Why do you support Minimum Wage Laws?

Great Debates
1

If you are in favor of minimum wage laws, I would be interested to see if you could categorize your reasons for doing so into the framework I have listed below.

There are better descriptions of the effect of minimum wage laws in any Economics text, and around the web, and I encourage you to go read some if these ideas are not known to you, but I’ll summarize briefly.

Economists believe the Law of Demand applies to labor: If the price of labor increases, businesses will not hire more labor than they were employing at the lower price. Thus, raising wages above equilibrium must cause unemployment.

I was trying to categorize support for MWL’s in the following way:

Class A: Have heard of and understand the theoretical arguments agains MWL’s
Class B: Don’t believe the arguments

not A
For those of you in this category, what do you think now that you have read a little about the effect of such laws?

A and not B
These would be people that believe that MWL’s cause unemployment, but don’t care, perhaps because they are not in the groups hardest hit by unemployment due to the MWL. Will anyone admit to being in this group?

A and B
Probably the largest group.

Class C: Believe in the continuity of the demand curve for labor.

So AB not C would be those people that believe that there is some range over which wages can be increased without causing unemployment, but some at some higher wage there would be unemployment. These are the people that when confronted with the counter-argument agains MWL’s “Well, if an increase of $1/hr is good for workers, isn’t an increase of $2/hr or $20/hr or $200/hr better?” will say that $200/hr is too high, but somehow an increase of $x is “just right”.

So are most of you ABC or AB not C?

2

I think that there is some number where you are better off having less people employed making enough money to get by and dealing with a few unemployed rather than having to deal with a lot of people who work but still need help.

If, in a certain place, there are a bunch of high school students willing to work for very cheap wages just to get a little spending money, then perhaps people who really need the money would be out of luck.

If I understand your post right, I am “AB not C”. But I think that it is more complicated than you have indicated.

3

*Economists believe the Law of Demand applies to labor: If the price of labor increases, businesses will not hire more labor than they were employing at the lower price. Thus, raising wages above equilibrium must cause unemployment. *

djb2, you stated this a little confusingly: I think that what you mean is that “businesses will not pay more for labor than they were paying at the lower price, so their total number of employees will have to decrease.” Is that right?

You also totally left out of your “framework” one of the chief reasons for supporting MWLs: namely, the fact that the labor market for low-wage unskilled workers, even if unregulated by MWLs, is far from an ideal free market. Because of economic compulsion, the so-called “equilibrium” wage is set lower than the theoretical mutually satisfactory “fair price” of labor.

There is, moreover, the question of comparing the consequences of a rise in unemployment due to MWLs and the consequences of an inadequate “equilibrium” wage. Most MWL proponents do not think that high rates of employment alone are enough to ensure the productivity and prosperity of a society; the employed must also be getting enough money to live on.

Finally, MWL advocates are also influenced by some real-world studies that contradict the oversimplified examples of supply-and-demand models in introductory economics textbooks. Real-life employers respond not merely to the Law of Demand, but also to many other factors including quality of applicants and workforce turnover, on which some studies indicate MWLs have a beneficial impact.

So I think your present A-B-C framework is quite inadequate for classifying how most MWL supporters actually evaluate the issues involved. If you’d like to redesign it with more attention to the details of MWL issues (some helpful discussions of which can be found at, for example, the Economic Policy Institute), I for one would be happy to participate in your survey.

4

Kimstu has stated quite correctly, akin to my ultra-liberal socialist-supporting brother, the belief that a company must pay enough wages for a person to live on. I’m not sure why this is believed, since many of the younger generation (for whom min. wage jobs abound) are dependents, and many low-wage jobs are taken as secondary employment by those not claimed as dependents, and “enough money to live on” is too vague and inspecific a concept for laws to be based upon. Also, if “enough money to live on” is a prime arguement, it seems, given the disparity among markets across the country, the govern of MWL ought to be handed over to the states (if not abolished outright).

5

Wrath: a company must pay enough wages for a person to live on.

Actually, this is a slight misstatement of my characterization of reasons for supporting MWLs, though it’s my own fault for not being more specific. The existing minimum wage is not in fact a “living wage”, i.e., enough wages to live on, for the vast majority of people who receive it, and there are some arguments against raising it that high. What I said was that the employed must get enough money to live on, and to my way of thinking that includes means-tested public assistance. But all MWL supporters, even if they don’t think that the minimum wage should be a living wage in every case, believe that a mandatory minimum wage is an important part of ensuring that workers have enough money to live on.

*I’m not sure why this is believed, since many of the younger generation (for whom min. wage jobs abound) are dependents, and many low-wage jobs are taken as secondary employment by those not claimed as dependents, *

This is one of the reasons that the minimum wage remains as low as it is: everybody sees the inefficiency of requiring that high schoolers at McDonalds be paid $12/hour or something like that. However, you might be surprised to learn what a large proportion of minwage workers are actually full-time adult workers dependent on what they earn: see this article for a brief discussion of it.

and “enough money to live on” is too vague and inspecific a concept for laws to be based upon.

