What price minimum wage?

[brendan]

Coblin have you read page 87? I like the unbiased view of the report. Presents studies to support both arguments and all that one can deduce from it is that the evidence is "ambiguous".

Please.

http://www.nber.org/papers/w12663
"we have highlighted in the tables 33 studies (or entries) that we view as providing the most credible evidence; 28 (85 percent) of these point to negative employment effects (Note that we have left out of this calculation some of our studies that use similar specifications and data to other studies we have done, and which instead explore other issues). Moreover, when researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages, the evidence for disemployment effects seems especially strong. In contrast, we see very few—if any—cases where a study provides convincing evidence of positive employment effects of minimum wages, especially among the studies that focus on broader groups for which the competitive model predicts disemployment effects."

Puts your comment into the proper context.

[Eriny]

Also, if the minimum wage is so economically terrible, why is it that every developed country I can think of has one? It can't possibly be as evil as you guys make it out to be.

So you say:
Everyone other developed country has one.
Therefore it must be good.

Lol, I don't remember saying that exactly. You're exaggerating my sentiment. Which logical fallacy was that again? Straw man? But that probably doesn't matter. I put in that sentence in order to throw into the mix that other people (many, in fact) come from a different mindset on this issue. They have their own reasons for believing what they do, their own studies, an explicit look through idustrial relations throughout the history of the world. The majority of developed nations are democratic ones so I don't think instilling the minimum wage is a "government thing" as such, it's a "people thing" and if enough people thought it inappropriate, the government would be replaced. Remembering also that there is a wealth of information - economic or otherwise - available to governemnts

Further, if something is cited from a paper (or several papers), does that make it true as well? Findings are merely findings and as costargh has pointed out, there have been conflicting findings. There really is no point in having a debate about credible sources.

This debate has been quite a challenging one, I definitely understand where you're coming from, you have certainly tested my opinion on the issue, but ultimately his has just reinforced my stance. I just hope you can hold my opinions in as high esteeem as I do yours, even if they are somewhat conflicting

[brendan]

Also, if the minimum wage is so economically terrible, why is it that every developed country I can think of has one? It can't possibly be as evil as you guys make it out to be.

So you say:
Everyone other developed country has one.
Therefore it must be good.

Lol, I don't remember saying that exactly. You're exaggerating my sentiment.

Actually you are right, the logic was more like this:
Everyone other developed country has one.
Therefore it is has no negative effect.

There really is no point in having a debate about credible sources.

yeah there is - to determine what is credible.

enough people thought it inappropriate, the government would be replaced.

It doesn't matter what people think. People could think that minimum wages create fairies. That still doesn't make it true or valid. Secondly, you do not take into account the highly imperfect political market.

I put in that sentence in order to throw into the mix that other people (many, in fact) come from a different mindset on this issue. They have their own reasons for believing what they do, their own studies, an explicit look through idustrial relations throughout the history of the world.

That might be the case, but that doesn't mean their reasons are correct or valid.

[brendan]

OECD Employment Outlook 2006 Report

Minimum wages have no clear impact on unemployment...

To study the impact of minimum wages in unemployment, the baseline model is augmented by including the ratio of gross statutory minimum wages to median wages, following the most frequent approach to literature (see eg. OECD, 1998; Elmeskov et al.; 1998). Consistent with previous OECD work using this approach no significant direct impact of the level of the minimum wage on unemployment is identified.

That is misleading. "no significant direct impact of the level of the minimum wage on unemployment is identified." - that was only the case for adults in the  study. OECD (1998) generally showed negative and statistically significant disemployment effects for teenagers, and negative but only marginally significant or insignificant effects for 20-24 year-olds. The estimated employment elasticities for teenagers range from −.07 to −.41, with the larger estimates evident in the sample that excludes Portugal and Spain. For 20-24 year-olds, the elasticities range from −.03 to −.10, with only the latter estimate statistically significant at conventional levels. The more negative the elasticity, the greater the disemployment effect.

[Collin Li]

I continue to wonder why Eriny has received 3 applauds (karma) on her posts supporting the minimum wage: all of which have been responded to. Nearly none of my posts have been responded to: why?

[costargh]

They have been responded to but we don't necessarily agree with them. Like Eriny has said, she understand where you're coming from and I do to, it's just that I don't agree with it and you haven't persuaded me to think otherwise. Eriny's post has been responded to but I don't interpret the responses as being better than her initial post, therefore I applauded her on it.

