Why? Let me put the case for a minimum wage in the easiest form I can imagine.
Suppose we concede that minimum wages will cause some significant degree of unemployment (and, yes, this concedes a lot to the opponents of the minimum wage that I don't actually think needs to be conceded).
First, one of the major arguments for a minimum wage is a moral one: people should not be working for wages under the poverty line. The minimum wage is the wage below which people start to struggle to live: they must face an existence below the poverty line. Minimum wages are set roughly at the poverty line, but ideally slightly above it. Many state real (inflation-adjusted) minimum wages in the US have fallen below the poverty line, and for a long time now (Pollin et al. 2008: 17). Secondly, a decent society does not let its unemployed starve: it gives them (ideally) a decent unemployment benefit. So, even if you think that a minimum wage will cause some degree of unemployment amongst youth, that is not a disaster.
In that respect, a minimum wage might be rather like health and safety regulations or regulations on pollution, which might cause some unemployment too, given that they raise the costs of doing business. But this is called civilisation, a tradeoff for more civilised life.
Thirdly, will youth unemployment really be a problem if the economy is run properly? Not if we really had full employment, Keynesian fiscal policy: whatever unemployment that resulted from a minimum wage would be swamped by the effects of massive government fiscal policy. Unemployment would be low.
Problem solved.
If you do not believe that argument, then why in the classic era of Keynesianism (1946-1970s) when minimum wages were generous (often above the poverty line in many countries), did we have very high employment? - indeed historically unprecedented high employment.
Also, as I have said above, my argument concedes a lot to the opponents of the minimum wage. But I do not need to concede much of what I have conceded.
People can cite empirical evidence that minimum wages have caused some higher degree of youth unemployment in such-and-such a region or state at such-and-such a time, but other empirical evidence can be cited that disputes this.
Overall, the empirical evidence against the minimum wage is weak or just non-existent. Bill Mitchell explains:
“The winds of change strengthened in the recent OECD Employment Outlook entitled Boosting Jobs and Incomes, which is based on a comprehensive econometric analysis of employment outcomes across 20 OECD countries between 1983 and 2003. The sample includes those who have adopted the Jobs Study as a policy template and those who have resisted labour market deregulation. The report provides an assessment of the Jobs Study strategy to date and reveals significant shifts in the OECD position. OECD (2006) finds that:There is another objection that has been going the rounds (mostly on libertarian blogs): if we make the minimum wage $9, then why not $900? That objection is, quite frankly, brainless.
- There is no significant correlation between unemployment and employment protection legislation;
- The level of the minimum wage has no significant direct impact on unemployment; and
- Highly centralised wage bargaining significantly reduces unemployment.”
http://bilbo.economicoutlook.net/blog/?p=1010
The minimum wage is a floor concept: the floor is roughly the poverty line (or slightly above it). That is where you set it, and not well above it.
Not even Post Keynesians deny that excessive wage increases can feed into cost push inflation – wages being a big factor in input costs. But a rise from, say, $7.25 to $9 is quite small. In the real world, whole swathes of the market have corporations and businesses that actively set prices and control them by price administration. They leave prices unchanged for significant periods of time, even when mild to moderate demand changes happen, or even when mild price increases affect their factor input costs. Of course, it could be said in reply that most businesses that are affected by the minimum wage are small businesses. Yet small business is not really the source of cost push inflation: the real cause is serious increases in factor input costs amongst the medium-scale and large corporations.
And many small businesses face much greater competition than large corporations, and their prices are constrained to a great extent by the need to compete.
BIBLIOGRAPHY
Pollin, R., Brenner, M., Wicks-Lim, J. and S. Luce. 2008. A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States. Cornell University Press, Ithaca, NY.
I see the argument as entirely a moral one. People must be given the socially acceptable minimum income to survive in their economy.
ReplyDeleteSince we have a work = income = resources distribution model in place, the system has to provide sufficient work generating sufficient income to obtain basic resources.
