Cafe Hayek - Latest Comments in Testing the Logic of Minimum-Wage Legislation

Re: Testing the Logic of Minimum-Wage Legislation

Daniel — Thu, 22 Jun 2006 07:10:33 -0000

About a year and a half ago I heard a preacher preach that there should be a maximum wage as well as a minimum wage. He was preaching about Micah 6:8 ("and what does the Lord require of you? To act justly, love mercy, and walk humbly with your God") and his examples were buy fair trade coffee, don't shop at at Wal-Mart, and the maximum wage. It took a lot of energy to be polite and not walk out or shout out what an idiot he was.

Most of the people I can think of off the top of my head who make salaries of a million or more are athletes and movie stars. While I personally question whether Tom Cruise, et al are worth the salaries they get, and wonder if ticket prices would be reduced if such a law was in place, I'm glad they have every right to negotiate whatever salary they can.

If a maximum wage law went into effect, would it be based on total annual earnings or per employer. Would LeBron James, for example, be limited to a total income of $1 million, or would the NBA, Nike, Coca-cola, etc. each be allowed to pay him $1 million?

I'm sure those bumping up against the ceiling would find loopholes, just as you still find people a the lower end of the spectrum wanting to receive cash or a check made out to cash in order to avoid taxes -- or to save the employer from paying taxes.

When one looks at the Forbes 400 list of the richest people, there's no one (or at least very few) that work for a salary. Those that have inherited wealth are also a minority. Most of the wealthiest people have created wealth by starting businesses.

Re: Testing the Logic of Minimum-Wage Legislation

Daniel — Thu, 22 Jun 2006 06:47:24 -0000

Wasn't there an article back in 84 or 85 that concluded that companies tend to pay higher wages because they want to have a larger pool of applicants? This is in opposition to Marx's reserve army of unemployed, where firms keep wages low. Has this paper been discredited?

On this blog on another one, in past debates on this subject, someone presented the evidence that show that the number of workers working at the minimum wage rate increases everytime the the minimum wage rate increases. I believe the conclusion of the poster was that this shows that the minimum wage increases do the opposite of what those opposed to minimum wage increases argue, namely that employment increases (not decreases) with minimum wage increases. I would argue that the data captures those that had been paid above the old minimum wage that are now making the minimum wage. Further, when examining the trend over time, the number of people working at the minimum wage as been decreasing. Which suggests that the minimum wage legislation lags behind instead of leads the employment market.

Re: Testing the Logic of Minimum-Wage Legislation

bbartlog — Thu, 22 Jun 2006 06:42:39 -0000

Pertz -

in order for your example to work, you have to assume that the low-wage workers spend *all* their money on the output of employers of low-wage workers, *and* that the costs of the things they buy consist entirely of the cost of their own labor. In other words, it doesn't work. To the extent that some of the inputs to the things the low-wage workers consume consist of either capital or the labor of workers whose wages are not significantly changed, they will be able to buy more.

I still agree about the vouchers and/or negative income tax being a better plan, though. If you're going to redistribute money to the poor, better to do it explicitly, not through some inefficient program with disparate and unpredictable effects.

Re: Testing the Logic of Minimum-Wage Legislation

liberty — Thu, 22 Jun 2006 05:10:04 -0000

>The EITC and vouchers are greatly superior mechanisms to help the working poor.

Actually... welfare (EITC) tends to be just as bad, if not as obvious sometimes. Notice how 1994 welfare reforms reduced poverty by kicking people off the rolls. EITC is somewhat of an improvement over other welfares, but they tend to drag down wages on the lower end of the wage scale and cause unemployment. The combination of welfare and a minimum wage makes this all even worse.

>THe other thing to consider is the demographics of the minimum wage earners. Here in Michigan,(I don't have the stats in front of me today)

Here are the overall demographics and stats on who the min wage earners tend to be:

http://www.bls.gov/cps/minw...

Re: Testing the Logic of Minimum-Wage Legislation

David z — Thu, 22 Jun 2006 04:58:30 -0000

THe other thing to consider is the demographics of the minimum wage earners. Here in Michigan,(I don't have the stats in front of me today) it's something like 1% of the population, more than half of whom are second wage earners in their respective family units. Only something like 1/8 of the 1% are actually, as the argument goes, trying to raise a family on it. And they qualify for assloads of government subsidization.

Re: Testing the Logic of Minimum-Wage Legislation

James Pyrich — Thu, 22 Jun 2006 04:32:33 -0000

Er, I constructed a sentence rather poorly. It should have read: "Sure, they're still poor in comparison to our richest, but consider that our poor generally have food, have housing, have transportation, have jobs!"

