Testing the Logic of Minimum-Wage Legislation

by Don Boudreaux on June 21, 2006

in Prices, Regulation, Work

A frequently heard justification for raising the minimum wage is that someone who works full-time at the current minimum wage cannot support a family.  Here, for example, is just one of countless news reports in which a politician or a pundit attempts to justify a higher minimum wage with this assertion.

Put aside questions about the truth of the claim.  In fact, assume that the claim is true beyond any doubt.

Even if true, the fact that someone who works full-time at the minimum wage cannot support a family does not justify raising the minimum wage.

Most visitors to the Cafe know the familiar arguments against minimum-wage legislation.  Allow me here to spin the core argument — that minimum-wage legislation prices many low-skilled workers out of their jobs — by wondering aloud if proponents of higher minimum wages would ever make the following claim:

The market prices of most used-cars are too low for sellers of those cars to support their families.  This fact is especially true for poor people, who, when they sell their old cars, almost always have only old, high-mileage, often dilapidated used-cars to sell.  These people aren’t selling two-year-old Lexuses or BMWs.  They’re selling 15-year-old Chevys and 20-year-old Hondas.  So let’s enact legislation mandating that no used-car can sell for less than, say, $25,000.  That way, anyone who sells a used-car is assured that he or she will earn at least enough money to support a family for a year.

I doubt that many people would argue that government should legislate a minumum price for used-cars.  But why not?  If merely identifying a problem with a low price (such as "At the current minimum wage, even full-time workers can’t support a family of four") is sufficient to justify legislative action to raise that price, why won’t such action work for used-cars as well as it will work for labor hours?

Of course, the consequences will be the same: used-cars worth less than the $25,000 will not be sold; the owners of such cars will either remain stuck with them or they will have to spend lots of money and effort repairing and remodelling these cars so that each one is worth at least $25,000 to prospective buyers.

I sense a retort: "Well, if those who manage to raise the market value of their used-cars to at least $25,000 and then sell it, aren’t these used-car sellers made better off by the minimum-used-car-price legislation?"

Some of these people who then sell their revamped used-cars at a price of $25,000 or more might be made better off by the legislation.  It’s possible that some of these people didn’t realize that profit was available by spending time and money revamping their old junker into a highly desired vehicle — so the legislation nudged them into a worthwhile course of action that they otherwise would haven’t thought of and, hence, would have disregarded.

But surely the better presumption is that those owners of used-cars that can profitably be revamped to sell at a price of $25,000 or more are aware of this profit opportunity and will take advantage of it when it exists.  A corollary of this presumption is that many of the used-car owners who do, in response to the minumum-used-car-price legislation, revamp their cars so that these cars are now worth at least $25,000 are worse off than they would have been without this legislation.  The reason is that, without this legislation, the opportunity was still there for used-car owners who wished to do so to revamp their cars to a value of $25,000.  But with the legislation, some used-car owners who would have preferred to sell their cars unrevamped at a price lower than $25,000 will now — only because of the legislation — find the best available course of action to be spending their time and money revamping the car to raise its market value to $25,000.

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{ 49 comments }

bbartlog June 21, 2006 at 10:39 am

I don't think much of the minimum wage, though I found the observations of that guy at coyote blog more compelling than this.

Your argument is structured to reinforce solidarity among libertarians and not to convince those who don't already believe.
Those who agree with you will smile at the foolishness of those zany, stupid minimum wage advocates whose policies are *as stupid as raising used car prices to $25K* (ha, ha). Anyone with a more critical approach and half a brain will recognize that due to the numbers you've chosen, this is equivalent to setting the minimum wage to $40 or $60 an hour, which no one is advocating. Of course in some sense the effects are similar, but the magnitude of the effects is also important in evaluating minimum wage policy.

atr June 21, 2006 at 10:45 am

"used-cars worth less than the $25,000 will not be sold"

There are many current minimum wage employees who will not lose their jobs. Their pay will increase to the new legally mandated level.

Lefties might say that this proves that people are not being payed what they are worth, what they are entitled to, etc. They might further argue that this "disproves" the assertion that the minimum wage reduces demand for labor, contributing to labor surplus (i.e. unemployment).

Obviously, this is a case of what is seen and what is not seen. This selective evidence, combined with a moral belief that people are entitled to get what they "need" at the expense of others, makes it difficult to counter with reason. Are there other ways (based on reason or otherwise) to win this debate?

