EPTEconomist Thomas Sowell chronicles also its hurtful impact on minorities in his columns through the years.
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Danglars
United States12133 Posts
Economist Thomas Sowell chronicles also its hurtful impact on minorities in his columns through the years. | ||
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WhiteDog
France8650 Posts
On January 20 2014 19:57 Danglars wrote: Up the price of labor, reduce the purchase of labor. Really sucks for the skilless entry-level worker, particularly youth. Those countries with the highest minimum wages+mandatory benefits tend to have youth unemployment rates in that 20%+ range. It costs the young valuable work experience and pay. Economist Thomas Sowell chronicles also its hurtful impact on minorities in his columns through the years. That is what first year students learn in class. Then when they grow up a little, they learn that markets behave differently in regards to their structure, and that the labor market is not a market that behave like a pure and perfect market - they read all the work on the idea that labor market might be a monopsone. They also can make a link between one market and the specific situation the world is in, with a potential output way higher than its real level, making them touch the idea that we might be in an equilibrium of under employment. I guess at this point most students kinda see that the banana market is not exactly the same as the labor market. According to economic theory, increasing minimum wage is absolutly a good idea when the minimum wage is too low, as the particular market structure (monopsone maybe), or the specific historical context (crisis), does not permit the market to reach its equilibrium by itself (to say it simply, a normal labor market will not reach a "good" wage by itself because it is not a perfect market and because the anticipations of agents on the future are so bad that they keep everything lower than it could be). My problem is that even this logic is, in my point of view flawed. This is modern economic theory, the same theory that neglect society and human behavior. When you increase minimum wage in this situation, you increase short term global consumption and profit within a society. Economists believe that this excess profit will give birth to more jobs and a virtuous circle, but I see no reason for it not to just ends up in more profit, more inequality, and no or almost no job created. There is an underlying problem of redistribution of the wealth created that is never explicitly discussed because it is too political. | ||
Liquid`Drone
Norway28739 Posts
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aksfjh
United States4853 Posts
On January 20 2014 20:39 WhiteDog wrote: That is what first year students learn in class. Then when they grow up a little, they learn that markets behave differently in regards to their structure, and that the labor market is not a market that behave like a pure and perfect market - they read all the work on the idea that labor market might be a monopsone. They also can make a link between one market and the specific situation the world is in, with a potential output way higher than its real level, making them touch the idea that we might be in an equilibrium of under employment. I guess at this point most students kinda see that the banana market is not exactly the same as the labor market. According to economic theory, increasing minimum wage is absolutly a good idea when the minimum wage is too low, as the particular market structure (monopsone maybe), or the specific historical context (crisis), does not permit the market to reach its equilibrium by itself (to say it simply, a normal labor market will not reach a "good" wage by itself because it is not a perfect market and because the anticipations of agents on the future are so bad that they keep everything lower than it could be). My problem is that even this logic is, in my point of view flawed. This is modern economic theory, the same theory that neglect society and human behavior. When you increase minimum wage in this situation, you increase short term global consumption and profit within a society. Economists believe that this excess profit will give birth to more jobs and a virtuous circle, but I see no reason for it not to just ends up in more profit, more inequality, and no or almost no job created. There is an underlying problem of redistribution of the wealth created that is never explicitly discussed because it is too political. This is where it's important to look at the current economic environment to determine what will happen. There is a possibility that the extra spending capacity will just create more profit that will not go back into production (aka "creating more jobs"). However, it's probably best to think that the 2nd order increased purchasing power of this low class will have a combination of 3 effects on the supply side (with the assumption that demand will outstrip supply): 1) Inflation will occur. Suppliers will not invest in further infrastructure or workers to meet demand, and instead will simply raise prices to take advantage of the surge in demand. 2) Worker efficiency will improve. This will basically "justify" the mandatory increase in the wage floor. More products will be bought and sold, profit margins will go almost no where, and no jobs will be lost/found. (Highly unlikely scenario) 3) Producers will look to produce more to capitalize on the increased demand. This will require hiring more workers and/or investing in improvements to production. In a "normal" economy (whatever that phrase even means anymore), the first is likely to occur. More labor is harder to come by, so the increased demand just raises prices until it becomes more lucrative to hire another worker than increase prices. However, labor is highly competitive right now, with unemployment so very high. This means the third is most likely to occur. Of course, this isn't going to happen unilaterally, with industries following the 3 to different degrees. | ||
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hunts
