View Poll Results: Results of Raising the Minimum Wage

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  • Greater buying power

    14 25.00%
  • Greater unemployment

    32 57.14%
  • Less unemployment

    7 12.50%
  • Higher prices

    36 64.29%
  • Less competitive on world markets

    25 44.64%
  • Benefits low income workers

    20 35.71%
  • Places people in higher income tax brackets

    7 12.50%
  • More jobs go overseas

    32 57.14%
  • More businesses close

    30 53.57%
  • Benefits middle income workers

    5 8.93%
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Thread: Effects of Minimum Wage

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    Re: Effects of Minimum Wage

    Quote Originally Posted by phattonez View Post
    Many Republicans are libertarians. The two are not mutually exclusive like libertarians and Democrats.

    I'm not a part of the Libertarian Party, but I'm definitely a libertarian.
    Entirely irrelevant. 500k is 500k. Until Libertarians can attract a much larger portion of the population, it is a fringe party, like the Green party or the socialist party.

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    Re: Effects of Minimum Wage

    Quote Originally Posted by Redress View Post
    Entirely irrelevant. 500k is 500k. Until Libertarians can attract a much larger portion of the population, it is a fringe party, like the Green party or the socialist party.
    No thanks. I think we should leave and start a country of our own.

    The real question is - will you try to stop us?

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    Re: Effects of Minimum Wage

    Quote Originally Posted by Alex Libman View Post
    No thanks. I think we should leave and start a country of our own.

    The real question is - will you try to stop us?
    Where exactly will you go when you leave and start this country of your own? The moon? The middle of the ocean?
    Are you coming to bed?
    I can't. This is important.
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    Re: Effects of Minimum Wage

    Quote Originally Posted by Alex Libman View Post
    No thanks. I think we should leave and start a country of our own.

    The real question is - will you try to stop us?
    Not hardly would I try and stop you. Don't waste time leaving though.

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    Re: Effects of Minimum Wage

    Coincidentally, minimum wage has laid heavily on my mind. It's not out of economic necessity, I'm not trying to pass myself off as another disgruntled minority begging you to feel guilty on my behalf, but instead casual reminiscing. What is minimum wage, why is it so important and most importantly: who like it and who doesn't? It seems like one of those issues that 'everyone' seems to know 'everything' about and for that reason I knew most were lying. It's not an election issue, so there's less fire brands running around screaming - an improvement. Anyhow, without much further ado: Minimum Wage.

    The case for a Minimum Wage is obvious, but nonetheless in need of being restated. Many economically authoritarian elements within the country see the issue not as of merely a 'minimum' in the sense of absolute bottom threshold but more as a "Living Wage." [1] Namely, If the minimum wage went up at least to $7, or better still to near $10 an hour, millions would be lifted out of poverty - by last estimates. Those estimates, I hasten to assure people skeptical of the so-called 'economists' these days, are not exactly exact and have their share of criticism.

    The other benefit, say supporters, is that it is inherently racist to not support it. That indeed a minimum wage can bring up minorities from poverty, as long as the minimum wage is high enough. [3] There is wide consensus, even among some conservatives, that a Minimum Wage helps out certain minorities - mostly excluding affluent Asian American populations - to get a leg up in life. While there is no direct correlation between race (size of minorities within a state) and adoption of minimum wage laws. [2] One must keep in mind the persistence of the belief - on both sides of the aisle - indicate that such a statistic doesn't tell the full story, or at the very least shows that Minimum Wage opponents are not as divided by race as first thought.

