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David Lucifer
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Re:virus: Re:Minimum wage
« Reply #15 on: 2003-10-26 12:03:05 » |
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[simul]
You proposition is that employers won't "magically" come up with more money.
Say an owner earns 5 million in profit off of labor, employing 50 people. This owner is then forced, because of unionization or populist laws, to pay everyone an extra 20,000 per year.
The owner now earns 4 million.
The money comes out of the profits for the owners of a business.
[Lucifer]
Your scenario is handled adequately by competion in the employer market. If the industry can really generated $100,000 profit per employee as you stipulate, a competitor would certainly hire all those workers away for $20,000 extra per year. No unions or populist laws would be necessary.
But your example is totally unrealistic if we are talking about minimum wage, especially when you consider that an extra $20k per year amounts to an extra $10/hour.
Let me bring up the volunteering argument again. Do you really think it should be illegal to volunteer your time? If not, isn't that inconsistent with minimum wage laws?
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rhinoceros
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Re:Minimum wage
« Reply #16 on: 2003-10-26 12:05:42 » |
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[simul]The money comes out of the profits for the owners of a business.
[Mermaid]Actually, the increase in minimum wages will be passed on to the consumer. So the price of the product increases. The profits of the owner is seldom disturbed.
Also note: when the burden of the 'minimum wage' is passed on to the consumer, the worker who supposedly benefits from this alleged protection of a 'minimum wage' finds himself with a slightly hefty pay check, but also finds himself dealing with heavy prices(higher labour costs=increase in prices of products) which makes his *real* purchasing power so miniscule that it is almost invisible. I'd say that it actually goes down!
Also note that with increasing wages(because of the supposedly increasing minimum wage rate), an increasing chunk of the labour force will also begin to pay taxes further dwindling the real green power of their wallets.
How is the picture so far?
[rhinoceros]
First, I will have to point at my wooden leg, saying that my knowledge on economics are at the level of popular reading material, philosophical considerations, social biases, googling, and an ounce of curiosity and common sense.
That said... Agreed, the burden of the 'minimum wage' is passed on to the consumer, and since the folks who get minimum wage are consumers too, inflation rises and their gains are neutralized. In fact, as Mermaid said, the real purchasing power of the "minimum wage" people is not just neutralized, but actually it even goes down when they get a raise. However...
I wonder (a) why this happens and (b) whether the real purchasing power goes down even faster when they don't get a raise. According to the initial post in this thread:
[Mermaid]
Sixty-five years ago on this day in 1938, the Federal Minimum Wage went into effect—at .25˘ an hour. Now it's $5.15 an hour.
After adjusting for inflation, that's 21% lower than in 1979.
[rhinoceros]
Since 1938, we have an increase of productivity and lots of whole new industries. After adjusting for inflation (which should have taken care of increases in wages and prices) and after taking into account unfavorable factors in raw materials etc, I would expect that the new technologies and the increase in productivity would be reflected in the purchasing power of the minimum wage as well. But instead of an increase, these numbers seem to show a decrease. Why?
Inflation due to wages is not only caused by the minimum wages, is it? *All* wages are passed to the consumer, including those of the middle/upper management and the CEOs. Even "too high profits" are part of the equation which pushes the cost up. If the wages of the CEO's and of the "well paid" ones are raised, a burden is added on those who get minimum wage, even if they didn't get any raise at all. Is it absurd that they would demand a raise too in this case? Or that by demanding a raise they are actually cutting down their losses?
Hence my first post in this thread, where I wondered how many people, in numbers and in percentage, get minimum wage today. I am also curious how the "medium/high" and "high" wages were affected since 1938, and how all of these wages contribute to inflation today.
All this is interesting, since the dominant practice for countering inflation today is maintaining a "healthy" unemployment pool. From what I have heard in our IRC channel, many Virians had the chance to experience this on their skin in the last year (not all of them "minimum wage" people).
