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Economist
As you've probably noticed I'm generally a critic of most forms of government intervention in both peoples' personal lives and their economic lives. I guess that's what makes me a libertarian. Many times this point of view causes me to get in disagreements, discussions, arguments, debates, or whatever you want to call them with others, partially because my position is in the minority, and therefore others often disagree with me. I guess you could say I'm a "radical."
Often times these discussions/debates center around economic policy/regulation. (I guess I rarely get in arguments about liberty in regards to personal views, because a lot of folks probably share many of my ideas about invidual/personal/social freedom and liberty.) The person on the other end of the discussion often states something like the following, "Look, one reason we need government to intervene in our economic system is because employees and employers don't have the same power and therefore don't have the same bargaining position. Therefore, the workers will usually get screwed over when making deals with their superiors. One way to solve this problem is by giving employees some additional bargaining power, or by taking some away from the employers."
I'll admit, the argument sounds plausible. In effect, the person has just stated a theory. And we could derive (and then test) a hypothesis that's congruent with this theory, that states, "many employees would pay less than the minimum wage if it were legal, and therefore the minimum wage raises the wages of many workers." If this hypothesis was true, we would also expect that many individuals would earn exactly the minimum wage, because there's no reason for the employers to pay more than minimum wage (after all, they're already obeying the law, and as many have pointed out business owners, managers, etc are self-interested (some might say greedy)). Therefore, one hypothesis that comes from this plausibe theory is "many people will earn the minimum wage." Since it is a hypothesis, we don't really know whether it's true or not, and therefore we need to test it.
I have often asked many of the people I'm debating with, "If businesses are so powerful and have so much control over peoples wages, then why do so few people make minimum wage?" The funny thing, is that I've asked this question about 5 - 10 times on my short time on this forum, and I can't remember anyone actually answering it. Nobody's even took a stab at it, by trying to explain how this could be (although it does put a dent in their theory).
I was just reading an blog article on the minimum wage. The writer of the blog is an academic economist, and just out of personal curiosity he often surveys his students and people he gives presentations to, asking them "what percentage of the work force makes the minimum wage?" The median survey result is that 20% of the work force makes the minimum wage, in reality the number is closer to 2.2% (that's a big difference). Interestingly, approximately 98% of the work force earns above the minimum wage. Furthermore, of the small percentage of people who actually make the minimum wage, approximately 75% of them work in the service industry, meaning that a good chunk of them earn tips. Minimum wage earners make up a very small proportion of the work force, and the average minimum wage earner's "take-home" wage is probably above the minimum wage.
I attached the blog articles below so you won't have to go to the website (cafehayek):
Often times these discussions/debates center around economic policy/regulation. (I guess I rarely get in arguments about liberty in regards to personal views, because a lot of folks probably share many of my ideas about invidual/personal/social freedom and liberty.) The person on the other end of the discussion often states something like the following, "Look, one reason we need government to intervene in our economic system is because employees and employers don't have the same power and therefore don't have the same bargaining position. Therefore, the workers will usually get screwed over when making deals with their superiors. One way to solve this problem is by giving employees some additional bargaining power, or by taking some away from the employers."
I'll admit, the argument sounds plausible. In effect, the person has just stated a theory. And we could derive (and then test) a hypothesis that's congruent with this theory, that states, "many employees would pay less than the minimum wage if it were legal, and therefore the minimum wage raises the wages of many workers." If this hypothesis was true, we would also expect that many individuals would earn exactly the minimum wage, because there's no reason for the employers to pay more than minimum wage (after all, they're already obeying the law, and as many have pointed out business owners, managers, etc are self-interested (some might say greedy)). Therefore, one hypothesis that comes from this plausibe theory is "many people will earn the minimum wage." Since it is a hypothesis, we don't really know whether it's true or not, and therefore we need to test it.
I have often asked many of the people I'm debating with, "If businesses are so powerful and have so much control over peoples wages, then why do so few people make minimum wage?" The funny thing, is that I've asked this question about 5 - 10 times on my short time on this forum, and I can't remember anyone actually answering it. Nobody's even took a stab at it, by trying to explain how this could be (although it does put a dent in their theory).
I was just reading an blog article on the minimum wage. The writer of the blog is an academic economist, and just out of personal curiosity he often surveys his students and people he gives presentations to, asking them "what percentage of the work force makes the minimum wage?" The median survey result is that 20% of the work force makes the minimum wage, in reality the number is closer to 2.2% (that's a big difference). Interestingly, approximately 98% of the work force earns above the minimum wage. Furthermore, of the small percentage of people who actually make the minimum wage, approximately 75% of them work in the service industry, meaning that a good chunk of them earn tips. Minimum wage earners make up a very small proportion of the work force, and the average minimum wage earner's "take-home" wage is probably above the minimum wage.
