I'm curious about why we have one since I have limited economic knowledge and I see it as an artificial construct that would not exist in a completely free market (deadweight loss and all that).
It's not like I'm against having a minimum wage. If I had to get a minimum-wage paying job, I'd be extremely glad it exists. But why does a minimum wage exist?
Is it a measurement of overall utility versus economic prosperity? If so, how would you quantify that? Is there a way to measure how much "good" a minimum wage brings versus the inefficiency it brings to the economy? Or is a minimum wage efficient, kinda like how paying people higher than market rate makes them more motivated?
I'm curious to see both sides of the argument and the rationale (particularly the metrics) behind them.
Employees are a commodity just like any other. There is supply and demand.
Typical minimum wage jobs are ones that virtually every working age human can perform (you dont need a PHD to drop fries in a fryer). Because of this the supply of workers for those jobs is very high and demand for those workers could be low. When this is the case, normal laws of supply and demand dictate that the price of these laborers should be low. The minimum wage is a floor against a theoretical environment that would cause the value of low skill labor to be so low that it creates other issues.
I'm curious about why we have one since I have limited economic knowledge and I see it as an artificial construct that would not exist in a completely free market
Yeah, turns out a lot of things wouldn't exist in a free market. Such as safety regulations. Doesn't mean it's not a good idea to have them.
But why does a minimum wage exist?
To prevent employers from paying employees below a certain amount.
Problem is no one can show the minimum wage does anything. Almost all studies suggest it's either jobs neutral or net loss, same thing with cost. It makes some people feel better that they make a higher number than before. There is not much significant data that suggest minimum wage provides anything other than a negligible benefit and that benefit is arguable. Every debate we have has people arguing that it does not cost jobs. If it was so great and a boon for the economy, why would they not argue it creates jobs? In other words, no statistical evidence of a benefit. pro minimum wage people are always arguing that it does not hurt as much as the cons think it does. If it does not hurt as much, wheres the evidence it helps and to what degree?
To piggyback off of this, having a minimum wage is good for more than just this. One big thing is that it prevents employers from having people bid how little they will accept to work. A race to the bottom is good for a very very small cross section of the population, but pitting workers against each other can be a decent tactic when trying to keep wages low. By putting a minimum wage in place this abusive tactic is less able to be used.
A minimum wage is also good to help, in some respects, with the stagnation of wealth. Economic flow is the job creator and when people at a low SES have cash they will spend it as they are living paycheck to paycheck. This demonstrate a demand for the goods that they buy and that helps keep businesses in the area open. Economic flow is the big job creator. When that money goes to the higher SES individuals who have already had their needs sated, the money will go towards investment accounts of some sort.
I'm curious about why we have one since I have limited economic knowledge and I see it as an artificial construct that would not exist in a completely free market (deadweight loss and all that).
It's not like I'm against having a minimum wage. If I had to get a minimum-wage paying job, I'd be extremely glad it exists. But why does a minimum wage exist?
Is it a measurement of overall utility versus economic prosperity? If so, how would you quantify that? Is there a way to measure how much "good" a minimum wage brings versus the inefficiency it brings to the economy? Or is a minimum wage efficient, kinda like how paying people higher than market rate makes them more motivated?
I'm curious to see both sides of the argument and the rationale (particularly the metrics) behind them.
In my experience you're not going to get a lot of well-thought-out economic arguments in this forum. I don't mean that as a jab at anyone, but it seems that most posters just don't have a background in it. My econ education is limited to a college minor and a few grad school classes for fun, so I only know the basics. Here's my best crack at answering the question I think you're asking. I tend to think about economics mathematically, but since I don't know your background I'll try to keep it as prose-based as possible. We can get into equations or whatever if you want to.
In microeconomics, you learn about why a minimum wage should, in theory, always be a bad thing. As you alluded to in your OP, this is because in an otherwise Pareto efficient economic system, an effective price floor will result in a deadweight loss. This way of thinking about economics is good for beginners. It's like how if you've ever taken an intro physics class they always have you disregard air resistance, assume all ropes are massless, pretend friction doesn't exist, etc.
But in the real world we don't have a perfectly Pareto efficient economy. Why should this matter, you might ask. Surely if a minimum wage causes a deadweight loss, then it's a bad thing. It doesn't matter whether the rest of the economy is perfectly efficient, right? Unfortunately, yes it actually does matter. This is because deadweight losses don't add up linearly. If I have three different deadweight losses caused by three different things, then the total deadweight loss of the economy doesn't necessarily equal loss1 + loss2 + loss3. Sometimes the total is greater than that, sometimes the total is less.
