Weighing In Against the Minimum Wage

by Don Boudreaux on July 28, 2006

in Prices, Regulation, Seen and Unseen, Work

In my view — expressed today in my latest essay at Tech Central Station — the empirical fact that economics empirical studies are so extraordinarily challenging, combined with the ambiguity of the findings of recent empirical studies of the effects of minimum-wage legislation, gives us good reason to accept the theoretical case against the proposition that minimum-wage legislation helps low-skilled workers.

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cpurick July 28, 2006 at 7:46 am

Absolutely on the money.

Chris Meisenzahl July 28, 2006 at 8:36 am

Well done as usual, thanks Dr.!

Randy July 28, 2006 at 9:05 am

Great post Don.

I had a similar discussion over at a left leaning site a couple of weeks ago. Their response; "You don't trust the studies, and we don't trust the theories". Its hard to argue with such crushing logic.

The problem I have with the minimum wage is that the people its proponents think are paying for it, aren't the people who are actually paying for it. I'm sure there are some who benefit from minimum wage laws, and its easy to point to them. But the theory is that the employers reach directly into their own pockets to hand out more money. They might, but only after reaching into everyone elses pockets first.

Dagon July 28, 2006 at 1:55 pm

I don't see how this argument works. Are there other topics where you think that theory is strengthened by the lack of observable evidence?

I agree with your conclusion, that the minimum wage is a hidden, and therefore attractive to the naive, tax on different people than the proponents think.

But I don't agree that my belief is strengthened by the fact that it's hard to measure.

Randy July 28, 2006 at 2:20 pm

Dagon,

Personally, I don't see it as a case of strengthening my belief in the theory, but rather as a reason to doubt the validity of the study. If someone told me they had found a right angle where the sum of the square of the sides did not equal the square of the hypotenuse, I'd tell them to go and measure again. I don't know exactly where they went wrong, but I know that they did.

Randy July 28, 2006 at 2:50 pm

P.S. I can think of many reasons why employers might increase their demand for labor, but a higher cost of labor is not one of them. Is this a "Law"? Well, can anyone show me an exception to it? Show me an example of an employer hiring more people "because" the price of labor increased.

Michael July 28, 2006 at 3:44 pm

Doesn't the emprical ambiguity suggest that if there is a negative imapct (As there probably is)it is likely relatively small. Doesn't this in turn indicate that as economists we should concentrate our scarce resources on eliminating more preverse distortions of the economy (sucha s trade restrictions).

Randy July 28, 2006 at 3:57 pm

Michael,

That's a great thought, but I'm not sure the impact is small. The effect of the minimum wage is to deny anyone who is worth less the right to earn a wage of any kind. The higher the wage is set, the more people will be excluded from working. It thus creates an enforced dependancy on those with political power. What is the impact of placing an ever larger percentage of the population under a government protectorate? I think its huge.

spencer July 28, 2006 at 4:27 pm

In the Scottish court system along with findings of guilty and not guilty they allow a jury a third option of not proven.

That seems to be the case for the minimum wage. We have a theory that an increase in the minimum wage has a cost. Yes, that is true but it is also true of many things like free trade or technological advances.
But the available evidence seems to say the cost is very low and essentially there is no research on the other side of the question. So we are left with a gap
in our knowledge that makes it impossible
to make a true cost-benefit analysis of
the impact of the minimum wage.

Note, in all my comments on the minimum wage I never made the argument that it was a good thing. All I did was object to what I saw as poor analysis that substituted opinion for fact.

Randy July 28, 2006 at 4:45 pm

Spencer,

The cost of raising the minimum wage is directly proportional to the increase. One of the main reasons that Don talks about inconclusive studies is because the politicians have never had the guts to do a meaningful increase. At least, not other than a politically meaningful increase.

Noah Yetter July 28, 2006 at 5:13 pm

"Hard to observe" does not imply "insignificant."

It's hard to observe the negative impact of corn subsidies and sugar tariffs on consumer well-being, because by now most Americans are used to eating foods with sweetened with corn syrup instead of cane sugar. They are almost completely unaware of the difference both in taste and cost of what we have compared to what we would have absent government intervention.

This is the beauty of the market, in fact, it's ability to adjust and find a new equilibrium. It can, however, make the effects of intervention difficult to observe, even if they are large.

