What would be the actual effects of abolishing the minimum wage?

Great Debates
61

But the labor market in which a typical Wal-Mart is competing ISN’T hundreds of millions if not billions of people; it consists entirely of the people within commuting radius of a given store (with “commuting radius” being anything from walking distance to the maximum distance you can drive on gas that costs less than you earn). Mr. Singh in Bangalore may be perfectly willing to take that job, but he’s not in competition for it.

Moreover, if you need a gallon of milk, or some batteries in the middle of the night, then Amazon isn’t an option; Wal-Mart’s competitors will be the retail stores within a reasonable radius. There are now locations in the Great Plains where if you need a gallon of milk, you might have only a couple of choices within a 20 or 30 or even 50 mile radius (which is of course one of the penalties of living in a small town on the plains). Even in not-so-small towns, though, the consolidation of retail and the demise of mom-and-pop stores means dwindling competition (Peapod and its competitors generally don’t deliver outside of the major urban markets).

One-quarter of American workers earn less than 150% of minimum wage ($10.55/hr–cite), and they’re not all students and part-timers. A lot of these are people trying to support themselves and sometimes even families. If Wal-Mart is the major employer in their area (and Wal-Mart is now the largest private employer in the U.S.), then Wal-Mart has substantial ability to set the wage level, and at least some people will take what Wal-Mart (or other big retailers) offer, as supplemented by various welfare benefits, and be able to support themselves in some fashion. It may not be a pretty living, but it’s a living.

If the choice, however, was Wal-Mart with no welfare or finding something else, at least some of those people would choose or be compelled to find something else. That might mean moving to a different area, or getting additional training, or other steps to find a different and higher niche in the labor market. That reduces the supply of potential workers at the lower wage; companies such as Wal-Mart would then be faced with choices. With a reduced supply, they could either reduce their demand (employing fewer people) or pay more to attract sufficient numbers of desirable job candidates.

While big retailers are working to automate as much as possible, no, there are no robots yet available commercially that can stock shelves within a typical retail store. (Target, for example, has been testing a robot that can scan the shelves to find out what products are low or out-of-stock; it then sends a message to a human being to go locate the product and fill the shelves.) Nor can robots do a lot of the other jobs in retail: robots don’t fold clothes very well, or put them on hangers, for example. Even self-service checkouts have met with mixed success: some retailers are busily rolling them out, and others are busily removing them as failed experiments. Different product lines have different service requirements, and more self-service may make sense for some kinds of goods, but bricks-and-mortar retailers (and fast food restaurants, and other big employers in the low-wage economy) aren’t going to be able to get rid of having real live human beings anytime in the foreseeable future.

Lots of other low-wage jobs simply can’t be done by robots at all anytime soon: it’s going to be a person, not a drone, delivering medications and changing bedpans in a nursing home, cleaning gutters and raking leaves for a yard service, or installing windshield washers at a quickie auto repair.

62

Sure, so your point seems to be that MW increases unemployment (and your answer to the OP is that abolishing it will decrease unemployment).

Is that it? Because I’ve asked several times if anyone wants to engage on that particular argument against MW and no-one has. Several posters want to imply that point but not actually defend it.

63

You think a basic income with need based safety net is superior to a minimum wage and a need based safety net?

64

Hey, I didn’t write the laws of supply and demand. If people want to make more money they need to have more valuable traits. That’s why I studied engineering instead of physics or history. Now, I’m for a basic income because I think the economy is changing fundamentally.

65

The labor market would determine the price. For example, assume minimum wage laws were abolished. Company X starts offering entry level jobs at $2 an hour. They can’t hire anyone. They start raising the rate until people start taking the jobs. That might be at 5 or 7 or whatever per hour. But the labor pool determines the wage, not the government.

66

Without the MW maybe people would form labor unions, which is only other way for large groups of people to really get better wages. I don’t know if there is any kind of study, but I wouldn’t be surprised if higher a MW doesn’t suppress union participation.

67

Right, and that may be the problem in some towns where the pool of unskilled labor is very big: the level at which you can get applicants for a job is where the salary is borderline unsurvivable.
Great for the employers, not so great for the workers and community.

Now you might say great for the employers is indirectly good for the community, by creating more jobs – this is the argument no-one here wants to clearly get behind.
But then where is the data to suggest MW has a significant effect on unemployment?
Putting money in the pockets of poor people has a more established effect on an economy.

