Thread: Why the minimum wage is essential

In a situation where there is a shortage of jobs, workers are going to compete to avoid being the one left out. It becomes an auction type situation, where they're essentially bidding against each other. The final price in an auction is just over the walkaway price of the second most determined bidder, however high that is. What is the walkaway price for a worker? It's the point at which they can subsist. Working maximum hours to achieve it.

It won't start out fully that way. At first workers will try to hold out for a bit more than subsistence. But over time it will spiral downward. Employers often will try to hold off lowering wages also, but their need to compete will impel them to take measures to lower wage costs where they can. They'll start outsourcing to cut rate companies (which pay lower wages than them) and then cutting their own internal staff. Stuff like that.


What happens when workers start to approach subsistence wage? A cold hearted tea party member may see nothing wrong with this. It's just competition. It's hard work and frugality. But there is a consequence they're not factoring in.

In a modern industrial economy, it only requires a small fraction of the work force to achieve subsistence. If too many workers are accepting a subsistence based wage, then the market for other goods, and services or "luxury" goods (since they are non-essential, like entertainment) will drop. It doesn't have to happen completely. Even if it happens partially, it will lead to unemployment. Sure there will always be a tiny sliver of the population who are wildly rich, but they're always too few in number to drive demand for the whole nation.



The economy is always going to crash every time we, as a society, allow the minimum wage to be eroded. Because full employment requires most of the workers to be producing luxury goods. The only way to sustain that is to create demand by ensuring the majority of people have money left over after subsisting, to buy luxury goods. If we fail at that, we'll always have a crash. If we allow competition with workers who don't earn our minimum wage, it will crash too. (A minimum wage is only sustainable if all participants are held to it, not just the ones who live inside our borders.)

You say some interesting things about minimum wage.

Do you know who helped make minimum wage happen in the US? The (then) lawyer Louis Brandeis who went on to become a US Supreme Court justice — one of the few who went from lawyer to USSC justice without any experience as judge in any court.

Generally, when a lawyer argues for a change in the laws or in the interpretation of the laws, the lawyer will argue from previous cases, generally stating that the present case differs significantly from a previous case in a particular way, and that the court should consider new law to allow a more complete exercise of justice in the present (and future) cases.

Sometimes Brandeis would argue in a unique way. He would not cite previous cases as I explained above. Instead, he would argue the advantage of new law based on, for lack of a better word, common sense. His arguments of this type have come to be known as "Brandeis briefs". He argued for minimum wage in this manner as, I think, he also did with SBLI (Savings Bank Life Insurance). Minimum wage simply make sense, otherwise some people would be working almost as slaves.

I cannot give this thread my full attention, so I will return to it when able.

Thank you.

You make some good points. The flip side of that (the problems with minimum wage) are significant though.

1) Minimum wage laws push jobs to other countries. Multinational companies tend to employ labor where it is cheapest.

2) Minimum wages tend to increase inflation, since capitalist companies set prices according to the ability of people to spend their money on goods. Higher guaranteed wage = more ability to spend money = higher prices.

3) Minimum wages tend to drive unemployment up. A company that might employ 3 people at a lower wage will only be able to afford 2 at the higher minimum wage - and then put a lot more pressure on the two employees.

That's not to say we should end minimum wage; it does a lot to help the lowest earning workers in our society. But it is important to maintain a balance between the good that minimum wages do and the harm they can do.

[QUOTE=billvon;531074]You make some good points. The flip side of that (the problems with minimum wage) are significant though.

1) Minimum wage laws push jobs to other countries. Multinational companies tend to employ labor where it is cheapest.

True but that's already happened in most job areas where it's possible such as low-tech manufacturing--the types of jobs we really don't want anyhow.

2) Minimum wages tend to increase inflation, since capitalist companies set prices according to the ability of people to spend their money on goods. Higher guaranteed wage = more ability to spend money = higher prices.

Cost of products is more driven by demand than cost of making things or providing a service.

3) Minimum wages tend to drive unemployment up. A company that might employ 3 people at a lower wage will only be able to afford 2 at the higher minimum wage - and then put a lot more pressure on the two employees.

Not really true either. If they could get by with 2, they'd already be doing so. Also the money pumped into the economy is roughly the same either way...either through a reasonable wages, or through sub-poverty wages combined with less than total effective social welfare programs that cost us all more in taxes.

The biggest problem with not having a minimum wage where even working full time puts families below the poverty line is it acts as an expensive (albeit indirect) subsidy for tax payers for companies that don't pay their employees a living wage. So something has to give....either we redefine poverty such that it's acceptable to have undernourished and deprived children with little hope of ever climbing the socioeconomic ladder, we pay higher taxes to support large social welfare programs, or we insist that companies pay at a sufficient level to minimize public assistance. The latter is probably the better option because it protects tax payers and encourages independence for those in the workforce.

Originally Posted by Lynx_Fox

True but that's already happened in most job areas where it's possible such as low-tech manufacturing--the types of jobs we really don't want anyhow.

Fair enough - although we do still seem to have low tech manufacturing type people, and this makes them less employable. The jobs left but they didn't.

Cost of products is more driven by demand than cost of making things or providing a service.

I'd disagree there. There are a lot of unaffordable things that there is a demand for. And for many things (like say first class airline seats) the actual sales remains a low percentage of total sales because of this unafforability.

To put it another way, scarce supply sets prices that regulate the actual commerce in that product.

Not really true either. If they could get by with 2, they'd already be doing so.

Why? If they could obtain the same work product by hiring 3 people and paying them the same as 2 - and then save money on productivity enhancement tools since they don't need the higher productivity - then they are more competitive than someone who hires 2 people. This is a decision every company makes.

One extreme (brought about more quickly by a high mandatory minimum wage) is complete elimination of a job through automation. A simple example is automated checkouts in supermarkets. It is now cheaper for a store to spend $250,000 on four checkout systems - and then maintain them to the tune of about $30,000 a year - than pay cashiers minimum wage to man checkout counters. If minimum wage were lower, then fewer stores would make that decision.

This means that the remaining cashiers benefit (higher wages) but the 8 cashiers whose jobs were eliminated now have no job and no income. This is also a hard problem to solve.

The biggest problem with not having a minimum wage where even working full time puts families below the poverty line is it acts as an expensive (albeit indirect) subsidy for tax payers for companies that don't pay their employees a living wage.

Agreed there; Wal-Mart is a good example of such a company.

So something has to give....either we redefine poverty such that it's acceptable to have undernourished and deprived children

Well, we currently have undernourished and deprived children for reasons other than poverty - so eliminating such things are an unfair burden to place on one solution (the minimum wage.) Minimum wage could be $30 an hour and an irresponsible mother could spend it all on cigarettes and Scotch.

To put it another way, minimum wage can be one part of the solution here, but it is definitely not sufficient by itself.

with little hope of ever climbing the socioeconomic ladder

A minimum wage also acts to provide less incentive to climb the social ladder. Why finish high school if a Burger King employee makes the same whether he finishes or not?

The latter is probably the better option because it protects tax payers and encourages independence for those in the workforce.

Agreed, those are some of the pluses of a minimum wage.

Originally Posted by billvon

This means that the remaining cashiers benefit (higher wages) but the 8 cashiers whose jobs were eliminated now have no job and no income. This is also a hard problem to solve.

Actually no, not hard at all.
The unemployed 8 are still looking for employment and are an oversupply of labour in the labour market.
The result is they are willing to work for lower wages just to have a job and since the remaining employees are in competition with the 8 unemployed ones it drives the wages down for the still employed workers too.

Originally Posted by dan hunter

The unemployed 8 are still looking for employment and are an oversupply of labour in the labour market.
The result is they are willing to work for lower wages just to have a job and since the remaining employees are in competition with the 8 unemployed ones it drives the wages down for the still employed workers too.

Right - but minimum wage laws prevent those employees from being competitive. They CANNOT accept a job at a lower wage than the workers already employed at minimum wage; the laws prevent this, and thus hamper them from gaining employment.

As I mentioned, good for the people who kept their jobs, bad for the unemployed.

Originally Posted by billvon

Originally Posted by dan hunter

The unemployed 8 are still looking for employment and are an oversupply of labour in the labour market.
The result is they are willing to work for lower wages just to have a job and since the remaining employees are in competition with the 8 unemployed ones it drives the wages down for the still employed workers too.

Right - but minimum wage laws prevent those employees from being competitive. They CANNOT accept a job at a lower wage than the workers already employed at minimum wage; the laws prevent this, and thus hamper them from gaining employment.

As I mentioned, good for the people who kept their jobs, bad for the unemployed.

Kind of missing the point aren't you? In a restricted job market there are no extra jobs. For one of the unemployed to gain employment one of the already employed has to become unemployed.
There is no increase in employment as a result, only a reduction in overall wages and a reduction in the money velocity throughout the entire economy.

It is only a temporay gain for the employers who are reducing the wages too because of the damage it causes to the country's economy.

Minimum wage is just government interfering with and outlawing a financial transaction between two willing parties. It's a loss of freedom for everybody. No good will come of it. Either the company will cut back its work force, or raise prices to make up for the lost profit. The increased prices will only harm the people who have to buy the products, and they will therefore have less money to spend on something else.

No one should expect to make a career out of this kind of job. There should be some incentive for them to acquire more marketable skills.

Originally Posted by billvon

You make some good points. The flip side of that (the problems with minimum wage) are significant though.

1) Minimum wage laws push jobs to other countries. Multinational companies tend to employ labor where it is cheapest.

2) Minimum wages tend to increase inflation, since capitalist companies set prices according to the ability of people to spend their money on goods. Higher guaranteed wage = more ability to spend money = higher prices.

3) Minimum wages tend to drive unemployment up. A company that might employ 3 people at a lower wage will only be able to afford 2 at the higher minimum wage - and then put a lot more pressure on the two employees.

That's not to say we should end minimum wage; it does a lot to help the lowest earning workers in our society. But it is important to maintain a balance between the good that minimum wages do and the harm they can do.

1) Multinationals take many things into consideration before investing. Apple would never emigrate its R&D centres from the US to low-wage countries, for many reasons. (I've explained this argument in another thread so I won't re-write same things). If that was significantly important, then Norway or Sweden would have no large enterprises and Nigeria would have been full of NFIs. Furthermore, a multinational may choose not the lowest unit labour cost but the lowest unit capital cost.
Empirically, the most competitive countries have larger wages then less competitive.

2) This is a pretty old argument (from late 19th century). If min. wages rise from eg 4$-5$ then gradually these wages will still buy the same commodities but in a higher price (the consumer basket price would increase from 4$ to 5$ through the inflation).
It's true that an increase in minimum wage would increase demand for consumer goods. Therefore consumer goods prices will indeed increase at first. So, these enterprises will receive a rate of profit larger than the rest of the economy. On the contrary, demand for fancy goods would probably decrease (since the distribution of income would change in favor of the bottom) thus, the price would decrease and as a result the rate of profit of the fancy goods industries would decrease.

These differences in industrial rates of profit through the competition would lead to a transfer of labour and capital between the industries until the various profit rates equal the general rate of profit of the economy. This procedure will shift again the relative prices. The sum of the prices though should remain constant. The only thing that changes is the distribution of income and as a result the general rate of profit which would be lower.
If we assume that with higher minimum wages, workers would now consume fancy goods then analysis is much simpler, since even the components of total demand would remain pretty much constant thus we would have stable relative prices.
Let me reverse the argument. Last decades, maximum wage has been increased tremendously. Did we notice an inflation caused by the sudden increase in luxurious commodities? Short answer, no. Why? Because wage is not a determinant of inflation.

3) Ι suppose that on your mind you say demand of labour equals supply, an increase in min. wage would decrease demand thus we have excessive labour supply and as a result, unemployment. As far as I understand, this is a fallacy. Demand and supply do not determine the value of labour (wage), they are responsible for temporary wage fluctuations around its value. Employment is determined mostly by the effective demand (even though we often have jobless recoveries), not by min. wage. Thus, an increase in effective demand would only increase employment. When in recession, wage rises is actually a policy worth considering. (unless it's a recession caused by low profitability. Then an increase in wage would only lead to worse recession)
Since I'm Greek, Greece is a good example. Min. wage has been reduced almost 200% (last 3 years) and unemployment have been increased from <10% to >29% (someone should expect the opposite, right?). It's normal after all. Effective demand decreases, GDP falls, unemployment rises.

Originally Posted by Harold14370

Minimum wage is just government interfering with and outlawing a financial transaction between two willing parties. It's a loss of freedom for everybody. No good will come of it. Either the company will cut back its work force, or raise prices to make up for the lost profit. The increased prices will only harm the people who have to buy the products, and they will therefore have less money to spend on something else.

No one should expect to make a career out of this kind of job. There should be some incentive for them to acquire more marketable skills.

Same happens whith child labour. It's a loss of freedom for willing children. There are tons of legislation the "interrupts" the so called freedom.
The company does not determine autonomously its rate of profit. Rate of profits are determined by the labour processes (or by production process, in mainstream terms) and equate each other in the economy through competition.

Originally Posted by Harold14370

Minimum wage is just government interfering with and outlawing a financial transaction between two willing parties. It's a loss of freedom for everybody. No good will come of it. Either the company will cut back its work force, or raise prices to make up for the lost profit. The increased prices will only harm the people who have to buy the products, and they will therefore have less money to spend on something else.

No one should expect to make a career out of this kind of job. There should be some incentive for them to acquire more marketable skills.

So you would prefer no government at all?
Markets have always been regulated to ensure they at least appear fair.

I doubt if anybody really wants to make a career out of a minimum wage job. Usually they are people who ended up behind the 8 ball for one reason or other and don't really have any other viable options.

One thing I haven't seen in this topic yet, is how the minimum wage affects inflation. As was stated already when minimum wages keep rising the cost of products and services have to rise also. This really affects a large segment of population that lives on a fixed income. The majority of these people are older retirees that don't have the option of finding a job to supplement their fixed income.

This pool of fixed income people is still growing. So what's going to happen to them when they fall into a poverty level that will kill them sooner than if they were not being forced into poverty.

I am living in Washington where they are pushing hard for a $15/hour minimum wage. My personal take on this is it shouldn't happen. Many of those jobs are entry level jobs not intended as permanent positions. How are all the people working now that took years to get up to $15 to $17/hour going to feel about new first time workers jumping into the same salary range as them?

Let's be realistic, a $15/hour minimum wage is going to hurt a lot more people than it helps.

Originally Posted by Bad Robot

One thing I haven't seen in this topic yet, is how the minimum wage affects inflation. As was stated already when minimum wages keep rising the cost of products and services have to rise also. This really affects a large segment of population that lives on a fixed income. The majority of these people are older retirees that don't have the option of finding a job to supplement their fixed income.

This pool of fixed income people is still growing. So what's going to happen to them when they fall into a poverty level that will kill them sooner than if they were not being forced into poverty.

I am living in Washington where they are pushing hard for a $15/hour minimum wage. My personal take on this is it shouldn't happen. Many of those jobs are entry level jobs not intended as permanent positions. How are all the people working now that took years to get up to $15 to $17/hour going to feel about new first time workers jumping into the same salary range as them?

Let's be realistic, a $15/hour minimum wage is going to hurt a lot more people than it helps.

I've just explained how min. wage (does not) infects inflation. Any counterarguments are welcomed.

