A good explanation of why the minimum wage is bad

[Ant]

The Cost of a "Living Wage"

By N. Gregory Mankiw
Boston Globe, 6/24/2001

If student movements are a leading indicator of social trends, and they often are, then the recent student takeover of the administration building at Harvard University is a troubling sign.

The students wanted a ''living wage'' ($10.25 a hour, plus benefits) for all Harvard workers. Like the broader living wage campaign, which could culminate in a much higher national minimum wage, the students were laudable in their intentions but deficient in their analysis.

The appeal of the living wage is obvious. Life is hard for workers trying to support families on $7 or $8 an hour. If we could wave a magic wand and help those at the bottom of the economic ladder move up a rung or two, we should do it.

But enacting a social reform is not like waving a magic wand. It is more like prescribing a drug with a long list of side effects. Sometimes the side effects are worse than the disease.

Like most other prices, wages are set by the market forces of supply and demand. The major difference between high-wage workers and low-wage workers is not that the former are better organized or better liked by their employers -- it's that their higher productivity enhances the demand for their services. Workers earning only $7 or $8 a hour are typically those with the fewest years of education and the least experience, which depresses the demand for their labor.

The living wage campaign wants to repeal the law of supply and demand and raise wages by fiat. The goal is to help low-wage workers. Unfortunately, it wouldn't work out that way. One effect of a higher wage is a reduction in the amount of labor that employers demand.

Take Harvard, for instance. How often does it need its janitorial staff to vacuum the classrooms and wash the blackboards? It's a judgment call. An increase in the wage from $8 to $10 a hour raises the cost of labor by 25 percent. It is wishful thinking to suggest that this won't affect the number of workers hired.

Living wage proponents say that Harvard, with its huge endowment, can afford to pay higher wages. Yes, that's true, but that's not the point. Like all employers, Harvard is always making cost-benefit calculations, weighing the benefits of one project (hiring more janitors to clean blackboards more often) against others (hiring more professors to reduce class sizes). By raising the relative price of unskilled workers, the passage of a living wage shifts the tradeoffs in a way that means fewer of those workers will be hired.

Living wage advocates often point to a study by economists David Card and Alan Krueger, which claims that raising the minimum wage does not reduce employment. This research became prominent during the Clinton years, in part because Krueger was once chief economist in Clinton's Labor Department.

Although Card and Krueger are reputable economists, equally reputable economists have attacked their data, methods, and results. Meanwhile, most research on the minimum wage finds that it reduces employment. Emphasizing the Card-Krueger evidence is like a doctor prescribing a drug relying on a single controversial study that finds no adverse side effects, while ignoring the many reports of debilitating results.

Moreover, the adverse effects of a high minimum wage go beyond its impact on total employment. In addition to reducing the amount of labor demanded, a high minimum wage compounds the problem by increasing the amount of labor supplied. In other words, not only are there fewer jobs available for unskilled workers, but more people apply for those jobs. Studies have found that increases in the minimum wage encourage some teenagers to drop out of school earlier than they otherwise would. These teenagers take jobs that would go to unskilled adults, making it harder for those adults to make the transition from welfare to work.

The case against a high minimum wage is even more compelling once one realizes that it is not the only way to address the hardship of the working poor. A better weapon to fight poverty is the Earned Income Tax Credit, a provision of the income tax system that supplements the income of low-wage workers. Like any spending program, this policy has the cost of higher taxes on everyone else. But those costs are smaller than the unemployment that results from high minimum wages.

Throughout history, students have been drawn to utopian social reforms. But history teaches that such social reforms often fail to yield what the reformers promised. The living wage campaign is the most recent example.

[Trauma-san]

When I was 16, I got a job making minimum wage at the local grocery store, I think it was $4.25, it may still be 4.25, I don't know.  Anyways, I did the best job I could and was basically better than anyone else doing my job.  A few months later, the manager hired another guy as a bagger too, and paid  him $4.50.  I immediately walked to the managers office in the back, told him I was better than that guy and deserved more money.  He agreed, and I haven't seen minimum wage since.

