How should minimum wage be determined?

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Cradarc
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How should minimum wage be determined?

Postby Cradarc » Wed Feb 25, 2015 7:36 am UTC

I apologize if this topic doesn't make sense to people who don't live in the United States. In the U.S, people are pretty divided about whether or not the national minimum wage should be raised. I'm bringing this up because the U.S national minimum wage is currently at $7.25/hr, which frankly seems pretty meager. At the same time, you have cities like Seattle with a minimum wage of $15/hr, more than double the national limit.

Giving people a lower salary for less skilled work encourages them to put in more effort to acquire skills and pursue higher level work. However, we also can't make people live on the streets just because they happen to fall at the bottom of the food chain. What do you think is a good balance?
Then there's the issue of the single mom versus the high school student who wants some cash. Should a person's social status be considered when applying minimum wage rules?
Finally, should there be a maximum wage limit? If the minimum wage forces people to make use of all their potential, the maximum wage would stop people from getting far more credit than they deserve. (I'm assuming "wage" doesn't include stocks.)
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elasto
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Re: How should minimum wage be determined?

Postby elasto » Wed Feb 25, 2015 8:37 am UTC

Personally I think the minimum wage should be low to non-existent but that the essentials for life should be provided free to everyone by the state instead. So food stamps, basic rent, healthcare, education etc. should be given to all - in or out of work. So I prefer a citizen's wage or negative taxation I guess.

People will still want to work because everyone still likes luxuries, and people won't be punished for working because they won't lose any state benefits in doing so.

It should be paid for by higher income and wealth taxes on the rich (such as inheritance tax).

If a minimum wage is to be had though it doesn't seem to me to make much sense for it to be national as different regions can have such different economics. It should be based on how much will mean a person can pay for rent, food, healthcare, education and a few luxuries locally then I guess - so it could go down in any given year as well as up...

mcd001
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Re: How should minimum wage be determined?

Postby mcd001 » Wed Feb 25, 2015 12:32 pm UTC

The minimum wage actually hurts the people it's supposed to help--the lowest-paid, lowest skilled workers. By making it more expensive to hire people, employers will just hire fewer people. This means the least productive workers will be let go or never hired in the first place; this means high school kids will not get that first summer job where they add skills to their resumes and learn how to participate in the work force.

This is the economic reality. If it weren't, all we'd have to do is make the minimum wage $500 per hour. Then we could all live in style!

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Re: How should minimum wage be determined?

Postby EMTP » Wed Feb 25, 2015 12:45 pm UTC

mcd001 wrote:The minimum wage actually hurts the people it's supposed to help--the lowest-paid, lowest skilled workers. By making it more expensive to hire people, employers will just hire fewer people. This means the least productive workers will be let go or never hired in the first place; this means high school kids will not get that first summer job where they add skills to their resumes and learn how to participate in the work force.


That is the libertarian view of what should happen, however that is not at all economists' consensus about what does happen.

"Why does the minimum wage have no discernible effect on employment?"

"Does the UK Minimum Wage Reduce Employment? A Meta-Regression Analysis"

Our meta-analysis of 236 estimated minimum wage elasticities and 710 partial correlation coefficients from 16 UK studies finds no overall practically significant adverse employment effect.


"Employment and distribution effects of the minimum wage"

. . . an increase in the minimum wage can raise both total and low-skill employment, and produce a fall in inequality.


The position that the minimum wage "hurts the people it's supposed to help" has been pretty well debunked.

mcd001 wrote:This is the economic reality. If it weren't, all we'd have to do is make the minimum wage $500 per hour. Then we could all live in style!


And if only slippery slope arguments were valid, we could all take policy ideas we didn't like to a ludicrous extreme, saving valuable argument time!
"Reasonable – that is, human – men will always be capable of compromise, but men who have dehumanized themselves by becoming the blind worshipers of an idea or an ideal are fanatics whose devotion to abstractions makes them the enemies of life."
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leady
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Re: How should minimum wage be determined?

Postby leady » Wed Feb 25, 2015 2:37 pm UTC

Ultimately regardless of the economics, this is almost a pure poltical ends question

Want a poll bump in the lower SES classes?
Want to increase low wages in places that min wage tier jobs are largely inelastic?
Want to incentivise workers to move up the value chain?
Want to restrict inflation?
Want to create headroom between benefits and low wages?

Strictly I think you could suggest something like one of the following as a less political reason (although these are all effectively derived)

Minimise unemployment in the lowest 2 deciles (or overall)
Maximise average income in the lowest 2 deciles (or overall)

There is probably a sweet spot between the two if you could agree a political end and have enough information, for a relatively local area at least. Federal min wages on the scale of the US are an impossible balancing act I would imagine. In the UK it doesn't work well across the north / south / london divides so I can only imagine the enormous differential between say New York State vs Alabama.

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CorruptUser
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Re: How should minimum wage be determined?

Postby CorruptUser » Wed Feb 25, 2015 4:19 pm UTC

Depends on how elastic demand for labor is, how the market is structured, the existance of monopsonies, etc etc. Generally I agree with Elasto's proposal. But ABSOLUTE minimum. Boarding house with the barest of minimums; toilet and shower, kitchen, and a cheap mattress. No food stamps; food is rice, beans, root vegetables, cheap fruits. Deliver it rather than from store. Cheap (but durable) clothing. Universal medical care; vaccines, screenings, treatments, etc. Free birth control. No "dignity"; you want more, you gotta earn it.

Government simply can't remove poverty; even if half the country was billionaires the millionaires would be "poor". Absolute poverty, however, CAN be eliminated. When we have to pay farmers to NOT grow food, when buildings sit empty, there is no excuse for malnutrition and homelessness.

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Re: How should minimum wage be determined?

Postby Tyndmyr » Wed Feb 25, 2015 4:27 pm UTC

Cradarc wrote:I apologize if this topic doesn't make sense to people who don't live in the United States. In the U.S, people are pretty divided about whether or not the national minimum wage should be raised. I'm bringing this up because the U.S national minimum wage is currently at $7.25/hr, which frankly seems pretty meager. At the same time, you have cities like Seattle with a minimum wage of $15/hr, more than double the national limit.


*shrug* Median wage and the general wage distribution varies significantly throughout the country. Legal minimum wage or not, the effective minimum wage does vary. For a dramatic example, one would not expect to work in NYC at the national minimum wage, because normal wages and cost of living are much higher there.

Giving people a lower salary for less skilled work encourages them to put in more effort to acquire skills and pursue higher level work. However, we also can't make people live on the streets just because they happen to fall at the bottom of the food chain. What do you think is a good balance?


The true minimum wage is always $0, because employment is never 100%.

Then there's the issue of the single mom versus the high school student who wants some cash. Should a person's social status be considered when applying minimum wage rules?


God no. This essentially becomes age discrimination. If the high school student can perform at level x, she should be paid the same as if she were older, had a bunch of children, etc.

EMTP wrote:
mcd001 wrote:The minimum wage actually hurts the people it's supposed to help--the lowest-paid, lowest skilled workers. By making it more expensive to hire people, employers will just hire fewer people. This means the least productive workers will be let go or never hired in the first place; this means high school kids will not get that first summer job where they add skills to their resumes and learn how to participate in the work force.


That is the libertarian view of what should happen, however that is not at all economists' consensus about what does happen.


It is supported by a number of economists. In addition, this argument is heavily politicized, because one major party supports one policy, and one, the other. Thus, both sides crank out a bunch of research that supports their agenda. Like...many other topics, really.

There is, however, no significant disagreement about some things. Raising the minimum wage to say, $50/hr would obviously have significant harmful side effects. Many industries that were profitable at lower wages would cease to be so, and would either go bankrupt, engage in illegal payment systems, or greatly slash employment. What pro-higher minimum wage folks fail to answer is how and why a minimum wage becomes beneficial in a consistent fashion, and why it stops being so, and WHEN it stops being so. They give generic answers like "all the extra wages are spent". Well...such an answer would be continuously positive no matter what level you're raising income to. Therefore, it cannot be a sufficient answer.

We see some of these effects in certain industries already. Private, non chain bookstores are generally not a super-profitable thing. They're already being squeezed by e-readers, amazon, and god knows what else. Hell, some of the chains are having trouble, even. All that exists before we even start talking wages. Now, you boost the wage part of that business model significantly, and it pushes them over the edge.

Everyone likes to talk about Walmart, or McDonalds, or other massive, successful monoliths of industry. Yeah, McDonalds will carry on. They'll fire people or charge more for crappy burgers or whatever. That's all misdirection from the actual cost. Look at what happens to your local small businesses, especially ones in an already tough market like bookstores when minimum wage is boosted significantly. [url="http://blackdiamondgames.blogspot.com/2015/02/minimum-wage-meet-msrp.html"]They die[/url].

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sevenperforce
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Re: How should minimum wage be determined?

Postby sevenperforce » Wed Feb 25, 2015 5:30 pm UTC

A few confounding factors...

Having a baseline national minimum wage definitely fails to account for standard of living differences. Adjusting for standard of living would help expand and diversify the national market, as minimum-wage retailers and businesses would benefit from setting up farther away from higher-wage-cost population centers. The rank and file minimum-wage workers in those population centers would benefit from such a law change, but the higher-ups would not (due to higher wage costs and a disincentive for developers), and so you'd have an interesting political fight.

