Correcting the Cartoon in Noah’s Post
Noah Smith posted a cartoon about how the minimum wage works. The cartoon came from Mark J. Perry at the American Enterprise Institute.
Noah said that it is Econ 101ism and I totally agree. Now the cartoon is obviously a wrong way to look at minimum wage. (I use the word “obviously” to play upon the word “actually” that irked Noah in his post. ¯\_(ツ)_/¯ )
The cartoon by Mark Perry is stupid economics. Let me show you a much better cartoon of how the minimum wage works.
Now, the cartoon above does not take into account externalities and the social costs surrounding the minimum wage. For example, when the minimum wage is low, we find more people using government programs. That is because social costs of labor must be covered, either by wages or by public or private services.
Also, every economist seems to forget the prime directive of economics… I rarely ever read about economists using the term “Net Social Benefits”. It would have been a perfect moment for Noah to use this concept. The prime directive of economics is to maximize “Net Social Benefits” and not “Net Private Benefits”.
The global economy is floundering because economists and politicians have focused on “Net Private Benefits” of the rich guided by a trickle-down 101ism thing. Mark Perry is only concerned about maximizing private benefits.
So here is the obviously better cartoon… An artist, I am not.
The coastline is an ecosystem just as society is an ecosystem. People depend upon the marine life for food. Then the marine life depends upon a healthy coral reef. Then the coral reef depends upon the sea level.
The level of water in the sea describes how well the ecosystem of the coastline functions.
- If the level of the water drops below the coral reef, it will die and the marine life with it. The people suffer.
- If the level of the water rises above the land, the coral reef goes too far below the surface and does not function well until it can grow higher over a couple of generations.
But when the level of water is just right, there is abundant marine life and people are much happier.
The level of sea water corresponds to the level of the minimum wage. When the minimum wage is too low, the ecosystem does not function well and the social costs accumulate. When the minimum wage is just right, life is better for society overall.
The cartoon by Mark Perry is a childish way to view the ecosystem of a coastline. All he cares about are the houses on the beach. His cartoon cares nothing for the ecosystem of the sea upon which people ultimately depend. His type of thinking disregards the ecosystems of nature and society’s relationship to nature. It is his type of thinking that is causing so many problems for the earth and society.
Nicely done.
Businesses should pay the full cost of their labor, not rely on society to pick up the cost that they are unwilling to pay.
I must disagree.
First, your analogy was carefully worded to try to force it to work. Missing was the third sentence in the second to last paragraph on what happens if the minimum wage is set to high. You are trying to play Goldilocks with the choices of too low and just right. Convenient.
The original cartoon captures the dynamic better. If the minimum wage is set so that it is illegal to employ a person in such a capacity that that job creates less than the risk adjusted rate of return to fund that wage, then the rational action on a part of that business is to not make the hire, or to change other business conditions so the hire can pay for itself.
There are lots of ways to change the other business conditions — raise prices, change who you hire for that job, reduce non wage costs paid to employees, shift costs elsewhere, increase job demands, increase the number of part time employees and reduce overtime and privilege the better workers in the pool, and so on. In practice, employers will do all of these and more. However, as the minimum wage rises, more potential employees will be priced out of the process, effectively losing out to higher skilled, more capable workers.
If too high, the lowest skilled will become unemployed, and every economically aware person on the planet acknowledges this, disagreeing only on where the level is or should be. At a penny minimum those affected rounds to zero. At two hundred dollars per hour, those affected are a majority of the workforce.
The social cost element is a distraction. The poorest quintile in the US hardly work at all. Less than 17% of them have a full time job of any salary, and two thirds don’t work at all. The obvious solution is most assuredly not to make it harder to get a job (and more rewarding not to try), but instead to expect and demand that able bodied people of working age support themselves. If they don’t make enough they should first and foremost be expected to work more, apply themselves harder, or develop themselves further.
Properly designed, non iatrogenic safety nets certainly play a part in any modern society, but these need to come with an expectation they are the last, not the first resort for capable workers.
As for your “Eco-system of the sea” metaphor, let us note that the houses represent human beings. Millions of people capable of supporting themselves in productive ways by serving others (as employees or self employed) are today being forced or incentivized by minimum wages, employment regulations and licensing requirements out of the labor market and into the free rider category. This lowers total human productivity. Raising the minimum wage by a significant amount is likely to do substantially more harm overall and to the poor than it does good.
Really Swami?
“The poorest quintile in the US hardly work at all. Less than 17% of them have a full time job of any salary, and two thirds don’t work at all. The obvious solution is most assuredly not to make it harder to get a job (and more rewarding not to try), but instead to expect and demand that able bodied people of working age support themselves. If they don’t make enough they should first and foremost be expected to work more, apply themselves harder, or develop themselves further.”
And increasing minimum wage will make it more difficult to find job? You could lower the minimum wage and it would little effect on finding a well paying opportunity which would remove the need for welfare as much has been automated away or migrated overseas. Those productivity gains which were supposed to come with either have failed to materialize or have trickled upstream to a minority. And those jobs were the valuable and Labor-intensive opportunities which were the most impacted. Spare me the academic Sowell bilge unless of course you have spent some time setting up cells in a manufacturing environment instead of quoting from a book.
“but instead to expect and demand that able bodied people of working age support themselves.”
With what jobs? How do you support yourself if the wages are below subsistence?
” If they don’t make enough they should first and foremost be expected to work more, apply themselves harder, or develop themselves further. ”
Easy for you to say. What is your evidence that people in minimum wage jobs are not working hard and applying themselves? How can they also develop themselves further if they are working hard just to provide food and shelter for themselves and a family?
A person working a full time, 40 hr /wk, job deserves to earn a high enough salary that they no longer need, or qualify, for public assistance. If a business cannot subsist at this salary level, they should not be in business. They need to change their business model, or get out of the business. Salary is just one cf the many costs of doing business. And often it is not even the largest one.
“The social cost element is a distraction. The poorest quintile in the US hardly work at all. Less than 17% of them have a full time job of any salary, and two thirds don’t work at all. The obvious solution is most assuredly not to make it harder to get a job (and more rewarding not to try), but instead to expect and demand that able bodied people of working age support themselves. If they don’t make enough they should first and foremost be expected to work more, apply themselves harder, or develop themselves further.” Swami
The above economic principle has been promoted by both parties for the past 45 years. The result has been the doubling of the people in the USA living in poverty over that period of time.
See DeLong:
http://www.bradford-delong.com/2016/04/noah-smith-101ism-in-action-minimum-wage-editionhttpnoahpinionblogblogspotcom201604101ism-in-action-minimum-.html
Swami,
“It ain’t what you know that gets you in trouble it is what you know that ain’t so.” Mark Twain
While useful for the plunderers of minimum wage work……
the model is appealing, but the boundaries of its application are minute.
