2013 February 12 Tuesday
Obama Wants $9 Per Hour Minimum Wage: Not Far Enough
Barack is thinking in the right direction. This is the sort of measure that will cut unskilled immigration. So I applaud him. But he has set his sites too low. $15 per hour baby. Don't be shy. Think of the children.
By Randall Parker at 2013 February 12 08:57 PM
In some situations this would put U.S. companies at an economic disadvantage. It seems tariffs might also be required -- and you know *that* isn't going to happen.
One blogger (http://lyingeyes.blogspot.com/) has questioned the effectiveness of this approach:
While this appears to make a lot of sense, I don't think raising the minimum wage to even the $12 Unz proposes will deter illegal immigration. It certainly won't discourage the immigrants themselves, for whom the resulting higher wage base will be an even stronger lure. But will it discourage employers from seeking out the illegals? I don't think so.
First of all, regardless of what the minimum wage is, many will still be paid less than minimum wage since they will be paid under the table. Illegal immigrants and off-the-books employment are a perfect combination as the employee likes it (cash right up front, no un-redeemable deductions) and the employer likes it of course (usually a below-minimum wage, no forms and other regulatory hassles, and with an illegal immigrant no fear of the employee reporting the violation). So there will still be a strong incentive for hiring illegal immigrants. It's just not clear how many now work under the table vs. are on the books with a phony SSN.
But more important, employers simply like the Mexican workers. (They're probably generally from Central America and Mayan - many of these workers I see look like they could have stepped right off a frieze at Chichen-Itza -but for simplicity we can say Mexican). I have talked to a number of employers about this, and without exception they extol the virtues of this class of workers - hard working, competent, compliant. In particular, they highlight how much better they are compared to the alternative - spoiled part-time high-school students and - well, you know, we needn't go into who that other disfavored group is, do we?
Certainly part of their effectiveness as workers is their illegal status itself - constantly living on the edge of deportation is an encouragement to keep one's head down, nose to the grindstone and to do what one's told. But they do seem generally quite competent from my observation, and I wonder if there isn't some stronger cultural or even deeper factor that makes these folks just plain good workers? After all, their ancestors did build some impressive structures away back when.
Overall, I support Unz's proposal. It will cause some unemployment, but the current minimum wage is so preposterously low I can't imagine the dislocation will be that great a loss to already marginal workers. But I have strong doubts it will do much to deter illegal immigration. We still need stronger border security (Build that wall!) and in particular strong employer sanctions and verification (to clamp down on the meat-packing factory-type frauds). But, at pretty much any wage, low-skill employers will still prefer the Central-American illegal worker to - well, you know who.
I think it's naive to assume that employers who hire illegal immigrants (and both parties are thereby breaking the law) are going to pay any attention to a higher minimum wage. They'll simply ignore it and pay them off the books. And why shouldn't they? The immigrants are happy to have the jobs, even at wages Americans consider meager. And they aren't likely to risk deportation by complaining. As the article points out, the employers get hard working individuals who consider themselves lucky to be employed here.
An increase in the minimum wage will hammer Americans at the bottom of the wage scale (the majority of high school dropouts are unemployed), and it will accelerate job loss to Third World countries, especially China. But why should we care - neither political party gives a damn about these folks.
And if a small increase in the minimum wage is good, why isn't a big one better? And what should the minimum wage be, anyway, and why?
Violations of minimum wage law are orders of magnitude less frequent than hiring of illegal aliens. Minimum wage law is much easier to enforce and politically has far more support.
Off the books: most illegals are paid on the books. Why? People fear the IRS and with good reason.
BTW, I can't tell if those are your words or ziel's. I did a couple of searches and did not turn up that post.
Everything up through the four dots are my words. I think a lot of smaller businesses under the 50-employee radar have off-the-books employees - as long as you have a core crew on the books, you can sneak a fair number under the books.
But off-the-books employees aside, it would still be preferable to have illegal Mexicans than native-born Americans. The latter can complain, file grievances, call in sick, etc. Illegal immigrants are highly compliant. Without employee id-checking and prima-facie assumption that a non-verifiable SSN is evidence of illegal hiring - there's just nothing to keep employers from hiring illegals.
Now I agree that a very high minimum wage would encourage more innovation - so you're suggestion the $15 is not high enough - maybe $20 would be better? - might do the trick. It would certainly cause a great deal of dislocation, but such automation is inevitable (barring further economic collapse), so why not accelerate it now and discourage more immigration at the same time - I'm with you there. But I don't think a $12 minimum wage will discourage illegals or their would-be employers.
In larger companies off-the-books hiring isn't practical. Also, in smaller companies that do not get paid by cash off-the-books is not practical. It is a pretty small subset of all businesses that has a lot of cash coming in as cash, poor paper/electronic trails, and therefore lots of ability to evade taxes. Plus, the company has to be run by someone who doesn't mind the risk. Any company that can not evade taxes wants to pay on-the-books so that labor expenses get deducted from income to lower taxable income.
Therefore I do not think the vast majority of low wage jobs are going to get paid less than minimum wage. That view is consistent with what I've read by people more knowledgeable.
Glad we agree on the value of accelerating innovation and discouraging low skilled immigration.
$20 per hour: I'll support it. But I think $15 per hour will provide substantial incentive for the big restaurant chains to accelerate automation. Ditto row crop farmers.
Randall, the main point of my argument is that employers just plain like to hire Mexicans, so even at $12/hour as Unz proposes I don't think the demand for illegal-immigrant labor would dissipate. I have no data to back this up, only my own observations and conversations with business owners who hire them. In particular they will extol the virtues of Mexicans, however discreetly, in contrast to the Other minority group they'd have to hire - or even vs. white teenagers who tend to call in sick a lot. They just don't want to hire black workers if they can avoid it. So I'm not sure there is a high-enough minimum wage that would encourage businesses to hire low-skilled Americans over illegal immigrants. But what your suggesting might make more sense - make the wage so high they don't want to hire anyone - automate, instead.
