Unexpected Consequence of Higher Minimum Wage

[Moonlight Graham]

It is also BS. The golden rule of economics is higher prices mean lower demand. Raise minimum wages which increases prices and demand will go down.

I thought the golden rule of economics was price = supply & demand.

Maybe prices will go up if wages go up (inflation). But maybe higher minimum wage means:

- more money for low-wage consumers = higher demand for goods? Which = more production by industry to create those goods? = more money going right back into the hands of business? And that means more jobs created if businesses are making money? But yet wouldn't demand actually not go up because of the cuts in jobs to low-wage workers means less consumption? But if you cut jobs, doesn't that mean prices go up because demand goes down?

OR if higher minimum wage means decrease in employment as jobs are cut...wouldn't that be offset by the increase in demand caused by the low-wage workers who are working and making & spending more? Wouldn't prices not go up much if at all because the wage increase would be offset by the cuts in jobs for minimum wage employers?

So maybe it's just one big circle and in the end nothing will happen and everything will even itself out LOL. Economic theory is so unpredictable.

[TimG]

more money for low-wage consumers = higher demand for goods? Which = more production by industry to create those goods? = more money going right back into the hands of business? And that means more jobs created if businesses are making money? But yet wouldn't demand actually not go up because of the cuts in jobs to low-wage workers means less consumption?

I calculated some numbers on another thread that should illustrate why the premise of 'higher pay will return more profits to a business' is extremely implausible.

http://www.mapleleafweb.com/forums/topic/25997-canadian-immigration/?p=1181472

I see the premise as the economic equivalent to a perpetual motion machine which sounds great in theory but can never happen in reality.

The only way increasing minimum wages can be good for the economy is if the mandated increase forces businesses to improve productivity by investing in technology and training and cutting staff.

Edited August 31, 2016 by TimG

[Moonlight Graham]

I calculated some numbers on another thread that should illustrate why the premise of 'higher pay will return more profits to a business' is extremely implausible.

http://www.mapleleafweb.com/forums/topic/25997-canadian-immigration/?p=1181472

I see the premise as the economic equivalent to a perpetual motion machine which sounds great in theory but can never happen in reality.

The only way increasing minimum wages can be good for the economy is if the mandated increase forces businesses to improve productivity by investing in technology and training and cutting staff.

There's too many variables to predict the outcomes theoretically IMO. Put 5 PhD economists in the room they'll give you 5 different answers. Then throw in ideological/moral bias to boot. Only way to know is to test it in a number of places and see what happens, or look at past minimum increases. Different cities will behave differently too because of different industries and other economic/social factors.

Edited August 31, 2016 by Moonlight Graham

[TimG]

There's too many variables to predict the outcomes theoretically IMO.

Which is why I said implausible instead of impossible. That said, I think it reasonable to say that the maximum increase in money injected into the local economy is less that the total amount of wage increases. So if minimum wage earners make up 5% of the workers the potential boost to local businesses will be negligible.

Only way to know is to test it in a number of places and see what happens, or look at past minimum increases. Different cities will behave differently too because of different industries and other economic/social factors.

I think it is wrong to assume there is a single answer. In some cities at some times for some increases the negative impact will be minor. However, for other cities at other times the negative impact will large. That is why national or provincial minimum wages are a really dumb idea. Edited August 31, 2016 by TimG

[overthere]

just demand that they accept low wages

First I laugh, then I despair for my country when I read this stuff.

Wow.

[sharkman]

Not really.....wage whiners on both sides of the border have no idea how good they have it compared to the rest of the "undeveloped" world. They have largely forgotten how to be "low income" with pride. Mama didn't need no iPhone.

So true. The gadget phone generation with the triple chunk latte and such! Back in the early 90's a big Semi from the southern states(not sure which one) delivered a big load of church pews to our newly constructed auditorium and young sharkman helped the crew putting them together.

It turns out the truck driver was getting less than $7/hour for this trip to Canada. I was amazed at the low wages and in my less than subtle way asked him if he'd been looking elsewhere for work. His response showed stubborn pride in his work and vocation. I've seen that pride among various trades people mostly, you know, the kind of work that's beneath welfare mommy or daddy.

Some people can figure it out, and some can't. But the BS that passes for economic theory these days helps me understand how these crazy minimum wages get so high. They actually think a person should be able to live on a minimum wage! What stupidity!