Why does it work that way? The answer comes from something called the General Theory of Second Best. Let me give you an intuitive example. Suppose we have a sector of the economy (say mining) that pollutes a whole bunch (i.e. creates large deadweight loss in the form of negative externalities). Ceteris paribus, is it more efficient for that sector of the economy to be perfectly competitive, or perfectly monopolistic? The answer could very well be "perfectly monopolistic," because monopolies tend to increase prices and reduce supply. Increased prices and lower supply are a good thing when the production of a good creates externalized costs. So in this hypothetical, the total deadweight loss (loss from monopoly + loss from pollution) is less than either loss individually. Combining two seemingly inefficient things reduces total inefficiency because they offset each other.
So the same thing could be true of minimum wage. For example, a minimum wage might offset the deadweight loss from imperfect information. Workers with less-than-perfect information might tend to settle for below-market wages because of their inability to find out about higher-paying opportunities. So in that case a minimum wage set right around the minimum market price might help prevent this from happening. You could come up with other narratives about how the minimum wage might reduce other types of deadwegith loss: "buyer" (ie employer) surplus, pollution externalities from peoples' commutes, etc. I'll leave this exercise to you.
So after this whole vigorous economic defense of the minimum wage, I have to conclude by saying I think the current minimum is too high. To get the benefits I'm talking about, the minimum wage should be set right around the lowest wage that any rational worker would agree to. In other words, I don't think there's any economic justification for making the minimum wage a quote-un-quote "living wage." To be maximally efficient, I would estimate the minimum wage should be the absolute minimum that, say, a 16-year-old with no skills getting his very first job would agree to be payed. That's probably something like $2-$3 per hour. So while I agree we should have a minimum wage, I would probably set it somewhere in that $3 range.
In 2012, 75.3 million workers in the United States age 16 and over were paid at hourly rates, representing 59.0 percent of all wage and salary workers. 1 Among those paid by the hour, 1.6 million earned exactly the prevailing federal minimum wage of $7.25 per hour. About 2.0 million had wages below the federal minimum.2 Together, these 3.6 million workers with wages at or below the federal minimum made up 4.7 percent of all hourly paid workers. Tables 1 through 10 present data on a wide array of demographic and socioeconomic characteristics for hourly paid workers earning at or below the federal minimum wage. The following are some highlights from the 2012 data.
Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the Federal minimum wage or less. Among employed teenagers paid by the hour, about 21 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over. (See table 1 and table 7.)
In 2012, 6 percent of women paid hourly rates had wages at or below the prevailing federal minimum, compared with about 3 percent of men. (See table 1.)
About 5 percent of White, Black, and Hispanic or Latino hourly paid workers earned the federal minimum wage or less. Among Asian workers paid at hourly rates, about 3 percent earned the minimum wage or less. (See table 1.)
Among hourly paid workers age 16 and over, about 10 percent of those who had less than a high school diploma earned the federal minimum wage or less, compared with about 4 percent of those who had a high school diploma (with no college) and about 2 percent of college graduates. (See table 6.)
Never-married workers, who tend to be young, were more likely than married workers to earn the federal minimum wage or less (about 8 percent versus about 2 percent). (See table 8.)
About 11 percent of part-time workers (persons who usually work less than 35 hours per week) were paid the federal minimum wage or less, compared with about 2 percent of full-time workers. (See table 1 and table 9.)
By major occupational group, the highest proportion of hourly paid workers earning at or below the federal minimum wage was in service occupations, at about 12 percent. About three-fifths of workers earning the minimum wage or less in 2012 were employed in service occupations, mostly in food preparation and serving related jobs. (See table 4.)
The industry with the highest proportion of workers with hourly wages at or below the federal minimum wage was leisure and hospitality (about 19 percent). About half of all workers paid at or below the federal minimum wage were employed in this industry, the vast majority in restaurants and other food services. For many of these workers, tips and commissions supplement the hourly wages received. (See table 5.)
The states with the highest proportions of hourly paid workers earning at or below the federal minimum wage were Louisiana, Oklahoma, Texas, and Idaho (all between 7 and 8 percent). The states with the lowest percentages of hourly paid workers earning at or below the federal minimum wage were Alaska, Oregon, California, Montana, and Washington (all under 2 percent). It should be noted that some states have minimum wage laws establishing standards that exceed the federal minimum wage. (See table 2 and table 3.)
