That statement is stupid beyond comprehension. Do you really think that academics at state universities are really reaping vested interestests dependent on the minimum wage question? Do you really think that the quest for recognition of ground breaking work, e.g. Nobel prize, would be set aside for political battles which have little effect on research economists? Do you really think such sorry attempts at logical fallacies, such as your incompetently formed ad hominem are even worth typing out?
Maybe if you took the time to learn the argument involved, or at least had the courage to ask for help understanding it, you wouldn’t have to resort to libelous and ridiculous calumnies.
oops… now everyone is rich… and will spend more on things! lets find out how much more? oh right! twice as much! a loaf of bread cost 1$ now everyone gets twice as much… why not sell the same loaf for 2$ so nothing really changes! hurray! we get to carry twice the amount of paper for the same value?
lets require that they pay everyone at least 10 dollars! oh what? they only will hire half the people and make them do twice the work? oh well no one will take such a job, they can just get a job elsewhere… oh wait… everywhere is like that. I guess now we have rampent unemployment! hurray!
I think OP is a 17 year old who got a tiny little job and is sad its gonna take him a month to afford the shoes he was hopeing to buy
I don’t understand why so many people react to economics like these are natural laws, that can not be broken. They are not - they are human decisions. The market is a social construction, and be changed to anything we wish. Of course, there would be immediate consequences leveled by those who hold power of control over those who are the objects of power, if the latter asserted their influence.
Interest rates are controlled by central banks, and their governors. Of course they use economic theory to guide their decisions, but these people use the theory they believe. There is nothing ‘inevitable’ about this, except that with a theory based on anarchic conflict with a social darwinist twist, you will see a concentration of capital with interested parties fighting visciously, brutally, to not only maintain but grow that concentration of wealth, and hence power. Of course it also helps that the creators of the ‘market’ are the rulers of the ‘market.’
So any attempt to redistribute the wealth of an economic entity - i.e a corporation, or country- by for example reducing the gap between highest and lowest paid workers, is seen as an encroachment by the elite, which have the power, in the short term at least, to fight back in many ways against what really turns out to be significant protion of the population, and when that power is military, they can literally destroy opposition.
But that doesn’t change the fact that the rules by which they operate are arbitrary. So if the elite can be influenced from within, or defeated by mass opposition, the rules can change. A move towards economic equalization of a society could be made. But it is Human choices which will decide.
december: yes, you are correct, a good part of the data used in Krueger and Card’s study was gathered through phone calls to fast-food managers. Not the ideal method, but unfortunately in some cases it’s all we’re left with. Anywho, yes, as I mentioned in my post, Myth and Measurement is hardly canon, and you can find economists on all sides of the political spectrum that have one problem with it or another. Still, to the best of my knowledge, it is the only shred of peer-reviewed scholarly evidence in the OP’s favor, and I recommend anyone read it (as well as its many criticisms) if one is genuinely interested the economics of minimum wages.
KidCharlemagne: it is precisely through your definition of price inflation that one concludes that minimum wages place upward pressure on inflation. Increasing the cost of labor by fiat, by increasing the nominal income of laborers, must necessarily increase the nominal cost of goods if there is no commensurate increase in the production of goods. It is assumed that minimum wage laws do not cause laborers to become more productive, and therefore we must necessarily get price inflation. Or so goes the conventional wisdom.
js_africanus: Thank you for saving me the time to type that out.
Because markets behave in observable and repeatable ways. Forget your Philosphy 101 bullshit. All of economics is based on on two simple premises. All things being equal:
a rational seller will want to receive the highest value posible for a good or service.
a rational buyer will want to receive that good or service at the lowest price possible
And that’s basically it. Everyone blames the “cheap and greedy” employer for paying the lowest possible wage but no one blames the employee for being cheap or greedy for wanting to be paid more than the market will bear, even though 90% of employees are interchangable cogs in a machine.
This notion that markets and economic interactions are some “social construct” where we can arbitrarily change the rules is nonsense. We can do things to influence markets (taxes, price floors/cielings, managing the supply, etc) but you can’t change the basic way the market behaves.
It’s like people complaining that the price of a certain product is set too high by the retailer. The company sets a price, based on the laws of supply and demand, that it thinks will maximize profits.
What happens to people who make a bit more than minimum wage? Say it was raised to $7… wouldn’t that really screw over the people that make $8? Suddenly, they’re only making $1 more than minimum wage, and the cost of goods is way up.
Those now making minimum wage aren’t really in a better position, because their new buying power is offset by higher costs - but the guy who makes marginally more than minimum wage is now lowered into the same shitty situation as they are because he now has less buying power.
