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Economists agree: Raising the minimum wage reduces poverty

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Re: Economists agree: Raising the minimum wage reduces poverty

#61

Post by xixi77 »

ddebernardy wrote: post #25
derefr wrote: post #21

Earlier quoted context omitted.

> by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing Do you have a citation on this? A raise of the minimum wage actually having an effect at the margins, in either direction, is unusual, because places don't tend to raise the minimum wage until it wouldn't have an effect anyway. Rai…

Not handy, but use your common sense if you will: if you're surviving on $8/hour or whatever it currently is in the US, and your wage increases by a dollar per hour, then all things being equal you're going to be spending that extra buck on a range of things that had been delayed for a while: shoes for the kids, new tires for the car, and what not. This is consumption, and it's going to get recycled over and over aga…

The question you have to ask is, where does this extra dollar come from? (owners' margins? wages of workers who are now unemployed? consumers' budgets?), and how much extra consumption it generates in the still-employed workers' pockets, compared to where it was before?

Re: Economists agree: Raising the minimum wage reduces poverty

#62

Post by cjo »

jswinghammer wrote: post #49
cjo wrote: post #40

Earlier quoted context omitted.

Sounds like it's a choice between a short period of minimum wage pay and then getting replaced by "cost saving technologies", or a slightly longer period of subsistence wages and then still getting replaced. It's easy to argue that since the cost of technology goes down with time that any replacement of workers due to a minimum wage hike will happen anyways when the tech gets cheap enough. Here's a question. Both mar…

Ideally I would abolish fractional reserve lending and the inflation that goes along with it. That inflation of the money supply has a medium and long term effect of raising prices. In a free market prices would drop thus your bad wage gets better even if you can't ever find a better job.

Well I certainly agree that money in general and our relationship to it could use a good rethinking - which is a surprisingly unpopular opinion considering America's financial sector pretty much imploded just a few years ago.

But I don't follow how solving that problem addresses markets becoming concentrated and member firms using that advantage to push wages down towards subsistence levels. That I think requires some sort of collective bargaining, which minimum wage is a type of (although it's likely not the best.)

Re: Economists agree: Raising the minimum wage reduces poverty

#63

Post by jswinghammer »

cjo wrote: post #62
jswinghammer wrote: post #49

Earlier quoted context omitted.

Ideally I would abolish fractional reserve lending and the inflation that goes along with it. That inflation of the money supply has a medium and long term effect of raising prices. In a free market prices would drop thus your bad wage gets better even if you can't ever find a better job.

Well I certainly agree that money in general and our relationship to it could use a good rethinking - which is a surprisingly unpopular opinion considering America's financial sector pretty much imploded just a few years ago. But I don't follow how solving that problem addresses markets becoming concentrated and member firms using that advantage to push wages down towards subsistence levels. That I think requires som…

Marx was concerned about wages being pushed down but even in his own lifetime it never really happened that way. It's something that seems desirable for the businessman if possible but something that they have no control over. The reason being that other companies will compete for workers and have an easy competitive advantage over firms who are trying to drive workers to poverty.

Markets work to coordinate prices for both consumers and producers. Those who resist the laws of markets pay eventually. Might not happen right away but it happens-always.

My point is that low wages are never good exactly but they can be better if those wages pay for more year over year. It's like getting a raise without having to negotiate or even do anything for it.

Re: Economists agree: Raising the minimum wage reduces poverty

#64

Post by xixi77 »

cjo wrote: post #40
jswinghammer wrote: post #29

Earlier quoted context omitted.

Yes they can. This is because we can discuss what higher prices do-invariably they cause market actors to seek substitutes. If you push a $15 minimum wage it stands to reason that there would be demand for any machinery that would allow for cost savings. It would be good for the sectors of the economy that would supply these cost savings technologies. Ultimately marginal workers would get hurt even further once these…

Sounds like it's a choice between a short period of minimum wage pay and then getting replaced by "cost saving technologies", or a slightly longer period of subsistence wages and then still getting replaced. It's easy to argue that since the cost of technology goes down with time that any replacement of workers due to a minimum wage hike will happen anyways when the tech gets cheap enough. Here's a question. Both mar…

Actually, iirc one of the major criticisms of the Card & Krueger is that they only look at employment at national fast-food chains, and ignore local burger shacks -- and it is primarily the latter (and their workers) that are going to be put at risk with the minimal wage increase, due to their lower margins and cash reserves. So an increase in minimal wage is likely to also increase industry concentration.

Re: Economists agree: Raising the minimum wage reduces poverty

#65

Post by saosebastiao »

This is silly...of course it reduces poverty for those that do not lose their jobs...and if you operate under the assumption that anyone earning the minimum wage is living in poverty, then of course it would reduce the percentage of people living in poverty in aggregate.

There is still a few major problems with it as policy:

1) For those that do lose their jobs, their effect is extremely negative.

2) For those with little to no work history, the possibility of being priced out of an entry level job is a huge problem, leading to the prospect of reduced earnings for the rest of their life. [1]

3) For those who do not lose their jobs, the fact that they didn't lose their jobs is indicative of more major problems...they either don't understand the value of their labor, or they don't know how to negotiate with their employers. A minimum wage increase for these people is like treating the symptoms instead of the disease, and without addressing these issues, these people will likely be underemployed for a long time.

