The concise argument against minimum wage laws

[aociswundumho]

The claim from the left is that imposing a minimum wage law helps people at the bottom of the economic ladder.

Those of us on the right say it does the opposite - it harms people on the bottom. Here's the short version why:


Suppose you wanted to help people who own older, low-value cars by imposing a price floor law on cars which decrees that no car may be sold for less than $3000.

The law doesn't, and can't, change what anyone's car is worth in the market for cars. After the law is passed, a poor person who owns a car worth $2000 will not be able to legally sell his car, because no one will pay $3000 for a car that is only worth $2000. Hence any person who owns a car worth less than $3000 is made worse off by the law.

Now suppose you wanted to help people with low skill, low-value labor by imposing a price floor on labor (a minimum wage law), which decrees that no one may sell their labor for less than $15 per hour.

The law doesn't, and can't, change what anyone's labor is worth in the market for labor. After the law is passed, a poor person whose labor is only worth $12 per hour will not find any buyers, because no employer will pay $15 per hour for labor that is only worth $12 per hour. Any person whose labor is worth less than $15 per hour is made worse off by the law.


Mandating a minimum price for something doesn't (and can't) change how people actually value it.

 

[rickc]

The claim from the left is that imposing a minimum wage law helps people at the bottom of the economic ladder.

Those of us on the right say it does the opposite - it harms people on the bottom. Here's the short version why:


Suppose you wanted to help people who own older, low-value cars by imposing a price floor law on cars which decrees that no car may be sold for less than $3000.

The law doesn't, and can't, change what anyone's car is worth in the market for cars. After the law is passed, a poor person who owns a car worth $2000 will not be able to legally sell his car, because no one will pay $3000 for a car that is only worth $2000. Hence any person who owns a car worth less than $3000 is made worse off by the law.

Now suppose you wanted to help people with low skill, low-value labor by imposing a price floor on labor (a minimum wage law), which decrees that no one may sell their labor for less than $15 per hour.

The law doesn't, and can't, change what anyone's labor is worth in the market for labor. After the law is passed, a poor person whose labor is only worth $12 per hour will not find any buyers, because no employer will pay $15 per hour for labor that is only worth $12 per hour. Any person whose labor is worth less than $15 per hour is made worse off by the law.


Mandating a minimum price for something doesn't (and can't) change how people actually value it.

Labor is worth what the market will bear.

If you need Labor and the price is a minimum of $15 an hour you will pay the price or close the doors.

 

[j brown's body]

Theory is fine, and very big with libertarians (and communists) but do you have any facts that it hurts those at the bottom?

 

[Lethargic Aptitude]

The claim from the left is that imposing a minimum wage law helps people at the bottom of the economic ladder.

Those of us on the right say it does the opposite - it harms people on the bottom. Here's the short version why:


Suppose you wanted to help people who own older, low-value cars by imposing a price floor law on cars which decrees that no car may be sold for less than $3000.

The law doesn't, and can't, change what anyone's car is worth in the market for cars. After the law is passed, a poor person who owns a car worth $2000 will not be able to legally sell his car, because no one will pay $3000 for a car that is only worth $2000. Hence any person who owns a car worth less than $3000 is made worse off by the law.

Now suppose you wanted to help people with low skill, low-value labor by imposing a price floor on labor (a minimum wage law), which decrees that no one may sell their labor for less than $15 per hour.

The law doesn't, and can't, change what anyone's labor is worth in the market for labor. After the law is passed, a poor person whose labor is only worth $12 per hour will not find any buyers, because no employer will pay $15 per hour for labor that is only worth $12 per hour. Any person whose labor is worth less than $15 per hour is made worse off by the law.


Mandating a minimum price for something doesn't (and can't) change how people actually value it.

Low skill, low-value labor is worth at least 15 bucks an hour. Your argument is BS.

 

[danielpalos]

The law doesn't, and can't, change what anyone's labor is worth in the market for labor. After the law is passed, a poor person whose labor is only worth $12 per hour will not find any buyers, because no employer will pay $15 per hour for labor that is only worth $12 per hour. Any person whose labor is worth less than $15 per hour is made worse off by the law.


Mandating a minimum price for something doesn't (and can't) change how people actually value it.

That is a false analogy since the private sector is a price taker not a price maker regarding statutory costs. In this case, Government simply proclaiming the value of the minimum wage is simply a change in cost factor for business to evaluate for bottom line purposes. A form of price inflation for labor much like an other price inflation business must consider.

