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Remember the EITC Amid Amazon’s Move to a $15 Minimum Wage
A $15 minimum wage might well be great for Amazon. But it is unlikely to be great for America if imposed across the country, as I write in my new The Week column. Even raising the current federal minimum of $7.25 an hour by a buck or so every year until it hits $15 would almost certainly risk significant negative job effects.
New research from University of California at San Diego economist Jeffrey Clemens and my AEI colleague Michael Strain finds that increases of over $1 in states that raised their minimum wage between January 2013 and January 2015 “resulted in employment declines of just over one percentage point among teenagers, among individuals ages 16 to 21, and among individuals ages 16 to 25 with less than a completed high school education.”
Instead of a Fight for 15, we need a fight for an expanded Earned Income Tax Credit, which economists broadly agree is well targeted toward the working poor, boosting incomes and work. It is also a far better idea for helping workers than penalizing companies whose employees need to avail themselves of the social safety net. Again, as I write:
Unfortunately the EITC is the kind of income-support program that the left attacks when it helps the families of workers at Amazon and Walmart. Sanders cooked up the Stop Bad Employers by Zeroing Out Subsidies (Stop BEZOS) Act, which would slap a tax on large corporations equal to federal benefits used by their low-wage workers.
It’s a terrible idea. We don’t want to encourage employers to discriminate against workers who might draw government benefits, even as those jobs mean fewer Americans need government help. Nor is it reasonable to expect employers to pay workers more than what they are worth to the firm. And isn’t ensuring our fellow citizens reach a sufficient standard of living actually the responsibility of society as a whole? After all, the left doesn’t describe national health insurance — which lets employers off the hook for their workers’ health coverage — as some sort of massive subsidy to Big Business.
Amazon haters might also want to consider that even before this wage hike, ecommerce fulfillment centers like Amazon’s typically paid 30 percent more than brick-and-mortar retail in the same area, according to economist Michael Mandel. Finally, the recent clear upturn in wages is another bit of evidence that American capitalism is not broken, despite what progressives argue.
I tried to make this exact pro-EITC argument to a former Obama Labor Department official yesterday on CNBC. I was not successful.
Published in Economics
Bezos has to keep his cred’ with WaPo readers.
When the Amazon minimum hourly wage increases, hourly employees at call centers and warehouses will lose incentive bonuses and restricted stock awards. Those higher wages have to be “paid for”, and this is how Amazon is doing it. There is no such thing as a free lunch.
This is absolutely correct, and any conservatives who oppose a healthy and expanded EITC because of excuses like fraud, inefficiency, or the now useless “principle” that it’s too costly or government should not be doing this, etc. are the biggest problem out there in any attempt to reign in spending. The first principle of minimizing welfare-type payments by government is to live in the real world rather than the twilight zone dreamland of Ron Paul or Don Boudreaux, and the second, after recognizing which places the government will be involved no matter how much or little we like it, is to get the incentives right.
The EITC promotes and rewards getting and holding a job. There isn’t much in public policy that is more important to promote than that.
Or it could be “paid for” through higher productivity, lower costs from turnover and recruitment. Those are not free lunches. The pie is not fixed.
My boyfriend’s friend works at an amazon warehouse. After some calculations from his boss, he just found out he’ll make $1000 less per year. No surprise there.
What better way to bankrupt competition? I enjoy Amazon’s services but wish they’d ramp back the whole “absorb and dominate every sector of the retail economy” thing.
Exactly. They make no profit for decades, and every single time they absorb a company their stock goes up. This means they can go into the bond market and borrow like crazy and their debt to asset ratio never gets worse. The day they bought whole foods their stock went up by the same amount they paid for it. They literally got the company for nothing. Free.
In my opinion this all happens because the the Fed has been suppressing interest rates since 1996, and no one in Congress understands how to regulate finance. It’s an abomination.
So you’re going to get more socialism and populism.
Watch the exchange series on real vision. 90 whole minutes.
James: I know you know King Bananian. I don’t think he’s as paranoid and negative about this as I am, but I think he’d make a good guest.
Amazon is not responsible for people it doesn’t hire because it may have raised its cost of labor. Our politicians however are responsible for every kid or unemployed minority that can’t get a job because they’re not worth the minimum wage. It’s difficult to measure these things, so the impact must be large to be captured in these kinds of econometric studies. Good for them.
All minimum wages should be terminated but our politicians, as usual are cowards. Instead of welcoming the debate on how these liberal programs negatively impact the unskilled and the never employed, and reduce on the job training and risk taking with people who have never worked, they hide from the issue. They are cowards and only oppose the size of increases which is exactly the approach that works against them.
I saw that. So much for generosity, but it does illustrate the point a business is concerned with the bottom line.
What happens when Amazon comes for your business?
They do cloud services for the US government. Then they take the tax money and cannibalize the private market.
What paper does Jeff Bezos own again?
Amazon can accept lower profit margins on its retail business than can other retailers because (a) it has a persuasive and historically-validated (so far) growth story, accepted by its investors, and (b) it also has the very profitable Amazon Web Services segment.