For those reasons alone, the minimum wage is a terrible way to reduce poverty. A serious answer is three-fold:

1) Use real programs to reduce poverty. This means a robust welfare system or a negative income tax or a universal basic income. These cost money, but at least their costs are known, as opposed to the mostly invisible costs of the minimum wage.

2) Promote wage transparency laws (which help those who are underpaid to know the true value of their labor). These prohibit employers from firing or retaliating against employees for discussing wages, which is a tactic to keep information asymmetrical in the favor of the employer.

3) Abolish the minimum wage.

[1] http://www.nber.org/papers/w5030.pdf

Re: Economists agree: Raising the minimum wage reduces poverty

#66

Post by randomdata »

bqpro1 wrote: post #43

Of course I am not an economist at all, but still I see here some paradox. Minimal wedges are paid for the jobs that require low qualifications or in fact no qualifications. So for example if we raise 4$ per hour to 5$ for such jobs, we may reduce the value of 1 dollar. If 1 hour of such job was worth 4$ and now is worth 5$, then now 1$ has less value than it used to have. As a consequence the whole economy may exper…

> Minimal wedges are paid for the jobs that require low qualifications or in fact no qualifications.

Technically, minimal wages are paid where supply of labour greatly exceeds demand for labour. It is theoretically possible to see high skilled jobs pay low wages and low skilled jobs pay high wages, and you do see it happen sometimes, though the reverse is definitely more common.

Re: Economists agree: Raising the minimum wage reduces poverty

#67

Post by ahomescu1 »

ddebernardy wrote: post #17
derefr wrote: post #6

If I recall, economists tend to point out that the causation between minimum wage and poverty is actually reversed from its "intuitive" position. What actually tends to happen, is that first , a city/county/state/country's economy improves to the point that everyone is making a certain wage, just because of competition for workers. And then , policy-makers notice this, realize that there's an upside (better civic ima…

Not quite. What actually happens is that by raising the minimum wage, you lift minimum wage earners from a state where they barely survive to make ends meet to one where they consume the stuff that society at large is producing. There's a virtuous circle in there. It's that thing Ford showed in its early days: paying workers extra so they can buy the cars they produce yields more economic activity for the benefit of…

> It's that thing Ford showed in its early days: paying workers extra so they can buy the cars they produce yields more economic activity for the benefit of everyone -- they also bought fridges and what not.

You can only raise salaries so high; eventually you'll reach a point where the company isn't profitable anymore. Then you either have to keep salaries at a lower rate, or raise prices to the consumer (and that's already at the point where the company makes no profit). Between the employees, company (or owner or stockholders) and consumers, someone has to make a sacrifice.

Re: Economists agree: Raising the minimum wage reduces poverty

#69

Post by crdoconnor »

saosebastiao wrote: post #65

This is silly...of course it reduces poverty for those that do not lose their jobs...and if you operate under the assumption that anyone earning the minimum wage is living in poverty, then of course it would reduce the percentage of people living in poverty in aggregate. There is still a few major problems with it as policy: 1) For those that do lose their jobs, their effect is extremely negative. 2) For those with l…

>For those that do lose their jobs, their effect is extremely negative.

Raising the minimum wage does not lead to higher unemployment.

>For those who do not lose their jobs, the fact that they didn't lose their jobs is indicative of more major problems...they either don't understand the value of their labor, or they don't know how to negotiate with their employers

That's paternalistic bullshit. In reality, they can't afford to have a long term time horizon. They usually need a job quickly and cannot afford to hold out for a better one.

Re: Economists agree: Raising the minimum wage reduces poverty

#70

Post by cjo »

xixi77 wrote: post #60
cjo wrote: post #36

Earlier quoted context omitted.

Even if minimum wage does cause some unemployment that's not the beginning or the end of the story. It's a market distortion created to counteract two other market distortions - namely already existing unemployment and market concentration on the employers' side, both of which depress wages. So even proving beyond a doubt that minimum wage causes an increase in unemployment isn't enough to abolish the institution if…

I am actually a little confused, why do you consider unemployment a market distortion, and how does the minimum wage helps to correct it?

OK, I'll respond to this and harryh's at the same time. First of all, "distortion" is relative to what economic model you're starting with - so it can get a bit tricky, and I'm not very concerned with using the absolute correct technical term. But I'll make my case from the ground up:

Unemployment has a downward effect on wages because there's more competition for every job, just like competition between firms for employees will increase wages. Ideally these things will all even out. Unfortunately in our current economy we have high market concentration (so low competition between firms for employees which decreases wages) and high unemployment (so high competition for each job which also decreases wages). So we see lower wages from what they would be under Perfect Competition (or an ideally functioning free market) where I'm told it's impossible for these things to persist.

Minimum wage laws put a limit on how much firms can wield this market power given to them by market conditions. Without minimum wage/collective bargaining of some sort (and without technological advances, etc.) history and economic theory agree that firms will tend to push wages down to subsistence levels in order to maximize profits. Minimum wage is not the greatest tool, and I don't actually like it - but I do think it should be higher. We have a lack of good options at the moment so we're left picking the best of the bad.

But why do I call it a distortion? Large enough unemployment, coupled with lack of competition between firms for employees causes such a shift that the free market is barely distinguishable from slavery for those at the bottom (subsistence wages are literally only enough to survive and keep working.) So I throw around the word distortion because I'm trying to communicate that unemployment gives such a large amount of market power to employers that the market becomes fundamentally different from what we expect in a Free Market.

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