    Speaking of which, the opposition does seem to be large and well organized. Mainly concering themselves with an attack through the plain technical economics aspects - not the race preference of this (alleged) silver bullet for poverty. The Independent Institute reports that In an American Economic Review poll, 90 percent of economists agreed that minimum wage laws increase unemployment among low-skilled workers." [6] While initially I was skeptical of such a number, the sheer amount of articles and economic institutes dedicated to looking at various topics - like Minimum Wage - who disliked it made such a figure low; if anything. The Ludwig von Mises Institute (Located in Mobile, Alabama) says that "Tragically, a higher minimum wage and workplace-safety regulations are likely to exacerbate rather than mitigate social inequalities." [5] While The Heritage Foundation declares that "it doesn’t just take away current jobs, but also future job opportunities." Indeed, any effort to find any sort of true - socially liberal - economic reports on the subject mostly makes the case 'it doesn't affect enough workers to hurt the economy,' [7] which to me: sounds like acceptance that a Minimum Wage hurts economic growth but not enough to change anything (hopefully). Though even ACORN (famous) has made the case that higher minimum wages prevents them from hiring more people. [8]

    Economic critics also make the case that minimum wage doesn't actually improve employment, overall. Indeed, there is ample evidence that minimum wage laws hurt employment. [9] [10] For indeed, of the top 15 employment rates only one (Iowa, at #5) has a minimum wage higher then Federally mandated, while four have one lower (Wyoming #3, New Mexico #7, Kansas #12, Arkansas #13). The majority do have one at par with the Federal level, but that is constantly attacked as to low while most who have a higher minimum wage all but have a monopoly on high unemployment (7 out the 10 highest unemployment rates have higher minimum wages).

    The case is also made by the Austrian School redoubt [4] (along with a collection of similarly minded institutions, such as the Libertarian Party of America) that a minimum wage is actually somewhat racist. In short, that it is hard for a (Mises.org's example) reformed black convict (with a special emphasis on the high incarceration levels of African-American males) who is clean, looking for a little work while he picks his life back up to compete against some rich, white, frat boy. Because, to be perfectly blunt, if the convict can't undercut the lazy frat boy's wage then he won't be hired.

    Interesting, no?

    [1] A Moral Minimum Wage

    [2] (Page 10 of 24) - Race and Policy Responsiveness in an Era of SubtleRetrenchment authored by Beamer, Glenn.

    [3] Higher Minimum Wage Can Lift Minorities

    [4] The Minimum Wage, Discrimination, and Inequality - Art Carden - Mises Institute

    [5] Minimum Wage—Maximum Nonsense: Newsroom: The Independent Institute

    [6] Minimizing Economic Opportunity by Raising the Minimum Wage

    [7] The Economic Effects of the Minimum Wage

    [8] RealClearPolitics - Commentary - Liberal Doublespeak on the Minimum Wage by Bruce Bartlett

    [9] Unemployment Rates for States

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    Re: Effects of Minimum Wage

    The Independent Institute reports that In an American Economic Review poll, 90 percent of economists agreed that minimum wage laws increase unemployment among low-skilled workers."
    This is just a natural application of the mainstream or neoclassical ideas on price formation and price fixing. The problem is that their formulations are quite simplistic and somewhat inaccurate. One would have to study the empirical data in more depth to really see if it was true.
    "It is written in the eternal constitution that men of intemperate minds cannot be free. Their passions forge their fetters." - Edmund Burke

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    Re: Effects of Minimum Wage

    Quote Originally Posted by Wessexman View Post
    This is just a natural application of the mainstream or neoclassical ideas on price formation and price fixing. The problem is that their formulations are quite simplistic and somewhat inaccurate. One would have to study the empirical data in more depth to really see if it was true.
    Regarding whether raising min wages causes higher unemployment,is it not a matter of common sense and practicality? If you own a business and have, say $3200 available each week for salaries, you can employ 10 people at $8 an hour. However, if the min wage were raised to $10 an hour next week, you would only be able to employ 8 people instead of 10 with your budget.

    This analysis may be called oversimplistic, but can anyone deny that this is precisely what occurs when the min wage is raised?