[Mermaid]
back to the topic....there have been proposals..in theory at least..that minimum wage workers be given a 'tax subsidy' instead of increase in minimum wage rate itself...i dont know of one single govt which has implemented this despite the sensibility of the idea...any new information on this appreciated
[rhinoceros]
Heh, I used to think that it was a fairly common practice for the state to undertake this kind of redistribution of the burden for the low-income people. They don't exactly say "no raise, but you'll get a tax subsidy", but they have this scale:
Yearly income Rate Tax
--------------------------------------------------------
7,400 0 0
8 ,400 5 50
13,400 15 800
23,400 30 3,800
More 40 (More - 7,400) * 40%
There is pressure from the EU to move pretty much anything under VAT (which is 18% for most things), but it is easier said than done if the governments wants to remain in office.
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Ophis
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Re:Minimum wage
« Reply #17 on: 2003-10-26 12:26:30 » |
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The problem with the government's coercive minimum wage laws is the same as with its rent control policies, its other forced price controls, and its control of the money supply and interest rates. It ends-up hurting the very people it is supposedly meant to help: the poor. (see http://www.quebecoislibre.org/020216-15.htm)
- Government rent control has created shortages of rental properties. This is exacerbated by huge building code regulations, which increases the cost of building new housing property.
- Other government price controls decrease the motivation of entrepreneurs to provide the goods, which also results in shortage and ultimately an increase of prices.
- Government money supply and interest rate control has created debt-addicted bureaucrats who force average prices to continually go up, and people's savings to loose value, through a debasement of the currency.
And similarly, minimum wage laws have prevented an untold number of jobs to be made available on the market, which keeps our poorest and unskilled people out of jobs.
The fact is that the government uses the threat of force to impose limits on a market that is otherwize unbiased towards sellers or buyers. The government introduces special interests and politics into a market where people are most vulnerable. And don't think for a second that the government is dis-interested. Also don't be so naive as to think that the government's best interest is that of the poor (or even "the majority").
It often amazes me how anti-market opinions rely on the government to "fix things", or to "set a fair price". The opinion usually rests on the premise that if left on their own, entrepreneurs will monopolize a market (either on their own or through cartels and collusion) and then reign forever as an unstoppable and all-controling monopoly (we can discuss how in a free-market, this is actually unsustainable and how today's monopoly are sustained by government action or government incentives http://www.mises.org/fullstory.asp?control=475).
Ironically (and this is where my amazement comes from), people expect the most unstoppable and all-controlling monopoly of all, the government, to intervene in their favor, by setting minimum wage laws for example.
Reality check: elected rulers are just as greedy as entrepreneurs. While elected rulers do engineer their policies to please "The People" (in order to get re-elected), what is unseen about these policies is that each and every single one of them increases the power of the government monopoly (thereby reducing the power of private individuals it claims to protect of course). Each line of regulation, policies, and laws is a power grab by the most coercive, destructive, and harmful monopoly of all: the government.
So now we end-up with a system that is so skewed by special interests, one in which greedy government ruler's intervention is so unpredictable, that it becomes impossible for providers of goods and services (and jobs) to properly read market indicators. And so these providers (the entrepreneurs) have gotten in the game as well... companies big and small lobby the government for this and for that; we need a new tariff on Canadian lumber, we need to build a new gas pipeline in Afganistan, we need new competitors to get a permit before they are allowed to compete with us, etc.
I agree that we have a very ugly system today. One in which the name of the game isn't to provide a better and cheaper product than your competitors, but to convince the right Regent in Washington. Both the Left and the Right are guilty of promoting this behavior; in the end, regardless of whether you have a Liberal or a Conservative in power, government always win (how could it not, since it has a monopoly on the use of force on a population).
This is a system in which corruption is rampant (both within government and big business) and, quite unfortunately, necessary in order to survive. This is a system based on political forces instead of market forces.
