No. Clearly this can happen with or without a minimum wage, absent laws to prevent it.
I never said this. Though I think it could lead to situations approaching slavery in the long run.
I never said this either. I’m making a larger point. These arguments about economic “theory” too often ignore morality, power relationships, and social psychology, to name a few things. The slavery comment was an example on the morality front. There is nothing from a purely economic standpoint that prevents a business from relying on slave labor. Indeed, if it’s the cheapest option the “rational” business owner will chose slaves every time. But society (hopefully, sometimes I wonder) recognizes that having access to the cheapest labor is not always the highest good. In the real world economic policy should not be completely divorced from morality, I hope we agree.
In the case of the minimum wage, there is a moral argument as well. Is it right that someone should work full-time and still not make enough to survive? I say it’s not. Before you throw the “they can find another job” argument at me – what about those who lack the mental capacity to find a higher paying job, start their own business, or move up the corporate ladder?
It seems to me a compassionate society provides a floor, a minimum level of support so that even it’s weakest members can survive. To my mind this means providing a livable minimum wage AND welfare for those unable to find work. This is not communism, this does not mean denying others the opportunity to advance – it merely raises the cost.
Not ridiculous at all. They could hire new employees at a lower wage, to give one counterexample. I’m not suggesting this would happen overnight… a decade perhaps. Also, I mentioned power relationships… remember most companies ask for references before they hire someone. If company A lowers wages, and a few of the braver ones jump ship, they are not totally free… company A might chose to bad mouth them to any potential employers. There are subtle types of control economists typically ignore.
[on preview: Christ Sam, how do you type so fast?]
It’s pretty much all I do. Between posting on the SDMB and other places, running my own web site, and doing my job as a software developer, I sit in front of a keyboard probably 14 hours a day. You get fast after a couple of decades of that. What a life. I’m on holidays 'till Monday, and have spent entirely too much of it on the SDMB. What can I say? I’m an addict.
—In the real world economic policy should not be completely divorced from morality, I hope we agree.—
Like most social sciences, economics has both a descriptive and a normative aspect. So far, we’ve been discussing largely the descriptive aspect, so your accusation about these arguments being divorced from morality are off-base.
But, speaking of which…
—Fine, then I’ll ship my work to countries where people do work for pennies.—
What sort of horrible prejeduce would lead you to conclude that giving even POORER people jobs would be bad, simply because they are in different countries.
If you are going to make a moral argument, you can’t arbitrarily be concerned that people in America might not get paid enough, but not worry that people overseas might not get paid at all.
Where is it written that we are not allowed to consider morality re the minimum wage?
Playing the citizens of one country off another to create downward wage pressure and subvert labor and environmental regulations IS bad. It’s a losing scenario for everyone (even the elites) in the long run. And remember it involves not just playing rich countries off of poor, but poor off of poor as well. The jobs will go to the countries most willing to sacrifice environmental, labor and health standards. The minute country X starts to implement even modest social reforms, it will be slapped back down through disinvestment, capital flight. Again, a race to the bottom.
The logic here is all wrong. I wish the same things for these countries I wish for my own – that the citizens be paid a living wage and that the have strong laws and government to protect them from the ravages of the “free” market. The key to this is local industry, not multinationals that pull up stakes as soon as the natives get restless (not to mention bribe local officials and subvert democracy – see Guatemala). Think of the few nations that have pulled themselves into developed status last century (e.g., Japan, South Korea, Taiwan). They’ve done it largely through local industry, and strong government guidance. Sony, Samsung, Acer…these are global brands now, forged in highly protectionist environments, despite the “free market” mantra.
So far from what I read, one thing is too obvious: the usual stereotype - that minimum wage workers are sub-humans, they don’t deserve higher wages and a decent living; their jobs are optional and temporary.
Does it occur to you, my dear economists, that someone might actually enjoy serving burgers for life, and at the same time is married with children and with a family?
To begin with, why does everyone in this society have to be a software engineer, a lawyer, or a doctor in order to feel good about himself/herself? Low self-esteem problem?
I’m sorry, but that’s called the cost of doing business. In a particular city of an better world, every employer is mandated to pay a living wage. If you (the boss, the investors) don’t like it, you can move your business to China and America couldn’t care less. Society has to guarantee each member of it a basic living because they are not dogs. But today’s America has not reached that milestone yet.
