I agree with your clarification. The biggest problem with these discussions is that the economic factors are so complex that it is extremely hard to suss out the effect of just one variable (the minimum wage). That said, a policy of bumping it in line with CPI seems obvious and just (and is even supported by the GOP candidate this cycle).
A union is just as much part of “the market” as any other person or institution, so yes, the jobs are “worth” different amounts on the two islands. Why is that surprising? You don’t have to invent some fantasy world-- that’s the way it is today, on earth. Same thing when people band together to negotiate a lower price for something by buying it in bulk.
But the when the government sets a price, then you don’t have a market for anything below that price. There is no “market” in the US for jobs that pay under MW. The government has artificially created a market distortion in order accomplish something that the market doesn’t. And that’s fine, as far as it goes. But it’s not the only way of accomplishing the same goal.
Sounds about right for areas with a very low cost of living, doesn’t help areas with high cost of living though. Minimum wage should be based on living wage of the area it’s in. All these kind of things don’t help that much though. Large companies need to be controlled by the people that work at them instead of just a small group of executives. Do that and you see everything get better.
So just because the market says something about appropriate wages, that is the correct level it should be at? Then why on earth do we have a minimum wage at all? Could it be that wage fluctuation at the rate of supply and demand is harmful in some instances and a price floor should be set to ensure that employees make enough to survive? I would argue that no, the value of that employee did not decrease, but the ability for employers to exploit the unemployment rate to their benefit has increased.
But they should, because income inequality has gone up. While at the same time the cost of nonessential goods has gone down versus essential goods.
So at the bottom of the pile, there are people who barely scrape by because of the high cost of essentials and income inequality, but every marginal hour of earnings can buy a lot more than it did before. So the increase of their wages would free up a lot of money for optional purchases that they simply didn’t have before.
Because the inverse of nonessential goods being cheap, is that there isn’t a lot of slack to cut back on. It’s almost all-or-nothing.
Sorry, Marley.
I’ll try making some points in a less mocking way.
- Employers can raise their prices if they have to; many of their customers are getting a pay increase, after all.
And as for this being inflationary:
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The actual effect on worker compensation of raising the minimum wage by ~40%, considering how much of worker compensation is in benefits already, and how much of a company’s overhead is not wages or benefits, shouldn’t actually raise prices as much as nominal wages. Workers will probably find they are gaining on inflation, particularly if the minimum wage is keyed to inflation as it should have been in the first place.
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It’s a sad fact that the professional class make several multiples minimum wage. Hiring a lawyer, starting a business, paying for your own health care is rarely an option for most Americans. Keeping minimum salaries pegged to inflation is a start to getting these kinds of services in the reach of the common man.
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Really, the inflation we should be worried about is at the top, among those who make 300x or more a middle-class salary, not those who make a tenth of one and less than a living wage. We need an economy that works for everyone, and if much of the workforce is severely undercompensated, they are locked out of parts of the economy, as consumers; that’s dysfunctional.
This is the kind of analysis that might have gotten you a couple of accepting nods if you’d made it 25 years ago. Unfortunately for your argument, economists started noticing that reality wasn’t adhering to their models, so either reality or the models would have to change.
In fairness to you, this sort of thing might still be taught in lower-level undergraduate economics classes (the much-talked-about econ 101), but it’s taught that way because professors either learned their econ 25 years ago and never bothered to update their field of non-specialization, or because they didn’t want to confuse a bunch of arts majors who just wanted to get through a requirement and couldn’t handle anything more sophisticated than finding the intersection of two lines.
Of course, you don’t have to be a cutting edge economist to understand how the discourse has changed, you pretty much just have to read the wikipedia page, which I noticed has a pretty good discussion of why that simplistic model doesn’t match reality.
That, or travel back in time 25 years, and feel comfortably in the majority.
[QUOTE=Ludovic]
But they should, because income inequality has gone up. While at the same time the cost of nonessential goods has gone down versus essential goods.