Of course, the same principle works for higher up on the wage scale, but I’d imagine those that made marginally more than minimum wage would really feel the hurt.
If it is true that increasing minimum wage leads to inflation, then yes, not very many people will benefit. However, I’m not sure how it would be inflationary–a one time jump in minimum wages could conceviably lead to a jump in prices, but I’m not sure why it would cause an increasing trend in the general price level, which is what inflation is. Let’s walk through a simple analysis.
I question how many people are making minimum wage relative to the labor force, and how inflationary a few thousand dollars per year per minimum wage worker would really be. Since minimum wage earners are poor, and since the poor save less, most the money will go into consumption. This rise in demand should cause an increase in prices. Since supply and demand probably aren’t vertical for the sort of consumption goods that make up the majority of consumption basked enjoyed by the poor, the price increase should not fully offset the wage increase.
To see this draw a big X on a piece of paper. Draw a new line parallel to the part of the X that looks like this: / , so that the new line is to the left of the line that goes to the right and up. Notice where the new line crosses the old (and only) line of the old X that goes from the top left to the bottom right, like this: \ . From that new crossing, draw a dotten line straight down to the original “/” line. That is how much demand increased. Now draw two dotted lines from the original intersection going straight left and from the new intersection going straight left. The vertical difference between the two is the rise in prices. See how the rise in demand is larger than the rise in prices?
So people who currently earn minimum wage and continue to do so should be better off. People earning just above minimum wage, who generally consume the same goods as the minimum wage crowd, should be worse off, since the rise in prices is not offset by any increase in income. As one becomes richer and richer, the relative effect should become smaller, since consumption (as a proportion of income) decreases with increasing income (especially for “poor” goods, like mac & cheese I suppose).
It’s also possible that some people will be pushed out of the labor market. If the cost of labor rises, we should expect firms to purchase less of it. It might also be an excuse to purchase more capital, i.e. machinery & equipment. Suppose you employ people to dig ditches and the minimum wage rises. Your labor has suddenly become more expensive, right? But compared to it, capital has become relatively less expensive. Getting rid of some labor should make the remaining labor more productive (from decreasing returns to scale for one input), but you could also raise the productivity of labor by buying more capital, thus firing no one. Suppose you use six men to work four shovels. That way, a shovel never sits idle, nor underused because there are always two freshly rested men. Now minimum wage goes up. You might buy another shovel, so that more capital is being productively used. Now your workers have to stagger their rests a little bit, but since they are earning more using another shovel and decreasing rest time a little might be a better business decision than firing one guy. So while it makes sense that a minimum wage increase leads to lower employment, it might not, or might have a smaller effect because of mitigating circumstances. I haven’t studied the literature, so I can’t say where the signs point.
Unemployment should rise regardless, however, because of the definition of unemployment. The unemployed are those who seek jobs but have none. Someone who doesn’t work, and doesn’t want to, does not qualify as unemployed. An increase in minimum wage means that some people who felt it wasn’t worth working for $5.25/hour may now find it attractive to work for $6.50/hour and enter the labor market. This influx of people who want to work will cause an increase of unemployment without a matching drop in employment levels.
I noted that a one time raising in minimum wage shouldn’t lead to inflation, since inflation is a trend and not a one time adjustment to an exogenous change, e.g. increasing minimum wage. If minimum wage were pegged to the CPI, for example, as the OP suggested, then inflation may be an issue since we may have a feedback-loop. I’m not going to comment on that.
One of the issues rarely discussed when talking about increasing the minimum wage is economic resiliency.
Look at the class of people who make somewhat more than minimum wage. Let’s say $8/hr. If no one made minimum wage and you increased it to $8/hr, then there would be no immediate economic effect, because no one’s wages would have actually increased.
However, now consider an economic slowdown, and a corresponding loss of worker productivity. Let’s say those $8/hr workers are suddenly only creating $7/hr worth of productivity. With a lower minimum wage, you have some room to lower wages while keeping those workers employed. But if the workers are making minimum wage already, your only alternative is to lay them off.
So if you raise the minimum wage and it doesn’t cause unemployment and/or inflation, it may well be that the reason is because so few people were making that wage in the first place, so the immediate effect was small. However, your economy is now much less able to smoothly respond to worsening economic conditions.
Well, speaking from experience, raising the MW does lead to less jobs and a rise in prices. I was an assistant manager at a pizza place (a major restuartant chain) and when the MW was increased in the 90’s the prices immediately went up and we were told to cut employee hours. The prices didn’t go up all that much but we had to cut a whole lot of hours. The people who had their hours cut were really screwed. Not only did they lose money but a decent amount of the employees lost their health benifits because they were no longer working enough hours a week to qualify for the health plan. IIRC, you had to work 30+ hours a week to get on the plan.