United States2113 Posts
At least that's my understand from the business classes I've taken, I am not an econ major, and if someone who knows more than me is willing to shed some light as to how I'm right or wrong I would appreciate it. | ||
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xDaunt
United States17988 Posts
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aksfjh
United States4853 Posts
On January 21 2014 00:40 hunts wrote: I feel like too few people actually understand that upping the minimum wage by a lot (such as seatacs $15/hour minimum wage) is actually much more of a bad thing than a good thing, and when told as such simply go "oh, so you hate poor people." Honestly if you increase minimum wage drastically, it can't be a good thing for the economy in general. All those fast food and other companies that employ for minimum wage will have to raise their prices to compensate for their payroll expenses skyrocketing suddenly. Demand for all those items with increased prices will go down as a result, especially given it won't just be the minimum wage employees who all just got a huge raise buying said items, it will also be above minimal wage employees who got no raise who just had to witness their own spending power shrink due to price increase due to minimum wage increase. Because of this lack of demand for more expensive goods that companies have to make to make up for their increased payroll expenses, those same companies will have to either cut hours or cut people. So in the end what is likely to happen is minimum wage employees being worse off as unemployment goes up or they lose hours, and those who make exactly $15/hour or just above that also being worse off because of the increase in prices of certain items due to minimum wage increase. At least that's my understand from the business classes I've taken, I am not an econ major, and if someone who knows more than me is willing to shed some light as to how I'm right or wrong I would appreciate it. The problem with that introductory, first-glance theory is two-fold. First, the assumption is that labor is the biggest cost to the company. Second, that the business's only responses to being forced to pay their workers more is to increase prices or lay off workers. In reality, many of these businesses have other costs of businesses that actually dwarf the cost of employees, like equipment, real-estate, and capital loss. Along with that, there are things businesses could do that would reduce their costs and/or increase profits that do not include layoffs or price increases, like shifting managerial focus towards worker retention and training and shift efficiency. Of course, this doesn't factor in any increase in sales either, or the fact that many businesses can afford to pay their employees more than the current minimum wage, but don't have to due to the current labor market. On January 21 2014 00:55 xDaunt wrote: The funny thing about economics (at least how it's taught in the US) is that you pretty much chuck everything that you know about it every time that you advance to a new level of learning. Upper division courses teach very different principles and models than those that you see in lower division courses. Graduate level courses seemingly do away with most of the upper division material and teach you a whole new way to look at the field with the more advanced dynamic modelling. Not exactly. Your line of thinking is exactly why we're having issues with this crisis right now anyways. Each level is like any other course of study, where you learn nuances and asterisks as you go. Certainly, it may seem like you chuck everything out the window, but that baseline you learn at earlier levels helps you understand why they don't work in certain circumstances, but can still use them as a starting point. | ||
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Crushinator
Netherlands2138 Posts
On January 21 2014 00:40 hunts wrote: I feel like too few people actually understand that upping the minimum wage by a lot (such as seatacs $15/hour minimum wage) is actually much more of a bad thing than a good thing, and when told as such simply go "oh, so you hate poor people." Honestly if you increase minimum wage drastically, it can't be a good thing for the economy in general. All those fast food and other companies that employ for minimum wage will have to raise their prices to compensate for their payroll expenses skyrocketing suddenly. Demand for all those items with increased prices will go down as a result, especially given it won't just be the minimum wage employees who all just got a huge raise buying said items, it will also be above minimal wage employees who got no raise who just had to witness their own spending power shrink due to price increase due to minimum wage increase. Because of this lack of demand for more expensive goods that companies have to make to make up for their increased payroll expenses, those same companies will have to either cut hours or cut people. So in the end what is likely to happen is minimum wage employees being worse off as unemployment goes up or they lose hours, and those who make exactly $15/hour or just above that also being worse off because of the increase in prices of certain items due to minimum wage increase. At least that's my understand from the business classes I've taken, I am not an econ major, and if someone who knows more than me is willing to shed some light as to how I'm right or wrong I would appreciate it. You are pretty much right. Minimum wages introduce a whole bunch of market inefficienies, the benefit is a higher standard of living for "unskilled" employees, though it would also mean that less jobs are available for the unskilled. It is hard to say what is preferable for the minimum wage group as a whole, it will be worse for those individuals who now can't find employment, but better for those that still have a minimum wage job. It seems you need to have unskilled workers to have a substuantial monetary incentive to work, rather than collect government benefits. But it is quite hard to say what the best solution is, paying subsidies to employers of the unskilled is a possbility but that creates similar inefficiencies, in part because it is impossible to determine eactly what the fair price of labour would be for each employer. Such a system would be prone to abuse. Not setting a minimum wage, and supplementing workers wages to some minimum acceptable level through benefits is also possible, but once again creates inefficiencies because workers lack an incentive to negotiate more pay from their employer, and employers that get away with underpaying their workers the most will thrive. Unfortunately, trying to ensure a a reasonable standard of living for everyone always comes at a price. | ||
