Productivity Growth and the Minimum Wage

[Pliny]

The wage depressing and primary industry destroying power of free trade between unequal nations simply decimates the working class.

You can't have it both ways. For decades the protective tariffs and policies of the first world kept the third world poor.

Free trade started to improve the lot of the third world and they could finally become competitors in the world market.

Of course that would affect our industries here which were bouyed up with high wages and benefits and costs that the third world was far behind in. We could keep our high wages and continue to just redistribute the wealth through economic aid. We know though that Dictators thrive on that and generally keep their subjects in poverty.

Obama is one of those leaders that thinks the best way to redistribute wealth is to have government do it. Perhaps though, we should bite the bullet and let the market enrich those impoverished third world nations. I know you probably feel some apprehension about them becoming masters of their own destinies and rising up and decimating the first world. Better they be forever beholding to us. Right?

Edited July 12, 2013 by Pliny

[Mighty AC]

Can you please offer a cite with those stats ? The last time I saw this discussed on here, we had a cite with static income levels for the "99%" with large increases for the "1%". Economic discussions are very difficult and fractious, and prone to basic fallacies such as the 'fixed pie' fallacy.

No, I parroted a discussion from a talk radio show. Looking at the household income data, you're right household incomes have been relatively static for almost 40 years except for the 1%. I guess the point they were making is that it now takes 2 incomes, typically working longer hours, to earn what 1 did previously.

[Mighty AC]

I know you probably feel some apprehension about them becoming masters of their own destinies and rising up and decimating the first world. Better they be forever beholding to us. Right?

If the goal is to improve the lot of the third world, why are we not trying to improve the working conditions, environmental and safety standards of our suppliers? Seems to me that those in charge are more interested in exploitation and skirting the high cost of ethics.

[Boges]

Ontario is debating raising the minimum wage. It's been frozen at $10.25 for 3 years. Some are saying it should be raised to $14.

Here's the thing. Minimum wage earners are usually low-skilled and/or young people just starting out in the working world. When I was 18 and got my first job it was a dollar or so above minimum wage. I think it was $6.85/hour at the time.

The problem isn't with the minimum wage, it's with middle income earners and their jobs disappearing. The minimum wage was never meant to be a living wage.

If you make the minimum wage, a living wage, the cost of living will rise to the point where in will no longer become a living wage. But then you have middle income earners who drop down closer to the level of a minimum wage earner if their salaries don't rise with the minimum wage.

So if the minimum wage goes up to $14/hour, someone making $20/hour suddenly takes a hit on their disposable income if they don't receive a comparable wage hike.

Why don't governments lower the tax rate on people making the minimum, so they get to keep more of the meager income they do get?

[Pliny]

If the goal is to improve the lot of the third world, why are we not trying to improve the working conditions, environmental and safety standards of our suppliers? Seems to me that those in charge are more interested in exploitation and skirting the high cost of ethics.

As Boges points out a minimum wage should not be intended to be a living wage. Someone who can't rise above a minimum wage job will always need to live under the guardianship of someone. Everyone does not have the same intellectual capacity.

Those minimum wage jobs should be there for them though so they can feel as though they are contributing something. There is nothing worse than feeling you are being patronized and given everything. It's devastating to your sense of self worth.

Life is happening and society is evolving, the third world is steeped in tradition and culture and because it doesn't yet have all the amenities of the first world does not mean it exists in poverty. Generally, they have always lived as they have, and are steeped in tradition and culture that may resist change, especially if it is forced upon them. They have to care about having running water and electricity before they start to demand it. Do-gooders believe they must be lifted out of their poverty. They should be perhaps but it is an evolutionary process and they have to see there are advantages to accepting the solutions of different cultures who are too often critical of their traditions and cultures.

Edited July 19, 2013 by Pliny

[Michael Hardner]

Why don't governments lower the tax rate on people making the minimum, so they get to keep more of the meager income they do get?

That would be a great idea, except you'd need to make up the revenue loss somehow.

[Bonam]

Why don't governments lower the tax rate on people making the minimum, so they get to keep more of the meager income they do get?

People making the minimum already pay very little tax and oftentimes pay zero income tax if they bother to take a few deductions on their tax returns. They often also qualify for GST/HST refund credits. When I was a student in BC and making the equivalent annual income of working a full time minimum wage job I paid zero net tax. So the answer as to why government's don't lower the rate is because it is already basically zero. The US takes this even further, with the EITC, where you can actually get a tax refund higher than the total amount of taxes you paid for the year, provided your income is low enough: that is, the government pays you a bonus to work a minimum wage job.

[bleeding heart]

This argument makes sense, if one assumes that a minimum wage job is a job that someone is intended to sustain their family on.

This sounds as if they're socially engineered for a certain sector of society. They're not. They're not "intended"--nor not intended--for anybody.

[Boges]

This sounds as if they're socially engineered for a certain sector of society. They're not. They're not "intended"--nor not intended--for anybody.

