Why is minimum wage bad?

[Paul.Bearer.of.Injustice]

The only thing I can say on this issues is real life experience that I have seen myself. I just graduated High School this summer and didn't have a job. I badly wanted some type of experience so I could apply for an internship particular to my industry next summer. Eventually I settled with my sister to be an intern for her company. She did not offer me an hourly wage or even a biweekly paycheck. Instead, we aggreed that I would be paid a base of $2000 for the entire summer with the option to be doubled to $4000 given good performance. Even though I had a decent possibility to make an average of 3.50 an hour, I took the job. WHY ON EARTH WOULD I WORK WITH THE POSSIBILITY OF MAKING 3.50 an hour and not getting paid until the end of the summer. Well the reason I did so is because I wanted experience badly. Why should the government tell me I can't work for 3.50 an hour if I want too? Well to finish the story off, I ended up doing a great job and learning more excel functions and VBA code than my brain can hold. I helped the company eliminate data entry significantly and my sister eventually ended up paying me $5000, 20% above the highest value that was promissed. With the experienced that I learned from my internship, I feel that I will be one of the most competitive candidates when I send out resumes to insurance companies this fall for an actuarial internship. And the thing is the experience I gained was worth way over what I actually got paid. If I was paid $0 dollars for the internship, I would still be ok because of the sheer amount of learning and experience that I got. F*** you minimum wage, let the people work.

Wise choice on not going to college.

 

[constitutional]

Why do people say "developing nations have lower income". What causes this "lower income" to result into poor standard of living?

Let me get this right, the fed weakens the dollar by printing it and so Congress has to increase the minimum wage to maintain a proper living standard. Increasing minimum wage works for a year or so but then market adjusts to the minimum wage (everything you buy now has a higher price because the labor cost is high).

 

[Knighted]

On the Hong Kong argument, I decided to look at other countries without minimum wages and found this nifty table on wikipedia where one can sort by countries with highest and lowest minimum wages in international dollars. Most of the countries without minimum wages are not places i'd want to live.

The three countries in the world with the highest minimum wages according to the chart are the UK, Luxembourg, and Australia. I know offhand that Luxembourg has the highest GDP/capita in the world. Wiki tells me, "Luxembourg's stable, high-income economy features moderate growth, low inflation, and low unemployment." Don't really have time to look for specifics, but i'll take its word on that.

It seems it will take more than a few random cases to justify that the absence of minimum wage laws are beneficial in the real world rather than on paper.

 

[noxagol]

On the Hong Kong argument, I decided to look at other countries without minimum wages and found this nifty table on wikipedia where one can sort by countries with highest and lowest minimum wages in international dollars. Most of the countries without minimum wages are not places i'd want to live.

The three countries in the world with the highest minimum wages according to the chart are the UK, Luxembourg, and Australia. I know offhand that Luxembourg has the highest GDP/capita in the world. Wiki tells me, "Luxembourg's stable, high-income economy features moderate growth, low inflation, and low unemployment." Don't really have time to look for specifics, but i'll take its word on that.

It seems it will take more than a few random cases to justify that the absence of minimum wage laws are beneficial in the real world rather than on paper.

That's the trouble with economics, everyone tries to look at one issue in a vacuum, which you just can't do. One change effects everything else.

 

[RSLudlum]

Even my 12year old daughter understands why minimum wage is bad...My younger brother was paying her, during summer vacation, to take care of his dog . He paid her 10 dollars a week, to walk the dog and make sure he had clean water during the day. She walked the dog every weekday for approximately 30minutes each day.

Before she agreed to do it, she asked me how much she should charge him...I told her it was up to her to negotiate it. She asked for $10/week, and got it, with my brother telling her he couldn't pay her anymore. After a couple of weeks, I asked her if $10/week was enough, she said, "Yeah, bc. I like walking the dog". I explained to her if I would've demanded my brother pay her more instead of what some would consider $10/week "slave wages", she wouldn't been getting anything and the dog wouldn't have been getting walked, unless someone else offered to do it for less. I then explained to her what 'minimum wage' is, now she's that much smarter.

BTW, she is currently reading "Whatever Happened to Penny Candy"

 

[Alex Libman]

Minimum wage only raises prices and destroys jobs, innovation, and incentive to work harder (or, better yet, "smarter").

 

[Mini-Me]

On the Hong Kong argument, I decided to look at other countries without minimum wages and found this nifty table on wikipedia where one can sort by countries with highest and lowest minimum wages in international dollars. Most of the countries without minimum wages are not places i'd want to live.

