Myth Pro and Con about the Minimum Wage

[shuize]

Which just confirms my suspicions.

You can PM me too, if you like. I think you might be surprised.

My age has nothing to do with my argument. Although, I dare say, I have plenty of life experience to back it up, if that's what you're getting at.

 

[HeavyAaron]

Whether you are the sole supplier of a good/service or not, the phrase (IMHO) means there will be a maximum profit one can gain as the buyers will pay only so much (unless you are the only one selling something that everyone must have, regardless). At a low price you will have everyone beating a path to your door --- but profits on each sale will be minute. With a high price, the profit may be great --- but you will have too few sales to make it worthwhile. So you pick (or experiment with) an optimum price that will generate the most profit. With competition, this price point will likely be lower than a monopoly --- but it will always exist.

Hey, if that's what it means, than I'm all for it. But that seems an odd definition of the term to me. And I doubt people who use it mean that. But absolutely a firm SHOULD charge whatever price maximizes their profits (or minimizes their losses.) It so happens that in a truly competitive market that is also the most efficient pricing for society as a whole. Which seems to run counter to the notions people who use the term seem to have in mind.

Aaron

 

[HeavyAaron]

There seem to be two models of poverty working here by different people:

1) poverty is a matter of chance and circumstance
2) poverty is a result of personal character and choices

Can't we all at least agree that it's really a combination of both? And that for different people it's a different amount of both?

I know for many people (myself included) success stories include overcoming 1). But certainly even for the bootstrap folks, all else held equal, we'd be even better off under different circumstances. And then there are certantly people who wind up poor dispite excellent circumstances. But that doesn't discount circumstances as a contributer, either. Likewise to the all chance and circumstance folks, surely you can admit that our character and decisions play an important role in our success or failure? If they couldn't, then our decisions would ultimately be meaningless.

Aaron

 

[Ace_of_Sevens]

Since no-one else has pointed this out, we're not just talking about a raise for burger-flippers. Whiel relatively few people receive minumum wage now, there are a lot that get aren't very far above it. The usual proposal is to raise minimum wage to $7.50/hr. Let's say right now fast food jobs start at minimum wage, $5.15 an hour. Retail jobs start at $7.50/hr and customer-service jobs start at $11/hr. While retail doesn't require skills per se for non-sales jobs, it is a lot more complicated than fast food (actual numbers on the register and whatnot) and requires more responsibility. If minimum wage goes up to $7.50, they'll be paying the same as fast food. If they want to be able to get the better workers, they'll have to pay more. Customer service jobs require fairly little education, but are stressful to many people and involve skills that are far from universal. I fretail wages get raised to within striking range of customer service, they'll have to raise their wages and so on up the line. How could such a broad increase in wages not increase business costs, leading to higher prices? Ganted, there's no reason to think the resulting raises would be enough to cancel out the increase as the increased wage effect will be more pronounced at the lower end and there are costs other than labor, but I don't realistically see how a minimum wage increase wouldn't lead to price hikes.

 

[a_unique_person]

Just me rambling on my meta thoughts on this:

My personal belief in why people support minimum wage (and it is widely supported) is a belief in "fairness." Economists have historically ignored the whole concept of fairness. But I think the results of The Ultimatum Game" http://en.wikipedia.org/wiki/Ultimatum_game may be changing that. But as with the results of "The Ultimatum Game" I fear that this fairness notion often gets in the way of optimal/rational results.

I'm lothe to give up the rationality assumption of economics (there are solutions for "The Ultimatum Game" that resolve with the rationality assumption). My personal beliefs are that most people are ill-informed in the economic reprocussions of policy decisions. Why would they be informed, after all? And when that happens this emotional ties to the fairness concept kick in.

For those who are honestly seeking answers, the data is available. This is science, after all. It's not hard, cold science. But it is science. Economists hypothesize models, then test the models. Then when questions like "what would happen if we raised the minimum wage" we can test such things with the models. Of course models are sometimes wrong from over simplification. But it's all about improving those models. Adam Smith published his "Wealth of Nations" over 200 years ago. We've had time to refine the models. There are lots of good scientists investigating these questions.

Unlike most political decisions like "would sealing the border with Mexico be a good idea" which are unanswerable, questions like "what would happen if we raised the minimum wage" we have answers to. Of course, that's not quite the same as "would it be a good idea?"

We don't arm chair critize other sciences. If you want to disagree with a concensus of economists, you'd better have some dang perswaysive reasons that aren't just appeals to emotion.

