8 ms·

Funny, the article didn't mention the minimum wage, which was raised 20% by Nancy Pelosi in 2007, the start of our unemployment woes. The law of supply and dem

Funny, the article didn't mention the minimum wage, which was raised 20% by Nancy Pelosi in 2007, the start of our unemployment woes. The law of supply and demand states that if you raise the cost of something, you will get less of it. Raise the minimum wage 20%, and you will get less jobs. Elementary.

Permit 14y ago
This is a vast, vast oversimplification. By your logic, Canada should be seeing massive unemployment as our minimum wage is 20%-30% higher in most provinces than most states. The reality is that Canada's unemployment rate sits at about 7.3% in August compared to the 8.1% rate in the United States.
- bhughes 14y ago
  Not necessarily. It's possible that with a lower minimum wage, Canada's unemployment rate might be even lower. The best you can hypothesize is that all things being equal minimum wage does/does not negatively affect unemployment numbers. Obviously the economies of Canada and the US are vastly different.
gojomo 14y ago
The ACA/Obamacare also added new expected costs to hiring... further aggravated by uncertainties over how completely it will be implemented in the face of political opposition. Every new bit of cost/uncertainty around hiring makes it relatively more attractive for those who could be hiring to instead (1) automate or otherwise replace workers with capital investments; (2) outsource or offshore; (3) take the afternoon off instead of struggling with hiring-led growth.
bryanlarsen 14y ago
Things aren't that simple. Raises in minimum wage in a modern economy rarely have much effect on employment numbers. The vast majority of those at minimum wage are employed in the service economy, so they compete locally, not globally. Therefore a minimum wage increase affects a business and its competitors relatively evenly. The business may be forced to raise its prices, but since its competitors are forced to do the same no competitive positioning is lost. If you're competing against China, it's a different story. But if your company is that sensitive to the price of labour and competing against China it probably went offshore years ago. You compete against China with robots and high-skilled labour, not minimum wage labour. The nice thing about giving money to people making minimum wage is that they spend it immediately, putting it back into the economy right away.
- anamax 14y ago
  > The vast majority of those at minimum wage are employed in the service economy, so they compete locally, not globally. Therefore a minimum wage increase affects a business and its competitors relatively evenly. Not so fast. McDonald's isn't competing just with Wendy's. It's also competing with me making a sandwich. My cleaning service isn't just competing with other cleaning services. It's also competing with me saying "hmm, I can live with that", etc. The local retail store isn't just competing with other retail stores, it's competing with Amazon.... > The business may be forced to raise its prices, but since its competitors are forced to do the same no competitive positioning is lost. If I spend twice as much at McDonalds, I'm spending less money somewhere else. Or, I'm not investing it, or I'm not putting it in a bank where it gets loaned to someone else to invest/spend. (Cue the fractional reserve arguments about the multiplier on deposits.) In other words, even if the minimum wage increase "works", it's a transfer from someone else. A tax, as it were, but an opaque one. (Yes, there are lots of evils in the world. It's unclear how that justifies creating more.) > The nice thing about giving money to people making minimum wage is that they spend it immediately, putting it back into the economy right away. If you really believe that the minimum wage has almost no negative effects, why not raise it to $100. Either they'll spend it right away or they'll save some and buy houses and cars. The economy will boom. Either you believe your theory or you don't.
  - ktizo 14y ago
    If I spend twice as much at McDonalds, I'm spending less money somewhere else. But if that doubling in money spent is solely due to wage increases on the service side, then those people are going to spend it somewhere else, probably somewhere locally. even if the minimum wage increase "works", it's a transfer from someone else. A tax, as it were, but an opaque one. Minimum wage is not a tax, it is a regulated minimum on cost of labour, primarily to protect against people being taken advantage of when they are desperate. If you really believe that the minimum wage has almost no negative effects, why not raise it to $100. There's fairly obvious reasons for not trying to raise the minimum wage above the average wage. Claiming there should be a minimum is not the same as saying that it can be set to ridiculous values with no negative effects, as you very well know. Either you believe your theory or you don't. Personally I doubt that you really believe the tripe you are coming out with.
sampsonjs 14y ago
Perhaps they didn't mention it because a lot of jobs lost in the great crash paid more than the paltry minimum wage, making that old commie's attempts to raise it a moot point.
calibraxis 14y ago
This common argument is a good illustration that econ is a soft social science with low standards. For one thing, it ignores that people aren't just producers but also consumers. And those with lower salaries unfortunately need to spend a larger percent of their incomes on necessities. I'm reminded of this political cartoon... (http://www.dollarsandsense.org/archives/2008/0508toon.html http://www.dollarsandsense.org/archives/2008/0508toon.html) It all depends. For instance, corporations may be able to punish populaces who successfully campaign for a better minimum wage, with attacks like capital flight. If successful, the unemployment rate may indeed increase. In other situations, it may decrease.
scarmig 14y ago
Sometimes people take half of Econ 101 and really run wild with it. Labor markets are notoriously not ones that can be explained by simple application of the "law" of supply and demand. There are massive uncertainties in knowledge on both sides, power dynamics, high transaction costs, and substantial difficulties in knowing how much and of what type of value the employee will offer to the organization and the organization to the employee. And even theoretically there are plenty of models where you're totally out there. Google monopsony and labor markets for just one situation where raising a minimum wage should increase employment. Empirically, "it depends" seems to be the right answer, but even the most negative studies on minimum wages don't claim that minimum wages are in effect within an order of magnitude or two of what the financial crisis did to employment rates.
ktizo 14y ago
The law of supply and demand states that if you raise the cost of something, you will get less of it. Say you can produce a certain amount of widgets out of a given resource, but with research you can produce more widgets, and that you can reduce the time needed to do that research by hiring more people and equipment. Now you are in a situation where raising the cost to your customers can result in a larger availability of widgets. And that's just with widgets. If you look at wages, raising the minimum wage has lots of possible effects, many of which can actually serve to reduce the unemployment rate over time. One of them is that if the minimum wage is a reasonable margin above subsistence, then people in employment find it easier to start small businesses, leaving a job vacant when they venture out on their own and then even employ people themselves. Damning people who are willing to work, to subsistence level incomes, is not how you grow an economy. And when you get past elementary, let us know.
mikeryan 14y ago
Oh please Nancy Pelosi didn't raise the minimum wage. It was the Fair Mimimum Wage act and passed with Bi-Partisan (80 Republican's in the house voted in its favor) support and include a tax break for small businesses in order to offset the costs. http://en.wikipedia.org/wiki/Fair_Minimum_Wage_Act_of_2007 http://en.wikipedia.org/wiki/Fair_Minimum_Wage_Act_of_2007