[/QUOTE]
It wasn’t the point they were trying to demonstrate. What they were demonstrating with this particular stat is that even though (adjusted for inflation) average salaries in the US have been fairly stagnant since the 70’s (another of their claims and one I’ve heard before, and think is fairly accurate), the actual buying power of the average American has gone up…quite a bit…because we, as a whole, spend far less on essentials than we had to in the past, thus we have far more for non-essential purchases (i.e. we have more disposable income). Now, how accurate they were I couldn’t say, but that was the point they were trying to make.
Again, that’s not the point they were trying to make. Also, assuming the stat is correct that means that even those at the bottom of the pile spend far less, as a total percentage of what they make, on essentials, and have far more (relatively speaking of course) disposable income. Which, I think, bears out pretty well with anecdotal information, as it’s pretty obvious that even the poor have access to and in fact purchase such things as cell phones, internet/computers, and even (according to Chris Rock in Good Hair, an unimpeachable reference if ever there was one :p) hair weaves that cost an arm and a leg (as well as myriad other things that aren’t essential but that we, as a whole, spend huge amounts of our disposable income towards anyway).
I have no doubt that increasing the salaries of folks currently making minimum wage would allow them to have more money to spend on things…I don’t think anyone disputes that, as it’s pretty obvious (though if it causes a ripple effect with prices, bumping them up, that might mitigate some of the value of more pay at least to some extent).
I think their point is that there IS quite a bit of slack that could be cut back on, if people would cut back on it. Don’t get that cell phone with the full data plan…or that smart phone…or that tattoo…etc etc.
-XT
[QUOTE=Evil Economist]
This is the kind of analysis that might have gotten you a couple of accepting nods if you’d made it 25 years ago. Unfortunately for your argument, economists started noticing that reality wasn’t adhering to their models, so either reality or the models would have to change. In fairness to you, this sort of thing might still be taught in lower-level undergraduate economics classes (the much-talked-about econ 101), but it’s taught that way because professors either learned their econ 25 years ago and never bothered to update their field of non-specialization, or because they didn’t want to confuse a bunch of arts majors who just wanted to get through a requirement and couldn’t handle anything more sophisticated than finding the intersection of two lines.
[/QUOTE]
Maybe instead of being snide you could put some meat into your assertions. I mean, you have ‘Economist’ in your user name, so presumably that means you have some (deeper?) expertise wrt economics, but thus far all you’ve shown is your ability to be snarky.
For instance, WHY is what John said there out of date? Are you claiming that, in fact, there is no market for labor below minimum wage?? What do you or your models base that on? Are you saying that the government hasn’t distorted the labor market by setting the bar for minimum labor where it is? Again, if so, what do you base that on? Or are you saying something else? Because it’s not clear (to me at least) what you are addressing there, or what you are basing it on.
Perhaps you could, I don’t know, demonstrate this instead of asserting…fight ignorance and all that. Most of us here aren’t economists, nor do we play one on TV, so why don’t you give us the gift of your expertise and illustrate whatever points you are trying to make, perhaps with some cites showing what the current consensus is among credible economists (evil or otherwise) on the topics being discussed here.
-XT
In fairness to me, I’ve given cites to peer-reviewed journal articles; look at my posts in this thread. Snarkyness happens when your debate opponents don’t read the cites and keep making the same tired old uninformed arguments time and again.
The 25 year thing reflects the date the first Card and Kreuger study was published. That’s about when people started paying serious attention to the empirical results. I linked to that paper earlier in this thread.
If you just want to understand the discourse at a simple level you can read the wikipedia page; it has a good summary.
Here’s some quotes from Wikipedia:
ETA: Ummm…these quotes are a little out of order–Krugman is actually referring to the 1992 Card & Kreuger study, not the 1995 study. Doesn’t make a huge difference, just realized that my quotes had mixed things up a little.
When did I tell low skill workers how much money they can make?
I think a lot of people fundamentally don’t understand how businesses operate and have no place telling them what they should and shouldn’t do with their money (from an actual ‘I’ve worked in/run a business and done the books with my own hands’ POV…I have that POV, plus I spend my days talking to a lot of business owners). OTOH I really have very little understanding of politics and keep my mouth closed around that stuff (though I’m trying to learn), but this crosses into my territory.