No argument there. But MWL supporters feel that there is a valuable middle ground between on the one hand, demanding that legislators identify some magic number that will provide all minwage workers with just the right amount of money, and on the other hand, refusing to set any minimum at all. No minimum wage law is perfect, any more than any other law is, but that doesn’t mean that having a minimum wage is useless.

6

You have to ask yourself this: If businesses were totally reliant upon a supply and demand of the labor market to determine wages, why would any employer offer only minimum wage?

The answer is because there will always be people who will work for it.

And if we didn’t have minimum wage laws, there would be businesses that would drastically reduce their pay to employees and there would still be workers to work there. If every business that paid minimum wage didn’t have to, and they all decided to instead pay $3 an hour, what would the worker do? Talk about supply and demand here. The employees need money and they can’t get it at what was previously the minimum wage. It’s either $3 or nothing.

Imagine there was no federal government regulating gas prices (sometimes it seems that way, doesn’t it?). Every gas station gets together and raises their rates to $3 a gallon. What the hell are we going to do about it? 1) Suck it up and buy the expensive gas. 2) riot. Neither sounds like a good solution.

Sure, there might be a gas station that offers cheaper gas just as there might right now be a restaurant that offers .50 more than MW to attract more businesses. But the fact is that Mickey Ds does manage to attract workers at MW despite the fact that Arby’s right across the street pays more. They will continue to do this as long as it is profitable to them.

7

>> Imagine there was no federal government regulating gas prices (sometimes it seems that way, doesn’t it?).

Yes, it does seem that way. Are you telling me the guvmint sets max gas prices? Can you tell me where you get that idea or what country or planet you live in?

8

VileOrb’s position is easiest to categorize of the replies so far: He accepts that MWL’s will cause unemployment but assumes it will be to groups he doesn’t care about. Perhaps one should be careful about the last part of that assumption, but as to the former, consider this…

snipped from http://www.cato.org/pubs/pas/pa106.html
The damage done to minority teenagers is far worse. By
establishing an arbitrary minimum, government reduces the costs
of discrimination. In The State against Blacks, economist
Walter Williams described how minimum-wage legislation alters
the incentives of employers:

Suppose that an employer has a preference
for white employees over black employees.
And for expository simplicity, assume the
employees from which he chooses are identi-
cal in terms of productivity. If there is
a law, such as the minimum wage law, that
requires that employers pay the same wage
no matter who is hired, what are his incen-
tives? His incentives are [those] of pref-
erence indulgence. He must pay the black
$3.35 an hour and he must pay the white
$3.35 an hour. He must find some basis for
choice. The minimum wage law says that his
choice will not be based on economic criteria.
Therefore, it must be based on noneconomic
criteria. If he wishes, the employer can dis-
criminate against the black worker at zero
cost.

9

?? djbdjb, what is that little speculative exercise attempting to show? That if there were no minimum wage, fewer employers would discriminate against blacks? Or that there would somehow be an economic reason to prefer hiring blacks? How come? I know this is Walter Williams’ mind at work, not yours (and that it is a rather old publication to boot, going by the value of the minimum wage in his example!), but can you give us some more insight into this reasoning?

Also, I think you grossly mischaracterize VileOrb’s statement that “you’re better off having less people employed making enough to get by and dealing with a few unemployed”, if you interpret that to mean that “he doesn’t care about” the people who will be unemployed! This is why I refused to respond in terms of your original “framework”: it seems to be far too limited to allow you to focus on what your respondents are actually saying.

10

well, I don’t want to mischaracterize anyone’s position; if not that his words are available, I would not have paraphrased them.

I realize that people may not like to have their views categorized. I think the reason for this is that it makes it more difficult to support MWL’s if the steps in arguments for them are made explicit. I don’t think it is unfair to say to people “Here is my argument: I believe A and B and I believe that A and B implies C, so therefore I believe C. Now what do you think, do you not believe that A and B imply C, or do you not think that A holds or B holds?”
Forcing people to try and categorize themselves makes it harder for a person to read some chain of logic and then just ignore it.

11

djbdjb: *if not that his [VileOrb’s] words are available, I would not have paraphrased them. *

But you didn’t paraphrase them, you flat-out contradicted them! He described himself, with reservations, as “AB not C”, which you “paraphrased” as “He accepts that MWL’s will cause unemployment but assumes it will be to groups he doesn’t care about.” But that’s the position your original post had described as “A and not B”! Heck, djb, if you can’t even keep your own framework straight, how can you expect anyone else to?

*it makes it more difficult to support MWL’s if the steps in arguments for them are made explicit. I don’t think it is unfair to say to people “Here is my argument: I believe A and B and I believe that A and B implies C, so therefore I believe C. Now what do you think, do you not believe that A and B imply C, or do you not think that A holds or B holds?” *

Well sure, if you oversimplify something sufficiently you can prove anything you want about it. My objection is that what your opponents are saying to you is “there’s a lot more involved in this issue than can be adequately described by just the relationships among A, B, and C.” But you don’t seem to want to hear that.

