Raising the federal minimum wage would be a net detriment to the U.S. economy
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|Updated:||1 year ago||Status:||Post Voting Period|
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Thank you to BobtheCanOpener for agreeing to this debate.
Resolved: Raising the Federal Minimum Wage would be a net detriment to the U.S. economy
Definitions and Particulars
Federal Minimum Wage -"The minimum hourly rate of compensation for labor, as established by federal statute and required of employers engaged in businessesthat affect interstate commerce. Most states also have similar statutes governing minimum wages" (1).
Raising - We'll be using the most recent proposal being debated by Congress, which is increasing the federal minimum wage to $10.10 an hour.
Detriment - "
Net - "
As is probably self-explanatory, we're dealing with whether the net effects of raising the federal minimum wage to $10.10 an hour would be positive or negative. PRO will argue that raising the minimum wage will be, on balance, harmful to the U.S. economy, whilst CON will argue that raising the minimum wage would be, on balance, beneficial to the U.S. economy. The burden of proof will be equally split for both debaters.
Round 1: CON provides rules and structure. PRO provides affrmative case.
Round 2: CON provides negative case. PRO rebuts CON's case.
Round 3: CON rebuts PRO's case. PRO defends his case.
Round 4: Con defends his case. PRO passes to even out the rounds.
1. Accepting this debate is consenting to the rules and guidelines laid out in this opening post.
2. Failure to adhere to any of these rules will result in forfeiting this debate.
3. Forfeits are not allowed.
4. Any semantial games or resolution trolling is not allowed.
5. Be respectful. No personal attacks or changing the goalposts.
6. The burden of proof is shared.
Thank you again to BobtheCanOpener. I look forward to a productive discussion.
Today I will debate ResponsiblyIrresponsible on the issue of the minimum wage. I thank him for inviting me to this discussion. I will be making the case that the minimum wage, will in fact, be a detriment to the US economy.
To begin with, I will discuss the pros and cons of a minimum wage. Some notable benefits of this are of course higher wages for some workers. These people spend their money into the economy, growing it. However, their are some cons as well. A minimum wage, in essence, is a price control. It artificially boosts the cost of labour which in return diminishes demand for workers. Companies will hire fewer employees. This also is detrimental to interns, who often work for free. Another problem with the minimum wage system is inflation. If, say, a minimum wage increase occurred, a company may have to make up for the raised cost of employment by pushing up consumer prices, thus creating inflation. The net effect would just be higher prices for everyone, rendering wage increases fruitless.
Now I shall discuss a scenario in which there is no minimum wage in the US economy. This setting can actually be attributed to a period in US history, before 1938 (establishment of the minimum wage). During this time period, employers and employees were free to negotiate wages amongst each other. A company could not simply set a low wage and expect workers to accept the job, since competition between other employers would prevent this. For example, take the Ford Motor Company. In 1914, Ford payed his assembly line workers $5 a day, which adjusts to around $116 today. This was the result of advancing technology and competition amongst companies, or capitalism. So we see here that a decent income average can be achieved without a minimum wage law.
I apologize if I made any formatting mistakes as I am new to this website. And I once again thank my opponent for challenging me.
Minimum wage- http://www.dol.gov...
Henry Ford- http://en.wikipedia.org...
Thanks again to BobtheCanOpener. I will present my case in this round and rebut his in the next.
Raising the minimum wage would be a boon to the U.S. economy because it would increase consumption. Carroll et al., 2013, found that the marginal propensity to consume is far greater for lower- and middle-income households is far greater than for high income households (1). The CBO finds that "The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO"s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates" (2). In other words, wage pressures would build not only for minimum wage workers, but for many more workers, all of whom are likely to consume with those dollars.
II. Efficiency Wage Hypothesis
The efficiency wage hypothesis "states that workers" productivities depend positively on their wages" (3). A literature review by Wolfers and Zilinsky, 2015 (3). In other words, higher wages tend to induce workers to work harder, which benefits businesses, which are able to produce more and thus sell more. Yellen, 1984, found higher wages led to "reduced shirking by employees due to a higher cost of job loss; lower turnover; an improvement in the average quality of job applicants and improved morale" (4). Holzer, 1990, arrived at a similar conclusion: "high-wage firms can sometimes offset more than half of their higher wage costs through improved productivity and lower hiring and turnover cost" (5). There's evidence that workers with less income security also have poorer on-job performance. The World Bank's 2015 Development Report found "The constant, day-to-day hard choices associated with poverty in effect tax an individual"s bandwidth, or mental resources. This cognitive tax, in turn, can lead to economic decisions that perpetuate poverty" (6).