The proportion of hourly paid workers earning the prevailing federal minimum wage or less declined from 5.2 percent in 2011 to 4.7 percent in 2012. This remains well below the figure of 13.4 percent in 1979, when data were first collected on a regular basis. (See table 10.)
Source: U.S. Department of Labor, Bureau of Labor Statistics (BLS). These data on minimum wage earners are derived from the Current Population Survey (CPS), a monthly nationwide survey of households. Data in this summary are 2012 annual averages.
Put it in perspective:
About 150 Million people work in the US and only 3.6 Million earn at or below the federal minimum wage. About 97% of the working population over the age of 25 earns above minimum wage.
But how do you measure goodness? If the minimum wage throws X amount of economic prosperity into a whole and makes Y people's lives Z better, how do you measure Y*Z?
To piggyback off of this, having a minimum wage is good for more than just this. One big thing is that it prevents employers from having people bid how little they will accept to work. A race to the bottom is good for a very very small cross section of the population, but pitting workers against each other can be a decent tactic when trying to keep wages low. By putting a minimum wage in place this abusive tactic is less able to be used.
A minimum wage is also good to help, in some respects, with the stagnation of wealth. Economic flow is the job creator and when people at a low SES have cash they will spend it as they are living paycheck to paycheck. This demonstrate a demand for the goods that they buy and that helps keep businesses in the area open. Economic flow is the big job creator. When that money goes to the higher SES individuals who have already had their needs sated, the money will go towards investment accounts of some sort.
But how do you measure goodness? If the minimum wage throws X amount of economic prosperity into a whole and makes Y people's lives Z better, how do you measure Y*Z?
To piggyback off of this, having a minimum wage is good for more than just this. One big thing is that it prevents employers from having people bid how little they will accept to work. A race to the bottom is good for a very very small cross section of the population, but pitting workers against each other can be a decent tactic when trying to keep wages low. By putting a minimum wage in place this abusive tactic is less able to be used.
A minimum wage is also good to help, in some respects, with the stagnation of wealth. Economic flow is the job creator and when people at a low SES have cash they will spend it as they are living paycheck to paycheck. This demonstrate a demand for the goods that they buy and that helps keep businesses in the area open. Economic flow is the big job creator. When that money goes to the higher SES individuals who have already had their needs sated, the money will go towards investment accounts of some sort.
That's pretty interesting. Economic flow is a pretty good argument, if the tiniest bit cynical
Edit: just saw the last two posts, will reply when I have a chance.
Its bull*****. Like bitter said, none of us are economic experts. Do the research and find valid studies done by experts. When demand for products and services increases, prices increase. This little bit of purported economic activity coming from the bottom will hardly dent the US economy, if you buy into this. This race to the bottom for the minimum wage worker is also bull*****. We do not have a huge swath of workers looking for minimum wage jobs. Think about that. Sure, ECP and a few others will point to antidote stories of people looking for minimum wage work but this atypical. You will earn more as you get older, gain experience and education. 3.6 Million make minimum wage and 92% of them are under the age of 25. The invest comment....I wonder where'd we be if we did not have the likes of Mark Cuban, Google and many other fortune 500 companies investing in start-ups. Or the rich investor who takes the mom and pop shop national. Can not do that with out huge amounts of capital that comes from the rich people.
The origination of all the billions that billionaires have come from hard work, innovation and tenacity. They did not just get "lucky" as some would claim. Almost all of them kept putting them selves in position to be successful, it was only a matter of time, luck had nothing really to do with it.
The better question is why was minimum wage enacted? It was because companies were taking advantage of the work force and under paying them for work done. Some could say literally killing people to survive. So unions came about that gave the worker some rights.
Anyone who thinks that if America did away with minimum wage, wages wouldnt drop like a rock, you are kidding yourselves.
Remember, there is always someone that will do it for less. Even if that means they have to work 3 jobs to survive.
@Billy, going off of only federal minimum isn't too helpful on a national level since some states, particularly the west coasts entire population, is going to skew our numbers. Also, only counting people earning exactly federal minimum, and not a penny over, makes the numbers look better than they really are. Only some 30% of post-recession jobs pay more than 30k a year (roughly double federal min) and the U shaped recovery and jobs paying 10-20 cents more an hour put these people in the same boat as those on the federal min, but aren't presented in those bps stats
I'm curious about why we have one since I have limited economic knowledge and I see it as an artificial construct that would not exist in a completely free market (deadweight loss and all that).
It's not like I'm against having a minimum wage. If I had to get a minimum-wage paying job, I'd be extremely glad it exists. But why does a minimum wage exist?