Noah Yetter June 21, 2006 at 10:53 am

"Anyone with a more critical approach and half a brain will recognize that due to the numbers you've chosen, this is equivalent to setting the minimum wage to $40 or $60 an hour, which no one is advocating."

When constructing an example, it is helpful to choose magnitudes that make the point obvious. This does not invalidate the truth of the point when applied to smaller, more realistic magnitudes.

Stated simply, a minimum wage of $100/hr will put many, many people out of a job. A minimum wage of $10/hr (seriously advocated by many) will but fewer, but far from zero, people out of a job.

But this is not even Prof. Boudreaux's point here, which is that "the minimum wage cannot support a family of four" is a completely arbitrary justification for raising the minimum wage and does not constitute a serious argument. It would be just as sensible (or rather just as ridiculous) to argue that the minimum wage should be raised because someone earning it cannot afford to retire at 40, or take a trip to the moon.

Don Boudreaux June 21, 2006 at 10:57 am

bbartlog — okay; suppose the minimum-used-car-price legislation prohibits all used-car sales below $10,000. Does the smaller magnitude of the effect solve the underlying problem?

More generally, you miss the larger point. The argument I'm addressing in the post is one that starts from the proposition that the amount of money that people 'need' to earn is the correct benchmark for determining the minimum price that government should set for things sold in the market.

happyjuggler0 June 21, 2006 at 12:32 pm

Each state has a different cost of living. It simply costs much more to live in Massachusetts than to live in Mississippi. By what standard are the proponents of a federal minimum wage using, that of Massachusetts or that of Mississippi?

If they price it for Mississippi, then aren't "too many" people in Massachusetts going to be earning to little?

If they price it for Massachusetts, aren't too many people in Mississippi going to be unemployed as a result?

The US government should end the national minimum wage and "allow" the states to decided what they want their minimum wage to be. They can then set it according to their own cost of living.

Some states will decide they want a minimum wage of zero. This will have the effect of being a proof, one way or the other, on the effects of the minimum wage on unemployment.

From then on, anyone who advocates against the minimum wage can say: "Do you think putting 3% [for example, actual mileage may vary] of workers out of work is a good price to pay to enable a small number of people, most of whom are teenagers, the ability to make a bit more money?

Alternatively, if Card/Krueger is proved to be accurate and minimum wages don't increase unemployment, or better yet, decrease unemployment, then minimum wage proponents will once and for all have the proof they need to say that the unemployment tradeoff is a red herring. Once this happens, all states will naturally have a minimum wage, but they can tailor it to their own cost of living, not that of states with hugely different costs.

Thus, the only people who might then oppose ending the federal the minimum wage (but allowing state minimum wages) are those who don't actually believe the arguments they use to favor or oppose minimum wages.

JoshK June 21, 2006 at 12:36 pm

1: if the minimum wage doesn't create unemployment, then why not raise it to $85/hr so that everyone can live really well?

2: The used car example requires that you have the money to invest in rehabing the car. Most people, especially the poor, don't. Similarly, getting the skills to earn a high-wage job can be out of reach for many poor people who then just find themselves out of a job when the minimum wage goes up. There is no "rehab the car" option for them.

Tony June 21, 2006 at 12:56 pm

I don't find the reductio argument against the minimum wage particularly compelling. Many minimum wage advocates cite market power on the employer's side of the labor market as sufficient justification for raising the minimum wage to some low level. If significant market power exists (an empirical question) then a minimum wage could raise both efficiency and employment. For this reason I don't find the parrallel between the used car market (no purchasing side market power that I know of) and the labor market (where market power may exist on the side of the employer) particularly compelling.

In general, I think minimum wage arguments would be better served by higher quality empirical work and less clever wordplay on both sides.

Don Boudreaux June 21, 2006 at 1:04 pm

Tony,

I agree that sound empirical analyses always has a place. But let me defend here my analogy: just as you're correct that no monopsony power exists in the used-car market, surely there's no monopsony power in the market for unskilled- and low-skilled labor. This labor is highly versitile; it can be used in countless different ways — mowing lawns, stocking supermarket shelves, cleaning office buildings, flipping burgers at McDonald's, helping house painters, and on and on and on. Do we really need empirical studies to determine that there's no monopsony power in the market for unskilled- and low-skilled labor?

save_the_rustbelt June 21, 2006 at 1:58 pm

:…that minimum-wage legislation prices many low-skilled workers out of their jobs –…"

But according to the Bush administration the job market is red hot and jobs are going wanting.