Another side effect of the MW increase was that the raise schedule was lowered. Before the MW increase an employee who recieved a ‘fair’ evalution would get about a 20 cent per hour raise. After the increase the standard raise dropped to 15 cents.
I don’t know what the effect of the increase was nationally but I know it impacted the company I worked for.
I remeber this well because I was responsible for scheduling and had to explain to the employees, who were also my friends, why they had less hours and lost benifits. It sucked.
The ‘market’ is not an entity. It is the sum total of economic interactions between people- ie a mathematical/social construct. As far as economic theory goes, “all things being equal” applies only there - in theory. In the real world, nothing is equal.
Now, the market may ‘behave’ (if we anthropomorphize it) as per econ theory (say the capitalista version) in reality, but if so that is because the people whose interactions make up that market behave in a manner consistent to the theory. But as everyone should know, nothing of the sort actually happens, (with the possible exception of some black markets ie the drug trade).
The ‘invisible hand’ is a god metaphor, sort of equivilent to the cosmological constant.
Rationality in economics does not mean rationality in the literal sense. It is this economic rationality that, the adherance to which has stagnated growth in NA over the last thirty-odd years.
The most prosperous decade ever in USA history was the 1960s. Since 1968 the US economy has been in a slow but steady decline. What, you ask is so special about the 60s? Well, for one, from 46 until 67/68, every ‘economic law’ was broken. The welfare state was at its peak, growth was 6 - 7% annually, and inflation kept pace with, but did not outstrip the economy as a whole - remaining appx 1/3 - 1/2 of the growth rate.
Today, the reverse is true. Growth is consistantly a meager 2-3% per a, while inflation is still around 1.5 -2.5%/a, productivity is flat, netting a real growth of only 1% or so a year, IOW, stagnation.
Today, the average family income is less, in terms of real dollars, than that of the 70s, and yet the hours worked are significantly increased. The same holds true here in my country, though to a slightly less extreme nature. BTW, in my province, the minimum wage (what this is really about) has not been raised in over a decade while over the same period pay at the top levels has increased 30 - 40%
This increasing disparity - off the charts, really in the US - is what has a far greater effect than creating a living minimum wage, let alone tying minimum to inflation / cpi. Keeping minimum wages so low that one can barely survive on it takes away spending power from far more people, amounting to far more dollars, than the concurrent (miniscule, by proportion) ‘setback’ or levelling to the elite (who can, BTW more than afford it, and more owe it).
Absolutely correct. The market is nothing but the sum of trillions of actions on the part of people. However, I can’t possibly imagine how you could think that people, on the whole, do not behave in a manner consistent with economic theory. Sorry, but we economists watch this stuff going on day-in, day-out. We’re not just making this stuff up here… believe it or not, the vast, overwhelming majority of people want more “stuff.” They then do whatever they can to get it. And most of the time, what they do to get more stuff involves either increasing income or decreasing expenses. It really does work out this way, whether you want to admit it or not.
What copy of The Wealth of Nations are you reading? I didn’t see anything in my copy that could lead me to believe Adam Smith was talking about anything the least bit religious. Do you have any citation, either in The Wealth of Nations or any of his other writings, that supports such a contention?
Hmm… well, here’s a handy-dandy little, you know, cite concerning GDP growth in the United States.
Now, is there anything in this data that supports your contention that real GDP growth in the past decade has been only 1% a year? Or do you have some other measure of economic growth you prefer? Or a source more reliable than the Federal Bureau of Economic Analysis?
Once again, show me a nice little study or data series suggesting that real median household income is lower today than “that of the 1970’s.” I’d dig around the Census Bureau, but quite frankly I’m tired and it doesn’t seem worth the effort to have to do research for your ridiculous claims.
Now, once we’ve got the ground work agreed upon, then maybe we can discuss your conclusion that economic rationality has caused economic stagnation in the U.S. over the past few decades.
Your proposal is faulty based on a simple matter. You presuppose that there is an unlimited amount of money the employer can shell out for salaries. That would be true of a company like microsoft which can easily hire an entry level person above the minumum wage. But most companies do not have budgets in the billions of dollars. Employers pay minimum wage because it is the lowest amount they can pay and still be in business.
If their budget calls for $73,000 for employer salaries, then at the MW (for example) of $7, they can hire 5 employees. If you raise the MW to $8, the budget doesnt magically get higher, it just means they can only hire 4 people instead of 5. What you’ll have is 4 people doing the work of 5.
Only thing I know of is that CEOs are just like people flipping burgers for Mcdonald’s --> you fire one, ten or twenty of them will immediately line up applying for that position.