When min. wage rises, demand for consumer goods rise as well. That leads to temporarily different rates of profit across the economy. Competition requires that profit rates will equal thus consumer goods prices will be reduced again. After all, prices in a competitive economy are not determined by wages nor by capital earnings. They are determined by the amount of abstract labour (both human labour and capital goods) required for the production. Taking that into consideration, it's clear enough that wages (or min wage) does not determine the prices on the long run.

Exactly how much does the minimum wage increase actually affect the selling price of most goods and services?
I am betting it would be less than one percent.

That would likely be less than the annual bonus for the officers of the company does.
The spurring of the economy by the increased spending of the low wage earners would more than compensate for the cost of it.
Besides that there is no sense giving money to bankers because all they do with it is stuff it into offshore bank accounts to avoid paying taxes on it.
At least the poor actually spend the stuff on goods and services.

Harold

Minimum wage is just government interfering with and outlawing a financial transaction between two willing parties. It's a loss of freedom for everybody. No good will come of it.

Well, that might be true if the government wasn't already propping up the business by stepping in with subsidies, food stamps and other life support contributions to allow one of those "willing parties" to stay alive and fit enough to provide work for the other "willing party". Raising the minimum wage - at least in the USA - is a message to the employer that the government is no longer willing, or less willing, to hand out cash and food and other services that employees ought to be able to buy for themselves from an adequate wage.

Government transfers to people who are employed - if we're saying that government function is safety net only - should only be for unusual or exceptional expenses. Safety net type payments would be things like ...

... health and related benefits for families of people with (a certain level of or kind of) disabilities.
... disaster relief.
... special payments for targeted education of children with intellectual or learning difficulties.
... paying for specific kinds of alterations to houses so that disabled, elderly or ill relatives can live with relatives rather than be a bigger financial burden on taxpayer-funded facilities.

At the moment in the USA, the SNAP and other payments by government to employees of companies paying wages so low that people can't feed their children is a subsidy to the profits of those companies. Doing it this way conceals the real level of government support for these companies because they don't add up the value of government transfers to their employees and identify it in their accounts as a source of profit and government conceals the indirect benefit to the employers by counting it only as "individual" benefits to employees.

Bad Robot

As was stated already when minimum wages keep rising the cost of products and services have to rise also.

There are two points not clearly delineated here. One rise in minimum wages when they've not been adjusted in almost a decade is not the same as "minimum wages keep rising". It's catch-up. When we're discussing the third rise in three years there might be something to worry about.

And for the rise we're now talking about across the country, people have been doing the numbers on this. Most things like burgers and meals might rise in price by 20 cents or less. That will make little difference to people on higher incomes so their purchases won't decrease. For the people who now can't afford these things but who will be able to indulge from time to time, there will be an increase in sales. Many companies who deal in low cost items, say Walmart, will be able to absorb most or all of the increased costs simply from the increase in turnover.

Then there's the follow on argument - the benefit to taxpayers. The first and obvious one is the reduction in outlays of transfer payments and other subsidies to workers just to keep them alive and well enough to work. The second one is the more subtle one. Cash into the hands of poor people will be spent. 100% of it. Which means more money circulating in the economy. That will be mostly in retail sales, some of it will simply speed up payments of rents, utilities and other bills. Both outcomes mean more cash flowing through the economy which means more profits for more businesses. More sales and more profits means more taxes for governments. Lower outlays plus more income for governments means lower debt for local and national economies.

Originally Posted by Achilleas

I've just explained how min. wage (does not) infects inflation. Any counterarguments are welcomed.

When min. wage rises, demand for consumer goods rise as well. That leads to temporarily different rates of profit across the economy. Competition requires that profit rates will equal thus consumer goods prices will be reduced again. After all, prices in a competitive economy are not determined by wages nor by capital earnings. They are determined by the amount of abstract labour (both human labour and capital goods) required for the production. Taking that into consideration, it's clear enough that wages (or min wage) does not determine the prices on the long run.

It's not the whole problem for causing inflation, but it will cause prices to rise and if your on a fixed income, I call that inflation. Those of us that have lived a long time have watched a steady rise in prices. Many of these price increases are in items that are necessary for life such as food and shelter, clothing, transportation...etc. Someday you will be old and retired, so lets hope you have more than a small fixed income to live on.

Originally Posted by Bad Robot

Originally Posted by Achilleas

I've just explained how min. wage (does not) infects inflation. Any counterarguments are welcomed.

When min. wage rises, demand for consumer goods rise as well. That leads to temporarily different rates of profit across the economy. Competition requires that profit rates will equal thus consumer goods prices will be reduced again. After all, prices in a competitive economy are not determined by wages nor by capital earnings. They are determined by the amount of abstract labour (both human labour and capital goods) required for the production. Taking that into consideration, it's clear enough that wages (or min wage) does not determine the prices on the long run.

It's not the whole problem for causing inflation, but it will cause prices to rise and if your on a fixed income, I call that inflation. Those of us that have lived a long time have watched a steady rise in prices. Many of these price increases are in items that are necessary for life such as food and shelter, clothing, transportation...etc. Someday you will be old and retired, so lets hope you have more than a small fixed income to live on.

The rise in prices will be only temporary. It won't last. That's what competition is all about. Inflation has nothing to do with min. wages. They are only (not very strongly) positively correlated (0,45) due to adjustments in min. wages to catch up with inflation.

For those who have fixed income:
1) They should fight for indexation (according to CPI)

2) Higher inflation would lead to deleveraging, which is not bad at the moment:

http://theeconomiccollapseblog.com/w...ehold-Debt.jpg

I still insist, inflation is not caused by wages especially min. wages. It's a purely redistributive action with no long term impact on price indexes.
Even if we suppose that under full employment min. wage increases leads hypothetically to inflation, currently US is not even close to full employment. Inflation is the least of your concerns at the moment.

Originally Posted by Bad Robot

Originally Posted by Achilleas

I've just explained how min. wage (does not) infects inflation. Any counterarguments are welcomed.

When min. wage rises, demand for consumer goods rise as well. That leads to temporarily different rates of profit across the economy. Competition requires that profit rates will equal thus consumer goods prices will be reduced again. After all, prices in a competitive economy are not determined by wages nor by capital earnings. They are determined by the amount of abstract labour (both human labour and capital goods) required for the production. Taking that into consideration, it's clear enough that wages (or min wage) does not determine the prices on the long run.

It's not the whole problem for causing inflation, but it will cause prices to rise and if your on a fixed income, I call that inflation. Those of us that have lived a long time have watched a steady rise in prices. Many of these price increases are in items that are necessary for life such as food and shelter, clothing, transportation...etc. Someday you will be old and retired, so lets hope you have more than a small fixed income to live on.

Most of the price increases I have seen are not from wage hikes.
They are more from fuel price increases.
We are also, especially in Europe and North America, footing the bill for some rather wasteful seeming wars and bank bailouts, but the increased fuel costs outweigh most of the other costs.

Originally Posted by Achilleas

1) Multinationals take many things into consideration before investing. Apple would never emigrate its R&D centres from the US to low-wage countries, for many reasons.

===============
Monday, January 28, 2013, 04:45 am PT (07:45 am ET)
Apple Shanghai R&D center confirmed for summer 2013
By Kevin Bostic

Rumors that Apple would be opening a research and development center in Shanghai came to fruition on Sunday, as it was confirmed that the summer of 2013 will see the company opening just such a facility in Pudong, Shanghai.
============

If that was significantly important, then Norway or Sweden would have no large enterprises and Nigeria would have been full of NFIs.

It is definitely significant. It is not, however, the only factor.

2) This is a pretty old argument (from late 19th century). If min. wages rise from eg 4$-5$ then gradually these wages will still buy the same commodities but in a higher price (the consumer basket price would increase from 4$ to 5$ through the inflation).

Right, that's what inflation is.

It's true that an increase in minimum wage would increase demand for consumer goods. Therefore consumer goods prices will indeed increase at first.

Until the supply/demand curve caused prices to rise (i.e. inflation) and the "real" purchasing power returned to previous levels.

These differences in industrial rates of profit through the competition would lead to a transfer of labour and capital between the industries until the various profit rates equal the general rate of profit of the economy. This procedure will shift again the relative prices. The sum of the prices though should remain constant. The only thing that changes is the distribution of income and as a result the general rate of profit which would be lower.

Agreed in general. Thus the companies that have more holdings in foreign countries can better out-compete companies that hire local labor.

Let me reverse the argument. Last decades, maximum wage has been increased tremendously. Did we notice an inflation caused by the sudden increase in luxurious commodities? Short answer, no. Why?

Because the highest wages in the country (million dollar plus salaries) present a very small fraction (far less than 1%) of the total income - thus their effect on the economy is tiny. They do definitely affect niche industries (growth in privately owned business jets and fractional ownership business jets has gone up tremendously in the past 20 years) but it doesn't affect the economy much as a whole/

Since I'm Greek, Greece is a good example. Min. wage has been reduced almost 200% (last 3 years) and unemployment have been increased from <10% to >29% (someone should expect the opposite, right?). It's normal after all. Effective demand decreases, GDP falls, unemployment rises.

I think this might be confusing cause and effect here. Minimum wages have been reduced BECAUSE of massive unemployment; it was part of an agreement that got them "rescue" funding. It's akin to claiming that bad economies cause low interest rates, rather than realizing that it is a conscious decision to try to help struggling economies.
==========================
Greece cuts minimum wage as austerity drive begins
By George Georgiopoulos
ATHENS Tue Feb 28, 2012 1:02pm EST

(Reuters) - Greek ministers agreed deep cuts to the minimum wage on Tuesday, slashing living standards for low-paid workers as Athens began implementing measures demanded by international lenders in return for a 130 billion euro rescue package.


Cabinet approved the cuts, which will hit workers already struggling after more than four years of deep recession, as it signed off on a series of steps agreed in principle by parliament last week, a government official said.


The move, which will pass into law without the need for further parliamentary approval, imposes a 22-percent cut on the standard minimum monthly wage of 751 euros. For those under 25, the cut will be even more brutal, a 32-percent reduction.


In addition, it will impose a public-sector wage freeze until the unemployment rate, currently 21 percent, falls below 10 percent.

Someday you will be old and retired, so lets hope you have more than a small fixed income to live on.

I'm already in those categories.

My only - but big - advantage is that we own our own home and we have solar power. This house is much cheaper in terms of water, council rates and the like than our previous home. And the reduction, sometimes elimination, of power bills is pretty nice too.

Originally Posted by dan hunter

Kind of missing the point aren't you? In a restricted job market there are no extra jobs. For one of the unemployed to gain employment one of the already employed has to become unemployed.

Right. And that is happening more and more often as companies choose automation and outsourcing over additional employment due to high labor costs.

And that is happening more and more often as companies choose automation and outsourcing over additional employment due to high labor costs.

It's not due to "high" labour costs. It's either that some technology or other has become cheap enough to substitute for some labour costs and/or that a different location has workers willing to work for lower wages and worse/unsafe conditions or is unable to bargain for better wages and conditions. As often as not it's both.

When an employer needs a new factory, they have to decide where to build/establish it. If they can find somewhere with lower safety standards and poorer wages and no unions, they'll take it whether it's a couple of hundred kilometres away or across an ocean or two. Think prisons, either in USA or China, or those hapless garment makers in Bangladesh, makes no difference to the newly unemployed in the current location.

Originally Posted by billvon

Originally Posted by dan hunter

Kind of missing the point aren't you? In a restricted job market there are no extra jobs. For one of the unemployed to gain employment one of the already employed has to become unemployed.

Right. And that is happening more and more often as companies choose automation and outsourcing over additional employment due to high labor costs.

It doesn't matter very much how much the person costs. A human will never be able to compete with a machine on labour costs
About the only place a human stands a chance is doing in certain tasks that a machine is unable to do yet.
The wage doesn't matter very much to how many people the company will hire either. Even if people were working for a dollar an hour no manager is going to hire more than the minimum number of people needed to do the work. Hiring 2 people to do 1 person's job would be nuts.

Originally Posted by Achilleas

The rise in prices will be only temporary. It won't last. That's what competition is all about. Inflation has nothing to do with min. wages. They are only (not very strongly) positively correlated (0,45) due to adjustments in min. wages to catch up with inflation.

For those who have fixed income:
1) They should fight for indexation (according to CPI)

2) Higher inflation would lead to deleveraging, which is not bad at the moment:

http://theeconomiccollapseblog.com/w...ehold-Debt.jpg

I still insist, inflation is not caused by wages especially min. wages. It's a purely redistributive action with no long term impact on price indexes.
Even if we suppose that under full employment min. wage increases leads hypothetically to inflation, currently US is not even close to full employment. Inflation is the least of your concerns at the moment.

I'm not opposed to well managed minimum wages, but what's happening in the state of Washington seems a bit out of control.

Originally Posted by dan hunter

It doesn't matter very much how much the person costs. A human will never be able to compete with a machine on labour costs

?? Up until a few years ago cashiers WERE out-competing machines on labor costs. As the price for POS systems dropped, it crossed the threshold where it became economic to replace cashiers with these machines. One half of the equation is set by the price of the machine; the other half of the equation is set by the cost of labor.

The wage doesn't matter very much to how many people the company will hire either. Even if people were working for a dollar an hour no manager is going to hire more than the minimum number of people needed to do the work. Hiring 2 people to do 1 person's job would be nuts.

Yes. But saving a company a quarter million dollars on POS machines by hiring people for $1 an hour is not nuts; indeed, it would probably get you promoted if you came up with that plan and it worked.

Originally Posted by adelady

It's not due to "high" labour costs. It's either that some technology or other has become cheap enough to substitute for some labour costs

There are two sides to that equation - labor costs and cost of the technology. Both sides affect the decision.

and/or that a different location has workers willing to work for lower wages

Agreed.

When an employer needs a new factory, they have to decide where to build/establish it. If they can find somewhere with lower safety standards and poorer wages and no unions, they'll take it whether it's a couple of hundred kilometres away or across an ocean or two.

No, they're really not intentionally evil. They don't sit there rubbing their hands at the thought of mangling some workers in unsafe machinery. What they will do is put that factory anywhere it's cheaper. If factories could maintain the highest safety standards in the world, pay the highest wages in the world and have every single person unionized - AND still run it more cheaply than anywhere else - then that's what they would do. (They'd be crazy not to.) Unfortunately that's not the case. Wal-Mart shoppers want good deals, and thus Wal-Mart turns to the suppliers that can run their factories for the least money.

They don't sit there rubbing their hands at the thought of mangling some workers in unsafe machinery.

We're not talking about dealing with the best of the best here. We're talking about lowest common denominator behaviour.

A Side of Rat Feces? (A History Lesson) | Global Warming: Man or Myth?

I've dealt with some so-called management people, and some of them really, honestly, do not care about known dangers of some things. They certainly wouldn't spend any time or effort to find out if there was anything within, or being produced by, or being discarded by, their work processes or their products was harmful to anyone or anything.

Mangling workers? I recall a friend who got a fellowship to look at industrial practices overseas. She was absolutely horrified at several things, the most remarkable being one where she was given a tour of a factory. She came to one piece of machinery which she thought was pretty dodgy. When she asked about it, she discovered that the three - count them, three! - previous operators of that machine had all been killed on the job while operating it. The worst of it was that it was a union shop, but the "negotiated agreement" explicitly excluded the possibility of any legal union action about any safety issue. What about the management, though? If I ran that place, I'd be horrified at one death, let alone three - at the same machine. I don't know about you but I'd want to see for myself or get in an expert to see how to prevent further deaths or, at least, slow down or modify the operating procedure to do something, anything, about the danger in the meantime.

