Raising minimum wage bad for jobs?

[Boyish-Tigerlilly]

My economics professor keeps going off to us whenever we mention welfare and minimum wage. Apparently, the market is supposed to be the best "teller" of what minium wages should be.

He seems to be the polar opposite of some of my other professors, but then again, so does my book. He makes you feel stupid if you say minimum wages are a good thing.

[Elfdart]

When the employer pays good wages you still up paying for it. Instead of it coming from the government it comes from the consumer in the form of higher prices, assuming of course that they don't just reduce employment.

If that were really the case, big business wouldn't complain so much -especially not on necessities. People have to eat, buy fuel, etc. Even under the worst case scenario (two workers at minimum wage, min wage goes up, one worker gets laid off or cut hours), you have one worker who no longer needs public assistance. By the way, this assumes a one-for-one ratio which is pretty farfetched in my book.

From what I have read on the topic, that is exactly what economists say will happen. Same with high business taxes

It depends on how it's done. If it's all at once, it could be a shock to the system. If it's done over the course of a few years, it shouldn't cause much trouble. In fact, if the hikes under Bush Sr. and Clinton are any indicator, it should benefit the economy. Why? A poor person (or a teenager looking for extra money) is not likely to save or invest his higher pay -he will SPEND it, thus stimulating the economy. This is something people forget when they talk about poor people getting more money: the raises they get are going right back into circulation.

If not that many people have to survive on minimum wage, and most people have real jobs that provide them income, like say: (professor, teacher, engineer etc) wouldn't Utility be served by not raising minimum wage and just finding a different way to help the people who need supplemental income to survive?

Not that many people actually live full time on minimum wage. But since quite a few only make a little more, a raise might help them, too. Utility might be served by finding extra income for the poor. But where? There are only three realistic options:

1) more hours at a lousy wage
2) raising the wage
3) handouts from the government

(1) is more of the same old bullshit, (2) is probably the best answer for the reasons I mentioned above and (3) is wrong not just for political reasons, but practical ones as well. It effectively makes the companies that pay their workers well foot the bill for those who work for cheapskate companies through higher taxes. The government then is more or less subsidizing companies to shit on their workers.

[Darth Wong]

My economics professor keeps going off to us whenever we mention welfare and minimum wage. Apparently, the market is supposed to be the best "teller" of what minium wages should be.

He seems to be the polar opposite of some of my other professors, but then again, so does my book. He makes you feel stupid if you say minimum wages are a good thing.

His arguments probably make perfect sense if you accept his unstated premise that the government should have absolutely no priorities whatsoever other than expansion of the GDP at any cost.

[Boyish-Tigerlilly]

I dont know what to say to my professors about it, beause economics isn't my speciality, and i dont wanna come off like some pinko-commie, like he mentioned in class. I get really confused in the class. I Mean, i understand the concepts int he book, but i cannot tell bias from objectivity sometimes.

He just makes you feel stupid if you are left-wing at all. Min wage = bad, Welfare = Bad, any government involvement in economy = bad.

He's not a libertarian either. He always likes to mention that he votes republican because it "helps" the poor.

The reason i mentioned the min wage stuff was that he told us that by not giving them min wages they "help" the poor more than do the Democrats, which I couldn't figure out, but then he quoted from the text saying how, but I still didn't know if it were true or not.

[Darth Wong]

I dont know what to say to my professors about it, beause economics isn't my speciality, and i dont wanna come off like some pinko-commie, like he mentioned in class. I get really confused in the class. I Mean, i understand the concepts int he book, but i cannot tell bias from objectivity sometimes.

Anyone who relies on labels to refute arguments is just being an ideologue.

He just makes you feel stupid if you are left-wing at all. Min wage = bad, Welfare = Bad, any government involvement in economy = bad.

Can he demonstrate an example of a healthy, functioning modern industrialized society which actually employs his theories?

He's not a libertarian either. He always likes to mention that he votes republican because it "helps" the poor.

The reason i mentioned the min wage stuff was that he told us that by not giving them min wages they "help" the poor more than do the Democrats, which I couldn't figure out, but then he quoted from the text saying how, but I still didn't know if it were true or not.

Obviously, he's not an empiricist. Otherwise he would have to explain to himself why America's poor are the worst-off among the western industrialized nations despite their reduced use of social programs.

[Master of Ossus]

I dont know what to say to my professors about it, beause economics isn't my speciality, and i dont wanna come off like some pinko-commie, like he mentioned in class. I get really confused in the class. I Mean, i understand the concepts int he book, but i cannot tell bias from objectivity sometimes.

Sometimes it can be difficult, but remember that economics almost never assigns labels to government policies. For example, having a trade deficit is not necessarily bad, nor is having a trade surplus necessarily good. They represent different choices, but one is not necessarily worse than another. The same is true with things like taxation, minimum wage, and fiscal policy. Different people will make different choices because they're concerned about different things and are willing to sacrifice other things. This should not be confused with the argument that one thing is necessarily better or worse than another.