Aaron

Every time I read an introduction to economics, it focuses on how there is a need to distribute resources according to a logical rationale. After that subject, in the real world, it's all about how much can I get.

 

[HeavyAaron]

Every time I read an introduction to economics, it focuses on how there is a need to distribute resources according to a logical rationale. After that subject, in the real world, it's all about how much can I get.

And the amazing thing is that, cheating aside (passing laws in one's favor or breaking the rules), those are compatable. I should hope that your introductory text covered that as well.

Aaron

ETA: let me try a simple proof. A free market is one in which all transactions are agreed upon by all parties.

So, for any given transaction, after the transaction all parties are better off than before the transaction because A) as you said everyone is self interested and B) we assume everyone is rational (this is where the rationality assumption occurs.) Assuming no externalities, no one is made worse off and whoever participated in the transaction is made better off. And, as a side effect resource allocation occurred in a rational way (namely, the resources are in an allocation which is more desirable.)

Now, this holds for all transacations. Every time a transaction occurs, all participants are made better off acting out of simply their own self-interests and resources are better allocated.

Now, the whole of a free market economy is simply the sum of all of the individual transactions.

 

[a_unique_person]

How does Bill Gates pulling a schoolboy scam mean that he gets to buy as much food as the whole world can eat? (figurartively speaking) In practice, it breaks down.

 

[Snide]

There seem to be two models of poverty working here by different people:

1) poverty is a matter of chance and circumstance
2) poverty is a result of personal character and choices

Can't we all at least agree that it's really a combination of both? And that for different people it's a different amount of both?

I know for many people (myself included) success stories include overcoming 1). But certainly even for the bootstrap folks, all else held equal, we'd be even better off under different circumstances. And then there are certantly people who wind up poor dispite excellent circumstances. But that doesn't discount circumstances as a contributer, either. Likewise to the all chance and circumstance folks, surely you can admit that our character and decisions play an important role in our success or failure? If they couldn't, then our decisions would ultimately be meaningless.

Aaron

Very well said (again). As upset as I get with people who are so upset at how low the MW is, and go on and on about how unfair it is, and how no one can raise a family on it, I get more upset at the opposite extreme. The "I did it, so can you, if you're not stupid or lazy" argument shows at least as much evidence of ignorance as the "People who work harder than (you/others/the rich/etc.) deserve a living wage" argument.

IMHO of course.

So similar to what you said yesterday, if we can agree on what the real dynamics are here, we actually discuss policy in a civil, and perhaps productive manner.

 

[shuize]

...The "I did it, so can you, if you're not stupid or lazy" argument shows at least as much evidence of ignorance as the "People who work harder than (you/others/the rich/etc.) deserve a living wage" argument.

Well, in my defense, I also allowed for retardation.

 

[a_unique_person]

Very well said (again). As upset as I get with people who are so upset at how low the MW is, and go on and on about how unfair it is, and how no one can raise a family on it, I get more upset at the opposite extreme. The "I did it, so can you, if you're not stupid or lazy" argument shows at least as much evidence of ignorance as the "People who work harder than (you/others/the rich/etc.) deserve a living wage" argument.

IMHO of course.

So similar to what you said yesterday, if we can agree on what the real dynamics are here, we actually discuss policy in a civil, and perhaps productive manner.

Bill Gates got lucky. And some people are just unemployable. Do we give a lucky person so much money they can't actually spend it, and a person who is incapable of holding down a job so little they spend a life in physical misery?

 

[drkitten]

So similar to what you said yesterday, if we can agree on what the real dynamics are here, we actually discuss policy in a civil, and perhaps productive manner.

Unfortunately, I doubt that agreement will be reached on "what the real dynamics are." The data simply aren't there.

The two major camps seem to be :

1) poverty is a matter of chance and circumstance
2) poverty is a result of personal character and choices

The problem is that we have strong evidence that chance and circumstance have a strong effect on personal character and choices -- and similarly, the chance and circumstance are strongly affected by personal character and choices. So even the simplistic "well, isn't it both?" isn't a satisfactory answer....

Just as a simple example, let's look at a key aspect of "personal character" -- the ability to delay gratification. This is strongly tied to financial and other success in the psychological and demographic literature. This is what lets a successful student turn down a chance to go drinking and dancing on Saturday night because there's a big test coming up on Monday. This is what lets a girl not have sex on this date because she forgot to bring contraceptives, and therefore not get pregnant. And, of course, this is what lets a young employee save $100 a month on a barely minimum wage job until they have enough to open their own business and pay themselves.