Permit 14y ago

This is a vast, vast oversimplification. By your logic, Canada should be seeing massive unemployment as our minimum wage is 20%-30% higher in most provinces than most states. The reality is that Canada's unemployment rate sits at about 7.3% in August compared to the 8.1% rate in the United States.

bhughes 14y ago
Not necessarily. It's possible that with a lower minimum wage, Canada's unemployment rate might be even lower. The best you can hypothesize is that all things being equal minimum wage does/does not negatively affect unemployment numbers. Obviously the economies of Canada and the US are vastly different.

gojomo 14y ago

The ACA/Obamacare also added new expected costs to hiring... further aggravated by uncertainties over how completely it will be implemented in the face of political opposition. Every new bit of cost/uncertainty around hiring makes it relatively more attractive for those who could be hiring to instead (1) automate or otherwise replace workers with capital investments; (2) outsource or offshore; (3) take the afternoon off instead of struggling with hiring-led growth.

bryanlarsen 14y ago

Things aren't that simple. Raises in minimum wage in a modern economy rarely have much effect on employment numbers. The vast majority of those at minimum wage are employed in the service economy, so they compete locally, not globally. Therefore a minimum wage increase affects a business and its competitors relatively evenly. The business may be forced to raise its prices, but since its competitors are forced to do the same no competitive positioning is lost. If you're competing against China, it's a different story. But if your company is that sensitive to the price of labour and competing against China it probably went offshore years ago. You compete against China with robots and high-skilled labour, not minimum wage labour. The nice thing about giving money to people making minimum wage is that they spend it immediately, putting it back into the economy right away.

