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A good explanation of why the minimum wage is bad

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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:

--- Quote from: M Dogg of the Elite on September 12, 2006, 06:31:58 AM ---in order for capitalism to work, min wage cannot be livable.

--- End quote ---

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?


--- Quote from: M Dogg of the Elite on September 12, 2006, 06:31:58 AM ---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.

--- End quote ---

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. 


--- Quote from: M Dogg of the Elite on September 12, 2006, 06:31:58 AM ---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.

--- End quote ---

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.



--- Quote from: M Dogg of the Elite on September 12, 2006, 06:31:58 AM --- 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.

--- End quote ---

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"  :nawty: :rubeyes: :oi: :pirate: :loco: :grumpy: :baseballbat: :bandit: :poke:

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