Why do right wingers complain when they could simply pass costs on to the consumer and who now has more money to create more demand (and pay more in taxes)?

 

[danielpalos]

Labor is worth what the market will bear.

If you need Labor and the price is a minimum of $15 an hour you will pay the price or close the doors.

Right wingers are being disingenuous and showing their true colors regarding their values. They always care more about the Profit over the People every time it comes up. Business can simply pass costs on to their consumers who already know the minimum wage was raised by the public sector.

 

[danielpalos]

Theory is fine, and very big with libertarians (and communists) but do you have any facts that it hurts those at the bottom?

Right wingers only complain when the Poor may benefit. The minimum wage was not increased for around a decade and inflation still happened, and businesses passed on those costs to the consumer.

 

[danielpalos]

Low skill, low-value labor is worth at least 15 bucks an hour. Your argument is BS.

Thank you. Only right wingers don't believe Labor should be able to afford our first world economy.

 

[Redress]

The claim from the left is that imposing a minimum wage law helps people at the bottom of the economic ladder.

Those of us on the right say it does the opposite - it harms people on the bottom. Here's the short version why:


Suppose you wanted to help people who own older, low-value cars by imposing a price floor law on cars which decrees that no car may be sold for less than $3000.

The law doesn't, and can't, change what anyone's car is worth in the market for cars. After the law is passed, a poor person who owns a car worth $2000 will not be able to legally sell his car, because no one will pay $3000 for a car that is only worth $2000. Hence any person who owns a car worth less than $3000 is made worse off by the law.

Now suppose you wanted to help people with low skill, low-value labor by imposing a price floor on labor (a minimum wage law), which decrees that no one may sell their labor for less than $15 per hour.

The law doesn't, and can't, change what anyone's labor is worth in the market for labor. After the law is passed, a poor person whose labor is only worth $12 per hour will not find any buyers, because no employer will pay $15 per hour for labor that is only worth $12 per hour. Any person whose labor is worth less than $15 per hour is made worse off by the law.


Mandating a minimum price for something doesn't (and can't) change how people actually value it.

While I feel that the arguments for a minimum wage increase outweigh the arguments against, there are legitimate arguments against a minimum wage increase. Yours is not one of them. You make the false assumption that labor value is set in stone and does not change. That is false. Labor value is always changing. I am going to, for the fun of it since I have a bit of time to kill this morning, walk you through some of what would actually happen if the federal minimum wage increased to 15 dollars an hour. The numbers are made up and intended to be illustrative, not exact.

Let's look at a McDonalds. For simple numbers, we will assume a McDonalds spends 1 million in labor, and that is 50 % of costs(again, made up numbers, chosen simply to be easy to work with...other numbers will work similarly). Going to 15 dollars an hour would a little less than double the cost of labor for them, raising labor costs to 2 million, and total costs to 3 million(actually significantly less, for complex reasons). To maintain their profit margin they will take a number of actions(those complex reasons I mentioned) including squeezing suppliers, looking for efficiencies, reducing the number of laborers, and largest of all, increasing the price of the product they sell. If we do not count anything but the cost increase(this gives the strongest argument against a minimum wage increase, the reality would be somewhat less), we see that McDs would have to raise costs by about a third. This shows you that, for those making less than minimum wage, their wages raise more than their costs to buy products.

Now, to leave McDs, the overall effect is to shift wages overall higher. There is a ripple effect, as for example places that pay more than minimum wage do so to attract better employees, so with the minimum wage increasing, they will raise wages too. And one of the oversimplifications is assuming all labor at McDs was at minimum wage, which is not true. Those not at minimum wage would get somewhat smaller raises. You will see an increase in the cost of products and services, but it would be relatively modest(there are a number of historical examples). The result would be some inflation as the economy heads towards the new equilibrium. This would also provide a spike to GDP growth and government revenue, a reduction in the amount the government spends on welfare programs, and a reduction of the drag the debt has on the economy(among many other effects). Negatively, you would see a short term increase in unemployment.

The biggest effect you would see is a large percentage of people seeing an increase in spending power. This is good for business, as the more people to have to spend on goods and services, the more demand there is for those goods and services. Like any change, there are significant pluses and minuses, but to my mind, the pluses are much bigger than the minuses in raising the minimum wage. I am not sure 15 an hour is the right amount(I am a big fan of incremental change), but I do support a raise in the federal minimum wage.