Overtime/fulltime/parttime is another issue. A minimum-wage business will maintain an oversized employee pool, allowing it to schedule very loosely from that pool to ensure that none of its employees ever maintain full-time status (and thus require benefits), let alone earn overtime pay. This works well enough for the highschool student who only wants to work part-time, but it completely screws over the single mom who needs to support a couple of kids and earn enough for benefits. Because the oversized-pool part-time approach is so beneficial for minimum-wage businesses, there is no incentive to allow full-time status for the employees who actually need it, and so someone trying to make a living weekly wage off minimum hourly wage is forced to work multiple jobs. As a result, such a worker ends up working 60 hours a week at three different jobs but not earning full-time benefits or overtime.

Unfortunately, short of a citizen's wage arrangement, the only way to incentivize change here is at the employer level. There are two possible solutions: incentivize overtime, or incentivize the offering of lower-end salaried positions. For example, suppose we determine that a fair living wage is something like $500/wk gross pay even though minimum wage at 40 hours per week will only get you $290/wk gross pay. The IRS could create a new rule that businesses which offer salaried positions at $500/wk or greater will have a reduced employer payroll tax contribution comparable to what they would be contributing for a $290/wk employee.

This would benefit both the employee and the employer. The employer can offer such a salaried position at anywhere up to 59 hours without falling afoul of minimum wage laws but will be paying significantly less in payroll contribution than they would if they gave those 59 hours to three separate employees. Employees who are dedicated enough to put in consistent hours can be guaranteed a living wage. Meanwhile, you can still have the same part-time situation we have now for workers who actually want a part-time job.

Tyndmyr wrote:
Then there's the issue of the single mom versus the high school student who wants some cash. Should a person's social status be considered when applying minimum wage rules?


God no. This essentially becomes age discrimination. If the high school student can perform at level x, she should be paid the same as if she were older, had a bunch of children, etc.

That's why it would be good to incentivize giving more hours to a single employee rather than spreading hours out among employees. Right now, full-time minimum wage positions are disincentivized. The difference between the high school student and the single mom is not about age, but about the ability and desire to earn a living wage by working full-time; that's what needs to be focused on rather than the age difference or social status.

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Re: How should minimum wage be determined?

Postby mcd001 » Wed Feb 25, 2015 6:01 pm UTC

EMTP wrote:That is the libertarian view of what should happen, however that is not at all economists' consensus about what does happen ...... The position that the minimum wage "hurts the people it's supposed to help" has been pretty well debunked.

Your idea of 'consensus' appears radically different from mine. Some conflicting studies are listed below:

econweb.tamu.edu/jmeer/Meer_West_Minimum_Wage.pdf‎
"Using three separate state panels of administrative employment data, we find that the minimum wage reduces job growth over a period of several years. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers."

http://www.cbo.gov/sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf
The february 2014 nonpartisan Congressional Budget Office report “The Effects of a Minimum-Wage Increase on Employment and Family Income” explores two scenarios: Raising the minimum wage to $10.10, or to $9.00. The report concludes that there are distinct trade-offs. Under the $10.10 scenario, there would likely be a reduction of about 500,000 workers across the labor market, as businesses shed jobs, but about 16.5 million low-wage workers would see substantial gains in their earnings in an average week. Under the $9.00 scenario, the labor force would see a reduction of 100,000 jobs, but an estimated 7.6 million low-wage workers would see a boost in their weekly earnings.

http://www.aei.org/publication/are-minimum-wages-fair/
"There have been many dozens of studies published on minimum wages and employment since the 1990s. Different studies come to different conclusions; a few studies suggest that increasing the minimum wage actually increases employment, while many come to the opposite conclusion. Having said that, the evidence of the minimum wage’s impact on low-skill workers is overwhelming – raising the minimum wage lowers the number of low-skilled workers who have jobs. The econometric evidence suggests that a ten percent increase in the minimum wage decreases low-skill employment by somewhere between one and three percent."

EMTP wrote:And if only slippery slope arguments were valid, we could all take policy ideas we didn't like to a ludicrous extreme, saving valuable argument time!

That was not actually a slippery slope argument but an example of 'reductio ad absurdum', or following an argument logically to its absurd conclusion.

Given multiple studies that reach opposite conclusions on the effects of raising minimum wages, the bottom line for me is I will side with the conclusions most in line with common sense. If you increase the cost of labor for businesses, they will tend to one or more of the following: reduce employment; reduce hours; raise prices; or close their doors. All four of these results can be highly detrimental to low-wage workers.

I stand by my initial point: The minimum wage actually hurts the people it's supposed to help.

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Re: How should minimum wage be determined?

Postby Tyndmyr » Wed Feb 25, 2015 6:19 pm UTC

sevenperforce wrote:A few confounding factors...

Having a baseline national minimum wage definitely fails to account for standard of living differences. Adjusting for standard of living would help expand and diversify the national market, as minimum-wage retailers and businesses would benefit from setting up farther away from higher-wage-cost population centers. The rank and file minimum-wage workers in those population centers would benefit from such a law change, but the higher-ups would not (due to higher wage costs and a disincentive for developers), and so you'd have an interesting political fight.


Bluntly, retailers are going to show up at population centers regardless. That's how retailers work. A specialty shop that works in a populated area won't necessarily work in Craphole, Midwestistan, because there isn't enough population to support the niche.

There *are* confounding factors, but this is not a reasonable fix.

Also, the focus on wage is really negative for other reasons. People, even poor people, do not take jobs based solely on wages. Many people would consider taking a slightly lower paid job because they like the work, the environment, etc. Not being in a walmart is an entirely acceptable reason to consider working elsewhere, IMO. Removing their choice is kind of crappy.

Overtime/fulltime/parttime is another issue. A minimum-wage business will maintain an oversized employee pool, allowing it to schedule very loosely from that pool to ensure that none of its employees ever maintain full-time status (and thus require benefits), let alone earn overtime pay. This works well enough for the highschool student who only wants to work part-time, but it completely screws over the single mom who needs to support a couple of kids and earn enough for benefits. Because the oversized-pool part-time approach is so beneficial for minimum-wage businesses, there is no incentive to allow full-time status for the employees who actually need it, and so someone trying to make a living weekly wage off minimum hourly wage is forced to work multiple jobs. As a result, such a worker ends up working 60 hours a week at three different jobs but not earning full-time benefits or overtime.


This is also common for other reasons. Benefits that must be provided if you have x full time employees are one such reason. It's not quite the same as minimum wage, but it's related. We're incentivizing job instability among the working poor.

Unfortunately, short of a citizen's wage arrangement, the only way to incentivize change here is at the employer level. There are two possible solutions: incentivize overtime, or incentivize the offering of lower-end salaried positions. For example, suppose we determine that a fair living wage is something like $500/wk gross pay even though minimum wage at 40 hours per week will only get you $290/wk gross pay. The IRS could create a new rule that businesses which offer salaried positions at $500/wk or greater will have a reduced employer payroll tax contribution comparable to what they would be contributing for a $290/wk employee.


Or, we could remove the existing incentives that GREATLY favor the way things are now. Like...stop offering employment subsidies for companies like walmart to take advantage of, and that are not cost effective for your tiny employers to pursue.

That's why it would be good to incentivize giving more hours to a single employee rather than spreading hours out among employees. Right now, full-time minimum wage positions are disincentivized. The difference between the high school student and the single mom is not about age, but about the ability and desire to earn a living wage by working full-time; that's what needs to be focused on rather than the age difference or social status.


Minimum wage positions are currently skewed heavily toward the young. Bluntly, the single mom should not be considering "work at minimum wage for the rest of my life" as a viable career path.

We should not be incentivizing full time only OR part time only...because folks's needs are different. A one size fits all solution in either direction is going to be crappy for some. Both should be equally viable.

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Re: How should minimum wage be determined?

Postby Thesh » Wed Feb 25, 2015 7:52 pm UTC

mcd001 wrote:The minimum wage actually hurts the people it's supposed to help--the lowest-paid, lowest skilled workers. By making it more expensive to hire people, employers will just hire fewer people. This means the least productive workers will be let go or never hired in the first place; this means high school kids will not get that first summer job where they add skills to their resumes and learn how to participate in the work force.


That's absolutely true in a world where the markets are fixed. In reality, this is not the case, and changing the minimum wage changes the markets. and all the stuff about what the current labor market can pay goes out the window. This is the problem with taking a microeconomic view of macroeconomics; it doesn't take into account the fact that the markets will change over time. If minimum wage had grown slowly over the last 35 years to be $30/hr, the markets themselves would be so different that what we can't really determine what the exact effects would be. In fact, the opposite of what your assumption says could very well be the case: People could be demanding higher quality products, meaning less outsourcing to China, people could eat out at more sit-down restaurants, meaning less fast food jobs and more higher-paying wait-staff/cook jobs, lower poverty rates leading to less crime and a lower prison population lowering economic waste, better education leading to higher productivity, etc.

