How the Minimum Wage hurts those that it "helps"

[shanek]

In several threads, people have defended the Minimum Wage as being necessary to make those evil, greedy corporations stop "exploiting" low income workers and give them decent wages.

But that just isn't what happens. In fact, the minimum wage condemns many of them to unemployment.

When we talk about the "job market," that’s exactly what it is—a market. The workers are the supply and control that side of the equation. More workers are willing to get a job if it pays higher wages. Employers provide the demand, and they’re more willing to hire workers at lower wages just as we’re more willing to buy an item at a lower price. As with the rest of the free market, the equilibrium point is the wage at which the number of people who want the job at that wage equals the number of jobs employers are willing to provide at that wage, and the market, if left alone, will automatically settle on this number.

The minimum wage, however, pushes the wage of lower skilled jobs above this equilibrium point. When that happens, more workers are demanding those jobs but fewer jobs are being supplied—and the inevitable result is unemployment.

This is not just theoretical economics—it's a very real effect. Economists David Neumark and William Wascher did a study of New Jersey payroll records (PDF) before and after a minimum wage increase, and found that the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group.

What’s more, the ones who are hired are usually new applicants who can demand the wage. In a study by Boston University professor Kevin Lang (PDF file), it was concluded: "When the minimum wage is set above the level that would be offered by low-wage firms in the absence of legislation, low-wage jobs become attractive to some high-quality workers... The competition from higher quality workers makes low-skill workers worse off."

Not only that, but most of these are people who are trying to get off the government dole, according to Prof. Peter Brandon of the University of Wisconsin, who in his study found that, "Research proves that higher mandated wages reduce employment opportunities for the least skilled. This effect is magnified for the welfare population, with studies showing higher minimum wages (1) lead to longer spells on welfare and (2) cause shifts in the profile of “who gets hired,” leading employers to favor higher-skilled applicants at the expense of low-skilled adults."

Unskilled jobs don’t pay poorly because bosses are mean, but because that’s what the market will bear. Economists everywhere have concluded that minimum wage laws hurt those they’re supposed to help. As always, govenrnment only makes it worse.

 

[Malachi151]

more stupidity

 

[no one in particular]

more stupidity

That is hilarious Malachi, in the past I have considered removing the “content” of your posts and inserting the above in its place. This time, I did not have to do so.

 

[shanek]

more stupidity

Uh-huh. Sound economics with links to three entire studies is "more stupidity."

Your complete inability to refute the above points has been noted.

 

[gnome]

I would consider any job that could not pay enough to allow the person to survive on that job, a market failure.

If it's not worth enough to pay a survival wage, why is it worth a full working day of a person's time?

yes, there will be fewer slave wage jobs available and this will drive up unemployment figures. Instead of slowly starving, the workers that would have those jobs qualify for assistance.

What would your solution be instead? Or how would it work out so that there's not a problem?

 

[Ion]

I second this:

I would consider any job that could not pay enough to allow the person to survive on that job, a market failure.

If it's not worth enough to pay a survival wage, why is it worth a full working day of a person's time?

yes, there will be fewer slave wage jobs available and this will drive up unemployment figures. Instead of slowly starving, the workers that would have those jobs qualify for assistance.

What would your solution be instead? Or how would it work out so that there's not a problem?

The opening post demonstrates to me sheer stupidity, especially considering the obscene profits that a few make.

As for why I take the side of defending the minimum wage, I say it is not because I use it, I have an advanced Engineering degree that gives me employment accordingly, but I like to see people around me who can afford going to the dentist, for example.

 

[shanek]

I would consider any job that could not pay enough to allow the person to survive on that job, a market failure.

Why? Isn't it better than them not working at all? And isn't it good for them to develop a work history and experience so that later on they can get a better-paying job?

If it's not worth enough to pay a survival wage, why is it worth a full working day of a person's time?

Surely that's up to the person. A day of your time is worth whatever you think it is, and whatever you can successfully demand of others.

Even $10 an hour is not worth a full working day of my time. That doesn't mean that we should get rid of all jobs at that level and below.

yes, there will be fewer slave wage jobs available and this will drive up unemployment figures.

And that's a good thing?

Instead of slowly starving,

No one is starving in this country. Not even the unemployed. And it's not due to anything the government has done, but to the wealth the market has created for everyone.

I mean, for crying out loud—you see HOMELESS PEOPLE in the parks feeding the pigeons!

the workers that would have those jobs qualify for assistance.

Which still doesn't pay them that much, ultimately keeps them out of work longer, and doesn't do anything to build up their work experience and job history.

