Why do we have a national minimum wage?

[drhess]

@Leonard

So, the remaining eleven would benefit from the raise, while one would lose his/her job and all your employees would have a slightly less clean work environment. Multiply this by the whole nation and you can see how it’s very difficult to say who wins/loses by the minimum wage…

Two comments. Regarding the less clean environment, this is essentially a productivity question. Generally, better wages will attract and keep the more productive. This is actually a reason for required minimum as owners (profit seeking) are not always going to think of the long term.

Regarding the person who lost their job, the research on this is mixed. There’s reason to believe that incremental increases in the minimum wage don’t have this effect. Many deductive reasoning arguments about how markets work don’t stand up to empirical tests.

[Leonard]

@drhess

It’s always a matter a repairing this harm with that policy and that policy with this one, etc. (even allowing market systems is a policy, ya know).

But what is the harm that is addressed by the minimum wage that is not addressed by welfare? If welfare is too low, we should fix that, not prevent two consenting entities from a mutually agreed upon exchange. Why is the minimum wage so preferred to raising welfare and setting it up like I described a couple of posts ago? It just seems irresistable to some to interfere with the market. If it weren’t for unintended consequences, I would have no problem with that.

[drhess]

@John Mace

I still don’t understand why rich teenage kids need a federal program to inflate their
earnings. Fighting poverty is one thing, but lets fight it directly.

This is one argument for expanding the Earned Income Tax Credit. It targets households with families that are working in low paying jobs. Has it’s own problems, but is probably more targetted.

[drhess]

@Leonard

But what is the harm that is addressed by the minimum wage that is not addressed by welfare? If welfare is too low, we should fix that, not prevent two consenting entities from a mutually agreed upon exchange. Why is the minimum wage so preferred to raising welfare and setting it up like I described a couple of posts ago? It just seems irresistable to some to interfere with the market. If it weren’t for unintended consequences, I would have no problem with that.

Well, welfare has it’s detractors, too. Essentially, the EITC is what you would support, or some other kinds of Basic Income Grant or Negative Tax for the poor. However, one might argue that labor is good for people and living wage helps make it possible for people to get to work.

[drhess]

@Leonard

Direct transfer payments have the benefit of goverment records that we can examine to see 1.) how much money we are moving, 2.) who is receiving that money, and 3.) who we are taking the money from. When we try to benefit low wage workers through price controls, we really have no idea about these measurements. Obviously some are benefitting, but who is paying for it?

It is possible to study who and how much the min wage helps or hurts, just as it is possible to use the administrative records you suggest. The problem is that many people won’t agree on the studies and as a policy analyst/advocate/writer, I can tell you that politicians will ignore many of them anyway. So, there is some logic to a min wage that is broadly targetted and requires little administrative hassle (compared to welfare systems). Not to sound like a broken record but the EITC is something you might support. Many Republicans in the USA do. Heck, Nixon was for a negative income tax, i think.

[NoPretentiousCodename]

RE: India

Are India’s problems entirely new ones stemming from deregulation? Or are they left over from the decades of central planning that preceded the current system? Indian friends I have talked to tend toward the latter scenario.

The consensus our small discussions have reached is that India’s problems are relics of two systems: Central Planning stagnated the economy for decades and promoted corruption in the government, and the Caste system brought about the discrimination against and the poor treatment of the lower classes.

While not completely solved, (again, this is according to my friends from India) both problems are getting better due to democratic and free market reforms. The situation in India would seem to have less to do with the lack of a minimum wage, IMO, than those two major factors.

This link is from the PBS website of the very well made Commanding Heights documentary series. It explains India’s economic system, past and present, for anyone who is interested.

Breif economic timeline for India

Lastly, consider the situation of the Ricksha driver. Yes, it sucks to work so hard for so little, no dispute there. But as to the driver, I can only assume he works that job because he choses to. I have to assume that driving the ricksha is the best option out of everything currently available to him. If not his Ricksha, then what? Begging? Working 16+ hours farming a field for even less pay? Whatever his options are, he is choosing the ricksha.

Now pass a law guaranteeing the ricksha man a wage. All Ricksha rides are now $X. All employees of Ricksha, Inc. are entitled to $Y a day. Good idea in theory, right? But, what happens when the cost of a ride goes up? People walk. If you raise that price too much, you legislate ricksha drivers out of existence.