Wage control is just a drop in an ocean of government favoritism and government protectionism. It is only a small step, somewhat insignificant in the grand scheme of economical things. But it is a step in the wrong direction; it is a politically-controlled step that corrupts market players and distords market indicators.
Wage control prevents the poor from providing services that are worth less than the minimum set by the government.
Wage control harms those who are paid the minimum wage by preventing their compensation from fluctuating with their labor's true market value.
Wage control, by preventing low-value salaries from fluctuating, hamper the poorest in making the right job selection decision that could ultimately get them out of poverty.
Wage control hurts the poorest in our society, just like any other coercive government intervention in the market.
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rhinoceros
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Re:Minimum wage
« Reply #18 on: 2003-10-26 12:47:57 » |
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[simul]
You proposition is that employers won't "magically" come up with more money.
Say an owner earns 5 million in profit off of labor, employing 50 people. This owner is then forced, because of unionization or populist laws, to pay everyone an extra 20,000 per year.
The owner now earns 4 million.
The money comes out of the profits for the owners of a business.
[Lucifer]
Your scenario is handled adequately by competion in the employer market. If the industry can really generated $100,000 profit per employee as you stipulate, a competitor would certainly hire all those workers away for $20,000 extra per year. No unions or populist laws would be necessary.
But your example is totally unrealistic if we are talking about minimum wage, especially when you consider that an extra $20k per year amounts to an extra $10/hour.
Let me bring up the volunteering argument again. Do you really think it should be illegal to volunteer your time? If not, isn't that inconsistent with minimum wage laws?
[rhinoceros]
A problem with putting simplified mathematical models to general use is that their are unreal. These models tend to assume instant availability of all information, availability and instant transportation of jobs and employees, and they often treat both employees and jobs as unidentifiable items in two big pools. It has been argued that an open market has never existed in this world. I think there are very material reasons for that.
I have heard, for example, that in real economics the existence of a decently sizeable unemployment pool is considered good for the "competitiveness of a national economy" in the international arena. Criteria, indicators, measures, but what is amusing is when you hear this kind of talk from an unemployed person at the coffee house. It sounds like a football fan talking about his favorite team.
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Ophis
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Re:Minimum wage
« Reply #19 on: 2003-10-26 12:49:57 » |
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I've read another economic fallacy in this thread that I'd like to point out.
Quote:| the burden of the 'minimum wage' is passed on to the consumer, and since the folks who get minimum wage are consumers too, inflation rises and their gains are neutralized. |
Inflation has nothing to do with an increase in costs of production. Inflation is caused by a decrease in value of the currency.
When an entrepreneur has to raise the price of a product because of higher labor costs, that product becomes less attractive on the market. When a consumer select what product to buy, it will be based on a number of factors:
1- The price of the product related to other similar products (direct competition)
2- The value of the product compared to alternative products that fulfil the same need (indirect competition)
3- The value of the need satisfied by that product compared to all other needs (budgetary or monetary competition)
Given a stable currency (one that isn't cheated by the government or by the banks who produce new units out of thin air for their own purposes), it is impossible for all prices to rise continously given the three rules above.
Direct competitors will try to differentiate their products by offering better quality, better features, at lower prices
Indirect competitors will create new markets or will attract potential customers to their product to satisfy your customer's needs
Budgetary constraints will ensure that a consumer prioritize his needs amongst all that is needed or wanted.
What we often tend to forget is that these rules apply to producers as well. It isn't possible for a company to raise the price of its products as it would want in order to cover labor costs increases. What companies end-up doing is either 1- find cheaper laber or 2- provide your labor force with better tools so that the wage increase is accompanied by an increase in productivity (indeed, productivity increase is the best justification for wage increases).
A computer manufacturer wants to charge $1M for its computers. The consumer wants to spend $1 for that same computer. Neither of them is in control of what that computer is truly worth. The market is in charge of that. The market is the only entity that is able to juggle direct competition, indirect competition, and budgetary competition in order to arrive at a fair exchange price.