It seems Bush temporarily negated that argument.

If Bush was telling the truth, of course.

PS: Most people don't understand the minimum wage, one of its functions it to protect workers from having expenses deducted by abusive employers. WOuld Hayek approve of abusive employers if the market would let them get away with it?

Swimmy June 21, 2006 at 2:16 pm

Hayek would 1) Be wary of the word "abusive" and 2) Ask what ill effects–both on the economy and human liberty–"fixing" the problem would have. Of course, in the spirit of classical liberalism, he would focus on negative rather than positive liberties.

spencer June 21, 2006 at 2:48 pm

Alan Blinder recently published a survey of economist of what they though would happen if the minimum wage were increased 10%.
Their averge response is that it would cause the employment of minimum wage workers to drop 1%.

That means that out of every 100 minimum wage workers that 99 would get a 10% increase and one would lose his job.

If my objective function is to maximize the economic well being of minimum wage employee I would take that trade off every time.

The math works out that for the income or welfare of minimum wage employee to be damaged by an increase in the minimum wage the percent decrease in employment must be larger then the percent increase in the minimum wage.

Eevn the people at CATO estimate that a 10% increase in the minimum wage would only cause employment to drop 2% or 3% –
a ratio that still massive improves the welfare of minimum wage employees.

So unless you can demonstrate that a given increase in the minimum wage causes minimum wage employment to drop by a larger percentage, your argument that an increase in the minimum wage harms minimum wage employees is completely wrong.

bbartlog June 21, 2006 at 3:30 pm

"This does not invalidate the truth of the point when applied to smaller, more realistic magnitudes."

Maybe yes, maybe no. I know of course that under standard neoclassical economic assumptions, and for this example, you are right. But while this may seem obvious to you, there are real-world situations where the effects at the margins are not simply the large effects writ small. I wouldn't expect someone who acknowledged that a $30 minimum wage was a bad idea to necessarily oppose a $5 minimum wage, and I don't say that simply because I know some people are inconsistent in their beliefs.

I'm also aware of the larger point Don was making, but the overall argument is along the lines of 'this method (price controls on goods) of ensuring a minimum income will obviously not work' rather than 'attempting to ensure a minimum income is not really the government's problem'. A social engineer reading it would likely try to find a way to make it (or something like it) work rather than give up entirely.

I also wouldn't expect someone who supports the minimum wage to buy into the idea that labor is just another good just like cars, apples or iron ore.
And to repeat: I don't support a minimum wage. I just don't think this argument is likely to convince anyone. But since it's generated a lot of comments it's still a good argument by other metrics :-)

Xmas June 21, 2006 at 4:15 pm

Don,

You're hypothetical is too close to reality. The poorest workers won't even own cars, they'll be taking government subsidised (subsidized?) public transportation. Really, setting the minimum used-car price to $25,000 will hurt teenagers in low and middle income homes more than anyone else.

iceberg June 21, 2006 at 4:16 pm

I tend to agree with bbartlog; I think using the reductio ad absurdum argument doesn't work, not because it's untrue, but rather because you are practically guaranteeing that your hypothethical non-economically minded interlocutor will make a interpersonal utility comparison [as some of this threads commenters have already erred into with their statements regarding what they consider "fair" trade-offs in minimum wage policy and the misallocation of labor employment.]

In any case, I'd expect the interlocutor to only answer along the lines that "well people aren't cars!" or something as equally unintelligent.

Ken King | King Marketing June 21, 2006 at 4:19 pm

Let's inject some facts into the discussion: according to the Bureau of Labor Statistics, 2.7% of all workers – about 2 million people – over the age of 16 report earning minimum wage or less (I know, it sounds odd to say less than the minimum, see the BLS page for the explanation).

http://www.bls.gov/cps/minwage2004.htm

If all of those workers are full-time (which they aren't), they would be earning a little under $11,000/year. A 10% increase would put another $1100 (before tax) in each worker's pocket – (assuming the numbers quoted by Spencer above are correct).

So, with the flick of a pen, legislators can put an extra $2.1 billion into the pockets of their constituents, plus maybe a little extra tax revenue. The 20,000 unfortunates who become unemployed – well, there are other government programs to help them out.

