The Cruelty of Minimum Wage

[ak666]

I found a recent survey that suggested that over 80% of Americans not only support minimum wage, but are in favor of increasing it! This disturbs me quite a bit. It's like Americans are engineering their own downfall.

Minimum wage laws are some of the most discriminatory laws out there. They hurt the people who need the help the most: the disadvantaged, the poorest, the uneducated, minorities who are discriminated against, etc.

Helping the Poor

I don't think most Americans intend to hurt the most disadvantaged minorities when they support minimum wage. At least I hope that's not their intention. I believe it's because most Americans are misguided into believing that minimum wage helps poor people. Unfortunately a number of economists argue that the reality couldn't be further from the truth.

For a start, poor people aren't earning minimum wage. The homeless guy sleeping in an alley is not making $7.25/hour. He's making $0/hour, and most likely because no one would employ him at $7.25/hour. The people living on the streets are not making minimum wage.

Walter E. Williams, an economist like Sowell, really means it when he says "incalculable harm". The damage these policies have done over generations is enormous and staggering to even begin to think about.

Job Ladder

For many poor people, the only way for them to move up in society is to climb up the job ladder starting from the bottom.

Poor people have no practical chance of becoming entrepreneurs and job creators. They have no startup capital to create a new firm. As a result, they have to seek jobs at whatever wages they can manage.

Unfortunately minimum wage has the effect of cutting off the bottom rungs of the ladder.

This ends up depriving those who most desperately needed a job of finding one, keeping them trapped in poverty and unemployment.

Anti-Competition

Any time the government sets price controls whether it's on domestic goods, imported goods, or on labor (minimum wage, i.e.), the ultimate intention and consequence is to bar out competition. It's an anti-competition measure intended to protect special interest groups. Keep this in mind no matter what politicians actually say.

Even if he was genuine in what he said, the practical effects of the policy on the economy deserve a translation:

Only the wealthiest and most successful business owners should be allowed in the market. Those who aren't rich and are struggling with their business should be put out of business. We also need to protect our beloved white construction workers from the blacks and the immigrants who are stealing their jobs by offering to work for lower wages.

His legacy was incredibly successful at accomplishing these goals.

Large businesses from wealthy owners already steeped in the industry increasingly swallowed up small, struggling businesses who had a more difficult time competing with minimum wage.

Most effectively, he managed to eventually make unemployment rates among black youths even higher than white youths.

Price Controls

As mentioned, price controls are generally an anti-competitive measure from an economic perspective. For a simple example of how this works, let's consider what happens if we set a price control on cans of soda and require all of them to cost at least a dollar.

How do we sell this to the citizens so that enough people support these price controls? We can't simply tell them they're going to have to now pay at least $1.00 per can of soda and expect them to be happy about it. What should we do?

Aha! Let's tell them this is to promote their health and well-being. There might be enough people naive enough to fall for that kind of message.

Who Benefits?

Who benefits under this policy? Most likely the big name brands like Coca Cola will benefit the most who are already charging a high price per can of soda.

The reason is simple: the demand for their products is already exceedingly high, the company is already enormously successful enough to comfortably adjust to such changes, and their products might already go for such a price or close making the adjustment minimal.

Who Suffers?

Who suffers under this policy? Most likely the people producing the generic brands which cost much less than a dollar per can of soda, like 25 cents/can, will suffer the most.

The reason is also simple: these products needed to be sold at a very low price to stand a chance of competing with the big name brands. When they are sold at exactly the same price, customers lose a lot of the incentive of choosing their products in the first place.

The likely outcome is that these products would be discontinued, the creators of these products would find themselves out of a job, and the big brands which survive will likely be more prosperous than ever before.

Minimum Wage

Minimum wage is the same overall concept, only we're setting price controls on labor instead of goods. Now consider what happens when an employer looks at these job applicants:

Who is likely to be hired now?

Sorry old woman. Here's some pocket change so that you can buy yourself a warm blanket for those cold winters on the streets.

It's not very different from the price control analogy above on cans of soda. When we use price controls, we end up protecting certain groups of people while pricing everyone else out of the market.

Aside from skill differences, discriminatory preferences come free of charge when we're dealing with minimum wage. When two job applicants both cost the same amount per hour to hire, an employer may favor a white person over a black person, a male over a female, a heterosexual over a homosexual, a Christian over a Muslim, a more attractive person over a less attractive person, etc.

Such employers are going to favor hiring based on these types of discriminatory preferences more when there's no economic incentive for them to hire outside of their preferences. There's less reason for them to think in terms of how much value an employee will contribute to their business when everyone costs the same amount to hire.

Unemployment Rates

Some economists have shown that modest increases to minimum wage (ex: in response to inflation) don't necessarily increase unemployment rates. If we look at coarse data on unemployment rates and labor participation rates from BLS, that appears to be true. Modest increases to minimum wage do not appear to lead to a net reduction of labor participation rates or an increase in unemployment rates.

Nevertheless, one potential problem is that we're looking at the data at too coarse of a level. When we zoom in closer and analyze the effect of minimum wage laws on different social groups, we get a very different picture.

It is similar to what we predicted with the can of soda price control analogy. Customers might still be buying just as much soda if we zoom out and look at the big picture, but when we zoom in, we find that they are now predominantly favoring the big, popular brands of soda with the price controls in place.

The exact same type of thing happens under minimum wage. The black construction worker becomes replaced by the white construction worker when both workers cost the same to hire. From Eugenics and Economics in the Progressive Era:

Entrepreneurs

One of the people who are hurt by minimum wage besides the obvious ones are entrepreneurs.

Take the example of a woman who worked for a decade to secure the money required to pursue her dream: to open up a small store. Her store produces only enough revenue for a modest profit margin, not even enough for her to live on. She ends up working a second job at night to support herself in addition to running the store single-handedly
.

She believes she can increase revenue if she can get some help and spend time focusing on ways to improve the popularity of her business and expand it. Unfortunately, she cannot afford to hire help at minimum wage. Even if there are people who share her vision and are willing to volunteer to work for her below minimum wage initially until her business starts doing better, she cannot accept such an offer as it would be illegal under minimum wage laws.

If we go back to FDR's quote:

It starts to seem rather callous in such a context, doesn't it? Perhaps her dream should be shot down. Maybe her store should be replaced by yet another McDonalds or Starbucks. I find the idea very sad nevertheless.

With minimum wage laws in place, struggling business owners like her may soon find themselves trapped in a hopeless situation. They lose a great deal of flexibility to adjust wages according to what they can afford to pay their employees.

Race to the Bottom

I think another practical fear without minimum wage in place is that everyone will race to the bottom and earn the lowest wages imaginable, even if it allows even the most disadvantaged people in society to be employed.

There's the recurring idea of the greedy capitalist wanting to squeeze as much money out of his "slaves" while maximizing profit.

Yet if we look at BLS data, only ~2.7% of the labor force was earning minimum wage or less in 2016. The ones earning less are typically from states that do not enforce the federal minimum. Those people may simply find themselves unemployed if the states were required to enforce the federal minimum.

It doesn't follow that ~97.3% of the labor force would be earning more than minimum wage if every employer was a greedy scumbag and just wanted to pay people the absolute minimum. Even fast food joints often offer higher wages than the minimum.

If that was the case, we might not only need minimum wage laws, but also laws to guarantee promotions and raises. We've never needed such laws and, from that standpoint, I'd argue that we never needed minimum wage laws.

Mechanization

Aside from escalating minimum wage pricing disadvantaged minorities out of the market, it may also begin to increasingly price human beings in general out of the market.

As the cost and productivity of a human worker starts dipping below the maintenance costs and efficiency of an inorganic alternative, machines will become increasingly popular as substitutes for human workers.

