28-04-2002 07:10									#1
	The Problems with a Minimum Wage (Economics 101) Support Apolyton, pre-order Civilization IV

Contention: Minimum wage laws, while benevolent to some extent, if altered positively, will only serve to harm the economic improvement of an area and the people living there.


The issue of minimum wage laws came into being in the late 19th century when the common people of the industrialized world were working in atrocious conditions for next to no pay and, due to the fact that unions were illegal, did not have the ability in any way to control the selling cost of their product: labour. Because of these problems, the governments of a number of industrial countries, fearing a marxist revolt, enacted minimum wage laws to guarentee a fair wage for workers.

With the continuation of capitalism, however, and the gradual advancement of even the poor in these nations, not to mention the power of organized labour, minimum wages became less of an issue. Nevertheless, minimum wages rose and rose through the decades.

There are numerous problems with minimum wage laws, however. Ignoring the obvious fact that with their nearly monopolistic power, organized labour usually can sell labour at whatever cost, and that such laws are only more involvement of the gov't in private business, there are other problems caused by rampantly increasing minimum wages.

Chief among them is the deteriation of competitive capitalism. Capitalism requires competition but, in a modern industrialist state, establish big business, with their vast resources and capital, have notable advantages over a fledgling entrepreneur. Rockefeller was known for driving down oil prices to wipe out competition. With his vast resources, he could afford to take a loss that the entrepreneur could not.

Similiarily, big business is far more capable of weathering high minimum wage laws. A small business, with its limited initial resources, would be incapable of paying its workers the mandated wage and still having competitive prices. Small businesses would be forced to raise their prices, making their downfall certain. Established businesses may take losses to stay competitive, eventually destroying the small business, which must either fire its workers (reducing production) or increase prices. Further entrenched, the big business may now raise prices to make up for the increase in wages, resulting in the obvious increase of wages equates to an increase in the cost of living, completely nullifying the entire basis of a minimum wage law.


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(there you go... some old time Albert Speer for yall who thought I was now just rambling about a vengeful God)

	28-04-2002 07:11									#2
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I would say that the minimum wage law over here has worked well. So you really don't know what you are on about.

	28-04-2002 07:19									#3
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Well, yes there are problems with the minimum wage law, Speery. It prevents a true equilibrium in the labor market and thus creates excess demand, which in turn causes unemployment. However, if we were allowed to remove the minimum wage, everyone (more or less) would have a job. The competition among firms for workers after that would benefit workers immensely, but at HUGE costs to the firms. Many would probably be wiped out by preditory competition. The big firms would be able to totally outspend other firms for talent and thus having the better talent would be able to win the competition.

	28-04-2002 07:21									#4
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	28-04-2002 07:28									#5
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Imran:

I do not favour the complete removal of the minimum wage, but rather a limited one, though my reasons for its staying are more of a humanitarian concern than the competition concerns you described. Excessive increasing of the minimum wage, however, espoused by leftists, will only result in an economic decline and be of no consequential help to the worker.


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	28-04-2002 07:30									#6
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And I find it ironic that a removal of the minimum wage or its excessive increasing will both result in essentially the same rise in business costs and destruction of small competition. Is our only hope a moderate course?

	28-04-2002 07:30									#7
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You say minimum wage might be a problem to the companies, but you should remember that there are several countries whose minimum wage is below 350$ (like in Portugal, for example, almost 350€).

	28-04-2002 07:32									#8
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The minimum wage, to a point, does protect workers. However, it is high now, and should not be further increased. As Imran said, it creates more unemployment and in this age creates a desire to switch from costly human labor to cheaper mechanical labor, creating even more unemployment for unskilled workers.

	28-04-2002 07:33									#9
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$350 a week? Divide that by 40 hours and that is $8.75 an hour.

In the US, the minimum wage is ~ $6 an hour.

	28-04-2002 07:43									#10
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It's clear that when there is welfare, there must be minimum wage- if you make less working than not working, you clearly won't work.

Why must there be welfare? So that you won't end up with people on the streets during a recession.

Therefore there must be a minimum wage.

	28-04-2002 07:47									#11
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quote: Originally posted by Goingonit Why must there be welfare? So that you won't end up with people on the streets during a recession. Therefore there must be a minimum wage.

uh, recessions become depressions when businesses go out of business when they can't afford to pay employees. That'll create even more people 'on the streeet'

	28-04-2002 07:48									#12
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quote: Originally posted by Imran Siddiqui $350 a week? Divide that by 40 hours and that is $8.75 an hour. In the US, the minimum wage is ~ $6 an hour.

