One free market/libertarian answer to unemployment and poverty is lowering the minimum wage. My question is, how the heck are people supposed to live off a lower minimum wage?
The minimum wage is already pretty low, if we lower it to say 3-4 dollars an hour, how is someone supposed to survive off that income?
Characteristics of minimum wage workers:
http://www.bls.gov/cps/minwage2011.htm
these 3.8 million workers with wages at or below the Federal minimum made up 5.2 percent of all hourly-paid workers.
Although workers under age 25 represented only about one-fifth of hourly-paid workers, they made up about half of those paid the Federal minimum wage or less
Among employed teenagers paid by the hour, about 23 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over.
Never-married workers, who tend to be young, were more likely than married workers to earn the Federal minimum wage or less (about 9 percent versus about 2 percent).
Conclusion? The minimum wage affects the young, never married people. Not established families with children.
By creating a disemployment effect at younger years, the minimum wage prevents young workers from gaining the work experience that results in higher wages. If child labor and minimum wage laws were repealed, kids could 1) Earn some money while still with their parents so that they could start off life with a financial cushion, and 2) Gain work experience which makes them more attractive for better employment.
I'd really like to see their data. I want to do a regression analysis controlling for marital status, age, and hours worked per week. Especially since for people who work at least 40 hours of week who are paid at or below Min Wage sum to 1.7%. Older married people with children who work full time appear to be exactly NOT the demographic that works at or below min wage.
Remove other harmful things like the drug war (and consider the industry it would allow to create), and you have yourself a very likely improvement in the lives of people.
All out of http://candlemind.com/projects/progclub/file/michael/SSN.php
And from the "Costs" article above,
Robert L. Woodson (1989, p. 63) calculated that, on average, 70 cents of each dollar budgeted for government assistance goes not to the poor, but to the members of the welfare bureaucracy and others serving the poor. Michael Tanner (1996, p. 136 n. 18) cites regional studies supporting this 70/30 split. In contrast, administrative and other operating costs in private charities absorb, on average, only one-third or less of each dollar donated, leaving the other two-thirds (or more) to be delivered to recipients. Charity Navigator (www.charitynavigator.org), the newest of several private sector organizations that rate charities by various criteria and supply that information to the public on their web sites, found that, as of 2004, 70 percent of charities they rated spent at least 75 percent of their budgets on the programs and services they exist to provide, and 90 percent spent at least 65 percent. The median administrative expense among all charities in their sample was only 10.3 percent.
myhumangetsme: I think the really obvious point that is being missed here is that adjusting the minimum wage downward does not mean that market prices in general can remain at current higher levels, or that they will. Most prices will eventually adjust downward to accommodate the lower cost of labor (and purchasing power).
I think the really obvious point that is being missed here is that adjusting the minimum wage downward does not mean that market prices in general can remain at current higher levels, or that they will. Most prices will eventually adjust downward to accommodate the lower cost of labor (and purchasing power).
The minimum wage doesn't affect 96% of all workers, it's been estimated (iirc). Most workers are productive enough to be paid more than the minimum wage already. Therefore lowering the minimu wage, or eliminating it, would have virtually no effect on prices and purchasing power, certainly not lowering purchasing power.
In fact, many more people would be able to enter the work force, especially the young, whom not are priced out of the market by the minimum wage, and overall purchasing power would actually increase.
The minimum wage has only one use and it's a political use: to pretend to be helping the lower class in order to gain votes.
In practice, the minimum wage has historically trailed the wage increases pre-existing it on the market, with the effect that political proponents can claim that it's actually doing something, but in fact it's doing nothing but artificially limiting work.
96%
94.8%
Thanks, my number were old anyway, coming from Sowell's Basic Economics, and from memory at that.
It's fine. It changes every year :)
Anenome:The minimum wage doesn't affect 96% of all workers...
Define 'affect'.
Anenome:Therefore lowering the minimum wage, or eliminating it, would have virtually no effect on prices and purchasing power, certainly not lowering purchasing power.
So what you're saying is that if your local McDonald's and all of the suppliers they purchase supplies from suddenly experienced an up to 55% decrease in annual labor costs (from a minimum wage drop from $7.25 to $4.00) that somehow the savings from that decrease in costs will not eventually be reflected in the price of their products. Forgive me if I think you're being shortsighted.
