Need some help clearing up someone's mis-info about the minimum wage
Posted May 22nd, 2008 by ShannonOBrien
output
I'm having a debate with someone about the minimum wage and I was explaining that raising the minimum wage hurts more than it helps (businesses raise prices, unemployment goes up) and this is how he responded:
"Certainly businesses can make more money from people than the people themselves earn. Why do you think our country has a negative savings rate? Workers can stay afloat by going into debt, but unless some we start channeling some of that productivity gain we've experienced into higher wages, they won't be able to sustain that for long. The bills inevitably come due."
I don't even know how to respond to that. I don't even know where to begin or what he is saying. Does anyone know what would be the best way to respond?
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Be aware
that these things such as minimum wages, worker's conditions, child labor laws, overtime, antitrust laws, labor unions, etc were a response to the pervasive predatory capitalist activites of the "robber barons", who are the very folks who have assumed control of our banking system and nation, as well as most of the world.
Our world is not perfect, and predatory capitalists are certainly far from it, and if you'd like to see how this stuff really operated, then Google the Ludlow Massacre, and Shotgun Shacks, and Company Store, and Robber Barons, etc.
Then, with some perspective, it's possible to understand how these things came into being,
Far be it from me to promote socialist dogma, but it is quite apparent that unbridled predatory capitalism is at least as bad, and warps the "free market" just as badly, if not worse.
If you take off the harness, these guys will run wild and you WILL have monopolies and cartels which WILL depress wages and conditions to the point of slave labor. And the retail prices WILL not reflect any reduced labor or production costs to the consumer, because there will be no competition, and it will be monopolistic, just like in the 1890s. If you don't work for the monopoly, you don't work. And if you start a business, expect them to crush it. That's if you can ever get enough money together to start a business, which they will make certain you won't ever make enough.
If you want the top 10 major corporations in the world to own every business and pay according to their "price fixed" labor rates, and charge retail prices at their "price fixed" rates, then fine.
Count me out of that one.
The "imaginary" idea of free trade sounds great, until you realize that it is just that. "Imaginary".
Be clear on what the minimum wage laws do.
The minimum wage law doesn't require anyone to hire a worker for a given rate, it merely makes it illegal to hire anyone and pay them less than that rate. The upshot is, it's illegal to hire the least-skilled and least productive workers, so it cuts off the bottom rung of the ladder.
-jcr
I'm not trying to be rude and comment on my own post, I swear!
I just wanted to thank everyone for their excellent suggestions. I think it's given me a pretty strong argument. Let's keep our fingers crossed that we can add another revolutionary!
One of the problems with
"One of the problems with socialism is its ideas might sound good at first, but don't work too well in the real world. I mean, who wouldn't want to have a guaranteed minimum income? How can there possibly be a downside to that?
Well....it's simple math. If you increase the amount of money employers are forced to pay per worker, you decrease the total number of workers employers can afford to hire. Thus, the higher the minimum wage, the fewer workers get hired, and the more people are unemployed.
In economics, everything ultimately boils down to the laws of supply and demand. In a free market, employers compete with each other to hire the best workers with the pay and benefits. Employees compete with each other to find the best jobs. As long as employers and employees are free to compete and bargain with each other, everything ultimately balances out in the end.
Minimum wage law is an artificial restriction on the market that attempts to ignore the law of supply and demand. It increases unemployment. It increases the disparity between the haves (employees) and the have nots (the unemployed).
If that wasn't bad enough, it creates a black market for undocumented workers, which is one of the reasons we have an illegal immigration problem. Illegal immigrants come into our country because they are willing to work at fair market wages which law-abiding Americans cannot do because of the minimum wage laws."
great point
about the black market for labor and the illegal immigration problem
Role of minimum wage
"Certainly businesses can make more money from people than the people themselves earn. Why do you think our country has a negative savings rate? Workers can stay afloat by going into debt, but unless some we start channeling some of that productivity gain we've experienced into higher wages, they won't be able to sustain that for long. The bills inevitably come due."
