wage varies between states, and has little to do with overall employment. http://www.econbrowser.com/archives/2013/02/minimum_wage_an.html The gradient is 0.002; an[b] incredibly[/b] weak relationship between the minimum wage and unemployment.

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                            • And causes big corporations to outsource their labor.

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                              • Edited by Ad Hoc: 1/5/2014 7:23:40 PM
                                This is a terrible piece of writing. He offers almost no evidence to support either side. He just implies other papers have the evidence to support him. The minimum wage needs to be increased. At its current rate, it is not enough to live on. What's the argument against it exactly? That it cuts jobs because employers want to save money? Maybe it will, maybe it won't, but at the end of the day, industry still needs workers to make money. I'm getting sick of the Republican's faith in Trickle Down. It's amazing to me that so many people still stand behind it when it's never shown any gains over an extended period. If anything, it hurts the economy by pushing a large part of the money [i]Up[/i] to the rich. Cut military funding Tax Wall-Street Transactions Raise the minimum wage I'd also love to see a comeback for the Unions. Workers have lost most of their leeway, and that's terrible.

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                                • >these replies

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                                  • It helps the people that get paid more for doing the same amount of work. It doesn't help the people that are now unemployed as a result of the higher cost of labor.

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                                    • Isn't Australia's minimum wage like $17 or something? That would be pretty nice over here

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