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That sure has happened in Australia. These assessments of minimum wage that end at 'it raises unemployment' are intellectually stunted; it belies a simplistic

That sure has happened in Australia. These assessments of minimum wage that end at 'it raises unemployment' are intellectually stunted; it belies a simplistic understanding of economics and either an oversight or refusal to see that rising minimum wage makes for more spenders, which in turn drives demand. The higher-wage:higher-unemployment argument is a go-to in the wheelhouse of supply-side economists.

brc 14y ago
That's why if you go to a restaurant in Australia you have to serve yourself - certainly nobody will be coming to your table to help you unless you're paying at least $50 per head. Whether that is right or wrong depends on the observer. But it is true.
- ceejayoz 14y ago
  Uh, what? Australian citizen who gets back home every few years here... again, huh?
  - brc 14y ago
    Go into any mid-priced restaurant in Australia where a meal costs about $15-25. See if you get greeted into the restaurant, seated and served at the table, including having your drink refilled, any problems attended to and your bill brought to you. You will not. You will go to a counter, read a menu, order the food and return to your table. At some point you will either be paged, have your number called, or possibly have your food brought to the table. This is because waiting staff are unaffordable below a certain price point on the food.
    - Evbn 14y ago
      It costs $25-$35 / diner to pay a server $12/hr?
      - jpxxx 14y ago
        Generally, yes.
      - pixl97 14y ago
        Restaurants are a burst capacity problem. In a typical restaurant from 11ish to 1sh you have a burst of traffic then from 1ish to 5ish you have low to no traffic. Once the dinner crowd comes in you'll have another burst of traffic that can vary greatly per weekday (monday nights, low traffic - friday nights, high traffic). You run in to the problem were many employees (waiters) want a full time job but you can only afford a few of them. In many food service types they've (as the parent stated) got rid of the waiters all together (increased unemployment) and only kept the staff that would need to be there regardless of traffic amount.
    - Nursie 14y ago
      * cough* * bullshit* * cough* Eating out in a lot of Oz can be pricey, but that's just nonsense. Besides which, culturally, many folks from other countries find the US habit of having waiters hovering around constantly to be intensely annoying
      - brc 14y ago
        The last 5 meals I have eaten out in Australia have not had table service. The last meal I ate in Australia that had full table service cost me $120/head. While I'm sure you can find restaurants with lower price points that still do table service, in general, you don't get it. It's not bullshit at all. Perhaps there are areas of the country which have high concentrations of people who can earn less than the adult minimum wage (ie, students) where table service is more common. I make no judgement at all whether full table service is a good or bad thing, I simply note that because of the cost structure, a restaurant in Australia has less staff than a similar restaurant in a different country. In most other countries I visit, most restaurants have table service, even cheap cafes and coffee shops. This is demonstrably not the case in Australia.
        Nursie 14y ago
        "I simply note that because of the cost structure, a restaurant in Australia has less staff than a similar restaurant in a different country." And I think you're wrong. "In most other countries I visit, most restaurants have table service, even cheap cafes and coffee shops. This is demonstrably not the case in Australia." Seriously, I don't know where you went, but I lived over there for the last two and a half years and travelled the entire country (no I'm not making that up, the entire country), and never came across this. Every small town cafe and restaurant had table service. All the backstreet city places had table service. "This is demonstrably not the case in Australia." I'm sorry, I just don't believe this without some serious research. You're wrong.
        brc 14y ago
        I live in Australia. Last Friday night I went out for a meal. Again I had to pay at the counter and collect the meal myself.
    - ceejayoz 14y ago
      This doesn't match my experience in Melbourne in the slightest.
dmm 14y ago
Why not set minimum wage to $35/hr and we make everyone middle class?
- Shivetya 14y ago
  for the same reason offering loans and grants didn't make college affordable, prices adjust to the money available and the costs to create. Are you ready to say all the people you have met or know are worth thirty five bucks and hour in a job? Would you pay them the same to work for you?
  - dmm 14y ago
    ;)
jstalin 14y ago