[Collin Li]

They have been responded to

Where? I am trying to highlight that the argument has been between you two and brendan, and my arguments have been largely ignored. If you choose to ignore the consequences of the logical thinking that I have displayed, then I cannot take it seriously that there is a case for the minimum wage.

[costargh]

Oh sorry I misunderstood you. Can you refer me to some of your posts?

I was making the point though that if Eriny makes a post and you respond to it and I find Eriny's post to be more compelling then I will obviously agree with her argument more than yours.

[Collin Li]

My view is that if someone has to move countries because the minimum wage is too low and as result they are living in poverty then the system has failed society.

Economics shows us that if we set a minimum price on wages, then we could reduce the amount of workers. Hence, minimum wage increases are often associated with increases in unemployment, and also an increase in inequity (the few who become employed under a minimum wage regime get paid more, while the ones who don't make the cut will earn nothing).

Should an 20 year old receive $5.15 an hour in a developed country such as America?

Wouldn't it be better if he or she could have more... but at what price?

Does it make sense to give a 20 year old a wage of $13 an hour, but possibly lose jobs for other 20 year olds? Installing a minimum wage causes employers to lay off some workers, or potential employers to hire less than they would have, since their costs will now outweigh their benefits in some cases.


But what about those who lose their jobs? Unemployment is below the poverty line as well! The market does not guarantee perfection, but the question is: can government intervention do a better job?

Wages have been going up for the past century yet our unemployment is at record lows...
A few cents doesn't determine employment. Demand for employees due to booming economies does.

Wages can go up, while unemployment stays low, no-one has said that is impossible. This is simply possible by an increase in demand for workers (as you have explained is caused by booming economies). The market will naturally do this, because a high demand for workers represents a need for more workers. In order to get more workers, employers need to pay more in order to get them.

To artificially increase wages is a different story. If the market wage is lower than the proposed minimum wage, then the government-enforced price floor will lead to cuts in employment because the government has ramped up wages beyond what the current level of demand commands. Just let the market do its thing. Government intervention costs money (the costs of enforcing), and it costs liberties - people cannot freely negotiate wage contracts.

Your response:

But the minimum wage is already so low that that is not a problem. Economic theory is a lot different to its practical implementation. At my work over the last 2 years, over 100 employees have left most citing "crap wages". Thus their is always a high demand for workers at my workplace, yet the wage that they offer has not increased (probably increased in-line with inflation). Even though we are currently 20 people underemployed we have not increased wages that we are offering.

But the minimum wage is already so low that that is not a problem.

If it is not a problem, then why can't we let the market deal with it? You would admit that it does have an effect. The effect is negative, that is my argument.

Even though we are currently 20 people underemployed we have not increased wages that we are offering.

So what? This is because your employer believes the benefits do not outweigh the costs (that is, if he offered a higher wage).

If you have one person who been in 4 jobs in the last 2 years (always changing to try and increase wages) then none of the companies are benefiting because of the constant staff chaning resulting in constant rehiring, unskilled employees (in terms of real life training) and ineffecticve and inefficient workplaces. Yet the unemployment rate may still say for both scenarios that unemployment is at 4%.

Smart companies would fix this by offering wage increases (they would do this because as time goes on, the benefits justify the costs). If they do not, it is to their own detriment. The market solves this, because smart companies will sustain profits in this way, and thus these companies will survive and thrive.

To act as a safety net.

That's the thing, you well-intentioned - I will give you that. But good intentions aren't good enough. The fact is that the minimum wage hurts the poor and most disadvantaged in our society - the very people it was intended to benefit.

This is crucial, and I was going to state this, but I forgot.

Good intentions will not save this world. Compassion and empathy are great, but it should be done voluntarily. There are perverse and unintended consequences with government intervention, regardless of their good intentions.

Your response

To act as a safety net.

That's the thing, you well-intentioned - I will give you that. But good intentions aren't good enough. The fact is that the minimum wage hurts the poor and most disadvantaged in our society - the very people it was intended to benefit.

This is crucial, and I was going to state this, but I forgot.

Good intentions will not save this world. Compassion and empathy are great, but it should be done voluntarily. There are perverse and unintended consequences with government intervention, regardless of their good intentions.

But if governments did not set a minimum wage then the public claim that they aren't doing enough to protect individuals.