TANSTAAFL – there ain't no such thing as a free lunch. That $2.1 billion dollars isn't being magically created, it gets diverted from other uses, or from the bottom line of the businesses that employ minimum wage workers.

Boo hoo for the corporate fatcats, you may say, but that includes mom & pop business owners who hire students so they can get a night or two away from their business, as well as just plain folks whose pension plan just happens to own shares in McDonald's.

bbartlog June 21, 2006 at 4:29 pm

The idea that making an interpersonal utility comparison is an error sounds very Austrian (in an econ context, of course). I don't think most people would acknowledge it as such.

liberty June 21, 2006 at 4:37 pm

happyjuggler0,

Many states already have state wages higher than the federal, so most of the data is already out there. Plus you have other developed countries with higher minimum wages (such as France). Not sure the best example of 0 minimum wage to use, but you could look at illegal immigration and induistries that are exempt from the minimum wage for some data, also the drop in real minimum wage over the years as it hasn't been indexed to inflation. The datas is there and there is near-consensus among economists as to the effects.

Spencer,

There are several things you're missing:

1) Do the economists who average out to 1% decline all agree on the actual wage increase of those who keep their jobs: a growing number of economists cite the following: loss of benefits, loss of hours, added work, decrease in overtime pay, worse work environment as direct offsets to the wage increase for those employed.

2) Many economists also cite slower growth of new business due to the minimum wage. Large, established stores rtend to be able to take the hit in labor cost due to the minimum wage b etter than small business. Most new business start small. Hence slower growth after a new minimum wage law.

3) Inflation – sometimes firms respond by raising prices. This can then eat away at the real wages of those who were able to keep their job.

In addition – who loses their jobs and who keeps them of those 100. Do you think 35 year old unskilled welfare moms keep them *more* or *less* than high school students on summer vacation?

Are you happy about the trade off if 99 young people get to keep their jobs (with reduced benefits and harder work) while 1 impoverished welfare mom gets kicked to the curb?

liberty June 21, 2006 at 4:46 pm

>The poorest workers won't even own cars, they'll be taking government subsidised (subsidized?) public transportation.

Not ture. Many of the poorest people live in NM, Lousiana and rural counties across the south and west where there is no public transport.

However, they will tend to drive the old used cars (which they have to buy – used) until they sputter out and die (the cars, not the people).

They will certainly be adversely affected, not necessarily in the first most obvious way.

kebko June 21, 2006 at 5:01 pm

You know, many of the problems people have with free markets have to do with dislocations. For instance, free trade might increase everyone's standard of living by 5%, but what of the poor souls who lose their jobs at the textile factory to Chinese competition.

Well, we're really talking about the same thing here, except without the benefits of the free market. I think it can be stipulated that a higher minimum wage would (1) lead to some small level of inflation for most of the population, (2) lead to some increase in income for a small group, and (3) lead to unemployment for an even smaller group.

So, when free markets improve practically everyone's life at the expense of a few workers, that's bad. But, if wage regulations help some workers and hurt almost everyone else, but, again, at the expense of a few workers (in fact, at the expense of the most vulnerable workers), that's good.

It seems to make no logical sense. Which, actually makes sense, because I think those kind of opinions stem from the screwed up marxist moral ideals where central control is always welcomed, and the application of capital for a profit is considered illegitimate regardless of the social benefits it might create. Considering that this is the moral framework held dearly at most of our university departments outside economics, it's amazing that our social discussions are still about such small issues like marginal increases in the minimum wage.

Mickey Klein June 21, 2006 at 5:33 pm

To Spencer: a 2-3 percent hike in unemployment would be a tremendous increase; it would bring our unemployment at peak to 7-8 percent and at recession over 10 percent. Sure for a time we would have a spike in employed wages, but stagnation and inefficiency from this seamingly small price will have us looking like Old Europe in the long run.

Mickey Klein June 21, 2006 at 5:34 pm

*around 9-10 at recession

liberty June 21, 2006 at 6:07 pm

kebko,

Very well said!!

I think those Marxist moral ideals and so forth used to make discussion much more absurd. We are now seeing what I hope is the tail end of the absurdity in this country – that started back in the 1930s and before – now we're just left battling a few minimum wage proponents and those that still think we should expand rather than privatize the big old programs. In the old days the discussion was whether the whole economy should be planned by government, whether government should employ all the unemployed (or everyone) and whether all prices should be set by the planners.

