Effects of Minimum Wage

To ask a fun alternative question: Where would we be without minimum wage? Would we have a bunch of in-country 10-cent per hour jobs? What price would the market actually bear for labor in our service-based economy?

I previously commented that the concept of the minimum wage necessarily reducing employment is an assumption that holds true only in the crude textbook model of the labor market, and is not suited to actual reality. As noted, monopsony power (and more broadly, oligopsonistic conditions in labor markets) complicates matters. Firms are confronted with an upward sloping labor supply curve rather than an infinitely elastic labor supply curve. To simplify all this more, the imperfections of labor markets make things a hell of a lot more complicated than is immediately evident, and claiming that minimum wages increase unemployment is not so cut and dry, considering that the absence of infinite elasticity (few would argue that cutting wages by a cent would result in worker resignation, for example) is an element in the general deficiencies of labor markets. This is why we've encountered empirical research into the effects of the minimum wage on employment that is in sharp contrast with standard rightist crudities.

Agnapostate said:

I previously commented that the concept of the minimum wage necessarily reducing employment is an assumption that holds true only in the crude textbook model of the labor market, and is not suited to actual reality. As noted, monopsony power (and more broadly, oligopsonistic conditions in labor markets) complicates matters. Firms are confronted with an upward sloping labor supply curve rather than an infinitely elastic labor supply curve. To simplify all this more, the imperfections of labor markets make things a hell of a lot more complicated than is immediately evident, and claiming that minimum wages increase unemployment is not so cut and dry, considering that the absence of infinite elasticity (few would argue that cutting wages by a cent would result in worker resignation, for example) is an element in the general deficiencies of labor markets. This is why we've encountered empirical research into the effects of the minimum wage on employment that is in sharp contrast with standard rightist crudities.

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I'm sorry, but next time can you use slightly smaller words? Monopsony was never exactly a vocab word.

Agnapostate said:

I previously commented that the concept of the minimum wage necessarily reducing employment is an assumption that holds true only in the crude textbook model of the labor market, and is not suited to actual reality. As noted, monopsony power (and more broadly, oligopsonistic conditions in labor markets) complicates matters. Firms are confronted with an upward sloping labor supply curve rather than an infinitely elastic labor supply curve. To simplify all this more, the imperfections of labor markets make things a hell of a lot more complicated than is immediately evident, and claiming that minimum wages increase unemployment is not so cut and dry, considering that the absence of infinite elasticity (few would argue that cutting wages by a cent would result in worker resignation, for example) is an element in the general deficiencies of labor markets. This is why we've encountered empirical research into the effects of the minimum wage on employment that is in sharp contrast with standard rightist crudities.

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I have no idea what the rest of what you posted means, but there is plenty of empirical research proving that minimum wage reduces employment, as I posted on the last page. Much of it actually comes from, and is admitted by, those who are sympathetic to minimum wage.

All agreements between individuals should be voluntary, and in negotiating wages that typically leads to an objective compromise based on supply and demand.

Minimum wage and all other violent government interventionism in the economy constitutes theft. It reduces economic competitiveness, causes intellectual stagnation, discourages innovation, and forces better workers to be punished for the benefit of the worse.


Oh, and to any hot girls on this thread who support minimum wage - do I get a positive right to "minimum sex" as well? :2razz:

Dav said:

Very, very few of them. Only 2.2% of U.S. workers make minimum wage (source: Characteristics of Minimum Wage Workers: 2006), and that doesn't even mean that all of them make more because of minimum wage legislation.

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So minimum wage is powerful enough to get people fired, but is irrelevant because only 2.2% make minimum wage? This seems pretty self-contradictory.

Alex Libman said:

All agreements between individuals should be voluntary, and in negotiating wages that typically leads to an objective compromise based on supply and demand.

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We voluntarily agree to live by the laws of our government. We have a social contract between all of us that we will respect the laws our elected representatives make.

Also, how am I, a lowly unskilled worker, supposed to negotiate on equal ground with a huge company like, say, Wal-Mart? I need to make enough money to not be destitute, while they have a practically bottomless pool of people like me to draw from. It doesn't seem equal in practice.

Minimum wage and all other violent government interventionism in the economy constitutes theft. It reduces economic competitiveness, causes intellectual stagnation, discourages innovation, and forces better workers to be punished for the benefit of the worse.

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It increases basic living conditions, and makes sure wages stay competitive with the modern price of living. And it's not theft because we agree to it through our legislature.

the makeout hobo said:

I'm sorry, but next time can you use slightly smaller words? Monopsony was never exactly a vocab word.