“False analogy”, where Perry present a ‘model’ that is neither real nor useful.
Qualified people presenting false analogy are snake oil peddlers.
You are both right. We should let the free market decide what the price of labor will be. But at the same time we need to stay competitive in the global economy. To do this you need to get rid of the falsely applied “free trader” thinking that has been grossly abused and switch to a more correct “Balanced Trade” thinking. Once this is done the tide will raise all ships-wages but only in the U.S. We then must maintain a more “Balanced Trade” profile with all trading partners including China, Japan and Mexico with the variable rate tariff that can be applied both ways whenever trade balances become too unbalanced. For more on this please go see ProsperousAmerica.org At the same time we must end all illegal workers entry into US and end all corporate inversions and reinstate the Glass-Stiegall law to better protect Joe citizens savings from Wall St predators…Also for better Economic 101 understandings of reality please go see the Economic Policy Institute.com who is not a Koch brother enterprise of voodoo economic teaching that has corrupted the minds of many true-correct economic values-thinking…
Run,
Read my comment more thoroughly. Most of your objections were already covered there.
1. Yes, of course raising the minimum wage TOO HIGH for a given worker or job design will eliminate that job, making it harder for that worker to find a job. I do not believe any responsible economist would argue otherwise among her peers. The question then just becomes how high. See my comment on a penny vs $200.
2. I agree that the current minimum wage has little negative effect on employment, except among the young, especially minorities. And for the record overall unemployment is pretty low today in the US (and has been lower than most developed Nations for some time). The factors harming employment and median wages are over-regulation (on entrepreneurship and employment), perverse licensing requirements, iatrogenic safety nets, and global competition for labor.* The effects of sclerotic regulation and poorly designed welfare programs is to take people out of the market for jobs (lowering the employment ratio, more than raising the unemployment ratio) and lowering lower skilled wages.
3. My argument is not academic, and comes in part from four decades in business where I helped create thousands of jobs and hired more people than I could ever remember.
* just to clarify, the introduction over a generation of a billion lower skilled workers into the market has been the greatest event for human welfare ever as over a billion people were allowed to rise out of severe poverty. But the unprecedented size and suddenness has held down wages in developed nations for lower skilled workers.
Swami:
Fortunately, most of you have beaten physical labor to the point where its cost is less than 10% of the total cost of manufacturing. You are spouting something from the sixties. Those labor intensive jobs which are already gone overseas went to more labor intensive countries will not return. Telling a person to work at a position 40-50 hours of physical labor only breaks them down further. More productivity can be gained through 40 hours or less as Labor is more efficient from being rested.
You really can not believe working people to an early grave is an answer. For the record, I am one of those throughput analysts with 40 + years of experience.
Joel,
The phrase “first and foremost” was indicating that in an effective social network people will attempt to improve their lot by improving the lives of others. The poor in America, defined as the lowest income quintile (though the lowest quintile in the US still tanks in the highest quintile in PPP globally) pretty much do not work. Two thirds don’t work at all, and of those that do almost half are only working part time. The best estimate I have seen is that the average poor family is only working 13 hours per week.
So I repeat, the first priority is allowing (and incentivizing) those of working age and ability to work more. When we get it up to 40-50 hours per individual then we will all be better off. They will make considerably more, and they will be adding more value via their productivity to all of us. There is a huge amount of dead weight loss in our current system.
I also answered the question on how to create more jobs. First, don’t raise the minimum wage. Second, remove the barriers that get in the way of job creation, hiring and self employment. This includes bogus licensing requirements, taxi medallions, sclerotic regulations of entrepreneurial activities, hiring, employment and so on. We are effectively squeezing business and jobs out of the country. This reduces the demand for lower skilled labor and/or the wage.
I didn’t say the lowest quintile are not working hard, though I clearly said most are hardly working. The Census Bureau clearly reveals this. Some of course are retired, or students or handicapped. My point though, is that first and foremost those who wish to should work full time, and do so to their best (or invest in schooling for future employment). This will substantially increase their current and or future wages and reduce needs for any supplements. Hard working, honest, responsible and mature adults rarely earn anything near the minimum wage. They are simply too valuable and productive.
Yes, some households will continue to need minor supplements on top of their wages or need insurance against catastrophe or temporary job loss. But the clear basic problem is that they are not working.
How do they develop themselves if they are busy working? Well, most development comes by working. Hard working, industrious people learn skills, behaviors, norms, and so on and develop a reputation for such which they can use to leverage higher wages and more responsibility. I hired myriads of people in my career, most of them had little or no relevant skills. I then invested in their development, and they made substantially more as they proved themselves and increased their value. Many went on to other companies and even better opportunities elsewhere. The thing that successful people all have in common is first and foremost they worked hard and responsibly.
This isn’t to deny the value of schooling — just that the advice is the same. They should apply themselves to learning as much as possible as quickly as possible in fields where there is a demand for the knowledge.
Beene and Jerry…
Jerry,
“A person working a full time, 40 hr /wk, job deserves to earn a high enough salary that they no longer need, or qualify, for public assistance. If a business cannot subsist at this salary level, they should not be in business. They need to change their business model, or get out of the business.”
Wow, where do I start….
First, as I said, the primary issue is that most poor in America are NOT working anywhere near full time. Only one sixth of the families have anyone working full time and two thirds are not working at all. Let’s create an environment where jobs are created and able bodied people seek them out.
If you use ill advised logic to create a law that it is illegal to create a job where the full time salary is below some yet to be defined reasonable standard of living (probably also defined by people without a good sense of unintended consequences) then you are right that businesses will try to design jobs at that higher amount. This is pretty much exactly what the cartoon in question was trying to point out. The result is that these earlier jobs will either be eliminated or replaced with ones which do produce the required surplus. The problem is that lower skilled, lower experienced, lower intelligence, lower honesty, less responsible people may not be capable of qualifying for this job.
Net result is fewer businesses, with fewer jobs, fewer locations, more outsourcing, and no jobs for the lowest skilled. This reduces the demand for lower skilled workers, effectively cutting them out of the market.
I strongly suggest not making it illegal to hire lower skilled workers, and instead supplementing their income if necessary temporarily until they develop the habits the skills to thrive on their own.
When your moral intuition leads to perverse results, most people change their values. Please think about it….
Beene,
“The above economic principle has been promoted by both parties for the past 45 years. The result has been the doubling of the people in the USA living in poverty over that period of time.”
This comment is as head scratching as Jerry’s.
