Living Wages and Moribund Arguments

Julian Sanchez | January 16, 2006

Café Hayek has a great series of posts—one, two, and three—on this week's New York Times Magazine cover story about "living wages." The final post makes the point that first struck me when I saw the piece: It was accompanied by a series of photos of low-wage workers, captions detailing their prior and new wages and their plans for the "extra" money, on the blithe assumption that employers facing higher labor costs won't either lay off workers or, as likely, roll back hours to the point where total payroll isn't appreciably higher than before. That's not to say there won't be net gains for some or even most workers, but calculating a new per-worker income by multiplying the old hours by the new wages seems crude and silly.

Comments

|1.16.06 @ 6:35PM|#

... this week's New York Times...seems crude and silly.

Like they said on Hayek: "Jon Gertner's cover article in today's New York Times Magazine offers no surprises. It's as predictable as what you'll read here."

|1.16.06 @ 6:53PM|#

This shows the difficulty in a debate between people with a basic understanding of economics and people without the same. Until enough people realize that there is nothing that the government can do to change the amount of money in the system (inflation doesn't increase the amount of money, for example, but only devalues each increment of money in circulation) people will look to government to "fix" these "problems".

Just taking the case of Manuela, the "assistant hotel housekeeper", great, she got her raise from $7.50 to $9.50. I assume every other hotel in Sante Fe had to raise their wages the same. So, when tourists and conventioneers decide to travel to Phoenix, or Houston, or Denver, in order to save on hotel expenses, and hotels in Sante Fe start closing down due to lack of business, how are they better off?

|1.16.06 @ 7:07PM|#

You know, it strikes me that libertarian arguments against government interventions that might help the poor are always welcomed by the ruling party, and frequently acted upon.

Then there are those libertarian arguments against shoveling subsidies and tax breaks at the rich. They are roundly ignored by the ruling party, and never acted on. Quite the opposite.

I wonder if this upsets libertarians, or if a little libertarianism is seen as better than none. "A little libertarianism," in this case, being indistinguishable from corporatism.

I ask honestly.

|1.16.06 @ 7:08PM|#

I wonder if Manuela, with her new wages, will be working the same # of hours. As long as firing people or cutting back their hours is still legal (as it should be, obviously), then the only thing minimum wage laws do is shift money from the very unfortunate to the slightly less unfortunate. Yipee.

|1.16.06 @ 7:14PM|#

An economics professor of mine said it best: A bunch of people will get somewhat higher wages, but a bunch of other people will get no wages at all when they lose their jobs.

Sometimes I think that passing Econ 101 with a grade of C+ or better (easy in these days of grade inflation) should be a prerequisite for voting. Yeah, I know, probably not fair. But so tempting. Especially when I start thinking about farm subsidies and drug prohibition. And the idiotic students in Santa Barbara, who would say that rents should be lower and developers shouldn't be allowed to, well, develop.

Come to think of it, many of them probably took Econ 101.

OK, never mind.

|1.16.06 @ 7:14PM|#

Realish, your comments are based on the premise that increasing minimum wage is a good thing for the poor. History and an understanding of economics both disprove this.

|1.16.06 @ 7:15PM|#

"I wonder if this upsets libertarians, or if a little libertarianism is seen as better than none. "A little libertarianism," in this case, being indistinguishable from corporatism.

I ask honestly."

First off, I'm not so sure I agree that government programs that are meant to help the poor are cut as much as you seem to infer.

Secondly, insofar as your assertion IS true, it's plainly absurd to place blame on libertarianism for the fact that the rich powermongers only heed half their advice. It's nothing like "corporatism". It's incidental, at best, and there is no causal relationship that can be traced back to anything libertarianism offers. If you're suggesting we should be worried about how it "looks", no---certainly not, given how much libertarians publicly and loudly speak out against corporate welfare.

Life isn't always based solely on the results at the end of the day.

|1.16.06 @ 7:36PM|#

As I understand it, Realish's question amounts to: "So, libertarians like to hurt the poor, and they like to hurt big corporations--but really, in the interest of fairness, shouldn't you prefer to hurt neither if you can't hurt both?" And I know it seems inconceivable, but that's really not how we think about it.

|1.16.06 @ 7:41PM|#

realish-

I agree with kidcarnivore. You picked a bad example.

But, I will say that I prioritize issues in a more left wing manner. I'm all in favor of tax cuts for anybody, but taxes on food and medicine bother me more than other taxes. (And yes, I realize that many states levy lower sales taxes on these items.) I'm against all sorts of regulations, but protectionism bothers me more in particular because of impacts on consumers. Ditto for regulations that drive up rents. I place a very high priority on drug reform, because of the crime and civil liberties violations inherent in the drug war. And although I love all 10 amendments in the Bill of Rights, and although I own a gun, the Second Amendment isn't the most important of the 10 in my eyes. (It's important, but it isn't the most important.)

So yeah, I definitely prioritize issues in a rather lefty manner.

|1.16.06 @ 7:57PM|#

Just a reminder: Acorn is an organization that produced one of the all-time best examples of hypocrisy when they filed suit to have themselves exempted from the very minimum wage laws they were fighting to increase.

|1.16.06 @ 8:21PM|#

From page 3 of the article (emphasis mine):

In simplest terms, most economists accepted that when government forces businesses to pay higher wages, businesses, in turn ,hire fewer employees. It is a powerful argument against the minimum wage, since it suggests that private businesses as a group, along with teenagers and low-wage employees, will be penalized by a mandatory raise.

The tenor of this debate began to change in the mid-1990's following some work done by two Princeton economists, David Card (now at the University of California at Berkeley) and Alan B. Krueger. In 1992, New Jersey increased the state minimum wage to $5.05 an hour (applicable to both the public and private sectors), which gave the two young professors an opportunity to study the comparative effects of that raise on fast-food restaurants and low-wage employment in New Jersey and Pennsylvania, where the minimum wage remained at the federal level of $4.25 an hour. Card and Krueger agreed that the hypothesis that a rise in wages would destroy jobs was "one of the clearest and most widely appreciated in the field of economics." Both told me they believed, at the start, that their work would reinforce that hypothesis. But in 1995, and again in 2000, the two academics effectively shredded the conventional wisdom. Their data demonstrated that a modest increase in wages did not appear to cause any significant harm to employment; in some cases, a rise in the minimum wage even resulted in a slight increase in employment.

|1.16.06 @ 8:25PM|#

I do love the faith ya'll have in your facts.

I do not think, however, it is a given that a minimum wage law will decrease the number of workers in any particular situation (even if it will in some hypothetical ones). In some instances (like the Santa Fe tourist industry) there is only a small impact on the outrageous profits many of the companies are pulling in. When your (low) costs are way out of line with your (high) profits, you can eat a minimum wage law without blinking.

Econ 101 may not give the most comprehensive explanations of economic theory. AND it is important to remember that economics is one of the softest of soft sciences despite all the numbers and advanced math. If it were easy to predict economic outcomes, then all statistics majors would be gazillionaires.

|1.16.06 @ 8:26PM|#

Thanks Jennifer, for reinforcement while I was posting.

|1.16.06 @ 8:27PM|#

First, I'm a real living breathing economist and I know that demand for labor slopes downward, so I am willing to stipulate that higher minimum wages can reduce employment among the low-skilled.

That doesn't necessarily make minimum wages bad for poor people, however. For instance, if demand for low-skill labor is inelastic, then higher minimum wage can increase the total wages for low-skill workers, because the size of the wage increase outweighs the size of the employment decrease.

In addition, if the employment decrease takes place in hours worked and not in terms of laying people off, then the minimum wage can be very good for its recipients. Let's say Manuela gets a 25% boost in her hourly wage but works only 10% less. (This would equate to a labor elasticity of demand of -0.4, which isn't far off actual estimated labor demand elasticities.) Now, she still makes 15% more money, and she works 10% fewer hours.

There might still be lots of great reasons to oppose minimum wages. For one thing, a significant percentage of minimum wage workers are not from poor hourseholds (teenagers), and it may be a disproportionate burden on small businesses that are good for low-income areas.

But the fact that the minimum wage causes disemployment effects doesn't in and of itself make the minimum wage bad for poor people.

|1.16.06 @ 8:29PM|#

And of course, even if the amount of money in the system did increase due to wage hikes, prices for goods and services would also go up. An increase in the supply of money lowers the "price" merchants "pay" for that money, i.e. the amount of goods the same amount of money will buy.

Which is why minimum wage hikes don't really seem to affect unemployment rates much; businesses can get away with raising their prices to account for it, because their customers have more money to spend.

|1.16.06 @ 8:36PM|#

And of course, even if the amount of money in the system did increase due to wage hikes, prices for goods and services would also go up.

By how much? Are there any studies? The conventional wisdom that higher wages equals lower employment didn't stand up to scrutiny; I'm wondering if this conventional wisdom falls into the same category.

Mike Laursen|1.16.06 @ 8:36PM|#

Ditto what thoreau said.

|1.16.06 @ 8:43PM|#

I've seen the study that Jennifer referenced many times, and I confess upfront to never having read the entire thing. But when a study comes to a conclusion that violates a basic law of economics (that being a price increase causing a lower quantity demanded, ceteris paribus) I have to question the methodology and findings.

Is there any good or service that an increase in price causes an increase in quantity demanded (called a "Giffen Good" if I remember correctly)? I can't think of any. Perhaps employers didn't fire employees for modest increases in the minimum wage, but perhaps they do cut costs in other ways that are harder to detect, or delay the hiring of new employees in the future.

|1.16.06 @ 8:44PM|#

Jennifer,

I don't know if there are any studies on that particular question. But I'm highly skeptical of any method that purports to, by government fiat, raise wages while holding prices and unemployment steady.

|1.16.06 @ 8:48PM|#

But when a study comes to a conclusion that violates a basic law of economics (that being a price increase causing a lower quantity demanded, ceteris paribus) I have to question the methodology and findings.

For starters, your argument assumes that a lot of minimum-wage workers are superfluous; that, for example, the restaurant down the street would do just fine with three workers rather than five, and so raising the minimum wage will result in those two extra workers being fired.

I worked at a minimum-wage job in high school; considering the number of workers on any shift, and the number of nasty fast-food items sold in each shift, even if you assume that the restaurant was barely making ends meet and an extra two dollars an hour per employee would have hurt them, prices would only have to go up about one percent to make up the difference.

|1.16.06 @ 8:49PM|#

Thoreau said: "And although I love all 10 amendments in the Bill of Rights, and although I own a gun, the Second Amendment isn't the most important of the 10 in my eyes. (It's important, but it isn't the most important.)"

To me, it's kind of like having a straight in poker. Lose any particular card, the whole hand goes in the toilet. Therefore, you can't really pick a "most" important, because it's the group as a whole and requires each individually.

Then again, when you get the editorials as in the Wash Post today, and happen to think the 2nd says what it says, and that a whole group of people completely submerged in self indulgent power trips read the rag, sometimes makes you shake your head about the 1st.

|1.16.06 @ 8:52PM|#

"The conventional wisdom that higher wages equals lower employment didn't stand up to scrutiny"

So then what if the government mandated 25 or 50 dollar and hour minimum wages. Do you think that'd be a good idea? I'm pretty sure the effects would be easy to spot for drastic increases.

All said, however, compared to the myriad other terrible things the government does, the minimum wage is definately not first on my list of things to complain about.

|1.16.06 @ 8:55PM|#

So then what if the government mandated 25 or 50 dollar and hour minimum wages. Do you think that'd be a good idea?

Of course not, but nobody is advocating anything so extreme. That argument comes up every time hard-core libertarians discuss the minimum wage, and it's always struck me as the equivalent of the anti-death-penalty argument "If we let the government execute murderers, what's to stop them from executing jaywalkers, too?"

|1.16.06 @ 8:56PM|#

Jennifer,

Just read the study -- there's no mention of the minimum wage increase's effect on prices. As you seem to have realize, that's the man behind the curtain.

Also,

Some idea of the empirical problems of this debate can be seen by looking at recent trends in the United States. The minimum wage fell about 29% in real terms between 1979 and 2003. Yet real wages have risen in the free market anyway, with real hourly earnings up by 7 percent since 1997 (the last time the minimum wage was increased).

http://en.wikipedia.org/wiki/Minimum_wage#Theoretical_arguments

|1.16.06 @ 8:57PM|#

even if you assume that the restaurant was barely making ends meet and an extra two dollars an hour per employee would have hurt them, prices would only have to go up about one percent to make up the difference.

Perhaps twice that when you take into account labor acceleration due to health ins, workers comp, soc sec, etc. In my experience, the "minimum wage" as such is pretty rarely applied (construction is my 'field'), most of the time of late one can't even find someone willing to do simple nonskilled labor for under $10-$12 in my area. Construction labor is the bane of people who have no other place to get a job, mind you. Even Davis Bacon scales for government work is understated dramatically for the most part, which is one of the poster children of organized labor. While it may not hurt significantly, my $0.02 is that "living wage" legislation appears to be unnecessary at best, and prevents the natural downside elasticity for the job market to act like, well, the job market.

|1.16.06 @ 8:57PM|#

"But when a study comes to a conclusion that violates a basic law of economics (that being a price increase causing a lower quantity demanded, ceteris paribus) I have to question the methodology and findings."

Something that can only be done by looking at the methods. See Keith's post above for a more subtle look at the economics that might be involved here.

"Is there any good or service that an increase in price causes an increase in quantity demanded"

Just an off the cuff response to that, but status of a product can be indicated by its price so, fur instance, more expensive basketball shoes became more in demand in the 90's despite a decreased production cost and increased sticker price.

I do think that is unrelated to the basic arguments here, however.

|1.16.06 @ 9:02PM|#

Crimethink--

There's no mention of prices either way, so you automatically assume they went up? Personally, I doubt it--this was the part of the state where it would be very easy for consumers to go to another state if they wanted lower prices, should that turn out to be necessary.

Yet real wages have risen in the free market anyway, with real hourly earnings up by 7 percent since 1997 (the last time the minimum wage was increased).