Is it a measurement of overall utility versus economic prosperity? If so, how would you quantify that? Is there a way to measure how much "good" a minimum wage brings versus the inefficiency it brings to the economy? Or is a minimum wage efficient, kinda like how paying people higher than market rate makes them more motivated?
I'm curious to see both sides of the argument and the rationale (particularly the metrics) behind them.
In my experience you're not going to get a lot of well-thought-out economic arguments in this forum. I don't mean that as a jab at anyone, but it seems that most posters just don't have a background in it. My econ education is limited to a college minor and a few grad school classes for fun, so I only know the basics. Here's my best crack at answering the question I think you're asking. I tend to think about economics mathematically, but since I don't know your background I'll try to keep it as prose-based as possible. We can get into equations or whatever if you want to.
In microeconomics, you learn about why a minimum wage should, in theory, always be a bad thing. As you alluded to in your OP, this is because in an otherwise Pareto efficient economic system, an effective price floor will result in a deadweight loss. This way of thinking about economics is good for beginners. It's like how if you've ever taken an intro physics class they always have you disregard air resistance, assume all ropes are massless, pretend friction doesn't exist, etc.
But in the real world we don't have a perfectly Pareto efficient economy. Why should this matter, you might ask. Surely if a minimum wage causes a deadweight loss, then it's a bad thing. It doesn't matter whether the rest of the economy is perfectly efficient, right? Unfortunately, yes it actually does matter. This is because deadweight losses don't add up linearly. If I have three different deadweight losses caused by three different things, then the total deadweight loss of the economy doesn't necessarily equal loss1 + loss2 + loss3. Sometimes the total is greater than that, sometimes the total is less.
Why does it work that way? The answer comes from something called the General Theory of Second Best. Let me give you an intuitive example. Suppose we have a sector of the economy (say mining) that pollutes a whole bunch (i.e. creates large deadweight loss in the form of negative externalities). Ceteris paribus, is it more efficient for that sector of the economy to be perfectly competitive, or perfectly monopolistic? The answer could very well be "perfectly monopolistic," because monopolies tend to increase prices and reduce supply. Increased prices and lower supply are a good thing when the production of a good creates externalized costs. So in this hypothetical, the total deadweight loss (loss from monopoly + loss from pollution) is less than either loss individually. Combining two seemingly inefficient things reduces total inefficiency because they offset each other.
So the same thing could be true of minimum wage. For example, a minimum wage might offset the deadweight loss from imperfect information. Workers with less-than-perfect information might tend to settle for below-market wages because of their inability to find out about higher-paying opportunities. So in that case a minimum wage set right around the minimum market price might help prevent this from happening. You could come up with other narratives about how the minimum wage might reduce other types of deadwegith loss: "buyer" (ie employer) surplus, pollution externalities from peoples' commutes, etc. I'll leave this exercise to you.
So after this whole vigorous economic defense of the minimum wage, I have to conclude by saying I think the current minimum is too high. To get the benefits I'm talking about, the minimum wage should be set right around the lowest wage that any rational worker would agree to. In other words, I don't think there's any economic justification for making the minimum wage a quote-un-quote "living wage." To be maximally efficient, I would estimate the minimum wage should be the absolute minimum that, say, a 16-year-old with no skills getting his very first job would agree to be payed. That's probably something like $2-$3 per hour. So while I agree we should have a minimum wage, I would probably set it somewhere in that $3 range.
Hmm... that's interesting. I was thinking more in terms of gaining intangible positive value (e.g. goodwill) rather than lowering other negative externalities. I can see how the minimum wage could be appealing from this perspective, but measuring this is quite difficult I feel. I get a sense that the current minimum wage is a tad illogical (due to political concerns born from human empathy) but I can't really put a number on it and say that I want minimum wage to be $2 or something.
@Billy, going off of only federal minimum isn't too helpful on a national level since some states, particularly the west coasts entire population, is going to skew our numbers. Also, only counting people earning exactly federal minimum, and not a penny over, makes the numbers look better than they really are. Only some 30% of post-recession jobs pay more than 30k a year (roughly double federal min) and the U shaped recovery and jobs paying 10-20 cents more an hour put these people in the same boat as those on the federal min, but aren't presented in those bps stats
I thought it was a bit cynical because it sounded like you suggested that minimum wage is kept at the current level because people on minimum wages live paycheck to paycheck, thus stimulating the economy. It sounded a little dark.
