The Point

Keep up the good work! Leftists are purely emotional, so reason won't work on them. As evidence, notice how they always characterize free market thinking as some sort of irrational religion by calling it "free market gospel" or "faith in the market." They seem to think that no one has studied economics for the past 200 years.

You have to hit them with an emotional response. Maybe you could respond to a supporter of minimum wage by asking why he hates poor people. Also, always refer to his irrational faith in the government and the socialist gospel.

Mr. Warshawsky has an article explaining his reasoning:

http://tinyurl.com/y539q8

The argument about elasticities, though it is made often, is not particularly compelling. A group can be helped in aggregate with individuals in it still being hurt. As was said in the post on the empirical literature, "you can still think it a good idea to put 1% or 3% of low-skilled workers out of work in return for a 10% increase in the wage of those who keep their jobs. Personally, I find that to be a very unattractive trade-off, especially when you consider the non-employment effects, but that is a judgment call."

Well, I'm a little chagrined to be the featured foil for this issue. But I am outspoken enough to be able to take the heat.

The crux of my "opposition" to the free market position re the min wage is that, as an economic matter, little effort is made to show that total welfare goes down as a result of a min wage increase; and, as a political matter, I believe opposing the min wage will harm the free market position in the long run by undermining public support for a philosophy that many people will see as an excuse for "heartless capitalism."

As Russell notes in the entry he linked to re empirical research on the issue, it is well established that a min wage results in some unemployment (I don't dispute this). But he does not attempt to quantify, for example, whether the total income of the low-wage group goes up, even if some members of that group lose their jobs. Instead, he simply states that he finds the trade-off (more unemployment for higher incomes) to be "very unattractive." Fair enough. But isn't this the $100,000 question? I.e, how to judge this trade-off? What principles and values inform our judgment? And do they necessarily point in the direction of no min wage?

Ultimately, there is a real world to consider. From a political standpoint, I believe that it is possible to educate people about free market concepts without turning them off to capitalism by taking positions that they are likely to consider "extreme" (e.g., that the min wage should be abolished). If we truly are committed to moving the country in a free market direction (as anyone who has read my stuff knows I am) — rather than just patting ourselves on the back for having a superior understanding of economic theory — then we need to consider how we can best persuade the public of our positions.

As I argued in my own piece on the min wage issue (last week on American Thinker), there are many other, much more serious ways in which the government interferes with economic freedom than the min wage. I believe both the libertarian and conservative movements would be better served by addressing these areas (which are less popular than the min wage), and by working incrementally to move the country towards a greater free market.

Whether we like it or not, the country *never* will agree to abolish the min wage, but there is no reason to believe that more people cannot be persuaded that greater economic freedom overall is to their and everyone's benefit.

I liked the billboard example because many politicians act as if businesses absolutely must have a certain number of people to operate. Some right-wingers conform to this idea by simply saying that small businesses will go out of business. Explaining the existence of elasticity of demand for labor is important.

My fav example is my local Starbucks. There's often a staff member idle. Seems like wasted expense. But occassionally there's a rush of customers, the line gets long, and some potential customers seeing the long line are disuaded from buying. So the role of the last employee is to keep a couple of customers from avoiding the shop because of an occassional long line. Even at $3.50 for a cup of coffee, that last person is just barely worthwhile.

I just wish someone would explain how the high end of the wage market works the way that it does. If a minimum wage earner does a poor job, they have problems finding a new job. If a CEO or VP of a company does a poor job, they are rewarded for it and have no problems at all finding another high paying job. That just doesn't seem right. If you run a company into the ground, you should have to spend some time on the unemployment line.

What you should be talking about is how skilled workers have had their salaries pushed down to where they now make what unskilled workers get (due to the minimum wage). With 11 years experience in the tech support field, I make a dollar an hour more than my husband does as a custodian. And we both make a few bucks an hour more than minimum wage. The growing difference between wages for most of us and wages for those at the top are going to someday bring about laws that you may not like.

Steven Warshawsky: "Whether we like it or not, the country *never* will agree to abolish the min wage,"

Well, I think that's true if those who write for a living, and who recognize that some are indeed harmed by the minimum wage, continue to misinform the public.

*Never* covers a very long period of time, doesn't it?

John Dewey –

"That some are indeed harmed by the minimum wage." We're back to square one. Yes, some are harmed by the min wage — but some are helped by it. It's a question of defining and weighing the harms versus the benefits, no?

