What is a decent minimum wage?

[Darkbloom]

You responded with some right wing think tank pieces offering predictions about the effect of the minimum wage. There isn’t a whole lot anyone can say about them, because they are all pretty much back of the envelope conjectures.

Proof positive that there is no argument you will take on its own merits.

I now officially rest my case.

 

[TenBobNote]

“Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”

-Mises

 

[Darkbloom]

Job difficulty, required skills and contribution are usually all related, but it’s through the labour market that different sorts of work are assigned an average hourly rate or salary, not an employer’s balance sheet.

I’ve said several times now, yes, supply and demand is a big factor, but it is not the only one.

No one will pay a fast food worker $150.00/hr, even if there is only one person willing to do the job and a huge demand. Unless McDonald’s starts selling $25.00 hamburgers they will go out of business before paying a wage like that.

Brain surgeons, as mentioned, or even some computer programmers who write very specific, high end soft ware would get that wage.

If a company switches it’s manufacturing to the Philippines, and turnover is the same, then the equilibrium wage for those workers, doing the same jobs, is lower. Does that mean their contribution is less?

First, ceteris paribus.

Secondly, their contribution is probably pretty similar, but your example speaks to supply and demand. A Philipino has a different cost of living, different opportunity costs, etc, hence a different price.

Besides, I can’t imagine you really think that an hour spent cutting a diamond or performing open heart surgery is going to generate no more income than an hour spent giving tours of a museum or washing cars. Holding all other variables equal, some jobs are still worth more than others.

 

[tjm190]

Nice try. Let’s ignore the fact that if the money supply stays constant then an increase in prices in one area mean they have to fall someplace else. i.e. if we all have $100 to spend and the price of hotel rooms goes up from $50 to $55, then we only have $45 to spend on other goods, so the sellers of the other goods will have to lower their prices to sell their goods.

Patently false initial claim- shocks to supply (think oil embargo) are known to cause inflation. Big shocks cause big inflation, small shocks cause small inflation. Also, remember that changing the velocity of the currency has the same effect as increasing the money supply (with inflation that is)

So ignoring that, if the minimum wage goes up by a $1 per hour, and assuming no behavioral effects and everyone works full time, so our 1 million min wage workers now cost $2 billion more per year. How is that extra $2 billion going to shift aggregate supply in any perceptible way n a $16 trillion economy?

A minor change leads to a minor result- with inflation. The main issue is that price fixing is intrinsically inefficient- if you raise the price of labor, employers will buy less.

 

[stinkcat_14]

Patently false initial claim- shocks to supply (think oil embargo) are known to cause inflation.

Not necessarily.

http://www.clevelandfed.org/research/commentary/2003/0401.pdf

Big shocks cause big inflation, small shocks cause small inflation. Also, remember that changing the velocity of the currency has the same effect as increasing the money supply (with inflation that is)

Not all big shocks are inflationary. For example, oil prices a couple of years ago went over $100 per barrel and inflation was barely affected.

A minor change leads to a minor result- with inflation.

The one thing that we do know is that if the minimum wage somehow in some way has any effect on inflation, nobody has ever been able to quantify it. I have been asking over and over again for those of you claiming that the minimum wage is inflationary to cite some research proving it. If you could prove it, you could get a publication in the Journal of Political Economy, which is a highly prestigious, Chicago-biased, journal. Yet no research is ever cited, I wonder why?

The main issue is that price fixing is intrinsically inefficient- if you raise the price of labor, employers will buy less.

Of course, it really depends on whether the minimum wage is above the equilibrium wage or not. It also depends on the degree of monopsony power among employers. The other issue is that lower employment is not always and everywhere a bad thing. For example, in my high wage state where almost nobody works for the minimum wage, I have a lot of students who work a lot of hours. They don’t work for tuition, they work for their blackberrys and their car payments. If they couldn’t find jobs they could spend more time studying and be better off in the long run.

 

[CPA2]

The best policy is usually to let prices find equilibrium on their own. This is the only way to discover the bottom. A stock (or a house or any other asset) is worth as much as someone is willing to pay for it — no more, no less. Discovering this level is why we have markets. The same is true for wages.

