Does minimum wage increase unemployment?

[Fuschia]

I'm not exceptional with economics, so I feel the need to ask this question. And here's why I voted the way I did, so someone can refute me.

I think minimum wage increases unemployment because of the way a business operates: they attempt to make the most money by cutting costs and raising prices on their products. Minimum wage prevents the ability to cut expenses by lowering wages past a certain point for low-skill jobs, so businesses tend to fire people to make up for it.

And, since I can see one argument against the abolition of the minimum wage, I believe that unions will solve the problem of businesses that attempt to treat their workers poorly and pay them poorly. If the government were to remove its restrictions on unions, then they would make up for the minimum wage and laws regarding workplace safety.

Effectively, this would keep things about the same with less government involvement and more business choice between firing people and lowering wages.

 

[warpus]

If you abolish the minimum wage, you'll make a lot of jobs a lot less desirable than they currently are.

 

[Fuschia]

If you abolish the minimum wage, you'll make a lot of jobs a lot less desirable than they currently are.

How is that a bad thing? I don't believe it is the government's job to make it less attractive for its population to be employed as dishwashers or janitors.

 

[warpus]

I think it would lead to less of those positions being filled, but you'll have to wait for somebody a bit more qualified (like JerichoHill) to give you a more concise answer.

 

[superisis]

Depends on what level you put the minimum wage at

 

[superisis]

But on a more serious responce: yes.

Creating a minimum wage works simillarly to monopoly price setting (same thing really). It maximises the amount of wages earned at the expense of total amount of jobs.

So it does decrease employment. Wether it's good or bad is another question

And, since I can see one argument against the abolition of the minimum wage, I believe that unions will solve the problem of businesses that attempt to treat their workers poorly and pay them poorly. If the government were to remove its restrictions on unions, then they would make up for the minimum wage and laws regarding workplace safety.

this would not work in businesses with a high worker-turnover since they are hard to unionize (eg. the fast food industry where the average employee stays for 3 months).

If you abolish the minimum wage, you'll make a lot of jobs a lot less desirable than they currently are.

yes and no. If wages in a certain industry drops then less people will want the job, but if the employers encounter (or anticipate) worker shortage, then they'll have to increase wages anyhow.

minimum wages are not in place in order to keep people working in certain industries (i.e. the law is not meant as a subsidization in that way). The argument usually goes instead: if you take away minimum wages people will have to work for much less (i.e. supposing that more or less the same amount of workers will remain in the industry).

One argument for minimum wages is that having the poorest (working) people earn more helps national spending, since generally the porrer you are the larger magrinal propensity to spend you have.

The argument against minimum wage is that it prevents the really poor from being able to take a job that a company only will offer at a wage lower than what is legal.

 

[Fuschia]

So it does decrease employment. Wether it's good or bad is another question

I am going to hope you meant increase, so I will respond as though you did.

It is obviously a bad thing because, when unemployment gets too high, people have these ideas such as unemployment benefits, which costs everyone more money in taxes.

this would not work in businesses with a high worker-turnover since they are hard to unionize (eg. the fast food industry where the average employee stays for 3 months).

If they are not going to be an asset to the company for which they work long enough to demand better wages, then they do not deserve those better wages.

 

[Elta]

It depends how high they are: IIRC there is a historical map of minimum wage compared to the dollar in 2005, there was an increase when it hit 8.50 some so that's like 9 per hour today and unemployment went up. I am sure there are other factors too but, that is what I took from it,

 

[GinandTonic]

When we introduced the min wage in the UK the right were full of dire warnings about the job market, which failed to materialise.

Some low end biz did have problems and it did cause shifting in the economy, but in general no real negatives. A bunch of people started earning enough to get away from the benefits system.