What? You're missing the point. The only way that they would experience a 55% fall in annual labor costs would be if they fired all of their existing employees and replaced them with 11 year olds and/or the crippled. The point is that reducing or even eliminating the minimum wage would have practically no affect on the labor market as a whole; it would only permit a very small faction from entering who were priced out due to the arbitrary price floor.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
myhumangetsme: Anenome:The minimum wage doesn't affect 96% of all workers... Define 'affect'.
94.8% of all workers already earn more than the minimum wage, without the government forcing them to do so. And the reason is because they're already far more productive than that which would be needed to earn a wage higher than the minimum.
myhumangetsme: Anenome:Therefore lowering the minimum wage, or eliminating it, would have virtually no effect on prices and purchasing power, certainly not lowering purchasing power. So what you're saying is that if your local McDonald's and all of the suppliers they purchase supplies from suddenly experienced an up to 55% decrease in annual labor costs (from a minimum wage drop from $7.25 to $4.00) that somehow the savings from that decrease in costs will not eventually be reflected in the price of their products. Forgive me if I think you're being shortsighted.
You don't really understand what causes a labor purchase price to exist (what you call a wage). A wage is just a price for labor, and like everything else is determined by supply and demand. You have a false view that only a law, called the minimum wage law, is keeping prices paid for labor from dropping.
As I already said, 94.8% (thank you Wheylous) of all people are so productive that they can command a wage already above the minimum.
The minimum wage further has the effect not of propping up wages, as you're assuming here, but rather of stopping the employment of anyone who is not productive enough to command a wage of at least the minimum wage.
Which means that all current McDonald's employees are just productive enough to command their current wage. Meaning eliminating the minimum wage law may have virtually no effect on their wage whatsoever.
If anything, it'd be new employees whom aren't yet productive enough to command the current minimum who would start at a lower wage. However, they'd rapidly garner work experience and be able to bid up the price of their labor services as well.
McDonalds would actually be able to hire more people because of the lowered minimum, and these people too would quickly gain work experience--experience they wouldn't have gotten with the minimum in place--and be earning a wage they wouldn't have earned with the minimum in place.
And because of supply and demand, if a particular job is judged by workers to not be worth the price paid for those labor services, workers will not take that job. Thus the price is not determined by the law, but supply of workers and demand for workers by employers. If workers will not take X job, it must mean that they can obtain better employment elsewhere at a higher wage rate.
In any case, by gaining work experience they also gain work-related skills and can then bid up their wage, since they are becoming more productive sooner than they would have under a minimum wage law.
Perhaps you're right that McD's could find a lot of workers at $4/ hour. I doubt it, but it's possible. And perhaps they would be able to lower prices. However, no one would be forced to take a job at that rate. Which means those workers would realize they're particularly unskilled and are happy to work at that wage, for now, while they gain experience. Such would be a completely entry-level job.
In any case, we can easily see that the current minimum wage at any level simply prevents jobs from existing that would exist, and prevents those whom most need work experience from getting it, and discriminates particularly against the young and unskilled and other minorities.
Esuric:The only way that they would experience a 55% fall in annual labor costs would be if they fired all of their existing employees and replaced them with 11 year olds and/or the crippled.
I said "up to 55%" in recognition of that fact. But given the turnover rates in those types of jobs (you do realize fast food has one of the highest turnover rates of all jobs?) it is not unreasonable to expect that such a decrease could be realized, and fairly quickly.
Furthermore, jobs that pay the minimum wage and jobs whose pay is affected by the minimum wage are two distinctly different things. The pay range of jobs affected by the minimum wage can be surprisingly high because of a sort of wage ripple effect. Experienced employees at the next level or two (and possibly more depending on the industry) above minimum wage paying jobs tends to become overvalued, as the rise in the minimum wage forces employers to re-evaluate the cost of paying to promote and train someone inexperienced at a certain position versus paying more to keep an existing, experienced employee. If the employer has already been forced to risk significantly more than market value to hire a low-end employee, the additional risk of promoting that employee to the next level tends to move employers towards the latter.
Esuric:The point is that reducing or even eliminating the minimum wage would have practically no affect on the labor market as a whole...
That would matter if I had made that argument, but I didn't. The OP's gripe seemed to be pointing to the fact that people making less at the minimum wage than they are now would be harmful because the costs of goods and services in the market would and could remain high, but there's very little reason to believe that would necessarily be the case; in fact, there's pretty persuasive reasons to believe that it wouldn't.
But given the turnover rates in those types of jobs (you do realize fast food has one of the highest turnover rates of all jobs?) it is not unreasonable to expect that such a decrease could be realized, and fairly quickly.
