Minimum Wage Increase backslash estate tax

[nietzreznor]

[ QUOTE ]
perfect competition is an assumption. it's not a particularly valid one in most cases, although it is often a good approximation.

[/ QUOTE ]

Competition (whether or not we call it "perfect" is irrelevant) is what we have in free markets, more or less. We don't have a free market, so this is generally why many workers may not be paid according to their value. But the State is what causes this lack of competition in the first place, so I don't think they are the best option for fixing this problem.

[xorbie]

[ QUOTE ]

Competition (whether or not we call it "perfect" is irrelevant) is what we have in free markets, more or less.

[/ QUOTE ]

of course it's relevent. you even say "more or less". this means that anything you say holds "more or less". this is why i said it is often a good approximation. however, your assumption that the lack of a free market is what causes workers not to be paid is rather unfounded.

[RR]

[ QUOTE ]
i know what a margin is. i know what a derivative is. if you honestly think that every employee is being paid by the marginal value added by their labor, this is simpy a preposterous position. i would wager that every large enough corporation has several workers being paid far more and far less than what they produce on the margin.

[/ QUOTE ]

I will not argue there are not inefficiencies in the labor market; however, this does not change the fact the raising min wage will put some min wage workers out of work. If a corporation is paying its labor $5.15/hr, but they produce $6/hr they would have to hate money becasue they would have already hired some more workers.

[xorbie]

randy,

i'm quite willing to say that i haven't done enough research on the topic nor do i quite understand the economics at a level i am comfortable actually saying that one thing is wrong or right. this will change in a few years no doubt.

also, the issue at hand isn't (as far as i understand it) that the laborers are worth $5.15 or $6, i think the issue is that the company is going to need to hire a certain number of laborers, and that they should be still be able to maintain a profit at $6/hr. whether or not this is true is debatable, but consider that many states (such as my own) already have min. wages that are far higher than this.

[RR]

From the economics of it that I am aware of (I have an MA in econ) there is nothing left to debate. Something that is noteworty is very few workers actually work for min wage. I work in a state where the min wage is $5.15/hr and I saw an ad that In and Out was hring people to start at $9/hr. Anyway the econ of it is that companies will hire some labor. Being that they are trying to max profits (or something that looks like max profits) they will hire the amount of labor that makes this happen. If the price of this labor goes up they will lower the amount of labor they use. In the very short run it might be cheaper to keep workers on than to lay them off, but they won't be replaced as they quit and planned expansion won't occur etc. What to look at is what is a compnay doing right now. If they are making an "economic profit" that is more than woudl be expected, they would expand until they were getting a "normal" return to capital (alternatively instead of the compnay expanding compeitors would begin producing the goods). If the price of this labor is forced upward this company that was maximizing profits now has surplus labor at the new wage rate.

[Dr. Strangelove]

[ QUOTE ]
[ QUOTE ]
I suspect the vast majority of minimum wage jobs produce significantly more value than $5.15 per hour + a one or two dollar increase.

If this weren't the case McDonalds and Burger King wouldn't be so fantastically successful, and they certainly would have been much LESS successful in previous years when the minimum wage was more valuable.

[/ QUOTE ]

This is false. Labor is always paid by what it produces on the margin. If a min wage worker was able to produce something worth significantly more than the min wage they would sell their skill to a different employer.


[/ QUOTE ]

Where do profits come from then?

For example, my sister owns a grooming shop (this and the following are actually true, not hypothetical). When she hired a second employee the shop's profit increased by more than 50%, but she only pays the employee $10 an hour, while the value of a 50% increase in profitability is worth around $20 per hour.

So if the minimum wage were increased to $11 per hour it would mean that the employee gets a larger share of the profit, if you assume that the market won't bare an increase in the price of dog grooming.


Also something to note: I'm certain there are people that would do that job for $8 per hour and probably for $6 as well. My sister feels that $10 per hour is fair and doesn't feel she needs to rape them for the very maximum. (I can't wait for the "good luck going out of business" replies; she's currently taking business from many other shops because she provides better service and in many cases a lower price).

There is a constant struggle between labor and capital over the distribution of income. Labor's percentage waxes and wanes in coincidence with its political power. I argue that Labor's power has been waning for more than 30 years and that the marginal increase in revenue that your average minimum wage worker provides is significantly more than that minimum wage which they are in turn paid.

It is for this reason that the bugaboo of massive increases in unemployment is so ridiculous. In fact, it seems demonstrably false as the real value of the minimum wage has been falling for so long while unemployment has not.

[RR]

[ QUOTE ]
Where do profits come from then?

For example, my sister owns a grooming shop (this and the following are actually true, not hypothetical). When she hired a second employee the shop's profit increased by more than 50%, but she only pays the employee $10 an hour, while the value of a 50% increase in profitability is worth around $20 per hour.

