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.

7 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.

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?

Anonymous 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.

אaughty 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

Unknown said...

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