About That Danish Minimum Wage Study

On the heels of the debate about the specious Seattle minimum wage study, a new Danish study is currently making headlines.  Denmark has a de facto minimum wage (set by collective bargaining) of over $20/hour, or about $14.50/hour when adjusting for purchasing power parity.  That is the rate for adults 18 and over.  Prior to that age, the de facto minimum wage is significantly lower, and suddenly jumps by 40% upon turning 18.   The researchers did a regression discontinuity design to determine what effects on employment that would have, and they found a 33% drop in employment within the first month after turning 18.  And it apparently takes a full two years for the employment rate to fully recover to what it was just prior to one's 18th birthday.

So what do we make of this finding?   This study actually leaves the reader with more questions than answers.  One should note that age discrimination in employment is illegal in Denmark, with one exception:  it is in fact perfectly legal to fire someone upon turning 18 in order to avoid paying the higher minimum wage.  Yes, really.  Thus, it doesn't take a rocket scientist to see how that creates a powerful incentive to preferentially hire 16 and 17 year olds temporarily, use them up, and throw them away like so much garbage upon turning 18.

However, this study does not actually prove that a higher minimum wage is a bad idea overall.   The biggest takeaway from this study is that age discrimination is a bad idea across the board, not that the minimum wage is too high.  So close the goddamn loophole in the age discrimination law.  And if they still see a need to set the minimum wage lower for workers under 18, at least make it graduated and less of a difference from the adult minimum wage.

For example, the TSAP party platform calls for the minimum wage in this country to be raised to $15/hour for all workers over 18, with the minimum wage for workers under 18 set no less than 80% of the adult minimum wage (i.e. $12/hour), on a sliding scale rather than one sudden and sharp jump. And it should go without saying that firing someone upon turning 18 (or any age, for that matter) just to avoid paying them a bit more should be illegal, period.  As this latest study shows, caveat lector, anything less is basically asking for trouble.

Latest Minimum Wage Study Reeks of Junk Science

A new study claims that Seattle's minimum wage law cost jobs, despite the fact that their unemployment rate dropped dramatically since the new law began to be phased in, faster than the rest of the country, and is now one of the lowest in the nation at 2.6%.  But there is far less here than meets the eye, and their methodology is highly questionable.  For example, they curiously omit data from the entire fast-food sector, ostensibly due to lack of data (riiiiight!), and assume that any decrease in the number of workers earning below a certain wage is a result of fewer jobs rather than those workers simply getting a raise.  Yes, really.  All this specious study really proves is that if you torture the data enough, they will confess to anything.  And of course, Occam's Razor would strongly disagree with these results, which are way out of line with other recent studies.

One should note that the unemployment rate in Seattle has dropped so low that it has now reached Massachusetts Miracle territory, albeit for reasons unrelated to the minimum wage.  In the city's white-hot economy, restaurants are having a hard time finding help due to the tightness of the labor market, and are essentaily forced by the laws of supply and demand to pay employees significantly more as a result, regardless of the legal minimum wage. Keynes would have a field day.  And this alone could potentially account for the anomalous results in this yet-to-be-peer-reviewed study that should essentially be considered a radical outlier in the field.

With the issue of the minimum wage now in the spotlight again, we must keep in mind that the whole debate is a giant workaround. Thus, I will let the late great Buckminster Fuller answer the question:

"We should do away with the absolutely specious notion that everybody has to earn a living. It is a fact today that one in ten thousand of us can make a technological breakthrough capable of supporting all the rest. The youth of today are absolutely right in recognizing this nonsense of earning a living. We keep inventing jobs because of this false idea that everybody has to be employed at some kind of drudgery because, according to Malthusian Darwinian theory he must justify his right to exist. So we have inspectors of inspectors and people making instruments for inspectors to inspect inspectors. The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living."

And he said this back in 1970, mind you. With today's technology, it would apply *a fortiori* to our time, if it weren't for the greedy oligarchs who siphoned up all the labor productivity gains since then. How do we put his plan into action, you ask? A Universal Basic Income Guarantee for all is the best and most efficient way to do it.   Until then, by all means, raise the minimum wage.  Fight for $15!   But the root of the problem ultimately needs to be tackled as well, especially in a world of increasing automation and globalization.

Seattle's $15 Minimum Wage: The Results Are In

Well, it's official.  Seattle's most recent unemployment rate dropped to 3.5% or even as low as 2.9%, depending on whose data you are looking at.  Either way, that is about as full employment as one can practically get, essentially at or close to the level of the 1980s "Massachusetts Miracle" during which the labor market was extremely tight and workers had a lot of bargaining power as a result.

And this drop occurred during the phase-in of the $15/hour minimum wage in the Rainy City, which is currently at $13.00-13.50 (and $15 already for large employers that don't pay health benefits) as of January 1, 2017 and has been at least $11 since April 1, 2015.  Not only is unemployment now lower than the national average of 4.7%, but it generally dropped faster than the national average as well. While correlation is not causation, of course, it certainly does put the lie to the naysayers' claim that it would be a job-killing disaster.  Thus, any putative negative effects on employment were clearly either small, short-lived, or (most likely) nonexistent.