A while back we had a thread where someone suggested that all businesses should have to open their books up to the employees and that (IIRC) it should be up to the employee to decide if they’re getting paid enough based on what the company is making. The problem is far to many people have no idea how this stuff works.
For example, I remember a few years ago I was sitting at a bar/restaurant with the owner a few days before Christmas and over the course of an hour or so we watched as they sold a few hundred dollars in gift certificates. Another person was sitting with us and said “Geez, what are you gonna do with all that cash?” He had no idea that she wasn’t going to take all that cash and stick it in her purse and go shopping with it after work.
I can come up with more examples, but this gets back to the thing about the ExxonMobil bottom line. That really shouldn’t have anything to do with a minimum wage hike. They shouldn’t have to lose their bottom line to cover higher wages. Sure, they can if they choose, but they shouldn’t be expected too (I’d imagine shareholders wouldn’t be very happy about it either).
I don’t think the minimum wage increase was proposed because they wanted business owners to be paying the higher wages out of their back pockets. My understanding is that you pay the higher wages by raising prices, but (in theory) since people have more money they can afford the higher prices and we have inflation. Right? I’m getting out of my league here.
[QUOTE=Evil Economist]
In fairness to me, I’ve given cites to peer-reviewed journal articles; look at my posts in this thread. Snarkyness happens when your debate opponents don’t read the cites and keep making the same tired old uninformed arguments time and again.
The 25 year thing reflects the date the first Card and Kreuger study was published. That’s about when people started paying serious attention to the empirical results. I linked to that paper earlier in this thread.
If you just want to understand the discourse at a simple level you can read the wikipedia page; it has a good summary.
Here’s some quotes from Wikipedia:
[/QUOTE]
Thank you. I read through it, but I have to admit it seems counter intuitive to me. Why would minimum wage reduce unemployment? I realize that these are empirical results from this study (studies?), but what’s the thinking here as to why this is and how it works? As I said, it seems counter intuitive to me, and pretty much against all my half remembered college courses on economics. Also, these studies were (from skimming) in the 90’s…are there newer studies that still confirm the empirical results? And this indicates ‘a strong consensus existed among economists, both conservative and liberal’…I can believe such a consensus among liberal economists, as it would confirm their political preconceptions (I assume anyway), but I find it hard to believe that the same holds true with conservative economists since it would be pretty much diametrically opposed to their own political preconceptions. How do ‘conservative’ economists reconcile this…and does this consensus still hold?
Really though, what I’d love to see is a watered down ‘economic theory for dummies and engineering majors’ take on WHY raising the minimum wage would lower unemployment for ‘younger and low-skill workers’…and whether this still holds true today.
-XT
The watered down economy theory here is that giving consumers more money increases demand, which stimulates hiring. It’s the same theory driving any other economic stimulus program.
Supply side economics doesn’t work, because when rich people have more money, they don’t spend it. When poor people have money, they spend it.
[QUOTE=Mosier]
The watered down economy theory here is that giving consumers more money increases demand, which stimulates hiring. It’s the same theory driving any other economic stimulus program.
[/QUOTE]
Let’s assume that’s true for a moment. Why don’t companies do this themselves if it’s this cut and dried? I mean, why wait for the government to impose higher minimum wage rates on them, when they could just raise their rates themselves and profit. Right? Do you have any cites that companies believe that raising their wages for their lower level employees (hell, for all ranges, since it should work across the board, right?) will profit them?
Who said anything about supply side economics? 
And who said rich people don’t spend (and more importantly invest) money?? I can see the correlation you are putting forth here (i.e. only poor people spend money, while rich people don’t and, presumably, middle class people do…something in between I guess), but no one has mentioned supply side economics in this thread that I know of.
-XT
And when child labor reforms and other laws to protect workers were enacted, I would assume resulting higher production costs were passed along to consumers. Correct me if I’m wrong. If this did indeed happen though, it doesn’t mean the reforms shouldn’t have been made in the first place.
