The Problems with a Minimum Wage (Economics 101)

[Tingkai]

If you say that eliminating minimum wage leads to full employment (or 0% unemployment + natural employment) then how does that work with Hong Kong which has no minimum wage law, but has seen unemployment increase from less than 2 per cent in 1997 to 7 per cent in 2002.

[Urban Ranger]

Originally posted by Imran Siddiqui
Experience hardly matters at all in min wage income jobs. You can teach someone how to do it in a day.

Are you sure? Isn't it possible for an experienced burger flipper to flip three at once instead one by one?

Even when skill doesn't enter the picture, increasing wage still increases morale, which has a positive effect on productivity.

Originally posted by Imran Siddiqui
Only if you assume you've reached the peak for marginal rate of productivity (MRP). I believe that you have not in most (if not all) min wage income firms. You are still on the upward slope of the MRP.

That's a difficult one, because we are both arguing from out of our arses

Anyway, that still puts a cap on how many workers a company can hire.

Also what Tingkai said.

[madmario]

Originally posted by Albert Speer

Ever heard of a union?

Ever hear of people being fired for starting a union? Or have you ever tried to *live* on minimum wage? Ever hear that conundrum, "you need a car to get a job, and you need a job to get a car?"None of this is as simple in life as it is on paper.

For better or worse, capitalism says that cleaning toilets is less valuable than telling people to clean toilets, and both of those are put to shame by the CEO of a toilet cleanning corporation. Morally, I disagree with this. Minimum wage is related to Marxist thought, a big no-no in America, but so are unions and public works.

-m

[Bosh]

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. 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 .

Bull****.
Even assuming that labor functions like any other good according to classical economic assumptions (a rather doubtful proposition) then what the reduction of the wage floor would do is lower the wages of lots of unskilled people and reduce unemployment. There would be no raise in wages since wages would be at equilibrium and they would stay at an equlibrium below the current minimum wage since removing a price floor doesn't make the equilibrium point shift around.
Also if reducing the minimum wage created a bit enough reduction in the wages of unskilled labor it could hypothetically result in increased unemployment since all those unskilled workers would be buying less since they're making less. And there's other things to take into account like what happens if unskilled labor wages get so low that people can make more money begging than working...

[Goingonit]

Originally posted by madmario
Ever hear of people being fired for starting a union? Or have you ever tried to *live* on minimum wage? Ever hear that conundrum, "you need a car to get a job, and you need a job to get a car?"None of this is as simple in life as it is on paper.

For better or worse, capitalism says that cleaning toilets is less valuable than telling people to clean toilets, and both of those are put to shame by the CEO of a toilet cleanning corporation. Morally, I disagree with this. Minimum wage is related to Marxist thought, a big no-no in America, but so are unions and public works.

This is because anybody can clean toilets, but you need to have at least some skills to manage toilet-cleaners. Pricing is a function of only supply and demand. In a very tight labor market, where everybody's educated and skilled, toilet-cleaning might be a well-paying job. Demand would be larger than supply since nobody would take the job unless they got paid well.

[SlowwHand]

Originally posted by 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.

B.S.

[Imran Siddiqui]

That's a difficult one, because we are both arguing from out of our arses

Well, we are discussing economics, after all .

If you say that eliminating minimum wage leads to full employment (or 0% unemployment + natural employment) then how does that work with Hong Kong which has no minimum wage law, but has seen unemployment increase from less than 2 per cent in 1997 to 7 per cent in 2002.

During economic downturns, people get fired, layoffs, etc. But, the important number to look at is the 'less than 2 percent'... this would be the natural rate during regular economic times. You'd expect busts once in a while, and yes that would increase the unemployment rolls from time to time.

Are you sure? Isn't it possible for an experienced burger flipper to flip three at once instead one by one?

Even when skill doesn't enter the picture, increasing wage still increases morale, which has a positive effect on productivity.

Which may all be true, but tell that to the McD's . In the past, whenever the workers ask for more money than the company is willing to pay, McD's has fired the entire staff and hired a brand new one. I can do this because there is a lot of surplus labor out there willing to work at that price.

Anyway, that still puts a cap on how many workers a company can hire.

Yes, it can't hire 500 workers to work in one McD's . However, the incentive is there to open more McD's, and taking workers, if the cost of labor is so low.

Even assuming that labor functions like any other good according to classical economic assumptions (a rather doubtful proposition) then what the reduction of the wage floor would do is lower the wages of lots of unskilled people and reduce unemployment. There would be no raise in wages since wages would be at equilibrium and they would stay at an equlibrium below the current minimum wage since removing a price floor doesn't make the equilibrium point shift around.

In the short run... yes... but in the long run, the lack of surplus labor (if we assume normal economic times) would lead to a general rise in wages for all... a shifting of the supply curve to a long run average.

Also if reducing the minimum wage created a bit enough reduction in the wages of unskilled labor it could hypothetically result in increased unemployment since all those unskilled workers would be buying less since they're making less. And there's other things to take into account like what happens if unskilled labor wages get so low that people can make more money begging than working...

I've addressed the first point (consumption)... as for the 2nd.. if the wages fall so low that people don't apply for jobs, it is natural that the wages for those jobs would rise until people desired them.

[Lawrence of Arabia]

Minimum wage is a "strange bird" as my Econ teacher would say.

With a high minimum wage, the people who have jobs will in fact get paid more. They will be able to spend more. But, because firms must spend more on labor which produces the same (Ceteris blahblah) they will stop hiring, and may even fire some employees. So, for the people who have jobs, they will make more, but for those who don't, they will be unemployed.