First, it is pretty clear that the attitude that poor people should be expected first and foremost to get a job and apply themselves isn’t exactly a novel concept emerging in the past 45 years. Indeed, I am pretty sure the data will reveal the bottom quintile work substantially less than they did 45 years ago. What changed is the creation of iatrogenic safety nets which fostered an environment where the poor were no longer expected to work, and where regulations exploded making it harder to create jobs and hire people.
The other thing which changed was of course the entrance of a billion truly impoverished Asians into the global market, driving down demand for lower skilled labor even as it lifted a billion people out of poverty.
If you want a debate on poverty levels, relative standards of living of the poor, lifetime trends and causes in the US, we can have it, but I suspect it would be uncomfortable to most of the readers of this blog. The facts amay not be kind to your theories. We should probably have that debate under that blog topic though…
One final open comment. Obviously I have stumbled into a blog echo chamber appealing to people who share the same world view. If you all would prefer I leave, I will do so. I do not want to be a troll. Just let me know if you value a different perspective and have an open mind, otherwise feel free to ask me to leave. I won’t be offended.
Swami,
Thank you for your comments… I want to ask you something.
How do you understand “net social benefits”? And then is it important in your view of minimum wages to maximize them?
Run,
So you are defining a full time job (and/or slightly above) as “working people to an early grave.”
Got it. You want a world today where we all make a nice above average salary with minimal work. May I suggest you run for office on that platform? Sure sounds nice. I would suggest being ambiguous though on the details.
There is no intrinsic shortage of productive, value-adding jobs which could be designed in the US if we stopped promulgating interferences to their creation.
Swami:
What I have said is true. What I am defining is the cost of direct labor in a product. Raising the cost of labor adds little to the bottom line as much of the cost in broken into Overhead and Materials. Yes there is a shortage of intrinsic value adding jobs which actually pay a wage above FPL.
“The Consensus is” is not an answer and neither is “major studies show.” Whacking Labor for job growth went out with the sixties. The cost of it is at the lowest ratio ever. There is no foundation to your consensus findings and as much as you dispute otherwise the same holds true for you. Like I said, I do throughput analysis.
One study in a relatively high income area:
◾Labor economists continue to debate the actual impacts of the minimum wage on employment and hours. We discuss in our assessment the most rigorous studies and offer a non-technical explanation of the nature of the disagreements in the research literature.
◾To date, three rigorous studies have examined the employment impacts of San Francisco’s and Santa Fe’s local minimum wage laws. Each finds no statistically significant negative effects on employment or hours (including in low-wage industries such as restaurants).
◾A larger body of economic research investigates the effects of state and federal minimum wage increases. These studies compare employment trends for states or counties that have different minimum wages. The best studies make comparisons to nearby states or counties to control for regional economic trends. These studies also find no statistically significant negative effects on employment or hours at an aggregate level or for low-wage industries such as restaurants and retail stores, or for specific groups of workers such as teens. These studies also do not find substitution effects (such as shifts in hiring away from black and Latino teens).
◾Studies of the impact of minimum wage increases on restaurants’ operating costs find that an increase of 10 percent in the minimum wage increases operating costs by about 1 to 2 percent.
◾Researchers find small one-time price increases in the restaurant industry (of about 0.7 percent following a 10 percent minimum wage increase), but not in other industries.
◾Researchers find that increases in the minimum wage reduce employee turnover, translating into a reduction in direct costs (recruitment, selection, and training of new workers) and a reduction in indirect costs (lost sales, lower quality service, and lost productivity as the new workers learn on the job). Some studies have also identified additional benefits of higher wages, including improved morale, improved work performance, and reductions in absenteeism.
◾Researchers have not found evidence that employers absorbed minimum wage increases by reducing health benefits or pensions.
I suspect your stay at AB is going to be relatively short as you are taking on the appearance of a troll.
“Beene,
“The above economic principle has been promoted by both parties for the past 45 years. The result has been the doubling of the people in the USA living in poverty over that period of time.”
This comment is as head scratching as Jerry’s.
First, it is pretty clear that the attitude that poor people should be expected first and foremost to get a job and apply themselves isn’t exactly a novel concept emerging in the past 45 years. Indeed, I am pretty sure the data will reveal the bottom quintile work substantially less than they did 45 years ago. What changed is the creation of iatrogenic safety nets which fostered an environment where the poor were no longer expected to work, and where regulations exploded making it harder to create jobs and hire people.
The other thing which changed was of course the entrance of a billion truly impoverished Asians into the global market, driving down demand for lower skilled labor even as it lifted a billion people out of poverty.
If you want a debate on poverty levels, relative standards of living of the poor, lifetime trends and causes in the US, we can have it, but I suspect it would be uncomfortable to most of the readers of this blog. The facts amay not be kind to your theories. We should probably have that debate under that blog topic though…
One final open comment. Obviously I have stumbled into a blog echo chamber appealing to people who share the same world view. If you all would prefer I leave, I will do so. I do not want to be a troll. Just let me know if you value a different perspective and have an open mind, otherwise feel free to ask me to leave. I won’t be offended.” Swami
Swami, different views are important and everyone ones’ view are respected when presented with explanation of that view. Welcome to the board.
Swami, you have a world view; where I view only whether our nation is doing well for its citizens first. Too me charity starts at home.
“What changed is the creation of iatrogenic safety nets which fostered an environment where the poor were no longer expected to work, and where regulations exploded making it harder to create jobs and hire people.” Swami
Swami, would challenge the above statement; by saying in the 90s we cut funding of the safety net under Clinton; then said we reduce poverty.
In under Bush II we almost eliminated the ability of the average person to declare bankruptcy. Then claimed we reduced bankruptcy cases.
Edward,
I understand it to mean net private benefits plus/minus net externalities. Yes, if increasing the minimum wage to a certain amount in certain circumstances improved net social benefits on the broadest scale and did not lead to adverse social dynamics, I would be in favor of it.
I can certainly envision several positive long term externalities of a minimum wage (increased automation increasing longer term productivity, lower assistance costs for those keeping their jobs, etc). I am sure we are both also aware of many negative externalities and negative social dynamics (once the game of setting wages is via legislative rationale, and tribal pandering, the game has effectively changed from economics to politics, itself a potentially negative consequence).
Swami,
I appreciate your answer… And I see that you might stop short of increasing net social benefits if some type of adverse social dynamics developed.
Let me confuse the topic to put it into perspective…
Would you have crucified Jesus if you knew the proof of his resurrection would convince the world of his truth? You do not have to be Christian to answer this question.
It is not a strange question. It is the question to show at what level you understand net social benefits and the measures needed to be taken to increase them.
