28-04-2002 09:43									#31
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quote: Originally posted by Promethus Answer this question. Why did the "Capitialist" Henry Ford start paying his workers building the Model-T $5 per day?

Because he wanted the best workers available.

Unfortunately, most business managers are as smart as ol' Henry. Remember the epidemic of "corporate anorexia" in the late '80's? There was a trend to get rid of older, experienced workers and replace them with inexperience, entry level people. The thought was that the lower salaries would mean hirer taxes. The reality was that the quality of the product or service collapsed and customers left in droves.

	28-04-2002 09:43									#32
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I would think being one month away from getting a Bachelor of the Arts in Economics would make me informed on the minimum wage .

--

And another guess is so they could be able to afford the cars that they made.

	28-04-2002 09:46									#33
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quote: ...problems caused by rampantly increasing minimum wages.

And where, exactly, are minimum wages running rampant?

	28-04-2002 09:49									#34
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In Speer's head?

	28-04-2002 10:01									#35
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Imran

Quote:

I would think being one month away from getting a Bachelor of the Arts in Economics would make me informed on the minimum wage .

You would think? But you have to guess?

However your second guess is correct.

	28-04-2002 10:31									#36
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Spear as a capitalist I totally disagree. Its not all about economic devolopment. So what if thousands are hired a day, what good is it to the economy if there being paid 5 cents an hour?

Point made...

I think M.Wage should be 7.00. Thats the highest. Any higher would spike prices for consumable things like Mcdonalds burgers and register purchases.

	28-04-2002 10:49									#37
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I NEVER said to destroy the minimum wage. I said that it should be kept at a controlled level. There are dangers in eliminating it and dangers in rising it. As I've said for three years on this site... The gov't always got to be careful when they mess with the minimum wage.


thanks

	28-04-2002 11:48									#38
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Still, I don't see how minimum wage is out of control or running wild.

It seems a bit low in my opinion. At least when you compare it to guys who make BILLIONS OF DOLLARS A YEAR!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!

[extra exclamations added to completely validate my argument]

	28-04-2002 12:23									#39
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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.

$6.00 is the minimum allowed set by the federal government??

Then why is the minimum wage legally set at $5.15 per hour in the state of Iowa??

	28-04-2002 13:00									#40
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quote: Originally posted by Imran Siddiqui Ahhh... you don't have to roll your eyes at me . In the US most wages are paid bi-monthly or weekly.

not most I know

Jon Miller

	28-04-2002 13:03									#41
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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.

I still don't see how you reached your conclusion. I'm not saying you're wrong. I just don't see the link.

Here's what I would expect, although I'm sure I've made a mistake here.

If the minimum wage is eliminated then the employers cut salaries. That temporarily increases the owners profit. Some of this increased profit goes into investment, and some goes into consumption. But at the same time, min. wage earners have lower salaries and therefore decreased consumption. So while the employers see a temporary increase in profits, due to reduced costs, eventually the decreased consumption eats into the profits.

I suppose the money that goes into investment could create new jobs, but these jobs will be temporary because consumption has decreased and the profit windfall to the employers is temporary.

It seems to me that we end up in pretty much the same place as before, wrt employment levels, while wages are lower for min. wage workers.


Or what have I missed?

	28-04-2002 13:08									#42
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quote: Originally posted by MrFun $6.00 is the minimum allowed set by the federal government?? Then why is the minimum wage legally set at $5.15 per hour in the state of Iowa??

I think federally it is arround 5

in oregon it is almost 7

in minnesota it is 5.50, but durring the boom (I am not sure now) many minimum wage jobs were paying 8 and 9 because workers were not available (I should say in minneapolis)

Jon Miller

	28-04-2002 13:20									#43
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quote: $6.00 is the minimum allowed set by the federal government?? Then why is the minimum wage legally set at $5.15 per hour in the state of Iowa??