So, you are arguing a point just to represent the uninformed electorate, or are you arguing this point because you believe it will do good things for us?

Defeat them (by which I mean, inform them ), don't join them.

It merely appears noble for a government official to take action. The public ought to be educated that government intervention won't solve these problems.

Then, you did this:

So, you are arguing a point just to represent the uninformed electorate, or are you arguing this point because you believe it will do good things for us?

Defeat them (by which I mean, inform them ), don't join them.

It merely appears noble for a government official to take action. The public ought to be educated that government intervention won't solve these problems.

If minimum wages were a problem to employers we would have heard uproar about them by now.

If minimum wages were a problem to employers we would have heard uproar about them by now.

Why do you assume that? Employers can still make money, they will do it by employing less, and overworking the few workers that they have. They will be able to overwork them because the minimum wage makes jobs harder to get into. The employers often aren't too fussed. The biggest losers are the potential employees, because they lose their jobs.

The employers will lose out a little bit, but if the costs (including the costs of protest, or any other form of government conversion) do not outweigh the benefits, then there will be no uproar.

Oh, and where did I say they were a problem to employers? I don't see how this was a reply to my post (senses a failed straw-man).

..to which you said:

Soz accidently quoted you and then replied to something else lol

But then if demand for work is so high that people are jumping at any opportunity to find work then who is to say that the market can't lead to a more detrimental effect on individuals (demand for work is so high that the market pushes wages so low that it is inhumane, people are working and still living below the poverty line). That is why their needs to be a minimum wage. To prevent extreme market situations such as that where society will no doubt be the loser.

But if the harm is not noticed then it could be said that that harm is so insignificant that it is worth it for the safety net provided by it.

Wrong, the harm only needs to be less in magnitude than the costs it requires to overthrow the minimum wage. Governments have a lot of authority, the costs to persuade them, avoid them, or lobby against them are high. The harm will still be noticed, but whatever party may choose not to rebel because the costs do not outweigh the benefits.


The workers who keep their jobs will win, but that is only a special interest group being protected by the government. Those who do not keep their jobs will lose, because they will go to unemployment.

If there is an extreme demand for work (large supply of workers), like in your example, then a minimum wage will only exacerbate an excess of supply (of workers). This will either cause an increase in unemployment, because employers simply do not value many of the employees as high as the minimum wage, or it will cause an increase in labour competition. This increase in competition will lead to overworking so that employees can justify their work placement to the employer. Overworking simply offsets the benefit provided by the minimum wage in the first place, and it restricts the market from flexibility (in a free market, you could choose to overwork and be paid more, or you could choose to work normally and be paid at market prices - under a minimum wage regime, overworking is the only option).

If you are suggesting that neither of these effects will happen, then you believe that the employer is exploiting the employee in more cases than none, and would happily increase wages (hence why you continue repeating this "safety net"). This is unlikely, because if wages are "undervalued", then there would be an excess demand for workers (since workers would not accept low wages), and a new employer would step in and offer a higher wage in order to capture some of the untapped labour market, while still making a profit (the profit is crucial in determining whether an employee is "undervalued" or not, not the minimum wage).

Your response:

This is unlikely, because if wages are "undervalued", then there would be an excess demand for workers (since workers would not accept low wages), and a new employer would step in and offer a higher wage in order to capture some of the untapped labour market, while still making a profit (the profit is crucial in determining whether an employee is "undervalued" or not, not the minimum wage).

But see that is where economic theory and practical implementation do not see eye to eye.
In theory that is what should happen but in practise potential employees will be looking at their kids starving and saying, I either do no work or I do some work and get paid crap wages. Economic theory sometimes seems to be so *snap your fingers and it happens* when in practise  human emotions come into play.

But then you are suggesting the above case, where market equilibrium has occurred, but instead there is the problem with an excess supply of labour. A minimum wage will not fix that, because there will be either unemployment problems, or overworking issues.

I suggest you look at brendan's rational analysis above. The so-called "safety net" will just cut people out. People won't be ensured that their wages won't decrease, but they will instead gamble with either the minimum wage, or nothing. I have explained how "bargaining" is not required because for situations where employers are offering less than the "market value" of labour, the system will self-correct:

This is unlikely, because if wages are "undervalued", then there would be an excess demand for workers (since workers would not accept low wages), and a new employer would step in and offer a higher wage in order to capture some of the untapped labour market, while still making a profit (the profit is crucial in determining whether an employee is "undervalued" or not, not the minimum wage).