I have a post and discussion thread on the Amazon $15 thing here.
One tidbit that doesn’t seem to be getting reported widely: Amazon is raising it’s minimum wage to $15 an hour, but the employees who get paid that rate will lose benefits like company stock and bonuses.
https://finance.yahoo.com/news/amazon-employees-say-will-make-less-raise-174028353.html
It’s much like the campaign against tipping in restaurants. Average employees might be better off, but employees who go above and beyond lose out.
…
Ok, it looks like it is getting reported after all.
https://thehill.com/policy/finance/409781-amazon-eliminating-bonuses-stock-awards-to-help-pay-for-wage-increases
Do you trust the federal government to manage its own data centres?
This is an interesting discussion board.
I have been saying for the better part of 15 years that if housing, food, and gas expenses could simply be brought in line with inflation as opposed to out-stripping it by 100% or more then the pressure for a higher minimum wage would lessen. The costs of these things mean nothing to the wealthy but act as a sort of regressive tax on the working poor and middle-class.
Anecdotally:
Cost of a jar of peanut butter in Orlando, FL in 1995 – ~1.80 /// in 2018- ~3.19
Cost of a 2 bdroom apt. in Orlando, FL in 1995 – ~500.00(and not on the bad side of town. Just outside of Downtown.) /// in 2018 – ~1500.00
Cost of a gallon of gas in Orlando, FL in 1995 – ~1.25 /// in 2018 – ~2.79
Average pay of a server in Orlando, FL in 1995 – ~23,000 /// in 2018 – ~27,000
If we bring the costs of actually just LIVING into line with inflation people could afford to live without having to spend half their month’s earnings on their rent alone, much less groceries, utilities, and transportation. The cost of actually living seems to me to be out of balance. There are those who spend more time on the metrics of these things. Does this seem accurate to you or am I missing the mark?
This is the reason I think our focus needs to be on the health of Main Street and less on Wall Street. Thoughts?
All of the smart people on Ricochet think we have to have an inflationary economy so we can have a sophisticated financial system.
The last time Ben sass was on the flagship podcast I about threw up. He will tell you that robots and globalize labor markets are necessary so we can have a better standard of living. Deflation in other words. Better living through purchasing power. Wel,l what about everything you’re pointing out in this post? The Fed and the government force too much inflation. The cost of living should be going down for almost everything, all the time. This whole deal where people lose Jobs to robots and globalize labor would be far more humane if they would just drop the comprehensive inflation policy. And people wonder why Trump and Bernie and populism and socialism are so popular.
Darn it. I was going to disagree with you, then I had to stop and think . . .
Entering and enjoying geezerville, I remember my Dad’s car in 1960. It was, if I recall correctly, a rock-solid ’55 Oldsmobile sedan which seated six with room to spare, and was small by the day’s standards, and bought used. On a trip on the NJ Tpke, I once rolled off, mostly thrown off, the back seat while sleeping, due to an auto accident that would have had the bumpers off today’s cars, and I woke to see two men inspecting both cars, finding no damage in either, shake hands and driving on.
But I digress. I’ve spent the last twenty years remembering how much that car and others cost back then, the cost of a can on Campbell’s soup or tuna 3 cents, a pair of shoes $2, a refrigerator — $50, a TV $20, washing machine $50, a hamburger (5-10 cents! — and there’s not even a cents sign on my keyboard) the brick house I was raised in on an acre of land in a good county $17,000, and I’ve got to say that today’s prices for similarly positioned items that we had, near top of the line — everything is just about 20 times more expensive these days. That’s about, if my math is correct (and it may be way off), an average of 3.7% inflation a year.
The minimum wage was in those years $1 an hour. Today it’s — what — 7-8 bucks an hour. Everything’s gone up twenty times except the minimum wage, which has gone up about 7 times. And in those days, men were married, families had a single wage-earner, and most housewives worked by choice, not out of necessity.
That means everyone working at or near minimum wage today, is making at the very most only one third of what he made in 1960.
A hard-working assistant I know makes about $15 and hour after more than 10 years with the company. If wages had kept up with inflation, minimum wage would be $20 an hour today. And she would be making closer to $40 an hour.
And she’s on, as a single mother, some form of government income supplements. I wonder if she would rather have financial assistance or a wage of $40 an hour without assistance. I’ll bet she’d jump at the 83 grand a year.
Talk about top down regulation? I blame the Fed for this. Please correct me where I’m wrong.
That means everyone working at or near minimum wage today, is making at the very most only one third of what he made in 1960.
A hard-working assistant I know makes about $15 and hour after more than 10 years with the company. If wages had kept up with inflation, minimum wage would be $20 an hour today. And she would be making closer to $40 an hour.
And she’s on, as a single mother, some form of government income supplements. I wonder if she would rather have financial assistance or a wage of $40 an hour without assistance. I’ll bet she’d jump at the 83 grand a year.
Talk about top down regulation? I blame the Fed for this. Please correct me where I’m wrong.
This is what I am talking about. I don’t think that pay rate is lagging but these other costs seem way out of line.