About meaning an average of the states (As far as I know).

quote: If the minimum wage is eliminated then the employers cut salaries. That temporarily increases the owners profit. Some of this increased profit goes into investment, and some goes into consumption. But at the same time, min. wage earners have lower salaries and therefore decreased consumption. So while the employers see a temporary increase in profits, due to reduced costs, eventually the decreased consumption eats into the profits. I suppose the money that goes into investment could create new jobs, but these jobs will be temporary because consumption has decreased and the profit windfall to the employers is temporary. It seems to me that we end up in pretty much the same place as before, wrt employment levels, while wages are lower for min. wage workers. Or what have I missed?

Well, we agree that unemployment would fall? Well, assuming that we do, you'd have less consumption as you said for the minimum wage earners (which isn't as great as you would believe... mostly teenagers and elderly). However, because of their reduced cost, their marginal propensity to consume would rise, to the detriment of savings. The increased investment by industry would make up for the less savings by individuals.

In the short run, what you say is correct. However, in the long run, a newer equilibrium takes shape. There happens to be a lack of surplus labor. Those that change jobs are about 2% (IIRC), but they are usually going from high skilled jobs to another, and not between minimum wage jobs. The lack of surplus labor to the lower end service sector means that, in order to hold onto their workers or entire more (if, say, a new McDonald's opens up), they would have to pay their workers more. As you probably noticed, new stores pay their workers more. Wages have been observed to be sticky downwards, meaning that once they go up, it is hard for them to go back down. This competition among firms that hire the min wage workers would have to raise their wages to keep their workers or entice more when they need them.

This was seen in the 1990s boom, when firms that hired people at min wage, ended up paying their workers a whole lot more, because of the very, very low unemployment numbers. There was lack of supply in the labor market, pushing wages up higher. The best time to work in a low tech service sector job was in the late 90s, when no one would offer min wage, but more like $1-$2 above it. And, even in recessionary periods, the wages stuck. My local CVS (where I worked) still pays the wage it payed in the late 90s (which was above the min wage) because it can't reduce it (sticky downward wages).

	28-04-2002 13:20									#44
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quote: in minnesota it is 5.50, but durring the boom (I am not sure now) many minimum wage jobs were paying 8 and 9 because workers were not available (I should say in minneapolis)

Ah... this is what I was talking about in my diatribe above... thanks Jon .

	28-04-2002 13:21									#45
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The Federal minimum wage is 5.15 still. The economic theory is pretty solid regarding minimum wage, meaning an increase in minimum wage will mean a decrease in employment ceteris paribus. The only study I've seen which contradicts this was done by Card/Krueger but they only sampled employment at fast food restuarants( I don't think marginal analysis really works here); which isn't an accurate sample of the employment market. Given that Mickey D's etc. always over schedule their shifts because 1 to 2 people call off every night, therefore an increase in minimum wage would correspond with a decrease in callouts.

Imran ever heard of the Natural Rate of Unemployment? (including structural, frictional, and voluntary unemployment)

	28-04-2002 13:24									#46
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quote: Imran ever heard of the Natural Rate of Unemployment? (including structural, frictional, and voluntary unemployment)

But of course . However, what it is, no one knows. I mean, during the late 90s we actually went BELOW the Natural Rate of Unemployment, forcing a rethinking of how to calculate it.

	28-04-2002 13:25									#47
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DP

	28-04-2002 13:28									#48
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quote: But of course . However, what it is, no one knows. I mean, during the late 90s we actually went BELOW the Natural Rate of Unemployment, forcing a rethinking of how to calculate it.

In response to your zero percent comment.

I think it's pretty evident that natural unemployment varies over time, the late nineties was in response to a fall in voluntary and frictional unemployment, I think.

	28-04-2002 13:29									#49
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quote: Originally posted by Imran Siddiqui Well, we agree that unemployment would fall?

No. That's my question. If the minimum wage is eliminated, why would employers hire more people. What incentive would they have?

