Debating the Minimum Wage

Basic question here, does the minimum wage help or hurt the lower classes? liberals would argue for raising the minimum wage to a living standard (many call it the living wage) so that lower paid workers would make enough to live. conservatives and economists argue that raising the wage discourages companies from hiring workers, and has a net negative effect on the economy and unskilled laborers....

To illustrate the conservative point graphically


It's your basic supply demand curve illustrating the surplus of labor created by an artificial price support on wages. What happens with this surplus is, naturally, companies will only hire the more skilled laborers from the labor pool, leaving the bottom of the barrel out of work.

So I was wondering how you could make a compelling argument for the minimum wage or raising it. Thoughts?

Not true, in 2006 the UK bumped up its minimum wage and saw 0 loss in jobs and 0 increase in inflation. Which is why a study was launched in 2006 headed by 6 noble prize winning economists with 600 other economists to discover why this was the case. They found out that increasing minimum wage actually helped the economy and publicly supported minimum wages.

Which study is this? The only study I know that supports this thesis is the Card Krueger study which was published in 93 (I think, I know early 90s) and mainstream economics has spent the past 20 years trying to debunk their findings.

I can somewhat accept that given anterior factors (as with any economic model the graph represented and the equation related to it are presented ceteris paribus) you could see a minimum wage shift having zero effect on employment rates, but I would have to imagine economy wide employment rates would reflect our basic understanding of supply and demand curves.

This study appeared in the Economist Group, by the name of Boost Minimum Wage. It was published on October 11, 2006.

Can't seem to find it... I found a Jonathan Wadsforth study for the Institute for the Study of Labour (ftp://repec.iza.org/RePEc/Discussionpaper/dp4433.pdf) and what appears to be a government publication by some sort of Commission within the UK gov't (ftp://repec.iza.org/RePEc/Discussionpaper/dp4433.pdf). I'll ask my econ prof (the 2004 Nobel prize laureate) about any studies that would correlate with this assumption.

edit: Here's an excerpt from a book called "Minimum Wages"
authored by David Neumark and William Wascher, published from MIT press in 08.

(Neumark and Wascher 39).

It's in a chapter entitled "The effects of minimum wages on employment. I'm referencing from an ebook on my schools library but here's the reference data if you wanted to give it a look

LC Call Number: HD4918 -- .N432 2008eb
ISBN: 9780262280563
Dewey Decimal Number: 331.2/30973
OCLC Number: 646768079

Another problem with certain studies that point to a neutral or positive affect of minimum wage on employment rates is

(ibid 50).

Further problems would arise with the study of unemployment rates and what that actually means. Unemployment rates generally don't account for those not actively seeking a job. Thus people who drop out of the labor force, whom may still have been pushed out due to wage rates, would go unaccounted for in unemployment statistics. It would be much more beneficial to look at employment statistics, and I would imagine that studying those numbers you would see a decrease even in the studies that reveal minimum wage has little effect on wage rated (ibid 51).

Have a decent Minimum vage - one that can pay most of the living, but not scare busineses away- and fill litle gap of employees vage eighter by Sociel Security (Minimum income safetynet) or industrial subsidies (Pay company to pay decent money to employee) This could be achived by taxing wealthy population (Wealthy= over 5000€/ 7000$ income a moth) or by taxing companies. Only the last one might hurt economy

Well taxing the rich leads them to not consume as much (because they don't have the money) which hurts the economy. Not saying I'm not for a progressive tax system (one that raised the taxes corresponding to how much money you make) but it is not without fault to the economy.

Further criticisms of the minimum wage are that it is rarely a living wage, one wage which may work for one area does not work for others. For instance, perhaps you can live off $7.25 in the backwoods of Mississippi, but not in a big city like NYC or DC.

Also as noted, if you inflate a wage, no matter by how little, employers are not going to be able to employ as many laborers because they're paying more for each of their employees. Thus there will be more workers then jobs (unemployment rises) so employers will hire skilled workers over unskilled workers (obviously). This results in the least skilled workers remaining unemployed, and the least skilled workers are the ones you were trying to help in the first place

A very poor and unrealistic argument. If the rich have more money they are either going to just put it in the bank and let it collect interest, or invest it overseas, neither of which helps the economy.

Not the mention a very same argument you just made can be used to increase wages. If you increase wages, people consume more because they have more money, and therefore the economy grows.

Yes and no, rich people buy things, and more expensive things then middle class or poor people do. They do this because they can. Further people are more likely to save then spend during positive economic times, they only really save when their worried about the future. Also investing money is the same as spending money because whatever they invest in has an increased amount of capital to use. Business with more capital can do many things but almost all of them are good for the economy. That why business grow with lower taxes, they have more money to use and expand and grow their business.

To your second point, yes, people having more money is a good thing. The point I'm making is artificially raising wages (and raising them to a point that doesn't enable them to do really make any purchases other then living expense, and barely even those) doesn't really help the poor people in the long run. There are better options out there then the minimum wage that won't have the same negative side effects.

On your first point, the rich are more likely to spend out of the country, go on trips, purchase goods from other countries which doesn’t help our economy. Next you are totally 100% wrong; people are more likely to spend when they have money to spend. It’s during the economic down times when people are more likely to save simply because they have no money to spend. Next you are wrong again if a company invests money overseas outside the country, sorry that doesn’t help the economy, it helps the economy were the company is investing. If a Canadian company invests in a factory in China, that doesn’t help the Canadian economy, or create jobs here. Granted it might help the company, but the company has no obligation to sell its products in Canada or invest in Canada, ergo the Canadian economy isn’t helped. Also the argument that businesses grow with lower taxes is wrong. I would argue that higher taxes on business profits helps business grow, because that forces companies to invest internally which ends up creating more jobs, rather than their profits being taken away through taxes.

Here I am just baffled by your lack of perspective. You realize that wages have been artificially stagnated? And a wage increase is 100% necessary. In Canada, wages haven’t been increased since the late 1970s, while corporate profits have increased dramatically from 50 million to 275 million in that time frame. On top of that the cost of living has almost doubled. Wages have fallen behind the cost of living, so the argument that it will cause inflation, or hurt business in a bunch is a of BS. There is no evidence to substantiate that claim, and as I have stated before, there is far more evidence to conclude that a minimum wage increase is needed direly.