Originally Posted by Bad Robot

I'm not opposed to well managed minimum wages, but what's happening in the state of Washington seems a bit out of control.

Washington State has had one of the highest minimum wages in the nation for over a decade (raised every year and currently 9.32/hr)...and also one of the strongest economies and below average unemployment during most years during that time. (now currently 3rd strongest economy: Washington State Ranks Number Three in State New Economy Index | WTIA COMMUNITY BLOG).

Well, we currently have undernourished and deprived children for reasons other than poverty - so eliminating such things are an unfair burden to place on one solution (the minimum wage.) Minimum wage could be $30 an hour and an irresponsible mother could spend it all on cigarettes and Scotch.

To put it another way, minimum wage can be one part of the solution here, but it is definitely not sufficient by itself.

I completely agree. Other things that help are decoupling school resources from local economies (a 19th century model that's reinforces the socio-economic opportunity gaps between rich and poor), much better prenatal and mother+infant medical care and education for the poor (recent changes in US health care are a feeble start), a re-balance between secondary technical/trade skills and college prep instead of it being 100% on college prep, stop making a felony a lifetime sentence to poverty and forfeiture of voting rights even decades after paying ones due--and many other things.

Originally Posted by billvon

?? Up until a few years ago cashiers WERE out-competing machines on labor costs. As the price for POS systems dropped, it crossed the threshold where it became economic to replace cashiers with these machines. One half of the equation is set by the price of the machine; the other half of the equation is set by the cost of labor.

I have watched what happens in store here that put automated checkout lanes in. The customers don't use them and if there are not enough human tellers to process them the customers quit going to that store and take their business elsewhere.
The Walmart here ended up taking them out after trying them. It was not the cost directly that killed them here, it was the refusal of the customers to deal with a machine instead of a human.

Originally Posted by Lynx_Fox

Washington State has had one of the highest minimum wages in the nation for over a decade (raised every year and currently 9.32/hr)...and also one of the strongest economies and below average unemployment during most years during that time. (now currently 3rd strongest economy: Washington State Ranks Number Three in State New Economy Index | WTIA COMMUNITY BLOG).

I don't disagree with this, but I do have a problem with going from $9.32/hr to $15/hr all at once.

Originally Posted by dan hunter

Originally Posted by billvon

?? Up until a few years ago cashiers WERE out-competing machines on labor costs. As the price for POS systems dropped, it crossed the threshold where it became economic to replace cashiers with these machines. One half of the equation is set by the price of the machine; the other half of the equation is set by the cost of labor.

I have watched what happens in store here that put automated checkout lanes in. The customers don't use them and if there are not enough human tellers to process them the customers quit going to that store and take their business elsewhere.
The Walmart here ended up taking them out after trying them. It was not the cost directly that killed them here, it was the refusal of the customers to deal with a machine instead of a human.

I only use them if the quick checkout lines are long and I only have a few items.

Originally Posted by Lynx_Fox

Originally Posted by Bad Robot

I'm not opposed to well managed minimum wages, but what's happening in the state of Washington seems a bit out of control.

Washington State has had one of the highest minimum wages in the nation for over a decade (raised every year and currently 9.32/hr)...and also one of the strongest economies and below average unemployment during most years during that time. (now currently 3rd strongest economy: Washington State Ranks Number Three in State New Economy Index | WTIA COMMUNITY BLOG).

That's just an index of "new economy" industries.

Essentially the report is saying that Washington is the third best-placed state in the “new economy” that depends more on innovation to grow than anything else. What the index is not is a measure of the effectiveness of state government, or a ranking on how well a state is run or anything else that is done by government. Yet you will see policymakers crowing about their rankings when their governments have nothing to do with it.

Washington state has a worse than average unemployment rate.
Unemployment Rates for States

Originally Posted by Harold14370

Washington state has a worse than average unemployment rate.
Unemployment Rates for States

I suspect that about half the states in the USA would have a below average rate too.
Also the list is only for the month of Dec, 2013 and winter tends to be a common period of high seasonal unemployment in the Pacific North West area.
Anyway, after looking at the unemployment rates list it seems Washington is not far from the average so it is really a point favouring the argument that minimum wages do not have much effect on unemployment rates.

Originally Posted by Harold14370

Originally Posted by Lynx_Fox

Washington State has had one of the highest minimum wages in the nation for over a decade (raised every year and currently 9.32/hr)...and also one of the strongest economies and below average unemployment during most years during that time. (now currently 3rd strongest economy: Washington State Ranks Number Three in State New Economy Index | WTIA COMMUNITY BLOG).

That's just an index of "new economy" industries.

Essentially the report is saying that Washington is the third best-placed state in the “new economy” that depends more on innovation to grow than anything else. What the index is not is a measure of the effectiveness of state government, or a ranking on how well a state is run or anything else that is done by government. Yet you will see policymakers crowing about their rankings when their governments have nothing to do with it.

Because having an economy well suited to compete in a global economy is a bad thing?

Forbes rates WA STATE as ninth best state for business:
Best States for Business - Forbes

And I've made no claim about effectiveness of the State Government.

Washington state has a worse than average unemployment rate.
Unemployment Rates for States

Aside from the fact it's cherry picked. The National Average Dec2013 (from the same report) was 6.3, and WA State was 6.2. I suggest we use standard definitions of things like "average" rather than math terms as sadly defined in too many Faux News states.

---

But perhaps we should look at actual studies and meta studies about minimum wage and unemployment rates since this subject is pretty well studied. This recent one from the Center for Economic and Policy Research ask: "Why Does the Minimum Wage Have No Discernible Effect on Employment?"

[i]Conclusion
Economists have conducted hundreds of studies of the employment impact of the minimum wage.
Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research
conducted since the early 1990s concludes that the minimum wage has little or no discernible effect
on the employment prospects of low-wage workers.
The most likely reason for this outcome is that the cost shock of the minimum wage is small relative
to most firms' overall costs and only modest relative to the wages paid to low-wage workers. In the
traditional discussion of the minimum wage, economists have focused on how these costs affect
employment outcomes, but employers have many other channels of adjustment. Employers can
reduce hours, non-wage benefits, or training. Employers can also shift the composition toward
higher skilled workers, cut pay to more highly paid workers, take action to increase worker
productivity (from reorganizing production to increasing training), increase prices to consumers, or
simply accept a smaller profit margin. Workers may also respond to the higher wage by working
harder on the job. But, probably the most important channel of adjustment is through reductions in
labor turnover, which yield significant cost savings to employers.

http://www.cepr.net/documents/public...ge-2013-02.pdf

When I came to Canada, my first job was working at a green house doing manual labour for minimum wage. I was a microbiologist in the States, but my certification wasn’t valid in Canada, so I took whatever jobs I could get. I had an interesting discussion one day while eating lunch with the owner and other workers. He said, “I’d pay you guys more, but frankly, you’re not worth it.” (He was a bit of an ass, as far as employee motivation goes.)


I said, “Oh, why’s that?”


He said, “It’s simple economics, Diane. If you don’t significantly increase my profits beyond what I pay you, it’s not worth having you here.”


I said, “Well, that sounds reasonable enough.”


Another worker said “So why don’t you just fire us all, and do the work yourself, George?”


He said, “Well, I can’t. I can’t be in two places at once – driving the delivery truck, and watering the flowers and running the cash.”


“So we do what you want, and do it as well as you could if you were doing it yourself?” I asked.


“More or less. But if it doesn’t bring in a lot more money, then I can’t pay you more, because you aren’t worth it.”


So what he was really claiming, is that he needs his employees, but his business is barely profitable enough to afford them. Which is not any different from someone else saying, I need an apartment, but I can't afford $800 a month. I need electricity but my electricity bill is way too much. Or a single mother saying, I want to work, but I can’t afford daycare, and I can’t be in two places at once – working and at home with my kids. (The single mother, though isn’t claiming the greedy daycare workers are demanding too much, just that her income isn’t sufficient to cover it)


My point is paying employees substandard wages is a kind of subsidy for unprofitable (and sometimes very profitable) businesses, no different from free daycare for a single mom, although conservatives don’t see it that way. The owner of the green house believes he is forced to pay his employees low wages because of all of his other non-negotiable costs, but his employees have the same non-negotiable costs - like electricity bills, transportation, or taxes, and they too reach a point at which costs for even basic necessities to keep working exceed income from that work.

(Not to mention the fact, that no one earning the wages he paid would ever be spending it on flowers.)

Originally Posted by Lynx_Fox

And I've made no claim about effectiveness of the State Government.

I think you were implying that the policy of increasing the minimum wage was benefitting the state's economy.

[i]Conclusion
Economists have conducted hundreds of studies of the employment impact of the minimum wage.
Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research
conducted since the early 1990s concludes that the minimum wage has little or no discernible effect
on the employment prospects of low-wage workers.
The most likely reason for this outcome is that the cost shock of the minimum wage is small relative
to most firms' overall costs and only modest relative to the wages paid to low-wage workers (1). In the
traditional discussion of the minimum wage, economists have focused on how these costs affect
employment outcomes, but employers have many other channels of adjustment. Employers can
reduce hours, non-wage benefits, or training. Employers can also shift the composition toward
higher skilled workers, cut pay to more highly paid workers (2), take action to increase worker
productivity (from reorganizing production to increasing training), increase prices to consumers (3), or
simply accept a smaller profit margin. Workers may also respond to the higher wage by working
harder on the job. But, probably the most important channel of adjustment is through reductions in
labor turnover, which yield significant cost savings to employers.

http://www.cepr.net/documents/public...ge-2013-02.pdf

(1) In other words, the increases in wages were trivial, so the negative impacts were also trivial.
(2) The employers take money from some workers and give it to other workers. Is that the desired effect?
(3) Prices go up, which reduces the purchasing power of everybody who uses the product, including those who just got the raise.

Originally Posted by Harold14370

Minimum wage is just government interfering with and outlawing a financial transaction between two willing parties. It's a loss of freedom for everybody. No good will come of it.

I think this is really the reason conservatives attack minimum wage. It's just ideology.

Has absolutely nothing to do with economics, or at best uses an incomplete analysis to arrive at the conclusion wanted. A slapdash approach.

But.... it's a valid point from a non-economic point of view. Whenever we want to restrict freedom, there needs to be a good reason for it.

Either the company will cut back its work force, or raise prices to make up for the lost profit. The increased prices will only harm the people who have to buy the products, and they will therefore have less money to spend on something else.

No one should expect to make a career out of this kind of job. There should be some incentive for them to acquire more marketable skills.

You're only looking at one company instead of the big picture. If all that changed was the wage it had to pay its workers, it would falter. If two things change instead -

1) - The wage it has to pay workers

2) - The wage its customers are able to pay

Then the combination of those two things balances. If #2 changes by more than #1 (which I think I've made a good case for saying it will, if the minimum wage is accompanied by protective tariffs.) Then the company is better off, not worse off.


If you could change #1 by lowering wages, but leave #2 alone, the company would also be better off, but #1 and #2 are connected inseparably, so that absolutely could never happen in any real word application. The idea that lowering wages boosts the economy is therefore a "would work - if" idea, where the "if" is known to be certainly false.



You just have to somehow get it through your head that work wages are where demand comes from. If they demand too little, then we'll use less labor filling their demand. Using less labor has another name: "Unemployment".

Originally Posted by kojax

You're only looking at one company instead of the big picture. If all that changed was the wage it had to pay its workers, it would falter. If two things change instead -

1) - The wage it has to pay workers

2) - The wage its customers are able to pay

Then the combination of those two things balances. If #2 changes by more than #1 (which I think I've made a good case for saying it will, if the minimum wage is accompanied by protective tariffs.) Then the company is better off, not worse off.

If you could change #1 by lowering wages, but leave #2 alone, the company would also be better off, but #1 and #2 are connected inseparably, so that absolutely could never happen in any real word application. The idea that lowering wages boosts the economy is therefore a "would work - if" idea, where the "if" is known to be certainly false.



You just have to somehow get it through your head that work wages are where demand comes from. If they demand too little, then we'll use less labor filling their demand. Using less labor has another name: "Unemployment".

I don't actually think you're making any sense here. Why would the company's customers be able to pay their workers more if they are paying higher prices, which you had to raise due to the higher labor cost? Are you saying the minimum wage workers are making more money (off of you), so they can buy more of your product? This makes about as much sense as pulling yourself up by your bootstraps.

Originally Posted by Harold14370

Originally Posted by kojax

You're only looking at one company instead of the big picture. If all that changed was the wage it had to pay its workers, it would falter. If two things change instead -

1) - The wage it has to pay workers

2) - The wage its customers are able to pay

Then the combination of those two things balances. If #2 changes by more than #1 (which I think I've made a good case for saying it will, if the minimum wage is accompanied by protective tariffs.) Then the company is better off, not worse off.

If you could change #1 by lowering wages, but leave #2 alone, the company would also be better off, but #1 and #2 are connected inseparably, so that absolutely could never happen in any real word application. The idea that lowering wages boosts the economy is therefore a "would work - if" idea, where the "if" is known to be certainly false.



You just have to somehow get it through your head that work wages are where demand comes from. If they demand too little, then we'll use less labor filling their demand. Using less labor has another name: "Unemployment".

I don't actually think you're making any sense here. Why would the company's customers be able to pay their workers more if they are paying higher prices, which you had to raise due to the higher labor cost?

Yeah. Because the customers are workers.

Are you saying the minimum wage workers are making more money (off of you), so they can buy more of your product? This makes about as much sense as pulling yourself up by your bootstraps.

Reality is sometimes counter-intuitive. But there is a rationale.

Suppose our economy were set up so that 25% of the work force were able to produce subsistence goods for everyone. What would you do with the remaining workers? You don't want to just keep creating more and more subsistence goods that nobody will consume. They'll spoil on the shelves (which would be quite a waste of effort and resources.) So you need to assign the other workers something to do other than produce subsistence goods. Like, maybe produce luxury goods and services.

In this economy, the ideal wage would be one where the average worker could subsist on 25% of their income, leaving 75% of their income to purchase luxuries with. (Because we can't assign 75% of our workforce to producing something unless we first free up 75% of our funds to pay for it') If we go under that amount, there won't be enough money to pay all the workers who produce luxury goods, and they'll just have to be unemployed. If we go over that amount, we'll probably have inflation (because the economy won't be able to produce enough to keep up.)

It's not a matter of "the more the merrier". It's a matter of there being an ideal wage. It's a target we have to hit in order to maximize productivity, and the free market is oblivious to it. It may hit it sometimes by accident, but it has no built in means of targeting it. By default, the free market would undershoot it most of the time.

The shame here in the US is that many people depend on these menial minimum-wage jobs. Look at the people working at minimum-wage jobs. They aren't all young folks -- many are much older. The reasons for this are too many and too complex for me to unravel. Definitely one reason is that there are fewer relatively good-paying factory jobs, the main stay of a healthy middle class. Our middle class is very unhealthy. The US is no longer the manufacturing center of the world as it was after WWII and up until the 70s or 80s. I can offer up no solutions to this situation -- now that a lot of manufacturing has moved off-shore, there doesn't seem to be any "going back.". All I can do is look upon the US work force (from my retirement vantage point) and wonder what their lives will be like when they get to my age. I feel very fortunate to have worked in a high-tech field and was able to retire with a decent nest-egg. I feel sorry for today's middle-class workers -- those, for whatever reason, who are not able to get a college education.

Originally Posted by dan hunter

I have watched what happens in store here that put automated checkout lanes in. The customers don't use them and if there are not enough human tellers to process them the customers quit going to that store and take their business elsewhere.