He just makes you feel stupid if you are left-wing at all. Min wage = bad, Welfare = Bad, any government involvement in economy = bad.

He's not a libertarian either. He always likes to mention that he votes republican because it "helps" the poor.

Such an argument only makes sense if you share his concerns and are willing to make the same sacrifices he is.

The reason i mentioned the min wage stuff was that he told us that by not giving them min wages they "help" the poor more than do the Democrats, which I couldn't figure out, but then he quoted from the text saying how, but I still didn't know if it were true or not.

This guy sounds seriously unprofessional in his teaching. It's possible to present the consequences of different policy actions to students and allow them to make a decision--in fact, it's almost certainly better to do such a thing.

[tharkûn]

By the logic of the "we can't raise minimum wage" argument, we would produce a tremendous amount of job creation by lowering the minimum wage.

I don't know about tremendous, but dropping the minimum wage would create jobs, other things being equal.

There is an optimum minimum wage for whatever your socio-economic priorities are.

There is an optimimum level of subsistence that must be met through wages, welfare, or other means. I fully recognize that pulling the bottom out of minimum wage would utterly dick some people over, that would be why there would need to be an offsetting increase in government welfare or private charity.

Even if we set it to zero the real world market would never get close to that, eventually even the most economically disadavantaged worker reaches a point where decides to bug off rather than take ever lower wages.

My economics professor keeps going off to us whenever we mention welfare and minimum wage. Apparently, the market is supposed to be the best "teller" of what minium wages should be.

In terms of pure efficiency, absolutely, markets are much better at maintaing prices than governments. Government price fixing, barring monopsony, almost never works.

The problem is the market doesn't give a damn about being humane and respecting dignity.

If that were really the case, big business wouldn't complain so much -especially not on necessities. People have to eat, buy fuel, etc. Even under the worst case scenario (two workers at minimum wage, min wage goes up, one worker gets laid off or cut hours), you have one worker who no longer needs public assistance. By the way, this assumes a one-for-one ratio which is pretty farfetched in my book.

One worker who no longer needs public assistance, another who needs even more. Of course when the whole company goes tits up because they lack the volume, margin, or competitiveness to suck in higher costs with zilch for productivity increases then it is something like a dozen guys lose their job and nobody gets off the dole. Of course options like automation and offshoring only make the tradeoff worse.

it's all at once, it could be a shock to the system. If it's done over the course of a few years, it shouldn't cause much trouble. In fact, if the hikes under Bush Sr. and Clinton are any indicator, it should benefit the economy. Why? A poor person (or a teenager looking for extra money) is not likely to save or invest his higher pay -he will SPEND it, thus stimulating the economy. This is something people forget when they talk about poor people getting more money: the raises they get are going right back into circulation.

Yes we call that inflation. I pay you more money. I raise the prices of my goods to cover your increased wages. You buy stuff, driving up demand for said stuff. Other people pay more for said stuff so then the cost of living index goes up and all the adjusted incomes in the country go up.

TANSTAAFL.

The saving vs spending debate is a fallacy, unless you are talking about monetary velocity. Money in the bank gets loaned out, which is then used to buy stuff, which is ultimately the same as spending it.

It effectively makes the companies that pay their workers well foot the bill for those who work for cheapskate companies through higher taxes.

Who pays the cost of minimum wage? The bottom of the economic pyramid. The rich don't consume all that much minimum wage labor, upscale dining, shopping, and domestic service are all well above minimum wage. The people who consume the most goods and services produced at minimum wage are minimum wage earners. It is a poor tax taken from the poorest.

Obviously, he's not an empiricist. Otherwise he would have to explain to himself why America's poor are the worst-off among the western industrialized nations despite their reduced use of social programs.

Immigration, debt loading, demographics, education ... there a host of confounding factors that idealogues can cite. Some of them are even true.

The real thing here is that America continues to stupendiously outperform the rest of the world economically. It has lower debt loading than the majority of the west, it has higher growth rates, and has lower unemployment. Aside from Canada, present trends seem to show the US pulling away from the rest of the west economically. Sweden already has a per capita GDP down near Alabama if not below it. In the long run the poor in America will eventually be better off than the average westerner; of course in the long run we'll all be dead.

[Darth Wong]

In the long run the poor in America will eventually be better off than the average westerner; of course in the long run we'll all be dead.

According to the CIA's own world factbook, virtually all of the real growth in personal income since 1975 has gone exclusively to the wealthy class, with none of it reaching the poor. So I don't see why a continuation of this trend will help the poor any more than the last 30 years has.

[Stormbringer]

In the long run the poor in America will eventually be better off than the average westerner; of course in the long run we'll all be dead.

According to the CIA's own world factbook, virtually all of the real growth in personal income since 1975 has gone exclusively to the wealthy class, with none of it reaching the poor. So I don't see why a continuation of this trend will help the poor any more than the last 30 years has.