All public policies harm some people. To point this out does not advance the debate one inch.

Steven Warshawsky: "Yes, some are harmed by the min wage — but some are helped by it."

Who? Who is helped in the long run when government decides to take away the freedom to negotiate a wage?

When unskilled workers lose their jobs to automation or to non-U.S. workers, how are they helped?

Steven Warshawsky: "All public policies harm some people. To point this out does not advance the debate one inch."

I disagree. The general public is little aware that small businesses much more than giant corporations suffer the burden of this government restriction on freedom. The general public probably doesn't even understand how the least-skilled and least-able are harmed by minimum wage laws.

John Dewey –

"Who is helped in the long run when government decides to take away the freedom to negotiate a wage?"

Look, I've read my Ayn Rand. Not to mention Friedman, Hayek, et al. I am very sympathetic to the free market position. But rhetoric like this is unpersuasive.

Low wage workers do not "negotiate" their wages in any meaningful sense. Certainly not compared to highly educated (and less in supply) attorneys and doctors, for example. Indeed, most people would think such a notion is ridiculous. And, as a result, such people will be more likely to reject the underlying philosophy that supposedly leads people to speak in these terms.

Frankly, I think this sort of rhetoric — which pretends that there is some semblance of equality of bargaining position between employers and employees — is a lame way to try to defend capitalism.

Why be so defensive about the imbalance of economic power? Freedom leads to imbalances of all sorts of things (human beings, after all, are not equal in terms of talent and motivation and opportunity). It seems to me that a true defender of freedom would argue that the existence of such imbalances alone in no way calls into question the superiority of liberty as the central organizing principle of human activity. (Being a conservative, not a libertarian, I do not believe liberty is the only organizing principle.)

By implicitly conceding that the moral standing of capitalism is dependent on there being an equality of bargaining power between employers and employees, you risk undermining the entire system once the actual imbalance is pointed out.

Professor Roberts, great blog and interesting post. Here is my cocktail party response:

Payment is a function of productivity. So a “minimum-wage” law could more accurately be called a “minimum-productivity” law. It tells a man who lacks the skills to meet the minimum productivity that it is illegal for him to work. This is justice?

Steven Warshawsky: "Low wage workers do not "negotiate" their wages in any meaningful sense."

Sure they do. How many low wage workers have you employed recently?

When offerred a wage, any worker can accept or not accept. Very often a worker asks us for more, and my manager tells them they will get a raise after 90 days if they show progress.

In job interviews, prospective employees frequently tell us how much they expect to earn. If the applicant looks especially promising, we may pay more than we advertised.

I've had workers tell me they would love to keep working for me, but that they were just offerred more money. Sometimes we counter offer a lesser amount. Always we remind our student workers about the numerous times they've been able to study during slack times at night.

Low wage workers have much more leverage with small businesses than you apparently realize.

john Booke: "If the "saftey net" is strong and kept at a high level then are'nt we more inclined to take greater economic risks relative to citizens of other countries without similar support? "

Sorry, but I don't understand this logic at all.

If we raise wages for unskilled workers high enough, their jobs can be automated, or offshored, or even just eliminated altogether.

An example: Owners of small retail businesses weigh costs vs revenues to determine what hours to open. A Sunday operation may be marginally profitable when parttime workers are paid $5.50 an hour. At $7.25 an hour, the business loses money. So the owner decides to close on Sunday and reduce the hours of the several Sunday workers. How is that a safety net for those college kids?

Patrick Sullivan,

I agree with your post. But just to be clear, the market clearing wage for low skilled workers varies greatly by job and by locale. My southern U.S. bookstores have found all the parttime workers they need while only offerring $5.50 an hour starting wage. Supermarkets across the parking lots are forced to pay $7.00 an hour to entice high school kids to bag groceries.

To talk about low wage workers making $7 or $8 per hour as "negotiating" their wages in the same way that, e.g., professionals or executives do is absurd.

The "market clearing wage" is a function of supply and demand — and where the supply is large and individual employees are easily replaced, employers will be in a relatively stronger bargaining position (and vice-versa). Indeed, these are the types of industries that tend to unionize.

The example of unions — which exist precisely to raise wages and benefits above their "free market" level — shows that individual employees have rather limited bargaining power vis-a-vis employers, because they cannot "negotiate" a compensation package that is nearly as generous as that which unions can obtain.