Then let's raise it to $1000 an hour. We'll all be rich. To respond to the above comment, yes, it does lead to higher unemployment for those with lower skills, particularly in an environment when unemployment is already high. Who would you hire for $12 an hour? A teenager with no experience or someone who was laid off but has 5-10 years of experience? We already see (at least in the United States) that teen unemployment is the highest of all age groups at 23%, when average unemployment amongst all age groups is 7.9%. [1] For comparison, Germany has no statutory minimum wage (except for a few specific employment groups). Not exactly a bastion of poverty and destitution. [2] [1]: http://www.bls.gov/news.release/empsit.a.htm http://www.bls.gov/news.release/empsit.a.htm [2]: http://www.economist.com/node/21536648 http://www.economist.com/node/21536648
- MartinCron 14y ago
  Then let's raise it to $1000 an hour. We'll all be rich Ridiculous arguments are ridiculous. The rest of your point is more than strong enough to stand on its own without that kind of nonsense.
  - jstalin 14y ago
    That's my point. Obviously, increasing the minimum wage to $1000 is ridiculous. But so is the idea that raising the minimum wage by $1 has no consequence, as some claim. The higher cost you impose on employers for low skill jobs, the more likely it will be that employers will attempt to hire fewer of those workers or reject unskilled candidates. It's simple logic. For instance, the hamburger-making machine will replace teenagers who need a job at McDonald's. [1] Why wouldn't an employer just purchase a machine that will reduce costs, create a consistent product, and not call in sick if it can do so at an equivalent or lower cost than an unskilled teen who would be required to earn $10 or $12 an hour? [1]: http://www.gizmag.com/hamburger-machine/25159/ http://www.gizmag.com/hamburger-machine/25159/ EDIT: 5.2% of US workers earn at or below the minimum wage, 50% of those are under 25: http://www.bls.gov/cps/minwage2011.htm http://www.bls.gov/cps/minwage2011.htm
    - avar 14y ago
w3pm 14y ago
Look at heavily unionized industries like hollywood and the writers guild for guidance. They effectively have a "minimum wage" where if you're part of the guild, you must be paid a MINIMUM of $64k for an original screenplay. http://www.wga.org/uploadedFiles/writers_resources/contracts/min2011.pdf http://www.wga.org/uploadedFiles/writers_resources/contracts... Guess how easy it is to get a job writing screenplays as a member of the guild? It's actually incredibly difficult and the vast majority of prospective writers are effectively unemployed, working jobs at coffee shops instead. Putting a price floor on labor creates unemployment, period. The writers guild is just one microcosm of this effect.
- MartinCron 14y ago
  Hollywood screenwriting is an atypical labor market for all sorts of reasons. The fact that they are heavily unionized is only one small factor.
  - smsm42 14y ago
    Screenwriting may be atypical, but arithmetics that produces this problem is very typical. If you set a minimal price for certain item, that makes anybody holding the same item with lesser value effectively unable to sell it. If you set a minmal price for a car at $20k, you wouldn't be able to sell a used car once its value fell below $20k. Selling one's services abides by the same laws - price floor means excluding items with value less than the floor.
    - Evbn 14y ago
      Are you somehow under the impression that Hollywood buys fewer screenplays than it would if producers could pay less? That there are some movies not getting made because of this?
      - smsm42 14y ago
        If by "Hollywood" you mean whole movie/TV/entertainment industry, then yes, I think price of the scripts influences decisions. Blockbuster aren't the only movies made.
Dove 14y ago
rising minimum wage makes for more spenders I don't see that at all. Raising the minimum wage results in people at the bottom losing their jobs, hence fewer spenders. I can't imagine why on earth you'd think there would be more. Nor do you explain why you think the idea that it raises unemployment is 'intellectually stunted'. I find the argument that we would expect the minimum wage to increase unemployment, and the data indicating that it historically has done just that, to be persuasive. (A good presentation of the argument; I honestly find this video persuasive) http://www.learnliberty.org/videos/does-minimum-wage-hurt-workers http://www.learnliberty.org/videos/does-minimum-wage-hurt-wo... (Historical data) http://www.learnliberty.org/sites/default/files/Davies_0.pdf http://www.learnliberty.org/sites/default/files/Davies_0.pdf What do you think I'm missing?
- superuser2 14y ago
  The people who are actually necessary (worth the additional cost) can buy more things, and businesses in turn have more money.
  - Dove 14y ago
    I'll accept the first proposition: the people who were earning below the minimum wage before, who keep their jobs, have more money to spend. (Limitation: I accept the argument that says if they are producing significantly more than they are paid, they will eventually be paid more anyway, so the gain is both temporary and small.) But balance against that against the fact that those who are laid off, whose businesses close down, or who are never hired in the first place, have much less money to spend. Is the first force is bigger than the second, and hence businesses would see more demand? You'd have to prove that to me. I don't have evidence or a strong opinion either way, but I consider it unlikely.