That is paid for by quantity expansion of the economy generated by spending the income obtained.
Where that quantity of output is insufficient then the spending power of the wealthy has to be reduced sufficiently to accommodate the minimum income requirement.
The resulting dynamics of all that is a production system that is focussed on needed goods and services, but tops up on 'luxury' goods and services.
Currently the dynamics of our production system seems to focus on luxury goods and services - dragging spending from the rich. It then tops up on the needed goods and services - insufficiently as it turns out.
A minimum acceptable income turns an economy into a 'bubble up' economy. Get the basics in place first - then sort the luxuries out with what capacity is left.
But the moral argument doesn't point to a minimum wage if you should be so lucky as to be employed. It points to a guaranteed income. That is the argument the public needs to hear, and one of the two big moral questions facing us today. (The other would be whether it makes any sense imprisoning felons in deliberately humiliating conditions, where they are subject to violence and rape, and not taught anything about why crime is not worthwhile or how to succeed without it.)
DeleteEven if one sees the argument as a moral one then from an economic perspective the minimum wage is an inefficient way to achieve the goal of preventing people falling below the poverty line.
ReplyDeleteIt would surely be better to offer a subsidy on low wages paid for by transfer payments. This will cause both wages and employment-levels to increase for the low paid. A minimum wage on the other hand is likely to cause some low-paid workers to be better off and some to become unemployed (where presumably they will be more likely to fall below the poverty line AND require transfer payments in order to survive).
Rob Rawlings@February 21, 2013 at 10:40 AM
DeleteIn an economy run to create full employment, any actual unemployment caused by minimal wages will be swamped by other government fiscal effects,both direct and indirect.
In which case it would be those fiscal effects that are causing some workers to earn above the minimum wage since logically (if you discount monopsony) then the minimum wage can only ever increase and never decrease unemployment levels.
Delete(1) not sure how this refutes what I said: in an economy run to create full employment, any actual unemployment caused by minimal wages will be swamped by other government fiscal effects
Delete(2) Even if you want to follow standard neoclassical theory, logically, yes, ceteris paribus (all other things being equal) minimum wage will logically always cause unemployment. But that is so abstract, it is obvious that it does not apply to the real world.
In the real world, what minimum wage law passes
ceteris paribus (all other things being equal)!?
Even assuming the abstract law is right, in the real world one can think of many instances where unemployment does not necessarily have to increase., e.g.,
(1) what if some percentage of business owners are politically progressive and think their workers deserve a minimum wage increase?:
Historically, efforts to raise minimum wages have drawn staunch opposition from small business advocacy groups. But as U.S. income inequality has widened and economic studies have challenged the long-held notion that minimum wage increases suppress employment, small business owners and lobbyists are turning up on both sides of the debate. .... Holly Sklar, founder of Business For a Fair Minimum Wage, aims to debunk the notion that all business owners oppose minimum wage increases.
http://www.businessweek.com/articles/2012-08-17/why-a-minimum-wage-increase-divides-small-business
(2) The labour market is highly unusual: people’s wages are also income, and income is spent on output. Demand drives output. Even if we assume *some* unemployment from minimum wage rises, it is most likely that extra demand will also - to a lesser extent than fiscal policy - swamp that unemployment and reduce it.
Ye, you can invent any number of scenarios where a minimum wage might not affect employment levels - however all seem dependent upon unlikely assumptions.
DeleteDo you disagree with my initial point that if you want to find a way to prevent workers getting paid below a given level then wage subsidies would be a more effective way of achieving it than a price floor ?
(1) no, they not invented assumptions. E.g., you're saying that there are zero business people who are progressives?
Delete(2) as to your last question - wage subsidies versus price floor - I would have to look more carefully at the literature, before deciding
Finally, look at a recent review of the empirical data:
Delete"Economists have conducted hundreds of studies of the employment impact of the minimum wage.
Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research
conducted since the early 1990s concludes that the minimum wage has little or no discernible effect
on the employment prospects of low-wage workers."
p. 22
http://www.cepr.net/documents/publications/min-wage-2013-02.pdf
Care to explain that empirical data?
Why should private companies profit from subsidised labour?
DeleteIf the state pays for labour is should use it for the common good. Private companies can always compete it away from that purpose if they have a business model that works.
Private businesses need to feel the cost of labour. Otherwise they won't replace that labour with machinery.
The empirical data is mixed - from showing that minimum wages causes significant unemployment to reports like the one you cite that show some, but not much unemployment.
Delete@Neil: If it can be shown that min wage does indeed cause unemployment and subsidies don't then in both cases their is a social costs - its just that one leads to a higher level of unemployment than the other and distributes the costs and benefits more "fairly".
" If it can be shown that min wage does indeed cause unemployment and subsidies don't then in both cases their is a social costs"
DeleteThat can't be shown no matter how much the true believers try.
Subsidies stop firms replacing people with machinery - which is what we want to happen to drive productivity forward.
If you want to profit from labour, then you should have to pay the full cost of it.
Otherwise you don't get to profit and the labour should be used for the common good instead.
Capitalism only values what it has to pay for.
"Subsidies stop firms replacing people with machinery - which is what we want to happen to drive productivity forward. "
DeleteThat's a good point that I hadn't thought of. I'm actually against subsidies in general - I only brought it up here because it seemed like it would have lower total costs than a minimum wage if one wished to address the ethical issue of people working at too low a wage. I guess this issue is more complex than I thought and I have no ready answer.
"will youth unemployment really be a problem if the economy is run properly? Not if we really had full employment, Keynesian fiscal policy"
ReplyDeleteBut we don't have this. So we have to consider the effects of raising the minimum wage now (as Obama intends to do).
The minimum wage harms the employment prospects of the most vulnerable workers: the young, high school/college dropouts, and minorities (disproportionately more likely to fall in the 2nd group). Why should they suffer?
If we want to help the poor, why not cut payroll taxes first? Isn't that Mosler's proposal? Since payroll taxes are highly regressive, this would help out all low income and middle class workers, not just those receiving the minimum wage.
We could also expand the Earned Income Tax Credit:
http://esoltas.blogspot.kr/2013/02/eitc-and-minimum-wage.html
There are many better options in the policy toolbox besides raising the min-wage.
(1) yes, I am all for tax cuts to help lower paid works. But that will mean a larger deficit, which is politically more troublesome than minimum wage increases.
Delete(2) yes, my priority would be:a return to full employment fiscal policy first.
(3) where is the evidence that the minimum wage harms "the young, high school/college dropouts, and minorities"?
Is it your view that those who DO get a minimum wage job are worse off for that job and higher wage?
(1) I'm not deliberately trying to be obtuse, but I don't understand this. I thought you were in favor of deficit spending to end depressions. Why are you against larger deficits wrt a payroll tax cut in particular? If larger deficits are a major political hurdle, then any implementation of your fiscal stimulus proposals is going to be difficult.
DeleteBesides, a payroll tax cut for poor workers doesn’t have to lead to a massive increase in the deficit. The reduction in tax revenue could be partially offset by cuts in military spending (I don’t see why the US needs to outspend the next 13 countries combined): http://www.pgpf.org/Chart-Archive/0053_defense-comparison.aspx
(2) Payroll tax cuts would put more money in the hands of workers, who would increase their spending. This would contribute to the goal of full employment.
