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Changes in the Minimum Wage..the bottom line.

pinqy

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Here's what happens when the minimum wage is increased: It Depends.

For some industries/occupations that have few if any min wage employees: no effect.

For industries that have a significant number of min wage workers, the cost per unit of Labor will increase but total labor cost could go up, down, or stay the same, largely dependent on changes in productivity.

The number of employed could go up, down, or stay the same depending on demographics, industry demand, and labor supply.

If the increase is still below equilibrium, then there will be no effect.

If the increase is significantly above equilibrium, then there will be a surplus of labor (unemployment), if the demand and supply curves don't change. But they might.

If one area increases and an adjacent area does not, then we could see an increase in employment with the increased wage.

And that's all off the top of my head. There could be secondary effects if those who were making barely above minimum wage also receive a pay bump. And with enough variations among occupations, industries, demographics, supply, demand, etc, we could see all the above effects at one level or another.

In short.....Anyone who tells you what will happen for sure with a change in the minimum wage is talking out of his or her posterior. There are too many variables and no way to predict except in the broadest terms, and even that will be with a large degree of uncertainty.
 
But the thing to keep in mind, is labor is a demand function. Yes there will be some elasticity, but as long as the wages are in the low range of elasticity the effects on employment will be minimal (IMO).

- If there's demand, corps will hire employees and pass on the cost if necessary.

- If there's no demand, corps won't hire needed employees.

That's my take on this, and what seems to be occurring in the areas of raised minimum wages.
 
When the minimum wage goes up, my job now becomes a minimum wage job and I will demand more from my employer.
 
It depends on how much the MW is raised, but from $7.25/hr to $15/hr is a 106% pay increase. If an employer has 2 employees at MW, 5 employees at MW + $2/hr and 10 at MW + $4/hr and MW is raised by $7.75/hr then they are essentially going to have to give all 17 employees a $7.75/hr raise to avoid simply paying them all the same. It might not seem like much of a big deal to some but in my example that means going from total labor costs of $173.50/hr to total labor costs of $305/hr or about a 76% increase in total hourly labor costs.

How much that labor cost increase will force an employer to change (raise) their prices (to keep the current profit level) depends on the labor percentage of their total cost of sales expenses but you can rest assured that their material costs will go up as well (since they also contain the embedded labor costs to produce and deliver them).

In my example a MW worker actually gets a better deal (a higher percentage of pay increase) than those now making more than they are. If my example employer really wanted to be "fair" then they would give all of their employees as much of a percentage of an hourly pay increase as they were forced to give to their MW workers (106%) but that would raise their total labor costs to about $357.50/hr.
 
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"It depends". Probably the most intellectually honest answer to the question there is. I tend to stay out of the minimum wage debates because there are just so many variables. It may be a boon to the economy in one town but do more harm than good in another. Even the proposed amount is problematic. In some places you can't live on $15/hr. In others you can live a pretty comfortable life. I am more inclined to leave the decision with local governments who are more dialed into the local variables.
 
Here's what happens when the minimum wage is increased: It Depends.

For some industries/occupations that have few if any min wage employees: no effect.

For industries that have a significant number of min wage workers, the cost per unit of Labor will increase but total labor cost could go up, down, or stay the same, largely dependent on changes in productivity.

The number of employed could go up, down, or stay the same depending on demographics, industry demand, and labor supply.

If the increase is still below equilibrium, then there will be no effect.

If the increase is significantly above equilibrium, then there will be a surplus of labor (unemployment), if the demand and supply curves don't change. But they might.

If one area increases and an adjacent area does not, then we could see an increase in employment with the increased wage.

And that's all off the top of my head. There could be secondary effects if those who were making barely above minimum wage also receive a pay bump. And with enough variations among occupations, industries, demographics, supply, demand, etc, we could see all the above effects at one level or another.

In short.....Anyone who tells you what will happen for sure with a change in the minimum wage is talking out of his or her posterior. There are too many variables and no way to predict except in the broadest terms, and even that will be with a large degree of uncertainty.

Too many unexpected consequences for liberal pinheads in the government to figure out

Why not let the free market decide how much to pay?
 
But the thing to keep in mind, is labor is a demand function. Yes there will be some elasticity, but as long as the wages are in the low range of elasticity the effects on employment will be minimal (IMO).

- If there's demand, corps will hire employees and pass on the cost if necessary.

- If there's no demand, corps won't hire needed employees.

That's my take on this, and what seems to be occurring in the areas of raised minimum wages.
I agree in general. Part of what I was trying to say, though was that that won't always be true and there will, with certainty, be cases where raising the minimum wage will have a detrimental effect. The question is to what degree and are the overall benefits worth the detrimental cases. Passing off the cost to the consumer can decrease demand, which in turn could decrease the demand for labor.
 
Too many unexpected consequences for liberal pinheads in the government to figure out

Why not let the free market decide how much to pay?

