Minimum Wage: What's the Other Argument?

[bhavv]

^^ nope. Completely illogical.

 

[TheMeInTeam]

Why? There are virtually no minimum wage jobs with competition beyond a 10 mile radius.

You will necessarily have less investment with the work force more expensive, that's the reality of a more narrow profit margin. The alternative is raising prices to cover the costs, which sounds an awful lot like inflation (making the wage increase less meaningful in the process since everything costs more).

Asserting no competition is naïve. In the long run, firms will start buying their real estate in less expensive areas where they make more money. Remember the outrage over a certain major firm moving its HQ out of the US? That's a rational business decision, if cold, because it makes more money. In that case, it was tax rather than mandated wage that caused the move, but the essential driving force (advantageous operating costs elsewhere) exists in both cases.

Why would either of those things happen? MW won't effect inflation

MW will necessarily have an effect on inflation. It's not a 1:1 ratio, but it is not credible to claim "no effect".

or the unemployment rate.

Let's see, major firms build fewer locations in areas of high operating costs and more in areas with low operating costs. A new regulation raises operating cost in some areas but not all areas (we don't control minimum wage outside US). This is supposed to have no effect whatsoever on employment rate? Again, not a credible position, at least no more so than the candy mountain unicorns.

Again, why? There is no international competition for the product of minimum wage jobs.

Not relevant to my point. The "international competition" is "where do I invest that is most profitable to my firm". When you suddenly spike operating costs in one area, the trend will be investment in other areas. It's not like everyone will jump ship unless your change is ridiculous, but you will have less investment and as a result fewer jobs available.

The greater the disparity in labor costs, the more nonsense you get. It becomes increasingly cheaper (in the relative sense) to do as much as possible overseas and ship it back to the US. It's not like we haven't already observed this trend numerous times, and watched several countries essentially use an initially cheap labor pool to gain investment commitments, with your usual helping of human rights arguments against it. Do you believe that's magically not going to happen on at least some level with a large increase in MW?

 

[Cutlass]

You will necessarily have less investment with the work force more expensive, that's the reality of a more narrow profit margin.

The opposite is true. Higher cost labor results in greater investment in labor saving technology. Lower cost labor results in less investment in labor saving technology. Same is true in training and skills for the labor. When cost is pushed up, productivity will also be pushed up. This will displace some labor, but create other jobs, and so have no effect on the unemployment rate.

The alternative is raising prices to cover the costs, which sounds an awful lot like inflation (making the wage increase less meaningful in the process since everything costs more).

Not if you're talking about the MW, it doesn't. Hell, it doesn't when talking about labor at all. But specifically not about the MW. A 5% increase in costs for 0.1% of the economy is never going to be noticed in the inflation rate.

Asserting no competition is naïve. In the long run, firms will start buying their real estate in less expensive areas where they make more money. Remember the outrage over a certain major firm moving its HQ out of the US? That's a rational business decision, if cold, because it makes more money. In that case, it was tax rather than mandated wage that caused the move, but the essential driving force (advantageous operating costs elsewhere) exists in both cases.

But this didn't happen in industries where the MW was the prevailing rate. It is a discussion not related to the MW.

MW will necessarily have an effect on inflation. It's not a 1:1 ratio, but it is not credible to claim "no effect".

In the long run, there's not much of a case to be made that it will have any effect at all. Productivity is a variable, and the employer is the only one in control of it. In the short run it's just such a trivially small part of the economy that the effect is statistically insignificant from 0. I mean, can you really look at a 0.05% increase in costs and segregate that out in terms of the price level of the nation as a whole? You really can't.

Let's see, major firms build fewer locations in areas of high operating costs and more in areas with low operating costs. A new regulation raises operating cost in some areas but not all areas (we don't control minimum wage outside US). This is supposed to have no effect whatsoever on employment rate? Again, not a credible position, at least no more so than the candy mountain unicorns.

Economic studies have shown that changes in the MW cannot be associated with changes in the unemployment rate. Some studies find minor decreases in jobs, some find increases in jobs. There is no literature in the economics profession which can claim anything other than an inconclusive effect. Your claims have no evidence behind them. You are working in theory alone, and it's more of a political theory than it is an economic theory. And in macroeconomics, you don't even have that much going for you, because the unemployment rate in the long run is determined by macro policy, and not micro policy.

