These five paragraphs from Posner constitute a demolition of the argument for minimum wage. The argument against minimum wage is so compelling that the Democrats' resounding rejection of it in the form of a proposed 40% increase amounts to a rejection of reason itself as an input into policy.

Who is the American voter supposed to vote for when its politics is so polarised that reason is so frequently abandoned? On the one hand you have Democrats who will do little but hurt the poor by raising the minimum wage and erecting trade barriers, and on the other you have Republicans and their faith-based logic.

Brandon, you have misunderstood the unions argument. The ability of unions to extract wages above market rate are improved the higher the price of competing non-union labor.

Perhaps it was because Iraq occupied so much attention during the campaign, but I find it unfortunate that a raise in the minimum wage was made part of a platform without explanation, debate, or analysis of the costs and benefits. Here are some of the questions that regretfully were not addressed by our politicians during the election season.

1. Why a federal wage? Economic conditions vary greatly across the country, so why shouldn't the states continue to serve as "laboratories of democracy" and be allowed to experiment with diverse wage strategies? These state differences are what allow the economic impact of minimum wage increases to be studied in the first place.

As Brandon Bertelson notes above, 45 states already have minimum wage laws, 20 above the Federal rate, and five of those already above even the proposed $7.25. Cities such as Santa Fe and San Francisco even have their own policies, and Los Angeles distinguishes between jobs that do or don't offer health benefits. Why not let these entities and their constituents debate and decide for themselves what the minimum wage in their area ought to be?

2. Why not a "real" minimum wage tied to inflation? Washington, Arizona, Florida, and Ohio already tie their wages to the CPI. If the nation is committed to having a minimum wage, one tied to inflation would seem to end the repetitive political debates.

3. What's so special about $7.25? Why not $8? Why not $10. Professor Becker notes that even minimum wage raise advocates recognize the economic damage that dramatic increases could accomplish. I have not seen the argument that $7.25 is some kind of maximizer in our labor market.

4. Why not create a wage system that differentiates between part timers (or teenagers learning how to do their first job while living at home) and full time employees providing for a family?

5. If the problem is poverty, or as the politicians say, "That a man working full time cannot provide for his family", why not simply increase the EITC which targets such situations much more efficiently?

6. What effect will a 40% increase in the minimum wage have on outsourcing and illegal immigration if those phenomena are considered problematic at current wage rates?

Ben,

I probably should have expanded on how I think about big labour.

My thought is that once a labour union is implemented it is very difficult for any mechanism of price or competition to push them out. In other words, yes - it is a political reason for the Democrats to increase the minimum wage. But I believe that in reality it poses no great benefit that the unions as an established body of workers do not already infer to themselves through political clout, protectionism, and countervailing power.

Judge Posner says:

why are the Democrats pushing to increase the minimum wage rather than to make EITC more generous? Three reasons can be conjectured.

I have a fourth:

If there were no pressure to raise the minimum wage it would be impossible to increase the EITC.

Let's be blunt. All the praise conservatives are suddenly heaping on the EITC is no more than a reaction to the proposed minimum wage increases. Without these proposals there would be little chance to pass EITC increases. So whichever policy is more efficient, the only way to get either one is to talk about minimum wage increases.

In fact, Posner as much as admits this. Consider his second reason:

increasing the EITC would mean an increase in government spending and hence in pressure to increase taxes, and the Democrats wish to avoid being labeled tax-and-spend liberals.

In other words, conservatives would make large amounts of political hay, justified or not, out of a proposal to increase the EITC. A minimum wage increase is politically more acceptable.

So oppose the minimum wage if you like, but skip the tender concerns about helping the poor via the EITC.

So why are the Democrats pushing to increase the minimum wage rather than to make EITC more generous?

The minimum wage is much easier to understand than the EITC and has great (though misguided) intuitive appeal. Many people are unhappy with workers being paid less than they "deserve": the government should insure decent wages as a simple matter of human dignity. Support for raising the minimum wage is an emotional, almost religious issue that transcends (read: ignores) rational arguments.