What does virtually all mean in hard number terms?

[Darth Wong]

In the long run the poor in America will eventually be better off than the average westerner; of course in the long run we'll all be dead.

According to the CIA's own world factbook, virtually all of the real growth in personal income since 1975 has gone exclusively to the wealthy class, with none of it reaching the poor. So I don't see why a continuation of this trend will help the poor any more than the last 30 years has.

What does virtually all mean in hard number terms?

Why don't you ask the CIA? I'm just quoting them.

[Stormbringer]

According to the CIA's own world factbook, virtually all of the real growth in personal income since 1975 has gone exclusively to the wealthy class, with none of it reaching the poor. So I don't see why a continuation of this trend will help the poor any more than the last 30 years has.

What does virtually all mean in hard number terms?

Why don't you ask the CIA? I'm just quoting them.

Where in the CIA world book did you find that data? It's a rather large thing to go groping blindly for hoping to find the particular data you are citing.

[tharkûn]

According to the CIA's own world factbook, virtually all of the real growth in personal income since 1975 has gone exclusively to the wealthy class, with none of it reaching the poor. So I don't see why a continuation of this trend will help the poor any more than the last 30 years has.

The basket of goods that defines cost of living is ever expanding. The poor today consume more tangible goods and services than the poor of yesterday. The value is the same, but the actually widgets provided are more numerous or of better quality. Massive quantities of this effect is driven by high end innovation.

Take computers. 30 years ago computers were ridiciously expensive and nobody on the poor end of the scale touched them except janitors. Then they became a luxury item for the wealthy, then they became a useful tool for the middle class, and they are fast becoming a necessity for the lower class. 30 years ago electronics barely factored into the basket, today it defines a bloody huge chunk.

Or take healthcare. 30 years ago you had doctor's visits, hospital stays, and surgery. Today you have specialists, medication, preventative care, home health care, and hospice. Buying the goods and services that the average individual consumed 30 years ago is trivially cheap, it is all the new fun life saving toys that have driven health care costs through the roof.


It would take generations before the average poor American had superior quality of life to the average westerner, but the trendlines are there. In terms of actual goods and services produced, the west is slowly slipping. If it weren't for the 'subsidized' export of American R&D, the west's standard of living would be much slower to rise.

And do remember for most of this Canada is the exception which tends to track with the US

[Obloquium]

By the logic of the "we can't raise minimum wage" argument, we would produce a tremendous amount of job creation by lowering the minimum wage. Whee!

Let's just drop it to $0.25/hr, and we'll wipe out unemployment! Won't it be awesome? I love conservative logic.

The "conservative logic" is simply the model of minimum wage dynamics in an ideally competitive environment--in which case minimum wage--apart from all other factors--is a variable under a negative operator. Their argument is that this model has survived better under scrutiny than others. Whether or not that's true is a subject of much debate, much as Card and Krueger's conclusions remain controversial in informed circles even after ten years. In fact, the people generally expressing any meaningful amount of confidence one way or the other are laymen or politicians.

Pssst! For those who are too fucking stupid to get the point I was trying to make, let me spell it out: there is an optimum minimum wage for whatever your socio-economic priorities are. Simply saying "higher = bad" is oversimplistic and foolish.

There probably is in principle. But in practice both ends of the political spectrum (at least in the United States) make public pronouncements about seeking to increase opportunity and make it widely available. Examining their motives is irrelevant to the empirical issue at hand.

Efforts to select an appropriate model for minimum wage relationship to employment remains a frustrating area of research, and when the debate shifts into the political arena models are seized upon not based on their coherence but IMO on how well they conform to preconceived notions.

[Obloquium]

His arguments probably make perfect sense if you accept his unstated premise that the government should have absolutely no priorities whatsoever other than expansion of the GDP at any cost.

Wow, that reads just like a blurb out of the introduction to a very popular macroeconomics textbook; one written by authors decidedly unimpressed with right-wingers. The fact remains the evidence is inconclusive on exactly what minimum wage increases and decreases do to unemployment, largely because they are difficult to observe in dynamics that do not depend significantly on other variables (i.e., total employment in Pennsylvania and New Jersey rose in the time frame of the Krueger and Card study). If you're just going to pick which studies you like without concerning with only scant attention paid to methodology and interpretation, then a conservative could find the Wascher and Neumark study as evidence that minimum wage increases do have a significant negative impact on employment--after all, they used payroll data where Card and Krueger literally phoned it in. Of course, both studies have problems in method and in justifying their conclusions; too the point where both teams have all but admitted that their results are inconclusive.

[Obloquium]

Where in the CIA world book did you find that data? It's a rather large thing to go groping blindly for hoping to find the particular data you are citing.

Here's the excerpt, under United States -> Economy

The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households.

Click here

Income inequality in and of itself has nothing to do with tharkun's still unsupported claim that the American poor will be "better off" than the average westerner.[/img]