Of course that’s a little digression from the thread’s topic.
—So far from what I read, one thing is too obvious: the usual stereotype - that minimum wage workers are sub-humans, they don’t deserve higher wages and a decent living; their jobs are optional and temporary.—
And who are you claiming has argued from that stereotype?
—Does it occur to you, my dear economists, that someone might actually enjoy serving burgers for life, and at the same time is married with children and with a family?—
Not only does it occur to me, but I bet it occurs to me far more quickly than most people, who assume that everyone must want the exact same things in life in the same proportion.
—Society has to guarantee each member of it a basic living because they are not dogs.—
Ah. So, by not giving people charity, we are saying that they are dogs? Suddenly, that understanding about there being no shame in being poor has evaporated.
Is the perspective of the Mexican workers all that counts in determining if the policy is good or bad? Of course not. I’m talking about costs vs. benefits to the whole global economic system of these shifts. There are enormous costs in:
subverted environmental, labor and health standards, on both sides of the border
loss of sovereignty through instruments such as NAFTA and increased power of multinationals
downward pressure on wages in developed countries, breaking the back of organized labor (the real driver of wage growth in the early to mid 20th century)
increased global inequality (which correlates strongly with increased health care costs)
To me these clearly outweigh the short term benefits:
a one-time drop in labor costs, hence lower prices
employment for a relatively small number of Mexicans (or insert other third world workers)
I might add that quite a few Mexicans agree with me here. A few workers may benefit in the short term (desperate people can be used in many ways), but how about the costs and benefits to Mexico as a whole? The U.S.? It’s an issue that doesn’t reduce to a simple shibboleth.
Outlawing all jobs in the United States below any particular wage level disturbs the free economy, it prevents those who are willing and able to want those jobs, it increases taxes and public welfare since those people are not employed, and it results in tasks not being performed by employers who cannot or will not pay more.
Fortunately, because of NAFTA, free trade, and outsourcing, American companies can now look anywhere in the world for someone somewhere of any age to do a job under any unsafe and unclean condition for less money than the United States “minimum wage”.
The point is that I don’t think any serious labor economist would agree with you that no wage above the minimum wage is affected by the minimum wage. A minimum wage tends to push wages somewhat above it up too. The basic reason is that employers who want to attract better workers have to pay wages somewhat above the minimum. Obviously, this effect doesn’t go on forever…i.e., those getting paid well above the minimum wage aren’t affected by changes in the minimum. But, certainly, those being paid within a dollar or so of it are.
Yes, but the point is that this downsizing is occurring regardless of the minimum wage being raised.
All I am saying is that it is too simplistic to think that the employer has only a set amount of money devoted to labor and that if you raise the minimum wage, people will be laid off to the point where the labor costs are the same again. For example, the employer can cut costs in other ways, can pass some of the costs on to the buyers (some of who may be poor but some of who may be quite well-off and easily able to afford this), or the employer can find that with the higher wages forced upon her by the law, her workers are now being more productive and there is less turnover so that there is really very little adjustment that needs to be made. (Admittedly, that last one is a most optimistic scenario but one which may have some validity for small minimum wage increases.)
If my father gives me more monthly allowance (50% increase) because I’m being good, which I spend them all as always. Are you sure these increase of spending won’t increase the employment in the product line/industry that I invested in?
Consider millions of these fathers doing the same thing to their kids (or a boss does this to his minimum wage workers).
Only if the 50% more money your Dad gave you came from the money fairy. In the real world where I live, if your dad gives you money, it seems fairly obvious that he now has less money himself. So you spend more, he spends less. Where does the increase in productivity come from?
Jshore: I never said there is NO effect. I said it was ridiculous to claim that eliminating the minimum wage would necessarily cause the wages of higher-paid employees to drop. Sure there are interactions. And one of them might be that if the employer can save money by paying it’s lower rung less, it might give those $7/hr workers a RAISE. It all depends on the demand for labor in a market, along with other factors like worker mobility, training costs, etc.
You obviously haven’t studied any economics because none of your comments are true. While morality (whose exactly?) is not considered in economics, we most certainly are concerned with power relationships and sociology and group and individual psychology form large parts of economic work.