KwarK
United States43565 Posts
On January 21 2014 01:20 Crushinator wrote: You are pretty much right. Minimum wages introduce a whole bunch of market inefficienies, the benefit is a higher standard of living for "unskilled" employees, though it would also mean that less jobs are available for the unskilled. It is hard to say what is preferable for the minimum wage group as a whole, it will be worse for those individuals who now can't find employment, but better for those that still have a minimum wage job. It seems you need to have unskilled workers to have a substuantial monetary incentive to work, rather than collect government benefits. But it is quite hard to say what the best solution is, paying subsidies to employers of the unskilled is a possbility but that creates similar inefficiencies, in part because it is impossible to determine eactly what the fair price of labour would be for each employer. Such a system would be prone to abuse. Not setting a minimum wage, and supplementing workers wages to some minimum acceptable level through benefits is also possible, but once again creates inefficiencies because workers lack an incentive to negotiate more pay from their employer, and employers that get away with underpaying their workers the most will thrive. Unfortunately, trying to ensure a a reasonable standard of living for everyone always comes at a price. You are just another forum poster confirming that his a priori ideological conclusions conform with yours which, given you share starting assumptions, is hardly surprising. That's not really enough to for you to verify that he's right, especially when both of you are contradicting the report that started this discussion on the previous page with nothing but assumptions about the way in which a simplified model of the market will respond. | ||
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Crushinator
Netherlands2138 Posts
On January 21 2014 01:34 KwarK wrote: You are just another forum poster confirming that his a priori ideological conclusions conform with yours which, given you share starting assumptions, is hardly surprising. That's not really enough to for you to verify that he's right, especially when both of you are contradicting the report that started this discussion on the previous page with nothing but assumptions about the way in which a simplified model of the market will respond. Sorry, I missed that article. I withdraw my comments. | ||
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JonnyBNoHo
United States6277 Posts
On January 20 2014 18:03 WhiteDog wrote: I don't know if this has been discussed already : http://www.huffingtonpost.com/2013/12/19/1010-minimum-wage_n_4474183.html The discussion behind the increase in the minimum wage is really interesting ! I still think the economists thinking an increase in minimum wage will increase both economic growth and employment are mistaking theirselves. I would love if economy actually behaved like a function, as in economists' dreams. I really hope that they increase minimum wage, not only because it will actually help a lot of people, but because it will be a huge test for modern economic theory. A modest increase probably wouldn't be that harmful to employment given that the last raise has been eroded a bit by inflation. I'm a little nervous on the timing though. The ACA raised a lot of employment costs (a bunch were delayed too, but I can't keep track of it all  ) so lumping higher wage costs on top of that sounds riskier than normal. | ||
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aksfjh
United States4853 Posts
On January 21 2014 02:13 JonnyBNoHo wrote: A modest increase probably wouldn't be that harmful to employment given that the last raise has been eroded a bit by inflation. I'm a little nervous on the timing though. The ACA raised a lot of employment costs (a bunch were delayed too, but I can't keep track of it all ) so lumping higher wage costs on top of that sounds riskier than normal. These are times where I think the risk is justified. Doing nothing has basically created stagnating wages and employment opportunity. | ||
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JonnyBNoHo
United States6277 Posts
On January 21 2014 02:15 aksfjh wrote: These are times where I think the risk is justified. Doing nothing has basically created stagnating wages and employment opportunity. And how much of that will be fixed by raising the minimum wage? The risks may not be large but the gains aren't very large either. | ||
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WhiteDog
France8650 Posts