If workers are accepting low wages, the benefits outweigh their costs (the forgone hours and effort put into their labour is worth the money they require). This is the market price. It might be a "cruel" fact, but unfortunately, government intervention will not do any better, because as explained above, a price floor will cut employment or cause overworking (which would be the only way to justify the higher wages they must now be paid, to the employer).

Cutting employment destroys the concept of a safety net, because unemployment is far from safe, while overworking is an option that is already available in the free-market. Government intervention simply just stops those who do not wish to overwork from becoming employed. If one is earning below the poverty line, as suggested, then they could similarly negotiate to earn higher wages by accepting overtime. Similarly, all safety nets and "fairness" laws add to the cost of employment, and ultimately reduce employment. These costs are passed onto the labourers. Government intervention does not work.

Minimum wages actually destroy "bargaining power," because it destroys the ability for workers to offer the services at a lower price. What is wrong with that?

Because if they offer it at a price too low, then they could still be living in virtual poverty. I had an example above of how being too desperate to work can mean that you have an insufficient income for a good standard of living.

But what gives the government the right to prevent them from that choice?

A minimum wage regime would force workers to differentiate themselves by offering insanely harsh work conditions, such as overtime without pay, and no bonuses as well as no unfair dismissal. What is to say that these concessions are more humane then working under the 'poverty line'?


Oh, these are just some of the posts that haven't been responded to. In the glimpses where my arguments have been paid attention, I've often had the last word, with no response afterwards.

[costargh]

I don't have time to go through all of that right now because I have to get ready for work but I'll try later. Ill do two of them now.

My view is that if someone has to move countries because the minimum wage is too low and as result they are living in poverty then the system has failed society.

Economics shows us that if we set a minimum price on wages, then we could reduce the amount of workers. Hence, minimum wage increases are often associated with increases in unemployment, and also an increase in inequity (the few who become employed under a minimum wage regime get paid more, while the ones who don't make the cut will earn nothing).

Should an 20 year old receive $5.15 an hour in a developed country such as America?

Wouldn't it be better if he or she could have more... but at what price?

Does it make sense to give a 20 year old a wage of $13 an hour, but possibly lose jobs for other 20 year olds? Installing a minimum wage causes employers to lay off some workers, or potential employers to hire less than they would have, since their costs will now outweigh their benefits in some cases.

To post 1.
As I have shown, various studies have shown conflicting findings relating to minimum wages and unemployment. The findings are ambiguous, hence I have now responded (and had previously responded through other posts).

To post 2.
I have never mentioned what I think I the minimum wage should be at. I just said there should be one. To me it would not make sense for someone to be working for $1 an hour because their is no minimum wage. The point is that if you don't have a minimum wage employed people as well as unemployed people are going to be living in poverty, not just the unemployed (which Brendan and possibly you (cant remember) say is less without a minimum wage).

Findings on this are conflicting resulting in ambiguity, therefore I can not just presume that the link Brendan has provided should be taken as gospel and the links I have found are not. I will not claim that the links I have found are gospel, but merely say that their is ambiguity woven throughout the findings of various research.

[Collin Li]

The findings are ambiguous

I disagree. I favour brendan's research, which compiles around 90 sources, and also mentions a significant decrease in employment in the low-wage sector: so it hurts exactly who is intended to benefit. Your source, as pointed out in previous posts, uses cross-country studies that encounter difficulties in comparison due to differences in labour policy (other than the minimum wage).

Regardless of the empirical findings, let me show you how I have criticised the idea of the minimum wage:

A minimum wage regime would force workers to differentiate themselves by offering insanely harsh work conditions, such as overtime without pay, and no bonuses as well as no unfair dismissal. What is to say that these concessions are more humane then working under the 'poverty line'?

These concessions would be necessary, to offset the higher wage they are now getting. If we assume the same level of low-wage worker supply (no reason why it would change, all the unskilled workers would still be here before minimum wage, and after), then there will be a fiercer competition for jobs. Now that the worker cannot bargain with his wage (cannot offer a lower wage), he or she must compensate for his lack of skills by having other desirable qualities, such as previous experience, and/or working overtime.

My point is: there is an ugly side to the minimum wage that does not show up in the statistics. Even if more wages are being paid out by employers (questionable), it still comes at the price of those who are at the lower end.