If I am running a shop and I need and have four workers, eliminating the minimum wage does not increase my demand for more workers.

	28-04-2002 13:29									#50
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quote: In response to your zero percent comment.

Well, I mean, when the unemployment reached the Natural Rate, it was said that there was NO unemployment, and that is usually said, so that is what I was refering to.

	28-04-2002 13:34									#51
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quote: No. That's my question. If the minimum wage is eliminated, why would employers hire more people. What incentive would they have? If I am running a shop and I need and have four workers, eliminating the minimum wage may does not increase my demand for more workers.

Well, it is basic economic theory that minimum wage prevents equilibrium. It sets a wage floor, and at that point there is excess demand. At that price more people want to work than there are jobs for. Ok?

So, when the wage floor is eliminated, people would be able to higher more people at the lower wage. At a lower wage, the quantity supplied would increase. For the simple reason that usually more workers in minimum wage businesses are something that is very highly wanted, but cannot be supplied at the minimum wage price. At the lower price, the extra wanted workers can be hired, and there will be no excess demand.

You don't believe that every min wage business has exactly the workers it needs, do you? I can verify that at the CVS I used to work at, we always *****ed about needing more workers, and always wanted one. Just that senior management decided we couldn't afford any more. If the minimum wage were lowered or eliminated, that CVS would be able to, and would, hire at least a few more people.

	28-04-2002 13:46									#52
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WRT min. wage preventing equilibrium, that is only true if the min wage is above the equibrium point.

Assuming that it is, and taking your example, if the minimum wage is eliminated, the employer could hire more workers, but what's the incentive? The only benefit is increased production, but if the employer believes there is no demand for this increased production then why would the employer want to increase production? The employer may decide that even if the employers are complaining about being overworked, they're still doing the job that needs done so there is no need to hire more people. If I have 20 people working at MacDonalds and the min. wage drops, what benefit do I gain by reducing my profit windfall to hire more workers? How do these additional workers increase my profit?

Essentially, my not-well-thought-through proposal is that the Marshallian demand-supply curve may not be useful for labour economics. But maybe I have missed some big factor.

	28-04-2002 13:57									#53
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quote: WRT min. wage preventing equilibrium, that is only true if the min wage is above the equibrium point.

That's the whole point .

--

You are kind of looking at it the wrong way. Most min wage firms would rather have more workers to increase productivity because everything isn't being done. The place looks like a mess because there are too few workers on the same shift (once again, going back to my experiences at CVS.. and talking to other people in the mall). By increasing productivity (marginal rate of productivity increases until you hit a high point... which is usually not even close to be met by most min wage firms), you increase your profits.

Simply put there is always an incentive to hire more workers . Look at what happens when taxes drop, unemployment goes down. Why? Because now companies can afford more workers that they couldn't before. Whenever the relative price of labor goes down, you will always see hiring of more workers. That is just one of the facts of life.

	28-04-2002 14:02									#54
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The service sector is a *****. But take lunch hour at say Micky D's sure that day the 20 people might be able to handle the workload and no revenue will be lost. But some of the customers might be disastisfied with the waiting time, and decide to go to BK instead on thier next lunch. This extra revenue might not be justifiable at $7/h, but it might make sense at $6/h.

	28-04-2002 14:03									#55
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I think the minimum wage should be raised to $50 an hour so everybody benefits. Yeah.

	28-04-2002 14:11									#56
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quote: Originally posted by Imran Siddiqui Simply put there is always an incentive to hire more workers . Look at what happens when taxes drop, unemployment goes down. Why? Because now companies can afford more workers that they couldn't before. Whenever the relative price of labor goes down, you will always see hiring of more workers. That is just one of the facts of life.

The incentive to hire workers is based on marginal returns so it is not necessarily true that you always have an incentive to hire workers.

You may be right, but a cut in taxes creates the expectation that spending will increase so hiring new workers makes sense because employers would expect there will be more business.

