I'd like to thank Julio and Karl for putting in the time and effort to make this debate happen. We have received some good questions and I have tried to come up with a few that might represent popular sentiment around the issue.
Let's start with you, Karl. Care to tell us your true opinion about the minimum wage and why?
Karl: Ultimately, I'm not opposed to a minimum wage. I'm opposed to efforts that try to set it at someone's idea of a "living wage". Minimum wage works, in my opinion, for what it's designed for. Young workers (and unskilled immigrants) entering the work force aren't forced into Dickensian conditions and yet very small firms can make jobs available to young people and first time job seekers.
Julio: First, let me come clean and admit that I am against the concept of a minimum wage. Brett mentioned that Karl and I would argue the case as lawyers would, something along the lines of a Johnny Cochran. For me, arguing in favor of the minimum wage is not like defending OJ, it's more like defending murder. Arguing against the laws of supply and demand is like arguing against the laws of physics.
In your research did you come across arguments suggesting that raising the min wage eliminates jobs? Is there evidence to support this claim?
Karl: I'm somewhat skeptical of studies the purport to test hypotheses in economics. My own background in psychology leads me to believe there are so many variables in human endeavors that it's too hard to control for all of them. In my "hit" piece on the minimum wage, despite there being several studies out there that try to show a causal relationship, I didn't cite any of them even though they would support my argument. I tried to follow the logic:
* if you increase the cost of something, people will try to use less of it.
* employers famous for cutting to the bone along their whole supply chain still pay workers well above the minimum wage even though they don't legally have to.
* economies that aren't creating enough living wage jobs are in serious doo doo and it's simplistic to think that you can just conjure them up at the wave of a legislative pen.
Julio: In researching the topic I ran across this site. As you can see, there is a fairly large body of research that counters most of the pro-minimum arguments. However, the site also discusses a Harvard study that showed that small increases in the minimum wage had no impact on employment in fast food restaurants. That makes sense but it hardly makes for an affirmative case.
If there were no minimum wage, what do you think would happen?
Karl: There's no doubt some employers would drastically cut wages and cut them for some of the most vulnerable people in society. Of course, such miserly employers find other ways to lower wages even with minimum wage. They force staff to work off the clock, for example. They apply threats ("I'll fire your ass!") to keep employees from taking breaks and sick days.
Julio: Dropping the minimum wage would result in an unskilled wage that would fluctuate based on supply of unskilled labor. The only remaining unskilled jobs are those that have to be done in-situ. The unskilled wage difference is just too large between us and the rest of the world. Take China for example. A fully burdened unskilled (semi-skilled once trained) worker earns around $2 per hour and gets $2 in benefits. The benefits include housing in a dorm, meals, health care, clothing (uniforms), and recreation.
If there is going to be a min wage, what mechanism should set that wage? Karl, in 10,000 words or less-
Karl: In Ontario, an NDP government had a plan to peg the minimum wage to some percentage of the average industrial wage. The NDP are a kind of left wing party and got elected to power in Ontario by mistake. People kind of applied game theory on election night that turned out horribly, horribly, wrong. People reasoned: "Well, the Liberals did really well with a minority government so I don't want to hand them a majority. I know everyone else is going to vote Liberal so I'll vote NDP in hopes we can have another minority government." Next day everyone woke up to an NDP majority, not the Liberal minority they thought they were trying to create.
Anyway, the NDP really messed up the Ontario economy. This is a long, round about way of saying "if the NDP thinks this is a good way to set the minimum wage, then it is probably a bad idea in reality." I'm sure that's a logical fallacy but oh well. The NDP really sucked.
If there had to be a mechanism, I think it should be based on the idea the head of the household is earning the average unskilled wage (which my stats demonstrate is higher). And then one should assume the other person in the household will supplement with a minimum wage job. And then one should look at what you need to set the minimum wage at to ensure it can top up household income above a given poverty line.
Julio, give us an elaborate counter-argument-
Julio: That's a trick question, no? The market.
If we were to do away with the min wage, wouldn't wages for many jobs fall to levels that are utterly unpalatable? For example, you can easily imagine a situation during a recession where people are working for $2/hr just to eat. In an environment where employers have the upper-hand (much like a ‘buyers' market in real estate), does the min wage offer people a minimum amount of protection and support?
Karl: I think in Western society some jobs would go unfilled period if wages fell too low. People would rather move home, apply for government benefits and hook up with others to pool such income support resources, etc. In Ontario, despite a high minimum wage and all that great free medical care, you still see able bodied white youth pan handling instead of taking a job cleaning tables or minding a cash register.
