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Old 07-24-2009, 03:49 PM   #1
Nimrod's Son
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Default Minimum wage increase hits today!

One of the first actions by the Democratic congress takes effect today: the minimum wage increase!

Raising minimum wage may prolong recession, some economists say Evansville Courier & Press
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Raising minimum wage may prolong recession, some economists say

* Posted July 23, 2009 at 4:24 p.m. , updated July 23, 2009 at 4:24 p.m.


By DIONNE WALKER -- Associated Press Writer

ATLANTA (AP) — A federal minimum wage increase that takes effect Friday could prolong the recession, some economists say, by forcing small businesses to lay off the same workers that the pay hike passed in better times was meant to help.

The increase to $7.25 means 70 cents more an hour for the lowest-paid workers in the 30 states that have lower minimums or no minimum wage. It also means higher costs for employers who feel they’ve already trimmed all their operating fat.

“How will they absorb the increase?” said Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center. “They will either hire less people or they will do less business.”

More than in any period before, businesses are likely to lay off employees and reduce hours, further fueling the economic slump in states seeing double-digit unemployment rates, fiscal conservatives and some economists say.

Minimum wage advocates counter the wage bump will keep more working poor afloat, and say more increases are needed to help stimulate consumer spending and strengthen businesses in the long run.

It’s an old policy debate that resurfaced when Congress passed the increase two years ago and has taken on urgency as the nation’s fiscal funk has deepened.

In the end, it’s the workers and their employers who find themselves caught in the middle.

At Bench Warmers Bar and Grill in the southeast Kansas farming town of Chanute (pronounced sha-NOOT), owner Cathy Matney has decided to let some of her dishwashers go rather than pay all 22 of her employees more.

“It’s bad timing,” said Matney, whose waitresses and cooks will have to pitch in with scrubbing pots and pans. “With the economy like this, there’s a lot of people who are out of work and this is only going to add to it.”

Ryan Arfmann, who owns a Jamba Juice shop in Idaho Falls, Idaho, will be cutting hours to his staff, which is made up largely of college students, high schoolers and homemakers who want to make a few bucks.

“Am I going to fire anybody, no,” Arfmann said. “But kids understand there’s going to be hours cut.”

Arfmann said he wishes the increase was spread out over a few more years, to make it easier for him to absorb the costs. He also is concerned that he’ll end up having to give everybody raises just to maintain pay differentials between employees.

“People who are already getting paid above $7.25 are going to feel like they need raises as well,” he said. “It’s harder for me to reward employees that are doing well because of minimum wage being so high.”

Backers of the increase say it’s long overdue for millions of the nation’s working poor. Rep. George Miller, D-Calif., authored the 2007 minimum wage legislation, which increased pay for the first time in a decade.

“A higher minimum wage helps working families’ budgets and results in increased spending on local business, which is good for everyone,” Miller said in an e-mail. He did not say whether he would have pushed to raise the minimum wage in an economic climate like the current one, and he did not immediately respond to a message left Thursday with his spokesman.

Miller’s view is a tough sell to employers of minimum wage workers — from hotels to daycares to burger chains — who find themselves having to cut larger paychecks as their revenues continue to shrink. The effects could be especially harsh in the seven states — Alabama, Florida, Georgia, Indiana, North Carolina, South Carolina and Tennessee — where the pay increase coincides with double-digit unemployment.

“Wherever you have the higher unemployment rates, that’s where the business conditions are bad — and that’s where a minimum wage increase will have an impact on the negative side,” said Dhawan, the economist at Georgia State.

Dhawan said the strain could be felt equally in metropolitan areas, where fast-food chains and franchises employ large numbers of minimum wage workers, and in smaller towns where the bulk of the work force may be concentrated in one, low-earning sector.

Fewer workers employed, meanwhile, reduces the amount of money in circulation — dampening any consumer spending spike the wage boost could have created, Dhawan said.

