Minimum Wage destroys jobs--again!

[burnvictim77]

Obviously the car owner has rights to this particular car. If you don't agree, you must have a very weird definition of rights. Courts will certainly agree that the car owner has such additional rights.

But the rights aren't granted because you own a car. Your rights apply to your car because you own it.

Agreement?

 

[Merko]

But the rights aren't granted because you own a car. Your rights apply to your car because you own it.

There's no material difference. In the eyes of the non-owner, it is all the same.

Consider a mother with two starving children she can't provide for. They will both die soon if she doesn't get an income. Now someone offers her to work all day at a wage which will allow her to feed one of her children, while the other will still die. The employer will however make a profit from that work of about twenty times what he offers to pay this woman.

Now of course you can argue the example, saying that in the US or wherever, people aren't starving. Or that in the US, or wherever, employers' profits from the work of a single employee is not twenty times the wage amount. It's an example illustrating a principle.

Now, considering this example, someone may argue that the woman should in fact be thankful for getting this offer, since she will be able to save one of her children, which should be priceless to her. Still, I suspect most of us will instinctively feel that the employer is abusing her desperate condition. He could easily have paid her enough to save both her children. It wouldn't have made a dent in his earnings.

Personally, I don't believe in morality, and I think it's up to the woman and the rest of us to organise a political system where employers are forced to pay reasonable wages whether they want to or not. And what is reasonable, I contend, is dependant not only on the labour market - eg what someone else is willing to work for - but also on the value of what the worker produces.

 

[burnvictim77]

There's no material difference. In the eyes of the non-owner, it is all the same.

Consider a mother with two starving children she can't provide for. They will both die soon if she doesn't get an income. Now someone offers her to work all day at a wage which will allow her to feed one of her children, while the other will still die. The employer will however make a profit from that work of about twenty times what he offers to pay this woman.

Now of course you can argue the example, saying that in the US or wherever, people aren't starving. Or that in the US, or wherever, employers' profits from the work of a single employee is not twenty times the wage amount. It's an example illustrating a principle.

Now, considering this example, someone may argue that the woman should in fact be thankful for getting this offer, since she will be able to save one of her children, which should be priceless to her. Still, I suspect most of us will instinctively feel that the employer is abusing her desperate condition. He could easily have paid her enough to save both her children. It wouldn't have made a dent in his earnings.

Personally, I don't believe in morality, and I think it's up to the woman and the rest of us to organise a political system where employers are forced to pay reasonable wages whether they want to or not. And what is reasonable, I contend, is dependant not only on the labour market - eg what someone else is willing to work for - but also on the value of what the worker produces.

Good example.

My question would be this: what is the value of entreprenuership? Can we give an exact percentage that the business owner and his managers are due?

 

[Merko]

My question would be this: what is the value of entreprenuership? Can we give an exact percentage that the business owner and his managers are due?

No, but I do believe that in an ideal situation, where the power gap between employers and employees is small, such a balance will be found. Additionally, just because someone is a business owner, much less a manager, does not necessarily make that person an entrepreneur. There's such a thing as inheritance, and lots of people become managers because of their connections rather than for having any entrepreneurial skills.

 

[burnvictim77]

No, but I do believe that in an ideal situation, where the power gap between employers and employees is small, such a balance will be found. Additionally, just because someone is a business owner, much less a manager, does not necessarily make that person an entrepreneur. There's such a thing as inheritance, and lots of people become managers because of their connections rather than for having any entrepreneurial skills.

However, taking the risk of economic liability is really what constitutes the value of the entrepeneur in many instances. Providing capital to run a business doesn't necessarily take skill, but it takes risk.

 

[69dodge]

Here's the question that nobody in the old MW thread could answer, and it's a question that really sheds light on the whole rest of the discussion:

Where is the extra money going to come from?

I guess the assumption is that the rich business owner is not running his business right on the very edge of profitability, and so he can afford to pay his workers more and himself less.

I do not really know how often this assumption is correct.

On the one hand, I suspect that not too many business have lots of extra money just lying around that they can give away to employees without any business repercussions at all. On the other hand, it is undoubtedly true that some people are rich and some people are poor, and the poor ones will be helped more by a small pay raise than the rich ones will be harmed by a small pay cut.

 

[69dodge]

However, taking the risk of economic liability is really what constitutes the value of the entrepeneur in many instances. Providing capital to run a business doesn't necessarily take skill, but it takes risk.