Its bull*****. Like bitter said, none of us are economic experts. Do the research and find valid studies done by experts. When demand for products and services increases, prices increase. This little bit of purported economic activity coming from the bottom will hardly dent the US economy, if you buy into this. This race to the bottom for the minimum wage worker is also bull*****. We do not have a huge swath of workers looking for minimum wage jobs. Think about that. Sure, ECP and a few others will point to antidote stories of people looking for minimum wage work but this atypical. You will earn more as you get older, gain experience and education. 3.6 Million make minimum wage and 92% of them are under the age of 25. The invest comment....I wonder where'd we be if we did not have the likes of Mark Cuban, Google and many other fortune 500 companies investing in start-ups. Or the rich investor who takes the mom and pop shop national. Can not do that with out huge amounts of capital that comes from the rich people.
The origination of all the billions that billionaires have come from hard work, innovation and tenacity. They did not just get "lucky" as some would claim. Almost all of them kept putting them selves in position to be successful, it was only a matter of time, luck had nothing really to do with it.
I'm not sure how this relates to my comment. I was curious about how goodness is measured versus economic value. I do think you bring up a good point that there aren't as many minimum-wage workers as some would make out to be.
It's fine if there aren't many (or any) economic experts here. I figured there would be at least some people who would help examine it from a theoretical perspective, but I was also interested in hearing from others since everyone seems to have an opinion on it. I was curious about how they backed it up.
That's pretty interesting. Economic flow is a pretty good argument, if the tiniest bit cynical
Can any proponents of "economic flow" elaborate further on their argument? It's certainly not a term I've ever seen in academic publications on economics. To me it seem like a broken window fallacy.
Creating inefficiencies for the sake of moving money around is rarely a good thing, even though it sounds intuitively appealing.
The better question is why was minimum wage enacted? It was because companies were taking advantage of the work force and under paying them for work done. Some could say literally killing people to survive. So unions came about that gave the worker some rights.
Anyone who thinks that if America did away with minimum wage, wages wouldnt drop like a rock, you are kidding yourselves.
Remember, there is always someone that will do it for less. Even if that means they have to work 3 jobs to survive.
Pretty much this. Minimum wage isn't meant to be economical but rather purely to ensure that people can "sort of" survive.
Though you can't really survive off minimum wage in many parts of the country.
@Billy, going off of only federal minimum isn't too helpful on a national level since some states, particularly the west coasts entire population, is going to skew our numbers. Also, only counting people earning exactly federal minimum, and not a penny over, makes the numbers look better than they really are. Only some 30% of post-recession jobs pay more than 30k a year (roughly double federal min) and the U shaped recovery and jobs paying 10-20 cents more an hour put these people in the same boat as those on the federal min, but aren't presented in those bps stats
You are right. Lets talk about the federal minimum wage. You guys conflate state wages laws with federal all the time. Things brings up the question is why the federal government has to step in here in the first place. If you are going to talk about the federal minimum wage, talk about the federal issue not what each state is doing. Further, what you are not taking in account is there is not many people looking for min wage work.
The better question is why was minimum wage enacted? It was because companies were taking advantage of the work force and under paying them for work done. Some could say literally killing people to survive. So unions came about that gave the worker some rights.
Anyone who thinks that if America did away with minimum wage, wages wouldnt drop like a rock, you are kidding yourselves.
Remember, there is always someone that will do it for less. Even if that means they have to work 3 jobs to survive.
Not sure how that works, you have the state laws and second, 92% of the people already make above the federal minimum wage.
The better question is why was minimum wage enacted? It was because companies were taking advantage of the work force and under paying them for work done. Some could say literally killing people to survive. So unions came about that gave the worker some rights.
Anyone who thinks that if America did away with minimum wage, wages wouldnt drop like a rock, you are kidding yourselves.
Remember, there is always someone that will do it for less. Even if that means they have to work 3 jobs to survive.
Pretty much this. Minimum wage isn't meant to be economical but rather purely to ensure that people can "sort of" survive.
Though you can't really survive off minimum wage in many parts of the country.
Define "survive". Ever think the cost of living, quality and standard of life is artificially high?
I'm not sure how this relates to my comment. I was curious about how goodness is measured versus economic value. I do think you bring up a good point that there aren't as many minimum-wage workers as some would make out to be.
It's fine if there aren't many (or any) economic experts here. I figured there would be at least some people who would help examine it from a theoretical perspective, but I was also interested in hearing from others since everyone seems to have an opinion on it. I was curious about how they backed it up.