“The increasing power from the higher wages will be swamped by the losses from the people who lost jobs,” he said.

Marilynn Winn, an Atlanta woman who earns $6.75 an hour — a couple of dimes more than the current $6.55 federal minimum — driving cars between auto auctions, worries the pay boost could lead her boss to make cuts, especially to older workers like herself.

Still, she said she’d be grateful for the raise if she gets to keep her job.

“We could use more, the more the better,” said Winn, 58.

Sara Campbell, who earns roughly $786 a month cleaning event spaces in Atlanta, said she’s unlikely to spend any money she gets from the minimum wage increase, especially since she worries her hours will get cut.

“You never know,” she said. “You might lose your job. They might start laying off and if they lay off, I’ll have something saved up.”

Played out across enough businesses, that pattern could stunt economic recovery nationwide, said Moody’s economist John Lonski.

“You’re going to get fewer jobs created,” said Lonski, who predicted national unemployment would peak at 10.5 percent in the first quarter of 2010. “It’s not a backbreaker for the U.S. economy, but it doesn’t help stabilize employment, especially since most businesses now suffer from much lower than expected sales.”

It’s hardly the first time a wage increase has prompted doom and gloom predictions from economists, who point to conventional business thinking that supports the idea that higher costs plus lower revenue equals a shrinking work force.

More upbeat predictions suggest the wage increase could actually play a role in turning around the nation’s finances. Labor Secretary Hilda Solis said Thursday that the wage increase will generate an extra $5.5 billion in consumer spending over the next year.

Economists have largely overlooked the positive effect on consumer buying power, according to Holly Sklar, senior policy adviser for Let Justice Roll, a national campaign aimed at increasing the minimum wage to $10 by 2010.

A further wage increase could eventually become a reality: One of President Barack Obama’s campaign promises included raising the minimum wage to $9.50 an hour by 2011.

“You can’t have an economy that’s based heavily on consumer purchasing power, and at the same time, not pay the consumer enough to live on,” Sklar said.

****************

Thirty-seven states have no minimum wage or one that is lower than the $7.25 federal minimum, which takes effect Friday and trumps state laws setting lower floors.

Places with higher minimums include:

California — $8

Colorado — $7.28

Connecticut — $8

Illinois — $8

Massachusetts — $8

Michigan — $7.40

New Mexico — $7.50

Nevada — $7.55

Ohio — $7.30

Oregon — $8.40

Rhode Island — $7.40

Vermont — $8.06

Washington — $8.55

Washington, D.C. — $7.55

———

Source: Bureau of Labor Statistics, state labor agencies

 
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Old 07-24-2009, 03:50 PM   #2
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This'll help struggling businesses, surely.

 
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Old 07-24-2009, 04:18 PM   #3
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Another one for the ever-growing "It seemed like a good idea at the time" file.

 
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Old 07-24-2009, 04:36 PM   #4
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wait, giving workers more money that they can spend will prolong the recession, while giving rich people money they can spend in form of tax cuts will make it stop?

 
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Old 07-24-2009, 05:04 PM   #5
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Originally Posted by severin View Post
wait, giving workers more money that they can spend will prolong the recession, while giving rich people money they can spend in form of tax cuts will make it stop?
Cutting their hours and killing small businesses will hurt workers.

 
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Old 07-24-2009, 05:06 PM   #6
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wait, giving workers more money that they can spend will prolong the recession, while giving rich people money they can spend in form of tax cuts will make it stop?
Workers only get more money from a minimum wage hike if they have a job. Workers only have jobs when their employers can afford to pay them.

When you're rocketing towards double digit unemployment, the last thing you want to do is make it harder for employers to pay the employees they have, much less hire new ones.