*Forcing people to try and categorize themselves makes it harder for a person to read some chain of logic and then just ignore it. *

Judging by the way you handled VileOrb’s categorization, not to mention the ambiguity in the OP between “hiring more labor” and “paying more wages” that I queried in my first response, I think you are going to have to work a little bit harder to present a “chain of logic.”

12

No, they don’t dictate exactly what the gas prices may be, but they do step in when things get out of hand. Take this summer’s rise, for instance. If the government didn’t step in, there would have been no reason why gas prices wouldn’t have kept increasing.

No, this isn’t a perfect analogy. A better choice might have been the electric companies or the natural gas co. which we use for heating. I was only using it as an example to help further the main point.

13

Well, you see your logic breaks down in the very 1st line- “In a free market…”. We do not have a “free market”= governments, and to a lesser extent unions, large companies, and etc- all make the market “not free”. Out here, for eg there are extreme governmant controls on building new housing- San Jose has for years discouraged it. That drives up the cost of housing (an Ok house is $500K, a one bedroom is 1500/mo) artificially, thus the need for higher wages- but all outside the 'free market". The “free market” is a mythogical beast, much like the unicorn- and you can’t base real-world decisions on myths. You get these “economics 101” arguements from folks who: either do not understand real world economics, or have a hidden agenda.

14

Indeed, life is more complicated than is dreamt of in Econ 101 classes. Sure, if you raise the minimum wage high enough, you can get more unemployment. The question is how much and whether you get any significant amount if the rise is to a minimum wage which would be lower in real terms than it has been at other times in the past.

Some good links on this are http://www.epinet.org/briefingpapers/min_%20wage_bp.html and http://www.epinet.org/Issueguides/minwage/minwagefacts.html. (If you are going to quote from Cato Institute, I will quote from Economic Policy Institute!) A quote from the latter:

May I also point out that since the last minimum wage increase, the unemployment rate has fallen to levels we haven’t seen historically in a long time. And, we have a much-heralded head of the Federal Reserve who is actively pursuing a policy designed to slow the economy because he is worried about the labor market being so tight that it will exert inflationary pressures. So, if you are worried about unemployment so much, why not tell Alan Greenspan to ease up on the reins a bit!

15

How about this:

No minimum wage law. Employers keep employees at a base pay. The cost of living goes beyond what the base pay can buy. Employers encourage this by increasing the price of their goods for a greater profit. Employees at base pay become virtual slaves, unable to afford minimum luxuries.

Sales of goods slump as buyers making base pay cease to buy luxury goods. Employees making base pay are forced to work multiple jobs. This affects the nuclear family structure, increases the incidents of divorce, spouse abuse, and petty theft. Increased store theft cuts into the profits. Stores increase the price of goods and cut back on employees, which increases the unemployment rolls.

It becomes an employers market. Labor laws get violated because employees are too desperate to keep their jobs. Raises become low because employees are too desperate to keep their jobs. The use of legal and illegal drugs like alcohol and pot go up as over worked, dissatisfied employees seek respite from their harsh life.

The division between the rich and poor becomes very pronounced. Violent crime against the rich go up. Living conditions start to drop as people cut back on power, good housing, seek out cheaper rents, cheaper foods and start dropping insurance policies.

Murder rates increase. Robberies increase. Housing sales fall, new car sales fall, people cut back on medical visits, high end luxury entertainment falls, general moral drops, more people join unions.

Over all, a bleak picture.

Right now, in my area, it is a workers market. Stores cannot find enough general help to fill their needs. Not so long ago, it was an employers market, with high unemployment and employers flat telling minimum wage workers that if they did not do the job the way the employer wanted it, then there were others who would. Employees were reduced to 39 hour work weeks so the companies could get out of paying them benefits. Some places required employees to work overtime for either straight or no pay.

Things are different now and there is a boom in sales, houses, luxury goods, and car buying.

Minimum wage and cost of living increases are good things. Several businesses here, having practiced rotten employee relations when it was an employers market have had to shut down outlets and can no longer get quality help.

Workers have long memories.

An economist once wrote that happy employees are productive employees. If you pay and treat your employees well, you will get more than your dollars worth out of them. Such employees are willing to work for free now and then, to produce more, to reduce employee theft, to provide valuable input and to protect the company because they consider it family. Many will be willing to work for a little less so long as they know they are appreciated.

Treat them poorly and you loose money no matter what you do.

American businesses never read those words.

16

How exactly did the govt “step in”? If you’re refering to the release from the Strategic Oil Reserve, that was a basically a joke. The amount released was equivilant to what the U.S. consumes in one day.

Other than that, the govt didn’t do anything, and guess what, the prices went back down. This supply and demand theory might actually have some basis for it. Go figure.