$15 minimum wage

[RandBlade]

I didn't say there would be rampant inflation. I said that I didn't think everyone would get a 66% pay rise but if everyone did (ie jobs currently paying double the minimum continue to do so) then that would cause rampant inflation. However that's not the outcome I expect, the outcome I expect is higher unemployment. Like you do too it seems.

There's simply no realistic way to squeeze a 66% pay rise without negative consequences of some sort.

Loki is right that you need to factor in the Opportunity Cost of lost earnings.

[wiggin]

You missed the foregone earnings part. If you're in college for 4 years (which is less than what it takes most people to graduate), you're not working for 4 years. That's $120k you're not making relative to working for $15 an hour during those 4 years.

Oh, I didn't miss it, I just didn't realize you were including it (though a large proportion of poorer students work at least half time during school - I certainly did, and I don't count as poor). A NPV analysis still pays off way faster than 16 years, especially for the demographic you're talking about. We have to make some assumptions about the future of the wage premium, but it still pays off quite rapidly.

In an interesting aside, I once went to a seminar where a very large medical device company was trying to convince a bunch of engineers to get graduate degrees because they needed those skills. The only problem was that they ran numbers on their own firm to look at the wage premium for a PhD over a BS in engineering. Factoring in the 5-7 years of lost wages (the difference between a grad stipend and an engineer's salary is easily $30-40k pa) and reasonable assumptions about inflation, wage growth, and investment returns for the opportunity cost, and the PhD was still something like $250k in the hole compared to the BS after a few decades. Not a very compelling argument in favor of graduate education. (Of course, that masks a great deal of heterogeneity and how interesting your job would be, but still...)


edit:
RB, I suspect we agree. There are obviously consequences, but they aren't necessarily all awful. The pace of rises is somewhat concerning, yes, and there will be localized disruption to some businesses and prices. But the effect on the broader regional economy may be muted in the short term.

[RandBlade]

Yes I think we agree. It's the pace of change that is most concerning for me.

I'm not sure it's fair to discount the opportunity cost due to someone working on top of education. If you're working on your education full time then a part time job is equivalent to having a second job - and it's certainly possible to have two jobs. A number of people do a part time job on top of a full time one.

[Loki]

A) I've yet to see a convincing study on the benefits of a college degree that accounted for selection bias (i.e. the characteristics of the students going to college). I suspect the real advantage is substantially smaller than the numbers that are usually thrown around.
B) You're assuming that people will use long-term rationality instead of short or medium-rationality. You're doing this despite knowing that the poor are precisely the group that doesn't take a long-term view. As I pointed out, at a reasonable estimate, it would take well over a decade for someone who goes to college to catch up to someone who's worked the entire time. Sure, there are a few fields where this happens much quicker (engineering, finance, etc.), but who tends to go into those fields? First-generation college students? All a $15 minimum wage would do is worsen income and social inequality be persuading the poor that they have no need to get an education (Spain is seeing the consequences first hand after the construction boom led to a whole generation of poor students dropping out and getting construction jobs).
C) The effect of this minimum wage on the economy would vary significantly from industry to industry. I suspect that it might gut entire sectors of the economy (retail and fast food in particular) or at least sharply reduce the number of jobs in those sectors. What's going to happen to the unskilled labor that depends on those sectors? We're going to end up with a huge number of long-term unemployed.
D) As I already mentioned, the larger the disparity between market wages and a minimum wage, the larger the role a black market will play. If your average unskilled worker "deserves" $10 in wages but gets $15, and there's no real difference between the unskilled workers, we're going to have a significant new black market in getting these jobs. Just go to to any third world country with a large (overpaid) public sector for examples of how this would work in practice.

As for people working through college: they tend to take longer to graduate. Which means they'll have even more in foregone earnings. In fact, the economically rational thing to do would be to graduate college as fast as possible, because your wages right after graduation are going to be much higher than your wages while in college.

[wiggin]

Yes I think we agree. It's the pace of change that is most concerning for me.

I'm not sure it's fair to discount the opportunity cost due to someone working on top of education. If you're working on your education full time then a part time job is equivalent to having a second job - and it's certainly possible to have two jobs. A number of people do a part time job on top of a full time one.