 
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Old 07-24-2009, 05:10 PM   #7
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tons of studies and mixed results. both sides have data for their argument on this issue

 
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Old 07-24-2009, 07:02 PM   #8
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the unemployment rate will definitely follow once the new minimum wage is enacted. stands to reason that employers who are not wanting to pay the going rate will cut back employees

 
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Old 07-24-2009, 07:25 PM   #9
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that would be more convincing if this was the first time we've raised the minimum wage.

 
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Old 07-24-2009, 08:37 PM   #10
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but is it the first time the min wage has been raised when unemployment is high?

this is the kind of stuff you do when the economy is roaring, not when it's slumping. I think that's plain to see unless you have some data contrary to this.

not that i think it's necessary either way

 
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Old 07-24-2009, 10:07 PM   #11
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well the other line of thought is that this will increase consumer spending. but again, studies are mixed. all the increases of the past seem to be a wash overall, with little or no impact on employment.

not sure what that means in a down economy, eh, maybe you're right. we'll see.

Last edited by Debaser : 07-24-2009 at 10:12 PM.

 
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Old 07-25-2009, 06:20 PM   #12
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We have to remember that a price floor is a bar over which the affected good or service has to jump in order to make it into the market. It is not a rising tide that lifts all boats.

Over time those workers who provide a marginal revenue product (MRP) of at or less than this new figure will lose their jobs. Those workers who are creating a higher MRP but are being paid lower than the market rate (which should not be happening, but will happen because of other interventions creating distortions - payroll tax, forced health care, forced non-monetary benefits, etc...) will see their wages rise to the new floor (but not without the cost of money coming indirectly from other, competing workers).

Like all interventions, this will have unequal effects - some benefiting and some losing (as opposed to purely voluntary transactions, where all parties win).

Those who benefit will be:
- large corporations with lots of unskilled workers (who can afford to pay more)
- skilled workers
- unionised labourers
- politicians who can use this as an emotional appeal for votes
- foreign workers
- underground or "illegal" workers

Those who will lose are:
- low skilled workers
- women, blacks and minorities (who disproportionately have a lower MRP)
- small and medium sized businesses
- high school workers
- the mentally challenged
- people in transitional jobs

 
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Old 07-26-2009, 04:29 AM   #13
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tons of studies and mixed results. both sides have data for their argument on this issue
This is as clpse as one will ever get to Debaser admitting he's on the wrong side of an issue.

 
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Old 07-26-2009, 01:57 PM   #14
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I will disagree with anybody who claims that minimum wage hurts the unemployment rate.

But at the same time, I won't argue with anybody who claims that the minimum wage doesn't really help the poverty rate.

 
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Old 07-26-2009, 02:12 PM   #15
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Originally Posted by Nimrod's Son View Post
This is as clpse as one will ever get to Debaser admitting he's on the wrong side of an issue.
Surely God in Heaven can smell the slow roasting irony, wafting up to him like Satan's cappuccino maker.

 
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Old 07-26-2009, 08:04 PM   #16
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this raise in the wage really only affects the smallest portion of workers.

i mean if you are over 15 and not making more than minimum wage then ...you know fuck off.

and giving wage slaves who are just living paycheck to paycheck, more money, will just send more money back into the system, so i see how it could help the depression slightly
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Old 07-27-2009, 03:57 AM   #17
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Originally Posted by Debaser View Post
I will disagree with anybody who claims that minimum wage hurts the unemployment rate.

But at the same time, I won't argue with anybody who claims that the minimum wage doesn't really help the poverty rate.
It doesn't hurt the unemployment rate, but it makes a lot of people underemployed when hours get cut

 
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Old 07-27-2009, 04:37 AM   #18
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Originally Posted by Nimrod's Son View Post
It doesn't hurt the unemployment rate, but it makes a lot of people underemployed when hours get cut
This is it really. I mean, I have no idea how they calculate the unemployment rate or how much it actually means in relation to "how many Americans are employed or optimally employed." Probably not much.