But cutting the minimum wage creates the expectation that people have less money to spend, so employers would have no incentive to hire because they would assume the consumption will fall.

As well, the increased profit margin caused by lower labour costs could entice some businesses to lower prices in the belief that they will gain a larger share of the market. All businesses then follow suit and we end up at the same place as before. The deflationary effects could increase min. wage workers purchasing power to previous levels, but I'm not sure about this one.

	28-04-2002 14:21									#57
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quote: The incentive to hire workers is based on marginal returns so it is not necessarily true that you always have an incentive to hire workers.

In the service sector min wage jobs, there high point of the marginal return cost hasn't been reached, so there is that incentive.

quote: You may be right, but a cut in taxes creates the expectation that spending will increase so hiring new workers makes sense because employers would expect there will be more business.

Not really... the reason that more people are hired because of lower taxes is because they have more money to spend on labor. The fact that people have more money doesn't enter into it, because individuals don't spend more if only the corporate taxes are cut, but yet, still more people are hired.

quote: But cutting the minimum wage creates the expectation that people have less money to spend, so employers would have no incentive to hire because they would assume the consumption will fall.

You might be correct if a vast number lived on min wage. But the numbers are more like 5% of the population who are living on the current min wage in their area. A drop in income of 5% of the population really doesn't factor that much into companies plans. And with a fall in income, the average propensity to consume would increase. Where the avc might be 70% before, it would rise to 80% afterwards (as the income gets that low, the more percentage of it is spend on consumption rather than savings).

quote: As well, the increased profit margin caused by lower labour costs could entice some businesses to lower prices in the belief that they will gain a larger share of the market. All businesses then follow suit and we end up at the same place as before. The deflationary effects could increase min. wage workers purchasing power to previous levels, but I'm not sure about this one.

Usually this doesn't happen, based on empiracle evidence. What occurs when companies have more money to spend, is they increase employment. This is why after every tax cut, unemployment has fallen.

	28-04-2002 15:12									#58
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quote: Originally posted by Imran Siddiqui You are kind of looking at it the wrong way. Most min wage firms would rather have more workers to increase productivity because everything isn't being done. The place looks like a mess because there are too few workers on the same shift (once again, going back to my experiences at CVS.. and talking to other people in the mall).

That can be also caused by a lack of experienced workers as opposed to just a lack of workers. You may have to pay them twice as much but they can do the work of three inexperienced workers.

quote: Originally posted by Imran Siddiqui Simply put there is always an incentive to hire more workers .

I don't see how that can be. There is only so much resource available for each worker. When you increase number of workers, you decrease the amount of resources available to each, driving down productivity.

	28-04-2002 15:19									#59
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quote: That can be also caused by a lack of experienced workers as opposed to just a lack of workers. You may have to pay them twice as much but they can do the work of three inexperienced workers.

Experience hardly matters at all in min wage income jobs. You can teach someone how to do it in a day.

quote: I don't see how that can be. There is only so much resource available for each worker. When you increase number of workers, you decrease the amount of resources available to each, driving down productivity.

Only if you assume you've reached the peak for marginal rate of productivity (MRP). I believe that you have not in most (if not all) min wage income firms. You are still on the upward slope of the MRP.

	28-04-2002 19:13									#60
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According to theory, unemployment will increase, but only if the minimum wage is imposed above the equilibrium level. Of course, as we all know, economic theory has it's limitations, and also, it's almost impossible to distinguish the equilibrium level, especially for an economy as a whole.

Now, even according to the theory, if you are to set a minimum wage *below* the equilibrium level, this will deter the cowboys and the exploiters whilst having minimal effect on unemployment.

In the UK, the recent introduction of the minimum wage did not cause unemployment. In fact, unemployment was falling significantly at the time. However, it's difficult to tell whether the lack of a minimum wage would've allowed unemployment to drop even further.