Minimum Wage Hike?

[market state]

The Democrats, after winning the Midterm Elections, have promised within the first 100 hours of their new reign to raise the minimum wage. Is this sound policy?

In their defense, Democrats and their apologists have called upon sympathy for the laboring man and the widespread belief in America that anyone who works has a "right" to a "decent" wage.

To counter, proponents of economic liberty have called on philosophy (based on freedom of contract) and on practicality. Practically, they contend, the minimum wage hurts those it seeks to aid, by making it economically unviable for employers to hire anyone below the artificially mandated wage level. Most economists agree that an increased minimum wage leads to greater unemployment (see NHU's Survey Center).

What is ODN's consensus?

[CliveStaples]

Of course it isn't sound policy. It's a price floor, and it discriminates against the very people it is intended to help: unskilled workers.

Those whose labor is worth only the present minimum wage will have to become more productive or recieve worse compensation in order to justify employment at the higher wage. Better to just raise the EITC; it achieves the intended ends of minimum wage legislation without putting people out of work. It puts the same earned money in their pocket.

Of course, I don't think that the people in Washington, D.C., really give a rat's ass about any of that. They do it to get the votes of the poor, who are only ever told in public schools and by the media that minimum wage legislation is Awesome!, and the votes of the Unions.

[Dr. Gonzo]

Well while I am sure many of the bleeding hearts on this forum and economically ignorant people will support the illegalization of labor...there is almost total agreement within the economics profession that minimum wage simply causes unemployment to those marginal workers.

If you want to put low skilled workers out of a job, then you should support minimum wage restrictive legislation.

[Kaizen]

The simple fact is that this is a dead issue in the realm of economics. However, there are plenty of politically motivated people willing to revisit this detrimental issue for the sake of looking like they care.

[invictus33]

As a person on another forum I visit says, you can easily point out the absurdity invovled with raising minimum wages by asking, "If $5 an hour is good, then wouldn't $50 an hour be great!!1!" Making arbitrary changes to the economy almost always ends in very poor manner; which then is wrongly blamed on capitalism. Go figure.

[Stealth]

Wages are set not by firms, but by productivity, as the following thought experiment will demonstrate:
Suppose I own an cabbage farm, and a firm selling cabbages. For each worker I hire, I get an additional five dollars an hour in productivity from my farm. I cannot hire workers for over five dollars an hour at my farm. If I do, I will lose productivity on each worker I hire. That will force me either to raise prices in an uncompetitive way, or to make less than profit. Either is a recipe for disaster. So, I must hire workers at less than five dollars an hour, in order to ensure that I make a productivity profit on them. So why not hire my workers at one dollar an hour? I will gain a four dollar an hour productivity profit per hour.
But suppose you also own an cabbage farm. Seeing that I am paying my cabbage pickers one dollar an hour, you will find it in your interests to pay your own workers two dollars an hour. You will make a three dollar per hour productivity profit on each cabbage picker, and, since pickers will be far more willing to work for you than for me, you will be able to choose only the most productive cabbage pickers. If you have only the most productive pickers, you may even be able to raise your productivity per worker, per hour, to six dollars. That way, you can pay your workers more, make a higher productivity rate on each one, and cut prices at the cabbage stand. It won’t be long before this spells doom for my own orchard! Which is why it is in my interest to raise wages to three dollars an hour for each cabbage picker.
And so on. This bidding war will end only when each of us is paying our workers close enough to productivity that we cannot raise our wages again, at any real amount, without making a productivity per hour profit of zero or less.
This is why Peyton Manning makes millions of dollars. Since he is paid unusually high, even for a football player, we can conclude that his pay is not the result of his membership in the NFL player’s union. Rather, it is his productivity. Peyton Manning is not the only man who can play quarterback, but almost no man can play quarterback like he does. Mr. Manning’s performance can fill a stadium.
Those who argue for the minimum wage must implicitly accept that productivity and wages are not linked. If they accepted a link, they would have to accept that a firm that paid its employees in such a way as they posit would not long survive. So, consider the logical implications of their argument. If, in fact, wages and productivity are not linked, it follows that we should all be getting paid the bare legal minimum. Every single job ought to be a minimum wage job, since firms can afford to pay their workers vastly below productivity, blocked from paying them peanuts only by a government-enforced minimum. However, only young, entry level, highly unproductive workers are usually making the bare legal minimumThis is because a firm cannot pay workers under productivity and remain competitive. So then, a minimum wage is unnecessary. This explanation accounts for why, during the Industrial Revolution, England’s poorest 60% saw a real wage increase of over 70%

[Dr. Gonzo]

Awesome...