In summary, this person is saying that at the minimum wage people don't earn enough to consume as much as they need to live, and must borrow to exist. They argue that this is not sustainable.
Many borrow when they get their education, because it is an investment in future capability and earnings. They can't stay students forever, because it's not sustainable.
Many students intern for free, because it is an investment in future earnings. They can't intern forever, because it's not sustainable.
One who takes a minimum wage job should not endeavor to stay employed at this wage, but to use this experience and applied capability to advance future earnings.
Beyond that, I'm not sure what this individual thinks the living standard is that all of us should enjoy. If you can't afford a new car, don't buy one. If you can't afford to eat out at Cheesecake Factory every day, don't. If you can't afford a cell phone, don't buy one. If you can't afford to rent your own place, get a roommate. Or two. If you can't afford kids, don't have them.
Raising the minimum wage primarily robs people of experience and the opportunity to avoid a lifetime of entitlement living through reductions in the number of jobs available. This affects folks at the margins the most. If folks don't want to risk it, stay in school and take responsibility for becoming a more prosperous member of society, if that's what you want.
Some other arguments here:
http://www.nationalcenter...
A productivity gain
increases real wages without having to raise nominal wages. In other words, if more is being produced, then the same wage buys more. Productivity gains do translated into real gains in wages, unless inflation devalues the money enough to offset the productivity gain.
Exactly
The best way to help the lowest wage earners, is to make more goods available at a lower price. In other words, to stretch their dollars.
You are right,
the person you are debating is wrong. Whoever you are debating neglects the fact that companies have other input costs apart from labor costs. Since we are in a period of monetary inflation, companies are becoming less profitable despite the fact they may be making more money. This monetary inflation hits the other production inputs first, before pressure is felt for increased labor costs. Since most companies operate on very thin profit margins, this leads to a situation where if the minimum wage is raised, the company must lay off workers in order to sustain profitability.
The minimum wage is a political tool used to get Democrats elected, and since it is a mandated distortion, has no place in a free market society.
To Clarify
Mandated minimum wage simply means this - If you can't find a job that pays at least $7.50 an hour, the government will not allow you to work.
-LF
that's the best response!!!!!!!!!!!
another problem is all the "extra" costs associated with hiring, like unemployment compensation (an extra $0.98/hr)
massive health insurance costs, etc.
Taken to the extreme
Why stop at $7.50 hr? Why not make it $10, $50, $100 hr, then we can ALL be rich! ;-)
exactly
I've daydreamed about getting $1000 minimum wage on the ballot as a satirical point.
Just a question from overseas
Do you have a legally binding minimum wage? In Germany there is a discussion about introducing it. Until now I thought your "capitalist" country has no minimum wage.
Dr. Paul cured my apathy
There hasn't been true capitalism in the United States
since 1913.
There are exceptions to it...
Like jobs that include a large amount of income via tips, some farming work, and illegal immigrants...otherwise, no choice.
Yes, it is binding and set
by legislation.
I would recommend you fight it in your country. Free market will take care of this without another law.
Thank you for the information,
brainon4u2.
BTW: Regarding our row recently, I appreciate you have already buried the hatchet. I have finally done it too.
Dr. Paul cured my apathy
He also mentioned the minimum wage introduction in Germany
What is the market like there? Are prices high or low? What is the standard of living like in comparison to the wages paid?
It has not been introduced yet,
because the governing parties (our "great" coalition) disagree on that issue. Traditionally it was not seen as necessary since the trade unions in the main industries and in public service were so strong they could negotiate standard for wages ("Tarif") with the employer's federations. A permanently high unemployment rate (esp. in the East) and declining membership and the thread of globalization weakened the unions in most industries and more and more jobs went into industries that were without a "Tarif", esp temporary employment, security etc. At the same there is (though this is denied) esp. since the introduction of the Euro a steady rise in prices for goods for daily living. And in 2007 the VAT-rate was increased by the government. So the until now in Germany unknown "working poor" emerged. This is a real thread for the traditional German philosophy of "hard work for a good living". That is the (valid) reason for the current discussion.