But the battle is still as crucial as ever because the public still doesn't fully understand the importance. So long as the people have been taught the Marxist-tinged view of the world, ideals, economics and rationality (the rational that if workers can't afford food government should mandate they be paid more) then we could at any point begin moving back toward planning again instead of progressively away from it.

John Pertz June 21, 2006 at 6:30 pm

I have a question for those advocates of the minimum wage. If every employer is forced to pay a higher minimum wage and there is no labor displacement then how exactly is it welfare maximizing? All the employers have to do is raise prices. So if wages are rising artificialy and prices are increasing in response to the artifical rise then where exactly is there a net benifit? Labor displacement arguments aside, this is an extremely damaging argument against the minimum wage.

John Pertz June 21, 2006 at 6:38 pm

Also do not forget about what is going on in France and Germany right now. They have legislated min wage rates that are so high that they have now created permanent structural unemployement within their economies. In the U.S we view full employment at around 4 percent. In big welfare states, such as Germany and France, many economists argue that full employment should be considered at around 8 percent.

People should be warry to assume that the entrepenuer is going to appear under almost any regulatory regime. Create a climate that is unhospitable to enterprise and in the long run this will have drastic welfare effects considering that nationalization does not work.

quadrupole June 21, 2006 at 7:00 pm

Uhm… am I the only one who thinks that if you are only able to make minimum wage, you really shouldn't have a family of four? The poverty line for a family of 4 is about $18k, A person working fulltime (2000 hours per year) at minimum wage ($5.50/h) is making about $11k. So clearly if that family of four contains two working adults then they can make $22k per year, well over the poverty line.

Additionally, if a family of four only has one fulltime worker (for example, a single mom with 3 kids) and is working full time at minimum wage, they get $4400 per year in earned income tax credit. That family of four is eligible for $506 per month of food stamps ($6,072 per year). So this family with one worker making minimum wage is receiving $10,472 a year in various goverment subsidies, bringing their total takehome to $21,472, well over the poverty line for a family of four. This doesn't even begin to count other federal assistance like section 8 housing and medicaid.

Also please notice how if you do have a household with two able bodied adults, the government will *give* you the value of having the second go to work at minimum wage… those benefits start phasing out well before the $22k number two minimum wage earners bring in.

quadrupole June 21, 2006 at 7:05 pm

Oh, also, your hypothetical family of four making minimum wage is also eligible for medicaid, with an average cost per person of $2000 nationwide, so add another $8k, thus bringing their income to $29,472. $11k in earnings, $18,472 in government benefits.

quadrupole June 21, 2006 at 7:11 pm

It is also important when discussing illegal immigration to figure these costs. Illegal immigrants generally apply for and receive EITC, are explicitely eligible for food stamps, and a frequently recipients of medicare. So a hypothetical illegal immigrant nuclear family of four (2 adults, 2 children) reporting $11k of income would receive $18,472 in benefits, plus $20k ($10k for each child) in the cost of educating their children, or $38,472 a year. Now maybe they are contributing more than the $49,472 they are receiving ($11k earned, plus $38,472 in benefits). I don't know. But its worth asking the question.

quadrupole June 21, 2006 at 7:40 pm

FYI… found some data on the value of section 8 housing vouchers contributing to the income of your hypothetical single worker miminum wage earning family. Section 8 housing vouchers pay the rent for poor households when those rents rise above 30% of their income. 30% of $11k is $3300 per year. Looking at Raleigh, NC HUD claims the fair market value for a 3 bedroom apartment is $1072 per month, or $12,864 per year. So your hypothetical minimum wage earning household in Ralegh NC would get $9564 in housing assistance, thus bringing their effective income after government benefits to $39,036.

liberty June 21, 2006 at 8:24 pm

You can get a real nice for less than that in mortgage payments in Raleigh…

From cheaper:
$59,900
4 Bed
1,755 Sq. Ft.
Estimated payment:
$290 Per Month*

To nicer:
http://realtor.com/Prop/1057716545
http://realtor.com/Prop/1060820083
http://realtor.com/Prop/1060267912

Obviously they cost a bit more if you get 0% down or even 5% down, still well under $1000/mnth.

I only point it out because in this country – its all about taking charge and making smart decisions.

