Raise minimum wage can increase employments

Great Debates
41

Wow, I never knew that it was just that simple. I think that after work today, I will walk down the street spreading the word. After that, I will solve the homeless problem by starting my “Just Get a House” campaign. :rolleyes:

Seriously, this kind of statement is rather naive. The problem as I see it is that there are all of these jobs out there that society needs to continue functioning (clerks, restaurant workers, parking lot attendants and so forth) but that (for whatever reason) we as a society have deemed as “unskilled” and so are not willing to pay at a level where the people doing them are able to meet their basic needs.

So fine, let us dispense with the idea of raising minimum wage as being ruinous to the economy. The question then becomes how do we have people doing all of these tasks that are needed to keep society rolling and somehow also make sure that they are clothed/fed/sheltered at some minimum level.

Finally, a slight hijack, but do you think that this contributes anything to the debate sailor?

42

I agreee with Hail Ants-- MW is welfare. But it’s a dishonest form of welfare. It lets politicians claim they are helping the downtrodden without doing it directly thru taxes. And, as I said earlier, it forbids someone from getting a job if their skills are worth less than the MW.

Can I make a somewhat more modest proposal in terms of ending the MW? How about ending the FEDERAL MW? Then let states experiment with what works best-- direct welfare or some form of MW.

43

The minimum wage, in addition to the inefficencies and inflationary concerns, is simply bad policy based on the fact that it does not a) target the benfits to those who one would suppose the policy is to benefit (the poor); and b) does not place the burden on those one would expect should be “responsible” (I use the term very loosely). What I mean, is that the minimum wage is clearly meant to supplant the market so that a particular social goal can be achieved: the raising the welfar of the ppor is what I would suppose is that goal. But the minimum wage does not target that group at all. Teen-agers, specifically benefit from the minimum wage when in many or most cases they are possibly the last group among workers who need it.

Then there is who is expected to pay for a social program. Most social programs are based either on who should pay because they are to blame or who should pay because they have the ability to do so. Since MW is meant to comabat a more structural problem we should be looking at the ability-to-pay principle. This is essentially a progressive taxation principle (and some may argue with that, of course). But the minimum wage is not paid necessarily by the rich, it is paid for by all owners of businesses, all people who pay higher prices and who may not get jobs they would otherwise get. It is indifferent to who is going to pay.

MW is clearly a poor policy match for the social goal intended.

44

I believe that Minimum Wage is an Urban Legend, mostly supported by politicans that use it for their own benefit. One side says they are the defenders of the poor and the other side claims they are supporting business and fighting inflation. The latter seem to be right, except they are just playing the game and if the time is right they will suddenly champion increasing MW.

To see what happens in reality, here is a simple example:

ABC Brick Layers employees four people.
[ul][li] Joe - he mixes the mortar and delivers it and bricks to brick layers. Paid minimum wage [] Pete - is a brick-layer with little experience - Paid 1.5 times Minimum wage. [] Max - experienced brick-layer - paid 3 times minimum wage. Sam - Boss, lays bricks, bids jobs, orders material, collects payments, writes checks - during good times makes 4 times minimum wage.[/li]
[li] minimum wage - $5.15[/li][li] loaf of white bread - $0.90[/ul][/li]
Congress increases minimum wage by 50 cents. Joe gets a raise on the first check after effective date. Pete starts showing signs of being unsatisfied, says he knows another outfit that will pay him more. Sam gives Pete a raise of 60 cents. Pete is now happy, but Max tells Sam he needs a raise, so Sam raises Max’s pay. The next week the price of mortar mix goes up and the brickyard says for Sam to expect the price of bricks to go up. Short time after costs increase Sam looks at payroll and sees that Max made more than he did the last week. He tells his wife that he is going to have to increase his bids and she says she understands, since the price of bread has gone up to $1.03. Sometime later, a politican calls a press conference and announces he is going to suggest a rise in the minimum wage. Water is not the only thing that seeks its own level.

There is a small difference in the past 10 years or so. People will not work for minimum wage in many areas (McDonalds here has paid over $6.00 an hour for quite awhile). It makes little or no difference, because if minimum wage goes up, everyone wants a raise that reflects the increase.

Also there are more types of inflation than “too much money chasing too few items”. That is “pull”
and what I described above is “push” inflation.

45

—The question then becomes how do we have people doing all of these tasks that are needed to keep society rolling and somehow also make sure that they are clothed/fed/sheltered at some minimum level.—

This argument really goes nowhere. If the only interest we are considering is that society have these goods and services, and you think that wages are too low to actually support people (especially in the long term) so that they will be unable to survive working the low-paying jobs… what happens? Wages rise to whatever level it takes to get steady workforce that CAN deliver what society needs sustainably.

So, look elsewhere.

46

I don’t think that I understand what you are saying here. Are you contending that it is just a matter of people “looking elsewhere” if they don’t like what their current job is paying? Are you saying that “The Market” will naturally pay people that provide these goods and services a survivable wage. Please elaborate.

47

The “steady workforce” could be slaves from an economic perspective.

