Myth Pro and Con about the Minimum Wage

[BPSCG]

Don't be silly. Getting a college degree simply means you are more appealing within that area of the job market, it doesn't guarantee that your job won't be outsourced. If you obtain a college degree and THEN your job is outsourced you'll be back at step one - working for minimum wage.

That's correct. So what's the solution? Prohibit outsourcing? Doesn't the employee have some obligation to himself to make sure he has skills that are in demand? The employer has only one basic obligation to the employee - to pay him wages equal to the value they mutually agree his services are worth. The employee has only one basic obligation to the employer - to provide services equal to the value of the money the employer pays him. The employer has no obligation to pay the employee more than he is worth, and the employee has no obligation to provide services for less than they are worth.

No, you're right - people who work minimum wage don't nobody deserves a raise in spite of the rising cost of living, the high price of medical care or gasoline or heating oil...

Fixed it for you. The only reason anyone deserves a raise is because he is providing more value to his employer than he used to.

The economy isn't getting any better...

Please cite the statistics that support this conclusion, because everything I've heard lately seems to say otherwise.

 

[Q-Source]

There is a lot of myth in economics.

Most of the myths occur because people don´t understand the mechanisms in economics. One of the things that happens is that we tend to think that one action leads to a specific reaction. Well, maybe in Physics this is the case, but not in Economics.

1. “Historically increases in the minimum wage lead to increases in prices.”, which is very silly, traditionally increases in wages occurred when the economy was already in an inflationary cycle.

Yes and no. Most of the time, a demand to increase the MW is a result of inflationary periods. When governments decide to increase the MW in this situation, this leads to more inflation. Then in this respect it is not a myth. It just depends on when it is that you increase wages. In stability periods it will not raise prices because higher wages are the result of rises in productivity or higher GDP for example.

2. The second myth is that minimum wage increases will lead to an increase in costs that will counter the increasing wage. But this is ridiculous, rents go up, even when the minimum wage does not go up or factor into the cost of maintaining rental property.

This also depends on the circumstances. If the MW increases when no productivity has occured then costs will increase because labour costs represent a large proportion of total costs. So this will erode any gain in wages because prices will go up. But if the MW increases as a result of productivity or efficiency then any change in prices and costs will not affect real profits and real wages.

 

[tedly]

I know little about economics, but I do know that it is something done by economists. The last and best book I read on the subject was "Wall Street: How it works, and for Whom" which is now available as a free download on the net.
From pages 140-141 of the on line edition (a .pdf) discussing bias in economists we have:

There’s one sterling example of that dependable bias, the minimum
wage, almost universally regarded by economists to be a job-killer. Their
reasoning is pure Econ 101 — raise the price of something (and a wage is
the price of labor), and you depress demand for it. Therefore, boosting
the minimum wage has to result in an employment decline for low-end
workers. But in surveys of employers taken just before and after changes
in the minimum wage, David Card and Alan Krueger (1995) showed that
this just isn’t true. They paused for a few pages in the middle of their
book, Myth and Measurement, to review some reasons why the academic
literature has almost unanimously found the minimum wage guilty as
charged. They surmised that earlier studies showing that higher wages
reduced employment were the result of “publication bias” among journal
editors. They also surmised, very diplomatically, that economists have been
aware of this bias, and played those notorious scholarly games, “specification
searching and data mining” — bending the numbers to obtain the
desired result. They also noted that some of the early studies were based
on seriously flawed data, but since the results were desirable from both
the political and professional points of view, they went undiscovered for
several years.

Using the example of the fast food restaurant, a minimum wage worker receiving a 10% increase will sell about 100$ of merchandise with a cost increase of less than 1$. The cost will be passed on to the customer. The store has many more customers than employees, and the customers are quite likely in the range of people whose wages are affected by the MW increase. (That effect is not limited to minimum wage earners, but it does vanish as you approach the average industrial wage.) So it's hard to argue that the price increase will reduce the sales, and that means that staff reductions are unlikely since fast food outlets aren't prone to overstaffing.

So we have a theoretical model that predicts that employment will not decrease (that's my theory and what it is too) and empirical evidence that it does not. Therefore: raise the minimum wage QED.

By the bye, this is an argument in favour of higher wages that was originally proposed by Adam Smith. The reference is in the book, finding is left as an excercise for the troops.

 

[UserGoogol]

The way I see it, decreasing demand in labor is in situations a good thing, because it promotes technological growth. If human labor becomes expensive across the board, then it be in business's interests to find other ways to get their work done: finding ways to automate proccesses which had previously been done by people. Technological growth, I think, is a very very huge factor in both economic growth and prosperity as a general thing. If businesses are encourgaed to automate their jobs, it may help us move towards a world where nobody has to work. A rising cybertide lifts all boats.