The three countries in the world with the highest minimum wages according to the chart are the UK, Luxembourg, and Australia. I know offhand that Luxembourg has the highest GDP/capita in the world. Wiki tells me, "Luxembourg's stable, high-income economy features moderate growth, low inflation, and low unemployment." Don't really have time to look for specifics, but i'll take its word on that.

It seems it will take more than a few random cases to justify that the absence of minimum wage laws are beneficial in the real world rather than on paper.

The problem with your methodology is that you're failing to isolate minimum wage as a variable - there are many much greater factors which influence a country's economic health (and the living standards of its people).
Minimum wage is a bandage that bureaucrats place on an economy with low market wages - but so many wages are so low in the first place for entirely different and entirely preventable reasons. In principle, minimum wage is a violation of property rights and the right of the people to voluntarily agree to work for whatever they want. In practice, the economic consequences of minimum wage are further economic inefficiencies that consumers have to pay for (including those very people making minimum wage). However, so many people - like yourself - see "no other alternative," because there's no other way for people to make a living wage...or is there?

Remember, the market wages are low for several reasons:

• In a highly interventionist economy with government regulations and corporate welfare, consumers will not exclusively choose market winners/losers, and fat cats and big business can win even without being the best provider of a good or service (and other companies will go out of business because they can't keep up with artificially high market entry barriers). This makes competition between companies extremely weak, resulting in fewer jobs for workers to compete over...and that means low market wages.
• In a country with high taxes/inflation, the market's productive capacity will shrink substantially, taking the country's wealth with it. That means less wealth, fewer jobs, and lower-paying jobs...when the "entire pie" is becoming smaller, poor people's share of the pie will naturally become similarly smaller. Of course, reduced economic productive capacity means it's even harder for small competition to take hold, further harming competition...and further putting the power balance in the court of companies instead of workers (and reinforcing the first reason above). These horrible policies essentially combine to create a lackluster economy that is in no way living up to its potential.
• Minimum wage is another example of an interventionist policy which creates market inefficiencies...and ironically, because it prevents smaller companies from starting out hiring people at $3.50 an hour (for example), it's just another factor preventing them from ever rising up to give the bigger companies competition, which would alleviate the first problem! Ironically, minimum wage has side effects which can ultimately reduce the total number of jobs and reduce real wages on average, in the long-term (when I say real, I'm talking about buying power).

Minimum wage may be a rights violation and it may cause an economic inefficiency, but it obviously will not tank an economy all by itself. That's why countries like Luxembourg aren't dying from their minimum wage - they're probably doing a whole lot of other things right (not having an international empire sure as hell helps! Even an entirely socialist country might have a better economy than ours, simply because they're not wasting so much money on empire - but they'd do significantly better with a free market). Crediting minimum wage for their economic success is a huge mistake. Similarly, other countries without minimum wage may have crappy (or still developing) economies for entirely different reasons...which combine to result in sweatshops. In order for an economy to be poor enough for sweatshops to take hold, it takes one or more of the following three major factors:

• Few natural resources in the first place will obviously reduce the productive capacity of the economy and the amount of wealth circulating around.
• When a country has a poor economy or poor, undeveloped infrastructure, it will take a while to slowly build those up so the economy can comfortably support the entire population. You have to remember that wealth is a matter of productive capacity! Poor countries have sweatshops, but people still work there...why? Because the entire country is a barren wasteland of poverty, and each individual has very few options - often, a sweatshop is their best bet.* The entire country's poverty is an extremely unfortunate situation, but as more and more sweatshops are set up, the infrastructure will slowly appear for a stronger economy with more variety and competition - and those companies will cease to be sweatshops. The only way to increase living standards in an underdeveloped country is for that country to build their economy from the ground up...and their living standards will eventually increase, so long as fair economic policies are in place to allow for growth and competition.
• Even countries with an abundance of natural resources and a great infrastructure can still have a poor economy...because many countries have a whole slew of other horrible economic policies and interventionist governments, even if they don't have minimum wage. Our country illustrates perfectly how even an economy with a great infrastructure and an abundance of natural resources can still fail to provide adequately for all of the people...and it's all because of our interventionist policies!

The rich certainly do benefit greatly (and unfairly) from our current policies, but many economic liberals are jumping to the wrong conclusion by thinking that if all the rich people were forced to spread their wealth around, it would end poverty (and minimum wage is just one way people try to forcibly spread that wealth - ironically, it's the lower and middle class that give most of their business to companies making minimum wage, so that's who the money is being stolen from!). In reality, it wouldn't...although our wealth gap is a huge problem and needs to be fixed (by freeing up the market, not by force), the biggest reason so many people are poor is simply that our economy is not producing enough wealth to comfortably support everyone. The only way to fix this is to end all of the policies that are dragging the economy down.