Julio: It's hard to predict what would happen but the trend has been that the percentage of those covered by the minimum wage has dropped consistently since 1960. In effect the market values unskilled labor more highly than our politicians. History has shown that the regimes that have exploited their workers the most are those who claimed to protect their interests foremost.
This question falls more along the lines of personal opinion, but do you think society ought to set some absolute min level of compensation, just to prevent taking advantage of those who are, for lack of a better term, fall far to the left of average on the IQ bell curve? It's not like they chose to be unintelligent.
Karl: I think a minimum wage to protect young workers is okay.
Julio: No. That should not be interpreted as not taking care of those who can't (as opposed to won't) take care of themselves. Intelligence or lack-thereof is not required to be middle class, or "rich" for that matter.
Why should members of congress get pay increases to keep up with inflation if the poor don't get minimum wage increases?
Karl: That's like one of those "do you still beat your wife?" questions. There's just no good answer. If we're going to have a minimum wage then yes lets index it with inflation.
Julio: They shouldn't. They should be taking a pay cut. All the ones who don't need a salary should work for zero. After all, they all told us they wanted to be there because they wanted to serve us, not because they wanted to collect a salary.
Anything else you'd like to add?
Julio: The minimum wage results job loss or lack of job creation. An old friend used to say, "somebody gotta pump gas."
Karl: Let's consider this break down of what a franchise owner of a Subway nets a year:
http://wiki.answers.com/Q/How_much_does_a_subway_franchise_owner_earn
If the break down above is correct, the owner nets (before tax) $59,000. After tax (assuming 25% tax), the owner is taking home $44,225. The owner enjoys no benefits, no paid holidays, no paid sick days. The store is open 7 days a week, 364 days a year, and the owner can never put the store out of his mind. (Be your own boss! Why is this such a dream?)
Okay so some legislature wants to come along and raise the minimum wage by 20% to bring the minimum up to a living wage. The Subway owner's wage expense goes up, meaning the owner now nets (after tax) $35K a year.
The owner isn't going go "oh great! A 20% reduction in my income!" He's clearly going to respond by cutting hours of paid staff and working extra shifts or jacking up prices.
There is also this implicit notion that minimum wage jobs are designed to fill one's lives with pure misery. Geez. My dream job in high school was working at Taco Bell. I didn't even care what the wage was. Free paid lunches of Taco Bel Grandes? I'm so there!
If you're 40 and working for $5.15 an hour, well, okay that sucks. But when I was in late high school and university working minimum wage jobs, I didn't feel repressed. One, I liked I was able to schedule work to fit my class schedule. I liked I could work part time through the year instead of having to hustle for a higher paying summer job, wake up at the ungodly hour of 7 or 8 am, and work a full time summer job 5 days week. I LOVED I could kick back for 3 months of good Canadian summer weather, stay up to 4 am with my best friends drinking coffee 'til our eyes bled, driving around in our friend's mom's car with this new fangled in-dash CD player device and blasting Who albums at max volume. That was financed by a minimum wage job. Don't tell me I was repressed by The Man.
I also liked working for small firms, the 1-4 employee type firms I talk a lot about in my original post. We're always worried about those bosses being bullies and brutes but I tend to think that's the exception. I remember my bosses as being kindly people who take you into their confidence and literally turn the keys to their lives and livelihood over to you. When you're 17 or 19, given a level of trust you're not typically used to, and occasionally praised or rewarded with 10 cent an hour raises, it's a trippy experience for a teen. Maybe with this new Grand-Theft-Auto-spraying-cops-with-a-MAC-10-and-designing-people-Second-Life-rave-worlds-in-return-for-$50-Linden-dollars-an-hour scene, the simple pleasure of knowing you kept your boss's store from burning down over night just doesn't figure into the minds of today's youth. -- Karl Mamer
Once again, thank you Karl & Julio. Thank you, dear readers, for participating. We hope this has been helpful in framing your own opinions and conclusions on the topic. As always, feel free to comment or email. -BS
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Thanks for the summary. It's been fun. I'd like to get, if I may, the debaters points of view on a slightly unrelated question:
ReplyDeleteDo you believe the MSRP is to products and goods what minimum wage is to labor? If not, what are the differences? If so, could one then apply Tesler's "free ride" argument to labor?