Interesting. Out here a store will typically have four automated checkout lines (being used) and one human checker (not being used much.) Might be that people are just used to them, or might be that the people in this area (lots of telecom and biotech) are unusually tech savvy.

As time goes on I'd expect people to get more tech savvy.

The Walmart here ended up taking them out after trying them. It was not the cost directly that killed them here, it was the refusal of the customers to deal with a machine instead of a human.

I suspect that will change as people become more comfortable with technology.

Originally Posted by kojax

Originally Posted by Harold14370

Originally Posted by kojax

You're only looking at one company instead of the big picture. If all that changed was the wage it had to pay its workers, it would falter. If two things change instead -

1) - The wage it has to pay workers

2) - The wage its customers are able to pay

Then the combination of those two things balances. If #2 changes by more than #1 (which I think I've made a good case for saying it will, if the minimum wage is accompanied by protective tariffs.) Then the company is better off, not worse off.

If you could change #1 by lowering wages, but leave #2 alone, the company would also be better off, but #1 and #2 are connected inseparably, so that absolutely could never happen in any real word application. The idea that lowering wages boosts the economy is therefore a "would work - if" idea, where the "if" is known to be certainly false.



You just have to somehow get it through your head that work wages are where demand comes from. If they demand too little, then we'll use less labor filling their demand. Using less labor has another name: "Unemployment".

I don't actually think you're making any sense here. Why would the company's customers be able to pay their workers more if they are paying higher prices, which you had to raise due to the higher labor cost?

Yeah. Because the customers are workers.

Are you saying the minimum wage workers are making more money (off of you), so they can buy more of your product? This makes about as much sense as pulling yourself up by your bootstraps.

Reality is sometimes counter-intuitive. But there is a rationale.

Suppose our economy were set up so that 25% of the work force were able to produce subsistence goods for everyone. What would you do with the remaining workers? You don't want to just keep creating more and more subsistence goods that nobody will consume. They'll spoil on the shelves (which would be quite a waste of effort and resources.) So you need to assign the other workers something to do other than produce subsistence goods. Like, maybe produce luxury goods and services.

In this economy, the ideal wage would be one where the average worker could subsist on 25% of their income, leaving 75% of their income to purchase luxuries with. (Because we can't assign 75% of our workforce to producing something unless we first free up 75% of our funds to pay for it') If we go under that amount, there won't be enough money to pay all the workers who produce luxury goods, and they'll just have to be unemployed. If we go over that amount, we'll probably have inflation (because the economy won't be able to produce enough to keep up.)

It's not a matter of "the more the merrier". It's a matter of there being an ideal wage. It's a target we have to hit in order to maximize productivity, and the free market is oblivious to it. It may hit it sometimes by accident, but it has no built in means of targeting it. By default, the free market would undershoot it most of the time.

I'm not sure I understand your argument. In 1870, 70-80 percent of people in the US were employed in agriculture. This was true subsistence. Now it's about 2 percent in agriculture. What did all those people do? The 68-78%: They went into other lines of work. People were able to live at a higher standard of living because the people who used to be farmers were producing other things. They didn't need any Democrats to "assign" them to their new jobs, they just fulfilled the demands.
Now our definition of subsistence seems to include television with cable, cell phones to call 911, and regular visits to the doctor's office, which even the wealthy people in 1870 either didn't know anything about or could not afford.

Originally Posted by PumaMan

The shame here in the US is that many people depend on these menial minimum-wage jobs.

I don't think a person working at a minimum-wage job, making just enough to cover his rent and food, is shameful at all. He's being responsible and working to pay for his food and board. If he wants he can avail himself of the free education available here (from primary school through community college level) and get a higher paying job if he chooses. He can do an on-line course if he wants. He can just work more hours and make more money if that's his goal. He can join the military - and not make a lot more - but have his room and board covered.

If not, that's fine too; it's his life.

The US is no longer the manufacturing center of the world as it was after WWII and up until the 70s or 80s. I can offer up no solutions to this situation -- now that a lot of manufacturing has moved off-shore, there doesn't seem to be any "going back.".

Definitely agree there. There are no easy solutions. And one thing that I have learned is that anyone who proposes a simple, elegant solution to the problem - "raise minimum wage and everyone will be better off" "cut taxes and everyone will prosper" "kick out the illegals and there will be jobs for all" - is dependably wrong.

===============
Monday, January 28, 2013, 04:45 am PT (07:45 am ET)
Apple Shanghai R&D center confirmed for summer 2013
By Kevin Bostic

Rumors that Apple would be opening a research and development center in Shanghai came to fruition on Sunday, as it was confirmed that the summer of 2013 will see the company opening just such a facility in Pudong, Shanghai.
============

Nice, good for them. Shanghai is one of the richest Chinese divisions with a gdp per ce (ppp) alomst 25000$. As an emerging market it's only natural for an enterprise to expand it's activities there. That does not mean that apple abandons its current US located R&D facilities. Top university departments, research centres, etc cooperate with high tech enterprises. They wouldn't choose to destroy these positive externalities just because of a lower wage.

Until the supply/demand curve caused prices to rise (i.e. inflation) and the "real" purchasing power returned to previous levels.

I mentioned nothing about Supply/Demand curves on purpose since their shape is not linear in reality (if we suppose that they exist at all which is doubtful) thus we can not presuppose anything about the final equilibrium.

Again, even if we accept this statement, US wage rises are lower then productivity growth. Still, an increase in min wage would just reduce the gap between MPL and wage. (although marginal products do not exist as well but, let's suppose again that they exist)

Agreed in general. Thus the companies that have more holdings in foreign countries can better out-compete companies that hire local labor.

Companies out-compete through the mechanization of the labour process, mostly. There's need for empirical research to verify if capital accumulation will be limited. It depends on the counterbalancing forces of effective demand and profitability.
US companies can still out compete foreign companies in terms of unit capital costs. Also, the forthcoming (ongoing) $ devaluation will increase US competitiveness.

Because the highest wages in the country (million dollar plus salaries) present a very small fraction (far less than 1%) of the total income - thus their effect on the economy is tiny. They do definitely affect niche industries (growth in privately owned business jets and fractional ownership business jets has gone up tremendously in the past 20 years) but it doesn't affect the economy much as a whole/

Data does not seem to confirm that 1% that you're mentioning:

http://www.the-crises.com/wp-content...ity-usa-20.jpg
http://wiki.econwiki.com/images/e/e5...Prosperity.gif
http://8020vision.com/wp-content/upl...Gini_Index.png

On the contrary, US is an unequal economy (even by standard indexes). Top incomes represent a large amount of total income, still their increased share did not cause any demand driven inflation.

I think this might be confusing cause and effect here. Minimum wages have been reduced BECAUSE of massive unemployment; it was part of an agreement that got them "rescue" funding. It's akin to claiming that bad economies cause low interest rates, rather than realizing that it is a conscious decision to try to help struggling economies.
==========================
Greece cuts minimum wage as austerity drive begins
By George Georgiopoulos
ATHENS Tue Feb 28, 2012 1:02pm EST

(Reuters) - Greek ministers agreed deep cuts to the minimum wage on Tuesday, slashing living standards for low-paid workers as Athens began implementing measures demanded by international lenders in return for a 130 billion euro rescue package.


Cabinet approved the cuts, which will hit workers already struggling after more than four years of deep recession, as it signed off on a series of steps agreed in principle by parliament last week, a government official said.


The move, which will pass into law without the need for further parliamentary approval, imposes a 22-percent cut on the standard minimum monthly wage of 751 euros. For those under 25, the cut will be even more brutal, a 32-percent reduction.


In addition, it will impose a public-sector wage freeze until the unemployment rate, currently 21 percent, falls below 10 percent.

Oops, an extra 0 made 20~200% i'll edit it. Indeed, minimum wage reduced in 2012. Since then we have 2 more years of severe recession and growing unemployment. There is no evidence that this reduction helped any worker. On the contrary, it further reduced effective demand causing more recession.

On the other hand it really helped to balance the current account deficit but this is not a clever nor an effective policy.

Actually, Greece is a special example since it doesn't have autonomous monetary nor fiscal policy thus the only used macroeconomic mechanism is labour market.


Even by standard economic theory, demand pull inflation presupposes that the economy is near its long term supply curve. This is definitely not the case in the US; You are still struggling to catch up pre-crisis levels.

Originally Posted by kojax

Originally Posted by Harold14370

Minimum wage is just government interfering with and outlawing a financial transaction between two willing parties. It's a loss of freedom for everybody. No good will come of it.

I think this is really the reason conservatives attack minimum wage. It's just ideology.

And that's the problem with it, and why most of the rhetoric within the conservative echo chambers are often shallow and unsupported by economic theory or how things have played out in practice. Their support of trickle down have failed and their fears of modest hikes to minimum wage to match poverty expense cost are unfunded. WA State was one simple example, the meta study was far far more comprehensive to demonstrate and explain how companies easily accommodate reasonable and modest hikes in minimum wage.

Originally Posted by billvon

I suspect that will change as people become more comfortable with technology.

Possibly, even probably, but that just brings us back to my comment that people can not compete with machines on labour cost except in areas where machines are unable to do the job.
Machines are not very good at interacting with humans for one thing so jobs that require human interaction might exist for a llonger time. There are other examples like this from medical and management professions.
I doubt if anybody would suggest replacing priests with computer terminals either.
Machines still face problems negotiating in strange and unusual terrain in spite of all the recent research into autonomous vehicles. So people are still needed to do jobs that require those skill sets.

The more important point is that mechanization increases unemployment and that puts a downward pressure on wages in all fields. It is important to understand that it affects all fields of employment instead of just the specific area that is experiencing the job loss at the moment.
People are adaptable and will bid for jobs in other professions than they were in.
The next generation will grow up already looking for employment in the remaining fields.

Originally Posted by Harold14370

Originally Posted by kojax

You're only looking at one company instead of the big picture. If all that changed was the wage it had to pay its workers, it would falter. If two things change instead -

1) - The wage it has to pay workers

2) - The wage its customers are able to pay

Then the combination of those two things balances. If #2 changes by more than #1 (which I think I've made a good case for saying it will, if the minimum wage is accompanied by protective tariffs.) Then the company is better off, not worse off.

If you could change #1 by lowering wages, but leave #2 alone, the company would also be better off, but #1 and #2 are connected inseparably, so that absolutely could never happen in any real word application. The idea that lowering wages boosts the economy is therefore a "would work - if" idea, where the "if" is known to be certainly false.



You just have to somehow get it through your head that work wages are where demand comes from. If they demand too little, then we'll use less labor filling their demand. Using less labor has another name: "Unemployment".

I don't actually think you're making any sense here. Why would the company's customers be able to pay their workers more if they are paying higher prices, which you had to raise due to the higher labor cost? Are you saying the minimum wage workers are making more money (off of you), so they can buy more of your product? This makes about as much sense as pulling yourself up by your bootstraps.

Prices on the long run are not determined by wages nor by profits. They are determined by the relative amounts of used labour (and past labour which exists in other means of production).
Your argument would be true only at t=0. Dynamically, there are processes that lead to a reduction of price again.
Prices at first will be raised only due to the increase of the demand for certain commodities (consumer goods). This leads to an imbalance, in various industrial rates of profit. Industries who focus on consumer goods will be benefited from the excess profitability. On the long term through the adjustments in demand and supply prices will fall again because more enterprises will enter the more profitable consumer goods market thus the price will be reduced again.

I have some empathy for people working minimum-wage jobs. I understand that wages from a minimum-wage job (even with both spouses working them) cannot pay for a decent middle-class life. But I cannot accept that a job that can be learned in a day or two or a job that does not require a good deal of physical strength and endurance is worth anything more than the current minimum-wage. Those minimum-wage workers need to better themselves and move on to more technical jobs or get jobs that require more physical strength and endurance. Only then will they make the wages necessary for a decent middle class life. While a construction laborer is not rocket science, it does require the worker to be fit -- that is worth more in wages.

Bottom line: minimum wage workers need to get more educated or work at more physically demanding jobs.

I agree with the OP that minimum wage laws are necessary. After all, even menial labor is worth something. But those wages don't need to be high enough to support a middle-class lifestyle. The minimum-wage worker needs to move on to a better job -- not stagnate where he is.

Originally Posted by dan hunter

Possibly, even probably, but that just brings us back to my comment that people can not compete with machines on labour cost except in areas where machines are unable to do the job.

Depends on the level of technology and the relative costs of both. You could reclaim those cashier spots if you could pay people $1 an hour and reduce unemployment. Is that worth it? To those people who would otherwise not have jobs at all, probably. To society as a whole, perhaps not - due to the other negative consequences of a very low minimum wage.

The more important point is that mechanization increases unemployment and that puts a downward pressure on wages in all fields.

Certainly not true in (for example) web page design. That is an industry that was CREATED by mechanization, and increased use of the WWW will place an upward pressure on wages. There are many similar fields - programmer, data center engineer, automotive repairman, A+P mechanic etc.

Originally Posted by PumaMan

I have some empathy for people working minimum-wage jobs. I understand that wages from a minimum-wage job (even with both spouses working them) cannot pay for a decent middle-class life. But I cannot accept that a job that can be learned in a day or two or a job that does not require a good deal of physical strength and endurance is worth anything more than the current minimum-wage. Those minimum-wage workers need to better themselves and move on to more technical jobs or get jobs that require more physical strength and endurance. Only then will they make the wages necessary for a decent middle class life. While a construction laborer is not rocket science, it does require the worker to be fit -- that is worth more in wages.

Bottom line: minimum wage workers need to get more educated or work at more physically demanding jobs.

I agree with the OP that minimum wage laws are necessary. After all, even menial labor is worth something. But those wages don't need to be high enough to support a middle-class lifestyle. The minimum-wage worker needs to move on to a better job -- not stagnate where he is.

I agree, but lets say every adult fast food worker, every minimum wage store employee, etc did some how take out loans and get certificates in accounting/book keeping, personal support work, or some trade, etc. making, say, $15.00 - $20 bucks an hour instead of $7 or even $10. What happens to those wages if people at that level do not also move up? It would seem that bumping everyone up with more training and education would increase the over all productivity of society, but I'm not entirely sure it would solve the economic problem if you are still unwilling to pay people at the lowest levels a sustainable wage. I could just as easily argue that any middle management employee who wants more money, should just "become a CEO" somewhere.

Originally Posted by DianeG

I agree, but lets say every adult fast food worker, every minimum wage store employee, etc did some how take out loans and get certificates in accounting/book keeping, personal support work, or some trade, etc. making, say, $15.00 - $20 bucks an hour instead of $7 or even $10. What happens to those wages if people at that level do not also move up?

Well, there wouldn't be any if (as per your example) every adult worker moved up. But let's assume that 50% do.

By strict economic theory, the remaining workers would see their wages go up as the labor pool for those jobs shrank. When you run a McDonald's, and half your labor force quits, and you can't get anyone from the Wendy's next door, you have to offer more money to attract the Wendy's workers away from _their_ jobs.

but I'm not entirely sure it would solve the economic problem if you are still unwilling to pay people at the lowest levels a sustainable wage.

They will pay whatever it takes to man their stores, and reflect the increased costs in their prices.

I could just as easily argue that any middle management employee who wants more money, should just "become a CEO" somewhere.

If half the CEO's up and quit that would indeed become a more likely outcome.

Originally Posted by billvon

Originally Posted by DianeG

I agree, but lets say every adult fast food worker, every minimum wage store employee, etc did some how take out loans and get certificates in accounting/book keeping, personal support work, or some trade, etc. making, say, $15.00 - $20 bucks an hour instead of $7 or even $10. What happens to those wages if people at that level do not also move up?