To take a barman/maid as an example, many of them got a pay rise with the min wage. The hit was softened since (esp in the pubs with lower margins) some of the customers suddenly had a little more cash to spend. Some pub landlords might do a few more daytime shifts themselves if they were feeling the pinch. The posher pubs had high enough margins to absorb the cost. Some chains with lots of low margin pubs took a slight hit in profits, which they passed onto their shareholders.

 

[superisis]

I am going to hope you meant increase, so I will respond as though you did.

minimum wages increase unemployment, thereby decreasing employment.

It is obviously a bad thing because, when unemployment gets too high, people have these ideas such as unemployment benefits, which costs everyone more money in taxes.

well that's one argument. but there are arguments against aswell. (see my edited post)

 

[Integral]

But on a more serious responce: yes.

Creating a minimum wage works simillarly to monopoly price setting (same thing really). It maximises the amount of wages earned at the expense of total amount of jobs.

So it does decrease employment. Wether it's good or bad is another question

Not always. Under monopsony conditions--where the firm has market power over labor--then increasing the minimum wage will decrease unemployment. You're assuming free market conditions.

The historical evidence on the effect of the minimum wage has been mixed, IIRC.

 

[Fuschia]

minimum wages increase unemployment, thereby decreasing employment.

Sometimes I misread things. Sorry about that.

One argument for minimum wages is that having the poorest (working) people earn more helps national spending, since generally the porrer you are the larger magrinal propensity to spend you have.

I concede this point, although there are better ways to increase national spending that involve less government restriction of the economy.

You're assuming free market conditions.

I would certainly hope so! Regardless, my question was pointed more towards the U.S. and Europe then other places.

 

[amadeus]

Probably, but there are far better reasons to do away with it.

 

[Fuschia]

Probably, but there are far better reasons to do away with it.

Most certainly!

 

[JerichoHill]

You know, I have an a thread called "Ask an Economist" This question has already been answered there.

There are two ways of interpreting "minimum wage" If you mean the current existing US min wage, the answer is "probably not"

If you mean, in theory, is there a min wage that if set would create unemployment? Absolutely.

Let's the economist answer the econ question, m'kay armchairs?

 

[Elta]

You know, I have an a thread called "Ask an Economist" This question has already been answered there.

There are two ways of interpreting "minimum wage" If you mean the current existing US min wage, the answer is "probably not"

If you mean, in theory, is there a min wage that if set would create unemployment? Absolutely.

Let's the economist answer the econ question, m'kay armchairs?

One of these days when I am super bored I'l categorize all of your answers into your wiki page or something like that

 

[Fuschia]

You know, I have an a thread called "Ask an Economist" This question has already been answered there.

There are two ways of interpreting "minimum wage" If you mean the current existing US min wage, the answer is "probably not"

If you mean, in theory, is there a min wage that if set would create unemployment? Absolutely.

Let's the economist answer the econ question, m'kay armchairs?

I hadn't realized. Regardless, there is something like 70 pages of information to trawl through on the two threads it covers, and I rather dislike having to read that much stuff when I just want to know one thing. I will post any other questions I have on your thread, though.

 

[Merkinball]

If you abolish the minimum wage, you'll make a lot of jobs a lot less desirable than they currently are.

No, not really.

If you have a minimum wage those jobs still exist. They are just performed by an imported illegal and exploited slave class.

 

[sysyphus]

Let's the economist answer the econ question, m'kay armchairs?

We all have the right to discuss whatever we want. Yes you have more expertise in the field than the rest of us, and we can all learn from your knowledge, but the subject of economics doesn't start and end with you.

I'm an engineer, but you don't see me telling people that they shouldn't be discussing issues of technology due to lack of qualification and that they should wait for me to show up to enlighten them.

Get over yourself.

 

[CIVPhilzilla]

It either will increase it or have no effect. It just depends whether the minimum wage in question is set above the equilibrium point of supply and demand. It's just like any price floor or ceiling, if they actually affect the prices they will have an adverse effect on the economy, if they don't affect the prices then they are effectively doing nothing.