Moral of the story: Work your ass off, do a good job, and minimum wage is a non-issue.  I could give a fuck what the government wants to make minimum wage, I'm worth well more than that and I always will be. 

[M Dogg™]

in order for capitalism to work, min wage cannot be livable. But I think it still in needed. There are some people that need it, and they work two min wage jobs just be able to afford top ramon and rent. I think though that min wage is necessary, because if a business really wants to save money, they'd go to Thailand no matter what. Americans have a think again working for a livable wage. If we can't eat off our wages, then we usually don't take the job. If a business really wants, they'd take their business to Thailand. There are plenty of other things that make Thailand cheaper aside from wages of labor. Try land, fewer taxes, work conditions, and their money is worth less, so you can get more for American dollars. So 4 other reasons aside from min wage why businesses are leaving, and that's a quick 2 second type.

And as a manager who employed min wage workers. I'd take the adult over the teenage anyday of the week for employement. I gave the teens a chance, and they suck balls at working. Poor adults, hard workers ready to get things done. The reason though that adults are hired less is because you know that they are looking for better work as they work for you. So they are doing what they have to do for you, and then they are gone to a better job. The min wage job is just temp until something better comes along. You hire a teen, you have them at least until graduation, if not the rest of the summer after. If they don't go to college, then you have a full time worker who is well trained before. It's an investment.

[Ant]

in order for capitalism to work, min wage cannot be livable.

What do you mean by "work?"  The definition of "work" here is very vague.  Capitalism can "work" with $20 /hr minimum wage, it just won't function as "efficiently."  The question of capitalism "working" is really off-base.  I think you want to suggest that other economic systems could "work better."

So, what economic system would "work better" with a "livable" minimum wage?

But I think it still in needed. There are some people that need it, and they work two min wage jobs just be able to afford top ramon and rent.

What Trauma said is entirely true.  You really need to look at "quality" or "skill level" of people at the minimum wage leve.  I don't disagree that there are "good" "hard-working" people that get paid minimum wage.  I don't disagree that some people are paid less than they deserve.  Of course, there are also people that are paid more than they deserve. But, people who are pro living wages have this mistaken assumption that everyone making minimum wages are good, hard working people that are screwed by corporate America.  Really this is not the case.  It's not difficult to earn a job paying greater than minimum wage.  The reality of the world is that there are LOTS of people who are incredibly low-skilled and have a horrible work ethic.  Unless you can face this reality, you're opinion is going to be horribly biased. 

I think though that min wage is necessary, because if a business really wants to save money, they'd go to Thailand no matter what. Americans have a think again working for a livable wage.

I'll assume you didn't specifically mean Thailand, and more generally meant any country with low cost labor.  Anyways, this statement is entirely untrue.  Some points:

- Many low wage / low skill jobs cannot be outsourced.  The supermarket can't hire a guy living in India to bag your groceries.
- Many companies need to operate in the United States.  How can a retailer runs its stores with employees living in a foreign country?
- Many companies don't want to move overseas.  Private business owners and managers often like living in their home country and do not particularly jump for joy at the prospect of making a few extra bucks by moving to India where they can get lower cost labor.
- Companies CANNOT just pack their bags, backup database, and move their operation overseas EASILY.  It's not very easy to move from one building to another when your lease expires, let alone move your manufacturing operation across continents.  Even moving state to state is costly and challenging.  The risks involved with relocating are often so great business that often need to relocate won't because of risk aversion.  Most businesses don't have massive manuals on "how to run this company" instead, their understanding of the company is ingrained in the thinking of their employees.  Not only is it logistically challenging and costly to relocate.  But when you move you have to restaff with brand new people that know nothing about your business.  You have to find people to replaced "experienced" people, and you have to find them fast.  It's really just not that easy.