Was that the average wage, or the median wage, or the mean wage, or what? Considering how high wages have risen for CEOs and similar people, that alone could account for a good chunk of an "average" increase in wages; I've seen just as many statistics arguing that (for familes, not individuals) average inflation-adjusted wages have dropped these past few years.

I live in Connecticut, which has the highest average wage in the nation, but that's because a huge number of millionaires and multimilionaires here. Get rid of them, and suddenly the state's not so rich anymore.

I'm not saying this is definitely the case either way, mind you; I'm just saying it is something to consider.

|1.16.06 @ 9:02PM|#

I think the "no minimum wage" argument gets muddled up by the welfare state, not because it is wrong.

Unless he/she is healthy and without dependents, a minimum wage worker is not self-supporting. But when an employer hires someone at less than the cost it takes for that employee to be self-supporting, the cost of school for the kids and medical expenses is subsidized by other taxpayers. All raising the minimum wage does, to a point, is transfer some of the costs from the taxpayers over to the employer and his customers.
It has no net effect on the economy.

|1.16.06 @ 9:08PM|#

Just an off the cuff response to that, but status of a product can be indicated by its price so, fur instance, more expensive basketball shoes became more in demand in the 90's despite a decreased production cost and increased sticker price.

That effect applies to a number of things, where "perceived value" overrides the typical supply/demand expectation. Basically, it's good marketing, causing people to believe some intrinsic value is added simply because someone in the NBA wears a shoe with the same logo. Don't think it has any bearing on pricing based on cost increases.

|1.16.06 @ 9:09PM|#

Jennifer,

You're asking me to consider that money magically appeared from nowhere. TANSTAAFL. The money to pay for minimum wage increases must come from somewhere, be it labor savings from laying off the window washer, raising prices, or accepting reduced profits (ha!).

|1.16.06 @ 9:13PM|#

TANSTAAFL.

What?

|1.16.06 @ 9:15PM|#

There
Ain't
No
Such
Thing
As
A
Free
Lunch

|1.16.06 @ 9:17PM|#

Especially
When
The
People
Making
Your
Lunch
Just
Got
A
Minimum
Wage
Increase!

|1.16.06 @ 9:17PM|#

ITEL,MWCMTOL,AIYOUTFLOAWTACNWKWTHYATA.

(In the English language, most words contain more than one letter, and if you only use the first letters of a word there's a chance nobody will know what the hell you are talking about.)

|1.16.06 @ 9:17PM|#

There is a Western Bagel near where I live that employs several minimum wage workers ( or I suppose they're paid minimum wage or there abouts ). It is often the case there that the customer line backs up because there is a line among the workers to get to the two bagel cutters they have. I walk out when that happens and I've noticed I'm not the only one.

The store manager might be an idiot, but IF he really had to pay the full cost of his employee's benifits and took a look at this gross ineffiency, I'm guessing that it might occur to him, sooner of later, to purchase another bagel cutter.

|1.16.06 @ 9:18PM|#

"....it's always struck me as the equivalent of the anti-death-penalty argument "If we let the government execute murderers, what's to stop them from executing jaywalkers, too?"

That doesn't strike me as an apt analogy at all Jennifer.


"Just an off the cuff response to that, but status of a product can be indicated by its price so, fur instance, more expensive basketball shoes became more in demand in the 90's despite a decreased production cost and increased sticker price."

Well, an increase in demand violates the ceteris paribus assumption.

|1.16.06 @ 9:25PM|#

matt,

I think he was saying that the increase in price preceded the increase in demand.

Of course, that has nothing to do with minimum wage. It's not like an employer is looking at potential employees saying, "Sure he wears his pants halfway down his ass, but if I have to pay him $6.75 an hour, he must be good!"

|1.16.06 @ 9:28PM|#

Two questions (actually, one question asked in two ways) for the "minimum wage ain't so bad" folks:

1. What if the wealth generated by an employee isn't worth the minimum wage?

I have a brother who is mentally unstable. he helps out at a center he's too old to receive services from. He frequently lives on the street, and is pretty much un-hirable. He's pretty much incapable of producing more than a few dollars/hours of wealth.

2. What about those who are desperate for a job, and the only attribute they can sell themselves on is a willingness to do the job for less?

Same question, different angle. I'm especially interested in Jennifer's response, because I usually agree with her posts.

SJ

|1.16.06 @ 9:29PM|#

As I think more about it, I think it is actually quite unlikely that prices went up in the aforementioned study. Why? Well, the authors of the study admitted that they went into it with the hypothesis "Higher minimum wage means lower employment." And it turned out they were wrong.

Now, I'm sure that the two men, being human, were a bit chagrined to learn that they were wrong. And so I speculate that if prices went up they'd've mentioned it in order to, so to speak, "salvage" some rightness from the situation--"Yeah, we were wrong about employment rates dropping, but hey--prices went up! That's bad too, right?"

So Crimethink listed three choices--lower employment, higher prices, or reduced profits. (There's a fourth option, "profits stay roughly the same because people have more money to spend," but that's a little too blue-sky for the purpose of this.) The first didn't happen, the second probably didn't happen, so that leaves the third.

I have no idea if profits were reduced by one percent or ninety-nine percent or whatever spot in between, but obviously profits remained good enough for all these companies to stay in business and have it worth their while to do so, and I can't really get too upset by a slight reduction in profits to increase the livelihoods of several employees. (And yes, I already know all the Ayn Rand reasons why this makes me almost as bad as Stalin, so spare yourselves the effort of pointing that out.)

|1.16.06 @ 9:32PM|#

I neglected to mention my brother receives a small wage for the help he offers the center (to which he used to belong), less than the minimum.

|1.16.06 @ 9:36PM|#

Sigh. I seem to be the only one in this thread so far who read all the links and followed yet another link (from the "one" link in this thread's original post) that criticized the card-krueger study.

http://www.cato.org/pubs/regulation/reg18n1c.html

It mostly made my eyes glaze over, but I'll quote a couple of what I thought were highlights.

"To understand the perversity of such a law, explore the alternatives available to employee and employer when the minimum wage is increased. The employee�s only choice is to find a job that pays more or become a nonemployee. The employer and the consumer, who is the employer�s employer, have a broader range of options. The employer can replace low-wage workers with more-productive workers; after all, the vast majority of workers have wages that exceed even the most aggressive proposal for wage floors. A second alternative is to outsource, to subcontract activities performed by low-wage employees by going abroad or to self-employed contractors, since the government has as yet been unable to devise a scheme for imposing minimum wages on the self-employed. A third alternative is to automate, to substitute machines that do not have legislated minimum prices. Finally, there is the alternative of just cutting back. If minimum wages accomplish anything, they increase the employer�s costs, causing the purchasers of his product or service to search for lower-priced alternatives. This may include choosing the same products from abroad or switching, in whole or in part, to different products."

"The theory makes no necessary prediction about how employment at any one firm is affected by an increase in the minimum wage. For example, a restaurant with unionized employees all earning at least $6.00 an hour actually gains a competitive advantage from an increase in the minimum to $5.05. Why else would unions always be first in line to favor a high minimum, when all of their members earn more than the minimum? Likewise, franchised fast-food outlets do not necessarily suffer a competitive disadvantage when the minimum rises for all restaurants, including local pizza and sandwich shops."

"Recall that the increase in the federal minimum was debated and passed in 1989 and that the 1992 increase in New Jersey�s minimum to $5.05 was passed in early 1990. Now note that the teenage employment rates in New Jersey and Pennsylvania were virtually identical in 1988. By 1992 teenage employment in Pennsylvania had fallen 9 percent, while in New Jersey it had fallen 28 percent. Moreover, subsequent data show that teenage employment began to rebound in Pennsylvania during 1993 as it continued its downward spiral in New Jersey. Quite simply, higher minimum wages go hand-in-hand with substantial declines in the employment of low-productivity workers."

"Artificial increases in the price of unskilled laborers inevitably lead to their reduced employment; the conventional wisdom remains intact."

|1.16.06 @ 9:47PM|#

Oops. I forgot the important point that the Pennsylvania minimum wage was much lower than New Jersey's. Also the first tow sentences point out where the card-kreuger study went wrong. They neglected to reason like employers, and ptential employers. If you see the change coming ahead of time, you change your hiring patterns, machine buying patterns, and whether or not to even open up a business that hires lots of low wage employees in the first place.

"Comparing 1991 and 1992, the years on either side of the effective date of New Jersey�s hike to $5.05, shows that teenage employment in New Jersey fell by less than in Pennsylvania, where the minimum remained at $4.25. Recall that the increase in the federal minimum was debated and passed in 1989 and that the 1992 increase in New Jersey�s minimum to $5.05 was passed in early 1990. Now note that the teenage employment rates in New Jersey and Pennsylvania were virtually identical in 1988. By 1992 teenage employment in Pennsylvania had fallen 9 percent, while in New Jersey it had fallen 28 percent. Moreover, subsequent data show that teenage employment began to rebound in Pennsylvania during 1993 as it continued its downward spiral in New Jersey. Quite simply, higher minimum wages go hand-in-hand with substantial declines in the employment of low-productivity workers."

|1.16.06 @ 9:49PM|#

Jennifer,

For someone who's not afraid to question conventional wisdom, you certainly lean heavily on it to fill in the gaps in your argument. In any case, it probably would have been impractical for them to try to figure out whether prices increased during their study, since they were not collecting that data from the beginning.

And there was a pretty straightforward reason I inserted the "(ha!)" after I mentioned the possibility that business owners just accepted reduced profits, rather than laying off the window washer or raising prices.

|1.16.06 @ 9:57PM|#

It's also worth mentioning that the Card/Krueger study was done based on phone surveys and interviews, and took data collected from the memory of the person answering the phone basically at face value. When other economists attempted to replicate their results using paper records documenting hires and wages, they did not get results nearly as surprising as C/K's.

|1.16.06 @ 10:01PM|#

Jennifer wrote: "ITEL,MWCMTOL,AIYOUTFLOAWTACNWKWTHYATA."

Yes, but TANSTAAFL is a pretty commonly used abbreviation in libertarian circles (due to Heinlein's influence).

|1.16.06 @ 10:06PM|#

You know, if businessmen are earning such "obscene" profits while paying their workers crap, I would think thee would be a great business opportunity:

One could start a new business that competes with those firms, pay workers more, charge customers less, and clean one's competitors' clocks....

Of course, it is hard to start a new business, one has to get funding, procure space, conduct advertising and lose money until one has established sufficient repeat-custom to start covering one's expenses.

This becomes harder or even impossible in the face of the current government interference in the form of accounting rules, mandatory insurance/taxation and licensure all of which favor established larger businesses at the expense of smaller or younger competitors.

When Benjamin Franklin was visiting England before the Revolution, he was asked why wages in the new World were so much higher than in the old world. To which he responded that if one did not pay their workers sufficiently well, they would either jump ship to work for a competitor or strike out on their own by starting their own business.

We could return to that regime by repealing many of the laws that strangle enterprise.

|1.16.06 @ 10:13PM|#

For someone who's not afraid to question conventional wisdom, you certainly lean heavily on it to fill in the gaps in your argument.

No, the conventional wisdom is what I'm arguing against--that a higher (but reasonable, and yes I know that word's meaning can be debated) minimum wage ultimately hurts the very people it is supposed to help.

SJ brought up the example of those who are basically hopeless--those with mental deficiencies and such. That's a good question, and I don't know the answer to that. But there is this:

On the one hand, I can see the reasoning that "If your value is only X, meaning some number so low it's impossible to live on that, too bad" (and I can think of a few specific individuals to whom that really, really applies); on the other hand, it seems that the number and quality of people who are only worth X is getting larger and larger, over the course of my life.

Yes, I see all these papers brilliantly explaining why higher wages should cause economic hardship, but I haven't seen any where they definitely had.

|1.16.06 @ 10:16PM|#

I'm not dogmatic enough to assert with 100% confidence that a small change in the minimum wage will create large and measureable changes in the unemployment rate.

But the "living wage" folks usually aren't talking about small changes. They're usually talking about fairly significant hikes. Increase the minimum wage by $0.10/hour or something small, and maybe there won't be a noticeable effect. Hike it by a few dollars per hour across the board and I guarantee you that, unless there's a drastic spurt of economic growth you'll see an increase in the unemployment rate.

Now, I'll qualify that statement: Some living wage proposals only pertain to government contractors. In that case, all bets are off. The government can pay the contractors more money. Of course, that will require higher taxes, which tends to be bad for the economy, but the effects will be more dispersed rather than concentrated among low income workers. And borrowing can delay the effects.

But if we talk about a living wage law that isn't restricted to government contractors, I'm willing to bet money that it will increase unemployment.

Jennifer, I'll bet you a free lunch (well, free for you), at the fast food restaurant of your choice, that you won't be able to find a case where, in the absence of pre-existing growth trends, a minimum wage hike of $2/hour or more didn't increase unemployment. (Cases cannot include data gathered during Clinton's second term, when the economy was in a bubble.)

And if I lose, you can order as much food as you think you can eat in one sitting. Just remember, it has to be at a fast food restaurant, to keep the minimum wage aspect.

|1.16.06 @ 10:24PM|#

Jennifer,

What I was saying was that your ostensible reason for not believing that prices went up is based entirely on conventional wisdom, not research. It seems as though you're only skeptical of CW when it undermines your pre-decided position on an issue.

|1.16.06 @ 10:24PM|#

(Cases cannot include data gathered during Clinton's second term, when the economy was in a bubble.)

Generic snark about the housing bubble, here.

I agree that doubling or even tripling wages, as in some living-wage proposals, would be a mess. But actually, I was going to post something else here before I saw Thoreau's latest post:

I fully agree that government regulation is the root of most problems poor people have these days. Housing wouldn't be so damned expensive if not for zoning and other regulations restricting the market; health care wouldn't be such an expensive mess if not for the government's brilliant "Get an HMO through your workplace" incentives; and so forth.

Get rid of all this stupid mess and I'll agree you're probably right--we wouldn't need a minimum wage. We could certainly try going without one, at any rate.