The government certainly doesn't have a cristal ball that can predict this fair price. That's why the government shouldn't be involved in setting minimum wages restriction. Yes, these three competition rules apply to the labor market as well.
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Kharin
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Re:Minimum wage
« Reply #20 on: 2003-10-26 13:07:00 » |
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Quote:| "The minimum wage does not raise the wage of those workers who for whatever reason would sell their labour at less then minimum wage, it just puts them out of work. Employers won't magically come up with the money to pay more than they think a position is worth, they just do without or load the work on to other people. Everyone involved is worse off than they would be if they were allowed to agree on a wage." |
Hmm. On the whole I think the scenario concerning wage increases being cancelled out by rising inflation is more likely. The UK introduced its minimum wage quite recently and predictions of the above kind seem to have greatly exaggerated, with only some sectors of the economy exhibiting that form of problem to any particularly significant degree. I suspect there is a laffert curve effect involved; careful setting of the minimum wage being likely to raise wages without too much difficulty for employers to absorb the attendant costs, but as the minimum wage increases the costs become more of a problem which leads to the counter productive results you describe.
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rhinoceros
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Re:Minimum wage
« Reply #21 on: 2003-10-26 13:12:01 » |
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[Ophis]
Inflation has nothing to do with an increase in costs of production. Inflation is caused by a decrease in value of the currency.
[rhinoceros]
I get the second part, it must be a definition, but the first part is a big surprise for me.
Newspapers, economologist, officials of the government and the EU have been telling us for years that we shouldn't ask for raises because that would would push the "inflation rate" up. Also, they have been arguing that if unemployment goes down "inflation" will go up. All along, *almost all* prices have been going up with a rate close to 3%. They all call it "inflation rate" and they tell us that we should consume less and accept zero raises if we want it to drop. Is all this false? Or at least the "no raises" part?
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Ophis
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Re:Minimum wage
« Reply #22 on: 2003-10-26 13:49:34 » |
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Quote:| Newspapers, economologist, officials of the government and the EU have been telling us for years that we shouldn't ask for raises because that would would push the "inflation rate" up. Also, they have been arguing that if unemployment goes down "inflation" will go up. All along, *almost all* prices have been going up with a rate close to 3%. They all call it "inflation rate" and they tell us that we should consume less and accept zero raises if we want it to drop. Is all this false? Or at least the "no raises" part? |
There is no magic here. What you've been hearing from all these "experts" and "officials" is -over time- simply false... unless someone (hint: the government) cheats the system. If you think about it, what you quote them saying simply doesn't make sense. Let's look at an example:
Suppose that we are in a limited economy just you and I. I make bread and you make wine. I need your wine and you need my bread. I have $50 and you have $50. Our economy isn't going to be sustainable (all things remaining equal, which I agree they never do) if I charge you $51 for my bread. There simply won't be enough money around (unless we print new funny-money and decide to accept it as real money) for us both to survive.
The same thing happens in the real economy. I can't just raise my prices because the breadmaker employee union has made me increase my employee's wages. The only way a producer can raise prices is if there is an increase in demand for the product. As a breadmaker, if I raise my prices without there being in increase in demand, I'll see a decline in sales.
Of course, we can suppose that all my competitors have to raise their prices too. So now ALL bread prices are higher and as a consumer, if you want to buy some bread you have no option but to pay a higher price. All bread makers will then see a decline in the demand for bread because people will start buying alternative products instead of bread (like pop-tarts or something).
The appropriate response of the breadmakers at that point would be to lower the price of bread to gain market share in the overall bigger "food" market place.
All this said, all producers of all things cannot all increase their prices at the same time (as we've seen over the course of history). There simply isn't enough money to go around for this to happen (unless the government prints funny-money).