    Another obvious issue is that virtually no one makes the "min wage" except teenagers and people who just started a job. The vast majority of low-skill and impoverished workers have been stuck in their crappy jobs for years, and have risen a few bucks ahead of min wage. So if the min wage is 6 dollars, and you're making 9 after several years of being with a company, a raise to 8 dollars won't do you a damn bit of good. It just helps teenagers and the few adults who happen to have recently started.

    But you're still in poverty, and it just means the employer will have to lay off a few people.
    "The union, next to our liberty most dear." John C. Calhoun
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    Re: Effects of Minimum Wage

    Quote Originally Posted by Dav View Post
    It does not, however, change the fact that there is tons of evidence that the U.S. minimum wage decreased employment, a point which you haven't bothered to counter.
    Actually, I've already noted that the heterogenous nature of labor markets allows for negative employment effects in a monopsony model, while the orthodox model does not allow for any broad positive employment effects. More importantly, it's likely that there are additional heterogeneities in employment trends that render many of the analyses you refer to deficient, as evidenced by an empirical source such as Dube, Lester, and Reich's Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties:

    Local case studies of minimum wages typically find no significant employment effects, while studies using national data find some negative effects for teenagers. We argue that heterogeneity in spatial employment trends generates biased estimates in national analyses and causes overstatement of precision in local and national studies. We propose two new local estimators that compare all contiguous counties or metro areas in the U.S. that straddle a state-based minimum wage gradient. We find that the negative elasticities in national fixed-effects models are generated by unobserved heterogeneities in employment trends. Our local estimators are more robust and show no employment effects.
    You've also said that you did have the ability to access many of this work in its entirety but simply weren't aware of it, so there's little excuse to remain willfully ignorant of it.

    Quote Originally Posted by Dav View Post
    I won't argue that in a monopsony, minimum wage doesn't increase employment (to an extent). Most minimum wage jobs, however, are not part of a monopsony; most of them are jobs in places like McDonalds and Walmart where jobs are so easy to get that there is almost always competition between employers. In some places, in some industries, at some moments in time, minimum wage might increase employment- hence the New Jersey study. In a large country overall, though, this is very unlikely to be the case. Monopsony power just isn't a big enough factor.
    That is not a well-informed claim, as there is a substantial amount of empirical research that demonstrates the precise opposite to be true. For example, consider Addison et al.'s Do minimum wages raise employment? Evidence from the U.S. retail-trade sector:

    This paper examines the impact of minimum wages on earnings and employment in selected branches of the retail-trade sector, 1990–2005, using county-level data on employment and a panel regression framework that allows for county-specific trends in sectoral outcomes. We focus on specific subsectors within retail trade that are identified as particularly low-wage. We find little evidence of disemployment effects once we allow for geographic-specific trends. Indeed, in many sectors the evidence points to modest (but robust) positive employment effects.
    We can also consider the effects of increased human capital acquisition induced by minimum wage legislation, as observed in Cahuc and Michel's Minimum wage unemployment and growth:

    This paper shows that, in an overlapping generations, model with endogenous growth, minimum wage legislation does not necessarily has negative consequences on economic performance. Such legislation can have positive effects on growth by inducing more human capital accumulation. More precisely, a low demand for unskilled labor, induced by a minimum wage, may create an incentive for workers to accumulate human capital. Moreover, it is possible that a decrease in the minimum wage lowers the welfare of each agent in the economy.
    Even aside from formal legislation, we can refer to the effects of union activity promoting incentives for human capital acquisition in apprenticeship training and the like through the establishment of minimum wages, which is supported by Dustmann and Schönberg's Training and Union Wages:

    This paper investigates whether unions, through imposing wage floors that lead to wage compression, increase on-the-job training. Our analysis focuses on Germany. Based on a model of unions and firm-financed training, we derive empirical implications regarding apprenticeship training intensity, layoffs, wage cuts, and wage compression in unionized and nonunionized firms. We test these implications using firm panel data matched with administrative employee data. We find support for the hypothesis that union recognition, via imposing minimum wages and wage compression, increases training in apprenticeship programs.
    For a more direct and straightforward analysis of the minimum wage's ability to provide efficiency benefits (as some do not conceptualize increased employment as increased static efficiency), we could consult Kass and Madden's Holdup in oligopsonistic labour markets - a new role for the minimum wage:

    We consider a labour market model of oligopsonistic wage competition and show that there is a holdup problem although workers do not have any bargaining power. When a firm invests more, it pays a higher wage in order to attract workers from competitors. Because workers participate in the returns on investment while only firms bear the costs, investment is inefficiently low. A binding minimum wage can achieve the first-best level of investment, both in the short run for a given number of firms and in the long run when the number of firms is endogenous.
    To confirm the aforementioned claim that minimum wages may shift activity to high-wage labor and away from unskilled, low-wage labor (which would also build on our earlier points about human capital acquisition), consider Acemoglu's Good Jobs versus Bad Jobs:

    This article develops a model of noncompetitive labor markets in which high‐wage (good) and low‐wage (bad) jobs coexist. Minimum wages and unemployment benefits shift the composition of employment toward high‐wage jobs. Because the composition of jobs in the laissez‐faire equilibrium is inefficiently biased toward low‐wage jobs, these labor market regulations increase average labor productivity and may improve welfare
    Finally, consider Todorovic and Ma's A Review of Minimum Wage Regulation Effect—The Resource-Based View Perspective, which employs meta-analytic techniques to expand beyond the potential deficiencies of single or isolated studies:

    The debate around minimum wage regulations, in the aftermath of recent regulatory changes in the United States, continues to grow. This article contributes to present literature by engaging the minimum wage controversy from the resource-based view theoretical perspective. Based on literature review, we find that minimum wage regulations appear to exhibit different impacts in different countries. Using meta-analysis of the related literature, we propose a conceptual framework that highlights the relationship between national resource base and minimum wage regulatory impact. Specifically, we posit that minimum wage impact on a country, such as the United States, is moderated by the national resource base. Further, we identify opportunity cost associated with inadequate minimum wage regulations, as consisting of education, entrepreneurial propensity, and cost divergence. Our conclusions point to the positive effects of the minimum wage controls, including increased education, more productive operating practices, and the emphasis on skill development and high value activities.
    So all in all, we actually have rather substantial empirical evidence of the minimum wage's benefits for employment, human capital acquisition, productivity, which constitute efficiency improvements or aids to such. The static orthodox model thus appears rather naive and incomplete in comparison.

    Quote Originally Posted by Dav View Post
    I even told my economics-major brother that you were arguing that it was, and he said it was one of the stupidest arguments he's heard lately.
    He certainly doesn't sound like the brightest bulb on the Christmas tree. Is he a first-year student? That would explain why he's so ignorant of labor economics.

    Quote Originally Posted by phattonez View Post
    Since when did libertarianism, the ideology that the constitution follows, become extremism?
    The Constitution actually contains numerous anti-democratic elements not compatible with libertarianism, even your pseudo-libertarian capitalist variant, believe it or not.

    Quote Originally Posted by phattonez View Post
    Many Republicans are libertarians. The two are not mutually exclusive like libertarians and Democrats.

    I'm not a part of the Libertarian Party, but I'm definitely a libertarian.
    Democrats and Republicans are typically not libertarians because of their capitalist ideology. As libertarianism and capitalism are incompatible, it's of course almost comical to suggest that "many Republicans are libertarians," let alone that the "Libertarian" Party might be.

    Quote Originally Posted by Metternich View Post
    Economic critics also make the case that minimum wage doesn't actually improve employment, overall. Indeed, there is ample evidence that minimum wage laws hurt employment. [9] [10] For indeed, of the top 15 employment rates only one (Iowa, at #5) has a minimum wage higher then Federally mandated, while four have one lower (Wyoming #3, New Mexico #7, Kansas #12, Arkansas #13).
    This aptly illustrates the overall weakness of your approach; it's based on the selective incorporation of raw data without consideration of a wide number of additional variables that ultimately provides us with little to no information about the actual minimum wage. For that, we'd refer to the aforementioned empirical research, which supports my own assessment.