Most of us here realise that raising the minimum wage to, say, $50/hr is ridiculous and would cause a massive increase in unemployment. Why is it then, that many of those posting still support the nominal minimum wage we have now?
Do people think that unemployment only “kicks in” at some arbitrary level of the MW? I don’t get it. The sad part is that you can never know how many people are never hired because the MW is too high. Probalby a lot of them end up on the streets.
The MW acts like a welfare subsidy, but only to those lucky enough to have a job. But most of the unlucky ones probably don’t vote anyway, so the politicians still win the PR war on this one.
Well, John, you can read the aforementioned “Myth and Measurement” book if you want to understand an argument (admittedly unproven as being correct) as to why small increases in minimum wage might not actually cause increases in unemployment. It does not logically follow that because a ridiculously large increase in the minimum wage would cause large unemployment then all increases will necessarily cause unemployment.
And, of course, even if even the most miniscule increase in the MW led to higher unemployment, one might still want to consider the tradeoff … I.e., whether the increase in unemployment was worse than the increase in wages for those employed.
Well, if they could have 4 people doing the work of 5, why isn’t it being done already. Or in other words, your analysis is clearly overly simplistic.
I agree with you that Space Cadet’s specific claim here doesn’t seem to be correct. However, the more general idea of rising inequality, with median families enjoying rather anemic real income growth, and whatever they had basically due entirely to working more hours rather than earning higher hourly wages, does seem to hold true, as these two cites describe:
—The most prosperous decade ever in USA history was the 1960s. Since 1968 the US economy has been in a slow but steady decline.—
There is actually every reason to think that the prosperity of the 50s and 60s was a rather rare and almost impossible to reproduce situation. The U.S. economy could grow so fast because it had so much capacity to bring back online into the private market after WWII and the emergence of truly modern production technologies.
—Only thing I know of is that CEOs are just like people flipping burgers for Mcdonald’s --> you fire one, ten or twenty of them will immediately line up applying for that position.—
Fact is, this just isn’t true. This is certainly not what people trying to recruit CEOs think or worry about. The talent for running a bussiness well is a very rare thing, and there’s a very small pool of superstars. It’s a skill not at all like flipping burgers, which is why stockholders are willing to shell out gazillions hoping to draw in top talent: a practice that often results in hiring well paid duds. Part of the reason for the huge scandals recently has been because boards have become so desperate to cush up the position of CEO that they’ve let them go without oversight, protected them against risk of failure, even let them set their own salaries: all to push the limits competing for the top talent.
Maybe you think this is misguided, due to stockholders overrating the potential talents of CEOs. And the extremes probably were misguided. But it’s simply wrong to forget that the extremes were gone to primarily because CEOs are not like burger flippers.
—Well, if they could have 4 people doing the work of 5, why isn’t it being done already. Or in other words, your analysis is clearly overly simplistic.—
Uh, not for any reason you’ve raised. They don’t want four people doing the work of five because that’s not as good: and maybe they can’t do the work of five. But they don’t necessarily have any choice in the matter.
It’s called a “cost/benefit analysis.” Certainly, the current minimum wage causes unemployment. But that is not the same thing as people on the lower end of the economic being, in the aggregate, worse off. If the minimum wage were, say .50 an hour, many more people would have jobs - but I seriously doubt that there would be less homeless people, and there may even be considerably more. 'Cause in most parts of this country you can't afford housing on .50 an hour.
Actually, it’s a welfare subsidy for the rest of us. We are mandating that the private sector absorb costs that otherwise the government would be paying out in food stamps, welfare, etc., if there were no minimum wage.
I’m sure some economist has done the math, but my gut feeling is that the minimum wage results in lower welfare costs - even taking into account that the minimum-wage caused unemployment increases welfare payments.
Well then, John, we would have to get into another cost/benefit analysis, of what would be more market-distorting, increased taxation to cover the greater number of people on welfare if the minimum wage were lowered/eliminated, or the current minimum wage?
OK. I just wasn’t going to let you get away with implying that the government has some sort of source of money other than getting it from the private sector…
I’m no fan of either welfare or the MW, but I think welfare is a more honest way of dealing with the problem. You konw exactly what money is being collected and to whom it is going. Anyway, you could certainly argue that welfare is effectively a minimum wage. Why work for $2/hr when welfare pays me $3, unless I’m ambitous and see myself working up to a better life. However, welfare doesn’t FORBID someone from working for $2/hr if they choose to do so. The MW does forbid it.
From that standpoint alone, I’d rather have welfare than MW. Also, welfare has a time limit, so it does encourage people to work eventually.