Re: Testing the Logic of Minimum-Wage Legislation

James Pyrich — Thu, 22 Jun 2006 04:31:17 -0000

Trumpit:

It is unfortunate that you have to resort to insults rather than mounting a specific argument.

It's not a question of "feeling sorry" for somebody. That's a pretty poor reason for making a law. Laws should only be made to benefit the jurisdiction.

The question we are examining is if minimum wage laws actually benefit people. We measure the benefits in dollars and cents because that is what is proposed we modify.

Your opinion that we should institute a maximum wage is substituting a smaller error for a far greater one. You are allowing your apparent hatred of prosperity to overwhelm your capacity for rational thought.

Let me put it this way: if we had a maximum wage law at any point in our history, our poorest wouldn't be as well off as they are. Sure, they're still poor in comparison to our richest, but consider that our poor generally do not starve, have housing, have transportation, have jobs! And there really isn't anything stopping a poor person from coming up with the next multi-million dollar idea--only their own ambition and ingenuity.

Re: Testing the Logic of Minimum-Wage Legislation

Trumpit — Wed, 21 Jun 2006 20:37:20 -0000

Why do you feel sorry for the person who "only" makes $1,000,000 per year, yet feel no remorse for the poor slob who is paid $1.00 or less an hour without any other benefits? Have you no heart, no soul, no compassion whatsoever? Now I understand why libertarianism is made up of mostly adolescent males or those guys who never outgrew adolescence. Perhaps an MRI of your brains will reveal the missing, underdeveloped or damaged area. Fetal stem cells may help someday.

Re: Testing the Logic of Minimum-Wage Legislation

Kevin — Wed, 21 Jun 2006 20:08:48 -0000

Well, as I always say, you're NOT SUPPOSED to be able to make a living on the minimum wage; if you could, there'd be no incentive for many people to pick up a useful skill.

A corollary: next time you go to McDonalds, take a good look at the vacant-eyed person fumbling over the custom-made idiot-proof cash register. Uh, you really THINK that person deserves $12 an hour?

But if you do insist on passing minimum-rewards laws in life, can you at least pass one that gives me a Dallas Cowboys Cheerleader?

Re: Testing the Logic of Minimum-Wage Legislation

John Pertz — Wed, 21 Jun 2006 19:48:45 -0000

bbartlog said:

"

your argument that wage increases across the board will simply be cancelled out by a corresponding inflation in prices assumes that all wages will be increased. We would expect that only wages at the lower end of the scale would see a measurable effect, so the inflationary effect should actually be small. So I don't think this in itself is 'an extremely damaging argument'."

My point exactly. If the the corresponding wage increase is small, for the sake of example lets say 6.15 to 6.50, then the inflationary effect should be small. So the worker now has slightly increased pay and he gets to go take those dollars and purchase goods and services in a slightly more expensive market. In fact lets get really nuanced with this arugment. Lets assume zero labor displacemnt and lets agree that min. wage workers have inelastic demand for goods such as food, clothing, and toiltries. The purveryors of such goods and services, i.e Walmart, usualy employ low end or min wage labor. So now the min wage workers with their extra dollars have to go out and buy cheep essentials from stores who probably employ low wage labor and are forced to raise prices in response to the increase of the min. wage. I think we are getting the point arent we? Even if there is zero labor displacement, the argument that the min wage is socialy optimal should strike us as specious at best. If your true desire is to improve the lives of the downtroden through government intervention then there are a hundred other mechanisms that could improve their lives above and beyond a min. wage increase. The EITC and vouchers are greatly superior mechanisms to help the working poor.

Re: Testing the Logic of Minimum-Wage Legislation

Tiberius — Wed, 21 Jun 2006 19:23:16 -0000

Although I concur with the conclusion, I disagree with the analogy. If a person owns a car, wants to sell the car, but can't sell the car by law for less then $25,000, and consequently doens't sell the car then that person is stuck with a car. However, the revenues produced from the hypothetical sale of the are not intrinsic to the livelihood of the person. The person, who although must maintain a product of value, but that has insufficient value still has the option to enter the market and see their labor for a fee to maintain their livelihood. The sale or no sale of the vehicle plays only an indirect role in their livelihood and if they cannot sell the vehicle then they are not screwed because they are not dependent on those revenues, not to mention the person who sells the vehicle could be rich or poor, therefore marginalizing the percentage of people the minimum wage would target. On the other hand a rise in the minimum wage would improve the livelihood of a select few (although a greater number would probably be forced to exit the market, become dependent on welfare, and increase government spending and wealth distribution, thus killing more jobs!. Therefore, the difference between placing rules in regards to a minimum wage and the price of a vehicle is different in the sense of dependence that the former helps some and the latter helps none. Although if we are concerned with the "all" a minimum wage is bad policy.

