A 22 percent increase in the German minimum wage: nothing crazy(paperswithcode.com)
paperswithcode.com
A 22 percent increase in the German minimum wage: nothing crazy
https://paperswithcode.com/paper/a-22-percent-increase-in-the-german-minimum
119 comments
Bossler, Chittka and Schank found that after the second minimum wage increase (from EUR to 10.45 to EUR 12.00), average wages of the people who were earning less than EUR 12 went up by 6%. Moreover, there was no noticeable reduction in employment. There was however a slight reduction in hours worked – impacted individuals worked 1% fewer hours, meaning their overall monthly wages went up only by 5% on average. Thus, it appears that a significant minimum wage change had a net positive impact on workers with minimal downsides.
(https://www.nominalnews.com/p/minimum-wages-employment-benef...)
There's the legal minimum and then there's the prevailing market wage for low-skill work. That's somewhat unintuitive to measure, but I think it's really important for these studies.
I'm not familiar with Germany, but in the US, federal minimum is $7.25, but almost no one earns that. I passed by a fast food place in a small town in very low cost Pennsylvania last week and the sign said $17/hr starting to serve fries.
If the minimum wage was raised to $9.25, I assume there would be close to zero job losses and a minimal reduction in hours worked. $11, $14, probably the same. At $20, I'd expect to see problems. At $30, I think these problems would get catastrophic in terms of business closures and price increases.
I don't see in the link that they modeled any of this, but without it, the study isn't super useful except as a talking point.
At the end of the day, minimum wages are a price control, and price controls that impact and artificially shift the naturally occurring intersection point of supply and demand necessarily have consequences. Price controls on bread at $100 wouldn't cause problems. At $0.10 they would.
I'm not familiar with Germany, but in the US, federal minimum is $7.25, but almost no one earns that. I passed by a fast food place in a small town in very low cost Pennsylvania last week and the sign said $17/hr starting to serve fries.
If the minimum wage was raised to $9.25, I assume there would be close to zero job losses and a minimal reduction in hours worked. $11, $14, probably the same. At $20, I'd expect to see problems. At $30, I think these problems would get catastrophic in terms of business closures and price increases.
I don't see in the link that they modeled any of this, but without it, the study isn't super useful except as a talking point.
At the end of the day, minimum wages are a price control, and price controls that impact and artificially shift the naturally occurring intersection point of supply and demand necessarily have consequences. Price controls on bread at $100 wouldn't cause problems. At $0.10 they would.
Those sorts of signs at fast food places are often just to get people to apply and they come back with something just a little over minimum after the interview.
It does not seem like the study took into account inflation, though? If workers overall monthly wages went up 5%, was that offset by inflation in the price of things those workers buy?
If you look at the graph, they did take into consideration real vs nominal. Unfortunately, the jump in minimum wage happened too recently to get a long enough timeline to see the effect over more than 1 year so the outcome is TBD but the early data seems positive.
Additionally, it's pretty obvious that many products wouldn't see price increases proportional to wage increases.
This is especially true the higher the production volume / economies of scale. Imagine a burger joint where a worker pushes out a measley dozen burgers in an hour (I'd be surprised if volumes for most places are this low, but let's imagine). So, 5 min per burger.
At fed minimum wage of $7.25/hr, labor costs for those burgers are about 60 cents. A cheap burger is $2 right now, $3-$5 is much more typical. So even at output volumes as low as a dozen per hour, non-labor costs are a much greater portion of each of these burgers, like 70%-90%.
Double that minimum wage to $15/hr and assume all the cost is passed onto consumers and the price of these dozen burgers goes up by 65 cents. OK, let's assume a complete separation of cooking and register/order duties that requires at least two workers per dozen burgers per hour. We might see an increase of $2 per burger.
And since most people can't eat a dozen burgers an hour (much less the likely much higher output of burgers), a doubling of minimum wage far outpaces whatever price increase is passed on.
This is a simple model but even if you get more complicated, the outcome isn't much different. Generally speaking, even at economies of scale as low as a dozen per hour, wage increases outpace necessary price increases.
Where do wage increases contribute to dramatically increased costs? Lower volume high focus work where skilled labor is most of the cost of producing the product, but generally markets have long since decided these people get paid much more than minimum wage, so minimum wage increases have no effect here.
There's also the case where each unit requires a large team of labor. This tends to be at least semi-skilled in construction / fabrication / manufacturing where labor demands have long since left a legal wage floor behind.
The real question is why the misconception that minimum wage increases result in broad upward price spirals is so common when you can figure out why that's unlikely with math most people have learned by the time they're teenagers.
(I do think there's a good argument that labor markets are so thoroughly regional that it's probably better to have legal wage floors be set at the state and county level, but there's no reason a federal law couldn't be indexed off of local indicators with local guidance.)
This is especially true the higher the production volume / economies of scale. Imagine a burger joint where a worker pushes out a measley dozen burgers in an hour (I'd be surprised if volumes for most places are this low, but let's imagine). So, 5 min per burger.
At fed minimum wage of $7.25/hr, labor costs for those burgers are about 60 cents. A cheap burger is $2 right now, $3-$5 is much more typical. So even at output volumes as low as a dozen per hour, non-labor costs are a much greater portion of each of these burgers, like 70%-90%.
Double that minimum wage to $15/hr and assume all the cost is passed onto consumers and the price of these dozen burgers goes up by 65 cents. OK, let's assume a complete separation of cooking and register/order duties that requires at least two workers per dozen burgers per hour. We might see an increase of $2 per burger.
And since most people can't eat a dozen burgers an hour (much less the likely much higher output of burgers), a doubling of minimum wage far outpaces whatever price increase is passed on.
This is a simple model but even if you get more complicated, the outcome isn't much different. Generally speaking, even at economies of scale as low as a dozen per hour, wage increases outpace necessary price increases.
Where do wage increases contribute to dramatically increased costs? Lower volume high focus work where skilled labor is most of the cost of producing the product, but generally markets have long since decided these people get paid much more than minimum wage, so minimum wage increases have no effect here.
