The minimum wage

[pairunoyd]

I often think about volunteers or people working for free. I bet you thered be a lot more people, especially older people, willing to do semi-volunteer work if they could be compensated a small amount. You might have someone that’d be willing to work 20-30 hrs a week at $1-$2/hr, just so they can pay their gas and a meal or two per day. But instead, they have to either choose a minimum wage job they don’t want or a job they do want but that doesn’t pay anything. I think there are all sorts of plausible scenarios one could imagine, in addition to empirical data.

One way I like to explore the underlying principle is to take it to an extreme. This may not be a perfect way to reason, but it can give you some insight on the subject at hand. Hypothetically raise the minimum wage until you can clearly imagine disastrous effects. Raise it to $1,000/hr. Wouldn’t it be great if everyone made $1,000/hr??? What’s wrong w/ that reasoning? What’s wrong w/ thinking $500/hr would be great? What’s wrong w/ $100, $50, $10, $5, $.01/hr?

There’s an interesting article at Cato on the minimum wage: http://www.cato.org/pubs/regulation/reg18n1c.html

Here are a few charts from the article (hope they format correctly):

**Percentage** **low wage¹****Percentage** **before hikes²****Percentage** **after hikes³****Percentage** **point change****Total** **percentage** **reduction⁴**15-1944.543.036.3-6.7-15.620-2414.277.773.3-4.4-5.725-643.385.983.8-2.1-2.465-6914.026.225.1-1.1-4.2**Women Employed****Age Group****Percentage** **low wage¹****Percentage** **before hikes²****Percentage** **after hikes³****Percentage** **point change****Total** **percentage** **reduction⁴**15-1951.841.436.0-5.4-13.020-2419.066.964.1-2.8-4.225-648.866.566.3-0.2-0.365-6921.015.916.4+0.5+3.1 1. Percentage paid low wages, i.e., less than or equal to $4.25/hour, between April 1, 1989 and March 31, 1990, prior to minimum wage hike. 1. Percentage of total age group population employed between April 1, 1989 and March 31, 1990, prior to minimum wage hike. 1. Percentage of total age group population employed between April 1, 1991 and March 31, 1992, when full minimum wage hike took effect. 1. Percentage reduction off the base of all individuals employed prior to minimum wage hike.

Table 1

Percentage Employed by Age Groups before and after 1990-91 Minimum Wage Hikes

Men Employed

Age Group

**Percentage** **low wage¹****Percentage** **before hikes²****Percentage** **after hikes³****Percentage** **point change****Total** **percentage** **reduction⁴**High School Dropout20.746.643.5-3.1-6.6Black11.060.057.1-2.9-4.8Mexican Descent15.674.470.8-3.6-4.8Single15.164.061.2-2.8-4.425-64 Years of Age3.385.983.8-2.1-2.4**Women Employed****Demographic** **Group****Percentage** **low wage¹****Percentage** **before hikes²****Percentage** **after hikes³****Percentage** **point change****Total** **percentage** **reduction⁴**High School Dropout35.428.926.8-2.1-7.3Black16.950.949.2-1.7-3.3Mexican Descent21.948.245.6-2.6-5.4Single18.451.149.4-1.7-3.325-64 Years of Age8.866.566.3-0.2-0.3 1. Percentage paid low wages, i.e., less than or equal to $4.25/hour, between April 1, 1989 and March 31, 1990, prior to minimum wage hike. 1. Percentage of total demographic group population employed between April 1, 1989 and March 31, 1990, prior to minimum wage hike. 1. Percentage of total demographic group population employed between April 1, 1991 and March 31, 1992, when full minimum wage hike took effect. 1. Percentage reduction off the base of all individuals employed prior to minimum wage hike.

Table 2

Percentage Select Low-Wage Populations Employed before and after 1990-91 Minimum Wage Hikes

Men Employed

Demographic Group

Table 3
	Men	Women	Blacks
Teenagers, 15-19
Effect of Increasing Minimum from $3.35 to $3.80	-4.8	-6.6	-7.5
Effect of Increasing Minimum from $3.35 to $4.25	-7.3	-11.4	-10.0
High School Dropouts, Adults 20-54
Effect of Increasing Minimum from $3.35 to $3.80	-1.5	-2.5	-4.4
Effect of Increasing Minimum from $3.35 to $4.25	-3.1	-5.2	-6.7
Note: Change for selected low wage groups adjusted for changes in aggregate employment. Men and women refer to all races. Blacks refers to both men and women.