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Monopsony in the traditional sense refers to one buyer and many sellers; in the context of labor economics, it refers to the existence of upward sloping labor supply curves as opposed to infinitely elastic labor supply curves (which would be horizontal). We know that labor supply curves aren't infinitely elastic because cutting wages by one cent doesn't result in worker migration to other firms. We therefore have additional complications in labor markets that distort the textbook assumption of there being a supply reduction (which consequently reduces employment) every time that production costs increase (and a floor mechanism such as the minimum wage would involve such).

Dav said:

I have no idea what the rest of what you posted means, but there is plenty of empirical research proving that minimum wage reduces employment, as I posted on the last page. Much of it actually comes from, and is admitted by, those who are sympathetic to minimum wage.

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Since the labor market is not heterogenous in nature, the effects that a minimum wage will have will naturally be somewhat mixed, and evidence of a reduction in unemployment caused by a specific minimum wage (I see that studies magically have the ability to distinguish between correlation and causation when they work in your favor, incidentally :2wave is not sufficiently illustrative of a general pattern. For example, I refer to Card and Krueger's Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania:

On April 1, 1992 New Jersey's minimum wage increased from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast food restaurants in New Jersey and Pennsylvania before and after the rise in the minimum. Comparisons of the changes in wages, employment, and prices at stores in New Jersey relative to stores in Pennsylvania (where the minimum wage remained fixed at $4.25 per hour) yield simple estimates of the effect of the higher minimum wage. Our empirical findings challenge the prediction that a rise in the minimum reduces employment. Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent. We also compare employment growth at stores in New Jersey that were initially paying high wages (and were unaffected by the new law) to employment changes at lower-wage stores. Stores that were unaffected by the minimum wage had the same employment growth as stores in Pennsylvania, while stores that had to increase their wages increased their employment.

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You should really familiarize yourself with this empirical literature instead of believing textbook and neoclassical nonsense.

Alex Libman said:

All agreements between individuals should be voluntary, and in negotiating wages that typically leads to an objective compromise based on supply and demand.

Minimum wage and all other violent government interventionism in the economy constitutes theft. It reduces economic competitiveness, causes intellectual stagnation, discourages innovation, and forces better workers to be punished for the benefit of the worse.

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Your comment isn't based on any sound knowledge of supply and demand (and spits at economic rationality), and it ignores the more pertinent reality that the capitalist labor market is based around the factors of coercion and exchange. The real theft comes from the unjust extraction of surplus value from the working class that the financial class misappropriates, incidentally. :2wave:

Agnapostate said:

Since the labor market is not heterogenous in nature, the effects that a minimum wage will have will naturally be somewhat mixed, and evidence of a reduction in unemployment caused by a specific minimum wage (I see that studies magically have the ability to distinguish between correlation and causation when they work in your favor, incidentally :2wave is not sufficiently illustrative of a general pattern. For example, I refer to Card and Krueger's Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania:



You should really familiarize yourself with this empirical literature instead of believing textbook and neoclassical nonsense.

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So it's not true in one industry in one state at one time. Did it not occur to the researchers that perhaps New Jersey's economy was simply at a more upward trend than that of Pennsylvania, and that perhaps this was more true of businesses which had just started up (and therefore were more effected by the minimum wage increase) than others? For all I know this did occur to them, because all I can get is a summary and I'm pretty sure I have to subscribe to something to get the full version.

In any case, I still have yet to hear an argument why making a company pay more money than the market demands could possibly be beneficial to said company, at least not using language I actually understand.

Agnapostate - you have proven yourself too intellectually dishonest for any substantive debate. I will not waste my time talking to a wall.

Dav said:

So it's not true in one industry in one state at one time.

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Well, no...it's also true in a small out-of-the-way municipality known as Britain. For example, consult Dickens et al.'s (in which Manning is included), The Effects of Minimum Wages on Employment: Theory and Evidence from Britain. Consider the abstract:

Recent work on the economic effects of minimum wages has stressed that the standard economic model, where increases in minimum wages depress employment, is not supported by empirical work in some labor markets. We present a general theoretical model whereby employers have some degree of monopsony power, which allows minimum wages to have the conventional negative impact on employment but which also allows for a neutral or positive impact. Studying the industry‐based British Wages Councils between 1975 and 1992, we find that minimum wages significantly compress the distribution of earnings but do not have a negative impact on employment.