But as it stands, we've got a situation where stupid laws have made things artificially difficult for the poor. And then on the other hand, we've got (possibly) stupid laws designed to artificially make things easier for the poor.

Yes, perhaps all such laws should be done away with. But get rid of the hurt-the-poor laws before you get rid of the help-the-poor laws. Or at least get rid of them all at the same time. But don't get rid of the help-the-poor laws while the screw-the-poor laws are still in full force.

|1.16.06 @ 10:28PM|#

thoreau,

Well, her lunch would still not be free, even for her, considering that she has to do all that work to get it. So, once again, TSANSTAAFL!*

* first S stands for Still

|1.16.06 @ 10:30PM|#

RexRhino,

But what if we break the cookies into fifths?

|1.16.06 @ 10:36PM|#

Or bake more cookies. They're not a zero-sum substance.

|1.16.06 @ 10:37PM|#

Yes, but TANSTAAFL is a pretty commonly used abbreviation in libertarian circles (due to Heinlein's influence).

That's all right, Jack; Jennifer is not a REAL libertarian like the rest of us! ;-)

|1.16.06 @ 10:38PM|#

Yes, perhaps all such laws should be done away with. But get rid of the hurt-the-poor laws before you get rid of the help-the-poor laws. Or at least get rid of them all at the same time. But don't get rid of the help-the-poor laws while the screw-the-poor laws are still in full force.

I'm not convinced that minimum wages help the poor. They help some, no doubt. But the net effect? Not convinced.

I adamantly oppose "living wage" proposals, because I'm quite confident that they would significantly hike unemployment at the bottom of the scale. I'm also pretty sure that minimum wage laws as they stand inflict harm at the bottom of the scale, although I freely acknowledge that other laws probably do more harm. Hence I prioritize other reforms ahead of reducing or scrapping the minimum wage.

Anyway, find me the data and I'll buy you lunch at the minimum wage sweatshop kitchen of your choice.

Oh, and RexRhino- Monetary policy is not my forte, so I won't challenge the particulars of your assertions about money. But while I'll agree that there is no free lunch, economics need not be zero sum. Regulation is (usually) negative sum, and successful acts of entrepreneurship are (almost by definition) positive sum.

|1.16.06 @ 10:48PM|#

Oh, to be clear, I'm pretty sure of the following:

1) Minimum wage laws, all other things being equal, lead to reduced employment at the bottom of the scale.

2) Since you can never hold all things equal in a study, small effects from small changes may be masked. But big changes will lead to measurable effects unless the prevailing trends are causing huge changes in employment. Effects could also be masked by changes in non-wage compensation.

3) If demand for labor in a particular sector is inelastic, the total amount of money paid to workers in certain sectors may increase after an increase in the minimum wage. But the number of employees will decrease, all other things being equal.

So, the net effect of a minimum wage hike, added up over all workers can be positive or negative. But some of them will undoubtedly lose their jobs as a consequence (all other things being equal).

|1.16.06 @ 10:54PM|#

From a purely libertarian argument, be it hardcore or otherwise, how is a federally mandated wage floor (be it minimum, living or otherwise) any different of an issue than all of the private property rights we espouse. Given all of the kvetching I read at Hit and Run every time another state passes a no-smoking amendment, how is this any different than an agent of the government walking in to a restaurant owner and telling him that he cannot allow smoking in his facility? This is government interference between consenting adults (or the occasional high school student), plain and simple. If any of you are actually under the illusion that the cost of employing someone is the same as the wage that person is paid then you need to do some research. It is easily a factor of 1.6 (a $10 an hour job costs an employer $16 an hour minimum). If you marginal productivity is less than 1.6 times your hourly wage you are a losing proposition.

Employment is a private contract in which an employer offers a wage and an employee either accepts it or rejects it. In an employment-at-will state both parties are free to walk away from the deal at any time, and in all states the employee can leave at any time unless under contract. The government has no rational argument to make for intruding in the transaction. As is noted above there are very few towns of any size today that have a prevailing wage floor anywhere near the current minimum wage anyway.

|1.16.06 @ 10:55PM|#

Re:"One could start a new business that competes with those firms, pay workers more, charge customers less, and clean one's competitors' clocks...."

Example of this... American Apparel.

|1.16.06 @ 11:06PM|#

Um, I would just like to add that the number of factors impacting any economic transaction are huge and make any model (whether it is for the purpose of argument or real research) a rough guess at best. When you are talking about things at the complexity level of the US economy all bets are off predicting the outcome of any particular decision on any particular outcome.

Even if you manipulate "the proper runes with pictures of the elders on them" in your economics equations, you are still just guessing. Economics is more about the emergent behavior of complex adaptive systems than it is about logical choices by ideal actors in a platonic model of exchange.

But I am sure the folks here at Hit & Run will figure it all out. Too bad Keith has disappeared from this thread.

|1.16.06 @ 11:09PM|#

Did anybody catch the part in the NYTimes story where Gertner describes a minimum-wage employee as having worked "86 hours over two weeks"? It sounds horrible until you realize that's slightly over full time. YEGADS!

|1.16.06 @ 11:14PM|#

But what if we break the cookies into fifths?
Because people don't want to break the cookies in fifths. People support the minimum wage, largely because it is ineffectual and the rich and middle class aren't sharing anything with the poor by increasing the minimum wage. (the minimum wage is voodoo. If we told people that sacrificing goats would help the poor, some people would go for it because it wouldn't be any skin off of them).

Tell the middle class people in America "This policy will lower your standard of living significantly, but it will help the poor", and middle class America are going to tell you to fuck off! Middle class America may support things like Social Security and Medicare and college loans for students because they see it as benifiting themselves. They might even think that somehow the rich can pay high taxes and subsidize the poor. But no-one is gonna give up their own standard of living, or that of their children. It ain't ever going to happen.

Or bake more cookies. They're not a zero-sum substance.
But increasing the minimum wage does nothing to bake more cookies. Building more ovens, growing more wheat and sugar, producing more butter might help in making more cookies. Increasing minimum wage doesn't even increase the demand (demand being the amount of labor or resources you are willing or able to trade to trade for an item) for cookies (which may cause people to invest their own capital in cookie production), because you haven't increased the value of the labor which the minimum wage earner is trading, so the demand for cookies is the same as before.

So, if you were arguing that the government should subsidize new capital goods like factories and farms, then you might have an arguement... The only question would be if the government or private investors do a better job at allocating resources for new capital goods. But giving people more monopoly money is not going to increase anyones standard of living.

If you want more goods and services for the poor, you must first make the goods and services you want the poor to have! There is no escaping the laws of conservation!

kgsam|1.16.06 @ 11:25PM|#

Then too, there can never be an increase in the standard of living without and increase in productivity. The perceived short term benefit offered by a minimum wage increase will, in due time, be negated in the distributed increase in the cost of living. It would be necessary when evaluating effects of minimum wage increases, to also account for factors such as changes in productivity and inflation, among other factors.

|1.17.06 @ 12:01AM|#

TANSTAAFL

I've even seen it on a T-shirt, although I doubt it would have registered at all if I hadn't been halfway through the book at the time (actually, I'm still halfway through the book; I never finished it).

|1.17.06 @ 12:02AM|#

Comment below by: swillfredo pareto at January 16, 2006 10:54 PM

If any of you are actually under the illusion that the cost of employing someone is the same as the wage that person is paid then you need to do some research. It is easily a factor of 1.6 (a $10 an hour job costs an employer $16 an hour minimum). If you marginal productivity is less than 1.6 times your hourly wage you are a losing proposition.

A ha! Now we're getting somewhere. If you want to artificially raise the wages of minimum wage earners without causing more people to be unemployed than otherwise, then you need to reduce payroll taxes and/or other artificial (i.e. government mandated) payroll costs.

Of course abolishing (or reducing) payroll taxes like the employers' share of Social Security, Medicare, and unemployment insurance taxes, then someone has to pay for the missing revenues. You can raise taxes elsewhere, or you can cut government spending somewhere, or you can borrow until folks reach a consensus which path to take.

Of course, if you cut payroll taxes you are cutting (putatively) business taxes, and all Kennedyesque types will scream you are helping the rich more than the poor with this proposal, even before taking into account the slobs who will be taxed more or receive less government largesse. Nevermind the fact that you are helping the poor....

Jadagul|1.17.06 @ 12:09AM|#

Jennifer: Card and Krueger is, of course, only one study. There are also a couple other issues (raised in the linked Cafe Hayek posts): first, the minimum wage won't have much effect on total employment just because minimum wage employment is such a small fraction of total employment (apparently less than five percent). If a minimum wage hike were to eliminate 10% of minimum wage jobs, that would be a half-percent jump in unemployment. Significant, but could be swamped by other data.

Second, there's almost always a way to decrease total employee compensation without changing monetary wages. As Tyler Cowen points out, the employer can save money at the expense of his workers by turning down the air conditioner, or cutting into coffee breaks, or buying crummier chairs, or whatever (and that's assuming no non-monetary perks or bonuses. Maybe hourly wages stay the same, but bonuses disappear and health care is cut in half). This is presumably a deadweight loss-if both the employer and the employee would prefer to run the air conditioner and leave wages lower-but wouldn't show up in employment statistics.

|1.17.06 @ 12:09AM|#

Hi, Jennifer. I don't have time to read all the linked articles, or the entire thread, but a couple tidbits that may be useful to you.

1) TANSTAAFL (There Ain't No Such Thing As A Free Lunch) is a credo from Robert Heinlein's The Moon Is a Harsh Mistress, depicting a crudely anarcho-capitalistic society on the Moon that rebels against the Earth gov't. It has a certain cachet among geeky SF-loving libertarian types.

2) The Card study, claiming to refute the conventional wisdome and show that a raise in the minimum wage does not increase unemployment, has pretty much been discredited. For one thing, key data supporting that conclusion, gathered via phone interviews of employers, was later refuted by an subsequent examination of actual payroll data, IIRC.

It's wrong to think of the "minimum wage" laws as minimum wage laws. The law doesn't require an employer to hire X people for $X/hour. An employer can always go to the bottom, and choose to hire zero people a $0/hour.

A "minimum wage" law is really a minimum productivity law. If you, as a would-be employee, can't convince an employer that you are worth at least the minimum wage required by law, then in effect the law makes it illegal for you to get a job.

Jadagul|1.17.06 @ 12:13AM|#

Oh, and kqsam (and others): I don't think the argument is "raising the minimum wage increases overall welfare"; it's "raising the minimum wage raises the welfare of the poor at the expense of the rich." At best it's probably closer to "raising the minimum wage increases the welfare of the poor at the expense of the middle class," but as RexRhino pointed out, that's much harder to sell politically. I, however, think it's a bit closer to "raising the minimum wage increases the welfare of some of the poor at the expense of everyone else, but mainly others of the poor."

|1.17.06 @ 12:59AM|#

Rex,

Make more goods and services for the poor!
You mean Doritos and cigarettes?

|1.17.06 @ 1:45AM|#

As I have understood it, the purpose of the minimum wage, and increases in the minimum wage, is to prevent worker exploitation.

Namely, McDonald's isn't going to cut employees. Neither will Wal-Mart. They cannot. They are already using the minimum amount of labor they can get by with, and have invested millions into maximizing their efficiency.

But what if the employee of McDonald's is far more valuable then $5.25 an hour? What if that employee is actually producing profits of hundreds of dollars an hour for McDonald's? What if McDonald's and Wal-Mart and other companies which rely on minimum wage labor would still be earning considerable profits while paying their employees $10 an hour?

All of these economics discussions are based on the idea that companies are paying their employees something resembling what they are worth to the company. But this seems doubtful, in many ways. We in fact know that both McDonald's and Wal-Mart have engaged in great manipulations, including keeping a larger workforce with part-time hours and other manipulations to promote turnover and to maximize the number of minimum wage workers they have. And these are some of America's most profitable companies.

We also know that minimum wage earners are the class of workers least able to use the market to protect themselves. Even if companies like McDonald's and Wal-Mart did not go to great lengths to prevent unionizing, the high turnover nature and general lack of information and resources that come with being a minimum wage earner greatly inhibit the ability of these workers to protect themselves. The very existence of the minimum wage allows many businesses to engage in an easy form of collusion, even in markets where labor is scarce. You are simply not going to get more than the minimum wage as a fry cook, even if every fast food restaurant in the area is hiring.

It is obvious that there are some businesses who employ minimum wage labor which are teetering on the edge of profitability, and who will find some way of balancing out their labor costs if the minimum wage is increased. The question is whether or not the number of employees being affected in that manner are equal to the number of minimum wage employees being exploited by highly profitable companies.

|1.17.06 @ 1:56AM|#

"A "minimum wage" law is really..."

a law that sets a minimum boundary for the compensation that employers are allowed to offer their workers. Much of the mumbo jumbo in this thread ignores a long history of industrial abuse of workers (think company stores, or sweat shops). Many employers will not offer an employee whatever they are worth, they will offer an employee the smallest amount they can get away with (particularly when there is a glut of available workers as there always is at the bottom). An employee does not always have the option of telling an employer that they are not being appropriately compensated (that's where unions came in, historically), they often have a choice of a crap job or no job.

Think of a minimum wage law as more akin to an OSHA regulation saying you can't make your workers work with molten steel without proper safety equipment. It is telling the employer that there is a minimum worth for an hour of work. Does this cost get passed along somewhere in the economy. Sure. Should employers shoulder some of the burden of providing workers with the means to eat and put a roof over their heads. Sure. Can we calculate how much that will cost in the current economic conditions. Sure. Will some small businesses be hurt. Sure. Are there places where the cost will be made up? Sure. Will it be prices? Maybe. Could it be lower compensation at the top of the corporate chain. It could, but that's not likely. Will a minimum wage law be better for society as a whole? Who knows (other than Stevo and the rest that KNOW how the world REALLY works)?

