Michigan considers $10 minimum wage

[The Joseon Dynasty]

If the entire field is just 'making stuff up' it should really be held in that high of a regard.

What concerns me is how often I hear "it's reasonable to assume" in economic literature, particularly the mathematics of it, without any other justification than "it makes sense if you think about it".

[Caninope]

So to you, Caninope, let me ask: Why do you think it unlikely that workers would become more productive if they felt their jobs were "worth more" or "more valuable", and why don't you think that workers might perform better if they thought their pay reflected greater employer and or societal "appreciation" of what they do?

Because I don't think the "value" effect would kick in, were it simply to be an increase from minimum wage. People prefer to be relatively wealthy over being absolutely wealthy. An increase in minimum wage doesn't mean any increases in relative wealth by one worker in comparison to another worker. For that reason, any behavioral changes would be small.

Now, I (as well as TJD) have both provided two different possibilities for an increase in productivity by the individual worker should minimum wage increase. I proposed an increase in productivity because of a shift in the slope of the isocost line, which would mean employers would begin to favor using capital more than previously (which should, in turn, increase per worker production). TJD suggested productivity could increase because of an increase in the opportunity cost of being unproductive.

In other words, were productivity to increase, I don't think it would be because of a behavioral change brought on by what you seem to be describing as increased self esteem. I could be wrong; I'll wholeheartedly concede that point. I just don't think that productivity increases caused by increases in minimum wage, were there to be a correlation, would derive from that.

[Ensiferum]

Despite the "Higher minimum wage means higher unemployment" shit that's been repeated, there doesn't appear to be any correlation at all.

There's a definite theoretical correlation between minimum wages and unemployment, assuming (a) that minimum wage is above the equilibrium price for low skilled labor, and (b) the supply curve is upward sloping (which is should predominantly be in the segment that will be most affected).

The problem is that trying to compare between states runs into a lot of comparative issues. Time series econometric models would probably be better, and the findings on those are generally mixed (I've seen both ways).

There is no definite correlation. In theory, yes. However, any student of economics knows that the theory is used in the most basic model of a market. Real markets are far more complex than theoretical markets. In theory a single hydrogen bomb could cause a chain reaction of fusion that would destroy the atmosphere and therefore the world, in reality it didn't. Reality and theory are very different things and you know this.

[Caninope]

Reality and theory are very different things and you know this.

Yes.

I've only mentioned that one hundred million times before.

[New England and The Maritimes]

So to you, Caninope, let me ask: Why do you think it unlikely that workers would become more productive if they felt their jobs were "worth more" or "more valuable", and why don't you think that workers might perform better if they thought their pay reflected greater employer and or societal "appreciation" of what they do?

Because I don't think the "value" effect would kick in, were it simply to be an increase from minimum wage. People prefer to be relatively wealthy over being absolutely wealthy. An increase in minimum wage doesn't mean any increases in relative wealth by one worker in comparison to another worker. For that reason, any behavioral changes would be small.

Now, I (as well as TJD) have both provided two different possibilities for an increase in productivity by the individual worker should minimum wage increase. I proposed an increase in productivity because of a shift in the slope of the isocost line, which would mean employers would begin to favor using capital more than previously (which should, in turn, increase per worker production). TJD suggested productivity could increase because of an increase in the opportunity cost of being unproductive.

In other words, were productivity to increase, I don't think it would be because of a behavioral change brought on by what you seem to be describing as increased self esteem. I could be wrong; I'll wholeheartedly concede that point. I just don't think that productivity increases caused by increases in minimum wage, were there to be a correlation, would derive from that.

I don't know. I think the productivity increase would come from maybe a better diet, less reliance on government assistance, maybe an extra luxury or two if they were already able to pay their bills before the rise.

[Cannot think of a name]

Because I don't think the "value" effect would kick in, were it simply to be an increase from minimum wage. People prefer to be relatively wealthy over being absolutely wealthy. An increase in minimum wage doesn't mean any increases in relative wealth by one worker in comparison to another worker. For that reason, any behavioral changes would be small.

Now, I (as well as TJD) have both provided two different possibilities for an increase in productivity by the individual worker should minimum wage increase. I proposed an increase in productivity because of a shift in the slope of the isocost line, which would mean employers would begin to favor using capital more than previously (which should, in turn, increase per worker production). TJD suggested productivity could increase because of an increase in the opportunity cost of being unproductive.

