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Someone versed in economics explain what's wrong with this idea please.

  1. Aug 15, 2004 #1
    I was discussing why I think the minimum wage should be raised with someone, and I came to this conclusion. I think the minimum wage should be raised, but not universally. I think that there's no problem with paying teenagers a small wage, considering their parents are paying for most everything already, but installing something where once you're independent and living on your own that you qualify for a higher minimum wage which you can truly support yourself on. If the miniumum wage were raised this high, many people who take advantage of welfare because they can get along almost as well on welfare as they could on minimum wage would have no excuse not to work, since they could earn a much higher wage. This would allow the govt. to make the circumstances under which you can get welfare stricter, still allowing people who are physically unable to work to collect welfare, but eliminating alot of the people who are on it for no good reason, or working minimum wage jobs and still on it because they're making so little money. Since welfare could be drastically reduced, the tax burden on people could then be reduced a bit, giving them even more money.

    It all seems so simple and naieve, there must be some flaws in it.
     
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  3. Aug 15, 2004 #2

    russ_watters

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    A variable minimum wage would be a good thing. Very, very difficult to administer though. And it would still have the effect of increasing unemployment.
     
  4. Aug 15, 2004 #3
    Why would it be so hard to administer? Like when you apply for the job you indicate whether or not you are paying for the house you live in, provide some proof, and if you are, then you qualify for the higher minimum wage.

    I'm confused why higher minimum wages would increase unemployment. It seems that people make more money, so companies must pay more money and lose more money, but then people spend more money, and when more money is spent, companies make more money.
     
  5. Aug 16, 2004 #4

    russ_watters

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    Oh, I missed that - I figured it would be tied to certain jobs. This I'm not in favor of because it means that different people get paid different amounts of money for doing the same job. That's pretty unfair.
    But if you are selling more product, you need more employees to make it. Higher minimum wage increases overhead and reduces profit at any sales level.
     
  6. Aug 16, 2004 #5

    BobG

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    I might support a variation of that.

    Instead of being tied to the employee, though, it should be tied to the employer. In other words, businesses that have less than some certain numbers of employees would be exempt.

    In theory, this helps both your small family owned businesses and keeps a certain number of jobs open for new workers - and in a better 'first job environment' - it has to be harsh to have your first job experience be the mindless regimentation of a McDonald's or a telemarketing job.

    The disadvantages are national chains escaping the higher wage requirements by selling franchises to local owners and the fact that there will still be fewer jobs overall.
     
  7. Aug 16, 2004 #6
    It would be unfair, but in a fair way :rofl: Think about who needs more money, a 15 year old trying to save up for a car flipping burgers at McDonald's, or a 28 year old who hasn't had gainful employment since leaving college, trying to pay off debt and keep themselves alive.
     
  8. Aug 16, 2004 #7

    kat

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    What if the 15 year old is responsible for paying for drivers ed. (500 bucks where I live) or saving for his college education, paying for his own clothes...contributing to his families income? I know a few teens who work to help out their impoverished families. Teens are already limited in the work HOURS they can legally work. Farm and small family businesses usually pay under the table OR have family members working and then, as far as I know, minimum wage is not an issue.

    If a 28 year old hasn't had gainful employment since leaving college..I think he has some other issues to deal with..other then minimum wage limits.
     
  9. Aug 16, 2004 #8

    Nereid

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    From a purely economic PoV ('economics' being defined very narrowly), a minimum wage is less preferable than no minimum wage, period. Why? because, in the narrow sense, economics is about the allocation of scarce resources, and efficiency of allocation is to be always maximised, and no one has ever shown that free markets can be beaten wrt efficiency of allocation of scarce resources!

    However, a minimum wage has been introduced to meet social needs, not economic ones - and I'm sure you can get fancy with your sociology and economics to make a case that, in real societies, some kind of minimum wage is 'better' economically and socially than none.