Well, there wouldn't be any if (as per your example) every adult worker moved up. But let's assume that 50% do.

By strict economic theory, the remaining workers would see their wages go up as the labor pool for those jobs shrank. When you run a McDonald's, and half your labor force quits, and you can't get anyone from the Wendy's next door, you have to offer more money to attract the Wendy's workers away from _their_ jobs.

So, now, because of a shortage, you have someone who works at a fast food restaurant making the same as a bookkeeper, or perhaps more since there are now too many book keepers. How do you convince everyone to move up a level? And if they do, where does the money to pay all these new professional wages come from?

There are actually a lot of people with university degrees working at jobs that "could be learned in a day," as bank tellers, clerical workers, etc. I'm not convinced it is entirely a skill or education problem.

Originally Posted by Lynx_Fox

And that's the problem with it, and why most of the rhetoric within the conservative echo chambers are often shallow and unsupported by economic theory or how things have played out in practice.

Yes, I value personal freedom. I won't apologize for it.

Their support of trickle down have failed and their fears of modest hikes to minimum wage to match poverty expense cost are unfunded. WA State was one simple example, the meta study was far far more comprehensive to demonstrate and explain how companies easily accommodate reasonable and modest hikes in minimum wage.

Neither of those actually proved your point. Washington state's ranking was in no way shown to be related to minimum wages, The meta study at best showed that unemployment rates did not go up significantly (which may have been only because of the small increases in minimum wage). It did not show any benefits due to the minimum wage increase.

Originally Posted by Achilleas

Prices on the long run are not determined by wages nor by profits. They are determined by the relative amounts of used labour (and past labour which exists in other means of production).

I don't follow. How do "relative amounts of used labor" affect prices if it is not because of the wages paid for the used labor?

Your argument would be true only at t=0. Dynamically, there are processes that lead to a reduction of price again.
Prices at first will be raised only due to the increase of the demand for certain commodities (consumer goods).

Why are they not raised due to the increase in the cost of production, due to the higher wages?

This leads to an imbalance, in various industrial rates of profit. Industries who focus on consumer goods will be benefited from the excess profitability. On the long term through the adjustments in demand and supply prices will fall again because more enterprises will enter the more profitable consumer goods market thus the price will be reduced again.

It still isn't making sense to me. Increasing the minimum wage only increases the demand by the people who have had their income increased. The demand from those who had their income reduced will be less because they have less purchasing power. This may include the owner of a small business who has to pay the higher wage, the higher paid workers who had their pay cut to balance the payroll, or the investor who will end up with a smaller nest egg at retirement.

Originally Posted by DianeG

So, now, because of a shortage, you have someone who works at a fast food restaurant making the same as a bookkeeper, or perhaps more since there are now too many book keepers.

You've hit upon one risk of trying to externally manage employment. By making everyone move to a position that seems better for them, you have increased the supply of bookkeepers and decreased the supply of burger flippers, thus artificially unbalancing the labor market. This will adjust itself with time as people return to burger flipping because it's easier than bookkeeping, thus depressing wages for burger flipping and restoring balance.

How do you convince everyone to move up a level? And if they do, where does the money to pay all these new professional wages come from?

Well, people pay their labor force what they are worth to them. Thus if someone can make twice their original income by doing books, it's because that employee can generate twice the value they did before, and thus the company becomes more valuable overall. (i.e. more sales, more efficient bookkeeping, more money available to pay employee.)

There are actually a lot of people with university degrees working at jobs that "could be learned in a day," as bank tellers, clerical workers, etc. I'm not convinced it is entirely a skill or education problem.

Generic education alone sometimes can't solve the problem. Look at Korea; they have something of a PhD glut right now. Seems like everyone has a PhD. They are experiencing "education inflation," a condition where when everyone has a similar high level of education, that in and of itself does not guarantee one a job. There are still jobs like petroleum engineering that have a huge demand (and thus those graduates are relatively assured of a job with high wages) but for your typical CS graduate times are tough because there are so many of them. Thus in their case the challenge is to match a rare skill (petroleum engineering) to a high demand (oil companies who need them.)

However as someone who is actually hiring Korean EECS graduates there are still jobs to be had and they pay well.

Here in the US, since we do not have that problem, targeted education (specifically two year degrees in areas like healthcare, web design, aviation and dental) definitely makes you both more employable and increases your average salary. An Old English Literature degree might not have the same effect, though.

One of the central points going unrecognized in these arguments is the "Tragedy of The Commons" problem. What is supposedlly the best policy for an individual is not necessarilly the best policy for an individual in competition with other individuals.
Sometimes squeezing the extra few drops of blood out of a system just kills the system.

You guys all need to quit treating economics as a religion instead of the rather shaky quasi-science it really is.
There has never been a "Free Market" and there never will be one. Adam Smith knew that full well when he wrote his argument against Mercantilism. It was a powerful argument for liberalisation of trade laws and for the limiting of the King's trade monopoly granting system in place at the time.
However Adam Smith's argument didn't invalidate mercantilism either, just like Monetarism never really invalidated the labour value theories.

None of these ldeas are really testable in any empirical fashion either. The one thing they all have in common is they all fail, they fail on different points, but they all fail.
At best they are useful ways of thinking about real world economic problems. In the hands of economic fundamentalists they become something far worse and far more dangerous, they become religions with unquestionable beliefs.

Now step back and take another look at the situation. If increasing corporate profits through tax breaks and direct cash bailouts worked then your western economomies should all be booming and they are not. All you have are corporations, mostly financial ones, sitting on their cash because interest rates are too low to make lending attractive to them, at the same time people who would use loans to develop businesses are not seeking them because the economy is still in a slump and their is no purpose to investment except in a few small areas of the economy.

A big question is whether inflation is a good thing or not. Yes it hurts some sectors more than others. It hurts people on fixed incomes, yes. It hurts borrowers, yes.
The other side of that is interest rates. Whenever the interest rates are below the inflation rate you are in a state of deflation.
Deflation hurts some sectors of the economy more than others. Lenders are hurt by deflation, yes. But the knock on effect through the reduced interest means less willingness to make loans and that restricts the money supply as well as severely reducing the money velocity through the economy.

The cash to the rich policy has been tried thoroughly in the case of the current recession and the only result was record corporate profits, increased CEO compensation package and an acceleration of investment in foriegn countries with higher interest rates.

The only thing that has not been tried is massive injections of liquiduidity to the very people who would be most hurt by inflation. Even if you just gave the money to the minimum waged workers, the fixed income retirees and the rest of the poor it would not change the inflation rate by very much but it likely would increase the money supply and loan demand, and interest rates might climb above the inflation rate enough to justify the cash fat corporations to get back into the business of actually financing economic growth.

Increasing the minimum wage is one way of getting cash flow back into the bottom of the economy. It is one oof the few ways the government can do it without just printing new money (inflation) and it will help restore a bit better balance to the economic structure of the countries most affected by the recession.

Yes increasing the minimum wage is essential if the economy is to recover.

Originally Posted by billvon

Originally Posted by DianeG

So, now, because of a shortage, you have someone who works at a fast food restaurant making the same as a bookkeeper, or perhaps more since there are now too many book keepers.

You've hit upon one risk of trying to externally manage employment. By making everyone move to a position that seems better for them, you have increased the supply of bookkeepers and decreased the supply of burger flippers, thus artificially unbalancing the labor market. This will adjust itself with time as people return to burger flipping because it's easier than bookkeeping, thus depressing wages for burger flipping and restoring balance.

How do you convince everyone to move up a level? And if they do, where does the money to pay all these new professional wages come from?

Well, people pay their labor force what they are worth to them. Thus if someone can make twice their original income by doing books, it's because that employee can generate twice the value they did before, and thus the company becomes more valuable overall. (i.e. more sales, more efficient bookkeeping, more money available to pay employee.)

There are actually a lot of people with university degrees working at jobs that "could be learned in a day," as bank tellers, clerical workers, etc. I'm not convinced it is entirely a skill or education problem.

Generic education alone sometimes can't solve the problem. Look at Korea; they have something of a PhD glut right now. Seems like everyone has a PhD. They are experiencing "education inflation," a condition where when everyone has a similar high level of education, that in and of itself does not guarantee one a job. There are still jobs like petroleum engineering that have a huge demand (and thus those graduates are relatively assured of a job with high wages) but for your typical CS graduate times are tough because there are so many of them. Thus in their case the challenge is to match a rare skill (petroleum engineering) to a high demand (oil companies who need them.)

However as someone who is actually hiring Korean EECS graduates there are still jobs to be had and they pay well.

Here in the US, since we do not have that problem, targeted education (specifically two year degrees in areas like healthcare, web design, aviation and dental) definitely makes you both more employable and increases your average salary. An Old English Literature degree might not have the same effect, though.

I'm not really disputing your logic, however, it seems odd that despite vast increases in productivity from industrialization followed by computers, the economy is still structured like a zero sum gain, where somebody at the bottom has to be the whipping boy, regardless of how hard everyone works or society as a whole produces. That just doesn't add up.
There's almost the implication that if workers were paid a living wage, everyone would want to be a fastfood worker or clean hotel rooms because it's so fun and easy!
.

Originally Posted by DianeG

I'm not really disputing your logic, however, it seems odd that despite vast increases in productivity from industrialization followed by computers, the economy is still structured like a zero sum gain, where somebody at the bottom has to be the whipping boy, regardless of how hard everyone works or society as a whole produces. That just doesn't add up.

I don't think it's a zero sum game; I think it's more like a Gaussian distribution of skills/employability. There will always be someone at the tail end who is unemployable no matter how good the economy; there will always be people who are in demand and who command a very high salary no matter how bad the economy. No matter how much the economy grows, and no matter how much of that "middle" you employ, that will always be true.

So in that way there will always be a "whipping boy" who is the bottom of the curve.

That being said, the health of the economy has a lot to do with employing more of that bottom portion of the curve. People who are marginally employable in a good economy are the first to go in a poor one.

There's almost the implication that if workers were paid a living wage, everyone would want to be a fastfood worker or clean hotel rooms because it's so fun and easy!

I don't think that's true. I am an engineer because I like designing things. (And fortunately for me that particular 'hobby' is one that is in demand.) Many people are like me; they choose something they like, become good at it, and get a job in that field. However I have met more than one person who simply has zero ambition, and if they could be paid to sit on the couch all day and watch TV they would take that job in a second. Such people will tend (in my experience) to choose the easiest job with the least responsibility and the least requirements for training.

Originally Posted by Harold14370

I'm not sure I understand your argument. In 1870, 70-80 percent of people in the US were employed in agriculture. This was true subsistence. Now it's about 2 percent in agriculture. What did all those people do? The 68-78%: They went into other lines of work.

Those "other lines of work" only existed because there was a demand for luxury goods.

But my point is, there is only a demand for luxury goods when the majority of the population is making a wage above subsistence.

At the start of the 20th century, the Westward expansion had left quite a lot of Americans as land owners running their own farming businesses. As entrepreneurs, they didn't have to compete for jobs, which enabled the average wage to be reasonably high. People like Henry Ford started opening factories, and found they had to offer a pretty good salary in order to get anyone to work for them. There was at that point in history no real need for a minimum wage, or for any artificial attempts to be made to prop up the average workers' wages.

Then the Great Depression hit, which was a period of time characterized by accelerated deflation. Huge lines of people would wait outside factories hoping to get any job at all. Wages bottomed out (which is probably a lot of the reason for the deflation.)

That didn't stop until the government opened up a lot of government jobs in the form of military careers to fight in WW2, which again propped up the wage and set things back on track.

People were able to live at a higher standard of living because the people who used to be farmers were producing other things. They didn't need any Democrats to "assign" them to their new jobs, they just fulfilled the demands.
Now our definition of subsistence seems to include television with cable, cell phones to call 911, and regular visits to the doctor's office, which even the wealthy people in 1870 either didn't know anything about or could not afford.

It's true we don't need people assigned to their jobs. But we do need the wage assigned.

It doesn't have to be a prison thing. The government could instead levy a tax on low wage production. A tax exactly equal to the savings. Then employers are still free to pay their workers less if they want to. They just have no financial incentive to do so.

The economy is always going to crash every time we, as a society, allow the minimum wage to be eroded.

I think the term "luxury goods" might be wrong though, as those sales increase as rich people get richer. But everything other than subsistence items, yes those will go down in sales.

I think the larger issue is really dollar devaluation. The minimum wage has a lot less purchasing power than it did when it was a few dollars an hour, even though its number is higher. The people making more than minimum wage have the same purchasing power as people making minimum wage used to. So at some point it becomes necessary to prop it all up.

I am enjoying reading this thread.

Originally Posted by kojax

Originally Posted by Harold14370

I'm not sure I understand your argument. In 1870, 70-80 percent of people in the US were employed in agriculture. This was true subsistence. Now it's about 2 percent in agriculture. What did all those people do? The 68-78%: They went into other lines of work.

Those "other lines of work" only existed because there was a demand for luxury goods.

But my point is, there is only a demand for luxury goods when the majority of the population is making a wage above subsistence.

At the start of the 20th century, the Westward expansion had left quite a lot of Americans as land owners running their own farming businesses. As entrepreneurs, they didn't have to compete for jobs, which enabled the average wage to be reasonably high.......

Actually in 1873 the world entered the Long Depression.
The farm workers didn't just go find other jobs. Some economists think the Long Depression actually lasted until the end of 1896.
Long Depression - Wikipedia, the free encyclopedia

Originally Posted by dan hunter

Actually in 1873 the world entered the Long Depression.
The farm workers didn't just go find other jobs. Some economists think the Long Depression actually lasted until the end of 1896.
Long Depression - Wikipedia, the free encyclopedia

It's somewhat debatable whether that should be called a depression. This is from the Wikipedia article.

Accompanying the overall growth in real prosperity was a marked shift in consumption from necessities to luxuries: by 1885, "more houses were being built, twice as much tea was being consumed, and even the working classes were eating imported meat, oranges, and dairy produce in quantities unprecedented". The change in working class incomes and tastes was symbolized by "the spectacular development of the department store and the chain store".

Did they need a minimum wage law to end the depressions, or what is the connection to minimum wage laws?

Originally Posted by Harold14370

Originally Posted by dan hunter

Actually in 1873 the world entered the Long Depression.
The farm workers didn't just go find other jobs. Some economists think the Long Depression actually lasted until the end of 1896.
Long Depression - Wikipedia, the free encyclopedia

It's somewhat debatable whether that should be called a depression. This is from the Wikipedia article.

Accompanying the overall growth in real prosperity was a marked shift in consumption from necessities to luxuries: by 1885, "more houses were being built, twice as much tea was being consumed, and even the working classes were eating imported meat, oranges, and dairy produce in quantities unprecedented". The change in working class incomes and tastes was symbolized by "the spectacular development of the department store and the chain store".

Did they need a minimum wage law to end the depressions, or what is the connection to minimum wage laws?

