Minimum Wage is Pathetically Low


c27aMinimum Wage is Pathetically Low

You can read it below: last years banker’s bonuses were twice the entire income of all those making the minimum wage.

Certainly, this should be considered evidence that the minimum wage is set too low. A good argument can be made that the social utility of what minimum wage earners do is far superior in benefits for our larger society than investment banking and some of the practices of regular banking.

It’s important to think about fairness and just deserts when dealing with this issue. In this country, the game is tilted toward those with influence and power. The minimum wage workers hardly register on either of those scales.

It is for the rest of us to add to their voice, to sometimes be their voice. What isn’t fair for our fellow Americans is a part of our responsibility.

We are not individual atoms floating in some kind of cosmic vacuum. We live, work and thrive with other people and those connections are important and a big part of what we consider civilization.

James Pilant

New report: Bankers’ bonuses more than double full-time minimum wage workers’ pay – Salon.com

The $26.7 billion spent on Wall Street bonuses last year was greater than the entire 2012 income of America’s full-time minimum wage workforce, according to a new report from the progressive Institute for Policy Studies.

Had that $26.7 billion instead gone to increased wages for the country’s 1,085,000 full-time minimum wage workers, writes report author Sarah Anderson, those workers’ wages ($15.1 billion total in 2012) would have more than doubled. Anderson estimates that such a raise for minimum wage workers would have done much more than bank bonuses to spur economic growth: In contrast to a $10.4 billion multiplier effect from the payouts to bankers, she calculates a $32.3 billion multiplier if the cash had gone into the pockets of those now making $7.25.

via New report: Bankers’ bonuses more than double full-time minimum wage workers’ pay – Salon.com.

From around the web.

From the web site, Arindrajit Dube.

http://arindube.com/2014/01/22/the-poverty-of-minimum-wage-facts/

So to take stock, if you consider the Sabia and Burkhauser simulation results  as “facts” you also are claiming that no worker reporting a wage below the old minimum will get a raise, and no one above the new minimum will get a raise. These are not very good assumptions, and they certainly are not facts.

Of course, you don’t have to make these assumptions. You could allow for spillovers. You could allow for wages to rise below the minimum. You could allow for measurement error in reported wages and other sources of income. But then you are not in a world where tabulating survey data gives you simple facts that are beyond reproach. You need to make additional assumptions to make causal claims. And we have not even begun to talk about behavioral effects—be they on labor demand side, or on labor supply side such worker search effort, etc. (And by the way those do not all go in the same direction.)  So you could add a lot more assumptions and continue with the simulation route, or you could use quasi-experimental approach used in almost all of applied micro-economics to empirically estimate the effect of minimum wages on poverty and other outcomes.  Of course, you would want to subject your identifying assumptions to specification checks and falsification tests to ensure you have reliable control groups; and you would account for possibly confounding policies such as state EITCs. And when you do all of that, and some more, you would probably end up with a paper like this one.

So where does this leave us?   As I said in my paper, policies like cash transfers, food stamps, and EITC are better targeted to help the poor, although even there minimum wages are better thought of as complements and not substitutes. More generally, however, motivations behind minimum wage policies go beyond reducing poverty. The popular support for minimum wages is in part fueled by a desire to raise earnings of low and moderate income families more broadly, and by fairness concerns that seek to limit the extent of wage inequality, or employers’ exercise of market power.  And the evidence suggests is that attaining such goals through increasing minimum wages is also consistent with a modest reduction in poverty, and moderate increases in family incomes at the bottom.

Credit Rating Overused


Credit ratings are one way to measure the risk a borrower poses. It is ironic that during the housing bubble that a low credit rating often got one a mortgage while today it takes it a high one to get a similar or lessor mortgage.

An article in the New York Times discusses this problem.

It seems that lenders are overusing credit ratings because of their simplicity and a misunderstanding of their limitations. The score is an algorithm based on a collection of data by one of three major rating agencies: Transunion, Equifax and Experian. But there are no rules on how information is gathered. Lending companies and other debt organizations have a great deal of freedom in choosing what to disclose and where to disclose it.

This is a quote from the article:

You would think, given the critical importance of an accurate score, that there would be rules about the information that is submitted to them. There aren’t. Lenders can submit information about your credit history to one of the bureaus, all of them or none of them. Some of them turn over information right away; some take months; some don’t do it at all. Some are sticklers for accuracy; others are sloppy. The point is that the credit score is derived after an information-gathering process that is anything but rigorous.

The author went on to point out many errors in his report. These companies are unregulated and make up their own rules. But their decisions can be disastrous for individuals. Whether or not you can buy a house or a car is a critical decision for most people. Not to mention, the interest rate to be paid and whether or not you can get adjustments in rates are also factors determined in whole or part by credit ratings.

There need to be rules. These credit agencies have more power than most parts of the federal government, certainly more than the states. Isn’t it objectionable to you that there is a private company determining without oversight some of the most important elements of your life? Shouldn’t we do something about it?

How about just a small thing? Let’s make them correct errors not when they want to but whenever there is an error. Why don’t we standardize the rules about to whom and about what lending companies must report? How about criminal or civil penalties when reports are deliberately falsified? We can fix the problems that bedevil capitalism. There should always be ground rules. It is unfortunate that we cannot rely on the morals and honesty of individuals but that is not the case.

These companies have virtually unfettered power. Is that good for anyone or any organization at any time? Let’s change the rules. As citizens in a democracy we are entitled to fairness.

James Pilant