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Inelastic demand means that the change in quantity demanded is less than proportional to the change in price. If the demand for unskilled labor is inelastic, then an increase in the minimum wage will result in a less than proportional decrease in employment. For example, a 10% increase in the minimum wage might lead to a 2% decrease in employment. That _is_ inelastic demand.

Unit elastic means that the change in quantity demanded is proportional to the change in price. And _elastic_ means the change in quantity demanded is more than proportional to the change in price.

The less inelastic and the more elastic is the demand for unskilled labor, the greater the reduction of employment due to an increase in the minimum wage. But unless the demand for unskilled labor is "perfectly inelastic" then there is at least some decrease in employment.

Anyway, suppose the equilibrium wage has increased above the current minimum. Employers are having difficulty finding employees. And they are raising wages here and there to solve their problems. The minimum wage increases. If the new minimum increases so that it is no greater than the new equilibrium wage, then it would seem likely that the increase in the minium wage brings the market to equilibrium and increases employment.

I oppose the existence of the minimum wage. But I can imagine scenarios where an increase in the minimum wage would increase employment. Disequilibrium scenarios. The larger the increase in the minimum, the less plausible such scenarios. And I don't think it is a good reason to raise the minimum wage.

I think it is a good thing to have the labor market be a sellers' market.

You have overstepped your interpretation of my remarks. I said it's probably that *some* employees are in that situation. I doubt that all are. And as a small business owner whose competitors and customers are primarily small businesses whose owners I talk with regularly, a fair share of us are "stupid" in this sense. It's really a blind spot more than plain stupidity, but yes, a lot of businesses aren't aware of their best interest as far as paying workers optimally. When there is no bias in the aggregation, a "market" tends to converge to an optimal solution, but individuals make bad decisions all the time. The labor market has nowhere near the liquidity and efficiency of the stock market. A lot of people may well make bad decisions about paying workers too little for the jobs they have, and those very people will be overrepresented among minimum wage payers.

I'm *not* claiming that the minimum wage will definitely do more good in this way than any harm it may cause. In fact, I believe, along with the authors of this site, that a minimum wage of any kind is a conceptual error economically. Better and broader safety nets would reduce the oligopsony power of low-wage employers without befouling the market incentives.

I'm not deeply against it, though (in the way that I deeply against trade and people movement barriers), because I just don't think it will do the kind of damage that I see DB and RR predicting. So I can live with it as a political compromise as long it isn't raised too high (to European levels). If I have to choose between a $7.25 minimum wage and trade barriers or subsidies to protect domestic industries, I know where I'm standing.

>>"Workers are paid on their marginal product of labor."

>Not true at all. Workers are paid the lowest salary that the employer can get away with and not lose the worker.

This is non sequitur and does nothing to deny the empirical fact (see reference above) that productivity and wages are strongly related.

I've worked at McDonalds, and the only reason I was willing to work there was because the minimum wage (which is what they pay) was raised to $7.15, and $7/hour was the minimum I was willing to work for. Were the red floor tiles suddenly harder? Did they deny unpaid breaks with increased frequency? Did they fire employees before they had a chance to quit with greater frequency? No. Same crappiness, but with slightly-better-paid taken-for-granted employees.

As far as 1% of low wage workers losing their jobs… do you realize it's the low wage workers who have two or three jobs to begin with? So 1% of total jobs are lost, but you have fewer people working two-three jobs at a time because they can now afford to live on the wages that ONE job pays. So Billy from company A can now take the job that Suzy from company B doesn't want anymore, because her job from company C now pays enough to live on. Honestly, I think you'd end up with a net gain in the percentage of employed workers.

Also consider the fact that the companies that pay the least are VERY cost minded already, and take great measures to make their companies more efficient, workforcewise. Working at McDonalds is like working on an assembly line. They have machines that dump the proper load of fries in a fry cooking basket, for goodness sakes. Trust me, they didn't suddenly spend an extra million dollars on equipment to try to squeeze out a little extra efficiency from their suddenly slightly-better-paid employees.

No, you have it exactly backwards. The argument — by the liberals, not us — is precisely that the wage bill will increase with increases in the minimum wage, even if quantity of labor demanded falls. That is the very definition of elasticity.

And since we're trying to debate liberals, not ourselves, your (highly inelastic)attitude is counterproductive.

At any rate I spent several years working for minimum wage and from my personal observations I'm pretty doubtful about his thesis of a wellspring of increased productivity arising from estatic and grateful employees. I've also worked union jobs for $20+ dollars an hour and the "they aren't paying me enough to care" attitude he attributes to low wages is hardly uncommon in those circles.

And what principle governs this lower-bound? Oh yes, inter-employer competition. And the market for low-skilled labor is very competitive. A minimum wage worker at Wal-mart can easily transition to a job at Target, or KMart, or Meijer. A worker at McDonald's can easily move to Burger King, Jack-in-the-Box, Del Taco, etc. A janitorial worker can work for Molly Maid, or the local school district, or any of the myriad office buildings and industrial complexes that require such work to be performed.

The idea that all of these employers face the same demand constraints is spurious at best. Half Sigma's notion sounds strikingly familiar to the "Iron Law of Wages," which has long since been out of fashion.

Yes, I've never worked in the low wage sector (except as a graduate assistant).

Since you do mention that the effect is unclear, should a min wage increase be implemented in good faith? It is not clear to me how productivity of *all* minimum wage employees would go up with this increase.

A wage increase helps the morale of a non-minimum wage employee as well, but if there is no need for the morale increse, then why bother?

Also, who's a better judge of the increase in productivity? The employers themselves, or poltical posers?

In the low wage sector, few people actually give their all to their jobs, and one of the psychological justifications is on the order of "they aren't paying me enough to care". Increasing wage may have a large effect on morale that increases marginal productivity. How strong this effect is, and whether it compensates for the potential economic damage is unclear and will vary by job and individual, but to say it doesn't exist at all betrays a complete ignorance of what life is like working for minimum wage or close to it.

I do not doubt that short term unemployment increase is inevitable. How can an employee
's contribution increase just because of a wage increase?

Not true at all. Workers are paid the lowest salary that the employer can get away with and not lose the worker.

When one worker gets paid more than another, it's because the higher paid worker has more bargaining power.

"People in other countries earn $1/hour or less. We're not going to be able to compete with that."

That is 100% wrong. Workers in developing countries earning that wage are also much less productive. In fact the data shows they are less productive in close to proportion to the difference in wages. See Figure 10.1 in Wolf 2004. This clears the way for comparative advantage to drive trade, to the advantage of everyone.

Workers are paid on their marginal product of labor. If an American laborer can make more per hour (being more productive) than a foreigner it would not benefit the employer to move overseas.

Productivity is more important that the actual wage number, so-to-speak. That's why LOW-skilled labor gets paid less than HIGH-skilled labor. As Don argued, the number of low-skilled labor would probably be much higher than 1%, employers would move to machines and have high-skilled employees operate those machines, why? Because they are more productive. This goes back to the argument about minimum workforce regulation. The steel industry was devistated because the unions wouldn't allow the mills to become more productive. The idea that having bodies working is better than productivity of the employer.

Not to mention if its such a good thing for a minimum wage, again as has been argued many times on this blog, why not just increase the minimum wage to any number higher. It could be $20/hr, $100/hr as long as it benefited a certain percentage of employees.

Apparently, Half-Sigma has never heard of the Industrial Revolution.