[gojomo]

Minimum wage laws destroy jobs and reduce overall welfare; they should be repealed rather than extended to novel business arrangements.

Minimum wages are implemented with noble motivations, but are based on a broken mental model, where the edict alone can lift everyone who would have made less up to the new statutory minimum.

In fact, many of the people who would be employed at lower wages aren't (yet) productive enough to justify a higher wage. An employer will pick a mix other adaptations rather than simply 'the same number of employees at a higher cost' once the wage floor is enforced. (These might include shorter opening hours, more automation, a few higher-paid workers replacing many lower-paid workers, longer waiting lines, less customer service, less attention to cleaning/inventory, and outsourcing work to other lower-cost entities or countries.)

These dynamic adaptations leave a few people bumped up to the higher minimum, but more left completely unemployed, idle and dependent on other social assistance. They're not building work habits or a work history that would put them on the path to much higher wages.

Even if we wanted, as a society, to ensure a certain minimum wage, why would we make the responsibility for paying it fall solely on those particular companies and industries that can best utilize inexperienced and low-skilled labor? Their manufacturing and simple services fill a important role, in the goods they provide and the meaningful productive work they offer those without other skills. By making them and them alone face this costly extra non-market constraint on hiring, they become disadvantaged and shrink, relative to other sectors and overseas competitors.

It would be like deciding "every low-income family requires a computer", but rather than buying it out of common public funds, making it a legal requirement for just the domestic computer industry to provide free computers, out of their own revenues. Would that properly value the exact thing you want to happen – more computer production – or impair it by making it less profitable than other uses of the same talent/capital? The same goes with employment opportunities for the low-skilled. The minimum wage has been thinning such domestic opportunities out, for decades, rather than expanding them. Intended to reduce income disparities, it's increasing them.

[gregholmberg]

Minimum wage laws destroy jobs and reduce overall welfare; they should be repealed rather than extended to novel business arrangements.

This is in fact their purpose. Minimum wage laws destroy low-paying jobs by making them illegal, preventing the least competitive members of our society from having the hours and days of their lives "mined" by an employer for negligible compensation.

That having these laws "reduces welfare" is, I believe, a conclusion not supported by fact.

A living example can be found in urban Brazil. By failing to outlaw and enforce certain minima (building codes, wages), large Brazilian cities have created vast marginal neighborhoods that no one wants to live in.

Based just on the example of favelas alone, I would argue that having laws to guarantee minimum wages is one thing a government can do immediately to protect the weaker members of a society.

I think you have not addressed another important duty of governments: to provide a reasonably rigorous educational launchpad so that the less fortunate need not always remain so.

[yummyfajitas]

I've never been to Brazil, so I won't comment. But I live in India, so I'll discuss the situation here. The GDP/capita here is $3k/year, adjusted for purchasing power.

Pass all the laws you want, there is simply not enough wealth (i.e., not enough material and skilled labor) for everyone to live in a house that meets building codes. No matter what you redistribute (note: India has very low inequality [1]) or demand from people, you can't squeeze water from a stone.

[1] Nominal inequality is low, but inequality of living conditions is high. This is the exact opposite of the US, where the rich have a PS3 and an XBox, and the poor are stuck with only a PS2.

[pedrolll]

Over 70% of indians live in rural areas. Many of these people live completely outside of the monetary economy. Counting these people in the GDP statistics skews the whole thing. Yet many of these people live just fine by farming, but do not need to use money, or use very little of it. To me it seems that when making GDP statistics, it would be wise to count in only people in urban areas, participating in the labor market. Of course this would look quite bad from the point of view of neoliberalist economists.

[gojomo]

So having no job is better than a low-paying job, in your analysis?

Brazil has a minimum wage. If it's not enforceable maybe that's because it's based on wishful thinking, pandering to those with an unrealistic mental models, rather than what's sustainable.

These 'vast marginal neighborhoods that no one wants to live in', they are empty ghost towns because no one wants to be there? I don't think so. And the favelas would just disappear if the firm-handed authorities were just a bit more insistent everyone get paid more (or nothing at all!)?