There's also the case where each unit requires a large team of labor. This tends to be at least semi-skilled in construction / fabrication / manufacturing where labor demands have long since left a legal wage floor behind.
The real question is why the misconception that minimum wage increases result in broad upward price spirals is so common when you can figure out why that's unlikely with math most people have learned by the time they're teenagers.
(I do think there's a good argument that labor markets are so thoroughly regional that it's probably better to have legal wage floors be set at the state and county level, but there's no reason a federal law couldn't be indexed off of local indicators with local guidance.)
> The real question is why the misconception that minimum wage increases result in broad upward price spirals is so common when you can figure out why that's unlikely with math most people have learned by the time they're teenagers.
Owners of companies have an incentive to encourage us to think this, firstly because it’s a distraction from the true cause of inflation (their greed), and secondly because a public resistant to the idea of raising the minimum wage helps them keep their profits higher.
> "Inflation begets inflation. When people are expecting price rises they're also more accepting of them," he says…
> "Greedflation is the idea that corporate profit expansion is contributing to high inflation. This has moved from a fringe view to the mainstream in Europe and the US in the last year, and there's a debate going on about it in Australia,"…
> When the governor of the Reserve Bank of Australia, Philip Lowe, last month told the National Press Club that "rising profits are not the source of inflation pressures we have", he was accused by The Australia Institute think tank of a dereliction of duty. A report from the institute earlier this year said that 69 percent of excess inflation – inflation above the Reserve Bank's 2.5 percent target – came from high corporate profit margins.[0]
[0] https://www.rnz.co.nz/programmes/the-detail/story/2018891366...
Owners of companies have an incentive to encourage us to think this, firstly because it’s a distraction from the true cause of inflation (their greed), and secondly because a public resistant to the idea of raising the minimum wage helps them keep their profits higher.
> "Inflation begets inflation. When people are expecting price rises they're also more accepting of them," he says…
> "Greedflation is the idea that corporate profit expansion is contributing to high inflation. This has moved from a fringe view to the mainstream in Europe and the US in the last year, and there's a debate going on about it in Australia,"…
> When the governor of the Reserve Bank of Australia, Philip Lowe, last month told the National Press Club that "rising profits are not the source of inflation pressures we have", he was accused by The Australia Institute think tank of a dereliction of duty. A report from the institute earlier this year said that 69 percent of excess inflation – inflation above the Reserve Bank's 2.5 percent target – came from high corporate profit margins.[0]
[0] https://www.rnz.co.nz/programmes/the-detail/story/2018891366...
even your own article offers a repudiation of this "greedflation" idea
> But not everyone buys the greedflation argument. Professor of Economics at University of Waikato, Michael Cameron, calls himself a sceptic.
> "I don't think that anybody who is promoting the idea of greedflation has given us a really good idea of what it is that they are referring to. Is it any time that someone's raising a price, that might be greedflation?"
> Cameron says some of the factors behind New Zealand's high prices – a lack of competition in key industries such as grocery and building supplies – are not the same as other parts of the world.
> But not everyone buys the greedflation argument. Professor of Economics at University of Waikato, Michael Cameron, calls himself a sceptic.
> "I don't think that anybody who is promoting the idea of greedflation has given us a really good idea of what it is that they are referring to. Is it any time that someone's raising a price, that might be greedflation?"
> Cameron says some of the factors behind New Zealand's high prices – a lack of competition in key industries such as grocery and building supplies – are not the same as other parts of the world.
Since CPI (inflation) has gone up 30%+ since 2018 this seems eminently reasonable- in fact Inwoukd think inflation linked salaries would work quite well (unless governments will buy into the MMT idea and actually tax the wealthy)
Why do you think the MMT idea is to tax the wealthy? If anything, the MMT idea is that the wealthy are not special and that tax needs to be broad base to achieve its purpose of freeing resources to be purchased by the state. The problem with the wealthy is their marginal propensity to consume is low compared to the masses.
One might want to tax the wealthy for other reasons, but I'm not sure it can be easily motivated by MMT reasoning.
One might want to tax the wealthy for other reasons, but I'm not sure it can be easily motivated by MMT reasoning.
So my laypersons understanding is that
a) Governments printed money massively to handle 2008/covid (on the order of tens trillions dollars)
b) MMT says governments print money to spend it buying the services they want (ie roads, nurses, etc) then tax back the same amount thus having net no inflation and able to print the same amount again next cycle / year.
c) if people can take the system so that they don’t pay tax but instead keep the money then governments cannot print same amount of money / end up causing inflation
c) wealthiest in society are pulling away, tax rates for capital vs labour are not equal, the massive QE has ended up in hands of capital owners and as we don’t tax Wealth then each cycle of spend-tax means more is staying in private hands, it getting destroyed so more government spending must either be cut or raise inflation.
So my limited understanding says “money is just tokens, tokens should equal productive capacity (multiplied by some thing something velocity), and if governments want to spend more tokens than are being destroyed through tax, either raise tax rates n those paying tax, or tax those not paying tax (ie tax wealthy)
In the end it all comes back to rentierism- and that comes back to a land tax
a) Governments printed money massively to handle 2008/covid (on the order of tens trillions dollars)
b) MMT says governments print money to spend it buying the services they want (ie roads, nurses, etc) then tax back the same amount thus having net no inflation and able to print the same amount again next cycle / year.
c) if people can take the system so that they don’t pay tax but instead keep the money then governments cannot print same amount of money / end up causing inflation
c) wealthiest in society are pulling away, tax rates for capital vs labour are not equal, the massive QE has ended up in hands of capital owners and as we don’t tax Wealth then each cycle of spend-tax means more is staying in private hands, it getting destroyed so more government spending must either be cut or raise inflation.
So my limited understanding says “money is just tokens, tokens should equal productive capacity (multiplied by some thing something velocity), and if governments want to spend more tokens than are being destroyed through tax, either raise tax rates n those paying tax, or tax those not paying tax (ie tax wealthy)
In the end it all comes back to rentierism- and that comes back to a land tax
The modern idea in MMT (which is a pretty old philosophy by now) that taxes create demand for the currency. Which helps with stability, since businesses/people can't just abandon trade with the currency in the event of devaluation.
