Well, then $30/hour is better, by that logic. Why wouldn’t it be?
Let me answer for you: It will end up taking away jobs, and doing more harm than good. And that is precisely what we don’t know about $15/hour, either. We don’t know if it will do more harm than good.
No. Just because I have a million dollars in the bank doesn’t mean I want to spend $100,000 for a Toyota Corolla, or that I want to buy six or seven of them.
Let’s say people make a dollar a day, and a Big Mac costs $4. How many Big Macs will McDonald’s sell? Not many. So let’s say everyone makes $1,000 a day. It doesn’t follow that McDonald’s will sell 250 times as many Big Macs because people can’t eat that many. There is a point where income and consumption reach a good compromise. Ten dollars an hour is not a reasonable income for the Seattle area because people can’t afford to consume. A hundred dollars per hour is not a reasonable income for the Seattle area because businesses cannot sell enough of their products to make a profit. At $13 to $15 per hour, people who are not now consuming will be able to consume. Businesses will make more money through increased sales than they will lose through higher costs.
The conjecture that ‘Well, if x is good, then a million times x is better!’ is a strawman. It wilfully ignores that there are a minimum of two sides to a balance.
This is question begging. If people need more than 12$ dollars an hour to live, then how come the people who make less aren’t dead?
People contribute to an economy by being productive, if someone’s value to a business is less than $15 per hour, why would anyone hire them? If no one will hire them, should they just be unemployed the rest of their lives?
Where do you get these numbers?
What you are missing is that the money has to come from somewhere. Consumption can not long outdo production. If a person’s labor produces 10$ an hour in value, then paying them 15$ per hour will cause the business to lose money and the person will not be employed long.
The balance you seek is not by setting wages at an arbitrary limit, but by negotiations between employers and employees given supply and demand.
It’s only a straw man when you clearly articulate how you determined that X was the maximum. You haven’t done that. You only said you thought it would be good. You gave no reason why X+1 is not as good or better. Forget X+ 1,000,000. Let’s understand why X is the maximum and not X+1 or X+2.
Because the government is supplementing their incomes. In effect, the government is subsidising private businesses by allowing them to pay less than the real market rate. And conservatives are trying very hard to remove those supplements, while at the same time refusing to acknowledge that businesses will need to make up the shortfall.
The numbers are hypothetical examples that are very large and very small for illustration purposes. Real numbers would be too subtle for some ideologues to deal with.
What you are missing is the very real notion that it takes money to make money. It would be nice if I had a store and didn’t have to pay employees. But I need to spend money on my employees if I want to sell anything.
I assume there is a demand for my product, else I wouldn’t have a business. Suppose I can double my sales if everyone could afford my product, but that I’d have to increase my expenditures by 50%. Let’s say it costs $20 to make my $50 item, and I currently sell 100 units in a time period. (100 x 50) - (100 x 20) = $3,000 profit. If I increase the cost of production by 50% to $30, but I am able to sell twice as many units (200), then we have (200 x 50) - (200 x 30) = $4,000 profit. My profits have increased by a third. Sure, I’d like to sell twice as many units without having to invest extra money, but I’d rather have $4,000 than $3,000.
Obviously that is a very simple model that doesn’t directly say anything about employee wages. If it were a closed system; i.e., increasing my employee’s pay by 50% results in my employees buying twice the number of widgets, then it would be more illustrative. But in many ways, a city is a closed system. People who live in a certain area buy their food within that area, rent their homes in that area, and tend to support businesses in that area. So when more people in an area can afford to buy more things in the area, the businesses there make more money. They won’t make as much as if they could magically increase their sales without investing, but their profits would be higher.
The problem with negotiations between employers and employees is that, as I linked to earlier, it is impossible for the workers in question to organise because of the Railway Labor Act. The airline employees want to make a high enough wage to support themselves and their families without having to work 16 hours a day. Them employers want something for nothing – i.e., they want to keep every penny they make and will pay nothing if they could. When one side holds all the cards, rules must be set in place.
I’m not going to forget X+1,000,000 because the argument has already been made that if $15/hour is good, then $100/hour is better. Someone posted in the other thread that $12.50/hour is enough for someone to support himself and engage in minimal consumption in addition to necessities. Fifteen dollars per hour allows for additional consumption, but I see no reason that that rate is so great that it will counteract the increase in sales. Given that others have shown empirical evidence that a small wage increase will not significantly raise costs (see also the example of businesses choosing to remain in higher-minimum wage Washington instead of moving across the street to Idaho), $15/hour seems more reasonable than $30/hour or $100/hour or $1,000/hour. You’re still saying that if a little is good, then much, much more is better.
It’s easy to show why the sentence that I’ve put in bold is wrong. Let’s imagine that city currently has a minimum hourly wage at $10. Then they raise it to $15. Let’s further imagine that every single employer decides to keep every single employee and pay them the higher rate. This will leader to an increase in the total amount that all employers give to their employees. Let’s call that total increase T.
