Rent/Price Controls & Minimum Wage

Economics Economics Questions
1

So in Economics (this is a basic High School class, mind you), we were going over how rent controls, price controls, and minimum wages affect the economy. The teacher used the example of a 20 year old woman with a 2 year old daughter, comparing the two “with minimum wage” and “without minimum wage.”

He continued to say that without minimum wage, the mother would be paid far less than if on minimum wage, which basically turned into another sob-story about how minimum wages allow the woman and her daughter to survive, make more money, blah blah blah.

The example continued, but included rent controls and price controls. He went on to say that with government intervention, monthly rent could be kept at a certain price so the woman could actually pay it. Without government intervention…well, let’s just say the assumption was that the rent would be very high, and coupled with no minimum wage, the woman wouldn’t be able to live in her apartment.

So it again continued, but with price controls. I assume all of you know what that lead to, (bahh the government sets limits on prices, bahh the woman wouldn’t be able to afford anything if the government didn’t have price controls because she’s on minimum wage and paying an insanely high rent, bahhh), so I won’t go into much detail.

Basically I’m asking for articles or just general arguments against rent/price controls and the minimum wage. I could look myself but uh…I know you’re all just dying to do the work for me. Division of labor! (Ok, not really.)

Note: If none of that made sense…Good because my explanation abilities plummet whenever I ask something on here. That, and the teacher is some late-twenties hot-shot with faux-hawk that stutters and makes spelling mistakes ALL THE TIME.

2

Explain to him that the employers obviously thinks that he can gain more than minimum wage from the labor of the 20-year-old woman with the 2-year-old child. Otherwise, why would he hire her. If he response that there would be some other kind of non-monetary gain. Tell him that that is already included in the gain that the employer thinks he can make.

Now, explain to him that what if the employer didn’t think that he could gain more than minimum wage from the labor of the 20-year-old woman with the 2-year-old child, why would he hire her? If he response that there would be some other kind of non-monetary gain. Tell him that that is already included in the gain that the employer thinks he can make.

Also, ask him why it should be illegal for the 20-year-old woman with the 2-year-old child to voluntarily accept less than minimum wage. Doesn’t believe in a woman’s right to choose?

3

That frustrated and nauseating feeling along with the headaches from listening to nonsense is normal when taking economics classes. I will try to explain this as briefly as possible for you. Supply and demand meet at point where a price is determined; any discrepancy between supply and demand is corrected by price changes. Minimum wage is simply setting a price floor (price of labor). If prices are kept artificially high this creates a surplus (in this scenario, a surplus of labor). The surplus of labor means there will be unemployment. Your teacher’s example is idiotic for numerous reasons. His or her scenario completely neglects how many mothers are in a similar situation, but cannot find work simply because employers cannot afford to hire them at wage rates that prevail only because of government laws such as minimum wage.

Your teacher would have to address many economic issues to explain why the mother’s wages would be insufficient to provide a “good” (arbitrary) standard of living for herself and her daughter. As output increases, prices should fall not rise or stay the same. Why don’t prices fall? Oh yeah, because the government controls money/banking, and because they continually debase the currency. On top of her “low” wages, the mother has to deal with a devaluing currency. She also has to pay higher prices for things like food due to the ridiculous tariffs the government imposes on imports. She also has to directly pay taxes and the taxes her employer has to pay and the regulations he has to deal with simply put even more downward pressure on her wage rates.

Price controls that keep prices artificially low create shortages. If all of a sudden Ferrari began selling their cars for $50, would there be a Ferrari for everybody that wanted one? No, I highly doubt it. If the government imposes rent controls, this means there is less money to be made in renting out housing for people to live in which means there will be less housing available.

Without the government debasing the money the hypothetical mother is paid in, then stealing it, then stealing from her employer, and doing everything possible to keep other prices artificially high (including what she buys like food) I have a hunch that she might be better off…just a slight hunch. Let us know what your idiot teacher says when confronted with facts.

Best regards,

Chris

4

Hahaha, that is great!

5

In regards to minimum wage, at any given point in time, there is only so much currency in the market. In other words, currency is scarce. This means there is a limited supply of currency for people to pay other people to do stuff. If wages are allowed to float, then the market will employ the most people possible. If the government mandates a minimum wage, that means there is less currency to pay people to work. In other words, if an employer can afford to pay two people $5/hour, than that is all he can afford. If the minimum wage is set at $7/hour, this means the employer would need $14/hour to pay both employees. But the employer does not have that much, so the employer fires one employee. No, instead of two people earning $10/hour, there is one person earning $7/hour. This will result in a loss of jobs. So, now she will have a harder time finding work. Not only that, but because the wage floor results in lost productivity across the board, prices will rise for goods and services. So now, she will have a harder time finding work, and stuff will cost more.

Rent controls mean people cannot make as much money renting out homes, which means there will be fewer people renting out homes, which means she will have a much more difficult time finding a place to rent. So this increases her chances of being on the street.

Price controls have the same effect. There are plenty of examples, like when governments use price controls in “disaster” situations limiting the price of gasoline. It always results in a shortage of gasoline. Another example is with the 1970’s gasoline crisis with people waiting in long lines. The government had imposed price controls on the price of gasoline. All price controls mean is that it will be much more difficult for her to find the things she wants to buy.

Your teacher obviously does not know anything about economics.

6

Thanks for your replies so far.

I should also add that he said, “some of you with the conservative mindset might think all of this [price/rent controls, minimum wage] is bad, but it is actually good.”

And Spidey, in no way is he an economics professor. He’s a high school economics teacher with a faux-hawk [:P]

7

minimum wage

http://www.youtube.com/watch?v=7DS0XXFdyfI

8

Those videos were great, thanks nirgrahamUK.

So today (er, yesterday now. 2:28 AM), he followed up the example with the same useless spiel as before. But I forgot to mention how he says vouchers help the woman and her child pay the rent on her apartment.

And he LITERALLY went into how without all of these government actions, the woman could end up on the street, end up dead, her child could be taken away, etc.

9

And? So would everyone else be paid much less than they are presently. Is there any reason to presume that the new distribution would be detrimenally different to this particular case?

The minimum wage also prevents some people from earning any wage whatsoever; there are people who would willingly accept a wage less than the “minimum” for certain jobs. Why should this case benefit at the expense of these cases?

Of course, because the only thing businessmen like more than making money, is setting prices so high that they don’t make any money at all.

10

Dude, you should totally win this debate. This is one of the biggest issues you can slam liberals on.

I found this article with theory and evidence (citations included). It looks pretty straightforward. You should also look around for when the all-white unions were pushing for the first minimum wage law during the great depression to stop blacks and women from taking their jobs.