    - bluedanieru 14y ago
      >Limitation: I accept the argument that says if they are producing significantly more than they are paid, they will eventually be paid more anyway, so the gain is both temporary and small. Where the flying fuck have you been for the last 30 years?
lifeisstillgood 14y ago
I seem unable to reply to others in this thread but I would like to take a view on the two comments that frame this : basically let's raise the minimum wage to $35 or to $1000 / hour. Now we should reasonably assume that there will not suddenly be an increase in jobs that can afford to pay 35 (or 1000!) - so those jobs will remain steady roughly. And those jobs below will either vanish or will find they can employ peoe at those rates. So there will be an increase in unemployment. But that's not the point - we are seeing a massive structural shift in jobs - technology is displacing at the White collar middle skill level. There are going to be less jobs no matter what. The share of GDP captured by wages is the important measure here - not the individual wage rate but using employment as a means of distributing wealth how do we spread the wealth around. If half the jobs vanish then we may simply find a social balance in women staying at home and men earning double. (nb I am not advocating this back-to-the-50s as a social good, just that minimum wage increases do not have to mean the share of the wealth diopps - we just need to find ways to share it out that we as society think are equitable)
- Symmetry 14y ago
  Technology has been replacing workers since the tractor was introduced around 1900. But unemployment hasn't kept going up because we keep finding new ways to employ people. But if by some miracle we do finally automate everything minimum wages won't help at all - we're talking about a situation where there's no reason to employ someone in the first place. In that case just tax production and provide everyone a guaranteed minimum income. No need to worry about work disincentives, they weren't working anyways!
  - lifeisstillgood 14y ago
    Maybe. I don't have a good answer for how to equitably distribute the 40% or so of GDP that is currently captured by wage packets. Maybe Sweden will take your approach, but I would be amazed if the US will :-). But some solution will be needed.
  - deleted 14y ago
    [deleted]
Symmetry 14y ago
Your argument assumes that all the increased that all the extra spending from people at the minimum wage goes to good produced by minimum wage workers, which I hope you would agree isn't true. In theory you could find that the minimum wage could raise employment with tenuous assumptions[1], but there's no need to sit back and theorize in your arm chair when you can go out and collect actual data. And most studies show that the rises in the minimum wage do increase unemployment, though there have been a few studies that showed the opposite. But still, the consensus among economists about minimum wage is about as strong as it is among climatologists about global warming. But that isn't the same as saying that a minimum wage is bad for poor people. If many people see their wages rise for every person who loses their job then maybe that's something we want. And the evidence does say that wage gains to the people making the new minimum exceed the wage loses of the people thrown out of work. But since ~90% of the money for those wage gains ends up coming from higher prices, we'd be much better off just raising taxes and handing the money to people earning less than we think they should. That way the costs would fall progressively rather than repressively, and we wouldn't see any increase in unemployment at all. EDIT: And while it's true that Australia has a very high minimum wage and low unemployment, most industries that would be minimum wage in the US have special exceptions from the minimum wage in Australia. The number of people earning 7$ an hour in Australia isn't that different per capita than in the US. [1] That minimum wage industries are monopsomies and have similar cost structures.
- stretchwithme 14y ago
  Its easy to raise the minimum wage in the middle of an artificial economic boom. The destructive consequences don't show up until there is a drop in demand for labor. I doubt studies are designed to look beyond a few months after the increase for effects. If wages aren't drop when there is a dramatic increase in supply, there's no incentive to create businesses that can hire and train those people. Everyone that worked in the housing industry are now lacking marketable skills. They need retraining. It would be far better for the least valuable workers if we found some way to assist them that doesn't interfere with their ability to get a job. And we'd be doing that if there won't so many that don't understand how markets work. How much we pay in taxes is secondary to the high human costs of government interfering in critical markets like the labor market. The costs of this particular failure are focused entirely on the poorest among us. And most people are blind to how they are doing it to them.
stretchwithme 14y ago