As I said before, I’m not surprised MW has little effect on unemployment levels as it gels with my experience: companies don’t create jobs because of an attractively low price point.
They start with a need, and then they see how good a deal they can strike on filling that need.

68

So the people who work at Walmart just need to back to school to become doctors or lawyers because everyone has the capabilities to succeed in those fields, no?

69

It is also clear that from the economist point of view you do not understand them either.

The issue he has highlighted is an important one - what is described is a case of the oligopolistic market power in markets with limited competition and where an actor has the significant pricing power.

The competitive market supply and demand analysis here does not hold.

Unfortunately these kind of superficial basic econ course analysis which fails in the deeper understanding of the free market analysis leads to the gross error in analysis.

70

so we have two persons whose understanding the free market economics and equilibruim analysis stopped at the basic introduction economics course and is frozen naively there.

The real problems are more challenging as there needs to be the regard to the market structure and if the assumptions of the basic theoretical hold. The case of the market power and limited competition in a segment make the naive introductory course analysis wrong as the point at where to end thinking.

71

Reality disagrees with your opinion. The proof is obvious. Look at wage distributions. Note that the majority of working people make more than the wage floor. Note that where labor is easily exchanged with foreign or illegal migrant labor it is done so readily. How can that be if wages didn’t respond to supply and demand? And no one in this thread has said that markets were perfectly competitive. So stop attacking a strawman. You shouldn’t let ideological biases be so influential. And if you have real expertise why not answer the question comparing basic income vs minimum wage?

72

What would the cost be?

I’ve heard arguments about robots or computer systems potentially replacing workers, but I doubt that most who’ve argued for that possibility have actually calculated the cost.

The most human-like robot currently designed costs about… $7 billion dollars a pop.

So hypothetically, replace 100 million entry-level workers with robots. 100 million multiplied by 7 billion… well let’s just say likely more expensive than all the nations GDPs combined, by several powers.

It’d (literally) be cheaper to build your own Death Star:

According to the U.S. government, the first Death Star cost $852 quadrillion (thousand million million), 11,000 times the gross world product, which is estimated to be about $77 trillion dollars.Dec 3, 2015

73

That and I also think a more serious topic of discussion is what serious actionable plan is there to eliminate minimum wage anyway?

Gut instinct tells me the likelihood of it happening is about as likely as finding a plastic baggie with $2 billion dollars in cash in the bowl on one’s toilet, so I don’t understand why topics like this get brought up since from what I can tell they’re more mental masturbation than seriously actionable proposals.

A discussion about the effects of raising the min wage to $15+ per hour I think would be a better deal, since the likelihood of it happening in the near future I think is much higher.

74

They already have the technology to do this, you’re misinformed.

But as I mentioned above, more to the point. The cost of one of these bad boys is $7 billion dollars, so do the math and tell me what the cost would be to replace 100 million workers with robots (100 million x 7 billion = ?)

And considering the gross world product is about… $77 trillion, where are you going to scrounge up the $7 million billion necessary to make this fantasy a reality? Rob Scrooge McDuck’s money bin?

75

Really?

That is very strange, for I am familiar with the econometric study of these issues and the data does not disagree at all with my observation - but this has been the subject of the various studies and the issues of the flexability of the wages is one that is difficult because of the many broad influencing factors.

This is a non-sequitur. The wage distribution of itself does not tell you about the impact of lack of a competition (or the imparied competition) in a specific market.

Your reply does tell me you have a basic grasp of the economics and the actual subject, and have completely misunderstood my comment.

Superbe, it is not directly relevant at all to the question of the distortions in supply and demand signals and the setting of equilibriums in not fully efficient markets…

This reply is something like observing in response to “the type A fertilizer is less efficient under X circumstances” with “No way, Madame Y’s flowers are very red!”…
Yes they are very red, and Madame Y is a good gardener, which does not tell us about Type A fertilizer.

And?

This is again entirely… a non-sequitur that does not have a relationship to the observation…

Who said that wages do not respond to the Supply and the Demand?

Can you tell me? Then we can address that.

I certainly did not.

I have only noted that the important point of market power and inefficiency has been cited for the wages issue and it is particularly the case of the strong empirical difference between the non-tradeable services and goods - those that are not easily exposed to outside of the geographic region competition pressure - and the tradeable.

