5 ms·

This issue isn’t about economics of course, but what I don’t quite understand is why the right feels like it’s an injustice to change the playing field, like it

by xae342 8y ago

This issue isn’t about economics of course, but what I don’t quite understand is why the right feels like it’s an injustice to change the playing field, like it’s cutting in line, or will put the laws of nature into chaos if someone gets more than their fair share for the work they did. I really don’t follow...

AnthonyMouse 8y ago
> This issue isn’t about economics of course, but what I don’t quite understand is why the right feels like it’s an injustice to change the playing field, like it’s cutting in line, or will put the laws of nature into chaos if someone gets more than their fair share for the work they did. I really don’t follow... But it is about economics. The theory of the minimum wage is that you take money from some hypothetical fat cat capitalist who would otherwise have stored it in a mattress to no avail and instead give it to a hard working stiff who can benefit their lives with it. The problem is that there are also a multitude of other things that can happen instead, pretty much all of which are bad and do actually happen in practice. The money may come from someone other than a fat cat, like a local small business owner or a working class customer. If prices rise, local businesses may be less competitive, resulting in higher unemployment and a smaller tax base (resulting in lower tax revenues or higher tax rates or both). The working stiff may lose their job. In the worst case, the entire business may close down. It's quite a bit worse than cutting in line. If you really want to understand the problem, list every consequence can think of for a minimum wage of $1000/hour. Most of the problems still apply at $15, just at a smaller scale.
- iciac 8y ago
  The theory of the minimum wage is just the theory of a price floor. The effect on employment is dependent on the market composition and the cross-price elasticity of labour. Comparing a price floor of $15/h (highly substitutable unskilled labour) with $1000/h (unsubstitutable specialist labour) isn't really tenable. For most minimum wage positions you'll find the bulk is employment by large firms (potentially under a franchise arrangement), labour is substitutable, and wage-bargaining power is weak. Total production is more likely to be driven by demand, and a (relatively) small unit cost increase is likely to be absorbed (if anything, we'd expect it to affect firm profit more than purchased labour). You're correct that less competitive SMEs may be affected more here, operating as a price taker for both their product and labour. These firms however will be disproportionately affected by any external market movement - there's nothing particularly magical about a minimum wage increase.
  - AnthonyMouse 8y ago
    > The effect on employment is dependent on the market composition and the cross-price elasticity of labour. Comparing a price floor of $15/h (highly substitutable unskilled labour) with $1000/h (unsubstitutable specialist labour) isn't really tenable. The proportional composition of the markets wouldn't be exactly the same, but they're both highly diverse markets. It's not just unskilled labor, it's anything with an oversupply of qualified labor, e.g. internships or childcare. Even unskilled labor has a wide variety of potential substitutes depending on context. > For most minimum wage positions you'll find the bulk is employment by large firms (potentially under a franchise arrangement), labour is substitutable, and wage-bargaining power is weak. Total production is more likely to be driven by demand, and a (relatively) small unit cost increase is likely to be absorbed (if anything, we'd expect it to affect firm profit more than purchased labour). Perhaps, but that doesn't mean there is low elasticity of demand. There is a price at which a large company will automate the job or move the entire facility to a location with lower labor costs. And a large firm may have a profit margin equivalent to $4/hour rather than $1/hour for a smaller firm, but raise the wage from $10 to $15 and they're both making layoffs (or forced to raise prices). > You're correct that less competitive SMEs may be affected more here, operating as a price taker for both their product and labour. These firms however will be disproportionately affected by any external market movement - there's nothing particularly magical about a minimum wage increase. Which is why we prefer to avoid those other things as well.
    - iciac 8y ago
      Automation usually requires a high fixed cost to enable long-term low-operating costs. If you suppose a decreasing unit installation cost or scale construction over time you'll eventually hit a point at which companies will automate, especially if there's added efficiency (two examples: McDonald's certainly didn't shift to kiosk solely due to minimum wage, nor could we set an hourly wage low-enough that a typist pool could compete with a common word processor). Ditto for location shifting: it's dependent on a) the transferability of the activity, b) the cost of shifting, and c) the price differential between the two locations. Minimum wage may be a component in this decision - but it will not be the only one. For context: I work as a policy economist in Australia, principally in regional employment. The minimum wage rate here is (AU) $18.93/h, unemployment sits at trend around 5.5%. In my experience the primary driver for regional employment (often less complete markets) is labour demand rather than the cost of supply.
randyrand 8y ago
for me it’s because minimum wage is a shit way to do income redistribution. you can do income redistribution without the potential for killing jobs - negative income tax.

