Minimum Wage

There's nothing to refute. He made a bunch of blatant assertions with no backing. Further, selling the wares is what a business wants to do, so lowering the price to increase sales makes sense. Unless, of course, your friend failed Business 101.

mber:

but companies would increase their margins rather than decrease their retail prices. wages would drop but consumer prices would not decrease, at least not in a way that would produce an overall increase in standard of living. "

 

If by "increase their margins" he means that companies would increase their profit I ask how could they if consumers can't buy what they want which is what he concludes would happen (the impovershment of the workers). The fact is, in order to maintain any profit the businessman must always lower his prices especially if he lowers wages because if he did not, no one could buy his expensive goods.

Secondly the businessman, as long as he increases production, always increases wages even if prices increase.

What's wrong with a company increasing its margins?  With their extra money, they can hire more workers and lower unemployment, invest it, put it in a bank, etc.

Thanks guys, appreciate it. I had a reply from another person who said something I didn't realize but is so true.

He said..

"No minimum wage would eliminate unemployment. As employment increases the individual business would once again have to start competing for skilled labor. Skilled labor would become much more valuable. So people would start taking jobs to learn skill, rather than make money. Raising the overall skill, national competitiveness and virtue of society as a whole."

mber:

This is the great myth of supply side economics, free market capitalism, and trickle down

If the exploitation theory of labor is correct, how does it explain that some people are payed above the minimum wage?

mber:

take away minimum wage laws and labor costs would drop but companies would increase their margins rather than decrease their retail prices

BAWAA is right. This is speculation. If a company payed its workers less to try to gain more profit, another business could easily step in and bid the workers away from them. If he's correct, tell him to go start a business in countries without a minimum wage law so he can make the amazing profits he imagines greedy capitalists can.

It also doesn't account for constant real wage increases during the 1800s.

Or tell him to think about it like this: What if the whole world were socialist and everyone had a 35 hour work week, health care and free schooling, and THEN a new country got set up and it was a capitalist country. Would it be exploitative? Would socialists move from their paradises to slave away in a factory for 2 cents an hour? No. The capitalist country would have to offer better conditions than the socialist countries. So capitalism is not inherently "exploitative", but rather depends on what kinds of alternatives people have.

We've had exploitation in history not because of capitalism, but because of feudal/imperial europe. We shouldn't piss all over american capitalism for exploiting irish, we should chastise the british for making ireland a living hell hole. Maybe if more of the world were capitalist, there could be more employers, so that there could be more competition among employers and therefore higher wages.

But even when the market was flooded with millions of low skilled workers fleeing slavery and death, America still provided the highest quality of life for the common man on earth at the time.

mber:

"No minimum wage would eliminate unemployment. As employment increases the individual business would once again have to start competing for skilled labor. Skilled labor would become much more valuable. So people would start taking jobs to learn skill, rather than make money. Raising the overall skill, national competitiveness and virtue of society as a whole."

By that logic, a min wage of 40 dollars an hour would be desirable to force us all to be doctors and scientists... He effectively wants to force people to be educated, even though they can already make this choice.

So is that what he thinks is best? That if someone doesn't want to invest their time and energy in education to earn 20 dollars an hour and would rather earn 10 using the skills they already have, that person is wrong?

Hammer these issues:
1) Raising wages means rising prices for everyone.
2) Raising the nominal wage doesn't do anything to help society if society doesn't produce more stuff. Our lives are constantly improved even if nominal wages don't go up because of the goods and services that constantly get cheaper and easier to afford (see non-regulated internationally competitive markets, like RAM/Flash memory)
3) If someone is unemployed and can work for 5 dollars an hour... let them? No one has a right to a job. I shouldn't have to serve my birthday party guests cake any more than I should have to pay people a certain amount. Its my property I can do with it as I see fit, in the same way that everyone else can.

No one thinks that affirmative action or mandatory redistributions of wealth apply at birthday parties, so why do they think they apply to other forms of private property?

Me: "Consumer prices decrease with an increase in production. More supply means a lower price. Businesses produce more through investing in capital goods. Now instead of having to pay an extra 2 dollars an hour for those employees, Business A can spend that new wealth on more capital goods. There's nothing wrong with a business increasing it's profits."

Him: "Again, this is a fallacy that's only true in theory. whether or not Business A has to pay its employees minimum wage will not significantly alter its output. the most likely outcome is that the company keeps most of the difference in profit, use the money for marketing, and that it expands its production capacity in a way that doesn't dramatically undercut its own pricing power. a perfect example is sneakers. now that nike's are all made in overseas sweatshops by kids working for pennies a day are the shoes suddenly any cheaper? of course not. where does all that extra money go? ask tiger woods."

mber:

How would you go about refuting this?

 

mber:

The discussion went like this...

It should contain you asking... Would you make the minimum wage $50 per hour? How about $100? If not, why not?

Ensue comment about not being consistent, and being completely arbitrary. Or get him to spell out his principle and show it to be absurd.