If we can't eat off our wages, then we usually don't take the job. If a business really wants, they'd take their business to Thailand. There are plenty of other things that make Thailand cheaper aside from wages of labor. Try land, fewer taxes, work conditions, and their money is worth less, so you can get more for American dollars. So 4 other reasons aside from min wage why businesses are leaving, and that's a quick 2 second type.

Again, same as above.  Hopefully by now your reconsidering some of your assumptions.  I don't mean to attack you.  I think you're well intentioned, but honestly, this logic is faulty.

----

Ok, so final point, and this is the best summation of the issue I can offer.

If both sides approach the "living wage" issue with good intentions here is core of the issue: 

What matters more "efficiency" or "equality"?  I mean equality in the sense of the gap between rich and poor. 

Those of us with good intentions value both, but some people think the loss of "efficiency" out weigh the gains of "equality."  There are benefits to both sides.  Philsophically, I believe that greater "equality" yields greater happiness, but this is a subjective opinion.  "Efficiency" is also can create happiness.  And is happiness really the appropriate goal?  Probably it is, but its dangerous to think in absolutes.

However, even if you think that "happiness" is the ultimate goal.  There are other issues to consider.  What if policies that attempt to promote "equality" hurt "efficiency" so much that they decrease societies happiness? This happened in most communist economies.  They tried so hard for equality, that the economy became so inefficient, that poverty rose, and unhappiness did too.  This is an oversimplication of course, but I think the point is relevant.

So, personally, I think the best question is:

How can we balance our desire to promote "efficiency" and "equality" so that we maximize happiness? 

If you look at it this way, we start coming up with much different answers than the straight forward. "Let's raise the minimum wage."  This is the view that I believe the author of this article takes, and I believe his answer is worth some consideration.  I'll end with it:

"A better weapon to fight poverty is the Earned Income Tax Credit, a provision of the income tax system that supplements the income of low-wage workers. Like any spending program, this policy has the cost of higher taxes on everyone else. But those costs are smaller than the unemployment that results from high minimum wages."

[J Bananas]

you know what ant, i dont think you wrote all of that yourself. im calling a debate club investigation into whether or not you really "just have the answer to everything" 

[M Dogg™]

in order for capitalism to work, min wage cannot be livable.

What do you mean by "work?"  The definition of "work" here is very vague.  Capitalism can "work" with $20 /hr minimum wage, it just won't function as "efficiently."  The question of capitalism "working" is really off-base.  I think you want to suggest that other economic systems could "work better."

So, what economic system would "work better" with a "livable" minimum wage?

But I think it still in needed. There are some people that need it, and they work two min wage jobs just be able to afford top ramon and rent.

What Trauma said is entirely true.  You really need to look at "quality" or "skill level" of people at the minimum wage leve.  I don't disagree that there are "good" "hard-working" people that get paid minimum wage.  I don't disagree that some people are paid less than they deserve.  Of course, there are also people that are paid more than they deserve. But, people who are pro living wages have this mistaken assumption that everyone making minimum wages are good, hard working people that are screwed by corporate America.  Really this is not the case.  It's not difficult to earn a job paying greater than minimum wage.  The reality of the world is that there are LOTS of people who are incredibly low-skilled and have a horrible work ethic.  Unless you can face this reality, you're opinion is going to be horribly biased. 

I think though that min wage is necessary, because if a business really wants to save money, they'd go to Thailand no matter what. Americans have a think again working for a livable wage.