There is not such a straight line to the answer as some are suggesting here. If the market was truly free to operate along the lines suggested here then maybe, I would emphasize MAYBE, free market principles would adjust employment rates directly as a result of a minimum wage law. But that is not the world we live in. The US economy is far from free market. It is in fact a very controlled market (by any standard). And strangely it is quite successful when compared to the rest of the world.

The forces of government control and employee unions emerge naturally as part of the history of an economy. They exist because a totally free market system doesn't completely meet the needs of society. A blind faith in free market principles to solve all problems society faces just makes you look like a git. It is no different than Marxism in that respect. Not all problems boil down to econ 101, or even the sophmore level econ being espoused here.

|1.17.06 @ 1:59AM|#

You are more eloquent than I James.

Jadagul|1.17.06 @ 2:00AM|#

James Feldman:

You are simply not going to get more than the minimum wage as a fry cook, even if every fast food restaurant in the area is hiring.

In New Orleans, Burger King and McDonalds (along with everyone else) are paying $9 or $10 an hour, plus $250 biweekly "attendance bonus," Plus a signing bonus.

And if "the very existence of the minimum wage allows many businesses to engage in an easy form of collusion," isn't that an argument for getting rid of it, rather than raising it?

Jadagul|1.17.06 @ 2:05AM|#

Damnit, this is like the fourth time I've cross-posted in an hour.

MainstreamMan:

Many employers will not offer an employee whatever they are worth, they will offer an employee the smallest amount they can get away with.

I think the rest of us would argue that "the smallest amount they can get away with" is "whatever [the employees] are worth," either by definition or because the market drives prices up when employers try to underpay. This is why more than 95% of US employees are paid more than minimum wage: the market works to keep wages high.

|1.17.06 @ 2:20AM|#

Actually, james, if you look at the transcripts of debates held on in Congress in the 30's, you will find that the advocates of the Federal Minimum Wage proposed it to:

1) Make southern textile mills less competitive with NE and NY textile mills. See, back then, the Southern workers were undercutting the northern ones

2) As a racist ploy to reserve low cost jobs for whites. due to widespread racism blacks were less valuable to employers. When the minimum wage was imposed, it immediately created massive unemployement amongst blacks, since employers hired whites since they had to pay "white" levels of wages.

3) Make union labour less unattractive vis a vis non-union labour.

The fact is, people do tend to get paid based on the marginal productivity of their labour. Every Walmart is competing with a CosCo. Wages do tend to rise with productivity. The employees consent to work for these wages because they are better than the alternative of not working.

However, if these employees are so badly oppressed, you should have no problem forming a union, encouraging them to hold out for higher wages. You shouldn't even have to use the violence permitted by Federal Labour Laws. Buoyed by the promise of higher wages for all that seek work, you should be able to get them what they want. Right?

By setting an artifical floor, you are dooming those who are most desperate, those who are willing to charge less of their labour than others with heir skill-sets from undercutting their competitors. Rather than being able to compete for work, they will have to hope that they win some lottery and get one of a fewer number of jobs open to them.

The only group who really benefits, other than computer programmers myself, are politicians who now have reduced a significant number of people to being unable to earn a living, and thus are dependent on the social prorams administered by those politicians.

|1.17.06 @ 2:23AM|#

"I think the rest of us would argue that "the smallest amount they can get away with" is "whatever [the employees] are worth," either by definition or because the market drives prices up when employers try to underpay."

You assume a much different metric of worth than I. But whatever I can get away with is just that. It will not necessarily be linked to productivity or other market forces when there is a glut of workers, as there always is at the bottom (100% employment is not the goal).

"This is why more than 95% of US employees are paid more than minimum wage: the market works to keep wages high."

If a minimum wage were pegged to the cost of living, would this statement still be true? I honestly don't know (but I also know that no one else here does either). Is it possible that the way a minimum wage was implemented (i.e. without taking into consideration cost of living) that has caused the disparity between what most workers are worth and what minimum wage workers are paid. Might be an argument to reform minimum wage laws, but is not always gonna be an argument for getting rid of them.

|1.17.06 @ 2:27AM|#

Jadaqul: Yes, it is an excellent argument for eliminating the minimum wage. However, it is a terrible argument for keeping the minimum wage where it is. And through that argument, there is no greater value in keeping the minimum wage where it is. The market will suffer no greater distortion if it is raised.

But again, this forgets the problem of exploitation. Remember, many of the advantages held by the employer over the minimum wage worker are also market manipulations. An employer typically has a wide variety of means to obtain redress from an employee; a minimum-wage employee likely has none. Think about the nearly 1.5 million current and former female employees of Wal-Mart who have been involved in the largest class-action suit in history against the company for pay and gender discrimination. Minimum wage employees have an even more difficult time trying to redress corporate wrongdoing.

Fascinating statistics from New Orleans though. Thanks for them. Although, there is still a lot of data that the minimum wage allows employers to keep wages below their market value. And while that is a terrible problem, I don't think that the simple elimination of the minimum wage will eliminate it. And certainly, keeping the minimum wage where it is will acheive no progress on this front.

Again, it may be in our best interest, and the best interest of the poor, to eliminate the minimum wage altogether. That not being one of the two possibilities, I think my original thoughts on what the formula for determining the wisdom of keeping the minimum wage where it is, or raising it, to be valid.

An addendum: many states are now altering the minimum wage on a state-by-state basis. That seems to me to be far preferable than to impose it on a Federal level. Simply put, it seems completely sensible that the minimum value of a man-hour of labor is different in New York than in Wyoming.

Jadagul|1.17.06 @ 2:53AM|#

dead_elvis, I totally agree; when empirical evidence and theoretical reasoning contradict, you should reexamine the theory, but you should also reexamine the evidence. That's especially true when the evidence is as muddled as it usually is in questions as complicated as these; most fact patterns you come up with can be made to fit almost any theory if you make enough additional assumptions, and in cases like this most of those assumptions will be pretty non-falsifiable.

Mainstream Man: clearly, there's something keeping wages up (even "at the bottom") other than the minimum wage; otherwise, there would be more people working at the minimum wage. It's too late for me to go trying to dig up a cite, but something like two-thirds of minimum wage workers get a raise within a year. Which means those wages are supported by something other than law-their employers have to pay them that much to be competitive. There's competition even over low-wage labor; for an extreme example, I point you again to New Orleans's current labor market. Now, I have no idea whether most minimum wage workers are paid "what they are worth." I don't have a number for you for "how much they are worth," but since there is clearly a functioning competitive market low end labor-since it's not purely a buyers' market-I suspect that the market would, will, and does gravitate towards paying people "what they are worth." Otherwise far more people would be pressed down on the minimum wage.

James Feldman: You claim that since the minimum wage is a tool of employer collusion, no greater distortion would result from raising it. I don't buy that for a couple reasons. First, as I pointed out to MainstreamMan, there certainly is a competitive labor market; most workers aren't paid minimum wage, and those that are tend to get raises reasonably quickly. If fast-food places were really using the minimum wage to collude to keep wages down, why would they also collude to offer raises within a year? It seems to me more like they're competing. And do you have a link to any of the "data that the minimum wage allows employers to keep wages below their market value"? Thanks.

Incidentally, did anyone else notice the irony in the statement: "a minimum-wage employee likely has [no redress against his employer]. Think about the nearly 1.5 million current and former female employees of Wal-Mart who have been involved in the largest class-action suit in history against the company"? Not that I don't get your point, but still.

Alright, that's it. Class starts tomorrow; I need to get to bed.

|1.17.06 @ 4:16AM|#

Others have noted some of the points I am about to make.

Obviously "fewer people are hired if firms have to pay more" is an oversimplification. My description assumes that workers whose wages are affected by minimum wage laws are interchangable from the point of view of the employer. In the real world, one has to take into consideration the "I'll fire him and look for a more skilled employee if I have to pay more" effect.


If a firm is required by law to pay their workers more, there are two possibilities for the firm:

1 - It is marginal and can't increase prices for its product and thus goes out of business. (alternatively some would-be startup business aren't started in the short run)

2 - It pays the increase out of some combination of price increases or profit decreases in the short run (or service quality decreases if they fire a few workers and make customers wait longer(1)). It might lay off non-essential workers but it would not likely opt for a division of labor that yeilded fewer units per worker-hour.

If we are talking about an industry where all firms are making huge windfall profits, firms might absorb the loss in the short run without an increase in price to customers or a decrease in employment. This however will eliminate or reduce an incentive others would have had to enter that industry and thus drive down prices through competition. So it prevents a likely future price fall rather than causes a visible price increase.(2)

In the long run(3), nominal prices would adjust to the new minimum wage so that it had the same buying power as the old. Fluctuations in the relative real costs of goods which have occurred anyway would still eventually occur.

Also its more complicated than what I've typed.

What of the "Firms don't have to increase their prices because consumers have more $ so firms make less per unit but sell more units to newly-enriched consumers" theory(4)? I submit that:
- If an employer pays workers more and charges the same prices than the employer has less. So the employer has a decrease in salary equal to that of the employees' increase.
- If more total wealth is to be produced and bought, more total resources must be utilized. It is not clear how minimum wage affects this. If the economy's total productive capacity can not be readily increased, firms will end up responding to an increase in demand with price increases.


notes

(1) This might be the case in for example McDonalds where the number of workers does not ultimately determine the quantity of a good produced but the quality of service. A factory in a competitive industry would not prefer four assembly line workers if five produced more units per worker-hour, whatever the wage.

(2) A price fall in nominal dollars would be prevented. The prices of goods and services in less windfall-yeilding industries would rise in the long run so that, in real dollars, the price fall would have occurred.

(3) I refer of course to the idealised Super-Longrun of clasical economics which allegedly only happens on some distant Planet Of The Economists. Arguably, this entire description is overly bound by classical economic theory.

(4) One can imagine an argument that this theory, in some wierd Keynesian way, could work to some extent in the short run.

|1.17.06 @ 4:32AM|#

I can't believe anyone seriously thinks that you can make a ton of money employing minimum wage workers and that there is a monstrous gap between what they are paid and what they could be paid if unions ran the world.

In the US today there is a plethora of capital trying to find a way to get a great return. Ask anyone who has had their money in mutual funds since the millenium, they'll vouch for that. I assure you if there was huge profits to be made by cloning McDonald's we'd have half a dozen more cardboard on a bun joints than we already have.

There is no such thing as a free lunch. Including with the minimum wage. You can engage in whatever sophistry you want to try to claim otherwise, but the facts remain that raising the minimum wage creates an unemployment rate higher than would otherwise have been the case. I refer you once again to my post from 9:36 and the amended 9:47. Visit the link and read til you are bored to death. Tell me where they are wrong.

Card-Krueger was bad methodology and economists were sceptical when it first came out, and further studies show it to be false. Those with an agenda (such as the union example) don't care about facts though....

Dave W.|1.17.06 @ 7:56AM|#

As I understand it, Realish's question amounts to: Howcum the rich can lobby to get their pet libertarian measures thru, but the poor can't? Howcum deregulation, capital gains tax cut, decreased antitrust vigilance, minimum wage freezing and tort liability caps get a sympathetic hearing from the government, while things like military spending cuts, legalized weed and sales tax cuts never seem to get such a sympathetic hearing?

Not only have I correctly understood Realish's questions: I have an answers: lobbyists are more important than rank-and-file voters to government circa now. It is difficult for a Reason writer to really see this imbalance because: (1) Reason magazine gets more money from rich people than poor; and (2) Reason writers probably each have more stock than the average American (they don't disclose this so we can't be positive about this, but it is in their power to do that if enuf readers demand it).

Don't get me wrong -- Reason is more balanced than the government. However, when it comes to an issue like military spending, you will notice quiet on the part of Reason out of all proportion to the gigantic government wealth transfer. On the other hand, we do tend to hear lot about how nice it would be to do away with public education (when they are not trying to help, err, "improve" public education). Some shocks to the libertarian conscience are created more equal than others round here.

So get of that river and get out of Egypt entirely, Julian. You have some evolving to do -- portfolio be damned cause you are a thinker and a writer first and a corporate value add second.

|1.17.06 @ 8:19AM|#

Jennifer I agree with you, I don't think modest increases in the minimum wage will significantly affect employment. However, it does not follow at all that a minimum wage is a good idea. Two great posts by marginal revolution on this issue:here and here.

It depends entirely on the wider context of the labor market in question, but a minimum wage may still have negative welfare effects on workers, especially unskilled ones.

|1.17.06 @ 8:40AM|#

Jennifer made a factual point, and backed it up with evidence.

The degree to which the response to her point has amounted to a statements of faith - crimethink, I'm calling you out here - rather than as statements of fact supported by evidence, is really quite shocking.

|1.17.06 @ 8:48AM|#

. . . spoketh the kettle.

|1.17.06 @ 8:52AM|#

joe, Jennifer's point was not pertinent to most of the living wage proposals that I've encountered. You can't compare small changes in the minimum wage with large changes in the minimum wage, anymore than you can compare the occasional can of soda with guzzling corn syrup all day long. I pointed that out, and other people raised "reality based" objections to the methodology, pointing out that other studies disputed the findings.

|1.17.06 @ 8:52AM|#

joe:

In all fairness, quoting the results of one of the few studies ever to come up with this conclusion barely qualifies as a "factual point". In fact, a re-examination by David Neumark and William Wascher of Card and Krueger's 1995 study on the issue showed that the data did not indicate that a small rise in the minimum wage increased employment at all. It comes down to which interpretation of the data do you believe, and the reason Card and Krueger's is so notable is because they come up with a different result than just about everyone else.

Hell, I'll let Paul Krugman elaborate:

So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data. Indeed, much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages "do," in fact, reduce employment, but that the effects are small and swamped by other forces.

What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda--for arguing that living wages "can play an important role in reversing the 25-year decline in wages experienced by most working people in America" (as this book's back cover has it). Clearly these advocates very much want to believe that the price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects. This will to believe is obvious in this book: The authors not only take the Card-Krueger results as gospel, but advance a number of other arguments that just do not hold up under examination.

|1.17.06 @ 8:57AM|#

joe, I don't think it's all that shocking. Here's where I hand in my libertarian decoder ring: I strongly suspect that very little, if any, discussion of the minimum wage by libertarians is motivated by any desire to make poor people's lives better. (With a few notable exceptions like thoreau.) It's simply part of an overall package of "all regulation is bad" thinking. As a libertarian and a gradualist, the minimum wage is somewhere around #501 on a list of 500 things I'd like to see the government get their damned noses out of first.


