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I'm no phd in economics (just a dumb undergrad), so any of the more well-read/advanced economics students (I know there are upper level undergrads and grad students here), feel free to chime in.
Within economics there is a division between economists between those who support the minimum wage and those who do not.
Recently, there has been a shift towards a conclusion (however hotly debated) that the minimum wage has had minimal negative effects (See Card and Krueger's book, as well as Krugman's and Stigiltz's support of the book's conclusion).
Really, the minimum wage is a system for income redistribution. I think a lot of the argument is that there are more efficient systems of income redistribution (one that does not have disemployment effects or at least less market distortion).
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I'm no expert in economics yadda yadda yadda qualifying statement
lets pretend you're buying anything. like let's say a new car. The car has a market price of 20000$. This means that at this price, the social benefit in the market is greatest. This basically ends up as there are enough people willing to buy at this price to match the amount of people willing to sell at this price. If the car is cheaper, more people would be willing to buy and less people would be willing to sell, and so on and so forth.
Now let's say the government says that this car needs to be sold for 16000$ because it's too expensive to spend 20000$ on cars. As a result, even though now more people want to buy cars, less people want to sell them-why sell at $16000 when they value it at closer to $20000? This can be seen whenever anybody says that you have to sell gas at a certain price-the stations essentially close and people line up for gas for miles.
Now we go into wages. The minimum wage does one very important thing: any job that is valued at less than the minimum wage is simply not in the pool. Nobody would offer a job if they had to pay more than they could get back. Let's say minimum wage is $7 an hour. People value picking up garbage at $5 an hour and there are people who are willing to do it at that lousy wage. Because of minimum wage, you are forced to pay $7 an hour for this job. But why would you pay $7 for something you value at $5? Hence, nobody would be able to do the job because nobody is hiring people to do it. If there were no minimum wage, sure they might be getting paid peanuts, but they would still be able to do it, and having a $5 hour job is better than being unemployed.
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Caller I understand that logic, but does more jobs necessarily mean less people in a state of poverty? Isn't the minimum wage set up or at least "supposedly" set up to guarantee someone a livable wage where they can afford housing/food/medical care?
Also, if there were no minimum wage wouldn't businesses be more inclined to exploit the workforce, especially the unskilled workforce as much as possible?
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On October 06 2010 14:25 Mickey wrote:
Caller I understand that logic, but does more jobs necessarily mean less people in a state of poverty? Isn't the minimum wage set up or at least "supposedly" set up to guarantee someone a livable wage where they can afford housing/food/medical care?
That is its intention, yes, so arguably if there was no minimum wage you'd just have more people employed but the "extra" employed would all be living way below the poverty line.
However, those people are still under the poverty line with a minimum wage - they aren't earning anything at all. I'd argue its better for them and for the economy as a whole that they get the opportunity to work for, say, $2.50 an hour and then get help from the government to make it up to $7.50 an hour (or whatever number you want it doesn't really matter) than it is for them to just get the whole sum.
(Hint: This is why a negative income tax would be amazing)
Also, if there were no minimum wage wouldn't businesses be more inclined to exploit the workforce, especially the unskilled workforce as much as possible?
Well, this depends how you define "exploit". Some people think its exploitation to pay someone $12/day to work for 12 hours making shoes - but when you look at the labor market in China or Indonesia, there are tens of people competing for those $1/hr jobs. A company has incentive to pay what the work is worth - and what the work is worth is determined by both the company's demand for it and the supply of it. This is why it is perfectly natural that manual labor, no matter how physically tiring, is paid less than, say, teaching PhD Economics, because far fewer people can teach PhD econ than can mow a lawn.
At the end of the day, life is unfair as all shit. People are born retarded, disabled, or flat out not good at something useful. But just because that happens doesn't mean you can be justified in taking money from everyone else to make sure they can reach an "acceptable" standard of living.
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True capitalism by definition has no minimum wage.
But have you read Grapes of Wrath?
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I'm an undergrad economics student, which means I don't know jack. I didn't watch the videos, but I intend too. I just want to state that the whole minimum wage thing is the first thing they teach us in econ. The minimum wage draws in people who initially wouldn't be in the labour force. So one of the main problems with it, is that people who really don't haveto work (stay at home moms, students, retirees) now have incentive to work because of the minimum wage. This is bad for those who actually have to work since they're competing with those who really don't have too. Obviously in lassez-faire, the market would adjust so that those who actually need to work, do work, while those who don't stay out of the market.
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On October 06 2010 14:25 Mickey wrote:
Caller I understand that logic, but does more jobs necessarily mean less people in a state of poverty? Isn't the minimum wage set up or at least "supposedly" set up to guarantee someone a livable wage where they can afford housing/food/medical care?
Also, if there were no minimum wage wouldn't businesses be more inclined to exploit the workforce, especially the unskilled workforce as much as possible?
if we were still in the gilded age when there was no such thing as cheap transportation, the internet, free-flow of information, and the like, then I would be more likely to agree with you below. But as it stands right now, people can pick and choose. It's not like you can only apply to one job and be stuck with it regardless of how horrible the conditions are these days. The market depends on this flow of information-ex. if workers are being treated badly, just don't work for that company, etc.
I don't understand what poverty has anything to do with this. All I'm saying is that there are jobs and people who don't have jobs want to get one so that they can work, even if they are not making as much money as some other people. It's not that being paid $5 or w/e an hour is entirely sustainable for a family of 4, even if you really cut costs. But taking federal aid and all that out of the question (i.e. pretend nobody got unemployment benefits). Then what happens? Its either find a job or starve. The minimum wage removes the lower paying jobs from the labor pool. So you have essentially caused the people who are now unemployed to starve.
Now pretend there is federal aid. From a purely civic point of view, even if we gave people "unemployment money" if they made under a certain level-say for instance we got rid of the "minimum wage" but paid workers who made less than that enough money to sustain the minimum wage. So if we have three workers-
Bob makes 10 an hour
John makes 7 an hour (min wage)
Tim is currently unemployed but could find a job that pays 5 an hour (but due to min wage he can't take it). Thus, we have to pay him $5 in unemployment money.
Now let's say we got rid of the min wage.
Bob makes 10 an hour
John makes 7 an hour
Tim makes $5 an hour + $2 in "min wage benefits"
+the job gets done
In this very tiny scenario we just removed the minimum wage and voila, the government saves $3. If Bob or John's company decide to suddenly cut wages here they can go protest/sue, so unless there is a strong economic reason nobody would be dumb enough to cut wages to gilded age styles. I suppose if you really like government intervention and all that you could have companies apply for the ability to pay less than min wage, to make it similar to a work-study program in how it functions.
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EPT