John Pertz July 28, 2006 at 9:47 pm

It is politicaly impossible to do the type of increase where you would begin to see major damage. Hopefully one of these cities like San Fransisco will be so bold to increase the min wage to something like 18 dollars and hour. Then we could finally get the dramatic proof needed to show that min wage increases have serious distortionary effects.

Brent July 29, 2006 at 12:47 am

Even if the law of demand isn't counteracted by something else, theory can't tell us if the minimum wage is beneficial on net because it cannot tell us the elasticity of demand for labor. This is critical to determining how many people will become unemployed as a result of an increase in the minimum wage. This needs to be weighed against the increased wages for some people, and other results. For example, although in many businesses an increase in the wage will increase inefficiency, an increase will push some businesses to innovate more.

This also reminds me of the book "Monopsony in Motion" about labor markets, in which the author argues that although true monopsonies are rare, in many (if not most) firms the supply curve of labor is upward-sloping. Because of frictions in the labor market, employers set wages. Therefore, in theory a minimum wage could increase employment, because of the monopsony-like conditions present. The author (Alan Manning) says that theory cannot establish whether this will happen or not – only empirical studies can.

Ryan Fuller July 29, 2006 at 3:11 am

Inconclusive empirical studies are the haven for people who are clearly disproven by widely accepted fundamental economic theories. If I wanted to argue that demand curves don't always slope downwards, I'd be making weak appeals to inconclusive empirical studies too.

"For example, although in many businesses an increase in the wage will increase inefficiency, an increase will push some businesses to innovate more."

The costs of this innovation are likely greater than the benefits, otherwise firms would have tried it before they were forced into it by government distortion of labor prices.

Isocrates July 29, 2006 at 9:43 am

Professor Boudreaux,

Perhaps you would weigh in on one of the arguments that seems to be popular among those who advocate the minimum wage (over at Mankiw's blog): that labor markets are charcterized by monopsony power so that the market wage is significantly lower than it would be under perfect competition, thus justifying remedial action by the government.

Helen's_kid July 29, 2006 at 11:06 am

Shall the poorest of the nation remain in poverty?

The minimum wage is a response to poverty. It is a wrong minded political response to poverty. The question, what can we do about poverty, is given a simplistic reply, raise the minimum wage. The suggestion that raising the minimum wage will, somehow, reduce poverty is comical.
Oprah did a show where a young couple tried to exist on minimum wage jobs in Columbus, Ohio. It was painful to watch. One character in the show was making $9.00 an hour and still could barely survive. Her contention that 30 Million Americans are in this economic condition is hard to believe. It means that one in ten is in poverty. In America! So, whether it is $5.15 an hour or $9.00 an hour, you are still in poverty. Raising the minimum wage is a bad idea, not only for the reasons given in the topic, but also because it is no solution to poverty. Where is an economist when you need one?

What if we capped profits? Hmmm. Business would be forced to spend their earnings before declaring excess profits, maybe on employee wages. It makes more sense than raising the minimum wage.

cpurick July 29, 2006 at 12:41 pm

"What if we capped profits?"

Then companies would downsize until profits were maximized at the cap. You would find that as companies approached the cap they would receive less investment.

Nobody wants to be the investor who contributes the first dollar that's not allowed to turn a profit.

GoodQuestion July 29, 2006 at 2:01 pm

The free market theories are undoubtable correct in the aggregate, but have you ever tried to live on the minimum wage?

Mickey Klein July 29, 2006 at 3:10 pm

Hasn't anyone tried to measure the demand elasticity for labor? It makes sense that the demand would decrease as price increases, but only on a unique gradient.

The fact that some small increases in labor price do not have an effect on unemployment does not junk the basic laws of economics, it only means that in that range of labor price demand is inelastic.

Lee July 29, 2006 at 4:00 pm

I don't think that minimum wage laws will ever help low skilled workers, boost the economy, aleviate poverty or whatever. However, there is of course the possibility that I am wrong, perhaps under some conditions minimum wage laws can help to achieve these goals.

Even should we entertain this premise, would you support minimum wage laws in those circumstances?

Identifying that which is economically efficient or inneficient is important in deciding what to do, but not the sole deciding factor.

Fact is, minium wage laws amount to a group of regulators deciding how people are allowed to spend there own time and energy, no longer allowing individuals to make their own decision whether or not a transaction is worth it, but deciding for them. This will be the case regardless of what economic consequences follow.