In addition to increased productivity, higher wages also increase labor supply, attracting better and more productive workers. Rossi et al., 2013, found that "offering higher wages attracts individuals with higher previous earnings, and who have both higher IQ and more desirable personality traits, as measured by the Big 5 personality and public service motivation tests" (7).
Higher wages also reduces labor turnover, reducing the cost of training and hiring new workers and thus saving businesses money. Reich et al., 2003, in a study of the San Francisco airport, found that higher wages reduced labor turnover by 34%, thus saving the airport $6.6 million per year (8). Reich et al., 2007, found that a San Francisco wage floor policy reduced labor turnover from 95% in the mid-2000s to 18.7%--a 763 basis point decline (9).
There are also a multiplicity of other ways in which higher wages improve labor efficiency. Fisher et al., 2006, used data from 500 retailers to find that higher wages improve customer service and customer satisfaction (10). Capelli and Chauvin, 1991, found that higher wages improved employee discipline (11). Zhang et al., 2013, found that in Canadian firms higher wages resulted in reduced employee absenteeism (12). Finally, Georgiadis, 2008, find that, because higher-wage workers tend to require less supervision than low-skilled workers, "higher wage costs were more than offset by lower monitoring costs" (13).
Therefore, there a myriad of ways that raising the minimum wage would actually save businesses money through greater efficiency, thus negating the argument that my adversary will bring up with respect to increased costs spurring layoffs or even widespread price pressures.
III. Income Inequality
The U.S. is plagued with the worst income inequality since 1928 (14), and research by Saez, 2013, it has been increasing steadily since the 1970s (15). This coincided with the deregulation and tax cuts under Ronald Reagan and his attacks on labor unions (16), and a nearly doubling of productivity over the past three years, but flat wages for most workers, adjusted for inflation (17) , and falling real wages for minimum wage workers, whose wages aren't adjusted for inflation (18). For instance, the minimum wage from 1979 to 2012 fell 21 percent (19). This is undesirable not only on a moral basis by paying people not what they"re due, but placing them at a lower rung of the economic ladder as their starting place--based on characteristics outside their control, such as what their families income levels were--and thus denying their equality of opportunity, much of which is self-reinforcing as the more affluent will be able to donate to the public campaigns of their choice to coax politicians in pursuing policies beneficial to only them; it is also economically undesirable. Nobel Laureate Joe Stiglitz adds the following:
"There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth...Second, the hollowing out of the middle class since the 1970s, in a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses..Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks...Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable" (20).
Now, how does the minimum wage tie to this? Simple: it"s contributed to the widening disparity in income distribution to the top which dates by to the 1970s, and is in fact part and parcel of it because it"s declined in real terms. Autor et al., 2014, estimate that 30 to 50% of the growth in income inequality from 1979 to 1989 can be attributed to the falling real value of the minimum wage, and a still significant contributing from 1979 to 2012 (21). Note that the authors admit that these estimates are conservative, and there"s a body of literature attributing as much as 85% to 110% of the rise in inequality to the falling real value of the minimum wage.
IV. $10.10 is negligible
The parameters of this debate force me to argue for increasing the minimum wage to only $10.10 an hour. My adversary and I can both agree that if this rate were instead, let"s say, $100 an hour, the costs would far outweigh the benefits. But there simply is no sound evidence that this value would have widespread negative effectives. Moreover, if the minimum wage were indexed to inflation starting in 1968, it would be $10.52 as of 2012 (22). If it were indexed to productivity gains, which primarily went to the top--e.g., 95% of new income created since the recovery trickled up to the top 1 percent of income earners (23)--it would be about $22 an hour (19). Nevertheless, I am not arguing for either of these numbers, and $10.10 doesn"t even account for inflation. There"s a strong case to be made for an even higher minimum wage, but raising it to $10.10 is better than maintaining it at $7.25.
V. The MW does not kill jobs
A canard that my adversary will raise is that MW results in layoffs. Obviously that falls short in light of the evidence I presented earlier in this round, but the claim is without strong empirical backing. In fact, John Schmitt, 2013, conducted a literature review and found that the minimum wage has "no discernible effect on employment" (24). Much of this is because, per Krugman, minimum wage jobs exist in industries which are non-exportable (25). Let's explore some of the relevant literature.