Individual employers are hiring to make a profit, not to make some collectivist understanding of the economy work out. Obviously, any dollars an employer does not give to his employees, he gets to spend or his customers get to spend. Those dollars don't disappear into the ether. There is no increase in overall spending from paying more for a service than it can command in the market place. And no increase in demand.
- jackowayed 14y ago
  Except that for a lot of businesses, it's actually that any dollars an employer does not give to his employees, it keeps as profit. Then maybe it pays that out as dividends, but those mainly go to rich people who are likely to reinvest them rather than immediately spending them, because that small increase in dividend receipts doesn't make a huge difference on their overall financial situation. Whereas extra dollars going to a minimum wage earner will almost entirely be spent, because people that poor tend to spend nearly all of their income. It's the same reason why tax cuts to the poor are more stimulative than those to the rich.
  - eli_gottlieb 14y ago
    I would argue that dividends feed everyone's retirement and investment accounts, but: * As you pointed out, those are class-biased towards the upper middle class and those richer. * Worse: companies nowadays seem to be paying out pathetically low levels of actual dividends compared to their monumental earnings. It's an unsustainable economic model where earnings are supposed to create a higher stock price rather than a dividend payout, even for absurdly profitable companies like Apple.
  - tsotha 14y ago
    >...but those mainly go to rich people who are likely to reinvest them rather than immediately spending them, because that small increase in dividend receipts doesn't make a huge difference on their overall financial situation. And when they reinvest that money what do you expect happens to it?
  - brc 14y ago
robryan 14y ago
It does have an effect in Australia I think. Many places would rather hire a group of casuals under 18 to cover 1 full time person. They can pay young people youth wages which are well under the minimum wage. Whether that is a bad thing or not I don't know.
- pixl97 14y ago
  Looking at Spain's 55% youth unemployment, it's probably a good thing. Giving the young jobs is good, you don't learn how to work in a vacuum. Once they are older and have training they'll be able to find better jobs with the experience under their belt.
jacalata 14y ago
'belies' means 'does not give the impression of'. If it 'belies a simplistic understanding' then it gives the impression of a not-simplistic understanding.
AJ007 14y ago
Raising the minimum wage increases the disposable income for the employed. You are making the assumption that an increase in minimum wage does not decrease the employment rate. Your particular country may be benefiting from a commodities export boom, free-money level interest rates, or any number of other internal or external factors, which allow employers to get by fine with raising the minimum wage. Perhaps they had huge margins already, the customers can eat the increase in cost, CEOs are enjoying a stock market boom and don't dare to let their companies growth stall, whatever. In an economic contraction things aren't so rosy. We have a unique situation now where minimum-wage level employees are increasingly competing with machines. Increasing both the minimum wage and labor costs just expedites the progression of this trend.
- warfangle 14y ago
  To take a line from Bartlett: that's why we need more retraining programs.
csomar 14y ago
You shouldn't be writing this if you have a poor understanding of economics yourself. Raising minimum wages doesn't raise productivity. It redistribute wealth from the rich (investors) to the poor (employees). It does create more spenders in the employees level and less spenders in the investors level. Actually considering the Deadweight loss (http://en.wikipedia.org/wiki/Deadweight_loss http://en.wikipedia.org/wiki/Deadweight_loss), we'll end up with more unemployment and less GDP
nathan_long 14y ago
>> rising minimum wage makes for more spenders Really? John lives near me and is unemployed. My neighbors and I all hate cutting our grass. We'd pay $5 an hour to have someone else do it, and John would prefer $5 an hour to $0. However, it's illegal for us to hire him at that wage. So we cut our own grass and he has no job. There's one less spender. There's also a bunch of hours we could have spent doing something more productive. For instance, I could have worked on my open source project instead of cutting my grass. But I'm producing $5 of economic value that hour instead of $50. So why is "you can't sell labor for less than $X" any more reasonable as a law than "you can't sell oranges for less than $X a pound" would be? Both lead to waste.
- pixl97 14y ago
  Contract labor for the win. Sell the mowing job as a unit. I will pay you $X to mow lawn, you have one day to complete the task. You separate the speed in which the labor works from the value of the job. In most cases this leads the worker to complete as fast as possible for their own benefit, but does not harm you if the worker decides to take their time.