It should not be seen as a mechanism primarily used to finance government spending (that's what debt is for). For a country the size of the USA, balanced budgets (tax inflows = government spending outflows) create currency issues, since there's demand for government debt as a store of wealth. What can Apple do if the government decides to stop issuing t-bills? They'd pay a dividend, but then that leave the receiver of the dividend with the same problem. Or maybe they'd purchase an existing t-bond for over market value (effectively increasing interest rates).
The government will issue as many bonds as the market has demand for as a store of wealth, but the government also decides the interest rates it is willing to pay. The idea being, the government has better control over inflation, since government spending drives inflation, but high interest rates curb it (though, I believe this is still an active area of research).
It should not be seen as a mechanism primarily used to finance government spending (that's what debt is for). For a country the size of the USA, balanced budgets (tax inflows = government spending outflows) create currency issues, since there's demand for government debt as a store of wealth. What can Apple do if the government decides to stop issuing t-bills? They'd pay a dividend, but then that leave the receiver of the dividend with the same problem. Or maybe they'd purchase an existing t-bond for over market value (effectively increasing interest rates).
The government will issue as many bonds as the market has demand for as a store of wealth, but the government also decides the interest rates it is willing to pay. The idea being, the government has better control over inflation, since government spending drives inflation, but high interest rates curb it (though, I believe this is still an active area of research).
MMT largely rejects interest rates (and monetary policy in general) as a useful tool in macroeconomic policy in favour of fiscal policy. The general position is that since the marginal cost of money is basically zero, the markets in useful stuff are better able to operate if the money markets don't complicate things, and that monetary policy is not a very good tool to achieve the desired objective (weak, and potentially counterproductive at times). If a particular political objective is desired, then use more direct government tools to do that - laws and regulations, rates and duties.
And that’s the beauty of it. When has “simple is better” not ended up being true!? Whenever I read about ‘interest rates’ and other monetary policy blah blah, all I see is a group of people high on their own supply, all thinking that they’ve come up with something ‘cool’ and ‘smart’ and ‘elegant’. But, in reality, it breaks with some degree of regularity.
You make some interesting points, but not MMT. It's actually quite an easy view to fall into which I also did for a bit based on a few, but nowhere near enough, snippets of MMT along with much prior baggage.
The core point of MMT is that monetarily sovereign states should primarily consider the resources available to buy with little to no consideration of the financial side, since such states are never financially constrained. The focus of the government then is all about making sure such resources are properly managed. That means the primary role of taxation is to free resources (read people) that can be purchased. It recognises a potential cause of inflation is a lack of things the state needs being available to purchase by the state leading the state to out-compete the private sector using its greater financial power.
Conversely, if things are available to buy, then the state can use its financial might to buy up those things. This is most notable in the primary policy prescription of MMT of the Job Guarantee - acting as an employer of last resort and providing a job to anyone that wants one (and in the process, rendering the minimum wage somewhat moot). The JG is especially interesting when you realise what you're actually doing is anchoring the value of the currency to X units per hour of unskilled labour. At that point, spending is all relative to that price anchor. Things can and should float relative to it in response to supply and demand, but that fundamentally the JG wage is the financial control point.
It's kind of funny how little consideration is given in the mainstream to establishing a proper value for the currency given how much hand-wringing is performed over inflation fears.
The core point of MMT is that monetarily sovereign states should primarily consider the resources available to buy with little to no consideration of the financial side, since such states are never financially constrained. The focus of the government then is all about making sure such resources are properly managed. That means the primary role of taxation is to free resources (read people) that can be purchased. It recognises a potential cause of inflation is a lack of things the state needs being available to purchase by the state leading the state to out-compete the private sector using its greater financial power.
Conversely, if things are available to buy, then the state can use its financial might to buy up those things. This is most notable in the primary policy prescription of MMT of the Job Guarantee - acting as an employer of last resort and providing a job to anyone that wants one (and in the process, rendering the minimum wage somewhat moot). The JG is especially interesting when you realise what you're actually doing is anchoring the value of the currency to X units per hour of unskilled labour. At that point, spending is all relative to that price anchor. Things can and should float relative to it in response to supply and demand, but that fundamentally the JG wage is the financial control point.
It's kind of funny how little consideration is given in the mainstream to establishing a proper value for the currency given how much hand-wringing is performed over inflation fears.
How many hours of unskilled labor equal one hour of principal software engineer labor? Imho the answer is NaN/infinite - the unskilled person won't be able to do in years what the engineer does in minutes while picking today's lunch restaurant. Sounds very much like 9 women delivering a baby in a month.
You can make the same argument about principle software engineers. How many php front end developers does it take to write a kernel driver? Of course, the question actually being asked is what the relative pay of the different positions are, since that's how money works.
Yes. Our money works because it's not pegged to unskilled labor. Money tied to it wouldn't work.
"And you should listen to me because I'm unwilling to stand behind my opinion.". Why would it not work?
Because unskilled labor is incomparable to skilled labor, and various specializations of skilled labor are incomparable to each other.
It's an infinite money glitch - computers can do many unskilled labor tasks autonomously. I have an AWS account and am happy to sell.
It's an infinite money glitch - computers can do many unskilled labor tasks autonomously. I have an AWS account and am happy to sell.
When your AWS account can remove graffiti from the wall, or plant flowers, or dig a road, please do let me know. Even when that happens, I don't think a job guarantee would extend to an AWS account.
Despite your protests, people manage just fine to compare labour based on how much the provider of said labour is paid using the single measure of quantity of currency.
Despite your protests, people manage just fine to compare labour based on how much the provider of said labour is paid using the single measure of quantity of currency.
No, they compare the market value of labor, which is the part that makes the economy possible and this proposal would remove it.
It would not remove it, everything would float relative to that point. If you don't define the reference point, things still move about the price of labour since that's the dominant variable, just the absolute baseline can float around too. Defining a single point allows any arbitrary market position for everything else.