Rich societies can afford nice neighborhoods and rigorous building codes. Societies get rich by accepting every opportunity for voluntary coordination and incremental improvement. Societies stay poor by enacting showoff policies that appear generous but destroy more productivity than they enable, satisfying the aesthetic hopes of comfortable do-gooders, but trapping the really poor.

[gregholmberg]

... having no job is better than a low-paying job, in your analysis?

Perhaps yes.

A price is a signal. As with any restriction on free speech, outlawing certain prices (low wages) should show a clear and easily demonstrated social benefit.

In this case, private free enterprise is clearly harmed, but the benefit returned to society is an intangible, a void: society receives only the absence or reduction of sweatshop working conditions.

I think we are actually in violent agreement on most of these issues.

The major exception, I think, is that I am deeply skeptical of a society's ability to check the worst behaviors of private corporations. I believe that certain entire business models are better legislated against and rendered completely illegal, to prevent regulatory capture [0].

EDIT: This view seems to be controversial. May I suggest a little light reading? [1]

[0] http://en.wikipedia.org/wiki/Regulatory_capture

[1] http://en.wikipedia.org/wiki/The_Jungle

[gaius]

Minimum wage laws destroy low-paying jobs by making them illegal, preventing the least competitive members of our society from having the hours and days of their lives "mined" by an employer for negligible compensation.

Except this is simply not true. Germany, where workers enjoy generous terms and privileges even for Western Europe, has no minimum wage, and its labour unions vocally oppose introducing one. Countries such as the US and UK with minimum wages have higher unemployment, and things are more precarious even for those in employment.

[gregholmberg]

Declaring the German labor market to be a success while counting only German unemployment is misleading, something like saying US fiscal and labor policy is a blowout success because of yet another year of record low unemployment in North Dakota.

To measure the effectiveness of the policies that lead to German job creation, we need to count every worker who is receiving a wage in the German national currency against the workers who wanted to, and legally could have received wages in that currency.

When we look at the whole picture, the situation is ugly and getting worse. Headline unemployment averaged across the European single currency area is now 10.4% and rising rapidly. [0]

Germany is a manufacturing powerhouse, and its exports are currently red hot. Any breakup of EMU would brutally reprice those goods. I would expect this to lead to significant German unemployment.

[0] "Eurozone unemployment hits new record" http://www.bbc.co.uk/news/business-16808672 - 31 January 2012

[gaius]

who wanted to, and legally could have received wages in that currency

There's the rub: how many unemployed Greeks have the skills to work in a German factory?

[blahedo]

> Minimum wage laws destroy jobs and reduce overall welfare

Cite, please.

[gojomo]

You can look up the debate via the Wikipedia article and other sources. The case for reduced jobs in most situations is very strong, the arguments about overall welfare more intense.

Often analytical (rather than emotional) minimum wage proponents admit a small decrease in total employment but think the benefits to those who make the cutoff helps offset that. That might even be true in a growing economy with generally low unemployment and short unemployment terms. In one with ~20% youth unemployment, and workers discouraged by multi-year stints of unemployment, any job – even a low-paying job – is better than prolonged idleness. Employers are understandably loathe to take a chance on those who have gone years without a reliable work history, or never started a work history at all.

When he wasn't quite as partisan, even Krugman could make an eloquent case that bad jobs at low wages were better than no jobs at all at wishful-thinking wages. See for example:

In Praise of Cheap Labor: Bad jobs at bad wages are better than no jobs at all

http://www.slate.com/articles/business/the_dismal_science/19...

Even today, while Krugman is against any sort of lowering-nominal-wages or lowering-minimum-wages for macroeconomic adjustment, he'd like to achieve the same thing through massive fiscal and monetary stimulus, essentially lowering wages through inflation.

In the funhouse mirror world of politics, the 1-2 punch of higher minimum wages but also inflation is a perennial winning strategy. Give people a superficially popular, though actually harmful, boost in minimum wages: an easy focal point on which to campaign. But prevent its full damage with harder-to-assess, noticeable-only-after-the-election inflation. Or at least keep the celebrated raises below other growth/income indicators, so that it's mostly a symbolic measure. (Any raise large enough to make a 'big difference' for minimum-wage earners would also make a 'big difference' in boosting unemployment.) Via the only-slightly-harmful symbolism, everyone (who is a politician) wins!

