Why do you think raising the minimum wage is a bad idea?

[Axiom_Blade]

I recently watched this video of Milton Friedman explaining why he thinks that raising the minimum wage actually hurts poor people:



Okay, I do not understand this at all. Why would employers start hiring over-qualified employees, just because the minimum wage is higher? If the minimum was $15 an hour, would McDonald's start requiring a BA to work there? This just doesn't make any sense to me. The requirements for a job don't change just because the wage does.

However, this argument seems to be good for convincing some people, and Milton Friedman is a renowned economist, so...what am I missing here? Can anybody explain this to me?

 

[Newtons Bit]

It's not that they will start hiring more educated/experienced employees. It's that at that wage, they can.

 

[thaiboxerken]

It's not that they will start hiring more educated/experienced employees. It's that at that wage, they can.

They already can.

 

[Cain]

Without watching the video, the argument typically claims that a minimum wage makes employers choosier about who to hire, thereby giving Republicans and Libertarians an opportunity to pretend to empathize with blacks and teens, segments of the population who are generally less likely to find work. If you got rid of the minimum wage, then the unemployment rate will decline. Example:

If I have to pay employees eight dollars an hour, then that's (officially, pre-tax) $24 dollars for labor. If I could pay six dollars an hour, then I could hire an extra employee, which would provide an additional person with employment, as well as possibly increase efficiency and consumer satisfaction. Better yet, I could pay my three employees $4 an hour each, which leaves me with more coke money (not the anti-American kind that comes in red can).

 

[Tsukasa Buddha]

"Milton Friedman is a renowned economist" should not be a reason for you to believe anything.

Be that as it may, here is my understanding.

McCompany has a position open requiring INT 2.
Joe has INT 2 and has a market value of $7.00.
Samantha has INT 4 and has a market value of $14.00.

McCompany would hire Joe for $7.00.

Now same as above, but Congress has passed a minimum wage law of $14.00. Now hiring Joe would cost the same as hiring Samantha, so why not hire Samantha to get twice the INT?

 

[Axiom_Blade]

It's not that they will start hiring more educated/experienced employees. It's that at that wage, they can.

Yes, but the question is, why would they? You don't want to hire somebody who's over-qualified, because they're likely to move on to a better job. That's true no matter what the minimum wage is.

McCompany has a position open requiring INT 2.
Joe has INT 2 and has a market value of $7.00.
Samantha has INT 4 and has a market value of $14.00.

McCompany would hire Joe for $7.00.

Now same as above, but Congress has passed a minimum wage law of $14.00. Now hiring Joe would cost the same as hiring Samantha, so why not hire Samantha to get twice the INT?

So, why wouldn't Joe's market value go up to $14, and Samantha's go up to $21?

 

[ThunderChunky]

I recently watched this video of Milton Friedman explaining why he thinks that raising the minimum wage actually hurts poor people:?

He's actually arguing against having any minimum wage. His argument is that some jobs produce less value than the minimum wage and those jobs will disappear. That is true. However, the other side of the equation, that Friedman conveniently forgets, is that some jobs will end up paying more (because the employees generate more value than the new minimum).

 

[Aepervius]

There is an additional side to this : should society favor ultra capitalism, or should society also include a protection commonly paid by everybody to protect its weaker member ? As far as I can tell , all western society , yes even the US, answered psitively to that last question, and even the modern robber baron cannot, for example, use company script or hire kids, or not have health protection of worker against environmental hazard like poisonous products (among many other worker protections).

Minimum wage is one of such. So when setting the minimum wage you want to have a compromise between killing some economical slice because it require low wage, and protecting the people having the lowest wage by stating they should have a *minimum* to be able to live. It is not a *pure* economical decision. If it was , there would be no minimum wage !

Now there is another consideration, if the minimum wage is so low, that the worker have to acquire a lot of additional social service, like food stamp and so forth, then clearly in reality you are subsidivising that concerned industry with money from everybody (tax money). Those industry are shifting their cost toward the whole. It could be a strategic choice (like food production) but one should be clear on the impact on people prisonner of such low wage, and without any chance of getting a better job.

Well, maybe you support "social darwinism" and people getting kicked to the curb in which case yeah minimumw age probably make no sense to you.

 

[Jekyll's Guest]

So, why wouldn't Joe's market value go up to $14, and Samantha's go up to $21?

What a stupid question.

No I don't have time to explain why it's stupid, but I wear a power-suit and drive a Bentley, so just take my word for your laughable naivete.

 

[Puppycow]

If the minimum was $15 an hour, would McDonald's start requiring a BA to work there? This just doesn't make any sense to me. The requirements for a job don't change just because the wage does.

My own guess is that at $15/hour, there probably would not many McDonalds left. Many of them would face the following choice: raise prices beyond what most people are willing to pay for fast food, or sell hamburgers and fries at a loss. Either way, I don't see how they remain profitable.

McDonalds is not as wildly profitable as you might think:

http://www.bloomberg.com/news/2013-...74-outlets-cuts-full-year-profit-outlook.html

 

[Mitchell314]

If it gets too high, eventually it'll start increasing inflation.