Because the pure competition model of labor supply and demand assumes the following:
  • All jobs are equal and can be filled by anyone.
  • All employers and employees have perfect knowledge of wages and opportunities.
  • There are no barriers to entry or exit from employment, or to relocation
  • The sole consideration for supplying labor is price and a worker can decide not to work if the price is not high enough.

I think we can all agree that none of those assumptions apply in the real world. So there are inefficiencies that adversely affect primarily unskilled workers. Now some countries, such as Sweden, have not official minimum wage, but wages are not determined purely by the free market, but by collective bargaining agreements by labor unions.
 
Because the pure competition model of labor supply and demand assumes the following:
  • All jobs are equal and can be filled by anyone.

  • All employers and employees have perfect knowledge of wages and opportunities.
  • There are no barriers to entry or exit from employment, or to relocation
  • The sole consideration for supplying labor is price and a worker can decide not to work if the price is not high enough.

I think we can all agree that none of those assumptions apply in the real world. So there are inefficiencies that adversely affect primarily unskilled workers. Now some countries, such as Sweden, have not official minimum wage, but wages are not determined purely by the free market, but by collective bargaining agreements by labor unions.

No it doesn't

Where did you hear that?

A doctor cannot be replaced by a plumber

And in most cases a plumber cannot be replaced by a doctor
 
No it doesn't

Where did you hear that?

A doctor cannot be replaced by a plumber

And in most cases a plumber cannot be replaced by a doctor

I said it was an assumption of the pure completion model. Which it is. I specifically said it does NOT apply to the real world.

A basic intro to economics model, like that of pure competition, bears as much resemblance to the real world workings as does a model of a skeleton to a living human.
 
I said it was an assumption of the pure completion model. Which it is. I specifically said it does NOT apply to the real world.

A basic intro to economics model, like that of pure competition, bears as much resemblance to the real world workings as does a model of a skeleton to a living human.

The problem is that your comment went nowhere
 
Here's what happens when the minimum wage is increased: It Depends.

For some industries/occupations that have few if any min wage employees: no effect.

For industries that have a significant number of min wage workers, the cost per unit of Labor will increase but total labor cost could go up, down, or stay the same, largely dependent on changes in productivity.

The number of employed could go up, down, or stay the same depending on demographics, industry demand, and labor supply.

If the increase is still below equilibrium, then there will be no effect.

If the increase is significantly above equilibrium, then there will be a surplus of labor (unemployment), if the demand and supply curves don't change. But they might.

If one area increases and an adjacent area does not, then we could see an increase in employment with the increased wage.

And that's all off the top of my head. There could be secondary effects if those who were making barely above minimum wage also receive a pay bump. And with enough variations among occupations, industries, demographics, supply, demand, etc, we could see all the above effects at one level or another.

In short.....Anyone who tells you what will happen for sure with a change in the minimum wage is talking out of his or her posterior. There are too many variables and no way to predict except in the broadest terms, and even that will be with a large degree of uncertainty.

If the study makes general statements about the effects specific to geographic locations then they would be more worthwhile

The effect of a min wage increase on Seattle would be different than the same increase would have on Spokane. Seattle is a high tech city, not so much a low cost manufacturing center. It also has international tourists and business visitors so the hospitality industry should also not be effected by an increase in labor costs

Spokane, is more blue collar, resource based if I recall correctly. A dramatically different economy to Seattle. An increase in min wage is less likely to be absorbed and passed on to customers than said costs would be in Seattle. Job losses would probably result. Seattle on the other hand could easily see the cost absorbed and passed on for most business's. The increase in income for those earning min wage or close to min wage in the case of Seattle could actually see a boost to the local economy (increased spending by low income workers) Spokane on the other hand would not
 
I agree in general. Part of what I was trying to say, though was that that won't always be true and there will, with certainty, be cases where raising the minimum wage will have a detrimental effect. The question is to what degree and are the overall benefits worth the detrimental cases. Passing off the cost to the consumer can decrease demand, which in turn could decrease the demand for labor.
I understand, and I agree.

I do expect these changes will have much less effect on the general economy, than either side of the argument sometimes implies.
 
Too many unexpected consequences for liberal pinheads in the government to figure out

Why not let the free market decide how much to pay?
Because you end up with this:


140406.31544535.jpg
 
The problem is that your comment went nowhere

Ok, let me dumb it down for you, then.

The question was "Why not let the free market decide how much to pay?"
The answer is
  • The idea that the free market could efficiently decide how much to pay is based on a MODEL of pure competition.
  • This model has many assumptions that do not apply to the real world.
  • Without these assumptions the pure competition model does not work:
    • People are not free to just not work at all if the wages aren't high enough.
    • People cannot just change to a higher paying job.
    • Imperfect information means that even when better jobs/workers are available, workers/employers won't necessarily know.
  • A pure free market approach doe not and cannot handle these issues.
  • Extra poor people means extra crime means extra societal problems. This is a cost to society.
  • A societal cost is not factored in a pure free market model.
  • To alleviate this cost, some loss of efficiency in the market is necessary.
 
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