If we know that the world will be made better and that the will and love of God will be fulfilled by crucifying Jesus, shouldn’t we be willing to crucify him? Shouldn’t we be willing to make that sacrifice? We know there will be trouble and killings of christians. We know there will be adverse social dynamics. But the world will have a chance to be a better place because of the crucifixion.
Now think about the minimum wage. If you know that net social benefits will increase with a higher minimum wage, and there may be temporary adverse social dynamics that dissipate over time, would you not make the sacrifice with faith?
If incremental increases in the minimum wage produce better effects, then you are doing the right thing. It does not matter if some people lose money. If on the whole, society is better off, then you are doing the right thing.
Society does not lose money. We are increasing the velocity of money overall by giving more money to people who move it quicker through more detailed and intricate channels. The money will come back to many businesses who serve that sector of the economy.
The idea is being willing to push through adverse social dynamics to ultimately make the world better. How courageous are you? Who are you protecting? Big banks who siphon money from communities to send the money overseas? Are you afraid of adverse social dynamics even if society is made better off through time?
Keep forcing the money back to the communities in spite of the big banks sending it elsewhere. Remember, the economy is a circular flow.
The Pharisees said that killing one man, Jesus, would save the country. They did not know that killing that one man could save the world.
By raising the minimum wage, you may sacrifice a few low-road businesses along the way, but think of the families and children that will be made better off. Think of the grassroots investment that will increase in communities. Think of the increases in productivity. Think of the increased net social benefits. Ultimately you make the country better.
But it is hard for many to see how a higher minimum wage will make the country as a whole better. They think we will lose competitiveness. But they miss the point, if net social benefits increase, then favoring overall society over special business interests is the right thing to do.
It was hard for followers of Jesus to see how his death could be good. When Peter told Jesus to not go to Jerusalem, Jesus told him, “get behind me Satan”. Peter was protecting his friend and private interests. Peter could not see the greater goal, the greater plan for all.
I could say the same thing to you about minimum wage. Get behind me Satan. You do not understand the sacrifice on how to make the country a better place.
And when you pay more to low income people, they will progressively have better health care, better education, better opportunities in their communities, less crime, less stressed-out families.
So even if there are some adverse social dynamics for private interests, we end up making society and the economy better. We can still be in favor of raising the minimum wage in spite of adverse social dynamics.
Swami – “First, as I said, the primary issue is that most poor in America are NOT working anywhere near full time. Only one sixth of the families have anyone working full time and two thirds are not working at all.”
Can you show a reference for your numbers?
Since you object to a minimum wage that is sufficient for a full time worker to not qualify for public assistance, I assume you are perfectly OK with the public subsidizing business payrolls even though business has seen their tax rates reduced substantially over the years.
Swami,
“* just to clarify, the introduction over a generation of a billion lower skilled workers into the market has been the greatest event for human welfare ever as over a billion people were allowed to rise out of severe poverty. But the unprecedented size and suddenness* has held down wages in developed nations for lower skilled workers.”
Unprecedented *monetary manipulation, by at east one command economy!
How is a wage slave in a factory barracks breathing coal soot better off? What kind of welfare?
Why do you think plundered US workers should be so generous?
The welfare of billionaires and plunderers of low skill workers has improved immensely.
Interesting analogy, Edward, but a bit off the mark. Jesus chose to be crucified, and could have stopped it at any time.
But those who would be sacrificed to a higher minimum wage do not get to make that choice.
“…sacrificed tha a higher minimum wage…”
There are many studies that show an increase in minimum wage increases jobs.
“There are many studies that show an increase in minimum wage increases jobs.”
The CBO disagrees with that assessment.
Cite? And why should anyone accept CBO as an unbiased source? Particularly under its new Director?
I am okay going along with CBO scoring on actual legislation. Not least because it is back checked by the Joint Committee on Taxation. But their other work products have no more or no less authority than any other think tank. You might as well say about minimum wage that “Mankiw in his Principles text says–“. Yeah well screw Greg and the horse he rode in on. Let me see data and not bland assertions backed up by spurious claims of authority.
Keith Hall disagrees. So fricking what? He was hired by the Congressional majority to fill a job. One that too often sheds over to puffing and buffing his master’s, er ‘tool sets’.
I think we need a post on the miracle economy of the 1960’s. Business taxes and top-rate personal income taxes and the (inflation-adjusted) minimum wage were roughly twice as high! How did the country survive those draconian conditions?
Off the top of my head, some factors were more powerful unions. less automation, little out-sourcing, and a much higher level of investment in R&D and infrastructure. Also, I think there was still some carry-over from WWII of the feeling that “we’re all in this together” – more so than today, anyway.
Warren,
Assumptions, you got to undock, man!
When did CBO become a clown show for the plunderers?
JimV,
The 60’s……
Lots of fiscal stimulus, war (guns) getting >10% of GDP and the great society (butter). While the feeling of helplessness about inflation coincided with the realization that US was dependent on Muslim oil, and the rise of competition from reindustrialized WW II losers.
Then losing Vietnam meant US had to float currency to make Germany and Japan stop worrying about US’ ineptitude in the hard sciences of war against the commies.
US workers not only had to send theor kids to fight the commies but they had to sacrifice for economic growth Japan and Europe.
Today US workers are sacrificing for Bangladeshi factory slaves…….
Late arrival on this — missed it somehow — so “take this”:
If a minimum wage hike is priced right it will bring in more dollars for fewer hours of work — but the employment picture doesn’t end there. The extra dollars will be diverted from purchases higher wage folks would have made to buying decisions lower wage people make.
If lower wage people make exactly the same buying decisions as higher, then, the effect on employment will be null (it’s a little trickier, but that’s the idea). The difference will be in consumption: the lower wage will consume more and the upper less (that’s the idea).
In practice, consumers tend to aim their purchases somewhat more towards vendors who hire in the same pay spectrum. Poor people buy other poor people’s second-hand cars — used car lot too pricey. Middle wage people buy off the used car lot. Higher wages put you in the showroom.
1/11/14, NYT article “The Vicious Circle of Income Inequality” by Professor Robert H. Frank of Cornell: ” .. higher incomes of top earners have been shifting consumer demand in favor of goods whose value stems from the talents of other top earners. … as the rich get richer, the talented people they patronize get richer, too. Their spending, in turn, increases the incomes of other elite practitioners, and so on.”
http://www.nytimes.com/2014/01/12/business/the-vicious-circle-of-income-inequality.html?src=me&f_r=0.
Upshot, a higher minimum wage – if priced right – should predict a few more customers at Mickey D’s and a few less at Olive Garden. Likely that’s what we saw in Card and Krueger (1992) — studying firms with “giant” 33% labor costs no less.