NO IMRAN, <350$ A MONTH!

(In Europe the wages are paid monthly)

	28-04-2002 07:51									#13
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Goingonit:

quote: It's clear that when there is welfare, there must be minimum wage- if you make less working than not working, you clearly won't work.

Ever heard of a union? Unions exist similiar to businesses. Just as businesses sell a product, workers sell their product known as labour to businesses. Yes, in times of high availibility of workers, the demand for labour is less and the cost of labour is low, but unions exist as monopolies of labour. Unions control the labour demand and thus the cost of labour, causing minimum wage laws to be irrelevent in most cases.


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	28-04-2002 07:52									#14
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quote: Originally posted by Zealot NO IMRAN, <350$ A MONTH! (In Europe the wages are paid monthly)

Ahhh... you don't have to roll your eyes at me .

In the US most wages are paid bi-monthly or weekly.

	28-04-2002 07:58									#15
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quote: Originally posted by Imran Siddiqui Ahhh... you don't have to roll your eyes at me .

Now you know what the or else part in the Don't mess with me or else... sentence means!

quote: Originally posted by Imran Siddiqui In the US most wages are paid bi-monthly or weekly.

I know, but I forgot that you might not know how's the European wage system.

	28-04-2002 08:07									#16
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quote: The big firms would be able to totally outspend other firms for talent and thus having the better talent would be able to win the competition.

This doesn't make the least bit of sense Imran. How could the elimination of the minimum wage result in an expensive battle to secure talent on the part of companies? The only bit of the labor pool that would be effected at all would be the completely unskilled (ie the only people willing to work for less than the current minimum wage) how could there be a bidding war over these people's non-existant skill let alone an expensive one since they're willing to work for **** (or else the elimination of the minimum wage would have no effect on them)?
Repealing the minimum wage probably won't have that much effect one way or another. There's already plenty of people working illegally for less than the minimum wage (immigrants and whatnot) and also its hard to see what kind of jobs would be created that would employ large numbers of the unskilled in the US. As far as manufacturing goes the cost of living in the US is too high for there to be all that much growth in unskilled sweat shop work (ie even with no minimum page its cheaper to hire third world peasants and in any case I'd bet that third world peasants are more relaible workers than the average unemployed American) and as far as service jobs how many more unskilled jobs are really needed? Don't we already have enough burger-flippers? I guess a few more maids would be hired but that's about it. On the other side there'd be some employers lowering wages and shafting workers even harder but there probably wouldn't be all that much of this since if they lowered wages that much then the turnover would go through the roof to the point where lowering wages would get counter-productive.

	28-04-2002 08:23									#17
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quote: This doesn't make the least bit of sense Imran. How could the elimination of the minimum wage result in an expensive battle to secure talent on the part of companies?

Of course it does... You have a 5% unemployed number (abouts). You take away the minimum wage and you end up with about 0% unemployed. There is no surplus labor pool to pick up people. The service sector would have to raise its wages to attract workers (like in the late 90s, I remember, CVS raised its wage payed from $5.50 to $6.00 an hour because of the less unemployment... and so did many other service labor employing companies). If the wages are raised in the bottom, there will be a sort of trickle-up effect . It'll begin with a slight increase in inflation (more money in the out there), and lead to labor unions asking for more money to make up for the cost of inflation. Of course, the unions will ask for more than that.. because they will realize that there isn't any suplus labor. The unions will begin to understand that replacements would be hard to come by. The companies of course would try to counter this by vastly overpaying for its labor (so they wouldn't strike).... and on and on.

Butterfly effect, basically.

	28-04-2002 08:28									#18
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quote: Originally posted by orange uh, recessions become depressions when businesses go out of business when they can't afford to pay employees. That'll create even more people 'on the streeet'

Sure thing, Mr. Hoover

This is the reason you have deficit spending and interest rate adjustments. The government pays to buoy up the economy in recessions, and cashes in during booms when economic growth means more tax income.

	28-04-2002 08:38									#19
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quote: Originally posted by Imran Siddiqui Of course it does... You have a 5% unemployed number (abouts). You take away the minimum wage and you end up with about 0% unemployed.

What's your logic for that?

I see a couple of problems:
1) There is a natural level of unemployment (e.g. people temporarily switching jobs). Generally considered 4 per cent unemployment, although there is debate about the level.
2) Most governments would not allow unemployment to drop to low levels because of the upward pressure on wages. Big business would lobby for an increase in interest rates to hold down inflationary effects and that would prevent unemployment from reaching 0 per cent, even if natural level is discounted.