Many Democrats believe these things, and even those who don't have constituents who do—and they know it.

Unquestionably, minimum wage policies have some negative consequences. However, EITC is not necessarily better. For example, EITC is, in effect, a subsidy to companies that rely heavily on minimum wage - i.e. the state supplements minimum wage workers’ income, leading them to accept some job offers witch otherwise would not be acceptable. In this sense, it is an incentive to lower wages.

EITC is, in effect, a subsidy to companies that rely heavily on minimum wage

The EITC is not a subsidy to companies. A subsidy to companies implies a benefit to the companies. But the EITC benefits the workers not the commpanies. The idea that some workers accept job offers which otherwise would not be acceptable does not make sense. Why would workers who recieve EITC take lesser paying jobs than they could obtain absent the EITC? The answer is, of course, that they would not do so. Clearly, there is no reason for workers receiving EITC to take lesser paying jobs than they could otherwise obtain. Thus, there is no reason to believe that the EITC changes the labor market in such a way that benefits employers who pay low wages. Therefore, the EITC is not a subsidy.

I'm not sure why the Democrats are focusing on the minimum wage either. If it were up to me, their priorities would be:

1. An accurate assessment of the situation in Iraq including how the USA got there and what outcomes can realisticly be achieved.
2. Paying off the national debt and trying to do something about the trade deficit. This would probably involve heavily taxing the top earning corporate management (a kind of "maximum wage").
3. Protecting individual rights including an absolute protection of human right (no torture, secret detentions, etc.) and a gentle push for civil rights (separation of church and state, etc.).

Having said that, the relationship Republicans have to poverty is similar to the relationship Democrats have to the war in Iraq. They offer a lot of criticism and imply that they could magically solve the problem if their ideas were implemented but, when it comes down to the details, the Republicans really don't have much to offer other than criticism.

Googling for information on the earned income credit, it looks like the average payout per family was $1,766 with a maximum possible payout of $4,400 per family. In terms of totals, 21 million families received $36 billion in refunds.

I'm sure a couple thousand helps but, given the cost of living in the USA, it sure isn't much. What is interesting to me, though, is the relative priorities in the USA. The USA has spent well over $300 billion bringing "democracy" to Iraq (over $10,000 per person in Iraq) but it only spends $36 billion reducing poverty in the USA.

The EITC is not a realistic substitute for the minimum wage (whatever its merits). EITC fraud is rampant. But there is no political will to enforce the rules governing the EITC, because such enforcement would be viewed as falling disproportionately on persons who are defined by federal law as economically disadvantaged (a curious phenomenon in itself, if one reflects on it).

While I agree with many of the points presented by Judge Posner, he fails to take into account the effects of inflation upon those minimum wage workers who ARE dependent on this income for survival. The CPI has been rising steadily since 2001, with increases year to year of 3.3 and 3.4 percent in 2004 and 2005, while the federal minimum wage has remained the same. This disparity has led to a decrease in real purchasing power for these lower income members of the population, and has had the effect of making an already difficult struggle to survive even harder. While I agree that raising the minimum wage is not without its drawbacks, the EITC has not been able to solve the problem. Until our elected officials are able to offer real solutions to the problems faced by the lower earning segment of our society, temporary solutions to the problem such as raising the minimum wage may be the best possible alternative.

I pose two questions:

1. Is the minimum wage truly the market value of the said labor?

One of the vices of many textbook treatments of wage determination is to leave the impression that the “invisible hand" automatically ensures that each worker is paid according to his or her marginal productivity. Textbooks neglect the most vital premise–the employer must be forced to bid for workers in a competitive market against other employers if employees are to realize the full value of their work. In a world of unemployment, no such bidding takes place. It is often forgotten that the determination of wage is settled through a bargaining process between labor and capital. Adam Smith observed that this negotiation typically favors the employer—a fact particularly influential if an economy is characterized by even a modest level of unemployment. As John Bates Clark, the originator of the marginal product theory of distribution, observed: “A few men out of employment may serve to bring down the wages of a large number. The few may make it impossible for many to exact pay that corresponds to their productive power.”