(3) As you know, empirical studies are somewhat mixed. Still, as Gary Becker states, “the “majority” [of work] has tended to confirm the older conclusion that a 10% increase in the minimum wage reduces teenage employment by about 1to 3 per cent.” Also: “Several studies by the French economists Guy Laroque and Bernard Salanie support the view that higher minimum wages significantly reduce employment of married women and young persons. Consistent with their analysis, France... also has unusually high unemployment rates of younger persons, especially Moslem males.”
http://www.becker-posner-blog.com/2013/02/is-raising-the-minimum-wage-a-good-idea-becker.html
"Is it your view that those who DO get a minimum wage job are worse off for that job and higher wage?"
It is my view that raising the MW will make it harder for many low-skilled workers to get a job at all, which will leave those workers worse off ($7.25/hr is much better than zero). My preference would be to help such workers through a payroll tax cut instead, which would also make it less expensive for employers to hire more low income workers by lessening their matching contributions.
(1) "Why are you against larger deficits wrt a payroll tax cut in particular? "
DeleteI am not. All I meant to say above was that in the US at the moment this is more politically difficult than a minimum wage increase.
(2) yes.
(3) As I said elsewhere: I can cite:
(a) the recent OECD Employment Outlook entitled Boosting Jobs and Incomes, based on a comprehensive econometric analysis of employment outcomes across 20 OECD countries between 1983 and 2003, which finds:
- The level of the minimum wage has no significant direct impact on unemployment;
http://bilbo.economicoutlook.net/blog/?p=1010
(b) This summary of 2 meta-studies:
"Economists have conducted hundreds of studies of the employment impact of the minimum wage.
Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research
conducted since the early 1990s concludes that the minimum wage has little or no discernible effect
on the employment prospects of low-wage workers."
p. 22
http://www.cepr.net/documents/publications/min-wage-2013-02.pdf
The evidence is mixed or feeble.
(4) Regarding the question "Is it your view that those who DO get a minimum wage job are worse off for that job and higher wage?" - you do not answer the question.
Also, regarding question of wage subsidies versus price floors, although - as I stress above - to make a proper judgement I would prefer to read the specialist literature on it, nevertheless this does not inspire initial confidence:
Deletehttp://www.salon.com/2013/02/19/southern_poverty_pimps/
http://economicsisfordonkeys.blogspot.com/2013/02/southernomics.html
There's also the other issue.
DeleteIf things did self correct there would be no need to increase the minimum wage. The evidence on the ground is that people on minimum wage are destitute. Things ain't happening in the way true believers predict.
I don't understand the argument that 100% of min wage recipients should remain destitute because if you raise the min wage somebody might lose a job.
Taking 99.99% out of destitution seems like a good reason for taking any step to me.
And if there are some disadvantages by the move then that suggests that the social security net is deficient and should be improved.
You do have to ask what more evidence of stickiness is required.
"The evidence is mixed or feeble."
DeleteWe can play this game all day. But David Neumark, who has studied the minimum wage as much as anyone, states (in reaction to the "new research"):
"the evidence presented in the IRLE papers only runs contrary to earlier studies because the authors’empirical models rely on inappropriate control groups, and toss out the economic data necessary to detect the impact of a minimum wage increase."
"When the analysis is not restricted to these inappropriate control groups, the data clearly show that wage hikes do cause job loss. Indeed, in some cases Neumark
and Salas find that the IRLE authors omitted evidence that exposed the weaknesses in their approach."
http://epionline.org/studies/Neumark-01-2013.pdf
Also, if min-wage hikes don't cause job losses, how do you explain this graph? (which measures "excess teen unemployment," not total)
http://consultingbyrpm.com/blog/2013/02/even-more-thoughts-on-the-minimum-wage.html
Or these tables?
http://consultingbyrpm.com/blog/2013/02/i-get-empirical-on-minimum-wage.html
http://consultingbyrpm.com/blog/2013/02/landsburg-frames-the-minimum-wage-debate-very-strangely.html
(4) Sure, you're right. Those who already have min-wage jobs or manage to get one are better off than they would have been w/o a min-wage increase. But this benefit is partially offset by the negative effects on those who can't get jobs due to the min-wage hike.