I'll assume you didn't specifically mean Thailand, and more generally meant any country with low cost labor.  Anyways, this statement is entirely untrue.  Some points:

- Many low wage / low skill jobs cannot be outsourced.  The supermarket can't hire a guy living in India to bag your groceries.
- Many companies need to operate in the United States.  How can a retailer runs its stores with employees living in a foreign country?
- Many companies don't want to move overseas.  Private business owners and managers often like living in their home country and do not particularly jump for joy at the prospect of making a few extra bucks by moving to India where they can get lower cost labor.
- Companies CANNOT just pack their bags, backup database, and move their operation overseas EASILY.  It's not very easy to move from one building to another when your lease expires, let alone move your manufacturing operation across continents.  Even moving state to state is costly and challenging.  The risks involved with relocating are often so great business that often need to relocate won't because of risk aversion.  Most businesses don't have massive manuals on "how to run this company" instead, their understanding of the company is ingrained in the thinking of their employees.  Not only is it logistically challenging and costly to relocate.  But when you move you have to restaff with brand new people that know nothing about your business.  You have to find people to replaced "experienced" people, and you have to find them fast.  It's really just not that easy.

If we can't eat off our wages, then we usually don't take the job. If a business really wants, they'd take their business to Thailand. There are plenty of other things that make Thailand cheaper aside from wages of labor. Try land, fewer taxes, work conditions, and their money is worth less, so you can get more for American dollars. So 4 other reasons aside from min wage why businesses are leaving, and that's a quick 2 second type.

Again, same as above.  Hopefully by now your reconsidering some of your assumptions.  I don't mean to attack you.  I think you're well intentioned, but honestly, this logic is faulty.

----

Ok, so final point, and this is the best summation of the issue I can offer.

If both sides approach the "living wage" issue with good intentions here is core of the issue: 

What matters more "efficiency" or "equality"?  I mean equality in the sense of the gap between rich and poor. 

Those of us with good intentions value both, but some people think the loss of "efficiency" out weigh the gains of "equality."  There are benefits to both sides.  Philsophically, I believe that greater "equality" yields greater happiness, but this is a subjective opinion.  "Efficiency" is also can create happiness.  And is happiness really the appropriate goal?  Probably it is, but its dangerous to think in absolutes.

However, even if you think that "happiness" is the ultimate goal.  There are other issues to consider.  What if policies that attempt to promote "equality" hurt "efficiency" so much that they decrease societies happiness? This happened in most communist economies.  They tried so hard for equality, that the economy became so inefficient, that poverty rose, and unhappiness did too.  This is an oversimplication of course, but I think the point is relevant.

So, personally, I think the best question is:

How can we balance our desire to promote "efficiency" and "equality" so that we maximize happiness? 

If you look at it this way, we start coming up with much different answers than the straight forward. "Let's raise the minimum wage."  This is the view that I believe the author of this article takes, and I believe his answer is worth some consideration.  I'll end with it:

"A better weapon to fight poverty is the Earned Income Tax Credit, a provision of the income tax system that supplements the income of low-wage workers. Like any spending program, this policy has the cost of higher taxes on everyone else. But those costs are smaller than the unemployment that results from high minimum wages."

I'm not going to suggest another system will work better. There are some systems where no one is poor, but at the same time, no one is rich. That would not work in the U.S. It's our culture to want more, and that's not a bad thing. It's that culture of hard work, and trying to get more that took us to the moon, and made us the riches country in world history. And if everyone makes 20/hr., inflation will adjust and $20/hr. will equal 5.50/hr. Livable min wage will make it so that inflation will catch up, and liveable will once again be unlivable.

With wages, there has to be a limit, one because Americans wouldn't work a job that don't pay what they want, two, because business people should at least somewhat rewarded for their work. If someone is making 3.25/hr. they might as well collect welfare, or they might as well be a pan handler. Hell, some pan handlers make 100s a day. There has to be some reward for working. You punish people who are working, when lazy people are making more money for doing nothing. All this for a cheaper Whooper? There are hard working people, so well trying to punish the upcoming teenage (who I have no problem with them making less than min wage, when I manage them, most of them said they still get most their money from their mom and dad anyways, and only save their earned money for college) I wouldn't want to see the 27 year old parent, who is raising a couple of children be punished for working. I know that some people are lazy, once you manage them, you know, but at the same time, in a min wage job, it's so easy to fire them and get a teen who will do the work. Some people made bad decisions, and they'll try to do it all over, my current job is at a career college where this is the case with 99% of the students.