This example is not intended to defend unions or debate the merits of unionization, but simply to show that it is ridiculous to discuss the bargaining power of individual employees in low-wage industries as being remotely equivalent to employers. So defending capitalism — and opposing a $7.25 minimum wage — on the grounds that it respects the right of all persons to "negotiate" their wages is just silly.

The market rewards people who can do things that are meaningful, and especially when few people can do the same act.

This is true from CEOs to janitors to accountants.

It is a value system. Society clearly has demonstrated that it values certain jobs over others. Why involve the government to help us figure out what we value? It is clear.

I don't like Madonna, but I don't question how much money she makes. She has something that appeals to part of the market. Who am I to tell people not to buy her album? Or on the other side, who am I to tell people which music to buy?

If someone makes a lot of money it doesn't mean it is unfair, it is another demonstration of what society values.

A natural consequence is that people, in their quest to make money, will find things that society values. We WANT a society full of people trying to please society – this is how inventions get made, we get entertained, we have good food to eat, etc.

The market rewards people who can do things that are meaningful, and especially when few people can do the same act.

This is true from CEOs to janitors to accountants.

Stating it like this implies a kind of purity that is very much lacking in the real world. My brother makes three times what I do; I'm a software engineer, he's a professional poker player. Is his job more meaningful? Similarly I would argue that CEO pay is set as the result of a complicated social game which doesn't have much resemblance to a conventional market.

Steven says:

“Why is your default position that, because 7 people lose their jobs, the other 93 must forego a higher wage?”

Because those 7 people (using your arguable numbers) are the absolute worst advantaged; the worst productive and the most in need of help. See bbartlog's unchallenged post above. It is precisely these folks that many in Washington believe need the most help. Why won’t you address this point? Those 7 people are not the same as the other 93. They are in the most need of help. The fact that those very particular folks are the ones that ‘are hurt’ is THE travesty of the minimum wage.

On the house floor Nancy Pelosi said: “let us be a deliberative body that is here to promote justice.” How is it fair and just to help the 93 better advantaged at the expense of the 7 worst advantaged? HOW?

Steven says:

“….in judging whether this is an acceptable trade-off, or not, you need to define and defend the principles and values that lead to your conclusion.”

One principle and value might be that we not condemn the least advantaged to help those who are slightly more advantaged. Your principles appear to ignore the least advantaged of the poor at the expense of the most advantaged and most productive of the poor. How is this particular tradeoff justifiable in any value system?

The reason that many of us can say that the other 93 shouldn't benefit is because it is out of the hands of the 7 people that "lose". They were employable before, but the government stepped in and decreeed that they were not making enough money. Who the h**l are you to tell them that they shouldn't work for $5.50 an hour when they are willing to?

BTW, low wage earners are certainly negotiating their wages when they ask for raises or decline to work for too little. If someone is offered $6.00 an hour and they ask for $6.75 an hour, how is that any different than someone being offered $60,00 and they ask for $67,500? In both cases the potential employer will look at the qualifications and what that employee will bring to the business. If they think it's worth it, they'll give them the raise or make a counter offer. If they decline to counter offer, the employee can take the offer or look elsewere. It's the same thing. If Stephen thinks that all low wage earners are the same and do not have bargining power, I suggest that he go out into the real world and see what actually happens when people are hired.

Isaac

Warshawsky is an idiot.

His position relies on a narrow static view of the economy, in which it is a simple matter of choice as to whether employers and consumers pay higher prices for the products of low-wage workers.

He does not for a second consider the opportunity cost, in transactions involving higher wage skilled labor, that will no longer be possible because of these higher prices.

In the end, employers will not accept less productivity than that which covers the minimum wage. They will apply pressure to low-skilled workers and raise the bar for employment screening, and as a result more people will spend more time looking for work.

We have not raised the minimum wage in some ten years, and yet very few people are working at that rate. This proves the value of the lowest wages as an "entry level."

There is no evidence that people are "trapped" at the minimum wage for years, or that any are trying to raise "a family of four" on the minimum wage. That is liberal horse's hit, and it would be impossible for anyone who is guided by reason to accept such nonsense.

Warshawsky's comments keep coming back to the phrase "politically untenable," which is another way of saying "unprincipled," or perhaps "spineless." His emphasis is on appeasing public ignorance in exchange for conservative political power — trying to beat Dems at their own game. Toward that end, he is no better than Bruce Hall or Spencer, trying to rationalize a flawed but popular policy.

