I think we all agree that the minimum wage will cause unemployment, since the labor markets which it impacts are fairly competitive. However, if there is no perfect elasticity for labor demand, then an increase in the minimum wage will create more gains than losses. Therefore, a 10% increase in the minimum wage won’t decrease employment by 10%, so there’s a positive income gain for minimum wage workers.
And what about those who are priced out of a job because of the meddling? Remember to consider that which isn’t seen.
Just like everything the government does, the minimum wage benefits some at the expense of others. The others in this scenario are most often black teenagers.
True, but I think that’s the point of saying it’s an empirical question. The people who lose their jobs and income suffer, but all the other people still employed gain from the higher wages. And if the elasticity is less than perfect, the gain will exceed the loss
So is a 1000% increase in the minimum wage justifiable if it won’t decrease unemployment by 1000%?
In theory, yes because there’s an overall welfare gain. Of course, that’s why we’re saying it’s an empirical question, because at that level of an increase the elasticity will likely always be perfect, so the policy is not desirable. A minimum wage increase will only increase welfare with small incremental hikes and at low levels
What gain? Those with higher wages will be forced to subsidize those further unemployed with the state parasite monopoly taking a middle man cut.
Are you speaking about unemployment benefits? This is true, except ideally in a progressive tax system those making minimum wage would have minimal tax obligations.
But most studies show the market is not even close to perfectly elastic. A 10% increase in the minimum wage is likely to cause only something like a 5% decrease in employment, and in that case there’s quite a large welfare gain
No. Welfare state taxes and poverty inducing inflation.
What you’re expecting is some sort of zero sum game where one value goes up and another goes down.
I think you are looking too narrowly for the effects of a minimum wage increase.
The great talent of the state is to obfuscate and diffuse the costs of policy so as not to make the victims and consequences the seen but the unseen.
Well I think it’s important to isolate the policy and hold other factors constant so we can assess its effectiveness. I’m not sure why you’re bringing up other policies that aren’t necessarily relevant.
I’ll put this one out there.
How exactly can we claim that a 10% minumum wage has increased overall welfare simply becuase less than 10% of people were made unemployed. Perhaps those people may have preferred a job to their unemployment. How can such an interpersonal comparison be made?
Anyways, the goal is not to ensure benefits to some at the expense of others, but to procure benefits to all. As we all know there’s only one way to achieve this.
Also, you’re completely wrong in saying there’s any gain. The only thing you can do by raising the minimum wage is force business to reallocate resources.
If the minimum wage is 10 dollars, and you increase it 10%, bringing it to 11 dollars, also increasing unemployment by 5%, how is there a welfare gain?
Hundreds of thousands of people who were once making 10 dollars are now making nothing, and the people who were making 10 dollars are now making 1 dollar extra. Clearly all you’ve done is given workers a handful of extra dollars at the expense of hundreds of thousands of people’s livelihood.
This is entirely irrelevant however. Utilitarianism is bullshit.
That’s not natural.
They are relevant. You are trying to chart a direct correlation between a price floor and employment. It seems to me, that if you are dealing with prices (minimum wage) then perhaps you should be looking at the aggregate of wages in an economy before and after minimum wage rate changes because changes won’t just occur at the minimum wage margins when the floor is moved, there will be a ripple effect through all wage levels and jobs.
Like I said, not as simple as making a direct correlation. We don’t live in bubbles.
Beat you to it nibbler!
Good point. I guess we’re assuming that the minimum wage is affecting similar people across the board. I think it’s a good assumption, but may not always apply.
To make the numbers simple, if the minimum wage is 10 dollars and there are 10 people employed, and it’s increased by 20% and employment decreases by 10%, that means 1 person lost his job (so a loss of $10) but the other 9 people gain a $2 raise, which equates a $18 gain for everyone. So the net gain is $8
It may not be natural, but even Austrian economists agree that you must use the ceteris paribus condition to assess economic policies. The other effects of the minimum wage you are speaking of that make affect other industries or sectors, however, are legitimate changes that need to be considered. I was speaking of welfare taxation which is not really relevant to this case.
As Hans Hermann Hoppe says, when a scientific error is committed no one benefits, but when a moral error is committed someone always benefits.
Those who benefit most from minimum wage laws are state educators, who must compete with private business for students. If private business begins to offer paid apprenticeships with education, no one will attend state-licensed schools and pay for them. The intellectual class that defends the state must also defend the minimum wage.
So we have to employ some sort of utilitarian calculus? No. We simply have to consider the effects without even having to resort to testing it. And regardess of the gains some might make, the reality is that it will cause distortions in the market. That’s bad.
Juma, what about the person that lost their job?