And you don't even have that much going for you when discussing the MW, because there are essentially no MW jobs where the product of that job is consumed beyond the local market. The US does not export a product which is produced with workers making the MW. So you are actually making an argument against something which does not exist. There are no manufacturing workers in the US making the MW.

Further, it is demonstrated throughout the world that nations with high wages continue to have jobs. So your argument fails on the simple test of open your eyes and look around and see what is actually going on in the world.

That's not to say that many employers don't move jobs because of costs, wages being one of them. But it still doesn't apply to the MW argument, because those jobs are not being moved. They can't be, because they are all consumed locally. But those other jobs that are, they all pay far above the MW. And the firms who move those jobs often come to regret doing so.

Not relevant to my point. The "international competition" is "where do I invest that is most profitable to my firm". When you suddenly spike operating costs in one area, the trend will be investment in other areas. It's not like everyone will jump ship unless your change is ridiculous, but you will have less investment and as a result fewer jobs available.

Again, not relevant to the MW argument, because none of those jobs pay the MW. And not related to the unemployment rate, because too many other factors are involved in that.

The greater the disparity in labor costs, the more nonsense you get. It becomes increasingly cheaper (in the relative sense) to do as much as possible overseas and ship it back to the US. It's not like we haven't already observed this trend numerous times, and watched several countries essentially use an initially cheap labor pool to gain investment commitments, with your usual helping of human rights arguments against it. Do you believe that's magically not going to happen on at least some level with a large increase in MW?

Of course it won't. Because we aren't producing anything with MW workers who are competing in industries where foreign competition matters.

 

[Zelig]

Sure there is. It means the extreme of the range. Nothing past this point. Lowest. "Living wage" does not fit that description.

J

That's nonsensical, "minimum wage" is "whatever we choose to be minimum", not "lowest theoretically possible wage". If it were the latter, minimum wage it would be negative, where interns pay an hourly rate for the privilege of gaining experience.

Your nonsense definition makes the term meaningless, and differs from how everybody else understands it.

 

[TheMeInTeam]

The opposite is true. Higher cost labor results in greater investment in labor saving technology. Lower cost labor results in less investment in labor saving technology. Same is true in training and skills for the labor. When cost is pushed up, productivity will also be pushed up. This will displace some labor, but create other jobs, and so have no effect on the unemployment rate.

I am asserting that higher operating/lower profit margin cost equates to less overall investment. You are not refuting this, but instead claiming that investment that does happen will be allocated differently. However, I already pointed out that the difference in this allocation, before you responded to anything I said.

Not if you're talking about the MW, it doesn't. Hell, it doesn't when talking about labor at all. But specifically not about the MW. A 5% increase in costs for 0.1% of the economy is never going to be noticed in the inflation rate.

Feel free to show where these numbers are coming from, otherwise let's stick to measurable numbers or to theory. I admit I don't have substantive data on the % of people at MW vs other values, and if you have it I don't mind being educated in this regard.

But this didn't happen in industries where the MW was the prevailing rate. It is a discussion not related to the MW.

It can be. A lot depends on whether changes to MW are enough to justify incurring widespread switching costs to avoid them, or at least to funnel future investment elsewhere (IE which "local" markets you try to sell").

And you don't even have that much going for you when discussing the MW, because there are essentially no MW jobs where the product of that job is consumed beyond the local market. The US does not export a product which is produced with workers making the MW. So you are actually making an argument against something which does not exist. There are no manufacturing workers in the US making the MW.

To be clear, I'm saying that if you hike MW sufficiently, you will simply get less attempts at selling said product locally because it is less profitable, and firms will instead prefer (if they can do it) to build and sell elsewhere.

Further, it is demonstrated throughout the world that nations with high wages continue to have jobs. So your argument fails on the simple test of open your eyes and look around and see what is actually going on in the world.

For someone pointing fingers regarding facts a moving goalpost fallacy is quite unfitting. I said that the market should set the wages. This does not exclude high wages if those positions are assigned sufficient value by the market.

Also, if wages are sufficiently bad that they're not livable then it would be challenging to find people to fill those positions, especially given the current US situation.