DeleteIn the long run, the new min-wage also gives companies the incentive to minimize their use of labor (e.g. one touch automatically filling soda fountains, self-serve checkout lines at Wal-Mart).
"[a payroll tax cut] is more politically difficult than a minimum wage increase."
Again, you're right. But why not do both? This poll says that a payroll tax cut extension would have been supported by at least 52% of Americans, while only 22% were outright opposed to an extension:
http://big.assets.huffingtonpost.com/cliffproposaltoplines.pdf
Support for the payroll tax cut extension beat out support for an extra $50 billion in infrastructure spending (only 43% support). Does this mean that you no longer support infrastructure spending due to its unpopularity? I don't mean to be snide, but this really is the only conclusion I can draw. Have some courage in your convictions! :)
But seriously, if you think something is right on economic grounds, I think you should continue to say so, regardless of what polls say. We're discussing economic merits first, political feasibility second. Only about 4 million US workers make the MW or less. A payroll tax cut would benefit many more workers, increase AD, and would be supported by at least 50% of Americans. It’s just a better policy all around.
John S,
Delete(1) If short term support for payroll tax cut is really that strong, fine. Do it.
(2) Regarding this graph:
http://consultingbyrpm.com/blog/2013/02/even-more-thoughts-on-the-minimum-wage.html
It seems obvious to me that the global recession must have a lot to do with that data, since the big rises coincide with the recession.
(2) Regarding this:
http://consultingbyrpm.com/blog/2013/02/i-get-empirical-on-minimum-wage.html
Oh, come on. This is so terribly crude. Murphy hasn't corrected the data for any number of factors that would be needed to test the proposition:
Does a minimum wage increase *ceterus paribus* increase unemployment?
"I don't understand the argument that 100% of min wage recipients should remain destitute"
DeleteThey shouldn't have to remain destitute. We can expand the Earned Income Tax Credit and/or cut payroll taxes. Workers can be better off and no one has to lose their job. And employers will even have some leeway to hire more workers due to lower matching contributions.
"Does a minimum wage *ceterus paribus* increase unemployment?"
DeleteAs the paper linked below shows in spades, no it doesn't.
There is no evidence that minimum wage increases causes any unemployment.
The objection to it is really because it stuffs the 'free market' beliefs of those who continue to believe in a competitive market employment model.
Neil Wilson:
Delete"There is no evidence that minimum wage increases causes any unemployment."
I wouldn't go that far. I would say the empirical evidence is mixed at best; and feeble at worst - so feeble as to utterly undercut the strident statements of minimum wage opponents: e.g., the OECD study "Boosting Jobs and Incomes " found the "level of the minimum wage has no significant direct impact on unemployment"
No "significant direct impact on unemployment means maybe a little bit here and there, but nothing really important.
There is just as much statistical evidence that it *increases* employment.
Delete"They shouldn't have to remain destitute. We can expand the Earned Income Tax Credit and/or cut payroll taxes. Workers can be better off and no one has to lose their job."
DeleteYou mean that private sector operations can't function without state subsidies?
Sorry, but if a private sector operation wants to use the labour it has to pay the price required to give that individual an acceptable standard of living.
If it can't then that private sector activity shouldn't exist.
If the state pays for labour, then it should be using the labour for the common good, not private profit.
There is just as much evidence that minimum wage *increases* employment as there is that it causes any negative effect.
But on any balance of probability assessment the evidence is that minimum wage has no discernible effect on employment.
It's just another case of the real on the ground evidence not fitting the religious theories that many hold.
"No "significant direct impact on unemployment means maybe a little bit here and there,"
DeleteIf the paper below is anything like complete then there is no statistical support for *any* increase in unemployment.
Any found is just as likely to be random noise.
I'm afraid that a lot of economics papers work like papers on diet. They have to end the paper with a conclusion that provides a hat tip to the prevailing hegemony regardless of what the stats actually show.
