What is a decent minimum wage?

[Darkbloom]

Minimum wage is one of the very simplest of economic problems. The money a business generates after costs have been deducted - let’s call it a pie - is subject to the basic rules of arithmetic, which is to say it can only be sliced so many times.

If you have 20 employees and $10,000 dollars for payroll every week, assuming they’re all doing the same job, you can pay $500/week/employee. If the government arbitrarily raises that to $700/week/employee, the pie is not going to get correspondingly bigger to pay for it. 6 people are going to have to loose their jobs, and the remaining employees are going to have to work harder now that 14 people are doing the work of 20.

This is a well known fact and is actually exploited by labor unions. If low end wages go up, it usually becomes cheaper to have one high skill/wage employee (who’s much more likely to be a union member) to do a job 2-3 low wage workers would do.

 

[flyingfish]

Because you asked ‘why is it that places like Canada, Scandinavian countries are ranked as better places to live than the US?’ I think that differences in minimum wage are hardly the tip of the iceberg; amongst many other factors homogeneity is an important part of the issue.

Canada is hardly a homogeneous country, we have a very large proportion of first generation immigrants, especially in our big cities.

We also have a policy of multiculturalism, so I don’t think you can quite make that argument about Canada. Scandinavia is homogeneous, I’ll agree with that.

When countries are ranked they are ranked on a number of factors, including healthcare, access to education, literacy of the population, as well as economic factors.

 

[ThomasToo]

Canada is hardly a homogeneous country, we have a very large proportion of first generation immigrants, especially in our big cities.

We also have a policy of multiculturalism, so I don’t think you can quite make that argument about Canada. Scandinavia is homogeneous, I’ll agree with that.

When countries are ranked they are ranked on a number of factors, including healthcare, access to education, literacy of the population, as well as economic factors.

Granted I just meant it wasn’t quite fair to bundle Canada and Scandinavia together on that fact.

 

[TenBobNote]

A decent minimum wage is no minimum wage

 

[ThomasToo]

A decent minimum wage is no minimum wage

Which inexorably leads to wage slavery. Hardly seems Christian…

 

[TenBobNote]

Which inexorably leads to wage slavery. Hardly seems Christian…

 Wages are the price of labor. The price of labor--like the price of other goods--is determined by supply and demand. For every available good, there is a price at which the supply of the good matches perfectly with the demand for the good--the equilibrium price. At the equilibrium price, there will be neither excess supply nor excess demand; everyone who wants to purchase the good will be able to purchase it, and everyone who wants to sell the good will be able to sell it. At any price below the equilibrium price, there will be excess demand. More people will want the good than can purchase it. In other words, there will be a shortage. At any price above the equilibrium price, there will be excess supply, or a surplus. Fewer people will want to purchase the good than want to sell it.

 A minimum wage is pointless if not set above the equilibrium wage. If set above the equilibrium wage, there will be more suppliers of labor than demanders for it. In other words, there will be unemployment.

The minimum wage effectively outlaws voluntary contracts that do not promise a certain level of remuneration. People ought to be free to contract with one another however they please, so long as they are not violating someone else's rights. The state has no legitimate authority to dictate to individuals what price they must pay for some good, or prohibit them from accepting less than a certain amount.

 The minimum wage is supposed to help those who are poorest. It is supposed to raise them out of their poverty. However, the actual effect is to reduce the number of positions available to those who need jobs most. Instead of being a boon to them, it becomes a burden.

 

[Linda_Marie]

These are the latest considerations used by the Australian Government to determine minimum wages.

What guides the work of the Minimum Wage Panel?

The Panel’s main objective is to establish and maintain a safety net of fair minimum wages. In performing this objective, the Panel must take into account:

• the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth, and

• promoting social inclusion through increased workforce participation, and

• relative living standards and the needs of the low paid, and

• the principle of equal remuneration for work of equal or comparable value, and

• providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability

.

After carefully considering all the above, they came up with [this](Page not found (404) - Fair Work Ombudsman is the minimum wage from 1 january 2010 - 1 july 2010?) as the minimum wage:

The Federal Minimum Wage
The Federal Minimum Wage (minimum wage) is currently $14.31 per hour or $543.78 per week (before tax).

on this they will pay $61 tax if they are paid leave loading, $60, if they are not paid leave loading or $128, if they are not claiming the tax-free threshold of $6,000.
(leave loading is a peculiar practice of paying employees 17.5 % more per hour when they are on annual leave than when they are working.)