 

[ttwtt78640]

Labor is worth what the market will bear.

If you need Labor and the price is a minimum of $15 an hour you will pay the price or close the doors.

There is a middle ground here - the employer could simply elect to employ that laborer for fewer hours and/or automate. That still (potentially) leaves the ‘qualified’ laborer dependent on “safety net” assistance.

 

[Allan]

While I feel that the arguments for a minimum wage increase outweigh the arguments against, there are legitimate arguments against a minimum wage increase. Yours is not one of them. You make the false assumption that labor value is set in stone and does not change. That is false. Labor value is always changing. I am going to, for the fun of it since I have a bit of time to kill this morning, walk you through some of what would actually happen if the federal minimum wage increased to 15 dollars an hour. The numbers are made up and intended to be illustrative, not exact.

Let's look at a McDonalds. For simple numbers, we will assume a McDonalds spends 1 million in labor, and that is 50 % of costs(again, made up numbers, chosen simply to be easy to work with...other numbers will work similarly). Going to 15 dollars an hour would a little less than double the cost of labor for them, raising labor costs to 2 million, and total costs to 3 million(actually significantly less, for complex reasons). To maintain their profit margin they will take a number of actions(those complex reasons I mentioned) including squeezing suppliers, looking for efficiencies, reducing the number of laborers, and largest of all, increasing the price of the product they sell. If we do not count anything but the cost increase(this gives the strongest argument against a minimum wage increase, the reality would be somewhat less), we see that McDs would have to raise costs by about a third. This shows you that, for those making less than minimum wage, their wages raise more than their costs to buy products.

Now, to leave McDs, the overall effect is to shift wages overall higher. There is a ripple effect, as for example places that pay more than minimum wage do so to attract better employees, so with the minimum wage increasing, they will raise wages too. And one of the oversimplifications is assuming all labor at McDs was at minimum wage, which is not true. Those not at minimum wage would get somewhat smaller raises. You will see an increase in the cost of products and services, but it would be relatively modest(there are a number of historical examples). The result would be some inflation as the economy heads towards the new equilibrium. This would also provide a spike to GDP growth and government revenue, a reduction in the amount the government spends on welfare programs, and a reduction of the drag the debt has on the economy(among many other effects). Negatively, you would see a short term increase in unemployment.

The biggest effect you would see is a large percentage of people seeing an increase in spending power. This is good for business, as the more people to have to spend on goods and services, the more demand there is for those goods and services. Like any change, there are significant pluses and minuses, but to my mind, the pluses are much bigger than the minuses in raising the minimum wage. I am not sure 15 an hour is the right amount(I am a big fan of incremental change), but I do support a raise in the federal minimum wage.

Very good summary and at least one of your numbers was almost spot on - the cost of labour in a Big Mac is 45%.

McDonald's has already dealt with this in places in Europe and Australia where they pay more for starting wages. They responded much the way you enumerated but they are also more efficient. Their employee productivity is better than in North America and they use technology to further improve that. For example ordering touch screens were developed in Europe to improve efficiency.

 

[ttwtt78640]

Very good summary and at least one of your numbers was almost spot on - the cost of labour in a Big Mac is 45%.

McDonald's has already dealt with this in places in Europe and Australia where they pay more for starting wages. They responded much the way you enumerated but they are also more efficient. Their employee productivity is better than in North America and they use technology to further improve that. For example ordering touch screens were developed in Europe to improve efficiency.

That (45%) measures only the direct labor costs at the McRestaurant - the embedded cost of labor in each McIngredient also increases. The expectation that McWorker efficiency would increase likely meant that fewer of the less efficient McWorkers retained their McJobs (or suffered cuts in their scheduled hours).

 

[Allan]

That (45%) measures only the direct labor costs at the McRestaurant - the embedded cost of labor in each McIngredient also increases. The expectation that McWorker efficiency would increase likely meant that fewer of the less efficient McWorkers retained their McJobs (or suffered cuts in their scheduled hours).

I think you're right about that but for the purposes of this discussion only the McRestaurant worker's labour cost is relevant. The workers at the McMeat packing plant would be at a higher wage already so the cost of the ingredients they produce would not rise.

 

[Redress]

There is a middle ground here - the employer could simply elect to employ that laborer for fewer hours and/or automate. That still (potentially) leaves the ‘qualified’ laborer dependent on “safety net” assistance.

