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What harm do minimum wages do?

economist.com

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Re: What harm do minimum wages do?

#401

Post by aidenn0 »

gjulianm wrote: post #4

> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. > Just as a monopolist can set prices higher than would be the case in a competitive market, a monopsonist can set prices artificially lower. A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiatio…

>> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.

This sentence is just wrong. First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit.

Textbooks actually say that a worker will be paid no more than the marginal product of labor, and if labor is in short supply, they will be paid very close to their marginal product of labor. If there are a huge number of workers willing to work for $5/hr then workers won't tend to make even a penny more than this.

Information asymmetry and differences in negotiating power will further distort this, but the initial premise is already a strawman of basic microeconomics.

Re: What harm do minimum wages do?

#402

Post by gwright »

chc wrote: post #340
lukevdp wrote: post #293

Earlier quoted context omitted.

Someone is not worth $50/hr if someone else is willing to do the same job with equal capability for $5/hr.

The parent was comparing the value a worker brings to the company against the worker's compensation. To illustrate how the worth of a transaction can be different from the cost: If I offer to give you a $50 bill in exchange for a $5 bill, is that bill not worth $50 just because I lost on the deal?

I would certainly value that piece of paper at $50 but apparently you value it at something less than $5 because you are willing to accept $5 for it. I haven't a clue as to why you would value it at less than $5, perhaps you get some entertainment value in giving away money?

This doesn't seem like a particularly helpful illustration.

Re: What harm do minimum wages do?

#403

Post by collyw »

CJefferson wrote: post #300
seiferteric wrote: post #83

Earlier quoted context omitted.

If a company can hire someone worth $50/hr for only $5/hr and therefore make huge profits/margins, couldn't another company easily come along and undercut them? I don't think a scenario like that could exist very long.

Between all the patents, it would be basically impossible to start a new mobile phone company from scratch which made its own chips, for example.

I went looking for a new phone recently, there were brands I hadn't seen before on the shelves. Why you would need your own chips is beyond me, when you can buy them for a pretty small price.

Re: What harm do minimum wages do?

#404

Post by [deleted] »

jusssi wrote: post #163
seiferteric wrote: post #83

Earlier quoted context omitted.

If a company can hire someone worth $50/hr for only $5/hr and therefore make huge profits/margins, couldn't another company easily come along and undercut them? I don't think a scenario like that could exist very long.

If the other company can also do the same, why would they piss into their own cereal by reducing their profit? And if the other company is a newcomer looking to gain market share by undercutting, they'll likely find themselves strongarmed or bought out of the market.

[deleted]

Re: What harm do minimum wages do?

#405

Post by aidenn0 »

chc wrote: post #314
seiferteric wrote: post #83

Earlier quoted context omitted.

If a company can hire someone worth $50/hr for only $5/hr and therefore make huge profits/margins, couldn't another company easily come along and undercut them? I don't think a scenario like that could exist very long.

Undercut them in what sense? Pay the employee even less for $50 worth of labor?

Sell the results of that labor for just $49.

Re: What harm do minimum wages do?

#406

Post by littlestymaar »

throwaway894345 wrote: post #85
gjulianm wrote: post #4

> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. > Just as a monopolist can set prices higher than would be the case in a competitive market, a monopsonist can set prices artificially lower. A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiatio…

> A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job. I'm generally in favor of stronger job protections and so on, but I'm not aware of any definition of "free…

> but I'm not aware of any definition of "free market" which supposes that all players have equal leverage.

You'll find it in the same chapter of the textbooks that state “that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.”. This is also called “perfect competition”, and you won't find a textbook to say that the marginal cost equals the marginal value without summoning this hypothesis.

Re: What harm do minimum wages do?

#407

Post by wdn »

Broken_Hippo wrote: post #313
wdn wrote: post #294

Earlier quoted context omitted.

The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept. When you find a better offer, you go to the better offer. As for minimum wage, it is hurting the unskilled workers, like high school students, college students who are looking for experience. If you are stuck in a minimum wage job, then this is what the market is paying for your skill set. If you think you wort…

Unlike, say, buying a game, most folks can't just decide not to work. If you need to eat, pay rent, child support, need health insurance, or a slew of other things - you can't say no. You must work. Period. The safety net isn't good enough not to take that minimum wage job, especially if you are a childless adult. The only real thing keeping you from being paid less is minimum wage, and that's there because companies…

No one is saying you shouldn't work at a job where you think it is unfair compensate to your skill sets.

What I am saying is this, if I think I worth $50/hr and the only offer I got after 2 months of searching is $10/hour. If I desperately need some income, I will take the job and continue my job search. $10/hr is still better than $0. Next job offer may be $30/hr. Then the next one may be $50 or $60.

