While the comment you're replying to is wrong, these empirical studies are ridiculous. Every price has some elasticity, but the fact is that if a worker earns an employer $8 an hour in revenue, they're not going to pay that worker $9 an hour, and if the minimum wage was greater than $8 an hour, then that worker would be out of a job, thus making $0 an hour. The studies about the price elasticity of labor also don't bother to prove that there are real-world benefits beyond the fact that a higher minimum wage sounds good. Being unemployed is not better than making a low wage.
Your analysis overly simplifies the matter. For one, this assumes that there is a replacement solution available for the role the employee fills with a cost less than the cost of an employee. This is trivially falsifiable in the large majority of employment situations, if so you would see these solutions already being implemented in places with higher minimum wages. Businesses prefer making some amount $x over $0.
So what actually ends up happening in reality is, in order to not be forced to shutdown, the employer needs to increase the amount of per-employee revenue, which can happen in a number of ways:
- Raising prices (Easiest move, and even easier when labor costs increase for your competitors simultaneously)
- Negotiate lower supply costs (the threat of losing a big customer entirely can motivate a supplier to give up some percent of their profits)
- Increasing employee efficiency (improved processes, additional training, etc). Theoretically the company should have been doing these already but an existential threat is an even larger motivator than marginal profits. This could result in layoffs depending on how the efficiency is realized.
Really what ends up happening in reality is increased costs just get passed along. Yes, consumers probably end up spending more, but less in taxes are spent on benefits programs, making it a wash in overall cost to society. In fact, people who believe that government spending is inherently inefficient should theoretically love the idea of raising minimum wage as it allows us as a society to move resources from government spending into the free market.
An employee that earns an employer $8 in revenue but gets paid $9 is a net loss of $1 to the employer. If x is -1 then $x is not better than $0.
If the employer could raise prices and still be in business, then they would already be doing it. Same thing with lowering costs. As for employee efficiency, yes, if you're forced to pay someone $9 then you will want to get at least $9 out of them. That means you won't hire anyone that's not experienced enough.
> Really what ends up happening in reality is increased costs just get passed along
Not if the employer wants to remain competitive. There are plenty of bigger companies with greater economies of scale that will happily run them out of business.
This isn't a nuanced problem. If you raise the price of something, demand drops. Whether the price in question is for things or labor is irrelevant.
> This isn't a nuanced problem. If you raise the price of something, demand drops. Whether the price in question is for things or labor is irrelevant.
There's a little nuance.
Some anecdata: When I tried charging $0 to get my feet wet in consulting I had zero takers. Raising my hourly rate to $100 drastically improved my success rate (nothing else changed, I was still just some kid in high school with a knack for programming at the time).
The real world doesn't have perfect information and is more than happy to use imperfect signals to save time and effort (in any constant-bounded time that's provably required to hit any fixed desired epsilon of error). The price somebody is asking for is often enough a useful signal that demand need not be monotonic.
I tend to agree with this conventional Econ 101 wisdom, but your comment got me wondering if raising the minimum wage would have an effect of driving people to build skills and push harder. I.e. think of a minimum wage as the government saying to workers, ‘Hey, if you want to be part of this economy, you better be at least X productive.’
It can also drive businesses to develop models where people are more productive. Productivity isn't just a function of skills and how much people "push", but also how businesses operate.
In fact, very few people earn minimum wage past early adulthood. I don't remember where I got this figure but it was something like 93% of people over the age of 24 make higher than minimum wage. In any case, income is highly correlated with age until retirement ages.
> Being unemployed is not better than making a low wage.
You're presuming it's a binary choice; consider the systemic effect might not make it a binary choice.
Let's accept that it is a binary choice, then no, it's not necessarily better to be making a low wage, because that presumes a value for your time that is effectively zero. In truth, with your own time, you can find ways to feed yourself, provide yourself with shelter, etc., and when you are working you can't do that stuff. Let's assume though that one wouldn't take a wage that was a net direct loss like this, there's still the possibility that a low wage might be tactically beneficial, but strategically & systemically quite harmful.
> > with your own time, you can find ways to feed yourself, provide yourself with shelter, etc.
? You still have the option to quit your job if you're employed and don't find it worth your while.
If that's more than rhetorical, I suggest you do some reading.
If it is rhetorical, I'll just assume you think everything would work great if we had a minimum prevailing wage of one penny for a lifetime's worth of labour. You know, because less than that would be slavery.
> If that's more than rhetorical, I suggest you do some reading.
just some generic advice to read a book? yeah me not so learnded me go read keynes so me agree with you
> If it is rhetorical, I'll just assume you think everything would work great if we had a minimum prevailing wage of one penny for a lifetime's worth of labour. You know, because less than that would be slavery.