brc 14y ago

That's why if you go to a restaurant in Australia you have to serve yourself - certainly nobody will be coming to your table to help you unless you're paying at least $50 per head. Whether that is right or wrong depends on the observer. But it is true.

ceejayoz 14y ago
Uh, what? Australian citizen who gets back home every few years here... again, huh?
- brc 14y ago
  Go into any mid-priced restaurant in Australia where a meal costs about $15-25. See if you get greeted into the restaurant, seated and served at the table, including having your drink refilled, any problems attended to and your bill brought to you. You will not. You will go to a counter, read a menu, order the food and return to your table. At some point you will either be paged, have your number called, or possibly have your food brought to the table. This is because waiting staff are unaffordable below a certain price point on the food.
  - Evbn 14y ago
    It costs $25-$35 / diner to pay a server $12/hr?
    - jpxxx 14y ago
      Generally, yes.
    - pixl97 14y ago
      Restaurants are a burst capacity problem. In a typical restaurant from 11ish to 1sh you have a burst of traffic then from 1ish to 5ish you have low to no traffic. Once the dinner crowd comes in you'll have another burst of traffic that can vary greatly per weekday (monday nights, low traffic - friday nights, high traffic). You run in to the problem were many employees (waiters) want a full time job but you can only afford a few of them. In many food service types they've (as the parent stated) got rid of the waiters all together (increased unemployment) and only kept the staff that would need to be there regardless of traffic amount.
  - Nursie 14y ago
    * cough* * bullshit* * cough* Eating out in a lot of Oz can be pricey, but that's just nonsense. Besides which, culturally, many folks from other countries find the US habit of having waiters hovering around constantly to be intensely annoying
    - brc 14y ago
      The last 5 meals I have eaten out in Australia have not had table service. The last meal I ate in Australia that had full table service cost me $120/head. While I'm sure you can find restaurants with lower price points that still do table service, in general, you don't get it. It's not bullshit at all. Perhaps there are areas of the country which have high concentrations of people who can earn less than the adult minimum wage (ie, students) where table service is more common. I make no judgement at all whether full table service is a good or bad thing, I simply note that because of the cost structure, a restaurant in Australia has less staff than a similar restaurant in a different country. In most other countries I visit, most restaurants have table service, even cheap cafes and coffee shops. This is demonstrably not the case in Australia.
      - Nursie 14y ago
        "I simply note that because of the cost structure, a restaurant in Australia has less staff than a similar restaurant in a different country." And I think you're wrong. "In most other countries I visit, most restaurants have table service, even cheap cafes and coffee shops. This is demonstrably not the case in Australia." Seriously, I don't know where you went, but I lived over there for the last two and a half years and travelled the entire country (no I'm not making that up, the entire country), and never came across this. Every small town cafe and restaurant had table service. All the backstreet city places had table service. "This is demonstrably not the case in Australia." I'm sorry, I just don't believe this without some serious research. You're wrong.
        brc 14y ago
        I live in Australia. Last Friday night I went out for a meal. Again I had to pay at the counter and collect the meal myself.
  - ceejayoz 14y ago
    This doesn't match my experience in Melbourne in the slightest.

dmm 14y ago

Why not set minimum wage to $35/hr and we make everyone middle class?

Shivetya 14y ago
for the same reason offering loans and grants didn't make college affordable, prices adjust to the money available and the costs to create. Are you ready to say all the people you have met or know are worth thirty five bucks and hour in a job? Would you pay them the same to work for you?
- dmm 14y ago
  ;)

jstalin 14y ago

Then let's raise it to $1000 an hour. We'll all be rich. To respond to the above comment, yes, it does lead to higher unemployment for those with lower skills, particularly in an environment when unemployment is already high. Who would you hire for $12 an hour? A teenager with no experience or someone who was laid off but has 5-10 years of experience? We already see (at least in the United States) that teen unemployment is the highest of all age groups at 23%, when average unemployment amongst all age groups is 7.9%. [1] For comparison, Germany has no statutory minimum wage (except for a few specific employment groups). Not exactly a bastion of poverty and destitution. [2] [1]: http://www.bls.gov/news.release/empsit.a.htm http://www.bls.gov/news.release/empsit.a.htm [2]: http://www.economist.com/node/21536648 http://www.economist.com/node/21536648