"It seems obvious to me that the global recession must have a lot to do with that data, since the big rises coincide with the recession."
DeleteIt's difficult to say (note: the graph is excess teen unemployment, i.e. teen UE% - nat'l UE%). Why did the recession hit min-wage workers harder than regular workers? It's not obviously due to the recession, b/c it's the biggest gap in 40 years "going back to at least 1972, and was almost 5 percent higher than the peak teen jobless rate gap following the last recession (12.7% in June 2003)."
http://www.aei-ideas.org/2013/02/lets-review-the-adverse-effects-of-raising-the-minimum-wage-on-teenagers-when-it-increased-41-between-2007-and-2009/
Maybe there was some reason why this recession was drastically harsher on min-wage workers than previous recessions. But can we really rule out the 41% increase in the min-wage from 07-09 immediately? Surely it's a possible cause, no?
(3) You're right, it's crude. But, as Steve Lansburg said:
"Okay, so there are 19 “red” states. If they were ranked in a randomly chosen order, I get:
Probability that there are at least 6 red states in the top 10: about 11%
Probability that there is at most 1 red state in the bottom 10: about 4%
Probability that there are at least 6 in the top 10 AND at most one in the bottom 10: about 1%"
And Neumark undoubtedly has looked at better, more detailed data and come to the conclusion that min-wage hikes increase job losses.
Also, another fact is that many poor people don't work. Raising the min-wage isn't going to help them. If you want to help them, you would have to implement something like Friedman's negative income tax (NIT), which is supported by some left-libertarians.
"Another NIT advantage is a freer labor market. No minimum wage would be necessary, since a minimum income would now be guaranteed. This would boost employment"
http://www.city-journal.org/2011/21_1_income-tax.html
(1) yes, no doubt you can find evidence for increased employment. But then what the recent meta analysis data suggest is "little or no evidence" of increased unemployment:
Delete"Once this publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains. "
Hristos Doucouliagos and T. D. Stanley. 2008. "Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis," Deakin University, Australia.
Dube, T. William Lester, and Michael Reich. 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," Review of Economics and Statistics 92.4: 945-964.
http://robertvienneau.blogspot.com/2011/03/card-and-kruegers-research-on-minimum.html
(2) yet the issue is complex. E.g., other evidence suggests that occasionally the minimum wage drives employers to use labor-saving devices: Trapani, J. M. and J.R. Moroney. 1981. "The Impact of Federal Minimum Wage Laws on Employment of Seasonal Cotton farm Workers," in S. Rottenberg (ed.), The Economics of Legal Minimum Wages. American Enterprise Institute, Washington. 233-246.
But such an adoption of productivity-increasing, labour saving machines makes us all richer (as long as we have full employment), and isn't really a deleterious effect at all in the long run, for in general higher wage nations have better productivity growth as opposed to low wage nations with no minimum wage laws.
(3) and of course the critics can draw on their own empirical literature, though most of it is either feeble or conducted well before the 1990s and perhaps open to charges of poor methodology:
http://economicsprinciplesandapplications.blogspot.com/2011/05/do-minimum-wages-cause-unemployment.html
Neil, you wrote:
Delete"if a private sector operation wants to use the labour it has to pay the price required to give that individual an acceptable standard of living.
If it can't then that private sector activity shouldn't exist."
In your opinion, what level is that?
John S,
DeleteThe fact that a gap has opened up between youth unemployment rates and adult unemployment rates since 1970s strongly suggests it is a factor of abandoning full employment plus some other factors (youth are obviously disadvantaged over older, more experienced workers?).
What is telling is that in the golden age of capitalism (the classic era of Keynesianism) one doesn't have to look far to find that youth unemployment rates and adult unemployment rates were both historically low and much the same, or in some cases youth unemployment rates were lower than adult unemployment rates: e.g., the Netherlands which had both minimum wage laws and full employment policies (United States. Bureau of Labor Statistics, Youth unemployment and minimum wages, p. 147).