[Eriny]

Minimum wages actually destroy "bargaining power," because it destroys the ability for workers to offer the services at a lower price. What is wrong with that?

Because if they offer it at a price too low, then they could still be living in virtual poverty. I had an example above of how being too desperate to work can mean that you have an insufficient income for a good standard of living.

But what gives the government the right to prevent them from that choice?

A minimum wage regime would force workers to differentiate themselves by offering insanely harsh work conditions, such as overtime without pay, and no bonuses as well as no unfair dismissal. What is to say that these concessions are more humane then working under the 'poverty line'?

I responded to that

Well, that's why there are laws that govern under what conditions a person will be employed.

And in that I was referring to health and safety laws, unfair dismissal laws, etc. Unfair working conditions do not spring up as a result of the minimum wage being implemented. People may work harder, but they won't be subjected to slavery. The idea is somewhat absurd.

And brendan, I don't think I would argue that "just because all these contries have it, it means that the minimum wage isn't 'wrong'", I'm saying that there are clearly educated people around the world who see virtue in the minimum wage. If you've noticed, I never argued that the minimum wage is "right" or "wrong", I don't have access to ultimate truths - I'm inclined to say that there is no such thing as one definitive "right" or "wrong" for all people to discover. What I have been arguing is that I believe the minimum wage to be right from what I value, and it makes sense to me.

[brendan]

I'm saying that there are clearly educated people around the world who see virtue in the minimum wage.

So what? Even assuming that what you said is true - that doesn't prove the point that the minimum wage actually does have virtue, and it achieves the things that you claim.

They have been responded to but we don't necessarily agree with them. Like Eriny has said, she understand where you're coming from and I do to, it's just that I don't agree with it and you haven't persuaded me to think otherwise. Eriny's post has been responded to but I don't interpret the responses as being better than her initial post, therefore I applauded her on it.

Well you don't have to agree with the hard evidence. No one is forcing you to accept the truth.

[Collin Li]

And in that I was referring to health and safety laws, unfair dismissal laws, etc. Unfair working conditions do not spring up as a result of the minimum wage being implemented. People may work harder, but they won't be subjected to slavery. The idea is somewhat absurd.

That is unfair. Even in a world where minimum wage causes no losses to welfare, there will still be competition in the low-wage sector (as a worker). They won't be able to distinguish themselves by offering a lower wage, they won't be able to choose to overwork so this is how they will be judged:

* previous experience: this damages entry-level opportunities, and clearly protects those who have experience, and neglect new entrants to the low-wage workforce (i.e.: dropouts, which is a compounded concern with brendan's study that suggests the minimum wage increases dropout rate).

* other trivial factors: good looks, racial discrimination, etc.
The free market usually rewards those who place these predispositions aside, but since there is no reward for people who work harder, or people who agree to a more competitive wage (because it is outlawed), then employers will pick out of prejudice. To block any form of "bargaining power" for the low-wage workers means that employers will have little choice, and will choose from their trivial predispositions instead. Instead of meriting hard work, it merits the roll of a die: this is analogous to how some schools use a lottery system to pick kids, rather than an entrance exam - an ethically questionable idea.

And this is all assuming there are no welfare losses due to the minimum wage. It is actually likely that the number of employed people will actually drop down, as suggested by the compilation of 90 studies (see brendan's link).

[Eriny]

I'm saying that there are clearly educated people around the world who see virtue in the minimum wage.

So what? Even assuming that what you said is true - that doesn't prove the point that the minimum wage actually does have virtue, and it achieves the things that you claim. 

No, it doesn't. But there's nothing you've said that has definitively proven to me that no minimum wage is "correct" either.

Coblin, it's not as though those factors wouldn't come into play if there were no minimum wage either. Granted, you have a good point, however, it's a better alternative than having people work 8 hours a day and still not have enough money to get out of poverty. At least welfare and retraining schemes can still make individuals differentiate themselves so that they can find employment, perhaps even above the minimum wage if they are willing to. That's why I think a "safety-net" is multi-faceted.

Also, I think it's misleading to say that you've had the last say on every point. Often it's just a case that the argument has already been said, and therefore disputing your rebuttal would just be moving around in circles and repeating what's already said. And I think in a few instances, I've had "the last say" on a few points myself. It happens quite often on forums where there are several trains of thought going at the same time.