I attached the blog articles below so you won't have to go to the website (cafehayek):
I often ask students or people attending my lectures to guess the proportion of the US work force that earns the Federal minimum wage or less. The median guess is usually around 20%. In 2006 (the latest numbers available), the BLS reports that the answer was 2.2%:
According to Current Population Survey estimates for 2006, 76.5 million American workers were paid at hourly rates, representing 59.7 percent of all wage and salary workers.1 Of those paid by the hour, 409,000 were reported as earning exactly $5.15, the prevailing Federal minimum wage. Another 1.3 million were reported as earning wages below the minimum.2 Together, these 1.7 million workers with wages at or below the minimum made up 2.2 percent of all hourly-paid workers. Tables 1-10 present data on a wide array of demographic and socioeconomic characteristics for hourly-paid workers earning at or below the Federal minimum wage. The following are some highlights from the 2006 data.
Minimum wage workers tend to be young. About half of workers earning $5.15 or less were under age 25, and about one-fourth of workers earning at or below the minimum wage were age 16-19. Among employed teenagers, about 8 percent earned $5.15 or less. About 1 percent of workers age 25 and over earned the minimum wage or less. Among those age 65 and over, the proportion was about 2 percent. (See table 1 and table 7.)
About 3 percent of women paid hourly rates reported wages at or below the prevailing Federal minimum, compared with under 2 percent of men. (See table 1.)
About 2 percent of white, black, and Hispanic hourly-paid workers earned $5.15 or less. Among Asian hourly-paid workers, about 1 percent earned the Federal minimum wage or less. For whites, women were twice as likely as men to earn $5.15 or less. (See table 1.)
Because this is only for workers who are paid hourly, the actual proportion is probably much lower than 2.2%.
And this does include some illegal immigrants These numbers are taken from the CPS that tries to capture a representative sample of all residents. Of course, it may not capture illegal immigrants precisely—I'd assume illegal immigrants try and find ways to avoid be surveying out of a general nervousness that it could lead to being caught.
Pretty amazing, isn't it. Over 97% of hourly workers make more than the law requires. How can that be? One answer is state minimum wage laws that require payment above the federal minimum wage. Thirty-two states require paying more than $5.15 per hour. That leaves 18 states where it's legal to pay $5.15 an hour. What is the proportion of workers in those states earn $5.15 or less?
Even in those states without a minimum above $5.15, (scroll down to Table 3), at least 96% of all hourly workers earn more than $5.15. So state minimum wage statutes can't explain why so many employees earn more than the legal minimum.
So why would greedy employers pay more than the legal minimum?
The answer is simple: competition among employers to attract workers.
Some people seem to have misunderstood the point about this post on minimum wages. The point was simple. A lot of people I speak to, not just "regular" students, but legislators and journalists who I sometimes teach, think that only regulations or unions keep businesses from exploiting workers. They are shocked to discover that less than 10% of the private work force is unionized and that somehow, most workers, something over 96%, maybe closer to 99%, manage to make more than the minimum. Usually half of these groups when I survey them think that at least (at least!) 20% of the work force earns the minimum wage or less and that only legislation keeps it from being lower. But legislation turns out to be relatively unimportant compared to supply and demand—that is, competition. if you try to pay less than the going rate for the skills you want to hire, you can't attract workers.
Meanwhile, Tim Worstall points out something I missed:
Unfortunately, on the page he’s taken his information from he’s missed one thing which makes his case even stronger.
Nearly three in four workers earning $5.15 or less in 2006 were employed in service occupations, mostly in food preparation and service jobs.
That’s your waitron units and barkeeps folks. And what do we know about people who do these sorts of jobs? Well, perhaps you have to have actually done them (as I have, everything from the graveyard shift in a Denny’s to tending bar around the corner from this guy’s place): they all make tips. In fact, so much so that there is (or at least used to be when that BLS report was prepared) a special minimum wage for those in such jobs, one lower than the official Federal minimum wage.
For example, way back when, the min. wage was $3.35 an hour. Waiters got $2.01. You didn’t really care because even serving pancakes at 5 am you made another $25-$30 a shift ($50-$150 in a decent place). Barkeeps got $3.35 plus tips.
The BLS numbers are reporting what employers paid employees, not what people are actually earning. So we might in fact say that while the number being paid the minimum wage or less is 2.2% of the workforce, the number actually earning that figure is more like 0.5%.
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