This is where the "cheat" comes in. Governments DO print new money all the time (banks do too under our fractional-reserve system). This is, obviously, what causes inflation. Printing new money of course is nothing else but a hidden tax. By printing a new dollar, the government has effectively taken a little bit of value out of the dollar in my pocket.
The other perverse impact is "when" and "where" government decides to "spend" this new money. I've not seen much government investment in the bread-making industry lately but I've seen a lot of spending in the military. So in effect, the government is taking a little bit of value out of the breadmaker's savings and giving it to the military-industrial complex (without the breadmaker's concent or her being even aware that this is happening).
What's a breadmaker to do when this goes on for years and years? Well, hire a lobbyist in DC of course! So at some point, the Amerian Breadmaker's Association (fictitious association as far as I know) hopes to apply enough pressure in DC to justify the government enacting new regulations that favor the breadmakers.
When government is in charge of the economy like this, we end-up with a favors-based system. That's what's wrong with "Capitalism" today. It isn't Capitalism, it's some sort of perverted favor-based power grab system that some have dubbed Corporatism. I don't like that name myself because it hides the Government's central role in it.
However we name the system today, it's a bad system and new government policies are exactly what we DON'T need to fix it.
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David Lucifer
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Re:Minimum wage
« Reply #23 on: 2003-10-26 16:22:05 » |
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[Kharin] Hmm. On the whole I think the scenario concerning wage increases being cancelled out by rising inflation is more likely. The UK introduced its minimum wage quite recently and predictions of the above kind seem to have greatly exaggerated, with only some sectors of the economy exhibiting that form of problem to any particularly significant degree.
[Lucifer] That isn't surprising considering the minimum wage only removes employment opportunites from the non-skilled and the poorest of the poor.
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simul
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virus: Re:Minimum wage
« Reply #24 on: 2003-10-26 16:26:02 » |
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Raises have little/nothing to do with inflation. Business owners don't want to give raises for the simple and obvious reason that ther want to keep more for themseelves.
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simul
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Re:virus: Re:Minimum wage
« Reply #25 on: 2003-10-26 17:03:43 » |
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Wage increases only get passed on to consumers when ther is little/ no competition in industry.
Competition keeps prices down and wages high.
The ideal scenario is for there to be more small business and fewer large corps. Small businesses are 20 pct more efficient per capita at generating GDP.
The reasons for government favor of large budiness over small have nothing to do with productivity. It has to do with the influence of capital in politics.
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Mermaid
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Re:Minimum wage
« Reply #26 on: 2003-10-26 18:38:22 » |
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[rhinoceros]That said... Agreed, the burden of the 'minimum wage' is passed on to the consumer, and since the folks who get minimum wage are consumers too, inflation rises and their gains are neutralized. In fact, as Mermaid said, the real purchasing power of the "minimum wage" people is not just neutralized, but actually it even goes down when they get a raise. However...
I wonder (a) why this happens and (b) whether the real purchasing power goes down even faster when they don't get a raise.(Mermaid> only if the prices increase AND when there is no wage increase...) According to the initial post in this thread:
[...]
Since 1938, we have an increase of productivity and lots of whole new industries. After adjusting for inflation (which should have taken care of increases in wages and prices) and after taking into account unfavorable factors in raw materials etc, I would expect that the new technologies and the increase in productivity would be reflected in the purchasing power of the minimum wage as well. But instead of an increase, these numbers seem to show a decrease. Why?[Mermaid]Lets go to the very beginning. Forget about 'minimum wage' for a second, ok? One fine day, an increase in the wages happen. Hallelujah! BUT...the *real* wage increase will happen only if the price of the products in the market remain constant. How? If your old wage was $10 and the new wage is $15...i.e. your income has increase by 50%. Assuming that your only expense is food...you buy 10 blocks of food for a buck each. With the increase in your wages, you can buy $5 worth of food blocks, i.e. 50% increase in your purchasing power ONLY if the price of the food block remains unchanged. i.e. your 50% increase in wages can be translated into 50% increase of your purchasing power *only* if the prices remain constant.
