[ogogmad]

Slightly OT: Regarding the raising of the minimum wage example, is there a reason why the following linear argument is not universally accepted?

  > The more something costs, the less of it people buy;
  > THEREFORE the more that hiring people costs, the fewer people get hired;
  > SO raising the minimum wage raises unemployment.

I doubt anything in economics is as linear as WHEN PRICES GO UP THEN PURCHASES GO DOWN, especially given demand inelasticity, feedback loops, and other things that complicate such a model.

[blackbear_]

It definitely works in the short term, but what matters is the long term effects: how will people and businesses adapt, and will that lead to a better society?

Case in point: At least as far back as the 17th century, many people believed that idle children were a source of crime and poverty. To combat such idleness, apprenticeships were common for children of working-class families. Child labor, rather than being viewed as exploitive, was often considered an act of charity (https://www.bls.gov/opub/mlr/2015/article/labor-law-highligh...).

In the early 1900s, one could have argued in a similar way as yours and argue that enforcing a minimum age for workers would reduce the labor supply, leading to increased labor cost, leading to reduced profits for companies, leading to higher prices for consumers, leading to less demand for products, leading to less innovation, reduced standards of living, and so on and so forth.

Maybe that did indeed happen in the first years, but the long term effects were inarguably positive for everybody.

[constantcrying]

The argument falls apart at every single step. As a logical deduction it is awful. The premise is just straight up false. And the rest also has obvious holes.

Simple counter example:

If every single person in a population can employed for economic gain by an employer, even if the employer was paying minimum wage, then having a minimum wage would not change anything about employment. An employer would obviously rather make some gain of an employee than not making that gain at all, so no changes to unemployment would happen.

There are obviously ways in which employers can increase the profit they make from employees. E.g. by raising the cost of their products.

[ogogmad]

I think you're describing inelastic demand for hires. Which I mentioned as a hole in the argument. On that note, I'm not sure why my post has more down than upvotes.

[czarit]

It is absolutely accepted in microeconomics, where one can assume that preferences are exogenous to the model (that is: not affected by changing the model's variables).

In macroeconomics it is not so simple, because the effects of a higher price for labor are felt all over the economy, leading to feedbacks that might increase overall employment. The Ford wage increase to increase demand for Ford's products is often cited - because there is a multiplier effect from economic activity even a single firm can theoretically benefit from handing out more money to its employees.

There are also arguments from near term versus long term. In the long term, economies with no access to very cheap labor feel more pressure to robotize production, leading to higher productivity and more production overall, and also might lead to a better educated workforce by simply excluding below-minimum-wage productive labor from getting any jobs, and therefore push some of them to school. Those are short term costs that have proven to lead to long term gains.

But I do also think it's not very common to assume that higher minimum wages will lead to a net increase in employment. It is more common to argue that it will lead to a better outcome (for some definition of good) in the aggregate, _even if_ it might lead to some unemployment.

[add-sub-mul-div]

Hypothetically when minimum wage earners are making more than subsistence wages they'll buy more and business goes up, allowing for growth and hiring.

Don't know if it's true or not, but it should be easy to imagine why a complex issue needs more than a simple take.