In other words, were productivity to increase, I don't think it would be because of a behavioral change brought on by what you seem to be describing as increased self esteem. I could be wrong; I'll wholeheartedly concede that point. I just don't think that productivity increases caused by increases in minimum wage, were there to be a correlation, would derive from that.

I don't know. I think the productivity increase would come from maybe a better diet, less reliance on government assistance, maybe an extra luxury or two if they were already able to pay their bills before the rise.

Back when I was sluffing at the low wage job and got the supervisor position my car ran more often since I could afford more parts. Sometimes it's the little shit.

[Alien Space Bats]

In other words, were productivity to increase, I don't think it would be because of a behavioral change brought on by what you seem to be describing as increased self esteem. I could be wrong; I'll wholeheartedly concede that point. I just don't think that productivity increases caused by increases in minimum wage, were there to be a correlation, would derive from that.

Not precisely self-esteem.

Rather, what I'm positing is that workers aren't just doing random work for pay; they're doing work that they know their boss needs done, and they're doing it for their boss. On an individual scale, a worker's productivity is very much caught up in the context of how he feels about his job and how he feels about his boss.

A worker who hates his work and thinks his boss is an asshole is simply not going to exert himself as hard on behalf of said asshole as he will if he likes his job and really empathizes with his boss. This relationship of respect — which is a very human relationship — is not a one-way street; like any other relationship, if flows from the way the two individuals relate to one another.

Pay is part of that relationship; if reflects the worker's value in the eyes of the boss, and the worker knows this. If the worker gets a big "fuck you, slacker — I wish I could outsource this whole shop to China" signal every two weeks from his boss, then it's going to be hard for him not to reciprocate with negative feelings of his own towards his boss and his job. So it's not self-esteem that I'm talking about here; it's the worker's view of his boss based on his assessment of the way his boss looks back at him.

Now it may well be that a government-mandated pay increase completely bypasses this relational feedback loop, because it was the government that raised the worker's pay and not the boss. But I wouldn't entirely count on that; it's also possible that, at the end of the day, the boss might still gain some positive emotional capital from the employee in return for the pay hike, even if he wasn't responsible for it.

BTW, at the risk of sidetracking the discussion, the advent of Obamacare may well have the same effect on productivity (at least in shops that go ahead and offer health insurance); likewise, shops that cut worker hours back below 30 in order to avoid having to cover their employees may well experience a productivity decline...

[The Joseon Dynasty]

In other words, were productivity to increase, I don't think it would be because of a behavioral change brought on by what you seem to be describing as increased self esteem. I could be wrong; I'll wholeheartedly concede that point. I just don't think that productivity increases caused by increases in minimum wage, were there to be a correlation, would derive from that.

Not precisely self-esteem.

Rather, what I'm positing is that workers aren't just doing random work for pay; they're doing work that they know their boss needs done, and they're doing it for their boss. On an individual scale, a worker's productivity is very much caught up in the context of how he feels about his job and how he feels about his boss.

A worker who hates his work and thinks his boss is an asshole is simply not going to exert himself as hard on behalf of said asshole as he will if he likes his job and really empathizes with his boss. This relationship of respect — which is a very human relationship — is not a one-way street; like any other relationship, if flows from the way the two individuals relate to one another.

Pay is part of that relationship; if reflects the worker's value in the eyes of the boss, and the worker knows this. If the worker gets a big "fuck you, slacker — I wish I could outsource this whole shop to China" signal every two weeks from his boss, then it's going to be hard for him not to reciprocate with negative feelings of his own towards his boss and his job. So it's not self-esteem that I'm talking about here; it's the worker's view of his boss based on his assessment of the way his boss looks back at him.

Now it may well be that a government-mandated pay increase completely bypasses this relational feedback loop, because it was the government that raised the worker's pay and not the boss. But I wouldn't entirely count on that; it's also possible that, at the end of the day, the boss might still gain some positive emotional capital from the employee in return for the pay hike, even if he wasn't responsible for it.

I don't want to put words in his mouth, but I don't think Caninope is arguing that this emotional relationship where the wage is something of a proxy for the "appreciation" of her employer doesn't exist, but that it isn't substantial enough to account entirely for the shift in productivity we see when wages go up.

[Caninope]

I don't want to put words in his mouth, but I don't think Caninope is arguing that this emotional relationship where the wage is something of a proxy for the "appreciation" of her employer doesn't exist, but that it isn't substantial enough to account entirely for the shift in productivity we see when wages go up.