 

[vz71]

So ignoring that, if the minimum wage goes up by a $1 per hour, and assuming no behavioral effects and everyone works full time, so our 1 million min wage workers now cost $2 billion more per year. How is that extra $2 billion going to shift aggregate supply in any perceptible way n a $16 trillion economy?

The old “it is too big to notice a difference” argument.

Don’t ever attempt to call yourself a friend of the small business owner again.
Or attempt to call yourself a friend to the average worker.

Your proposal fuels inflation and quite likely job loss as well.
This hurts both small business as well as the average worker.

 

[stinkcat_14]

The old “it is too big to notice a difference” argument.

If the price of a Lexus goes up by a penny, then is the price increase really significantly higher?

Don’t ever attempt to call yourself a friend of the small business owner again.
Or attempt to call yourself a friend to the average worker.

Actually, I am not out to pander to any one individual group. As an economist, I am interested in the truth, regardless of whom it offends. I must admit, that in my career I probably have lost some business because I have often argued against the side that had money and for the group which had no money.

Your proposal fuels inflation and quite likely job loss as well.

Actually, I never said that the minimum wage should be increased. What I said is that the minimum wage has a very minor effect on our economy. Now, what I want to know is why do you refuse to answer my question? I have asked repeatedly for a journal article establishing the link between the minimum wage and inflation. You have offered zero. Not one stitch of evidence outside of your own claims.

This hurts both small business as well as the average worker.

How is the average worker harmed by the minimum wage. There are 137 million workers in the US right now. About 1 million earn the minimum wage. So the rest earn more than the minimum. How are the other 136 million harmed?

 

[CPA2]

The U.S. dollar:
Not Worth the Paper it’s Printed On
by Larry Edelson

My forecast: This great dollar disaster will continue — with minor short-term pauses and corrections in the decline — for at least the next two to three years.

At the very least, the dollar will sink so low and inflation will soar so high that you will eventually need at least TWICE the income you have now just to survive. A lifestyle that costs you $100,000 per year today will be $200,000 or more.

And, as the dollar dives, if global confidence is totally shattered, it’s likely to get much worse: In 1923 Germany, inflation was so rampant some people fed marks into their stoves, because they burned longer than the amount of wood they could purchase with the worthless paper.

In 1970s Brazil, inflation was so rapid that merchants had to close their stores at mid-day to mark up prices on merchandise.

Whether inflation becomes this severe in the U.S. or not, I am certain it will NOT be limited to our inflation experiences of years past. Those were caused strictly by higher energy prices, **soaring wages **or shortages in select commodities.

The coming hyperinflation will be triggered by many of those forces PLUS the death of the dollar as the world’s reserve currency … a collapse in confidence in the U.S. government … and the ensuing stampede of global investors out of the dollar — into things that protect them as the dollar careens into the abyss.

That will affect you in ways most people haven’t even begun to fathom. It will mean …

The purchasing power of your money will collapse like a house of cards.

The prices of the most basic goods and services will soar.

Savers will be left in the dust as the value of their cash implodes.

 

[Texas_Roofer]

“Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check.** But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise.** The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”

-Mises

Just an FYI actual prices fall through productivity increases. Productivity increases increase GDP. The Fed is designed to raise the money supply at exactly the rate increase of GDP (an impossible task). However if the government “owes” it is better to error to oversupply of money (inflation), thus reducing (temporarily) the value of debt owed. Btw- under supplying money retards productivity/GDP growth.

hope that helps

 

[Texas_Roofer]

The minimum wage contracts supply by raising the costs to business.
Basic model-(Move the blue line closer to the Y axis. Note that the intersection of the line with AD is at a higher price level.)