Since money is a social construct with a social purpose (and indeed, is the reason people are unemployed) it's perfectly reasonable that we define it's value to provide a social purpose, which has the added benefit of providing price stability.
Moreover, it provides a buffer stock of employed that can easily transfer to and from the private sector.
Since money is a social construct with a social purpose (and indeed, is the reason people are unemployed) it's perfectly reasonable that we define it's value to provide a social purpose, which has the added benefit of providing price stability.
Moreover, it provides a buffer stock of employed that can easily transfer to and from the private sector.
Not that it would happen often, but could you imagine the outrage of people losing salary during periods of deflation? No way this works long-term imo, but maybe I'm missing some ideas to balance it.
How often do you think we see periods of deflation compared of inflation? I mean deflation not a decrease of inflation rate.
Deflation favors debt payors instead of debt issuers/servicers, and our whole economy is constructed to favor the latter group, because having a "healthy" system of debt supports faster economic growth than a system with no debt. (in theory). The whole raison d'etre of free-floating govt-supplied fiat currency is to make deflation impossible.
We haven't had real deflation since bretton woods, when we gave up the gold standard.
We haven't had real deflation since bretton woods, when we gave up the gold standard.
> Deflation favors debt payors instead of debt issuers/servicers
Wouldn't that be the other way around?
If I take out a $30K loan to buy a new car, and I'm paying $500/month, then if the economy happens to go through an extreme amount of deflation a year later and now brand new cars are only $10K, then as the payer, I'm still paying $500/month and $30K total, except that amount is worth a lot more.
Whereas if massive inflation happens, the payer gets a huge benefit, assuming their salary keeps up with the inflation.
Wouldn't that be the other way around?
If I take out a $30K loan to buy a new car, and I'm paying $500/month, then if the economy happens to go through an extreme amount of deflation a year later and now brand new cars are only $10K, then as the payer, I'm still paying $500/month and $30K total, except that amount is worth a lot more.
Whereas if massive inflation happens, the payer gets a huge benefit, assuming their salary keeps up with the inflation.
I think you are correct and GP has the right idea for wrong reasons. In the long term people will stop borrowing in a deflating economy which will harm debt servicers. Financial institutions collapse when your mattress is better place than a bank for money.
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Probably not often, as indicated by the first few words of my sentence.
The less common a thing, the more one must be prepared and consider it lest everyone frwak out.
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Minimum wage in Germany in 2017 was €8.84 [1], that would be €11.07 today [0]
Minimum wage is currently €12.41, 12% higher than in 2017 after inflation.
[0] https://www.in2013dollars.com/europe/inflation/2017?amount=8...
[1] https://en.wikipedia.org/wiki/Minimum_wage_in_Germany
Minimum wage is currently €12.41, 12% higher than in 2017 after inflation.
[0] https://www.in2013dollars.com/europe/inflation/2017?amount=8...
[1] https://en.wikipedia.org/wiki/Minimum_wage_in_Germany
Wouldn't linking salaries to inflation be a feedback loop? Inflation is driven by various factors, but if for example like in 2020 the government of the biggest economy in the world decided to print billions of dollars to have "more money", something is gonna have to give. And in practice that something was everyone's money is now worth less.
It was tried multiple times in 3rd world countries with the expected consequences: total disaster and hyperinflation.
Belgium has automatically indexed salaries and we don't have hyperinflation. Inequality is among the lowest in the world.
Interesting. Do you have a source? Is there a law? I cannot find anything about automatic indexation of salaries with inflation...
I've seen some indexation with consumer price index, but is not with inflation. Maybe you are conflating the 2 concepts?
https://agilityeor.com/blogs/belgium-salary-indexation-forec...
January 2023, every white collar worker in Belgium got a 11% rise
(Why not blue collar …)
January 2023, every white collar worker in Belgium got a 11% rise
(Why not blue collar …)
JIC200 is just the biggest white collar committee. Other white collar and blue collar workers fall under other committees. They might have different rules for indexation (at another time, more times per year, when inflation exceeds a certain level, ...), but everyone gets it.
Consumer price index is just a measure for inflation, no? So what's the big difference?
Absolutely no. The whole methodology is different. The update rate could be substantially different, also “consumer price idx” is typically reduced to very basic elemental goods and services, which are often regulated, and don’t change at the same rate as a live indicator as inflation.
I lived in a country with CPI of 5% and the inflation was 25% same month. Not even close!
I lived in a country with CPI of 5% and the inflation was 25% same month. Not even close!
And how is _the_ inflation then calculated?
Yes, it's a feedback loop, but it's a highly damped feedback loop.
Not really. Most of the grousing and dire prophecy about minimum wage is bunk.
The most conservative folks are resource extraction industry folks, and they are against anything, wages, tax, regulation, etc that reduces their margin. Don’t listen to them unless you’re in their business.
With respect to 2020, there’s a weighing of evils. You either increase the monetary supply and trigger moderate inflation, or allow a deflationary death spiral. The economy halted — gasoline prices went negative regionally for a bit.
The most conservative folks are resource extraction industry folks, and they are against anything, wages, tax, regulation, etc that reduces their margin. Don’t listen to them unless you’re in their business.
With respect to 2020, there’s a weighing of evils. You either increase the monetary supply and trigger moderate inflation, or allow a deflationary death spiral. The economy halted — gasoline prices went negative regionally for a bit.
In Belgium, we have an indexed salary system, partly linked to inflation and other factors.
It's a complex system, conditioned by many variables (like just about everything else in this country renowned for its Belgian-style compromises).
It is also frozen for some years, especially when the financial lobby succeeds in manipulating politicians.
It's a constant battle, highly classified by category, called Commission paritaire (CP). For example, for the coming year, the CP200 will obtain an indexation of all salaries of 3.6%, which doesn't mean you can't ask for a pay rise, although some employees take advantage of the vagueness created to put their employees on the fixed scale (and fabricate nonsense in their employment contracts, indexation is not an increase).