What would your solution be instead? Or how would it work out so that there's not a problem?

With people working these lower wages, they would gain experience and a work history that would allow them to later on get better jobs. It's not a permanent situation; it's an entry (or sometimes re-entry) into the job market. And it's an entry that the government is barring.

 

[shanek]

The opening post demonstrates to me sheer stupidity,

Why?

Is no one going to refute the DATA in the STUDIES?

especially considering the obscene profits that a few make.

Corporations simply do not take profits at the expense of employee wages. They want to attract the best workers possible without paying too much for them. Just as it doesn't work to overcharge for products, it doesn't work to underpay for workers. They can't just take the money. They have to pay what both the company and the workers agree the job is worth.

As for why I take the side of defending the minimum wage, I say it is not because I use it, I have an advanced Engineering degree that gives me employment accordingly, but I like to see people around me who can afford going to the dentist, for example.

Then you should hate the Minimum Wage, since as I showed that's actually preventing people from doing that.

 

[Ion]

...
With people working these lower wages, they would gain experience and a work history that would allow them to later on get better jobs. It's not a permanent situation; it's an entry (or sometimes re-entry) into the job market. And it's an entry that the government is barring.

Why later?

Make the minimum wage jobs, OK jobs, right now.

You don't know about later, so don't dream about later, but make the minimum wage job giving enough earning to live on, right now.

 

[WildCat]

If it's not worth enough to pay a survival wage, why is it worth a full working day of a person's time?

Because the majority of min. wage jobs are taken by 16 and 17 yo kids looking for spending $, not survival.
And gnome, here's a question for you: If a $7 min. wage is good, why not $15? Or $20? What the hell, just make the min. $50 and then everyone will be rich, won't they?
And, even burger flippers can be replaced by a machine.
The gov't cannot fix the price of labor any more than they can fix the price of gasoline, cell phones, or any other commodity.

 

[Ion]

...
Corporations simply do not take profits at the expense of employee wages.
...

That's exactly what they do.

In 1998, I developed software for the 56k modem for 3Com, I was laid off, and 3Com is making profits "...at the expense..." of my wage by inserting the 56k modem in any computer sold worldwide as we speak now in 2003.

 

[Malachi151]

The minimum wage, however, pushes the wage of lower skilled jobs above this equilibrium point.

What equilibrium point? That's just a vague idea that you can't define.

The whole minimum wage issue is such a load of crap, in fact a number of other longer term studies in larger areas have shown exactly the opposite, because in the long term what happens is that large numbers of workers end up in jobs that pay for little that they can barely afford to live, and thus they hardly participate in the economy. When minimum wages are implimented the wages go up and more people can afford to do more then just pay for a bed and cheap food and that's when progress really starts to happen because it helps create more demand.

Secondly employment in America is heavily controlled by the Federal Reserve and its control of the money supply. The Fed aims to maintain an unemployemnt rate of around 5% to 6%, so THAT is what is really controlling unemployment, the Fed, not minimum wages. As minimum wages have gone down over the past 20 years unemployment has stayed generally the same at around 5% to 6% even while the minimum wage has gone down when adjusted for inflation.

Unemplyment was hitting 4% and even 3% briefly in 1999, to which the Fed responded with increasing interest rates to try and increase unemployment. Now, my argument at the time was that this was stupid as hell, and what SHOUDL have been done is that the MINIMUM WAGE should have been increased instead.

Effectively the Fed was saying that in order to keep more people unemployed to keep the economy "under control" (which is a whole crock in and of itself) they decided to increase interest rates, which was a good thing for investors, which the desired result would be to increase unemployment, in order to stave off the "threat" of inflation, which bascially means the threat that employeers would start having to pay more to workers and reducing profits.

If you look at job creation vs unemployment you see that under Cater only a couple million jobs were created, and unemployment was about 5.5%, under Reagan about 17 million jobs were created and guess what, unemployment was about 5.5%.

Job creating and the number of people being employed does not translate into unemplyment figured. You can create a billion new jobs and still have unemployment. You can lose jobs and reduce unemployment. What we saw with Reagan was that as jobs were created, there was also an increased demand by citizens to work because wages were low and supply of goods was high so more people needed to work, the need to work rose faster than the creation of jobs, even though job creation was high, which is because wages were low so more people had to work two or more jobs and more families had to transition from single worker to two or three worker.

So, not having a higher minium wage certianly didn't help all those people.