Would it be unfair to say that the risk is great because the entrepreneur is operating in a very capitalistic, free-market type of system?

In a different sort of system, the opportunity for becoming very rich is less, but so is the risk of becoming very poor.

How shall we decide which system is better?

 

[burnvictim77]

Would it be unfair to say that the risk is great because the entrepreneur is operating in a very capitalistic, free-market type of system?

In a different sort of system, the opportunity for becoming very rich is less, but so is the risk of becoming very poor.

How shall we decide which system is better?

I would say be the system that affords the most freedom to the people without being inconsistent.

However, if you are looking for some sort of functionalism, then I would say the system which motivates people to take on the roles of creating businesses, which seems that a system with higher rewards would be more likely to do. But I don't have a chart of figures to reference. It's very complicated.

But I don't simply look at ends to justify means. I think that would produce an insufficiently ethical system

 

[shanek]

Consider a mother with two starving children she can't provide for. They will both die soon if she doesn't get an income. Now someone offers her to work all day at a wage which will allow her to feed one of her children, while the other will still die. The employer will however make a profit from that work of about twenty times what he offers to pay this woman.

See, it's things like this that show you Just Don't Get It. 20 times what they pay??? Man, that's a niche that's ripe for some competition! Even if such an absurd condition were to exist, it wouldn't for long. And she'd have plenty of offers from other companies knowing that they can have her work for them at greater pay. If her work is that valuable, it's all but inevitable.

See, that's the wonderful thing about competition. Even if she generated 2x what was paid out, another company might think it's still pretty good to make only 1.5x if they can have their pick of the people doing that particular job.

Personally, I don't believe in morality, and I think it's up to the woman and the rest of us to organise a political system where employers are forced to pay reasonable wages whether they want to or not.

Who defines what is reasonable, and how? And where does the money come from? And how do you deal with the economic ramifications of setting this level above wage equilibrium?

And what is reasonable, I contend, is dependant not only on the labour market - eg what someone else is willing to work for - but also on the value of what the worker produces.

Well, that's exactly what the equilibrium is! If you're having to use government force to raise it, then you must be using some other criteria, or at the very least giving too much weight to the labor (supply) side and not the production (demand) side.

 

[shanek]

I guess the assumption is that the rich business owner is not running his business right on the very edge of profitability, and so he can afford to pay his workers more and himself less.

I do not really know how often this assumption is correct.

That was the answer in the other thread--"Take it from the profits!" But what about all the reports we see of companies not making a profit for a particular quarter? And where do people think profits go? Should investors (which include little old ladies and their retirement accounts, if you want a nice emotional aspect to it) forego some of the return on their investment? Should they have less money to retire on, or send their kids to college on, or whatever?

Also, profits != cash flow. A lot of times, profits are made up by assets that aren't readily liquidated. Example: a company spends $10,000 landscaping its grounds; this increases the value of the property by $15,000. They've just made $5,000 profit, but they actually have $10,000 less in funds.

(Note: this is the very reason for the "two sets of books" so many people complain about.)

 

[Earthborn]

Where is the extra money going to come from?

There is no extra money, just a different way of dividing it. Employers can do several things to be able to pay the higher wages:

• Firing a few people, causing more unemployment
• Make people work fewer hours, so they can continue to be paid the same
• Cutting back on other expenses
• Demand that the government gives them a few tax breaks, arguing that those are needed to avoid greater unemployment

 

[Foolmewunz]

Shane's right about the marginal profits from the labor portion of most products. As mentioned last night (I can't keep up, guys - I'm in Hong Kong and the clock is completely reversed) there are studies in the cheapest labor market in the world, China, that show that the actual labor component is about 1% of the value of the item. As I mentioned, about 6.5 to 10 cents on a 20 dollar retail item in the US.
Even if you triple the wage they get in China (which would get you above MW level), it's still only a 3% component in the total cost. There are many more important factors than the labor component.

Since most MW earners in the USA aren't doing measurable piece work (forget the sweat shops - 76% of MW earners are in service industries), the 20 x argument is waaay off. If MickeyD could make 2000% profit off of a counter helper's labors, Burger King would would drive them out of town at every location. (Say Johnny rings up and bags 100 orders in an hour and earns .07 per order.... that'd mean McD was charging and exta 1.40 for that sack of lunch. They'd get their butts kicked in the fast food market in no time flat.)