It should also be noted that when you change jobs, you can both pass on your experience in the same CP, but if you change jobs (unless you negotiate hard), you fall back to zero experience (or the experience you already have in that CP).
It's almost become a survival mechanism for the lower and low-middle classes of the population. It's a system that the right-wing parties, currently in the majority in this country, are keen to reform, and it's not going down well (which explains, in part, why we can't seem to form governments quickly). They're using every trick in the book to discourage the people from giving up the advantages painstakingly acquired through centuries of unfortunate industrialization, which have benefited from including external countries.
The index system will soon be celebrating its 105th anniversary. It's a vector of social peace and proof that, when properly implemented, it has no effect on hyperinflation: https://www.cgslb.be/sites/default/files/aclvb/Documenten/Ar...
It's a constant battle, highly classified by category, called Commission paritaire (CP). For example, for the coming year, the CP200 will obtain an indexation of all salaries of 3.6%, which doesn't mean you can't ask for a pay rise, although some employees take advantage of the vagueness created to put their employees on the fixed scale (and fabricate nonsense in their employment contracts, indexation is not an increase).
It should also be noted that when you change jobs, you can both pass on your experience in the same CP, but if you change jobs (unless you negotiate hard), you fall back to zero experience (or the experience you already have in that CP).
It's almost become a survival mechanism for the lower and low-middle classes of the population. It's a system that the right-wing parties, currently in the majority in this country, are keen to reform, and it's not going down well (which explains, in part, why we can't seem to form governments quickly). They're using every trick in the book to discourage the people from giving up the advantages painstakingly acquired through centuries of unfortunate industrialization, which have benefited from including external countries.
The index system will soon be celebrating its 105th anniversary. It's a vector of social peace and proof that, when properly implemented, it has no effect on hyperinflation: https://www.cgslb.be/sites/default/files/aclvb/Documenten/Ar...
I mean it has to by definition.
If you hire someone to do a basic job like say sweeping your drive or cleaning or whatever and the cleaner used to cost 15/h and now costs 17/h that's directly linked, 100% of the minimum wage increase goes straight into price increases.
You can argue about what percentage feeds through to various products - not everything is fully linked to local labour costs - but I don't see how anyone can pretend otherwise, it's about as close to mathematically defined as you can get.
If you hire someone to do a basic job like say sweeping your drive or cleaning or whatever and the cleaner used to cost 15/h and now costs 17/h that's directly linked, 100% of the minimum wage increase goes straight into price increases.
You can argue about what percentage feeds through to various products - not everything is fully linked to local labour costs - but I don't see how anyone can pretend otherwise, it's about as close to mathematically defined as you can get.
No, it is a myth that inflation is caused by higher salaries. As you know, salaries are the last thing to increase with inflation. It's not boats that make the tide rise.
Yes and no. Inflation is very directly coupled with emission, not salaries. BUT if you have base inflation due to emission, and then do autoindexing, the win of the emission ist totaly lost. Is the primary source of hyperinflation.
So the right way is to use emission but make sure peoples wages don't increase competitive with inflation. Making marginal people poor and padding the pockets of people who have better options for fighting for higher wages?
I'm in the later category so I wouldn't suffer but the entire concept sounds a bit evil tbh and an encouragement for inflation because corporations will get away paying their low ranking slaves less.
I'm in the later category so I wouldn't suffer but the entire concept sounds a bit evil tbh and an encouragement for inflation because corporations will get away paying their low ranking slaves less.
Of course is absolutely evil! Look any 3rd world country. The whole idea of inflation via emission is to dissolve people money: at the time of emission local money is say X for a dollar, the gov. uses the money at that value, pays salaries, etc, but at the time the people actually uses the money, it is X*2 for a dollar. That is the whole game. Horrible, yes, but the daily reality for most people in 3rd World countries.
It's not a myth. Look at the repeated economic disasters in Argentina.
Inflation is real, hyper inflation is also real, such as in your example Argentina. But it is not caused by higher salaries.
Higher salaries are both a cause of and result of inflation. Hence the positive feedback loop.
The strength of the statement is decoupled from its veracity.
Yeah I would like to have a word with banks offering saving accounts in EUR.
This year it got back to 2% where pre-pandemic it was as low as 0.25%. Somehow banks are not that quick to make interest higher- unless you pay interest to them
This year it got back to 2% where pre-pandemic it was as low as 0.25%. Somehow banks are not that quick to make interest higher- unless you pay interest to them
I remember working at a kitchen being paid $x an hour, and when minimum wage was increased to just below that many of the cooks were mad to find themselves earning just above minimum wage. It was an interesting corollary I hadn't thought about before and while I wasn't mad it did feel like my value was depreciated.
When this happens, you should more easily be able to find another job that pays more or negotiate a raise, because employers know you now have better alternatives than you did before.
Minimum wage increases virtually all job wages because nobody wants to be paid mimimum wage.
This seems accurate from my experience. An example of a similar situation here in Seattle is the minimum wage increase we've instituted. It resulted in a minor shift in working hours and prices but not a radical shock to the system and largely an improvement to the people that were working minimum wage jobs.
Usually the confounding factor is how that minimum wage increase is absorbed. There's been a trend in my opinion for the rent seeking class (apartments, landowners, etc) to raise the cost of rent disproportionately knowing that they can siphon more money off the top. It results in both squeezing local businesses and preventing the wages from enriching the local economy. I don't know if Germany has a similar problem and would be curious to hear how they handle such things.
Usually the confounding factor is how that minimum wage increase is absorbed. There's been a trend in my opinion for the rent seeking class (apartments, landowners, etc) to raise the cost of rent disproportionately knowing that they can siphon more money off the top. It results in both squeezing local businesses and preventing the wages from enriching the local economy. I don't know if Germany has a similar problem and would be curious to hear how they handle such things.
If landlords are able to raise rent beyond what you think is "fair" then that is almost certainly because there is some arbitrary restriction on housebuilding/rentals. Otherwise an entrepreneurial individual would just do that, undercut and take the profit anyway.
