Minimum wage and the value of labor

I mostly agree with the OP: the minimum wage isn't about helping poor people (raising the minimum wage slighlty improves conditions for some, and destroys jobs for other, probably with a negative effect overall), it's about encouraging companies to rely on technology and qualified workers rather than large amounts of unskilled labour.

Whether that is a good or a bad thing depends on what you value - overal, the country loses international competitiveness and things become a bit more expensive, and there are less low-class jobs, but maybe more middle-class ones (the exact effect depends of a lot of factors). You may also have a higher proportion of undeclared workers.

(I don't think the existence of monopolies/trusts is very related to minimum wage or to the labour market, so I'm not sure why the thread drifted to that ...)

The upshot is it also prevents sweatshop like conditions for the extremely poor. Theyre probably better off on government assistance than working themselves to death for far below the poverty line level pay.

Well minimum wage can be viewed as a means by which the government forced a certain job quality if you're going to work in order to avoid having crappy jobs. It really doesn't help society all that much for people to simply be employed and "happy you even got a job".

Having a minimum wage doesn't help people who would work in sweat shops without minimum wage laws; it just restricts their choices, I don't see how that can help them.

The "Theyre probably better off on government assistance" bit only works if you have government assistance that's more attractive than sweatshop work, but in that case they'd choose government assistance over sweatshop work whether or not you have a minimum wage. So the benefit you attribute to minimum wage in fact purely comes from the existence of welfare.

Well it's more of a complete package deal. Welfare and minimum wage laws go hand in hand to complement one another.

@SED: In case you havent noticed or lived there. most of Midwest america villainizes unemployment and welfare to the point where those words are practically synonymous with "freeloading liberal country killing scum".

Minimum wage ensures that if they do decide to get a job rather than face alll that ridicule, they dont get entirely dicked over

edited 5th Jul '11 8:54:43 AM by Midgetsnowman

If there are no minimum wage laws, and the best job Bob could find pays $X, then setting the minimum wage at $Y (with Y > X) makes it more likely that Bob won't find a job, period (yes, maybe there will be more jobs paying $Y, so he might get one of those, but the total number of available jobs goes down, moreso if instead of hiring the same kind of unqualified people, companies automate (say replacing cashiers with machines) or outsource their jobs ).

But the issue here is that, in theory that is what should happen, but empirical evidence doesn't show that to be true. So other factors are in play that offset or mitigate such an effect or even make it irrelevant.

And again, Doctor (because you seem to have missed this point when someone else expressed it earlier), I don't think most of the posters in this thread are seeing any benefit in a minimum wage job existing for its own sake. If everyone CAN have a job, but that job pays horribly while not serving as a stepping stone to something better, what exactly is the benefit for society in everyone having a job? It's modern serfdom, nothing more or less.

^x4 Actually that's not necessarily the case. There's a whole lot of other factors and criteria that come into play.

How much additional demand is being spawned from the increased wages? Are wages/the minimum wage lagging behind, keeping up with or surpassing productivity growth? How many jobs are actually at the price ceiling? That is, to increase the minimum wage would make the jobs unprofitable?

My position states that the demand for labor is actually a lot more inelastic in terms of price than it was 20 years ago, because of improvements in both technology and management. Like, almost completely inelastic (up to the price ceiling, of course), and as such there's actually a lot more room than in the past to increase the minimum wage, and it should be done so, although to be honest I probably would rather a market-based approach via subsidies for low-income individuals and setting strict overtime standards at a point where we'd get back to full employment.

edited 5th Jul '11 9:32:17 AM by Karmakin

Oh, I'm not a big fan of low-wage job existing either; getting rid of them kind of screws over the poor and stupid in favor of the middle class, but I'd rather live in a society with less poor and stupid people and a bigger middle class anyway. You just gotta be careful and not overuse it and screw up the whole economy.

edited 5th Jul '11 9:40:08 AM by SlightlyEvilDoctor

Do you have any data on the elasticity of the demand for jobs? (I don't know the data myself, I'm curious) With things like outsourcing of call centers and manufacturing, I expect at least some elasticity.