Imagine thinking that slavery is about not being paid rather than not having a choice of who to work for. Slaves receive food and housing, technically a salary. The problem is of not being free to leave and work elsewhere. Anyone making a penny for a lifetime can just go work elsewhere if they don't like it.
> Every price has some elasticity, but the fact is that if a worker earns an employer $8 an hour in revenue, they're not going to pay that worker $9 an hour, and if the minimum wage was greater than $8 an hour, then that worker would be out of a job, thus making $0 an hour.
One of the many fallacies here that hasn't already been pointed out is that it's impossible to determine the exact amount of revenue a single employee is responsible for in any real world employment situation.
> One of the many fallacies here that hasn't already been pointed out is that it's impossible to determine the exact amount of revenue a single employee is responsible for in any real world employment situation.
Sure. But if it costs $100/hr in labor to run a McDonalds (split between cashier, burger flipper, fry guy), $100/hr in ingredients, and the store only produces $150/hr in revenue, it's not hard to figure out that those wages are unsustainable.
Blah blah, businesses don't deserve to exist if they can't pay whatever wage. Sure, but I'm not saying McDonalds deserves to exist--I'm saying those people won't have jobs when it becomes very obvious that the store is losing money.
Just because you can't pinpoint the exact contribution of every worker does not mean that you can't have a pretty good estimate of the contribution from retail workers in practice.
That's true, and there's going to be a spectrum of measurement, from very measurable roles to roles that are almost impossible to measure. I'd say even in the sales case, something that isn't getting measured is how much a good salesperson can rely on other parts of the organization to answer questions for customers that can make the difference in landing the sale or not. That attribution usually goes entirely to the salesperson, when someone else's knowledge was key to the transaction. It's a team effort.
This is most obvious when you take the extreme case of looking at the department level - sales and marketing are "responsible" for 100% of the revenue, but if you delete legal, support, R&D, HR, and finance, your revenue goes to zero pretty quickly.
If the aggregate across all employees is negative, the company is losing money. If the aggregate over all employees is positive, you have profit.
It's like that old joke about marketing budgets: half is wasted, but it's impossible to tell which half. The same can be true for employees, maybe half your employees lose money, but the other half make enough that you're profitable, but you can't attribute every dollar that comes into your company to the specific employee that generated that dollar.
However, a if the minimum wage is increased to $9, the collective spending power of the minimum wage cohort may increase enough to increase the per worker revenue to $9 or more. Likewise, if the employer cohort doesn’t believe this to be the case and fires workers, then X% of the workforce will no longer have the discretionary spending to support $8 in revenue.
If a position cannot pay well enough for the employed to sustain themselves then it should not exist in the first place.
If there literally are not enough jobs that can pay sustainable wages to everyone in need, then we need to rethink how our economy works on a fundamental level.
A system that requires some portion of the population to go hungry or even homeless is ethically indefensible.
I'm not saying that being unemployed is better than making an unlivable wage. I am saying both outcomes are unacceptable.
And I am not advocating for any specific solution, just saying that the current system does not work. I don't believe in false dichotomies. Being unhappy with capitalism does not automatically make one a communist.
What is the alternative? You can't pay someone more than they earn in revenue and minimum wage laws create an artificial price floor that causes everyone who would otherwise earn between above zero and the minimum to instead make zero.
The idea of a "living wage" is an worthless notion that assumes that the distribution of income by age and experience is not the one from the real world. In the real world, the more experience you have, the more money you make. The majority of low earners are simply young or at an early point in their careers. To rob them of entry level jobs by setting artificial price floors is what's unethical. Let them get low wage jobs while they still live at home or have roommates or don't live downtown SF instead of dictating that the world should be one of magical bounty and abundance where everyone can somehow work for "high" wages without price inflation for everything else making them effectively poor.
Being unhappy with capitalism is being in denial about the world having scarce resources.
> Being unhappy with capitalism is being in denial about the world having scarce resources.
Food and shelter are not scarce resources. In the United States, we have more empty homes than homeless people. Every day we throw away an obscene amount of food.
So again, I say any system that requires the existence of a class of people who cannot afford these things in order to function is morally untenable. Similar shitty arguments were made in defense of slavery 200 years ago.
Communism isn't the only possible answer. Welfare programs are a common solution. The way I see it though, welfare is just the taxpayer subsidizing unlivable wages. So why not cut out the tax middleman and make the employers pay livable wages to begin with? Either way, that money has to get moved from the top to the bottom.
> Being unemployed is not better than making a low wage.
In the US, it depends on the programs that are available to you.
For some people, a small part time job sabotages some existing subsidies.
This is a critical component of the institutional poverty, that is now generational, in the US.
> Every price has some elasticity, but the fact is that if a worker earns an employer $8 an hour in revenue, they're not going to pay that worker $9 an hour,