Sure they are. People just starting out in the workforce, people who supplement another family member's income.

Often service sector/retail jobs can lead to management positions that pay much more than the minimum wage.

Or a minimum wage can be used for a base salary where commissions or tips increase the wage.

[bleeding heart]

Sure they are. People just starting out in the workforce, people who supplement another family member's income.

Often service sector/retail jobs can lead to management positions that pay much more than the minimum wage.

Or a minimum wage can be used for a base salary where commissions or tips increase the wage.

No, they're not "intended" for any specific sector. That's not even logical.

[Pliny]

No, they're not "intended" for any specific sector. That's not even logical.

You are right. They are not intended for any specific sector. They are intended for everyone.

Boges points out some very valid points from a conservative economic view, that being there is a specific purpose and an intended specific sector for a minimum wage. He doesn't realize that the Liberal view is that everyone should make that wage and no one should make more. It's called equality and social justice or, correctly - Marxism.

[bleeding heart]

You are right. They are not intended for any specific sector. They are intended for everyone.

Boges points out some very valid points from a conservative economic view, that being there is a specific purpose and an intended specific sector for a minimum wage.

If that's the "conservative economic view" it is flatly incorrect.

The "specific purpose" of a minimum wage is to pay the lowest possible, legal amount for labour. There is no demographic "purpose" to it. At all.

That's very basic free market theory, by the way...which would automatically oppose such social engineering schemes.

[Icebound]

Yes, isn't it just too bad that we cannot treat "labour" the same as any other commodity?

If we have too many potatoes, we let them rot in the fields. If we have too much oil, we let it sit in the ground. If we have too many cell phones, we dispose of them to the land-fill.

Wouldn't it just be dandy if we could do the same with labour?

[kimmy]

Yes, isn't it just too bad that we cannot treat "labour" the same as any other commodity?

If we have too many potatoes, we let them rot in the fields. If we have too much oil, we let it sit in the ground. If we have too many cell phones, we dispose of them to the land-fill.

Wouldn't it just be dandy if we could do the same with labour?

You mean like in Logan's Run or Soylent Green?

-k

[dre]

You are right. They are not intended for any specific sector. They are intended for everyone.

Boges points out some very valid points from a conservative economic view, that being there is a specific purpose and an intended specific sector for a minimum wage. He doesn't realize that the Liberal view is that everyone should make that wage and no one should make more. It's called equality and social justice or, correctly - Marxism.

Oh jesus... do you really not have any idea how silly this is?

the Liberal view is that everyone should make that wage and no one should make more

:lol:

[Icebound]

You mean like in Logan's Run or Soylent Green?

-k

I haven't read or seen either of those, but the plotlines seem correct

[segnosaur]

Why don't governments lower the tax rate on people making the minimum, so they get to keep more of the meager income they do get?

In a way they do....

- We already have a graduated tax rate for income tax, so that for those earning more end up in a higher tax bracket (in fact, the basic personal exemption means that many people on minimum wage pay no income tax.)

- There are a variety of deductions (e.g. Ontario's Sales tax rebate) which is available only to low wage earners.

[Mighty AC]

Minimum wages do much more harm than good since few people actually make minimum wage and increasing minimum wage reduces the number of jobs available to people who can only qualify for minimum wage jobs.

Since their needs are not being met, every cent of income earned by those being paid the minimum wage is plowed back into the economy, plus it improves lives, health, education, reduces social costs for the state and reduces turnover rates for employers. Even if the wage increase was accompanied by a small increase in unemployment the pros outweigh the cons for society. However, it seems that claims of a rise in unemployment may even be false.

Why Does the Minimum Wage Have No Discernible Effect on Employment?

Five Myths to Bust about Minimum Wage Hikes

[TimG]

Even if the wage increase was accompanied by a small increase in unemployment the pros outweigh the cons for society. However, it seems that claims of a rise in unemployment may even be false.

The effect on overall employment may be small because few workers actually make minimum wages but the loss of entry level minimum wage positions will result in more long term unemployed who can no longer even get into the job market. Also, the cost of living increases that are triggered by wage increases will often leave everyone worse off. The only thing that moderates the effect on cost of living are goods imported from places with much lower pay scales which hardly supports your argument that higher minimum wages make everyone better off.

The best way to look at the fallacy of the "living wage" argument is to ask why the wage should be $15/hour? Why not $50/hour or $100/hour? Obviously such wages are not affordable and the economy would shut down if a government was stupid enough to mandate such thing. But if large increases are bad then what reason is there to believe that small increases are a net benefit? At best we are looking at a curve with maxima somewhere between 0 and 100/hour. Why are governments better able to decide the optimal "minimum wage" than the market? Where is the evidence that minimum wage advocates have even attempted to find where the maxima is instead of plucking a number out of the air and blindly insisting it will be a net benefit.

Edited April 15, 2015 by TimG

[eyeball]

The best way to look at the fallacy of the "living wage" argument is to ask why the wage should be $15/hour? Why not $50/hour or $100/hour?