Again, not relevant to the MW argument, because none of those jobs pay the MW.

You seem quite resistant to the concept that if x is profitable now, but less profitable with new regulation, that fewer people will do x given the regulation. I don't see why that's in question though. How much is a question of scale for before/after.

Maybe MW is preferable as a form of "soft" wealth redistribution in that it sets a given living standard more easily/less corruptibly than other programs, however. Perhaps that is the argument I should have used for it, because after thinking about it more it's the strongest one I can come up with.

 

[Flying Pig]

You seem quite resistant to the concept that if x is profitable now, but less profitable with new regulation, that fewer people will do x given the regulation. I don't see why that's in question though. How much is a question of scale for before/after.

The point is that X is not profitable now. You simply cannot pay an American little enough money to make mass-produced cheap t-shirts for him to compete with somebody in Bangladesh. The only manufacturing jobs left in developed countries are those which require specialist skills or which trade off their locations, and nobody there is making minimum wage. The only people still making it are people in businesses which cannot move - waiters, for example, and supermarket cashiers. If your customers are in London, your restaurant has to be in London too, and you can't just move Tesco to Paraguy and expect people to fly out for their groceries.

 

[TheMeInTeam]

The point is that X is not profitable now. You simply cannot pay an American little enough money to make mass-produced cheap t-shirts for him to compete with somebody in Bangladesh. The only manufacturing jobs left in developed countries are those which require specialist skills or which trade off their locations, and nobody there is making minimum wage. The only people still making it are people in businesses which cannot move - waiters, for example, and supermarket cashiers. If your customers are in London, your restaurant has to be in London too, and you can't just move Tesco to Paraguy and expect people to fly out for their groceries.

Yes, but my point is that if you're a supermarket, or chain restaurant, or other such firm and are looking to build a new location, you might just pick somewhere with less cost.

In other words, if you can run a dollar store in France or England, but the latter makes you pay cashiers twice as much, then all things being equal you'll build in France.

Groceries will just see price hikes, people still need food. I suppose you could come up on a break point whereby you start doing automated checkout with security + 1 tech person etc despite what that would otherwise do to sales because you could keep pricing more competitive etc. Such was one argument I made for it earlier.

 

[Flying Pig]

I really don't think that follows for most companies, though. I'll give you that it might encourage companies to move abroad, but we've seen some spectacular failures in that department - witness Tesco's move into Asia. At any rate, there will always be English consumers forming a large market for pound-shop goods, so we're never going to be in a situation where there aren't any pound shops in England because of minimum wage laws.

As for groceries - they won't see price hikes if lower prices with a lower profit per item translates into more profit overall.

 

[Ajidica]

In other words, if you can run a dollar store in France or England, but the latter makes you pay cashiers twice as much, then all things being equal you'll build in France.

However, all things being equal doesn't exist in the real world. The British dollar-store owner, presumably lacking the ability to speak French or live in France*, would either open the dollar store with a lower profit margin or invest the money elsewhere if impossible to run a dollar-store profitably with the new wages.

*I mean, who would want to live in France willingly?

 

[Borachio]

Well, I, for one, would love to live in France. I don't understand people who wouldn't.

Which isn't to say that there aren't places in France that are less than pleasant to live. But there're those sorts of places everywhere.

 

[Flying Pig]

However, all things being equal doesn't exist in the real world. The British dollar-store owner, presumably lacking the ability to speak French or live in France*, would either open the dollar store with a lower profit margin or invest the money elsewhere if impossible to run a dollar-store profitably with the new wages.

*I mean, who would want to live in France willingly?

I think we're assuming that the dollar-store owner in fact owns a tremendous number of them in many countries, and wants to open yet another one.

 

[bhavv]

French people hate you if you cant speak French.

Id stick to wanting to live in Norway!

 

[Borachio]

Norway is a fine country. In *summer*, when you can see it.

The food is not good either. Unlike in France.

 

[TheMeInTeam]

My post was not intended to throw the discussion off track, and I'm not too interested into delving into red herrings in a RD thread, despite them being potentially amusing.

 

[bhavv]

Actually the UK does have an amazing variety of food available. But then conservatives. Those evil tits.