It's an article of faith that minimum wage = evil government interference; therefore any evidence that small increases in the minimum wage have not been met with the predicted catastrophic unemployment and other negative economic effects, and are unlikely to be met with them in the future, are usually met with little more than the argument from incredulity.

|1.17.06 @ 8:59AM|#

for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute.

But since it goes against what we believe to be true, we're going to assume it must somehow be wrong.

Back in the 1920s when labor laws started whittling away at the standard 12-hours-per-day, 6-day workweek, this was also viewed as a huge impediment to freedom, ruining the right to free contract and eventually destroying the lower and middle classes. Which I'm sure will happen any day, now.

|1.17.06 @ 9:01AM|#

jf,

Had Jennifer, or I, or anyone, made the argument that raising a minimum wage definitely lowers unemployment, your (and Krugman's) point would be valid. However, just the opposite happened: numerous commenters stated that OF COURSE a minimum wage hurts poor people by destroying jobs, and Jennifer pointed out, in so many words, that in fact the results are not so clear cut.

She, I, we aren't making an affirmative statment with certainty: y'all are, and when evidence is shows that the certaintly isn't warranted, y'all keep repeating the catechism. OF COURSE having a minimum wage hurts poor people. OF COURSE it destroys jobs. You just need to take Econ 101...

thoreau, you also can't compare a localized living wage bill in a high-cost, high-price city, or one that pertains only to a single university, to a labor-market-wide increase in the minimum wage.

|1.17.06 @ 9:05AM|#

I also find it amusing: the study seems to show that minimum wage doesn't affect unemployment, so everybody has to spin "complex theories" to explain why the study is flawed.

I'm curious--had the study shown that minimum wage DOES, in fact, increase unemployment, what would you think of people who spun "complex theories" to explain why THAT study was flawed? It just seems odd: a study which supports your position can be taken at face value, whereas a study which defies your position needs "complex theories" woven about it.

Dave W.|1.17.06 @ 9:06AM|#

One issue that seems to be ignored here is the externality of what type of workplaces you guy are going to have in the United States. As wage get down toward closer to slave wage, it is easy for workplaces to become crueler and sweatshoppier in lots of subtle ways. Employees become more replaceable, less apt to be called on to use their brains and frankly less human. More like how we think of a Chinese factory worker.

Now I am not saying that it is ultimately up to the government to abolish sweatshops and sweatshoplike conditions in the workplace. However, for those who want reform in the minimum wage law, I think you need to deal with these externalities because: (1) it is good that the US workplace is not like the Chinese; and (2) people want to preserve the differences somehow. I think regular people have fears that getting rid of labor protections in the US will cause the US workplace to resemble the workplace in nations that have no labor protections to begin with. Seems like a valid concern. Don't get all puzzled when ppl fret, even if they only have an imperfect idea of what they are fretting about.

|1.17.06 @ 9:07AM|#

joe:

I don't think I've called for the elimination of the minimum wage in this thread, so I think you may have confused me with the more hardcore libertarians here. I simply was responding to your assertion that Jennifer had made a fact-based argument. However, you now are claiming that Jennifer did not make a fact-based argument, so my head is spinning and I guess I'll get to work now.

|1.17.06 @ 9:13AM|#

joe, FWIW, in college I was involved in a cause on behalf of the university's janitors and cooks. I said that I understand the economics of the situation, but there are a hell of a lot of university employees who contribute zero to student well being. (I'm looking at you, clerks in the registrar's office!) Meanwhile, the cooks and janitors were remarkably nice, made student housing as liveable as possible, did you favors if you were nice to them, and generally did a good job. If anybody is going to get the shaft, it should be somebody who actively works to make students miserable (i.e. any of the thousands of administrators, clerks, and secretaries who made my private university more bureaucratic than the DMV).

Our success was mixed. But I'm not devoid of sympathy.

|1.17.06 @ 9:14AM|#

Jennifer:

I also find it amusing: the study seems to show that minimum wage doesn't affect unemployment, so everybody has to spin "complex theories" to explain why the study is flawed.

I think you may have misread the quoted material, so I'll present it again:

Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages "do," in fact, reduce employment, but that the effects are small and swamped by other forces.

The people looking to show that the study is flawed aren't "spinning complex theories", the two economist who you are putting such great faith in were.

|1.17.06 @ 9:19AM|#

Why would you need "complex theories" about the study? The two arguments against it I see are (1) the companies did their layoffs when the law passed, before the wage changed and (2) no one was able to replicate the original results, partly because the paper trail gives a different result than their phone surveys.

Those are not terribly complex arguments. You can even check the numbers to see whether they are true.

|1.17.06 @ 9:25AM|#

The two arguments against it I see are (1) the companies did their layoffs when the law passed, before the wage changed and (2) no one was able to replicate the original results, partly because the paper trail gives a different result than their phone surveys.

Any evidence of this? Some statistics showing Jersey employment before and after the law's passage would be useful.

|1.17.06 @ 9:27AM|#

Jennifer, if other authors have been unable to replicate the results, then the burden of proof should be on the people who claim to have data contradicting centuries of economic experience.

|1.17.06 @ 9:31AM|#

if other authors have been unable to replicate the results, then the burden of proof should be on the people who claim to have data contradicting centuries of economic experience.

Find another state with a minumum wage higher than the two surrounding states, in an area small enough that employers and consumers can easily cross state lines in search of better bargains, and we'll see what happens then.

|1.17.06 @ 9:31AM|#

A 1995 Reason article actually discusses the second point, that of the flawed nature of the studies due to the phone surveys (for example, they only surveyed fast-food chains to determine employment for the entire state).

|1.17.06 @ 9:38AM|#

Jennifer, if other authors have been unable to replicate the results, then the burden of proof should be on the people who claim to have data contradicting centuries of economic experience.

Dammit, thoreau, it's that type of thinking that's kept cold fusion down all these years.

|1.17.06 @ 9:43AM|#

The cold-fusion remark is a good one, but how do we replicate this? You can't do it in a laboratory; are there any other states like New Jersey, with a minimum wage higher than easily accessible surrounding areas?

|1.17.06 @ 9:48AM|#

The minimum wage is at the bottom of my concerns, at least as long as it isn't raised to the point that the truly adverse effects become apparent. As is obvious from this thread, minimum wage laws and their overall effects are an extremely complicated issue.

There was a case in Philly a little over a year ago where an old age home offered its residents a chance to make some cash by doing some tasks around the home, such as making beds. One man was paid $25 for 60 hours of work. The Department of Labor found out about it and took action. Of course, things aren't so simple as our exploited worker explains:

"I knew what was going on was wrong," says Williams, who has since moved out of Riverview and into a Center City assisted-living high-rise, "but even $25 makes a difference when you're in the position I was in."

and

"I'll tell you this: $25 was nothing!" he says. "But [getting] that money kept me from going and begging for it."

Here we have a man who was able to earn much needed money, even though it was a paltry amount, at a job that simply would not have been available otherwise. He was one of those few that the minimum wage literally made unhireable. The question becomes, is it possible to balance a minimum wage designed to prevent grave exploitation of workers with the costs. Or to put it more bluntly, is a couple extra bucks per hour for already numerous productive workers worth forcing the fewer, less productive workers out of the market?

In my experience, the notion that minimum wage laws have any cost to the poor is ignored by its proponents or, perhaps worse, condemned as classist warfare. To be fair, the most vocal detractors rarely discuss the benefits. The problem is that while upping the minimum wage can provide a nice bonus to some it never truly raises their standard of living, while simultaneously trapping the very worst off in an untenable situation. The fear is that without it there would be mass exploitation of workers and wages would plummet to extreme depths. I don't think that's true, but if it is at least people can stop bitching about outsourcing.

|1.17.06 @ 9:48AM|#

It's a good question, Jennifer. Maybe you could do it with a massively multiplayer online game, like The Sims Online.

|1.17.06 @ 9:56AM|#

It's a good question, Jennifer. Maybe you could do it with a massively multiplayer online game, like The Sims Online.

I'm only pointing out that the "lack of replication" standard doesn't quite apply here; it's not like a controlled scientific experiment that anobody can choose to do if only they have the right equipment.

The fear is that without it there would be mass exploitation of workers and wages would plummet to extreme depths.

I don't recall America having been a non-exploitative Utopia back in the nineteenth century, in the golden age before labor laws.

|1.17.06 @ 10:01AM|#

I'm only pointing out that the "lack of replication" standard doesn't quite apply here; it's not like a controlled scientific experiment that anobody can choose to do if only they have the right equipment.

Unfortunately, that takes us full circle now, where on one hand there are hundreds of years of economic data supporting the concept that raising wages by government fiat will cause there to be less man-hours offered by employers, versus one study which may or may not demonstrate the opposite.

As Krugman alluded, it's like trying to prove that price controls don't cause shortages.

|1.17.06 @ 10:11AM|#

where on one hand there are hundreds of years of economic data supporting the concept that raising wages by government fiat will cause there to be less man-hours offered by employers

There's economic arguments, not economic data. Conventional wisdom and data are two different things.

I was just reading a book called "TIME CAPSULE 1923" (Time magazine did a series of books called Time capsules, which are reprints of articles from the magazine in that given year), and one of the main stories of that era was the move away from the 72-hour six-day workweek. And the proto-libertarians of the era were arguing that making laws concerning how many hours a worker would work would just destroy the economy, send workers into poverty, fuck up our whole business climate and of course take away an employer's freedom to make his employees work 12-hour days six days a week.

Well, they were right about losing the freedom to make workers spend most of their waking hours on the job, but the rest of the conventional wisdom turned out to be incorrect.

Of course, one can't make an exact comparison between the two, and I am not trying to do so. But the conventional wisdom has proven wrong in the past; apparently it IS possible to have worker-protection laws without becoming Communists or having a third-world economy. The question is, of course, just how far such laws should go.

I have definite problems with fifteen- or sixteen-dollar-an-hour "living wage" laws, but increasing the minimum wage by a buck or two is another natter.

R C Dean|1.17.06 @ 10:12AM|#

I can tell you from experience that the first thing an employer with a significant minimum-wage workforce does after a minimum-wage hike is cut benefits.

These benefit cuts generally hit all workers, so while the minimum wage workers may get a little bump (and I mean a few dollars a week, after taxes), everyone takes a hit.

|1.17.06 @ 10:16AM|#

I can tell you from experience that the first thing an employer with a significant minimum-wage workforce does after a minimum-wage hike is cut benefits.

Except for the minimum-wage employers who don't offer benefits in the first place.

|1.17.06 @ 10:22AM|#

Their data demonstrated that a modest increase in wages did not appear to cause any significant harm to employment;
To translate that from Newspeak: a small increase in minimum wage causes a small amount of harm to employment.
No surprises there.

in some cases, a rise in the minimum wage even resulted in a slight increase in employment.
To translate that from Newspeak: in most cases a rise in the minimum wage resulted in a decrease in employment.
No surprises there, either.

And what swillfredo pareto said. Regardless of whether of not the minimum wage is Economically Good, free people have to right to negotiate their own contracts; unfree people, e.g. Americans, don't have that right.

One thing I haven't seen mentioned: a higher minimum wage increases the relative value of black-market workers (illegal aliens and others working outside the rules).

|1.17.06 @ 10:29AM|#

jf,

You didn't call for the elimination of the minimum wage; nor did I say you did. What you did claim, and what I called you on, was that Jennifer is wrong to question the convention wisdom on this issue.

Specifically, you claimed that Jennifer was arguing an affirmative position - that the minimum wage can be shown to have no effect on employment. She did not make this affirmative argument - rather, she made a fact based refutation of other people's argument.

I hope this clears my post up for you, because neither of your points demonstrated that you understood what I said.

|1.17.06 @ 10:36AM|#

I can tell you from experience that the first thing an employer with a significant minimum-wage workforce does after a minimum-wage hike is cut benefits.

I've had a few miniumum wage jobs; not one of them offered benefits of any kind.

But there's more going on here than can possibly be addressed by a minimum wage. Consider New York City. You could raise the minimum wage to $10 or $12 and it would still be very, very difficult to afford to live here.

|1.17.06 @ 10:39AM|#

I'm with Mr. F. Le Mur on this one.

|1.17.06 @ 10:46AM|#

free people have to right to negotiate their own contracts; unfree people, e.g. Americans, don't have that right.

Right back to 1923--employers should have the freedom to make people work 72 hours a week, and people deserve the freedom to be told "either work 72 hours a week or don't work at all."

|1.17.06 @ 10:50AM|#

Any evidence of this? Some statistics showing Jersey employment before and after the law's passage would be useful.

That would be happyjuggler0's comment at January 16, 2006 09:36 PM. I think a few follow-up comments cover the same ground.

To rephrase the argument, the study was not pre+post but mid+post. The "pre" period would be before the law was passed, not before the law went into effect.

This appeals to my intuition (so I should be suspicious rather than accepting the confirmation), in that people react to news about a law before the law takes effect. As an example, consider what happened to bankruptcy filings before the recent change in law went into effect: most people who could declare early did so, which led to an immediate dip afterwards. If you look at the effect +/- one month of the law's going into effect, you see a ridiculous drop in bankruptcy filings; if your before/after is before the law was passed and a year after it goes into effect, you would see a much smaller effect on filings. Sorry to use an off-topic example of methodology.

|1.17.06 @ 10:52AM|#

The 'conventional wisdom' among economists these days is that the minimum wage reduces employment mildly, but that the increase in wages swamps that difference, and that they are a net benefit.