 

[Dcdrac]

Was it not Freidmann that cam up with that stonkingly bad idea that the whole purpose of a company was to generate value for stockholders no matter what the companies actual productivity performance was/is as long as the share price holds up, which in practice has led to CEOS more worried about the share price than the real actual health of the company they are supposed to be running?

 

[mikado]

Australia minmum wage is something like $15 an hour I think, I may be wrong, but I think it's close to that at least

 

[Dcdrac]

My own guess is that at $15/hour, there probably would not many McDonalds left. Many of them would face the following choice: raise prices beyond what most people are willing to pay for fast food, or sell hamburgers and fries at a loss. Either way, I don't see how they remain profitable.

McDonalds is not as wildly profitable as you might think:

http://www.bloomberg.com/news/2013-...74-outlets-cuts-full-year-profit-outlook.html

McD's could make a start by selling food instead of something resembling it...

 

[Puppycow]

Was it not Freidmann that cam up with that stonkingly bad idea that the whole purpose of a company was to generate value for stockholders no matter what the companies actual productivity performance was/is as long as the share price holds up, which in practice has led to CEOS more worried about the share price than the real actual health of the company they are supposed to be running?

No. At least not the straw man you make it out to be.

Friedman actually won the Nobel prize, fwiw.

 

[ThunderChunky]

T
Minimum wage is one of such. So when setting the minimum wage you want to have a compromise between killing some economical slice because it require low wage, and protecting the people having the lowest wage by stating they should have a *minimum* to be able to live. It is not a *pure* economical decision. If it was , there would be no minimum wage !

I'm not sure about that. It would depend on other factors, like the government subsidies you mention. Overall there would have to be more money in the hands of the people with the greatest marginal propensity to consume. These are the poor people so I somehow doubt that would happen given how wealth seems to accumulate at the top.

My own guess is that at $15/hour, there probably would not many McDonalds left. Many of them would face the following choice: raise prices beyond what most people are willing to pay for fast food, or sell hamburgers and fries at a loss. Either way, I don't see how they remain profitable.

McDonalds is not as wildly profitable as you might think:

http://www.bloomberg.com/news/2013-...74-outlets-cuts-full-year-profit-outlook.html

In N out does fine paying its workers $10.50+ an hour and uses much higher quality ingredients. McDonalds and Walmart would still see hefty profits at a higher minimum wage. Maybe not as high as $15 though.

 

[Puppycow]

Okay, I do not understand this at all. Why would employers start hiring over-qualified employees, just because the minimum wage is higher? If the minimum was $15 an hour, would McDonald's start requiring a BA to work there? This just doesn't make any sense to me. The requirements for a job don't change just because the wage does.

After watching it, I see that he wasn't talking about qualifications like a degree, but about productivity: the actual value of the labor they have to offer. And not everyone who has a BA is necessarily more valuable as an employee than someone who merely has a high school diploma.

 

[Puppycow]

OK, I may have to make a mea culpa now it appears. If the information in this article is correct, then what I wrote above:

My own guess is that at $15/hour, there probably would not many McDonalds left. Many of them would face the following choice: raise prices beyond what most people are willing to pay for fast food, or sell hamburgers and fries at a loss. Either way, I don't see how they remain profitable.

McDonalds is not as wildly profitable as you might think:

http://www.bloomberg.com/news/2013-...74-outlets-cuts-full-year-profit-outlook.html

Isn't right. According to the article, it appears that McDonalds could afford to pay its employees even $15/hour without raising prices and still remain profitable as a whole (but less profitable than now). A caveat is that some of its more marginal stores might become unprofitable and close as a result, costing jobs.

I'm also not 100% confident that the information in the article is completely accurate. It has a "back-of-the-envelope" feel to it. It also has a left-wing agenda.

The place where raising the minimum wage would hurt most is businesses that are barely profitable to begin with. Some of those businesses would have to close, and that would cost the jobs of the employees that work there. Maybe it's not McDonalds, but somewhere else.

 

[Professor Yaffle]

Increasing the minimum wage might not lead your local McDonald's to fire its cashiers. But it might mean that a 5 Guys will one day replace it.

That's the upshot of a new working paper from the Federal Reserve Bank of Chicago that puts an intriguing twist on the age-old minimum wage debate. Most studies on the subject tend to focus on jobs (and, as regular readers of this site may know by now, those studies often come to wildly different conclusions). But this time around, researchers Daniel Aaronson, Eric French, and Isaac Sorkin also decided to look at what happened to the fast-food restaurants themselves in three states—Illinois, California, and New Jersey—after they raised wages.

While the hikes had a "small" impact on jobs, the economists found, they had a substantial impact on businesses. In states where employers were asked to pay their workers more, fast-food restaurants were more likely to close. At the same time, new restaurants became more likely to open, at least in Illinois and New Jersey. In California, the story was slightly different. More fast-food joints shuttered up, but there wasn't a significant jump in openings. As a result, employment fell, but as the paper notes, the reduction "was small and sometimes indistinguishable from zero."

http://www.theatlantic.com/business...-mcdonalds-killer-not-a-mcjobs-killer/283638/

 

[Dcdrac]

No. At least not the straw man you make it out to be.

Friedman actually won the Nobel prize, fwiw.

No strawman it is a fact and it has destroyed an number of viable companies here in the UK.

he was wrong full stop.