For the minimum wage worker, I posit that Frank Tausig words echo a pertinent argument for today’s debate. As he stated it may well be there is a need of “prescribing minimum rates for those in the lowest group. The conditions of their employment are such as to lead easily to ‘unfair’ wages-–wages kept low by taking advantage of timidity, ignorance, lack of mobility, lack of bargaining power.”

2. Is there substantial evidence against Card and Kruegar's final economic conclusions that no unemployment effects resulted from the minimum wage increase? I have yet to read a convincing argument either way.

In 2000, Card and Krueger concluded: “the increase in New Jersey’s minimum wage probably had no effect on total employment in New Jersey’s fast-food industry, and possibly had a small positive effect." Neumark and Wascher maintained Card and Krueger initial results were wrong; yet, similarly concluded: “New Jersey’s minimum-wage increase did not raise fast-food employment in the state.” The two contending studies ultimately concluded no adverse employment facts with the New Jersey minimum wage increase.

Furthermore, a 2006 study on the San Francisco minimum wage, validates C & K's initial results. See Reich, Michael, Arindrajit Dube, and Gina Vickery. 2006. “The Econoimcs of Citywide Minimum Wages: the San Francisco Model.” UC Berkely Institute of Industrial Relations, 3.

The San Francisco study specifically addressed the questions: Will a minimum wage as high as $8.50 adversely effect employment? Does the narrow geographic reach of the policy create greater incentives for businesses to relocate outside the city?

The study found the wage increase substantially increased pay for low-wage workers. The percentage of low-wage workers that received a wage below $8.50 declined from 52 percent to 4 percent. Employment growth (measured by full-time equivalents) was not affected by the minimum wage policy and even found a statistically insignificant increase of 2.5 percent. Furthermore, workers remained employed for longer periods of time and were more likely to have full-time jobs. Finally, the average job tenure increased by approximately 3.5 months, and 6 percent of the workforce moved from part-time to full-time jobs. The research, thus, found that the San Francisco citywide minimum wage policy improved job quality and substantially increased pay for low-wage workers without leading to job loss.

Thoughts?

The minimum wage is one of the most despicable political tools for gaining popular support at the ballots at the expense of society (and especially the poorest in it).

It simply prohibits hiring everyone whose productivity is below the mandatory minimum. And who are those whose productivity is so low as to be below the minimum wage? The poor, the young, the old, the handicapped, the uneducated.

If minimum wage defenders actually believed in what they are saying, they would follow their proposal to its logical conclusion and ask for 50 dollars/hour.
"With every worker earning that much, imagine how much more they would consume! And this extra consumption would boost the economy, generating even more jobs, and so on. It is a virtuous cycle!"

Behind every such reasoning is the belief that what keeps poor nations or regions poor is simply lack of political will, or of positive expectations. If everyone just believed that the economy will grow, and agreed to raise the wages paid, the economy would in fact grow and prosperity would follow.

This is false. And this error has serious consequences, for the reason why many people are unemployed is exactly that kind of thought, which leads to higher minimum wages and other labour laws with similar effects.

Every May 1st (workers' day) the Brazilian president announces the raise in the minimum wage. The general public celebrates the event; little do they know that every increase in its value keeps more people unemployed (earning NOTHING instead of a little) and has further negative impacts on the economy.

Wages rise, and can only rise, as companies compete for the scarce resource that is labour, and when the productivity of workers increase (investments either in physical or human capital). There is no other way.
All human laws which disregard this basic economic law will simply make it harder for the poorest members of society to make ends meet.

Congratulations for Prof. Becker and Judge Posner for helping destroy the myths surrounding this harmful political measure.

Wendi

I'll have a go at your first point.

You are effectively positing that in the market for low skill labour a free lunch is being ignored by employers. Employers, you say, are paying x dollars per hour for labor but receive y dollars per hour for the efforts, y > x, and employers earn rents by not paying workers what they are worth.