Yes, but realistically large proportions of students have part time jobs, but a much smaller proportion of full time workers also hold down significant second jobs. It probably speaks to the fact that many university courses are not adequately rigorous.

A) I've yet to see a convincing study on the benefits of a college degree that accounted for selection bias (i.e. the characteristics of the students going to college). I suspect the real advantage is substantially smaller than the numbers that are usually thrown around.
B) You're assuming that people will use long-term rationality instead of short or medium-rationality. You're doing this despite knowing that the poor are precisely the group that doesn't take a long-term view. As I pointed out, at a reasonable estimate, it would take well over a decade for someone who goes to college to catch up to someone who's worked the entire time. Sure, there are a few fields where this happens much quicker (engineering, finance, etc.), but who tends to go into those fields? First-generation college students? All a $15 minimum wage would do is worsen income and social inequality be persuading the poor that they have no need to get an education (Spain is seeing the consequences first hand after the construction boom led to a whole generation of poor students dropping out and getting construction jobs).
C) The effect of this minimum wage on the economy would vary significantly from industry to industry. I suspect that it might gut entire sectors of the economy (retail and fast food in particular) or at least sharply reduce the number of jobs in those sectors. What's going to happen to the unskilled labor that depends on those sectors? We're going to end up with a huge number of long-term unemployed.
D) As I already mentioned, the larger the disparity between market wages and a minimum wage, the larger the role a black market will play. If your average unskilled worker "deserves" $10 in wages but gets $15, and there's no real difference between the unskilled workers, we're going to have a significant new black market in getting these jobs. Just go to to any third world country with a large (overpaid) public sector for examples of how this would work in practice.

As for people working through college: they tend to take longer to graduate. Which means they'll have even more in foregone earnings. In fact, the economically rational thing to do would be to graduate college as fast as possible, because your wages right after graduation are going to be much higher than your wages while in college.

Re: selection bias, it is indeed a real challenge to understand the counterfactual in these cases. In fact, employers often don't really need their employees to be college-educated to perform their jobs adequately - it's more like a proxy for selectivity (i.e. if you can get into college and graduate with decent grades, you are probably a superior candidate to the kid with a high school diploma). It is illuminating, however, that certain majors have a much bigger wage premium than others - generally those majors that teach you actual, marketable skills in school (engineering and hard sciences, mostly). One could estimate the size of the selection bias in affecting wage premiums by taking the majors with the lowest wage premiums and assuming those teach the fewest useful skills (like, say, art history), leaving any additional premium as related to the education. That's still imperfect, though, since the students getting degrees in chemical engineering are also a select bunch who probably would have done better than the students in art history even in the absence of a university education. It's a complicated problem to untangle.

As for the rationality argument, I think you're assuming a level of sophistication in decision making that simply doesn't exist with the typical high school graduate, let alone a poor one. They don't look at net present value analyses, crunch numbers about payoff timeframes, or much of anything else. If you asked the typical matriculating college student what kind of starting salaries they could expect in their chosen field of study, I guarantee most of them will be well off the mark (as well as having the sophistication to understand opportunity costs, inflation, foregone wages, etc.). Frankly, students go to college because we are told culturally that this is the way to get ahead and get a good job. Students rarely examine these premises with any level of rigor.

I agree that certain sectors are likely to see somewhat reduced employment, though it's very unclear how much that will be reduced - it has to do with the cost of capital, substitutability of capital for labor, and unforeseen positive externalities associated with higher wages (e.g. lower turnover, which is a huge chunk of labor costs for employers of low skilled labor). The exact threshold where significant job losses are likely is not well defined in the literature, but I agree it's likely to be a factor.

I think black markets in labor will depend heavily on the industry. In industries dominated by large companies (e.g. retail, fast food), I don't really see it happening - enforcement is likely to be pretty good. In smaller industries with more fragmented markets - e.g. domestic services, unlicensed childcare, small businesses, etc. - you're likely to see a black market, just like you do today with illegal immigrants. This is honestly one of the arguments I find most compelling against a minimum wage - not the existence of the black market per se (though it can have corrosive effects on the rule of law), but the fact that minimum wages essentially restrict workers' rights to sell their labor by competing on cost. In reality, I'm not sure this is as big of a concern as it is theoretically, but it does make me uncomfortable.