MartinCron 14y ago
Then let's raise it to $1000 an hour. We'll all be rich Ridiculous arguments are ridiculous. The rest of your point is more than strong enough to stand on its own without that kind of nonsense.
- jstalin 14y ago
  That's my point. Obviously, increasing the minimum wage to $1000 is ridiculous. But so is the idea that raising the minimum wage by $1 has no consequence, as some claim. The higher cost you impose on employers for low skill jobs, the more likely it will be that employers will attempt to hire fewer of those workers or reject unskilled candidates. It's simple logic. For instance, the hamburger-making machine will replace teenagers who need a job at McDonald's. [1] Why wouldn't an employer just purchase a machine that will reduce costs, create a consistent product, and not call in sick if it can do so at an equivalent or lower cost than an unskilled teen who would be required to earn $10 or $12 an hour? [1]: http://www.gizmag.com/hamburger-machine/25159/ http://www.gizmag.com/hamburger-machine/25159/ EDIT: 5.2% of US workers earn at or below the minimum wage, 50% of those are under 25: http://www.bls.gov/cps/minwage2011.htm http://www.bls.gov/cps/minwage2011.htm
  - avar 14y ago

w3pm 14y ago

Look at heavily unionized industries like hollywood and the writers guild for guidance. They effectively have a "minimum wage" where if you're part of the guild, you must be paid a MINIMUM of $64k for an original screenplay. http://www.wga.org/uploadedFiles/writers_resources/contracts/min2011.pdf http://www.wga.org/uploadedFiles/writers_resources/contracts... Guess how easy it is to get a job writing screenplays as a member of the guild? It's actually incredibly difficult and the vast majority of prospective writers are effectively unemployed, working jobs at coffee shops instead. Putting a price floor on labor creates unemployment, period. The writers guild is just one microcosm of this effect.

MartinCron 14y ago
Hollywood screenwriting is an atypical labor market for all sorts of reasons. The fact that they are heavily unionized is only one small factor.
- smsm42 14y ago
  Screenwriting may be atypical, but arithmetics that produces this problem is very typical. If you set a minimal price for certain item, that makes anybody holding the same item with lesser value effectively unable to sell it. If you set a minmal price for a car at $20k, you wouldn't be able to sell a used car once its value fell below $20k. Selling one's services abides by the same laws - price floor means excluding items with value less than the floor.
  - Evbn 14y ago
    Are you somehow under the impression that Hollywood buys fewer screenplays than it would if producers could pay less? That there are some movies not getting made because of this?
    - smsm42 14y ago
      If by "Hollywood" you mean whole movie/TV/entertainment industry, then yes, I think price of the scripts influences decisions. Blockbuster aren't the only movies made.

Dove 14y ago

rising minimum wage makes for more spenders I don't see that at all. Raising the minimum wage results in people at the bottom losing their jobs, hence fewer spenders. I can't imagine why on earth you'd think there would be more. Nor do you explain why you think the idea that it raises unemployment is 'intellectually stunted'. I find the argument that we would expect the minimum wage to increase unemployment, and the data indicating that it historically has done just that, to be persuasive. (A good presentation of the argument; I honestly find this video persuasive) http://www.learnliberty.org/videos/does-minimum-wage-hurt-workers http://www.learnliberty.org/videos/does-minimum-wage-hurt-wo... (Historical data) http://www.learnliberty.org/sites/default/files/Davies_0.pdf http://www.learnliberty.org/sites/default/files/Davies_0.pdf What do you think I'm missing?