A higher minimum wage would be inflationary.
Example: the lowest paid employee, let's say the dishwasher, at a pizza restaurant sees his wage go from $7.25 to $9.00 an hour. The busboy, who was making $8.50 an hour, will have to be raised too. The the cook, then the assistant manager, etc. etc. Everyone's pay go up, the relative spread between everyone's wages is maintained, and the dollars they are paid become worth less, because the value of the labor contributed has not increased in its inherent value.
Some jobs may get automated out of existence, or businesses may just decide that those jobs will go undone. Fewer people will find work, and will require some sort of government handout. I think that's where Obama is going with this.
RP, ziel -
Thanks for the comments. I still think that it's naive to assume that employers who have decided to break the law by employing illegal immigrants are going to give a hoot about minimum wage laws. I live in the Upper Midwest, and here's how it works in my area. Most of the local farmers hire crews of Hispanic laborers to work in their fields - I see their beat-up buses and vans out there all the time during the growing season. The farmers pay a set rate for the crew to the boss, and he then pays the workers. Legal workers or illegal? Minimum wage or below? Nobody ever checks, but I bet I know the answers. There is zero enforcement of the minimum wage and immigration laws under these circumstances. The farmers like it this way, and they all vote (mostly Republican around here).
You're right that big corporations seldom hire illegal immigrants - there's too much risk. They just contract the work out. That way the manager of the supermarket or big box store can be shocked, shocked! when it's revealed that the independent contractor and his crew of Mixtec speakers that he's hired to clean his store or resurface his parking lot are all illegal. Why, the crew boss assured him they were all legal - he even had papers to prove it! Who would ever suspect that they were forged?
$15.00 per hour, I'd go along with that. However, I don't think it's going to happen. Besides, it's not how much you make per hour, but how much the government takes away from you in taxes. And as long as big-corporation-owned governments don't let people enjoy the product of their labor there will be less social cohesion and a tendency for people to leave the country.
My guess is this year the number of Americans who will renounce U.S. citizenship will probably be a record again: 231 expatriates in 2008, 742 in 2009, 1534 in 2010, 1781 in 2011 and so on.
Sgt. Joe Friday,
The people at the bottom make such a small slice of national income at this point that raising their pay can't do much to inflation. In 2007 just the top 1% earned 23.5% of all income. The top 25% earn 68% of all national income. The bottom half earn 12% of all income. How can big pay rise for low income people make much of a dent on inflation?
What's really cool about that: Since the top 1% captured 93% of all income gains in 2010 the percentage of income going to the bottom goes even lower every year and therefore the inflationary impact they can have keeps shrinking. Inequality reduces the risk of inflation.
Yes, automation most radically removes the temptation.
Sure, some employers can shift legal risk to service providers. But let minimum wage law violations get too great in number and good meaning liberals will clamor for law enforcement crackdowns. Use the force Luke.
We need more other ways to speed up automation though. More federal research dollars should be funneled toward farm automation and housing construction automation and restaurant automation.
"But let minimum wage law violations get too great in number and good meaning liberals will clamor for law enforcement crackdowns"
Uh, not bloody likely. If enforcing the minimum wage laws means getting rid of the Hispanics, it ain't never gonna happen. The lib-Dems want the Hispanics to stay and become citizens so they can vote, mostly for Democrats, of course. That's why I think it's naive to assume that the lefties will suddenly be concerned about this when it goes against their core interest of expanding their Hispanic base. Even liberals aren't that dumb.
Ah, the venerable minimum wage. Honest economists of the left and the right know it is an unsound approach. In a market ecopnomy the government cannot just order the price of a good or service by fiat and expect the employer to pay it irrespective of the quality of the effort each of his employers make. Those prices for labor services should be set by supply and demand in an open market in which pay is proportionate to the effort and efficiency the worker puts into his job. Hourly wage constracts have always been vulnerable to the critisixm that while the amount of money to be paid is agreed upon before the worker begins and before either he or his employer knows how much work he will be able to accomplish. Some workers work much more quickly and efficiently than others, some exert themselves to a greater degree. In a free market these workers are paid in accordance with their resulting productivity. Everybody can still find a job doing something at a price someone is willing to pay based on performance. But once you break the link between effort and reward you undermine the motive force that shapes a free labor market. A minimum wage is a mimimum folly because it makes it the employers responsibility to make up the difference between what the worker is worth in the competitive market for labor. Better for the government to make up that difference by subsidizing wages with public funds in a way the preserves the link between effort and reward. The earned-income tax credit takes that approach and needs to be expanded. The only think stopping that is a refusal to finance these much needed subsidies with a tax on the earings of capital which make up the lions share of the income of people who do not make their living with their feet and their hands A progressive tax on income which is not saved but spent on personal needs is the most reasonable way to acheive that result. L
You're forgetting the last ingredient in the pot: Allow the illegals to sue their employer for violation of the minimum wage laws. Give the illegal immunity from prosecution and deportation so that he can sue the firm that hired him.
That law better not allow suits for previous violations, or millions of illegals will just claim violations to get legalized. The payoff from legal residency and all the public assistance that comes with it is enormous.
E-P is right. Immigration amnesty for catching violators of minimum wage laws will cause mass false allegations and mass immigration amnesty.
What we need: let US citizens who report violations (that turn out to be true) to get very large cash awards. Incentivize Americans. The lowly payroll clerk who is ready to move on anyway could make a lot of money by reporting violations she knows about.
We need to reward citizens whose reporting results in the deportation of leeches with part of the savings.