Further clarification: if orange sellers and apple sellers started out charging the same prices but orange sellers toyed with their price until they could get more money for fewer oranges from apple sellers, then, the businesses that apple sellers prefer to buy from, cabbage sellers, would suffer – but the firms that orange sellers buy from, lettuce sellers, would prosper.
Edward,
Cutting to the chase, you are just begging the question. But YES, if steadily raising the minimum wage lifted average prosperity with no larger negative side effects like a slowly rising sea level raises a coral reef, then I would be supportive of it. This is highly doubtful IMO, would require a tremendous burden of proof, and even if the logic held, there would still be more efficient ways with fewer side effects of doing the same thing (EITC, programs to promote new productive jobs, etc).
Seriously it comes across as wishful thinking.
Jerry,
No there is not anything remotely close to a meta-study consensus that raising the minimum wage increases jobs. The consensus is that major increases undoubtedly reduce jobs, and that minor increases (of a few dollars) in our current environment don’t have a substantially measurable negative effect on OVERALL unemployment. I can explain why this is so, but the explanation does not improve the hypothesis (arguing for increases) in the slightest as it just replaces the inefficiency of unemployment with the inefficiency of misallocations of jobs and labor and externalities of jobs. It isn’t that complicated to anyone with an open mind and experience in business and economics.
Data on employment comes right from the Census Bureau. Go down to the percent columns. Two thirds of poor do not have anyone working at all in the household. A minimum wage would have no improvement for two thirds of the poor, and would likely harm them as it makes it less likely they will have a good job or more hours in the future.
http://www.census.gov/hhes/www/cpstables/032012/hhinc/hinc05_000.xls
I am in no way a fan of subsidies to business to hire. It would probably be more beneficial than a minimum wage, but this isn’t saying much.
Illsm,
Your style of rhetoric and argumentation is one which experience has taught me to ignore. Sorry.
Beene,
Yes, I reject tribalism and the promotion of win/lose zero sum dynamics between groups. They are longer term, self destructive. See game theory.
And several hundred thousand regulations, dozens of agencies and programs, and trillions of dollars one direction isn’t erased by a handful of initiatives the other way. If you want to argue whether safety nets, redistribution and regulation are lesser now ON NET than two generations ago, then so be it
Swami, Here are two papers… They explain exactly how I see the minimum wage from a view of Institutional economics.
http://www98.griffith.edu.au/dspace/bitstream/handle/10072/35628/66037_1.pdf?sequence=1
http://aysps.gsu.edu/files/2016/01/08-16-Kaufman-MinimumWage.pdf
Swami,
” Let’s create an environment where jobs are created and able bodied people seek them out. ”
Where are the American born taxi driver (me, formerly)? We wont work for $400-500/wk for 60 grueling hours — used to pay $400-900. Why are 100,000 out of (my guesstimate) 200,000 Chicago, gang-age males in street gangs? Same basic answer: wont stack shelves for 40 hours for $400.
http://www.cbsnews.com/news/gang-wars-at-the-root-of-chicagos-high-murder-rate/
Which is to say the labor market is not “clearing” because human beings being what they are wont work for what they perceive to be too little. To take this concept to its logical conclusion both our “gangs” would been happy to work for $200-250/wk if it were 1916 — knowing that was the most that less productive economy could share with us.
Beautiful thing about collective bargaining is that you know you are getting the most the consumer (not the boss!) will pay.
Lacking collective bargaining how do we set a price the consumer will pay. Mmm; the minimum wage was $440/wk in 1968 — at about half today’s per capita income. If we foretold to Americans of 1968 that by 2016 the minimum would sink almost $4 by now what would they have imagined: a comet strike, a limited nuclear exchange, multiple world-wide plagues?
* * * * * * * * * *
EITC is reasonable sounding verbally; amounts to 1/2 of one percent of income shifted mathematically — when we think 45% of our workforce is earning less than what the minimum wage should pay — not much of an answer.
* * * * * * * * * *
Why the endless one-dimensional focus on lost jobs? In a market place don’t we want to get more per unit as well as sell more units?
Some anti-min guy posted what looks to be a badly done study showing that a min increase in Seattle area resulted in a loss of 10,000 out of 410,000 jobs.
A real world look at even that might find the 10,000 to be the difference between employees who quit because they no longer need a extra job and employees who came (back?) into the labor force because of the higher pay.
* * * * * * * * * *
yr..per capita…real…nominal…dbl-index…%-of
(2013 dollars)
68…15,473….10.74..(1.60)……10.74……100%
69-70-71-72-73
74…18,284…..9.43…(2.00)……12.61
75…18,313…..9.08…(2.10)……12.61
76…18,945…..9.40…(2.30)……13.04……..72%
77
78…20,422…..9.45…(2.65)……14.11
79…20,696…..9.29…(2.90)……14.32
80…20,236…..8.75…(3.10)……14.00
81…20,112…..8.57…(3.35)……13.89……..62%
82-83-84-85-86-87-88-89
90…24,000…..6.76…(3.80)……16.56
91…23,540…..7.26…(4.25)……16.24……..44%
92-93-94-95
96…25,887…..7.04…(4.75)……17.85
97…26,884…..7.46…(5.15)……19.02……..39%
98-99-00-01-02-03-04-05-06
07…29,075…..6.56…(5.85)……20.09
08…28,166…..7.07…(6.55)……19.45
09…27,819…..7.86…(7.25)……19.42……..40%
10-11-12-14-15
Swami,
You need pity,.
Whether you deserve it, I practice non judgment.
I did not refute your indefensible positions.
Think!
“Beautiful thing about collective bargaining is that you know you are getting the most the consumer (not the boss!) will pay.”
Because the consumers stop buying the overpriced product from you and start buying from non-union manufacturers.
Hi Warren,
There are two sides to the coin… when labor is paid too little considering social costs of labor, consumers actually pay less and the social costs have to paid by others, otherwise society is weakened. We have seen this happening for years.
You can read about how this works in the papers I linked for swami.
Warren,
That’s what centralized bargaining (a.k.a., sector wide labor agreements) is all about. Everybody doing the same kind of work in the same geo locale (e.g., retail clerk, airline pilot) works under one commonly negotiated contract. Prevents the race-to-the-bottom.
Found in French Canada, continental Europe, even Argentina and Indonesia. The gold standard labor market — Walmart closed 88 big boxes in Germany where it had to pay the same wages and benefits as other firms for the same kind of work.
I’m sure you think it is better for labor to be indirectly testing what the consumer — not the owner — is willing to pay — just as the owner tests the consumer directly. More natural.
Warren,
Move on to Tolkein, he is far fun than Ayn Rand. The Shire is real as your market ecosystem.
