Do you support a minimum hourly wage?

[Mountain-God]

This was my thinking in starting this thread. I have read a number of articles about the minimum wage, and the general consensus amongst economists is that it is actually not very good for an economy. Whether its good for the individuals - "depends". For some individuals, it is clearly good; for others, it may result in their jobs disappearing overseas, or due to staff cuts or even due to their employers going bankrupt.

In an economy with low unemployment, it can work because people laid-off can likely find other employment. However, in a low-unemployment economy, the need for a minimum wage is somewhat decreased due to simple labour supply & demand.

In a high unemployment economy, this is a sign that the economy is in trouble anyway - a minimum wage is more likely to lead to unemployment as employers simply can't sustain higher labour costs in a depressed market. However, with high unemployment, wages tend to be lower so a minimum wage may be a real and significant help to those that retain their jobs.


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Interestingly, New Zealand is a low-wage, low unemployment country. Not sure how that works......

Generally, my views:

1. Economists, despite professional conceit, are unable to venture informed opinion beyond basics - they offer guesses, no more.

2. Current theory is utterely incapable of determining whether or not a minimum wage increases unemployment and inflation.

Like environmental simulation, basically, the human brain is incapable of holding all the factors impacting on the situation and then to extrapolate.

 

[Elgalad]

Not to say I necessarily disagree with any of your assertions, but I wanted to clarify a few of the points you made in response to my earlier post.

The problem with blaming the loss of American jobs on minimum wage is that jobs only started moving overseas in the mid-70s. You discount the 40s, 50s, and 60s in which the United States enjoyed remarkable growth, extremely low unemployment, and a relatively high standard of living.

You're forgetting that during those decades there was also virtually zero international competition for markets. The USA had an incredibly unfair advantage in that we were the Sole world power Not devastated by World War II. On the contrary, our infrastructure and manufacturing capacity had been Supercharged by the end of the War and was easily converted from war material industries to consumer goods. While the Warsaw Pact/USSR were indeed political/military rivals, they were Never serious competition for consumer goods outside of the Communist sphere. America exported its culture during the decades you mentioned to great effect as well, creating new markets among former enemies and allies who wanted to experience that lifestyle for themselves.

Surely if minimum wage were the culprit, jobs would have started moving overseas much earlier, instead of having a 40-year delayed reaction.

I contend that it didn't suddenly happen After 40 years, but over a long period of time and only recently has the job migration become blatantly obvious. To some extent we can blame ourselves for the success of Asian manufacturing. Part of the recovery and reconstruction package in Japan included productivity 'experts' who 'taught' the Japanese more efficient business practices. Curiously, these experts, including W. Edwards Deming had first approached American business leaders but had been turned down and dismissed as unnecessary (after all, we Were leading the world in manufacturing, right?) The Japanese had no such ego barriers to overcome.

There are any number of other factors as well.. Some business analysts are quick to point out the different cultural mindset between 'eastern' and 'western' workers. They state that eastern workers are more focused on the success of the team and a holistic vision of quality while western workers seem to place higher emphasis on individuality and competition. Because of this, Asian workers may be far less likely to push for higher wages and work benefits, seeing themselves as interchangeable parts in the manufacturing machine, while American workers (and European?) instead see themself as specialized tools that a company cannot function without.

To some extent, this ties in with..

The true culprit is, as you say, "inferior quality workmanship."

Well, actually what I said was 'similar or inferior quality workmanship' at far higher labour costs (wages.) Those are two factors, not just one. If you had a choice of say an 'A' quality item for $5.00 or an 'A-' quality item for $2.00 which are you going to pick? What if the choice was $5.00 for a 'B' quality item (but you had the satisfaction of knowing it was made down the street) or an 'A' quality item for $2.00 that you knew was imported? Are you going to pay $3.00 extra just to assuage your guilt and show solidarity with your fellow citizens? I know some folks would, and that's just great! But many people just don't have that extra $3.00 lying around.

To be blunt, Americans (and Europeans to a slightly lesser extent) started getting lazy and stupid. Our public schooling system degraded sharply in quality, as did secondary schooling. Immigrant students, instead of staying in the US after college, returned to their respective homelands to work and innovate there. True, Americans and Europeans still dominate the Nobel awards, but that dominance is fading fast. In America especially, the class gap is defined not by what kind of car you drive or whether you go to bed hungry or not, but what quality education your kids get. The result is that fewer and fewer Americans are getting the kind of the quality education that used to be available to them.

Well here I have to agree with you 100%. There's no question that our Education systems have declined drastically. We could debate the hows and whys, but the bottom line is that kids and young adults are simply Not being adequately prepared for the workforce. This is a root problem in many western nations but particularly in the USA and until it is addressed Seriously it will only get worse. The correlation between Nobel prizes and overall education is an indicator of the problem, but I think the issue is much more basic than that our most educated individuals just aren't competing as well as they once did.