My problem is not really with the direct impact of the increase rather than in the virtuous circle it is supposed to create. Economists think that, because the economy is in a state with a global under employment of ressources (this was heavily discussed a year ago, with the idea of secular stagnation coming back from 1930's keynesianism) an increase in minimum wage will push firms to spend money despite their pessimism on the state of the economy, pushing the economy in a virtuous circle. This is why you see some people who consider that the economy will gain I don't know how many billion dollars after the increase in the minimum wage, and even the employment would benefit. In this I don't believe. On January 21 2014 00:23 aksfjh wrote: This is where it's important to look at the current economic environment to determine what will happen. There is a possibility that the extra spending capacity will just create more profit that will not go back into production (aka "creating more jobs"). However, it's probably best to think that the 2nd order increased purchasing power of this low class will have a combination of 3 effects on the supply side (with the assumption that demand will outstrip supply): 1) Inflation will occur. Suppliers will not invest in further infrastructure or workers to meet demand, and instead will simply raise prices to take advantage of the surge in demand. 2) Worker efficiency will improve. This will basically "justify" the mandatory increase in the wage floor. More products will be bought and sold, profit margins will go almost no where, and no jobs will be lost/found. (Highly unlikely scenario) 3) Producers will look to produce more to capitalize on the increased demand. This will require hiring more workers and/or investing in improvements to production. In a "normal" economy (whatever that phrase even means anymore), the first is likely to occur. More labor is harder to come by, so the increased demand just raises prices until it becomes more lucrative to hire another worker than increase prices. However, labor is highly competitive right now, with unemployment so very high. This means the third is most likely to occur. Of course, this isn't going to happen unilaterally, with industries following the 3 to different degrees. I personally think 1 will appear. 2 is, especially today, not really in question since productivity and wage are not linked since 20 years (the increase in minimum wage might resolve that). In fact, I think the theorical ground that made you write 2 is absolutly wrong in today's world, but I guess that is another matter. My problem is with 3. There is a high chance that the producers will rather push the people who are still working to work more in order to increase production (something that would increase labor productivity). This will permit the producers to prevent any redistribution of the newly created wealth (they will push the few that work to work more rather than increasing employment). I mean, it's not a purely economic question, it's the state of the business and the state of our society today that inequality is rising more and more. With an increase in minimum wage, there are no safe economic mecanism that can makes us sure that the wealth created by an increase in minimum wage will actually be distributed in the entire economy. What if all wealth just ends up, again, in the hands of a few ? | ||
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Nyxisto
Germany6287 Posts
For France and Germany I could actually see that happen, but the rest of the Eurozone could probably not keep up with such a minimum wage and lower paid jobs would probably go to south- or east Europe. (Same scenario would probably apply to a high minimum wage across the United States) | ||
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TheFish7
United States2824 Posts
On January 21 2014 03:04 WhiteDog wrote: I mean, it's not a purely economic question, it's the state of the business and the state of our society today that inequality is rising more and more. With an increase in minimum wage, there are no safe economic mecanism that can makes us sure that the wealth created by an increase in minimum wage will actually be distributed in the entire economy. What if all wealth just ends up, again, in the hands of a few ? The entire purpose of transfer payments (read: welfare & social security) is precisely to prevent this from happening. How successful these programs have been at accomplishing that is another question, however the general wisdom is that when inequality goes up, you increase transfer payments. That's why its so insane to me when so many people in the US suggest exactly the opposite. | ||
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WhiteDog
France8650 Posts
On January 21 2014 03:08 Nyxisto wrote: If you'd want to introduce a meaningful minimum wage , you would need to introduce it in every country that's part of the market. Else you end up in some kind of prisoners dilemma scenario, where another country undercuts the prices and unemployment skyrockets in the country that's introduces the minimum wage.(e.g France & Germany) For France and Germany I could actually see that happen, but the rest of the Eurozone could probably not keep up with such a minimum wage and lower paid jobs would probably go to south- or east Europe. (Same scenario would probably apply to a high minimum wage across the United States) That's based on the idea that you can substitute under qualified jobs in a specific country with under qualified jobs in another country. That's just not possible for most, especially in a country like the US - we're not talking about workers in mines or in factories anymore, most of those disappeared in the nineties (and we actually see now a return of those jobs) but more like unqualified services (like in fast foods, etc.). Your logic doesn't work for them. For the exemple you gave (France vs Germany), it is only true for some specific sector in the industry, where Germany's policy destroyed French jobs (in the pig industry for exemple) but it's limited to a few key sector. On January 21 2014 03:18 TheFish7 wrote: The entire purpose of transfer payments (read: welfare & social security) is precisely to prevent this from happening. How successful these programs have been at accomplishing that is another question, however the general wisdom is that when inequality goes up, you increase transfer payments. That's why its so insane to me when so many people in the US suggest exactly the opposite. Yeah exactly. | ||
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aksfjh
United States4853 Posts