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Unfortunately, this is the kind of empirical research that the utopian rightists aren't interested in looking into; they'd rather engage in horrible misinterpretations of Adam Smith or copy and paste something from mises.org. Libman here is a good example of that.

Dav said:

In any case, I still have yet to hear an argument why making a company pay more money than the market demands could possibly be beneficial to said company, at least not using language I actually understand.

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So read about [ame="http://en.wikipedia.org/wiki/Monopsony"]monopsony[/ame]. :shrug:

Alex Libman said:

Agnapostate - you have proven yourself too intellectually dishonest for any substantive debate. I will not waste my time talking to a wall.

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Considering that your idea of "debate" is repeating tiresome Henry Hazlitt lines and referring to your pseudo-anarchist ideology, I'll of course take that as not only a compliment, but one of the finest compliments I've ever received.

the makeout hobo said:

We voluntarily agree to live by the laws of our government.

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No, we don't - people who don't agree are dealt with through force.

the makeout hobo said:

We have a social contract between all of us that we will respect the laws our elected representatives make.

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I didn't sign it, I don't consent to it, and I have no "representatives".

A society needs to be governed only through epistemologically objective natural laws, like the Non-Aggression Principle, parents' rights, and so forth. All other law must come from explicit contracts enforced through [ame="http://en.wikipedia.org/wiki/Polycentric_law"]polycentric arbitration[/ame].

the makeout hobo said:

Also, how am I, a lowly unskilled worker, supposed to negotiate on equal ground with a huge company like, say, Wal-Mart?

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You own your self - your mind, your body, your time, your skills, and any other capital that you may have. WalMart (unlike government) cannot take anything from you without your explicit consent.

the makeout hobo said:

I need to make enough money to not be destitute, while they have a practically bottomless pool of people like me to draw from. It doesn't seem equal in practice.

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I need immortality and omnipotence, but we must all function within the context of economic reality. If I'm bidding on a project on a site like guru.com, any person anywhere in the world who can offer better quality or better value deserves to get the job in my place.

the makeout hobo said:

It increases basic living conditions, and makes sure wages stay competitive with the modern price of living. And it's not theft because we agree to it through our legislature.

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You cannot pull yourself up by your bootstraps, which is what a socialist economic system tries to do - get more outputs from an inefficient system than inputs. Minimum wage laws destroy value by reducing efficiency, which means a lower quality of life for everyone involved.

Any rational business (and businesses exist in a competitive environment of natural selection which maximizes rationality) would seek a society with the least amount of government theft, thus minimum wage leads to unemployment.

Minimum wage disassociates reward from created value, thus discouraging productivity.

Alex Libman said:

WalMart (unlike government) cannot take anything from you without your explicit consent.

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Wal-Mart is associated with increased elements of coercion in the labor market due to their exacerbation of wage and employment reductions in communities where their retailers take root.

Alex Libman said:

Minimum wage laws destroy value by reducing efficiency, which means a lower quality of life for everyone involved.

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Nope! Minimum wage laws' positive effects on employment constitute a reduction of static inefficiency.

Dav said:

So it's not true in one industry in one state at one time. Did it not occur to the researchers that perhaps New Jersey's economy was simply at a more upward trend than that of Pennsylvania, and that perhaps this was more true of businesses which had just started up (and therefore were more effected by the minimum wage increase) than others? For all I know this did occur to them, because all I can get is a summary and I'm pretty sure I have to subscribe to something to get the full version.

In any case, I still have yet to hear an argument why making a company pay more money than the market demands could possibly be beneficial to said company, at least not using language I actually understand.

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Because it gives its employees increased buying power, which leads to them buying more things and putting more money into the economy, which comes back to the company.

No, we don't - people who don't agree are dealt with through force.

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And you have the option to revolt if you don't like it. What if murderers got away with their crimes because they refused to accept the laws? Laws must be obligatory.

I didn't sign it, I don't consent to it, and I have no "representatives".

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You had the option a few months ago to vote on who is your president, your Congressional Representative, possibly your senator, your governor, your state legislators, your mayor, etc. The person you would have liked to hold that office may not have won, but you had the option, along with your neighbors, to collectively choose.

A society needs to be governed only through epistemologically objective natural laws, like the Non-Aggression Principle, parents' rights, and so forth. All other law must come from explicit contracts enforced through
polycentric arbitration
Polycentric_law Polycentric_law

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Why?

You own your self - your mind, your body, your time, your skills, and any other capital that you may have. WalMart (unlike government) cannot take anything from you without your explicit consent.