So now the total amount that the employees are earning is increased by T. Even if they put every penny of that amount into the local economy, the net increase in sales in the local economy could be, at most, T. It could not be more than T. Hence businesses, in total, will at most get back exactly what their increased payouts were.
In reality, it’s not possible that the employees will spend all T of their increased earnings in the local market. Some of it must go to:
[ul]
[li]Federal taxes.[/li][li]State taxes.[/li][li]City and county taxes.[/li][li]Health insurance, car insurance, home insurance, etc… (In most cases, these are big national companies.)[/li][li]Cars, electronics, and other items that probably aren’t made locally.[/li][li]Savings[/li][li]And so forth[/li][/ul]
So clearly if the total increase in wages that the businesses pay out is T, the total increase in sales that they should expect is just a fraction of T.
I disagree. The reason is that you are increasing the number of customers. You are correct that people will buy non-local items; but those who can afford them are buying them already. You are correct that people will pay more in taxes when their incomes increase; but the taxes will never be greater than their increase in income. By increasing income, people will purchase more locally and more people will be purchasing.
Let me simplify it even further. I own a restaurant, and the only potential customers are my two employees. Dinner costs $15. One employee makes $20, and the other one makes $10. Only one of them can afford to eat at my restaurant. If I raise the minimum wage to $15, then the second employee eats at my restaurant. I’ve increased my costs by 50%, and increased sales by 100%
Granted, that’s in a ‘perfect system’. In a chemical process, there is a ‘theoretical yield’. That is, a given amount of reactants should produce a given amount of product. But this doesn’t happen in real life. Your argument is like saying ‘This chemical reaction does not produce the theoretical yield; therefore, we shouldn’t do the reaction.’ And yet, we do continue to make ammonia and aspirin and whatnot. Increasing the minimum wage will not produce the maximum theoretical profits – but it will increase profits. Unless you come up with ‘Then $1,000/hour will be even better.’
Why is a living wage unreasonable, but subsidising businesses by allowing them to pay so little that their employees must accept state and federal aid is not unreasonable? Shouldn’t businesses be made to succeed or fail on their own merits, instead of being subsidised so by the government?
It’s worse than that in this case, because the businesses in question don’t sell to the local community - they are there to support air travelers. Increasing the wages of baggage handlers will not result in more baggage - the only thing it can possibly do is restrict air travel to the city and cause the amount of baggage to go down. Raising wages of people in the duty-free store will not result in more sales of duty-free goods, because the people earning the higher wages cannot buy them. All it can do is drive up the prices of those goods, and if the price becomes close to the non-duty free price of goods that travelers can get at home, sales will totally collapse.
The notion that increased minimum wages results in more sales because people have more money to spend is nothing but bastardized grade-school Keynesianism of a sort that even Keynes wouldn’t support. Even Keynes only talked about these effects when there was a known gap between output and consumption due to a recession. Keynes never supported government stimulus or artificial wage inflation as a permanent strategy that always worked.
And in fact, Keynes never considered the case of a ‘balance sheet’ recession, where consumption is low because real wealth was wiped out in a downturn causing excessive debt. In that situation, the most likely result of an artificial wage boost is simply that the workers will use it to pay down debt, and the businesses that are paying out the money will restrict other capital outflows. There are no free lunches here. Money that goes to higher wages is money that won’t be spent on expansion, capital purchases, better health care plans, or even money into the pocket of the businessman, which means he’ll be spending less to offset the extra spending of workers.
Oh, and let’s not forget that much of this money could wind up in the coffers of unions if it drives workers into union shops. That money doesn’t go into the local economy either if it’s the SEIU.
No, I am not. I am asking how you determined that $15 was the best rate. We all know that $0/hr doesn’t work and $1,000/hr doesn’t work. So, somewhere in the middle is the sweet spot. You have only shown that you want the sweet spot to be $15/hr. You have not shown that it’s actually there.
The literature is mixed on the effects of the MW. We can find economic papers that support either side of this issue. But I have never seen anyone suggest that raising the MW by 50% is a “small increase”. On that, you are outside what we know from empirical evidence.
Now, it could be that SEATAC, being an airport town, might have a lot more wage elasticity than Anytown, USA. Maybe. But we don’t know that.
Did your math teacher ever ask you to “show your work”? There’s a lot of hand-waving there. Can you show your work? Because the idea that someone is going to spend more money than you gave them in their raise is not intuitively obvious. In fact it is counter-intuitive.
True, if you’re talking about one person. The point is that there will be more people spending. Have you ever been unemployed? Did you spend more money, less money, or the same amount of money as you did when you were employed? Did you spend more money, less money, or the same amount of money when you earned a lower wage than you do now?
‘Well, if $15/hour is good, why not $100/hour?’ Can you show me why a wage that is 20% more than the living wage is worse than wage that is 17% less than the living wage? Using your own strawman, why not reduce wages to zero? Then businesses will be able to keep 100% of the money they would otherwise be paying to their employees?