*By the way, slavery, forced child labor, and managers beating employees have nothing to do with minimum wage laws or anything like that: They're caused by corrupt governments who refuse to protect the rights of their people (or horrible parents forcing their children into labor). This happens all over Africa, because the entire continent is ruled by despotic warlords...with our help, of course. Also, I sincerely doubt that governments like China's care very much about individual rights either, so long as they're working towards the "greater good"...

P.S. For a more in-depth dissertation, check out my response to your thread here: http://www.ronpaulforums.com/showpost.php?p=1630316&postcount=23

 

[Conza88]

Even my 12year old daughter understands why minimum wage is bad...My younger brother was paying her, during summer vacation, to take care of his dog . He paid her 10 dollars a week, to walk the dog and make sure he had clean water during the day. She walked the dog every weekday for approximately 30minutes each day.

Before she agreed to do it, she asked me how much she should charge him...I told her it was up to her to negotiate it. She asked for $10/week, and got it, with my brother telling her he couldn't pay her anymore. After a couple of weeks, I asked her if $10/week was enough, she said, "Yeah, bc. I like walking the dog". I explained to her if I would've demanded my brother pay her more instead of what some would consider $10/week "slave wages", she wouldn't been getting anything and the dog wouldn't have been getting walked, unless someone else offered to do it for less. I then explained to her what 'minimum wage' is, now she's that much smarter.

BTW, she is currently reading "Whatever Happened to Penny Candy"

->

 

[The_Orlonater]

+1 to what torchbearer said.

 

[Paulitician]

I'm seeing some things that are causing macroeconomic conflicts in my head.

The phillips curve shows an inverse relationship between inflation and unemployment, which I recall reading tends to hold true aside from a few sets of years when anomalies like stagflation occurred. This means that if inflation goes up, unemployment should generally go down and vice versa.

But many have said that a minimum wage increase raises inflation. And many have also said that a minimum wage increase raises unemployment. Based on the phillips curve, this normally shouldn't be true. Anyone comment?

It seems to me that it probably follows the business cycle (at least how the Austrians have theorized it): temporary economic growth (boom) caused by monetary expansion. The economic growth in one sense is seen by higher employment, monetary expansion can be seen in higher prices (wages included) across the board. However, once the monetary contraction (bust) occurs, that leads to less economic growth (ergo, less employment) and lower prices. So, it's not like higher prices themselves cause employment, or lower prices cause unemployment when it comes to the phillips curve. It's merely a correlation. Like you mentioned, inflation and employment are not inverse relationships as evidenced by stagflationary periods (they just seem so due to "empirical observation" but the "empirical observation" does not reveal the entire picture, so to speak).

However, minimum wages will tend to lead to unemployment as there is an incentive to hire those workers who valued at that wage and not hire those who are not. Of course, that doesn't mean unemployment will always go up if minimum wages are imposed. It depends on how high those minimum wages are, and it depends on many other factors throughout the economy as well. The sames hold true with inflation.

Regarding Hong Kong, a quick look at the statistics show it has a poverty rate a bit higher than the US and an unemployment rate that is similar to the US. It's also in roughly top quartile for having highest income inequality as well, higher than the US.

If the absence of minimum wage is thought to improve any of these, Hong Kong doesn't appear to be a very good example. It looks pretty similar to the US in those categories, but slightly worse.

Maybe it does and maybe it doesn't improve any of those. It doesn't lower the poverty rate--it could in fact raise it. Perhaps if there were a minimum wage, unemployment would be even higher or not be affected at all (again, it all depends). It could make income more equal, but one has to wonder if certain workers deserve a higher wage. Instead of passing laws, I think these things should be settled within a free market and with workers unionizing, but that's just me.

On the Hong Kong argument, I decided to look at other countries without minimum wages and found this nifty table on wikipedia where one can sort by countries with highest and lowest minimum wages in international dollars. Most of the countries without minimum wages are not places i'd want to live.

Neither would I. But the reason has nothing to do with the lack of a minimum wage.

It seems it will take more than a few random cases to justify that the absence of minimum wage laws are beneficial in the real world rather than on paper.

It's beneficial in some ways and not in other ways. It all depends on what you value I suppose. To me, we could do without them. But, here in the States, it doesn't matter anyway... wages have been extremely hammered by inflation. Minimum wages should be much higher, probably doubled or tripled, considering their purpose and premise.