“Fine”, you say, “I dislike the idea of a person driving a ricksha to begin with”. Fair enough, but remember that the individual chose to drive the ricksha. Now he has to fall back on one of his less desirable choices. Did your legislation create a preferable alternative to ricksha driving? Did your legislation actually help the ricksha driver at all? Or did you legislate away his other options too?

Far better, IMO, for India to grow its economy, and improve its infrastructure. Then, perhaps, the ricksha driver becomes a taxi driver. India may get there with or without a minimum wage, but without one the ricksha driver is able to work until then. As better options become available, he is able to work better jobs (even if only marginally so) along the way.

[Little_Nemo]

Can you see how if you had a dozen janitors, a forced rise in their wages might lead you to let one of them go? (And you might not necessarily let one go, you might just not refill the spot when someone quit or was fired for other reasons next time.) All the cleaning wouldn’t necessarily stop, things would just get cleaned a little less often.

My question then is why does the owner of this business have twelve janitors now? If he only needs eleven, he could get rid of one now and save himself some money. If he needs twelve, he’d still need twelve if the minimum wage was raised 25 cents. He’d pay them the extra money and pass the expense on to his customers, the same way he does with any other expense and the same way all his competitors would be doing.

[Leonard]

@Little Nemo

My question then is why does the owner of this business have twelve janitors now? If he only needs eleven, he could get rid of one now and save himself some money. If he needs twelve, he’d still need twelve if the minimum wage was raised 25 cents. He’d pay them the extra money and pass the expense on to his customers, the same way he does with any other expense and the same way all his competitors would be doing.

Well, I think you’re still looking at it in terms of a 3 person company. If there’s one janitor and he is laid off, then the work is just not going to get done. If there are 12 and one gets laid off they are not going to just stop cleaning 1/12th of the building. All of the building is going to get cleaned just a little less often. Which in turn will cause dissatisfaction in the other employees. You can’t just draw a line and say that this is exactly how many janitors we need. You have a desired level of cleanliness that has to meet with the cost. If you raise the cost, then a little less cleanliness will have to be tolerated. If the cost is ignored in the level of cleanliness you seek, then you end up with a janitor in each room just waiting for someone to touch something so they can clean it. If you ignore the desires of the other employees for a clean environment, you end up with no janitors at all and a huge mess that causes everyone to quit. The cost of the janitors is what determines what point of that continuum (total wreck<–>‘the anal retentive janitor’) you seek. Changing the cost changes that point.

[even_sven]

Forgive me if I have been unclear. My point about India was not to blame all of it’s problems on labor deregulation. I was trying to point out that even in a country with a good chance at a reasonable high standard of living, without some amount of labor regulations there will always be an underclass in horrible conditions. In America that underclass can usually afford some sort of shelter, regular food and enough medical care to avoid most infection diseases. But without our regulations I see no reason why this lowest level would not slip to the point they are in India. India shows that a solid middle class, rising economy and reasonable access to education are not enough to keep a country’s people out of the worst sorts of poverty.

[Leonard]

@drhess

It is possible to study who and how much the min wage helps or hurts, just as it is possible to use the administrative records you suggest. The problem is that many people won’t agree on the studies and as a policy analyst/advocate/writer, I can tell you that politicians will ignore many of them anyway. So, there is some logic to a min wage that is broadly targetted and requires little administrative hassle (compared to welfare systems). Not to sound like a broken record but the EITC is something you might support. Many Republicans in the USA do. Heck, Nixon was for a negative income tax, i think.

The ‘little administrative hassle’ is the only benefit of the MW that I can see so far. However right before that, ‘broadly targetted’ is the problem. It can definately be argued that the minimum wage does not cause unemployment in some places. Yes, I will agree that the minimum wage can be beneficial in monopsony situations where the labor demand curve is very inelastic. But it is detrimental in more competitive labor markets. The problem is that it is applied to all of them. I would guess the political disagreement is over just what degree of elasticity is present in the demand for labor nationally. (I would bet that the libertarians analyze highly competetive markets while the socialists analyze small towns in the middle of nowhere with one employer, and maybe that’s why I always see the results of these analyses but never their data or methods)

Why institute a policy that both beneficial/detrimental if there are other alternatives? The benefits of a direct subsidy would not depend on the level of elasticity in the demand for labor of a given area.
Also, I don’t think that it is possible to accurately measure the effects of the minimum wage. If it is, how would you know how many people were not hired due to the MW? If a company stays the same size (no layoffs) no unemployment has been created. If the company would have hired more people without the MW, then those jobs have been lost due to the MW without creating any measurable unemployment (convenient for the cherry pickers). How can that be accurately measured without a time machine to go back and do it differently and measure the differences? I can definately see how any such research will be tainted by the politics of those doing it.

