[Kilimanjaro]

I always wanted to ask these questions to a knowledgeable group of people:

- What if there was a worldwide law about minimum wage at $7/hr?

- How would world economies react?

- Would it end poverty? destroy economies? ignite wars?

- Who is responsible for not existing such a law?

Interesting links?

[natrius]

The economies of most developing nations would be crippled. Cheap labor is a major export. Once the labor is just as cheap as in developed countries, there's no need to incur the overhead of coordinating production over long distances, so the production of many goods and services would move back to developed countries.

Prices of goods that are currently produced using cheap labor would increase dramatically. The current living wage in developed countries would no longer suffice.

Such a policy would be bad for pretty much everyone, and devastating for the people the policy is ostensibly benefits.

[ctdonath]

Money is not wealth. Money is just a convenient abstraction facilitating barter. If you have little to barter, compelling the buyer to give you $7/hr (or suitable unit equivalents) only serves to devalue what $7 represents. If you legislate paying the gas station clerk $100/hr, soon a gallon of gas will cost about $50.

Money just divides up the total value in an economy. Forcing people to trade more wealth, however represented, for less value can only wreck an economy.

The economic law of supply and demand is responsible for not existing such a law.

Links? news.ycombinator.com - it's all about the reality of creating wealth.

[kaonashi]

Minor quibble: money doesn't facilitate barter, it is and always has been a credit relationship.

[IheartApplesDix]

Deabstraction of money doesn't really make your argument any clearer as it has no bearing on the law of supply in demand except to make clear that it's arbitrary and can be changed at any time.

Gas is a commodity so the price wouldn't fluctuate like that. At least not for a long time and not for economic reasons other than greed. Of course, greed is a natural market force, but it's not like that there would be a gas shortage from everyone being able to afford to fill their 20 gallon tanks.

[ctdonath]

Deabstraction does help: compelling the employer to pay a gas station clerk 30 gallons of gas per hour would screw up the economy. That work isn't worth the value of that much gas.

Mundane labor, that which pretty much anyone can do with minutes of training, is also a commodity. And you haven't lived thru the shortages from everyone wanting to fill their 20 gallon tanks at once.

[wnight]

Who covers the difference between the $7/h gas station attendants currently make, and the new $100/h? How do they do this without raising prices? Where does the farmer buy gas so as not to have to raise the price of food to match?

[IheartApplesDix]

I was working under the assumption that the government would subsidize the difference.

[ctdonath]

Correction: government would confiscate the difference from other hard working people and encourage low-end workers to stay in those low-value jobs. Really screws up the labor market: "why work harder? I'm getting $100/hr running a cash register!"

[goodcanadian]

The short answer is: it's complicated. I suspect a lot of economic turmoil, particularly in lower wage countries, as manufacturing would probably move back closer to the richer markets. Of course, at some point, the labour supply will run thin, wages will rise, and some outsourcing might make sense again. It might be very good for Europe and North America, but perhaps less good for developing markets. As another commenter said, however, prices might rise triggering spiralling inflation until the point is reached where things stabilise again . . . where the $7 minimum wage has been devalued to $1 or $2 or whatever the equivalent wage is currently in China.

The experiment on a small scale makes some interesting reading here:

http://www.acton.org/pub/commentary/2011/07/06/minimum-wage-...

http://finance.yahoo.com/news/congress-oks-american-samoa-mi...

[mesm]

NAIRU could be connected to this. "...it was impossible for governments simultaneously to target both arbitrarily low unemployment and price stability, and that, therefore, it was government's role to seek a point on the trade-off between unemployment and inflation..."

http://en.wikipedia.org/wiki/Nairu

[daenz]

Kind of related, I've always found this image interesting:

http://i.imgur.com/9hRn0.png

Found here http://en.wikipedia.org/wiki/Minimum_wage

[ivix]

Living standards would become averaged globally. Result: Rich people (thats you and me) get a lot poorer. But on average people get richer.

[icebraining]

Why? If hiring costs the same everywhere, companies would probably relocate back to the developed countries for other reasons (less shipping, better justice systems, etc), while the developing countries would face massive unemployment.

If anything, it'd make poor people much poorer and increase worldwide inequality.

Not to mention that such countries would have new "castes", between the relatively well paid employed and the majority of unemployed or black market workers, leading to more social instability.

[PeterisP]

Assuming what the parent said (minimum wage of $7 everywhere, without solving other problems), it really would not. The local labor market in USA or EU wouldn't change - the laws are already there.

But actually enforcing minimum wage of $7/hour in developing countries would mean what?

If most employees are making $1/hour, and the businesses there don't have 700% profit margins, then (at least initially) they can't pay such salaries. So many of them close up shop and fire everyone. Unemployment rises, and, having almost no welfare support, the people grow hungry. They want to work, so they bunch up, start a business, earn a nice profit that amounts to $2/hour/person and.... the government comes in and breaks down the business for minimum wage violations. Is that what you want when you say "minimum wage of $7/hour globally" ?

Or do you have any other specific way to achieve "global minimum wage laws" in a significantly better way than making the laws and enforcing?

If it involves finding somebody to donate the ($7-$1) * billions people / hour wage difference, then I'd like a pony for every kid in the world while we're at it. And even actually finding such a donor would simply mean inflation, the new $7 buys the same as old $1, and we're back where we started.

[bejar37]

Cause a feedback loop due to companies having to charge more for products leading to inflation

[cglace]

That actually would lead to price increases. It would not lead to an increase in the supply of money.