Trumpit June 21, 2006 at 8:30 pm

I would happily rescind all minimum wage laws if a maximum wage law were instituted. Let's say that nobody can keep more than a million dollars of their yearly income. If you want to keep government out of the equation, then you have to donate the excess money you made to a bona fide charity, or return the excess to the employees in the form of higher wages and benefits. What kind of person would be unhappy to earn "only" a million dollars in a given year? I'd be happy to supply the answer if you're stumped.

colson June 21, 2006 at 9:41 pm

Trumpit – Unfortunately that would be worse. I would like to make a million in a year too, but if I am making a million but if my labor is worth a million, what incentive do I have to perform any better anywhere else? There is no incentive so you would end up seeing people hit the top and disappear because there is nothing further they can do in the labor market that would be any more beneficial. A maximum wage law would be a horrendous idea.

quadrupole June 21, 2006 at 9:58 pm

Liberty,
I know you can do better than that and cheaper, but the way section 8 works, that's what the feds say they will take as rent for section 8 housing, who do you think will rent to section 8 tenants for less? Section 8 housing money doesn't go to the tenants, it goes to the landlords.

bbartlog June 21, 2006 at 10:12 pm

Pertz -
your argument that wage increases across the board will simply be cancelled out by a corresponding inflation in prices assumes that all wages will be increased. We would expect that only wages at the lower end of the scale would see a measurable effect, so the inflationary effect should actually be small. So I don't think this in itself is 'an extremely damaging argument'.

Trumpit June 21, 2006 at 10:29 pm

"Trumpit – Unfortunately that would be worse. I would like to make a million in a year too, but if I am making a million but if my labor is worth a million, what incentive do I have to perform any better anywhere else? There is no incentive so you would end up seeing people hit the top and disappear because there is nothing further they can do in the labor market that would be any more beneficial. A maximum wage law would be a horrendous idea."

Colson, I think your logic is completely backwards. If a person makes too much money in a given year, they have no incentive to work in the future and make further contributions to society. I.e., if someone makes $1,000,000 this year and want to be richer, he or she has an incentive to work next year to make another million. Why wouldn't people enjoy the congratulations, & adulations to be received by giving the excess away to worthy causes? Be happy and take your $1,000,000 to the bank! Society doesn't benefit from having super rich spoiled brats like Paris Hilton and the late JFK, Jr. who inherited their wealth and didn't earn it in any normal sense of the word. Not having a reasonable maximium salary is a terrible idea!

David Z June 21, 2006 at 10:48 pm

"Colson, I think your logic is completely backwards. If a person makes too much money in a given year, they have no incentive to work in the future and make further contributions to society. I.e"

Well, if they have no incentive to work in the future, then the job market changes and allows for further new entrants. I apologize if I'm misreading and you intended sarcasm. But if I understand you correctly, it is your argument that is wholly without merit.

There simply is no good reason to require that someone who wants to earn $40M over the course of his lifetime must do it over the course of 40 consecutive years, and not instead over one superproductive year, or a few years in professional sports, or 20 years as a high-priced attorney, etc.

"Society doesn't benefit from having super rich spoiled brats like Paris Hilton and the late JFK, Jr. who inherited their wealth and didn't earn it in any normal sense of the word."

True, perhaps. Have you ever heard of "shirtsleeves to shirtsleeves in three generations"? Or the one about the "fool and his money…" In any regard, SOMEONE did earn that money, and at their bequest it was given to an heir. Nobody else has any legitimate claim to the bequest. Nobody.

liberty June 21, 2006 at 11:04 pm

>I would happily rescind all minimum wage laws if a maximum wage law were instituted. Let's say that nobody can keep more than a million dollars of their yearly income.

Excellent incentive scheme! Great way to ensure no more Microsofts of any sort; no Apple, no IBM, no Hewlett Packard, no Pfizer, no new technology.

Excellent way to ensure stagflation. Welcome home, Jimmy Carter. Welcome home to France.

liberty June 21, 2006 at 11:05 pm

>that's what the feds say they will take as rent for section 8 housing, who do you think will rent to section 8 tenants for less?

Another brilliant government waste. How sad.

liberty June 21, 2006 at 11:08 pm

>Why wouldn't people enjoy the congratulations, & adulations to be received by giving the excess away to worthy causes? Be happy and take your $1,000,000 to the bank!