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Irrelevant to my argument, which is that any agreement between me and Wal-Mart isn't going to be made on equal ground.

I need immortality and omnipotence, but we must all function within the context of economic reality. If I'm bidding on a project on a site like guru.com, any person anywhere in the world who can offer better quality or better value deserves to get the job in my place.

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And if you aren't currently able to get a job that will allow you to survive in the current economy, what then? Would you gladly starve to death?

the makeout hobo said:

But when they find a new job, it'll be at $8 instead of $6, meaning an overall gain for them.

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IF they find a new job.

Ethereal said:

IF they find a new job.

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In most economies that aren't completely bottomed out, that's not incredibly difficult.

the makeout hobo said:

In most economies that aren't completely bottomed out, that's not incredibly difficult.

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Well, when the "skills" you are offering are only worth a certain amount of money and the government dictates that businesses may only pay an amount exceeding the worth of your particular "skill" it becomes more difficult than you might imagine.

the makeout hobo said:

And you have the option to revolt if you don't like it. What if murderers got away with their crimes because they refused to accept the laws? Laws must be obligatory.

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Natural laws are obligatory. Government laws are bull****.

the makeout hobo said:

You had the option a few months ago to vote on who is your president, your Congressional Representative, possibly your senator, your governor, your state legislators, your mayor, etc. The person you would have liked to hold that office may not have won, but you had the option, along with your neighbors, to collectively choose.

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Voting is a false dichotomy. It's like a toy steering wheel that a very young child might play with inside the car and keep himself occupied, pretending that he's driving. Adults should know better.

the makeout hobo said:

Why?

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Because if laws are irrational, they are unpredictable and there is no limit to how tyrannical they can get. Today you might agree with the government that controls your life (and probably only because they've been in control of your education and your media), but what about tomorrow?

the makeout hobo said:

Irrelevant to my argument, which is that any agreement between me and Wal-Mart isn't going to be made on equal ground.

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Of course not. You have the public opinion on your side, as would be the case in the free society as well, and currently you have government tyranny on your side as well.

the makeout hobo said:

And if you aren't currently able to get a job that will allow you to survive in the current economy, what then? Would you gladly starve to death?

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Why should someone else "not be able to survive" just so that you could be paid more than you objectively deserve? People should pull their own economic weight and compete for jobs on the basis of merit (which includes labor value), not government force.

And no mentally-competent person can starve to death in a capitalist economy. Grains, beans, vegetables, vitamin supplements, etc are very cheap if bought in bulk - you can be very healthy while spending just $1 a day on food. Are you telling me you can't find a job, even if it's wiping some rich guy's butt, for $1 a day?! And then there's charity.

Agnapostate said:

Well, no...it's also true in a small out-of-the-way municipality known as Britain. For example, consult Dickens et al.'s (in which Manning is included), The Effects of Minimum Wages on Employment: Theory and Evidence from Britain. Consider the abstract:



Unfortunately, this is the kind of empirical research that the utopian rightists aren't interested in looking into; they'd rather engage in horrible misinterpretations of Adam Smith or copy and paste something from mises.org. Libman here is a good example of that.



So read about monopsony. :shrug:

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Okay, now that I get the whole monopsony argument, here's what I have to say:

I have no idea what's up with that Britain study, and wish I did, but I can only get the abstract, which only indicates that unemployment is not increased by minimum wage without giving specific numbers or saying how this is known. 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.

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. 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.

Kandahar said:

The correct answers are:

Greater buying power
Greater unemployment
Higher prices
More businesses close

Obviously it's going to lead to greater buying power for the people who are working those jobs. In a select few cases (like Ford Motor Co. in the early 1900s), increased wages might increase buying power enough to offset some of the negative effects.

It will definitely lead to greater unemployment. This is a basic truism of economics: If you artificially increase the price of something (e.g. labor) above the market price, it's going to lead to a surplus.

It will generally lead to higher prices too. Businesses will pass at least part of that cost off to their consumers. And it will cause more businesses to close, especially in low-skill / low-profit industries like small retail.

Overall, the minimum wage is a net negative...and it prevents people whose labor is not worth $8 per hour from finding a job at all.

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You got 3 right answers. But greater buying power is wrong. Once wages rise, prices rise to compensate.

SouthernDemocrat said:

We have had a minimum wage for 70 years now. When is it going to lead to it?

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It already has:

Inflation -- A dollar 70 years ago (1939) was worth about 50 of today's dollars.