    A much more interesting question would be, given consensus on certain social goals, what is the best (= most efficient) way of attaining those goals? For example, I understand that in the US (and some other countries) there is a usage tax on your telephone bill, supposedly to address the worthy social goal of providing good internet access to libraries and remote users (or something like that). Q: is this the most efficient way to attain the stated social goal? A: No. First, folks who live in remote areas likely have challenges other than just lack of access to broadband internet connections, and it may be that they don't really want it (maybe they live there to be away from such evils?). Far better to address some perceived social imbalance by giving the people - as individuals or communities - straight grants and letting them decide how to address their social ills. Second, narrow taxes like a telephone usage tax are always less efficient than a general tax (e.g. 'sales tax', income tax, wealth tax), if only because the incremental cost of creating and managing such regimes is always higher than the incremental cost of raising a broad-based tax by some tiny %. Third, even in just the narrow scope of telecom intent, it's not at all obvious that there's a free market to supply the libraries and remote folks' telecoms needs; at the very least, there will likely be some bureaucracy in the middle managing funds, and monitoring; bureaucracies are always less efficient in allocating scarce resources than markets.

    So, let's ask what social goals wasteof2 is trying to attain, and then see what might be economically efficient ways to achieve them! :smile:
     
    Last edited: Aug 16, 2004
  10. Aug 16, 2004 #9
    Minimum wages can have the effect of causing unemployment. The labor market too is bound by the laws of supply and demand. Minimum wages can create create price floors, which causes a surplus in the amount of workers available in the market, i.e. more unemployment. If firms were forced to raise their minimum wages that drastically, they would just push the cost onto the consumer, thereby raising prices. Here is an idea: Pay people more if they are more productive! Firms maximize their profit when their marginal revenues=their marginal cost. A firm can afford to pay a worker who is more productive higher wages since it still costs the same as to employ that worker as a less prodcutive worker. For example some one could make 100 dollars an hr to produce a 100 widgets an hr, or a less productive worker could be paid 10 dollars an hour to produce 10 widgets an hr. Both workers cost the same to the firm. Workers increase their productivity when they have more capital/resources available to them and also when they are more highly educated. You want to have higher wages? Make workers more productive. The government should make it mandatory for a minimum education to consist of 12+ years of schooling/learning a trade. The government can also give tax breaks/incentives for firms to invest in capital. Changing wages, changes the cost of a firm (obviously). Firms produce where their isocost lines are tangent to their isoquant curves. When wages are changed the isocost line rotates inward, or outward depending on how wages are changed. The rotation of the isocost line causes the isocost and isoquant line to not be tangent anymore. Firms therefore must shift their entire isoquant curves, by either reducing or increasing their ouputs, once again depending on how the isocost line moved. Raising wages causes the isocost line to rotate inward, so the firms will produce less, to keep their isocost and isoquant curves tangent.
     
  11. Aug 18, 2004 #10
    I believe that the purpose of government is to do for the people the things that the people cannot do for themselves alone, such as constructing roads, providing for the common defense, etc. Some individuals cannot find or hold a job that pays a decent wage to allow them to meet their bills. So the question becomes, how can government best assist those people?

    One way is to work on providing a level playing field for the businesses. Some businesses are not subject to taxation within the first year of ownership by an immigrant, so what happenes is one owner will run the business for a year and then their brother moves to America and buys the business for a $1.00. Then he runs it for a year and sells it to a newly arriving cousin, and so on. This creates an unfair advantage for this group who are legally bypassing paying their taxes. Government needs to watchdog this type of system abuse.

    Next thing is that some jobs that pay minimum wage are more difficult than others. Work for one of the fast food giants can be very demanding and they can certainly afford proper compensation for their workers. These companies have several advantages over mom and pop restaurants serving similar food, such as buying power, national advertising, product familiarity. These types of advantages could be used as a guage to set a higher minimum wage for their employees. For these companies to have to pay a little more for their work force may help level the field again for the smaller family owned businesses to compete.

    The same goes for national retail chains. These business have better advertising, better buying power, etc., so they should be doing more business, more business should mean more work for the employees, more work for the employees should mean higher compensation.
     
    Last edited: Aug 18, 2004
  12. Aug 18, 2004 #11

    selfAdjoint

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    The former way to approximate fairness like this was to support unions; the National Labor Relations Act during the 1930s gave unions the power to negotiate wage differentials in different jobs. But the unions bacame slack and have mostly fallen on hard times, while a furious and clever attack on them has captured the non laboring public's attention, leading to a great weakening of government support.

    I still think enforced wage negotiation - the price mechanism - is a better, more flexible way to achieve this goal than government specified wage differentials. Any time the government specifies some exact outcome, people find loopholes to get around it.
     