While this type of innovation is arguably a good thing for consumers and for the business owners, it's not going to be good if poverty and unemployment and crime escalates as a result of people being trapped in unemployment. We have to ensure that these people being replaced by machines have somewhere to go.

Unfortunately given that price controls like minimum wage are anti-competitive measures that reduce competition, the people who lost their jobs as a result of these machines may find themselves trapped in unemployment.

Conclusion

I hope I've made a case that at least challenges what some people think about minimum wage. It's not such a simple black and white issue.

As a caveat not all economists agree on what to do about minimum wage. Nevertheless, what they seem to unanimously agree upon is that minimum wage is not about helping the poorest, most disadvantaged people in society. If nothing else, I hope I've made a decent case that this is not what minimum wage is about.

Some additional resources on the subject for those who are curious:

[oddwaffle]

I have a left liberal and I don't like raising minium wage. It's devasting to unskilled workers.

For those not familiar with the economic arguments between economist themselves, there are 2 sides in the minimum wage.. one for and against and both have good reasons and they all acknowledge those reasons as valid except the final results. All of reasons are correct because they do happen but the ultimate result is what we want. They don't about that stuff in the media.

The guys who support minimum wage argues that because workers themselves lack bargaining power (like a union) for fair wages so a raise in minimum wage would boost income for poor people. This also gives a much strong boost to the economy. This is the main argument and it does have decent support.

On the other hand, the against argument is primarily based on the fact that higher wages will prevent people from working because their skills and abilities aren't qualified for that position even though it is the minimum wage position. These people would be destitute. These also have a lot of support.

What these guys forgot is that there is dignity in work. People who work, even for a meager wage, feels better than those who can't. Idleness breeds rebellion.

[ak666]

We have the data already in terms of what it does for low-skilled workers. We even have a very recent example in America Samoa:
https://www.gao.gov/products/GAO-14-381

-71% of employment of tuna canning workers, -11% employment in all sectors from 2007-2012, and an overall decline of their GDP.

And likewise black unemployment, poverty, and crime skyrocketing since the earliest minimum wage laws. All the people who are in the worst situation don't even have the option of bargaining since they're making $0/hour.

That's not to dismiss the arguments against minimum wage but historically it hasn't done much good, and even within the past decade in America Samoa where there it destroyed a great portion of its economy.

Almost all economists I've seen in favor are in favor of very miniscule hikes though, and often in response to inflation which kind of makes the real wage/hour largely the same.

[ak666]

The trouble I have with the bargaining power argument is that someone who lacks it, especially an adult, will probably never prosper. There's no law that forces a company to provide contracts that offer promotions for long service or an increase in time in skills.

They may find themselves trapped with no income mobility whatsoever if they cannot negotiate. We could try to raise and raise minimum wage for these poor souls until the entire economy is destroyed and all of them are unemployed, but I think far more effective is just teaching them how to negotiate, ideally starting from when they're young.

Most of all the big hikes of the kind that practically no economist supports, like $15/hour, would almost certainly have very adverse, negative effects on labor demand in many sectors, and likely allow the few ingenuous businesses that survive (ex: McDonalds with their machines) to monopolize the entire market, largely freed of expensive human labor.

[ak666]

The other thing about poor bargaining skills is that I think those earning the minimum or earning nothing at all are a lot more clever than we give them credit, not just individually but how they work as a community. Many know exactly how much much they should make before they lose medicaid.

Some are even entrepreneurs. They know how to rent public housing to others in exchange for cash or food stamps. They know how to trade and exchange food stamps for cash at a market value known to their community.

These are more clever people than we give them credit in my opinion. This idea that they're like helpless children who will never be able to negotiate a raise is kind of overblown in my opinion.

If I'm wrong about that, I value the freedom of giving them that option instead of a federal government stepping in and deciding how much they should be paid which, done heavily, may very well put them out of work or significantly cut down their hours.

[ak666]

Sorry, I got a bit excited there and know you don't like raising it yourself. :-D I'm itching to discuss this more and was hoping someone would directly provide the bargaining argument in favor of min wage themselves.

[oddwaffle]

Depression in manufacturing and food sector can be contributed to: trade, machines, improved management, waste reductions and shifting demands.

Those are most commonly used reasons to dispute the findings. The primary evidence is the rapid growth in #1 productivity vs wage growth during the last 50 years or so. Essentially, people in unskilled or manufacturing jobs have been loosing wage even though the amount of good made per worker has been raising. The other evidence is the massive profits corporations have been taking in. Profits in the high 20s even 40s for companies weren't rare.

However, people who receive the most impact from minimum wage raise are small businesses selling to locals. Large corporations move their vulnerable parts overseas like India (tech support anyone?) or China. Small businesses are stuck with the high costs so their only solution is to bring in machines.

[ak666]

This is kind of a random thought but sometimes I think the infrastructure and culture of America somewhat promotes these hyper-efficient firms that maximize productivity while paying their unskilled workers the minimum.

It doesn't seem to be nearly as big of a problem here in Japan (not to say Japan is better by any means, just focusing in this one narrow context). Unemployment appears to be at an all-time low: something like 2.8%. The data is not as well-organized as the US but as far as I can gather, able-bodied people on welfare seems extremely low in comparison. Small businesses seem to be doing reasonably well without being swallowed up by massive firms and being shut down.

Aside from government regulation, I think infrastructure plays some part. In Japan they don't separate residential areas from commercial areas to the extent that they do in many parts of the US, for example. You can pretty much get by even in rural parts of Japan without a car...

[ak666]

... there are almost always plenty of stores within walking distance from your home for just about anything you need as well as a train station typically within walking distance.

I think that infrastructure actually helps small businesses thrive since, say, a small bookstore is probably not going to get much business if anyone had to drive to shop there and there was a massive bookstore like Barnes & Nobles within a similar proximity.

Here that little bookstore is often within walking distance from your home. It gathers a lot of local customers easily since they live nearby and often pass it going about their everyday business. Same goes for like a small local restaurant, diner, cafe, shops selling odds and ends, etc.

There are some chains here but they don't seem to be pushing out these thriving small businesses locally, and I think a great part of it has to do with the infrastructure.

[oddwaffle]

There are a fair bit of reasons to why we are in this situation. Small and medium businesses are one taking the heat and damages before they transfer them to the customers. Large businesses are equipped to deal with any red tapes and evade their taxes.

Imagine if you created the iPhone and selling it from you small company. You would never be able to avoid paying taxes like Apple with 250 billions. You will probably get sued, taxed and damaged so much until you pawn off your stuff to avoid law suits.

Oh there is an argument for raising the minimum wage by bits. The reason is that you don't fire the marginal employees who doesn't produce enough to meet their new wages because it takes time and effort to train them. You would spend them to replace them slowly or not replace them at all and not hiring new employees.

Yes! You got that right, the whole scheme is thought by people who are working in their mid 40s or unions! They raise the minimum wage to keep fresh blood out.

[ak666]

>> Yes! You got that right, the whole scheme is thought by people who are working in their mid 40s or unions! They raise the minimum wage to keep fresh blood out.

Gross, but makes sense. I think the reason they get so much support is because a lot of warm-hearted people are made to believe that this actually helps those who need it most. It's why I think even economists who are in favor should point the anti-competitive nature of this out and not just who it benefits, but who it hurts.

That red tape part is killer to me. I think if someone benefits tremendously from having the most skilled lawyers and accountants in their firm and enormous startup capital for a decent competitive chance, that rigs the entire market towards favoring the wealthiest and most successful.

It's the death of the American dream as I see it. The one place where it's kept alive to me is technological innovation, but that's still rigged towards a different kind of wealth: a wealth of skills and knowledge.