That would happen to an extent, but is somewhat mitigated by two things. One is that there is a certain minimum amount of labor required, and secondly is that people have more money to spend on the businesses goods or services, increasing demand, which requires then more labor. There are literally a ton of variables that make it near impossible to figure in advance the exact effect on any business. A few years ago, I had a wonderful debate with another poster here upon the CBO releasing a report on the effects of raising the minimum wage. One of the noteworthy things os that the large range of possible outcomes of one of the possible increases in minimum wage included an increase to employment, driven by that increased demand.

 

[Redress]

That (45%) measures only the direct labor costs at the McRestaurant - the embedded cost of labor in each McIngredient also increases. The expectation that McWorker efficiency would increase likely meant that fewer of the less efficient McWorkers retained their McJobs (or suffered cuts in their scheduled hours).

One nice thing McDs has going for them is the amount they buy from their suppliers. McDs would push them to lower costs. I spent several years working at a tier 1 auto supplier(we sold directly to GM/Ford/etc parts for new cars). When the economic downturn happened in 2001, those suppliers responded by telling us we either lowered costs per part, or they would find another supplier.

 

[Redress]

Very good summary and at least one of your numbers was almost spot on - the cost of labour in a Big Mac is 45%.

McDonald's has already dealt with this in places in Europe and Australia where they pay more for starting wages. They responded much the way you enumerated but they are also more efficient. Their employee productivity is better than in North America and they use technology to further improve that. For example ordering touch screens were developed in Europe to improve efficiency.

Yeah, those are some of the efficiencies I was talking about. It gets really complicated, and for the meta view, the best way to see the results is to look at what has happened historically.

 

[trouble13]

That is a false analogy since the private sector is a price taker not a price maker regarding statutory costs. In this case, Government simply proclaiming the value of the minimum wage is simply a change in cost factor for business to evaluate for bottom line purposes. A form of price inflation for labor much like an other price inflation business must consider.

Why do right wingers complain when they could simply pass costs on to the consumer and who now has more money to create more demand (and pay more in taxes)?

This is actually pretty close to being correct. In the long term its a lateral move. Once things become more expensive, those people who earn minimum wage are right back to where they started 0n spending power. The people who get hurt the most are those living on fixed incomes.

 

[noonereal]

The claim from the left is that imposing a minimum wage law helps people at the bottom of the economic ladder.

Those of us on the right say it does the opposite - it harms people on the bottom. Here's the short version why:


Suppose you wanted to help people who own older, low-value cars by imposing a price floor law on cars which decrees that no car may be sold for less than $3000.

The law doesn't, and can't, change what anyone's car is worth in the market for cars. After the law is passed, a poor person who owns a car worth $2000 will not be able to legally sell his car, because no one will pay $3000 for a car that is only worth $2000. Hence any person who owns a car worth less than $3000 is made worse off by the law.

Now suppose you wanted to help people with low skill, low-value labor by imposing a price floor on labor (a minimum wage law), which decrees that no one may sell their labor for less than $15 per hour.

The law doesn't, and can't, change what anyone's labor is worth in the market for labor. After the law is passed, a poor person whose labor is only worth $12 per hour will not find any buyers, because no employer will pay $15 per hour for labor that is only worth $12 per hour. Any person whose labor is worth less than $15 per hour is made worse off by the law.


Mandating a minimum price for something doesn't (and can't) change how people actually value it.

Dumb post.

Peace

 

[trouble13]

While I feel that the arguments for a minimum wage increase outweigh the arguments against, there are legitimate arguments against a minimum wage increase. Yours is not one of them. You make the false assumption that labor value is set in stone and does not change. That is false. Labor value is always changing. I am going to, for the fun of it since I have a bit of time to kill this morning, walk you through some of what would actually happen if the federal minimum wage increased to 15 dollars an hour. The numbers are made up and intended to be illustrative, not exact.

Let's look at a McDonalds. For simple numbers, we will assume a McDonalds spends 1 million in labor, and that is 50 % of costs(again, made up numbers, chosen simply to be easy to work with...other numbers will work similarly). Going to 15 dollars an hour would a little less than double the cost of labor for them, raising labor costs to 2 million, and total costs to 3 million(actually significantly less, for complex reasons). To maintain their profit margin they will take a number of actions(those complex reasons I mentioned) including squeezing suppliers, looking for efficiencies, reducing the number of laborers, and largest of all, increasing the price of the product they sell. If we do not count anything but the cost increase(this gives the strongest argument against a minimum wage increase, the reality would be somewhat less), we see that McDs would have to raise costs by about a third. This shows you that, for those making less than minimum wage, their wages raise more than their costs to buy products.