But price wont remain constant. Price will increase because the cost of production increases as cost includes wage/labour costs. Remember the laws of demand and supply. When there is high demand, there is an increase in price and on the other side, when there is high supply, prices fall. With more consumers wanting more with more change jiggling in their pockets, demand for good increases with higher purchasing power. Prices will also increase keeping up with the laws of demand and supply.
So, we have established that the food block is going to cost more. If it increases by 50%, i.e. costing 1.50/food block, then there would be no real change in wages because of the proportion of increase in wages is absorbed by the proportion of increase in the prices.
When will real wage increase? It will increase only if the proportion of increase in income is greater than the proportion of increase in the cost of food blocks. When your income goes up to $15 and the cost of food block rises from 1/block to say..1.2/block. i.e. a mere 20% increase compared to the 50% increase in your wages. (in 1968, this increase of purchasing power peaked)
When can real wage fall? It will fall when the proportion of increase in income is lesser than the proportion of increase of food block prices.When your income goes up from $10 to $15, but the cost of food blocks is 1.6/block. Income increases by 50%, but costs increase by 60%.(after 1968, this is what happened)
Also, you say that there has been an increase in productivity. But..but..has there been an *proportionate* increase in income since 1938?(until recently, if you work more than 40hours/week, you are entitled to an hour and a half pay for every extra hour you work...this is called overtime pay. people like nurses, firefighters, cops who earn as much as 22k/annum are reclassified as 'white collar workers..they can Dubya and his cronies...this means that these 'white collar' workers will be called 'executive' and managers and lose OT privelages. To make it look kosher, another law was introduced that ensured people who earned less than 22k to claim OT...earlier only those who earned about 8k/annum to claim OT. what has happened is a harsh wage cut to the working class *and* increasing their labour hours...sure..productivity is increased, but are the working class really getting paid for working off their butts? as a point to your query that appears much later...this is how CEOs and employers pocket their profits. ) The rich get higher than proportional increase in their wages while the working man actually experiences a low real wage and his purchasing power actually goes down.
Where does minimum wage come into all this? Minimum wage is meant to protect employees from slipping below poverty line. To provide them with a sustainable living wage. This basic wage is calculated by federal economic bigwigs...simply put, the increase in minimum wage is just not enough to cover the basic needs of the working man. As with everything else in economics, there is an assumption that minimum wage law is compulsarily enforced by the state. Of course, everything is based on this assumption. So assume that there is a huge factory. A legal entity that employs people at a minimum wage stipulated by the govt. Given a choice between employing someone at a high minimum wage and someone at a wage lesser than the stipulated minimum wage, the employer will opt for the latter. A compulsary minimum wage regulation will increase unemployment levels. This is not necessarily true irl all the time(especially in the short run...long term effects almost always involve unemployment on the rise), but with a compulsary minimum wage, unskilled labour is trapped in a wage band unable to move up. People barely manage to make ends meet because their real wage keeps slipping while they are stuck being paid minimum wage(which the govt keeps increasing when they feel moved by the plight of the masses). Upward mobility in the labour markets is very crucial. Minimum wages should be directed to the darkest shade of blue in the blue collar division where the employees are unskilled or rather low skilled. As their skill set improves and they become medium skilled or highly skilled, there should be opportunities for them to get higher wages than they earned in their low skill job. Instead of protecting the poor, it locks them up and traps them in a minimum wage hell cutting off all opportunities to 'move up' the wage ladder. It also creates a 'static' labour market in the lower levels. A compulsary minimum wage law would tempt employers to employ slightly skilled or medium skilled employees in low skill, low wage jobs to increase productivity. Lets not forget substituting foreign labour which is lower than the minimum wage. Thats a can of worms *I* dont want to open atm. It takes a bit of meandering and mental gymnastics to get all of this..but the economy runs efficiently by juggling various factors and each of them affecting each other. or does it?