“The wise speak only of what they know.” -Gandalf
White or gray?
Edward,
Thank you for sharing. I read one of the two links in depth, and skimmed the other.
1). Oddly, assuming the authors argument had any legitimacy, his recommendation was exactly the same as my last comment. To the extent there are inefficiencies in how lowest skilled wages are set, something like the EITC would be the preferred way to solve it, NOT A MINIMUM WAGE, and 100% not by pulling a fictional $15 per hour min wage out of the air.
2). However, the preceding argument is extremely weak. In truth it is an advocacy piece feigning empirical soundness. This is the kind of stuff that makes economists look bad. We want impartial scientists and instead get mercenaries for hire. It takes arguments which may have had some validity at some time (itself debatable) and projects them into a time when they no longer apply. To argue that low skilled workers who can qualify for tens of thousands of dollars of safety net provisions for FAILING TO WORK have unfair bargaining power to employers is quite a stretch. When the overwhelming majority of poor families in a country do not work a single hour per week, I think the better argument is that the bargaining power imbalance and inefficiency is the other way. Not that I am suggesting a recommended maximum wage for entry workers or anything.
The argument also clearly misses the reality that wage is just part of overall terms of the bargain. If the wage is mandated higher than the market rate, it will just squeeze into increased bargaining power for the employer on terms of employment, benefits, training, etc. Forcing higher wages at the cost of worse terms and conditions does nothing for the average potential employee, and likely results in economic inefficiency.
Another fundamental error in reasoning is that the author assumes or implies workers are a homogenous mass competing with employers. This is unforgivable. Workers compete with each other for opportunities to cooperate with employers (employers compete with each other to cooperate with employees and customers). By restricting the ability to compete on price, a minimum wage discriminates against younger, lesser educated, lower skilled and capability people. It is in net a way of privileging the advantaged at the expense of the disadvantaged. Perverse. I won’t even touch upon the well known racial implications and effects of minimum wages on inner city younger black males.
If the argument had any validity ever (not likely) it certainly does not apply to anything other than initial employment at entry positions. Extending this logic to an arbitrary yet extremely encompassing wage of $15 per hour would be refutable based upon the very arguments made in the paper.
3). This gets to the most important issue. In effect, the authors argument amounts (sloppily) to “markets are imperfect at setting wages at the socially optimum price.” I would agree. The problem is of course that there is no perfect system, just real world alternatives. Markets are in essence problem solving systems which facilitate the cooperation of billions of humans. An alternative system would have to be better, all things considered over the short and long term. Specifically including the long term dynamic that once wages are set by politics, the path to higher wages is more political interference. The zero sum dynamics of this situation are both well documented and horrific in practice.
What the author implies is that the political system would be better because the market system is imperfect. This is naive to say the least. The replacement system, warts and all needs to be empirically better and more efficient than the system it replaces. The author implies that the terms of cooperation should be set via political diktat, rather than by voluntary agreement between the parties.
This is, in the end, what those favoring a minimum wage really want. They want voluntary, decentralized interactions to be replaced by elite command. The fact that they immediately jump the fence and throw out a $15 made up number is simply proof of the folly of this path. They effectively negate the argument in their first move.
Thank you, Swami, many people would not spend the time to read something.
I agree with your point A in your comment. EITC is a good program.
The important point is to cover the social costs of labor. There are basic costs of healthcare, education, housing, transportation, food in order to maintain and build social capital in the economy. These costs need to be covered or the social capital of the economy weakens.
These costs are either covered by wages or by government programs, or by religious organizations, or by family and community. These costs have to be covered by someone.
Now it may be that the weak wages for many are inevitable due to foreign labor, weak labor power, and the power of the elite to obtain more for themselves. In which case, the market is not functioning well. Labor needs more policy support to be able to bargain for better wages. The elite should not have as much power as they have. They are abusing their privileges.
We have a judicial system in this country to keep law and order. We also have a governmental body to enact policies for the common good. It is the right and the responsibility of government to guide culture when it is getting out of whack.
White.
Edward, would you please explain this “social costs of labor” thing?
How does a person have a higher social cost when he is working than when he is not?
Warren:
He did not say such. Read it again.
That’s why I need an explanation. The phrase “social costs of labor” just does not make any sense to me.
Swami,
REPEAT: EITC is reasonable sounding verbally; amounts to 1/2 of one percent of income shifted mathematically — when we think 45% of our workforce is earning less than what the minimum wage should pay — not much of an answer. – See more above in same comment about the minimum wage labor market.
REPEAT: Lacking collective bargaining how do we set a price the consumer will pay. Mmm; the minimum wage was $440/wk in 1968 — at about half today’s per capita income. If we foretold to Americans of 1968 that by 2016 the minimum would sink almost $4 by now what would they have imagined: a comet strike, a limited nuclear exchange, multiple world-wide plagues?
COMMON SENSE WOULD TELL YOU THAT MINIMUM WAGE LABOR HAS BEEN SERIOUSLY UNDER PRICED — EVER MORE SERIOUSLY — FOR A VERY LONG, LONG TIME:
yr..per capita…real…nominal…dbl-index…%-of
(2013 dollars)
68…15,473….10.74..(1.60)……10.74……100%
69-70-71-72-73
74…18,284…..9.43…(2.00)……12.61
75…18,313…..9.08…(2.10)……12.61
76…18,945…..9.40…(2.30)……13.04……..72%
77
78…20,422…..9.45…(2.65)……14.11
79…20,696…..9.29…(2.90)……14.32
80…20,236…..8.75…(3.10)……14.00
81…20,112…..8.57…(3.35)……13.89……..62%
82-83-84-85-86-87-88-89
90…24,000…..6.76…(3.80)……16.56
91…23,540…..7.26…(4.25)……16.24……..44%
92-93-94-95
96…25,887…..7.04…(4.75)……17.85
97…26,884…..7.46…(5.15)……19.02……..39%
98-99-00-01-02-03-04-05-06
07…29,075…..6.56…(5.85)……20.09
08…28,166…..7.07…(6.55)……19.45
09…27,819…..7.86…(7.25)……19.42……..40%
10-11-12-14-15
“If we foretold to Americans of 1968 that by 2016 the minimum would sink almost $4 by now what would they have imagined: a comet strike, a limited nuclear exchange, multiple world-wide plagues?”
Quite the opposite. Such calamities would make unskilled labor in short supply and drive up the prices. (Thus, the Black Death ended feudalism in Europe.) Instead, they would expect exactly what we have — an oversupply of unskilled labor.
“COMMON SENSE WOULD TELL YOU THAT MINIMUM WAGE LABOR HAS BEEN SERIOUSLY UNDER PRICED — EVER MORE SERIOUSLY — FOR A VERY LONG, LONG TIME.”
