Minimum wage

West Point · Jun 19, 2004

Theres been alot of BS going around lately so in an effort to clean it up I thought i'd post something we can all hopefully have a non-heated debate over.

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=5459447

Kerry plans to raise the minimum wage. Ignore the fact that this is comeing from Kerry and lets hear your thoughts on minimum. Should it be raised? What effects will it have on our economy and why do you believe this?

I personally am not in favor of raising minimum wage. I only see it creating further inflation in our economy. However economics is not my specialty and I'm sure many of you out there know much more of it than I do.

danip · Jun 19, 2004

Raising the minimum wage looks great from the outside. Who doesn't want more money? I know I do. I did not pay much attention in high school economics, it bored me. I do remember something about raising the minimum wage having negative effects on the economy. I do not remember what they are, it has been awhile. But I also remember that they some positive effects to. It is something I would need to refresh my memory on.

cutelildeadbear · Jun 19, 2004

I don't know enough about it either to form a concrete opion on this matter. I do however know that making what I make per hour here, I cannot afford housing. Here, and many other places, you need to gross in one week what your rent will be in a month. For me that would be $380, therefore I could afford to pay $380 per month on rent/mortgage. Unfortunately, there is not one hole in this state for rent under $500 for an efficency apartment even. Renting used to be cheaper and easier than buying a house, now it costs the same amount and you have to go through just as much hassle proving your credit and income. It is as if there are no stepping stones anymore. You are either rich or you are poor. And they are making it very hard for those of us who are poor, to be anything but. Therefore, it is my opinion that something has to give. There need to be living wages in this country. I have no idea what effect it will have on the economy, but I know that it would help a whole lot of poor working people such as myself out, and it seems to me, the less homeless people we have out on the streets the better. But I know that is not how others view the situation.

I am very interested to see what others think though. This was a good question.

homebudz · Jun 19, 2004

This is a double edged sword.With cost of living prices continuing to rise,gas prices thru thr roof,people need more money to get by.This I believe to be already inflationary,wouldn't you agree?Then they raise the minimum wage to meet (somewhat)the rising prices-things get more expensive and once again we are right back where we started.A stable economy is what we're all looking for.This ain't gonna happen anytime soon because of the war.As I see it,as with the ending of the vietnam war,we will have a massive rate of inflation with the garrantied rise in gas prices with a shortage thrown in.Layoffs,a reduction in new home building etc.It's gonna take a long while to recover from what is coming.During those times,I worked two fulltime jobs to support my family.

Sera Michele · Jun 19, 2004

Raising minimum wage is a great idea. However, we probably need a more stable economy before doing something like that.

trotsky · Jun 19, 2004

We need to get rid of money or it will be the death of us all.

MaxPower · Jun 19, 2004

trotsky said:

We need to get rid of money or it will be the death of us all.
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Not suprising to hear that from you, judging by your name......

NCF145 · Jun 19, 2004

Originally posted by Trotsky: We need to get rid of money or it will be the death of us all.
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Great idea. No, no wait. It's actually a horrible idea.

GrievousAngel · Jun 19, 2004

It's a bad idea, even fast food workers get paid more than minimum wage. Only immigrants and hired on temp workers get paid that really, and with a hihger minimum wage more immmigrants with flood in.

trotsky · Jun 19, 2004

we should have no national boarders ether.

dhs · Jun 19, 2004

The main reason why raising the minimum wage causes inflation is that business owners need to raise their prices to continue to meet their margins. Personally, I feel that there needs to be better government programs to subsidize the poor. Greater aid to the poor will enable them to afford more things, such as educational offerings that will help them earn more money. What bothers me most is that is that the top 5% of the nation controls 95% of the wealth - this a trend that has been continuing to get worse throughout the last century. Higher taxes for the top 5% income bracket, better social aid programs and greater investment in education in this country is a far better solution than raising the minimum wage.

dotadave · Jun 20, 2004

West Point said:

I personally am not in favor of raising minimum wage. I only see it creating further inflation in our economy. However economics is not my specialty and I'm sure many of you out there know much more of it than I do.
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The paper I wrote on the issue, ignore the references to stupid shit I did in the class that I had to put in there as part of the asignment:

Urban Poverty is a growing cancer that we have left untreated for far too long. Jack Newfield in his Nation article, “How the Other Half Still Lives” wrote about how since the dawn of the 20th century little has changed. Poverty is dehumanized, segregated, and through the bourgeoisie domination of political and economic institutions there is currently a “class-warfare policy of shooting the wounded and looting the amputee” through tax cuts and corporate welfare. Newfield continues by saying that Inequality has only worsened with rising poverty and an increasing concentration of wealth in the hands of the few. “5% of Americans now own 60% of the countries wealth.” (Newfield) What has been going on for the past century?