As for the the claim that slavery would be preferable, Adam Smith pointed out in 1776 that slavery, from a purely economic viewpoint, was a bad idea and about the least efficient source of labor you can get. He wrote that the only reason people like to have slaves is in order to feel superior to others because economically speaking it’s incredibly inefficient. Feeding, housing and maintaining minimum health of the slaves becomes an additional cost and diverts resources from your real business. More costs are incurred from greater levels of supervision and security. And then you’ll have an unmotivated work-force who doesn’t care about their work which means low production and poor quality. Overall it’s cheaper to pay a wage.
Things That Haven’t Been Brought Up Yet:
What is the composition of minimum wage workers? How old? Part-Time, Full-Time, Second Job, Secondary Earner?
What about Benefits? Would raising the minimum wage affect benefits or not? Would workers prefer a lower wage with higher benefits or higher wage and lower benefits?
Ok, I have some answers, the rest are for speculation. In the United States in 2001 (latest year figures are available) 72,486,000 worked at an hourly rate. 2,238,000 (3.1%) worked at or below the minimum wage. 1.2 million of those were between the ages of 16 and 24. Only 853,000 people total worked at full time jobs for at or below the minimum wage.
Increases in minimum wage reduce poverty. That’s the conclusion. But I can tell you that without doing any study and research. That’s simply common sense.
If poverty is reduced, employment will certainly increase. That’s just logical.
Actually, the conclusion was that some raise in the minimum wage might close the poverty gap of the working poor based on 1987 data. The minimum wage has been raised since then, what’s been the result? Did the reality meet the prediction?
How on earth could less poverty increase employment? That’s not logical, it’s nonsensical. An increase in employment could recuce poverty, certainly, but the transitive property rarely holds in economics. Bear in mind too that a decrease in unemployment does not necessarily mean an increase in employment. And vice versa.
Business already does. That’s why CPAs get paid well. A more productive employee (should) earn a higher wage than a less productive employee. Unfortunately, mopping floors doesn’t produce as much revenue on the margin as accounting. That is a fact of life that just plain sucks. If you can do something about it, please do. If you want to exogenously raise the floor moppers’ wage (i.e. impose a change from the outside with a law like minimum wage), there are at least a couple ways to do it.
Exogenously raise their productivity. Probably through education and investment in more & better mopping technology. You need to convince business or government to invest in R&D for mopping technology and education for floor moppers. Of course, some floor moppers will lose their jobs, since increasing productivity means the same amount can be done with fewer people.
Exogenously raise wages. Now wages are above marginal productivity, and this imbalance needs to be corrected. Wages can’t be lowered, so productivity must be increased. You can do it by investing in more physical & human capital, i.e. buy mopping technology & educate moppers. Do you think business will do this on their own? Maybe, depends what the long term looks like. If it looks like mopping opportunities would be growing, then a business might do that to prepare for attacking new markets. Then again, maybe not. If mopping opportunities remain about the same, then this plan works out pretty much like option #1.
Another way to raise productivity is by increasing the capital-to-labor ratio through the labor component instead, i.e. fire people. Fewer workers, working with the same total mopping capital stock, should give higer marginal product (because of decreasing returns).
Those are the only way I can see for raising minimum wage. Do you have another idea? Because the only ones I see involve people losing jobs. What do you plan to do about those people? Sure the plight of the worker is important, but so is the plight of the gal who got laid off because the government raised minimum wage. Just as you accuse anti-minimum wagers of not caring about the plight of the worker, they can accuse you of not caring about those displaced because of such a policy.
You seem to have the view that you hold the moral high ground (“In the real world economic policy should not be completely divorced from morality, I hope we agree.”). If I reach that conclusion in error, I humbly apologize. However, if I haven’t, please defend the morally superior position of displacing minimum wage workers in minimum wage lottery. (Hint: look at the composition of minimum wage earners.)
The market decides. As I mentioned in my first post, McDonald’s is paying over $6.00 in our area, so minimum wage is not what is driving wages higher. During this recession the increase in wages has slowed and unemployment has been going up (yesterday’s report has it holding steady). If however, we went into a depression and employers could not afford to pay the minimum wage then it would be illegal for employees to offer to work for less than minimum wage. That would certainly effect the unemployment rate. I imagine that congress would quickly lower the minimum wage in this unlikely event. Going into a depression would be the only way that wages would take a nose dive, with or without the minimum wage.