    Quote Originally Posted by KillerAngel View Post
    This analysis may be called oversimplistic, but can anyone deny that this is precisely what occurs when the min wage is raised?.
    Certainly, and it would in fact be quite compatible with an informed labor economics analysis. Because of the fact that firms can cut wages without losing all of their workers, we are aware that they are confronted with upward sloping labor supply curves rather than infinitely elastic labor supply curves. In the context of the monopsonistic/oligopsonistic labor market, then, wage increases will be a valuable counter-balance to underpayment, and will reduce unemployment, which is a form of static inefficiency. Additionally, there is a hypothesis known as the efficiency wage hypothesis examined in labor economics, which posits that payment of wages above the market-clearing price will increase worker productivity. From that, we can infer that unit labor costs will decrease as wages increase. More importantly, the available empirical literature into the topic supports this analysis, as noted.

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    Re: Effects of Minimum Wage

    Quote Originally Posted by Agnapostate View Post

    Certainly, and it would in fact be quite compatible with an informed labor economics analysis. Because of the fact that firms can cut wages without losing all of their workers, we are aware that they are confronted with upward sloping labor supply curves rather than infinitely elastic labor supply curves.
    In other words, a company doesn't necessary have to resort to lay-offs to make up the difference; they can also reduce the wages of existing employee's. Certainly a company would do so if it were able, because it would mean maintaining the same number of employee's at the same total labor cost.

    But what if it wasn't an option for a variety of reasons? Ecnomic and labor theory aside, a company which finds itself with a higher labor cost than it can sustain as a result of a sudden raise in the min wage MUST cut costs. And if it cant be done via the reduction of costs from other sources, then it must come via reducing the number of employee's.


    Additionally, there is a hypothesis known as the efficiency wage hypothesis examined in labor economics, which posits that payment of wages above the market-clearing price will increase worker productivity. From that, we can infer that unit labor costs will decrease as wages increase. More importantly, the available empirical literature into the topic supports this analysis, as noted.
    Surely this cannot be proven and is merely a hypothesis. An employer cannot sit back and assume that his workers will suddenly begin to produce more, and therefore provide the means to meet his new labor-cost demands.

    Maybe on a large scale and over time this can be true, but such theories do not play a role in the decision of a manager who is facing a budget shortfall in the here-and-now.
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    Re: Effects of Minimum Wage

    Quote Originally Posted by KillerAngel View Post
    Regarding whether raising min wages causes higher unemployment,is it not a matter of common sense and practicality? If you own a business and have, say $3200 available each week for salaries, you can employ 10 people at $8 an hour. However, if the min wage were raised to $10 an hour next week, you would only be able to employ 8 people instead of 10 with your budget.
    It would depend in reality on quite a few factors such as what changes in so vast an area as low-skilled labour caused to issues of supply and demand in industries it touches. It could have the opposite effect to the above. One of the problems with the neoclassical ideas on price fixing, certainly for large aggregate items, is that it presumes an independence between supply and demand which is unlikely to occur in reality. In terms of supply and demand graphs this means that there may well be a new supply curve for every change in demand meaning that the usual talk of equilibrium prices to be of little use.

    This analysis may be called oversimplistic, but can anyone deny that this is precisely what occurs when the min wage is raised?
    .
    I certainly no in Britain that the doom forecasts about the minimum wage causing two million unemployed were shown to be wrong. I think the empirical data does not suggest a great deal of unemployment is caused.
    Last edited by Wessexman; 09-28-09 at 04:54 AM.
    "It is written in the eternal constitution that men of intemperate minds cannot be free. Their passions forge their fetters." - Edmund Burke

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