Like most things in economics, there is no clear way to determine an ideal minimum wage. Personally, I'm a fan of two measures for an index: consumer spending as a percent of GDP, and labor productivity (GDP/hour worked). Obviously, you can't have a minimum wage that exceeds labor productivity, so that's a good starting point. As jobs get outsourced, if we want to keep production up, you need to have more domestic spending - as we can see from the formula "GDP = (Consumer Spending) + (Private Domestic Investment) + (Government Consumption) + (Government Investment) + (Exports - Imports)" as we import more, Consumer Spending grows as a percent of the GDP, so we can index minimum wage to both productivity and consumer spending. So what I think is best is this:

Minimum Wage = Index*(Labor Productivity)*(Consumer Spending)/GDP

The question then becomes "What do you set the index to?" and from there it gets a bit arbitrary. I personally like 40%; it seems like a nice number, for every job paying minimum wage, you can have one job paying 2.5x minimum wage+additional since money from private investment and government consumption and investment are not counted in our figures. The point is you want some room for higher salaries, and I think 40% makes for a good balance. Of course, that's somewhere around $20/hour today, which of course you will have problems if you went from 7.25 to $20 overnight, or very quickly. My personal preference is to even out the increases over a large time-frame like 20 years, as then it's only a 5%-6% increase every year + additional for inflation/productivity growth.
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sevenperforce
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Re: How should minimum wage be determined?

Postby sevenperforce » Wed Feb 25, 2015 8:31 pm UTC

Tyndmyr wrote:The focus on wage is really negative for other reasons. People, even poor people, do not take jobs based solely on wages. Many people would consider taking a slightly lower paid job because they like the work, the environment, etc.

I would suggest that insofar as income is concerned, a lower-paid worker is going to want to change their employment situation more on the basis of weekly wage than hourly wage. At least as far as the regular workforce is concerned. For the people most in need, steady income is more important than hourly wage.

It would be good to incentivize giving more hours to a single employee rather than spreading hours out among employees. Right now, full-time minimum wage positions are disincentivized. The difference between the high school student and the single mom is not about age, but about the ability and desire to earn a living wage by working full-time; that's what needs to be focused on rather than the age difference or social status.

Minimum wage positions are currently skewed heavily toward the young. Bluntly, the single mom should not be considering "work at minimum wage for the rest of my life" as a viable career path.

We should not be incentivizing full time only OR part time only...because folks's needs are different. A one size fits all solution in either direction is going to be crappy for some. Both should be equally viable.

And since right now, the situation is skewed toward an incentivization of part-time employment at the lowest level, we need to move in the opposite direction. I'm not saying we should disincentivize part-time work, just that both options should be viable to fit the variety of workers and their needs.

And yes, the single mom should not consider "minimum wage for the rest of my life" as a viable career path, but this fact doesn't particularly help the single mom who can only find a minimum wage job right at that particular moment. If employers had a reason to offer lower-paying salaried positions, it would provide a slight step up for people who would otherwise be scrambling to pick up hours here and there at three or four different jobs.

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Re: How should minimum wage be determined?

Postby Tyndmyr » Wed Feb 25, 2015 8:47 pm UTC

Thesh wrote:
mcd001 wrote:The minimum wage actually hurts the people it's supposed to help--the lowest-paid, lowest skilled workers. By making it more expensive to hire people, employers will just hire fewer people. This means the least productive workers will be let go or never hired in the first place; this means high school kids will not get that first summer job where they add skills to their resumes and learn how to participate in the work force.


That's absolutely true in a world where the markets are fixed. In reality, this is not the case, and changing the minimum wage changes the markets. and all the stuff about what the current labor market can pay goes out the window. This is the problem with taking a microeconomic view of macroeconomics; it doesn't take into account the fact that the markets will change over time. If minimum wage had grown slowly over the last 35 years to be $30/hr, the markets themselves would be so different that what we can't really determine what the exact effects would be. In fact, the opposite of what your assumption says could very well be the case: People could be demanding higher quality products, meaning less outsourcing to China, people could eat out at more sit-down restaurants, meaning less fast food jobs and more higher-paying wait-staff/cook jobs, lower poverty rates leading to less crime and a lower prison population lowering economic waste, better education leading to higher productivity, etc.


Everyone in economics is familiar with effects taking place over time. This is not a startling overlooked element. Nor is it even a microeconomic or macroeconomic specific thing.

It's a price control, plain and simple. EVERY market changes over time, not just labor. If you make bread a minium of $20/loaf, people will buy less bread. It'll be exceedingly difficult if you sell formerly inexpensive bread as well, as if both crappy bread and decent bread are $20/loaf, people will prefer the decent bread.

See also, humans. In capitalism, you are not special, your labor is a product, just like everything else, and the same rules apply. If labor is $20/hr, people will buy less labor. And the quality labor is going to be increasingly prefered over the untrained labor. Thus, the kid just entering the market is going up against the guy with a bunch of years experience, and probably losing.

This is always the case. This is what the market changes TO. This "nobody can predict it" is nonsense. It's a belief. And if you seriously believed nobody could predict the results of a change, WHY are you supporting such a change?

Also, if you think higher wages here will result in less outsourcing, you are unfamiliar with why outsourcing happens. People do demand higher quality products. That does not mean "no chinese labor". Look at Apple. They take a premium branding approach, but, like most electronics, that does not translate to "made in the USA".

Like most things in economics, there is no clear way to determine an ideal minimum wage. Personally, I'm a fan of two measures for an index: consumer spending as a percent of GDP, and labor productivity (GDP/hour worked). Obviously, you can't have a minimum wage that exceeds labor productivity, so that's a good starting point. As jobs get outsourced, if we want to keep production up, you need to have more domestic spending - as we can see from the formula "GDP = (Consumer Spending) + (Private Domestic Investment) + (Government Consumption) + (Government Investment) + (Exports - Imports)" as we import more, Consumer Spending grows as a percent of the GDP, so we can index minimum wage to both productivity and consumer spending. So what I think is best is this:

Minimum Wage = Index*(Labor Productivity)*(Consumer Spending)/GDP


In classical economic theory, price controls are non-ideal. Therefore, the ideal minimum and maximum wage are both non-existant. You should have neither of them. This isn't some weird economics...this is intrinsic to supply and demand.

Yes, there are exceptions for monopoly/monosophy environments, but economic theory has both of those as pretty undesirable anyway, so there's little reason to attempt to force either of those economic environments.

The question then becomes "What do you set the index to?" and from there it gets a bit arbitrary. I personally like 40%; it seems like a nice number, for every job paying minimum wage, you can have one job paying 2.5x minimum wage+additional since money from private investment and government consumption and investment are not counted in our figures. The point is you want some room for higher salaries, and I think 40% makes for a good balance. Of course, that's somewhere around $20/hour today, which of course you will have problems if you went from 7.25 to $20 overnight, or very quickly. My personal preference is to even out the increases over a large time-frame like 20 years, as then it's only a 5%-6% increase every year + additional for inflation/productivity growth.


If you're in "it gets a bit arbitrary, but I like this because it seems like a nice number", you're doing economic astrology.

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Re: How should minimum wage be determined?

Postby Tyndmyr » Wed Feb 25, 2015 8:51 pm UTC

sevenperforce wrote:
Tyndmyr wrote:The focus on wage is really negative for other reasons. People, even poor people, do not take jobs based solely on wages. Many people would consider taking a slightly lower paid job because they like the work, the environment, etc.

I would suggest that insofar as income is concerned, a lower-paid worker is going to want to change their employment situation more on the basis of weekly wage than hourly wage. At least as far as the regular workforce is concerned. For the people most in need, steady income is more important than hourly wage.


Desires vary. Both should be reasonable goals, and our economic system should be designed to preserve choice, not based on the idea that we can predict all choices. People are different, and no one set of assumptions can possibly be true for all of them.

Assuming that everyone wants stability over high pay is just as wrong as assuming the opposite.

And since right now, the situation is skewed toward an incentivization of part-time employment at the lowest level, we need to move in the opposite direction. I'm not saying we should disincentivize part-time work, just that both options should be viable to fit the variety of workers and their needs.


Layering incentivization atop incentivization results in an increasingly distorted market, where which one is incentivized more is heavily politicized, rather than being based on actual data. Removing existing incentives is MUCH more elegant than adding additional incentives to balance things out.

And yes, the single mom should not consider "minimum wage for the rest of my life" as a viable career path, but this fact doesn't particularly help the single mom who can only find a minimum wage job right at that particular moment. If employers had a reason to offer lower-paying salaried positions, it would provide a slight step up for people who would otherwise be scrambling to pick up hours here and there at three or four different jobs.


More choices helps everyone. Yes, it's good if the single mom has more options, but it's also important that the high school kid has options. Yeah, he may not "need" the money as much *right now*, but he will need work experience, and to get his career started. Focusing only on what people need now isn't a good long term approach.

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Re: How should minimum wage be determined?

Postby mcd001 » Wed Feb 25, 2015 9:02 pm UTC

Thesh wrote:This is the problem with taking a microeconomic view of macroeconomics; it doesn't take into account the fact that the markets will change over time. If minimum wage had grown slowly over the last 35 years to be $30/hr, the markets themselves would be so different that what we can't really determine what the exact effects would be.

If we can't know the effects for sure, then rather than risking the law of unintended consequences how about opting for the simplest, least arbitrary, and least intrusive solution? Let employees and employers mutually negotiate wages based on skills, productivity, and the value of what' they produce.

