Monopsony? but that is predicated on the assumption of perfect competition which is flawed.
Something to do with reswitching -how does this work?
And finally efficiency wages? Still though, wouldn't high wages tend to just bid people away from other parts of the economy, where they are more needed?
Where can I read this argument (that minimum wage increases employment)?
tough to say, I'll see if I can come up with a link.
fakename: tough to say, I'll see if I can come up with a link.
(look at the notes and citations)
The only arguments that I have heard about wage controls increasing prices is in the case of wage-caps because of the backward-bending supply curve for labor, and this argument is theoretically sound assuming that the government knows at which wage rate workers will begin to work less (which is a bad assumption, though). Myself, I have never heard of anybody advocating that minimum wages would increase employment, and not even Paul Krugman, though the link proves he has been a good thinker in the past though his current work is pretty much rubbish, would make such a mistake.
Abstract liberty, like other mere abstractions, is not to be found.
- Edmund Burke
fakename:And finally efficiency wages? Still though, wouldn't high wages tend to just bid people away from other parts of the economy, where they are more needed?
Basic supply and demand. If they were "more needed" in some other part of the economy, that sector would offer higher wages.
faber est suae quisque fortunae
laminustacitus: The only arguments that I have heard about wage controls increasing prices is in the case of wage-caps because of the backward-bending supply curve for labor, and this argument is theoretically sound assuming that the government knows at which wage rate workers will begin to work less (which is a bad assumption, though). Myself, I have never heard of anybody advocating that minimum wages would increase employment, and not even Paul Krugman, though the link proves he has been a good thinker in the past though his current work is pretty much rubbish, would make such a mistake.
Well I did a quick read on "real and nominal real wicksell effects" and basically to understand why a wage increase could build employment, you have to throw out marginalist theory.
fakename: laminustacitus: The only arguments that I have heard about wage controls increasing prices is in the case of wage-caps because of the backward-bending supply curve for labor, and this argument is theoretically sound assuming that the government knows at which wage rate workers will begin to work less (which is a bad assumption, though). Myself, I have never heard of anybody advocating that minimum wages would increase employment, and not even Paul Krugman, though the link proves he has been a good thinker in the past though his current work is pretty much rubbish, would make such a mistake. Well I did a quick read on "real and nominal real wicksell effects" and basically to understand why a wage increase could build employment, you have to throw out marginalist theory.
Honestly, its basic supply and demand analysis, open up a basic macroeconomics text book and read it in depth. No "quick read" will be able to prove this principle wrong, a technical essay would be required to say the least. Nor does it throw out marginalist theory because it is Neoclassical theory, and the Neoclassicals are true marginalists.
As far as the analysis goes: the supply curve of labor is backwards bending, so it follows that if a wage cap is placed at the point at which individuals begin working less due to their salary that they would work more. As a result, it is theoretically possible that a wage-cap can increase the amount of labor in the economy.
Furthermore, how does this theory "throw out marginalist theory"?
laminustacitus: ... not even Paul Krugman, though the link proves he has been a good thinker in the past though his current work is pretty much rubbish, would make such a mistake.
... not even Paul Krugman, though the link proves he has been a good thinker in the past though his current work is pretty much rubbish, would make such a mistake.
To be fair, recently Krugman made a point which I considered a very good one. He argued that removing the minimum wage would not have as dramatic of an effect as many free-market economist seem to suggest (for example, Murphy suggested that if minimum wage was repealed unemployment would be solved within six months). Most jobs are above the minimum wage.
It was a good point, although admittedly there is still much wrong with it. For example, he doesn't consider that many unemployed workers who were making wages above minimum wage, but under what can be considered "professional" wages (this is an arbitrary figure, but it's meant to allow me to make my point; from $7.51 to $25), are willing to take low-paying jobs, even if beforehand they were technically making over the minimum wage. Also, he doesn't consider job prices which were bid up starting at the minimum wage, and not at whatever the market price would be (although, then again, theoretically at that point the company's marginal revenue probably allows that wage to be given, and so maybe this part of my argument does not stand).
