An intimidation tactic masquerading as an economic theory

The propaganda about the terrible consequences of paying workers more is just that: propaganda, aka lies. Nick Hanauer explains it.

Minimum wage opponents continue to deride every proposed increase as a surefire job killer, while reporters and pundits reliably characterize the passage of every minimum wage ordinance and statute as a dangerous experiment that threatens to harm the very people it’s intended to help. “California makes itself a guinea pig in a massive and risky minimum wage experiment,” tweeted the New York Times’s Noam Scheiber. “Raising minimum wage risky,” the Lexington, Kentucky Herald Leader’s headline tersely warned its readers following $15 victories in faraway California and New York. “Raising minimum wage hurts low-skill workers,” the Detroit News bluntly chimed in. “Even left-leaning economists say it’s a gamble,” Vox solemnly cautioned (without actually managing to cite a single left-leaning economist willing to pejoratively editorialize $15 as a “gamble.”)

It’s odd that that’s such a mantra when another top fave mantra is that spending fuels the economy. How are people supposed to spend if they don’t have enough money? Why wouldn’t more discretionary income put all those factories to work making more socks with separated toes?

Anyway, they crunched the numbers, and…

A small army of economists has tried to test this theory over the past few decades. It is tricky, because unlike the simplified models in Econ 101 textbooks, real economies are messy and complex: technologies change, the Fed moves interest rates, oil prices fluctuate, the business cycle swings, a hurricane hits and so on. The challenge is to isolate the impact of the minimum wage from all of these other factors that might affect growth or employment. Through various sophisticated statistical techniques, researchers have attempted to separate the minimum wage signal from the economic noise, and while economists never agree on anything, they have produced a range of consistent results: from zero to zip to nada to a very small effect. In a 2014 letter to President Obama and congressional leaders signed by more than 600 economists (including seven Nobel Prize winners), the authors concluded that “the weight of evidence now show[s] that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

And, you know, there are actually some advantages to not keeping a quarter of the population or so in dire poverty. I know, I know, that’s hard to credit, but it’s true.

But while there’s no evidence that raising the minimum wage is the “risky gamble” doomsayers describe, the devastating economic costs of keeping wages too low are very well documented. After decades of stagnant wages, 73 million Americans — nearly one quarter of our population — now live in households eligible for the Earned Income Tax Credit, a benefit exclusively available to the working poor. And according to a 2014 report from the Organization for Economic Cooperation and Development, rising income inequality (and the reduced consumer demand that comes with it) knocked 6 to 9 percent off U.S. economic growth over the previous two decades.

See? What I’m saying. We’re supposed to be a consumerism-based economy, but how can we be that when so many people can’t afford to buy a shiny new Roomba?

People on the minimum wage tend to spend everything they earn. Increases in the minimum wage thus flow back into the economy (again, like the tide flowing upstream), generating increased demand, which in turn increases hiring and investment. It is a basic principle of capitalism that when workers have more money, businesses have more customers, and when businesses have more customers, they hire more workers. This income effect may not have left a large mark on the historical data, because historically, most minimum wage increases have been relatively small. But it is real and should be taken into account. And in an era of depressed demand and consumer spending, as we are now, higher wages are exactly what our economy needs.

What I’m saying. The money paid in wages isn’t just lost. It’s part of the economy.

But of course the employers want other people to pay higher wages while they go on paying lower ones. A minimum wage means they all have to do their bit, so fight fight fight.

And that’s what it is, Hanauer says – it’s not a theory, it’s a scam.

The claim that if wages go up, jobs go down isn’t a description of reality at all. Nor, in my opinion, does it reflect legitimate economics. It is a negotiating strategy. It is a scam, a con job, a threat — more precisely, it is an intimidation tactic masquerading as a legitimate economic theory. I believe this is where being a businessperson and not an economist leads to greater clarity. Very few economists have ever run a business or negotiated wages. But the first rule in the businessman’s handbook on wage negotiation and suppression is always, always when they ask for a raise, threaten their jobs. It works like a charm and has since the invention of capitalism. You see, the claim if wages go up, employment goes down isn’t made because it is true. It’s made because if people like me can get people like you to believe it is true, I’m going to get richer, and you are going to get poorer. The lower your wages are the higher my profits will be. It’s that simple.

Yep. The bosses don’t mind if other bosses pay more, but they don’t want to pay more. Get your sheep off the common, damn you, they’re taking all the grass that my sheep should be eating.

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