[oddwaffle]

The American dream is already dead. If you're think about it, most young people don't vote, only older people vote and the way the voting system favors those in power because they can redraw the lines whenever they want.

US is having the highest degree of inequality amount all the OECD (group of rich countries) while calling themselves the best.

Labor laws are choking small businesses from insurance to red tapes to minimum wage raise. This is also why Uber, Google and lots of start ups are extremely in the favor of putting employees into independent contractors. Those who are willing and able to do the 'gig' economy is doing well because the labor market is so dismal. US is becoming like France in terms of labor laws.

[kilowatt04]

This is really interesting. I have been torn on minimum wage.

I should add that minimum wage doesn't even make large corporations have to pay minimum wage. They simply go overseas to find lower wages. Those stuck at home, small businesses, are stuck paying the minimum wage. That old homeless woman cannot have the entry level job she needs, as someone overseas is getting it.

Abolishing minimum wage can be a double edged sword though. I say this because setting the price on products and setting the price on labor are more opposite than the same. Companies inherently want to charge as MUCH as possible for a product. In your example, we know the reason the can of generic pop is $0.25 while the Coca Cola is close to $1 is not because the generic doesn't want to charge $1, but because they can't, or no one would buy it. If they could charge more, they would, and I'm sure they are working toward that.

Oppositely, companies inherently want to pay as LITTLE as possible for labor. The less they can pay for labor, the more profit (to go back into the business to help grow or pay off debt for small companies, but let's face it, just into the pockets of the wealthy for successful companies).

The only thing preventing companies from paying $0/hour in a free market is the fact that no one could work for them at that - a similar mechanism to why the generic pop is $0.25 when it would rather be $1, and the only thing preventing them from charging $infinite.

In the example, Coca Cola would love to see the minimum price set at $1 both to weed out competition and allow them to charge more. The company would not benefit as much from a minimum wage hike. They might like that it hurts their competition, but not that it means less profit gone to wages. Coca Cola, Tyson, Sunkist, etc, all pay minimum wage, or less to seasonal migrants. They are run by Republicans who argue AGAINST minimum wage. Clearly they would not benefit from it.

The market instinct is to charge a little as possible for labor and as much as possible for product. While they wouldn't get away with paying $0, they are always working to get as close to that as possible. If large companies can pay less than a living wage, such as by monopolizing an industry or a geographic area or a demographic, they will, and you will have conditions like those in the Industrial Revolution, when workers were effectively indentured by the Rockefellers and the like.

[ak666]

The monopoly is the ugliest byproduct of a free market as I see it. Yet just as competition is necessary to keep prices for goods and services low, I see it as essential to help make sure people have opportunities to earn higher wages. The greed of the employer wanting higher wages balances against the greed of the employee wanting to pay them less, provided the employee has other options.

True poverty as I see it occurs to people trapped with only one practical option. Since price controls are anti-competitive measures, I see it as more likely to create these people who are trapped in their situation to put it simply.

[ak666]

The greed of the employer [/employee] wanting higher wages balances against the greed of the employee [/employer] wanting to pay them less [...]

Sorry, got that reversed. :-D I'm mostly looking at this broadly in terms of just trying to provide more competition to keep the free market in check.

A capitalist doomsday scenario for the food industry, for example, is if every single restaurant becomes swallowed up by massive chains employing tens of thousands of people. At that point government mandates for minimum wage might force this giant firms to pay their employees a minimal amount and they might be able to get away with it while also charging higher prices for their food since there are few alternatives left.

Plenty of people might be making minimum wage at that point but no more. That BLS statistic that shows that only 2.7% of the labor force earns minimum wage might skyrocket under such a scenario.

The key to avoiding this ugly scenario in my opinion [...]

[ak666]

[...] is to make sure this type of scenario doesn't happen. I see it as less likely to happen, or at least significantly delaying this type of convergence towards monopolies dominating everything, to minimize the number of anti-competitive measures in place. Minimum wage is one of them as I see it, specifically with respect to how it could prevent small startups struggling initially from blossoming and succeeding.

[kilowatt04]

In order to get rid of price controls on wage (minimum wage) we would need to ensure that there is competition for workers from companies who are willing to pay more for labor. No company inherently wants to pay more for labor, so they need to have incentives to do it. Such incentives exist in some trades (for example licensed trades with union backing) and not others, and there are probably numerous incentive structures. They have their downfalls, too. While trade licenses guarantee a wage for some workers (if they can get a job) it also makes it harder for even very skilled people get into those trades, harder for people to afford their services, and stifles innovation in the trades by maintaining exclusivity, and union interests trying to resist any change that would require effort on the part of their workers.

It's pretty easy to put people into poverty either by implementing, or or abolishing, wage controls, because it is human nature to concentrate wealth.

[ak666]

Another thing I think is the belief that how much employees get paid is somehow proportional to the minimum wage. That doesn't seem to be the case to me. As a blatant example, I doubt an MIT graduate working as an engineer would be earning anything close to minimum wage. It seems to me that a person's wages is generally more proportional to their skills, work experience, and the economic demand and value of their work.

I do still see it all being counter-balanced by everyone's desire to make more money, not by money, but with competition in place, I see it capable of offering opportunities to earn quite a bit more than any minimum wage.

Also from what I understand about countries that lack minimum wage like Denmark, they not only have an admirably low unemployment rate but also seem to pay a healthy average rate of about 110 DKK/hour simply through voluntary negotiations instead of a national mandate.

[ak666]

I do still see it all being counter-balanced by everyone's desire to make more money, not by money [/charity] [...]

>> No company inherently wants to pay more for labor, so they need to have incentives to do it.

I think as long as there are competing companies, there are incentives for the simple reason that they end up losing their employees to those offering more.

Such was the case with Henry Ford when he implemented a policy prior to min wage laws that offered an unprecedented $5 a day minimum for his employees (apparently about $120/day by today's standards).

Apparently the reasoning behind this wasn't some noble idea. It was because his company was seeing an excessively high turnover rate. People were simply not willing to work at his company for long beforehand, preferring to seek employment elsewhere after a brief period.

That was until he raised their wages, at which point the employers started to stay (he did some other funky things on top but I digress).

[kilowatt04]

The economic demand and value for their work, for sure. Their skills and experience have an impact on that, but ultimately an employer is not going to pay a skilled person more out of the kindness of their heart. Economic forces have to make them have to pay a skilled person more.

Yeah, it is definitely a fallacy on the side of minimum wage hikers that increasing it will push up the whole market. Pushing up/clipping off the bottom with no other changes just means the money has to come from somewhere. It ends up coming from both the ultra poor (who are now not payed at all, instead of payed) and also the middle class (who are making a good wage, but not wealthy enough to be able to use legal and political tools to cement their income and assets) who ends up making less than they had before.

Countries like Denmark have a radically different economic system, and probably minimum wage isn't even a thing they consider. Here, it's just an attempted band-aid on our flawed economy.

[ak666]

I think we tend to focus on massive firms and labor unions whenever we think about capitalism, but my primary interest from the producer standpoint is really those teeny startups: the little store across the street. I think they're like budding plants needing a lot of water and sunshine to grow and thrive to a point where they can give the big dogs some real competition.

When a $15/hour minimum wage was proposed, even massive firms like White Castle suggested that they may have to lay off workers left and right and shut down over 200 of their restaurants in response.

When White Castle with all of its success and size and expertise finds such measures catastrophic, what happens to that middle-class entrepreneur pursuing an ambition dream on a bank loan with only enough startup capital to ensure 6 months worth of fixed costs?

That's one of the most worrying problems to me from the producer perspective.