	28-04-2002 08:53									#20
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quote: 1) There is a natural level of unemployment (e.g. people temporarily switching jobs). Generally considered 4 per cent unemployment, although there is debate about the level.

The transitional level is much lower than that. And changing jobs is within in 6 months, so for all intensive purposes, the unemployment is nil.

quote: 2) Most governments would not allow unemployment to drop to low levels because of the upward pressure on wages. Big business would lobby for an increase in interest rates to hold down inflationary effects and that would prevent unemployment from reaching 0 per cent, even if natural level is discounted.

Yes, the government might attempt to increase increase rates to decrease inflation and increase unemployment. However, I was treating this topic as theoretical (As I thought Speer was treating it), and in theoretical terms you treat the issue as ceterus parabus, all other things being equal (I know I screwed up the Latin ).

	28-04-2002 09:01									#21
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We had unemployed before we had a minimum wage. Counbtries that have no min wage today have unemployed. While conservative politicians like to complain about the min wage, it has helped to diminish the effects of poverty. Min wages increase demand for products, meaning that more people have to get hired. This is not the theory, this is how it works in the real world.

From a political point, min wage helps prevent people like me from gaining a mass audience.

BTW, when adjusted for inflation, our min wage is lower that it was in 1969. It needs to be raised again. That's not gonna happen, though with this congress and president.




man I hate these Sun keyboards. All the buttons are switched around.

	28-04-2002 09:04									#22
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Sounds good in theory. But the theory doesn't hold up in practice. In the past dozen years, everytime the minimum wage has been increased, the economy has surged and unemployment has dropped.

The lower paid workers tend to spend a greater percentage of their income than higher paid worker. Thus, when they get pay raises, they buy more stuff. This increased demand for products, which increases production of goods, which increases employment. Rising waters lift everyone's boats.

	28-04-2002 09:07									#23
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Well, I don't think our minimum wage needs to be raised .

While there should be a min wage, it should be a low floor.

	28-04-2002 09:10									#24
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quote: Sounds good in theory. But the theory doesn't hold up in practice. In the past dozen years, everytime the minimum wage has been increased, the economy has surged and unemployment has dropped.

It isn't cause and effect. Usually the minimum wage gets raised in times of economic prosperity, because the pols think, there is so much money, why not.

quote: The lower paid workers tend to spend a greater percentage of their income than higher paid worker. Thus, when they get pay raises, they buy more stuff.

This would work if there were a great amount of workers at the minimum wage area. Most people that make min wage are teenagers (or people in school) and elderly. Minimum wage usually isn't paid to people from 25-60. Those people have higher paying jobs (and no union worker makes min wage).

quote: Thus, when they get pay raises, they buy more stuff.

Most of what lower income earners purchase isn't the durable goods that make the economy go. Usually they spend more money on service sector products.

	28-04-2002 09:17									#25
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quote: Originally posted by Imran Siddiqui the minimum wage gets raised in times of economic prosperity

...namely, when the Democrats are in power.

	28-04-2002 09:25									#26
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quote: when the Democrats are in power.

IIRC, the minimum wage was raised under Reagan. Now if you make the case that Reagan was a Democrat in the 80s, then you are delusional .

And Nixon also raised it... another Democrat, right?

	28-04-2002 09:29									#27
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To: Albert Speer

I fail to see how someone living in Philly PA can say that the minimum wage is bad for the economy as minimum wage will not allow you to survive in this area. If you are working min wage you are earning 12480 a year, gross. My wife an I are living comfortably on 55K together but even we, who have stopped using credit cards and the like, can't have everything we want. I fail to see how a law that allows people to make 1/5th-ish of what my wife and I are making (or 2/5ths if there if there is 2 people working together) can be bad for the economy....at least in this area of the country. If people cannot survive on min wage then how can they survive on less???

(BTW, I live outside of Philly in Bensalem and I work in King of Prussia/Valley Forge area)
Woohoo! 8 posts.

Last edited by PaleHorse76 on 28-04-2002 at 09:35

	28-04-2002 09:31									#28
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Answer this question. Why did the "Capitialist" Henry Ford start paying his workers building the Model-T $5 per day?

	28-04-2002 09:37									#29
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quote: Answer this question. Why did the "Capitialist" Henry Ford start paying his workers building the Model-T $5 per day?

To keep them healthy (can buy better food than before) so they would be productive workers?

	28-04-2002 09:42									#30
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Imran

Not even close. And you think you are informed on this issue?