Target's $9 An Hour And A Minimum Wage Deal We Can All Get Behind

We’ve the news that Target is going to raise wages for everyone to a minimum of $9 an hour. Obviously this is being driven by the way that Walmart and TJMaxx have recently announced that they’re going to have starting wages of well above the current minimum wage. Plus, of course, the fact that the whole labor market is tightening and people are just having to pay higher wages to get the labor they want. Or, as we might realistically put it, the labor market is working. We could therefore simply state that no more discussion about the minimum wage is needed. Hey, wages are going up without everyone having a screaming catfight in Congress so why not just let wages go up without a screaming catfight in Congress?

Sadly, that would betray the point and purpose of politics, which is to have catfights so that Very Important People can be seen to be doing something so that they will get voted for.

The clear and obvious truth is that the correct level for a minimum wage, a legal one that is, is zero dollars per hour.

After all, there are plenty of people who do work for that sum and are entirely happy doing so (the other name we have for this is “volunteering” and yes, it really does happen). Further, if we didn’t actually have a minimum wage then it’s very difficult indeed to work out how we’d ever have any unemployment. We’d still need to have a welfare system, of course we would, in order to top up the incomes of whoever it is that we think isn’t earning enough to provide what we consider to be a decent lifestyle but it would be a much simpler system without that block of a minimum wage preventing those who want to work from being able to find work.

However, I think we all know that that’s not going to happen even if it should. Which brings us to two very interesting things being said about that Target $9 an hour announcement:
‘Fixating on some single number to us, on an average number is unimportant. It’s about being competitive locally at a store level within a marketplace,’ he said. He also noted that Target already paid more than $9 per hour in places where wages were high, like New York and North Dakota.

So why is Target changing its tune? The decisions of Walmart and T.J. Maxx to set their own national minimums may have forced the company’s hand.

But Mulligan’s broader point was absolutely right, and it applies not only to Target but also to how we think about minimum wage laws nationwide. It doesn’t make sense to set a uniform minimum wage across the country, and then hope state and local governments raise them as needed. It would make more sense to have a federal system in which the local minimum wage in each area is more connected to local economic conditions.

Strangely, however excited Vox gets about that as an argument in favor of a minimum wage it’s actually an argument against one. For Target obviously gets the point that it’s going to have to pay whatever it takes to get the labor that it wants. That necessary rate being something that Target’s local boots on the ground management can work out a great deal better than any Congresscritters, or even some lower level fool in the State Capitol. But again, that’s not an argument that’s going to get accepted and we must approach public policy from the point of view of what people generally believe is true rather than what is actually true. Yes, even though there may be a wide chasm between the two.

Which brings us to this mentioned in that piece at Vox:
But just hoping cities and states raise their minimums on their own isn’t a great policy. Minimum-wage laws can get tied up in prolonged political fights in state legislatures, meaning minimum wages end up reflecting state and local politics, not state and local economies, as University of Massachusetts-Amherst economist Arindrajit Dube wrote in a 2014 paper.
As economist Jared Bernstein wrote last year, Dube’s way is a better way: Dube proposed that state and local minimum wages be based at half the local median wage, a level he says is consistent with the US minimum wages of the 1960s and 1970s, as well as with standards in advanced economies.

That paper is here. Bernstein is of course wrong. That shouldn’t actually need to be said, only the manner in which he is so changing from subject to subject. Here, there’s absolutely no reason at all why the minimum wage today should have any connection at all to either where it was decades ago nor to what it is in other countries. What we want to know is what is the rate at which it does the least harm we can engineer while still putting the issue to bed once and for all? And believe me Bernstein really would be whining in a decade’s time if it really was just indexed to inflation and then left alone. For it would then become ever more detached from the median wage itself for it is true that, over the decades, wages rise faster than inflation. That’s why we’re richer than our grandparents.

However, Dube’s proposal does have merit if we make just a couple of small changes. As I’ve said around here many a time we know that a minimum wage which is “too high” causes significant unemployment effects. We also know that a “low” one has near trivial effects in every dimension. The reason being that just about no one gets paid a low percentage of the median wage. The difficulty is defining what is low or too high.

And the best evidence we’ve got, which to be fair isn’t actually all that good, is that the significant unemployment effects happen when the minimum is 45-50% of median. So, I would set it at 45%, where we think those bad effects start, not the 50% that Dube uses where they really start to bite.

Secondly, in that paper Dube seems to be using “median full time wage” which is subtly different from “median hourly wage.” The second will be lower. For the joint reasons that part timers generally get paid less per hour than full timers yet some significant number of hourly paid and minimum wage workers are part time. We should therefore be using median hourly wage, not a pro rata working of median full time wage.

This will drop his estimated wage numbers a bit.

The one major change that we need to make is that the minimum wage is not equally binding upon all labor market participants. It binds most harshly, of course, on the young and untrained. And even more so upon those who are discriminated against for any other reason: those of unfavored ethnicities perhaps, those coming out of prison or those who have been subjected to the appalling inner city education systems. All of these people need a distinctly lower than the general minimum wage rate to get them priced back into the labor market. So, in common with many of the European countries Dube talks about there should be a lower youth minimum wage. From memory, my native UK has as many as four different rates. 16-18, 18-21, an apprenticeship rate and the general adult one. It is only that adult one that is up around the levels of the US minimum wage.

By now of course I’ve annoyed everyone. Those to the right of me (OK, I’m so free market that there’s not many of them, so, say those 49% of the population between me and the center) are outraged that there’s still going to be a minimum wage and everyone further left is apoplectic that it’s not going to be very much higher than it is now. And, for the young, lower than it is now. But I still think that it’s probably the best deal we’re going to be able to cobble together. A minimum wage that is at 45% of local median hourly wages, with a lower rate for the young, upgraded each year as the median wage calculations are done.

Not that this is going to happen of course, but I do think it’s about the best that we could do, given what everyone already believes.