In a competitive market, how can these rents perist? What prevents those rents being competed away by rational, atomistic employers who each have the problem of paying as little as they can get away yet still attract suitable workers in sufficient numbers. Its not as if employers of low-skilled labor can collude.

I think it is hard to argue current unemployment rates, after subtracting frictional unemployment, can cause a breakdown in bargaining and permit sustained economic rents to be extracted. The reason is that there a couple of mechanisms prevent rents being extracted.

1) Supply side. Workers will withdraw their supply of labor from a market offering low compensation and do alternatives - start up a business that exploits the cheap labor, go back to school, sell their labor in the black market.

2) Demand side. Profit-seeking firms will see the rents earned from cheap labor and enter the market or expand existing employment of low skilled labor.

Between supply-side and demand-side responses, I can't see any reason why unemployment will allow employers to sustainably get away with underpaying their workers.

I will preface my statements by stating that on the economics side of this equation, I am decidedly out of my depth. However, what I do know is that arguments for expanding EITC without corresponding means to rationally distribute the current EITC lump sum payments makes the assumption that families or individuals who qualify for the EITC will make rational spending choices, including distributing that income throughout the year to offset their expenses in a way that helps to lift them out of poverty. There are several state programs which provide exactly this kind of benefit, but it is hardly integrated into the filing process and without adequate information about the availability of such programs, most will take a lump sum payment and use it as needed. I don't think too many families who qualify for the EITC are making enough money to pay $500 to a good tax accountant or even $100 to pay H&R Block. My guess, and it is just a guess, is that most of these families file their taxes themselves and take a lump sum payment. An additional supposition is that a lump sum payment to a family who qualifies will be exhausted fairly quickly.

In short, the benefit of the increased minimum wage to low wage earners is that the increase is distributed throughout the year enabling them to live at a higher level the whole year. I can grasp the concept that for reasons of efficiency, and economy it makes more sense to increase the EITC either in terms of eligility or the amount payed out to qualified tax payers. It just seems that absent some uniform and simple method of distributing that income throughout the year it fails to make the type of impact that an increase in minimum wage can make on these earners. Why not increase the EITC and instead of offering lump sum payment use the credit to provide a federal wage subsidy that increases a lower base pay rate based upon the amount of eligible tax credit? (half joking there... but only half)

If the government can mandate a meager "living wage", why not mandate wealth? Let's set a minimum wage of, say $100 an hour, or $1,000. What the hey.

There are some interesting complexities to raising the minimum wage. One might at first blush consider that raising the minimum wage transfers weath from employers to the employees. On second blush, one migh consider that employers might simply reduce the number of employees. But I think the most realistic reaction is that the employers would react rationally. That is, they will take measures to increase efficency through capital investment in mechanization and automation.

So I think the notion that the increased minimum wage will make the few minimum-wage-only earners materailly better off is misguided because many of them will be eliminated. Unemployment pays less than minimum wage and increases taxes. But at the same time, there are some non-horrible side effects by making employers innovate.

Card is also the guy who thinks mass immigration doesn't lower wages. Hey, at least he's consistent.

As to what could possibly motivate them? Well, politics, Posner. Raising the minimum wage is very popular (it passed in every state where it was on the ballot in November). In my state of Colorado, we passed a terrible amendment to our Constitution which not only increased the minimum wage but provided for scheduled increases based on the CPI).

You are mistaken if you think only the "genuninely poor" vote on this or related issues. It doesn't matter that this isnt' an efficient policy for helping the poor or that few votes will be literally bought. It's the symbolism, Democrats sticking up for the little guy.

Wendi Morales brings up the most incisive questions to the latest "neo-econ" theories regarding the min wage and capitalisms perfection.

The "neo" souless Econ of "the day" assumes that capitalism is the perfect engine requiring no governors, limit switches or outside controls. Thus far no such engine has ever been designed and ALL who took even Intro Econ courses understand that capitalism contains a huge flaw in the case of few buyers and many sellers and especially so in the case of generic commodities (the reason EVERY advanced society has farm support programs) and generic labor going up against the holders of capital. I'm reluctant to cite Marx on a page hosted by wingers, but he had one thing right; capital has more power than does the individual worker and capital will quickly bid the prices down to below the costs of production. One can hear the sound of it in "What are "THEY" paying for .... labor, or corn?" as compared to those who themselves have "capital" in the form of scarce talents or skills who instead "sat down and negotiated a pay package".

