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I think most people on HN agree that employees should be paid proportional to the value they create. In fact that is an underlying reason many folks choose to w

I think most people on HN agree that employees should be paid proportional to the value they create. In fact that is an underlying reason many folks choose to work for (or start) a startup for equity rather than a big company for a salary. With equity, the more value you produce the more you make. For the rest of America, you typically work for an agreed upon sum (salary or hourly wage) with your employer. We call this a mutually agreeable contract since no one is forced to work for an employer in our modern society (we have valid laws to prevent this scenario). If an employee does not like a given wage, they can shop their skills around for another employer (or start their own company) in order to gain a higher wage. We call this the free market. I am a libertarian all about math. But even putting math aside, with the logic above why is there a need for a minimum wage?

bakhy 12y ago
supply and demand have an important quality called elasticity, which is not taken into account in libertarian discourse. unlike a simple commodity market, like coffee for example, where a buyer can say "these prices are too high, i'm not going to buy any", a worker cannot simply say, "these wages are too low, i'm not going to work". (unless the government plans to give them all sufficient social security so that they can live comfortably without any work, which is unlikely and probably undesirable.) likewise, when a coffee producer sells a lot due to good prices, he will increase his production, and thus the supply. in the labor market, a company that seeks workers and offers them a great wage will easily find workers, but i find it incredible that it's managers will then think "hey, we had such a great demand for work, let's hire more people just because of that!" it will not increase demand, limiting the effect a single positive agent can have. not every market is exactly the same, and considering the dynamics of various markets will enable you to understand why so many countries have minimum wage, why they subsidize food production and are very interested in influencing the prices of basic commodities, and why they often meddle in real estate. these are things people simply cannot do without, and the stability of governments and regimes depends on somehow ensuring them for as many people as possible.
- glenra 12y ago
  If workers are so desperate that they can't not work, then putting them out of a job by making it illegal to work for low wages is especially cruel. If you doubt that the minimum wage causes unemployment, how do you explain that the countries in Europe with a national minimum wage law have such consistently higher unemployment rates than the countries in Europe without one?
  - bakhy 12y ago
    "If workers are so desperate that they can't not work" - did you really put an "if" there? :D i presume you come from privileged background? "then putting them out of a job by making it illegal to work for low wages is especially cruel." - assuming they will all lose work. which they will not. not even a large minority will. despite the libertarian scaremongering, companies always somehow find the money to keep the workers, and their business running. go figure. as for the other claim, do you have proof of this? in any case, it is ingrateful to draw such conclusions, due to large cultural and economic differences between these countries, and (the part which annoys me personally the most) the ever varying methodology of determining the unemployment rate. P.S. No reference to the market dynamics? I believe it nicely explains where the extra money to cover for the minimum wage hike is going to come from, and why the hike will not result in a proportionate loss in jobs. I will take your silence as a sign of agreement ;)
    - glenra 12y ago
      > did you really put an "if" there? Yes, I put it there because a large fraction of minimum wage workers are teens who live with their parents or are otherwise in a living situation where they aren't the only breadwinner. Hence, they aren't so desperate that they can't not work. Since choice exists (yet again, on the margin), labor employment is a normal good that responds to supply and demand. > do you have proof of this? Quoting from http://www.themoneyillusion.com/?p=24759 http://www.themoneyillusion.com/?p=24759 : Regarding the minimum wage, here is some data for Western Europe: There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment. There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment. Still want to raise our minimum wage to $10? Germany used to have really high unemployment. Then they did labor reforms to allow more low wage jobs, combined with subsidies for low wage workers. Now they don’t have high unemployment. Still want to raise our minimum wage to $10?" > No reference to the market dynamics? Your "market dynamics" claim doesn't make sense. I'm familiar the concept of elasticity, but it doesn't have any obvious relevance. I suspect you don't have the economic background to paraphrase the argument you're trying to make - could you perhaps point me to a link where somebody else makes it? One problem is that you're making an "argument from personal incredulity" - you just say "I find it incredible that..." rather than giving any actual, you know, evidence or even argument - but the other problem is that the claim you "find incredible" is so weirdly phrased that I can't really tell what it is. AFAIK, the best story labor economists have come up with in defense of their own claims involves theorizing that the employers have excess "monopsony power", but it's not actually a plausible story. Anyway, we're probably well past the point of diminishing returns here.
terracatta 12y ago
Simply calculating wage by intersecting supply and demand curves without regulations such as minimum wage regularly creates conditions where minimally skilled workers end up being supported by individual tax payers (instead of businesses) My assertion that in any capitalism driven society (no matter the quality of education) you will have a non-trival size of the population not capable of fulfilling job demand and achieving minimum viable salary for survival. At the end of the day we have 3 options for these people: 1) Do nothing. This creates tax burden to combat crime as people get desperate to satisfy basic needs like food and shelter. It also is pretty crappy thing to do to our fellow man. 2) Subsidize them through programs like welfare. Helps but hurts middle class workers disproportionately and doesn't produce labor. 3) Create and enforce a livable minimum wage. Helps in the short-term (until goods/services prices are inflated adjust to this minimum) and produces labor that arguably has some value. Not perfect because it further decentivizes job creation and increases R&D for automation. Also, it is just a quick fix and needs to be constantly raised. Minimum wage is clearly not a perfect solution but I'm not sure we have a better one yet within the framework of government regulated capitalism.
- todd8 12y ago
  The Earned Income Tax Credit (a form of negative income tax) is an alternative to a livable minimum wage. Although a negative income tax is not without some problems (see [1]) it has been proposed as a better alternative to minimum wages by serious economists. [1] http://en.wikipedia.org/wiki/Negative_income_tax http://en.wikipedia.org/wiki/Negative_income_tax
  - dragonwriter 12y ago
    > The Earned Income Tax Credit (a form of negative income tax) is an alternative to a livable minimum wage. Some form of negative income tax might arguably propose a serious alternative to a livable minimum wage, but the existing form of the EITC isn't it. (If it was, then the actual minimum wage would be a "livable minimum wage", since it exists in the context of the existing EITC.)