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Re: How should minimum wage be determined?

Postby Thesh » Wed Feb 25, 2015 9:26 pm UTC

Tyndmyr wrote:Everyone in economics is familiar with effects taking place over time. This is not a startling overlooked element. Nor is it even a microeconomic or macroeconomic specific thing.


The argument that was being made completely ignored the effects of wages on supply and demand. The argument posed is one I've seen time and time again, and it is based on a graph that says "If this is the curve for labor demand, and this is the curve for labor supply, then raising minimum wage to this will cause such and such an increase in unemployment," which is a purely microeconomic perspective that applies only in the short term.

Tyndmyr wrote:It's a price control, plain and simple. EVERY market changes over time, not just labor. If you make bread a minium of $20/loaf, people will buy less bread. It'll be exceedingly difficult if you sell formerly inexpensive bread as well, as if both crappy bread and decent bread are $20/loaf, people will prefer the decent bread.

See also, humans. In capitalism, you are not special, your labor is a product, just like everything else, and the same rules apply. If labor is $20/hr, people will buy less labor. And the quality labor is going to be increasingly prefered over the untrained labor. Thus, the kid just entering the market is going up against the guy with a bunch of years experience, and probably losing.


That's true if you assume that the labor market would be unchanged had minimum wage increased over the past 20 years. As for skills themselves, if there is a lack of skilled labor and a demand for it, then people become skilled; people get educated (less poverty helps with this), bakers take on apprentices, etc. For the people that are unskilled, there will always be janitorial jobs and building and maintaining infrastructure (and if demand for labor drops suddenly, government can increase infrastructure spending). All this microeconomic theory focuses on short term effects of policies.

Tyndmyr wrote:This is always the case. This is what the market changes TO. This "nobody can predict it" is nonsense. It's a belief. And if you seriously believed nobody could predict the results of a change, WHY are you supporting such a change?


Then please, tell me what the US would look like if wages raised with productivity since 1980; tell me what would happen if things were completely different for the past 35 years. You can't use today's market to determine what the effects of a minimum wage change would be if it occurred gradually over a period of decades; you can have a basic idea of how markets would change, but you can't predict the exact supply and demand for labor. I don't think you will find any economist who would disagree with that assertion.

Tyndmyr wrote:Also, if you think higher wages here will result in less outsourcing, you are unfamiliar with why outsourcing happens. People do demand higher quality products. That does not mean "no chinese labor". Look at Apple. They take a premium branding approach, but, like most electronics, that does not translate to "made in the USA".


The situation we are in today is that wages have remained stagnant, but the number and complexity of products has increased; in order for us to buy new products is either to stop purchasing old products or lower the manufacturing costs of both. If the majority of the population made a lot more, a lot of the products they would be willing to spend more on for a higher quality, and some of this would inevitably be built in the US, depending on the product.

Tyndmyr wrote:In classical economic theory, price controls are non-ideal. Therefore, the ideal minimum and maximum wage are both non-existant. You should have neither of them. This isn't some weird economics...this is intrinsic to supply and demand.


Again, see my above point. Supply and demand of goods and services are dependent on the income of the population, therefore the model cannot be used to determine long-term effects of minimum wage increases as they change income distribution.

Tyndmyr wrote:If you're in "it gets a bit arbitrary, but I like this because it seems like a nice number", you're doing economic astrology.


That's because in the end, minimum wage is not purely about maximizing GDP - if that's your goal, you want to institute a maximum wage for non-business owners and make it mandatory to work, to maximize funds for investment and education. In the end, minimum wage is about providing a good quality of life for people at the bottom, which is purely subjective and arbitrary.

mcd001 wrote:If we can't know the effects for sure, then rather than risking the law of unintended consequences how about opting for the simplest, least arbitrary, and least intrusive solution? Let employees and employers mutually negotiate wages based on skills, productivity, and the value of what' they produce.


We basically did that; we stopped raising wages with productivity in the mid 70s, and have had a huge growth in inequality. The 2000s saw the strongest growth in productivity since the 1960s, and the worst economic growth since the 1930s; why? Because of outsourcing and productivity gains led to layoffs, which led to a low demand for labor, causing stagnating wages, preventing strong growth. Because the free markets left to their own devices prevented the economy from doing what it is supposed to do: when labor is freed to do other things, labor should be hired to do other things. Labor wasn't hired to do other things, and average hours worked per worker dropped, wages stagnated, and the employment:population ratio declined (partially because of boomers, but not entirely, as if only the supply of labor dropped and not demand, then wages should have increased). This is because the labor market won't increase wages until demand for labor increases, and demand for labor won't increase until consumers start spending more, and consumers won't start spending more until their wages increase. The free market is not some magical system that always leads to ideal circumstances, sometimes it just self-destructs and leads to a major recession/depression.
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Re: How should minimum wage be determined?

Postby mcd001 » Wed Feb 25, 2015 10:39 pm UTC

Thesh wrote:This is because the labor market won't increase wages until demand for labor increases, and demand for labor won't increase until consumers start spending more, and consumers won't start spending more until their wages increase. The free market is not some magical system that always leads to ideal circumstances, sometimes it just self-destructs and leads to a major recession/depression.

Free markets may not be magic, and they are not perfect, but they are at least free. You contend that the weak economic growth we are seeing is due to productivity gains and outsourcing. Yet you make no mention of probably the biggest drag and burden on the economy, and that's government. Our complex tax codes, stifling bureaucracies, and burdensome regulations add billions to the cost of doing business while taking billions from the citizens (consumers). You want to see the economy take off? Then release the brakes.

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Re: How should minimum wage be determined?

Postby Thesh » Wed Feb 25, 2015 10:49 pm UTC

mcd001 wrote:Yet you make no mention of probably the biggest drag and burden on the economy, and that's government. Our complex tax codes, stifling bureaucracies, and burdensome regulations add billions to the cost of doing business while taking billions from the citizens (consumers). You want to see the economy take off? Then release the brakes.


Again, labor productivity, highest since the 1960s, additionally corporate profits after-tax as a percent of the GDP are the highest on record - doesn't sound like corporations are really hurting that much; regulations and taxes should be hurting both of those numbers. Overall tax revenues as a percent of GDP has remained steady since the middle of the 1950s. I don't think there is any indication that what you state is the case, other than a gut feeling.
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Re: How should minimum wage be determined?

Postby sevenperforce » Wed Feb 25, 2015 11:35 pm UTC

Tyndmyr wrote:
sevenperforce wrote:I would suggest that insofar as income is concerned, a lower-paid worker is going to want to change their employment situation more on the basis of weekly wage than hourly wage. At least as far as the regular workforce is concerned. For the people most in need, steady income is more important than hourly wage.

Desires vary. Both should be reasonable goals, and our economic system should be designed to preserve choice, not based on the idea that we can predict all choices. People are different, and no one set of assumptions can possibly be true for all of them.

Assuming that everyone wants stability over high pay is just as wrong as assuming the opposite.

Which is why I specified a specific workforce subset rather than "everyone".

Layering incentivization atop incentivization results in an increasingly distorted market, where which one is incentivized more is heavily politicized, rather than being based on actual data. Removing existing incentives is MUCH more elegant than adding additional incentives to balance things out.

So which exact incentives would you remove and how could we reasonably expect this to benefit a particular endangered class?

And yes, the single mom should not consider "minimum wage for the rest of my life" as a viable career path, but this fact doesn't particularly help the single mom who can only find a minimum wage job right at that particular moment. If employers had a reason to offer lower-paying salaried positions, it would provide a slight step up for people who would otherwise be scrambling to pick up hours here and there at three or four different jobs.

More choices helps everyone. Yes, it's good if the single mom has more options, but it's also important that the high school kid has options.

Which he would still have. Completely. No change whatsoever for him.

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Re: How should minimum wage be determined?

Postby mcd001 » Thu Feb 26, 2015 12:35 am UTC

Thesh wrote:Again, labor productivity, highest since the 1960s, additionally corporate profits after-tax as a percent of the GDP are the highest on record - doesn't sound like corporations are really hurting that much; regulations and taxes should be hurting both of those numbers. Overall tax revenues as a percent of GDP has remained steady since the middle of the 1950s. I don't think there is any indication that what you state is the case, other than a gut feeling.

Corporate profits are indeed soaring, but this is partly due to globalization:

http://www.forbes.com/sites/timworstall/2013/05/07/why-have-corporate-profits-been-rising-as-a-percentage-of-gdp-globalisation/
"...we’re in a huge period of globalisation. So much so that US companies are now making very large profits outside the US economy ..... There’s also the tax issue. Those vast sums being held offshore are being so held in order to not have to pay the 35% US corporate income tax."

Alas, there is more. Instead of free-market capitalism, I believe that corporate welfare and crony capitalism are in play here. The propensity for both political parties to use the tax code to pick winners and losers or to reward allies and punish enemies could explain some of the record profits these corporations are seeing. (It also explains a tax code so incredibly complex that not even the IRS understands what's in it.)