Most people who support a wage hike, I believe, have a fundamental lack of confidence in our people to achieve so instead of giving them opportunities, they give them money and cast them off as hopeless because they cant do anything else. I give examples after examples of opportunity for people to make well above minimum wage....what you will get from some in this crowd is reasons why people cant do those things.
Most people who support a wage hike, I believe, have a fundamental lack of confidence in our people to achieve so instead of giving them opportunities, they give them money and cast them off as hopeless because they cant do anything else. I give examples after examples of opportunity for people to make well above minimum wage....what you will get from some in this crowd is reasons why people cant do those things.
This is what I realized is the difference between Democrats of FDR's time and ours.
FDR designed his social programs with the definite conceit that they are temporary. They were never meant to allow a man to survive off them indefinitely. Rather, they were designed to give the folks who got smashed right in the face by the depression some security while they found a way to pick themselves back up and thrive.
LBJ took this another step forward with his war on poverty and the entire theme of the "Great Society" that he wanted to build. But even that relied on the conceit that it is temporary. LBJ intended to use the incredibly powerful and thriving economy the U.S. had at the time to eliminate poverty.
The social programs we have today are a far cry from the men who started them. It is no longer meant to help people pick themselves back up, and neither is it meant to eliminate poverty. It keeps people stuck in a perpetual cycle. While it is true that the means of getting themselves out of said cycle may not exist for a good number of them, one should still state the fact as is. They are stuck, and they are sucking the government dry.
People may think they make sense morally and ethically (I am ambivalent on this), but it should be rather clear that the government cannot sustain them for infinity.
It really doesn't help that the population grew far beyond the expectations anyone ever had, while the economy didn't grow as proportionally.
Interestingly enough, I can not find any stats on how many people make state mandated minimum wages. I've searched by state and federal stuff keeps coming up. What I can say is there is not a single state that, including ones with out state min wage laws, that has more than 7.4% of the hourly working population making at or below the federal minimum wage. What I do not get is, if companies or employers are out to screw people how does a state like Arkansas, who has state minimum wage laws lower than the federal have only 6.8% of the population making at or below the federal minimum wage? Georgia, another one with a state law that is lower than fed, has 4.5% of its hourly population making the minimum wage. MN, 4.2% and WY 5.1%.
So, what have we found? States with no law or laws that are lower than the FED minimum wage have roughly 5% of their hourly workers making at or below minimum wage. Keep in mind, this includes individuals who earn tips.
Its not about the economics of having a minimum wage, its about other factors that people who make a certan amount are less likely to go to crime or other "undesirable" activitys, its a safty net to keep socity at large safer. one that has a cost thats passed on to us at large for our own safty.
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It's not like I'm against having a minimum wage. If I had to get a minimum-wage paying job, I'd be extremely glad it exists. But why does a minimum wage exist?
Is it a measurement of overall utility versus economic prosperity? If so, how would you quantify that? Is there a way to measure how much "good" a minimum wage brings versus the inefficiency it brings to the economy? Or is a minimum wage efficient, kinda like how paying people higher than market rate makes them more motivated?
I'm curious to see both sides of the argument and the rationale (particularly the metrics) behind them.
http://www.mtgsalvation.com/forums/outside-magic/debate/450437-costco-back-in-the-forefront-of-minimum-wage
I personally believe it does not make a difference.
calling liberals loons=not okay
The standard to which the forum moderators apply the rules here.
Typical minimum wage jobs are ones that virtually every working age human can perform (you dont need a PHD to drop fries in a fryer). Because of this the supply of workers for those jobs is very high and demand for those workers could be low. When this is the case, normal laws of supply and demand dictate that the price of these laborers should be low. The minimum wage is a floor against a theoretical environment that would cause the value of low skill labor to be so low that it creates other issues.
To prevent employers from paying employees below a certain amount.
Because otherwise they would.
calling liberals loons=not okay
The standard to which the forum moderators apply the rules here.
To piggyback off of this, having a minimum wage is good for more than just this. One big thing is that it prevents employers from having people bid how little they will accept to work. A race to the bottom is good for a very very small cross section of the population, but pitting workers against each other can be a decent tactic when trying to keep wages low. By putting a minimum wage in place this abusive tactic is less able to be used.
A minimum wage is also good to help, in some respects, with the stagnation of wealth. Economic flow is the job creator and when people at a low SES have cash they will spend it as they are living paycheck to paycheck. This demonstrate a demand for the goods that they buy and that helps keep businesses in the area open. Economic flow is the big job creator. When that money goes to the higher SES individuals who have already had their needs sated, the money will go towards investment accounts of some sort.