Also from the previous post,

@drhess

However, one might argue that labor is good for people and living wage helps make it possible for people to get to work.

So now not only does the MW not cause unemployment, but it lowers it? I must be misunderstanding or something. Under what conditions would anyone desire more of the same thing at a higher price? Are you implying that the supply/demand curves in the labor market are some weird U shape or something? Forgive me, I’m probably reading that wrong or something.

[Kimstu]

Based on my recent nine months in India, I’d agree that its poverty problems are certainly not solely the result of labor deregulation. However, it’s no shining advertisement for deregulated labor markets, either. I think people are quite right to be wary about the hypothesis that removing all wage floors will make workers more prosperous. In real life, it just doesn’t seem to work that way.

Remember, the great feature of a capitalist market economy is that it makes winners and losers. Allocation of scarce resources is determined by competition and negotiation, and to a certain extent this is a terrific thing, because it enlists all participants’ self-interest to stimulate their industriousness and ingenuity to improve the outcome of transactions for themselves—often at somebody else’s expense. This benefits society as a whole by stirring more industriousness and ingenuity into the socio-economic mix.

But there is no magical safety valve in this system that cuts off the winners-and-losers game in time to ensure that none of the participants can become seriously impoverished or immiserated. Maybe if all markets were totally free and competitive markets, and there were always enough resources to go around, there would be no need for market regulation, but in real life such a situation is impossible. There ain’t no truly free market.

So government interferes in the market to prevent or correct imbalances that the society considers too extreme, by providing various social benefits. The libertarians here are quite right that the MW is just another form of means-tested social benefit; it redistributes some income from management and consumers to low-wage workers.

But I don’t think that that’s a sufficient argument for getting rid of the MW and replacing it with more direct income supports or other “handout”-type benefits. Earning a decent living by one’s own labor is an important psychological goal for most people, that helps ensure that a lot of unappealing but necessary jobs get done. Moreover, social benefits that aren’t linked to earnings are more vulnerable to anti-welfare resentment on the part of voters. If we eliminated the MW and boosted tax-supported benefits high enough to keep ultra-low-wage workers out of poverty, we would hear a lot more grumbling during the next economic downturn from voters who don’t like paying higher taxes for “handouts” to people who “didn’t earn them”.

On the other hand, it’s hardly feasible economically to replace all “handout” benefits by raising the MW to a universal “living wage”. There would always be people who couldn’t benefit from it because they couldn’t get a job at all. On the whole, I think the current system of having some earnings-linked benefits, like the MW and the EITC, along with other “welfare”-type benefits that aren’t earnings-linked, is probably preferable to trying to solve the problem of poverty with either type of social benefit by itself.

[Kimstu]

Based on my recent nine months in India, I’d agree that its poverty problems are certainly not solely the result of labor deregulation. However, it’s no shining advertisement for deregulated labor markets, either. I think people are quite right to be wary about the hypothesis that removing all wage floors will make workers more prosperous. In real life, it just doesn’t seem to work that way.

Remember, the great feature of a capitalist market economy is that it makes winners and losers. Allocation of scarce resources is determined by competition and negotiation, and to a certain extent this is a terrific thing, because it enlists all participants’ self-interest to stimulate their industriousness and ingenuity to improve the outcome of transactions for themselves—often at somebody else’s expense. This benefits society as a whole by stirring more industriousness and ingenuity into the socio-economic mix.

But there is no magical safety valve in this system that cuts off the winners-and-losers game in time to ensure that none of the participants can become seriously impoverished or immiserated. Maybe if all markets were totally free and competitive markets, and there were always enough resources to go around, there would be no need for market regulation, but in real life such a situation is impossible. There ain’t no truly free market.

So government interferes in the market to prevent or correct imbalances that the society considers too extreme, by providing various social benefits. The libertarians here are quite right that the MW is just another form of means-tested social benefit; it redistributes some income from management and consumers to low-wage workers.