But there is another bias in the FORM of an approved external governor or control mechanism, and we've all sat on the edge of our seats to see just how Gspn or Benanke planned to twist the valves to expand or contract our economy. It's clear that their goal is that of an unemployment rate of 5% so as "not to ignite the flames of inflation" thus our economy is but a lifeboat holding 95 and utterly dependant upon the other 5 taking their turns in the water for the protection of all 100.

Further, it's only been very recently that "economists" and the political hacks who employ them or quote or misquote them have "decided" that we are all subject to this souless machine of "perfection" (with the exception of Big Pharma or others having purchased degrees of socialistic protection from competition from Congress with the help of the Admin holding the vote open long into the night while arm twisting and dire threats tallied up the "right" votes, and shipping jobs that "cost too much" to be done here, offshore) but, truth is this "perfect machine" does not and has not ever existed in a vacuum beyond the reach of the subjective values of the people and the democracy under which any economic system exists.

Our Constitution and the C's of every state contain words to the effect of our resources being developed to the benefit of the people. And every Intro Econ text speaks of a system of "what will be produced, for whom and at what cost?" To be sure the principles of an honest capitalism are often congruent with producing the highest and best use of our resources, capital and labor, but not always.

For example, in the matter of a min wage being substantially lower than the cost of maintaining one human worker at a basic standard of living, I ask "Who makes up the rest?" In an area of modest prices (Tulsa, OK) a recent study indicated that the cost of an independent existence to be about $17 per hour or nearly $12 higher than the min wage and in fact close to the median wage for the area.

As mentioned by another poster, the answer is the taxpayer and those who pay higher insurance costs due to picking up the costs not covered by the capitalist enterprise who is using a man's labor for less than half the costs of operation of his employeee. In the case of Walmart alone the subsidies from benefits to the poor add $1.5 Billion to their very chubby bottom line and they've a stated company goal of maximizing it via 28 hour work weeks.

Now, in closing, how can capital and capitalism most efficiently direct scarce resources when the direct beneficiaries are not paying the full costs of those resources? Can we apply the same "thinking" to say the company's delivery truck which might cost $17/hr to operate? And if the businessman "feels" or even ascertains that it is profitable only IF it cost but $5.15 per hour? Should we leave the businessman to figure out a more efficient means of delivery? Not deliver at all? Or..... should we look to government to subsidize the day to day costs and cover any routine or unexpected maintenance costs while he pays but the first $5.15?

Lastly, people are not machines and they gather to live in neighborhoods where certain shared services are expected for ALL residents. When the new call center, or Walmart comes to town with new sub-living wage residents who will have children to school et al but with no surplus income to pay for these services, who covers the slack? And, what good is being done by the profits Walmart pumps out of the town, that once stayed there, do for other than their own stockholders and heirs? And why should such an otherwise excellent business model with the worlds largest bottom line NOT pay it "associates" a living wage? COSTCO does.

Next question? just for contrast? last year the CEO of a single medical insurance company (which I doubt has had any significant "productivity" increase since its inception, much less during his tenure) "earned" $150,000,000 yet I don't see Judge Posner & Co wringing their hands over whether the "productivity" of his efforts actually amount to $500,000 per day or $50,000 per hour? And could it just be that it's not the invisible hand of Adam Smith and the sheer perfection of the capitalist model setting his gleanings but former Ivy frat pals and other "old boys" swapping favors on their interlocking boards of directors?

Jack

Bit more on "Employers NOT hiring" due to a higher min wage. First this has NEVER been shown to be the case and today one assumes that the employer has already SENT those jobs to India, or that they are not transportable and must be done here...... or not at all.

