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What harm do minimum wages do?

economist.com

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Re: What harm do minimum wages do?

#691

Post by akvadrako »

csours wrote: post #635
incadenza wrote: post #543

Earlier quoted context omitted.

This entire discussion is about laws regarding minimum wage, the act of literally making it illegal to hire for less than a certain wage. I’m not sure I see the confusion

> "The other way to frame minimum wage is that it makes it illegal to work unless you can produce $X value per hour." Wages are a cost to a company. There are other costs to a company. Companies also return a profit to the owners. If a company's costs are too high, they my not return a profit; they may not be able to pay their creditors. My dad ran his own very small business. I am familiar with a business not making…

So you're saying your Dad would be better off if he kept the $X then paying someone. That's what it means to produce value.

The number of employers seeking such an arrangement is so small it's irrelevant. In practice, not being able to pay people less that $15/hour means you won't hire people who bring less that $15/hour of value.

Re: What harm do minimum wages do?

#692

Post by throwaway56034 »

chii wrote: post #580
mr_toad wrote: post #547

Earlier quoted context omitted.

> you get no profit. Marginal value of production is almost always lower than average value, because of diminishing returns. Profits are made on the average value. A Marxist take in this is that labour should be paid on the average value of production, and labour should get all the profits.

> labour should get all the profits. and the question becomes "who supplies the capital to enable the labour, if labour gets all the profits".

Marx didn't actually claim that labour should "get all the profits" - in fact he went to great lengths to explain his criticism of the contemporary socialist movement for demanding that (in Capital, Volume 1). Instead he differentiated profits from surplus value, the latter also containing the share of profits needed for reinvestment, further capitalization of the company etc. He criticized the 19th century socialists for demanding all profits should go the workers, because that would mean the inevitable failure of the company (the competition would reinvest, furthering productivity, and in the end outcompete the company paying out all profits).

Instead, Marx argued for worker control over the profits.

Re: What harm do minimum wages do?

#693

Post by Retric »

bravo22 wrote: post #609
Retric wrote: post #506

Earlier quoted context omitted.

Having a negative income tax is reasonable without removing minimum wage as they deal with different things. Removing the minimum wage is effectively a subsidy for companies and industry’s that would then pay below the old minimum wage. Considering how often people in the US make below minimum wage even when it’s illegal, it seems like a bad idea. Instead even higher minimum wages can be used to drive automation.

Minimum wage creates distortions. For example industries that are labour heavy are impacted disproportionately to others that are more automated.

Automation is not a fixed thing. Many industries look to be people heavy but can rapidly swap, ie taxi cabs in a driverless car world. Speeding that up seems like a net social and economic benefit if we don’t need to worry about structural unemployment.

Re: What harm do minimum wages do?

#694

Post by throwaway56034 »

WalterBright wrote: post #563
edgyquant wrote: post #554

Earlier quoted context omitted.

You are greatly oversimplifying in response to paragraphs. Please expand on your point.

I'm not so sure it is more complicated than that. I've been paid well in my career, and it wasn't because my employers were just nice guys.

The company can pay you anything between the legal minimum and the marginal product of your labor. As the labor market can never be perfectly competitive (i.e. an econ 101 textbook market), there will always be an employer who rationally calculates that paying more than minimum wage will be profitable - which in turn has an impact on the decisions of the other employers. This has nothing to do with them being nice guys.

Re: What harm do minimum wages do?

#695

Post by faeyanpiraat »

ganafagol wrote: post #679
donw wrote: post #652

Earlier quoted context omitted.

There are a lot of flavors of nihilism, so I'm not sure that having a pessimistic worldview precludes joyfulness. I'd call myself a realist -- and I think there's a lot of overlap with nihilism there, in that I try and see the world "as it is", and not "how I wish it was". The world is a messy, ugly, dark place. It really is, and it's kind of amazing how people go out of their way to pretend that either that darkness…

> The world is a messy, ugly, dark place. [...] > There is a light in our world, though -- it's us, if we choose to be. I can easily argue the opposite. The world itself is beautiful. Just sit at a mountain top or in the forest or on a beach and take in their beauty. Look at stars, galaxies, how they interact, it's absolutely stunning. Or zoom in looking at microbes, cells, molecules, atoms. The world is a gorgeous p…

I think the parent comment implies that generally you cannot avoid human interaction to survive, therefore you cannot separate the beautiful scenery from the hatefulness people bring into the picture.

Re: What harm do minimum wages do?