What counts is not the increased wages, it's the increase of wage x people employed, i.e. the sum of the salaries of low-wage workers. Increasing minimum wage by X% makes that number go up by less than X% (there will be less people employed, or exactly the same number if the demand is totally inelastic, which would be surprising). How big an effect that has on demand of goods depends of the portion of low-wage salaries in the total of all salaries - typically not that big. Add to that the fact that the price of some goods may go up if minimum wage people are employed somewhere along the production and delivery chain (pretty likely), and the total increase in inflation-controlled demand may not be that great.

(it would probably be possible to just build a computer model of this, tweak the parameters and run a simulation, I'm sure someone did that somewhere)

edited 5th Jul '11 9:51:54 AM by SlightlyEvilDoctor

It's not "data". It's behavioral economics. That is, observing how micro-micro economics works then building models up from those base points.

I wrote a long summery of it in another thread...meh. Can't find it.

I actually worked a looooong time in a call center. Enough to both A. Burn myself out, and B. Know how the place was run. (both being related. Ignorance is bliss) Generally speaking, outsourced call centers are usually paid X per call. Say the average call length is 10 minutes, just to keep it simple. During each hour, the call center would probably expect each of its agents to take between 5-6 calls (excluding breaks), but lets keep it simple and just say 5. The source company says ok, between 1-2 we expect to have 100 calls in. Ok, so we're going to try and schedule as close to 20 reps as we can between 1-2.

As long as the X*5 is greater than the hourly wage+infrastructure costs, it's still profitable, and it'll still be done. Once it's less, or looking like it'll become less, that's when it won't be done. It doesn't matter if the wages are 8 an hour or 12 an hour, the company still wants/NEEDS 20 reps at that time. Almost entirely inelastic.

As long as it's still profitable, it'll still happen. Generally speaking it's the same for most service and production based businesses. They're actually staffing due to demand, and additional workers simply are just going to be standing around. (In reality, businesses DO keep a bit extra just in case. Which is why it's almost entirely inelastic and not entirely inelastic)

Where this doesn't apply, is say something like logging, where additional workers translate pretty easily into additional good produced, AND demand is basically unlimited.

The counter-argument that you're talking about, is if wages go too high, then things are outsourced/off-shored. I personally think that we're at the point that if something can be it has been, the differences in labor costs are simply too great. As such, it has relatively little to do with wage-labor elasticity, and if it does, then there are much bigger issues to be dealt with. (Like the idea that we're ALL a bunch of self-entitled whiners who are ALL getting paid far far too much. Best solution I can think of for this is massive currency devaluation. Obviously not a good solution)

Hope that explains where I'm coming from.

edited 5th Jul '11 10:24:45 AM by Karmakin

Is this what you meant?

Thank you Wicked...*sheepish*

edited 5th Jul '11 10:28:44 AM by Karmakin

I agree that the image of corporation "shedding jobs" as soon as wages go up is a bit misleading, and corporations are likely to exagerate that threat for political reasons.

However I think just looking at one call center will make one underestimate the market's response (even though I agree that as far as we can tell, it's still pretty inelastic in the short term), mostly because the combined effect of a lot of employers will make the demand curve a bit more elastic.

There's also the long-term reaction of the market - even if existing call centers don't change their hiring habits, the drop in profitability of a call center might mean that investors might be tempted by investing in something else - say, a call center in India, or just real estate.

I agree that over the long-term things tend to even a bit more out. Although I think this tends to be one factor among many.

My point is that people often say that things such as a moderate raise in the minimum wage will have drastic short-term effects, and that's simply not often the case.

One other thing. It's not just "one call center". It's actually managerial techniques that have been developed over the last 40 years (it's just with the advent of computing it's shifted into overdrive). In more and more fields, hiring is demand oriented, and not supply oriented. As I said, there are exceptions, but for the majority of people I think that's by and large the experience.

Another example, the reason I generally give a supermarket as an example is it was the first place where I actively noticed this going on. The local supermarket where I was made a big deal of cashiers meeting "RPM" goals, that is, rings per minute. How many products can be ringed in the space of a minute. When I first noticed, it was 60. After a while, it went up to 80. Then 100, then 120 was the goal. As well, as the numbers went up, there were less and less cashiers on staff.