In “Nickle and Dimed” Barbara Ehrenreich gave a narrative of her experiences trying to make ends meet while posing as a low wage worker. People that work harder than most of us experience being dehumanized while at the same time have difficulty making ends meet working full time. In her time as a waitress she met coworkers who lived in substandard housing, endured back breaking labor, were treated like children by their employers, and had no spare time for self-improvement so that they break free from the chains of poverty. (Ehrenreich) Indeed, “The other half” still has it as rough as ever.

For many though, the poverty and unemployment in the inner-city is taken for granted. As intelligent people are aware it is not simply a matter of “go get a job.” These people are the working poor. Those fools that say “get a job” do not see the inner city fast food places where the job market is much more competitive. Those suburbanites see only help wanted signs and under-staffed low wage jobs in their localities while in the inner-city, unemployment levels are fiendishly extreme. (Newman, 62-85)

“When Disneyland took applications after the Rodney King riot in South-Central Los Angeles, some six thousand neatly dressed young people-largely black and Latino-waited in line to apply…when a new Sharon hotel complex opened in Chicago, three thousand applicants spent the better part of the day in blowing snow, huddled along the north bank of the Chicago river, hoping for an interview.” (Newman, 63)

It is clear that we as concerned citizens must fight back. Yet the government ignores this tumor and so it becomes the responsibility of concerned citizens must take up the scalpel. But what should these active citizens fight for? Getting politicians to spend money on people who fail to donate to campaigns is hard. Sometimes though, the measures taken in the name of compromise can have far more bitter consequences than the worst of either extreme. In the fight to end poverty there are some well intentioned activists who fall into a trap. If the working poor who are able to land a job in a highly competitive market are continuing to fail to make ends meet than would not the simplest solution to urban poverty be to require their employers to pay them more? To use the rhetoric of conservatives, this would not require politicians to go on record as “redistributing the wealth” from the hands of their donors to easily demonized “welfare queens,” god forbid a democratic politician come across as “liberal.” While activists may easily triumph in the battle for minimum wages, the war against poverty is lost. Like using leaches to bleed a patient suffering from a fever, Minimum wages are a terribly ineffective and even counter productive treatment. If society has any interest in healing infected neighborhoods, it must spend money.

Any first year student of economics can explain the theory as to why price caps are a failure. In Principals of Macro-Economics Makiv explains that in economics there are two basic laws: The law of demand, which states that in general as the prices for a good goes down the quantity demanded goes up, and the law of supply which states that as the price a producer can get for a good goes up, the amount of goods he has an incentive to create goes up. When summarized in a graph, the intersection of these two curves, the supply curve and the demand curve is the market equilibrium. Various things can cause shifts in these two curves and by extension, shifts in the market equilibrium. A drought would decrease the supply of produce shifting the supply curve, and raising the market equilibrium price. Alternatively if the FDA released a report saying that eating produce takes 10 years off the life of a consumer the demand for produce would go down causing a shift in the demand curve and thus lowering the price of produce. (Mankiw, Chapter 4) Price floors, the book latter goes on to argue, disrupt this equilibrium. When the government decides to enact a price floor and that price floor prevents the hypothetical buyer, the employer, from reaching equilibrium with the hypothetical seller, the wage earner, and thus there is unemployment. (Mankiw, Chapter 4)

In their article “The Minimum Wage and Poverty Among Full-Time Workers” economists Vedder and Gallaway describe the “assumption of the proponents of mandated minimum wages” that

“the ‘income effect’ arising from higher worker compensation among those working would be greater than the ‘substitution effect’ arising from employers substituting other resources for labor as a consequence of the increased employee costs.”(41)

As they go on their article to show and as we have already seen, it is highly unlikely that this unfounded assumption is the case. There is simply not a concise supply and demand model to defend the effectiveness of minimum wage. (Vedder and Gallaway, 41-49)
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dotadave · Jun 20, 2004