[/ QUOTE ]

Profits come from two sources. The contribution of capital and econmies of scale. The owner of the capital has a normal rate of return that must be realized, if dog grooming becomes less profitable than owning a greenhouse or putting money in the bank people will quit investing in dog grooming and start investing in other things.

She hired someone and got a $20/hr increase in profitability and pays the employee $10/hr. Why on Earth doesn't she hire another employee? If she can make a $10/hr profit form hiring an emplooyee why doens't she hire another one? Even if t he next one only adds $12/hr to the business if they also only make $10/hr that is still another $2/hr profit. She shoudl hire more employees unitl the last one she hires only contributes $10/hr in revenue.

[ QUOTE ]
So if the minimum wage were increased to $11 per hour it would mean that the employee gets a larger share of the profit, if you assume that the market won't bare an increase in the price of dog grooming.

[/ QUOTE ]

The best case for a min wage worker is that prcies go up and infaltion off sets the increase in min wage. In that case they don't lose their jobs, they are jsut at the same point thay are now (more money in their pocket, but paying higher prices for everything). The worst case is the econmy adjust for the change by there being fewer oportunites for min wage workers and they find they are unable to sell their labor.


[ QUOTE ]
There is a constant struggle between labor and capital over the distribution of income. Labor's percentage waxes and wanes in coincidence with its political power. I argue that Labor's power has been waning for more than 30 years and that the marginal increase in revenue that your average minimum wage worker provides is significantly more than that minimum wage which they are in turn paid.

[/ QUOTE ]

The average wage in the US when adjusted for productivity has been suprisingly constant for over 200 years. I don't have the numbers and methodology in front of me, but they are in the book I linked earlier in this thread.


[ QUOTE ]
It is for this reason that the bugaboo of massive increases in unemployment is so ridiculous. In fact, it seems demonstrably false as the real value of the minimum wage has been falling for so long while unemployment has not.

[/ QUOTE ]

Employment has been rising during this period. The min wage going up won't cause a BIG increase in unemployment becasue min wage labor makes up such a small percentage of the work force.

Let's look at this another way. I own McDonald's and I pay employoees $5.15/hr even though they are worth $6/hr. BUrger King open across the street. They can either hire employees that aren't as good as mine for $5.15/hr (if they were better than the ones I am employing I would have hired those instead of the ones I DID hire). Since it is clear they are less productive than mine let's put their productivity at $5.50/hr. Hiring these employess would give him a profit of 35 cents/hr. The Burger King operator decides he would rather make 40 cents per hour on his labor so he decides to offer my employees $5.60/hr. It is more money so of course they take it and it is more money for him. This is a very simplifieed example (and ignores the marginal worker etc), but it should be clear labor is paid according to it's productivty and it shows that the min wage is pretty much obsolete because it doens't take much to force the wage rate above the min wage. Other than tipped employees I don't know of any job currently that pay as low as the min wage. increasing the min wage is not about helping people (I am unaware of any research that suggests it doesn't hurt those people), it is about certain politicians taking advantage of the less educated to buy votes.

[ianlippert]

[ QUOTE ]
Outside of that, you think it is ok to keep people in poverty? What solution would you have to help these people not live week to week on small paychecks?

[/ QUOTE ]

How about not spending hundreds of billions of tax payers money on crazy [censored]?

How about using that money to invest in the economy where it will create real wealth?

[RR]

[ QUOTE ]
Also something to note: I'm certain there are people that would do that job for $8 per hour and probably for $6 as well. My sister feels that $10 per hour is fair and doesn't feel she needs to rape them for the very maximum. (

[/ QUOTE ]

Like everyone else she is maximizing her own utility. In this case she gets mmore utility ot of "being fair" and "helping her employees" than she would out of squeezing the last bit of profit out of them. This is fine, it is understood in econmic models that people maximize utility, not profits, it is just easier to talk about profits as you can put a number on that and it is hard to put a number on happiness.

[xorbie]

[ QUOTE ]

Let's look at this another way. I own McDonald's and I pay employoees $5.15/hr even though they are worth $6/hr. BUrger King open across the street. They can either hire employees that aren't as good as mine for $5.15/hr (if they were better than the ones I am employing I would have hired those instead of the ones I DID hire). Since it is clear they are less productive than mine let's put their productivity at $5.50/hr. Hiring these employess would give him a profit of 35 cents/hr. The Burger King operator decides he would rather make 40 cents per hour on his labor so he decides to offer my employees $5.60/hr. It is more money so of course they take it and it is more money for him. This is a very simplifieed example (and ignores the marginal worker etc), but it should be clear labor is paid according to it's productivty and it shows that the min wage is pretty much obsolete because it doens't take much to force the wage rate above the min wage. Other than tipped employees I don't know of any job currently that pay as low as the min wage. increasing the min wage is not about helping people (I am unaware of any research that suggests it doesn't hurt those people), it is about certain politicians taking advantage of the less educated to buy votes.


[/ QUOTE ]

this example is completely ridiculous, assuming completely perfect information for all parties as opposed to something that might, say, reflect the real world.