There is a great TED talk related to this, https://www.youtube.com/watch?v=CKCvf8E7V1g
In my experience you're not going to get a lot of well-thought-out economic arguments in this forum. I don't mean that as a jab at anyone, but it seems that most posters just don't have a background in it. My econ education is limited to a college minor and a few grad school classes for fun, so I only know the basics. Here's my best crack at answering the question I think you're asking. I tend to think about economics mathematically, but since I don't know your background I'll try to keep it as prose-based as possible. We can get into equations or whatever if you want to.
In microeconomics, you learn about why a minimum wage should, in theory, always be a bad thing. As you alluded to in your OP, this is because in an otherwise Pareto efficient economic system, an effective price floor will result in a deadweight loss. This way of thinking about economics is good for beginners. It's like how if you've ever taken an intro physics class they always have you disregard air resistance, assume all ropes are massless, pretend friction doesn't exist, etc.
But in the real world we don't have a perfectly Pareto efficient economy. Why should this matter, you might ask. Surely if a minimum wage causes a deadweight loss, then it's a bad thing. It doesn't matter whether the rest of the economy is perfectly efficient, right? Unfortunately, yes it actually does matter. This is because deadweight losses don't add up linearly. If I have three different deadweight losses caused by three different things, then the total deadweight loss of the economy doesn't necessarily equal loss1 + loss2 + loss3. Sometimes the total is greater than that, sometimes the total is less.
Why does it work that way? The answer comes from something called the General Theory of Second Best. Let me give you an intuitive example. Suppose we have a sector of the economy (say mining) that pollutes a whole bunch (i.e. creates large deadweight loss in the form of negative externalities). Ceteris paribus, is it more efficient for that sector of the economy to be perfectly competitive, or perfectly monopolistic? The answer could very well be "perfectly monopolistic," because monopolies tend to increase prices and reduce supply. Increased prices and lower supply are a good thing when the production of a good creates externalized costs. So in this hypothetical, the total deadweight loss (loss from monopoly + loss from pollution) is less than either loss individually. Combining two seemingly inefficient things reduces total inefficiency because they offset each other.
So the same thing could be true of minimum wage. For example, a minimum wage might offset the deadweight loss from imperfect information. Workers with less-than-perfect information might tend to settle for below-market wages because of their inability to find out about higher-paying opportunities. So in that case a minimum wage set right around the minimum market price might help prevent this from happening. You could come up with other narratives about how the minimum wage might reduce other types of deadwegith loss: "buyer" (ie employer) surplus, pollution externalities from peoples' commutes, etc. I'll leave this exercise to you.
So after this whole vigorous economic defense of the minimum wage, I have to conclude by saying I think the current minimum is too high. To get the benefits I'm talking about, the minimum wage should be set right around the lowest wage that any rational worker would agree to. In other words, I don't think there's any economic justification for making the minimum wage a quote-un-quote "living wage." To be maximally efficient, I would estimate the minimum wage should be the absolute minimum that, say, a 16-year-old with no skills getting his very first job would agree to be payed. That's probably something like $2-$3 per hour. So while I agree we should have a minimum wage, I would probably set it somewhere in that $3 range.
http://www.bls.gov/cps/minwage2012.htm
Put it in perspective:
About 150 Million people work in the US and only 3.6 Million earn at or below the federal minimum wage. About 97% of the working population over the age of 25 earns above minimum wage.
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But how do you measure goodness? If the minimum wage throws X amount of economic prosperity into a whole and makes Y people's lives Z better, how do you measure Y*Z?
That's pretty interesting. Economic flow is a pretty good argument, if the tiniest bit cynical
Edit: just saw the last two posts, will reply when I have a chance.
Its bull*****. Like bitter said, none of us are economic experts. Do the research and find valid studies done by experts. When demand for products and services increases, prices increase. This little bit of purported economic activity coming from the bottom will hardly dent the US economy, if you buy into this. This race to the bottom for the minimum wage worker is also bull*****. We do not have a huge swath of workers looking for minimum wage jobs. Think about that. Sure, ECP and a few others will point to antidote stories of people looking for minimum wage work but this atypical. You will earn more as you get older, gain experience and education. 3.6 Million make minimum wage and 92% of them are under the age of 25. The invest comment....I wonder where'd we be if we did not have the likes of Mark Cuban, Google and many other fortune 500 companies investing in start-ups. Or the rich investor who takes the mom and pop shop national. Can not do that with out huge amounts of capital that comes from the rich people.
