[HN Gopher] A 22 percent increase in the German minimum wage: no...
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A 22 percent increase in the German minimum wage: nothing crazy
Author : MPLan
Score : 37 points
Date : 2024-11-01 19:11 UTC (3 hours ago)
(HTM) web link (paperswithcode.com)
(TXT) w3m dump (paperswithcode.com)
| MPLan wrote:
| 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...)
| ensignavenger wrote:
| 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?
| selectodude wrote:
| 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.
| wwweston wrote:
| 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.)
| lifeisstillgood wrote:
| 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)
| hgomersall wrote:
| 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.
| lifeisstillgood wrote:
| 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
| hgomersall wrote:
| 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.
| thrw42A8N wrote:
| 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.
| mywittyname wrote:
| 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).
| Voultapher wrote:
| 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.
| bryanlarsen wrote:
| Yes, it's a feedback loop, but it's a highly damped feedback
| loop.
| carlosjobim wrote:
| 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.
| f1shy wrote:
| 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.
| haccount wrote:
| 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.
| nradov wrote:
| It's not a myth. Look at the repeated economic disasters in
| Argentina.
| carlosjobim wrote:
| Inflation is real, hyper inflation is also real, such as
| in your example Argentina. But it is not caused by higher
| salaries.
| nradov wrote:
| Higher salaries are both a cause of and result of
| inflation. Hence the positive feedback loop.
| kelseyfrog wrote:
| The strength of the statement is decoupled from its
| veracity.
| f1shy wrote:
| It was tried multiple times in 3rd world countries with the
| expected consequences: total disaster and hyperinflation.
| CorrectHorseBat wrote:
| Belgium has automatically indexed salaries and we don't
| have hyperinflation. Inequality is among the lowest in the
| world.
| Spooky23 wrote:
| 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.
| kulahan wrote:
| 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.
| elashri wrote:
| How often do you think we see periods of deflation compared
| of inflation? I mean deflation not a decrease of inflation
| rate.
| kulahan wrote:
| Probably not often, as indicated by the first few words of
| my sentence.
| bbarnett wrote:
| The less common a thing, the more one must be prepared and
| consider it lest everyone frwak out.
| gen220 wrote:
| 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.
| Sohcahtoa82 wrote:
| > 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.
| aaronblohowiak wrote:
| Central banks will not tolerate deflation, too destabilizing
| ozim wrote:
| 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
| ta1243 wrote:
| Minimum wage in Germany in 2017 was EUR8.84 [1], that would be
| EUR11.07 today [0]
|
| Minimum wage is currently EUR12.41, 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
| aidenn0 wrote:
| TIL: California has a higher minimum hourly wage($16) than
| Germany(EUR12.41).
| Voultapher wrote:
| Keep the cost of living in mind.
| ceejayoz wrote:
| Not when you factor in cost of things like college, healthcare,
| and transit.
| ars wrote:
| 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.
| ceejayoz wrote:
| > 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.
| niemandhier wrote:
| 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 1000EUR per semester.
|
| It's easy to get good education in Germany.
| kulahan wrote:
| 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.
| elashri wrote:
| 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).
| nradov wrote:
| 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.
| nradov wrote:
| 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.
| lnsru wrote:
| 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.
| ceejayoz wrote:
| > 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
| NoMoreNicksLeft wrote:
| 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?
| ceejayoz wrote:
| 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.
| micromacrofoot wrote:
| Federal minimum wage hasn't been increased for 15 years,
| not changing it for 15 years doesn't make sense anywhere.
| Spooky23 wrote:
| You have a federal minimum wage because the crappiest
| states would have none.
| AStonesThrow wrote:
| Also, the cost of church tithes.
| t-3 wrote:
| Adjusted for PPP and exchange rates, Germany's is significantly
| higher (((12.41/.69)/.92) = 19.54).
| kulahan wrote:
| 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.
| YetAnotherNick wrote:
| 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
| t-3 wrote:
| 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
| jandrewrogers wrote:
| In Seattle minimum wage is $19.97, which will go to almost $21
| in January.
| csa wrote:
| > TIL: California has a higher minimum hourly wage ($16) than
| Germany (EUR12.41).
|
| 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.
| aidenn0 wrote:
| It went up to $16 this year:
|
| https://www.dir.ca.gov/dlse/minimum_wage.htm
| mytailorisrich wrote:
| 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.
| olddustytrail wrote:
| How did the EU manage to force a minimum wage in Germany, but
| not in Austria or Sweden?
| fzeroracer wrote:
| 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.
| nox101 wrote:
| 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
| fzeroracer wrote:
| 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.
| naming_the_user wrote:
| 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.
| andrepd wrote:
| How is this "entrepreneur" going to build in central London I
| wonder
| nradov wrote:
| 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.
| naming_the_user wrote:
| 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.
| fzeroracer wrote:
| 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).
| elvis19 wrote:
| for comparison average IT job is starting at 22EUR/h in germany
| lnsru wrote:
| I mean 22EUR 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 EUR55k in bigger cities, hard to imagine who
| can work for less nowadays.
| jorgesborges wrote:
| 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.
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