Re: Testing the Logic of Minimum-Wage Legislation

liberty — Wed, 21 Jun 2006 19:08:37 -0000

>Why wouldn't people enjoy the congratulations, & adulations to be received by giving the excess away to worthy causes? Be happy and take your $1,000,000 to the bank!

And don't invent anything new; don't work harder; take competition out of successful industry; warp price signals; destroy patenting; kill the stock market, etc etc etc.

What you are missing is all of the effects other than the immediate. When a stone falls into the water, it doesn't create just one ring.

Re: Testing the Logic of Minimum-Wage Legislation

liberty — Wed, 21 Jun 2006 19:05:42 -0000

>that's what the feds say they will take as rent for section 8 housing, who do you think will rent to section 8 tenants for less?

Another brilliant government waste. How sad.

Re: Testing the Logic of Minimum-Wage Legislation

liberty — Wed, 21 Jun 2006 19:04:22 -0000

>I would happily rescind all minimum wage laws if a maximum wage law were instituted. Let's say that nobody can keep more than a million dollars of their yearly income.

Excellent incentive scheme! Great way to ensure no more Microsofts of any sort; no Apple, no IBM, no Hewlett Packard, no Pfizer, no new technology.

Excellent way to ensure stagflation. Welcome home, Jimmy Carter. Welcome home to France.

Re: Testing the Logic of Minimum-Wage Legislation

David Z — Wed, 21 Jun 2006 18:48:18 -0000

"Colson, I think your logic is completely backwards. If a person makes too much money in a given year, they have no incentive to work in the future and make further contributions to society. I.e"

Well, if they have no incentive to work in the future, then the job market changes and allows for further new entrants. I apologize if I'm misreading and you intended sarcasm. But if I understand you correctly, it is your argument that is wholly without merit.

There simply is no good reason to require that someone who wants to earn $40M over the course of his lifetime must do it over the course of 40 consecutive years, and not instead over one superproductive year, or a few years in professional sports, or 20 years as a high-priced attorney, etc.

"Society doesn't benefit from having super rich spoiled brats like Paris Hilton and the late JFK, Jr. who inherited their wealth and didn't earn it in any normal sense of the word."

True, perhaps. Have you ever heard of "shirtsleeves to shirtsleeves in three generations"? Or the one about the "fool and his money..." In any regard, SOMEONE did earn that money, and at their bequest it was given to an heir. Nobody else has any legitimate claim to the bequest. Nobody.

Re: Testing the Logic of Minimum-Wage Legislation

Trumpit — Wed, 21 Jun 2006 18:29:28 -0000

"Trumpit - Unfortunately that would be worse. I would like to make a million in a year too, but if I am making a million but if my labor is worth a million, what incentive do I have to perform any better anywhere else? There is no incentive so you would end up seeing people hit the top and disappear because there is nothing further they can do in the labor market that would be any more beneficial. A maximum wage law would be a horrendous idea."

Colson, I think your logic is completely backwards. If a person makes too much money in a given year, they have no incentive to work in the future and make further contributions to society. I.e., if someone makes $1,000,000 this year and want to be richer, he or she has an incentive to work next year to make another million. Why wouldn't people enjoy the congratulations, & adulations to be received by giving the excess away to worthy causes? Be happy and take your $1,000,000 to the bank! Society doesn't benefit from having super rich spoiled brats like Paris Hilton and the late JFK, Jr. who inherited their wealth and didn't earn it in any normal sense of the word. Not having a reasonable maximium salary is a terrible idea!

Re: Testing the Logic of Minimum-Wage Legislation

bbartlog — Wed, 21 Jun 2006 18:12:20 -0000

Pertz -

your argument that wage increases across the board will simply be cancelled out by a corresponding inflation in prices assumes that all wages will be increased. We would expect that only wages at the lower end of the scale would see a measurable effect, so the inflationary effect should actually be small. So I don't think this in itself is 'an extremely damaging argument'.

Re: Testing the Logic of Minimum-Wage Legislation

quadrupole — Wed, 21 Jun 2006 17:58:55 -0000

Liberty,

I know you can do better than that and cheaper, but the way section 8 works, that's what the feds say they will take as rent for section 8 housing, who do you think will rent to section 8 tenants for less? Section 8 housing money doesn't go to the tenants, it goes to the landlords.