It is highly unlikely because established firms will not hire 12 or 13 year old children, for a myriad of reasons (the individual's whose productivity warrants such wages).
The pay range of jobs affected by the minimum wage can be surprisingly high because of a sort of wage ripple effect. Experienced employees at the next level or two (and possibly more depending on the industry) above minimum wage paying jobs tends to become overvalued, as the rise in the minimum wage forces employers to re-evaluate the cost of paying to promote and train someone inexperienced at a certain position versus paying more to keep an existing, experienced employee.
How is this relevant?
You're talking about the cash balance effect, but the point is that income will not fall at all (or to any significant degree) as a result of lowering or removing this arbitrary price-ceiling. And, which has already been pointed out, if it has any affect at all, it will actually increase income (and therefore variable costs) in the aggregate.
So if you want to assume that incomes will fall as a result of this policy change in order to demonstrate your point, then go ahead, but the assumption itself is untenable.
You want an actual scenario where prices fall, I suggest one where most physical labor has been taken over by semi-intelligent robots. Truck drivers and delivery, burger flipping, even crop preparation care and harvest are on the verge of complete automation.
In a world where labor counts for some 85% or thereabouts of the cost of a product, mechanizing could ultimately bring that way down.
The tradeoff is that mechanizing is expensive up-front. But again, just goes to show that what the world lacks is an abundance of productive capital. With all those machines in place and written down, food prices can ultimately fall dramatically.
Levon:Would volunteering and interning be an optimal alternative for younger workers who have no skills with which to compete in the labor market?
Ok, yes! This is something that has confused me for awhile. I think the existence of volunteer work puts the moral argument for the minimum wage on its face, because we can see how inconsistent the logic is.
Lets say that I voluntarily choose to donate time to work for a charity. I work for four hours, and I get paid nothing in return for my four hours. Not only that, lets also assume that I am 12 years old. No one bats an eye, other than to congratulate me on my giving heart, and to thank the charity for supplying the volunteers. Why is this not child labor and exploitation? Now, if we view this same circumstance except we change it from charity labor to for-profit labor, all of the sudden hiring the 12 year old and paying him nothing for his work is immoral, even if he is perfectly willing to work for free.
Hell, even if the twelve year old is willing to work for $5/hr and that is less than minimum wage, we lynch the company. So we would prefer someone to pay a 12 year old nothing for his labor in the name of charity than to pay him $5 an hour in the name of for-profit business. Either they are both "immoral child labor", or neither of them are.
Had another question: have any studies been conducted into the psychology of the minimum wage affecting employers? What I mean is, is there any evidence that employers may offer slightly above min. wage just to make the job more attractive in that "hey, it aint a minimum wage job!"
Say there is no min wage, and so jerry makes $5 an hour. He creates $6 of value for his employer.
so, has any work been done to ask employers if, say, we now add a minimum wage to story, say $5.10, then might they now offer $5.20 just to make the job a non-minimum wage job.
I kind of doubt this would happen, but i wonder if the minimum wage causes differences in employer and employee psychology, in that perhaps when a min wage is in place, employees find these jobs to be less socially valuable then they would have been at the lower, real wage. Just wondering...doesn't seem like they would but I wasn't sure.
Also, how does the austrian argument that min wage creates unemployment apply to workers whose value is not objectively clear. Such as in Edgar the Exploiter, say someone who does administrative work and does not directly add to the income of a business, how do most entrepreneurs place an exact accounting value on workers like these.
"If men are not angels, then who shall run the state?"
The libertarian/free market answer is to abolish the minimum wage law. Businesses can create positions and pay whatever is commensurate for that position in the free market. Because of the minimum wage law, numerous service positions no longer exist. It is illegal to hire people to do those jobs. The idea is that people are paid what they're worth, acquire skills and experience, and become more valuable, more productive.
someone who does administrative work and does not directly add to the income of a business
Why do you think he does not directly add to the income of a business?
If he goes, won't the company lose money because they need someone to do what he does?
If this is the case, then the company can estimate how much he saves them, and that's what he's worth.
If they don't need him, what's he doing there in the first place?
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Smiling Dave: someone who does administrative work and does not directly add to the income of a business Why do you think he does not directly add to the income of a business? If he goes, won't the company lose money because they need someone to do what he does? If this is the case, then the company can estimate how much he saves them, and that's what he's worth. If they don't need him, what's he doing there in the first place?
He makes reports for/to the government.
If the company saves itself from fines by having him do his work, then, given the situation, he is an asset.