To which American Progressive Econ shouts "GREAT!!" as that's how enforcement of a living wage and ""above market"" union wages have long spurred productivity improvements which are the ONLY means of truly increasion our standard of living and separates us from the stagnation of many third world economies.

In a century we've gone from 70% of labor force producing our food to less than 5% armed with the best machinery in the world and distribution systems using fewer and fewer people. Armies of carpenters with hammers, nails and chisels yeilded to far fewer packing $10,000 worth of air nailers and specialized tools. Plaster yeilds to sheet rock and cabinets are mass produced in factories.

Super market checkout clerks? regardless of pay they are fewer since UPC codes and will be fewer yet as embedded RFIDs ring out a whole basket as it passes under a hi-tech reader.

Some here may recall McD's Ray Kroc BUYING an agreement from Nixon for $250,000 to keep the min wage low or use a "split" min for "part timers" if need be. Perhaps that has held McDs back from implementing the tech it should have and why legions of poorly trained workers with tremendous rates of turnover chaotically produce poor food, slowly, that is not particularly cheap?

Jack

Let me start by pointing out the irony of freely posting a tirade against freedom and big business by typing it into a computer made by a corporation, the message transported to a server owned by a corporation, while wearing a shirt, drinking a beer, watching a television, all made by corporations. You may even work for a corporation.

Let me finish by saying the rest of your post is pure imagination, but in particular the ideas that a) economists (or the system they promote) are souless - actually they share your desire to see the poor do better, but they realize the near ubiquitous tendency for governments to cock things up, and they understand why governments do that so regularly. The minimum wage is the best example of all for governments achieving the opposite of what was intended. b) your idea that economists believe capitalism is perfect is nonsense.

I find two flaws in Judge Posner's argument. First, he misinterprets the reason why 70% of the population supports raising the minimum wage. And, second, he buys into the tired, old conservative line that raising the minimum wage will harm the economy.

The "economic harm" argument has been tried by opponents of fair labor standards for decades and, each time, the fear-mongering has been proved false. Minimum wage laws have not harmed the economy in the past, and raising the wage for the first time in 10 years will put hardly anyone out of work. I, for one, fail to understand the conservative devotion to arguing that employers must be permitted to impose sweat shop labor conditions. Most likely, it derives from a blind and misguided opposition to all regulation of markets.

Second, there are two principal reasons why a large majority of Americans support raising the minimum wage, and - by extension - why the Democrats and most moderate Republicans support it. First, it is unconscionable for any American in the 21st century to work 40 hours per week and earn only $10,000. The bump to $14,000 isn't so much better, really, but at least it's a start. It could help a few people begin to climb out of poverty. And, since it comes in the form of a wage, the money will be earned. It will not appear to be a form of welfare, like the EIC.

Second, raising the minimum wage would have the indirect effect of raising the entire wage scale, at a time when wages are stagnant, but the corporate execs at the top are raking in record profits. This, in truth, is why unions like the minimum wage and why corporate execs hate it. Americans are mad that 98% of the population is struggling to pay for health care (not to mention their mortgage payments), while a few at the top are living in McMansions in gated communities and debating whether to buy that third vacation home. They want a little redistribution, and this is the first battle. I predict that the second battle will be universal health insurance. And, ultimately, the 98% majority will win those battles, because votes matter. Though it will take a bit of effort to overcome the campaign contribution advantage enjoyed by the 2%.

David, employers cannot "impose" sweatshop labour conditions.

Suppose you are offered work in a sweatshop for a ridiculously low salary. You would not accept it; afterall, you could get a better job somewhere else. That means the wage offered by the sweatshop is far below your productivity.

Now, suppose a very poor population on the verge of starvation. A factory which offered "sweatshop" jobs would most likely get employees. Afterall, the man who is heading to the factory to get his job has no other job opportunities offered to him (nor can he, as far as he is aware, use his own spare time and energy in a way which will improve his life condition).

Every voluntary job contract is mutually beneficial, even when one of the parties faces starvation if they don´t accept it. In this case is particularly beneficial to him, who would otherwise die!