[kilowatt04]

Often, it kills them right off, or prevents them from even considering starting, or stunts them to the point where they cannot have any employees at all.

True free market capitalism both allows the small companies to start, but also allows the large companies to stomp them down. In nature, small plants are free to grow, but big plants are also free to rob their nutrients and sunlight, and pathogens are free to kill them off.

[ak666]

I want to try to seek to make sure those plants don't get stomped on by whatever means possible. If I compare to familiar territory here in Japan though, I don't see eyeglasses for $500 as I did in the states when I last visited. Here it's like $30 on average including the eye exam. I don't know what allowed Luxottica exactly to monopolize the eyeglass industry exactly but I suspect there's something sinister there. Same kind of thing with pharmaceuticals costing an astronomical price. We don't have that issue here. The market seems relatively saturated in comparison to the US, though I'm slowly seeing large chains swallow everything up. :-(

[ak666]

If the ultimate and inevitable state of convergence for a free market is for everything to be dominated by monopolies, I think there are measures that largely limit government interference that will at least delay the inevitable. I'm not even sure that's ultimately where things are going to converge in a very free economy. If I could see a very free one where that's beginning to occur, I might favor government measures to shake things up and make the playing field a bit more uneven to favor the underdogs. At the moment though, I still have a lot of optimism in a very free economy from converging to that unpleasant scenario.

[RedHood7]

Fantastic. Saving this for later discussions in other places. Very digestible. By the way, for the people against your POV, consider looking for Belgium as a 'midterm'. They're economically free and they do have minimum wages, but these minimum wages are a result of big unions and employers reaching a contractual agreement, not a result of federal intervention. That's how far I know about them. I read about it once or twice. Gotta read it again, but I think it's a sensible alternative to a state-imposed minimum wage.

This site should be helpful enough: www.employment.belgium.be/defaultTab.aspx?id=6224

Furthermore, this is particularly relevant to address cultural presumptions. Some people are still stuck in a XIX century mentality where their employers want them to be slaves. Brazil is going through a major worker-rights reform right now, and the unions are furious.

First of all, we cut the mandatory union tax and the unions will have to actually benefit the workers or die for lack of financial support. Brazil has over 16 thousand unions. Not even a joke.

Second, our worker laws were based on the Carta Del Lavoro, the worker laws of Mussolini's fascist party (for the ones who didn't know, fascism and nazism aren't opposite to socialism, they're socialism's younger and racist siblings who opposed an international approach supported by socialism, where as they believed in a national approach to collectivism). Now the old laws werent abolished (and they should), they were simply put as secondary if a contract between worker and employer is prioritized. [To add to my point on fascism, the left-wing militants are the ones angry at this, they claim this is a capitalist scam to turn people into slaves and undo the "progress" of recent years.]

This only serves to show how there are no easy solutions and how a lower minimum wage (if there even is a minimum wage to exist) is always a smarter choice.

[Anonymous]

The problem is so much bigger. So, so much bigger. This is actually the least of the issues; you see you now live in a world where skilled labor is the norm for labor so unskilled labor and dying fields are not going to be resurrected which in turn means that minimum wage is largely a dead topic.

What will need to truly occur and has in some places on the planet is a guaranteed minimum income, (https://money. cnn. com/2017/01/02/news/economy/finland-universal-basic-income/) because what we understand as working ability is very wrong actually.

The reason I say this is because let's look at some statistics regarding IQ and job field. (https://www. iqcomparisonsite. com/occupations. aspx) So this is rough and dirty and doesn't appeal to me as a graphic nor as a website though it is backed by years of research and other places affirm it (https://www. forbes. com/sites/quora/2015/09/16/is-iq-a-predictor-of-success/#5de6b8ee3604) which are more enjoyably credible.

But I want to take a step back. Even if we were to just gather statistics on the IQ of professors by field we would find that math and physics would be highest and social sciences would be lowest (https://web. archive. org/web/20070104093613/https://www. econphd. net/guide. htm) and there's a ton of other crap on it. It's very fascinating but not the level of GaG.

I digress. What will happen, emphasis on "will", is that there won't be the jobs that you're concerned about in a few years; it is likely during your lifetime that many menial tasks will be handed over the robots. This is not an error (https://www. zmescience. com/other/economics/china-factory-robots-03022017/) and it is bad. Horrible for humans.

So the truth of the matter is very simple: Skilled labor IS the future. There won't be a minimum wage because there won't be minimum wage jobs because they are inefficient, they are costly, they have many, many pitfalls compared to robotics and ultimately they are far less profitable.

So all-in-all the argumentation is null. Which is sad. You may as well have a minimum wage while you can.

[ak666]

>> Skilled labor IS the future.

This I absolutely agree as the brutal truth, especially as low-skilled jobs start being outsourced overseas. I'm fortunate mainly because I went into engineering.

Becoming a leader in education is absolute key as I see it for America's long-term survival.

>> Horrible for humans.

The greatest challenge I see is keeping poverty and unemployment at a sane level during these transitional periods without collapsing the economy. :-(

[Lynx122]

This is complete bullshit lol. I live in Switzerland and the minimum wage is 22.50 an hour. The prices are higher but most people are far better off than in the U. S. And we have lower unemployment too. Raising the minimum wage actually boosts the economy a lot when it's very low.

Because of the velocity of money. If you have all the money in the hands of rich people they don't spend it. Rich people are by definition people who have a lot of money they don't spend.

They will probably have it in a offshore bank somewhere and it won't help the economy at all. But if you give poor and middle class people a raise they will spend it on food and other things and that will increase demand and that will boost the economy immensely.

Saying the minimum wage should be 0 is just the agenda of greedy corporations who want to reduce their expenses by every penny they can. by the way what happens to the people who work on a minimum wage job at Wallmart and they can't survive from what they make?

Oh yeah they need wellfare. So the Tax payer is now paying Wallmart's workers even though they have more than enough money to pay them a living wage. The tax payer pays Wallmart billions a year to feed their workers. ANd then Wallmat doesn't pay any taxes because they have the best tax lawyers and buy the politicians to make loopholes for them and lower taxes.

The minimum wage is a good thing it lets people who woke a fulltime job survive on what they make. It just sounds like you've bought into the corporate greedy propaganda. Everyone for themselves so you all get screwed.

[ak666]

I would agree that if you have a greedy employer and your workers have nowhere else to go, a $0/hour minimum wage would be absolutely harmful. They might just pay their workers table scraps and we might need the force of law to get them to choke up the cash.

You generally need at least labor unions for big companies to negotiate fair wages. The difference is whether you establish these wages through negotiation or the force of law.

But it's not necessarily an accurate description to say that every employer is just going to sit on their money and pay their workers the minimum. After all, only 2.7% of workers are earning the federal minimum or less (https://www. bls. gov/opub/reports/minimum-wage/2016/home. htm).

If you actually grant that at least a good number of employers are paying their workers based on the value they contribute to their firm rather than just the bare minimum they can get away with, then inevitably forcing them to pay their workers more leads to unemployment.

[ak666]

... and that's what we see in American Samoa where they're trying to hike up minimum wages to eventually match the federal minimum.

https://www.gao.gov/products/GAO-14-381

You don't see higher money velocity. You see an economic decline with mass unemployment and largely the destruction of one of their most lucrative industries.

[ak666]

About Switzerland, it's a country with 2.5% of the population of the US and 0.4% of the geographical size. Its government is also arguably far more competent than the US government.

I could see a stronger argument for a controlled economy at a much smaller scale like this with a much more competent government. In this sense I think a state-regulated minimum wage is at least a lesser evil than a federal minimum wage. That would be a bit more comparable to Switzerland in terms of scale.

