If a worker can’t compete by improving their skills or gaining new skills, subsidizing them through welfare doesn’t encourage them to grow in their abilities, it encourages them to stay where they are, to protect their welfare benefits. Having a system that increases the scope from only subsidizing zero labor productivity to subsidizing low productivity doesn’t seem to me to be a step in the right direction, but one in the opposite.
Now, if private firms and individuals choose to use charity or donate to private charitable institutions that assist unemployed or underemployed individuals, I see nothing wrong with that. The primary point of contention I have is not with the welfare system itself, but the method by which it is funded; through involuntary taxation based on forced coercion. True charity is voluntary.
There is a labor-leisure trade-off. Individuals, and this is a purely empirical observation with torrential support, prefer leisure to labor. In other words, they would rather do less work than more work, all other things equal. In order to get them to work, you must compensate them somehow (usually with a wage). People will take-on more challenging endeavors usually (but not always solely) because the tangible remuneration is higher.
Thus, paying people more, for work that warrants less, will subsidize those individuals employed in less-productive jobs. You are reducing the opportunity cost for finding better, more challenging work, and this is especially true if you withdraw those welfare payments once an individual finds a better, higher paying job. In principle, it yields the same effects as unemployment insurance (higher unemployment, especially frictional unemployment). And I’ve chosen to ignore the fact that in order to pay someone to not seek more difficult, productive work, you must first steal from someone who is engaged in such work, which creates its own set of problems.
When you suggest making working a perquisite for welfare, are you not essentially suggesting the negative income tax, with the caveat of no welfare benefits received at $0 earned/year level?
If so, the problem is simply in the flaws of the negative income tax (if you do not know them, I am sure JJ could show you several links). The difference being that someone could simply earn $1/year and make the rest up with welfare, which is hardly different from doing no work and making the rest up with welfare.
If you should say, “Well, we would not give out the welfare benefits if one earns $1/year (probably doing 10 minutes of busy work for someone)!” then who should decide what the minimum income would be required to receive the welfare benefits? And how would they decide such a thing? Also, realize that this would result in unemployment the same way minimum wage does (ie, if the Grand Bureaucrat decides one must earn $10,000/year to receive welfare benefits, all those whose work is worth less than that might not even bother taking the job, and what would you do with all those people earning zero? The bleeding hearts would cry out!)
And, if you were unclear as to what JJ was suggesting with the whole “punch in the face” bit, it goes like this: taxation is theft; theft is harmful – punching someone in the face is assault; assault is harmful – if causing more harm does not help the situation, how is stealing (taxing) more from others helpful?
I think the really obvious point that is being missed here is that adjusting the minimum wage downward does not mean that market prices in general can remain at current higher levels, or that they will. Most prices will eventually adjust downward to accommodate the lower cost of labor (and purchasing power).
The minimum wage doesn’t affect 96% of all workers, it’s been estimated (iirc). Most workers are productive enough to be paid more than the minimum wage already. Therefore lowering the minimu wage, or eliminating it, would have virtually no effect on prices and purchasing power, certainly not lowering purchasing power.
In fact, many more people would be able to enter the work force, especially the young, whom not are priced out of the market by the minimum wage, and overall purchasing power would actually increase.
The minimum wage has only one use and it’s a political use: to pretend to be helping the lower class in order to gain votes.
In practice, the minimum wage has historically trailed the wage increases pre-existing it on the market, with the effect that political proponents can claim that it’s actually doing something, but in fact it’s doing nothing but artificially limiting work.
So what you’re saying is that if your local McDonald’s and all of the suppliers they purchase supplies from suddenly experienced an up to 55% decrease in annual labor costs (from a minimum wage drop from $7.25 to $4.00) that somehow the savings from that decrease in costs will not eventually be reflected in the price of their products. Forgive me if I think you’re being shortsighted.
What? You’re missing the point. The only way that they would experience a 55% fall in annual labor costs would be if they fired all of their existing employees and replaced them with 11 year olds and/or the crippled. The point is that reducing or even eliminating the minimum wage would have practically no affect on the labor market as a whole; it would only permit a very small faction from entering who were priced out due to the arbitrary price floor.
94.8% of all workers already earn more than the minimum wage, without the government forcing them to do so. And the reason is because they’re already far more productive than that which would be needed to earn a wage higher than the minimum.
You don’t really understand what causes a labor purchase price to exist (what you call a wage). A wage is just a price for labor, and like everything else is determined by supply and demand. You have a false view that only a law, called the minimum wage law, is keeping prices paid for labor from dropping.
As I already said, 94.8% (thank you Wheylous) of all people are so productive that they can command a wage already above the minimum.
The minimum wage further has the effect not of propping up wages, as you’re assuming here, but rather of stopping the employment of anyone who is not productive enough to command a wage of at least the minimum wage.
Which means that all current McDonald’s employees are just productive enough to command their current wage. Meaning eliminating the minimum wage law may have virtually no effect on their wage whatsoever.
If anything, it’d be new employees whom aren’t yet productive enough to command the current minimum who would start at a lower wage. However, they’d rapidly garner work experience and be able to bid up the price of their labor services as well.
McDonalds would actually be able to hire more people because of the lowered minimum, and these people too would quickly gain work experience–experience they wouldn’t have gotten with the minimum in place–and be earning a wage they wouldn’t have earned with the minimum in place.