On January 21 2014 03:04 WhiteDog wrote: I don't really think it will have any negative impact on employment. People who actually still tries to put a simple offer and demand market model on labor just don't understand the matter at hand today. Since 1990 we saw a global split between productivity and wage increase. Because of that (and many other things), many people think wages are lower than their equilibrium level - from this point of view, a higher minimum wage would not ends up in a higher unemployment (in fact that standard model would actually consider that it will end up in a higher employment... because more people will go out of their inactivity to work). My problem is not really with the direct impact of the increase rather than in the virtuous circle it is supposed to create. Economists think that, because the economy is in a state with a global under employment of ressources (this was heavily discussed a year ago, with the idea of secular stagnation coming back from 1930's keynesianism) an increase in minimum wage will push firms to spend money despite their pessimism on the state of the economy, pushing the economy in a virtuous circle. This is why you see some people who consider that the economy will gain I don't know how many billion dollars after the increase in the minimum wage, and even the employment would benefit. In this I don't believe. I personally think 1 will appear. 2 is, especially today, not really in question since productivity and wage are not linked since 20 years (the increase in minimum wage might resolve that). In fact, I think the theorical ground that made you write 2 is absolutly wrong in today's world, but I guess that is another matter. My problem is with 3. There is a high chance that the producers will rather push the people who are still working to work more in order to increase production (something that would increase labor productivity). This will permit the producers to prevent any redistribution of the newly created wealth (they will push the few that work to work more rather than increasing employment). I mean, it's not a purely economic question, it's the state of the business and the state of our society today that inequality is rising more and more. With an increase in minimum wage, there are no safe economic mecanism that can makes us sure that the wealth created by an increase in minimum wage will actually be distributed in the entire economy. What if all wealth just ends up, again, in the hands of a few ? So far, the evidence as I see it (and many others as well) points away from scenario 1. With interest rates across much of the "Western World" near 0, we have yet to see inflation take hold. Even with some pretty ridiculous policies in the US, inflation is still remaining stubbornly low, which points to slack in the demand side of the economy. Thus, anything that increases demand (like higher incomes for those willing to spend their money) will likely have much greater effect than in a traditional equilibrium economy. Also, inflation is usually seen as a good thing in this scenario, and we don't normally find ourselves in a position where both unemployment is high along with inflation. I guess I should have been clearer with my use of "efficiency" in scenario 2, where in which employers will demand more out of their workers, whether that be in efficiency or overall hours. Either way, it's an employment neutral scenario, but a GDP positive one (and probably anti-poverty positive as well). And certainly, it's not a PURELY economic question, but I'm starting to see more and more economics at play in scenarios that were classically thought of as largely independent of economics. I personally think regional economic and tax policy has played a substantial role in wealth accumulation in a global elite class, and we can see this in the regional differences of inequality. | ||
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IgnE
United States7681 Posts
On January 21 2014 03:08 Nyxisto wrote: If you'd want to introduce a meaningful minimum wage , you would need to introduce it in every country that's part of the market. Else you end up in some kind of prisoners dilemma scenario, where another country undercuts the prices and unemployment skyrockets in the country that's introduces the minimum wage.(e.g France & Germany) For France and Germany I could actually see that happen, but the rest of the Eurozone could probably not keep up with such a minimum wage and lower paid jobs would probably go to south- or east Europe. (Same scenario would probably apply to a high minimum wage across the United States) Where would the jobs go in the United States that they don't already go? What industries have such low margins or high payroll costs that a couple dollar increase in the wage would make them look for labor in these places? Americans already make what they can in China and use what Mexican labor they can to pick their fields. If a whole lot of other minimum wage jobs could be outsourced they would be. But you just can't outsource some jobs. | ||
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JonnyBNoHo
United States6277 Posts
On January 21 2014 03:04 WhiteDog wrote: I don't really think it will have any negative impact on employment. People who actually still tries to put a simple offer and demand market model on labor just don't understand the matter at hand today. Since 1990 we saw a global split between productivity and wage increase. Because of that (and many other things), many people think wages are lower than their equilibrium level - from this point of view, a higher minimum wage would not ends up in a higher unemployment (in fact that standard model would actually consider that it will end up in a higher employment... because more people will go out of their inactivity to work). The reality (as I see it) is that some employers will react negatively to the higher wage - reduce hours, number of employees, benefits, increase prices, reduce other spending, etc. Others will shrug it off, which will be fantastic for everyone. How that nets out throughout the economy isn't really known, and so there's policy risk associated with raising the minimum wage. Until unemployment is lower I have to err on the side of caution here. That of course leaves the risk that we'll leave low income workers in the cold. But we haven't been ignoring them these last few years so that's an acceptable risk to me. | ||
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