There is, of course, a lot disagreement within the ranks, but those are the general contours of the consensus. Appeals to Econ 101 are laughable.
In physisc 101 there is no such thing as a topspin forehand, and yet in the real world they exist.

|1.17.06 @ 11:00AM|#

theCoach-

You're saying that the demand for labor is inelastic at the bottom of the wage scale. I have no reason to doubt that. However, economists always told me that the minimum wage (1) still increases unemployment, (2) increases the cost of living for everybody and (3) there are so many policies out there that increase the cost of living for people at the bottom of the scale, it would be better to concentrate on those policies rather than giving some of them a little more cash and putting a few of them out of a job altogether.

|1.17.06 @ 11:00AM|#

I don't recall America having been a non-exploitative Utopia back in the nineteenth century, in the golden age before labor laws.

I didn't claim that it was. Would there be some exploitation without the minimum wage? Of course there would, but people aren't worried about marginal cases, otherwise they'd care more about the marginal unemployment caused by the minimum wage in the first place. People are concerned about mass exploitation just like they're concerned about helping a majority of low-wage workers.

I don't think that sort of mass exploitation would occur, and to take us back to even the possibility of 19th century levels of exploitation would require a removal of all labor laws, not just the minimum wage. I think wages would drop at the bottom of the scale, but I also think that will partially be due to a reintroduction of those marginalized by the minimum wage back into the workforce.

Like all government mandates, the minimum wage fails to adequately address the needs of a diverse populous. The benefits may outweigh the costs here, but is there no way to allow some flexibility to the law in order to alleviate some of the problems it causes?

Again, it's far down on my list of concerns. In fact, if given the chance to remove the minimum wage without being able to change anything else first, I doubt I'd do it.

|1.17.06 @ 11:02AM|#

In fact, if given the chance to remove the minimum wage without being able to change anything else first, I doubt I'd do it.

That's pretty much what I said last night at 10:24.

|1.17.06 @ 11:12AM|#

Right back to 1923--employers should have the freedom to make people work 72 hours a week, and people deserve the freedom to be told "either work 72 hours a week or don't work at all."

To keep things specific, employers did not then, nor do they now, have the ability to "make" people work 72 hours per week. What they had was the ability to make those hours a condition of employment. The prospective employee could take it or find work elsewhere. Folks who were pro-regulation believed that such contracts should not be made, even if prospective employees were willing to make them. The argument was that such people weren't capable of understanding their best interests, were under "economic coercion," etc.

Even without the labor regulations we're all now familiar with, employers making such long hours (and other unpleasantries) conditions of employment would have been driven out of business (or to change their ways) because of the increasing productivity of American laborers, the growth of the economy, and the rise in the standard of living that has made mobility less costly.

(I wish I could be as concise as Mr. F. Le Mur.)

|1.17.06 @ 11:13AM|#

That's pretty much what I said last night at 10:24.

I know, and I completely agree with that post. I was just clearing that up.

|1.17.06 @ 11:16AM|#

I think this is one of those issues that angers people from both sides due to its complexity. There are important points that are missed by all sides. One by Krugman,

"the centrist view is probably that minimum wages "do," in fact, reduce employment, but that the effects are small and swamped by other forces."

Notice that reference to other forces here. When you are talking about a system as complex as an economy, arguing about the effect of any one condition is pointless. Your argument will stand or fall based on how many of the other forces (that swamp the minimum wage effect) you are willing to consider. And no matter how hard you try you will miss some that may be convincing to the other side.

Krugman goes on to say.

"Clearly these advocates very much want to believe that the price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects. "

Notice that he is not mentioning that neither Manhattan apartments or gasoline prices are set based upon supply and demand. Both are highly controlled by other forces.

Historical arguments would not support a contention that minimum wage is a bad idea for the society on the whole. Jennifer's argument regarding the 72 hour work week is an example. The higher standard of living in countries with labor protection is another. The real activist would, of course, do better to try and get worker protections implemented across the entire economy, which extends much beyond our borders.

No one in this thread is making an unsupported argument unless they are claiming to KNOW what the impact of some hypothetical (or real) living wage proposal will be. Just because it may or may not decrease employment at the margins does not mean it is bad public policy given the wide range of non-economic forces involved in deciding the worth of any social policy. Justice is a real value. It is not, however, one that a free market takes into considerations. Long term consequences on the environment is a real cost, but it, also is not taken into consideration by the free market since the market is largely impacted by short term local forces.

Stop pretending that anyone has figured out the field of economics to any degree of sophistication. It is like pretending we know how the human brain works 'cuz we can take pictures of the oxygen flowing through mirror cells while you watch someone else acting. It is a long way from basic understanding of some of the reductionist principles to understanding of the system at all levels of functioning.

|1.17.06 @ 11:23AM|#

and please stop pretending that workers and employers have an equal degree of power in any transaction.

|1.17.06 @ 11:28AM|#

What they had was the ability to make those [72] hours [per week] a condition of employment. The prospective employee could take it or find work elsewhere.

Perhaps nowadays he could, but back then he couldn't; no such options were available. Which is why such laws gained such popular support.

Folks who were pro-regulation believed that such contracts should not be made, even if prospective employees were willing to make them

I guess that's one difference between hard-core libertarians and people who actually get votes: you say "willing to" make them where others say "desperate enough to." If you're stuck in the middle of the desert, and me and my friends are the only ones with any water available, I don't know if it's accurate to say you are "willing" to pay a hundred dollars for a gallon of water; I think you're "desperate enough to" pay the hundred bucks.

|1.17.06 @ 11:31AM|#

and please stop pretending that workers and employers have an equal degree of power in any transaction.

Feh. You may as well ask some people to stop breathing. Hardcore libertarian doctrine states that, just as a janitor may lie awake at night worrying about what will happen to his family if he loses his job, so too does a company's CEO lie awake at night worrying about what will happen to his company if the janitor decides to quit.

|1.17.06 @ 11:35AM|#

Jennifer's point about water in the desert gets at a point about economics. I recently read "The Undercover Economist." I think it's an excellent exposition of basic microeconomics, even if it isn't as entertaining as "Freakonomics."

The Undercover Economist, as he calls himself, is a big fan of competitive markets and invisible hands. But not every transaction takes place in a competitive market. That's not to say that an Undercover Economist would cheer for regulation when competition is weak or nonexistent, but neither will he look at Jennifer selling the $100 water in the desert and say "Hooray! Cool outcome! Negotiated without anybody pointing a gun at anybody else! Totally fair! Nothing to criticize! Yipee!"

Hence the author is not a libertarian. He is, however, a pretty smart guy with good ideas.

Anybody who wants to can come and confiscate my decoder ring. Call me before you drop by, and I'll have some snacks from Whole Foods waiting when you arrive.

|1.17.06 @ 11:39AM|#

First off, wages ARE prices. Denial doesn't change things. If it were called what it actually is - a minimum price law - people would stop and think a bit more.

Secondly, the Card/Kreuger study, like every other cost/benefit analysis, is about as intellectually honest as intelligent design.

http://www.cato.org/pubs/journal/cj15n1-8.html

Minimum wage law is bad economics. The only reason to support it is the fact that our monetary system (federal central banking) is a dishonest economic system. In fact minimum wage law is a tacit admission that our central banking system is purposely devaluing the currency over time. In the course of a couple years, we find that we're just running to stand still.

The Federal Debt - it's for the children!

|1.17.06 @ 11:46AM|#

I recently read and enjoyed The Undercover Economist as well. On the collectivist-individualist continuum, the author on the whole seemed to me to be somewhat to the collectivist (or interventionist, if you will) side of center. However, he does provide good expositions of basic economic doctrine.

|1.17.06 @ 11:57AM|#

joe,

Going way back to your "calling me out", yes, my position is based on faith that the law of supply and demand is correct. This belief has been confirmed time and time again, in the real world.

However, your and Jennifer's belief that there is a minimum wage exception to the law of supply and demand, has only a questionable and, Jennifer admits, unreplicatable study to support it. Thoreau's cold fusion reference is quite apt.

And of course, Jennifer still has yet to tell me where the money magically appears from that allows wages to go up while prices and employment stay constant. I thought we had a truce last night, but that instigator joe had to show up and call me out...

|1.17.06 @ 11:57AM|#

Science's argument that you shouldn't pretend that the worker/employee relationship is equal gets right down to the heart of this debate, I think. If the power a CEO has over his employees is equal to the power an employee has over the CEO then you're right; minimum-wage laws and other worker-protection regulations are unnecessary. Problem is, there's absolutely no evidence to suggest that the power of an average worker over his boss is equivalent to the power a boss has over the average worker.

|1.17.06 @ 12:02PM|#

And of course, Jennifer still has yet to tell me where the money magically appears from that allows wages to go up while prices and employment stay constant.

I dunno; must be the same magic fairy dust that kept our economy from being destroyed when the 72-hour workweek went the way of the passenger pigeon.

|1.17.06 @ 12:02PM|#

On the collectivist-individualist continuum, the author on the whole seemed to me to be somewhat to the collectivist (or interventionist, if you will) side of center.

I guess that depends on where you think the center is. If the center was determined by the distribution of opinion among libertarians, then he's certainly on the collectivist side. But, given how much he admires markets, I place him well on the individualist side.

Maybe part of it has to do with his attitude. He admires the way that markets can achieve certain social goals. So he (mostly) applauds individualist solutions to collectivist concerns.

And crimethink, I'm not the one who made the cold fusion reference. Somebody else did, in replying to me.

|1.17.06 @ 12:04PM|#

Re: First off, wages ARE prices. Denial doesn't change things. If it were called what it actually is - a minimum price law - people would stop and think a bit more.

I don't think the thread here shows a lack of thinking, for the most part. Wages ARE wages, a narrower term that delimits the referent below the superordinate level indicated by "prices." Sheesh.

Re:The only reason to support it is the fact that our monetary system (federal central banking) is a dishonest economic system.

Designed largely to avoid the boom and bust cycling that a total free system typically creates. A cycle that often has unwanted social consequences.

|1.17.06 @ 12:05PM|#

To be clear, when I said I place him on the individualist side, I meant to say that he's on the individualist side of the general population.

|1.17.06 @ 12:17PM|#

Jennifer,

I prefer blue herrings, myself.


thoreau,

Sorry for the misattribution. I can't help that you're the Mark Twain/Abe Lincoln of anything physics-related on this forum.

Jadagul|1.17.06 @ 12:18PM|#

See, thing is, obviously a CEO can affect a janitor more than the janitor can affect the CEO (or, more precisely, whichever middle manager is in charge of hiring janitors for that branch of the office). The manager doesn't care who cleans the toilets; he just cares that he has a clean place to crap. So he doesn't care about that particular janitor, but he does care very much about having a janitor.

I was going to write a huge model of the market for unskilled labor, but I got about halfway through and now I have to leave for class. So I'll just leave with the thought that in a competitive market for labor, the company can't credibly threaten to fire the janitor unless he takes a wage cut, since the guy they hire to replace him would be making the same wage he already was. And the janitor would probably be able to find a roughly similar job at his original wage. That this doesn't happen, I blame at least partly on the minimum wage keeping the market from equilibrium.

|1.17.06 @ 12:20PM|#

Not a red herring, Crimethink; the arguments y'all are using here to demonstrate that minimum wages are bad for the economy are pretty much the same as the arguments your predecessors used to explain that getting rid of the 72-hour workweek would be bad for the economy. The hardcore free marketer's predictions of doom were wrong about what the shorter workweek would do to the country's economy; why are the current predictions of doom any different?

|1.17.06 @ 12:26PM|#

in a competitive market for labor, the company can't credibly threaten to fire the janitor unless he takes a wage cut, since the guy they hire to replace him would be making the same wage he already was. And the janitor would probably be able to find a roughly similar job at his original wage.

Only assuming that the number of jobs is identical to the number of people looking for jobs. Usually, though, there are a lot more job-seekers than there are jobs to be filled.

nmg|1.17.06 @ 12:36PM|#

Stop pretending that anyone has figured out the field of economics to any degree of sophistication. It is like pretending we know how the human brain works 'cuz we can take pictures of the oxygen flowing ...

Obviously. And that's why all government regulations are a bad idea and should be opposed, including minimum wage. These freakin morons in charge have no idea what they're doing, much less the experts who have studied these things for a lifetime. If we can all agree that no one can be sure of anything when it comes to econ, any government regulation is a hopeful crapshoot at best. Better to avoid it entirely and at least have the freedom of contract.


nmg

|1.17.06 @ 12:40PM|#

Jadaqul
"I blame at least partly on the minimum wage keeping the market from equilibrium."

Thing is, a totally free market may reach equilibrium in ways that are bad for society as a whole. That is why societies naturally develop controls on markets. It is just as natural a process (or actually more natural) than some hypothetical free market. If all real-world costs and values were somehow included in market calculations, then maybe there would be no need for government controls, maybe. Regulations, however, attempt to infuse some of those values that markets do not consider into the mix.

The wish to get rid of this influence on the market is no more based on an understanding of markets than the wish to have "from each according to his ability, to each according to his need."

The free market is a theoretical model, not the real world. Please recognize the difference.

|1.17.06 @ 12:45PM|#

Russ,

Are you saying that minimum wage laws hold a gun to CEO's heads and force them to raise their prices?

Oh, no, of course you're not. You're just looking at the actual likely results of the law as they would actually play out in the real world.

I think that's a smart way to look at things, but I seem to be in the minority.

|1.17.06 @ 12:58PM|#

Look, how anyone can not see that increasing the price of an input decreases the quantity demanded of that intput (in this case the input is unskilled labor) is beyond me. Small increases may not inflict much damage. No one has ever said they would as far as I can see. But a cost increase is a cost increase, and must be taken into account by the employer in some fashion. This could take many forms, which might explain why there are many "complex solutions" and not just one effect (i.e. lower employment) like the simple labor market model would predict.

Jennifer,

Blankletly assuming that "hardcore libertarians" seem to think the same thing is just untrue and mildly insulting. We don't all think the same thing, and most of us aren't of the "screw the poor" mentality.

My views:

1) We obviously don't have a free market, never have had a truly free market, and more often than not, the government has sided with big business and agaist labor in the past.