Yes, and I’ve also seen a Gladiator movie. I have no idea what you’re getting at. There is no reason to believe that, collectively, people who get a raise are going to spend more than the amount of the raise. Besides, the amount we are talking about is so small compared to the overall economy, you probably can’t even measure it. We’ve been down this road before-- you’re just not talking about enough money to significantly affect the economy. But if you’d like to do the math and prove that it does, be my guest.
It’s not a strawman, and you’re mixing actual wages with minimum wages. We could reduce the MW to zero (plenty of 1st world countries have no MW, btw, including Germany), but that doesn’t mean there would be any jobs at that level. You are proposing $15/hr. It’s up to you prove why that is the right wage-- that is, that it will do more good than harm. You haven’t done that yet.
Tell you what: You win the debate. I have little time, and I’m tired of it.
But reality has a liberal slant.
Another question: Where is this money coming from? Is it being created out of thin air? No. It’s coming from the businesses who have to pay more out. Aren’t those businesses now going to spend less? Even if you believe that it can all come out of ‘profit’, doesn’t that mean the local businessman will have to defer buying that new Lexus, or will have to eat less at fancy restaurants? And won’t that affect the jobs and wages of the waiters in those restaurants?
Even if you believe that the businessman will just save the money, where is it going? Isn’t it being invested in other companies, which in turn hire people? If it’s just being put in the bank, doesn’t that allow the bank to lend more money to others so they can start businesses or buy houses and cars?
You can’t create wealth with a stroke of a pen. You can’t improve an economy by simply moving money from one account to another. There are no free lunches. Keynes said that there are times when a crisis of confidence can reduce consumption below reasonable levels, and that in turn can cause production to decline. But that is a special case - Keynes never said that at all times you can improve an economy by simply taking money from producers and giving it to consumers so they’ll consume more, and this will more than offset the cost of the money. That would be the economic equivalent of a perpetual motion machine if it were true. But it’s not, and no economist worth his degree would say that it is.
The notion that the best thing to do is always to direct money to people who will consume more is an invention of your ‘reality based community’, who have seized upon it because it seems like a really good justification for the types of social policies they advocate. It’s the left’s equivalent of the Laffer Curve - the magical economic rule that always works and that allows you to advocate for benefits for your chosen group without having to acknowledge that there are costs associated with doing so.
Like the Laffer Curve, the ‘demand-side economy’ has a kernel of truth behind it - one widely distorted, overly generalized, and constantly misapplied because it’s just so handy in justifying everything you want to do.
By the way, you should retire the “Reality has a left wing bias” nonsense, because it’s starting to become self-parodying - especially when it’s used to shut down a debate you’re losing.
OK
:rolleyes:
I like that, and I’m going to steal it. 
When I talk to some of my liberal friends they like to use the apocryphal anecdote from Henry Ford that he paid his workers well so that the workers could buy his cars and benefit both of them.
The fact that anyone thinks this is good economic theory is the equivalent of a perpetual motion machine. Even if Ford workers used 100% of their higher wages to buy Ford cars, the very best Henry Ford could do would be to break even on the deal. But as others have said, the workers are going to have to pay taxes, will buy other items, and MAYBE a Ford car. Henry Ford would only see a tiny percentage of those increased wages show up back in his coffers, and it would be an absolute impossibility for him to make money on the deal.
The story about Henry Ford paying his workers enough to buy his cars is one of those ‘just so’ stories that Living Wage advocates like to tell themselves and others because it’s just such a useful example of why a Living Wage is a good thing.
The trouble is, it isn’t true. The real truth is that the market forced Ford to pay his workers more, because employee turnover was killing his profits. Working an assembly line raised the marginal productivity of the workers, but it was also difficult, mind-numbing work. When Ford was paying the same wage as everyone else, he’d get employees who were desperate for a job, then he’d expend a lot of money to train them and as soon as they found a better job they’d leave. Ford was hiring 3 people per year to fill one job, and the downtime and training costs were killing him. And high worker productivity is a double-edged sword: When an employee quits and walks off the assembly line, the cost to the company is huge.
So Ford did what he was forced to do: he raised wages well above the prevailing wage in the surrounding area, to ensure that his employees would stay with the company. The choice had absolutely nothing to do with them buying Ford cars.
And the dirty little secret behind Ford’s wage raise is that half of the wage came in the form of bonuses - bonuses that depended on the workers living a lifestyle that Ford approved of. He had a ‘socialization committee’ that enforced this and actually checked up on workers at home and elsewhere, and the bonus was withheld from people who did not live by his standards.
Ford’s idea was to create a workforce of righteous, upstanding citizens who lived “The American Way” and were paid enough that they would stay with the firm. That’s it.
But I’m sure the ‘reality based community’ will continue with the fairy tale. It’s far too useful to abandon.
I think the dirty little secret is that Ford paid the going rate which is what it took to retain enough employees for production. It was a much higher rate that coincided with a difficult job. He produced more cars per dollar spent which allowed him to charge LESS for the product than his competitors at the time. As technology caught up among the other manufacturers the wages equalized. And as world production techniques caught up those wages equalized on an international basis.
There is no magic formula for wages beyond the reality that the product has be delivered to the consumer cheaper than it’s selling price.