 

[onejayhawk]

That's nonsensical, "minimum wage" is "whatever we choose to be minimum", not "lowest theoretically possible wage". If it were the latter, minimum wage it would be negative, where interns pay an hourly rate for the privilege of gaining experience.

Your nonsense definition makes the term meaningless, and differs from how everybody else understands it.

Words matter. In this case the word is "minimum". It simply reflects what the term means, ie least, lowest, less than all others. You are placing a value judgement on something fundamentally descriptive.

Economists would say the "lowest theoretically possible wage" is the point where businesses can hire and retain workers. That is not negative, and usually higher than the statutory minimum. Interns are an interesting case, but are better viewed as students, not workers. However, it is a valid point that not all incentive is monetary. This is not a bad thing.

J

 

[Zelig]

Words matter. In this case the word is "minimum". It simply reflects what the term means, ie least, lowest, less than all others. You are placing a value judgement on something fundamentally descriptive.

Economists would say the "lowest theoretically possible wage" is the point where businesses can hire and retain workers. That is not negative, and usually higher than the statutory minimum. Interns are an interesting case, but are better viewed as students, not workers. However, it is a valid point that not all incentive is monetary. This is not a bad thing.

J

So how about assume when anyone types "minimum wage" they're actually referring to "statutory minimum wage". Because they are.

 

[Cutlass]

I am asserting that higher operating/lower profit margin cost equates to less overall investment. You are not refuting this, but instead claiming that investment that does happen will be allocated differently. However, I already pointed out that the difference in this allocation, before you responded to anything I said.

Not really, you didn't. You don't really seem to have any grasp of how a business operates. Businesses substitute one thing for another.

Feel free to show where these numbers are coming from, otherwise let's stick to measurable numbers or to theory. I admit I don't have substantive data on the % of people at MW vs other values, and if you have it I don't mind being educated in this regard.

The workforce of the US is roughly 157million people. Of that number, 1.6million make the minimum wage. 1%. Wages are never all of production costs. Therefor any increase in wage costs has a smaller percentage change in total costs. So to say that a doubling of the MW would increase production costs by 0.05% is significantly overstating the case.

It can be. A lot depends on whether changes to MW are enough to justify incurring widespread switching costs to avoid them, or at least to funnel future investment elsewhere (IE which "local" markets you try to sell").

No, it can't be. Because no one working in the US on a product or service consumed other than locally is getting paid the MW. You can't relocate what these people are working on.

To be clear, I'm saying that if you hike MW sufficiently, you will simply get less attempts at selling said product locally because it is less profitable, and firms will instead prefer (if they can do it) to build and sell elsewhere.

Well, no. Firms sell where the customers are. The customers aren't going to relocate just because the McDonalds has left town.

For someone pointing fingers regarding facts a moving goalpost fallacy is quite unfitting. I said that the market should set the wages. This does not exclude high wages if those positions are assigned sufficient value by the market.

Labor markets are not free. Ever. Under any conditions. They never have been, and they never will be. There isn't even a theoretical possibility of a way in which to make them free.

Labor markets are coercive, always and everywhere.

So when you say 'let the market decide', what you have actually said is 'let employers kill workers in order to coerce the rest'.

Also, if wages are sufficiently bad that they're not livable then it would be challenging to find people to fill those positions, especially given the current US situation.

And some jobs they can't. This is why Republicans were always so supportive of illegal immigration. But it's also why so many people support subsidizing Walmart with tax dollars to support labor.

You seem quite resistant to the concept that if x is profitable now, but less profitable with new regulation, that fewer people will do x given the regulation. I don't see why that's in question though. How much is a question of scale for before/after.

For what reason would it be less profitable? You're making an assumption with no support behind it.

Maybe MW is preferable as a form of "soft" wealth redistribution in that it sets a given living standard more easily/less corruptibly than other programs, however. Perhaps that is the argument I should have used for it, because after thinking about it more it's the strongest one I can come up with.

A significant number of economists prefer something like a basic income guarantee, a negative income tax, or at least a strong social safety net program as preferable to the MW. But the problems with these ideas is, first, they simply are not going to happen in the American political context. Second, they subsidize employers who could very easily afford to pay their employers more, making a (in)direct transfer not from the taxpayer to the worker, but from the taxpayer to the employer. Third, that there is inevitably some efficiency loss to the government as 3rd party player in this.