Outsourcing to foreign countries -- In the '50's and '60's, Japan. But then Japan kept raising the cost of its labor, and the outsourcing went to Korea, Taiwan, Mexico, and finally, China and India. Please pick up 100 random items at a store and see "Made in China" on 90 of them.

Okay, you can stop holding your breath. Here are the correct answers.

What will the minimum wage do?

Greater unemployment: You can't pay a worker less than he is worth. Also, if you have a certain labor budget, and the price per unit increases, a company has to purchase fewer units (workers).

Higher prices: Any company has to adjust his prices to cover increased costs.

Less competitive on world markets: As we jack up the cost of our labor, it becomes more expensive relative to foreign labor. Thus foreign products gain an even greater advantage to undersell American products.

Higher income tax brackets: Only two people got this one correct. YES. When a minimum wage is imposed, all wages and prices soon follow suit. Even though they might otherwise equal out (except for outsourcing, of course), these higher wages fall into higher tax brackets. In other words, everybody gets hit with a TAX INCREASE.

More jobs overseas: A result of being less competitive.

More businesses close: Ditto.


The other four given choices are WRONG.

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Nobody got a perfect score. The Mark scored the highest (90%).

Better read up on the consequenses of government impositions. The minimum wage is just one of thousands.

ronpaulvoter said:

You got 3 right answers. But greater buying power is wrong. Once wages rise, prices rise to compensate.

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Wrong. Wages do NOT rise overall if you raise the minimum wage. If anything, they may actually decline.

Furthermore, the claim that prices increase to compensate for any wage gains is empirically false. The average income in Memphis, TN is much greater than the average income in San Juan, PR. Yet San Juan has a much higher cost of living.

Prices will certainly increase if the minimum wage increases, but it has absolutely nothing to do with wage gains. Buying power will still increase for those employed in minimum wage jobs.

ronpaulvoter said:

Higher income tax brackets: Only two people got this one correct. YES. When a minimum wage is imposed, all wages and prices soon follow suit.

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That is absurd. A doctor is going to suddenly be paid more because the guy working at McDonald's earns more? :roll:

ronpaulvoter said:

Greater unemployment: You can't pay a worker less than he is worth. Also, if you have a certain labor budget, and the price per unit increases, a company has to purchase fewer units (workers).

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Not entirely so. If the performance of the said employees improves with the additional compensation, so will the said businesses bottom line. Of course, this is entirely not certain either:2razz:

Higher prices: Any company has to adjust his prices to cover increased costs.

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Not entirely so. Say you are right, that employee performance does not improve, therefore they have to lay off a worker or many; this in turn will not effect the bottom line. Only if they keep the same amount of workers on shift will it put upward pressure on prices.

Less competitive on world markets: As we jack up the cost of our labor, it becomes more expensive relative to foreign labor. Thus foreign products gain an even greater advantage to undersell American products.

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Not entirely so. Say you are correct, and a higher wage limits force a "widget" company (low tech low skill etc...) to produce outside the US. Known as structural unemployment, this in turn has been demonstrated to "push" the former employees into obtaining a more demanded skill set. Regardless, structural unemployment falls within the realm of natural rate of unemployment. With a low tech industry not retaining anymore resources in the US, a more skill worthy firm will be more inclined to demand the labor of the formerly unskilled worker who obtained this new skill set due to outsourcing.

Think of outsourcing as a way to "cleanse" the economy of its most inneficient uses of resources. Now, we can trade computer chips for widgets!

Higher income tax brackets: Only two people got this one correct. YES. When a minimum wage is imposed, all wages and prices soon follow suit. Even though they might otherwise equal out (except for outsourcing, of course), these higher wages fall into higher tax brackets. In other words, everybody gets hit with a TAX INCREASE.

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Actually, the wage rate (specifically for low skill and middle class workers) has been falling short of inflationary pressure during this last decade. Think of this as a calling to those who employed in low skilled sectors of the economy: time to better oneself!

More jobs overseas: A result of being less competitive.

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Less low skilled jobs here; Yay!arty

More businesses close: Ditto.

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And............... New businesses open! Imagine that, new industries and services to lead us into the next decade.

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Nobody got a perfect score. The Mark scored the highest (90%).

Better read up on the consequenses of government impositions.

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While the government has made some lousy choices, and has crippled many of industry, the American spirit of ingenuity will always be here to garner the next big thing that will spawn more "comparatively advantaged" industries.

In the beginning of 2000, did we know of Facebook, myspace, youtube, skype, blackberry (Canadian, but US programed aps), iphone apps, etc...?