The Problems with a Minimum Wage (Economics 101)

[Bosh]

The big firms would be able to totally outspend other firms for talent and thus having the better talent would be able to win the competition.

This doesn't make the least bit of sense Imran. How could the elimination of the minimum wage result in an expensive battle to secure talent on the part of companies? The only bit of the labor pool that would be effected at all would be the completely unskilled (ie the only people willing to work for less than the current minimum wage) how could there be a bidding war over these people's non-existant skill let alone an expensive one since they're willing to work for **** (or else the elimination of the minimum wage would have no effect on them)?
Repealing the minimum wage probably won't have that much effect one way or another. There's already plenty of people working illegally for less than the minimum wage (immigrants and whatnot) and also its hard to see what kind of jobs would be created that would employ large numbers of the unskilled in the US. As far as manufacturing goes the cost of living in the US is too high for there to be all that much growth in unskilled sweat shop work (ie even with no minimum page its cheaper to hire third world peasants and in any case I'd bet that third world peasants are more relaible workers than the average unemployed American) and as far as service jobs how many more unskilled jobs are really needed? Don't we already have enough burger-flippers? I guess a few more maids would be hired but that's about it. On the other side there'd be some employers lowering wages and shafting workers even harder but there probably wouldn't be all that much of this since if they lowered wages that much then the turnover would go through the roof to the point where lowering wages would get counter-productive.

[Imran Siddiqui]

This doesn't make the least bit of sense Imran. How could the elimination of the minimum wage result in an expensive battle to secure talent on the part of companies?

Of course it does... You have a 5% unemployed number (abouts). You take away the minimum wage and you end up with about 0% unemployed. There is no surplus labor pool to pick up people. The service sector would have to raise its wages to attract workers (like in the late 90s, I remember, CVS raised its wage payed from $5.50 to $6.00 an hour because of the less unemployment... and so did many other service labor employing companies). If the wages are raised in the bottom, there will be a sort of trickle-up effect . It'll begin with a slight increase in inflation (more money in the out there), and lead to labor unions asking for more money to make up for the cost of inflation. Of course, the unions will ask for more than that.. because they will realize that there isn't any suplus labor. The unions will begin to understand that replacements would be hard to come by. The companies of course would try to counter this by vastly overpaying for its labor (so they wouldn't strike).... and on and on.

Butterfly effect, basically.

[Goingonit]

Originally posted by orange
uh, recessions become depressions when businesses go out of business when they can't afford to pay employees. That'll create even more people 'on the streeet'

Sure thing, Mr. Hoover

This is the reason you have deficit spending and interest rate adjustments. The government pays to buoy up the economy in recessions, and cashes in during booms when economic growth means more tax income.

[Tingkai]

Originally posted by Imran Siddiqui
Of course it does... You have a 5% unemployed number (abouts). You take away the minimum wage and you end up with about 0% unemployed.

What's your logic for that?

I see a couple of problems:
1) There is a natural level of unemployment (e.g. people temporarily switching jobs). Generally considered 4 per cent unemployment, although there is debate about the level.
2) Most governments would not allow unemployment to drop to low levels because of the upward pressure on wages. Big business would lobby for an increase in interest rates to hold down inflationary effects and that would prevent unemployment from reaching 0 per cent, even if natural level is discounted.

[Imran Siddiqui]

1) There is a natural level of unemployment (e.g. people temporarily switching jobs). Generally considered 4 per cent unemployment, although there is debate about the level.

The transitional level is much lower than that. And changing jobs is within in 6 months, so for all intensive purposes, the unemployment is nil.

2) Most governments would not allow unemployment to drop to low levels because of the upward pressure on wages. Big business would lobby for an increase in interest rates to hold down inflationary effects and that would prevent unemployment from reaching 0 per cent, even if natural level is discounted.

Yes, the government might attempt to increase increase rates to decrease inflation and increase unemployment. However, I was treating this topic as theoretical (As I thought Speer was treating it), and in theoretical terms you treat the issue as ceterus parabus, all other things being equal (I know I screwed up the Latin ).

[chequita guevara]

We had unemployed before we had a minimum wage. Counbtries that have no min wage today have unemployed. While conservative politicians like to complain about the min wage, it has helped to diminish the effects of poverty. Min wages increase demand for products, meaning that more people have to get hired. This is not the theory, this is how it works in the real world.

From a political point, min wage helps prevent people like me from gaining a mass audience.

BTW, when adjusted for inflation, our min wage is lower that it was in 1969. It needs to be raised again. That's not gonna happen, though with this congress and president.




man I hate these Sun keyboards. All the buttons are switched around.

[Zkribbler]

Sounds good in theory. But the theory doesn't hold up in practice. In the past dozen years, everytime the minimum wage has been increased, the economy has surged and unemployment has dropped.

The lower paid workers tend to spend a greater percentage of their income than higher paid worker. Thus, when they get pay raises, they buy more stuff. This increased demand for products, which increases production of goods, which increases employment. Rising waters lift everyone's boats.

[Imran Siddiqui]

Well, I don't think our minimum wage needs to be raised .

While there should be a min wage, it should be a low floor.

[Imran Siddiqui]

Sounds good in theory. But the theory doesn't hold up in practice. In the past dozen years, everytime the minimum wage has been increased, the economy has surged and unemployment has dropped.

It isn't cause and effect. Usually the minimum wage gets raised in times of economic prosperity, because the pols think, there is so much money, why not.

The lower paid workers tend to spend a greater percentage of their income than higher paid worker. Thus, when they get pay raises, they buy more stuff.

This would work if there were a great amount of workers at the minimum wage area. Most people that make min wage are teenagers (or people in school) and elderly. Minimum wage usually isn't paid to people from 25-60. Those people have higher paying jobs (and no union worker makes min wage).

Thus, when they get pay raises, they buy more stuff.

Most of what lower income earners purchase isn't the durable goods that make the economy go. Usually they spend more money on service sector products.

[Zkribbler]

Originally posted by Imran Siddiqui
the minimum wage gets raised in times of economic prosperity

...namely, when the Democrats are in power.

[Imran Siddiqui]

when the Democrats are in power.

IIRC, the minimum wage was raised under Reagan. Now if you make the case that Reagan was a Democrat in the 80s, then you are delusional .

And Nixon also raised it... another Democrat, right?

[PaleHorse76]

To: Albert Speer

I fail to see how someone living in Philly PA can say that the minimum wage is bad for the economy as minimum wage will not allow you to survive in this area. If you are working min wage you are earning 12480 a year, gross. My wife an I are living comfortably on 55K together but even we, who have stopped using credit cards and the like, can't have everything we want. I fail to see how a law that allows people to make 1/5th-ish of what my wife and I are making (or 2/5ths if there if there is 2 people working together) can be bad for the economy....at least in this area of the country. If people cannot survive on min wage then how can they survive on less???

(BTW, I live outside of Philly in Bensalem and I work in King of Prussia/Valley Forge area)
Woohoo! 8 posts.

[Promethus]

Answer this question. Why did the "Capitialist" Henry Ford start paying his workers building the Model-T $5 per day?

[Imran Siddiqui]

Answer this question. Why did the "Capitialist" Henry Ford start paying his workers building the Model-T $5 per day?

To keep them healthy (can buy better food than before) so they would be productive workers?

[Promethus]

Imran

Not even close. And you think you are informed on this issue?