A minimum wage would just increase inflation and strangel new business. A solution would be sound money and less income tax.
But there is no Ron Paul in the offing for us.
Dr. Paul cured my apathy
Woah
How is it that your English is so amazing? How do you know to abbreviate words like especially? Did you grow up in an English speaking country?
In my experience..
Most Germans, Dutch, Belgians and Danes who were born in the 1950's or later are reasonably fluent in English. It could have something to do with the fact that their schools aren't hopelessly screwed up like ours are.
-jcr
Oh, thank's a lot
Actually, no. I had English six years at school, but I wasn't really that good. But I was always interested in English and American literature, travelled a lot through Britain and Ireland and later studied for year at Warwick University in England. After I had finished my law studies I worked a couple of month for a law firm in London. Now I have settled for a less international professional live here as an attorney. But I still like to have an English chat and frequent reading. Yet I guess all European Paulites are "brushing up their English" since a couple of months.
BTW Your "tag" (hope that's right) sounds pretty Irish. Is it your family background or are you actually posting from Ireland? You know the Irish people are the only allowed to have a referendum on the new EU treaty.
Dr. Paul cured my apathy
My favorite German word is "schwimmen"
That's one thing that I wish I had learned well was a second language. When I go to France in the summers people usually understand me but I speak so slowly they usually finish my sentences for me! Nobody really travels outside the country here so foreign language classes are usually only required for 1 quarter. :(
I'm not from Ireland. I'm a Washington state resident in America. My dad's side of the family is Irish as in from Ireland recently. Who knows what my mom's side of the family is, though. However, I think maybe they might be German or Northern European because her maiden name is "Welle." What countries could that be? I think I have all the traits of someone Irish or Norwegian or something. Red hair, blue eyes, skin like a ghost! But I consider myself just American.
I would love to go to Ireland someday but unfortunately I haven't had the pleasure of going yet. I heard that they are one of the most libertarian countries in the world, along with Estonia but then I saw somewhere that they recently implemented a smoking ban and I thought that didn't sound very libertarian. What are your thoughts about this?
Languages
Don't worry about your experiences in France. The same happens to most foreign people who do not speak perfect French (like me). They are a little bit special with their language. Though their skill in foreign languages is generally speaking even worse then those of the English and the Americans and they try less. I understand you are not in need to learn other languages.We have just to travel a hundred kilometers to the west and the people speak Dutch or French. If you don't want to look arrogant you at least try to speak some everyday phrases. And some people there aren't still too happy to be adressed frankly in German (though they very often understand it) due to some historical events. So we very often resort to English. With the exception of the French most people at least in northern Europe speak it so well it is used as a common language.
Libertarianism in Europe? The Irish are very much of a 'live and let live'-mentality, so I guess you are right somehow. I very much like the people and the country. Maybe because my parents were there on vaccation nine month before I was born. I too have heard about the smoking-ban in Pubs and that it is widely accepted. I haven't been in Ireland for a couple of years, so I don't know how much this country has changed, they seem to have become finally rich. For more libertarian countries I think you have to go to the former socialist countries like Slowakia or as you said, the Baltic countries. But definetly not the eastern parts of Germany.
Quite annoying thinks go just the other direction here. In my state they are up to introduce a smoking ban in bars and restaurant, of course for health reasons. Some people here are worried with the help of the EU our country is more and more transformed to the kind of "welfare warfare state" Ron Paul speaks about.
If he would just become so well known as a candidate, that our mainstream press in Europe cannot ignore him any longer! I am sure that it would make an impact here in Europe too. So if you are in the State of Washington please look the GOP-establishment does not take away the Delegates you have won (compliments to Washington, anyway!).