Also from the Wikipedia article:

The dramatic shift in prices mauled nominal wages - in the United States, nominal wages declined by one-quarter during the 1870s,^[11] and as much as one-half in some places, such as Pennsylvania.^[30] Although real wages had enjoyed robust growth in the aftermath of the American Civil War, increasing by nearly a quarter between 1865 and 1873, they stagnated until the 1880s, posting no real growth, before resuming their robust rate of expansion in the later 1880s.^[31] The collapse of cotton prices devastated the already war-ravaged economy of the southern United States.^[14] Although farm prices fell dramatically, American agriculture continued to expand production.^[26]
Thousands of American businesses failed, defaulting on more than a billion dollars of debt.^[30] One in four laborers in New York were out of work in the winter of 1873-1874^[30] and, nationally, a million became unemployed.^[30]
The sectors which experienced the most severe declines in output were manufacturing, construction, and railroads.^[26] The railroads had been a tremendous engine of growth in the years before the crisis, yielding a 50% increase in railroad mileage from 1867 to 1873.^[26] After absorbing as much as 20% of US capital investment in the years preceding the crash, this expansion came to a dramatic end in 1873; between 1873 and 1878, the total amount of railroad mileage in the United States barely increased at all.^[26]

Be careful you are not just cherrypicking what you read because that is the way religious nuts do things.
Anyhow, the migration of labour from agriculture was partly (strongly?) a result of increased farm mechanization. It did create an oversupply of labour and the ovesupply was only partially absorbed by new industries. It did depress wages throughout the economy even in the new industries and professions.

Would the Long Recession have been made shorter by some form of minimum wage laws? I am not sure.
It is about the only thing that was not tried.
One of the things that was happening during this time was a long run of deflation.

Originally Posted by dan hunter

Originally Posted by Harold14370

Originally Posted by dan hunter

Actually in 1873 the world entered the Long Depression.
The farm workers didn't just go find other jobs. Some economists think the Long Depression actually lasted until the end of 1896.
Long Depression - Wikipedia, the free encyclopedia

It's somewhat debatable whether that should be called a depression. This is from the Wikipedia article.

Accompanying the overall growth in real prosperity was a marked shift in consumption from necessities to luxuries: by 1885, "more houses were being built, twice as much tea was being consumed, and even the working classes were eating imported meat, oranges, and dairy produce in quantities unprecedented". The change in working class incomes and tastes was symbolized by "the spectacular development of the department store and the chain store".

Did they need a minimum wage law to end the depressions, or what is the connection to minimum wage laws?

Also from the Wikipedia article:

The dramatic shift in prices mauled nominal wages - in the United States, nominal wages declined by one-quarter during the 1870s,^[11] and as much as one-half in some places, such as Pennsylvania.^[30] Although real wages had enjoyed robust growth in the aftermath of the American Civil War, increasing by nearly a quarter between 1865 and 1873, they stagnated until the 1880s, posting no real growth, before resuming their robust rate of expansion in the later 1880s.^[31] The collapse of cotton prices devastated the already war-ravaged economy of the southern United States.^[14] Although farm prices fell dramatically, American agriculture continued to expand production.^[26]
Thousands of American businesses failed, defaulting on more than a billion dollars of debt.^[30] One in four laborers in New York were out of work in the winter of 1873-1874^[30] and, nationally, a million became unemployed.^[30]
The sectors which experienced the most severe declines in output were manufacturing, construction, and railroads.^[26] The railroads had been a tremendous engine of growth in the years before the crisis, yielding a 50% increase in railroad mileage from 1867 to 1873.^[26] After absorbing as much as 20% of US capital investment in the years preceding the crash, this expansion came to a dramatic end in 1873; between 1873 and 1878, the total amount of railroad mileage in the United States barely increased at all.^[26]

Be careful you are not just cherrypicking what you read because that is the way religious nuts do things.
Anyhow, the migration of labour from agriculture was partly (strongly?) a result of increased farm mechanization. It did create an oversupply of labour and the ovesupply was only partially absorbed by new industries. It did depress wages throughout the economy even in the new industries and professions.

Would the Long Recession have been made shorter by some form of minimum wage laws? I am not sure.
It is about the only thing that was not tried.
One of the things that was happening during this time was a long run of deflation.

It looks like you are cherry picking yourself, as you only quoted the parts that you think supported your point. Still nothing relevant to the minimum wage.

Originally Posted by Harold14370

Originally Posted by Lynx_Fox

And that's the problem with it, and why most of the rhetoric within the conservative echo chambers are often shallow and unsupported by economic theory or how things have played out in practice.

Yes, I value personal freedom. I won't apologize for it.

So do I! But this isn't just a discussion about personal freedom, it's a discussion about having the ability to work among the hardest working group in America full time, and not having to beg for handouts from the tax payers just to get by, versus freedom of corporations. In that context I put personal freedoms as the priority--particularly when as shown in studies that there is minimal negative economic impact.

No I was not cherry picking.
I was just showing that section to balance out your rather misleading selection.
Notice that I left your selection in the quote instead of removing it.

Earlier you said:

I'm not sure I understand your argument. In 1870, 70-80 percent of people in the US were employed in agriculture. This was true subsistence. Now it's about 2 percent in agriculture. What did all those people do? The 68-78%: They went into other lines of work. People were able to live at a higher standard of living because the people who used to be farmers were producing other things. They didn't need any Democrats to "assign" them to their new jobs, they just fulfilled the demands.

The reason I mentioned the Wikipedia article to start with was to point out that your above comment was not quite right and was presenting an unbalanced view of reality.

Originally Posted by Lynx_Fox

So do I! But this isn't just a discussion about personal freedom, it's a discussion about having the ability to work among the hardest working group in America full time, and not having to beg for handouts from the tax payers just to get by, versus freedom of corporations. In that context I put personal freedoms as the priority--particularly when as shown in studies that there is minimal negative economic impact.

The minimum wage is a government handout. The government is just extracting the money from the employer to pay these workers extra wages. Anyway, minimum wage employees are not a class of people, it just describes a kind of job. Often those jobs are held by teenagers from middle or upper class families working part time. The employer himself may be from a lower socioeconomic class.

Originally Posted by dan hunter

No I was not cherry picking.
I was just showing that section to balance out your rather misleading selection.
Notice that I left your selection in the quote instead of removing it.

Earlier you said:

I'm not sure I understand your argument. In 1870, 70-80 percent of people in the US were employed in agriculture. This was true subsistence. Now it's about 2 percent in agriculture. What did all those people do? The 68-78%: They went into other lines of work. People were able to live at a higher standard of living because the people who used to be farmers were producing other things. They didn't need any Democrats to "assign" them to their new jobs, they just fulfilled the demands.

The reason I mentioned the Wikipedia article to start with was to point out that your above comment was not quite right and was presenting an unbalanced view of reality.

What part of the statement was not quite right? The economy did make a transition from agrarian to industrial. They did have a higher standard of living as a result. They weren't assigned their jobs by government in any way.

Are you really seriously telling me you don't see the flaws in your comments?
Real wages stagnated during the 1870s
Only the leisure class saw any rise in their standard of living for years.

Originally Posted by Harold14370

The minimum wage is a government handout. The government is just extracting the money from the employer to pay these workers extra wages.

No, I think it really is the other way around.

How McDonald's and Wal-Mart Became Welfare Queens - Bloomberg

Originally Posted by Harold14370

Originally Posted by Lynx_Fox

So do I! But this isn't just a discussion about personal freedom, it's a discussion about having the ability to work among the hardest working group in America full time, and not having to beg for handouts from the tax payers just to get by, versus freedom of corporations. In that context I put personal freedoms as the priority--particularly when as shown in studies that there is minimal negative economic impact.

The minimum wage is a government handout. The government is just extracting the money from the employer to pay these workers extra wages. Anyway, minimum wage employees are not a class of people, it just describes a kind of job. Often those jobs are held by teenagers from middle or upper class families working part time. The employer himself may be from a lower socioeconomic class.

I'd rather a business pay a living wage than business and all other tax payers do the same to support the poor (we pay either way). It avoids the inefficiencies of government social programs and fosters independence for employees by increasing their own choices about getting better employment. Being poor is in de facto becoming a class of citizen in America and increasingly so in a Nation where the difference between haves and have-nots has gotten wider and wider and social mobility so low it compares unfavorably to many developing world nations.

And honestly it's not just about the people making exactly minimum wage either...it's also about the underpaid who've think their doing well by their employer because they've been promoted a couple times, or making a buck or so more now but still unable to pay for basic living expenses and require public help to make ends meet.

Originally Posted by DianeG

Originally Posted by Harold14370

The minimum wage is a government handout. The government is just extracting the money from the employer to pay these workers extra wages.

No, I think it really is the other way around.

How McDonald's and Wal-Mart Became Welfare Queens - Bloomberg

That's one way of looking at it. The other way is that Walmart is at least supplying part of their income, so they are not completely on the government dole.

Originally Posted by dan hunter

Are you really seriously telling me you don't see the flaws in your comments?
Real wages stagnated during the 1870s
Only the leisure class saw any rise in their standard of living for years.

There aren't any flaws unless you misinterpreted what I wrote. I didn't say we had heaven on earth. But we went from an agrarian "subsistence' economy to the present condition where we have a much higher standard of living. Yes, there is such a thing as the business cycle. I never said there wasn't.

Originally Posted by Harold14370

There aren't any flaws unless you misinterpreted what I wrote. I didn't say we had heaven on earth. But we went from an agrarian "subsistence' economy to the present condition where we have a much higher standard of living. Yes, there is such a thing as the business cycle. I never said there wasn't.

Whatever Harold. I really don't want to get drawn into such a petty argument over such a minor point. I would rather move back to the main discussion instead.

Originally Posted by Lynx_Fox

I'd rather a business pay a living wage than business and all other tax payers do the same to support the poor (we pay either way). It avoids the inefficiencies of government social programs and fosters independence for employees by increasing their own choices about getting better employment. Being poor is in de facto becoming a class of citizen in America and increasingly so in a Nation where the difference between haves and have-nots has gotten wider and wider and social mobility so low it compares unfavorably to many developing world nations.

And honestly it's not just about the people making exactly minimum wage either...it's also about the underpaid who've think their doing well by their employer because they've been promoted a couple times, or making a buck or so more now but still unable to pay for basic living expenses and require public help to make ends meet.

There are some other ways to do some of this besides just mandating a minimum wage. A greatly expanded program of infrastructure development would go a long way to reducing the excess labour and should increase wages too. This is being tried in a few places with some success. Not only does it inject money into the bottom layer of the economy it creates assets at the same time.

It might be worth opening up the discussion to what other options exist in addition to increasing the minimum wage.

Originally Posted by TridentBlue

The economy is always going to crash every time we, as a society, allow the minimum wage to be eroded.

I think the term "luxury goods" might be wrong though, as those sales increase as rich people get richer. But everything other than subsistence items, yes those will go down in sales.

.

The rich people do get richer, but as the wealth concentrates it concentrates onto fewer and fewer people, and so the rich people get to be fewer in number. How many yachts is one billionaire going to buy? Would a trillionaire buy more yachts than a billionaire?

But, divide that person's wealth among 10 millionaires, and you might get 10 yacht purchases.

The other issue once we're selling in smaller volumes is efficiency of production goes down. A company isn't going to invest as much money in streamlining the assembly line if they know they'll only be making 200 units this year, even if those units command a huge price. But if they're making 200,000 units, then they'll invest more in trying to be efficient. They can spread the cost 200,000 ways, instead of 200 ways.

Originally Posted by Harold14370

Originally Posted by Lynx_Fox

So do I! But this isn't just a discussion about personal freedom, it's a discussion about having the ability to work among the hardest working group in America full time, and not having to beg for handouts from the tax payers just to get by, versus freedom of corporations. In that context I put personal freedoms as the priority--particularly when as shown in studies that there is minimal negative economic impact.

The minimum wage is a government handout. The government is just extracting the money from the employer to pay these workers extra wages. Anyway, minimum wage employees are not a class of people, it just describes a kind of job. Often those jobs are held by teenagers from middle or upper class families working part time. The employer himself may be from a lower socioeconomic class.

The question is, which safety net do you want for society?

1) - Welfare

2) - A guaranteed livable wage if a person is willing to work

3) - The option to either starve to death or become a criminal (also known as no safety net.)

Originally Posted by kojax

The question is, which safety net do you want for society?

1) - Welfare

2) - A guaranteed livable wage if a person is willing to work

3) - The option to either starve to death or become a criminal (also known as no safety net.)

In the mid70s there was an experiment coducted in Dauphin Manitoba. The Canadian Government and the Manitoba government decided to give a guaranteed minimum income to the people in the town. The program was called Mincom and ran from 1974 to 1979.
After it was done the results got buried and the commission never published their final report.
In 2009 Dr Evelyn Forget dug up the records and did the analysis publishing her report in 2011.
The experiment was meant to see if assisting low income earners with a guaranteed minimum income would cause them to quit working.
The answer was no.

In addition there were some side benefits:

• Hospitalizations, accidents and injuries declined in Dauphin compared to the control group
• Hospitalizations were down significantly for mental health issues - significant if you believe poverty is related to stress.
• Birth rates among young women also declined. There had been a political concern the people would stop working and start having large families. "But we found that, if anything, birth rates among the youngest women declined." Dr. Forget observed.
• Along with the positive health results, Dr. Forget found that teenagers stayed in school longer, likely because their families were assured of a minimum income. At the time finishing high school was not the cultural norm in rural Manitoba. During the experiment years, education enrolment in Dauphin surged compared to other areas of the province.

Switzerland was considering this idea for their whole country in 2013

Originally Posted by dan hunter

There are some other ways to do some of this besides just mandating a minimum wage. A greatly expanded program of infrastructure development would go a long way to reducing the excess labour and should increase wages too. This is being tried in a few places with some success. Not only does it inject money into the bottom layer of the economy it creates assets at the same time.

It might be worth opening up the discussion to what other options exist in addition to increasing the minimum wage.

I don't disagree that we need to expand job markets by prioritizing some basic things the nation should be doing already--such as repairing our crumbling highway system, modernizing our electrical grids so we actually use alternative energy, and installing internet infrastructure into rural areas (the US is FAR behind many developed nations right now and that is crippling rural economic opportunities). Of course this all takes tax money--though given how cheap it is to borrow money right now we might never see a greater opportunity, especially with the good return and cost avoidance we get from such programs.

But there's not really a need to greatly expand overall jobs right now--the nation is hovering at 6.3% not much more than 5% considered full employment.

Originally Posted by Achilleas

Prices on the long run are not determined by wages nor by profits. They are determined by the relative amounts of used labour (and past labour which exists in other means of production).

I don't follow. How do "relative amounts of used labor" affect prices if it is not because of the wages paid for the used labor?

Your argument would be true only at t=0. Dynamically, there are processes that lead to a reduction of price again.
Prices at first will be raised only due to the increase of the demand for certain commodities (consumer goods).

Why are they not raised due to the increase in the cost of production, due to the higher wages?

This leads to an imbalance, in various industrial rates of profit. Industries who focus on consumer goods will be benefited from the excess profitability. On the long term through the adjustments in demand and supply prices will fall again because more enterprises will enter the more profitable consumer goods market thus the price will be reduced again.

It still isn't making sense to me. Increasing the minimum wage only increases the demand by the people who have had their income increased. The demand from those who had their income reduced will be less because they have less purchasing power. This may include the owner of a small business who has to pay the higher wage, the higher paid workers who had their pay cut to balance the payroll, or the investor who will end up with a smaller nest egg at retirement.

sry for the drawback but I had not enough time to respond earlier.

To put it simply, if you need 1 working day to produce a car and 1/2 working day to produce a motorbike, then the relative price will be 1/2.
eg if 1 car= 10.000$ then 1 bike= 5.000$
When you assume complex modern capitalist economies of course, this model may vary by a little. eg you need to take into account the differences in profitability in these 2 industries:
(1+i)p, where i is % of profit in cars industry
(1+r)p here r is % of profit in motorbikes industry

But, due to the competition between various sectors of production, r and i tend to equalize (even asymptotically) and form the general rate of profit.