In corporate economics any increase in cost is going to have to be offset in one of three areas:
Layoffs to balance the ledger so that payroll is back to previous level.
Increase prices to offset the higher cost.
Decrease profits to shareholders.

This is often not measurable, because these huge retail and fast-food consortia are equally buffeted by their own marketing strategies, the overall economy, and various other factors.

 

[Mangafranga]

First of all, you don't know that it necessarily would have been saved. Second, savings = investments. It could have been used to expand the economy and create even more jobs.

Which is fine, but you countered the claim of (my paraphrases) "expenditure leads to an increase in GDP" with "but expenditure comes from savings". But of course expenditure is distinct from savings, so this counter doesn't seem very good. I'm just being picky though since I thought you were making a better case than Foolmewunz anyway.

My own simple analysis is a MW increase would lead to inflationary pressure and the only mitigation of the inflationary pressure would come in the form of reduced employment.

 

[ZirconBlue]

Shane's right about the marginal profits from the labor portion of most products. As mentioned last night (I can't keep up, guys - I'm in Hong Kong and the clock is completely reversed) there are studies in the cheapest labor market in the world, China, that show that the actual labor component is about 1% of the value of the item. As I mentioned, about 6.5 to 10 cents on a 20 dollar retail item in the US.
Even if you triple the wage they get in China (which would get you above MW level), it's still only a 3% component in the total cost. There are many more important factors than the labor component.

But, you're only considering the direct labor component in manufacturing. Even if you don't take indirect labor (supervisors, engineering, sales, etc.) into acount, there is still the labor component of the employees in distribution or at the point of sale that you are not including.

 

[shanek]

There is no extra money,

But there must be! The business still has the expenses it has. It still has the investors it has. It still has the stockholders it has.

Where will the money come from?

 

[Totovader]

Totovader - the purpose of MW is not to create jobs. It is to give a fair wage to workers.

Considering that the minority population loses their jobs because of minimum wage increases and regulations- do you consider that a "fair wage" can be accomplished by instituting minimum wage?

Try the math.
How many workers on the MW level in 2003? 2.1 million
The proposed increase is higher, but let's say it's a dollar an hour. And assume, like the OP that say 4 (heck, let's say ...5)... 5% lose their jobs.
That's over a hundred thousand jobs lost, but still nearly two million workers at that level. Again, this is conservative.*

Two million workers at an extra dollar per hour is two million dollars per hour or 80 million per week if they work a forty hour week. Multiply that times 52 weeks and you get four billion, easily.

So, let's assume that many work 20 hour weeks, or assume that all of them work 20 hour weeks. That will take you down to the two billion figure, but that's very conservative*, as I've said.

It's also arbitrary and not based on any fact. I understand your calculations- but I find them to be overly simplistic. It's not looking at individual workers, it's considering them as one, which is painfully socialistic- it also doesn't consider where that money is coming from. If the minimum wage increases the standard of living at the same time it increases the cost of living, how can you insinuate that it's a profit?

And I don't know why you guys keep assuming the inflationary spiral. You do realize that all your clothing, toys, and furniture are made over here, don't you? Please go into IKEA and check the price of a standard model desk today, and tell me that it goes up when MW goes up.

People making minimum wage are not purchasing their clothing, toys, and furniture from Ikea... Not to mention that- even though these companies are manufacturing these goods elsewhere, they're selling them here. They still need a workforce- they still need to pay taxes. To limit your scope to just the manufacturing sector is flawed... it also kind of has that odor of socialism again.

The cost of labor, factored into the final purchase price for your goods is nearly negligible. (e.g. the plush toy you buy for your kid at 19.95.... labor is at six and a half cents!) I work in this industry and ship consumer goods from all over Asia into the markets in North America and Europe. (And yes, I fight for fair working wages over here, too.)

I posted a link to an article in my last thread which shows that we're not talking about plush toys. For your company- for your toys- it may be $.06, and maybe increasing the total cost of the product by a few dollars would cover all the labor involved, but when it's cheaper and easier to lay off those workers and merge their duties into other higher paid jobs to deal with the immediate cost, that's exactly what's going to happen.

If the tobacco lobbies fund a cancer study, you question it, don't you? If the alcohol lobby comes out with a report recommending Remy Martin for three year olds, I'd certainly have my worries. Check out EPI. The abbreviation is not a coincidence - they want to sound as though they're the Economic Policy Institute. They are NOT. They're a mouthpiece for the restaurant/fast food industries.