If Warshawsky represents conservative thinking, then we are certainly no worse off with the Dems in power. He's falling into the trap of thinking that the public wants liberal policies because it threw out the Republicans, when in reality the Republicans abandoned conservatism and were defeated by conservative Democrat candidates.

Show a little spine, Warshawsky. Anybody who wants more money should acquire more skills. It works without raising the minimum wage, and without adulterating workers' incentives to achieve.

Do not abandon reason in the pursuit of political power. The top dogs have the best living standards, and no set of laws will change this except to make everyone equally poor. I have yet to see the U.S. advocate a higher minimum wage to lift an impoverished nation out of poverty, and regardless of whether such wages do any damage here there's no evidence that they will alleviate poverty here either.

You sold out.

bbartlog,

Re; CEO pay.

The only thing that matters is that someone is paying them. If a CEO is being paid more than he or she is worth, it is because someone is paying more than he or she is worth. I know lots of people who are being paid more than they are worth. Its only a concern to me if I'm the one who's paying them.

Its worth it.

If you manage to explain to just one person the logic behind the minimum wage, he will never again be swayed by any argument for price controls.

"The argument I have been making is that the economic case against increasing the federal minimum wage to $7.25 is not particularly compelling, and there are very strong political reasons for Republicans not to oppose it."

Steven,

You're ignoring the issue of inflation.

All that raising the minimum wage does is raise costs, which raises prices, which dilutes wages.

As a result, you quickly end up back where you started.

You're just the dog chasing your tail.

The only way to actually improve things is through education or training so that you acquire the skills that employers demand.

I don't understand how people (Read Warshawsky and the the lefties) just expect that raising the minimum wage doesn't hurt anyone. It is presented as this idea that business owners can just snap their fingers and POOF pay higher wages.

But this is a further illustration of neurotic behavior from the left wingers. In one hand they trumpet the need for the growth of small businesses against the oppression of industry leaders like Wal-Mart and Home Depot. One way that small businesses make up for their lack of bargaining power for cheaper sourcing of products is to hire labor more cheaply then their big-box competitors.

That money has to come from somwhere. If they cannot raise prices (because of competition) the cost increase will come directly out of profits.

If a business has XXX number of employees that work 20 hours each this is the effect that an increase to 7.25 would have:

-5 employees: $10,500 increase annually
-10 employees: $21,000 increase annually
-20 employees: $42,000 increase annually

That money has to come from somewhere.

——————————————
All of these discussions seem to focus on who we should hurt in favor of helping some one else…. Isn't that just trying to measure utils? If we resort to putting some people's well being above the well being of other's aren't we discriminating?

'To talk about low wage workers making $7 or $8 per hour as "negotiating" their wages in the same way that, e.g., professionals or executives do is absurd.'

Guess what, they do exactly the same thing. They talk to their friends and find out what else is out there, and use that local and specific knowledge to either move to other employment or get their current employer to raise their wage.

And, to expose the illogic of your 93:7 example, what if the 7, unable to find any work at all, starve to death? Is the community as a whole better off because 93 got higher wages (which, btw, indicates they could have negotiated anyway, if not individually certainly as a group).

Compare wages to a capital lease — since they are both fully expensed and the choices don't present any tax consequences. Here's the monthly minimum wage outlay under the current minimum wage, assuming a 20% burden on payroll. Weeks in month * Hours per week * Hourly Rate * burden factor.

(52/12) * 40 * 5.15 * 1.2 = $1,071.20

And heres the calculation under the new wage;

(52/12) * 40 * 7.25 * 1.2 = $1,508.00

Difference = 436.80

Now consider a lease equivalent for 48 months, at 9.5% interest, with a 40% residual value.

As an employer, I can have $81,000 in equipment for $1,506 per month (the new minimum wage). Prior to the new wage, I could only have $57,600 for $1,071 per month. Assuming that there are automated options, this means that low skilled workers now have to compete with an additional $23,400 in capital to justify their job. Employers have options.

These numbers are just a baseline. They don't take into account that machines are available 24 hours a day, 7 days a week — without holidays or vacations. Equipment is an investment, and the purchase payment will go away while the investment keeps on paying returns. Annual full service maintenance contracts are generally 10-15% of the purchase price, and are not required until the purchase warranty expires.

All of these factors make capital investment a better option for employers. How long do you think it will be before a machine that can reliably flip hamburgers will become available — considering the seller can easily justify its $81,000 price, and demonstrate a payback in only 40 hours of use per week.

Can anyone say ATM?