You know what I like? People who don't have the skills to earn anything more than minimum wage that still have kids and then cry about having to raise a family on such meager wages. Because, after all, when all you can do is push a mop, it really should be the employer's responsibility to pay as much as you need.

I don't see anything wrong with that. If a person is too stupid to take care of their own needs, then logically, somebody else has to. Sometimes a person is simply stupid, and there's nothing they can do to change. And of course, sometimes it's just bad luck, as has already been mentioned. What's the point in forcing a person to work harder if they are simply incapable of doing so?

 

[Ohmer]

Here are some of the costs of running a business:
[...]

[SARCASM]
But BPSCG, you forgot to mention the government mandated minimum income that businesses get to offset the rising costs of everything. You know, that government program that forces consumers to pay higher prices in order to guarantee that a business gets the income that they inherently deserve just for existing. Just because a business is unable to generate revenue doesn’t mean they don’t deserve it. They have employees to pay!![/SARCASM]

 

[gnome]

Fixed it for you. The only reason anyone deserves a raise is because he is providing more value to his employer than he used to.

I don't believe this is entirely true... in a market of inflating prices, not receiving a raise amounts to a pay cut in inflation-adjusted dollars. If the employee maintains his value to the employer, he does deserve to receive the same pay, not effectively less.

 

[fishbob]

Here are some of the costs of running a business:

1. Rent (if you're renting the building);
2. Mortgage payments (if you're buying it);
3. Repairs and maintenance to the building;
4. Equipment repairs and maintenance;
5. New equipment when 4) isn't an option;
6. Gas;
7. Electricity;
8. Water;
9. Supplies needed to operate the business;
10. Materials needed to make what you're selling;
11. Taxes;
12. Insurance;
13. Losses due to theft;
14. Wages.

Do you believe that increases in any of the items 1-13 will increase a business's expenses? (Y/N)

Do you believe that if a business's income remains the same, but its expenses increase, its profits will decrease? (Y/N)

If you answered "yes" to the above, how are the rules for #14 different from those for 1-13?

Enforcement.
Market forces don't work effectively when cheating is profitable - paying under the table and hiring illegals for less. 1-13 are simpler issues and somewhat fixed. Labor is difficult to deal with - Bob might produce twice as much as Fred, but be too much of a pain in the butt to work with. These and many other factors make 14 not subject to a simple answer.

 

[Ziggurat]

But in surveys of employers taken just before and after changes
in the minimum wage, David Card and Alan Krueger (1995) showed that
this just isn’t true.

The law passed in 1996 (and was probably known about some time before that), but didn't actually raise the minimum wage until during 1997. If the study is measuring employment just before and after the raise, it's going to miss any changes that happened in anticipation of that raise. Studies of employment differences over longer periods, of course, run into the problem of other possible factors affecting results. Economics is a pain that way: we can't really run controlled experiments.

Using the example of the fast food restaurant, a minimum wage worker receiving a 10% increase will sell about 100$ of merchandise with a cost increase of less than 1$. The cost will be passed on to the customer. The store has many more customers than employees, and the customers are quite likely in the range of people whose wages are affected by the MW increase. (That effect is not limited to minimum wage earners, but it does vanish as you approach the average industrial wage.) So it's hard to argue that the price increase will reduce the sales, and that means that staff reductions are unlikely since fast food outlets aren't prone to overstaffing.

So we have a theoretical model that predicts that employment will not decrease (that's my theory and what it is too) and empirical evidence that it does not. Therefore: raise the minimum wage QED.

Not so fast. First off, fast food restaurants have fairly inelastic labor demands, but that doesn't mean that the economy as a whole does. And second, quite frankly, there's another consideration which gets consistently overlooked by the left: minimum wage laws (and rent control) make racism easier.

In a free market, racism hurts not only the person being discriminated against, it hurts the person doing the discriminating too: if you pay white employees more than black employees, you're wasting money on payroll. You'd save money by either paying the white employees less, or by hiring black employees instead.

But what if you have to pay everyone more than their labor is really worth, but you can't afford not to hire them? Well, in that case, discrimination is free. You'll get more job applicants than you would at lower free-market wages, and you can hire white employees and not hire black employees, and there are no consequences to you as an employer for making that discriminatory choice.

Same with rent control: if you are prevented by law from charging more than a certain amount for an appartment, then you'll have more people wanting the appartment than you would in a free-market environment. That means you can discriminate for free. But if the price isn't set by law, then if you don't rent to the highest bidder (black OR white), then the choice to discriminate costs you.

So we should be considering more than just employment and wage levels here. Tampering with the market also encourages discrimination by removing the economic costs associated with discrimination in a free market.