[rhino]Inflation due to wages is not only caused by the minimum wages, is it?
[Mermaid]Simply put, inflation is caused when there is an increase in money supply. When the supply of money increases, then the value of what the money can buy goes down. as an example: Prior to inflation, you can buy a block of food for a buck. During inflationary times, the value of the dollar decreases because its worth is lesser than one food block.
also, the wage-price spiral automatically places the seed of inflation to a certain extent into an economy. America has historically recorded very insignificant inflationary trends over the years and has been the case where most theoritical economists scratch their bald head over...it breaks every rule of economics and it is so because the american economy is tightly controlled and monitored..its is led..despite popular opinion, there is nothing 'free' about this economy...
[rhino]*All* wages are passed to the consumer, including those of the middle/upper management and the CEOs. Even "too high profits" are part of the equation which pushes the cost up.
[Mermaid]hmm...technically speaking, minimum wage is only for maintaining unskilled labour force above poverty level. Note that the wage-price spiral doesnt translate into any real fulfillment of demanding wage increase and mostly, its because of the minimum wage laws. On the other hand, the CEOs and the 'well paid' can demand and get an increase in their pay checks.
[rhino]If the wages of the CEO's and of the "well paid" ones are raised, a burden is added on those who get minimum wage, even if they didn't get any raise at all. Is it absurd that they would demand a raise too in this case? Or that by demanding a raise they are actually cutting down their losses?
[Mermaid]The rich eat the poor for breakfast. The higher wage earning groups preys on the lower wage earning, unskilled labour force. Minimum wage laws traps the darkest shade of blue collars from improving their lot.
[rhino]Hence my first post in this thread, where I wondered how many people, in numbers and in percentage, get minimum wage today. I am also curious how the "medium/high" and "high" wages were affected since 1938, and how all of these wages contribute to inflation today.
[Mermaid]Wage controls to are essentially considered a failure. Until the 70s, a reduction in the wages(translated as lower income but higher job security..)was implemented to curtail inflation. Noone takes that theory seriously anymore.
re people who get minimum wages...everyone starts out like that..a school kid who buses tables at McD starts out with minimum wages..if he improves his skill set, he moves up. On the other hand,unskilled adults are trapped in minimum wage hell without an opp. for upward mobility.
[rhino]All this is interesting, since the dominant practice for countering inflation today is maintaining a "healthy" unemployment pool.
[Mermaid]Actually, its interest rates manipulation in the US. Unemployment is a trade off for keeping inflation at bay. Traditionally, a little inflation is tolerated to stay out of unemployment flux. An economy that is blighted by unemployment is far uglier than one that bears the cost of inflation. An increase in interest rates will reduce the money floating around in the economy and help combat inflation. i.e. when interest increases from 10% to 20%, you will probably be motivated to put them in a savings account instead of spending it on the newest toy in the market. It would also prevent you from borrowing capital if you are a company because you'll be paying more interest on that loan. The aggregate demand for goods will slump and when demand falls, prices fall thereby adjusting inflation.
[rhino]From what I have heard in our IRC channel, many Virians had the chance to experience this on their skin in the last year (not all of them "minimum wage" people).
[rhinoceros]
Heh, I used to think that it was a fairly common practice for the state to undertake this kind of redistribution of the burden for the low-income people. They don't exactly say "no raise, but you'll get a tax subsidy", but they have this scale:
Yearly income Rate Tax
--------------------------------------------------------
7,400 0 0
8 ,400 5 50
13,400 15 800
23,400 30 3,800
More 40 (More - 7,400) * 40%
There is pressure from the EU to move pretty much anything under VAT (which is 18% for most things), but it is easier said than done if the governments wants to remain in office.