TJD, I am indeed not rejecting this emotional relationship; I am, as ASB is suggesting, arguing that it is not substantial (and perhaps not even a factor at all) because it does bypass what ASB calls the "rational feedback loop". ASB's process largely relies on the process of signaling. A government mandated increase in wage, coming from a third party, bypasses signaling all together.

[Alien Space Bats]

I don't want to put words in his mouth, but I don't think Caninope is arguing that this emotional relationship where the wage is something of a proxy for the "appreciation" of her employer doesn't exist, but that it isn't substantial enough to account entirely for the shift in productivity we see when wages go up.

I suspect that you're absolutely right.

This is something of a segue into the "next wave" of economic research, in which things like consumer choice, worker and employer attitudes, investor decision-making, and so on are being studied in fashion that falls half into the realm of sociology and half into the realm of economics. Such studies are bearing interesting fruit, and have the potential to revolutionize economics over the course of the next century.

TJD, I am indeed not rejecting this emotional relationship; I am, as ASB is suggesting, arguing that it is not substantial (and perhaps not even a factor at all) because it does bypass what ASB calls the "rational feedback loop". ASB's process largely relies on the process of signaling. A government mandated increase in wage, coming from a third party, bypasses signaling all together.

That's what one would expect from a purely classical approach to economics: The worker knows that the wage increase was due to government action and not any greater appreciation on the part of his boss, and therefore does not alter his evaluation of his boss based on that fact.

However...

I suspect that real world relationships are a lot more complex. Rationally, people might tell themselves that the government is responsible for them earning $10.00/hr instead of $7.40/hr, but they're likely to feel better about their job (and thus their relationship with their boss) at $10.00/hr than they do at $7.40/hr; indeed, they may even come to think that the fact that their employer didn't cut them loose when the minimum wage went up as tacit acknowledgement of their worth.

As I said, this all touches upon the cutting edge of economics: Studies that seek to question the fundamental assumptions of classical economics. After all, scientific progress only comes when existing beliefs get challenged.

[The Joseon Dynasty]

I don't want to put words in his mouth, but I don't think Caninope is arguing that this emotional relationship where the wage is something of a proxy for the "appreciation" of her employer doesn't exist, but that it isn't substantial enough to account entirely for the shift in productivity we see when wages go up.

I suspect that you're absolutely right.

This is something of a segue into the "next wave" of economic research, in which things like consumer choice, worker and employer attitudes, investor decision-making, and so on are being studied in fashion that falls half into the realm of sociology and half into the realm of economics. Such studies are bearing interesting fruit, and have the potential to revolutionize economics over the course of the next century.

Behavioural economics is a seriously interesting sub-field. I'm taking the introductory course in it next year, and the course description basically says "we're tossing out every assumption you've used so far and starting from scratch". It's going to be ridiculously fascinating.

[Novus Niciae]

I think it should be set closer to 15 dollars, and have a increase per year equal or greater to the inflation.

Link the raises of the minimum wage to the salary raises the politicians give themselves , if they vote that they should get paid 5% more to keep up with inflation then the minimum wage should automatically go up by the same percentage.

[Agymnum]

I think it should be set closer to 15 dollars, and have a increase per year equal or greater to the inflation.

Link the raises of the minimum wage to the salary raises the politicians give themselves , if they vote that they should get paid 5% more to keep up with inflation then the minimum wage should automatically go up by the same percentage.

It would also have the added bonus of reducing the number of conservative politicians who would raise salaries.

Everyone wins!

[Saiwania]

My prediction for Michigan if they raise their minimum wage to $10 an hour is that their economy would collapse. It already has close to 9% unemployment and tons of people leaving the state, what makes them believe that businesses will be able to afford to pay $10/hour and will want to stay after such a steep increase?

[Frisivisia]

My prediction for Michigan if they raise their minimum wage to $10 an hour is that their economy would collapse. It already has close to 9% unemployment and tons of people leaving the state, what makes them believe that businesses will be able to afford to pay $10/hour and will want to stay after such a steep increase?

And my prediction is that the Tennessee Titans will suddenly move to Kalamazoo and fix all of Michigan's problems. See, now we both have rather unlikely predictions.

[Alien Space Bats]

My prediction for Michigan if they raise their minimum wage to $10 an hour is that their economy would collapse. It already has close to 9% unemployment and tons of people leaving the state, what makes them believe that businesses will be able to afford to pay $10/hour and will want to stay after such a steep increase?

Were you laboring under the mistaken impression that the vast majority of Michigan businesses pay less than $10/hr?