But key to that ability is the knowledge that you'll still have what you delayed. It does me no good to put $100 in the bank if I expect the bank to close in six months. It does me no good to stay home and study if the teacher has already told me I will fail the course no matter what I do.

The American humourist P. J. O'Rourke had an interesting chapter in one of his books that epitomized this. Politically, of course, he's an arch-conservative, and he was writing on conditions in some public housing projects of New Jersey or something. He was -- rightly -- appalled at the maintenance conditions there, because the government didn't bother to clean up or fix anything, and the tenants had no incentive to. At the time, there was a proposal being floated around to "privatize" the projects; give the welfare residents relatively low-interest mortgages on the apartments that they already lived in. The idea was that the residents would pay the same in mortgage payments that they were currently paying in rent, but they would build equity. After 30 years, they would own the place outright -- and in the meantime, they would have incentive to keep the place up, repair it, improve it, &c. Sounds like a win all around, yes?

Of course, there were a few downsides, mainly in the labor that would be needed in upkeep, repair, and improvement. "Sweat-equity" is the term usually applied to this. But many of the people involved were only intermittently employed anyway; they could at least get some financial benefit in equity out of the time they weren't "working."

The residents would have none of it. He spoke to them, outlined all of the financial advantages that would accrue, and they politely but firmly declined to even discuss it. From this, he concluded that they were all stupid (in traditional Republican fashion).

The actual story, as I saw it, is considerably different and rather more complex. When this article was written, the first way of "property forfeiture" cases was in full swing. Your boyfriend is arrested for possession of drugs? You lose your car. There wasn't much point in opening a bank account, because that just gave The Man more to seize. You get busted for something (a routine hazard of life in the projects), the judge just fines you more heavily. The more money you have, the less you're likely to keep. What's the point in sweating to build equity when your hard-earned labor is likely to disappear in the stroke of a pen?

There's no point in delaying gratification if there's little chance of it being around later to enjoy.

So the ability to delay gratification is only a positive in certain circumstances. Character drives circumstance, but circumstance also drives character. Under a condition where you knew your money would be worthless in six months, I doubt any of you would make long-term investments, eiher.....

 

[Earthborn]

There seem to be two models of poverty working here by different people:

1) poverty is a matter of chance and circumstance
2) poverty is a result of personal character and choices

Can't we all at least agree that it's really a combination of both?

Of course it is a combination of both. But ignoring proposing that 2 is more important than 1 is a bigger error in thinking than proposing the opposite. Someone's personal character and choices depend largely on chance and circumstance, but you no one gets to choose the circumstances you start out with, or the chance occurances that come your way. 1 and 2 are not equal sides to the same story, but rather 2 is a subset of 1.

The "I did it, so can you, if you're not stupid or lazy" argument shows at least as much evidence of ignorance as the "People who work harder than (you/others/the rich/etc.) deserve a living wage" argument.

I disagree. The first is a claim that is proveably false, the other is an opinion on morality, and one can agree or disagree about what people "deserve" without being able to prove it one way or another.

 

[Daylight]

And how much should that maximum wage be?

Maybe that is a discussion that does need to take place instead of always focusing on the low wage end of the equation?

If it's alleged that raising the minimum wage will drive up prices, couldn’t you also say corporate executives giving themselves massive raises and bonuses do the same?

I just find it interesting that the low wage earners are always blamed for rising prices when the minimum wage remains unchanged for a long periods and the other end of the corporate ladder has seen at times a 3400% increase in salaries.

 

[BPSCG]

Bill Gates got lucky.

Yeah, there he was, having dropped out of school, playing the guitar in his mom's garage, when luckily for Bill, a friendly stranger happened by with a floppy disk. "Here, hold this for me," and the friendly stranger wandered off into the street, where he got squashed by a bus. Luckily for Bill, the bus stopped, and luckily for Bill, an IBM engineer got out and asked Bill what he had there. Bill answered, "I don't know," and luckily for Bill, the IBM engineer had a look at it and asked him if they could use it in their new personal computers. Bill offered to swap him the disk for a new Fender Stratocaster, but luckily for Bill, the IBM guy said, "No, you keep the rights to it and we'll just pay you a few bucks every time we put a copy of it on one of our new personal computers." Bill said, "Okay..." Then the IBM guy said, "You know, you gotta have a name for this thing," and Bill said, "What is it?" and the IBM guy said, "It's a computer operating system," and Bill said, "Hmmm, it's on a disk; why don't I call it a disk operating system, and the IBM guy said, "Yeah, Disk Operating System; why don'tcha call it DOS for short?" And Bill did that, and luckily for Bill, veryone wanted to put DOS on their PC's and luckily for Bill, he was able to squash all the competition like they were a friendly stranger and he was a bus.