Not at all. Adjusted for inflation, milk prices are about half what they were in the early 1970’s. Does that mean milk has been seriously under-priced? Of course not.
Labor prices are as subject to supply and demand forces just like any other. Just as there is more demand for high-skill jobs, there is less demand for low-skill jobs. The prices for high-skilled labor goes up, and the price for low-skilled labor goes down. Importing more unskilled labor does not help, either.
Warren,
You are leaving out two important factors: productivity and productivity.
Armageddoned or nuked we would lose an enormous amount of productive plant — not to mention the financial system would tank. Plagues, you might have a point.
Since the min wage was $11 in 1968 productivity has doubled (some claim tripled). The reason France pays barbers more than Poland is that France has more money to pay because France is more productive — not because French barbers are more productive.
The true test is whether the consumer would be willing to pay the extra product price. ALSO, whether jobs possibly lost would be a good trade off for the pay increase for those left. If pay went up 25%, prices might go up 2.5% for most businesses (25% for fast food — but demand for food is inelastic). DON’T FORGET, the sum of jobs lost could be the difference between those who quit one job because they no long needed two (or three) and those who were attracted (back?) into the workforce by higher wages.
Be nice if someone did a survey to track that.
Always remember that labor is only a fraction of product price:
https://www.washingtonpost.com/news/wonk/wp/2016/04/13/why-tens-of-thousands-of-workers-from-verizon-to-mcdonalds-are-walking-off-the-job-thursday/
” A Goldman Sachs report this week estimated that S&P 500 companies will spend 10 percent of their revenue on labor costs this year, up from 9 percent in 2014. “
Run,
I have no plans to subscribe to this blog, just this discussion. Please don’t call me a troll.
I made no arguments on what percent of a product goes into labor, and have no idea why you keep bringing it up. If you do insist on bringing it up, be sure to include the labor at every step of the process though, not just the final step.
If you are suggesting we empirically validate the hypothesis of using (and not using) minimum wages to establish a long term superior economic system of carefully constructed and controlled experiments with control groups and published expectations then I am all for it. The competing test cells include no minimum wage and using supplements other than wage laws and the results need to be effectively amplified from local conditions to broader. It certainly won’t be focused on high priced tourist trap enclaves which do not compete globally. I would argue that right to work states have been running a similar if not well disciplined test for a couple of generations now and the answer is that free wage states prosper, and cartel-based wage states turn into rust belts with lower PPP standards of living, lower growth and higher unemployment. I know it isn’t the same, but I am just pointing out what will likely emerge.
Your data on employment stats is colored by poor terminology and rhetoric. Students and seniors (and some disabled) are not ineligible to work. I was not even aware that there was ever any expectation that students and 66 year olds don’t work. Is there? Therefore it is simply not true that the majority of people who CAN or ARE ELIGIBLE to work do. I worked my entire time in college, as did just about everyone I knew. I also know an 85 year old guy who voluntarily has 5 part time jobs (professor, tutor, band leader, gig musician and symphony proctor). Should I tell him he is ineligible to work? Tighten up your definitions and start over.
The point is that the vast majority of the poor (bottom quintile) don’t work full time. Therefore a minimum wage is not an especially effective or efficient tool if the goal is bringing up bottom quintile incomes. They need to work more (if desired, if not desired we should get out of their business) , and we need fewer restrictions in employment and job creation, and less iatrogenic safety nets which trap people in unemployment and cause people to relabel their situation against their desires as retired, student, or disabled.
And for the record, US standards of living in the bottom quintile are in many ways higher today than for the median thirty years ago, and are the highest of any large diverse nation in the world. This despite the headwinds of a billion new workers entering the global market (a headwind now greatly behind us).
Dennis Drew:
You are begging the question. Mathematically an increase from $8 to $10 an hour is statistically irrelevant too. And for the record I am not arguing for the EITC, just that reasonable economists have good arguments that it would be more efficient than a minimum wage.
WE DON’T THINK 45% of the work force is earning less than they should be paid. You may, but you are simply projecting your utopian wish upon reality and calling it a fact. I agree that higher standards of living are preferable, but the process of earning this is a complex and emergent one not one of political diktat.
If you are arguing that the US minimum wage was too high in earlier eras too, then I concur. However, I do not believe the minimum wage in the US has ever been a big negative factor. Regulations and union cartels and global competition are much, much stronger negative headwinds on jobs and wages. (Though I am strongly in favor of allowing foreigners the right to compete).
In the end, your side is arguing for master planners to decide who makes what. This shifts economics from a decentralized and voluntary process which has a proven track record of raising standards of living approximately 1.5 to 2 percent a year for 250 years straight and moves it to a zero sum game of elites where people battle each other over a pre-existing pie, in the end destroying even the pie itself. On the margins, when a small percent of new earners are affected by the min wage, the effects are relatively benign. When we are arguing for close to half of all workers, we are starting to cook the golden goose (mixed metaphor alert)
To be clear, I am not just arguing that you are wrong empirically. I am arguing that your path, if followed to its desired conclusion would lead to wide-scale immiseration of hundreds of millions. I know you don’t believe me, but the burden of proof is on the guys trying to pass a law making voluntary agreements between consenting adults illegal. You do not have the empirical or the moral high ground on this issue. I know you think you do, but so too did Marx, Lenin, Mao and Stalin.
But, I do approve of long term, well controlled social experiments on the issue, as long as we tell people in advance what the expected positive and negative expectations and risks are. This is of course not how politics really works though and it isn’t going to start working that way any time soon. Thus politics is a bad way to address the issue.
Swami:
An anecdotal rebuttal. If you truly were someone who was creating jobs for Labor, you would know what I was talking about. I spend much of my time eliminating the need for Labor through various methods such as Brownfield analysis.
Furthermore, you rebuttal on one University study and one economic think tank lacks merit.
The vast majority of the poor do work as pointed out by the one graph.
Swami,
The simple check on minimum wage price — and on the balance between labor’s union organized monopoly and ownerships monopsony — is always the willingness of the consumer to pay up.
Given decades of US ownership’s market power crushing unorganized labor’s ability to test what the consumer might be wiling to pay the US may have a terribly tragic situation where half the workforce is woefully underpaid (in terms of what the consumer is willing to pay). This market failure seems overwhelmingly probable to me. Nothing so complicated as massive focus grouping or whatever — set a price and see if the consumer pays it; no Ph.D. required. If the consumer wont pay up labor can always walk back the price a little. That is the truly free market way to do it.
Denis,
Huh? The willingness of the consumer to buy how many, of what compared to what? American consumers or Foriegn? Short term or long?