48

To elaborate, without supports such as the minimum wage I don’t see what prevents a “race to the bottom” in terms of wages, especially in certain industries. I don’t think “sustainability” is a factor at all.

49

—Are you contending that it is just a matter of people “looking elsewhere” if they don’t like what their current job is paying?—

No, this wasn’t precisely about the plight workers at all. The argument was expressed in terms of “we need to offer workers wages high enough to sustain them, in the interests of the economy.” It’s sort of indirect: saying we need to care about whether workers can sustain themselves because if they don’t, there wont be a workforce. But that logic doesn’t work.

—Are you saying that “The Market” will naturally pay people that provide these goods and services a survivable wage. Please elaborate.—

It will pay SOME people, not necessarily everyone, enough so that there will always be enough workers to supply the demanded amount of work. That’s not dealing with “what about the situation of the workers?” which is a different question. What I’m saying is true whether some workers are paid a living wage, or workers are paid an unlivable wage, die off, but there are always more than enough left to replace them. Obviously, one is fine, while one is awful (and not far from the truth in some countries in some points in history): but in neither case is the problem that society can’t find enough people to do the work that is being demanded.

50

—The “steady workforce” could be slaves from an economic perspective.—

Yes. As I said, I was addressing the logic of ONE argument, not necessarily other arguments about our concern for the actual plight of workers.

—To elaborate, without supports such as the minimum wage I don’t see what prevents a “race to the bottom” in terms of wages, especially in certain industries.—

Scarcity to some extent prevents races to the bottom, as well as the need for higher productivity. However, there’s not always practical scarcity in the unskilled labor market.

51

What prevents a ‘race to the bottom’ is the market. People in wealthy countries won’t work for pennies.

Or ask yourself this: If a minimum wage is the only thing that prevents a ‘race to the bottom’, how come only about 8% of the workforce makes minimum wage?

52

I’m wondering what would happen to the hourly pay of those currently making minimum wage if minimum wage laws were all repealed tomorrow, effective immediately.

Would their pay be reduced, held constant, increased?

Would the unemployment rate be effected?

53

OK, I get that as long as there are warm bodies to fill the slots that minimum wage becomes somewhat moot. As long as you can always get a new bunch of workers once the old bunch wear out, society keeps rolling along. I also get that the argument about minimum wage is not exactly the same as talking about the plight of the workers.

I suppose what I want to know is if the folks that seem to be advocating this approach are actually ok with that. Seems like a pretty reptilian way to be.

54

Fine, then I’ll ship my work to countries where people do work for pennies. Or if I’m in service, I’ll hire foreigners and hold their passports (like they do in Saudi Arabia).

I don’t know. We would need some kind of empirical test. But I bet if you removed the minimum wage, which acts as a floor, you would see a much greater % of people working at or below the (previous) minimum wage.

55

And this has exactly what to do with minimum wages? Are you suggesting that eliminating the minimum wage in the U.S. would cause companies to ship work to other countries? If so, you lost me.

As for no minimum wages leading to slavery, isn’t that a little ridiculous? The United States isn’t Saudi Arabia, and not having minimum wages doesn’t make slavery legal. You’re grasping at straws.

Okay, now you’ve REALLY lost me. Are you saying that if someone makes $7/hr today, and the minimum wage is $5, then if the minimum wage were eliminated an employer would suddenly go, “Hey, now that there’s no minimum wages, I can drop the wages of people who were already making more!”? If so, that’s simply ridiculous.

About 8% of the people make minimum wage. If the minimum wage were eliminated tomorrow, the net effect AT MOST would be the reduction in wages of 8% of the population. But in fact, the real-world effect would be much smaller, because some of those minimum wage workers are making about what they’d make even if the wage weren’t legislated. Plus, there is great pressure on employers to not lower the wage of employees without cause - it plays havoc with worker satisfaction and productivity.

My guess as to what would happen were the minimum wage eliminated is that a new class of jobs would open up - jobs aimed at second income workers and people looking for casual employment for extra money. The wages might be *slightly lower than minimum wage, but not much, because people in North America are wealthy enough that they simply don’t need to work for a buck an hour. In addition, the overhead to a company for hiring someone is high enough that there’s a minimum level of productivity they want to deal with - they aren’t going to pay someone 50 cents an hour to polish chrome in the office, because the administrative overhead would drive the overall cost of employment over the level where it makes economic sense. So the ‘natural’ minimum wage is probably already pretty close to the minimum wage as mandated by law. We can tell because unemployment is low, and because so few workers make minimum wage…

In any event, since we’re talking about a very small percentage of the workforce, eliminating the minimum wage would have very little effect one way or the other. Unemployment might drop by a fraction of a percentage point.

The same can be said by raising it modestly. Since over 80% of the work force makes more than $7/hr, raising the minimum wage by a buck or so would not affect them, and would have a very modest effect, either positive or negative. But if you raised the minimum wage over $7, you would start to cause massive dislocations and unemployment in the work force. Bad idea.