[Mermaid]Ah..there ya go..VAT. There is no Value Added Tax concept in the US. Anyways, that table is the tax structure...what I meant was a way of increasing 'real' income by giving out tax subsidies instead of increasing the money wage. i.e. no increase in wages, but the tax bracket gets adjusted so that more people dont carry the extra burden of tax....so a tax subsidy would be increasing the number of people who pay zero tax from ..say 7400 to 13400..etc...so the state bears the cost of increasing real wages instead of the employers giving out increasing money wages which is intricately involved with other market forces..
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Mermaid
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Re:Minimum wage
« Reply #27 on: 2003-10-26 18:41:00 » |
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[Ophis]The problem with the government's coercive minimum wage laws is the same as with its rent control policies, its other forced price controls, and its control of the money supply and interest rates. It ends-up hurting the very people it is supposedly meant to help: the poor. (see http://www.quebecoislibre.org/020216-15.htm)
- Government rent control has created shortages of rental properties. This is exacerbated by huge building code regulations, which increases the cost of building new housing property. (snip)
[Mermaid]heh...quebecoislibre.org..those quebecoise...so fierce..anyways...agree re rent control..ditto on interest rate ceilings too...interest ceilings can also be added to the list of inefficient and misplaced govt concern/meddling...when lenders are forced to *not* lend money because of govt's restrictions of interest rates...whats the point of a legal low interest ceiling if that discourages lenders from giving out loans because risk is not factored in to make that money available at a higher interest rate. I am not upto the latest, but the last I heard, the lending rate and borrowing rates are subjected to govt ceilings and floors. If someone thinks govt controls are just dandy and/or useful all the time, i urge them to think of the breadlines in Moscow.
how does it help an unemployed person if there is a law that guarantees him a minimum wage of $10/hour if there are no jobs available in the first place...how is rent control useful in any sense if there is a shortage of rental properties..Its not even funny....one european economist made a comment a long time ago re rent control in NYC...there was a time when buildings were abandoned because the rents were too low to cover the basic maintance expenses and taxes for the properties....he said that except for bombing, nothing is as efficient as destorying a city's properties as state enforced rent controls...
btw...are there any european cities that still have rent control policies?
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Mermaid
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Re:Minimum wage
« Reply #28 on: 2003-10-26 18:59:05 » |
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I dont understand Ophis' and simul's objections to rhino's comments on inflation...when costs of production goes up, lesser goods are produced at higher costs..hencing hiking up the price of the goods...labour costs are one of the most important factors that increase production costs and hence create cost push inflation...so people get paid more and they spend more...because when cost per unit increases, price per unit also increases...there might be more money floating around, but the value of money is degraded as the same amount of money buys 'lesser' value in goods than it used to....this happens *only* if profit margins have to be protected..when losses are absorbed or when there is a slimming of profit margins, cost push inflation doesnt have to occur..but this is unlikely to happen because i havent heard of very many producers who like to run businesses for low or no profits...
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rhinoceros
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Re:Minimum wage
« Reply #29 on: 2003-10-26 19:59:13 » |
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[Lucifer]
That isn't surprising considering the minimum wage only removes employment opportunites from the non-skilled and the poorest of the poor.
[rhinoceros]
When there is a big enough pool of unemployed waiting at the gates, it is reasonable that the girl behind the counter of the fast-food who won't work for less than "minimum wage" will be replaced by someone who will. This seems to be good for McDonalds and its competitiveness.
True, some of the people who will find jobs will be from "the poorest of the poor". But I don't see how or why any new jobs will be created for them. What market potential will the investors see in such a situation? Will McDonalds sell cheaper after that? Will residence, food, clothing, or imported goods get any cheaper? Who is going to benefit?
On the other hand, I can see how the purchasing potential will be impaired if new jobs are not created and competitiveness is improved at the expense of the well being of the people.
Some online studies show a possible decline in employment of the youth when a minimum wage is set, depending on the employment social policies of the particular country. But we still have to make sure that they are talking about a wage for living and not about pocket money.
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