Table 4
Teenage Employment/Population Ratios in New Jersey and Pennsylvania 1988-1992
Year	New Jersey	Pennsylvania
1988	40.4	40.5
1989	35.8	42.9
1990	33.8	40.6
1991	31.3	40.6
1992	29.1	36.8
Note: Years are 12 months from April through March

[xahrx]

It’s also notable that inflation can outpace wage hikes, making them irrelevant or delaying their effects. If a wage hike is given during an inflationary boom where companies have enough new money to spend so they don’t worry about the hike, no decrease in employment will show up all else being equal. When the boom halts those workers who can be laid off will be laid off, and their re-employment will be slowed thanks to the price floor.

[Nathyn]

@Xevec

I am having an argument with one such person. He responds to this type of thinking that “the correlation that minimum wage hurts jobs does not exist. The evidence just isn’t there. There is no correlation.” He says this because he finds it impossible to find anyone who’s job was destroyed by minimum wage. He claims that with EVERY minimum wage increase..there has been an increase in employment. He even believes minimum wage cured the depression.

Send him this and watch him get flustered:

http://www.house.gov/jec/cost-gov/regs/minimum/50years.htm

Point out the fact that virtually every study on the minimum wage has shown it correlates with unemployment, except for one study by Card and Krueger which hasn’t been replicable.

[Xevec]

Yeah, I already tried this. He calls all of these things “lying propaganda.” I doubt he has read them…but he wants to see the “raw evidence.” He doesn’t believe those studies are using “raw evidence” because the correlation to him simply does not exist. He didn’t get flustered seeing this. He simply dismissed it because he finds the entire economic study to be total bullshit.

[Inquisitor]

Why are you bothering with this person?

[pairunoyd]

@Xevec

Yeah, I already tried this. He calls all of these things “lying propaganda.” I doubt he has read them…but he wants to see the “raw evidence.” He doesn’t believe those studies are using “raw evidence” because the correlation to him simply does not exist. He didn’t get flustered seeing this. He simply dismissed it because he finds the entire economic study to be total bullshit.

OK, imagine the economy at large is like your own personal economy, i.e., budget. Now imagine the U.S. economies employees are like the things you buy with your budget. If the government decided you’re not paying enough for your gym membership and bumps the cost from $50/mth to $65/mth, are you still going to be able to buy and do everything you did before, assuming you wish to keep going to the gym? You’ll now have $15/mth less to spend on budgeted items (US economy = employees).

This may not be a perfect analogy, but it’s pretty good. If the government mandates a price increase on 1 item/employees you’re going to have to reduce the quantity of other items/employees.

[Xevec]

In response to your analogy, the person replied with this:

This makes the assumption that the economy is completely inelastic and incapable of growth. Your argument also assumes that saving money is like saving real wealth. It also assumes that investment is from profit, rather than acknowledging that the expectation of profit is more pertinent than the realization of profit. All of these points I have shown you over and over, and yet you make these stupid statement like you haven’t read a single thing I’ve said."

[pairunoyd]

@Xevec

This makes the assumption that the economy is completely inelastic and incapable of growth.

So what’s the minimum wage’s affect on elasticity and growth? If the minimum wage were raised to $50/hr tomorrow, would this increase unemployment? I guess the real question is, “Do any non-market set wages reduce employment? If so, what wage level reduces what level of employment?” So he’s saying the current minimum wage doesn’t cause unemployment? Is there any legally established wage that would cause unemployment? If so, what level/price? $7, $8, $9, $10, $15, $20???

If the wages paid for bagging groceries were raised to $20/hr, would the bag boys become unemployed? For how long? If you look at employment of positions as opposed to employment of people, the bag boy position would most likely have a 99% unemployment rate.

Ask him this in order to help define the debate: Is it possible for a wage, at any level, determined by non-market forces, to cause unemployment?

[Inquisitor]

Umm, he basically sidetracked the issue entirely. He still hasn’t demonstrated anything.

[Xevec]

Also Allan, if what you say is true, then I don’t understand how you can NOT believe that raising minimum wage to $100 an hour would be a good thing.<
What you do not understand about my comprehension continues to amaze me. The argument is MOOT!
Do YOU want the MW at $100/hr???
NEITHER DO I!!!
WOULD YOU PLEASE MOVE ON!!!

I do not understand either how YOU can at all think that this argument is anything but stupid. So you don’t understand me and I don’t understand you; but we agree that the minimum wage should be below 1/2 of average earnings.

This was his response. The sentence in-between “<>” is what I said. I asked him if his logic is true, then minimum wage at $100 an hour would be a good thing. But at least you got his statement on where minimum wage SHOULD be. But I believe he is assuming average earnings is inelastic.

[pairunoyd]

Why should the minimum wage be below 1/2 average earnings?