The origination of all the billions that billionaires have come from hard work, innovation and tenacity. They did not just get "lucky" as some would claim. Almost all of them kept putting them selves in position to be successful, it was only a matter of time, luck had nothing really to do with it.
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Anyone who thinks that if America did away with minimum wage, wages wouldnt drop like a rock, you are kidding yourselves.
Remember, there is always someone that will do it for less. Even if that means they have to work 3 jobs to survive.
@Billy, going off of only federal minimum isn't too helpful on a national level since some states, particularly the west coasts entire population, is going to skew our numbers. Also, only counting people earning exactly federal minimum, and not a penny over, makes the numbers look better than they really are. Only some 30% of post-recession jobs pay more than 30k a year (roughly double federal min) and the U shaped recovery and jobs paying 10-20 cents more an hour put these people in the same boat as those on the federal min, but aren't presented in those bps stats
Hmm... that's interesting. I was thinking more in terms of gaining intangible positive value (e.g. goodwill) rather than lowering other negative externalities. I can see how the minimum wage could be appealing from this perspective, but measuring this is quite difficult I feel. I get a sense that the current minimum wage is a tad illogical (due to political concerns born from human empathy) but I can't really put a number on it and say that I want minimum wage to be $2 or something.
I thought it was a bit cynical because it sounded like you suggested that minimum wage is kept at the current level because people on minimum wages live paycheck to paycheck, thus stimulating the economy. It sounded a little dark.
I'm not sure how this relates to my comment. I was curious about how goodness is measured versus economic value. I do think you bring up a good point that there aren't as many minimum-wage workers as some would make out to be.
It's fine if there aren't many (or any) economic experts here. I figured there would be at least some people who would help examine it from a theoretical perspective, but I was also interested in hearing from others since everyone seems to have an opinion on it. I was curious about how they backed it up.
Can any proponents of "economic flow" elaborate further on their argument? It's certainly not a term I've ever seen in academic publications on economics. To me it seem like a broken window fallacy.
Creating inefficiencies for the sake of moving money around is rarely a good thing, even though it sounds intuitively appealing.
Pretty much this. Minimum wage isn't meant to be economical but rather purely to ensure that people can "sort of" survive.
Though you can't really survive off minimum wage in many parts of the country.
You are right. Lets talk about the federal minimum wage. You guys conflate state wages laws with federal all the time. Things brings up the question is why the federal government has to step in here in the first place. If you are going to talk about the federal minimum wage, talk about the federal issue not what each state is doing. Further, what you are not taking in account is there is not many people looking for min wage work.
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Not sure how that works, you have the state laws and second, 92% of the people already make above the federal minimum wage.
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Define "survive". Ever think the cost of living, quality and standard of life is artificially high?
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Exactly =)
Most people who support a wage hike, I believe, have a fundamental lack of confidence in our people to achieve so instead of giving them opportunities, they give them money and cast them off as hopeless because they cant do anything else. I give examples after examples of opportunity for people to make well above minimum wage....what you will get from some in this crowd is reasons why people cant do those things.
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Touche'
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This is what I realized is the difference between Democrats of FDR's time and ours.
FDR designed his social programs with the definite conceit that they are temporary. They were never meant to allow a man to survive off them indefinitely. Rather, they were designed to give the folks who got smashed right in the face by the depression some security while they found a way to pick themselves back up and thrive.
LBJ took this another step forward with his war on poverty and the entire theme of the "Great Society" that he wanted to build. But even that relied on the conceit that it is temporary. LBJ intended to use the incredibly powerful and thriving economy the U.S. had at the time to eliminate poverty.
The social programs we have today are a far cry from the men who started them. It is no longer meant to help people pick themselves back up, and neither is it meant to eliminate poverty. It keeps people stuck in a perpetual cycle. While it is true that the means of getting themselves out of said cycle may not exist for a good number of them, one should still state the fact as is. They are stuck, and they are sucking the government dry.
People may think they make sense morally and ethically (I am ambivalent on this), but it should be rather clear that the government cannot sustain them for infinity.
It really doesn't help that the population grew far beyond the expectations anyone ever had, while the economy didn't grow as proportionally.
How about states with no laws?
Louisiana 2.7%
MS 6.1 %
Alabama 6.8%
TN 7.4%
SC 5.8%
So, what have we found? States with no law or laws that are lower than the FED minimum wage have roughly 5% of their hourly workers making at or below minimum wage. Keep in mind, this includes individuals who earn tips.
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