For this reason alone, minimum wage laws are undesirable, irrespective of the economics.

Of course, I might further argue that such erosion of personal liberty is a worrying precedent, which pushes us closer to a dangerous precipice, a risk not worth taking, even if it might bring some small benefit. Would you jump into a pit full of angry lions for a chocolate bar? I doubt it. Though that is getting a bit off-topic, so just ignore me.

Half Sigma July 29, 2006 at 6:47 pm

As a chairman of an Econcomics department, you really ought to know about elasticities of demand and commodity pricing, and unequal bargaining power for sellers when they vastly outnumber buyers.

This is completely bogus that it's inconsistent with "basic economics" that raising the minimum wage might not cause unemployment for unskilled workers.

How many times do I have to point out that the price of oil tripled but the amount of oil used in the U.S. actually INCREASED?

Your arguments against the minimum wage or obviously motivated by idealogy and not a genuine desire to understand the facts.

Kent July 29, 2006 at 7:04 pm

I thought the only valid point of view is whether the consumer is better off, not whether the owner or minimum wage worker is.

Helen's_kid July 29, 2006 at 7:07 pm

"Then companies would downsize until profits were maximized at the cap. You would find that as companies approached the cap they would receive less investment."

If the maximum allowable profit were a percentage of capitalization, investment would not be affected. I was just musing, anyway. When I see a company like Exxon-Mobile generating a quarterly profit of BILLIONS of dollars, I cannot help but think of the poor hopeless clerks manning the cash registers in all the "On The Run" establishments. Clerks with the most dangerous jobs in the country. Clerks who's next customer may have a ski mask and a gun, working at the minimum wage. If Exxon -Mobile were to give each of those clerks a million dollar bonus they would still have excess profits. Just a thought.

cpurick July 29, 2006 at 7:20 pm

Lower Sigmoid:
"As a chairman of an Econcomics department, you really ought to know about elasticities of demand and commodity pricing, and unequal bargaining power for sellers when they vastly outnumber buyers."

I think that was the whole point of the essay: knowing better than to accept the findings of a largely-discredited report when it completely contradicts established economics.

Lower Sigmoid:
"How many times do I have to point out that the price of oil tripled but the amount of oil used in the U.S. actually INCREASED?"

Of course, oil prices will go up when consumption increases. And since demand for fuel is inelastic, we can expect prices to go up quickly.

In terms of wages, this tells us that when unemployment gets very low we can expect wages to go up.

A person would have to be a complete MORON to interpret this as proof that higher wages somehow create more demand for labor.

You're making logic errors. Perhaps you should just sit out and watch so you don't hurt yourself.

Daniel July 30, 2006 at 1:04 am

"When I see a company like Exxon-Mobile generating a quarterly profit of BILLIONS of dollars, I cannot help but think of the poor hopeless clerks manning the cash registers in all the "On The Run" establishments. Clerks with the most dangerous jobs in the country. Clerks who's next customer may have a ski mask and a gun, working at the minimum wage. If Exxon -Mobile were to give each of those clerks a million dollar bonus they would still have excess profits. Just a thought."

Exxon Mobil had a profit of $7.64 Billion out of $88.568 billion in sales which is a net profit margin of 8.6% Is 8.6% an excess rate?

If clerking at Exxon Mobil is so dangerous, why would anyone willingly work there for the minimum wage? I'm sure they could get a job at Wal-Mart.

Daniel July 30, 2006 at 1:13 am

Oops, I was looking at the June '05 quarterly results. The past quarter XOM earned 10.71 billion on sales of $99.03 billion, which is a profit margin of 10.8%. Is 10.8% excessive?

JohnDewey July 30, 2006 at 5:32 am

Helen's kid,

Exxon-Mobil owns a very small percentage of the retail stations that carry its brand – under 10%, I think. Would you have Exxon-Mobil pay those millions to someone else's employees? Why not pay them to my employer? I could use a million dollars.

Why should the millions of Exxon-Mobil shareholders subsidize the wages of the unskilled workers who voluntarily took those jobs anyway?

If Exxon-Mobil uses it profits to increase the welfare of retail employees, won't that reduce the available funds for refinery expansion and for petroleum exploration? How does paying a few clerks help the 300 million Americans or the billions worldwide who are now burdened with higher fuel prices?