anamax 14y ago
> The vast majority of those at minimum wage are employed in the service economy, so they compete locally, not globally. Therefore a minimum wage increase affects a business and its competitors relatively evenly. Not so fast. McDonald's isn't competing just with Wendy's. It's also competing with me making a sandwich. My cleaning service isn't just competing with other cleaning services. It's also competing with me saying "hmm, I can live with that", etc. The local retail store isn't just competing with other retail stores, it's competing with Amazon.... > The business may be forced to raise its prices, but since its competitors are forced to do the same no competitive positioning is lost. If I spend twice as much at McDonalds, I'm spending less money somewhere else. Or, I'm not investing it, or I'm not putting it in a bank where it gets loaned to someone else to invest/spend. (Cue the fractional reserve arguments about the multiplier on deposits.) In other words, even if the minimum wage increase "works", it's a transfer from someone else. A tax, as it were, but an opaque one. (Yes, there are lots of evils in the world. It's unclear how that justifies creating more.) > The nice thing about giving money to people making minimum wage is that they spend it immediately, putting it back into the economy right away. If you really believe that the minimum wage has almost no negative effects, why not raise it to $100. Either they'll spend it right away or they'll save some and buy houses and cars. The economy will boom. Either you believe your theory or you don't.
- ktizo 14y ago
  If I spend twice as much at McDonalds, I'm spending less money somewhere else. But if that doubling in money spent is solely due to wage increases on the service side, then those people are going to spend it somewhere else, probably somewhere locally. even if the minimum wage increase "works", it's a transfer from someone else. A tax, as it were, but an opaque one. Minimum wage is not a tax, it is a regulated minimum on cost of labour, primarily to protect against people being taken advantage of when they are desperate. If you really believe that the minimum wage has almost no negative effects, why not raise it to $100. There's fairly obvious reasons for not trying to raise the minimum wage above the average wage. Claiming there should be a minimum is not the same as saying that it can be set to ridiculous values with no negative effects, as you very well know. Either you believe your theory or you don't. Personally I doubt that you really believe the tripe you are coming out with.

sampsonjs 14y ago

Perhaps they didn't mention it because a lot of jobs lost in the great crash paid more than the paltry minimum wage, making that old commie's attempts to raise it a moot point.

calibraxis 14y ago

This common argument is a good illustration that econ is a soft social science with low standards. For one thing, it ignores that people aren't just producers but also consumers. And those with lower salaries unfortunately need to spend a larger percent of their incomes on necessities. I'm reminded of this political cartoon... (http://www.dollarsandsense.org/archives/2008/0508toon.html http://www.dollarsandsense.org/archives/2008/0508toon.html) It all depends. For instance, corporations may be able to punish populaces who successfully campaign for a better minimum wage, with attacks like capital flight. If successful, the unemployment rate may indeed increase. In other situations, it may decrease.

scarmig 14y ago

Sometimes people take half of Econ 101 and really run wild with it. Labor markets are notoriously not ones that can be explained by simple application of the "law" of supply and demand. There are massive uncertainties in knowledge on both sides, power dynamics, high transaction costs, and substantial difficulties in knowing how much and of what type of value the employee will offer to the organization and the organization to the employee. And even theoretically there are plenty of models where you're totally out there. Google monopsony and labor markets for just one situation where raising a minimum wage should increase employment. Empirically, "it depends" seems to be the right answer, but even the most negative studies on minimum wages don't claim that minimum wages are in effect within an order of magnitude or two of what the financial crisis did to employment rates.

ktizo 14y ago

The law of supply and demand states that if you raise the cost of something, you will get less of it. Say you can produce a certain amount of widgets out of a given resource, but with research you can produce more widgets, and that you can reduce the time needed to do that research by hiring more people and equipment. Now you are in a situation where raising the cost to your customers can result in a larger availability of widgets. And that's just with widgets. If you look at wages, raising the minimum wage has lots of possible effects, many of which can actually serve to reduce the unemployment rate over time. One of them is that if the minimum wage is a reasonable margin above subsistence, then people in employment find it easier to start small businesses, leaving a job vacant when they venture out on their own and then even employ people themselves. Damning people who are willing to work, to subsistence level incomes, is not how you grow an economy. And when you get past elementary, let us know.

mikeryan 14y ago

Oh please Nancy Pelosi didn't raise the minimum wage. It was the Fair Mimimum Wage act and passed with Bi-Partisan (80 Republican's in the house voted in its favor) support and include a tax break for small businesses in order to offset the costs. http://en.wikipedia.org/wiki/Fair_Minimum_Wage_Act_of_2007 http://en.wikipedia.org/wiki/Fair_Minimum_Wage_Act_of_2007