Card and Krueger, 1994, looked at the 1992 rise in New Jersey’s minimum wage and found no evidence of negative employment effects (26). In fact, they found, after comparing evidence from stores in eastern Pennsylvania where the MW remained constant or to stores that were already paying near wages near the MW, that the minimum wage actually worked to increase employment.
Dube et al., 2010, replicated the findings of Car and Krueger and found no negative employment effects after adjusting for spatial heterogeneity (27).
Next, a meta-analysis by Doucouliagos and T. D. Stanley, 2009, looked at 64 minimum wage studies from 1972 to 2007, and found that, after adjusting for public selection bias, that the evidence is clear that the minimuym wage has virtually no effect on employment (28).
Now, how far could we go? Michael Reich, economist at U.C. Berkeley, finds that, "“Our data show that an increase up to $13 an hour has no measurable effect on employment" (29).
I'm out of characters, so I will pass back to PRO. The resolution is negated.
BobTheCanOpener forfeited this round.
I’m extremely disappointed that Bob has forfeited. Per Rules 2 and 3, I urge our judges to vote CON.
I should note that we agreed upon a new round structure in the comments section:
Round 1: CON gives rules and structures, PRO gives affirmative case
Round 2: CON gives negative case, PRO rebuts CON and crystallizes
Round 3: CON rebuts PRO and crystallizes. PRO waives.
This structure is still in place, meaning that Bob must waive the next round, and thus will not be able to respond to my case or defend his own.
Rebutting PRO’s case
Because my evidence remains untouched, I’m going to cross-apply much of it to address PRO’s contentions. Because he failed to provide any evidence to defend his assertions, he doesn’t have anything to balance against mine, meaning that we cannot assess the validity of his impacts.
PRO begins by making a concession—that the minimum wage will lead to higher wages for some workers, that these people are likely to spend it, and that the economy will grow. If the minimum wage were deleterious to employment, on balance the economy would shrink, though he concedes to the contrary—this invalidates any claim he intends to make regarding the minimum wage inducing unemployment.
He goes on to say that this is a price control, which “artificially boosts the cost of labor.” This is flawed for several reasons. First, it presupposes that there is an organic cost of labor determined by the market mechanism and predicated on productivity, and that this is the value that employers are willing to pay workers. But there are several problems:
1. As I noted last round, productivity over the last 30 years has nearly doubled, but wages for most workers have stagnated, though they have declined in real terms for minimum wage workers. This lends credence to Karl Marx’s notion of “surplus value”—that in order to earn X wage, you require a marginal productivity of X+Y. In other words, workers, due to a lack of bargaining power, will consistently earn below their marginal product of labor.
2. The relationship is completely artificial not only because of asymmetries of bargaining power, but because of imperfect information. PROS’ point necessitates that buyers and sellers have perfect information not only about that worker’s capabilities, but of perfect substitutes. For example, the implication is that, if an employer offered a wage which is below what the workers is willing to accept, that worker would be fully aware of the fact that he could earn a higher wage elsewhere, other employers would know his productivity and of the demands of other firms and offer him a higher wage, and his wage would be bid up to his productivity. However, this is far from the case because, in reality, people do not have perfect information, nor do they behave perfectly rationally. The marginal product of labor, in reality, can hardly be readily ascertained or calculated ex ante.
3. Labor productivity is by no means fixed. I can increase your productivity by taking you to the gym for a few months or purchasing a more efficient computer for you to use on the job. I can also decrease your productivity by breaking your leg, stealing your computer, depriving you of a lunch break or any break or sleep, etc. Productivity is necessarily variable—so the notion that there is an organic cost of labor which exists objectively and independent of this “artificial” cost of labor is ludicrous. Because of this, it is asinine to say that even a modest uptick in wages, which doesn’t even fully account for inflation and productivity, is artificially inflating the cost of labor.