And because of supply and demand, if a particular job is judged by workers to not be worth the price paid for those labor services, workers will not take that job. Thus the price is not determined by the law, but supply of workers and demand for workers by employers. If workers will not take X job, it must mean that they can obtain better employment elsewhere at a higher wage rate.
In any case, by gaining work experience they also gain work-related skills and can then bid up their wage, since they are becoming more productive sooner than they would have under a minimum wage law.
Perhaps you’re right that McD’s could find a lot of workers at $4/ hour. I doubt it, but it’s possible. And perhaps they would be able to lower prices. However, no one would be forced to take a job at that rate. Which means those workers would realize they’re particularly unskilled and are happy to work at that wage, for now, while they gain experience. Such would be a completely entry-level job.
In any case, we can easily see that the current minimum wage at any level simply prevents jobs from existing that would exist, and prevents those whom most need work experience from getting it, and discriminates particularly against the young and unskilled and other minorities.
I said “up to 55%” in recognition of that fact. But given the turnover rates in those types of jobs (you do realize fast food has one of the highest turnover rates of all jobs?) it is not unreasonable to expect that such a decrease could be realized, and fairly quickly.
Furthermore, jobs that pay the minimum wage and jobs whose pay is affected by the minimum wage are two distinctly different things. The pay range of jobs affected by the minimum wage can be surprisingly high because of a sort of wage ripple effect. Experienced employees at the next level or two (and possibly more depending on the industry) above minimum wage paying jobs tends to become overvalued, as the rise in the minimum wage forces employers to re-evaluate the cost of paying to promote and train someone inexperienced at a certain position versus paying more to keep an existing, experienced employee. If the employer has already been forced to risk significantly more than market value to hire a low-end employee, the additional risk of promoting that employee to the next level tends to move employers towards the latter.
That would matter if I had made that argument, but I didn’t. The OP’s gripe seemed to be pointing to the fact that people making less at the minimum wage than they are now would be harmful because the costs of goods and services in the market would and could remain high, but there’s very little reason to believe that would necessarily be the case; in fact, there’s pretty persuasive reasons to believe that it wouldn’t.
It is highly unlikely because established firms will not hire 12 or 13 year old children, for a myriad of reasons (the individual’s whose productivity warrants such wages).
How is this relevant?
You’re talking about the cash balance effect, but the point is that income will not fall at all (or to any significant degree) as a result of lowering or removing this arbitrary price-ceiling. And, which has already been pointed out, if it has any affect at all, it will actually increase income (and therefore variable costs) in the aggregate.
So if you want to assume that incomes will fall as a result of this policy change in order to demonstrate your point, then go ahead, but the assumption itself is untenable.
You want an actual scenario where prices fall, I suggest one where most physical labor has been taken over by semi-intelligent robots. Truck drivers and delivery, burger flipping, even crop preparation care and harvest are on the verge of complete automation.
In a world where labor counts for some 85% or thereabouts of the cost of a product, mechanizing could ultimately bring that way down.
The tradeoff is that mechanizing is expensive up-front. But again, just goes to show that what the world lacks is an abundance of productive capital. With all those machines in place and written down, food prices can ultimately fall dramatically.
Ok, yes! This is something that has confused me for awhile. I think the existence of volunteer work puts the moral argument for the minimum wage on its face, because we can see how inconsistent the logic is.
Lets say that I voluntarily choose to donate time to work for a charity. I work for four hours, and I get paid nothing in return for my four hours. Not only that, lets also assume that I am 12 years old. No one bats an eye, other than to congratulate me on my giving heart, and to thank the charity for supplying the volunteers. Why is this not child labor and exploitation? Now, if we view this same circumstance except we change it from charity labor to for-profit labor, all of the sudden hiring the 12 year old and paying him nothing for his work is immoral, even if he is perfectly willing to work for free.
Hell, even if the twelve year old is willing to work for $5/hr and that is less than minimum wage, we lynch the company. So we would prefer someone to pay a 12 year old nothing for his labor in the name of charity than to pay him $5 an hour in the name of for-profit business. Either they are both “immoral child labor”, or neither of them are.
Had another question: have any studies been conducted into the psychology of the minimum wage affecting employers? What I mean is, is there any evidence that employers may offer slightly above min. wage just to make the job more attractive in that “hey, it aint a minimum wage job!”
Say there is no min wage, and so jerry makes $5 an hour. He creates $6 of value for his employer.
so, has any work been done to ask employers if, say, we now add a minimum wage to story, say $5.10, then might they now offer $5.20 just to make the job a non-minimum wage job.
I kind of doubt this would happen, but i wonder if the minimum wage causes differences in employer and employee psychology, in that perhaps when a min wage is in place, employees find these jobs to be less socially valuable then they would have been at the lower, real wage. Just wondering…doesn’t seem like they would but I wasn’t sure.
Also, how does the austrian argument that min wage creates unemployment apply to workers whose value is not objectively clear. Such as in Edgar the Exploiter, say someone who does administrative work and does not directly add to the income of a business, how do most entrepreneurs place an exact accounting value on workers like these.
The libertarian/free market answer is to abolish the minimum wage law. Businesses can create positions and pay whatever is commensurate for that position in the free market. Because of the minimum wage law, numerous service positions no longer exist. It is illegal to hire people to do those jobs. The idea is that people are paid what they’re worth, acquire skills and experience, and become more valuable, more productive.