[Michael Hardner]

. But the BS that passes for economic theory these days helps me understand how these crazy minimum wages get so high.

Reference provided for context:

Globe & Mail Report on Business: Real Minimum Wages Haven't Budged in 4 Decades

[eyeball]

Some people can figure it out, and some can't. But the BS that passes for economic theory these days helps me understand how these crazy minimum wages get so high.

It's sure easy to see how sycophancy and an undying adoration for one's betters plays into the BS.

[sharkman]

It's sure easy to see how sycophancy and an undying adoration for one's betters plays into the BS.

I'm sure your outlook on life and the world makes you what you've become.

[eyeball]

Ditto I'm sure.

[overthere]

So true. The definition of "poverty" in Canada and the US has crept up so high that it's basically meaningless anymore. Not having a big enough TV does not make you poor.

and having the latest IPhone is a human right.

[dialamah]

and having the latest IPhone is a human right.

Friend of mine has been living in an apartment and is sick monthly, because there's mold and he can't afford anything better. A couple of months ago, he was supposed to get medication for his illness, and had to decide whether to do that or pay rent. He's relocating to Alberta, where a friend has offered him a roomshare. As far as I know, he doesn't have a cellphone at all.

Another friend on disability has an old android phone that we gave him and no plan; he buys prepaid cards when he can. He has internet, but only because it comes via the landlord. He has no computer, and no cable TV.

My daughter works full time, at a little more than minimum wage. She also does not have an iphone; the only reason she has a phone at all is because my son pays for it. She does not have cable TV, but does have internet. There was a school outting and the parents had to pay for supplies; my daughter couldn't afford it, so I sent the money. My niece, working full time at what would be a decent wage for a single person, also doesn't have TV. She has a cellphone as do her two teenage daughters, but they aren't Iphones. She left her abusive spouse several years ago, after he became addicted to prescription painkillers, with 4 kids to raise. He's on disability, and she has the entire financial burden for those kids.

People on low income are not complaining because they lack the latest Iphone or don't have a big enough TV.

Edited September 12, 2016 by dialamah

[cybercoma]

Must suck having unemployment below 4% after raising minimum wage to $15. What a terrible consequence.

[cybercoma]

The immediate and rapid decline of unemployment in the Seattle area after raising the minimum wage is evident. http://www.seattletimes.com/business/economy/seattle-jobless-rate-dips-to-lowest-in-eight-years/

[TimG]

34 minutes ago, cybercoma said:

The immediate and rapid decline of unemployment in the Seattle area after raising the minimum wage is evident. http://www.seattletimes.com/business/economy/seattle-jobless-rate-dips-to-lowest-in-eight-years/

So why should the data from one city with a given set of economic circumstances be sufficient to invalidate all of the other data which shows that increases in minimum wage lead to fewer jobs/hours? 

[TimG]

On 8/30/2016 at 5:05 PM, Moonlight Graham said:

 more money for low-wage consumers = higher demand for goods? Which = more production by industry to create those goods?

We are not dealing with a closed system. Many of the goods or services purchased with the additional income will be imports from regions/countries with much lower wages. This means local businesses pay the full cost of wage increase but can only recover a portion of the wages in additional sales. The only way higher wages can be a net benefit to a local economy is if they spur productivity improvements which reduce costs faster than the rising wages. Productivity improvements usually mean fewer jobs and/or hours.

Edited October 19, 2016 by TimG

[Moonlight Graham]

6 hours ago, TimG said:

We are not dealing with a closed system. Many of the goods or services purchased with the additional income will be imports from regions/countries with much lower wages. This means local businesses pay the full cost of wage increase but can only recover a portion of the wages in additional sales.

This makes no logical sense.  Whatever the increase in minimum wage, if that money instead stays with Canadian businesses they're still going to spend it on goods/services where many "will be imports from regions/countries with much lower wages" whether as investments back into their own business, or if they keep it as profit that owners/shareholders will use to buy "imports from regions/countries with much lower wages" or simply invest that money into the markets in mainly American and international stocks.

If not raising the minimum wage leads to lower costs, Canadians are going to take those savings and buy more goods/services, many of such again are "imports from regions/countries with much lower wages".