bakhy 12y ago

supply and demand have an important quality called elasticity, which is not taken into account in libertarian discourse. unlike a simple commodity market, like coffee for example, where a buyer can say "these prices are too high, i'm not going to buy any", a worker cannot simply say, "these wages are too low, i'm not going to work". (unless the government plans to give them all sufficient social security so that they can live comfortably without any work, which is unlikely and probably undesirable.) likewise, when a coffee producer sells a lot due to good prices, he will increase his production, and thus the supply. in the labor market, a company that seeks workers and offers them a great wage will easily find workers, but i find it incredible that it's managers will then think "hey, we had such a great demand for work, let's hire more people just because of that!" it will not increase demand, limiting the effect a single positive agent can have. not every market is exactly the same, and considering the dynamics of various markets will enable you to understand why so many countries have minimum wage, why they subsidize food production and are very interested in influencing the prices of basic commodities, and why they often meddle in real estate. these are things people simply cannot do without, and the stability of governments and regimes depends on somehow ensuring them for as many people as possible.

glenra 12y ago
If workers are so desperate that they can't not work, then putting them out of a job by making it illegal to work for low wages is especially cruel. If you doubt that the minimum wage causes unemployment, how do you explain that the countries in Europe with a national minimum wage law have such consistently higher unemployment rates than the countries in Europe without one?
- bakhy 12y ago
  "If workers are so desperate that they can't not work" - did you really put an "if" there? :D i presume you come from privileged background? "then putting them out of a job by making it illegal to work for low wages is especially cruel." - assuming they will all lose work. which they will not. not even a large minority will. despite the libertarian scaremongering, companies always somehow find the money to keep the workers, and their business running. go figure. as for the other claim, do you have proof of this? in any case, it is ingrateful to draw such conclusions, due to large cultural and economic differences between these countries, and (the part which annoys me personally the most) the ever varying methodology of determining the unemployment rate. P.S. No reference to the market dynamics? I believe it nicely explains where the extra money to cover for the minimum wage hike is going to come from, and why the hike will not result in a proportionate loss in jobs. I will take your silence as a sign of agreement ;)
  - glenra 12y ago
    > did you really put an "if" there? Yes, I put it there because a large fraction of minimum wage workers are teens who live with their parents or are otherwise in a living situation where they aren't the only breadwinner. Hence, they aren't so desperate that they can't not work. Since choice exists (yet again, on the margin), labor employment is a normal good that responds to supply and demand. > do you have proof of this? Quoting from http://www.themoneyillusion.com/?p=24759 http://www.themoneyillusion.com/?p=24759 : Regarding the minimum wage, here is some data for Western Europe: There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment. There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment. Still want to raise our minimum wage to $10? Germany used to have really high unemployment. Then they did labor reforms to allow more low wage jobs, combined with subsidies for low wage workers. Now they don’t have high unemployment. Still want to raise our minimum wage to $10?" > No reference to the market dynamics? Your "market dynamics" claim doesn't make sense. I'm familiar the concept of elasticity, but it doesn't have any obvious relevance. I suspect you don't have the economic background to paraphrase the argument you're trying to make - could you perhaps point me to a link where somebody else makes it? One problem is that you're making an "argument from personal incredulity" - you just say "I find it incredible that..." rather than giving any actual, you know, evidence or even argument - but the other problem is that the claim you "find incredible" is so weirdly phrased that I can't really tell what it is. AFAIK, the best story labor economists have come up with in defense of their own claims involves theorizing that the employers have excess "monopsony power", but it's not actually a plausible story. Anyway, we're probably well past the point of diminishing returns here.

terracatta 12y ago

Simply calculating wage by intersecting supply and demand curves without regulations such as minimum wage regularly creates conditions where minimally skilled workers end up being supported by individual tax payers (instead of businesses) My assertion that in any capitalism driven society (no matter the quality of education) you will have a non-trival size of the population not capable of fulfilling job demand and achieving minimum viable salary for survival. At the end of the day we have 3 options for these people: 1) Do nothing. This creates tax burden to combat crime as people get desperate to satisfy basic needs like food and shelter. It also is pretty crappy thing to do to our fellow man. 2) Subsidize them through programs like welfare. Helps but hurts middle class workers disproportionately and doesn't produce labor. 3) Create and enforce a livable minimum wage. Helps in the short-term (until goods/services prices are inflated adjust to this minimum) and produces labor that arguably has some value. Not perfect because it further decentivizes job creation and increases R&D for automation. Also, it is just a quick fix and needs to be constantly raised. Minimum wage is clearly not a perfect solution but I'm not sure we have a better one yet within the framework of government regulated capitalism.

todd8 12y ago
The Earned Income Tax Credit (a form of negative income tax) is an alternative to a livable minimum wage. Although a negative income tax is not without some problems (see [1]) it has been proposed as a better alternative to minimum wages by serious economists. [1] http://en.wikipedia.org/wiki/Negative_income_tax http://en.wikipedia.org/wiki/Negative_income_tax
- dragonwriter 12y ago
  > The Earned Income Tax Credit (a form of negative income tax) is an alternative to a livable minimum wage. Some form of negative income tax might arguably propose a serious alternative to a livable minimum wage, but the existing form of the EITC isn't it. (If it was, then the actual minimum wage would be a "livable minimum wage", since it exists in the context of the existing EITC.)