Min Wage is good, it keeps people fo having work be not worth it. I had a guy who had to quit work because daycare cost were more than his income. This is penalizing working, and rewarding "laziness." We should reward work, but I agree, min wage cannot be livable.Min wage has to be a starting point, and a worker can move up. The average min wage worker will not be making min wage after 3 to 6 months, most businesses like to retain workers, so they will give usually a 20 cent raise. So min wage workers would be there forever. But there should be some reward for working,after all, money was meant to messure work ethic, and is a tool made so people can feel rewarded from work.

[Ant]

you know what ant, i dont think you wrote all of that yourself.

lol why not?

[Ant]

There are some systems where no one is poor, but at the same time, no one is rich.

What systems are these?  As far as I know no such system exists, let alone multiple systems.

That would not work in the U.S. It's our culture to want more, and that's not a bad thing. It's that culture of hard work, and trying to get more that took us to the moon, and made us the riches country in world history. And if everyone makes 20/hr., inflation will adjust and $20/hr. will equal 5.50/hr. Livable min wage will make it so that inflation will catch up, and liveable will once again be unlivable.

I appreciate that you understand there are side effects to ideas like the living wage.  To clarify, I'm not so sure that the biggest side effect of minimum wage increases is inflation.  Milton Friedman said "inflation is always and everywhere a monetary phenomenon."  Meaning, inflation is primarily dependent on the money supply.  The main side effect of a minimum wage hike is a loss of economic efficiency which in turn can have many other consequences.   This is easy to visualize.  You can easily imagine a scenario where the minimum wage is raised only slightly with minimal effect on the economy, but were it to be raised drastically there would be a massive negative effect on economic efficiency and inevitably poverty, unemployment, and happiness.

With wages, there has to be a limit, one because Americans wouldn't work a job that don't pay what they want

This is the essence of the argument against a minimum wage.  People are free to determine the rate of pay they are willing to work for, and employers should be free to determine the rate of pay they wish to offer.  If your statement is true, then there is no need to advocate a minimum wage.  However, what you don't understand is that peopl exist who are willing to work for $3.00 /hr.  There are also people who are worth $3.00 /hr that cannot find work because the government won't let employers offer these kinds of jobs anymore. 

two, because business people should at least somewhat rewarded for their work.

Business people are rewarded for their work.  Why do you think no one has to force Walmart to pay its IT developers 50 - 100 k a year?  How come there aren't regulations forcing businesses to compensate accountants fairly? Look at medium skilled labor like construction, HVAC, electricians, printers, equipment operators.  These types of jobs earn well above the minimum wage, but no one was forced into this situation.  You make it sound like employers ONLY want to offer minimum wage jobs.  This is hardly the case.  Some jobs are worth less than others.  That's what determines pay.

If someone is making 3.25/hr. they might as well collect welfare, or they might as well be a pan handler. Hell, some pan handlers make 100s a day. There has to be some reward for working.

Firstly, this is a generalization.  There are people who are willing to work minimum wage jobs, but do not require welfare.  For example, in decades past, women and children would work low wage part-time jobs that were easy just to supplement the families income.  It's difficult for employers to offer high-wage part time jobs, because part-time workers are almost always low skilled... they aren't around often enough to be trained well.  My company used to offer low paying part time jobs to our employees spouses during the holidays to help them earn a little extra.  People always appreciated this.  Their spouse could come in work however many hours they wanted doing very simple tasks.  Now we can't offer these types of positions anymore. 

Secondly, Why does the reward have to be for working and not contributing?  There is a reward for contributing to society, the more you offer an employer the more they pay.  If you read below, you find that you contradict yourself in the very next statement. 

You punish people who are working, when lazy people are making more money for doing nothing.