And the argument that minimum wages are bad for unskilled workers on the ground that then more skilled workers move from skilled labor jobs to unskilled labor jobs is asinine. Who then takes those skilled labor jobs? Duh, prices would go up there and keeping the skilled workers attracted to those positions, however there is some truth in that now those jobs are shipped over seas. This is not a problem of minum wages though, its a probelm of free trade and out sourcing labor.

If companies didn't ship those jobs over seas then there would not be a problem.

Mostly what minimum wages do is increase demand in the economy by making it so that more people have enough money to do more in the economy and that increased demand fuels the creation of even more jobs, and it makes sure that every jobs pays enough money to support a decent life.

The minimum wage now should be about $8.00 an hour. Its hard to discuss how wages effect economies in the cases of small states where people and busineses can easily and freely move from state to state. In that case an emplyer may decide to move from one state to the next just to save money on labor costs, but the real problem is not that one state raised the minimum wage, its that the other states did not, so jobs may shift location, in what becomes a wage labor bidding war, bidding down, down, down.

That's the whole issue with all of this. We are in a global economy, where the fact that wages are kept low in China can create unemployment in America. The issue is not one of the totla economy, its not that jobs are lost, its that they are moved. The only way to fix this is through global wage controls and global economy planning, again, back to the global Socialist Revolution. The fact is that all minimum wgaes around the world need to be raised. We have to stop these wage labor price wars, where the only people who benefit are the capitalsits and the majority is just constantly hurt by waves of unemployment and even reducing shares of the economy.

 

[Ion]

False:

Because the majority of min. wage jobs are taken by 16 and 17 yo kids looking for spending $, not survival.
...

When going to McDonald's, I see more than 50% of their employees being older and surviving on minimum wage.

...
And gnome, here's a question for you: If a $7 min. wage is good, why not $15? Or $20? What the hell, just make the min. $50 and then everyone will be rich, won't they?
...

You got the right idea.

Now, support it.

 

[Malachi151]

And, even burger flippers can be replaced by a machine.

As they should be. We should be automating everything and impliment a national investment system whereby eveyrone in the country is given an account that is maintianed by the government, which invests in all of the American companies. Right now only the very wealthy make money from investing, everyone should be making money from investing, the problem is that it take smoney to get into the system. Its a ponzi scheme.

 

[shanek]

Why later?

Make the minimum wage jobs, OK jobs, right now.

But they can't! They can't demand the price, so the jobs are just given to those that can!

 

[shanek]

That's exactly what they do.

Evidence?

In 1998, I developed software in the 56k modem for 3Com, I was laid off, and 3Com is making profits "...at the expense..." of my wage by inserting the 56k modem in any computer sold worldwide as we speak now in 2003.

Did you not get paid for developing the software? So how are they getting rich at your expense? You got paid for it, didn't you? You agreed to that salary, didn't you?

 

[CFLarsen]

shanek,

You should read more history.

You should also get out more. Or rather: Get out, period. You have lived in your fantasy world for far too long.

 

[Ion]

...
Did you not get paid for developing the software? So how are they getting rich at your expense? You got paid for it, didn't you? You agreed to that salary, didn't you?

The point is that 3Com makes profit off my work.

Sharing more or less of this profit with me, that's up to 3Com.

I don't have the lawyers to fight 3Com for profit sharing.

At McDonald's employees don't have lawyers to fight for profit sharing, either.

The point remains that obscene profits that are not shared, are all over.

Sharing in the profits, from minimum wage up to me and higher than me, that would be just.

 

[Nitpick]

Ok, let us go back to 19th-Century Capitalism and then let our (grand)children deal with the next big wave of communist(oid) movements...
Why learn from history anyway? We seem not to have enough fantasy to afford a new set of mistakes for every new generation.

 

[The Mad Linguist]

If you don't mandate a minimum wage, then the government has to cover the difference between what the employer is paying and a living wage. Otherwise, starvation results (IN THEORY, I don't know what the situation is in America). That's your tax money paying the employer's wage bill.

Capitalists like having a relatively large pool of unemployment because it makes it a buyer's market for employment. This gives them leverage over their employees - it's harder for someone to threaten to withdraw their labour if there are three million others who'd take on that job. Similarly capitalists dislikes unions because unions are, essentially, price-fixing cartels in the labour market.

Shanek, you're right that if left to itself, the market would settle on a "correct" price for labour. That's not what a minimum wage is for. A minimum wage is for making sure that the market cannot pay a person less than what is judged commensurate with human dignity. This has nothing to do with economics and everything to do with ethics. The "correct" price for labour may be degradingly low, if unemployment is high enough.