For proof, I offer the divergent growth between big corporations and small businesses:
http://www.economonitor.com/dolanecon/2013/06/03/corporate-profits-soar-as-proprietors-income-stagnates-the-decline-of-small-business-and-what-to-do-about-it/

If taxes and regulation are good for the economy (or at least not harmful) then shouldn't ALL businesses be showing record profits, not just the ones that can afford lobbyists, lawyers, and tax policy experts? To explain the disparity, ask the small businesses themselves. The National Federation of Independent Businesses (NFIB) does a regular survey of small business economic trends and attitudes. Small businesses always complain of taxes (of course), but the problem showing the greatest increase from previous surveys is government regulation and red tape.

More than a gut feeling, I'd say.

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Re: How should minimum wage be determined?

Postby Azrael » Thu Feb 26, 2015 2:06 am UTC

Perhaps we should return to a discussion of how to determine minimum wage, rather than a debate regarding the effects of various government involvements on corporate well being?

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Re: How should minimum wage be determined?

Postby mcd001 » Thu Feb 26, 2015 3:25 pm UTC

Azrael wrote:Perhaps we should return to a discussion of how to determine minimum wage, rather than a debate regarding the effects of various government involvements on corporate well being?

So, back to the original topic. I maintain there should be no minimum wage. I have two reasons for this:

1) Despite the lack of consensus among economists on the macro effects of minimum wages, it does have an impact on the margins. Don't believe this? Then imagine you have some work that needs doing. It doesn't matter what the work is. Maybe you want your lawn mowed or the oil in your car changed. Maybe you just want your laundry folded. There is a certain amount you would be willing to pay for that work to be done. The amount doesn't matter and it will vary from person to person, but there IS an amount. That amount is what getting that work done is worth to you. Now imagine I am able to require you to pay more for that work than it is worth to you. If I do so it will have some effect on your actions. The most likely effect is you will just do the work yourself. Or you will not do it at all. Or you will add it to the workload of someone else you are already paying. Or you will pay the additional amount, leaving you with less money to pay someone for that other little job you have.

Now imagine you have a neighbor who is eager to earn some spending money by mowing your lawn. Imagine that neighbor would gladly do it for what you're willing to pay. Unfortunately, that's not an option because I'm requiring you to pay more. So instead you just mow the lawn yourself.

All I wanted to do was help your neighbor earn more money by mandating higher pay. My intentions were entirely noble, but that doesn't matter. The reality is I have just been a dick to both you and your neighbor.

2) In addition to hurting the lowest skilled workers in the economy, minimum wage laws are also wrong (as in immoral). What a worker and employer mutually agree to on wages for a job should be nobody else's concern. Not mine, not yours, and not the government's. To the extent the government has this power we are all less free.

So if a law acts like a dick and robs us of liberty, why should we support it? (If your answer is, "It may hurt some people, but it will ultimately help more," then I think you are on dangerous ground. It's very easy to justify benefits to the majority at the expense of a minority, and most things--even evil things--will bring some benefit to somebody.)

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Re: How should minimum wage be determined?

Postby ucim » Thu Feb 26, 2015 3:29 pm UTC

mcd001 wrote:What a worker and employer mutually agree to on wages for a job should be nobody else's concern.
How (if at all) do you address the general imbalance between the market power of the worker and the employer at the low end of the pay scale?

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Re: How should minimum wage be determined?

Postby EMTP » Thu Feb 26, 2015 3:58 pm UTC

mcd001 wrote:So, back to the original topic. I maintain there should be no minimum wage. I have two reasons for this:

1) Despite the lack of consensus among economists on the macro effects of minimum wages, it does have an impact on the margins. Don't believe this? Then imagine . . .


No. You don't "imagine" when you have decades of data from millions of workers all around the world. Trying to think your way past the data is how pseudoscience happens.

If you think you have a compelling theory, then design and conduct a study and see if the facts support you. Right now, they don't.

2) In addition to [not] hurting the lowest skilled workers in the economy,


Fixed.

minimum wage laws are also wrong (as in immoral). What a worker and employer mutually agree to on wages for a job should be nobody else's concern. Not mine, not yours, and not the government's. To the extent the government has this power we are all less free.


That is your ideological belief. You are welcome to print pamphlets, hold services, and baptize people in your faith. But it isn't an argument that non-libertarians are likely to be persuaded by.

So if a law acts like a dick and robs us of liberty, why should we support it? (If your answer is, "It may hurt some people, but it will ultimately help more," then I think you are on dangerous ground.


You have just described every law, ever. As well as most actions, period. "Hurts some people and helps others" is the character of action in the fallen world we live in. If you believe your actions are free of all harm to others, you are very naive.
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Re: How should minimum wage be determined?

Postby Tyndmyr » Thu Feb 26, 2015 4:07 pm UTC

Thesh wrote:
Tyndmyr wrote:Everyone in economics is familiar with effects taking place over time. This is not a startling overlooked element. Nor is it even a microeconomic or macroeconomic specific thing.


The argument that was being made completely ignored the effects of wages on supply and demand. The argument posed is one I've seen time and time again, and it is based on a graph that says "If this is the curve for labor demand, and this is the curve for labor supply, then raising minimum wage to this will cause such and such an increase in unemployment," which is a purely microeconomic perspective that applies only in the short term.


Have you taken macroeconomic classes? Supply and demand curves are among the first things you learn, and they will be with you for basically everything you do. This is inherently part of macroeconomics. The foundation of it, really.

You're saying words like "purely microeconomic" that are flat out wrong. WHY is this a purely microeconomic perspective? How can it be, when it's using an utterly standard macroeconomic methodology to look at macroeconomic topics(labor participation and unemployment)?

Tyndmyr wrote:It's a price control, plain and simple. EVERY market changes over time, not just labor. If you make bread a minium of $20/loaf, people will buy less bread. It'll be exceedingly difficult if you sell formerly inexpensive bread as well, as if both crappy bread and decent bread are $20/loaf, people will prefer the decent bread.

See also, humans. In capitalism, you are not special, your labor is a product, just like everything else, and the same rules apply. If labor is $20/hr, people will buy less labor. And the quality labor is going to be increasingly prefered over the untrained labor. Thus, the kid just entering the market is going up against the guy with a bunch of years experience, and probably losing.


That's true if you assume that the labor market would be unchanged had minimum wage increased over the past 20 years.


That is not, in any way, an assumption.

Your hours are finite per day. Normal supply and demand will always apply as per any scarce commodity.

As for skills themselves, if there is a lack of skilled labor and a demand for it, then people become skilled; people get educated (less poverty helps with this), bakers take on apprentices, etc. For the people that are unskilled, there will always be janitorial jobs and building and maintaining infrastructure (and if demand for labor drops suddenly, government can increase infrastructure spending). All this microeconomic theory focuses on short term effects of policies.


How? And why? You're just reciting effects, not showing methodology. You're not showing any actual reasoning for WHY minimum wage should be set to any given level.

And simplifying it to "then people become skilled" is a little simplistic.

Then please, tell me what the US would look like if wages raised with productivity since 1980; tell me what would happen if things were completely different for the past 35 years. You can't use today's market to determine what the effects of a minimum wage change would be if it occurred gradually over a period of decades; you can have a basic idea of how markets would change, but you can't predict the exact supply and demand for labor. I don't think you will find any economist who would disagree with that assertion.


Why 1980? In any case, sure, let's start calculating.

$3.10 minimum wage in 1980 becomes $8.79 minimum wage today, instead of the current $7.25. There is no significant difference in areas that currently have a minimum wage at or above $8.79, and areas in which very few people draw wages within that wage band will likewise experience fairly few changes.

An elevating effect on wages would be experienced to the minimum for those in the band, and those near the band will also experience an elevating effect(though rapidly decreasing with distance from that band), known as a ripple effect. This is generally held to be statistically measureable until approximately 150% of the new minimum wage, or about $13.19. People making above that can expect wages to be relatively constant.

The effect on each market in terms of price will depend on it's elasticisty. Prices will generally rise in markets with high elasticity, and unemployment will be experienced in markets with low elasticity. The most critical measurement for determining the overall strength of these effects, of course, is the elasticity of the labor market itself. This number varies over time, but as we're looking at about a 21% increase in minimum wage, we're looking at about a 4% hit to employment overall(though there is a coupla percent error on this, depending upon which numbers you're using. Some disagreement does exist here).

However, this is predicated on inflation being the same as today. If inflation is higher, then the real increase in minimum wage is less, and you'll see lesser effects.

In essense, there's no free lunch. Whatever benefit you get is consumed by either inflation or unemployment, it's a tradeoff with these factors(with the precise amount of each being determined by labor elasticity). A gradual change over a long period of time as proposed will generally result in less dramatic employment changes, but instead will result in lessened labor elasticity as prices rise, producing primarily inflation.

Also, since all of the economy is tied to labor and vice versa, setting a sufficiently high minimum wage tied to inflation gets you some hilarious runaway effects. As you approach the median wage with such a schema, your economy becomes more and more precarious, and as you cross that line, it ceases to be functional(assuming people follow the law).

Tyndmyr wrote:Also, if you think higher wages here will result in less outsourcing, you are unfamiliar with why outsourcing happens. People do demand higher quality products. That does not mean "no chinese labor". Look at Apple. They take a premium branding approach, but, like most electronics, that does not translate to "made in the USA".