 

[tedly]

The law passed in 1996 (and was probably known about some time before that), but didn't actually raise the minimum wage until during 1997.




So we should be considering more than just employment and wage levels here. Tampering with the market also encourages discrimination by removing the economic costs associated with discrimination in a free market.

Sorry, suffering a little whiplash here, watching the goalposts.
"The law" - I've lived with minimum wage legislation since I was in High school, back in the cave dwelling. So I'm sure that in 1995 their were several data points that could have been determined. And who would know better than employers what changed through the period of a raise in the mimimum wage.

The fast food industry does have inelastic labour requirements, what minimum wage job doesn't? I guess if the employer is deciding between mechanisation and labour this might be the straw, but most jobs that can be mechanised are.

I think if we just stick with the use of the minimum wage to reduce poverty (with the concurrent increase in GDP, given that every penny poor people earn is immediately spun back into the economy) we can let racism be worked out by other tools. I think that our underlying world views are so different there that debate would be frustrating.

 

[Dancing David]

So there's some magical pixie that exempts wages from free market forces? And you can raise one specific input price (wages) yet have no effect at all on costs (and therefore profit)? Well damn! Just raise the minimum wage to $35/hr. Then everyone will be instantly middle class!

that is your proposal not mine. So what myth are you trying to explain, the myth that you can discuss something open mindedly?

You're also making the fallacious argument that wages are the sole input cost, re your McDonald's example and the rent example is a non-sequitor.

In fact if you put on your glasses, you will see what I said is "is a fraction of other costs" , or it is a compound of costs.

And of course it is a non-sequiter as is the argument that poor people will loose money if minimum wages are increased because prices will rise to offset the increase.

Rent is an example of a potential price increase that is very important and totaly unrelated to wages.

What school of economic thought is this anyway? The "click your heels together three times and it will come true" school?

What school of economic thought is this anyway? The "click your heels together three times and it will come true" school?
No that is Milton friedman, not me. Yeah like the free market led to personal liberty in nazi germany?

Maybe you haven't read what I wrote, certainly it was a poor critique at best, rather lacking in substance.

If there is a percentage of cost that is from wages of the lowest paid workers then it would be part of all workers, since there are many types of wage scale Total wages=(not minimum + minimum wages), for there to be a detrimantal effect the cost from the increase in minimum wages would have to be offset by the cost increase. So if I arbitrarily say that Total cost=profit+facilities+procurment+maintainance+capitalization+advertising+transporatation+total wages then it would follow that perhaps the minimum wage increase is only a partial fraction of the cost. It might follow then that the detrimental cost increase would only occur when the fraction of minimum wage is higher than the other costs.

 

[Beerina]

I don't believe you can determine the "value" of a job to others quite so easily. Sanitation workers are fairly low on the job respect scale, but I'll bet if they didn't show up at your home for three weeks, you'd definitely value their help.

This point is frequently brought up in the context of giving people wages based on how important their job is to society. In the late '70's, nurses took such a case to the Supreme Court, claiming they were being paid less than the hospital gardener outside.

The Supreme Court, leftist as it was, still slapped it down.

And imagine it hadn't. Imagine if the wages of garbage men went up to $98,000. Now imagine the spoils system to become the person "assigned" to be the garbage men. Imagine people fleeing less "worthy" jobs that used to pay more, but no longer do. The market is inverted, and people flood to jobs that are artificially highly priced.


And, by the way, the nurses, just a few years later under Reagan, were glad the case was lost, since shortly after that, nurses and doctors became scarce, and their wages skyrocketted.

 

[Dancing David]

You know what I like? People who don't have the skills to earn anything more than minimum wage that still have kids and then cry about having to raise a family on such meager wages. Because, after all, when all you can do is push a mop, it really should be the employer's responsibility to pay as much as you need.

So perhaps this would fall into the category that "The minimum wage may be deserved by all" myth and a very valid point.

But it is equaly valid that somebody who makes a lot because of who thier family pulled strings with may be very undeserving of the salary they recieve as well.

(BTW I am currently working with the kids who are going to be lucky if they push a mop someday.)

 

[Tony]

So there's some magical pixie that exempts wages from free market forces?

The free-market is the magical pixie, it doesn't exist.

 

[Tony]

You know what I like? People who don't have the skills to earn anything more than minimum wage that still have kids and then cry about having to raise a family on such meager wages.

That's the price of freedom.

 

[Dancing David]

Well, as long as politicians can use "uneducated" people with "lots of children per household" as an argument to filch money to give to them, poor souls who can't wear a glove, and need money because they're so poor, then there is a problem.



There's also stupidity, don't forget. I guess if one is poor because one is stupid, they should vote for people who will give them raises. Or because they can't keep their snake in their pants.

