Econ101

Deflate currency.

The problem isn't that minimum wage is too low; the problem is that $7.25/hr doesn't go nearly as far as it used to go. 50 years ago, $7.25/hr would have been a king's salary.

Also, if you increased minimum wage, the companies would simply raise their prices on goods and services. Poor people might get a little temporary boost but the market would adjust and they'd be back to square one pretty fast.

Gunfighter is absolutely right on the second point, but absolutely wrong on the first point.

Deflation is the anathema of an economy. If your money is growing more valuable every day, why would you spend it? A reasonable person would cut back on his purchases. Take that economy-wide, and you have a recession.

Now a one-time revaluation of the currency by the Federal Reserve...maybe. But the markets would lose trust in our government for decades to come, and that's too steep a price.

lando, econ101 does not state that a minimum wage is bad.... that said golfinger is right, collective bargaining is more effective if it is strong

That would make more sense as an argument if the same forces opposing minimum wages weren't simultaneously trying to strip workers of their collective bargaining rights.

@Gunfighter ... If anything you need to inflate currency in order to make imports more expensive and exports cheaper (among other reasons that goldfinger got into).

We're talking about purchasing power, bo. Part of the reason that minimum wage is relatively low is that it hasn't kept up with inflation.

The other problem with deflation - your debt effectively increases as the purchasing power of the dollar decreases. So that mortgage you have...that national debt...etc...as the dollar decreases in value, your debt increases in relationship to your purchasing power.

That is why their are maniacs that actually advocate massive inflation in order to decrease the debt as a percentage of GDP. i.e double the price of everything, which would necessarily drive up wages, and suddenly the national debt shrinks by comparison.

Of course, the rest of the world then finally chucks the US dollar the coin of international trade, turns fully to China and blah blah blah...

So only two solutions so far then?

1. No more minimum wage. Bad idea in the short term at least, the labor market currently has a glut of supply, a removal of that wage means that the new point will move to market equilibrium which is very clearly lower than minimum wage. This would also lower wages across the board, for nearly all labor.

2. More collective bargaining. As already said those who oppose minimum wage also seem to oppose collective bargaining, and even so, given the decline of Union membership, visibility, legal protection and pivileges, unless you are also advocating strengthening the legal rights of Unions, this doesn't seem like an effective solution.

@2WL ... inflation creates jobs, raising minimum wage taketh them away. The former is always going to win out, at least in this country. I am okay with both as long as workers are treated fairly in the bargaining process (which as mendax said is not the case at the moment).

Just awaiting Krellin to deride why any idea that helps the working class make a better life is so wrong. Minimum wages...HA! Collective Bargaining...NEVER...that is communism!

@goldfinger, the only reason wages would stagnate at a floor is because that floor is set above an equilibrium price. So either the floor is below the equilibrium price and has little to no market effect, or the floor is above the equilibrium in which case the wages are higher than they otherwise would be.

There might be an argument there for longterm loss due to a supply/production gap from the floor but we would need lots of specific information to back up such a claim.

Benga - I didn't comment on this issue at all - I commented on the economic affect of deflation...and yet you are going to come out and attack me when plenty have commented?

What is your problem? Seriously...get a new hobby, or perhaps purchase a Reading for Beginners book.

http://www.theonion.com/articles/report-employers-created-40000-new-jobs-for-existi,34622/

O_o

Unless, Puddle, the presence of a floor lowers the equilibrium wage, regardless of where it is placed with respect to the equilibrium

Krellin...just trying to tempt you into going back to name calling and such. Admittedly you have been on your best behavior of late...I was thinking that Microsoft finally cloned you. :P

That could only happen in a second or later period, and would result from the shortage. However to make such a claim we would need more information on the specifics of the situation.

I can say quite confidently that a removal of the minimum wage right now would result in an immediate wage decrease. I am not sure what sort of situation would allow for a removal of a wage floor and a subsequent increase beyond that wage floor.

@Puddle - perhaps that is so, but here's my line of thought. The minimum wage gives an assurance to both the market for labor supply and market for labor demand. For labor demand it says - "If you set your wage at or a little above this price, then there will be someone who will want this job" To market for labor supply it says "If you demand a higher wage than this price, someone will be there to undercut you."

It acts as a reference point for all salary negotiations. During the summers I worked a (near) minimum wage job, earning $8.25 an hour starting off. Now, I think that for the work I did, I deserved $10 an hour. But I was in no place to bargain for that. Now, take away the minimum wage and it becomes a bit more of a prisoner's dilemma situation. I can push for a higher wage in negotiations based off of my expectations of what other people value their own labor as. People won't be working on an unlivable wage because they would not accept a wage which doesn't meet their needs.

"lando, econ101 does not state that a minimum wage is bad"
I wish I didn't sell my textbooks, but my the Econ 101 textbook actually uses minimum wage as an example of why price floors are bad.
So Econ 101 is actually the perfect excuse.

Bengal - instead of deriding and trying to start a fight...how about, you know, contributing to the conversation....Just a thought. Once you express your incorrect opinion, perhaps I'll come forth with a response... ;p

Did somebody say fight?

FIGHT! FIGHT! FIGHT! FIGHT! FIGHT! (chant with me, guys) FIGHT! FIGHT!

@goldfinger, but with an excess of supply, removing the minimum wage just means that other workers can undercut you even lower, until wages reach some equilibrium minimum. The only way wages should rise in a market approach would either be collective bargaining, or a decrease in the supply of labor.

Hecks, you need to break the arm of the nearest Romanesque fake statue you have and beat your co-worker about the head. Oh wait...wrong thread..

Krellin,
yes, wrong thread, but always good advice in any thread.

It should probably be a standards line in almost any thread around here that goes past 5 posts.

@Puddle - in a perfectly rational world, that makes sense. Based on the traditional approach to labor supply, that makes sense. But I'm thinking from a more behavioral/game theoretic approach. In a sense, the minimum wage "reveals" what everyone's price floor is, and it turns the hiring game from an perfect information game to an asymmetric information game. In the perfect information game, the employer will try to maximize profits and only offer minimum wage (or in that range) because he knows what each worker will demand. But take that away, and the employer will hedge a bit more, not knowing what wage the worker is demanding.

Again, just theoretical at this point. I would be really interested in watching a small, open advanced economy try this out and see what the real effect is of getting rid of minimum wage laws.

Survey:
1. How long have you worked (all jobs together)
2. Of all yoru jobs, how much time did you spend / have you spent at Minimum Wage?

Please be serious about this - it could be revealing.

Why would the firms desire to profit maximize be removed? Even if that were true, in an economy like the current U.S. one, removing the minimum wage will result in wage decreases, I don't think that's really open for debate.

1. Approx 24 Years
2. 30 Days