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Thursday, January 19, 2006

Comments

chris

It does seem rather inappropriate for the particular governments, whether federal, state, or local to arbitrarily guarantee a rate of wages, based not on skill, experience, seniority, or even the marginal value of labor.

Godfrey  Udoji

I believe that the comment above is inappropriate after reading the preceding article on the same subject. That article clearly exposes the irrationality of Congress or any governmental body for that matter getting involved in this cyclic and arbitrary setting of the minimum wage for labor in a politically charged setting. It seems to me, and that is why I agree with the thesis espoused in the article referenced above, a solution exists for this perpetual discourse. If Vermont, Oregon and Washington States can do it, and apparently its implementation has been successful in these States, why can't other States follow suit. This is where the press can play an important roll in public education!

Jim

In reference to Christopher Swope's blog, I would like to point out that in Nov. of 2004 Florida voters voted to Constitutionally raise the minimum wage in that state and index it to inflation. Regardless of how many states implement a plan like this, however, it's a bad idea. I'm not sure what "apparently successful" is, or how one goes about determining success, but indexing wages to inflation creates more inflationary pressure, thus forcing business to again raise the wage, which then forces them to raise prices. It creates a vicious cycle. Gov. Ehrlich made a good point in his veto message last spring: ignoring basic economic principles and regulating the labor market in this way will force businesses to cut positions, half of which are filled by people under the age of 25. This means that college kids working part time will no longer have jobs, it means that the children of working class parents will not have the opportunity to learn the life skills one acquires in that all-important first job. Raising the minimum wage and indexing it to inflation hurts the people it most purports to help.

Jason

A little red state love for this post: http://www.chrisbell.com/blog/011906_index

Mike

Ah, but how does raising the minimum wage to adjust for inflation automatically equate to job loss? The above comment makes the same leaps of logic that it purports to expose.

As the cost of goods rise (inflation) and the cost of labor lowers (no rise in wages), business increases its profit margin. McDonald's isn't going to go out of business if the minimum wage keeps current with cost of living. Shareholders (who presumably have extra money to invest in business) will simply get less return or the business will be forced to become more efficient - something they should do any way.

I'll choose the college student or hard-working low wage earner over shareholders every day of the week. Stop treating business interests like human beings. Capitalism shouldn't lead to the downfall of the average citizen.

Barbara Chase

No matter how the minimum wage is figured out it will remain difficult for a head of the household to live on it. Students, people entering the work force and second income workers will be the majority of the minimum wage earners.
Yes, it is a vicious circle.

PBP

States are suing Wal-Mart, because they claim the giant retailer is not paying its fair share of employee's health insurance. I have to assume that most Wal-Mart employees are the people wearing blue smocks in the stores and not in the corporate office. That said, most of their employees are probably also minimum wage workers.

Sounds like state law makers want to have their cake and eat it too. They legislate a new, higher minimum wage and then sue 'em because they have to drop health insurance coverage for the employees making minimum wage.

I guess the moral to the story is to stay in school, get educated and hope you never have to work for minimum wage.

Chris

Mike's post above is considerably simplifying the business equation. He assumes that as the prices of a good rises (which, last time I was at McDonald's the BigMac meal was not constantly blinking as it was being adjusted for inflation) that the same number of goods will be purchased (assuming downward sloping demand curves - don't bet on it). He then assumes that wages lower. Wages have been rising for a long time now (minimum wage is just that the minimum, not the normal, average, or usual wage rate).

Additionally, the folks that work for minimum wages aren't the head of the household - they are mostly teenagers and immigrants.

Lastly, a constant increase in the minimum wage will only hurt the lower-income, low skilled workers from gaining skills (It is a great way to discriminate against Hispanics and the young and not let them get ahead in the labor force). The main reason that Unions like the minimum wage is because they can force lower skilled workers out of the workforce and get rid of the competition.

In this sort of policy initiative we need to look at both the unintended consequences and the Long-Run.

Jim

Chris:
Thank you very much. I think the problem with the arguments posed by proponents of raising the minimum wage is that they don't grasp the basics of economic theory. In reference to Mike's question: raising the minimum wage at any time, whether arbitrarily or because it's pegged to some index lawmakers assume reflects the true inflation rate (a big assumption), leads to job loss because of the marginal value of the labor being purchased. I'll explain so as not to be accused of making a leap of logic. An individual is hired at minimum wage because the employer thinks that the addition of that employee will add marginal revenue equal to or greater than the cost of labor for that employee. If the employee adds $6/hour in marginal revenue, the employer will not fill the position for more than that, say the $6.15 that Maryland is proposing. This is what will "automatically equate to job loss." As far as choosing the hard working college student over the shareholder, the shareholder is the reason businesses have capital to exist in the first place. Shareholders own the company in the case of publicly traded corporations, but let's take it out of the corporate world. Would you choose the hard working college student over the small business owner that employees him or her? Capitalism doesn't lead to the downfall of average citizens, it empowers them.

Mike

Chris, you make some good points on immigration/union issues. The reason this debate rages is due to the unintended consequences, as you mention.

I've got to take PBP to task though, for this:

"They legislate a new, higher minimum wage and then sue 'em because they have to drop health insurance coverage for the employees making minimum wage."

*Have to*? Who's forcing Wal-Mart to drop health coverage? Last time I checked they were making a fairly decent profit while taking over the entire world.

Christopher Swope

The discussion continues here:

http://governing.typepad.com/13thfloor/2006/01/minimum_wage_ct.html

PBP

Mike,

Let me rephrase. They don't have to drop health insurance coverage, but if they HAVE to pay employees more, ie increased minimum wage, they might decide to drop health care coverage. The premise is basically this....what do you want...higher pay or better benefits. It's not just the minimum wage folks that this is happening to.

There is also the fact that increasing the minimum wage doesn't help the employee as much as it helps the government. Afterall, higher wages means more income tax for the government. And what if the higher minimum wage puts a person in a higher income tax bracket, effectively netting them less money in their paycheck. Ever thought about that?

How 'bout them apples?

MAKV

This is an incredible argument to me. We are talking about someone living on $9,888 a year vs. $11,808. That is $824 a month, $206 a week, as opposed to $984 a month and $246 a week. Who could support 1 person on that? If the business is in such bad shape that it cannot afford to pay that extra $1 an hour, it should not be in business. We should be ashamed to even argue this. Most businesses are paying more than minimum wage anyway, so why not make it official?

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