Another Debate about the Minimum Wage

Here is a Facebook debate, I am having with a friend about the merits or demerits of raising the minimum wage:

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Sam Murray: “What raising the minimum wage does is increase unemployment as employers who could previously only afford to hire workers at $7.50 an hour, now have to pay them $9 an hour and therefore have to let people go in order to remain afloat. So instead of having a unified and angry working class, you have a sightly less angry working class but a larger even angrier unemployed sector.”

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L Larry Liu: “I have debated this salient point several times before. If your analysis would be correct, then all low-wage states in the southern part of the US would be afloat with jobs at this point. But their job statistics is not much better. In fact, you will not find much of a correlation between low-wage states and better job performance. Companies will also have to consider other factors such as the overall productivity of the workers to determine investment decisions.

From a Keynesian viewpoint, this theory is also hoax. If you lower the wage bill for the working class, then the total capital going to consumption will diminish, which will not only keep the working class poor, but also unemployed. Your logic of maintaining a cheap labor force only works if the US can suddenly find other countries that massively expand their import bill, and find appetite for made in US products. But as you might know, the flow of trade has been mostly going in the other direction. The US is a net importer, and China is a net exporter. So, no rescue through exports.

For big corporations, your argument is also not applicable: a report indicates that “while still maintaining a profit margin almost 50% greater than Costco, a key competitor, Wal-Mart could have raised the wages and benefits of each of its non-supervisory employees in 2005 by more than $2,000 without raising prices a penny.” http://www.epi.org/publication/ib223/ Big corporations like Walmart have so enormous profit margins despite their everyday low prices that implementing a wage increase or hiring new workers or both are easily possible. And the corporate giants run our modern day economy.

The only concern will go to small businesses, whose margins are always slim. Here, it is up to the community to decide whether it wants to subsidize small businesses by taxing big businesses in order to keep the mon-and-pop shops alive. I am not very partial on this question, but tend to be in favor of things that may not be most efficient, but socially responsible.”

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Sam Murray: “Firstly, I reject your contention that because the Southern states have low wages and not great job numbers there is therefore a correlation between the two. From my limited understanding of American economics, I would suspect there might be other factors behind low job numbers in the South.
Secondly, I’m not saying that low wages is a good thing. I think high wages are a great thing for the reasons you brought up (e.g. consumption base). But those high wages have to be market driven and not artificial. Let’s look at it this way, XYZ company has say $200 000 for labor costs. That’s the amount the will go to lower class workers and therefore the consumption base. Raising the minimum wage won’t change that amount (aka the consumption base remains the same). All raising the minimum wage does is change the distribution of that $200 000, from being more spread out amongst people working say $7.50 an hour, to a fewer amount of people working say $10 an hour. Consequently, less people are employed by the company. AMongst those people employed, sure there is a proportionally higher consumption base (though not in absolute terms), but when you include the now recently employed former workers, then nothing has changed except even greater inequality.
Wages should be driven by supply and demand, and should never be artificially lowered which seems to be what you think I’m suggesting. Naturally high wages are always better than naturally low wages. I’m just suggesting that if a company can only afford to pay x amount of employees y amount, then a government law saying no, you have to pay them more than that, hurts both some of the mployees and the company itself.
Pointing to Wal-Mart as an example of a big company that proves the opposite doesn’t disprove my logic.
And then you concede this hurts small business, to which your solution to fixing the problems of one form of market intervention is to intervene again with two forms of market intervention, subsidies (1) fuelled by heavier taxation (2). So under your model, more people are unemployed, small businesses are reliant on government subsidies and large businesses have higher taxes, and your consumption base remains static, accruing no actual social benefits.”

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L Larry Liu: “It might sound reasonable to argue that an individual firm will likely have only the $200,000 to spend for wages and other items necessary to carry on production. But from a global or even national viewpoint this contention defeats itself. A report by the CEPR indicates that “[i]f the minimum wage had continued to move with average productivity after 1968, it would have reached $21.72 per hour in 2012” http://www.cepr.net/documents/publications/min-wage1-2012-03.pdf
Yes, $21.72, not $7.25. And here we are not talking about a number that would bankrupt the business sector, and make businesses so unprofitable that they may not want to invest in this country anymore. Here we are talking about wages that track the productivity level of the workers, i.e. the fruits of labor that they have already produced, but are reaped by financial shenanigans on Wall Street and other members of the global investor class instead of the working class itself.

I highly disagree with your contention that slightly higher wages will always destroy job creation. Large companies employ almost half of the workforce and have sufficient leverage to raise wages. And if that happens on a national scale, then any investment-inhibiting effects are removed. Besides, the historical experience has been that there is structural unemployment even if wages are low. Keeping the wage bill down without wanting the government to intervene can surely do nothing to improve the “natural” wages of the workers that you want to see increased. It will do nothing to lower unemployment. Keynes correctly noted that there is no such thing as an “efficient, self-regulating market”. There is also nothing “natural” about wages. Wages are affected by the total demand for their products in the economy, their total productivity (related with level of technology), and more importantly, the power that organized labor has against the capitalist class. The stronger labor is organized, the more leverage it will have to have its wages go up. So please spare me a talk about the “natural” wages. Wages are political, more than they are natural.

I do not see my tax plan to have any intrinsic problems. Of course, it is muddling through rather than providing a long-term solution that is valuable for all eternity. But nothing in a capitalist economy ever has been stable. Government-induced subsidies might collapse over the long-term, because powerful big business interests want to see them removed. Another contention is that after workers have reached a certain standard of living, their demand does not go up. A problem well described by John Kenneth Galbraith. But that is a problem we will have to worry about after we have universally implemented $25/hour jobs in the United States.”

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2 Responses to Another Debate about the Minimum Wage

  1. could it be that one is a micro and the other macro perspective economics, but to layout facts with ur stands on higher wages make ur point more valid i would say. i don’t know if sam is aware of trickle down economics, but higher wages would sure apply in this economic climate, don’t u think?

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