The price setting in these cases are not going to reflect the ideal (that is the perfectly competitive in the economic jargon) equilibrium - which is to say that it is an error to compare and analyze as if simply “supply and demand” (as in the supply of labor to the demand for labor) are freely setting the price. There can be (or is we can say) a inefficiency of substance that puts a finger on the scale…

Why you did! -Although since you do not grasp very well economics, you did not realize that your simplistic assertions on the economics, essentially the repetition of the introductory course of economics analysis, was doing so I can see.

It is a fundamental assumption, an important initial one to simplify before adding complexity. But it is a phrase of the economic art.

there is no strawman.
there is an understanding of the key and the fundamental assumptions that are underlying the economic science in the complete equilibruim analysis that you have used to make some simplistic replies to some of the complexities that have been raised. It is very weird to have this called a strawman when it is part of the fundamental analysis.

These are important assumptions to help in the classical modeling and for the first order of the analysis, but they must be fully understood and then the analytical framing adjusted when the assumptions do not fully hold in their stronger forms.

The ideological biases of the neo-classical free market economic analysis? I am after all an ultra-liberale… (that means in my framework, extremely free marketer in the economics analysis)

That is a very strange accusation.

If you see ideology, it is only perhaps your own or perhaps a weak understanding of the economic.

It is very probable - indeed virtually it is certain - that the basic income from the economic efficiency point of view is greatly superior to the intervention by regulation in the setting of minimum wage levels. In fact by almost any modeling it should be much more economically efficient on almost all levels.

the political achievability of it, this is much harder.

How does it get passed and how does it avoid the nasty stigma of the payments to the underclasses that then get despised?

Already in the world of the trade economics we have seen that while it is very clear that the positives of the free trade are very clear economically, it has always been the case in the Free Market oriented trade economic analysis that the arguments have asked for “compenasation” to the ‘losers’ in trade to help balance the costs - but politically over the past 20 years.

This is a big challenge now, to ensure these short-term supports to the costs of equilibrium are put in place and the greater and positive framework of the liberal economic regimes including free trade of the goods and services is not undermined.

76

Won’t get into the nitty gritty, but “neo-classical” economics is easily one of the dumbest economic theories in existence, just fantasy right up there with Santa’s Elves masquerading as ‘reality’.

I’ll give a more thorough debunking of the entire silly theory later, this was just my sentiment. In my humble opinion you’d get a better understanding of reality reading a book by Depak Chopra or Andrea Dworkin than you would reading dreck like “Super Freakonomics”, lol

77

Very amusing.

So octupus, here is the ideological response.

78

Neoclassical economics contradicts everything from science, to basic psychology, social sciences, and a good amount of common sense. You could get better economic theories from a psychic hotline.

Only time the theory would be remotely accurate to anything in day-to-day life would be in the case of a corporation with the collective goal of maximizing profit margins, beyond that it’s rubbish.

And even then it likely wouldn’t take into realities such as corrupt employees involved in money-laundering and white-collar crimes which harm the company’s profits, so even in that context it would only be true in pure idealistic theory.

79

Just as a few easy examples, the whole ‘neoclassical theory’ is easily demolished with plenty of day-to-day common sense examples.

I’d have to brush up on it, but the gist of the theory is that people are more or less hardwired to automatically make the decision which maximizes their measurable resources in daily life.

But, for example, a wealthy man buying a Mercedes when he could buy a Toyota with the same gas milage disproves the theory. The rich guy isn’t buying the Mercedes for ‘resource maximization’, he’s buying it because he prefers fancy cars to boring everyman cars.

Hell, even a fat person who spends $9 a day eating out at fast food chains debunks the theory - if it were even remotely accurate to reality then no one would spend $9 on a meal at Burger King when they could eat for a fraction of that amount by learning simple cooking skills.

Smokers is another easy example, who’d spend $6 a day on Marlboro when even if they weren’t in the mind of quitting smoking, they could smoke a pipe and buy a cheap 1 lb bag of pipe tobacco online for $12-14 (about 2-3 cartons worth)?

People smoke Marlboro because of brand association, not because of resource maximization.

This is why the only way to believe neoclassical has any real-life applicability outside of corporate profit margins is to live in one’s room and only step outside into the real world maybe once or twice a year at most.

80

These are fine examples for a person who does indeed not understand the economic theory and mistakes technical phrases for the ordinary language… like those funny people who do not understand the meaning of ‘theory’ in the jargon.

Very boring.