56

And this is where you loose me. It seems to me that there are a huge number of jobs that need to be filled, and locally at that, in order for industrial society to continue to function. While it may be true that raising the minimum wage substantially would hurt small businesses, and promote monopolies of large corporations (another debate altogether), I doubt that skyrocketing unemployment would be the result.

Generally, it is the manufacturing jobs that go overseas. They really have no huge relevance in a debate about minimum wage as they tend to pay substantially more than that in the first place.

57

If there is a job out there that is worth $6 to an employer, and he can hire someone at $5/hr to do it, he makes a $1/hr profit, and has an incentive to hire the person.

Raise the minimum wage to $7/hr, and that employer would be taking a $1/hr loss by hiring someone to do it. Therefore, no one will be hired, and the job will go undone. Productivity suffers, and unemployment rises. Econ 101.

Now, in the real world there are complicating factors, and so the real effects of MODEST minimum wage increases are less clear. But rest assured, if the minimum wage were jacked up to some unreasonable number like $8/hr, there WOULD be an increase in unemployment. There are simply many, many people who do not have skills that make them worth that kind of money. And there are many jobs that are being done today that are not worth doing if you have to pay someone $8/hr to do it.

For example, we pay ‘Molly Maid’, a commercial company, to come and clean our house since we both work. They charge us $60US, and for that we get two people cleaning for about two and a half hours. That’s five hours of labor, plus call it an hour of transportation time for the cleaners, the cost of transportation, adn the costs of employment to the business.

If those cleaners made $10/hr, the direct labor cost would be $60. Add in employment costs (typically an additional 25% or so - management, employer’s contribution to unemployment insurance, etc). Now add maybe $10 in transportation cost, and $10 in cleaning supplies. The direct cost would be more like $100. Now, assume the company has a 30% markup on jobs. They would have to then charge us $130 for a cleaning.

Quite frankly, if home cleaning cost $130, we wouldn’t do it. We’d buckle down, and clean the house ourselves. So those two cleaners would lose five hours of work every two weeks.

That same equation applies all across the low-income spectrum. People who make low wages in a market where there is competition for labor because that is what they are worth. No more, no less. If you try and raise their wages by fiat, all you wind up doing is distorting the marketplace. Their hours are cut, they are forced to work longer hours in order to lower management overhead while other workers lose their jobs entirely. And, some jobs just stop being done. That would cause a loss of productivity, which in the long run might LOWER wages overall.

58

I guess that I am trying to make the point that there are some jobs in an industrial society that are not optional. In the example of the maid, clearly this is a luxury type service that one could choose to do without. I might argue that there are more of the non-optional tasks than we are assuming, but that is defiantly another conversation.

I may as well concede the point as well that all of these non-optional jobs have pretty good unions and make more than minimum wage. We could further state that in manipulating the market through raising the minimum wage, that there would be harmful effects.

However, it still seems to me that we (as in the government that we have ostensibly elected to represent us we) attempt to manipulate the hell out of the market on the employer/owner side of the equation but that it is only when we talk about manipulation that would favor labor that people start crying doom. This is worth talking about.

59

And just how many of those ‘non-optional’ jobs are low wage?

And if the jobs are truly non-optional, then the company will have to get the money to pay for them elsewhere. Perhaps by eliminating other, optional jobs. Or raising prices.

Look at McDonalds: Labor is one of their biggest costs. And also, low income people are also the biggest consumers of McDonalds food. Raise the salary of the employees, and the cost of the food goes up. So then poor people have to pay more for food, or else they lose the choice of eating at McDonalds (a choice they clear like, since so many do it).

Raise the price of McDonalds burgers enough, and the poor will stop eating there. Then McDonalds will go through a contraction, and all those burger flippers will be out on the street.

And here’s something to consider: Who earns minimum wage? Is it the guy with 20 years experience and a family? Almost never. Most minimum wage jobs are held by A) young people who lack skills for higher pay, B) Immigrants trying to get a start, and C) Second income and part time workers. Many of these jobs ARE optional. They act as a way to enter the workforce. Few people continue making minimum wage for a long period of time, and those that do often do because they enter and leave the work force sporadically, don’t train for better work, and/or have poor working habits that cause them to move from job to job and spend periods of time collecting unemployment insurance.

These are the people who are hurt by minimum wage laws, which act as a barrier to entry in the workforce. Once you’re IN the workforce, you’ll probably see your wage increase past the minimum fairly quickly.

If the minimum wage were $10, the hardest hit would be working teens, students, immigrants, and minorities. They would be blocked from entering the job market at all, and denied the opportunity to gain the skills they need to make a better wage.

60

Sam Stone I guess that you failed to read my last post where I clearly state:

And then go on to say:

It really is this last point that I think would be interesting to talk about. Why the disparity in crying doom over manipulating the market depending on who benefits?

If I want to pay poor people (who by the way probably eat at McDonalds because it is cheap, not because they prefer it over all other forms of food) more, I am risking rising unemployment and inflation and all but sounding the trumpet of doom. On the other hand, if I want to give tax-breaks to corporations so that they will build a plant in my town, I am stimulating the economy and we all politely ignore any negative side effects.