What exactly do they teach in college economics?

[SossMan]

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However, in econ, there are usually at least 3 sides to every story, and you can almost always create some sort of cause/effect chain to demonstrate a point. But I just can't seem to put one together to demonstrate how higher min. wage would creat less unemployment in the short term. Maybe something to do with high wages causing higher prices which cause inflation, thus mitigating the debts of impoverished nations? I'm not even sure that can take you anywhere. Maybe someone smarter than me can chime in. In the long run, increasing minimum wage should have no effect, as price levels should simply just adjust accordingly. Of course, this is all economic theory, which in the real world not reliable.

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I'm pretty far left leaning politically and I also happen to have a degree in Statistical Economics and even I can't make up an intelectually honest story about how a minimum wage would increase employment.
You can't just create benefit out of nothing...as one of my old econ profs used to say "it's like Maaaaaanaaa frrooom Heeeaaven"

[NeBlis]

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When I took economics in college, I was actually disturbed at how everything was generally simplified to support the conservative position. Although my first economics professor was a prominent conservative (and economic advisor to several GOP Presidents), I didn't get the impression that this conservative slant was his doing.


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LMAO .. did you ever stop to think that it wasn't a slant? Did you consider that most market realities are immutable truths like gravity? Your socialist ideology is like jumping off a cliff hoping those laws aren't true.

[BCPVP]

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Maybe something to do with high wages causing higher prices which cause inflation, thus mitigating the debts of impoverished nations?

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[img]/images/graemlins/confused.gif[/img] [img]/images/graemlins/confused.gif[/img] [img]/images/graemlins/confused.gif[/img]

[Archon_Wing]

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I am seriously dumbfounded.

I am admittedly a layperson when it comes to economics, but...what is going on here?

Tonight I was presented with the following assertions from a rising junior economics major at a large state university (I promise I am not misrepresenting his positions):

1. A raise of the US minimum wage to around $9.50/hr would, directly, dramatically DECREASE unemployment.

2. A WORLDWIDE minimum wage of around the $9.50/hr level is economically feasible, right now (although it clearly could not be implemented/enforced in any practical way), and would clearly benefit, well, basically everyone.

3. It would benefit poor people in developing countries if the United States refused to accept imports made by foreign companies that do not pay their employees at the level of the UNITED STATES minimum wage. (When I asked why we would choose to import anything if this was the case, he responded that it wasn't a problem, that all economies should be local, anyway - and that this would still benefit the poor in developing countries - somehow!)

Do these beliefs really flow from an American college economics education?!?! Am I missing something??? Some clarification would be appreciated.

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Chances are he didn't pay attention in class and is just making up random stuff so he can appear to be getting an education.

That being said, the college I went to is one of the most leftist ones you can find and I have never seen any person related to an econ major or class spreading anything like that garbage.

[Poofler]

They teach you a whole lot of so-simplified-it's-wrong material, to get you familiar with the concepts. The second half of the degree was spent on much more specific econ topics, a lot of quant analysis, and in large part - correcting the first half of the degree. I'm not surprised at all when I run into an econ major who has the page 30 <u>Intro to Econ</u> view on a number of theories.

[ianlippert]

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I'm pretty far left leaning politically and I also happen to have a degree in Statistical Economics and even I can't make up an intelectually honest story about how a minimum wage would increase employment.
You can't just create benefit out of nothing...as one of my old econ profs used to say "it's like Maaaaaanaaa frrooom Heeeaaven"


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Dont you see? Once all those poor people have extra monies they will spend it on more consumer goods which will create more jobs for poor people! Easy Monies LOL!!! [img]/images/graemlins/laugh.gif[/img]

[NickMPK]

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I'm pretty far left leaning politically and I also happen to have a degree in Statistical Economics and even I can't make up an intelectually honest story about how a minimum wage would increase employment.
You can't just create benefit out of nothing...as one of my old econ profs used to say "it's like Maaaaaanaaa frrooom Heeeaaven"

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It doesn't seem that hard to me to create this story:

Let's say that there are 10 potential workers, and all are capable of producing $10/hour worth of labor for the firm for the firm. 5 of these workers are willing to work for $5/hour, and the other 5 will only work for at least $9/hour.

The firm can hire as many workers as it wants, but cannot price discriminate as to salary. Thus, without a minimum wage, the firm chooses to hire 5 workers at $5/hour, making $25/hour in profit, rather than 10 workers at $9/hour, which would yield only $10/hour in profit.

If you raise the minimum wage to $9.50, then the firm now maximizes it profits by hiring all 10 workers at $9.50...they still all create marginal profit for the firm.
Yes, the firm is now only making $5/hour in profit, as opposed to $25/hour without the minimum wage, but its now has incentive to hire more workers.

Minimum wage only reduces employment if there are workers whose total value to the firm is less than the new minimum wage.

[Copernicus]

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I'm pretty far left leaning politically and I also happen to have a degree in Statistical Economics and even I can't make up an intelectually honest story about how a minimum wage would increase employment.
You can't just create benefit out of nothing...as one of my old econ profs used to say "it's like Maaaaaanaaa frrooom Heeeaaven"

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It doesn't seem that hard to me to create this story:

Let's say that there are 10 potential workers, and all are capable of producing $10/hour worth of labor for the firm for the firm. 5 of these workers are willing to work for $5/hour, and the other 5 will only work for at least $9/hour.

The firm can hire as many workers as it wants, but cannot price discriminate as to salary. Thus, without a minimum wage, the firm chooses to hire 5 workers at $5/hour, making $25/hour in profit, rather than 10 workers at $9/hour, which would yield only $10/hour in profit.

If you raise the minimum wage to $9.50, then the firm now maximizes it profits by hiring all 10 workers at $9.50...they still all create marginal profit for the firm.
Yes, the firm is now only making $5/hour in profit, as opposed to $25/hour without the minimum wage, but its now has incentive to hire more workers.

Minimum wage only reduces employment if there are workers whose total value to the firm is less than the new minimum wage.

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The hole in this is that most companies will not drop marginal profits down below certain thresholds. Even if the company could ramp up production to accomodate the 5 extra employees and sell all that production, they will still look for some minimum return on the cost of the inputs.

[SNOWBALL]

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The hole in this is that most companies will not drop marginal profits down below certain thresholds. Even if the company could ramp up production to accomodate the 5 extra employees and sell all that production, they will still look for some minimum return on the cost of the inputs.

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and the effect of this becomes even more magnified when most production is carried out by publically traded corporations with shareholders that will not hesitate to put their money elsewhere.

IMO, the trick to raising the minimum wage is to target places that have a huge profit surplus on the labor imputs and are unable to move locations. Big hotels near major airports are a good example of this. McDonalds is probably not.

[NeBlis]

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Minimum wage only reduces employment if there are workers whose total value to the firm is less than the new minimum wage.

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Which is almost always the case with minimum wage workers. Again virtually no one works for minimum wage. The only people that do are in "warm body" type jobs and are nearly always worth less than they are payed. This will only become more true when you force companies to pay them even more than they are worth.