2) A free market would probably be worse for most big corporations, better for the poor (and the majority of the rest of us as well), and better for those wishing to start a business.

3)Just becuase I think a minimum wage is morally wrong as well as bad policy doesn't mean I hate poor people and love CEO's.

|1.17.06 @ 1:07PM|#

Blankletly assuming that "hardcore libertarians" seem to think the same thing is just untrue and mildly insulting. We don't all think the same thing, and most of us aren't of the "screw the poor" mentality.

In context, I was clearly using "hardcore" to those who insist that the worker-employer relationship is equal. Don't like the way your boss is treating you? No problem--you can find yourself another job just as easily as I can go change my socks. And back in the days before worker protection laws when 72-hour workweeks were the norm, no problem--just find an employer who won't ask you to work 72 hours a week. What, they don't exist? No problem--just go found your own business, that's all you have to do.

R C Dean|1.17.06 @ 1:09PM|#

I've had a few miniumum wage jobs; not one of them offered benefits of any kind.

I'm not arguing that minimum wage workers are the ones who get their benefits cut.

Companies that may not offer benefits to minimum wage workers probably offer benefits to other workers. Its likely that one way they respond to increases in their total employment costs (such as that caused by an increase in minimum wage) is by trying to find ways to control those costs where they can (such as by cutting benefits to those who receive them).

IOW, the cost of the minimum wage is borne by those one step below the minimum wage worker (the unskilled unemployed, who now find it harder to get a job) and by those one step above the minimum wage worker (who get caught in the cost-cutting squeeze as the company tries to deal with the cost of the minimum wage).

|1.17.06 @ 1:09PM|#

Rex,
Well stated.

But
"If pieces of paper are no longer an effective measure/store of value"

I am not economist, but can't a perceived need for a minimum wage law be a sign that the pieces of paper are not, as currently valued, an accurate reflection of the value of the stored labor? Isn't the perceived value of the labor the underlying construct that is being manipulated? The question I have is whether the labor has an inherent value or whether that value is determined/negotiated by society using both market and regulatory mechanisms. I don't know where I fall on this question. Just wondering.

|1.17.06 @ 1:11PM|#

RexRhine--

It only took about one generation for laws to replace the 72-hour week with the 40-hour week. Why didn't that destroy the economy, do you think? By your arguments our country should have been shattered, after the amount of labor an employer could extract from any one person was decreased almost by half.

|1.17.06 @ 1:14PM|#

I'm supposed to be working and therefore don't have time for a lot of back-and-forth with Jennifer and other members of the loyal opposition. Just a few final (for me) points:

1. Labor is an input, like raw materials and physical space to operate.

2. Firms take the costs of inputs into account when planning and making decisions.

3. When the cost of an input goes up, firms will try to find ways to using less of the input.

I don't think anyone here would dispute these propositions. Arguing that labor is exempt from cost analysis is, to say the least, controversial. (And I understand many here to be arguing that, as opposed to the relatively uncontroversial propositions that small changes in the current laws will have small or no effects in the current situation.) Therefore, the burden should be on those making the controversial claim to provide more evidence than one study that has been closely examined by other economists and found wanting.

Also, let me put in a plug for www.marginalrevolution.com. Read it every day. You will learn a lot.

|1.17.06 @ 1:22PM|#

RexRhino seems to be arguing that the minimum wage either has zero effect on the economy or totally destroys it, which seems pretty laughable to me. Oh yeah, but it's simple Econ 101: economic results are very simple and predictable, how could I forget?

I bet RexRhino has never bothered to ask for a raise, knowing full well that that even if he managed to get a better deal on his salary the entire economy would quickly adjust and leave his purchasing power exactly commensurate with his value to the market.

|1.17.06 @ 1:25PM|#

Jennifer:

"In context, I was clearly using "hardcore" to those who insist that the worker-employer relationship is equal."

Ok, pardon any hasty reading on my part.

I do have to take issue with the notion that labor laws somehow magically made the transition from 80 to 40 hour workweeks, however. A more accurate story, I think, would be that worker productivity rose, increasing wages. In the long run, the effect of higher wages induces workers to enjoy more leisure time and work less.

|1.17.06 @ 1:39PM|#

I do have to take issue with the notion that labor laws somehow magically made the transition from 80 to 40 hour workweeks, however. A more accurate story, I think, would be that worker productivity rose, increasing wages

Productivity has also increased in America these last few years, so why can't wages increase now, too?

|1.17.06 @ 1:43PM|#

I am not economist, but can't a perceived need for a minimum wage law be a sign that the pieces of paper are not, as currently valued, an accurate reflection of the value of the stored labor?

More to the point, I think: if the price of labor is the outcome of a bargaining process, then the value of a given amount of labor is not some purely determined number as some people seem to assume.

|1.17.06 @ 1:46PM|#

I'm glad Matt mentioned the productivity issue; these last few years, corporate profits are up, productivity has increased, but wages compared to inflation have stagnated. Yet people claim that if wages increase even slightly, to reflect these greater gains in productivity, the economy will be all but destroyed.

|1.17.06 @ 1:56PM|#

Designed largely to avoid the boom and bust cycling that a total free system typically creates. A cycle that often has unwanted social consequences.

A totally free system would tend to NOT have cycles.

And what are these unwanted social consequences?

http://www.mises.org/tradcycl/econdepr.asp

|1.17.06 @ 2:13PM|#

"A totally free system would tend to NOT have cycles."

That's quite an assumption. Most complex systems are cyclic in nature, assuming they have any input or activity involved in them. The economy is more like the weather than a pile of sand.

"And what are these unwanted social consequences?"

They are usually termed things like "recession" or "depression."

|1.17.06 @ 2:17PM|#

Jenn:

The nominal wage workers receive may not be increasing, but becuase of technological innnovation you can buy more/better stuff for the same nominal price. So even if nominal wages don't increase, we can still buy more with the same amount of money. A quick blog search, since I have to get back to work, yields this link to what it is I'm getting at:

http://hnn.us/blogs/entries/20012.html

|1.17.06 @ 2:28PM|#

The nominal wage workers receive may not be increasing, but becuase of technological innnovation you can buy more/better stuff for the same nominal price. So even if nominal wages don't increase, we can still buy more with the same amount of money

This is very comforting to people who work full-time but can't afford a place to live, I'm sure. Maybe they can't afford a place to live, or medical care when they're sick, but the color TV they can buy today is better and cheaper than the color TV they could have bought in 1970.

kgsam|1.17.06 @ 2:29PM|#

i>totally free market system doesn't completely meet the needs of society

Please show any historical evidence of a "totally free market system" THEN show how it has been unable to meet the needs of "society".

|1.17.06 @ 3:06PM|#

You are making the assumption that laws decreased the work week. There are many countries which have laws that strictly limit the amount of time people work to something like 40 hours, and everyone works way more than that.

You're skirting the question, Rex. I'm not talking about India or Indonesia, but the USA. I asked you how it was that in the USA the workweek was cut nearly in half without ruining the economy, and you started babbling about India. Or are you trying to tell me that 72-hour weeks are still the norm in this country?

|1.17.06 @ 3:20PM|#

science,

So you are saying that the problem with boom-bust cycles is the bust part. Thanks for that wonderful insight.

|1.17.06 @ 3:33PM|#

Productivity has also increased in America these last few years, so why can't wages increase now, too?

Wages HAVE been going up, where the hell have you been? We're talking about miniumum wage, the wage for the lowest of the low that is working, a very small percentage of the overall labor force.

Jadagul|1.17.06 @ 3:34PM|#

Jennifer: "[a fired person has other job options in a competitive market] Only assuming that the number of jobs is identical to the number of people looking for jobs. Usually, though, there are a lot more job-seekers than there are jobs to be filled."

The idea is that a competitive market tends toward equilibrium, where the number of jobs and job-seekers are equal. In our world companies actually tend to overpay almost all their workers (as far as they can measure, at least), and so there are usually more job-seekers. This is true at the bottom largely because of the minimum wage, and true at other levels because of efficiency wages. If there are more job-seekers than jobs, that's typically an indication that companies are overpaying their workers, which was my point originally. If you want to give workers more bargaining power you would have to reduce the job-seeker/job ratio; raising the minimum wage would increase it instead. So the workers would be paid more, but also be far more vulnerable to abusive bosses etc. On the other hand, without the minimum wage, workers might not get paid quite so much, but they'd have more marginal bargaining power.

Jadagul|1.17.06 @ 3:41PM|#

Science: You're right, the idea of a "purely free market" is totally mythical; a market can exist only in an institutional/regulatory framework (even an anarchist systems requires such a framework; it's just enforced by society instead of by a government). The question isn't whether such a framework should exist, but rather what sort of regulatory framework we should set up (see Will Wilkinson on Neutral Institutional Monism). I simply contend that many categories of regulation that the government uses to tweak certain results are hugely counterproductive. The category "price ceilings and floors" is one of the most foolish and counterproductive, so I tend to oppose price floors, including the minimum wage.

|1.17.06 @ 3:45PM|#

You're skirting the question, Rex. I'm not talking about India or Indonesia, but the USA. I asked you how it was that in the USA the workweek was cut nearly in half without ruining the economy, and you started babbling about India. Or are you trying to tell me that 72-hour weeks are still the norm in this country?
Did you even bother to read the paragraph after the one about India? I explained it in detail. Capital investment lowered the work week (more mechanization in factories and farming, better educated people which allowed for greater specialization, etc, all increase the amounts of goods and services in the economy, and productivity increase increased the value of labor.).

The government didn't cut the work week. The government didn't have even the slightlest thing to do with decreasing the work week. It was increased specialization and productivity caused by capital investment that decreased the work week.

Then, of course, the state-run monopoly on education brainwashed people into the historical fiction that the government, simply with the power of some words written on a piece of paper called a "law", gave everyone a 40 hour work week and a house in the suburbs.

I mean, crap, why don't we make a law that garantees us all $100,000 a year, and a 20 hour a week work week, with 8 weeks vacation... and medical benifits for everyone! If the government wields so much power that it can change our economic output simply be passing a law, then why only legislate a crappy $1.50 raise for the bottom 3% of workers?

|1.17.06 @ 3:54PM|#

joe,

Although your comment was snarky, I'll respond anyway.

As the cost of something goes up, that cost has to be covered somehow. I can either dip into my cash reserves, raise my price (where the law of supply and demand has more say-so), or I can cut costs somewhere else.

Step 1 when the minimum wage increase comes in is cutting costs elsewhere. Close the store earlier, cut the employee discount from 15% to 10%, discontinue carrying low-margin items, buff and wax the floors once a week instead of twice, open up self-checkout lanes, ask for TIF's...

|1.17.06 @ 4:13PM|#

Jen,

Where are you getting this 72-hour work week falling to 40 hours from? The Jungle??

The statistics I can find in seconds show a slow but steady decrease in work hours, with the 8 hour day pretty much coming as a reaction to the depression - keeping people employed but not giving them as many hours. For example, if a company had 3 employees work 60 hours each, but the demand for the company's goods and services declined to the point that only 120 hours of labor was needed rather than 180, the general practice was to keep 3 40-hour employees rather than 2 60 hour employees because no one wanted to see someone put out into such a job market.

If you go by household, the typical one-worker working 72 hours a week has been replaced over time with two-worker households working 40-hours a week each, so there's little change after all these decades. Running to stand still, once again.

|1.17.06 @ 4:28PM|#

I never bothered to ask for a raise until my utility to a company has increased.

You missed my point. Have you ever negotiated a salary before taking a job? Or were you just like, "They offered me X dollars for this position, I can only ask for more money if I also ask for additional responsibilities at the same time?"

No, I am arguing that for all practicle purposes in the long run it has zero effect on the economy,

You seem to be missing the point of the minimum wage. Contrary to what you are suggesting, the argument for the minimum wage is NOT that it will increase overall economic output. Rather, it is that it will make life better for poor workers. This may very well be incorrect, but your points regarding the overall economy are irrelevant. I think most people understand that when restaurant workers are paid more money, restaurant owners and restaurant patrons are probably worse off than before. If you want to argue that the restaurant workers are also worse off, go ahead. That's the convincing argument.

If the government wields so much power that it can change our economic output simply be passing a law, then why only legislate a crappy $1.50 raise for the bottom 3% of workers?

For most people, the intuition is that this crappy raise is not a big deal for anyone but the workers themselves, because that's a 20 percent raise or more. That is the appeal of the minimum wage issue -- it doesn't really make a difference as you say, but the workers who receive it are a lot better off, barring some trickle effect where an increase in the minimum wage leads to 20 percent inflation.

|1.17.06 @ 4:49PM|#

RexRhino wrote at January 17, 2006 02:52 PM:


The work week was decreased by capital investment into machines and technology that made the worker more productive, investments in education that allowed specialization to make the worker more productive. A worker nowadays makes 5 times as much for doing 40 hours of work that a worker in 1900 made for doing 70 hours of work, because the worker nowadays produces 5 times as much in 40 hours as the worker in 1900 produced in 70 hours.

Thanks for stating that. I read an article in a mainstream or business magazine a long time ago showing that precise notion. Unfortunately I have no easy way to find it online. But the "common sense" concept that over time wages are determined by productivity is continually overlooked by those trying for a quick fix.

Want to raise wages for the bottom without increasing unemployment? Decrease disincentives for creating jobs would work. So would finding ways to increase job skills for those at the bottom of the ladder. It is not an accident that workers with the most education are the most highly paid.

The funny thing is though, the best way for workers who are done with schooling to increase their job skills is on-the-job training. Increasing the rate at which folks would otherwise be unemployed is the wrong direction towards increasing job skills.

One final thought. Yes it is true that relatively small increases in the minimum wage are likely to be swamped by other factors like recessions and business investment, but it still holds that it is a factor. Lower unemployment may well coincide with an increase in the minimum wage, but it also means that unemployment would be higher than it would've been without the minimum wage increase. To say that even a small increase like $0.10 dollars per hour doesn't affect the unemployment rate is simply wrong.

|1.17.06 @ 5:03PM|#

Re: i>totally free market system doesn't completely meet the needs of society

Please show any historical evidence of a "totally free market system" THEN show how it has been unable to meet the needs of "society".