As for automation of fast-food restaurants, guess what?  That is going to happen regardless of the minimum wage, just like it already has in so many factories, gas stations, etc. in the past few decades.  It's inevitable.  And outsourcing/offshoring is practically impossible for most remaining minimum wage jobs.  So we certainly shouldn't let that deter us from Fighting for $15.  Call their bluff!

The True Spirit of America Party currently advocates a national minimum wage of $15/hour, indexed to inflation, phased in within a year or two for businesses with 500+ employees, and within two to three years for smaller businesses.  And with no tip credit. After that, the only exceptions should be 1) small, non-chain businesses with 10 employees or less, 2) workers under 18, for whom it would be on an age-based sliding scale from 60%-90% of the normal rate, and 3) circus performers.  That latter one is so we can (with tongue firmly in cheek) say that any hypothetical people who are priced out of the job market for an extended period can go join the circus, the employer of last resort.  Of course, we also advocate implementing a Job Guarantee program (similar to the one that already exists for senior citizens) as well as a Universal Basic Income Guarantee as well, so regardless of anything the labor market would be fairly tight regardless, and workers would have far more bargaining power going forward, much to the chagrin of the rentier class.

What better time than now?

The SeaTac Success Story

On January 1, 2014, the Seattle suburb of SeaTac, Washington became the first town in the nation to raise its minimum wage to $15/hour.  They did it in one step with barely any lead time, albeit with some exemptions such as businesses with fewer than 30 employees (and the courts soon ruled that airport employees are outside its jurisdiction and are therefore exempt as well).  And the Koch-roaches and their disgusting ilk (along with some local business owners as well) were playing Chicken Little and predictably claiming that it would "destroy jobs" and all that jazz.

But guess what?  The sky didn't fall after all.  In fact, raising the minimum wage to $15 turned out to be a major shot in the arm for the town's economy, who saw a major revitalization in the past year.  Local businesses were expanding, not laying off employees en masse like the naysayers predicted.  And the reason is simple economics:  when workers have more money, they have more to spend in the local economy, which creates more jobs and so on in a virtuous cycle.  A win-win-win situation for everyone but the plutocrats and their sycophantic lackeys.  So we can consider the naysayers to be debunked. 

The TSAP supports raising the federal minimum wage to at least $10/hour if not higher, and many state and local minimum wages to at least $12 if not $15.  Now that SeaTac was the guinea pig, soon followed by Seattle, we can now say that $15/hour is no longer terra incognita.  So even a federal minimum wage of $15 should still be considered as an option, which we would support as well.  Specifically, we want a general minimum wage of $15 for workers over 18 years of age.  Workers under 18 should be paid at least 80% of that amount, or $12/hour.  Ditto for workers of any age in the first 30 days on the job, as a "training wage".  There should be no tip credits either.  Small business with fewer than 10 employees would be exempt from the wage hike, and would be able to pay the same as now.  Businesses with 10-30 employees would have the new minimum wage phased in gradually over two or three years, while businesses with more than 30 employees would be have to pay $15/hour within six months (i.e. two fiscal quarters) of the new law's enactment.  Otherwise, there should be no exceptions, period.  And for the first few years of the new law, there should be special tax credits for employers who hire workers under age 25 and over 55, and even greater tax credits for hiring employees under 20 years of age.  That should alleviate any hyperbolic concerns about a higher minimum wage somehow pricing these "less valuable" workers out of the market--which has never really been conclusively proven anyway.

So what are we waiting for?

An Idea Whose Time Has Come

There has been much in the news lately about raising the minimum wage.  For those who are unaware, the TSAP believes that the federal minimum wage should be raised to at least $10/hour, and then indexed to inflation (or average wages) from then on.  Less talked about, however, is the idea of a maximum wage, and we feel it is an idea whose time has come. 

We at the TSAP feel that it would be a good idea to do what this petition calls for:  to cap CEO pay at 50 times the salary of the average worker at his or her company.  Thus, if the average worker earns $50,000 per year, then the maximum the CEO can earn is $2.5 million per year.  Currently, the average Fortune 500 CEO makes about 380 times what their average employees make, and that is clearly outrageous.  And it was not always this way.  In 1980, when the top 1% owned "only" about 20% of the nation's wealth (instead of about 40% today), the average CEO made "only" 42 times as much as the average worker.  Back then, of course, America had much higher top marginal tax rates (which were generally north of 70% from 1933-1981) and more sensible regulation of business practices, so a maximum wage was unnecessary.  However, times have changed, and such a policy couldn't come at a better time.

The naysayers may claim that doing so decreases incentives to work harder and that CEOs somehow deserve their outrageously high compensation packages due to their supposedly higher intelligence and work ethic.  To that, we note that while many CEOs are indeed smarter and/or harder-working (not to mention luckier) than the average American, it is highly doubtful that a CEO is 380 times smarter or works 380 times as hard as the average worker.   Making 50 times what the average worker earns is still extremely generous to CEOs, especially compared with the pay ratio in more equal societies such as Japan.  And as for supposedly decreasing incentives to work harder, remember that, as Robert Reich notes, the economy exists to make our lives better, we do not exist to make the economy better.

So consider it part of our party platform from now on, in combination with our call to raise the minimum wage and also raise the marginal tax rate to at least 50% on incomes above $1 million.