Yes, but my point is that if you're a supermarket, or chain restaurant, or other such firm and are looking to build a new location, you might just pick somewhere with less cost.

In other words, if you can run a dollar store in France or England, but the latter makes you pay cashiers twice as much, then all things being equal you'll build in France.

Groceries will just see price hikes, people still need food. I suppose you could come up on a break point whereby you start doing automated checkout with security + 1 tech person etc despite what that would otherwise do to sales because you could keep pricing more competitive etc. Such was one argument I made for it earlier.

See, this is where you are fundamentally not getting it. You aren't getting what businesses, well, just what they do. If your customers are in England, there's no f#%@ing chance in hell that you will build your store or restaurant in France.

Because now you have no customers at all.

 

[Ajidica]

For what it is worth, I wrote a short policy paper on the minimum wage for a Public Policy Economics class.

tl;dr version: The Minimum wage has distortionary effects on the labor market, no getting around that. An expansion of welfare provisions (as in actual welfare payments as opposed to 'workfare') would be able to replicate much of the benefit of the minimum wage with fewer distortionary effects. That said, I don't trust either political party enough to create and maintain welfare spending at a level sufficient to replicate the effects of the minimum wage, so in most respects the minimum wage is the best of an altogether poor situation.

 

[Cutlass]

The Economist explains
Why some economists oppose minimum wages
Jan 22nd 2014, 23:50 by R.A.

WORKERS across the rich world have suffered stagnant wages for much of the past decade, in good times and bad. Governments are increasingly responding by boosting minimum wage-rates. State and local governments in America are passing wage increases, and Barack Obama supports a rise in the federal rate from $7.25 per hour to $10.10. Angela Merkel’s new government has signalled its support for a new national minimum wage, and on January 16th George Osborne, Britain’s chancellor, backed an above-inflation rise in the minimum wage. A higher wage floor seems like a simple and sensible way to improve workers' fortunes. Yet many economists argue against it: Germany’s leading economic institutes, for instance, have pushed Ms Merkel to resist calls for a wage floor. Why do economists often oppose minimum wage-rates?

Historically, economists' scepticism was rooted in the worry that wage floors reduce employment. Firms will hire all the workers it makes sense to hire at prevailing wages, the thinking goes, so any minimum wage that forces firms to pay existing workers more will make those jobs uneconomical, leading to sackings. Yet economists were forced to rethink their views in the early 1990s, when David Card and Alan Krueger of America's National Bureau of Economic Research presented evidence that past minimum-wage increases did not have the expected effect on employment. A rise in New Jersey’s minimum wage did not seem to slow hiring in fast-food restaurants in New Jersey relative to those in neighbouring Pennsylvania, they found. One explanation, some economists speculated, was that firms had previously been getting away with paying workers less than they were able, because workers were prevented from searching for better-paid work by the costs involved in changing jobs. That would mean that when wages were forced up, the firms were able to absorb the costs without firing anyone.

Academics continue to trade studies on whether minimum wages cost jobs. A recent survey of economists by the University of Chicago showed that a narrow majority of respondents believe a rise in America’s minimum wage to $9 per hour would make it “noticeably harder” for poor workers to find jobs. Yet a narrow majority also thought a rise would nonetheless be worthwhile, given the benefits to those who could find work. Economists' opposition to specific minimum-wage hikes is sometimes due to concerns that politicians will impose recklessly high wage-floors, which firms may find difficult to absorb without laying people off. Some economists argue that there is a better alternative in the form of wage subsidies, which cost governments money but do not discourage hiring.

Recent minimum-wage debates have been complicated by the unusual macroeconomic circumstances of the day. When economies are plagued by weak demand, as much of the rich world has been since the crisis of 2008, firms may be more sensitive to wage floors. (Others argue that healthy corporate profits show that firms have plenty of room to accommodate pay rises.) New technologies could also amplify the employment effect of a wage hike. Given expanding opportunities for automation, firms may seize on higher wage-floors as an excuse to reorganise production and shed jobs. But opinion among economists remains divided (and studies contradictory), because most recent minimum-wage increases have been comparatively modest.

http://www.economist.com/blogs/economist-explains/2014/01/economist-explains-11