No one is forcing you to stop looking or improving yourself while you are at a job don't value your skill sets.

Re: What harm do minimum wages do?

#408

Post by nobody9999 »

leetcrew wrote: post #248
nobody9999 wrote: post #87

Earlier quoted context omitted.

>The Fight for $15 movement came from expensive cities, and it might be the right policy for those places. But it would severely distort and crush lower-cost cities and states. The right policy for San Francisco isn't necessarily right for Birmingham. Your point is a valid one. At the same time, if you look at how these numbers actually play out in reality, $15/hour (assuming 40 hours/week -- certainly not a given an…

I think you're overselling your point a bit. $15/hr would be very rough in NYC or SF, but it's actually a pretty decent wage for a single person most places in the US. for comparison, I make quite a bit more than $15/hr, but $2100/month is pretty close to what it costs me to live a nice life in one of the most desirable neighborhoods in my city. I spend closer to $2500 in a typical month, but $200 of that is because…

>for comparison, I make quite a bit more than $15/hr, but $2100/month is pretty close to what it costs me to live a nice life in one of the most desirable neighborhoods in my city.

What's your monthly healthcare premium? What's that, your employer provides that for you? Mine is almost $750/month. That's just for me.

What's more, as I pointed out, many folks earning minimum wage don't get 40 hours/week. As such, their income is less than the numbers I stated.

To go even farther, it's not so much about $15/hour or any other arbitrary figure. It's about whether or not someone can support themselves (and their dependents -- I didn't address children or parents or other non-working folks in a household, let alone the costs of child care if all adults need to work to pay the bills).

If the current minimum wage doesn't allow for that, then the government (that means you and me) has to subsidize those folks.

in the end, it comes down to how we choose to deal with this situation. Do we require employers to provide a (theoretical, remember many don't get 40 hours a week) living wage, or do we as a society pay to subsidize those employers who don't pay enough to allow people to support themselves?

But the issue goes beyond just the dollars and cents. The hoops that many government programs force those who need help to jump through is often demeaning and tends to dehumanize people. What's more, those programs have overhead too. The costs of administering these programs need to be considered part of the subsidy to employers.

Re: What harm do minimum wages do?

#409

Post by bhupy »

dragonwriter wrote: post #400
bhupy wrote: post #397

Earlier quoted context omitted.

This argument ignores that the anti-min-wage argument isn't monolithic. The other argument is that a minimum wage can usually (though not always) result in higher prices because employers just pass on the cost of higher wages to the buyer (especially in competitive markets), and that this is a regressive way to guarantee a minimum standard of living. The strongest anti-min-wage argument is that a UBI/EITC is the bett…

> The strongest anti-min-wage argument is that a UBI/EITC is the better way to guarantee a minimum money floor EITC doesn't guarantee a minimum anything since, as the name suggests, you need earned income to get it and you get more of it with more earned income, to a certain point. It's true that NIT, which is equivalent to UBI, was the inspiration for EITC, but EITC is a NIT through a carnival funhouse mirror.

Sure, I meant a "reformed" EITC, but my point was to compare it to a UBI/NIT. It would absolutely be more desirable to remove the employment requirement and perhaps even increase it by at least 3x.

Re: What harm do minimum wages do?

#410

Post by gjulianm »

wdn wrote: post #294
gjulianm wrote: post #4

> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. > Just as a monopolist can set prices higher than would be the case in a competitive market, a monopsonist can set prices artificially lower. A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiatio…

The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept. When you find a better offer, you go to the better offer. As for minimum wage, it is hurting the unskilled workers, like high school students, college students who are looking for experience. If you are stuck in a minimum wage job, then this is what the market is paying for your skill set. If you think you wort…

> you don't have to accept. When you find a better offer, you go to the better offer.

What if there aren't better offers?

> As for minimum wage, it is hurting the unskilled workers, like high school students, college students who are looking for experience.

The article shows that there isn't conclusive evidence pointing to employment destruction with minimum wage increases.

> If you think you worth more, then proof it, don't blame the system.

If the market can get away with paying less than your worth, it will. That's precisely the point of my argument: companies have more power than workers to negotiate wages.

> When I was in high school, I was working in an unpaid internship to get some experiences. I don't know if there is any unpaid internship now or if it is even legal now.

Don't you see how unpaid internships can be harmful? If you need experience to have a nice job and unpaid internships are a requirement, it means a "forced" period where you are working without income. People without savings won't be able to take those internships and have those better jobs, further locking them in poverty.

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