Re: Testing the Logic of Minimum-Wage Legislation

colson — Wed, 21 Jun 2006 17:41:54 -0000

Trumpit - Unfortunately that would be worse. I would like to make a million in a year too, but if I am making a million but if my labor is worth a million, what incentive do I have to perform any better anywhere else? There is no incentive so you would end up seeing people hit the top and disappear because there is nothing further they can do in the labor market that would be any more beneficial. A maximum wage law would be a horrendous idea.

Re: Testing the Logic of Minimum-Wage Legislation

Trumpit — Wed, 21 Jun 2006 16:30:00 -0000

I would happily rescind all minimum wage laws if a maximum wage law were instituted. Let's say that nobody can keep more than a million dollars of their yearly income. If you want to keep government out of the equation, then you have to donate the excess money you made to a bona fide charity, or return the excess to the employees in the form of higher wages and benefits. What kind of person would be unhappy to earn "only" a million dollars in a given year? I'd be happy to supply the answer if you're stumped.

Re: Testing the Logic of Minimum-Wage Legislation

liberty — Wed, 21 Jun 2006 16:24:02 -0000

You can get a real nice for less than that in mortgage payments in Raleigh...

From cheaper:

$59,900

4 Bed

1,755 Sq. Ft.

Estimated payment:

$290 Per Month*

To nicer:

http://realtor.com/Prop/105...

http://realtor.com/Prop/106...

http://realtor.com/Prop/106...

Obviously they cost a bit more if you get 0% down or even 5% down, still well under $1000/mnth.

I only point it out because in this country - its all about taking charge and making smart decisions.

Re: Testing the Logic of Minimum-Wage Legislation

quadrupole — Wed, 21 Jun 2006 15:40:46 -0000

FYI... found some data on the value of section 8 housing vouchers contributing to the income of your hypothetical single worker miminum wage earning family. Section 8 housing vouchers pay the rent for poor households when those rents rise above 30% of their income. 30% of $11k is $3300 per year. Looking at Raleigh, NC HUD claims the fair market value for a 3 bedroom apartment is $1072 per month, or $12,864 per year. So your hypothetical minimum wage earning household in Ralegh NC would get $9564 in housing assistance, thus bringing their effective income after government benefits to $39,036.

Re: Testing the Logic of Minimum-Wage Legislation

quadrupole — Wed, 21 Jun 2006 15:11:44 -0000

It is also important when discussing illegal immigration to figure these costs. Illegal immigrants generally apply for and receive EITC, are explicitely eligible for food stamps, and a frequently recipients of medicare. So a hypothetical illegal immigrant nuclear family of four (2 adults, 2 children) reporting $11k of income would receive $18,472 in benefits, plus $20k ($10k for each child) in the cost of educating their children, or $38,472 a year. Now maybe they are contributing more than the $49,472 they are receiving ($11k earned, plus $38,472 in benefits). I don't know. But its worth asking the question.

Re: Testing the Logic of Minimum-Wage Legislation

quadrupole — Wed, 21 Jun 2006 15:05:10 -0000

Oh, also, your hypothetical family of four making minimum wage is also eligible for medicaid, with an average cost per person of $2000 nationwide, so add another $8k, thus bringing their income to $29,472. $11k in earnings, $18,472 in government benefits.

Re: Testing the Logic of Minimum-Wage Legislation

quadrupole — Wed, 21 Jun 2006 15:00:18 -0000

Uhm... am I the only one who thinks that if you are only able to make minimum wage, you really shouldn't have a family of four? The poverty line for a family of 4 is about $18k, A person working fulltime (2000 hours per year) at minimum wage ($5.50/h) is making about $11k. So clearly if that family of four contains two working adults then they can make $22k per year, well over the poverty line.

Additionally, if a family of four only has one fulltime worker (for example, a single mom with 3 kids) and is working full time at minimum wage, they get $4400 per year in earned income tax credit. That family of four is eligible for $506 per month of food stamps ($6,072 per year). So this family with one worker making minimum wage is receiving $10,472 a year in various goverment subsidies, bringing their total takehome to $21,472, well over the poverty line for a family of four. This doesn't even begin to count other federal assistance like section 8 housing and medicaid.

Also please notice how if you do have a household with two able bodied adults, the government will *give* you the value of having the second go to work at minimum wage... those benefits start phasing out well before the $22k number two minimum wage earners bring in.