Questioning it is not the same as ad hominem. If you have any reason to challenge their findings- you can present that. To claim, however, that simply because they represent an interested party they should be ignored is fallacious. If anyone should be heard on this issue- it's this group of individuals. Again, that link I provided showed you why.

If your argument is that you need to provide a "fair wage" by legislation- you would think that the restaurant and fast food industries wouldn't care... but instead they're trying to show that it's a bad idea: people lose their jobs, it hurts the economy, and it stifles competition.

 

[Foolmewunz]

But, you're only considering the direct labor component in manufacturing. Even if you don't take indirect labor (supervisors, engineering, sales, etc.) into acount, there is still the labor component of the employees in distribution or at the point of sale that you are not including.

Well, because we're discussing MW earners and the impact of THEIR wages on costs. What I cited was the actual costs of the low-end labor in the finished product. If we want to examine the costs of the white collar coterie, we have to go get a whole 'nother set of figures, obviously.

 

[Foolmewunz]

Jeez, Totovader - I know label-making is the primary cottage industry of the Politics forum but I thought this kind of thing went out with the hanging chad debates. (Oooh, you don't agree with me and I'm a conservative, so you must be a commie. WTF, well I'm a liberal so you must be a fascist if you don't support my ideas.)

I'm not in manufacturing, nor am I a Chinese Socialist. Does everyone who proposes any standardized program or balance in the approach get tagged a socialist?

The model I mentioned in costing is from a study, not from my work. I'm in supply chain logistics, and I would never cite figures from my own client base; I'd soon be out of a job and I like what I do. Further, we're about the most typical lower-case-C capitalists you can find - we earn our money in the middle by buying wholesale, selling retail, and putting value-add in between the two.

Having stated that, let me clarify my nit-picking on the report, because a lot of it still seems to be being missed. (I have no hope after reading the thread that it'll ever be accepted, but I have a wont to be understood.)

First, the EPI is an "institute" set up by a company that sets up many such, and is chiefly a lobbying organization for restaurant and fast-food corporations. Secondly, from what I can see, they intentionally focused (sponsored) the study on the 16-24 y.o. group, I feel (yes... my opinion) because if they studied the impact on the ENTIRE minimum wage earning population, they would not find the total statistics proved their case.

As I stated, that ignores about a million people on MW, and frankly, the group that should be under consideration! The 16-24 bloc is made up of a lot of students and non-primary wage earners. But that other million at >25 y.o. is much more likely to be PWE.

Further, the study, for the group being examined, comes to much more complicated conclusions that the total impact of EITC, Federal MW, and State MW all have to be brought to bare in any discussion of the topic. If I read the text correctly (the math is beyond me), the conclusion seems to be that further study is needed.

The salient factor in all of this is that MW earners are going down as a percentage of the workforce. This ought to be viewed as a positive, I'd say. This does not mean that the 8% of the minority workforce who may lose their jobs should be ignored, though.

I actually support the concept of 'at will' employment. If I had actually stated my opinion on MW and adjustments of same, it would be:
As long as the government has already stuck their noses in and created the damned thing, then there ought to at least be adjustments for inflation or a pegging to the CPI or some other sort of mechanism, rather than every ten years trotting out the old warhorses and rallying cries.

(I don't have a solution to it, though. I do not think that you can go totally "free market" with labor in a world that has seen such overwhelming consolidation of corporations. If RoadToad is listening, maybe he'd comment on what de-regulation did to the owner-operator in the trucking industry.)

 

[Chaos]

But there must be! The business still has the expenses it has. It still has the investors it has. It still has the stockholders it has.

Where will the money come from?

Productivity is steadily increasing. Prices are steadily increasing. Both of which means cash flow towards to the employer is steadily increasing.

 

[shanek]

The 16-24 bloc is made up of a lot of students and non-primary wage earners. But that other million at >25 y.o. is much more likely to be PWE.

You keep saying that, but you don't back it up. Most of the people on MW are students and non-primary wage earners, people just entering the workforce. And they don't stay at MW for very long.

As long as the government has already stuck their noses in and created the damned thing, then there ought to at least be adjustments for inflation or a pegging to the CPI or some other sort of mechanism,

Oh, yes, that worked out so well for Brazil...

(I don't have a solution to it, though. I do not think that you can go totally "free market" with labor in a world that has seen such overwhelming consolidation of corporations.

You wouldn't have corporations in a totally free market.