 

[Mini-Me]

It seems to me that it probably follows the business cycle (at least how the Austrians have theorized it): temporary economic growth (boom) caused by monetary expansion. The economic growth in one sense is seen by higher employment, monetary expansion can be seen in higher prices (wages included) across the board. However, once the monetary contraction (bust) occurs, that leads to less economic growth (ergo, less employment) and lower prices. So, it's not like higher prices themselves cause employment, or lower prices cause unemployment when it comes to the phillips curve. It's merely a correlation. Like you mentioned, inflation and employment are not inverse relationships as evidenced by stagflationary periods (they just seem so due to "empirical observation" but the "empirical observation" does not reveal the entire picture, so to speak).

However, minimum wages will tend to lead to unemployment as there is an incentive to hire those workers who valued at that wage and not hire those who are not. Of course, that doesn't mean unemployment will always go up if minimum wages are imposed. It depends on how high those minimum wages are, and it depends on many other factors throughout the economy as well. The sames hold true with inflation.



Maybe it does and maybe it doesn't improve any of those. It doesn't lower the poverty rate--it could in fact raise it. Perhaps if there were a minimum wage, unemployment would be even higher or not be affected at all (again, it all depends). It could make income more equal, but one has to wonder if certain workers deserve a higher wage. Instead of passing laws, I think these things should be settled within a free market and with workers unionizing, but that's just me.


Neither would I. But the reason has nothing to do with the lack of a minimum wage.


It's beneficial in some ways and not in other ways. It all depends on what you value I suppose. To me, we could do without them. But, here in the States, it doesn't matter anyway... wages have been extremely hammered by inflation. Minimum wages should be much higher, probably doubled or tripled, considering their purpose and premise.

Good post. This also demonstrates precisely what's wrong with pretending that economics is a "science" and trying to come up with theories based solely on empirical observation (such as the mainstream Keynesian theory). One of the biggest problems is that economists end up overfitting their hypotheses (and their baseline theories even) to their sample data, and then their theories are entirely unable to account for seemingly contradictory data (e.g. stagflation). Part of the problem with the Phillips curve is also that it conflates different types of inflation which happen for different reasons and sometimes at different times: Actual monetary inflation (which does cause price inflation) and mere price inflation/deflation cycles that occur as a natural part of the business cycle. Plus, thinking of economics in this way makes it too easy to correlate two trends and then jump to an entirely incorrect conclusion about causation - when in reality, hidden variables may tend to cause both trends to usually happen simultaneously (but not always).

Austrian economists recognize these problems, which is why they use logic instead of empirical data to build the fundamental basis for their theory. Essentially, they treat economics more like a fixed system (like mathematics) than a science, and based on logical principles, they try to understand how an economic system reacts to certain conditions. Empirical data is a useful tool, because it helps economists resolve conflicts between opposing forces and determine the degree to which each one affects the outcome of the system. However, the only way to possibly make sense of so much seemingly contradictory data is to understand the fundamentals behind all of those conflicting forces, a priori.

Economists from other schools criticize the Austrians for their "pseudoscience" methodology, but this is based on the false (and increasingly prevalent) assumption that a discipline must be a science to be respectable. This unfair bias towards the scientific method does a lot of disciplines a disservice by pressuring people to turn them into something they're not, and economics is only one of them.

 

[Knighted]

Minimum wage is another example of an interventionist policy which creates market inefficiencies...and ironically, because it prevents smaller companies from starting out hiring people at $3.50 an hour (for example), it's just another factor preventing them from ever rising up to give the bigger companies competition, which would alleviate the first problem!

This is one aspect of this i'd forgotten about.

By the way, I did see your post in my thread. I've been intending to read it but put it off until I had the time (and then I forgot about it.) Thanks for the reply by the way, it is informative.

In general, I agree with your thoughts on minimum wage in principle. I suppose i'm the kind of person that likes to see a working example of something in some economy and seeing it's effects before being a true believer, but it's difficult to distinguish the exact causes of economic prosperity without a lot of work and digging. But logically doing away with the minimum wage laws make sense.