What happens when it’s exactly 1/2 average earnings?

What happens when it’s 1/2+ average earnings?

Where does this ‘1/2 average earnings’ principle come from?

The minimum wage debate is just bizarre to me. How is someone so smart that they can go around determining the economic value of things for everyone else? What about a maximum wage law? If suddenly employers could get any and all employees at $1/hr, what would this do to the demand for employees? There would be a huge demand for workers but most likely a low supply of workers, as most would probably become self-employed. If I could hire people to wait on me ‘hand and foot’ for 1 cent /hr, I’d probably go from having 0 employees to having 5 or more. If the government raised that 1 cent/hr to $1/hr I’d probably slip back to <5 employees.

By increasing the price (an employee’s wages) above market price, the demand for such a thing (minimum wagers) is going to fall. If 1,000 units sell at $500 each and Uncle Sam comes along and bequeaths the unit a price of $700, would this possibly reduce total sales? If it doesn’t or doesn’t exert a downward force on sales, wouldn’t it be stupid to stop at $700? I know, I know - what about elasticity. Doesn’t invoking the elasticity of the economy indicate that a stretching or accommodation of sorts must take place due to non-market distortion? Is it even possible that part of this morphology would include an adjustment in demand for politically determined prices?

Think of all the business out there that fail. At some point, the financial burden becomes too great and they go out of that business or change it. The bulk of most businesses’ expenses is employee compensation. Is it not possible a business (one of those things that’s so hard keep solvent) might actually have to decide on having 1 less employee because it doesn’t make fiscal sense to spend $7/hr on them as opposed to <$7/hr???

How can he know that a job he’s not aware of, performed by a person he’s not aware, for a person he’s not aware, is worth ‘the minimum wage’??? How can he know this value with no knowledge of the thing??? If he can’t know the value of the thing and determines to assign it a value regardless of his ignorance, how does this affect those that have an intimate knowledge of the job, intimate knowledge of the person performing the job and intimate knowledge of the person hiring the worker to do the job? Can he FORCE this enlightened person’s valuation to be in accord with his ignorant valuation? It’s like a person knowing nothing about heart surgery walking up to a world renown heart surgeon and advising him on the best course of action. Such arrogance. Such gall. My God man - Pray for humility!

OK, it’s pretty obvious, based on the words I use and some of the fallacies and illogic I express, I’m not trained in economics. I’m just poor trailer trash. I also realize that the economy is MUCH more complex than few words are able to express. Believe me, I’m steeped in humility and am fully aware of my bleak intellectual status. However, if I believe something is right I’m going to at least give it the good fight and try to defend it. I liked Thomas Sowell’s, Fatal Vision. It perfectly describes the liberal/socialist. Others on these boards are amply qualified to supply you with a coherent, terminologically correct argument. I personally don’t think THE minimum wage is in and of itself that significant an issue. What’s important about it to me is the principle (or lack of)and how that same principle applies to all the socialistic schemes out there.

Here are some web pages I read. They may or may not be credible sources. The first site has tons of interesting information related to the minimum wage. It’s obviously anti-minimum wage, but it’s heavily referenced/cited/endnoted. It’s in a readable Q & A format.

http://www.epionline.org/studies/epi_minimumwage_05-1997.pdf

Should The Minimum Wage Be Linked To Inflation or Average Wages?

Indexing the minimum wage to the national inflation rate assumes that all parts of thecountry share a similar experience in their inflation rates and economic strength. Variationsin economic vitality in different parts of the country would concentrate the negative em-ployment effects of a higher minimum wage in regions with the weakest labor markets.Additionally, policies which tie the minimum wage to inflation inherently assumethat the productivity of minimum wage employees is increasing at a pace commensu-rate with the economy and the work force as a whole. This is rarely the case. Generally,highly-skilled employees have the ability and the opportunity to push up their produc-tivity — and along with it, their compensation — at a much higher rate than theirless-skilled counterparts.Legally mandating that labor intensive, minimum wage positions be compensated forproductivity gains in other sectors of the economy violates the fundamental “skills equalwages” equation. Policies which tie the minimum wage to inflation are not cost free.Rather, they carry the same negative consequences as any minimum wage increase.Finally, in testimony before Congress in early 1995, Federal Reserve Chairman AlanGreenspan reported that the Consumer Price Index may overstate inflation by as muchas 1.5%,41— almost half of 1996’s inflation rate of 3.3%. Since then, several otherhighly respected studies have reached similar conclusions.

http://politicalcalculations.blogspot.com/2007/01/presidential-pretensions.html

The Cons: Here, the key number in the results is the Percentage Change in Total Costs for Business. This percentage represents the total amount of one or some combination of the following assuming businesses act to control their costs or to maintain their pre-tax profit level:

The average percentage by which the workforce will be reduced (layoffs).
The average percentage by which the hours available to be worked will decline (reduced hours).
The average percentage by which prices will increase (inflation).
More than likely, some combination of the three will occur. Unless there’s some almost magical technological innovation or better way of doing things than can take the bite out of such a hike in the minimum wage through substantially higher levels of productivity.