More from the same paper I wrote

Theories are a great way of describing an abstract world in the most general of terms but they must prove true in the real concrete world with its grit and infinitely complex variables. To test this theory, liberal economists Card and Kruegar did an experiment where they studied the consequences of the state of New Jersey’s 1992 minimum wage hike using employment data. In response, conservative economists Neumark and Wascher used payroll data from business affected by the wage hike to study the consequences of minimum wage. Not surprisingly, the partisan pairs of economists found results that confirmed their original biases. However what we can learn from the studies is the concessions made by Card and Kruegar. They admitted only small gains in fighting poverty. (Vedder and Gallaway, 42) In Card and Kruegar’s response to Neumark and Washcher’s comment they conclude,

“The increase in New Jersey’s minimum wage probably had no effect on total employment…and possibly had a small positive effect. … because of frictions in the labor market a minimum wage increase can be expected to cause some firms to reduce employment and others to raise employment, with these two effects potentially canceling each other out if the rise in minimum wage is modest”(Card and Kruegar, 1419)

The last bit is important. Based on the thought experiment I helped conduct where my classmates and I created a budget for a hypothetical UCF custodian paid a very modest salary, one that was over minimum wage. We concluded that such a lifestyle was only sustainable if certain unrealistic concessions were made, such as not owning a car in a suburban area or not having children. Given that minimum wage does not come close to what could be considered a liveable salary and also given the fact that even staunch defenders of directing activist resources to raising the minimum wage concede that only modest minimum wages can overcome the substitution effect of price floors, how could one conclude that minimum wage is anything other than terribly ineffective tool? Raising the minimum wage to anything that wage earners could appreciate is certain to be destructive.

Furthermore, given these problems, it would be terribly easy to overshoot the point where the substitution effect is balanced out by the income effect and once the mark is overshot there is no going back. Few politicians would dare attempt to lower the minimum wage, causing unemployment. Unemployment as a result of the activism of well intentioned people could set the labor movement back to the point where a more effective redistributive strategy would be politically impossible.

Finally, the United States of America is a very diverse place. Just as mandatory minimum sentences are criticized for failing to account for variable circumstances, mandatory minimum wages cast a wide brush. Rural areas are not the same as urban areas. The cost of living in silicone valley is not the same as the cost of living in Jacksonville, Florida. Mandatory Minimum Wage hikes are not indexed to any economic indicator and can’t adjust themselves to the business cycle, which leads to chaotic and unpredictable effects for various regions of the country. Instead, Minimum wages require an act of congress to change and depending on a legislature to micro-manage how wages are tailored for individual neighborhoods at regular intervals is like expecting the census department to count crickets.

It is a shame that there is a movement in Florida of young, optimistic, labor activists by the name of ACORN wasting their precious resources in campaigning for a raise in the minimum wage, when such a policy could be destructive for their cause. They intend to bleed a patient suffering from a disease rather than giving them the right medicine. The evidence is clear that the tumor of urban poverty cannot be cured with minimum wages. Instead ACORN should be fighting for a policy that redistributes wealth to depressed neighborhoods, through subsidies and education dollars. Michael Lind, in his New Leader article “The Case for a Living Wage,” makes a claim so ridiculous it borders on being a satire, that there should be a living wage to create unemployment. However in supporting his claim he brings up the topic of the Earned Income Tax Credit, a subsidy for wage earners. Low wage earners get a matching tax credit for every dollar they earn on the job which is “refundable, meaning that the many working poor who pay no income tax receive money from the government.”(Lind) While Lind dismisses this solution, offering evidence of its effectiveness as a reason, this is the sort of strategy under which labor unions should be fighting as it has the potential to lift entire neighborhoods out of poverty.