Lucky guy, that Bill.

 

[Snide]

Bill Gates got lucky. And some people are just unemployable. Do we give a lucky person so much money they can't actually spend it, and a person who is incapable of holding down a job so little they spend a life in physical misery?

He did get lucky, and long before he even touched a computer. But that was of course only part of it.

As to whether how much we should "give" him, I'll spare you the "free market decides that" speech (as some seem to like to offer, with little more). Of course it does, generally, but the real question is whether it should.

I'm personally fine with Gates becoming wealthier than a whole country, but I'd like to see us as a society try to take care of our poorest a little better before we let anyone amongst us get that wealthy. Which is why, although I'm not socialist, I am for a progressive income tax.

I'd much rather err on the side of helping the poor to the point where many would abuse/exploit the system v. helping the rich, among whom many would do the same. (Not that I'm saying Bill does.)

 

[Snide]

Yeah, there he was, having dropped out of school, playing the guitar in his mom's garage, when luckily for Bill, a friendly stranger happened by with a floppy disk. "Here, hold this for me," and the friendly stranger wandered off into the street, where he got squashed by a bus. Luckily for Bill, the bus stopped, and luckily for Bill, an IBM engineer got out and asked Bill what he had there. Bill answered, "I don't know," and luckily for Bill, the IBM engineer had a look at it and asked him if they could use it in their new personal computers. Bill offered to swap him the disk for a new Fender Stratocaster, but luckily for Bill, the IBM guy said, "No, you keep the rights to it and we'll just pay you a few bucks every time we put a copy of it on one of our new personal computers." Bill said, "Okay..." Then the IBM guy said, "You know, you gotta have a name for this thing," and Bill said, "What is it?" and the IBM guy said, "It's a computer operating system," and Bill said, "Hmmm, it's on a disk; why don't I call it a disk operating system, and the IBM guy said, "Yeah, Disk Operating System; why don'tcha call it DOS for short?" And Bill did that, and luckily for Bill, veryone wanted to put DOS on their PC's and luckily for Bill, he was able to squash all the competition like they were a friendly stranger and he was a bus.

Lucky guy, that Bill.

So no luck was involved then?

 

[Snide]

I disagree. The first is a claim that is proveably false, the other is an opinion on morality, and one can agree or disagree about what people "deserve" without being able to prove it one way or another.

Am I mis-comprehending, or do you actually agree with what I said?

 

[BPSCG]

So no luck was involved then?

What do you mean "luck"? An event whose occurence is not readily predictable? If so, we all have luck, every single day, some of it good, some of it bad.

But there are a few of us who can create something the whole world wants and will pay dearly for. Creation is very rarely a matter of luck, despite what a_u_p might think.

 

[Snide]

What do you mean "luck"? An event whose occurence is not readily predictable? If so, we all have luck, every single day, some of it good, some of it bad.

But there are a few of us who can create something the whole world wants and will pay dearly for. Creation is very rarely a matter of luck, despite what a_u_p might think.

From Bill himself:

PLAYBOY: Did you have a million-dollar trust fund while you were at Harvard?

GATES: Not true. Where does this randomness come from? You think it's a better myth to have started with a bunch of money and made money than to have started without? In what sense? My parents are very successful, and I went to the nicest private school in the Seattle area. I was lucky. But I never had any trust funds of any kind, though my dad did pay my tuition at Harvard, which was quite expensive.

Source

On the one hand, it would be preposterous for anyone to suggest that Bill Gates is who he is solely because of luck. On the other, it is nearly as preposterous to ignore its significance.

 

[Earthborn]

Am I mis-comprehending, or do you actually agree with what I said?

Maybe I am misunderstanding you, but you seemed to be saying that the argument "People who work harder than (you/others/the rich/etc.) deserve a living wage" is evidence of the ignorance of the one saying it. I don't see it as evidence of ignorance, only as evidence of a particular opinion.