Also, other factors like circulation time of capital, devaluation of capital etc, may transform the above ratio but in a tiny and most importantly, predictable way.
Empirically, this theory (the so called labour theory of value, in its various expressions) give very accurate estimations of market prices. If you need a more formal, yet technical description, I can post some free papers or give references for many more.

That's why prices are not determined by costs but actually the other way around:
if p= price, then
αp= costs
(1-α)p= profit, where 0<α<1
That means, if wages are raised then α raises as well. That doesn't necessarily lead to an increase in price. It just means that the distribution has changed, thus, ceteris paribus, % of profit has changed.
Of course, that doesn't mean that costs and prices are not correlated at all. Market power, market concentration and other factors allow the producers to permanently change their price if costs raise as well. Also, the above estimator is a long-run estimator. That means that in certain times, actual market price may vary from the value of the commodity. But there is a strong tendency to equalize these 2 quantities.

For the last argument, keep in mind that low paid workers tend to spend all their income. If Bill Gates earn 400$ more, he will probably not spend it since he already has billions. But, if a low paid worker has a bonus 400$ he will probably spend all his extra income to get a new laptop, buy more or better food, etc. He may save a part of it for a "rainy day" and spend it then. In other words, low paid workers have greater propensity to consume than already high paid investors or managers. You can predict the exact result by calculating the propensities for each social class.
Even if we assume that high paid workers and investors will reduce their consumption in 1-1 portion then again my argument is valid. Lower demand for luxury commodities will reduce for a while the prices for these goods. On the other hand, higher demand for lower/normal consumer goods will raise the price for these goods. These change in relative market prices lead to imbalances in rates of profit. But due to the competition among different sectors, this imbalance won't be forever.

It's obvious that according to my argument there's no Pareto efficiency but, on my view that's how real economy works. You just have to decide what's your goal and act accordingly. Some will be hurt someone will be benefit. It's not a win-win situation in here.

Originally Posted by Achilleas

sry for the drawback but I had not enough time to respond earlier.

To put it simply, if you need 1 working day to produce a car and 1/2 working day to produce a motorbike, then the relative price will be 1/2.
eg if 1 car= 10.000$ then 1 bike= 5.000$
When you assume complex modern capitalist economies of course, this model may vary by a little. eg you need to take into account the differences in profitability in these 2 industries:
(1+i)p, where i is % of profit in cars industry
(1+r)p here r is % of profit in motorbikes industry

Is this supposed to be an equation? Why are you adding 1 to the percent pf profit and what does p stand for?

But, due to the competition between various sectors of production, r and i tend to equalize (even asymptotically) and form the general rate of profit.

Also, other factors like circulation time of capital, devaluation of capital etc, may transform the above ratio but in a tiny and most importantly, predictable way.
Empirically, this theory (the so called labour theory of value, in its various expressions) give very accurate estimations of market prices. If you need a more formal, yet technical description, I can post some free papers or give references for many more.

That's why prices are not determined by costs but actually the other way around:
if p= price, then
αp= costs
(1-α)p= profit, where 0<α<1
That means, if wages are raised then α raises as well. That doesn't necessarily lead to an increase in price. It just means that the distribution has changed, thus, ceteris paribus, % of profit has changed.
Of course, that doesn't mean that costs and prices are not correlated at all. Market power, market concentration and other factors allow the producers to permanently change their price if costs raise as well. Also, the above estimator is a long-run estimator. That means that in certain times, actual market price may vary from the value of the commodity. But there is a strong tendency to equalize these 2 quantities.

For the last argument, keep in mind that low paid workers tend to spend all their income. If Bill Gates earn 400$ more, he will probably not spend it since he already has billions.

Or maybe he will give some to charity and maybe he will invest in new enterprises? Investment is a good thing isn't it? isn't that how new businesses get started?

But, if a low paid worker has a bonus 400$ he will probably spend all his extra income to get a new laptop, buy more or better food, etc. He may save a part of it for a "rainy day" and spend it then. In other words, low paid workers have greater propensity to consume than already high paid investors or managers. You can predict the exact result by calculating the propensities for each social class.
Even if we assume that high paid workers and investors will reduce their consumption in 1-1 portion then again my argument is valid. Lower demand for luxury commodities will reduce for a while the prices for these goods. On the other hand, higher demand for lower/normal consumer goods will raise the price for these goods. These change in relative market prices lead to imbalances in rates of profit. But due to the competition among different sectors, this imbalance won't be forever.

It's obvious that according to my argument there's no Pareto efficiency but, on my view that's how real economy works. You just have to decide what's your goal and act accordingly. Some will be hurt someone will be benefit. It's not a win-win situation in here.

There are win-win situations if the overall productivity increases, as it mostly has over the years. Then the average standard of living goes up. Are you saying this hasn't happened?

Originally Posted by "Lynx-Fox

But there's not really a need to greatly expand overall jobs right now--the nation is hovering at 6.3% not much more than 5% considered full employment.

The unemployment numbers are grossly distorted by the number of people who have given up looking for work. If we really had full employment we wouldn't have a record number of people on food stamps, nor so many stuck in minimum wage jobs.

Originally Posted by Harold14370

There are win-win situations if the overall productivity increases, as it mostly has over the years. Then the average standard of living goes up. Are you saying this hasn't happened?

Originally Posted by "Lynx-Fox

But there's not really a need to greatly expand overall jobs right now--the nation is hovering at 6.3% not much more than 5% considered full employment.

The unemployment numbers are grossly distorted by the number of people who have given up looking for work. If we really had full employment we wouldn't have a record number of people on food stamps, nor so many stuck in minimum wage jobs.

Just using the average can be tricky without looking at the mode and the median as well as the mean. If you have nothing but a massive number of peasants and a few aristocrats there can be a problem even though looking at the average income makes it seem like the economy is doing wonderful. Without a decent sized middle class not only is the economy restricted and unstable the country is unstable too.

I second your comment about the masking of the real unemployment rates.

Originally Posted by Harold14370

Is this supposed to be an equation? Why are you adding 1 to the percent pf profit and what does p stand for?

Or maybe he will give some to charity and maybe he will invest in new enterprises? Investment is a good thing isn't it? isn't that how new businesses get started?

There are win-win situations if the overall productivity increases, as it mostly has over the years. Then the average standard of living goes up. Are you saying this hasn't happened?

Yes, it is. I don't want to formalize it too much since it's not a thread about determining prices but since inflation is a famous argument against min wages, this clarification may help.

At first, I'm referring to direct prices:

8 working hours (1 car) = 2 x 4 working hours (2 bikes)

This is the first equation about direct prices.

By the way, p is price, I thought it was obvious, my bad.
Second equation is a transformation of direct prices and it's called price of production. Assumption: the % of profit in all branches of capitalist industries is equal (i=r).
(1+i)p= p+ip
if you're confused by 1, use the above alternative [p+ip] it's the same thing. The meaning is that direct price is affected by the rate of profit.
This is only a tendency as I tried to explain but, an important one. In practice, market prices never equal prices of production. It's just an estimation, a tendency actually. This is the surface of all economic activity. The everyday investment decisions are made by having in mind future profits thus, the % of profit. Of course, there's uncertainty and many other factors but, to keep it simple I used production prices. So when I try to argue about inflation I use market prices, direct prices & production prices. When I argue about costs and prices I use direct prices and when I argue about win-win situations I use production prices. Market prices are determined by demand and supply, enough said. Direct prices (thus production prices as well) function as anchors around which market prices fluctuate (the so called "natural prices" by Adam Smith).
Theoretically, there are several different characteristics between direct and production prices and several technical issues when you pass from direct prices to production prices. But, when you estimate them statistically, they are both very close to market prices.

You are right. The productivity increased indeed. But, as you can easily find out (my internet connection in my village is awful so I can't provide further evidence but I've posted it in numerous other threads) by googling wages and productivity, wage growth lacks considerably when compared to productivity growth. Is this really a win-win? Shouldn't wages catch up labour productivity growth?

Bill Gates does not invest necessarily in productive activities from his personal income. His personal income is probably secured in a portfolio (which is almost always not a productive investment) with guaranteed profit. Charity? Do you suggest that poor people should not fight for min. wage increases so Bill Gates can spend money in charity..? What kind of logic is that? He's already billionaire. Did he worked for all these money? Certainly not. Even at the moment I write, someone else works for Microsoft and Gates receives the profit. He's capable, very clever and has worked a lot in his life, no question about that! But his own productivity is not reflected on his personal income. It's pure exploitation; It's ethical, legal but still exploitation.
Even if you could just take half of his personal income he would still have enough spare money to give 1$ to each man in this world. (didnt check his personal income on wiki so don't take the 1$/man as valid but you get my point)
Take 10.000$ or even 500.000$ from the richest 0,1%. Honestly, they won't even realise it. These amounts are just a tiny bit of their ANNUAL income, let alone their savings. Then distribute it in min wage rises of 200$-400$. Guess what's better for your macroeconomy, well being and social cohesion.
Investments can be made by anyone with some good ideas and skills (as long as there's enough profitability and effective demand) plus the state, not just by the richest 0,1%. Investment is a good thing if it aims at fixed capital in productive activities. At the moment, real estate or other financial alchemy oriented investments is not a good thing. It's a bubble.
By the way, we should start a wide discussion about zero growth economies at some point. You can achieve development (human potential, abilities, well being, etc) with zero growth models. Just mentioning...

Originally Posted by dan hunter

Just using the average can be tricky without looking at the mode and the median as well as the mean. If you have nothing but a massive number of peasants and a few aristocrats there can be a problem even though looking at the average income makes it seem like the economy is doing wonderful. Without a decent sized middle class not only is the economy restricted and unstable the country is unstable too.

I'm not even going to look up the statistics on this. For the first few years of my life, we lived in a house with an outhouse. We didn't have a TV until I was about 7 years old, and it was a black and white TV that got 3 fuzzy channels. I remember the old party line phones, where you picked up the receiver and told the operator what number you were calling. In my grade school, we had two grades that shared a teacher and classroom. There was no cafeteria- we packed brown bag lunches. I shared a bed with one of my brothers for quite a few years. We didn't have air conditioning. And, I'd say we were a middle class family. So, I've seen the changes with my own eyes. Don't try to tell me the median hasn't gone up.

Originally Posted by Harold14370

Originally Posted by dan hunter

Just using the average can be tricky without looking at the mode and the median as well as the mean. If you have nothing but a massive number of peasants and a few aristocrats there can be a problem even though looking at the average income makes it seem like the economy is doing wonderful. Without a decent sized middle class not only is the economy restricted and unstable the country is unstable too.

I'm not even going to look up the statistics on this. For the first few years of my life, we lived in a house with an outhouse. We didn't have a TV until I was about 7 years old, and it was a black and white TV that got 3 fuzzy channels. I remember the old party line phones, where you picked up the receiver and told the operator what number you were calling. In my grade school, we had two grades that shared a teacher and classroom. There was no cafeteria- we packed brown bag lunches. I shared a bed with one of my brothers for quite a few years. We didn't have air conditioning. And, I'd say we were a middle class family. So, I've seen the changes with my own eyes. Don't try to tell me the median hasn't gone up.

Technology evolves as well as GDP, no question about that. The real question is, what's your contribution and what do you receive instead. Statistics' answer to last question is stunning. Just check out productivity growth versus wage growth since mid 70s.

Originally Posted by Harold14370

The unemployment numbers are grossly distorted by the number of people who have given up looking for work. If we really had full employment we wouldn't have a record number of people on food stamps, nor so many stuck in minimum wage jobs.

Given up...represents a minority of the shrinking workforce. More than 60% have simply retired and another 10% or so gone to college, or tech school to learn now skills.
http://www.philadelphiafed.org/resea...ation-rate.pdf

Your later comment specifically has to do with the very topic of the thread and doesn't contribute much to the thread--we know there's tens of millioins underpaid who despite working full time, still need public assistance for their children to eat well (most on food assistant have kids).

Originally Posted by Harold14370

Originally Posted by dan hunter

Just using the average can be tricky without looking at the mode and the median as well as the mean. If you have nothing but a massive number of peasants and a few aristocrats there can be a problem even though looking at the average income makes it seem like the economy is doing wonderful. Without a decent sized middle class not only is the economy restricted and unstable the country is unstable too.

I'm not even going to look up the statistics on this. For the first few years of my life, we lived in a house with an outhouse. We didn't have a TV until I was about 7 years old, and it was a black and white TV that got 3 fuzzy channels. I remember the old party line phones, where you picked up the receiver and told the operator what number you were calling. In my grade school, we had two grades that shared a teacher and classroom. There was no cafeteria- we packed brown bag lunches. I shared a bed with one of my brothers for quite a few years. We didn't have air conditioning. And, I'd say we were a middle class family. So, I've seen the changes with my own eyes. Don't try to tell me the median hasn't gone up.

Hell Harold, you guys wuz durt poor!
Nowhere near middle class.
My Granpappy lived better than that during the 30s and he was just a poor old farmer.

Your rather insane little rant had absolutely nothing to do with what I said either.
It does demonstrate that you don't know what the word median means.

Originally Posted by dan hunter

Hell Harold, you guys wuz durt poor!
Nowhere near middle class.
My Granpappy lived better than that during the 30s and he was just a poor old farmer.

Your rather insane little rant had absolutely nothing to do with what I said either.

Actually, I think it did have something to do with it. It shows that the standard of living has gone up for the median, and that means it's not a zero sum game.

Originally Posted by Achilleas

Technology evolves as well as GDP, no question about that. The real question is, what's your contribution and what do you receive instead. Statistics' answer to last question is stunning. Just check out productivity growth versus wage growth since mid 70s.

So your problem is not that people aren't better off, it's just a class envy thing. Some people are even better off, so they must have your stuff.

Originally Posted by Lynx_Fox

[
Given up...represents a minority of the shrinking workforce. More than 60% have simply retired and another 10% or so gone to college, or tech school to learn now skills.
http://www.philadelphiafed.org/resea...ation-rate.pdf

I just got through reading Mr Fujita, thank you.

I am not clear on how many vacancies in the job market this should open up because I don't know how many positions will simply be closed when the retirees leave them.

Originally Posted by Harold14370

Originally Posted by dan hunter

Hell Harold, you guys wuz durt poor!
Nowhere near middle class.
My Granpappy lived better than that during the 30s and he was just a poor old farmer.

Your rather insane little rant had absolutely nothing to do with what I said either.

Actually, I think it did have something to do with it. It shows that the standard of living has gone up for the median, and that means it's not a zero sum game.

That isn't what the median is about.

Originally Posted by Harold14370

Originally Posted by Achilleas

But, due to the competition between various sectors of production, r and i tend to equalize (even asymptotically) and form the general rate of profit.

Also, other factors like circulation time of capital, devaluation of capital etc, may transform the above ratio but in a tiny and most importantly, predictable way.
Empirically, this theory (the so called labour theory of value, in its various expressions) give very accurate estimations of market prices. If you need a more formal, yet technical description, I can post some free papers or give references for many more.

That's why prices are not determined by costs but actually the other way around:
if p= price, then
αp= costs
(1-α)p= profit, where 0<α<1
That means, if wages are raised then α raises as well. That doesn't necessarily lead to an increase in price. It just means that the distribution has changed, thus, ceteris paribus, % of profit has changed.
Of course, that doesn't mean that costs and prices are not correlated at all. Market power, market concentration and other factors allow the producers to permanently change their price if costs raise as well. Also, the above estimator is a long-run estimator. That means that in certain times, actual market price may vary from the value of the commodity. But there is a strong tendency to equalize these 2 quantities.