You haven’t described any measure at all, you are just sweeping the issue under the rug.
And the American median worker is among the highest paid in the world. Certainly higher than any other large diverse population economy. So how are they woefully underpaid? Why do you keep begging the question?
Swami,
If i didn’t know it was impossible, I would begin to suspect you are a troll. No beef; trolls make good “sounding boards.”
“You are leaving out two important factors: productivity and productivity.”
Not at all. Productivity increases come from investment in the means of production. Automobile manufacturers are far more productive than they were fifty years ago, but the individual auto workers are not working harder, nor did they contribute in any way to the increased productivity. So why expect that their pay would increase when they are actually working less?
Instead, the productivity gains go to those who invested in the updated machinery and to those who designed and built that machinery. (Unskilled labor does benefit from better cars.)
“The reason France pays barbers more than Poland is that France has more money to pay because France is more productive — not because French barbers are more productive.”
I submit that the reason French barbers are paid more than Polish barbers is that the French are more vain. 😀 But seriously, a barber in France has more options. If the French paid barbers less, fewer people would become barbers. They would do something more lucrative until there were so few barbers people would start paying them more. This is, probably, just another way of saying “France is more productive than Poland,” but I want to highlight the mechanism by which that higher productivity trickles down (if you will pardon the expression) to the barber.
But by that argument, a more productive country would pay people more, so you would not see any need to increase the Minimum Wage. The reason that is not the case is that barbers are not unskilled labor, nor are they paid Minimum Wage. (They are, however, “unproductive labor,” but that is another topic.)
“The true test is whether the consumer would be willing to pay the extra product price.”
If they were, would we have such trade imbalances with China and Mexico?
“If pay went up 25%, prices might go up 2.5% for most businesses….”
That makes no sense. According to the BLS, labor share is about 60% of GDP. So if pay goes up 25%, prices will go up about 15%. (And if prices go up 15%, wouldn’t landlords raise their rents accordingly? If labor is earning 25% more, wouldn’t they bid up the rental prices?)
And finally, if a person is willing to work for $5 an hour, and an employer is willing to pay him $5 an hour, why should the government interfere?
Warren,
Figures a couple of years old:
Workforce was140 million. $15 the 45 percentile wage. Make that 50% for our average-raise calculations because the bottom 5% will get the full $16,000 raise — half the distance between $7.25 and $15.
70 million X $8,000 = $560 billion out of $16 trillion economy — or 3.5% of GDP — or 5% of income (income 2/3 of GDP).
5% shift of income from the top 55% who now take 90% to the bottom 45% who now take 10% (we could also say from the top 89% who now take 70% but that’s for another discussion).
* * * * * * * * * *
Now think. If min wage priced right it could take in more overall dollars for fewer hours — at first glance.
Those extra (overall) dollars (if the wage is priced right) would have been spent elsewhere — wherever higher wage employees would have. Now the same extra dollars going to lower wage employees will be spent where they want to spend them instead.
I see the dollars as sort of lie toy trains switching tracks. Same number of cars going someplace different.
Lower wage tend to spend where lower wage work — and vica versa. Upshot: job loss where higher wage employees would have spent those dollars — job gain where lower wage spend — those min wage jobs, at second glance, never lost? Which is just what Card and Krueger came across in 1992 (lower anyway).
So a man started out years ago as a teenager making the minimum wage. He’s busted his hump for twenty-five years, and now makes $15 an hour.
And by government fiat, you are going to raise the pay of unskilled teenagers to $15 an hour, and you expect him to be content with that? Would he not demand $20 or $25 an hour? And would the man who makes $20 and hour be content with he other jumping over him?
If he busted his hump almost 50 years ago, in 1968, for the $11 federal minimum wage I am sure he would want today’s teenager to make more than that — given per capita income doubled since!
Why? Is that teenager today working harder than he did?
How do you define working hard? Is it the same now as it was 20 or 30 years ago? Does a person working hard have to sweat a lot? How do you measure how hard a person is working? There are many jobs that people have today that did not even exist years ago.
Perhaps hard work is like porn. You can’t define it, but you know it when you see it.
Jerry:
Think of the counter to his question. It is a bait and switch
So, no, minimum wage jobs are not harder now than in the past. I worked moving furniture when I was a teenager. The furniture has not gotten heavier. I worked in a cafeteria, for LESS than the Minimum Wage. Slopping food and mopping floors and cleaning grease pits has not gotten harder over the years.
When you do unskilled labor — moving furniture, cleaning floors, washing dishes — work goes back to physics. Work is force times distance.
So, a person not moving, such as sitting at a desk, is not working by your definition.
“So, a person not moving, such as sitting at a desk, is not working by your definition.”
Not in terms of physics, no; but then, not too many Minimum Wage jobs are desk jobs.
Edward,
Thanks for the reply.
Yes, these costs need to be “covered by someone”. Implicit in markets is the assumption that first and foremost these costs are covered by the individual. This means working more hours, developing themselves before they get a job, applying themselves while on the job, and staying focused on optimizing one’s contribution to fellow humans as indicated by market signals. It also means taking responsibility for the cost side of the equation — minimizing expenses, sharing housing costs, not reproducing until you can afford the child, and so on.
Foreign labor’s effects isn’t a sign that markets are not working well, it is a sign that they are working as they should. The signal is that relative to capital and skilled labor, unskilled labor is less scarce. The signal is to shift into careers, places, industries which are still in demand. The signal also is one calling for more skilled labor and entrepreneurial effort, hence the higher rewards.
The elites are not the only forces using politics to distort market signals. Privileged workers are doing it too. Privileged workers are those with skills, incumbency and tenure, who lobby for rules which protect themselves from competition from new entrants with less skill and experience. Union practices, minimum wages, barriers on voluntary hiring and firing all contribute to these distortions. Another set of factors which distort markets are the safety nets we have built. These discourage labor and strongly encourages ignoring market signals on adjusting oneself to market conditions.
To the extent that the system is “out of whack”, yes, we need to be concerned. The solution isn’t $15. I repeat, anyone reaching into the air and pretending the words “$15 minimum wage” answers the question, have effectively just proven that they do not — in the slightest — understand the question.
As I wrote before, markets are an imperfect mechanism for coordinating human productivity and solving human needs. Markets do need to be managed and imperfections need to be considered– and in some cases addressed — in our broader social network. But if the management is with a heavy hand, it is possible to switch from a system based upon voluntary interaction to one which is set by diktat. I believe you are ignoring everything that argues against your position, and exaggerating everything that supports your position. Thus you become the poster child of the dangers of using political means to try to coordinate complex emergent systems.