  13. Aug 18, 2004 #12
    No it isn't. NOT at all.
     
  14. Aug 18, 2004 #13
    Ewwww, oh jeez. So when a business is successful, we should pull them down, instead of others up?! Go Go anti-capitalism.
     
  15. Aug 18, 2004 #14
    You miss my point. They are successful, they have more business, they have more business, their workers have to work harder, and for this they should be compensated. Maybe they would be a little more friendly to their customers then and this would generate more business.

    The problem is working for one of these companies is difficult, but it is not brain surgury. Almost anyone can do it. So these people have no power over their employer. If they ask for more money, they'll just get fired and replaced with someone else. Or more likely phased out by having thier hours reduced until they have to quit. This way the employer doesn't have to pay unemployment compensation. This is common.
     
  16. Aug 18, 2004 #15
    Or perhaps you let the free market take it's course and use government regulation as it is meant to be used (to stop monopolies, to foster an environment in which more businesses will open).
    If McDonald's is harder work and pays the same as mom and pop, then people have the option to go to mom and pop because it's an easier job. That is how this works. Employers get to pick people based on qualifications, and people get to pick employers based on what they are offering for said qualifications.
    You also forget the other things that McDonald's offers without being forced to. Things like education assistance, healthcare, paid time off.
    McDonalds being successful hasn't stop a dozen other major chains from opening up in the same cities, or 100's of mom and pop places from doign the same.
    The idea of forcing Mcdonald's to pay more because of a perceived difficulty of the job (totally subjective even if you work there!) is totally arbitrary and misses the real problem. It's a scapegoat.
    Fostering small businesses would make it more of an employee market without hindering successful businesses (that actually almost makes me angry to think so many people think this is a good idea). An employee market means a higher de facto minimum wage, without the need for arbitrary, uneeded regulation stifling the market.
     
  17. Aug 18, 2004 #16

    BobG

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    The labor unions became slack? Short-sighted is probably a better description. That building and the machinery inside it are all temporary. Eventually they get old and need replaced. Who'd have thought that it's almost as easy to build a new plant somewhere where the labor and taxes are cheaper as it is to build a new plant next door to the old one?

    Man, I still remember the unions in my hometown negotiating how much of a pay cut they were willing to accept to keep the tire factories open just a few years longer. They all still left, eventually. But, it's a lot nicer town to go back and visit, now - doesn't smell like burning rubber anymore.
     
  18. Aug 18, 2004 #17
    My wife and I owned a video store and Walmart and Kmart could SELL videos for lower cost than we could BUY them from our distributer! Talk about a monopoly, how could we compete with that?

    People go where they can find the best deal. Service in a mobil society doesn't mean squat (unless you are trying to return something). We actually had people try and exchange movies at our store that they bought from Walmart because we have better service! Walmart knocked us out of video sales (we continued to rent them and do special orders), less than one year after opening a store 10 miles away.
     
  19. Aug 18, 2004 #18

    BobG

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    From a strictly economic point of view, you're dead on. And, contrary to Artman's opinion about large chain stores, service is important. There's usually more than one large superchain in town.

    The small business/large chain issue is more cultural than economic. Even though each single business transaction with a large chain store is better for the consumer, the loss of the town's personality by driving the small mom and pop stores out of business reduces the aesthetic quality of life of the town.

    Subjective, to be sure, but a real issue, none the less.
     
  20. Aug 18, 2004 #19

    selfAdjoint

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    Not in the small towns that WalMart initially targetted. There were the family-owned stores down on Main Street, and WalMart out on the highway, and nothing else closer than 40-50 mies away.
     
  21. Aug 18, 2004 #20
    That's too bad. Perhaps you should have found a better distributor.

    I run a computer consulting business. Dell builds machines AND offers a warranty cheaper than I can even build them. What did I do? Blame Dell? Hell no, I used it to my advantage and made my business more efficient by cooperation with Dell. I am almost fully serviced based now, with new spec'd out machines being dropshipped right to my clients door with the ring of a telephone, or click of a button.

    What does all of this have to do with the original topic? Nothing! Walmart already pays it's employees 8 bucks an hour on average, well over the minimum wage and well over any proposed minimum wages I have seen.
    Nothing would change for your business if walmart head a mandate to pay people 6, 7 , or 8 bucks an hour.
     
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