The situation we are in today is that wages have remained stagnant, but the number and complexity of products has increased; in order for us to buy new products is either to stop purchasing old products or lower the manufacturing costs of both. If the majority of the population made a lot more, a lot of the products they would be willing to spend more on for a higher quality, and some of this would inevitably be built in the US, depending on the product.


Number and complexity of products will always increase. This is a normal and expected result of globalization, increasing population, technological advance, etc.

Why SHOULD wages increase in conjunction with the number of products available? Or with the number of parts in products(assuming you're somehow averaging them or something?)

The idea that quality == the US is not valid. The US is not intrinsicly tied to quality by any sort of economic law. We only have a reputation for such due to having a strong economy, good manufacturing base, etc. A great many quality objects are made outside of the united states, and thus, you cannot assume that labor pricing here will be ignored.

Tyndmyr wrote:In classical economic theory, price controls are non-ideal. Therefore, the ideal minimum and maximum wage are both non-existant. You should have neither of them. This isn't some weird economics...this is intrinsic to supply and demand.


Again, see my above point. Supply and demand of goods and services are dependent on the income of the population, therefore the model cannot be used to determine long-term effects of minimum wage increases as they change income distribution.


Obviously supply and demand curves shift. This will be covered in the first macroeconomic class you take. This is not a surprise to anyone doing economics, any more than reproduction is a surprise to biologists.

Tyndmyr wrote:If you're in "it gets a bit arbitrary, but I like this because it seems like a nice number", you're doing economic astrology.


That's because in the end, minimum wage is not purely about maximizing GDP - if that's your goal, you want to institute a maximum wage for non-business owners and make it mandatory to work, to maximize funds for investment and education. In the end, minimum wage is about providing a good quality of life for people at the bottom, which is purely subjective and arbitrary.


Then how does it do so? And why must quality of life be purely subjective and arbitrary?

An excellent case could be made that unemployment reduces quality of life.

mcd001 wrote:If we can't know the effects for sure, then rather than risking the law of unintended consequences how about opting for the simplest, least arbitrary, and least intrusive solution? Let employees and employers mutually negotiate wages based on skills, productivity, and the value of what' they produce.


We basically did that; we stopped raising wages with productivity in the mid 70s, and have had a huge growth in inequality. The 2000s saw the strongest growth in productivity since the 1960s, and the worst economic growth since the 1930s; why? Because of outsourcing and productivity gains led to layoffs, which led to a low demand for labor, causing stagnating wages, preventing strong growth. Because the free markets left to their own devices prevented the economy from doing what it is supposed to do: when labor is freed to do other things, labor should be hired to do other things. Labor wasn't hired to do other things, and average hours worked per worker dropped, wages stagnated, and the employment:population ratio declined (partially because of boomers, but not entirely, as if only the supply of labor dropped and not demand, then wages should have increased). This is because the labor market won't increase wages until demand for labor increases, and demand for labor won't increase until consumers start spending more, and consumers won't start spending more until their wages increase. The free market is not some magical system that always leads to ideal circumstances, sometimes it just self-destructs and leads to a major recession/depression.


Free markets are not active entities, they are merely the financial environment of the time. The 1930s were very different than now in some ways, similar in others, but economics is a wee bit more complicated than just "the free markets prevented the economy from doing what I wanted".

You are correct, though, in that the great depression was exacerbated by low labor demand. Higher prices also lowers demand for labor, obviously. Yes, a secondary effect of more money exists. This is trivially obvious, and already included in the models. Pointing at it over and over is irrelevant. You're the guy who has discovered that trees use co2, and thus has concluded that global warming is obviously GOOD for the environment.

The ideal minimum wage is "none". It's always none. There are niche economic conditions where this is not the case(monopoly/monosophy), but those conditions are not ideal, and should not be promoted in any case.

ucim wrote:
mcd001 wrote:What a worker and employer mutually agree to on wages for a job should be nobody else's concern.
How (if at all) do you address the general imbalance between the market power of the worker and the employer at the low end of the pay scale?

Jose


A traditional answer is labor organization.

Another option is an environment that is more friendly to smaller businesses, as a plethora of small business results in better bargaining power equality than massive corporations. Monopoly/monosophy conditions are particularly terrible for worker negotiation. This is among the reasons those conditions are undesirable.

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Re: How should minimum wage be determined?

Postby CorruptUser » Thu Feb 26, 2015 4:29 pm UTC

Monopsony is where there is only one buyer.

Monosophy is where there is only one smart person.

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Re: How should minimum wage be determined?

Postby Thesh » Thu Feb 26, 2015 4:51 pm UTC

Tyndmyr wrote:Have you taken macroeconomic classes? Supply and demand curves are among the first things you learn, and they will be with you for basically everything you do. This is inherently part of macroeconomics. The foundation of it, really.

You're saying words like "purely microeconomic" that are flat out wrong. WHY is this a purely microeconomic perspective? How can it be, when it's using an utterly standard macroeconomic methodology to look at macroeconomic topics(labor participation and unemployment)?


Because it is assuming supply and demand curves don't change because of the minimum wage, which is purely a microeconomic perspective.

Tyndmyr wrote:
As for skills themselves, if there is a lack of skilled labor and a demand for it, then people become skilled; people get educated (less poverty helps with this), bakers take on apprentices, etc. For the people that are unskilled, there will always be janitorial jobs and building and maintaining infrastructure (and if demand for labor drops suddenly, government can increase infrastructure spending). All this microeconomic theory focuses on short term effects of policies.


How? And why? You're just reciting effects, not showing methodology. You're not showing any actual reasoning for WHY minimum wage should be set to any given level.

And simplifying it to "then people become skilled" is a little simplistic.


Because history? Why do you think there is an influx of people going to welding school? This is not some big secret

Tyndmyr wrote:
Then please, tell me what the US would look like if wages raised with productivity since 1980; tell me what would happen if things were completely different for the past 35 years. You can't use today's market to determine what the effects of a minimum wage change would be if it occurred gradually over a period of decades; you can have a basic idea of how markets would change, but you can't predict the exact supply and demand for labor. I don't think you will find any economist who would disagree with that assertion.


Why 1980? In any case, sure, let's start calculating.

$3.10 minimum wage in 1980 becomes $8.79 minimum wage today, instead of the current $7.25. There is no significant difference in areas that currently have a minimum wage at or above $8.79, and areas in which very few people draw wages within that wage band will likewise experience fairly few changes.


1980 because that's when we basically stopped increasing minimum wage on a regular basis. Also, Productivity != Inflation.


Tyndmyr wrote:The effect on each market in terms of price will depend on it's elasticisty.


Thank you for making my point. You say you understand that changing income changes demand curves, yet you don't actually consider that in your analysis.

Tyndmyr wrote:The idea that quality == the US is not valid. The US is not intrinsicly tied to quality by any sort of economic law. We only have a reputation for such due to having a strong economy, good manufacturing base, etc. A great many quality objects are made outside of the united states, and thus, you cannot assume that labor pricing here will be ignored.


Who cares if it's intrinsically valid? What matters is only that people DO associate made in the USA with higher quality, and made in China with lower quality.

Tyndmyr wrote:The ideal minimum wage is "none". It's always none. There are niche economic conditions where this is not the case(monopoly/monosophy), but those conditions are not ideal, and should not be promoted in any case.


Ideal for who? Keep in mind we consistently raised minimum wage with productivity throughout the 50s and 60s and we had our strongest years for growth. Then we stopped in the early 70s and we had our worst years for growth. There is little indication that consistent, small increases with minimum wage are bad for our economy. Large increases maybe, but if you are increasing with productivity then it's going to be a small increase.

See the graph of minimum wage vs productivity here:
http://www.cepr.net/index.php/blogs/cep ... om-to-grow

Interesting to note is that it correlates pretty strongly with median compensation vs productivity:

http://www.epi.org/publication/ib330-pr ... pensation/

Yes, yes, we know, we shouldn't give a shit whether wages are stagnant at the bottom because the invisible hand decided they were too lazy or unskilled to do so, and if it goes to the rich than we will have investment and our economy will be strong, and innovation will skyrocket, and it will be the roaring 20s all over again.
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Re: How should minimum wage be determined?

Postby mcd001 » Thu Feb 26, 2015 4:53 pm UTC

EMTP wrote:No. You don't "imagine" when you have decades of data from millions of workers all around the world. Trying to think your way past the data is how pseudoscience happens.

The scenario I asked you to imagine is quite real and happens every day. I am asking what YOU as an individual would do in that situation, because your response as a person is illustrative of the problem these laws cause with society as a whole.

EMTP wrote:If you think you have a compelling theory, then design and conduct a study and see if the facts support you. Right now, they don't.

Actually they do. I've already cited studies in an earlier post showing the harm done by minimum wage laws. They may conflict with the studies you might cite, and you may not like or agree with their findings, but they do in fact exist.

EMTP wrote:You have just described every law, ever.

Okay, I'll bite. What is the harm from laws prohibiting murder or theft?

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Re: How should minimum wage be determined?

Postby Tyndmyr » Thu Feb 26, 2015 5:51 pm UTC

CorruptUser wrote:Monopsony is where there is only one buyer.

Monosophy is where there is only one smart person.


Lol, thanks for the correction. I definitely meant the former, though I suppose the latter is also to be avoided.