There's a good rundown of all the anti-minimum-wage arguments and data at the Concise Encyclopedia of Economics, by the way. For example: "When minimum wages rise, employers can control total compensation costs by cutting benefits" -- which is yet another way that Subway owner Julio talks about above might react to a minimum wage increase.
ReplyDeleteFieryScribe:
ReplyDeleteReviewing wiki:
||Under earlier U.S. state Fair Trade statutes, the manufacturer was able to impose a fixed price for items. These fixed prices could offer some price protection to small merchants in competition against larger retail organizations. These were determined to be in restraint of free trade. However, some manufacturers have adopted MSRP — a price at which the item is expected to sell. This may be unrealistically high, opening the market to "deep discounters" who are able to sell products substantially below the MSRP while still making a profit. Recent trends have been for manufactures to set the MSRP closer to the "street price" — the price at which items actually sell in a free market.||
http://en.wikipedia.org/wiki/Suggested_retail_price
You always hear MSRP, especially on the Price Is Right but you don't give it much thought. My take is the MSRP is an attempt to create the impression among consumer that the product has a certain price and retailers who carry it for less are offering a real deal (when they really aren't).
I wonder if the government could set a higher minimum wage and then workers could bid under that wage. Like, minimum wage is $12. That's what it will take to get me to work at McDonald's but I'll bid $8 an hour to work at a quiet bookstore with cat.
Hmmm...
In Canada, one of our department stores (The Bay) is always famous for its "white sales", sales on towels and blankets etc. The white sales proved so popular that most the year, towels etc were priced under the "white sale" price. The government slapped The Bay with false advertising as this was apparently the actual price. Hmmm. What do you call your non "white sale days" if the sale price is now the regular price. "Sucker days"?
In Korea, the Seoul tourism wizards started to promote a post Olympics "grand sale". The idea, I guess, was to get people leaving China to stop in Seoul and take advantage of deep discounts at Korean department stores. Not a bad idea, except the national government regulates department store sales days. The major department stores are not allowed, by law, to have more than x number of sale days. Ostensibly this is to keep the major chaebols (like Samsung and Hyundai) that own the department stores (and the fast food restaurants and the movie theaters and the newspapers and the TV stations and ports and the shipping companies and …) from having long lasting and deep sales that drive "mom and pops" out of business. The chaebols have very deep pockets and the government fear is, I dunno, they'll start selling everything for a penny for three months and every other retailer in Korea will go bankrupt or something. Anyway, the "grand sale" was planned without actual consultation from the department stores. It came as a surprise to them and they had to inform the Seoul tourism wizards that "sorry, we've already had our allotted sale days!"
Not sure what Tesler's "free ride" idea is.
The way I understand Tesler's argument is that retailers have incentives to free ride on each other’s pre-sale information and services because the buyer will obtain the pre-sale services from the retailer who offers it and then buy from the retailer who has the lowest price. MSRP is set by manufacturers to control discounts, transfer pricing, and ultimately the street price.
ReplyDeleteIf you sell through a retail channel, the buyers will tell you that they need a discount from the list price or MSRP in order to cover their expenses. In reality, they need far less and that is reflected in the street price, or the Internet price of the product. This is different from the concept of minimum wage since the market sets the street price.
In Karl's example, a negotiable wage below the minimum wage would make the minimum wage moot. I think you could also argue that those who work at the bookstore for minimum wage are getting a free ride from Karl and his cat. They are in essence subsidizing the minimum wage workers.
Thanks for the responses, guys. I missed your responses, so I apologize for the delay.
ReplyDeleteI agree with Julio that negotiating below a minimum wage would make it pointless, since it would no longer be minimum.
Julio, I believe buyers in a labor market, ie, employers, could also ask for discounts in order to cover their expenses. This is commonly seen in the hiring of illegal immigrants. They get work done at literally the street price, which is lower than minimum wage. If MSRP were legal, selling under the price would be illegal, much as the employment of illegal immigrants is.
I asked about the link between MSRP and minimum wage because both set a price floor. Tesler's "free ride" argument supports the setting of MSRP for products and I was wondering if it could do the same for labor.
There are two issues I see: homogeneity and free-riding itself. Labor is, at the minimum wage level, is rather homogeneous, much like the products from a manufacturer. Could laborers free ride on each other, though? I'm not sure what kind of service laborers could provide in that vein.
If anyone wants a simple break-down of the issues with MSRP, Mankiw has it here: http://gregmankiw.blogspot.com/2007/03/resale-price-maintenance.html
All the same, this has been a wonderful discussion and I appreciate all of your arguments and inputs, even from Billy "Julio" Madison :P