superuser2 14y ago
The people who are actually necessary (worth the additional cost) can buy more things, and businesses in turn have more money.
- Dove 14y ago
  I'll accept the first proposition: the people who were earning below the minimum wage before, who keep their jobs, have more money to spend. (Limitation: I accept the argument that says if they are producing significantly more than they are paid, they will eventually be paid more anyway, so the gain is both temporary and small.) But balance against that against the fact that those who are laid off, whose businesses close down, or who are never hired in the first place, have much less money to spend. Is the first force is bigger than the second, and hence businesses would see more demand? You'd have to prove that to me. I don't have evidence or a strong opinion either way, but I consider it unlikely.
  - bluedanieru 14y ago
    >Limitation: I accept the argument that says if they are producing significantly more than they are paid, they will eventually be paid more anyway, so the gain is both temporary and small. Where the flying fuck have you been for the last 30 years?

lifeisstillgood 14y ago

I seem unable to reply to others in this thread but I would like to take a view on the two comments that frame this : basically let's raise the minimum wage to $35 or to $1000 / hour. Now we should reasonably assume that there will not suddenly be an increase in jobs that can afford to pay 35 (or 1000!) - so those jobs will remain steady roughly. And those jobs below will either vanish or will find they can employ peoe at those rates. So there will be an increase in unemployment. But that's not the point - we are seeing a massive structural shift in jobs - technology is displacing at the White collar middle skill level. There are going to be less jobs no matter what. The share of GDP captured by wages is the important measure here - not the individual wage rate but using employment as a means of distributing wealth how do we spread the wealth around. If half the jobs vanish then we may simply find a social balance in women staying at home and men earning double. (nb I am not advocating this back-to-the-50s as a social good, just that minimum wage increases do not have to mean the share of the wealth diopps - we just need to find ways to share it out that we as society think are equitable)

Symmetry 14y ago
Technology has been replacing workers since the tractor was introduced around 1900. But unemployment hasn't kept going up because we keep finding new ways to employ people. But if by some miracle we do finally automate everything minimum wages won't help at all - we're talking about a situation where there's no reason to employ someone in the first place. In that case just tax production and provide everyone a guaranteed minimum income. No need to worry about work disincentives, they weren't working anyways!
- lifeisstillgood 14y ago
  Maybe. I don't have a good answer for how to equitably distribute the 40% or so of GDP that is currently captured by wage packets. Maybe Sweden will take your approach, but I would be amazed if the US will :-). But some solution will be needed.
- deleted 14y ago
  [deleted]

Symmetry 14y ago

Your argument assumes that all the increased that all the extra spending from people at the minimum wage goes to good produced by minimum wage workers, which I hope you would agree isn't true. In theory you could find that the minimum wage could raise employment with tenuous assumptions[1], but there's no need to sit back and theorize in your arm chair when you can go out and collect actual data. And most studies show that the rises in the minimum wage do increase unemployment, though there have been a few studies that showed the opposite. But still, the consensus among economists about minimum wage is about as strong as it is among climatologists about global warming. But that isn't the same as saying that a minimum wage is bad for poor people. If many people see their wages rise for every person who loses their job then maybe that's something we want. And the evidence does say that wage gains to the people making the new minimum exceed the wage loses of the people thrown out of work. But since ~90% of the money for those wage gains ends up coming from higher prices, we'd be much better off just raising taxes and handing the money to people earning less than we think they should. That way the costs would fall progressively rather than repressively, and we wouldn't see any increase in unemployment at all. EDIT: And while it's true that Australia has a very high minimum wage and low unemployment, most industries that would be minimum wage in the US have special exceptions from the minimum wage in Australia. The number of people earning 7$ an hour in Australia isn't that different per capita than in the US. [1] That minimum wage industries are monopsomies and have similar cost structures.

stretchwithme 14y ago
Its easy to raise the minimum wage in the middle of an artificial economic boom. The destructive consequences don't show up until there is a drop in demand for labor. I doubt studies are designed to look beyond a few months after the increase for effects. If wages aren't drop when there is a dramatic increase in supply, there's no incentive to create businesses that can hire and train those people. Everyone that worked in the housing industry are now lacking marketable skills. They need retraining. It would be far better for the least valuable workers if we found some way to assist them that doesn't interfere with their ability to get a job. And we'd be doing that if there won't so many that don't understand how markets work. How much we pay in taxes is secondary to the high human costs of government interfering in critical markets like the labor market. The costs of this particular failure are focused entirely on the poorest among us. And most people are blind to how they are doing it to them.