Why do you object to "bigness"? That's all it is, really. Exxon-Mobil and the numerous other energy companies have just grown to a size that allows economies of scale. Their profit margins are not that great over the long run. But those economies of scale have allowed all consumers to benefit from huge, cost-efficient refineries. Those consumers also benefit from massive risk-taking in exploration which smaller companies could not hope to attempt.

So why do you hate the bigness of energy that has provided us fuel costs lower than we would otherwise enjoy?

Half Sigma July 30, 2006 at 10:14 am

"Lower Sigmoid" Insulting people is usually the resort of people who are so angered by the truth of the opponents argument that they can't think of a more rational response, so I'll take it as vindication.

"The past quarter XOM earned 10.71 billion on sales of $99.03 billion, which is a profit margin of 10.8%. Is 10.8% excessive?"

No, not excessive at all, natural resource companies are the most HONEST companies, they have to produce the commodity at the lowest price, and they can't artificially create profits through monopoly protection via patent and copyright law, or by bogus advertising. Crude oil is crude oil.

Exxon's profits also have to be looked at over the longer term. This year is really good, and so will be the next few years, but there was a long stretch when oil companies were actually losing money. After you average in the bad years with the good years, Exxon is nothing special.

However, the merger with Mobil was an INCREDIBLE blunder. By making the company so big, it's now a target for demagogue politicans, whereas two smaller companies would have been more under the radar.

cpurick July 30, 2006 at 3:48 pm

Lower Sigmoid:
"Insulting people is usually the resort of people who are so angered by the truth of the opponents argument that they can't think of a more rational response"

Perhaps, but in this particular case I would have to say I was angered by the stupidity of your argument rather than its truth.

Are you planning to beat me with a "sticks and stones" defense? Wouldn't you rather be vindicated by a better argument than by better manners?

Brent July 30, 2006 at 5:03 pm

To Ryan Fuller: Yes, firms certainly may try innovation without government intervention. But they also might not. I certainly wouldn't advocate taxing businesses as an incentive to innovation, but I do think that innovation might be a side effect in some situations. Firms certainly do try to maximize profits, but there are always other factors involved, especially when perfect competition does not exist (which is pretty much always). My point is that there are many factors involved here, and although we do have a clear logic for thinking that there is a tendency for firms to maximize efficiency, there are other tendencies which might counteract this. Empirical tests are requrired to see the size of these effects. Maybe efficiency maximization dominates and other effects are negligeable. But not necessarily.

Russell Nelson July 31, 2006 at 1:56 am

Half Sigma writes "Insulting people is usually the resort of people who are so angered by the truth of the opponents argument"

In my experience, it's the resort of people who are so angered by an opponent who has been shown to be wrong and yet continues to post the same wrong arguments; an opponent who lacks the integrity to acknowledge defeat.

AngelM July 31, 2006 at 8:18 am

A person with a Harvard Law degree is unlikely to be hurt by an increase in the minimum wage. But someone who is border line mentally challenged and who barely graduated from high school is likely to become unemployed as a result of increasing the minimum wage.

The irony is that people who support increasing the minimum wage actually think that they are helping those at the bottom end of the income scale. But all an increase really does is force employers to decide whether retaining some of their employees at the higher wage rate is, on balance, better for them than laying them off.

John Dewey July 31, 2006 at 10:06 am

AngelM

You're absolutely correct that minimum wage laws first hurt the borderline employees. But the damage can extend further. Here's three ways:

1. Automation of labor intensive tasks suddenly becoms feasible, with thousands of minimum wage jobs eliminated. Supervisors of those low wage employees and human resource employees might also be laid off.

2. Exporting of labor intensive tasks, either to other countries or to other states with no minimum wages, will eliminate low-skilled jobs in the minimum wage locality. But it can also eliminate requirement for local management and support employees.

3. A reduction in employment can encourage out-migration of workers or reduce the in-migration of workers. Either way, the industries that support those low-skill workers will be impacted.

Sameer Parekh July 31, 2006 at 10:08 am

Randy,
"If someone told me they had found a right angle where the sum of the square of the sides did not equal the square of the hypotenuse, I'd tell them to go and measure again."

Such angles abound.

cheers
/s

Noah Yetter July 31, 2006 at 12:08 pm

"How many times do I have to point out that the price of oil tripled but the amount of oil used in the U.S. actually INCREASED?"