Trying to impose a federal minimum on a nation the size of the US though is like trying to apply a one-size-fits-all solution to a populace of 321.4 million people. It's bound to screw a good number.

[ak666]

As a simple case in point, do you think if America copied the Swiss minimum wage of $22.50/hour you cite, do you think Americans will suddenly be as prosperous as Swiss people?

[Lynx122]

No lol I don't think 22.50 would be a good number for the U. S. The price levels are quite different. I think it is practical though to make the minimum wage a living wage and tie it to inflation so that if you work a full time job you actually make enough money to survive. I don't think that's too much to ask. Like 15 dollars would not be crazy in my opinion. I agree that there's a lot of other problems. But The argument I saw made in one of the videos that it would hurt minorities or just less qualified people because they wouldn't get a job because they weren't as prioductive? was pretty weird. These minimum wage jobs are usually the kobs you don't need much qulifications or experience for. Like working t McDonals for instance. Is he really trying to say now less minorities would get hired because they couldn't meet the produtivity that would be required? I haven't had time to read all your comments but I'll do it another time and answer some more.

[ak666]

Cheers. About the argument from economists, the problem is that minorities, especially those in poor neighborhoods, often only have access to very poor schools ever since the state started regulating schools heavily. It's a rather unique phenomena to the US.

After being given poor schooling, with minimum wage laws in place, the argument is that it priced these minorities right out of the market. Any hope they had of earning any income was largely lost after it came into effect. They actually make a pretty strong case from a data standpoint:

www.jeffjacoby.com/jacoby/pics/large/1297.jpg
https://www.ncpa.org/images/1541.gif

Of course economics often isn't a very hard and exact science, but at the very least, we can say that these policies failed to help these minorities out. Unemployment continues to rise under their policies, even if there's an argument to be made that the policies are not the cause of it: they didn't seem to help them whatsoever.

[ak666]

Unemployment [among minority groups] continues to rise under their policies [...]

[JohnDoe3000]

There are two huge flaws in your theory.

1) the price of living has a cut-off point. There are no imaginary rungs on the ladder below minimum wage because there are limits to how cheaply you can get the required nutrients to stay alive or rent even the shittiest accomodations in a society where the median person makes much more money than you. At some point people would rather take welfare or even live as a bum than work all day for next to nothing and still living as a bum. This is why in countries with no formal minimum wage an effective minimum wage tends to result from negotiations between labor unions and employers (which in itself is pretty much proof that having a minimum wage is an economically optimal outcome).

2) There are negative secondary effects for all of society to letting people exist on subsistence level, the most obvious ones are disease outbreaks and crime, but there are others, like tourists staying away because the place looks like a ghetto.

So some form of effective minimum wage and a safety net can, and often are, profitable to society on the whole.

[ak666]

Some things to point out:
1) In the US, only 2.7% of the labor force is earning at or below federal minimum wage (ones below are in states that don't enforce it). www.bls.gov/.../home.htm

Abolishing minimum wage doesn't imply that those people earning above minimum wage already are going to be paid less. We're focusing primarily on that 2.7% minority or people slightly above that, and the vast majority of them are teenagers.

2) Welfare is a complex subject but economists like Friedman and Williams support a system like a negative income tax. Those earning below basic subsistence level actually receive money from the government instead of losing it through income taxes. They've proposed some clever systems which still provide incentives for people to work even if they're receiving it.

Most of all when we look at someone like this, they could really use *something*. Anything helps from their standpoint.
atrandomwave.files.wordpress.com/.../...h-sign.jpg

[ak666]

Where I agree with you is that there is there are optimal wages that lead to economically optimal outcomes and I'd like to see more and more people paid at least at subsistence level or above.

Where I disagree is that the ideal way to achieve that is through the force of law with a one-size-fits-all policy to all firms. I actually see the labor union negotiation as a lesser evil to a government mandate.

The problem there as I see it is that what works for a massive firm, like one employing tens of thousands or more workers, isn't necessarily going to work for a small startup that is looking initially at low profit margins.

The free market becomes broken when it lacks competition, when monopolies take over. And minimum wage is an anti-competitive measure as I see it. It favors those massive firms which can have the ingenuity to find a way to respond to the price controls. It doesn't favor those that are just budding and starting to blossom.

Without healthy competition, we [...]

[ak666]

[...] might inadvertently find ourselves facing a situation where massive firms swallow up the entire industry and are then happy to pay only the minimum to all their employees who have nowhere else to go to seek more competitive wages.

[JohnDoe3000]

@ak666

Yes, a negative income tax (aka basic income) could make a formal minimum wage unnecessary, but as long that doesn't exist, and as long as the US doesn't have a Rheinland model of formalised, regular negotiations between unions and employers I think a formal minimum wage takes some pressure and uncertainty from the weakest workers.

You also have to keep in mind that the federal minimum wage is already insufficient in many regions, which is why some states have implemented higher tresholds themselves.

[Other_Tommy_Wiseau]

this is 1 of the few actual good takes i've read and 1 of like 6 people on this site who aren't retarded and spew shit because it sounds fancy. but the problem with minimum wage isn't that it exists, or doesn't, but it's just how averages work. it's that simple/ someone has to make money and there are always winners and losers. so, while the idea is good to raise minimum wage, you're increasing inflation, therefore, nulling any attempt to increase the amount of people who can survive off minimum wage jobs. and frankly, we need underemployment and unemployment in an economy. 0 unemployment is actually bad. i didn't pay enough attention to really understand why, and i'm too lazy to explain, but it is :)

the real problem is economic disparity and how it's increasing. usually a result of deregulation and disprorportionate amount of how much the rich vs middle vs poor pay and their growth in gdp relative to inflation. but that's another argument altogether

my last point in the contribution to the real problem is this funny idea that americans have. we don't like taxes and wanna keep prices down, but we also hate illegal immigrants. ironically, they're the ones (because of cheap labor), that keep prices down. this is for many reasons that i don't plan on getting into. i'm not really for or against either in a practical sense simply because i know the pros and cons of each. i just find it funny the dichotomy where people want the best of both worlds, but are too uneducated to actually understand the contradiction in their beliefs

sorry for going on a tangent. i could've written something more cohesively and that can sound more relevant to your take, but i'm lazy and that's way too much work and editing. anyways, cheers

[evenlift]

People do not care about what helps the poor.

People care about self-sacrifice.

The fact that the free market helps the poor is irrelevant.

The economic argument was won a long time ago.

The battlefield is morality. As long as the supposed defenders of capitalism accept selflessness as the allegedly correct morality, they will lose.

Bernie Sanders, for example, talks of income inequality, wealth inequality, health inequality. If the gap is reduced by bringing down the better people, he is for it, even though it doesn't help, and actually harms, the less good people.

Altruism and capitalism are philosophically incompatible.

[ak666]

I don't think you can really win people over with the objectivist philosophy, at least in the US. You can tell just by how grossly she was misunderstood. :-(

I actually used to be a leftist when I was a teenager since I didn't like to see people suffering (we might frame that in terms of my own self-interest). Where I got it wrong, as Sanders seems to repeatedly do, is that good intentions don't yield good results.

It was counter-intuitive to me that the free market actually seems to help people out of poverty than any other economic system. Once I started to understand it though and looked at the data available to me throughout history, I changed rather quickly.

I think for many Americans that might be a bit more digestible: understanding how a free market divorced of heavy regulation actually, counter-intuitively, helps the needy as well as everyone else thrive.

[RationalMale]

You have a good heart, but the huge amount of low wage jobs available calls bullshit on most of your point. Go drive around town and there's tons of places hiring. Most fast food places and diners around Marietta/Kennesaw seem to have help wanted signs.