There is a couple of problems here. First and foremost your attempting to look only at supply side purchasing of labor. Second you posted “aggregate”. For example the last post I saw from bls is:

“Employer Costs for Employee Compensation (ECEC)
March 10, 2010
Private industry employers spent an average of $27.42 per hour worked for employee compensation in December 2009. Wages and salaries averaged $19.41 and benefits, $8.00.” bls.gov/ncs/home.htm

Now, I think minimum wage is $7.50 so in your graph there is no contracts at $7.50 because the supplies (people) refuse. And thus the problem.

Patently false initial claim- shocks to supply (think oil embargo) are known to cause inflation. Big shocks cause big inflation, small shocks cause small inflation. Also, remember that changing the velocity of the currency has the same effect as increasing the money supply (with inflation that is)

only true when the shock is negative to production of goods and services. Some shocks are positive often the shock of war is positive for some economies and negative for others

-]A minor change leads to a minor result- with inflation. /-]The main issue is that price fixing is intrinsically inefficient-

Yes, price fixing is only a short run issue 30-90 days

if you raise the price of labor, employers will buy less.

Not always this again is the primary failure. Suppose McDonalds see a large influx of customers as a result of the local minimum wage customers recent increase in wage, will they lay off employees and refuse the orders? See in this example the shift in demand (purchasing of hamburgers) is a result of a shift in minimum wage. In the real world this phenomena of increased demand on goods and services from shifts in minimum wage has occurred and frankly will occur if minimum wage is or was too low. However the same phenomena cannot occur if minimum wage is too high.

hope that helps

 

[TenBobNote]

Just an FYI actual prices fall through productivity increases. Productivity increases increase GDP. The Fed is designed to raise the money supply at exactly the rate increase of GDP (an impossible task). However if the government “owes” it is better to error to oversupply of money (inflation), thus reducing (temporarily) the value of debt owed. Btw- under supplying money retards productivity/GDP growth.

hope that helps

Until the bubble they create bursts, then its not so temporary…The looting of savings isn’t temporary either.

 

[cynic]

I’ve said several times now, yes, supply and demand is a big factor, but it is not the only one.

No one will pay a fast food worker $150.00/hr, even if there is only one person willing to do the job and a huge demand. Unless McDonald’s starts selling $25.00 hamburgers they will go out of business before paying a wage like that.
.

Okay that’s a pretty big point to miss. That doesn’t mean someone could look at a financial statement and say this group of employees generated this much income, another group generated this amount.

Brain surgeons, as mentioned, or even some computer programmers who write very specific, high end soft ware would get that wage.

Still, does that prove that the lowest wages are a fair assessment of value or that wage rises won’t be absorbed without price hikes? You’re accepting the word of employers, those with a vested interest in keeping labour costs low.

Secondly, their contribution is probably pretty similar, but your example speaks to supply and demand. A Philipino has a different cost of living, different opportunity costs, etc, hence a different price.

their living standards (and working conditions) are much lower, yet their contribution the same… so where’s this perfect correlation between effort and income conservatives like to imagine.

 

[Texas_Roofer]

Until the bubble they create bursts, then its not so temporary…The looting of savings isn’t temporary either.

Bubbles are created by a false perception. One of the funny things about inflation is how it contributes to bubbles. As the Robert K. says my dad’s house in Los Angles does not grow or really change it is the same house that used to sell for $50k now it sells for $500K yet it is the same house…it must be the money that changed. The same for minimum wage an hour of unskilled labor is an hour whether it sells for $2 or $20 it is the money which has changed. What we pay for that house or labor is our preception of the value of the dollar

hope that helps

 

[Darkbloom]

Okay that’s a pretty big point to miss. That doesn’t mean someone could look at a financial statement and say this group of employees generated this much income, another group generated this amount.

Yes, you can. I actually sit down and do the calculations a couple times a week myself.

Still, does that prove that the lowest wages are a fair assessment of value or that wage rises won’t be absorbed without price hikes? You’re accepting the word of employers, those with a vested interest in keeping labour costs low.

No, I’m accepting market forces. You can’t separate supply and demand; it is a false distinction. One has no meaning without relating to the other.

Employers can set any wage they want, but unless they pay an amount people are willing to work for, the job will go unfilled.