"In your opinion, what level is that?"
DeleteWhat we decide as a democratic society.
It's that old 'level below which nobody can fall, but above which everybody can rise' thing.
And that changes over time and between societies.
Lord Keynes,
ReplyDeleteIs the minimum wage less effective today now that capital is more mobile? For example, in the U.S. Southern states use low minimum wages to attract businesses from Northern states with higher wages.
On a grander scale, is there anything that can be done to prevent a “race to the bottom” between countries? Within a federal state, like the U.S., the answer is easier: create a higher national minimum wage; but what about in the anarchic global market?
(1) yes, national minimum wage makes sense.
Delete(2) "On a grander scale, is there anything that can be done to prevent a “race to the bottom” between countries?"
It's called industrial policy.
The piece Mitchell links is handy. Here another recent one: CEPR's John Schmitt recently did a short lit review of some important minimum wage publications in the years since Card & Krueger/Neumark & Wascher.
ReplyDeleteWell, minimum wage can be justified even in neoclassical terms by appealing to the efficiency wage theory - for which I believe there is vast existing literature written by New Keynesians like Stiglitz or Akerlof.
ReplyDeleteSpeaking of which Lord Keynes, will you ever address the compilation of criticisms Bryan Caplan made to Keynesian theories (http://econfaculty.gmu.edu/bcaplan/keynes.txt). I know Caplan is still a neoclassical, but he's very popular among the Austrian crowd.
Did you read ´Market Monetarist´ Lars Christensen´argument against minimum wages? He just presents the most simple graph, and that´s it. Often he just presents some graph or equation to make his point, with complete disregard for other theories or what´s going on in reality or empirical studies. Models are more important for him than reality. I wonder why this guy has any influence whatsoever, he is just simplistic. Probably he just confirms a lot of people´s stupid prejudices.
ReplyDeletehttp://marketmonetarist.com/2013/02/23/bob-murphy-on-minimum-wages-and-a-textbook-graph-to-illustrate-it/
What you didnt say is how, those who work for a minimum wage usually live paycheck to paycheck. What that means is that all of their money goes back into the economy. If you want to boost the economy a hike in minimum wage will give those same people more purchasing power and in turn increase demand. All of this CREATES jobs. Like you said, A minimum wage is usually sits at or slightly above the poverty line, and according to kynesian logic, the poverty line goes down and down the more the bottom rung of society is elevated. when demand is low prices are high cause they hope they cab get a return to match the investment. to boost demand you LOWER prices. To increase prices Just because everyone has more money is silly, cause then your no longer be competitive in the market, and that might not even reflect the equilibrium price. the rest of society hasnt got a pay raise they'll be pissed so that is what keeps the prices from goin up, cause in competition others can lower their prices, if not just leave them alone, to pick up on those consumers. People say look at Canada, everything up there is so expensive and the minimum wage up there is 13. Canada also doesn't give Humongous subsidies out everywhere to artificial lower the prices. They also pay higher taxes to enjoy more social programs that leaves more money in their pocket in the long run if you take into account health care, unemployment insurances and really helps the even less fortunate come up and be a productive member of society so unemployment goes down demand is up prices are at equilibrium and they have a high wage.
ReplyDeleteMight be good to re-visit this topic in light of the current political climate, and also the increased sacre stories on automation taking away jobs as a whole. I'd love to hear your thoughts on the matter.
ReplyDeleteThey're not scare stories. It's a real issue.
DeleteThe solution isn't to oppose automation because this can be used as a powerful tool in government industrial policy to rebuilt Western manufacturing.
Solution is:
(1) large scale fiscal policy to cause much higher private sector employment
(2) direct employment programs of economically and socially useful work especially for young people.
-----------------
In short, you need jobs, jobs, jobs, jobs and more jobs by (1) and (2).