January 17, 2014 at 5:18 am #18216dardnerMember
Hello, my question is about the raising of the minimum wage and the existing wage levels that are either swallowed by this, or that now find themselves near the new wage floor.
To the best of my knowledge, people do not value every good or service equally and job skills are not equal among all people. I believe this to be the most significant cause of income inequality. I also believe this means income inequality is necessary.
If $12/hr is a good wage, it is good compared to what, $8/hr? If $11/hr is the least one could make, $12/hr is about the least one could make. Leaving aside the real minimum wage $0. It seems wages would always need to be scaled according to skills and demand. So at best a min wage increase would just make everyone else worse off until such time as equilibrium of aggregate wages is achieved.
Am I way off here? I mean if the minimum wage was raised to say, $15 who wouldn’t leave their higher skill higher pressure job to go push grocery carts. Yes, I am fully aware that job would cease to exist but if 75 economists think that is all hokum, fine. What do they think happens when non skilled workers compete with skilled workers for the same wage?
The crux of my argument is: artificially raising the wage floor devalues mid-level jobs and serves only to start a slow wave of wage inflation from the bottom up throughout the middle class.
I know this isn’t the typical argument but I always wondered if this was so, but I never hear it addressed. Thank you for your consideration.January 17, 2014 at 12:29 pm #18217jmherbenerModerator
Your premise about what determines the level of a person’s wage is correct. The wage a person earns is based on his productivity and the value of the output he helps produce. As you say, in a market economy there is a spectrum of wages, those who have the greatest productivity in the most valuable goods earn the highest wages and those who have the smallest productivity in the least valuable goods earn the lowest wages.
What the minimum wage does, then, is criminalize the payment of wages earned by those workers with the smallest productivity in the least valuable goods. They can no longer be legally employed. This has no direct effect on wages and employment above the legal minimum. It simply criminalizes the employment of the least productive workers. The workers made legally unemployable by the minimum wage cannot compete with the employed workers because they lack the productivity to earn the higher wages commanded by the more productive workers. The jobs once done by the now unemployed workers will not exist, at least not in the manner in which they did before the minimum wage.
Of course, by forcing workers into unemployment, the output they were producing is lost and therefore, the standards of living of people decline. The burden of this decline is felt not just by the unemployed. To the extent that other workers were employed because of the demand for their goods by those now unemployed, they too might have their wages fall. They might even fall below the minimum and force them into unemployment as well.
This process of declining wages is only partially offset by rising wages in areas that now become targets of investment in capital. At least part of the investment previously made in the processes of production now abandoned because of the minimum wage will be invested in capital that will raise worker productivity sufficiently to sustain these new production processes. (A recent example is the robo-burger-flipping machine. A McDonald’s restaurant, perhaps, can have a work-force of three instead of six and serve the same number of customers.)January 23, 2014 at 6:13 pm #18218dardnerMember
My apologies Professor Herbener. I was either unclear about my intent or my question was irrelevant in light of reality. I agree with your response but that is because it seems self evident to me that lower level jobs would cease to exist or be given to automation, as you mention the robo flipper . I believe we see this already in the disappearance of the bag boy, where either the customer assumes responsibility or the cashier takes on the additional task, and even the cashier now finds themselves on the endangered list with the self checkout looming about.
Recently there have been a growing number of economists willing to claim that a minimum wage increase would have little or no effect on the number of low skill jobs that exist. Instead of arguing against that, I was attempting to explain that even if that where so, it would still have largely negative consequences for not only low skilled workers but for the middle class economy as a whole. I suppose it is of little use to base an argument on a faulty premiss but you know “when in Rome”. Once again I apologize, I don’t want you to think that I haven’t been paying attention.January 24, 2014 at 2:59 pm #18219jmherbenerModerator
No apologies are necessary. If I now understand the scenario correctly to which you are responding, someone is claiming that raising the minimum wage will merely create a wealth transfer from the capitalists to the lower-skilled workers without having any effect on employment.
Even if this were true, you are correct that raising the minimum wage would still have detrimental effects on social production and therefore, middle class standards of living. The main reason is such a transfer de-capitalizes those who have demonstrated superior entrepreneurship by running successful business enterprises and capitalizes those who have not demonstrated such abilities. The entrepreneurs would have invested a larger portion of the capital transferred than the workers will invest and would have invested it more wisely. Social production suffers and standards of living fall below the levels they would have obtained. Moreover, by giving monetary incentive to workers who have not produced value commensurate with their subsidized income, the coercive transfer will draw more marginally productive workers into the subsidized areas and out of areas in which the value of what they produced was higher. And, by taking monetary incentive away from entrepreneurs who have produced value, some of them are draw into other areas in which they produce less value for consumers at large.
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