On working through college - 10 or 20 hours a week is hardly going to keep you from graduating in 4 years. Students waste far more time than that on other frivolities in college. I routinely had 30+ hours of classes/labs, a substantial research commitment (~10 hours), untold hours of homework, and still managed to keep a small side job and leave time for socializing/extracurriculars. It was busy, but whose life isn't? Plenty of students with less rigorous academic loads could do even more work if needed. I'm not saying it's for everyone, but it's quite doable, and can more or less cover living expenses, especially when coupled with summer employment.

[RandBlade]

Yes, but realistically large proportions of students have part time jobs, but a much smaller proportion of full time workers also hold down significant second jobs. It probably speaks to the fact that many university courses are not adequately rigorous.

Probably though that's another question. I've yet to hear a good reason as to why US Colleges take 4 years as standard for a basic Bachelors degree and two for a Masters. I got mine in 3 and 1 respectively (so got my postgrad Masters in the same time I believe it takes a US student to get a Bachelor's degree). Sorry if the terms Bachelor's and Masters aren't the appropriate US terminology. Only language students had a 4 years Bachelor course and that's because they spend the third year abroad in a nation of that language before returning.

[wiggin]

Probably though that's another question. I've yet to hear a good reason as to why US Colleges take 4 years as standard for a basic Bachelors degree and two for a Masters. I got mine in 3 and 1 respectively (so got my postgrad Masters in the same time I believe it takes a US student to get a Bachelor's degree). Sorry if the terms Bachelor's and Masters aren't the appropriate US terminology. Only language students had a 4 years Bachelor course and that's because they spend the third year abroad in a nation of that language before returning.

That's a whole 'nother can of worms. I think that the UK (and, for that matter, the Continental) tertiary education system is very different from that of the US (and Canada), and there are positives and negatives to each. I have no doubt that given the fairly lightweight nature of some degrees, it's possible to do the equivalent work for some majors in 3 or even 2 years without significant loss. Other degrees, however, benefit from four years. I think that STEM degrees in particular have precious little in the way of fripperies (electives, core requirements, etc.) in many schools, and the extra year provides students with substantive preparation they wouldn't receive in a 3 year program. For Masters' degrees there is a lot more variability, with plenty doable in a single year. Generally, 2 year programs have a substantial research component in addition to coursework.

Masters' degrees are also different in the US in that they're more or less optional for those seeking higher education - in many (though not all) European systems, they are required for entry into a PhD program. In the US, large chunks of students go straight to a PhD after a bachelor's degree. On the other hand, US PhDs tend to have far more coursework in addition to research - I had two years of full time coursework (coupled with part time research) followed by another 4 years of research. I was astonished when an Italian postdoc I was working with confided that he thought the quality of US PhD students was far higher due to our significant lead in coursework from longer bachelor's degrees and hefty coursework early in our graduate studies - it gave us stronger backgrounds in both depth and breadth.

I think the reality is complex - big chunks of the US tertiary and graduate education system are wasteful, but other chunks are truly superlative. Fundamentally, students just need to make the most of their time and resources to extract the highest value out of their time and money. To get back on topic, I don't think that a moderately clever student is ever going to think that investment isn't worth it because they could make $30k pa flipping burgers.

[Loki]

To add: American high schools are terrible compared to British ones. The first year of college is basically catching up on subjects and skills that the students should have learned in high school. For the masters: an American one is substantially better. You take the equivalent of 8 courses in Britain vs. 16 in the US. They're specialized courses in both cases. It's pretty obvious which covers more info and provides more skills.

[wiggin]

To add: American high schools are terrible compared to British ones. The first year of college is basically catching up on subjects and skills that the students should have learned in high school.

You've said that before, but that definitely wasn't my experience in uni. I think it depends a lot on the school and major.