I talked to someone who worked there, and as the numbers went up, the number of hours that were available for the cashiers were going down.

In terms of off-shoring, I don't think the first world can compete right now, to be honest. So the things that can be off-shored have been off-shored, but there's kind of a pushback right now as people start to realize that in some cases they might have ended up spending more for a worse result. Short-term gains, long-term losses, in other words a typical modern business plan. We could lower wages, but quite frankly, are you going to be the one telling people that they should be making less? Nobody really wants to do it. So they hide it in other language and everything like that, but because of that our society really hasn't been able to adjust. And people get offended when people imply support for lower wages. And why wouldn't they? It's something that would hurt them directly. It's a personal attack. It's like you went into their bank account and took their money.

It's a hard go, to be honest. Personally, I think that job-sharing and adjusting our economy to a lower dollar valuation is the solution, but I entirely accept other potential solutions as being valid. (Not having a solution, or being a cheerleader for it, is not valid)

We really don't want to be trying to compete with India in terms of wages. That's a surefire way to destruction.

I don't think Americans are psychologically equipped to accept the lower lifestyle standards that a lower dollar value would require to function. House, car, two kids and a dog... and you can't reduce expenses by letting multiple generations of family stay in the same household, or by taking exclusively public transportation, or by just not having kids or a house, or by eating less delicious fattening food, because all that would be Weird. I personally wouldn't be averse to that kind of lifestyle shift, but I don't think most people in America have it in 'em to do so, and any politician who tries to force it upon them is going down hard. Independence and Freedom and the hard-working path to individual prosperity are on a pedestal and the dollar still has yet to shrink enough to make that pedestal break.

Ignoring insurance and transportation costs, I estimate my individual living expenses to be at about 1k per month. That's with a 465 dollar a month rent mind ye.

Of course, living with multiple people lowers the cost, but again, millions of Americans-self included-are living without health insurance because they just can't afford it.

And the leadership it would take to make it "Not Weird", simply couldn't exist. If a politician or a social leader tried to promote this they would instantly become a pariah. Myself, I kinda live that life myself right now as well. But I know people look at me as "Weird" for doing so. Which I'm personally fine with (not really), but I know a lot of people who would be anything but fine with it, and would wrack up thousands upon thousands of credit card debt in order to be "normal".

Conservatives who think that the working poor need to adjust to that lifestyle, to be frank, need to be doing the groundwork in making it more socially acceptable. By and large, they're not only not doing that, they're making it worse.

The other problem with that is there's pressure to not shift from a cost perspective as well. Where I live, it's cheaper and faster to drive from Point A to Point B than it is to take the bus. It's also cheaper to buy sub-standard foods than it is to get healthier stuff. Close to 75% of our monthly income goes entirely into food, transportation *

So, taking public transport and eating healthier directly correlates with raised costs. Same goes if we sold the house and got an apartment. Currently our monthly mortgage is less than the cost of renting an average apartment in the city by about $50. Weird doesn't have much to do with it, honestly.

(And before anyone brings up how much we drink as a money-sink, we've not touched alcohol this month except when someone else was buying.)

Eh, don't forget: if you own a car, you have car insurance payments you're making.

^Well gee, sounds like your moniker is a lie then.

edited 6th Jul '11 11:54:18 AM by TheyCallMeTomu

If we could afford it, we'd drink more often. It helps keep me from strangling customers, because they certainly don't pay me enough to put up with their bullshit.

edited 6th Jul '11 11:56:47 AM by DrunkGirlfriend

What's your food budget like? Between my mom and I and my crippling beverage addiction, we average between 6 and 8 bucks a day.

'course, it's the south, which is apparently cheap when it comes to cost of living. I buy turkey and chicken for 2 bucks a pound at Sams 'cause I buy in bulk and freeze it, and then just throw in Hamburger Helper and crap like that.

Think you can buy generic alcohol in bulk for a cheaper price? Hmmm... then again, having large quantities of alcohol around the house may not be wise...