But I don’t think that that’s a sufficient argument for getting rid of the MW and replacing it with more direct income supports or other “handout”-type benefits. Earning a decent living by one’s own labor is an important psychological goal for most people, that helps ensure that a lot of unappealing but necessary jobs get done. Moreover, social benefits that aren’t linked to earnings are more vulnerable to anti-welfare resentment on the part of voters. If we eliminated the MW and boosted tax-supported benefits high enough to keep ultra-low-wage workers out of poverty, we would hear a lot more grumbling during the next economic downturn from voters who don’t like paying higher taxes for “handouts” to people who “didn’t earn them”.

On the other hand, it’s hardly feasible economically to replace all “handout” benefits by raising the MW to a universal “living wage”. There would always be people who couldn’t benefit from it because they couldn’t get a job at all. On the whole, I think the current system of having some earnings-linked benefits, like the MW and the EITC, along with other “welfare”-type benefits that aren’t earnings-linked, is probably preferable to trying to solve the problem of poverty with either type of social benefit by itself.

[Little_Nemo]

My response to those who suggest replacing minimum wage laws with direct welfare payments is that I have the cynical suspicion that the minimum wage would be eliminated today and the welfare program would be refered to a committee for study about its enactment at some future date.

[NoPretentiousCodename]

@even sven

Forgive me if I have been unclear. My point about India was not to blame all of it’s problems on labor deregulation. I was trying to point out that even in a country with a good chance at a reasonable high standard of living, without some amount of labor regulations there will always be an underclass in horrible conditions. In America that underclass can usually afford some sort of shelter, regular food and enough medical care to avoid most infection diseases. But without our regulations I see no reason why this lowest level would not slip to the point they are in India. India shows that a solid middle class, rising economy and reasonable access to education are not enough to keep a country’s people out of the worst sorts of poverty.

I guess it depends on whether India “slipped” to the point it is at now, rather than worked up to where it is now from a state which was worse.

Very few people argue that zero protection for citizens is the ideal situation. The debate here is whether minumum wage should be a basic protection. I think labor regulations will be forthcoming as their economy grows more prosperous. The cost of a regulation, in social and economic terms, must be outweighed by the benefits of that regulation.

I think the relative comfort enjoyed by American poor (compared to those in poorer countries) is not because of a minimum wage nearly so much as the relative productivity of our economy. If our economy did not produce enough to go around, it would make no difference how high minimum wage was set.

[Leonard]

@Kimstu

I think people are quite right to be wary about the hypothesis that removing all wage floors will make workers more prosperous. In real life, it just doesn’t seem to work that way.

I don’t recall anyone stating it quite that way, but the idea isn’t that the workers would be instantaneously more prosperous, it’s that quite a few who currently have no job could at least start working for a portion of their own income.

@Kimstu

The libertarians here are quite right that the MW is just another form of means-tested social benefit; it redistributes some income from management and consumers to low-wage workers.

How does it come from management? I would say some of it does come from consumers (which would make it regressive according to the left, no?) when prices are raised and some of the cost of it is born by those who are kept out of work.

@Kimstu

Earning a decent living by one’s own labor is an important psychological goal for most people, that helps ensure that a lot of unappealing but necessary jobs get done.

Exactly. That’s why it would be preferable to have workers working for low wages and getting subsidies to boost their income rather than not working at all because the number of jobs is artificially low due to price controls.

@Kimstu

On the other hand, it’s hardly feasible economically to replace all “handout” benefits by raising the MW to a universal “living wage”. There would always be people who couldn’t benefit from it because they couldn’t get a job at all.

Here you seem to understand perfectly well that a price floor will result in surplus. I’m confused.

@Little Nemo

My response to those who suggest replacing minimum wage laws with direct welfare payments is that I have the cynical suspicion that the minimum wage would be eliminated today and the welfare program would be refered to a committee for study about its enactment at some future date.

I’m certainly not going to argue with you there. It would definately need to be bundled together on the same bill. But by the time it came out of committees it would probably end up being a small drop in minimum wage coupled with a small rise in welfare benefits, with 500,000 rule exceptions that would take an army of lawyers to figure out. Maybe we should just let the Reps control minimum wage and let the Dems control welfare.

[Kimstu]

Leonard: How does it [income redistributed by the MW] come from management?