by xae342 8y ago

AnthonyMouse 8y ago

> This issue isn’t about economics of course, but what I don’t quite understand is why the right feels like it’s an injustice to change the playing field, like it’s cutting in line, or will put the laws of nature into chaos if someone gets more than their fair share for the work they did. I really don’t follow... But it is about economics. The theory of the minimum wage is that you take money from some hypothetical fat cat capitalist who would otherwise have stored it in a mattress to no avail and instead give it to a hard working stiff who can benefit their lives with it. The problem is that there are also a multitude of other things that can happen instead, pretty much all of which are bad and do actually happen in practice. The money may come from someone other than a fat cat, like a local small business owner or a working class customer. If prices rise, local businesses may be less competitive, resulting in higher unemployment and a smaller tax base (resulting in lower tax revenues or higher tax rates or both). The working stiff may lose their job. In the worst case, the entire business may close down. It's quite a bit worse than cutting in line. If you really want to understand the problem, list every consequence can think of for a minimum wage of $1000/hour. Most of the problems still apply at $15, just at a smaller scale.

iciac 8y ago
The theory of the minimum wage is just the theory of a price floor. The effect on employment is dependent on the market composition and the cross-price elasticity of labour. Comparing a price floor of $15/h (highly substitutable unskilled labour) with $1000/h (unsubstitutable specialist labour) isn't really tenable. For most minimum wage positions you'll find the bulk is employment by large firms (potentially under a franchise arrangement), labour is substitutable, and wage-bargaining power is weak. Total production is more likely to be driven by demand, and a (relatively) small unit cost increase is likely to be absorbed (if anything, we'd expect it to affect firm profit more than purchased labour). You're correct that less competitive SMEs may be affected more here, operating as a price taker for both their product and labour. These firms however will be disproportionately affected by any external market movement - there's nothing particularly magical about a minimum wage increase.
- AnthonyMouse 8y ago
  > The effect on employment is dependent on the market composition and the cross-price elasticity of labour. Comparing a price floor of $15/h (highly substitutable unskilled labour) with $1000/h (unsubstitutable specialist labour) isn't really tenable. The proportional composition of the markets wouldn't be exactly the same, but they're both highly diverse markets. It's not just unskilled labor, it's anything with an oversupply of qualified labor, e.g. internships or childcare. Even unskilled labor has a wide variety of potential substitutes depending on context. > For most minimum wage positions you'll find the bulk is employment by large firms (potentially under a franchise arrangement), labour is substitutable, and wage-bargaining power is weak. Total production is more likely to be driven by demand, and a (relatively) small unit cost increase is likely to be absorbed (if anything, we'd expect it to affect firm profit more than purchased labour). Perhaps, but that doesn't mean there is low elasticity of demand. There is a price at which a large company will automate the job or move the entire facility to a location with lower labor costs. And a large firm may have a profit margin equivalent to $4/hour rather than $1/hour for a smaller firm, but raise the wage from $10 to $15 and they're both making layoffs (or forced to raise prices). > You're correct that less competitive SMEs may be affected more here, operating as a price taker for both their product and labour. These firms however will be disproportionately affected by any external market movement - there's nothing particularly magical about a minimum wage increase. Which is why we prefer to avoid those other things as well.
  - iciac 8y ago
    Automation usually requires a high fixed cost to enable long-term low-operating costs. If you suppose a decreasing unit installation cost or scale construction over time you'll eventually hit a point at which companies will automate, especially if there's added efficiency (two examples: McDonald's certainly didn't shift to kiosk solely due to minimum wage, nor could we set an hourly wage low-enough that a typist pool could compete with a common word processor). Ditto for location shifting: it's dependent on a) the transferability of the activity, b) the cost of shifting, and c) the price differential between the two locations. Minimum wage may be a component in this decision - but it will not be the only one. For context: I work as a policy economist in Australia, principally in regional employment. The minimum wage rate here is (AU) $18.93/h, unemployment sits at trend around 5.5%. In my experience the primary driver for regional employment (often less complete markets) is labour demand rather than the cost of supply.

randyrand 8y ago

for me it’s because minimum wage is a shit way to do income redistribution. you can do income redistribution without the potential for killing jobs - negative income tax.