Where I live this is happening at the moment (London, UK). Permission to build is hilariously difficult to get and often involves expensive concessions, at the same time rentals are increasingly regulated which makes it riskier/more expensive.
Where I live this is happening at the moment (London, UK). Permission to build is hilariously difficult to get and often involves expensive concessions, at the same time rentals are increasingly regulated which makes it riskier/more expensive.
Usually the problem isn't just arbitrary restrictions or prevention of house building in the US, it's an issue of both amount of available land and how insanely large real estate managers/developers are. For example, if you wanted to avoid renting from a Greystar-owned property it is almost impossible considering the amount of property they own. That outsized effect allows them to raise rent far higher than they would otherwise. They also have a tendency to monopolize development so there really is zero escape from their management, new buildings are immediately bought and integrated into the mass.
That's without getting into price fixing behaviors through things like RealPage. I originally moved away from Austin after my apartment had a 30% rent increase, and this was far away from the core in Austin (Cedar Park).
That's without getting into price fixing behaviors through things like RealPage. I originally moved away from Austin after my apartment had a 30% rent increase, and this was far away from the core in Austin (Cedar Park).
How is this "entrepreneur" going to build in central London I wonder
Loads of space in Zone 2 and beyond. Near to me are huge retail parks with parking that are basically relics of the 80s. The land would be worth far more as housing. You can't easily build housing on them because you won't get permission and if you did you'd be forced to build "affordable housing" e.g. give up a ton of the profits. So no-one does it.
If getting building permission was easier then real estate developers would buy up low-rise buildings and replace them with residential skyscrapers. Whether this would be good for London is a matter of perspective.
some economists seemed to have
found otherwise
https://www.econtalk.org/jacob-vigdor-on-the-seattle-minimum...
> He summarizes those results here arguing that while some workers earned higher wages, some or all of the gains were offset by reductions in hours worked and a reduction in the rate of job creation especially for low-skilled workers
https://www.econtalk.org/jacob-vigdor-on-the-seattle-minimum...
> He summarizes those results here arguing that while some workers earned higher wages, some or all of the gains were offset by reductions in hours worked and a reduction in the rate of job creation especially for low-skilled workers
I can only speak to my personal experience living and working in Seattle. Economists for the most part seem divided with no clear consensus either way. There's a lot of different variables and angles you can examine that'll lean towards one way or another so I don't think there'll be one clear answer unfortunately, especially since the burst in inflation over the past few years warps data.
that article is from before the burst in inflation. With the burst in inflation I'd guess the stats are even more in favor that the raise in minimum wages killed even more jobs.
I agree that there are different analysis. But, you can't just go by "my personal experience" as in "Seattle seems fine to me therefore nothing bad happened".
I agree that there are different analysis. But, you can't just go by "my personal experience" as in "Seattle seems fine to me therefore nothing bad happened".
Raising minimum wage just raises unemployment for youth.
The real minimum wage is 0.
Slavery is incredibly profitable for those ~~making~~ earning the profit.
Go home iluvcommunism, you're drunk ;)
TIL: California has a higher minimum hourly wage($16) than Germany(€12.41).
Adjusted for PPP and exchange rates, Germany's is significantly higher (((12.41/.69)/.92) = 19.54).
PPP is one of those things that sounds good but isn't meaningful by itself (to be fair, a raw comparison of minimum wages wasn't either).
When discussing comparative minimum wages, you're often trying to reason about something like subjective quality of life. An index of goods doesn't quite represent that though, because (a) in the place of external financial constraints consumers can be very happy choosing one good vs another, and (b) different consumers naturally have different purchasing needs.
(a) Includes ideas like eating more onions and potatoes in places where they're cheap and more rice and scallions in places where those are cheap. An index including both biases strongly toward countries able to provide both reasonably cheaply -- a noble goal, but at a minimum wage level the existence of a $0.30/lb potato and a $1.00/lb onion is much more impactful than both being at $0.45/lb.
(b) Different people have different constraints. At an extreme, a single person living in their car is able to be much better off in much of CA than a single person living in their car in Germany. Looking at minimum wage being "better" or "better when adjusted for PPP" misses a bit of nuance that I think is usually important here -- can minimum wage help somebody who works hard make ends meet, what if they're supporting a family, what if they only want to work 40hrs/week, ...? Just a few buckets of "types" of people can help us not talk past each other when arguing for some policy or another, getting to the root of our potential disagreements more quickly.
I mostly agree with the conclusion by the way, but appealing to an authority like the oecd (PPP) when the statistic they publish isn't at all applicable is a mistake that happens frequently, on all sides, and it leads to poor discourse without actually improving anyone's knowledge of the situation.
When discussing comparative minimum wages, you're often trying to reason about something like subjective quality of life. An index of goods doesn't quite represent that though, because (a) in the place of external financial constraints consumers can be very happy choosing one good vs another, and (b) different consumers naturally have different purchasing needs.
(a) Includes ideas like eating more onions and potatoes in places where they're cheap and more rice and scallions in places where those are cheap. An index including both biases strongly toward countries able to provide both reasonably cheaply -- a noble goal, but at a minimum wage level the existence of a $0.30/lb potato and a $1.00/lb onion is much more impactful than both being at $0.45/lb.
(b) Different people have different constraints. At an extreme, a single person living in their car is able to be much better off in much of CA than a single person living in their car in Germany. Looking at minimum wage being "better" or "better when adjusted for PPP" misses a bit of nuance that I think is usually important here -- can minimum wage help somebody who works hard make ends meet, what if they're supporting a family, what if they only want to work 40hrs/week, ...? Just a few buckets of "types" of people can help us not talk past each other when arguing for some policy or another, getting to the root of our potential disagreements more quickly.
I mostly agree with the conclusion by the way, but appealing to an authority like the oecd (PPP) when the statistic they publish isn't at all applicable is a mistake that happens frequently, on all sides, and it leads to poor discourse without actually improving anyone's knowledge of the situation.