First time anyone has mentioned marginal productivity on this board...

But you're exactly right...wages are determined by the marginal productivity of labor...something anyone who had a strong belief in the existence of reality would be able to grasp.

The marginal revolution comes in about 1871 with Carl Menger publishing his Principles of Economics in Austria. Although Jevons and Walras both came do the same basic conclusion, they did so mathematically. Which is why Menger is the person who was following in the proto-praxeologic tradition of people like Cantillon and Turgot (as well as the late Spanish Scholastics).

Anyway...magical things happen when you apply Menger's theory to various aspects of economic study.

As we have seen you can apply it to productivity to understand how prices are set (although I'm more in favor of using supply and demand and showing how price floors create surpluses, in this case unemployment surpluses). But Mises also applies the theory in his groundbreaking book the Theory of Money and Credit (1912). He basically applies marginal utility to money and accurately notes the causes and cures for the Business cycle. Hayek wins the nobel prize that Mises deserves.

But yeah.

Don't expect a response to economic logic.

[CliveStaples]

Hayek wins the nobel prize that Mises deserves.

I had thought Hayek got his prize for his theories on price mechanism and unwritten laws that guide individual choice.

[Stealth]

He essentially got it because they wanted to give the prize to an Austrian, but couldn't swallow their pride quite enough to give it to Mises.

[Dr. Gonzo]

No he won it for his work on the business cycle with Mises...actually he won it with this fagbag socialist from the Stockholm School Gunnar Myrdal (I think that's how you spell it).

The Austrian Business Cycle theory was the only one to accurately explain the stagflation of the early 70s.

An interesting little story about Hayek.

He writes this FANTASTIC critique of KKKeynes' Treatise on Money (1930) in the London Economica. Everyone was like. Wow this Keynes guy is an ignorant douche bag...and Keynes was like ****...the **** I have to say is just retarded. And everyone continued being Miseseans.

So he goes back to the drawing board (because you can hardly call what he did writing) and writes his even shitter General Theory.

Hayek is like. **** didn't this douche bag have enough. He just didn't have the patience to pull a Hazlitt and write a page by page critique of Keynes.

So he doesn't refute Keynes general theory 1936 and the rest you could say is economic history.

(BTW if anyone wants Hayek's critique I'd be more than happy to send it)

[KevinBrowning]

A minimum wage is acceptable if it is truly a minimum. Once the wage floor is set beyond a certain point, unemployment will increase exponentially. I hope the Democrats have used caution in their calculations in adjusting for inflation, rather than raising it excessively as a quick, popular concrete legislative act. Certainly the Democrats in several California cities have abandoned all economic principles for the sake of being perceived as socially compassionate, raising the minimum wage past $10.

[Meng Bomin]

This is one of the main turn offs of the Democratic Party for me and an illustration of where democratic systems are a bit weak. As just about everyone who has posted in this thread has noted, minimum wages are not good for the economy. They create an artificial price floor that decreases efficiency and increases unemployment. However, to the average non-economically educated menial wage worker, a minimum wage increase sounds GREAT! So, such individuals are more likely to vote for officials that propose such measures, unaware of the fact that such measures actually make it harder for them to get and hold onto their current job.

[Dr. Gonzo]

A minimum wage is acceptable if it is truly a minimum. Once the wage floor is set beyond a certain point, unemployment will increase exponentially. I hope the Democrats have used caution in their calculations in adjusting for inflation, rather than raising it excessively as a quick, popular concrete legislative act. Certainly the Democrats in several California cities have abandoned all economic principles for the sake of being perceived as socially compassionate, raising the minimum wage past $10.

Duh...I mean I'm not opposed to a minimum wage of 10 cents...at least economically. This is because ten cents is way below the natural wage rate.

The other extreme to show the idiocy of the Democrat's position would be to raise the minimum wage to 1000 dollars an hour. What would happen? Unemployment.

But you can have as much unemployment as you are willing to pay for.

[MindTrap028]

Maybe Republicans should introduce a bill, making the Min wage $50. an hour.
Then the Dems would have to argue against it. That could be fun. Of course, I wouldn't want to chance it. The Dem's might actually pass it, then we would all be screwed.