[Loki]

You've said that before, but that definitely wasn't my experience in uni. I think it depends a lot on the school and major.

You went to a college that gets the top 1% of the top 1% of high school students.

[wiggin]

Well, your numbers are a bit off - 0.01% of the 3.3 million high school seniors would only be 330 students total, while my undergrad had 2k students per year and is only ranked in the around 10th to 15th best overall. Figure they got 2k of the best (/richest) 2-3% of the students, and you'd probably be accurate. But there's already a winnowing - only the top 2/3 of high school students go on to college, and I think less than half go to four-year colleges. So you've already selected the top half of high school students, eliminating a lot of dead weight and the poorly educated.

We all know that the problem with the US in many metrics - education, healthcare, etc. - isn't that there aren't superlative options available, but that quality is highly heterogeneous. I question your assertion the poor quality of some US high school educations leaves your typical university-bound student so poorly prepared for college so much that they require a year of remedial schooling. I would bet that even for only moderately selective colleges (say, those that take from the top 20% of the pool, meaning a bit less than half of the 4-year uni bound) don't really have this problem.

I have no doubt that you have personally taught idiots in your travails in cornland. I have also met people who did not seem like they were adequately prepared, and that was TAing courses for the most competitive major in an incredibly selective institution. Yet in my experience they are the exception and not the rule, and doubt that the 4 year university system is in any way designed or geared towards remedial coursework for these exceptions. I could be wrong, of course, but I'd need to see data.

[Loki]

The cornfields have the 42nd best college in the country. 21 million Americans are attending college at any given time. The top 10 colleges have what, maybe 100k students total? That's 0.5%. Then you exclude the people who don't go to college at all (about 2/3 of the population I believe), and you're in the top 0.15%. My undergrad was ranked ~100 in the country. I imagine it was much closer to the national median. And while we don't get many idiots in the cornfields (at least not in poli sci), we do get plenty of people with a very poor knowledge of most subjects (to give them credit, they learn fast). The work load here in freshman and sophomore classes also pales in comparison to the workload of your typical British university. Based on a decent amount of anecdotal evidence, I'm going to say that the workload in a top 30 program in Britain is higher than the workload in all but the most elite schools in the US. And that workload starts from year 1.

[Flixy]

Just wanted to add that STEM masters takes two years here and not one.

[RandBlade]

Many STEM Masters at my university (University of Nottingham) were a single integrated four year course. You can do a Bachelors in Engineering for example in 3 years but I don't know anyone who did that. All my Engineering friends were doing a 4 year MEng course.

[Flixy]

MSc is 3 years bachelor and 2 years masters here. Meng is I think only for non university colleges and I have no clue how long that takes altogether.

[Aimless]

Will be back with a source later, but I read about this a while back during another discussion and I believe something around 20% of students entering 4-year university programmes at public institutions enrol in (or are placed in ) remedial classes and the rates are even higher for 2-year college programmes. Obv. lower for more selective institutions and pricier or more profit-oriented ones.

[Loki]

http://mic.com/articles/118380/this-...-simple-reason

Case and point.

[LittleFuzzy]

That doesn't surprise me in the slightest. When I started taking Econ courses I had to take a remedial math class rather than going straight to calculus and I never did end up doing well with proving results mathematically in my Econ courses.

[Lewkowski]

Eh there are a lot of good arguments on why the minimum wage hike is bad. People not furthering education isn't one of them. As long as there are no good standards on what it takes to earn a degree all the piece of paper proves is that you can jump through a few hoops. I think we have TOO many people folks going to college where they will pick up FEWER skills than they would have if they had entered the work force. I also feel employers put too much of an emphasis on that piece of paper.

Go to one of the universities that have a strong reputation is one thing but college is full of dumb people who don't want to grow up yet and are living off of student loans. Those same Peter Pan wannabes end up whining and bitching about student loan costs when the reality is they were too lazy to get off of their ass and get a job. I know several 'full time students' who took longer than 4 years to get their 4 year degree! I can understand a delay in getting your degree if you are working but many don't. They look at college as an 'experience' and a reason to delay their work life.