To your mom's family name: "Welle" sounds like a distortion of "Weller" which is a rather common German name. I guess very often these names got distorted when the spelling is unusual for English. And as far as I know, since Worldwar I at lot of people cut off their German backgrounds because it was unpopular.
And here some German phrase you may understand:
Dr. Paul heilte meine Apathie
You are just the coolest
That's so odd to me that some Europeans would choose to speak English with each other when it is both people's second language! I had no idea!
I really hope the GOP doesn't take away our delegates. I know they are going to try to push through a slate of pre-selected delegates that the McCain campaign hand picked because I got a letter from the McCain campaign for God knows what reason and they said they wanted me to vote for the McCain-Romney-Guiliani-Thompson-Huckabee slate of delegates at the convention. The thing is though, after all of this, I don't think McCain will be president if he is the nominee. In the U.S., the black community still feels a lot of hurt because of the past wrongdoings and so I think they need a symbolic gesture made such as having a half-black half-white man become president. White people will vote for him too because they feel the same way. I don't think Barack Obama will change anything but I think he will win because Americans believe it will make up for the past.
That is so fascinating what you say about my mother's last name. How did you know it would be the name Weller? I thought Welle was an actual German word that means wave. Could you just tell because Welle doesn't seem like a real last name?
Actually, I was wrong,
there are people with the name "Welle" left behind in Germany:
http://www.verwandt.de/ka..., though there are much less than "Weller". The link provides a nice tool for people with German names to get some hint where there ancestors did come from. Though the last war uprooted a lot of people here, they still tend to settle at least near the place they are from. You see it if you put in my name "Peveling":
most name-bearers are in an area in the north-west, where my father's family does come from. It seems the name "Welle" is relative frequent in three different regions, so it's not very conclusive. If you like, you can put in the name "Paul" and see it's still a pretty common name.
After this little digression: the way delegates are selected is pretty confusing and seems to invite trickery by the party establishment. My guess is still, McCain will drop out before the Convention, either for health reasons or because some of his scandals. I agree he has no real chance to beat Obama, not only because of the black community.
Dr. Paul cured my apathy
It may also play a roll
in our illegal immigration problem. Maybe?
So many problems
There are so many problems with what this person said.
The business man earns his profit in several ways. First, he recognizes the unmet demand in the market. Then he uses the capital he has accumulated by postponing his own consumption (or borrowed at interest from someone else who has done so) to procure resources. Then he pays employees to labor BEFORE he gets any money from the sale of the goods they are producing. Essentially he advances payment to his workers. He takes the risk. If his products don't sell, it is the business owner that eats the loss. The workers don't have to give back their pay. The business owner earns his profit margin - a margin that is very narrow in a free market - by postponing his own consumption and taking risks with his own capital.
If the workers don't value the pay they are offered more than the labor they are asked to do, they refuse the offer. If they DO take the job, then by their own evaluation they are better off for having done so else they wouldn't do it. Of course they would like to be MORE better off, but the supply of and demand for their skill controls the wage they will receive just like it does with every other good or service in the market.
If government interferes with the wage rate set by the market for a particular skill the result will be the same result you ALWAYS get when you hold prices above the market rate - a surplus in whatever is being sold. In the case of wages, boosting the minimum wage results in a surplus of workers - unemployment. And, as other posters have noted, the unsaleable surplus of workers occurs at the margin. Those who have the least marketable skills - the young, the handicapped, the elderly - are shut out of the market.
Minimum wage laws are politically popular because the people who are just above the margin and don't lose their jobs get a boost in pay and the politicians can take the credit. But the people who lose their jobs or can't get jobs in the first place because they are at the margin don't know why they can't get work so the politicians avoid the blame. Just like with inflation, politicians can take credit for the benefits they bestow on a select few and can avoid being tagged with the blame for those who get screwed.
Ask your friend to find a single mainstream economist that thinks minimum wage is a good thing. He can't because this is something almost all economists agree on. Only politicians, labor unions, and workers just above the margin think minimum wage is a good thing.