[TimG]

25 minutes ago, Moonlight Graham said:

This makes no logical sense.  Whatever the increase in minimum wage, if that money instead stays with Canadian businesses they're still going to spend it on goods/services where many "will be imports from regions/countries with much lower wages" whether as investments back into their own business, or if they keep it as profit that owners/shareholders will use to buy "imports from regions/countries with much lower wages" or simply invest that money into the markets in mainly American and international stocks.

If not raising the minimum wage leads to lower costs, Canadians are going to take those savings and buy more goods/services, many of such again are "imports from regions/countries with much lower wages".

Sorry, you are the one making no sense. Lets say the extra pay is spent on restaurant meals. A large part of that money will pay for the food imported to create the meal. The money flows out of the are with no local benefit. Now you wish to believe that local exporters would make up the difference with more exports except the higher wages undermine their competitiveness and they are more likely to lose business since local exporters are competing with lower wage jurisdictions as well.

What you are presuming is an economic perpetual motion machine that produces benefit with no cost. Such things do not exists. For there to be a net benefit there must be productivity improvements in addition to wage hikes. 

Edited October 20, 2016 by TimG

[dre]

19 hours ago, TimG said:

So why should the data from one city with a given set of economic circumstances be sufficient to invalidate all of the other data which shows that increases in minimum wage lead to fewer jobs/hours? 

Fact is, you cant use ANY micro economic trends, because there so many things that impact the economy way more. You would need to study the data over the course of a few business cycles... 10-20 years. I had a quick look at a line chart showing economic growth since 1970, and tried to find evidence that the introduction of minimum wages, and the introduction of increases had impacted growth and I just don't see it in the data.

[dre]

12 hours ago, TimG said:

Sorry, you are the one making no sense. Lets say the extra pay is spent on restaurant meals.  

Money spent in the services sector on things like restaurant meals accounts for almost our entire economy and all our employment.

As for productivity, in the west output per worker has dramatically increased... but wages stopped increasing along with it, due to the end of BW, the huge growth of the corporate lobby, making free trade deals with slave states etc.

Instead of the additional value being generated by increased productivity being shared with the workers, its being concentrated into the hands of a small group of financial and political elites. The very same people that sold us this "service based economy" fraud in the first place.

 

[TimG]

1 hour ago, dre said:

Fact is, you cant use ANY micro economic trends, because there so many things that impact the economy way more. You would need to study the data over the course of a few business cycles... 10-20 years. I had a quick look at a line chart showing economic growth since 1970, and tried to find evidence that the introduction of minimum wages, and the introduction of increases had impacted growth and I just don't see it in the data.

Except that test is useless because you have no data to use as a control. More importantly, you are not asking the real question: do minimum reduce the amount of employment opportunities available to low skilled workers. Over growth numbers tell us nothing about the impact on the bottom 5% of the workforce. 

1 hour ago, dre said:

As for productivity, in the west output per worker has dramatically increased... but wages stopped increasing along with it, due to the end of BW, the huge growth of the corporate lobby, making free trade deals with slave states etc.

Conspiracy theories don't help your case.  50 years ago developed economies did not have to compete with labour in developing economies. This meant even unskilled labour could command better wages. Now labour competes with developing countries which means productivity needed to rise rapidly to simply maintain the wage levels expected in developed countries.

[?Impact]

1 hour ago, TimG said:

50 years ago developed economies did not have to compete with labour in developing economies.

Those same concentrated wealth interests that are holding down wages are directing the trade deals. In the end the economy only works for a few people, until we overthrow them.

[TimG]

22 minutes ago, ?Impact said:

Those same concentrated wealth interests that are holding down wages are directing the trade deals. In the end the economy only works for a few people, until we overthrow them.

The majority of people benefit from trade deals. It a gross misrepresentation suggest otherwise. Closing off trade would harm more Canadians than would be helped. 

[?Impact]

6 minutes ago, TimG said:

The majority of people benefit from trade deals. It a gross misrepresentation suggest otherwise. Closing off trade would harm more Canadians than would be helped. 

I never suggesting closing off trade, I suggest fair trade.

[TimG]

30 minutes ago, ?Impact said:

I never suggesting closing off trade, I suggest fair trade.

Fair trade is a slippery term that means different things to different people. In practice it means governments cherry picking industries for special treatment while letting others die. For example, steel makers don't like competition from Chinese steel so barriers get erected to make trade 'fair'. Chinese responds by blocking canola imports. Unionized steel workers are happy, farmers not so much. If Canada wants free access to other markets it must reciprocate.