ACORN and others fighting for labor rights should not fall into the ambush of compromise on the road to victory against poverty. Compromise solutions such as mandatory minimum wage are worse than doing nothing at all as it creates unemployment, casts a wide brush over a diverse nation, and once the compromise is made, there is no going back.
Card, David and Alan B. Kruegar “Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania: Reply” The American Economic Review 90.5 (2000) 1397-1420
Ehrenreich, Barbara “Nickel-and-Dimed” Harpers Magazine January (1999)
Lind, Micheal “The Case for a Living Wage” New Leader 84.5 (2001) 12-15. Academic Search Premier EBSCO. Webluis. U. Central Florida Lib., Orlando. 22 Mar 2003 <www.flca.edu>
Mankiw, N. Gregory. Principals of Macroeconomics: Second Edition Orlando: Harcourt College Publishers, 2001.
Newfield, Jack “How the Other Half Still Lives.” Nation 276.10 (2003) Academic Search Primer. EBSCO. Webluis. U. Central Florida Lib., Orlando. 22 March 2003 <www.flca.edu>
Newman, Katherine S. No Shame in My Game New York: Vintage Books, 2000
Neumark, David and William Wascher “Minimum Wages and Unemployment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment” American Economic Review 90.5 (2000): p1362-97
Vedder, Richard and Lowell Gallaway “The Minimum Wage and Poverty Among Full-Time Workers” Journal of Labor Research 23.1 (2002) 41-49
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sreed24 · Jun 21, 2004

Your resident professional economist here with a few comments:

The main worry about an increase in the minimum wage is not an increase in inflation but in unemployment. The basic idea is that if you force firms to pay more to unskilled workers they just won't find it profitable to hire them. This seems sensible enough to me; if you imagine yourself as a manager of a fast food joint you certainly might decide to get by with a smaller lunch staff if you were paying them $9.00 an hour than if you were paying them $5.50 However, evidence as to whether this is the case in practice as well as in theory is mixed; the Krueger-Card work cited above is one of the major studies. I don't think there is any broad consensus as to whether job losses from a higher minimum wage would be great enough to offset the benefits to the working poor.

Any inflationary effects of a higher minimum wage are probably trivial, unless we are talking a really big increase.

Also worth noting that a single nationwide minimum wage seems odd given the enormous disparities in cost of living and previaling wages in different parts of the country.

It is worth noting that the minimum wage is not indexed to inflation which means that the real minimum wage slowly falls over time as prices rise unless specific action is taken to raise it.

dotadave · Jun 21, 2004

sreed24 said:

Your resident professional economist here with a few comments:

The main worry about an increase in the minimum wage is not an increase in inflation but in unemployment. The basic idea is that if you force firms to pay more to unskilled workers they just won't find it profitable to hire them. This seems sensible enough to me; if you imagine yourself as a manager of a fast food joint you certainly might decide to get by with a smaller lunch staff if you were paying them $9.00 an hour than if you were paying them $5.50 However, evidence as to whether this is the case in practice as well as in theory is mixed; the Krueger-Card work cited above is one of the major studies. I don't think there is any broad consensus as to whether job losses from a higher minimum wage would be great enough to offset the benefits to the working poor.

Any inflationary effects of a higher minimum wage are probably trivial, unless we are talking a really big increase.

Also worth noting that a single nationwide minimum wage seems odd given the enormous disparities in cost of living and previaling wages in different parts of the country.

It is worth noting that the minimum wage is not indexed to inflation which means that the real minimum wage slowly falls over time as prices rise unless specific action is taken to raise it.
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Pretty much all the points I raised.

FunkyPhreshMama · Jun 21, 2004

it wold be nice to have minimum wage raised with all the people working for it that cant pay their bills or feed their kids but i am sure a lot of bad things wold happen because of it......... money wold soon have less worth to it and so on.........

dotadave · Jun 21, 2004

FunkyPhreshMama said:

it wold be nice to have minimum wage raised with all the people working for it that cant pay their bills or feed their kids but i am sure a lot of bad things wold happen because of it......... money wold soon have less worth to it and so on.........

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it wold be nice if you read and addressed the last two posts......

GrievousAngel · Jun 21, 2004

it would also be nice to use puncuation. It's your friend.

cutelildeadbear · Jun 22, 2004

Ok after having read all of the posts, I have only one question, why don't they raise minimum wage? It seemingly will not have as grave of an effect that everyone thinks it will, so why not bump it up there a little? *Sigh* Perhaps minimum wage is not the cause or the solution to the problem... but what is?

FunkyPhreshMama · Jun 22, 2004

stilanas said:

it wold be nice if you read and addressed the last two posts......

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ok so i cant comment on post ONE!!!!!!!!!!!!!!!!!!!!!!!!!!! obviously there is no free speech here if i cant give my opinion without being jumped on huh???????????????

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