Rather I believe that our education structures are no longer teaching basic work skills to children, choosing instead to focus on making them so called 'good citizens' who can converse on any number of political and social issues.. but when it comes to even the most rudimentary work tasks, fail miserably. Apologies in advance to CFC'ers, but from a cursory look around the OT site, threads such as 'Righty Tighty, Lefty Loosy' (a serious in depth discussion of liberal/conservative teen morality???) point out the obvious lack of real world common sense. Maybe Shop class should become mandatory in all high schools.

Alright alright, the goal of 'higher education' is to afford young adults the opportunity to rise above blue collar work levels. Now see, herein lies one bone of contention I've got with the whole system. We've somehow become a society that values the bean counters and managers but denigrates the actual engines of industry, the common workers. For all the talk in Academia of the class struggle and the poor downtrodden masses, all <I> hear from my end is lip service. If we are ever going to get serious about halting the decline of American (and European) manufacturing, we're going to have to make such jobs honorable again. Because if we wait much longer.. I firmly believe that the debates of the not-too-distant future will be about all the good Japanese/Chinese manufacturing jobs being 'outsourced' to cheap American and European labour.

That's the real problem, not minimum wage.

I'm sorry to break up your quote, but I wanted to address this apart from education. I've stated in this thread that while I don't think the minimum wage is necessary, I have no real issues with it. I do see it as a crutch and a panacea but as long as it makes some people happy, it serves its purpose. Raise it, lower it, keep it, discard it, none of these things will have any significant lasting change on the standard of living or the economy after the Market corrects itself. I wish that our society was advanced enough to accept that such artificial pricing/wage controls are actually unnecessary. But ultimately, everyone Is entitled to their opinion.



-Elgalad

 

[Jorge]

@Jorge
What you are saying basically is, that because some people assert their POV through violence they are right!?

No, workers can get the minimun wage through democracy also, as they are the majority. I was just pointing out that minimun wage is not only fair, but neccessary.

 

[Mise]

I'm not fluent with UK tax policy, but from what I have heard about your economy, most items bear a heavy sales tax. I'll assume that includes food products. In the US, most food products (particularly locally grown items) have much lower sales tax than finished goods, and in some states there is actually No sales tax on food products. If that's the case, you may Not notice a significant impact by minimum wage labour costs on food since labour's portion of the item's cost constitutes a much lower percentage than it does here.

In the UK there is also no sales tax (VAT@17.5%) on food (except for "luxuries") or children's clothes (and probably some other stuff too, but I'm not sure).

As for Walmart, I was referring not to minimum wage labour, but rather foreign labour. Take a walk through a Walmart sometime, virtually Everything is imported from overseas (here it is mainly Asia and Central America). I work in the retail business, and I deal with imports on a daily basis. There's simply no question that cheaper foreign labour is responsible.

In my lifetime I have seen a significant shift of manufacturing jobs from the United States to other countries. While the Left may find it easy to blame corporate greed for this, it would be foolish for a company to waste money on (higher priced) American (insert European if you prefer) workers who provide the same or even inferior quality workmanship than foreign workers. We could go around in a circle here and you could point out that the companies won't be able to Sell their products if no Americans are employed.. but I'd then have to point out that they have all those workers over in .. China .. who now have a paycheck and are looking for the good life.

Your arguement is a rather odd, considering the standard of living, cost of living, and wages paid in China. Are you saying we should employ people at the same wages as in China?!

Also, most manufacturing jobs aren't paid at minimum wage, at least not in the UK. It's only the very low end jobs (which are mostly filled by 16-21 year olds) that are paid at around £5.00 per hour.

Someone else stated in this thread that Economics is never easily reducable to simple concepts. There are far too many variables and factors that impact every aspect of the Market. I'm not stating that as a 'cop out', rather I'm pointing to it to suggest that the Free Market Cannot be controlled, not by government regulations, not by price or wage fixing, not in a Positive way at least. It is an entity that is constantly evolving and the best we can hope to achieve is some sort of temporary balance that benefits the most people at any given time.

I've always thought that there is no such thing as a "free" market. All laws stand as boundaries to it - am I allowed to kill people for profit? am I allowed to bribe juries? am I allowed to employ people below a certain wage? etc. All laws stand to protect the individual, generally at the expense of "economic freedom", and that's the way it should be!

 

[WillJ]

Generally, my views:

1. Economists, despite professional conceit, are unable to venture informed opinion beyond basics - they offer guesses, no more.

2. Current theory is utterely incapable of determining whether or not a minimum wage increases unemployment and inflation.

Like environmental simulation, basically, the human brain is incapable of holding all the factors impacting on the situation and then to extrapolate.