Because people are not demanding we stop the income gap from widening - they're simply saying "Please sir, could I have a little more".

In any case the best way to deal with these demands are to crack down on the communists that are spreading their poison. Riot police, mass arrests and making labour leaders disappear is the best way to go. And should the income gap actually stop growing we can always send in the tanks and heavy artillery.

[Mighty AC]

The effect on overall employment may be small because few workers actually make minimum wages but the loss of entry level minimum wage positions will result in more long term unemployed who can no longer even get into the job market.

That talking point has been repeatedly debunked.

A review of such studies published in 2013 (with the studies reviewed all carried out since the year 2000) found that there is no statistically significant link between employment and minimum wage increases. The authors compiled results from six different methods and four datasets to find that minimum wages do not lead to falls in employment. A second, very recent review corroborates these results.

Furthermore, both reviews found that higher minimum wages not only aren’t responsible for raising unemployment, they actually have a range of other positive economic effects. These improvements include, of course, higher incomes, but also less employee turnover, less wage inequality and better organizational efficiency. http://www.progressive-economics.ca/2014/01/16/are-higher-minimum-wages-uncanadian/

Also, the cost of living increases that are triggered by wage increases will often leave everyone worse off. The only thing that moderates the effect on cost of living are goods imported from places with much lower pay scales which hardly supports your argument that higher minimum wages make everyone better off.

So first you mention that 'few workers actually make minimum wages' and then go on to suggest that modest pay hikes to these few workers will impact the cost of living enough to actually hurt them? Interesting.

Cost-push inflation can increase the price of some goods and decrease the price of others. A modest increase in the minimum wage will have almost no impact on prices. Much of the cost increases to employers are offset by organization efficiencies and reduced employee turnover.

As it turns out a 10% increase in the minimum wage correlates to a 2.4%-3.6% decrease in the poverty rate. That's huge, not only for the families that can take better care of themselves, but it also removes a significant burden from social services. http://thetyee.ca/Opinion/2014/03/08/Minimum-Wage-Myths/

The best way to look at the fallacy of the "living wage" argument is to ask why the wage should be $15/hour? Why not $50/hour or $100/hour? Obviously such wages are not affordable and the economy would shut down if a government was stupid enough to mandate such thing. But if large increases are bad then what reason is there to believe that small increases are a net benefit?

Well, small increases have been shown to have no adverse impact on unemployment while simultaneously reducing poverty and social costs to society. Employers can manage the cost of small wage increases through organizational efficiencies and tiny price hikes.

$15 is at the low average range of living wage calculation performed in cities across Ontario. It is a figure that can handled by businesses and will go a long way to improve the lives of Ontarians. The economy in this province has shifted from manufacturing to serviced based. The vast majority of new positions being added are low wage, service jobs.

[TimG]

That talking point has been repeatedly debunked.

None of your links address my point about the loss of entry level jobs. Someone with no work experience needs to get into the job market and low paying/low skill jobs can provide a way in. If you eliminate these jobs then you increase barriers to employment because employers need to demand more skills from workers before they are even hired. In many cases, people who can't get into the job market may not show up on the unemployment statistics because they stop looking.

Cost-push inflation can increase the price of some goods and decrease the price of others. A modest increase in the minimum wage will have almost no impact on prices. Much of the cost increases to employers are offset by organization efficiencies and reduced employee turnover.

Again, a hypocritical and self serving argument. The cost of living today is driven as much by the price of labour in China as it is by local wages. An increase in local wages will simply result in more imports from areas with lower wages which may create the illusion that wages can be increased without an increase to cost of living but it is just an illusion that cannot be sustained without other regions which have much lower wages scales.

Well, small increases have been shown to have no adverse impact on unemployment while simultaneously reducing poverty and social costs to society. Employers can manage the cost of small wage increases through organizational efficiencies and tiny price hikes.

You did not answer the question: why do you believe governments are able to magically determine what the optimal minimum wage should be? What gives government bureaucrats the insight into the economy that allows to them to know how big an increase can absorbed?

Here is the experience of one business that closed its doors after a minimum wage hike:

http://borderlands-books.blogspot.ca/2015/02/borderlands-books-to-close-in-march.html

Many businesses can make adjustments to allow for increased wages. The cafe side of Borderlands, for example, should have no difficulty at all. Viability is simply a matter of increasing prices. And, since all the other cafes in the city will be under the same pressure, all the prices will float upwards. But books are a special case because the price is set by the publisher and printed on the book. Furthermore, for years part of the challenge for brick-and-mortar bookstores is that companies like Amazon.com have made it difficult to get people to pay retail prices. So it is inconceivable to adjust our prices upwards to cover increased wages.

This makes sense to me based on economic theory. You can quote studies that claim that the basic rules of economics do not apply, however, I am not going to take them seriously unless they can offer an explanation for why the results contradict basic economic theory. Edited April 17, 2015 by TimG