#696

Post by zozbot234 »

chii wrote: post #618
aidenn0 wrote: post #604

Earlier quoted context omitted.

That requires either labor itself to own the capital (e.g. a co-op), or the state to have a monopoly on capital (e.g. communism)

if labour owns the capital, then that "somebody providing the capital" still exists. Coops demonstrates that profit still need to exist, which is contradictory to the idea that labour should get all the profits. The only way "labour gets all the profits" is under the umbrella of communism - and even then, the state still extracts profit anyway (just under a different name - that of central allocation).

In a co-op or partnership structure, the workers provide capital and superintendence/control in addition to labor. That's why the workers can get all the profits. And it's also why "pure" co-ops or partnerships are generally restricted to low-capital-intensity businesses - by definition, it's going to be quite hard to raise external capital. You could do it by issuing bonds, but the risk profile is unattractive for all involved.

Re: What harm do minimum wages do?

#697

Post by zozbot234 »

aidenn0 wrote: post #606
lopmotr wrote: post #602

Earlier quoted context omitted.

The other question is what does labor get when there are temporarily low or negative profits? I used to work at a company which gave 10% of its profits to the workers each month as a bonus. But I was only there during some money-losing months so I got zero bonus. Imagine if that had been my entire pay!

If they gave 100% of their profits to the workers as the only pay, then long term workers could presumably self-insure.

The socialist solution is actually centralized planning over multiple industry sectors. The workers would be paid profits from a huge, diversified conglomerate, mot merely the one industry sector that they happened to be working in. Of course, this leads to all the known drawbacks of central planning.

Re: What harm do minimum wages do?

#698

Post by efxhoy »

tprice7 wrote: post #681
efxhoy wrote: post #459

Earlier quoted context omitted.

>> 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. In the econ 101 textbook simplified free market that the author is refering to firms do not make any economic profit. If…

This is correct, but it doesn't address a fundamental misunderstanding of the parent comment. The prediction that wages = MPL alone does not predict a lack of profit, since the marginal product of labour is generally less than the average product of labour due to the law of diminishing returns. (I would agree though that "the value of what he produces" is an ambiguous phrase and seems closer to APL than MPL). It is t…

Yes, exactly right and well put.

It's always difficult to jump into online discussions about economics because you need to give the entire econ 101 micro course in single comment just to make sure everyone is talking about the same thing.

Re: What harm do minimum wages do?

#699

Post by HPsquared »

mdoms wrote: post #211
cynicalkane wrote: post #184

Earlier quoted context omitted.

Consumption is the income and wealth that you end up using. Measuring wellbeing by consumption is the standard economic perspective, since it describes how much of society's goods and services one ends up using. More simply, if you save then spend, wealth-based measures will rate you as better off than a person with higher income who just spends. That doesn't make sense.

A wealth measure will give a higher rating to someone who spends on assets than someone who spends on Fortnite skins. What it doesn't do is arbitrarily favor someone who lives in a HCOL area or in a country (sorry, the country) that forces individuals to spend their own money on things like health care.

Someone living in a HCOL area who happens to have bought their house before the price inflation era, would have a high wealth figure but unable to do anything with said wealth. Australia has high house prices.

Re: What harm do minimum wages do?

#700

Post by CraigJPerry »

Discombulator wrote: post #539
CraigJPerry wrote: post #471

The more research i do in economics the less impressed i am with the discipline. Economics is defined as a social science. That point never really struck home with me until recently. I think the fancy models, the cutting edge statistics and clever use of logic blinded me to the fact that the entire discipline is built on top of stories. There’s no gravity, there’s no absolute zero, there’s no kilogram. There’s no fun…

All disciplines studying complex systems like societies down to something like the human body, simply do not have the luxury of absolute truths like in mathematics or even the ability to run experiments like in physics (often for ethical reasons, e.g., in medicine or economics). But does that mean that it is not worth doing? For these fundamental reasons economics is “hard”, but I argue that it is still worth doing b…

>> still worth doing

This is really the point I’m wrestling with.

For example, I’m persuaded by Taleb’s criticism of Value At Risk models, VAR.

Plenty of people still value the use of VAR although it’s common to concede Taleb’s point that VAR claims to do the impossible - characterise rare events. The justification is simply, well what else would we do? There is sufficiently advanced use of VAR that people are willing to ignore the broken foundation.

I just can’t accept that we should continue blindly because in many day to day cases the model seems sound, even though we’re aware it’s fundamentally broken and we can’t detect when it broke until after the event.

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