Thesh wrote:
Tyndmyr wrote:Have you taken macroeconomic classes? Supply and demand curves are among the first things you learn, and they will be with you for basically everything you do. This is inherently part of macroeconomics. The foundation of it, really.

You're saying words like "purely microeconomic" that are flat out wrong. WHY is this a purely microeconomic perspective? How can it be, when it's using an utterly standard macroeconomic methodology to look at macroeconomic topics(labor participation and unemployment)?


Because it is assuming supply and demand curves don't change because of the minimum wage, which is purely a microeconomic perspective.


A. That's not a microeconomic perspective. It might be an incomplete perspective, or one lacking relevant detail, but it doesn't change the problem domain.
B. Nobody in the field of economics assumes that.
C. These changes do not automagically fix everything. These changes are already modeled in the differing outcomes. They're well known, and routine. This is not something being forgotten by economics. It's pretty basic, actually.

Tyndmyr wrote:
As for skills themselves, if there is a lack of skilled labor and a demand for it, then people become skilled; people get educated (less poverty helps with this), bakers take on apprentices, etc. For the people that are unskilled, there will always be janitorial jobs and building and maintaining infrastructure (and if demand for labor drops suddenly, government can increase infrastructure spending). All this microeconomic theory focuses on short term effects of policies.


How? And why? You're just reciting effects, not showing methodology. You're not showing any actual reasoning for WHY minimum wage should be set to any given level.

And simplifying it to "then people become skilled" is a little simplistic.


Because history? Why do you think there is an influx of people going to welding school? This is not some big secret


"Because history" is also over simplification. Kind of a lot of it. Economics is a wee bit more complicated, and while history is of course useful for collecting data, a naive assumption that we can simply ignore effects because they'll work out somehow, thanks to history is not very rigorous at all.

1980 because that's when we basically stopped increasing minimum wage on a regular basis. Also, Productivity != Inflation.


Obviously. Productivity would not be higher today solely because of minimum wage. Inflation would be.

Tyndmyr wrote:The effect on each market in terms of price will depend on it's elasticisty.


Thank you for making my point. You say you understand that changing income changes demand curves, yet you don't actually consider that in your analysis.


It's already included. All past minimum wage changes have also affected demand curves in the EXACT same way as any proposed future one would(though scale would obviously depend on the scale of the change). Therefore, any data drawn from historical sources already has it factored in. There is no reason to add it again, and doing so would be erronious.

Tyndmyr wrote:The idea that quality == the US is not valid. The US is not intrinsicly tied to quality by any sort of economic law. We only have a reputation for such due to having a strong economy, good manufacturing base, etc. A great many quality objects are made outside of the united states, and thus, you cannot assume that labor pricing here will be ignored.


Who cares if it's intrinsically valid? What matters is only that people DO associate made in the USA with higher quality, and made in China with lower quality.


They do, sometimes. Now. For being really concerned over how things change over time, you're really not looking at that at all. There is no reason perceptions cannot change, or could not have been different, given different initial conditions.

And the USA is not the only country associated with higher quality. So, you cannot assume that everyone seeking higher quality goods will buy USA made products. They may, instead, wish to purchase french wine, or a swiss watch, or bangledesh-made fashion item, or a chinese made electronics item, all of which are presented as higher quality items.

Tyndmyr wrote:The ideal minimum wage is "none". It's always none. There are niche economic conditions where this is not the case(monopoly/monosophy), but those conditions are not ideal, and should not be promoted in any case.


Ideal for who? Keep in mind we consistently raised minimum wage with productivity throughout the 50s and 60s and we had our strongest years for growth. Then we stopped in the early 70s and we had our worst years for growth. There is little indication that consistent, small increases with minimum wage are bad for our economy. Large increases maybe, but if you are increasing with productivity then it's going to be a small increase.


Correlation is not causation. Demonstrate your causation, please.

Large changes in minimum wage are problematic in proportion to their size. The more extreme the example, the more extreme the problem. It seems probable you are simply ignoring that minor changes, while having comparatively minor effects, are still a problem, just a proportionally smaller one.

If the relationship between raising minimum wage and the results of it vary highly, it would seem very important to have a rationale for WHY this is the case, and to determine when it changes from one to the other. What is this rationale, and how can we test it?

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Re: How should minimum wage be determined?

Postby Thesh » Thu Feb 26, 2015 6:01 pm UTC

Correlation is not causation. Demonstrate your causation, please.


You're the one claiming minimum wage is inherently bad for the economy. I've shown that either the negative effects are minimal or it is overall a positive. Please provide evidence that small, regular minimum wage increases are bad. You might have data showing the effects of large increases in the short term, but you have not provided any evidence that regular, small minimum wage increases are bad in the long term. Because we've tried things your way, and things haven't really been that amazing.
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Re: How should minimum wage be determined?

Postby Tyndmyr » Thu Feb 26, 2015 6:03 pm UTC

Thesh wrote:
Correlation is not causation. Demonstrate your causation, please.


You're the one claiming minimum wage is inherently bad for the economy. I've shown that either the negative effects are minimal or it is overall a positive. Please provide evidence that small, regular minimum wage increases are bad. You might have data showing the effects of large increases in the short term, but you have not provided any evidence that regular, small minimum wage increases are bad in the long term. Because we've tried things your way, and things haven't really been that amazing.


Other folks have already linked studies showing exactly that on this very page. Would you like those linked again?

And, when, precisely, have we tried getting rid of minimum wage altogether?

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Re: How should minimum wage be determined?

Postby Thesh » Thu Feb 26, 2015 6:29 pm UTC

Tyndmyr wrote:Other folks have already linked studies showing exactly that on this very page. Would you like those linked again?


No, there have been contradictory studies, all based on larger minimum wage increases. We are talking a 1-4% increase in real minimum wage for most years if we go with productivity as an index, around 2.2% on average.

And, when, precisely, have we tried getting rid of minimum wage altogether?


For a hundred and some odd years we had no minimum wage; it sucked enough that we needed a minimum wage. We also let it stagnate for periods of 10 years, and we saw no great gains in economic growth, in fact the correlation is the opposite: 50s and 60s, regular increases in minimum wages, strongest decades for growth post-WWII. 70s and 90s, fewer minimum wage increases, not keeping up with productivity, middle of the road for growth. 1980s and 2000s, decade long stretches without an increase in minimum wage, worst decades for economic growth. The conclusion is that it is likely thar either minimum wage is an overall positive, or the effects are minimal.
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Re: How should minimum wage be determined?

Postby CorruptUser » Thu Feb 26, 2015 7:10 pm UTC

The funny thing about poor people is that giving them money stimulates the economy more than giving it to the rich. Also they tend to give it back to the rich by buying stuff; "trickle up", if you will.


But anyway, ignore money and inflation for now. Imagine you have apple pickers in Appleton, Appalachia. Everything is apples. The more apples the pickers are paid, the more they pick. But there's diminishing returns. For example, if you pay the pickers 5 apples an hour, they pick 6, and you get 1 apple per worker. You pay them 10, they pick 14. You pay them 15, they pick 19. You pay them 20, they pick 23. You pay them 25, they pick 25. You pay 30, they pick 26. Now, the Efficiency Wage is where you get the most apples per dollar spent, in this case apples per apple. This is at 10 apples; you get a profit of 2 for every 5 apples. You'd rather have 2 workers at 10 than 1 worker at 20. But paying each individual worker 15 instead of 10 results in the same profit per worker. If you have an 'infinite' supply of workers, why bother though? You get more profit if you just hire more workers instead. Eg, India. Run out of spare workers, and you can raise the wages without harming profit at all. But this doesn't maximize society. Force the orchard to pay 20, and while the orchards take a hit everyone else gains more than the orchards lose. Eg, Norway.

Really, minimum wages would ideally be per industry (which is kinda impractical) and should be above the efficiency wage, between the point where the firm gets the same profit per worker and where the firm gets 0 profit per worker. If you want to grow the economy, the first. If you want to reduce inequality, the second. Healthy balance and all.

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Re: How should minimum wage be determined?

Postby EMTP » Thu Feb 26, 2015 7:55 pm UTC

mcd001 wrote:The scenario I asked you to imagine is quite real and happens every day. I am asking what YOU as an individual would do in that situation, because your response as a person is illustrative of the problem these laws cause with society as a whole.


Except as I've shown, they do not cause a problem with society as a whole. Your ideology says these laws are -- to use your word -- "evil." So you want to believe that the effects of these laws are bad. Unfortunately, you're wrong. It's really no different that a fundamentalist Christian claiming gay marriage causes pedophilia. Your have a philosophical objection that you are trying to pretend is a practical one.

EMTP wrote:If you think you have a compelling theory, then design and conduct a study and see if the facts support you. Right now, they don't.

Actually they do. I've already cited studies in an earlier post showing the harm done by minimum wage laws. They may conflict with the studies you might cite, and you may not like or agree with their findings, but they do in fact exist.


In fact, they don't exist, if by "they" you mean credible peer-reviewed studies cited by you. Of your citations, the first link is broken, the second is non-peer-reviewed congressional publication, and the third is a link to a Koch-funded libertarian editorial blog post condemning the minimum wage [1].