I used to work security around Atlanta and in the suburbs. Allied Barton, Walden Security... they are a revolving door of workers, and most of their jobs are $10 an hour. The staunch requirements? Have a car, a cell phone, a high school diploma, and don't be a druggie/criminal. The work? Hell, I had two jobs with Walden where I spent most of my time reading or on my phone earning $10 an hour for sitting around.

The problem isn't the people who can't get minimum wage jobs. The problem is what percent of jobs are minimum wage or close to it. We need to keep more decent paying jobs from going overseas, and we need to keep high paying jobs from going to H1b's who work for less than Americans.

[ak666]

That's a trouble with free markets, especially when you combine it with free trade across the world. The competition can be brutal. :-(

For the low wage jobs, do they go below a minimum? Would they be willing to hire a minority teenager?

One of the main problems I see about minimum wage is its history. The nature of the economy and inflation now may allow even an immigrant teenager who barely speaks English to find work, e. g., but what's most tragic to me is what happened historically under these policies.

[RationalMale]

Unarmed security requires age 18 to work... for a little kid, that's why there's jobs like Subway, Publix, etc. Lifeguard jobs. When I was that age I made my money going around the neighborhood mowing lawns. There's plenty of opportunity for low wage workers.

[ak666]

For those types of informal jobs like lawn-mowing or babysitting, are they subject to minimum wage laws practically-speaking, or do people kind of ignore it and pay the teenager like a few bucks an hour?

[RationalMale]

I think babysitting is more like $10 or $11 an hour, paid in cash. Lawn mowing is more like $20 or $25 for a lawn, or more if it's a bigger lawn. Or at least it was 7 years ago.

[bingbongbangbung]

Except that now in post-pandemic world, many employers claim they're desperate for workers, but then put so many obstacles to prevent as many from being hired. It's gotten so bad that to even get a minimum wage job at Walmart, you gotta do multiple group interviews and pass a few background checks. And of course with AI and robotics, many jobs are just gonna be replaced with some having already been obsolete. Good thing I have a startup on the side and recruiting agencies exist, otherwise I'd truly be screwed.

[PinkPandaBear180]

If the minimum wage becomes $0, American workplaces will be no better than China, being able to pay there workers next to nothing. Raising minimum wage is NEVER a good thing because it drives up prices for the whole system. However, taking it completely away is REALLY dangerous. You had me up until your point about the woman with broken English not hired as quickly as the man that speaks English well. That's not evil, that's LIFE. Of course employers don't want to spend unnecessary time and resources training the unqualified people. Whether you get hired for any job depends on your qualifications. I do not agree with this take at all.

[ak666]

No problem but if you don't sympathize with unskilled workers or minorities, the other way to look at this is in terms of fostering economic growth. If you sympathize with small startups for example facing a meager profit margin and would like to see more of those succeed instead of being swallowed up by McDonalds or Wal-Mart or whatever, it helps to give them the leeway to offer lower wages until their business begins to bring in higher revenue.

[ak666]

The free market thrives on competition, right? They're allergic to monopolies. Price controls are anti-competitive measures. When you introduce a lot of anti-competitive measures, you end up with more monopolies. Then with monopolies we see higher prices for goods and services and lower wages for labor along with increased unemployment, poverty, and crime. That is usually when capitalism begins to die and people start increasingly favoring more socialist reforms.

[bingbongbangbung]

Yeah but you gotta understand that China and other less developed countries have cheaper living expenses, and their currencies are much smaller, so being paid a few bucks a day isn't as bad as the MSM makes it seem.

[Waffles731]

'I think it should be $0 as it was in the early 30s when black people were starting to thrive, e. g.'
You're in Japan, if you know anything about the Early thirties you'd know that NO ONE was thriving in the U. S, that was the Great depression

[Waffles731]

Further the utter irony of making that statement then criticizing FDR who,
Got us, Out of the Great Depression, created a multitude of public works and then proceeded to have the U. S kick the utter shit out of the Germans, the Italians, and the Japanese in World War 2

[ak666]

It's all relative and, as you see in the BLS figure above, the unemployment rate didn't escalate among black teenagers until until the mid-late 1950s. It's because the inflation rate following the Great Depression was so high that it effectively made the initial minimum wage laws by FDR meaningless.

What we see now as Sowell points out is that Harlem is not a safe neighborhood as it was in his time. As unemployment and poverty skyrocketed among black people, so too did crime.

s-media-cache-ak0.pinimg.com/.../...1cafb257e7.jpg

[ak666]

The final devastating blow to add insult to injury was the war on drugs:
img.washingtonpost.com/.../30_war_on_drugs_fig.png

[Waffles731]

'the unemployment rate didn't escalate among black teenagers until until the mid-late 1950s. It's because the inflation rate following the Great Depression was so high that it effectively made the initial minimum wage laws by FDR meaningless.'
Except that;s probably not the cause at all, you'd now that in 1930, most black men in particular ended up working for basically nothing at all for substistence wages.
Hell sharecropping was still a thing

[Waffles731]

Well yeah, that was kind of the point of Richard Nixons war on drugs

[ak666]

As said, I don't necessarily think FDR had sinister intentions that the trade unions had for imposing minimum wage. He might have genuinely been made to believe this was a good thing. Same goes for Reagan. There's some evidence to suggest that the war on drugs had very sinister motives behind it at least when Nixon first initiated it, but Reagan may have believed he was serving the public good when he took the war to a whole new level. I'm not saying these are bad people. Every politician is a mixed bag. But we must judge the consequences of their actions and not merely their intentions.

[ak666]

>> Except that;s probably not the cause at all, you'd now that in 1930, most black men in particular ended up working for basically nothing at all for substistence wages.

Could you have a look at this and see what you think?
https://youtu.be/7DS0XXFdyfI

I'm open to alternative interpretations. I think there could be a potential argument made that minimum wage at least didn't help the poor and especially didn't help minorities at all. The economists I cited above believe strongly that they directly hurt them, but there might be a neutral argument to be made in opposition.

[Anonymous]

Without a minimum wage, wages would be purely dependent on supply and demand of labor.
Apart from a very few quarters, there has been a surplus of labor every year since 1973. Hence, wages have been largely stagnant since then.
If you dropped the minimum wage, unless there was a shortage of labor (and there's NOT!), it would encourage wages to decline further.

[ak666]

The difficulty for me is that even with overall BLS labor participation rates staying the same after some minor minimum wage rate hikes, suggesting there's plenty of demand for labor as you said, the demographics are changing. The labor participation rate among minorities seems to drop in an inversely proportional way to minimum wage hikes.

The other part that I find problematic is the *federal* part of minimum wage. It's tackling too large of a scale when we try a one-size-fits-all solution to the entire United States. Whether there's a labor demand surplus or a supply surplus isn't necessarily consistent from one state to another.

For example, there were some minimum wage hikes in America Samoa starting from 2007. https://www.gao.gov/products/GAO-14-381 They're trying to gradually raise the minimum wage there to federal level. It lead to a significant rise in unemployment and lead to declining GDP, hurting the economy.

[ak666]

Tackling minimum wage at least on a more granular level than the federal level seems preferable to me: more granular the better, since the dynamics of the economy vary wildly from one place in the US to another.

The last nasty part, today, for me is the welfare system as it is. It very effectively reduces the labor supply since it provides indivisible packages that are binary. For example, if a person makes over $1,367 a month, they lose medicaid and that's a tremendous drop in value when we simply earn even one dollar more than $1,367/month, like jumping off a cliff. Similar types of rules apply to public housing, e. g.

So that actually reduces labor supply. It discourages making much money.

It's why I think negative income tax or UBI would be so much more elegant as a welfare system, since it can encourage people to work and they won't suddenly lose a ton of value if they make past a certain amount.