I have a friend who advocates a minimum wage and in response to the unemployment advocates the dole. What a great way to introduce young workers to the marketplace! Keep them out of work and force them on to the dole right away.
more on this subject.
The following link is to the Mises Institute. In early May the site aired a debate on the merits of a minimum wage. The debate moderator is partial to our position, as you will find out. Dr. Walter Block convincingly argues for a free market approach to wages, however.
If that's not enough he also provides some laughs with a great comment to his opponent after they get done whining about how much time each is alotted, listen carefully.
The debate is entertaining and cordial. For those that are new to Austrian economic theory, like myself, Dr. Block provides great insight that is easily digestable. Enjoy.
http://mises.org/Controls...
Think for yourself. Question authority.
Do away with the
minimum wage and start a limit on maximum yearly earnings.
I should get a lot of flack from that statement.
Totally agree with that statement.
The minimum wage does nothing but promote slavery. People are getting paid less than the cost of living with the minimum wage, this is the definition of slavery.
a lot of flack for that statement.
.
*No time for proper response*
Not totally sure i read this right. However, if "debt" is part of his equation his thought process is diluted.
It's not that we all don't make enough money, -it's that the money we earn is worth less that it was yesterday. -and... you are getting nothing in return for the taxes you pay other than more debt.
Then go on to explain what money is and were it comes from.
"It is like a finger pointing away to the moon, don't concentrate on the finger or you will miss all the heavenly glory." - Bruce Lee
http://www.breakthematrix...
There are also a couple of good...
videos on google video where Milton Friedman explains this.
I don't know which one, but he doesn't have that many videos, and they are all GREAT. Watch them all.
Just google him.
good question & good
good question & good topic.
the minimum wage law is one of the most damaging economic laws there is.
it causes huge unemployment.
working jobs go to developing countries where kids are often employed
it has a huge slow down effect on the economy and prices increase.
think of wage as a price. if there was a $10 government enforced minimum on a pint of milk. what would happen? - people would buy a lot less milk and only buy it when they really need to. the same happens with employment.
this topic needs much more explanation. theres a really good, concise chapter in the book: 'economics in one lesson' by henry hazlitt.
I can help...
"Certainly businesses can make more money from people than the people themselves earn."
That statement depends on what the person is doing. If the job the person is doing isn't worth $7-8 per hour to the employer, he has to lose money to pay this person this amount... or simply not have that position within the company.
Minimum wage supporters don't understand that the minimum wage actually hurts the poor more than it helps. Why? Well, if the employer has a position that's only worth $5 per hour, he just won't hire anyone for that position, which means that's one less job in the job market.
The minimum wage law forces employers to have positions worth $7 per hour or more. Let's use a landscaping job as an example. Say someone wants landscaping done on their property, and they are willing to pay $1000 to get it done. The employer figures it would take 15 people 10 hours each to do the job. If he paid each of them $5 per hour, that's $750. He can make $250 profit by doing the job. So he agrees to do the work.
If the employer was forced to pay $7 per hour to those 15 people, the job would cost him $1050, and he would be losing money by performing the work. So, he doesn't agree to do the work, and 15 jobs are lost.
This is a simplistic versions, but to put it into a sentence...
Forcing employers to pay a certain amount for workers, ensures that there are no jobs for the lesser skilled workers who could and would work for less.
This is why we have millions of undocumented aliens coming across our borders and getting paid under the table. Our companies can't afford to pay our underskilled workers $7+ per hour and pay all the taxes and unemployment comp, workman's comp, etc., etc. So they hire illegals who will work under the table for less money. If we could pay OUR people less, we could hire them instead.
Right On
Minimum wage laws make it illegal for employers to hire low skilled, disabled and elderly workers.
Any elderly or disabled people who would benefit financially, physically and psychologically from working at a slower paced job (one that produces less than $7 an hour in income for the business which employs them) are out of luck.
Get on that dog-eat-dog treadmill and run for your life, grandma.
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