Let me ask point blank: do you really honestly believe, ceteris paribus, that flipping burgers and performing brain surgery have no quantitative difference in wealth generated? And further, that you can’t get at least a good estimate of that difference? If so, you need to let these guys know they are doing the impossible.

their living standards (and working conditions) are much lower, yet their contribution the same… so where’s this perfect correlation between effort and income conservatives like to imagine.

Okay, I’m not sure what you mean by a “perfect correlation between effort and income”, please elaborate. I don’t at all see the correlation between living standards and working conditions.

In fact, there is good reason to suspect people with lousy working conditions to make more money.

Back to your example. Filipinos most likely create about the same value doing the jobs as Americans, but there are other factors that are not being held constant.

Cost of living is a giant example. So is opportunity cost.

 

[TenBobNote]

Still, does that prove that the lowest wages are a fair assessment of value or that wage rises won’t be absorbed without price hikes? You’re accepting the word of employers, those with a vested interest in keeping labour costs low.

their living standards (and working conditions) are much lower, yet their contribution the same… so where’s this perfect correlation between effort and income conservatives like to imagine.

I guess conservatives know that if you ignore the law of gravity, it isn’t easier to walk.

 

[sidbrown]

The U.S. dollar:
Not Worth the Paper it’s Printed On
.

I beleive that it is easily shown to be false that “The U.S. dollar:-
Not Worth the Paper it’s Printed On”
The US dollar is worth a bit more than the paper that it is printed on. Otherwise people would not buy bathroom tissue, but they would be using the US dollar for that purpose.
Further, 35 US dollars can get you 5000 sheets of decent 8x12 paper. If the dollar were not worth the paper it was printed on, 35 dollars would get you less than 35 sheets of blank paper.

 

[CPA2]

I beleive that it is easily shown to be false that “The U.S. dollar:-
Not Worth the Paper it’s Printed On”
The US dollar is worth a bit more than the paper that it is printed on. Otherwise people would not buy bathroom tissue, but they would be using the US dollar for that purpose.
Further, 35 US dollars can get you 5000 sheets of decent 8x12 paper. If the dollar were not worth the paper it was printed on, 35 dollars would get you less than 35 sheets of blank paper.

All paper currencies, or fiat money, eventually become worthless. That is the lesson from history.

The only real money is gold. The dollar is just a bad investment. The dollar is backed by your faith in the politicians in Washington, and your belief that someone else will accept your dollars for goods and services. Right now the Fed is counterfeiting the dollar to the tune of trillions of dollars.

 

[Texas_Roofer]

Let me ask point blank: do you really honestly believe, ceteris paribus, that flipping burgers and performing brain surgery have no quantitative difference in wealth generated? And further, that you can’t get at least a good estimate of that difference?..

Remember it is illegal for the hamburger flipper to do the brain surgery EVEN IF HE CAN DO IT BETTER!!

Okay, I’m not sure what you mean by a “perfect correlation between effort and income”, please elaborate. I don’t at all see the correlation between living standards and working conditions.

Let me ask; I have 3 bosses, one is an idiot, how do I separate his “quantitative difference in wealth generated” from the rest of us and thus show his negative effects?

So is opportunity cost.

So if his opportunity cost is zero is it morally acceptable to offer $0.01/hr ? That would collide with Church teachings

 

[Texas_Roofer]

All paper currencies, or fiat money, eventually become worthless. That is the lesson from history.

The only real money is gold. The dollar is just a bad investment. The dollar is backed by your faith in the politicians in Washington, and your belief that someone else will accept your dollars for goods and services. Right now the Fed is counterfeiting the dollar to the tune of trillions of dollars.

In 1987 the price of gold was $447, that price would fall and not return to that value again until 2006, so one can certainly see gold does not always store value well. But more importantly fiat money derives its value from future taxes. That is why currency problems exist once people believe the government may lose the ability to tax (coup) or inflation will render future tax returns below current values, a mass exit occurs in the currency. That mass exit may actually change the value to zero or near zero.

nma.org/pdf/gold/his_gold_prices.pdf