stretchwithme 14y ago

Individual employers are hiring to make a profit, not to make some collectivist understanding of the economy work out. Obviously, any dollars an employer does not give to his employees, he gets to spend or his customers get to spend. Those dollars don't disappear into the ether. There is no increase in overall spending from paying more for a service than it can command in the market place. And no increase in demand.

jackowayed 14y ago
Except that for a lot of businesses, it's actually that any dollars an employer does not give to his employees, it keeps as profit. Then maybe it pays that out as dividends, but those mainly go to rich people who are likely to reinvest them rather than immediately spending them, because that small increase in dividend receipts doesn't make a huge difference on their overall financial situation. Whereas extra dollars going to a minimum wage earner will almost entirely be spent, because people that poor tend to spend nearly all of their income. It's the same reason why tax cuts to the poor are more stimulative than those to the rich.
- eli_gottlieb 14y ago
  I would argue that dividends feed everyone's retirement and investment accounts, but: * As you pointed out, those are class-biased towards the upper middle class and those richer. * Worse: companies nowadays seem to be paying out pathetically low levels of actual dividends compared to their monumental earnings. It's an unsustainable economic model where earnings are supposed to create a higher stock price rather than a dividend payout, even for absurdly profitable companies like Apple.
- tsotha 14y ago
  >...but those mainly go to rich people who are likely to reinvest them rather than immediately spending them, because that small increase in dividend receipts doesn't make a huge difference on their overall financial situation. And when they reinvest that money what do you expect happens to it?
- brc 14y ago

robryan 14y ago

It does have an effect in Australia I think. Many places would rather hire a group of casuals under 18 to cover 1 full time person. They can pay young people youth wages which are well under the minimum wage. Whether that is a bad thing or not I don't know.

pixl97 14y ago
Looking at Spain's 55% youth unemployment, it's probably a good thing. Giving the young jobs is good, you don't learn how to work in a vacuum. Once they are older and have training they'll be able to find better jobs with the experience under their belt.

jacalata 14y ago

'belies' means 'does not give the impression of'. If it 'belies a simplistic understanding' then it gives the impression of a not-simplistic understanding.

AJ007 14y ago

Raising the minimum wage increases the disposable income for the employed. You are making the assumption that an increase in minimum wage does not decrease the employment rate. Your particular country may be benefiting from a commodities export boom, free-money level interest rates, or any number of other internal or external factors, which allow employers to get by fine with raising the minimum wage. Perhaps they had huge margins already, the customers can eat the increase in cost, CEOs are enjoying a stock market boom and don't dare to let their companies growth stall, whatever. In an economic contraction things aren't so rosy. We have a unique situation now where minimum-wage level employees are increasingly competing with machines. Increasing both the minimum wage and labor costs just expedites the progression of this trend.

warfangle 14y ago
To take a line from Bartlett: that's why we need more retraining programs.

csomar 14y ago

You shouldn't be writing this if you have a poor understanding of economics yourself. Raising minimum wages doesn't raise productivity. It redistribute wealth from the rich (investors) to the poor (employees). It does create more spenders in the employees level and less spenders in the investors level. Actually considering the Deadweight loss (http://en.wikipedia.org/wiki/Deadweight_loss http://en.wikipedia.org/wiki/Deadweight_loss), we'll end up with more unemployment and less GDP

nathan_long 14y ago

>> rising minimum wage makes for more spenders Really? John lives near me and is unemployed. My neighbors and I all hate cutting our grass. We'd pay $5 an hour to have someone else do it, and John would prefer $5 an hour to $0. However, it's illegal for us to hire him at that wage. So we cut our own grass and he has no job. There's one less spender. There's also a bunch of hours we could have spent doing something more productive. For instance, I could have worked on my open source project instead of cutting my grass. But I'm producing $5 of economic value that hour instead of $50. So why is "you can't sell labor for less than $X" any more reasonable as a law than "you can't sell oranges for less than $X a pound" would be? Both lead to waste.

pixl97 14y ago
Contract labor for the win. Sell the mowing job as a unit. I will pay you $X to mow lawn, you have one day to complete the task. You separate the speed in which the labor works from the value of the job. In most cases this leads the worker to complete as fast as possible for their own benefit, but does not harm you if the worker decides to take their time.