With no minimum wage, almost all of the labor force will be employed (minus structural, seasonal, cyclical, and frictional unemployment which are natural unemployements.) Since the unemployement rate will be low, there will very few people to choose from, so the market will be very competitive (ie. companies raise wages to attract more labor). As what Immran said, there will be inflation (more money out there), and Unions will ask for more money, which will lead to more unions.

The funniest thing is people who have no idea about Economics are on this thread, hi lighting huge sections of text, and then responding with one word and thinking that they are correct. I don't have any degree in Economics or anything like that (11th grade, 1st year economics) but I've studied Micro, Macro, Trade, and something I can't remebmer right now, and I think I know my stuff.

[madmario]

Originally posted by Goingonit

This is because anybody can clean toilets, but you need to have at least some skills to manage toilet-cleaners. Pricing is a function of only supply and demand. In a very tight labor market, where everybody's educated and skilled, toilet-cleaning might be a well-paying job. Demand would be larger than supply since nobody would take the job unless they got paid well.

The idea of minimum wage is less about economics than about egalitarianism.

Having worked in a number of "non-skilled labour" jobs, I find the idea to be totally classist. They require you to know a lot -- a lot! In practice, there's no such thing as non-skilled labour. Flipping burgers requires a lot more than standing there and turning over meat. Being waitstaff requires a lot more than carrying trays. And cleaning toilets requires a lot more than knowledge of a brush and a bowl. And not like a little a lot -- a lot a lot. OSHA and health inspectors and all kinds of stuff. And often people still treat you like dirt, and if that is part of the job, many people are quite incapable of that requirement.

Now, I will agree that there are certain "gateway" requirements to certain jobs. But I think its ludicrous that a CEO's job is worth literally a thousand times a grunt worker's. That is inane, but it does keep the paradigm in place. These "gateway" requirements have much more to do with class than merit.

I mean, why the general lack of equality among women and minorities in management? Are they inately more stupid? No, its "good ol' boysmanship," which is how most things work.

The meritocracy, which it sounds like you are talking about, is a myth.


-mario

[madmario]

Originally posted by Lawrence of Arabia

With no minimum wage, almost all of the labor force will be employed (minus structural, seasonal, cyclical, and frictional unemployment which are natural unemployements.)

Why do you assume employed=living wage and it all works out in the end? I am more curious than anything -- I'm not trying to come after you.

Also, to conrtast, I find it curious that most of the discussion is purely economic. I'll be the first to admit that I know only the scant basics of economics. What I know is largely from how economics affects people at the social level.

I would conceede that minimum wage might not be a sustainable idea with the current model of economics in the world, since in truth I don't know almost nothing about economic theory. However, min. wage is an idea that people can identify with, and it seeks to address a larger social issue that is very important to many people. You can say "no" to minimum wage but something else has to address the idea of a living wage, and I have enough reasons to not rely on supply/demand because of social factors. Further, to be morally strong in what is only my opinion, you would have to address this social problem with an alternative.

-mario

[Imran Siddiqui]

Why do you assume employed=living wage and it all works out in the end?

I don't think he is, actually .

I would conceede that minimum wage might not be a sustainable idea with the cirrent model of economics in the world, since in truth I don't know almost nothing about economic theory. However, min. wage is an idea that people can identify with, and it seeks to address a larger social issue that is very important to many people. You can say "no" to minimum wage but something else has to address the idea of a living wage, and I have enough reasons to not rely on supply/demand because of social factors. Further, to be morally strong in what is only my opinion, you would have to address this social problem with an alternative.

AFAIK, the reason this has been a more economic, rather than social discussion is because of the first post in this thread and how it started out. The social consequences are something else entirely.

Having worked in a number of "non-skilled labour" jobs, I find the idea to be totally classist.

That is your right, but it doesn't diminish the fact that there is a high level of supply for the lower end jobs, and less for the CEOs, who need lots of education and skills in order to make even a bid for the job. It all does come down to supply and demand, and that justifies the high prices of CEOs... tiny supply, massive demand.

[Kropotkin]

The problem of the minimum wage can hardly be taken out of its context. If one likes he or she can talk all night about equilibrium in the labor market but since that's just neoclassical theory. One can think a lot about that kind of theories but the reality are never as easy as that.

In some cases it might be harmful for the economy in some cases it might not be.

[Lawrence of Arabia]

quote:madmario
Why do you assume employed=living wage and it all works out in the end?

quote:Imran Siddiqui
I don't think he is, actually

No I'm not assuming that employed=living wage. In fact, it could be that even if you are employed, you will not be making a living wage.

[madmario]

AFAIK, the reason this has been a more economic, rather than social discussion is because of the first post in this thread and how it started out. The social consequences are something else entirely.

Hmm. He did give a version of the social history, although inadequate, which is part of why I take issue Additionally, I think it is ultimately impossible to distinguish between disciplines, but I may be biased.

That is your right, but it doesn't diminish the fact that there is a high level of supply for the lower end jobs, and less for the CEOs, who need lots of education and skills in order to make even a bid for the job.

Why do you say, "education and skills" when in fact (as I imagine you are aware) it requires "who you know" and "how did you grow up" much much more? See, I find that classist right there (no offense, as I imagine it wasn't intended so) because intentionally or not, you are saying that the meriticracy works, when it is a lie. It does require certain education and skills, but these are class skewed.

It may be a matter of supply and demand, but I take serious issue with what those attributes of supply are and how they are acquired, which is largely (of course not entirely) on the basis of class and other social factors.

In this regard, min. wage is a morally based attempt to correct this larger problem; or really (sadly), an idea having the semblence of correcting it, since it can only address a symptom and not the problem.

-mario

[madmario]

Originally posted by Lawrence of Arabia
No I'm not assuming that employed=living wage. In fact, it could be that even if you are employed, you will not be making a living wage.

Cool. Wery cool. Ok.

Sorry I misunderstood and misrepresented.

-m