You fail Economics 101 for the Internet.

Premise: at time t, oil consumption is x.
Premise: at time t+1, oil prices rise.
Premise: at time t+2, oil consumpion is >x.
Conclusion: the Law of Demand has been broken.

Evaluation: BZZZZT WRONG

When prices rise, consumption will be lower than it otherwise would have been. This does not necessarily mean lower in the absolute, because other factors are likely to be changing at the same time. Your silly gesturing towards oil prices proves nothing, since ceteris paribus does not hold.

I've said it before and I'll say it again: the Law of Demand is ironclad and unyielding, and holds at all times in all places.

John Dewey July 31, 2006 at 1:45 pm

Half sigma,

Here's two links explaining that a change in a factor – such as population or economic growth or substitute goods – can shift a demand curve. I think I remember learning about such shifts in my first microeconomics class.

http://tinyurl.com/zalcg

http://tinyurl.com/ptxwn

I hope you find these helpful.

kebko July 31, 2006 at 3:35 pm

"But the damage can extend further. Here's three ways:

1. Automation of labor intensive tasks suddenly becoms feasible, with thousands of minimum wage jobs eliminated. Supervisors of those low wage employees and human resource employees might also be laid off.
"

That's not damage. That's progress.

Randy July 31, 2006 at 3:51 pm

Sameer,

If you have a minute to explain, I'd appreciate it. Just curious.

John Dewey July 31, 2006 at 4:30 pm

kebko,

I was referring to automation that would not have been cost-effective had workers been allowed to set their own minimum wage.

I agree that automation of manual labor is progress, but only if the cost of that manual labor is not artificially inflated.
IMO, when automation depends on restrictions to free markets, such automation is not progress.

kebko July 31, 2006 at 7:08 pm

"I agree that automation of manual labor is progress, but only if the cost of that manual labor is not artificially inflated.
IMO, when automation depends on restrictions to free markets, such automation is not progress."

I've wondered myself about this. It seems to me that a paradigm shift happens when a labor process is transformed into a capitalized process. After that happens, it seems like there would be a natural tendency toward more targeted & aggressive productivity gains. In an economically stable world, labor will tend to become more expensive over time. But, capital tends to improve over time.

I think this more or less is demonstrated in statistics where nations with more oppressive labor rules tend to have higher unemployment, but also high wages for those who are working.

So, my question is, even if it is based on "artificial" costs, is there some level where obstacles to free labor (minimum wage, high payroll taxes, rules against firing-at-will, cultural resistance to pay reductions, etc.) actually lead to enough capitalization that they end up benefitting labor as a whole by leading to more productive jobs in the economy that results? And, could this explain the potential result of higher minimum wages seeming to lead to better employment in some contexts?

All this being said, there is still the issue of freedom, but in pure dollars & cents, I am curious about this question.

Bill July 31, 2006 at 7:54 pm

I noticed in the essay he linked to there was no mention of the assumptions made in the absic economic texts. Perfect information, no transaction costs, no barriers to entry. When is the last time you saw models of oligopic firms in the first years econ courses?

The fact that empirical evidence is lacking is very telling. The explanation that maybe workers get less breaks or are dealt with more striclty is a joke of a strecth of an anecdotal attempt to explain why something that seems so obvious is hard to observe in real life. Look, I believe that as you raise the minimum amount of wages, the demand for labor will decrease. I think this effect is strong, I think it makes sense, and I think we should not raise the min. wage because of it. That being said, I would not be surprised if rasing the minimum wage by say, 50 cents an hour, would have a net job loss effect. That is not to say that if this is the case we should do it, but rather it may be the case due to all those messy variables that muck up empirical research.

Although I myself don't hold the belief that collusion and other stategic behavior by firms is keeping the minimum wage artificially low, or that executives are just mean and said to themselves, "we could pay all of our workers one dollar an hour more, but we instead will pay the 25 of us a total of 30 million more," (even if they did say that, which they kind of do, doesn't really mean the min wage should be raised anyway) I don't understand why people who do hold that view are so insulted as morons on blogs which every so often serve as minimum wage sucks love fests.

I will now quote some basic econ jokes, not unlike the basic THEORY that is quoted back and forth in exhilirating triumph between those united in their oppossition to minimum wage:

Q: How many Chicago school ecnonomists does it take to screw in a light bulb?
A: None, if the lightbuld needed changing the market will take care of it.