Because sometimes when management wants to minimize costs and can’t minimize wages beyond the point where the legally mandated wage floor kicks in, they cut back on their own salaries and profits instead. (Reduced profits are also a form of redistribution from other owners such as stockholders who aren’t part of management.)

[drhess]

@Leonard

I would bet that the libertarians analyze highly competetive markets while the socialists analyze small towns in the middle of nowhere with one employer, and maybe that’s why I always see the results of these analyses but never their data or methods

You aren’t looking hard then. There are several famous studies and debates on this. Look up Kruger on this and then see where his paper on NJ is cited for responses and rebuttals, etc.

[pervert]

@The Asbestos Mango

Cite, please? No, I’m not doubting you, I was just wondering if you had a link to the story.

I’m sorry, I do not have a cite. It was a story I read five or six years ago. I really hate bringing up things like this without a cite because I tend to call people on it myself. Feel free to ignore the anecdote.

If an individual wants to build his/her own dwelling on a lot and live in it, and isn’t presenting a hazard to their neighbors, that is their right.

I’m not sure what jusridiction you are talking about, but this is categorically not true. Neibhors have lots of power to inform on each other about unsightlyness and many other issues which are not hazards that nonetheless, municipalities have deemed important enough to legislate against. Additionally, if you build a house and do not have the appropriate inspections, the city will order you to tear it down. They may offer you some opportunities to correct the lack of permits, but if your answer is simply it is my land I can do what I want, you will lose in court, and possibley lose your land as well.

That’s kind of my point. I’ve never seen the issue addressed, and it’s really the only thing between me and economic libertarianism. I can readily believe that if labor costs went down, the cost of Just About Everyting Else would follow suit. Housing is the only thing I don’t see going down and I don’t see anyone arguing that it would.

Well, more detailed research into libertarian philosphy might lead you to believe otherwise. I was only saying that libertarians don’t think housing will be more affordable simply by lowering the minimum wage. We’d have to do a lot more to get there.

If someone could convincingly argue that housing costs would go down along with the price of Just About Everything Else, I could get behind the idea of eliminating or at least substantially reducing the minimum wage.

Again, you have to look at things as a whole rather than in isolation. The libertarian ideas hold that many things would be better if the government interfered less in the economy. This means many things besides just the minimum wage.

Are you committing the dangerous act of posting while tired? That kind of reads funny.

Yea, I did.

I was trying to say that while the minimum wage insures a living wage for some, it insures no wage for others.

[drhess]

@Leonard

So now not only does the MW not cause unemployment, but it lowers it? I must be misunderstanding or something. Under what conditions would anyone desire more of the same thing at a higher price? Are you implying that the supply/demand curves in the labor market are some weird U shape or something? Forgive me, I’m probably reading that wrong or something.

I wrote that part poorly. I meant that the MW makes it more likely that some people will look for work. If you can stay home and take care of the kids and collect welfare, you will since work doesn’t pay. A living wage, or subsidy of wages for the poor, makes it worthwhile to work and I think that has it’s benefit. Make sense?

[pervert]

@Little Nemo

The other article of faith I continue to be amazed by is the belief that the free market is perfect and cannot make any mistakes.

Can you quote a single poster who has expressed this?

Politicians, union workers, teachers, soldiers, scientists, policemen, students, doctors, clergymen - any one of them is prone to human error. But somehow, by the miracle of the free market, the owner of business is perfect and every decision he will make will be correct.

As opposed to the idea that the bureaucrat is perfect and cannot make a mistake. Even when he cannot possible have the information or process it fast enough. Odd that. :rolleyes:

But what basis can they make for saying that nobody should ever interfere with the working of the free market or restrict the decision making of business owners in any way unless they think these decisions are always right?

Well, partly because no one ever said this either. I really think you have been reading a different thread. Care to provide a cite for this strawman?

Myself, I respect the free market. Overall, it works and benefits both individuals and society. But I don’t have blind faith in it. The free market acknowleges that a lot of people in the free market are doing something wrong either from intent or ignorance. And if you concede that mistakes are being made in the free market, you open up the possibility of correcting those mistakes.

This depends on what sort of mistakes you are talking about, and how you would correct them. From the context of your post, it seems that you are saying that some people being poor while others are rich is a mistake, and that force should be used to correct it.