If the factory is able to make a considerable profit, more people interested in making a profit will set up their own factories and companies there, thus raising the wages up to the perceived productivity of workers.

And will a company hire someone for less than what their job is worth in the company´s estimation? No.
Thus, a minimum wage will effectively make it illegal for anyone with a productivity lower than the wage to be hired.

No-one who has any concern for the poor and who understands this simple truth can possibly defend the minimum wage.

It is also, together with other labour laws, a notorious political tool of big companies to bar competition from smaller firms. Afterall, a company such as Wal-Mart, which usually pays above the legal minimum, will not be hit by a new higher wage. However, small firms, which may be operating on already very low margins, will have a harder time surviving after the new law (and many more will not even be started).

Dear Prof. Posner,

Thank you for thoughts. I would like you to comment on the effect of raising the minimum wage at the same time that we are trying to reform immigration. We are telling employers of low skilled workers to stop hiring illegal immigrants, but at the same time we are adding significantly to their incentie to do so.
regards,
Alcibialdes

"As a matter of economic theory, ..."

As a matter of naive economic theory assuming a perfectly competitive labour market. A doubtful assumption!

If the labour market is monopsonistic, an increase in the minimum wage can, up to a certain point, lead to more employment and a higher wage.

We all want to thank you for just spitting out what we all learned in our first year economics classes.

Here I thought a guy of your supposed caliber would actually have something new to say. Silly me. Of course, I read this for Becker anyway.

While I agree with the theoretical discussions here, I believe two pieces of reality ought to be considered.

First, the democrats have to pay back their constituents, its political law that trumps all others. Every analysis should begin with that political reality and I would frame the question: given that they won and must recompense their supporters, is MW increase less harmful than the alternative (higher taxes, universal healthcare, 50%+1 open elections for unions?) or, god forbid, the GOP’s protectionist trade and regulatory policies and wholesale looting of the public fisc with earmarks, and general ability to govern no better than a freshman and his partying friends with 5 new credit cards.

In sum, I agree that we should not raise the MW for all the reasons cited by Professor Becker and Judge Posner, but I don’t get my panties in a bunch over it because its not as damaging as the alternatives delivered by the GOP or the that may be delivered by the left wing of the democratic party.

Second, from an employer's perspective, it is innacurate to call this a 40% wage increase; the employer of a minimum wage worker pays something different from $5.15; they pay workers comp and other insurance costs, payroll taxes and more indirectly, an allocable management cost per employee. Insurance costs and some payroll taxes like unemployment insurance are fixed and will not go up due to MW legislation. Also, most employees move off the MW pretty fast with $0.25 or $0.50 raises (or getting fired), so the employer can just slow that increase down. Also, the Domestic Production activity deduction, which is tied to U.S.-based wages, increases from 6% to 9% next year, soaking up the increased MW cost for many US employers. At any rate, I believe employers will work around the MW increase, and given other wage labor related costs, view it as something less than a 40% increase in their overall labor costs.

Postkey

If the labour market is monopsonistic, an increase in the minimum wage can, up to a certain point, lead to more employment and a higher wage.

Well its not monopsonistic. Which company doesn't demand low skills labor through cleaning, phones answered, meals cooked, deliveries done, cars driven etc etc. In fact its hard to imagine a more atomistic market, albeit one that includes amongst its buyers some large companies. Specialists, like pilots, doctors, and teachers, are at more risk of monopsony than low skills labor, particularly in sectors where government is dominant.

Ben: corrections and suggestions:

Let me start by saying thanks for reading my post and responding but it appears that you read mine too rapidly or through a partisan based filter? Let's take a look:

Jack

Let me start by pointing out the irony of freely posting a tirade against freedom and big business by typing it into a computer made by a corporation, the message transported to a server owned by a corporation, while wearing a shirt, drinking a beer, watching a television, all made by corporations. You may even work for a corporation.

........ I spent NO time on a "tirade" against corporations or business in general, but spoke only of KNOWN economic principles, including that of a company or corporation BEING charged with a mission statement of maximising profit and their having FAR more power to SET "the market" than does an individual job seeker or the seller of generic commodities.