<pause>

According to the U.S. Census, per capita income in Michigan is $25,482; with labor force participation running between 60-65%, that means that the average Michigan worker earns $40K-$45K/year. With the average American laborer working 34-35 hours/week, that would mean that the average Michigan worker is earning something like $22-23/hour.

So how, precisely, is an increase in the minimum wage from $7.40/hr to $10.00/hr going to crash our State economy?

---

The thing is, I sometimes think that conservatives like Saiwania wish that most Americans were earning $3-4/hours... so long as they weren't part of that group. I think that most conservatives like the idea of America being a land of widespread, grinding poverty.

[The Joseon Dynasty]

That's what one would expect from a purely classical approach to economics: The worker knows that the wage increase was due to government action and not any greater appreciation on the part of his boss, and therefore does not alter his evaluation of his boss based on that fact.

However...

I suspect that real world relationships are a lot more complex. Rationally, people might tell themselves that the government is responsible for them earning $10.00/hr instead of $7.40/hr, but they're likely to feel better about their job (and thus their relationship with their boss) at $10.00/hr than they do at $7.40/hr; indeed, they may even come to think that the fact that their employer didn't cut them loose when the minimum wage went up as tacit acknowledgement of their worth.

As I said, this all touches upon the cutting edge of economics: Studies that seek to question the fundamental assumptions of classical economics. After all, scientific progress only comes when existing beliefs get challenged.

I don't necessarily think that the inclusion of intangible factors like "appreciation" are themselves the cutting edge of economics. In order to incorporate some further complexity and realism into the productivity model, it would be trivial to define another variable "appreciation", which itself is a function of wage, holding all else equal, into the production function. That's not the "big change", since it's probably readily acknowledged that emotional relationships are a factor in productivity, but not significant enough to include in the simple model since, by definition, the simple model is very simple, and tries to cut out all extraneous details.

What I think the big change is, is that economists are less inclined just assume "because it makes sense if you think about it" that "appreciation" isn't an important factor in productivity, but use the tools of other social sciences to devise experiments to test and evalute their hypothesis that "appreciation" isn't an important factor. That assumption is being changed to hypothesis is much more interesting to me, because I think there's much more emphasis being placed on reconciling the empirical with the theoretical in economics, which do quite noticably deviate.

[Alien Space Bats]

I don't necessarily think that the inclusion of intangible factors like "appreciation" are themselves the cutting edge of economics. In order to incorporate some further complexity and realism into the productivity model, it would be trivial to define another variable "appreciation", which itself is a function of wage, holding all else equal, into the production function. That's not the "big change", since it's probably readily acknowledged that emotional relationships are a factor in productivity, but not significant enough to include in the simple model since, by definition, the simple model is very simple, and tries to cut out all extraneous details.

What I think the big change is, is that economists are less inclined just assume "because it makes sense if you think about it" that "appreciation" isn't an important factor in productivity, but use the tools of other social sciences to devise experiments to test and evalute their hypothesis that "appreciation" isn't an important factor. That assumption is being changed to hypothesis is much more interesting to me, because I think there's much more emphasis being placed on reconciling the empirical with the theoretical in economics, which do quite noticably deviate.

I would absolutely agree that what's interesting today is just what you say: That we're challenging our assumptions, forming hypothesis, and then testing them. That's how we're going to move forward in the field.

[OMGeverynameistaken]

My prediction for Michigan if they raise their minimum wage to $10 an hour is that their economy would collapse. It already has close to 9% unemployment and tons of people leaving the state, what makes them believe that businesses will be able to afford to pay $10/hour and will want to stay after such a steep increase?

Were you laboring under the mistaken impression that the vast majority of Michigan businesses pay less than $10/hr?

<pause>

According to the U.S. Census, per capita income in Michigan is $25,482; with labor force participation running between 60-65%, that means that the average Michigan worker earns $40K-$45K/year. With the average American laborer working 34-35 hours/week, that would mean that the average Michigan worker is earning something like $22-23/hour.

So how, precisely, is an increase in the minimum wage from $7.40/hr to $10.00/hr going to crash our State economy?

---

The thing is, I sometimes think that conservatives like Saiwania wish that most Americans were earning $3-4/hours... so long as they weren't part of that group. I think that most conservatives like the idea of America being a land of widespread, grinding poverty.

Because if you pay poor people enough to live on, they'll get lazy and stop working.

I know that I, for one, won't be able to afford the high quality patent leather riding crops with silver inlays that I normally use to encourage my workers. Do you know how a busy workplace goes through those?