Nevertheless, a lot of what Krugman writes is rubbish, but one out of every thousand blog posts gives a valuable lesson. It's better than what I can say for Brad DeLong, that's for sure.
Marginalism perhaps: At the "now" they would be bid away to another sector (assuming of course that the minimum wage at that sector was substantially higher than the wages at other areas). But if they would be more needed "later" so they would later, offer higher wages. I would argue that unless some consumption preferences altered, then this min. wage would lead to an economic downturn.
laminustacitus:Furthermore, how does this theory "throw out marginalist theory"?
supposedly one of the conditions for the wicksell effect is that an increase in interest rates causes an increase in capital. Which is wierd since a decrease in interest is supposed to cause that only.
P.S. I never heard about your backward sloping theory -very impressed.
Jonathan M. F. Catalán: laminustacitus: ... not even Paul Krugman, though the link proves he has been a good thinker in the past though his current work is pretty much rubbish, would make such a mistake. To be fair, recently Krugman made a point which I considered a very good one. He argued that removing the minimum wage would not have as dramatic of an effect as many free-market economist seem to suggest (for example, Murphy suggested that if minimum wage was repealed unemployment would be solved within six months). Most jobs are above the minimum wage.
Hence the fact I qualified my statement with "pretty much". :p
fakename:Marginalism perhaps: At the "now" they would be bid away to another sector (assuming of course that the minimum wage at that sector was substantially higher than the wages at other areas). But if they would be more needed "later" so they would later, offer higher wages. I would argue that unless some consumption preferences altered, then this min. wage would lead to an economic downturn.
Honestly, I do not see how this proves the demand and supply analysis I gave wrong. In addition, I am discussing maximum wages, not minimum wages, which your analysis seems to forget when it discusses firms offering higher wages.
A request: could you provide me the source that you had read.
fakename: laminustacitus:Furthermore, how does this theory "throw out marginalist theory"? supposedly one of the conditions for the wicksell effect is that an increase in interest rates causes an increase in capital. Which is wierd since a decrease in interest is supposed to cause that only.
However, I'm not discussing either, I am discussing wages, and wage-caps.
fakename:P.S. I never heard about your backward sloping theory -very impressed.
Its a basic result of the Slutsky equation, and both the income and substitution effect. In no way is it my theory, but it is a basic tenet of the vast majority of modern, economic labor-analysis.
Card and Krueger wrote an error-filled paper and subsequent book (Myth and Measurement: The New Economics of the Minimum Wage) stating that the negative effects of minimum wage laws are nonexistent. Even though their work has been disproved by several sources, minimum wage advocates continue to use their paper as "proof" of the goodness of a minimum wage increase.
However, I have never heard of anyone stating that minimum wage increases will increase employment.
Rob Blackstock, Ph.D.Senior EconomistAmerican Economic Services
laminustacitus: Honestly, I do not see how this proves the demand and supply analysis I gave wrong. In addition, I am discussing maximum wages, not minimum wages, which your analysis seems to forget when it discusses firms offering higher wages. A request: could you provide me the source that you had read.
So you're saying that a maximum wage prevents workers from preferring more leisure?
http://books.google.com/books?id=S6KZVx8rcXAC&pg=PA443&lpg=PA443&dq=positive+real+wicksell+effect&source=bl&ots=dEjCpiBG1H&sig=38SApnfWXFkVQPT4sTQqdjwySXE&hl=en&ei=-M5dS8_fM47IsQOg6rWcAw&sa=X&oi=book_result&ct=result&resnum=8&ved=0CCoQ6AEwBw#v=onepage&q=positive%20real%20wicksell%20effect&f=false This link shows what I'm thinking about from page 443-444.
Rob Blackstock, Ph.D.:However, I have never heard of anyone stating that minimum wage increases will increase employment.
Oh yeah? It seems to be a common phenomenon for me when I see online debates. The guy in favor of min.wage will say something like "stateA raised minimum wages and stateB didn't but employment increased in state A" or something like that. And then, conclude min. wages boost employment. I also thought that the card/krueger paper said this too but I guess I'm wrong.