[Kinstrome]

Minimum wage follows rises in pay, as Heritage showed in its minimum wage article.

I don't discuss it much in my own article, but there should be enough to explain why minimum wage hurts the poor. (and why natural market forces [supply and demand] increase wages): voicesofliberty.com/.../

[Kinstrome]

@ak666 I have much been in favor of the negative income tax. Why is the government trying to help the poor with programs that don't help the poor? Minimum wage has retarded the economy in ways we can never know.

[zagor]

Your argument makes no sense. For one thing, yes, no one is going to hire the homeless guy for $7.25 an hour - but they're not going to do it for $2 an hour either. The current system is being manipulated by those at the top. The CEO at my company, before he got booted last year, made 4 mil. There is no way he was worth 40 100k per year engineers. But it was other CEO's making those decisions - yes, even the stockholders don't have much influence as they tend to rubberstamp board decisions.

[ak666]

So you want to raise federal minimum wage to over $100,000 a year? Think about how many homeless people that might create for a moment.

[ak666]

I know that's not what you intended, it was just a rhetorical question. It's not to deny the existence of greedy CEOs, but if you want to use the federal minimum wage to force such a CEO to pay engineers already making $100,000/year more, then a lot of people suffer from that. I acknowledge the importance of negotiation to be paid fair wages, either individually or collectively as a group, but my point is that raising and raising minimum wage tends to create unemployment.

[zagor]

I agree that raising the minimum wage for political reasons (the only reason it's ever done, unfortunately) alone is a bad idea, and that huge increases in the minimum wage don't improve things but rather spur inflation. But the fact is the minimum has not kept up with inflation, and in most places no one will work for that anyway.

[ak666]

Another problem to me is that the United States is too large. The counter-arguments that minimum wage hikes could be beneficial might be more applicable when applied to a smaller, homogeneous population. When it's applied to a nation this size with a one-size-fits-all mindset, it tends to hurt people when we zoom in beyond nation-wide statistics.

An example with American Samoa:
https://www.gao.gov/products/GAO-14-381

The people didn't want minimum wage. The US enacted a law there in 2007 deeming it a requirement for them to incrementally meet minimum wage. The results on the economy were quite detrimental. Even though that's an entire territory, it's an example of a minority group that we can easily fail to notice if we're just looking at nation-wide BLS data on labor participation and unemployment rates.

It's the minorities we have to pay attention to most because some group of people will practically always be hurt by minimum wage hikes.

[PowerPrincess]

You missed out a key statistic in this mytake: What are YOUR wages?
I'm guessing its not anywhere near the bottom, huh? Your mytake knocking the minimum wage will mean more to me when you actually know what its like to live on it, Scrooge.

[ak666]

I'm a software engineer and tend to do all right. I think the real scrooge would be the 2.7% of people who make minimum wage and want more at the cost of people who are making $0/hour.
www.jeffjacoby.com/jacoby/pics/large/1297.jpg

My point is that making anything is better than making $0/hour.

[ak666]

Raising minimum wage wouldn't affect me at all personally so there's no interest for me personally whether it's raised or lowered. I'm concerned about the people who have been hurt by minimum wage hikes, especially historically.

[PowerPrincess]

I see. A rich man telling the poor how much money they should be making. Like I say, come back to me if you lose your fancy job and have to live on basic pay and lets see if your opinion holds up when it is other rich people telling YOU that you shouldn't be complaining.

[ak666]

I guess you are making minimum wage and want more at the cost of people being unemployed? I think you're confusing who the selfish one is here.

[ak666]

If you don't care about poor people and only about your own income then it's okay to just admit it instead of trying to pretend like you care at the cost of these people.

[PowerPrincess]

I'm not actually. Middle management.
The difference between you and me is that I understand just how low minimum wage is and how hard those people work for that shitty like pay check that you think is so much money.
Oh and fyi, a lot of people with money didn't think that they would end up on minimum wage before the 2008 financial collapse and yet thousands themselves suddenly working for next to nothing. I don't hope that it happens to you as i'm not a dick, but it could quite easily through means beyond your control, and when it does the last thing on your mind will be how selfish you are being.

[ak666]

In that case we both care about the poor people, but you're ignoring data and actual consequences in favor of intentions.

The data I showed strongly suggests that there's a strong link between hiking minimum wage and unemployment among the most disadvantaged people (black teenagers in poor neighborhoods, Hispanics, immigrants, etc).

What do you propose to do about these people who get priced out of the market with higher and higher minimum wage? Do we just turn our backs on them?

Have a look at this if you please and tell me what you would have done differently to avoid causing such unemployment and economic decline in American Samoa: https://www.gao.gov/products/GAO-14-381

[ak666]

You might not believe me but I'm not some greedy capitalist in favor of people earning table scraps. I'm just looking at actual data and trying to decide the least harmful solution for the people at rock bottom -- the ones making $0/hour as a result of being priced out of the market. These people don't even have hope for a better future.

It's easy to look at minimum wage as a heavy-handed way to force employers to pay more. However, it's also a way to make it so the most disadvantaged workers can't offer to work for less.

I'd love to see everyone making well over the federal minimum but increasing it has the tendency to do to certain groups of people exactly what it did to American Samoa. On top of that, when companies don't lay off workers, the prices of goods tends to go up and we see inflation. That makes the cost of living higher for consumers all over the place, which means the poorest people making $0/hour are now also looking at higher costs of living.

[Barrabus_the_Free]

Excellent Take. It's nice to see someone that reads and understands economics, rather than just accepting what some fatbastard politician scumpouch-in-a-suit told them.

[Anonymous]

Raising minimum wage is counter-productive. Simple as that.

[ak666]

I always liked Milton Friedman's ability to make economics digestible for me. :-D He made a simple point: everyone understands that setting minimum wage to astronomically high, like $100/hour, is going to obliterate the entire economy. If so much of it is bad, why is a little bit of a bad thing good? That's a bit of an over-simplistic argument given the counter-arguments I've read from economists in favor of it, but I like that basic point.

[Opinion Owner]

Well I speak from the standpoint of where I live the min wage got raised and now the small business I work for either had to:

A) increase prices
B) lay off less valuable workers
C) decrease profit

I don't believe min. wage should be a living wage, I think it should be for students and teenagers who have no skills and are untrained.

[ak666]

I read many similar stories and not even from small businesses, but relatively large ones like White Castle (fast food hamburgers). They commented that a raise to $15/hour would be absolutely catastrophic for their business and would inevitably lead to massive lay-offs as well as closure of over 200 of their restaurants across the US (about half of all of them).

[ak666]

They're also already paying their workers higher than minimum wage, just not $15/hour, so it's not like they're trying to pay their workers the lowest wages possible. I think that's the fear people have of minimum wage, that without it everyone would end up paying people the lowest wages imaginable. If that were true, we wouldn't have 97.3% of the labor force earning more than minimum wage.

[Opinion Owner]

Well even if they did pay only $1/hour the prices of everything would have to go down or be unemployed like you said.

Basically I believe that the market should dictate the wages

[Anonymous]

Ya kinda lost me with the reference to eugenics. Who said anything about it (besides you).

Can you tell us a little about where your statistics come from?

[ak666]

Here you go. Note that FDR didn't necessarily see minimum wage as a eugenic policy. He may have very well meant the best for Americans with the policy.
www.princeton.edu/.../retrospectives.pdf

The first video cites the same paper:
https://www.youtube.com/watch?v=P9T5g76QIE8

I found the claim rather outrageous myself that there was this sinister intention behind minimum wage by the unions who advocated it. Regardless of whether it's true or not, the net result seems to have been exactly what was desired.

[Opinion Owner]

which was?