It's interesting there's a correlation with intelligence and fewer children, leading to a decreased average intelligence. This, combined with fiery populist rhetoric, does not bode well for the long-term survival of humanity. At some point we're gonna be running around marvelling at machines prior generations created, saying, "Brain, brain, what is 'brain'?"

Well the lacking do seem to breed more often, but it also seems the middle class is having more kids.

Say if you tried to raise kids in one of the poor neighborhoods, what do you think :the enviroment vs. your skills, might have the higher inflence? (It is a mix , because I have known people to go from the Townley hHomes to very good jobs, but thier mother had to basicaly lock them up to do it.)

But I do agree there are people who are poor because they made some poor choices.

 

[Dancing David]

You know what else I like? Being the one who gets to tell some of the minimum wage workers how we'd really like to keep them but since the government cares about low skilled workers so much it's managed to price them out of their jobs.

Well, that is not the only source of it, we are a capitalist economy and Delphi workers did not loose thier jobs because the minimum wage went up.

 

[Dancing David]

Here are some of the costs of running a business:

1. Rent (if you're renting the building);
2. Mortgage payments (if you're buying it);
3. Repairs and maintenance to the building;
4. Equipment repairs and maintenance;
5. New equipment when 4) isn't an option;
6. Gas;
7. Electricity;
8. Water;
9. Supplies needed to operate the business;
10. Materials needed to make what you're selling;
11. Taxes;
12. Insurance;
13. Losses due to theft;
14. Wages.

Do you believe that increases in any of the items 1-13 will increase a business's expenses? (Y/N)

Yes, the myth I was discussing was not that costs would go up but that increases in the minimum wage would lead to such an increase in prices that the wage increase would be offset.

Do you believe that if a business's income remains the same, but its expenses increase, its profits will decrease? (Y/N)

Yes.

If you answered "yes" to the above, how are the rules for #14 different from those for 1-13?

That was not the point i apparently didn't make very well. I have heard moted economists say that there are many reasons for the minimum wage to not increase, one of which is that "because of an increase in the minimum wage, prices will rise and that will mean that those who recieve the minimum wage will have a net loss in income'.

Costs might rise , that is true, but our governement also spend money in a lot of foolish ways and gives people tax breaks for some very interesting and strange things, so i am just asking about myths concerning the minimum wage.

I am certainly not advocating either way, I used to believe that an increase in the minimum wage would increase over all wealth in the economy, but because the real cost of living has been decreasing for the last fifty years, I am not sure that it matters.

 

[Almo]

So there's some magical pixie that exempts wages from free market forces? And you can raise one specific input price (wages) yet have no effect at all on costs (and therefore profit)? Well damn! Just raise the minimum wage to $35/hr. Then everyone will be instantly middle class!

You're also making the fallacious argument that wages are the sole input cost, re your McDonald's example and the rent example is a non-sequitor.

What school of economic thought is this anyway? The "click your heels together three times and it will come true" school?

Hey guys! Isn't this a strawman argument? Nobody I've heard proposes an increase to $35/hr. Well, it's SOME fallacious statement of some sort.

And we've already seen what happens if you leave wages and labor practice entirely to the whim of the market.

 

[WildCat]

that is your proposal not mine. So what myth are you trying to explain, the myth that you can discuss something open mindedly?

In fact if you put on your glasses, you will see what I said is "is a fraction of other costs" , or it is a compound of costs.

If input costs go up, prices will have to go up also. If you can't raise the price, you'll eventually go out of business. And you call this a myth?

Rent is an example of a potential price increase that is very important and totaly unrelated to wages.

You're starting to get it I think. You're right - expenses for a building can rise faster than rent. If this trend continues, you get lots of vacant lots and abandoned buildings. I can show you entire neighborhoods here in Chicago this has happened in. Now look at my above answer - if you have a business and input prices go up (such as wages) and you are unable to increase your prices to match, you will go out of business. And the jobs you provided will disappear.

What school of economic thought is this anyway? The "click your heels together three times and it will come true" school?
No that is Milton friedman, not me. Yeah like the free market led to personal liberty in nazi germany?

And where did I make any such claim?

Maybe you haven't read what I wrote, certainly it was a poor critique at best, rather lacking in substance.

Like your Nazi reference above?

If there is a percentage of cost that is from wages of the lowest paid workers then it would be part of all workers, since there are many types of wage scale

And many union contracts (particularly among government workers) specify that a particular job pays min. wage + X, so in fact you can often affect the entire wage scale by raising minimum wage.

 

[Dancing David]

Fixed it for you. The only reason anyone deserves a raise is because he is providing more value to his employer than he used to.

Deserve being the key word, how many people make a lot who don't deserve it at all, or get a raise when they don't deserve it at all?