But logically speaking, a minimum wage is a price floor. There is no getting around that. Unless EVERYONE in society is more productive then the price floor, then some are banned from working. The reductio ad absurdum is relevant here - raising the minimum wage to $1,000,000 an hour is going to have the effect of banning almost the entire population from working - waiters won't suddenly get their wages raised to that rate. Whether it's an increase of $1 million, $10 or $.45 - it is going to have a proportional effect on employment.

 
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Old 07-27-2009, 04:53 AM   #19
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jczeroman you would love germany we dont have min wage

 
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Old 07-27-2009, 04:54 AM   #20
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The people I feel badly for most are the workers who earned a 75 cent raise for effort and now make as much as the guy with no experience off the street

 
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Old 07-27-2009, 05:11 AM   #21
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is that when you're not calling them losers and fuckups or...?

 
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Old 07-27-2009, 05:59 AM   #22
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No matter what I call those people, it doesn't but food on their tables. Keep on distracting and never confronting issues though, it's what you're good at.

 
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Old 07-27-2009, 07:22 PM   #23
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Originally Posted by Nimrod's Son View Post
The people I feel badly for most are the workers who earned a 75 cent raise for effort and now make as much as the guy with no experience off the street
um i believe the general law of competitive wages would make the person making 75 cents above minimum wage to continue making 75 cents above a higher minimum wage.

Did you never work retail or what? If the new hires are making as much as you and you've been there for a year and earned those raises then you would expect to be compensated above the higher new hire wage.

 
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Old 07-27-2009, 07:35 PM   #24
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Originally Posted by dudehitscar View Post
Did you never work retail or what? If the new hires are making as much as you and you've been there for a year and earned those raises then you would expect to be compensated above the higher new hire wage.
Did you never work for a shitty retail business or what? There are plenty of bosses who wouldn't give a flying fuck, and would say "Oh well, that's life".

 
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Old 07-27-2009, 07:42 PM   #25
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Did you never work for a shitty retail business or what? There are plenty of bosses who wouldn't give a flying fuck, and would say "Oh well, that's life".
then they lose their employees to most businesses that will pay more... then the boss will give a fuck if he can't get good help. This isn't a controversial phenomenon.
Even someone who is against the min wage increase (or existence) should be able to grasp this concept.

 
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Old 07-27-2009, 09:12 PM   #26
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then they lose their employees to most businesses that will pay more... then the boss will give a fuck if he can't get good help. This isn't a controversial phenomenon.
Even someone who is against the min wage increase (or existence) should be able to grasp this concept.
...and they'll just hire some other shmuck that's looking for a retail job. They're a dime a dozen. You do realize the turn-over rate for retail is something like 6 months, maybe even shorter?

I'm really getting the feeling that either you haven't had a retail/restaurant job, or you have the world's best retail/restaurant job and are completely clueless about how the rest of the industry works.

 
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Old 07-27-2009, 09:27 PM   #27
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...and they'll just hire some other shmuck that's looking for a retail job. They're a dime a dozen. You do realize the turn-over rate for retail is something like 6 months, maybe even shorter?

I'm really getting the feeling that either you haven't had a retail/restaurant job, or you have the world's best retail/restaurant job and are completely clueless about how the rest of the industry works.
you are wrong on both counts..

 
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Old 07-27-2009, 09:29 PM   #28
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No matter what I call those people, it doesn't but food on their tables. Keep on distracting and never confronting issues though, it's what you're good at.
I'm just pointing out the fact that you don't feel sorry for them at all.

but you can keep acting like you're a compassionate person, everyone sees right through it.

 
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Old 07-27-2009, 09:36 PM   #29
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you are wrong on both counts..
WTF are you basing that on? Your limited anecdotal experience? How am I wrong?

 
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Old 07-28-2009, 11:57 AM   #30
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um i believe the general law of competitive wages would make the person making 75 cents above minimum wage to continue making 75 cents above a higher minimum wage.
Wait, what? On what planet?

 
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