And don't invent anything new; don't work harder; take competition out of successful industry; warp price signals; destroy patenting; kill the stock market, etc etc etc.

What you are missing is all of the effects other than the immediate. When a stone falls into the water, it doesn't create just one ring.

Tiberius June 21, 2006 at 11:23 pm

Although I concur with the conclusion, I disagree with the analogy. If a person owns a car, wants to sell the car, but can't sell the car by law for less then $25,000, and consequently doens't sell the car then that person is stuck with a car. However, the revenues produced from the hypothetical sale of the are not intrinsic to the livelihood of the person. The person, who although must maintain a product of value, but that has insufficient value still has the option to enter the market and see their labor for a fee to maintain their livelihood. The sale or no sale of the vehicle plays only an indirect role in their livelihood and if they cannot sell the vehicle then they are not screwed because they are not dependent on those revenues, not to mention the person who sells the vehicle could be rich or poor, therefore marginalizing the percentage of people the minimum wage would target. On the other hand a rise in the minimum wage would improve the livelihood of a select few (although a greater number would probably be forced to exit the market, become dependent on welfare, and increase government spending and wealth distribution, thus killing more jobs!. Therefore, the difference between placing rules in regards to a minimum wage and the price of a vehicle is different in the sense of dependence that the former helps some and the latter helps none. Although if we are concerned with the "all" a minimum wage is bad policy.

John Pertz June 21, 2006 at 11:48 pm

bbartlog said:

"
your argument that wage increases across the board will simply be cancelled out by a corresponding inflation in prices assumes that all wages will be increased. We would expect that only wages at the lower end of the scale would see a measurable effect, so the inflationary effect should actually be small. So I don't think this in itself is 'an extremely damaging argument'."

My point exactly. If the the corresponding wage increase is small, for the sake of example lets say 6.15 to 6.50, then the inflationary effect should be small. So the worker now has slightly increased pay and he gets to go take those dollars and purchase goods and services in a slightly more expensive market. In fact lets get really nuanced with this arugment. Lets assume zero labor displacemnt and lets agree that min. wage workers have inelastic demand for goods such as food, clothing, and toiltries. The purveryors of such goods and services, i.e Walmart, usualy employ low end or min wage labor. So now the min wage workers with their extra dollars have to go out and buy cheep essentials from stores who probably employ low wage labor and are forced to raise prices in response to the increase of the min. wage. I think we are getting the point arent we? Even if there is zero labor displacement, the argument that the min wage is socialy optimal should strike us as specious at best. If your true desire is to improve the lives of the downtroden through government intervention then there are a hundred other mechanisms that could improve their lives above and beyond a min. wage increase. The EITC and vouchers are greatly superior mechanisms to help the working poor.

Kevin June 22, 2006 at 12:08 am

Well, as I always say, you're NOT SUPPOSED to be able to make a living on the minimum wage; if you could, there'd be no incentive for many people to pick up a useful skill.

A corollary: next time you go to McDonalds, take a good look at the vacant-eyed person fumbling over the custom-made idiot-proof cash register. Uh, you really THINK that person deserves $12 an hour?

But if you do insist on passing minimum-rewards laws in life, can you at least pass one that gives me a Dallas Cowboys Cheerleader?

Trumpit June 22, 2006 at 12:37 am

Why do you feel sorry for the person who "only" makes $1,000,000 per year, yet feel no remorse for the poor slob who is paid $1.00 or less an hour without any other benefits? Have you no heart, no soul, no compassion whatsoever? Now I understand why libertarianism is made up of mostly adolescent males or those guys who never outgrew adolescence. Perhaps an MRI of your brains will reveal the missing, underdeveloped or damaged area. Fetal stem cells may help someday.

James Pyrich June 22, 2006 at 8:31 am

Trumpit:

It is unfortunate that you have to resort to insults rather than mounting a specific argument.

It's not a question of "feeling sorry" for somebody. That's a pretty poor reason for making a law. Laws should only be made to benefit the jurisdiction.

The question we are examining is if minimum wage laws actually benefit people. We measure the benefits in dollars and cents because that is what is proposed we modify.

Your opinion that we should institute a maximum wage is substituting a smaller error for a far greater one. You are allowing your apparent hatred of prosperity to overwhelm your capacity for rational thought.