You might try asking him how many other shoe companies offer shoes cheaper than Nike at comparable quality, if they are squandering their production savings.

Or for that matter, play "follow the dollar".  What is Tiger Woods doing with Nike's money?

mber:

Him: "Again, this is a fallacy that's only true in theory. whether or not Business A has to pay its employees minimum wage will not significantly alter its output. the most likely outcome is that the company keeps most of the difference in profit, use the money for marketing, and that it expands its production capacity in a way that doesn't dramatically undercut its own pricing power. a perfect example is sneakers. now that nike's are all made in overseas sweatshops by kids working for pennies a day are the shoes suddenly any cheaper? of course not. where does all that extra money go? ask tiger woods."

Rofl okay. You need to press that competition between employers makes wages go up.... The reason I can't hire someone for a dollar an hour isn't because the minimum wage exists... its because everyone could just go work for someone else at a higher wage rate.

Secondly, turn his example against him: There are two kinds of sweat shops. Free market sweat shops and government sweat shops. Free market sweatshops, if you do the research, typically have a wage rate of 2-3 times higher than the surrounding wages. Government sweat shops lure workers with false promises about wages and hours, then break the contract and keep the workers basically enslaved as indentured servants.

Remind him that all the socialist utopias in europe have closed immigration policy; Some compassionate governments huh? And does socialist countries pay all their workers a minimum wage? No. Most of their workers are in africa and asia.

The last time we had something like a capitalist country, it allowed the poorest of poor immigrants to come here to better their lives. Looking back on that time period from our rosy middle-class lives, some aspects of the 19th century may seem lamentable. But so were all time periods before that. Its not like capitalism is WORSE than fuedalism or monarchy. Again, if he thinks capitalism is inherently evil, direct him to my "what if the whole world were socialist" example above.

Or to this thread. You don't have to argue alone ;)

Esuric:

Tell him to get out of his bubble and stop conflating all free-market economics with Keynesian supply-side economics.

Yeah, leftists do this often. This silly pet myth of their's has to be busted. They go around trying to portray free-market economists as supply siders (inflationist policy wonks used to justify deficits with tax cuts); subsequently screaming at them how trickle down theory fails. According to them, trickle down theory is cutting taxes for the rich, so that money will flow from them to the poor. Leftists have their flow of money chart completely upside down. Entrepreneurs have to bid for factors of production first, and depending on how accurate their forecasting is they'll either endure a profit or a loss (fill in the blanks are appreciated). Unless these cranks wish to remain thinking that all line of production are remunerative, they'd better learn the words loss and capital consumption.

 

mber:

So I'm having a discussing with another individual concerning the minimum wage law. The discussion went like this:

Him: "An unregulated free market tends to suppress wages in these jobs, not lift them."

Me: " If what you mean by suppress, is that the prices (wages) fall to their market value then yes. Wages are still determined by negotiated deals between Company and Employee and the competition in the market.

If you pan back from the picture, and look at the great benefit this creates on the overall economy, you can see that these companies are now offering cheaper consumer goods / services which of course raises the standard of living for everyone concerned."

Him: "This is the great myth of supply side economics, free market capitalism, and trickle down. take away minimum wage laws and labor costs would drop but companies would increase their margins rather than decrease their retail prices. wages would drop but consumer prices would not decrease, at least not in a way that would produce an overall increase in standard of living. "

 

How would you go about refuting this?

"ages" is a ridiculous aggregate. Some wages go up and some wages go down. Jobs are created while other jobs are eliminated. The sources of the data for calculating the are not the same as previous calculations, thus, you are comparing apples to oranges.

mber:

"No minimum wage would eliminate unemployment. As employment increases the individual business would once again have to start competing for skilled labor. Skilled labor would become much more valuable. So people would start taking jobs to learn skill, rather than make money. Raising the overall skill, national competitiveness and virtue of society as a whole."

That's quite silly. Don't you think that if this were the case then companies would begin to go for skilled labor first and only anyway? Do you really want to hurt those already with the lower wages? And how are they supposed to go off to become skilled? If they were to, say, go off and become skilled at some school or other then that would simply cost large amounts of capital to learn how to do things (putting the individual in debt) as opposed to letting the individual become skilled and gaining wealth for himself and the society.

Let alone, how in god's name would it elmininate unemployment? Seriously every time we see the minimum wage rise do we see a proportional decrease in unemployment? Furthermore what about the elderly and those who cannot affored to become more skilled labor? What if, in certian industries labor just isn't worth that much? You are limiting the means for the structure of production, you cannot make any promises under your model.... Well besides the fact that the higher you raise the minimum wage the more black market jobs there will be.

And in the case on nike shoes, do you know exactly what the costs are in making the shoes? What about the prices of competators? If consumers really weren't satisfied with nike shoes and thier prices as opposed to thier competators that nike either wouldn't change its production structure or go out of buisness? Also, wages tend to match productivity in the long run, this is how wages rise.

Good little read on the subject

http://mises.org/books/whywagesrise.pdf