4/12/2006

Living Wage vs. Minimum Wage

I read an article in USA Today called Living-wage movement takes root across nation. It is not an economic commentary, I know, but it talks about the price floor called a minimum wage and the price floor called a living wage. I am one person who does not believe that there should be a floor to wages. Maybe it is because I have never been paid minimum wage, but I don’t think so. I think that I am a person who believes strongly that there are market values for everything. I think that you can buy anything in this world with money. I think that the minimum wage creates an artificially inflated value for a sub-standard product. I think that the market should determine the value of one’s labor. I think that the price floor on labor is creating a social tax. I think that it creates a surplus of supply and a shortage of demand.

10 comments:

Anonymous said...

Nowhere in America can you rent a 1 bedroom apartment and live on minimum wage. "Market values for everything" do you actually freakin believe that executive pay has anything to do with markets? Good luck explaining that one.

parker said...

Although I agree with the post in regard to the inefficiencies that a minimum wage brings with it, I must say I am still torn on the issue. The more I have read articles on the minimum wage and living wages, the more I realize that there are a lot of people out there who are strugglers. They aren't very intelligent and they don't have a voice or much power to improve their situations much. Now I do not vote for a socialist country but I worry about finding some type of balance to take care of those that if left to themselves will remain in poverty forever.

Seth said...

It is true that nowhere in America can you live on minimum wage, but how many people actually try. How many of those people that take minimum wage jobs stay at minimum wage. If you’re a good employee there shouldn’t be a reason to stay at minimum wage.
I noticed a quote in the linked article that essentially said that raising the minimum wage would be good because it would increase employee loyalty and therefore improve customer service. If raising wages really makes businesses better off then those businesses should raise wages without being required to by law. If such a business doesn’t raise wages then it’s not managed very well.
Effective price floors create deadweight losses. Some people would be better off, others worse.

noah said...

Every employee wants to earn more money. It seems like a great idea for the government to mandate that employers pay their employees more. This article had some heart warming stories about people getting out of poverty and being able to spend more time with their kids, but there were no interviews of the many people who were perversely affected by living wages. It is very simple; when businesses are forced to raise wages they can’t employ as many people. Some employees will benefit and others won’t even have a job any more. The article says that there is evidence that the benefits of living wages out weigh the costs of lost jobs. I don’t believe that at all. I don’t think that you could accurately measure the costs to society of living wages. People lose their jobs and quality goes down because businesses have to employ less people to do the same amount of work. In a free market, people get paid what they are worth. In order to get paid more you have to make yourself worth more. It is NOT the responsibility of the government to make an individual’s wages go up without any effort on their part.

Dr. Tufte said...

Billy ... you said the right things but you missed the connection to class.

A minimum or living wage is a price floor, and a price floor isn't "creating a social tax" - it is a tax. Specifically, a price floor transfers surplus from demanders to suppliers. Only the mechanics differ from a tax, but it is possible to prove that every price floor can be duplicated by a tax on buyers.

How would you feel if they instituted a tax that was paid by gasoline buyers and remitted to the oil companies? Lousy is my guess. Yet, this is precisely what a wage floor does.

As to the anonymous post, I wonder why you should be able to rent an apartment that is not at the bare minimum level when you are being paid the bare minimum to do work. Golly gee, I'd love to get a house whose value isn't proportional to the amount I work.

I think Parker makes a reasonable point. Nonetheless, the facts are that most people do not stay in minimum wage jobs for a large percentage of their life. Should we reward those that do?

PSN said...

I have worked on minimum wage for an entire semester while at school. As much as I was glad to be earning at least minimum wage at that point in time, I have to admit that this goes entirely against the basic concept of economics. If businesses are allowed to fix wages for each level, laws of demand and supply will eventually prevail to reach an equilibrium. I particularly agree with Dr Tufte's question about whether we should reward people who don't strive to excel and move on to better paying jobs. Also, can someone furnish a strong statement in favor of minimum wage. Hate to say this, but Anonymous' "can you rent a 1 bedroom apartment and live on minimum wage" argument was pretty lame.

Dr. Tufte said...

Thanks for commenting.

I worked for minimum wage up until I was 20, and minimum wage plus tips until I was 24.

A way to tell whether that was reasonable or not is whether or not you got fired a lot. The reason is that if an employer feels that you are getting paid something you don't deserve, then they will be more inclined to fire you at a whim.

I got fired a lot up until I was 21 or so. Apparently my work output wasn't worth what I was getting paid.

So anyway PSN ... there's a lot of hope that eventually you'll get paid a lot more.

Ghur AtteH said...

I think that minimum wage is a band-aid on a bullet wound. Minimum wage doesn't cause inflation, NOT RETIRING THE NATIONAL DEBT causes inflation. Increasing interest rates cause inflation.

Dr. Tufte said...

Thanks for commenting

Dr Sawant said...

Labour is not adequately empowered to sell his labour. That is the crux.