Now, to leave McDs, the overall effect is to shift wages overall higher. There is a ripple effect, as for example places that pay more than minimum wage do so to attract better employees, so with the minimum wage increasing, they will raise wages too. And one of the oversimplifications is assuming all labor at McDs was at minimum wage, which is not true. Those not at minimum wage would get somewhat smaller raises. You will see an increase in the cost of products and services, but it would be relatively modest(there are a number of historical examples). The result would be some inflation as the economy heads towards the new equilibrium. This would also provide a spike to GDP growth and government revenue, a reduction in the amount the government spends on welfare programs, and a reduction of the drag the debt has on the economy(among many other effects). Negatively, you would see a short term increase in unemployment.

The biggest effect you would see is a large percentage of people seeing an increase in spending power. This is good for business, as the more people to have to spend on goods and services, the more demand there is for those goods and services. Like any change, there are significant pluses and minuses, but to my mind, the pluses are much bigger than the minuses in raising the minimum wage. I am not sure 15 an hour is the right amount(I am a big fan of incremental change), but I do support a raise in the federal minimum wage.

What is the argument for not raising it to 50 instead of 15?

 

[ttwtt78640]

I think you're right about that but for the purposes of this discussion only the McRestaurant worker's labour cost is relevant. The workers at the McMeat packing plant would be at a higher wage already so the cost of the ingredients they produce would not rise.

They are still going to expect a raise simply because their higher pay (relative to that of a McWorker) is the primary reason they are now working at that meat packing plant - instead of competing to become McWorkers themselves. This (and, of course, “safety net” benefit eligibility) is why many positions have become ‘jobs that citizens will no longer do’.

 

[Allan]

They are still going to expect a raise simply because their higher pay (relative to that of a McWorker) is the primary reason they are now working at that meat packing plant - instead of competing to become McWorkers themselves. This (and, of course, “safety net” benefit eligibility) is why many positions have become ‘jobs that citizens will no longer do’.

I'm not sure that's true. I never expected a bump when the lowest wages went up. But is there any evidence that happens - that a minimum wage increase drives higher wage earners up?

 

[ttwtt78640]

That would happen to an extent, but is somewhat mitigated by two things. One is that there is a certain minimum amount of labor required, and secondly is that people have more money to spend on the businesses goods or services, increasing demand, which requires then more labor. There are literally a ton of variables that make it near impossible to figure in advance the exact effect on any business. A few years ago, I had a wonderful debate with another poster here upon the CBO releasing a report on the effects of raising the minimum wage. One of the noteworthy things os that the large range of possible outcomes of one of the possible increases in minimum wage included an increase to employment, driven by that increased demand.

That increased demand is not universal, since retirees, the disabled and others no longer working (as much) will not remain customers (at least to the extent that they were prior to the required price increase). BTW, why only $15/hour instead of making the MW $25/hour or perhaps $50/hour to ‘super-charge’ that alleged employment and demand increase?

 

[Luce]

That increased demand is not universal, since retirees, the disabled and others no longer working (as much) will not remain customers (at least to the extent that they were prior to the required price increase). BTW, why only $15/hour instead of making the MW $25/hour or perhaps $50/hour to ‘super-charge’ that alleged employment and demand increase?

Please demonstrate any prior inflation linked to minimum wage increases. I'll wait.

 

[ttwtt78640]

One nice thing McDs has going for them is the amount they buy from their suppliers. McDs would push them to lower costs. I spent several years working at a tier 1 auto supplier(we sold directly to GM/Ford/etc parts for new cars). When the economic downturn happened in 2001, those suppliers responded by telling us we either lowered costs per part, or they would find another supplier.

Yep, and that new supplier may well be in a foreign country. China would love to see US labor (and environmental “green” compliance) costs increase.

 

[ttwtt78640]

I'm not sure that's true. I never expected a bump when the lowest wages went up. But is there any evidence that happens - that a minimum wage increase drives higher wage earners up?

Yep, just look at any employment site. Who is going to prefer working a golf course maintenance or construction labor job if being a burger flipper, Walmart greeter or cart fetcher pays the same wage?