Where did you get .69 from? Germany PPP is not that low. According to wikipedia it's 0.78.[1]
[1]: https://en.wikipedia.org/wiki/Economy_of_Germany
[1]: https://en.wikipedia.org/wiki/Economy_of_Germany
I used this (from 2022): https://www.oecd.org/en/data/indicators/purchasing-power-par...
The per-capita GDP and PPP-adjusted version of the same here show the same ratio: https://tradingeconomics.com/germany/gdp-per-capita-ppp
The per-capita GDP and PPP-adjusted version of the same here show the same ratio: https://tradingeconomics.com/germany/gdp-per-capita-ppp
PPP isn't something you need to adjust for in this case, so no, it's less than $14/hr once you make an exchange.
> TIL: California has a higher minimum hourly wage ($16) than Germany (€12.41).
State is currently $15 min, but localities can have their own mins. I think SF and SJ are $18ish now (don’t quote me on that).
… but there is currently a ballot initiative to raise the state min to $18.
… and “fast food workers”, which also includes pizza folks, are already at $20 min.
State is currently $15 min, but localities can have their own mins. I think SF and SJ are $18ish now (don’t quote me on that).
… but there is currently a ballot initiative to raise the state min to $18.
… and “fast food workers”, which also includes pizza folks, are already at $20 min.
It went up to $16 this year:
https://www.dir.ca.gov/dlse/minimum_wage.htm
https://www.dir.ca.gov/dlse/minimum_wage.htm
Not when you factor in cost of things like college, healthcare, and transit.
It's more complicated than that because you pay much high taxes in Germany, so you need higher wages to cover those taxes.
A fair comparison would be after tax money, and then you can factor in those things you said.
But even that is hard, because VAT makes good more expensive, so now you really need to compare cost of living.
A fair comparison would be after tax money, and then you can factor in those things you said.
But even that is hard, because VAT makes good more expensive, so now you really need to compare cost of living.
> It's more complicated than that because you pay much high taxes in Germany, so you need higher wages to cover those taxes.
Between health insurance premiums, copays, dental/vision, and uncovered stuff like compounded meds, our family reported $50k in medical expenses on last year's tax return. I've got two kids entering college in a couple of years.
I'll take the higher taxes.
Between health insurance premiums, copays, dental/vision, and uncovered stuff like compounded meds, our family reported $50k in medical expenses on last year's tax return. I've got two kids entering college in a couple of years.
I'll take the higher taxes.
No. You pay max insurance of around $24k pre tax in Germany for a family. But the rest is private fun. So in an unfortunate year with couple dental implants and few pairs of glasses your pay another $10k from your pocket. Tax authority will not agree, that medical expenses could be deducted and silly endless bureaucracy discussion starts again.
Edit: what I mean that mandatory insurance does not cover many important procedures.
Edit: what I mean that mandatory insurance does not cover many important procedures.
> Edit: what I mean that mandatory insurance does not cover many important procedures.
That's true for American insurance, too.
As a bonus, our uncovered procedures are often wildly more expensive.
"The cost for everything related to Helene Sula’s knee surgery was about $2,000, compared with $14,000 for the same treatment in America." - https://www.nbcnews.com/health/health-news/germany-s-health-...
I'm on a medication that costs $25k for a milliliter (which is, thankfully, covered by my $3,000/month health insurance). It's 1/10th that cost in the UK, even if you pay for it out-of-pocket.
The US is entirely abberant in healthcare costs, even when factoring in public spending. https://www.oecd.org/en/data/indicators/health-spending.html
That's true for American insurance, too.
As a bonus, our uncovered procedures are often wildly more expensive.
"The cost for everything related to Helene Sula’s knee surgery was about $2,000, compared with $14,000 for the same treatment in America." - https://www.nbcnews.com/health/health-news/germany-s-health-...
I'm on a medication that costs $25k for a milliliter (which is, thankfully, covered by my $3,000/month health insurance). It's 1/10th that cost in the UK, even if you pay for it out-of-pocket.
The US is entirely abberant in healthcare costs, even when factoring in public spending. https://www.oecd.org/en/data/indicators/health-spending.html
The most backwards thing about US healthcare costs is that it costs more if the insurance doesn't cover it. I got a bill for $75k when my insurance incorrectly denied a claim. After they accepted the claim, they negotiated a price of $27k for the same bill.
Also Note that if you do not earn enough, your kids get a universal stipend for university and uni is quite cheap at less than 1000€ per semester.
It’s easy to get good education in Germany.
It’s easy to get good education in Germany.
University is inexpensive in the US as well, but we have a culture of leaving your home state to go off to another college, which makes it significantly more expensive. Average semester cost for tuition and taxes alone is something like $3500/yr for in-state tuition rates (aka when you're going to a public college in your home state), which is quite reasonable when you consider the higher average earnings, lower average housing costs, and better average university educations.
I just checked the total cost estimates for the two closest 4-year public universities to where I live. They are both around $35k. These estimates do include costs like food and housing.
Tuition+fees+books alone are about $14k and $17k, plus an additional $3k for health insurance (which is semi-mandatory; my employer provided health-insurance does not meet the requirements to waive this, so if my kids were to go there, they would be required to buy it).
Tuition+fees+books alone are about $14k and $17k, plus an additional $3k for health insurance (which is semi-mandatory; my employer provided health-insurance does not meet the requirements to waive this, so if my kids were to go there, they would be required to buy it).
In-state tuition discounts also have the perverse effect of encouraging state college administrators to admit more out-of-state and foreign students who pay full tuition.
This is pretty wrong. I can't say for every state, but in many states schools get roughly the same amount for an in-state or out of state student it's just the state subsidizes a chunk for the in-state students.
I'm sure that it varies from state to state, but Purdue openly and explicitly capped the number of in-state students in order to support a tuition freeze.
I was always under the impression that students who go to out of state college (some are because this is where they got accepted) will go and claim in state tuition after living the minimum (I think 1 year in most states) because they become residents of this state. So you basically pay the out of state tuition for the first year then in state after that. But the housing and food plans at most university (which is usually forced on first year students adds up to be an expensive).