Some guy: blah, blah, something to the effect of that in the long run the markets will clear.
Keynes: Yes, but in the long run we are all dead.

Come on, the last social science that makes exceuses like, "well empirical research is hard to do, so lets just think about it in our offices and declare that to be the case" should be economists. That is something for the other social sciences.

If you have read this far, I ask you if you agree with this: "Rasing the minimum wage is bad because it will reduce employment and/or raise costs, but, somebody who thinks that rasing the minimum wage is good might not be a total moron, especially given the lack of empirical studies showing this to be the case."

any takers?

tarran August 1, 2006 at 1:04 am

Bill,

There is a school of thought that third parties should not intervene in the peaceful trade of others since the third party is imposing his or her values on the others without their consent.

Let us say that I trade X of good or service A with you for Y of good or service B. Now, it is probable that you want some amount greater than X in trade, but settle for it because it is the best deal you are going to get and the X of A is worth more to you than the Y of B.

It is also probable that I want more than Y of B, but are forced to settle.

Now, let us say half-sigma shows up and announces that his gang is going to improve our lives by kidnapping anybody who attempts to sell X of A for anything less than 1.5Y of B.

I of course am happy, because if I can find a willing buyer, I will make out like a bandit.

Now, you have a choice. It's possible that X of A is worth more than 1.5Y of B, and you have 1.5Y's worth of B to pay, so you go ahead and do so. It is possible that you don't and the transaction does not go forward.

It is certain that some transactions that would otherwise occur will not occur. It is irrelevant if they are a small number; those people are harmed since both parties desired the transaction and have been prevented from improving their lot by threat of violence. One pair of victims alone is too many.

The proponents argue that the benefit outweighs the harm. Yet there is no way to actually demonstrate it. It requires interpersonal utility comparisons. In otherwords, they have to show that the benefit of me receiving the extra .5Y of B outweighs your loss of it.

Now some make some arguments that an employer has more money and thus each extra dollar he spends has lower marginal utility to him than it does to the employee who has fewer dollars. But this is simply bullshit. Maybe that .5Y is what you would invest in a company that finds the cure for cancer while I blow it on readings by Miss Cleo. Now, I might believe that Miss Cleo's readings are worth more than a cure for cancer (because she not only can cure cancer, but tell me if my lover is cheating on me). And, there is no way to prove me wrong because all value is subjective. Similarly, there is no way to prove that a cure for cancer is worth more than readings by Miss Cleo. To me one may be worth more than the other, while you hold a contrary position, and there is no way to reconcile the conflict on some arbitrary objective scale of value for all of humanity.

To assert that you loss is outweighed by my benefit, one must quantify your loss and my benefits and subtract the former from the latter. And, there is literally no meaningful way to do that.

Now, with that being said, it is clear that people who argue in favor of a minimum wage are not necessarily morons; a few of them are too articulate to be classified as presenting mild retardation such that their mental ages are between 7 and 12. But every argument in favor of the minimum wage comes down to a decision by one person that he doesn't approve of the voluntary interactions of two or more other people and a desire to use violence to impose his will upon them. As such those who advocate a minimum wage should be treated much like those who argue that "date rape" ain't so bad. Those who can be taught the error of their ways should be gently brought round, but the recidivists deserve every bit of contempt and derision they receive.

Incidentally, those so called assumptions of perfect knowledge, low transaction costs and no barriers to entry being required to prove that free markets work is absolutely silly.

After all, if all participants in an economy had perfect knowledge, there would be no speculation, and hence no development of new processes, yet the primary benefit of the free market compared to the alternate is that provided by the actions of speculators. Similarly, while high transaction costs and high barriers to entry can lengthen the time toward some equilibrium, they impact both free markets and centrally controlled ones, (in fact are lower in free markets than the centrally planned ones by necessity). To claim that an economic system must be at equilibrium for it to 'work' seems odd since no economy is ever at equilibrium (unless all its participants are dead).

Randy August 1, 2006 at 9:36 am

Bill,

I do not believe that the proponents of the minimum wage are morons – just mislead.

It seems obvious. The employer has a lot of money. The employee, not so much. Let's force the employer to give more money to the employee and make things fair.