Compare my citations, which were mostly to peer-reviewed economics journals, with one think tank (founded by two economists) report summarizing the economics literature.

Okay, I'll bite. What is the harm from laws prohibiting murder or theft?


Laws prohibiting homicide harm abuse victims who kill their abusers. Laws against theft harm people defrauded of their property from reclaiming it from con artists. The laws harm innocent people accused of the crimes, who are forced to defend themselves and may lose. Both laws harm all taxpayers because we have to pay for them to be drafted and enforced.

----------------------

The American Enterprise Institute, in addition to opposing a minimum wage, oppose Dodd-Frank Wall Street reform, support voter ID laws, and deny climate change.
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Re: How should minimum wage be determined?

Postby Tyndmyr » Thu Feb 26, 2015 8:33 pm UTC

Thesh wrote:
Tyndmyr wrote:Other folks have already linked studies showing exactly that on this very page. Would you like those linked again?


No, there have been contradictory studies, all based on larger minimum wage increases. We are talking a 1-4% increase in real minimum wage for most years if we go with productivity as an index, around 2.2% on average.


The larger the increase, the larger, and more clear the effect. There is no disagreement at very large increases that it is extremely harmful, and we see a clear trend with size of increase corresponding to size of effect. Why should that trend NOT continue?

Normally, it's a little odd to ask for proof of every single point of the trend, and to ask that EVERY study show precisely the same thing. Global warming deniers like this sort of thing.

But in any case, evidence for a generalized trend across a variety of increases, including fairly small ones: http://econweb.tamu.edu/jmeer/Meer_West_Minimum_Wage.pdf Increased minimum wage negatively impacts growth.

Note that it specifically analyzes effects on growth over time, for those who keep bringing up the time factor as if that's unique. Note also the the mechanism for the effect is primarily on employment(I hypothesize that this is primarily due to increases being one time increases, not inflation adjusted increases, which are much more gradual. I would expect more gradual increases to have the cost reflected more in inflation instead)

And, when, precisely, have we tried getting rid of minimum wage altogether?


For a hundred and some odd years we had no minimum wage; it sucked enough that we needed a minimum wage. We also let it stagnate for periods of 10 years, and we saw no great gains in economic growth, in fact the correlation is the opposite: 50s and 60s, regular increases in minimum wages, strongest decades for growth post-WWII. 70s and 90s, fewer minimum wage increases, not keeping up with productivity, middle of the road for growth. 1980s and 2000s, decade long stretches without an increase in minimum wage, worst decades for economic growth. The conclusion is that it is likely thar either minimum wage is an overall positive, or the effects are minimal.


Oh? You have detailed economic stats on the first hundred odd years as a country? And evidence that we needed minimum wage? Look, many laws have been passed. The mere fact of their passage does not justify them as desirable. This is especially true of laws passed a great deal of time ago, and a great many terrible economic laws have been tried for at least a significant time. Gold was banned for a while, and we flirted with silver backed currency and all kinds of other things. PLENTY of economic laws have been terrible.

Also, you'll note that as per my link above, minimum wage increase have a negative correlation with growth.

CorruptUser wrote:The funny thing about poor people is that giving them money stimulates the economy more than giving it to the rich. Also they tend to give it back to the rich by buying stuff; "trickle up", if you will.


Trickle up and trickle down are both...very broad labels at best. They are sketchy summaries of the economy as a whole. Neither is intrinsicly correct.

Really, minimum wages would ideally be per industry (which is kinda impractical) and should be above the efficiency wage, between the point where the firm gets the same profit per worker and where the firm gets 0 profit per worker. If you want to grow the economy, the first. If you want to reduce inequality, the second. Healthy balance and all.


As you say, it's impractical. Cross industry jobs would be one obvious complicating factor, or the fact that a misclassification could utterly destroy a company.

Additionally, not every company in an industry makes the same profit. The higher you place it, the more companies will become unprofitable. As you trend towards unprofitability, the number of surviving companies will decrease. This has many undesirable effects, but one of immediate relevance is that the workers will have correspondingly lower bargaining power.

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Re: How should minimum wage be determined?

Postby EMTP » Thu Feb 26, 2015 9:24 pm UTC

Tyndmyr wrote:But in any case, evidence for a generalized trend across a variety of increases, including fairly small ones: http://econweb.tamu.edu/jmeer/Meer_West_Minimum_Wage.pdf Increased minimum wage negatively impacts growth.


That is an unpublished "working paper" that hasn't been peer reviewed.

It concedes that there is no evidence that minimum wages reduce employment:
Neoclassical economic theories present a clear prediction: as the price of labor increases, employers will demand less labor. However, many recent studies testing this prediction have found very small to no effects of the minimum wage on the
level of employment
(e.g. Zavodny, 2000; Dube et al., 2010; Giuliano, 2013).


They then try to hand-wave the absence of the predicted effect on employment by saying, well, maybe it reduces the rate of growth in employment.

Now, there is nothing wrong with coming up with a hypothesis to try and explain why reality is not matching up with the theory. But if you want to make use of it, I suggest you wait until it has passed peer review and been published in a high-quality journal, as the study itself acknowledges is the case with the voluminous academic literature showing little to no effect on employment.

You don't want to fall prey to "single study syndrome," which is always a temptation if you like what the study is saying. The consensus (which again, the authors of your study acknowledge) is that there is no negative effect on employment, or a miniscule one.
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Re: How should minimum wage be determined?

Postby Thesh » Thu Feb 26, 2015 9:34 pm UTC

It should also be noted that there are other policies that can be used to increase aggregate demand to compensate for any of the minor negative effects of minimum wage, such as spending on infrastructure, especially in low income areas, or increasing cash benefits/reducing taxes/increase tax credits for low income individuals. There's nothing saying you can't combine economic policies.
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Re: How should minimum wage be determined?

Postby cphite » Thu Feb 26, 2015 9:59 pm UTC

Cradarc wrote:I apologize if this topic doesn't make sense to people who don't live in the United States. In the U.S, people are pretty divided about whether or not the national minimum wage should be raised. I'm bringing this up because the U.S national minimum wage is currently at $7.25/hr, which frankly seems pretty meager. At the same time, you have cities like Seattle with a minimum wage of $15/hr, more than double the national limit.


It's important to remember that less than 5% of wage earners are at the minimum. So while $7.25/hr is definitely meager, it's not at all common. More than half are teenagers who are working for supplementary income. The point is, there really aren't that many people who are actually living off of these wages.

Giving people a lower salary for less skilled work encourages them to put in more effort to acquire skills and pursue higher level work. However, we also can't make people live on the streets just because they happen to fall at the bottom of the food chain. What do you think is a good balance?


Personally, I would eliminate the minimum wage entirely and let the market determine wage. That's already happening for 95% of wages anyway.

Then there's the issue of the single mom versus the high school student who wants some cash. Should a person's social status be considered when applying minimum wage rules?


No; a persons skills and knowledge should determine their wage. If you need more money, there are all manner of opportunities out there if you look for them and work for them.

Finally, should there be a maximum wage limit? If the minimum wage forces people to make use of all their potential, the maximum wage would stop people from getting far more credit than they deserve. (I'm assuming "wage" doesn't include stocks.)


Absolutely not. If you have something - be it skill, knowledge, talent, whatever - that someone is willing to pay you a ridiculous sum of money for, then you should be free to accept that ridiculous sum of money. Many of the greatest advancements in human history have come from people looking for ways to make themselves or something they've created marketable.

Labor is like any other commodity. It's value is determined by supply and demand. If you have some special skill or knowledge that is in high demand, you can demand a lot of money for that. Because it's worth it to the people paying you. "Deserve" has nothing to do with it.

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Re: How should minimum wage be determined?

Postby EMTP » Thu Feb 26, 2015 10:08 pm UTC

cphite wrote: More than half are teenagers who are working for supplementary income.


Not even close. 25% of minimum wage earners are teenagers. See "Characteristics of Minimum Wage Workers, 2013" from the Bureau of Labor Statistics, page 4. Of that 25%, a sizeable portion are adults, 18 & 19-year-olds, who cannot be assumed to be "working for supplementary income."

The point is, there really aren't that many people who are actually living off of these wages.


Not many. Except for the millions of people who live off these wages (3.3 million in 2013). 5% of the American workforce is a large number of people, and almost by definition they are the people with the smallest margin between themselves and utter destitution.
Last edited by EMTP on Thu Feb 26, 2015 10:23 pm UTC, edited 2 times in total.
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Re: How should minimum wage be determined?

Postby TheGrammarBolshevik » Thu Feb 26, 2015 10:10 pm UTC

EMTP wrote:
So if a law acts like a dick and robs us of liberty, why should we support it? (If your answer is, "It may hurt some people, but it will ultimately help more," then I think you are on dangerous ground.


You have just described every law, ever. As well as most actions, period. "Hurts some people and helps others" is the character of action in the fallen world we live in. If you believe your actions are free of all harm to others, you are very naive.

I think this is a strawman. Of course all laws will help some people and harm others. But I don't think mcd001 was saying that we shouldn't ever adopt a law that harms some people. Instead, they were saying that we shouldn't adopt a law just because it helps people more than it harms them. Whether this is right or not, it isn't a counterexample to point out that some laws harm people.
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