Exactly, that is one of the reasons why so many people oppose raising the minimum wage.  The minimum wage helps people that weren't willing to help themselves.  Sure, sometimes good people get screwed by the system, but a lot of people that make minimum wage earn it for a reason - they don't deserve to be paid more.  It's really a liberal fantasy to think every minimum wage worker is this great peson being screwed by corporate american.  But no matter how many times I say it, no one wants to recognize it. 

All this for a cheaper Whooper? There are hard working people, so well trying to punish the upcoming teenage (who I have no problem with them making less than min wage, when I manage them, most of them said they still get most their money from their mom and dad anyways

Min Wage is good, it keeps people fo having work be not worth it. I had a guy who had to quit work because daycare cost were more than his income. This is penalizing working, and rewarding "laziness."
We should reward work, but I agree, min wage cannot be livable.Min wage has to be a starting point, and a worker can move up. The average min wage worker will not be making min wage after 3 to 6 months, most businesses like to retain workers, so they will give usually a 20 cent raise. So min wage workers would be there forever. But there should be some reward for working,after all, money was meant to messure work ethic, and is a tool made so people can feel rewarded from work.

This is why Mankiew advocates the "earned income tax credit."  It doesn't essentially the same thing that you want to do.  It rewards working, but instead of placing the burden on the employer, the burden for helping low-skilled workers is shared by the entire society through the tax system.  It also is believed to create fewer side effects than minimum wage hikes.  Of course, min wge is more understandable so its easier to support. 

So, why do you specifically support the minimum wage over the earned income tax credit?  Or do you think diffferently now?

[M Dogg™]

Ant, using government tax support. You just took a socialist ideal, and made it more socialist. I don't think a tax credit will work. Americans will look at it as a glorified welfare program, and the CWalkers and Traumas of the world will not support it.

Man, you took a neo-con stands starting, and then threw me off with a neo-lib solution. I read it earlier, but didn't pay attention. Now, I see what you are saying. I have to chew on this. You having any readings?

[Ant]

Wikipedia does a decent job summarizing the concept.  I don't have any specific articles on it.  I agree with it because it makes logical sense to me.

http://en.wikipedia.org/wiki/Earned_Income_Tax_Credit

A few things... I never took a "neo-con" stance.  Perhaps I took a conservative stance, but neo-cons are defined by their foreign policy.  They don't have strong a ideology on domestic policy.

I really don't know about "making socialist ideas more socialist." I'm more concerned with advocating the best ideas than choosing ideas best on the ideology their associated with.  The "earned income tax credit" is an idea that has decent support from conservatives and liberals alike.  The problem is, most people don't understand it, and the minimum wage is much easier to talk about.

The minimum wage is more popular because its easy to understand.  What's simpler?  1) We're going to raise the pay for poor people 2) If poor people work, they can go to the government, and get their taxes back which in a sense boosts their income.

---

Anyways... at their core both of these objectives attempt to tackle the same problem, but the EITC does it much more effectively.  I really don't like the minimum wage for two reasons:

1) it has a lot of side effects and negatively impacts economic efficiency.
2) politicians abuse it. minimum wage raises are a great way to get people to the polls and it infuriates me when politicians use it to drive up their votes.  The EITC doesn't excite voters as much so it's talked about less.

Final Thought:

Rather than advocating policies, you should advocate objectives.  What is your goal?  Reduce poverty, improve economic equality?  In politics everyone is always advocating "means" but we would come up with better solutions if we thought more constructively about the best way to achieve the our "ends" or objectives.  It's important that we decide on the "means" to best achieve our "ends" rather than blindly support "means" when there are possibly better alternatives.

Unfortunately, government and politics doesn't work that way.  But in an ideal world, we'd be constantly suggesting policies, and testing them to see how they helped us achieve our stated objective.  Then, the policies we found to work the best would be pushed the most, and the less effective policies would forgotten.