Let me put it this way: if we had a maximum wage law at any point in our history, our poorest wouldn't be as well off as they are. Sure, they're still poor in comparison to our richest, but consider that our poor generally do not starve, have housing, have transportation, have jobs! And there really isn't anything stopping a poor person from coming up with the next multi-million dollar idea–only their own ambition and ingenuity.

James Pyrich June 22, 2006 at 8:32 am

Er, I constructed a sentence rather poorly. It should have read: "Sure, they're still poor in comparison to our richest, but consider that our poor generally have food, have housing, have transportation, have jobs!"

David z June 22, 2006 at 8:58 am

THe other thing to consider is the demographics of the minimum wage earners. Here in Michigan,(I don't have the stats in front of me today) it's something like 1% of the population, more than half of whom are second wage earners in their respective family units. Only something like 1/8 of the 1% are actually, as the argument goes, trying to raise a family on it. And they qualify for assloads of government subsidization.

liberty June 22, 2006 at 9:10 am

>The EITC and vouchers are greatly superior mechanisms to help the working poor.

Actually… welfare (EITC) tends to be just as bad, if not as obvious sometimes. Notice how 1994 welfare reforms reduced poverty by kicking people off the rolls. EITC is somewhat of an improvement over other welfares, but they tend to drag down wages on the lower end of the wage scale and cause unemployment. The combination of welfare and a minimum wage makes this all even worse.

>THe other thing to consider is the demographics of the minimum wage earners. Here in Michigan,(I don't have the stats in front of me today)

Here are the overall demographics and stats on who the min wage earners tend to be:
http://www.bls.gov/cps/minwage2004.htm

bbartlog June 22, 2006 at 10:42 am

Pertz -
in order for your example to work, you have to assume that the low-wage workers spend *all* their money on the output of employers of low-wage workers, *and* that the costs of the things they buy consist entirely of the cost of their own labor. In other words, it doesn't work. To the extent that some of the inputs to the things the low-wage workers consume consist of either capital or the labor of workers whose wages are not significantly changed, they will be able to buy more.
I still agree about the vouchers and/or negative income tax being a better plan, though. If you're going to redistribute money to the poor, better to do it explicitly, not through some inefficient program with disparate and unpredictable effects.

Daniel June 22, 2006 at 10:47 am

Wasn't there an article back in 84 or 85 that concluded that companies tend to pay higher wages because they want to have a larger pool of applicants? This is in opposition to Marx's reserve army of unemployed, where firms keep wages low. Has this paper been discredited?

On this blog on another one, in past debates on this subject, someone presented the evidence that show that the number of workers working at the minimum wage rate increases everytime the the minimum wage rate increases. I believe the conclusion of the poster was that this shows that the minimum wage increases do the opposite of what those opposed to minimum wage increases argue, namely that employment increases (not decreases) with minimum wage increases. I would argue that the data captures those that had been paid above the old minimum wage that are now making the minimum wage. Further, when examining the trend over time, the number of people working at the minimum wage as been decreasing. Which suggests that the minimum wage legislation lags behind instead of leads the employment market.

Daniel June 22, 2006 at 11:10 am

About a year and a half ago I heard a preacher preach that there should be a maximum wage as well as a minimum wage. He was preaching about Micah 6:8 ("and what does the Lord require of you? To act justly, love mercy, and walk humbly with your God") and his examples were buy fair trade coffee, don't shop at at Wal-Mart, and the maximum wage. It took a lot of energy to be polite and not walk out or shout out what an idiot he was.

Most of the people I can think of off the top of my head who make salaries of a million or more are athletes and movie stars. While I personally question whether Tom Cruise, et al are worth the salaries they get, and wonder if ticket prices would be reduced if such a law was in place, I'm glad they have every right to negotiate whatever salary they can.

If a maximum wage law went into effect, would it be based on total annual earnings or per employer. Would LeBron James, for example, be limited to a total income of $1 million, or would the NBA, Nike, Coca-cola, etc. each be allowed to pay him $1 million?

I'm sure those bumping up against the ceiling would find loopholes, just as you still find people a the lower end of the spectrum wanting to receive cash or a check made out to cash in order to avoid taxes — or to save the employer from paying taxes.

When one looks at the Forbes 400 list of the richest people, there's no one (or at least very few) that work for a salary. Those that have inherited wealth are also a minority. Most of the wealthiest people have created wealth by starting businesses.

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