Alternatively, business owners and shareholders might accept lower profit margins, but that might negatively affect things like investment returns and the ability of businesses to borrow money. And if prices rise substantially, will the Federal Reserve act to raise interest rates to keep inflationary pressures under control, increasing the probability of recession? Definitely not good for economic growth.

Then again, not all businesses hire substantial numbers of low-wage workers or have low-profit margins. But those that do, such as restaurants, which typically operate with a 4 to 7% profit margin and hire more than 1 of every 7 minimum wage workers, will be disproportionately affected.

[Xevec]

Well, he responded with this:

The enemy of economic growth is stagnation. Stagnation is when money doesn’t really flow that well. When the poorer portion of the population can not spend money comfortably, the economy stagnates. The richer portion just don’t spend as fast so as to make up for the drop in consumer dollar coming off the lower class. This is what constricted the economy at the end of the 20s.
The standard argument against the minimum wage is that it is constrictive of employers. This just isn’t true at moderate levels. As long as the median wage is below average earnings, the constriction of the economy is on the consumer dollar coming from the lower class. When the median is equal to the mean, you have optimal distribution. If you raise the minimum as high as the mean, then you will be constricting the economy again, because if the minimum is equal to the average, then it mathematically demands that all people must be paid the same, and THIS scenario WOULD be constrictive on the employer.
It is a logical impossibility to raise the minimum above average. I have told you this before. By ignoring this statement of logic, you make yourself look stupid.

[pairunoyd]

OK, this is obviously, painfully a non-economist’s reply. I would suggest you get response from some of the fine gentlemen that regularly engage in these type debates. But as far as I can tell, this guy’s rationale is so far removed from the real world that it just blows my mind. It’s like he believes his words alone can determine reality…

@Xevec

The enemy of economic growth is stagnation. Stagnation is when money doesn’t really flow that well. When the poorer portion of the population can not spend money comfortably, the economy stagnates.

So the State can redefine a worker’s value? How does it determine what an employee’s services are worth to an employer? Once this revaluation of the worker is adjusted by the State, this worker is now able to keep the economy stagnation-free? An employer has 10 employees at minimum wage. Let’s say old pay was $5/hr and the State increases it to $7/hr. If the total hours worked are 300/wk (avg 30 hrs each), this increases the employer’s cost by $600/week. If before the increase he was netting $600/week profit, should he avoid laying anyone off as an option because you said the minimum wage doesn’t cause unemployment and those receiving unemployment will keep him in business because they’re the anti-stagnaters?

@Xevec

The richer portion just don’t spend as fast so as to make up for the drop in consumer dollar coming off the lower class. This is what constricted the economy at the end of the 20s.

So taking money from ‘the richer portion’ and giving it to ‘the poorer portion’ means you have more bodies to spend the money quicker and if they spend it quicker it keeps the dollars flowing? Consuming is quicker if 100 people have $1 each instead of 1 person having $100? But doesnt that tie up a bunch of cashiers and prevent them from consuming because they’re having to assist the poorer portion in their transactions? LOL What sort of crap is this??? And how is the dollar ‘coming off the lower class’? If the state doesn’t take the dollars from the richer portion and give it to the poorer portion then the dollars are coming ‘off the lower class’? Wow.

@Xevec

The standard argument against the minimum wage is that it is constrictive of employers. This just isn’t true at moderate levels. As long as the median wage is below average earnings, the constriction of the economy is on the consumer dollar coming from the lower class.

Telling someone how to allocate their wealth in order to produce the most profit isn’t constrictive? I guess one way it might not be constrictive is if you know more about his business than him. Maybe you do. Tell me ALL about it…I think you’re restating the, ‘We need more money in more hands’ principle when you refer to the 'constriction of the economy being on the consumer dollar coming from the lower class, right?

@Xevec

When the median is equal to the mean, you have optimal distribution.

Wow. Optimum distribtuion. What a freakin ego! So it’s best if YOU decide the optimum distribution? How do you know it’s optimum? Tell me what you mean by ‘optimum distribution’. I’m sure it has a technical definition but…That’s one scary term, bro.