I'm not opposed to having an educated workforce but sending kids to 4 years of college doesn't make one educated.

[GGT]

Hang on Lewk....where's your "proof" that incremental minimum wage increases cause job losses?

US employment income hasn't kept pace with inflation and COL since the 1970's. Structural changes, out-sourcing, and the 'new' global economy have been hard enough on middle-income workers (hollowing out the proverbial 'middle class'), but it's been especially hard for service industry workers making minimum wage.

When even dual-income households need to work four or five jobs, but still can't make ends meet without some [tax] assistance or subsidy, that's a symptom, not a cause. US federal and state minimum wage laws are lagging responses, not economic leaders.

[Lewkowski]

Sigh... I replied to this very point earlier. Again... increase the cost of something and you get less of it. Employers will look at automation or restrict services. Things like the Wal-mart greeter may go the way of the dodo.

[GGT]

Sigh... I replied to this very point earlier. Again... increase the cost of something and you get less of it. Employers will look at automation or restrict services. Things like the Wal-mart greeter may go the way of the dodo.

Walmart has decided to raise the minimum wage for all its workers. They're also running paid commercials touting their "investment" in job training and employee benefits like health insurance as benefits for society at large. Why? Because they know they've maxed out their croney capitalism.....and can't explain their corporate tax credits when so many of their employees rely on tax subsidies.

[Loki]

And it looks like California is going to actually implement this. I wonder what excuses lefties will come up with when there's a spike in unemployment in all but the largest cities?

[Wraith]

I'd like to thank California for taking one for the team like this and helping to push industries into automating away more low-skill jobs. I look forward to the day I can do everything I need to without interacting with a single human being.

[Veldan Rath]

I'd like to thank California for taking one for the team like this and helping to push industries into automating away more low-skill jobs. I look forward to the day I can do everything I need to without interacting with a single human being.

True, I'd like to think that Unit 3563/2222X won't lick my taco shells before making my said taco.

[Steely Glint]

And it looks like California is going to actually implement this. I wonder what excuses lefties will come up with when there's a spike in unemployment in all but the largest cities?

Probs the same excuse they used after Seattle put the minimum wage up to $15/hour back in February '15: none, because there wasn't one. I suppose you might be able to find data to the effect that there was a rise in unemployment in specific sectors that employ a lot of low paid labour, and I suppose you could do some analysis where you might successfully isolate the minimum wage increase from all the other factors that effect the unemployment rate but I'm pretty sure you're not going to go to all that effort just for a forum post, which means I win by default.

[Loki]

The median wage is Seattle is sufficiently high that boosting the minimum wage to $15 is likely to produce only a moderate increase in unemployment. That's not the case in most of California. The median wage in the state is $19.50. Making the minimum wage $15 an hour is a hilariously bad idea (for non-Californians).

[Steely Glint]

When the minimum wage was introduced in the UK, we also heard from conservatives about how it would send unemployment 'straight back up' and wreck the economy. It never happened. Indeed, a common theme of any measure or law which seeks to improve workers rights or conditions is hearing from conservatives and some business organisations that it will wreck the economy and drive up unemployment, and also cause all rich people to relocate to the Cayman Islands, followed by absolutely nothing of the kind happening.

Now, I'm not saying you're wrong: I can certainly see how a sufficiently large jump in the minimum wage might actually damage employment, but do we have instances where a similar measure has been introduced and been followed by a spike in unemployment which could reasonably be attributed to the new law, rather than, e.g. a sudden recession or other outside factor?

The median wage is Seattle is sufficiently high that boosting the minimum wage to $15 is likely to produce only a moderate increase in unemployment

Or none at all.

[Loki]

https://www.washingtonpost.com/opini...f33_story.html

[Steely Glint]

I only skim read that because I'm about to go to bed, but that look like a bunch of "here's what I think is going to happen", so whatevs. Interesting that the full 15/hour thing isn't going to be fully implemented until 2022 though, that makes it quite similar to the UK plan for a living wage of £9 ($13) an hour by 2020. It's, what, 3 dollars above inflation over 6 years or something like that? Or are they going to front load most of the hike this year?