Hmmm... well I imagine that the totally free market system that we would be discussing is a hypothetical free market that predates government (and is therefore prehistorical). Ifi it existed, it was, perhaps, the free market itself that created the government due to the market's inability to do effective long-term planning. A free market system assumes that there are no rules for how parties in transactions behave. As long as everyone plays nice and pays what products and services are really worth (whatever that means) then there is no need for regulation from an entity like a government.I would contend that if you created a totally free market, a regulatory system (aka government) would emerge as a natural consequence of that markets behavior to control the forces that are not directly impacted by market forces (i.e. cheaters, long-term consequences, local anomolies in power structure). I do believe that this is consistent with the traditional libertarian view, but that the argument is about when that new aspect of the market (i.e. government) has begun to bias the system inappropriately.

But, like I have said several times on this thread. The free market is an abstract model used to discuss the world and not a real thing. Why there are no records (to my knowledge) of a free market surviving may speak to the weakness of the model as a way to think about real world social problems, even when they are primarily socio-economic problems.

Re:science,So you are saying that the problem with boom-bust cycles is the bust part. Thanks for that wonderful insight.

Actually, what I was saying was that the nature of markets is to create occasional problems in sectors of society due to the cyclical nature of any complex adaptive system. And it may be that certain global biasing of the system may be wise to mediate the degree of flux in the system, and therefore minimize the negative impact of that flux. As the above paragraph points out, it is my belief that a free market is a non-sustainable entity that would create government oversight as the natural consequences of its short-comings in this realm. This occurs because it is a system that interacts with both simpler and more complex adaptive systems that wish to reduce their own complexity by up-loading or off-loading complexity on other system with which they interact. I think maybe you were taking a bit more of a reductionist view of the problem than I was.

If you want to live in a world that is explainable by a child's model of the free market, at least take seriously the implicatins of that model when implemented in a realistic fashion. Libertarian economics is often based on a not-so-accurate understanding of Darwinian evolution. Darwinian ideas have progressed a lot in the last century, but the socio-economic-political model that many libertarians are espousing seems not to have kept pace.

Please, for all of you who are working with a more sophisticated understanding of the issues, do not include yourself in the snarky comment above. Many are making sophisticated arguments that seem to be based in a real understanding of the complexity of the issue of government intervention on a system as complex as an economy. I think that was who I was discussing the issue with.

To that end.
Rex. I never got a response from you regarding whether you feel that labor has some innate value that can be (approximately or) perfectly determined through market mechanisms, or whether the value system of the humans involved in the transaction plays a significant role in determining what the value of an individual transaction (or class or transactions) is. And how does this explain or not the perception that wages need a fixed floor? Can't the very perception be an indication that the system is biased incorrectly?

kgsam|1.17.06 @ 5:45PM|#

Remember the history of the world. Empires were/are created through conquest. Kings gave monopoly rights to a favored few.
To assert that 'free markets' didn't last because of their inability to provide for "society's needs" is a non sequitor in viewing the history of the world.
Our animal origins have left us a legacy that is little appreciated. There is no such thing as a "totally free market" because the world of conquest does not allow such a thing.
A more appropriate assertion would be that a regulated market benefits the politically influential at the expense of the productive, whoever they are.
Anyone who thinks they know what a "totally free market" would be like, especially those who are critical, just don't know what they are talking about.

|1.17.06 @ 5:52PM|#

The perception that wages need a fixed floor is based on the lack of economic understanding of the tradeoff of more unemployment than would have been the case, and how wages actually rise over time. Via productivity. People thought the "Jap-Americans" needed to be interred in concentration camps in WWII. This is not an indication they needed to be interred.

Yes free markets need a government to maintain private property rights. The notion that this means anything more, or that such a system would not work and would collapse, is just plain wrong.

One does not need an example of a pure free market system to see that the freer ones do better than the less-free ones at creating overall wealth and reducing poverty. We have intractable US-defintion poverty in this country precisely because of a lack of a free market in wages. The government is paying people money and giving people services if and only if they are not working. To say this is not a huge distortion of the low end of the wage scale is silly, and to claim or imply this is a free market failure as a result of such government distortion is disingenuous.

|1.17.06 @ 6:19PM|#

Re: "The government is paying people money and giving people services if and only if they are not working. To say this is not a huge distortion of the low end of the wage scale is silly, and to claim or imply this is a free market failure as a result of such government distortion is disingenuous."

I truly don't follow what you are saying here. Could you clarify? I primarily don't follow what the referent for "this" is in regards to the clause "a free market failure as a result of such government distortion."

In case you mean me when you say "imply this is a free market failure" I hoped to communicate the idea that you cannot so easily disassociated the actions of governments from the actions of markets. Governments exist in large part to control commerce (c.f. the US constitution). I never claimed otherwise. But there has to be some reason societies see a need for this (beyond the need for the powerful to control the helpless, which is only one factor involved). To try and disintagle the two is a more complex issue than some are claiming. I don't think, by the way, that I ever made claims as to whether or not minimum wages were a good idea or a distortion of market forces. I just claimed that the narrow discussion of unemployment effects was not something that could be determined based on elementary reductionist models of economics. And that determination as to whether they are a good idea goes beyond their impact on a narrow outcome such as unemployment.

I don't think a free market without constraint would collapse. I think it would adapt by developing regulatory mechanisms. All other adaptive systems I can think of in nature do something along this line.

|1.17.06 @ 6:40PM|#

Re: Remember the history of the world. Empires were/are created through conquest. Kings gave monopoly rights to a favored few.To assert that 'free markets' didn't last because of their inability to provide for "society's needs" is a non sequitor in viewing the history of the world.

Please explain to me the emergence of governments in civilization in terms that don't involve some regulation of resources. Then you can discuss why my comments are non sequitors. We are talking about the underlying reason for kings or conquerers here. Not their actions once they existed. I will again emphasize that I don't think the abstract model of a free market is a very good model of the real world. If asked to talk about it abstractly, I will. As an abstract model, I think the underlying mechanisms it claims will result in self-regulatory mechanisms. I can think of no better term for those but government. So in abstract terms, a free market will create government if one does not already exist. This is due to the tension between the short-term local mechanisms for change that dominate a free market (as an abstract concept) and the slower, long-term global needs of the society (which, as an abstract concept is a more complex entity that includes a broader range of concerns than the market).

|1.17.06 @ 6:51PM|#

Governments exist in large part to control commerce

Yikes! They most definitely do not. The only justification for government involvement in commerce is to protect the property rights of citizens from those who would steal their property or try to tell them how to use it. The government most definitely has no right to become the thief or the one telling folks what they must do or must not do with their own property.

A free market protected by the government, and from the government, has no need to adapt at all.

Again, you need to contrast freer countries with less-free countries, and this becomes pretty clear. More-free works better, just as advertised by theory.

|1.17.06 @ 6:57PM|#

Rex. I never got a response from you regarding whether you feel that labor has some innate value that can be (approximately or) perfectly determined through market mechanisms, or whether the value system of the humans involved in the transaction plays a significant role in determining what the value of an individual transaction (or class or transactions) is. And how does this explain or not the perception that wages need a fixed floor? Can't the very perception be an indication that the system is biased incorrectly?
The value of a person's labor comes from what people are willing to trade in exchange for that labor. The value of the labor is subjective in terms of what people are willing to pay (meaning there is no mathmatical formula to determine the "real" value of labor).

But the value of labor has objective limits, in that no-one can pay more for labor than they have goods and services to pay with. I may say I think a grocery store checkout clerk deserves a high wage, but am I actually willing (or able) to pay more for groceries to do so?

When you say that people demanding minimum wage somehow indicates a flaw or distortion in the market price of labor, it depends what you mean. If you mean that there isn't enough investment into technology and capital that would fully utilize these workers... or there isn't enough demand for these these workers because people don't understand the demand for the work they do... then yes, it is possible that labor can be undervalued. But, if you mean that these people are not recieving a large enough share of the current supply of goods and service, then no... the share they are recieving is what other people are willing to pay, and minimum wage isn't going to change what most people are willing to pay for a certain good or service.

A wage floor isn't what people are looking for... they are looking for a floor on goods and services: a certain standard of living that all people are entitled to. The only way to achieve a floor on standard of living, without lowering someone elses standard of living, is to increase production and productivity. Factories, roads, education, communication, housing - means of production for goods and services.

Like I said though, I don't nessicarily oppose minimum wage... I just think it is a pointless political gesture.

|1.17.06 @ 7:12PM|#

Actually, what I was saying was that the nature of markets is to create occasional problems in sectors of society due to the cyclical nature of any complex adaptive system.

Yes, I know you were saying it, but saying it isn't proof. The argument is whether the market causes boom-bust or whether the central fractional reserve banking system causes boom-bust. I provided a link to back up my position and you provided nothing other than a reassertion of what you said before. It's kind of hard for us to have a debate where one or both of us might learn something when you do that.

|1.17.06 @ 7:16PM|#

Re: Governments exist in large part to control commerce ---" Yikes! They most definitely do not. The only justification for government involvement in commerce is to protect the property rights of citizens from those who would steal their property or try to tell them how to use it."

I think you misconstrue the term control here. Government involvement by protecting property rights is an example of control of commerce. I am thinking more along the lines of how hormone systems control mood in the brain. Control commerce, bias global tendencies... again, c.f. the US constituion. The major role assigned to the government involves control of commerce. Don't forget that the government is a mechanism of the society, as is, supposedly, the market. Their interaction is one of control, but they work at different time scales and according to different priorities. I stick with my contention that the reason we have governments is in large part(primarily) to control commerce. Otherwise, what is their function? The notion of a free market protected by the government and from the government takes the abstraction too far. Once you have both, they are entangled and work together to meet societies needs. We are talking about where the balance of power should be. Is it towards the local, short-term mechanisms of the market or the global, long-term mechanisms of the government that bias the market mechanisms? Both systems considered independently and as part of a larger integrated system respond to adaptive forces as does their relationship. To reduce it to a model where one exists only to assure that the other exists free of the first's influence is unrealistic.

|1.17.06 @ 7:28PM|#

Re: I provided a link to back up my position and you provided nothing other than a reassertion of what you said before. It's kind of hard for us to have a debate where one or both of us might learn something when you do that."

I believe I provided an elaboration of my position. If you want outside sources to learn more about the behavior of complex adaptive systems, then google "the santa fe institute." Most of the articles they provide are very difficult, but with some digging you can find discussion at almost any level of sophistication that suits your own level of understanding (I have no way of predicting what that is).

As far as the cause of boom-bust. The answer may be that both influence the boom-bust cycle. But to claim that the boom-bust cycle is not an inherent part of a market (whether free or controlled) requires some static model of economic activity that I find unlikely. Attempting to reduce the impact of that cycle by biasing the system is a pragmatic goal of government, which recent economic history would suggest we might be getting better at doing (based on the relatively mild nature of recent recessions compared to historical norms).

Referring to outside authority is not always the only way for us to learn from each other I hope.

|1.17.06 @ 7:39PM|#

Re: "The only way to achieve a floor on standard of living, without lowering someone elses standard of living, is to increase production and productivity."

I agree. And I think that advocates of the minimum wage understand this trade-off as long as it is not too large a sacrifice for those who are losing something. I pay more for local products because I know they have a lower overall cost on the environment (which is not factored into their cost) than products that are shipped across the world. I think I am willing to pay more for a burger to help out the fry cook. Is society? This is what the argument for or against minimum wage is about (as I think you have pointed out before).

I do think that the perception of a just wage also plays a role in productivity. If I as a bottom rung worker cannot hope to meet basic food and shelter needs from a full-time job, then I may not work as hard as if I sense that society appreciates my efforts (as implicated by a minimum wage law). The message is usually a big part of any political solution as any practical effect. This is just as true of libertarian maxims regarding invidual freedom as it is of collectivist messages, I think.

|1.17.06 @ 8:11PM|#

I have posted too much today. But one last comment.

Re: "Again, you need to contrast freer countries with less-free countries, and this becomes pretty clear. More-free works better, just as advertised by theory."

I think there is a balance point somewhere along the continuum of free-controlled that works best. It is unlikely that it is a linear function. The US is not currently the most free economy. Some argue it is the strongest (which, of course depends on how you measure success).

kgsam|1.17.06 @ 9:04PM|#

Please explain to me the emergence of governments in civilization in terms that don't involve some regulation of resources.

The purpose of conquest is to gain access to, and control of, resources. To discuss the relative virtue of "free markets" in the context of historical conquest (the founding of many governments) is inappropriate. How can one say that politically regulated markets are superior to free markets when political systems refuse to compete fairly with free systems? It's not like some experiment has been set up with a poitically regulated market here and a free market over there. It just makes no sense to make any claims about what a free market can do when the world has never tried such a thing as intentionally as it tries to control everything.

|1.17.06 @ 9:22PM|#

I think kqsam and science agree with each other, or am I missing something?

kgsam|1.18.06 @ 12:37AM|#

Probably. Just some minor point in the scheme of things.

If you want to do a world of good for the poor, government spending must be significantly reduced.
That's simple. Explaining why, not so simple.

Jadagul|1.18.06 @ 2:35AM|#

Science: I think you and I basically agree-not on the minimum wage specifically, but on the concept of the way markets and the government interact and how there's no such thing as a 'pure, unregulated market' (see the Wilkinson link above). I think you might make more headway if you rejiggered your phrasing a bit. "Regulate" originally meant exactly what you want it to mean, but doesn't really anymore. Maybe talk about how you need some institutional system, presumably a government, to enforce the ground rules?

Like I said, I think we agree on substance. Just a tip that I think might make your point clearer to this audience.

|1.18.06 @ 9:14AM|#

A Living Wage is nothing more than a mandate on business to make welfare payments to those that need money.

In the US we have a system that pays people based on what they are worth not based on what they need. Therefore the argument doesn't apply to this country. Try France.

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