[krschultz]

Let's say we cut minimum wage in half. How many jobs are going to be created? If it's not profitable for the business to hire a worker at $7 an hour, is it going to be at $3/hour? That's a business with crazy low margins.

Pretty much right now minimum wage workers usually do service jobs (fast food, waiting, etc), household chores (cleaning, landscaping), farming, or no-skill manufacturing.

No-skill manufacturing is largely dead in this country. Changing the minimum wage won't change the fact that you still have to follow environmental and safety regulation. That is expensive in its own right. You also can pay $3/hour in a different country and get good people. You can pay $10-15/hour and get great people. If you pay $3/hour in the US, you are going to get the people who can't even get a minimum wage job. I doubt a lot of companies want to hire those people for any price.

For service jobs, you usually have a fairly fixed number of people. If McDonalds has 3 registers, they already have 3 cashiers at lunchtime. Lowering minimum wage just hurts all those people because the pay will be less. It won't create many more jobs.

Farming could see a big increase in people, or at least a big increase in paying people on the books. A lot of migrant farmers are paid off the books below minimum wage as is.

So where is this giant pent up demand for hiring $3/hour workers? All I see is a marginal increase in jobs, and a massive decrease in wages for everyone else near the bottom.

[meric]

I am all for setting up a minimum wage below the fair price of labor. This way you protect people who are vulnerable, e.g. people with no savings or can't speak the language, while at the same time ensure more people who wants a job can get one.

There are some people who can only be hired with a wage below the minimum:- high school dropouts, immigrants, physically disabled, blind, mentally ill, elderly, long term unemployed. By setting up a minimum wage too high you are ensuring all these people will not get jobs even if they want or need one. To the employers eyes: if you had to pay $7/hr anyway to hire someone, you might as well hire someone who is physically strong, understands english and has graduated high school.

The minimum wage makes people on the lowest tier unemployable. Arguably it does raise wages for workers on the people near the bottom but not quite there. As you can see there is certainly a trade-off to be made.

[yummyfajitas]

If you pay $3/hour in the US, you are going to get the people who can't even get a minimum wage job. I doubt a lot of companies want to hire those people for any price.

All you are saying here is that the min wage is harmless because it's set below market rates. I.e., it's like setting a $0.25/gallon price floor for petrol, or passing any sort of "keep doing what you are already doing" law.

But if that is the case, then why would wages decrease if we eliminated the min wage?

As for the pent-up demand for $3/hour workers, you can see it every time a company outsources or offshores. My company (located in India) wouldn't exist if we had to pay $7.25/hour, for example. (Of course, market rates for the people we need would probably be higher than $7.25 in the US, so the min wage is a moot point - lowering it would not affect our costs or our hypothetical US employee's wages.)

[javascriptlol]

You presuppose several things: 1) that "analytical" thinking (whatever that even means) is superior to "emotional" thinking, and 2) that benefits can be boiled down to economic nonsense (e.g. "money", "happiness").

[imcqueen]

without minimum wage wouldn't simple Supply and Demand take over and cause wages to plummet for unskilled workers? Compare it to software engineering, lots of demand and not enough qualified people = well compensated software engineers

without the minimum you are correct that theoretically more jobs would exist, but at a pay rate so low that it would create an incentive not to work at all. the government assistance required for an employeed unskilled worker and an unemployed one would be about the same, whats the motivation to work?

[gojomo]

This problem, if it arose, can rather quickly self-correct. If people choose not to work at all at the offered rate, you offer more, until you have the workers you need. (Similarly, if you need better workers, you offer more, as long as it is still profitable to do so.)

[Drbble]

What if people band together into a sort of Union, and agree (in a binding way, with punishment for defectors) as a group (through some sort of majority vote, since consensus is impossible in a large group) to demand a certain wage?

You'd have... a republic with a minimum wage law.

[gojomo]

Indeed, that's what we have. That doesn't refute the idea that the minimum wage law is destructive to general welfare (and especially the welfare of those specifically unemployed because of it). It just means it's a popular destructive law, like many other price controls.