I'm reminded of a true story about a professor of sociology who was giving a lecture about the controversy over whether or not the social sciences are really sciences. For his lecture, he had a three-tiered podium, six beautiful female assistants, a piece of paper, and an envelope. He asked three of the assistants go to the left side of the podium, step onto each one of the three steps, and hold their arms out pointing toward the center and top of the podium. He then asked the other three assistants to do the same thing on the right side of the podium. Then he walked up to the top of the podium and announced to the audience that he'd like a male volunteer. Several men raised their hands and the sociologist called one of them up. The professor announced that he held in his hand a perfectly normal piece of paper, and on the count of three he would drop it, and he wanted the male volunteer to hold out his hands and try to catch it without moving. The sociologist also announced that he held in his hand an envolope with a piece of paper, and on it was typed his prediction of what would happen.

The professor then began counting, and the man of course stood right below the professor, against the center of the podium, holding out his hands. The paper was dropped, went straight down for about half a second, then suddenly was blown a few feet to the left, then flurried to the right a bit, then to the left again, seemingly randomly, until finally it was on the ground, completely off the stage that the professor and volunteer were on.

The professor then took out the envelope and dramatically pulled out the piece of paper with the prediction. He asked the volunteer to read the prediction.

The man read, "To the professor's left will be three lovely ladies holding out their hands to the professor, to the professor's right will be another three lovely ladies holding out their hands to the professor, and just below the professor will be man with his hands held out, looking like a complete idiot, and about fifty feet away from all this will be a piece of paper."

"You see," said the professor, "Sometimes human phenomena are much more easily predictable than physical phenomena."

Just felt like sharing.

 

[WillJ]

@jwijn (your post as a whole): Enlightening, but I'd have to say that, as of right now, it's a bit of a stretch to connect the emergence of an American middle class and America's lead in education (and thus prosperity and productivity) and the minimum wage. If there were absolutely no other explanation, I'd probably have to accept the connection. But your sources do list other explanations: the GI Bill of Rights, the National Defense Education Act, Cold War enthusiasm for research, etc.. There are too many variables.

But what if you or I looked at Massachusetts specifically? Since they implemented the minimum wage in 1912, we could see how education and the economy as a whole over there was affected, without having to worry about the things listed above. And if we could look at other states as well, keeping in mind when each implemented the minimum wage and what things happened after doing so, I imagine a strong connection (or the clear absence of one) could be established. But then I don't know how easy it is to find stats about early twentieth century Massachusetts or other individual states.

Ahh, but part of my argument is that in order to have a healthy economy (and thus a rich country) there must be a minimum wage, so it is rather difficult to prove or disprove, as all of the rich countries have a minimum wage.

Indeed.

Well, as history has shown, the implementation of a minimum wage has not had an equal effect on inflation, or else nations would have runaway inflation. My theory is that, in reality, companies rarely simply fire workers when a minimum wage is implemented and, instead, are left with two choices:

1. Increase productivity
2. Move elsewhere

Most companies opt for the former, wanting to avoid the backlash that results in choosing the latter. This explains the surge in productivity following WWII, as companies attempt to innovate in order to get the biggest bang for their buck, so to speak.

As for inflation, it doesn't have to be runaway inflation, and of course it's possible that we don't have much inflation because what you said isn't true at all.

I still don't see any reason to believe that everyone goes up a rung on the economic ladder with the establishment of a minimum wage. If in a market without a minimum wage an employer is paying an employee $10 an hour, then a minimum wage of $5 an hour is established, why would the employer raise the employee's wage to $15 an hour?

I think that's what you had said happens before, but I still don't understand why it's so.

As for everything else you said here, I don't really see what you're saying here has to do with the quote of mine you were responding to. Maybe it's a response to my abstract model of how things work. And so I'll combine it with this:

Well, there is also the option of innovation as I mentioned before. If an employer is given the option of either firing a few employees (and thus generating less product) or working to enhance productivity, in the end the latter will be rewarded. As they say, "necessity is the mother of invention."

Well, I still think my model is how things work.

What I said about education applies as well to innovation.

When you say "increase productivity," take into account that the "value" of someone's labor is how much productivity can be gotten out of it, in the sense that if any more is paid, a loss will have to be suffered (or at least there will be less profit than the employer is willing to be an entreprenuer for), no matter what the employer does with his business. And as for moving elsewhere, labor value would take that into account as well, in the sense that if there were no other possible workers in the world (just an extreme example), obviously this one worker would be really, really valuable.

In the developing world, however, a minimum wage is far trickier of a subject. On the one hand, many in the developing world are forced to work in sweatshop-like conditions for very low wages. This, of course, should stop. However, I think that there is a certain level that a country must first meet in order to implement a minimum wage. Namely, where there is a tradition of unionization (which in many countries is not the case, either because of apathy or repression) as well as the infrastructure to bridge the gap between unskilled and skilled labour. Without those two prerequisites, the corporations will simply move to the next poor, corrupt nation in the name of its shareholders and the almighty dollar. So, I suppose that it's a mixed bag. But I firmly oppose anyone trying to abolish the minimum wage in the United States or any developed country.

Well that brings up an interesting idea: What about a worldwide minimum wage? But I guess that might be hard to enforce.