 

[ThomasToo]

Leave loading is a peculiar practice of paying employees 17.5 % more per hour when they are on annual leave than when they are working.

I’m not familiar with Australian economics or politics but am I actually given to understand that someone gets paid more on vacation then at work?

 

[LilyM]

I’m not familiar with Australian economics or politics but am I actually given to understand that someone gets paid more on vacation then at work?

Yes - just like they are given a minimum (usually 4 weeks) mandatory annual vacation in most situations.

Remember, it’s not out of the goodness of the bosses’ or anyone else’s hearts, none of these employment practices ever are.

Holiday loadings are great (perhaps even necessary) for the health of the economy. They ensure that employees will have money to spend, for example by travelling during their long vacation, since inevitably you spend more when you travel than when you stay at home. The health of the travel and tourism sectors of the economy, which are hugely important in Australia, depends upon it.

It makes good sense, and hasn’t hurt the Oz economy at all - we’re doing incredibly well compared to the US and most other economies.

To rephrase - you’re not paid more BECAUSE you’re on vacation. You’re paid more so that you’ll DO more things - and thus stimulate the economy - during the vacation period.

I’m sure at least some American employers also indulge in the practice of holiday loading … don’t they?

 

[Darkbloom]

Which inexorably leads to wage slavery. Hardly seems Christian…

1. I fail to see how this “inexorably leads to wage slavery.”
2. You can question other’s Christian credentials all you like, but the math still doesn’t work.

 

[ThomasToo]

1. I fail to see how this “inexorably leads to wage slavery.”

Look at the effects of laissez-faire capitalism in the late Nineteenth Century. I don’t think we would agree that the vast majority of employers were providing necessary (which is not the same as legally required) safety measures or a living wage. It’s only the result of legal intervention that things like fire escapes and fire exits became required. The invisible hand does not select for compassion or moral goodness.

1. You can question other’s Christian credentials all you like, but the math still doesn’t work.

I didn’t mean to question anyone’s credentials (Christian or otherwise) but this is a moral question not an economic one–at least in my opinion.

 

[Darkbloom]

Look at the effects of laissez-faire capitalism in the late Nineteenth Century. I don’t think we would agree that the vast majority of employers were providing necessary (which is not the same as legally required) safety measures or a living wage. It’s only the result of legal intervention that things like fire escapes and fire exits became required. The invisible hand does not select for compassion or moral goodness.

I didn’t mean to question anyone’s credentials (Christian or otherwise) but this is a moral question not an economic one–at least in my opinion.

I’m glad you concede that you make this decision without looking at it economically, because it simply doesn’t work.

I would be morally amenable to giving every child in the world his or her own personal tutor to better their education, but no mater how moral I think that is, it simply isn’t possible. Minimum wage law run afoul of reality in a similar way.

 

[ThomasToo]

I’m glad you concede that you make this decision without looking at it economically, because it simply doesn’t work.

I would be morally amenable to giving every child in the world his or her own personal tutor to better their education, but no mater how moral I think that is, it simply isn’t possible. Minimum wage law run afoul of reality in a similar way.

I don’t think that you can look at the state of the Union and say the minimum wage is running afoul of reality. That said, I know that I–for one–, am not an economist so if you are I defer to you on the economic question. If, however, you’re not then I don’t think it’s fair to say the economics make it impossible.

I also think, and I say this respectfully as possible, your position runs very afoul of Catholic social doctrine as laid out in, amongst other places, Rerum Novarum.

 

[Darkbloom]

I don’t think that you can look at the state of the Union and say the minimum wage is running afoul of reality. That said, I know that I–for one–, am not an economist so if you are I defer to you on the economic question. If, however, you’re not then I don’t think it’s fair to say the economics make it impossible.

I also think, and I say this respectfully as possible, your position runs very afoul of Catholic social doctrine as laid out in, amongst other places, Rerum Novarum.

I’m not an economist by training. Nor am I mathematician, but that doesn’t preclude me from making statements of mathematical fact. 2 + 2 = 4; any answer to the contrary is simply wrong, even if you think it is more moral.

The same is true of a minimum wage. The economics don’t work.

I’m entirely unaware of any teaching of the Catholic church that says I have to accept an idea that is not mathematically sound.

Please disprove what is included in the link below and I will GLADLY change my mind about the minimum wage.

economics.fundamentalfinance.com/micro_price-floor.php

 

[ThomasToo]

]I’m entirely unaware of any teaching of the Catholic church that says I have to accept an idea that is not mathematically sound.