The problem is that this isn't what happens. The employer will do everything in his or her power to keep from taking money directly out of his or her own pockets. He or she will attempt to raise prices, reduce employees, hold down wage increases, find a more profitable line of business, go out of business, or simply not go into business, before reaching into his or her own pockets. And even if he or she does have to pay the higher wage directly for a time, that loss will be recovered by the methods above in time.

So the end result is that the distribution of wealth created by the minimum wage is only for a limited time, and is primarily a redistribution from some low skilled workers and the unemployed to other low skilled workers – and not from the employer to the employee as the politicians would have you believe.

Its a political ploy. You're not a moron. You've been conned.

Russell Nelson August 1, 2006 at 10:54 am

Bill says "The fact that empirical evidence is lacking is very telling."

Actually, no. If you want good empirical evidence, double the minimum wage. Then proponents will start bewailing the high unemployment rate. "Oh, you can get paid well … if you've got a job! Those nasty companies won't hire anybody! They must be evil! We should force them to hire people, just like we force insurance companies to insure dangerous drivers through a pool."

Only babies need empirical evidence of gravity. The rest of us know that things fall when you drop them, that the sun rises in the east, and that minimum wages cause unemployment.

Russell Nelson August 1, 2006 at 10:58 am

Randy: consider a triangle drawn on a non-planar surface … such as a sphere.

Randy August 1, 2006 at 12:23 pm

Russell,

Got it – thanks.

Randy August 1, 2006 at 12:24 pm

Russell,

And gravity does make a better example than a right triangle.

Bill August 1, 2006 at 2:05 pm

Russel, I don't think babies need empirical evidence for anything.

Tarran, I'm not saying free markets don't work, and I agree that as wages increase demand for labor decreases and so we should not raise min. wage. You're preaching to the choir. However, we also shouldn't act as if every econ 101 model will hold true, especially given the lack of empirical evidence.

All I am saying is that the people who argue for a min. wage hike do so not only because they feel that it is good, which many of them do, yes, but also because they also think there is a combination of price fixing, lack of information, etc., that is depressing wages. Now, it is probably the case that more government involvement won't diminish any anti-competititve behavior, if there is indeed enough going on to warrant government intereference in the first place. That is another topic though.

Suppose this happens: The only two big boxes within a one mile radius decide not to pay more than 7.00 to new employees. (This is illegal price fixing) I ask you, do you think that has ever happened? Do you at least think it could happen?

Now whether it has or not really shouldn't dictate min. wage policy for the whole country, I know. But people who are for the min. wage. increase think this happens all the time and twice on Sunday, while some on the other side seem to think that this could never happen, or if it did, they would lose all their employees within a month, nevermind the realities of transaction costs, and imperfect information, and non-perfect competition.

I myself am against raising the min. wage, but I think that by at least considering the possibility that there is collusion or market failure that is depressing the min. wage in some areas strengthens my opposition to the min. wage. The whole moral argument about telling someone how to spend their money is a nice touch, but irrelevant. We all pay taxes, and those go to stuff we don't want to pay for. We have laws that a lot of people disagre with. While this does not mean that we should go on regulating the hell out of everything, the reality is that employment law is already heavily regulated and the economy has not come to a screaching halt yet.

Pretty good spirited debate that's going on, huh?

John Dewey August 1, 2006 at 2:20 pm

Bill: "The only two big boxes within a one mile radius decide not to pay more than 7.00 to new employees. (This is illegal price fixing) I ask you, do you think that has ever happened? Do you at least think it could happen?"

I know of no place in the U.S. where big box retailers are the only employers. In every community large enough to include a big box retailer, dozens if not hundreds of other employers must exist. How could all those employers possibly collude to fix the price of low-skilled labor?

Randy August 1, 2006 at 2:48 pm

Bill,

When discussing the minimum wage, the question of fairness is impossible to avoid. So, a question for you;

Would you ever take a job that did not pay what you considered to be a fair wage? How would you determine what fair is?

My answer is that I would not. And I would determine whether or not the offer is fair based on a comparison to my next best opportunity. I would agree to accept the best offer. And it is the agreement that determines what is fair.

The thing is, this basic fact of life make's irrelevant most of the points you are making. Sure, in an ideal world, everyone would have a comfortably middle class lifestyle. We could define fair as everyone having that lifestyle. But the real world is competitive. In the real world, fair is what you agree to.

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