For the last argument, keep in mind that low paid workers tend to spend all their income. If Bill Gates earn 400$ more, he will probably not spend it since he already has billions.

Or maybe he will give some to charity and maybe he will invest in new enterprises? Investment is a good thing isn't it? isn't that how new businesses get started?

What matters more than investment money is anticipation of demand. It probably matters 100 times more.

If you can't anticipate demand, then you don't anticipate being able to pay back your investors......... so even if your investor had a trillion trillion trillion dollars on tap waiting to invest, they wouldn't sign any of it over to you.

Indeed that is exactly what we see in our present recession. Investors can't find anywhere to put their money. There is so much excess capital out there, and so few viable business ventures to put it in that the US treasury is currently able to sell T-bills at negative real interest (interest known to be less than inflation.)

Originally Posted by Harold14370

This leads to an imbalance, in various industrial rates of profit. Industries who focus on consumer goods will be benefited from the excess profitability. On the long term through the adjustments in demand and supply prices will fall again because more enterprises will enter the more profitable consumer goods market thus the price will be reduced again.

It still isn't making sense to me. Increasing the minimum wage only increases the demand by the people who have had their income increased. The demand from those who had their income reduced will be less because they have less purchasing power. This may include the owner of a small business who has to pay the higher wage, the higher paid workers who had their pay cut to balance the payroll, or the investor who will end up with a smaller nest egg at retirement.

The bigger issue is eliminating the competition toward lowest wage among workers. Once you've set a floor they're not allowed to go under, they're left to compete for quality instead.

When workers are competing for lowest wage (lowest price), their incomes are racing downward, forcing prices of goods to chase after them and keep going down. That's going to lead to deflation.

If there is a minimum wage, and it keeps getting raised, then prices of goods will be raising, leading to inflation. However, it doesn't need to keep getting raised. Once the wage is at the ideal level, it can just sit there (The ideal level being the level where the average worker is making enough money to buy luxury goods in sufficient volume to keep their peers employed making luxury goods).

We're not forced to choose between a downward spiral and an upward spiral. That's a false dichotomy.

Originally Posted by Harold14370

Originally Posted by dan hunter

Just using the average can be tricky without looking at the mode and the median as well as the mean. If you have nothing but a massive number of peasants and a few aristocrats there can be a problem even though looking at the average income makes it seem like the economy is doing wonderful. Without a decent sized middle class not only is the economy restricted and unstable the country is unstable too.

I'm not even going to look up the statistics on this. For the first few years of my life, we lived in a house with an outhouse. We didn't have a TV until I was about 7 years old, and it was a black and white TV that got 3 fuzzy channels. I remember the old party line phones, where you picked up the receiver and told the operator what number you were calling. In my grade school, we had two grades that shared a teacher and classroom. There was no cafeteria- we packed brown bag lunches. I shared a bed with one of my brothers for quite a few years. We didn't have air conditioning. And, I'd say we were a middle class family. So, I've seen the changes with my own eyes. Don't try to tell me the median hasn't gone up.

If people lived like that today, it would require massive unemployment. The biggest impact of technological increase has been to reduce the number of workers needed to produce the same items. If today we accepted a wage that only bought the things listed, we would only be paying for a small fraction of the wages you were paying.

In terms of worker hours, you probably owned just as many worker hours worth of production as a more affluent person owns today. It's just that today those work hours achieve more production.

Originally Posted by dan hunter

Originally Posted by Harold14370

Originally Posted by dan hunter

Hell Harold, you guys wuz durt poor!
Nowhere near middle class.
My Granpappy lived better than that during the 30s and he was just a poor old farmer.

Your rather insane little rant had absolutely nothing to do with what I said either.

Actually, I think it did have something to do with it. It shows that the standard of living has gone up for the median, and that means it's not a zero sum game.

That isn't what the median is about.

The general trend of the median household income is upward. Does this not imply that the economy is not a zero sum game? Wealth is being created.

http://www.frbsf.org/education/files...2014-02-04.pdf

Originally Posted by kojax

Originally Posted by Harold14370

Originally Posted by Achilleas

But, due to the competition between various sectors of production, r and i tend to equalize (even asymptotically) and form the general rate of profit.

Also, other factors like circulation time of capital, devaluation of capital etc, may transform the above ratio but in a tiny and most importantly, predictable way.
Empirically, this theory (the so called labour theory of value, in its various expressions) give very accurate estimations of market prices. If you need a more formal, yet technical description, I can post some free papers or give references for many more.

That's why prices are not determined by costs but actually the other way around:
if p= price, then
αp= costs
(1-α)p= profit, where 0<α<1
That means, if wages are raised then α raises as well. That doesn't necessarily lead to an increase in price. It just means that the distribution has changed, thus, ceteris paribus, % of profit has changed.
Of course, that doesn't mean that costs and prices are not correlated at all. Market power, market concentration and other factors allow the producers to permanently change their price if costs raise as well. Also, the above estimator is a long-run estimator. That means that in certain times, actual market price may vary from the value of the commodity. But there is a strong tendency to equalize these 2 quantities.

For the last argument, keep in mind that low paid workers tend to spend all their income. If Bill Gates earn 400$ more, he will probably not spend it since he already has billions.

Or maybe he will give some to charity and maybe he will invest in new enterprises? Investment is a good thing isn't it? isn't that how new businesses get started?

What matters more than investment money is anticipation of demand. It probably matters 100 times more.

If you can't anticipate demand, then you don't anticipate being able to pay back your investors......... so even if your investor had a trillion trillion trillion dollars on tap waiting to invest, they wouldn't sign any of it over to you.

Indeed that is exactly what we see in our present recession. Investors can't find anywhere to put their money. There is so much excess capital out there, and so few viable business ventures to put it in that the US treasury is currently able to sell T-bills at negative real interest (interest known to be less than inflation.)

Originally Posted by Harold14370

This leads to an imbalance, in various industrial rates of profit. Industries who focus on consumer goods will be benefited from the excess profitability. On the long term through the adjustments in demand and supply prices will fall again because more enterprises will enter the more profitable consumer goods market thus the price will be reduced again.

It still isn't making sense to me. Increasing the minimum wage only increases the demand by the people who have had their income increased. The demand from those who had their income reduced will be less because they have less purchasing power. This may include the owner of a small business who has to pay the higher wage, the higher paid workers who had their pay cut to balance the payroll, or the investor who will end up with a smaller nest egg at retirement.

The bigger issue is eliminating the competition toward lowest wage among workers. Once you've set a floor they're not allowed to go under, they're left to compete for quality instead.

When workers are competing for lowest wage (lowest price), their incomes are racing downward, forcing prices of goods to chase after them and keep going down. That's going to lead to deflation.

If there is a minimum wage, and it keeps getting raised, then prices of goods will be raising, leading to inflation. However, it doesn't need to keep getting raised. Once the wage is at the ideal level, it can just sit there (The ideal level being the level where the average worker is making enough money to buy luxury goods in sufficient volume to keep their peers employed making luxury goods).

We're not forced to choose between a downward spiral and an upward spiral. That's a false dichotomy.

Originally Posted by Harold14370

Originally Posted by dan hunter

Just using the average can be tricky without looking at the mode and the median as well as the mean. If you have nothing but a massive number of peasants and a few aristocrats there can be a problem even though looking at the average income makes it seem like the economy is doing wonderful. Without a decent sized middle class not only is the economy restricted and unstable the country is unstable too.

I'm not even going to look up the statistics on this. For the first few years of my life, we lived in a house with an outhouse. We didn't have a TV until I was about 7 years old, and it was a black and white TV that got 3 fuzzy channels. I remember the old party line phones, where you picked up the receiver and told the operator what number you were calling. In my grade school, we had two grades that shared a teacher and classroom. There was no cafeteria- we packed brown bag lunches. I shared a bed with one of my brothers for quite a few years. We didn't have air conditioning. And, I'd say we were a middle class family. So, I've seen the changes with my own eyes. Don't try to tell me the median hasn't gone up.

If people lived like that today, it would require massive unemployment. The biggest impact of technological increase has been to reduce the number of workers needed to produce the same items. If today we accepted a wage that only bought the things listed, we would only be paying for a small fraction of the wages you were paying.

In terms of worker hours, you probably owned just as many worker hours worth of production as a more affluent person owns today. It's just that today those work hours achieve more production.

You just keep making assertions without actually supporting any of it. I'm not buying your theory. Who cares how many "worker hours" I owned. What does that have to do with the price of ducks, and how would it cause unemployment? Frankly, I think you're full of crap.

Originally Posted by Harold14370

You just keep making assertions without actually supporting any of it. I'm not buying your theory. Who cares how many "worker hours" I owned. What does that have to do with the price of ducks, and how would it cause unemployment? Frankly, I think you're full of crap.

Which assertions do you want backing for?

The assertion that T-bills are selling at negative real interest? That's not hard to find a reference for. I just have to go through my old posts on other threads, where I've already discussed and posted links on that very topic. I just can't remember where the articles are without digging for them.


If you mean the idea that worker hours paid for must equal worker hours worked...... well can you think of a situation where that wouldn't be true?


A big problem of the modern world that people so often discuss is the idea that "machines replace workers", causing unemployment. But of course that's silly. There's always work to be done. Those workers can always be given jobs producing more and more luxury items. There just needs to be a demand for it. So where do we get that demand from?

If you have a better suggestion for how to solve that problem than the one I'm suggesting, then please share it. If not then maybe you should think about coming up with one before you make it your knee jerk reaction to shoot down the one that's on the table.

The "pulling ourselves up by our bootstraps" issue is the one I think people might find the most confusing. But in life sometimes you can get something for nothing, if you are increasing your efficiency.

Like if you drive a car that gets 50 mph, instead of 25 mpg. You're getting free fuel.

When we spend money, the one thing we are usually buying over and above all other things is hours of somebody's work time. If you buy a car, you may see that you are buying a car, but really if you look at it what you are really buying is the hours of work that it took for somebody to make that car for you. That's where the money is actually going. It's what you actually paid for.

If, by changing our salary requirements, we cause people who didn't have jobs to start having jobs, we're really taking a whole bunch of labor that would have gone to waste (by the person not working at all), and avoiding the waste. We're getting additional hours of work we didn't have before. That increases the number of goods and services available to buy, and prevents the new money from becoming inflation. (Because if you increase both the supply of money AND the supply of goods and services - that isn't inflation.)

So yes. We really can pull ourselves up by our bootstraps.

Originally Posted by Harold14370

You just keep making assertions without actually supporting any of it. I'm not buying your theory. Who cares how many "worker hours" I owned. What does that have to do with the price of ducks, and how would it cause unemployment? Frankly, I think you're full of crap.

It's not that simple but, when you work for 10 hours, you're actually paid 8 hours. These 2 unpaid hours is the surplus value, the source of profit. It doesn't mean that 8hours means few money. You may be extremely happy with your wage and you should. This use of direct prices helps you to understand the exploitation. Direct prices don't equal market prices, thus if you need 1hour to produce a duck and 10 hours to produce a horse, the market price won't be [1/10]$ but you should expect that market price will fluctuate around that direct price.
If you want to be more specific, you must take into account capitalist conditions of the certain factors of production and most importantly the rate of profit. Then you transform your formula by adding circulation times and devaluation, and so on until you come up to market price. Of course this is not easy at all and it often offers nothing in terms of prediction accuracy.
There is strong empirical evidence that market prices are very close to direct prices and a bit closer to production prices. It's not questioned actually that much unless someone doesn't know anything about heterodox economics (which is normal, I guess).

By the way, it's not envy, it's justice and social struggle. Even according to mainstream economics, wages must equal labour productivity. That doesn't happen at all. The gap over the last 30 years has grown tremendously. Shouldn't we fix it somehow? Are you saying that people should earn less than what they produce?

Since 2007, people lost their houses due to mortgages, many lost their jobs and still financial sector profits are going onward because of extraordinary state funding, privatization of public goods sectors like health and education, etc. We never seem to discuss about those "gifts" to already extraordinary rich people but we are struggling to agree that the poorest people of an unequal country need more income to live a bit better. I just don't get it.

On my view, it's a fallacy caused by ideology, false doctrines and propaganda. Even a liberal should want less inequality than the currently observed and raising minimum wage is a cheap way to do it. The fact that macroeconomicaly that's gonna help, it's a plus.

Originally Posted by Achilleas

By the way, it's not envy, it's justice and social struggle. Even according to mainstream economics, wages must equal labour productivity. That doesn't happen at all. The gap over the last 30 years has grown tremendously. Shouldn't we fix it somehow? Are you saying that people should earn less than what they produce?

Of necessity, a worker must always receive slightly less than the value of their labor, because without markup there is no way to pay the store clerks, shippers, and other members of the distribution chain.

But I agree it needs to be within reason. If it gets too out of hand then the economic indicators all fall out of sync. People start to think they're doing the most good if they help the part of the economy with the most money flowing through it, when that sector is really dependent on another one.

I'm not a bleeding heart. I don't really care about the plight of the poor. I just happen to believe that they matter more to the overall economy that they are given credit for. The best way for demand to be structured in a modern economy is in a way where there are many small purchases taking place, rather than a few big ones. That allows assembly lines to realize their greatest productive potential.

Since 2007, people lost their houses due to mortgages, many lost their jobs and still financial sector profits are going onward because of extraordinary state funding, privatization of public goods sectors like health and education, etc. We never seem to discuss about those "gifts" to already extraordinary rich people but we are struggling to agree that the poorest people of an unequal country need more income to live a bit better. I just don't get it.

On my view, it's a fallacy caused by ideology, false doctrines and propaganda. Even a liberal should want less inequality than the currently observed and raising minimum wage is a cheap way to do it. The fact that macroeconomicaly that's gonna help, it's a plus.

To me the fallacy was in believing those financial institutions were really too big to fail. Sure lots of money flowed through them, but their role was not as crucial as we are lead to believe.

The main reason is because, as we are starting to see, there is really no shortage of investment money out there. It's presently being put under a mattress. Or well, it is getting traded for gold, and then the gold is being put under a mattress. But there is plenty of it. We could have lost those banks and still had more than enough capital laying around to start up again after the recession is over (if it ever ends). We paid out a lot of money for fluff.


The trouble is that very little of the capital is actually finding its way into the hands of entrepreneurs because demand is so bad that few if any entrepreneurs can convince anyone they'd be able to pay back the loans. Right now, those entrepreneurs would get a very low interest rate. A low interest rate tells you there are many investors lined up and desperate to loan you their money. They just need a guarantee you'll be able to pay back the principal. (No matter how desperate investors get, they'll never loan you money if you can't pay back the principal.)

Originally Posted by kojax

Which assertions do you want backing for?

Let's start out with you assertions about necessities versus luxury goods. What is on your list of necessities? Flush toilets? Cell phones? Televisions? I've managed to survive without those, and didn't feel poor at all. So where is your sharp dividing line?

Originally Posted by Achilleas

By the way, it's not envy, it's justice and social struggle. Even according to mainstream economics, wages must equal labour productivity. That doesn't happen at all. The gap over the last 30 years has grown tremendously. Shouldn't we fix it somehow? Are you saying that people should earn less than what they produce?

Social struggle, eh? That's ideology. I thought we were just talking pure economics. I got accused of being a right wing, Faux news tool when I made statements about my values.