[ak666]

It's in the link to the paper above: Eugenics and Economics in the Progressive Era.

>> Progressive economists, like their neoclassical critics, believed that binding minimum wages would cause job losses. However, the progressive economists also believed that the job loss induced by minimum wages was a social benefit, as it performed the eugenic service ridding the labor force of the “unemployable.”

>> “The competition has no respect for the superior races,” said Commons (1907, p. 151), “the race with lowest necessities displaces others.”

McCloskey argues the case that these prevailing ideas were actually the hidden forces that lead to the adoption of minimum wage laws. A slightly more toned down way I see it was just to protect white union workers. Eugenics always seemed extreme, though she takes quite a firm position in this regard.

[ObscuredBeyond]

I'd say, reduce it to what it was 20 years ago: $5.25/ hr. Prices on cost of living would be cut in half!

[jacquesvol]

You'd have to pay more welfare

[ObscuredBeyond]

@jacquesvol : Either way, the real problem is the nature of currency itself right now. Secondary problem is the tax code. Without those two things being reformed, all wage caps or floors are just a futile exercise anyway.

[jacquesvol]

If that reform happens, it may not be the reform you (and I) profit from.

[Anonymous]

If there's no minimum wage, tax payers pay the difference between low wages and survival through welfare.

[ak666]

Some of those differences might at least be lesser as those on welfare would at least be employed and potentially having a higher turnover rate. The welfare system in the US is really screwy as I see it though -- that's a whole different subject.

[Opinion Owner]

www.forbes.com/.../#26b1fb2f720b

[ak666]

Had to look into that a bit since those numbers seemed crazy to me. There's a counter-argument here:
www.forbes.com/.../#b4aac277a9c5

One of the things about the original article is that the language is quite a bit off from an economic perspective. Wal-Mart isn't costing the tax payer money, welfare is. Wal-Mart is actually *saving* tax payer money in that respect by employing and paying these workers. The cost of providing them welfare would increase, not decrease, otherwise.

Another thing is that even if those extrapolated figures are remotely accurate about the welfare costs for the taxpayer of these 1.4 mil employees, there would be far greater costs for those who are unemployed, and 1.4 mil Wal-Mart employees is actually a teeny fraction of those receiving welfare benefits.

Economically the lack of a minimum wage should, hypothetically, reduce welfare costs as a result over higher employment. The net effect of a higher labor participation rate should reduce welfare costs.

[Opinion Owner]

It's not about how much it would be IF NO companies existed. It's about companies paying only part of living costs as wages and taxpayers paying the difference.
There's not only Walmart, many other businesses empty taxpayer's pockets that way.

[ak666]

The American welfare system is another issue. It seems disastrous to me. A far simpler, more elegant, transparent system than the most elaborate welfare programs is a negative income tax or UBI as a basic forms of social security. It should cost considerably less than all these welfare programs combined while actually offering more to the recipient since the middle-man is not taking out a huge cut to offer complex welfare services.

Combine that with more variable wages and I think government spending on welfare should decrease considerably while employment rates go up. More citizens can be generating value for the economy at whatever value they can contribute, the poorest are still provided for, and taxpayers pay less.

[Opinion Owner]

Negative income tax is about the same as welfare but only if limited to physical persons. Companies can easily 'create' artificial losses, billing a mother or sister company.

[ak666]

>> It's about companies paying only part of living costs as wages and taxpayers paying the difference.

Yes, though Wal-Mart employers themselves are tax payers. It's basically every citizen paying for welfare, but less when people are employed and generating economic value.

If we raised minimum wage for example, the tax burdens of welfare would likely be higher, since those that fail to generate the economic value to justify the higher wages would likely find themselves unemployed and depending more on welfare than ever before unless they can find work elsewhere.

[Opinion Owner]

@ak666 If the govt raised minimum wages the govt (the taxpayers thus) would have to pay less welfare.

[ak666]

It doesn't work that way, very much the opposite and you end up paying more welfare with higher minimum wage, *unless* all businesses just have such a high profit margin that they were able to just pay their workers more the entire time. Otherwise the inevitable result is either:

1) Lay-offs.
2) Shutting down (mass unemployment).
3) Price increases.

If many do #3, every citizen basically starts paying for it through inflation.

[ak666]

Like with a price increase, the worker can potentially generate more value since he's producing more value/hour to justify a higher wage. Yet that higher wage and value is basically paid for by the customers.

With unemployment, the worker ends up generating no value at all, and dependency on welfare increases and tax payers end up paying the additional cost.

With a shutdown there's mass unemployment and more of the above problem, but also with less competition in the field, only the most ingenuous businesses might avoid a complete shutdown. For example, White Castle estimates 200 of its restaurants having to close with a $15/hour min. McDonalds might replace it but it'd almost certainly be utilizing more of its machines at that point to maintain a profit margin.

Just about every scenario leads to someone paying for it, but not the business. It'd typically be either the consumer or the tax payer.

[Opinion Owner]

By allowing companies to pay wages that are too low (and adding taxpayers money through welfare), you give them subsidies and you destroy normal Free Market mechanisms.

[ak666]

Quite the opposite from my standpoint. Take the case of McDonalds responding by increasingly mechanizing its labor in response to higher minimum wages, replacing the human worker who gets paid a certain wage/hour with a machine which has some average maintenance cost/hour which is much cheaper.

That's the type of ingenuity that will most likely allow the most successful businesses to survive, but the free market is dying already in a scenario where, say, White Castle is shutting down 200 of its restaurants only for them to be largely replaced by McDonalds.

That's creating monopolies since it would require the most ingenuous businesses finding ways to justify the higher costs of labor to survive. They'd likely swallow up the ones who can't manage.

The free market system is allergic to anti-competitive measures. Minimum wage is one of them. It reduces competition among the labor, but also inadvertently tends to return competition among firms.

[ak666]

With welfare in effect, what creates higher welfare costs is not everyone generating sufficient economic value to justify their cost of living. The problem gets worse with unemployment instead of better.

The curious thing if you take the McDonalds example, the minimum wage is pricing cashiers out of employment. However, for the multiple machines that come in place of these former cashiers, we might need a technician to maintain the machines on a regular basis.

And I think that's kind of the net, long-term effect of increasing minimum wage. It prices out low-skilled labor out of the market in favor of those with higher skills, like pricing out the cashier in favor of the technician.

[ak666]

Article on this: https://memepoliceman.com/minimum-wage-welfare/
And a paper: www.epionline.org/.../...GovtAssist_Study_V2-5.pdf

>> Our findings suggest that minimum wage increases are largely ineffective at reducing net participation in public assistance programs or in reducing expenditures on means tested public assistance, particularly during non-expansionary times.

If higher minimum wage reduced welfare dependency and poverty, economists would be all over it! It would make it a gold standard in economics to set minimum wage to some ideal amount as a way to maximize the prosperity of an economy.

There's also the study the article cites from GAO of seeing what would happen to American Samoa with a rapid hike in min wage, giving us an actual experiment. That destroyed their tuna canning industry and lead to large-scale unemployment with the economy's GDP declining ever since. Implicitly that'd create a stronger dependency on welfare than ever before.

[NerdInDenial]

Walter Williams and Thomas Sowell are two of the smartest African Americans. It's too bad they are labeled Uncle Toms.

[Anonymous]

You know i woulda heard you out but you lost me when you started playing the boo hoo race card

[ak666]

As a caveat I'm not a social justice type. I don't believe in addressing inequities through anything more than the free market. The reason I point out the effect it has on minorities is because those are the key groups which these policies negatively affect the most as these economists point out. The other reason is that the social justice types are usually trying to protect the plight of the minorities. I think it might help them to understand that they may actually be inadvertently hurting them instead of helping them.