@Xevec

If you raise the minimum as high as the mean, then you will be constricting the economy again, because if the minimum is equal to the average, then it mathematically demands that all people must be paid the same, and THIS scenario WOULD be constrictive on the employer.
It is a logical impossibility to raise the minimum above average. I have told you this before. By ignoring this statement of logic, you make yourself look stupid.

I thought the economy was elastic. The employer will simply make the neccessary adjustments. They can pay employees more than someone else (that way all pay isn’t equal at that point in time) and by the time all of this is recalculated by the State and the new minimum wage is set the more valued employees will have already continued their sojourn of upward mobility, leaving more stats for the omniscient State. Besides, why isn’t equal pay for all optimum distribution?

[xahrx]

@Xevec

Well, he responded with this:

You’re debating an idiot. Let it be and spend your time more productively elsewhere with other people.

[Inquisitor]

My thoughts exactly.

[Xevec]

yeah…I believe he totally doesn’t know what he is talking about…since I am using an absurd argument to prove his point wrong:

So if we increase the average wage to $100 an hour…the average earnings will increase as well. The average wage would be much higher than $100 an hour if we increased the minimum TO $100 an hour.<
You seem to be wanting to force inflation. No, this isn’t possible. If you really try to put the minimum quite near to the average, the constriction would cause stagnation. As the stagnation set in, the constriction would intensify as the cash supply contracted and deflation set in. The overall result would make the dirty thirties look like the good old boom days. You would definitely see a return to the gold standard, as ALL banking would end, and so the government edicts about dollars would be moot.

[pairunoyd]

I wrote:

“OK, imagine the economy at large is like your own personal economy, i.e., budget. Now imagine the U.S. economies employees are like the things you buy with your budget. If the government decided you’re not paying enough for your gym membership and bumps the cost from $50/mth to $65/mth, are you still going to be able to buy and do everything you did before, assuming you wish to keep going to the gym? You’ll now have $15/mth less to spend on budgeted items (US economy = employees).”

end of quote.

@Xevec

In response to your analogy, the person replied with this:

This makes the assumption that the economy is completely inelastic and incapable of growth.

Huh? You’re assuming the economy is a single, coherent entity. A business can lay off employees due to the raise in the minimum wage and not eliminate the elasticity of the U.S. economy as a whole. Don’t you think it’s possible that businesses sometimes lay off workers because the cost of doing business has increased? Is a wage hike an increase in the cost of doing business? Because a business incurs higher expenses doesn’t preclude that business from experiencing growth, but as higher expenses are incurred, the risk of insolvency and attempts to reduce the risk of insolvency by reducing it’s workforce, increase. If this were not so, businesses would have no need for accounting practices. Scarcity would no longer be a liability.

@Xevec

It also assumes that investment is from profit, rather than acknowledging that the expectation of profit is more pertinent than the realization of profit.

“Yes, I would like to pertinently invest my expectation of profit.”

[Junker]

The bottom line-- transfer of valuables under threat of violence is essentially theft-- does not seem justifiable no matter the theoretical “good” consequences. But of course, some don’t find that essentially immoral, thus obviating the difficulty.

[Xevec]

Ok, paranoid, he actually responded to this post:

An employer has 10 employees at minimum wage. Let’s say old pay was $5/hr and the State increases it to $7/hr. If the total hours worked are 300/wk (avg 30 hrs each), this increases the employer’s cost by $600/week.<
Employers don’t consume labor. Consumers do. Consumers create demand for labor, and minimum wage allows them to pay for it.

And how is the dollar ‘coming off the lower class’? If the state doesn’t take the dollars from the richer portion and give it to the poorer portion then the dollars are coming ‘off the lower class’?<
Minimum wage was trashed in 24. From there, wages tended to fall off, causing the consumer dollar to contract, ending in the depression.
That’s one scary term, bro.<
Yeah, right. Go pull your blanket over your head. I am NOT in any way advocating a state run distribution. What I am stating is that the market tends toward stagnation without some ground rules on it.
They can pay employees more than someone else (that way all pay isn’t equal at that point in time)<
How can money be available for some to get in excess of average, if the lowest paid worker is getting average? As the minimum approaches the average, the economy gets constricted in the same way as when the minimum approaches zero.
Besides, why isn’t equal pay for all optimum distribution?<
Because you can no longer reward the good workers. You can no longer reward education, experience, enthusiasm, customer care, etc. In short the constriction would be as effective as installing a Marxist authority.

[Xevec]

One more thing Paraynoid. I found something he has said about scarcity. I said scarcity exists no matter what. Here was his response:

Scarcity can not be eliminated..period. <
There is no scarcity. Business is about deriving profit from excess resources. It is not about deriving extra use out of scarce resources.