 

[Roxi]

private businesses should be allowed to choose to pay whatever they want.... if it is less than the next guy is paying, more people will be working for the next guy, it will cost the business owner a lot more to hire/train people constantly than pay a decent wage...

in the free market, the competition for wages will take care of itself, business owners might get away with paying shit wages, but if those people aren't satisfied with their wage, they can go to another company..

of course this is all under a totally free market, in a perfect society, neither of which we have.... so i don't know, but what sucks about the minimum wage increase is this.

hypothetical situation: say i am working at sonic, and say i have been there 4 years or so, and i am making 7.25 an hour... minimum wage increases to 7.25 an hour (from say 6.00)
so a 16 year old chick starts the same day the min wage increase goes into affect. and because of the increase sonic has frozen all raises. so at this point, i am making the exact same amount as a brand new 16 year old employee, even though i have been there 4 years.



not only that but, when they raise the minimum wage, businesses raise their prices to compensate for the extra payroll expenses (sonic did this by 20%, with plans for another 15% after the next increase) so everyone gets a COL increase along with their wage increase, it evens out, except the taxpayers are also paying for the administrative costs associated with upping the min. wage, not to mention the costs of the change itself for the business owner and employee

 

[theoakman]

I'm a scientist. Science is only as good as the scientist. It's really easy for scientists to draw almost any conclusion they want in a system like economics. That's because it's so complicated and has way too many variables. The Austrians are way more objective and scientific in their approach than Keynesians are. That's because Keynesians like to ignore or misrepresent certain aspects that should be a huge part of the equation.

 

[theoakman]

minimum wage is bs. There are millions of mexicans in this country who don't benefit from minimum wage laws. They don't seem to have a problem getting what they want.

 

[AutoDas]

Studies suggest that for every 10 percent increase in the minimum wage, a minimum of 100,000 jobs are lost. A jump from the current $4.25 to the intended $5.15 is a 21 percent increase, amounting to over 200,000 newly unemployed. Other estimates would indicate a greater than 400,000 job loss.

No wonder there are so many working people who want minimum wage increases, it keeps other workers from potentially competing with them. This falls in the realm of what is seen (wage increase) and what is not seen (jobs lost) and since no one can scientifically prove jobs are lost then Keynesian disregard this but we know this isn't true from pure logic. If a lemonade stand wants to compete wants to compete with Jumba Juice they can't start out by forfeiting all of their profits to employees and not upgrading the tools and expanding the locations.

 

[Feenix566]

People who want minimum wage increased take that position for a simple reason: they think that if poor people get paid more, they'll magically get richer. It demonstrates a lack of understanding of economics. They don't understand that the value of the dollar can (and does) go down. Then when you try to explain it to them, they don't want to believe it, so they instead choose to label you as a "corporatist" or some such nonsense. Most people refuse to even try to understand economics. The'd rather convince themselves that those of us who do are crazy.

 

[spudea]

lets get one thing straight here. People that work for minimum wage are not smart enough to correctly assess their skills and then demand a suitable wage.

This is why factories loved employing small children, they could pay a young boy drastically less than an adult to do the exact same job.

minimum wage may be bad. but it is necessary so companies do not take advantage of the dumb.

 

[AutoDas]

lets get one thing straight here. People that work for minimum wage are not smart enough to correctly assess their skills and then demand a suitable wage.

This is why factories loved employing small children, they could pay a young boy drastically less than an adult to do the exact same job.

minimum wage may be bad. but it is necessary so companies do not take advantage of the dumb.

If your job can be completed by a young boy then it's time to reassess your life. It's not like minimum wage laws outlaws young boys being employed.

Here's another one of those minimum wage myths that it's there to protect the innocent from being "exploited."

A majority of minimum wage workers are either young persons living in nonpoor families or a second or third earner in a household - not the primary breadwinner.​

Read more myths here.

 

[theoakman]

lets get one thing straight here. People that work for minimum wage are not smart enough to correctly assess their skills and then demand a suitable wage.

This is why factories loved employing small children, they could pay a young boy drastically less than an adult to do the exact same job.

minimum wage may be bad. but it is necessary so companies do not take advantage of the dumb.

umm, fine, set it at 3 dollars an hour. If someone doesn't have the skills to figure out how much they need to live, then they need to have a seminars to teach them. Setting a wage by government standards doesn't solve the problem. In fact, it can cause more harm than good. Fact is, minimum wage doesn't protect those people, it's simply a tool to buy votes. If we set minimum wage at $25 an hour, a lot of business would fold instantaneously. If we set it at $20, a lot of businesses would fold, but a little less. Set it at $10, same thing, but again, less businesses fail. Set it lower than it needs to be, and you'll find the real market for minimum wage without hurting anyone except those who can't do some simple math. It shouldn't take a genius to figure out that you can't survive making $3 an hour and therefore demand more money. Part of the reason our trade deficit has swooned is because we no longer have a manufacturing base. American's will end up being a lot poorer as a result of minimum wage laws because they forced us to send all our money outside of the country.

Like I said, there are millions of Mexicans in this country who aren't protected by minimum wage laws who manage to make a living in this country. Did we somehow get all the smart ones?