No. Exact rules depend on the state, but most states don't consider students to be residents for tuition purposes just because you live there for a year. They look at other factors like where your parents live, where you pay taxes, whether you own real estate there, etc.
Tuition for in-state schools hasn't been $3,500/yr in decades. Most are $10k+, often more like ~$15k.
So isn't that an argument against a federal minimum wage increase, which ignores the cost of living locally just about everywhere?
If the minimum wage should be the same in Kentucky as it is in California, shouldn't it also be the same in Germany as it is in California?
If the minimum wage should be the same in Kentucky as it is in California, shouldn't it also be the same in Germany as it is in California?
It's an argument against setting the federal minimum wage at NYC or LA's optimal setting, but not against ever raising it anywhere.
There's no place in America where $7.25/hour and not accounting for inflation makes much sense.
There's no place in America where $7.25/hour and not accounting for inflation makes much sense.
Is there a place in America where the prevailing retail/fast-food wage isn't already higher than $7.25/hr?
Indexed for inflation, that $7.25/hr should be $19 today.
You have a federal minimum wage because the crappiest states would have none.
Federal minimum wage hasn't been increased for 15 years, not changing it for 15 years doesn't make sense anywhere.
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Also, the cost of church tithes.
In Seattle minimum wage is $19.97, which will go to almost $21 in January.
Germany didn't have a minimum wage for a very long time. It's the EU that forced one and it was then extremely low for a long time, too.
How did the EU manage to force a minimum wage in Germany, but not in Austria or Sweden?
I assume partly that Germany didn’t push back and get an exception, and partly that at least the Nordic countries could argue they effectively have a minimum wage and introducing one could cause unintended issues. Maybe the same in Austria as well.
Keep the cost of living in mind.
If employers could reduce labor hours, they would. Regardless.
for comparison average IT job is starting at 22€/h in germany
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I mean 22€ is a cashier’s salary before taxes in Munich and good salary in some unnamed place in nowhere. This average number does not provide much useful information. University MINT freshmen make €55k in bigger cities, hard to imagine who can work for less nowadays.
If mints get €55 in Germany, how much do 5/10y exp engineers get usually?
It depends as always. Whole industry is unionized in Germany and big companies pay according union's tables. These stupid tables are for 35 hour weeks. Last company was able to get 40 hours contract and it was ok. The company I denied during interview offered only 35 hours and plus 5 hours that must be negotiated every year. €95k and 35 hours is doable, but rather rare. €100k with 40 hours contract is on the higher end (in Munich). Subtract -15% for less experience, another -15% for bad location and another -15% for small companies. Add +20% for perfect match. Add another 30% for FAANGs as a stock bonus.
I don't understand the 35/38h contracts instead of 40h. Where did this come from?
What exactly do you mean by bad location? Non city centers? Country sides? Shouldn't companies located at country sides pay higher to attract talent who otherwise won't relocate there?
My experience with German workforce is that they (orc, not all) care really less about doing actual work, being proactive, and focusing on growth. And instead, they focus on documentation (and bureaucracy), don't rock the boat/don't take risk/do as minimum as possible to not get fired. Is yours similar?
What exactly do you mean by bad location? Non city centers? Country sides? Shouldn't companies located at country sides pay higher to attract talent who otherwise won't relocate there?
My experience with German workforce is that they (orc, not all) care really less about doing actual work, being proactive, and focusing on growth. And instead, they focus on documentation (and bureaucracy), don't rock the boat/don't take risk/do as minimum as possible to not get fired. Is yours similar?
Bad location might be 40 miles away for Munich city center. The company claims, they are not in Munich and can’t pay that level of salaries despite being in the same high cost area. Maybe locals with real estate might be interested in such positions. No way to attract talents from outside.
The weird working hours come from factory workers. Same union is for white collar and production workers. Basically a win for production workers and a salary loss for others. The unionized salary system has a very important time component. One can be mythical 10x engineer and the other slacker. The slacker is 5 years more in the company. And their salary difference is probably only couple percent. Because you can’t compare deliverables of the two employees. That’s discrimination. The manager must assess everybody individually depending on their individual performance. Funny is it. Based on such salary system any personal initiative makes no sense. Why rock the boat or propose something novel when this does not affect salary (in positive way).
Time for conclusion about work culture in Germany and minus points for me. The big companies are dying dinosaurs. The work culture is a cargo cult where performance is secondary thing. The most important thing is to not rock the boat and prepare for long years to come and yearly pay increases after union’s strikes. This year they are targeting +7% for everybody. So sit tight, do bare minimum, collect salary. That’s the mantra in big German companies. I worked for 3 such companies and they all were the same. My friends report similar things from other German corporations. Politics and bureaucracy.
This is a nail in the coffin for the whole country. Personal initiative is worthless trait. No personal initiative, no startups, no wealthy people with good technology understanding. And the circle closes: no wealthy people with good tech skills, no startup funding and no startups. While traditional industries shrink.
The weird working hours come from factory workers. Same union is for white collar and production workers. Basically a win for production workers and a salary loss for others. The unionized salary system has a very important time component. One can be mythical 10x engineer and the other slacker. The slacker is 5 years more in the company. And their salary difference is probably only couple percent. Because you can’t compare deliverables of the two employees. That’s discrimination. The manager must assess everybody individually depending on their individual performance. Funny is it. Based on such salary system any personal initiative makes no sense. Why rock the boat or propose something novel when this does not affect salary (in positive way).
Time for conclusion about work culture in Germany and minus points for me. The big companies are dying dinosaurs. The work culture is a cargo cult where performance is secondary thing. The most important thing is to not rock the boat and prepare for long years to come and yearly pay increases after union’s strikes. This year they are targeting +7% for everybody. So sit tight, do bare minimum, collect salary. That’s the mantra in big German companies. I worked for 3 such companies and they all were the same. My friends report similar things from other German corporations. Politics and bureaucracy.
This is a nail in the coffin for the whole country. Personal initiative is worthless trait. No personal initiative, no startups, no wealthy people with good technology understanding. And the circle closes: no wealthy people with good tech skills, no startup funding and no startups. While traditional industries shrink.