He then claims that a MW increase will reduce the demand for labor, but provides no evidence at all to prove this point—I provided plenty of evidence in the last round proving this not to be the case, so I will cross-apply all my evidence from my contentions 2 and 5. Because of the strong empirical backing of the efficiency wage hypothesis, we know that higher wages generate higher productivity, lower labor turnover, more employee discipline, higher labor supply for better, more productive workers, and more—and these will surely offset much if not all of the cost increases of a minimum wage increase. My contention 5 provides evidence, including a thorough review of the minimum wage literature, showing that the minimum wage has no discernible effect on employment—I even provided a study showing that it may in fact boost employment, so there is no merit whatsoever to PRO’s bold assertion. Moreover, PRO’s argument hinges on a basic supply-and-demand analysis you learn in introductory micro, which assumes perfect competition, perfect information, no asymmetries of bargaining power, and that markets are in equilibrium—though these assumptions hardly hold in the real world. Not to mention, even in microeconomics you learn that firms hire until the marginal cost exceeds the marginal benefit, but I’ve provided plenty of reasons as to why the benefits would exceed the cost—and the reason businesses hire people, anyway, is to meet increased demand for their products, meaning that the costs of not hiring are far greater than the costs of hiring.
PRO claims that a minimum wage hike is detrimental to interns. How? He admitted that many work for free—which is to say they work for college credit. They aren’t impacted in the slightest by a MW increase because they aren’t earning the MW, nor will they be. Moreover, I provided a myriad of evidence showing that higher wages reduce turnover and the costs of hiring and training, which encompass an internship—if anything, this provides an incentive for employers not only to recruit interns, but to ensure that they hire them down the road because those interns are likely to be more invested in the company, and more productive in their work, if they receive a higher wage for it.
PRO’s remarks on inflation are wildly absurd and counter-factual, and even contrary to what basic economics tells us.
He claims that raising the minimum wage would create inflation, which would result in higher prices across the board and thus render wage increases useless—in other words, he’s assuming price increases will exactly match nominal wage increases. This is flawed for several reasons, but first, let’s point out a key error he’s making: he asserted earlier that a minimum wage increase would cost jobs. If it will cost jobs, then it will cost consumption, in which case inflation will tend to fall. Granted, he conceded earlier that it would boost consumption, so his arguments are all over the map and cannot be pinned down—it is impossible to glean impacts from the points he has made.
But, more fundamentally, he misunderstands what inflation is. Inflation is a rise in the general price level—which is to say a rise in a weighted average of a basket of goods and service that average consumers are likely to purchase. Minimum wage workers account for only about 4.7 percent of hourly paid workers (1), according to the BLS. That PRO thinks this small subset of workers, even counting wage increases of workers earning slightly above the minimum wage, would be inflationary—which is to say it could bear on the overall price level, or prices across the board—is utterly ludicrous. It’s simply too small to have a material impact throughout the system, meaning that higher nominal wages would translate to higher real wages (nominal wages minus inflation) and thus bear positively on consumption. This is especially true because the economy at the moment remains poor and inflation has consistently lagged the Federal Reserve’s two percent target. Coupled with the fact that inflation is highly persistent due to anchored expectations and labor market rigidities, due mainly to nominal wage contracts, there is no way that would see inflation increase rapidly, and this doesn’t even account for the cost savings and productivity gains I noted in my second contention, all of which mollify significantly any increase in costs from a minimum wage increase. On the demand side, it is also unlikely that this would even bear on inflation not only due to the relatively small impact relative to the entire economy, but also because there’s a myriad of empirical literature that shows that the Phillips Curve, or the short-run relationship between unemployment and inflation has flattened, which means that even if the minimum wage were to significantly boost consumption and increase employment, it would hardly bear at all on the overall price level—and, even if it did, it would take a long time, meaning that the Fed would step in even before then to tighten should things get out of control, though that’s highly unlikely to happen.
PRO goes on to provide an utterly irrelevant argument of Ford Motor Company in 1914 where workers were paid a rather high wage by today’s standards. There are several problems with this. First, these workers were not paid a high wage because of “competition” or “unleashing the capitalist beast.” As I have already noted, there is no perfect information or perfect, equal bargaining leverage. This is nothing more than evidence of my contention on the efficiency wage hypothesis—Ford Motor Company acknowledged that paying workers more had a multiplicity of positive effects, including increasing productivity and reducing labor turnover, and thus opted to make the right decision. Many employers today, however, have not made that decision, which is why wages have been stagnant for so long. This contention actually turns entirely to support my case.
You’re already voting CON because PRO violated the rules by forfeiting, but there is also no merit to any of the arguments that PRO has put forward. His entire case has been completely refuted and not a single argument of his remains, whereas my entire case remains untouched. Per our structure, he is not allowed to post an argument in the next round.
Therefore, you vote to negate.
BobTheCanOpener forfeited this round.
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