Please disprove what is included in the link below and I will GLADLY change my mind about the minimum wage.

economics.fundamentalfinance.com/micro_price-floor.php

Ok. Assume that there are people willing to work 80 hours a week at $3.60/hour. They would be, after what most of us would consider a double work week, making less than what is now set is the minimum wage. If you would like to question this assumption there are numerous illegal immigrants working at this wage or less. (As we’ve shown above the income working full time at the minimum wage is not enough to support a family and is hardly enough to support an individual.)

As there are people willing to work for a pittance the market will favor them and there will be less opportunities available at what I think we are hard pressed to call anything other than ‘a fair day’s pay for a fair day’s work.’ As such, the market will drive wages downward beyond what people need to survive.

As I said above, the invisible hand has no compassion and we’re trying to set up a system that is just. A free market will not provide for the needs of the many when the few are willing to settle for less in the same way a free market will get away with any number of other offenses (e.g. sweat shop labor in the Third World, carcinogens in toys for children, incredibly unsafe working conditions, monopolies &c the list goes on, of course).

 

[stinkcat_14]

Please disprove what is included in the link below and I will GLADLY change my mind about the minimum wage.

economics.fundamentalfinance.com/micro_price-floor.php

Actually, in the case of monopsony, an increase in the minimum wage can actually serve to increase both the incomes and employment of workers.

tutor2u.net/economics/content/topics/poverty/minwage_monopsony.htm

 

[Darkbloom]

Ok. Assume that there are people willing to work 80 hours a week at $3.60/hour. They would be, after what most of us would consider a double work week, making less than what is now set is the minimum wage. If you would like to question this assumption there are numerous illegal immigrants working at this wage or less. (As we’ve shown above the income working full time at the minimum wage is not enough to support a family and is hardly enough to support an individual.)

As there are people willing to work for a pittance the market will favor them and there will be less opportunities available at what I think we are hard pressed to call anything other than ‘a fair day’s pay for a fair day’s work.’ As such, the market will drive wages downward beyond what people need to survive.

Your whole argument is self effacing. The market would have no one to employee if it didn’t pay people enough to survive.

You also grossly simplify the calculus an employer goes through in deciding wages. A company doesn’t want simply the cheapest person they can find. They want the best marginal cost decision.

Furthermore, some jobs simply don’t create enough wealth to pay a living wage. If you produce $10.00 of wealth per hour of labor, no one (at least no one who wants to stay in business) is going to pay them $11.00. The math doesn’t work.

But all that aside, the best rebuttal is very simple: Minimum wage laws INCREASE unemployment. If you see that as somehow being moral I’d be glad to hear you case.

As I said above, the invisible hand has no compassion and we’re trying to set up a system that is just. A free market will not provide for the needs of the many when the few are willing to settle for less in the same way a free market will get away with any number of other offenses (e.g. sweat shop labor in the Third World, carcinogens in toys for children, incredibly unsafe working conditions, monopolies &c the list goes on, of course).

If you go to the link listed below you will see just the opposite of what you assert. Nations with the greatest economic freedom are invariably First World Nations.

heritage.org/index/

No kind hearted person wants to see people struggle in poverty. But if your only response is to push programs that will make problems worse and then call those who disagree with you unchristian, they you’re just adding to the problem.

 

[ThomasToo]

But all that aside, the best rebuttal is very simple: Minimum wage laws INCREASE unemployment. If you see that as somehow being moral I’d be glad to hear you case…

No kind hearted person wants to see people struggle in poverty. But if your only response is to push programs that will make problems worse and then call those who disagree with you unchristian, they you’re just adding to the problem.

You’ve asserted twice that the minimum wage increases unemployment. Could you please refer me to an article in a peer-reviewed journal of economics that supports this hypothesis?

 

[Darkbloom]

Actually, in the case of monopsony, an increase in the minimum wage can actually serve to increase both the incomes and employment of workers.

tutor2u.net/economics/content/topics/poverty/minwage_monopsony.htm

From the link you posted: There are some doubts as to how many workers are actually in this position, remember that the UK minimum wage at its current rate affects directly less than one worker in ten so we cannot expect the monopsony justification to be a significant one when putting the argument for keeping a national minimum wage.

Emphasis mine.

I’m not sure where you’re posting from, but in the US, or at least the part of the US I live in, practically all jobs that would be affected by minimum wage laws have very low barriers to entry; landscaping, hotel and food service, etc.

 

[Darkbloom]

You’ve asserted twice that the minimum wage increases unemployment. Could you please refer me to an article in a peer-reviewed journal of economics that supports this hypothesis?

You could start with the link I posted previously.