[Alien Space Bats]

Because if you pay poor people enough to live on, they'll get lazy and stop working.

I know that I, for one, won't be able to afford the high quality patent leather riding crops with silver inlays that I normally use to encourage my workers. Do you know how a busy workplace goes through those?

Yeah, well, If I'm not mistaken, you're the guy who FT RP's with Napoleonic armies in space, too. The more the world looks like Les Misérables, the happier you're going to me.

[OMGeverynameistaken]

Because if you pay poor people enough to live on, they'll get lazy and stop working.

I know that I, for one, won't be able to afford the high quality patent leather riding crops with silver inlays that I normally use to encourage my workers. Do you know how a busy workplace goes through those?

Yeah, well, If I'm not mistaken, you're the guy who FT RP's with Napoleonic armies in space, too. The more the world looks like Les Misérables, the happier you're going to me.

That's correct, but I treat my workers much better than I do my serfs. For example, standard Russian colonization policy is to drop 1,000 serfs on a world and come back in a year. If any have survived, the world is suitable for colonization.

And since it's Space Russia, I'd really prefer to go more for the first bits of Metropolis. But with fancier hats.

[New Chalcedon]

I don't want to put words in his mouth, but I don't think Caninope is arguing that this emotional relationship where the wage is something of a proxy for the "appreciation" of her employer doesn't exist, but that it isn't substantial enough to account entirely for the shift in productivity we see when wages go up.

TJD, I am indeed not rejecting this emotional relationship; I am, as ASB is suggesting, arguing that it is not substantial (and perhaps not even a factor at all) because it does bypass what ASB calls the "rational feedback loop". ASB's process largely relies on the process of signaling. A government mandated increase in wage, coming from a third party, bypasses signaling all together.

I frankly doubt that you're right. A minimum-wage employee won't see a government employee every fortnight, reminding him who made sure he got paid the extra. The employer is the one who hands him the bigger paycheck, after all.

Interestingly, I wonder what most lower-wage employees thought of their jobs back in the late 1960s, when the Federal minimum wage was about $10/hour in terms of purchasing power.

[Saiwania]

Were you laboring under the mistaken impression that the vast majority of Michigan businesses pay less than $10/hr?

Yes, I actually was. I saw how much lower the cost of living was in Michigan compared to my state and jumped to a conclusion based on that. For Florida the minimum wage is currently at $7.79/hour and only $4.77/hour for tipped employees. That would be around $311.60 a week to live on working full time, minimum wage sucks but someone has to do it.

Florida's minimum wage used to be just $5.15/hour but it's economy still hasn't recovered from such a huge increase in only 7 years. The cost of living there has risen sharply since then, but salaries/income for wages above the minimum wage have not yet risen to compensate so people who used to be middle class are now poor. $10 to $12 an hour used to be plenty but now it isn't enough.

[New Chalcedon]

Were you laboring under the mistaken impression that the vast majority of Michigan businesses pay less than $10/hr?

Yes, I actually was. I saw how much lower the cost of living was in Michigan compared to my state and jumped to a conclusion based on that. For Florida the minimum wage is currently at $7.79/hour and only $4.77/hour for tipped employees. That would be around $311.60 a week to live on working full time, minimum wage sucks but someone has to do it.

Florida's minimum wage used to be just $5.15/hour but it's economy still hasn't recovered from such a huge increase in only 7 years.

I stopped paying attention here. You are aware of this little event called the "Global Financial Crisis", I trust? Good - then you should also be aware that 401(k)s and similar were disproportionately affected by the GFC. Given Florida's large retired community (many, many people go to Florida to retire due to the climate), that's naturally going to impact consumption levels.

[Saiwania]

I stopped paying attention here. You are aware of this little event called the "Global Financial Crisis", I trust? Good - then you should also be aware that 401(k)s and similar were disproportionately affected by the GFC. Given Florida's large retired community (many, many people go to Florida to retire due to the climate), that's naturally going to impact consumption levels.

Okay then, if a higher minimum wage is so great- why is it that Washington state which has $9.19/hour as their minimum have 7.5% unemployment while Wyoming only has 4.9% unemployment when they pay only $7.25/hour? It would be $5.15/Hour were it not for the federal minimum wage. North Dakota also happens to not pay a single cent more than the federal rate in minimum wage and their unemployment rate is the best in the entire US.

http://www.bls.gov/web/laus/laumstrk.htm