My main idea in responding though was to point out that throwing “scary” numbers around, like $2.7 million a week, doesn’t have much meaning without being put into context.
I’m pretty sure I agree here, though I still haven’t actually read though the entire thread yet. All I was really saying is that no matter how you work the numbers, if a business wants to stay afloat all costs will eventually trickle down to the end user. Be it child labor laws, stricter EPA regulations, import levies etc etc etc. For example, I just paid the city $130 to have my scales checked. I pay that every year. That’s an extra $11 a month I have to make up somewhere. Not much, but it’s still money that they owner isn’t going to pay out of his pocket.
The problem with overhead is that the customer doesn’t ‘see’ it. Most customers understand when they buy something that we had to buy it from someone else. Some of them understand that we have to pay employees. Almost none of them know that we pay several thousands of dollars each year to the city, state, and federal government for various licenses and when they raise those prices, we have to raise ours. (I honestly don’t remember where I was going with this anymore so I’ll stop here for now).
I’m not really sure what you mean. I just said that when the government sets a MW, then there is no market for jobs at below MW. That’s a true statement. You don’t need to do an analysis to determine how many jobs there are below x if it’s illegal to hire someone for less than x. Unless we’re going to delve into the Grey Market, but even that is generally just a cash economy to avoid taxes.
Well, the wikipedia article contains plenty of info that disputes that study, which oddly enough you didn’t quote in your response to XT.
So, rather than Card being the consensus among economists, as you seem to be implying, there are plenty of economists, even some with Nobel Prizes, who disagree with the results.
Rich people don’t spend as much of additional money as others.
For example, if a rich person buys everything they need/want and have an extra $500K a year that they put into bank accounts/investments, then you give them an extra $5K, chances all they will simply bank an extra $5K. They aren’t going to radically change their spending habits.
If you have a poor person who has $0 extra every year that makes it into the bank account and give them an extra $500, they’ll probably spend that $500. For a poor person, a) that could make a big difference in their life, and b) the money makes it into the economy.
I read some of the wikipedia page Evil Economist linked. It notes that the assumption that minimum wage increases increase unemployment has little empirical data to back it up.
I find sadly plausible the hypothesis that, due to monopsony power, minimum wage jobs would tend to be even lower-compensated without minimum wage, and wages are kept down as low as they are just because employers can get away with it.
In any case, I have never liked the argument that underpaying people increases employment. Having people work longer hours for less pay than it takes to support themselves should not be the goal of public policy, unless you are also subsidizing those people with some kind of supplement, stipend, or welfare check.
“All that a man has is his time.”–Factotum
Business owners, managers, etc always have trouble with this type of stuff because they are in denial of what America is. These business owners who think they have gone from “rags to riches” and have “done it themselves” are in all sorts of denial.
This country essentially has 2 classes - The mercantile class and the non-mercantile class. The mercantile class consists of those mentioned above and the uber-wealthy stockholders and those who make lots of money off businesses.
The more charismatic members of this class go in to politics to look out for their fellow merchants. Of course this isn’t a conspiracy or anything, there are different ideas how this is accomplished so there is in-fighting and such. But the fact is, politicians for the most part enjoy the fruit from companies paying employees as little as possible, so business can make alot of money. Nothing new here.
What you have is a fundamentally flawed system. That business owner didn’t build his business up unprotected…and once it started making other people money (yes, the law-makers) it certainly isn’t a rugged individualistic act. You guys, you business owners, are protected better than union people…and you want more and more protection.
That worker bee that wants a few more dollars an hour, from any angle is equal to you and has minimal support from the government for this. There are no unions in most professions. Big businesses keep unions out, and the government is fine with this because they (the politicians) make money off the businesses.
As a member of the mercantile class, you are exploiting people. Sorry to say. Business is government backed exploitation.
So let’s say this out loud - AS A BUSINESS MAN, I DON’T WANT WORKERS MAKING MORE MONEY, SO I CAN HAVE MORE FRUITS OF THEIR LABOR.
Business men can NEVER have any moral authority in any argument because it is an exploitive situation.