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Thread: If The Minimum Wage Doesn't Benefit The Poor Then What's The Point Of Having The Minimum Wage?

  1. #1

    If The Minimum Wage Doesn't Benefit The Poor Then What's The Point Of Having The Minimum Wage?

    It’s not often that I agree with the New York Times on matters economic and it might be all the way back in 1987 that I last agreed with it on the subject of the minimum wage. But miracles do happen and so has one here. The NYT was once right on the subject of that minimum wage. They both argued that sure, we want to increase the incomes of the working poor. But doing so will mean that we do the insisting on improving the incomes of those working poor do the paying for the improvement. And also that the correct level of the minimum wage was then and is now zero. Yes, that’s correct, the proper rate for the minimum wage is $0 per hour.

    Here is that editorial:

    The Right Minimum Wage: $0.00

    And here’s part of their argument:

    Perhaps the mistake here is to accept the limited terms of the debate. The working poor obviously deserve a better shake. But it should not surpass our ingenuity or generosity to help some of them without hurting others. Here are two means toward that end: Wage supplements. Government might subsidize low wages with cash or payments for medical insurance, pensions or Social Security taxes. Alternatively, Washington could enlarge the existing earned income tax credit, a ”negative” income tax paying up to $800 a year to working poor families. This would permit better targeting, since minimum-wage workers in affluent families would not be eligible.

    All entirely true. And we’ve had various papers just recently that back up this point. Here, for example, showing that minimum wage rises don’t in fact help the poor. The major consumers of the output of minimum wage workers are the poor themselves. Yet the majority of recipients of the minimum wage are not in fact those in poor households. Thus the poor themselves carry the burden of price rises that result from the minimum wage rise while they do not gain all of the income benefits from that rise. So, the poor in aggregate lose out.

    And we’ve also got the fact that rises in the minimum wage really do destroy jobs. The last 30% rise in the minimum wage destroyed 0.7% of all jobs in the country.

    Then today we’ve something very interesting from Don Boudreaux. He’ll forgive me quoting at length, for what he’s giving us is the theoretical points that must hold for it to be true that poor workers actually do benefit from a minimum wage rise:

    (1) employers of low-skilled workers really do generally possess monopsony power, and

    (2) that the super-competitive earnings by employers made possible by this monopsony power are not competed away on the output side of the market, and

    (3) that the nature of the jobs performed by minimum-wage workers do not change significantly for the worse in response to minimum-wage legislation (for example, that employers of such workers do not respond to minimum-wage legislation by providing for their minimum-wage workers fewer on-the-job amenities), and

    (4) that the existing conditions of employment under which current empirical investigations are carried out – conditions such as the kinds of firms that exist, their capital/labor ratios, the prevalent details of employment contracts – are themselves not labor-cost-minimizing adjustments to the existence of minimum-wage legislation. If minimum-wage legislation has been around for a long time, it would already have weeded out of the economy business practices and firms that are especially effective at employing disproportionately large numbers of low-skilled workers at wages below the government-stipulated minimum. Therefore, empirical studies done of changes today in the minimum wage will by their very nature be unable to capture the full effects of the minimum wage.

    It’s entirely possible to think of times and places when one or other of these do in fact hold. That monopsony power did in fact hold back in the days of the one company town. There really was significant power over the workforce and in my native UK it led to the Truck Acts. Say a one mine town, the employer might pay the workers in tokens or credit at the company store. Which would then overprice the food that they bought with such tokens. The solution was, as those Acts forced them to do, pay the workers in real money so that alternative and non-rip off suppliers could emerge. When there are conditions of monopsony then yes, regulation can be entirely appropriate.

    There are those who argue that the paucity of employment opportunities exists in this manner in some parts of the US economy. I think that’s a very hard argument to make except in the smallest detail.
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  3. #2
    Point? Buying votes?

  4. #3
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    Keep the poor in a mindless trance of low expectations?

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    Quote Originally Posted by Ronin Truth View Post
    Point? Buying votes?

  6. #5
    Several labor unions peg their contract wage increases to increases in the min. wage.

  7. #6
    Quote Originally Posted by Ronin Truth View Post
    Several labor unions peg their contract wage increases to increases in the min. wage.
    Yup. And the closer minimum wage is to union wage, the less fight unions will get from employers.
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  8. #7
    The reason the minimum wage exists is to validate the existence of the state and intervention in private affairs.

    Foot in the door. Once the Govt gets its foot in the door, rest assured that the rest of Govt will soon step completely in the door to do what it does best, $#@! everything up. Govt operates under the Illusion of benefitting the poor and protecting the people (usually from themselves) by demanding that you must comply with their regulations in the manner in which you brush your teeth and wipe your ass. The worst part is they will kick in your front door and charge you for the "service" of having kicked in your front door. This does not even include the costs of the door itself. This is well before they start issuing their dictates on how to ruin your life.
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  9. #8
    Thomas Sowell wrote about how when he worked for the labor department, they were totally uninterested in figuring out if the minimum wage actually helped the poor. At the time he was a Marxist, but one who had studied under Milton Friedman and he had a respect for facts. He really wanted to find out empirically whether the poor benefited from minimum wage laws, devised a way to test the theory but that his superiors had no interest in even studying the question let alone answering it. Plenty of plebes believe it helps the poor, but the people who make policy about such things don't care one whit.



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  11. #9
    It's called price-fixing

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