Let me finish by saying the rest of your post is pure imagination, but in particular the ideas that a) economists (or the system they promote) are souless - actually they share your desire to see the poor do better, but they realize the near ubiquitous tendency for governments to cock things up, and they understand why governments do that so regularly. The minimum wage is the best example of all for governments achieving the opposite of what was intended.

b) your idea that economists believe capitalism is perfect is nonsense.

..... Great! Let's take these two together.... much of my post DEALS with the KNOWN imperfection of capitalism when it comes to

A. pricing commodities

B. valuing generic labor. You could reread my attempt to convey these principle OR google up the relevant pages which ARE available at no cost on the net.

As for government "cocking things up" why did you not respond to the stated policy of the Fed to ALWAYS insure that there are 5% unemployed and desparate to accept ANY job regardless of whether it paid enough to cover the most basic of living std???? With the """""Market Price""""" of labor having been bid down to ($5.15) or one third ($17) required for the most basic operation of a working person, why 5%? Why not 2% or ZERO percent? Such that "the market" would have to bid more for labor to lure lower echelon workers away from existing jobs (as they must at the upper levels??) and have the great benefits to our economy of FULL employment rather than 90% or so?

Well, I'll give you the ONLY possible two answers:

A. "because full employment would create too much inflation

B. Corporations and biz lobbyists who have FAR more power (see Ray Kroc example) would not favor any plan that would require paying the FULL costs of operation and maintenance of lower income workers

Each are true.... but let's deal with the first. It's absolutely the case that when we've full employment inflation tends to get out of hand...... thus........ running the capitalist engine at full employment is out of the picture and some 5% "must" be unemployed and at the mercy of the lowest paying of employers. UNLESS WE AS A SOCIETY INSIST UPON PAYING WORKERS AT LEAST THE COST OF MAINTAINING LIFE.

And.... the corollary? If a living wage is NOT paid by the enterprise employing and benefitting from the labor...... WHO DOES MAKE UP THE DIFFERENCE??

General Alcibialdes:

sez:
"I would like you to comment on the effect of raising the minimum wage at the same time that we are trying to reform immigration. We are telling employers of low skilled workers to stop hiring illegal immigrants, but at the same time we are adding significantly to their incentive to do so."

............

Gen.... perhaps not. What pols leave out of their claim that these are "jobs Americans won't do" is "at the prices paid". (which are provably low and perhaps but one third of what it costs to maintain life) We once harvest our own crops and put brick and stucco on our own homes etc. And I know from watching TV that if the price is right Americans" will eat bugs in public.

Now suppose the min wage was higher and if you've ENOUGH imagination that it was, in fact a living wage, then "Americans" too would apply for these jobs. Now if an English speaking resident who lived nearby with a phone, car, driver's license and resume/refs applied against an itinerant, potential "illegal" with risks to the employer if hired.... who do you suppose most employers would hire IF the cost were the same?

Thus, I would posit that a higher min wage IF enforced would work to the advantage of local hire and against immigrants and especially illegals. What would be the point of risking the penalties of employing illegals? Jack

Well, I am a fan of an increase in the EITC over a big increase in the Minimum Wage as well. I think the two should in fact be simultaneously increased. Futher, I think the EITC increase should be at least partially (and symbolically) financed by an increase in the tax rate of some group of the very rich (say those making $500,000 per year).
To Jake, who says EITC fraud is rampent, yeah, I think there is some, but the IRS's taxpayer advocate person has noted that for the last few years the IRS (presumably at the administration's direction) has simply denied tens of thousands of EITC filings, without explanation. I think that any attention focused on this, even if it is tougher rules, would be a good thing. Right now no one is paying attention and the poor are being shafted (though I guess it is good for the deficit -woo hoo).

I suppose the argument against an increase in the minimum hourly wage would be the same one used when workers in the coal mines and auto industry first struck for a living wage. Maybe globalism now makes labor cheaper at the lowest job level where most workers are helpless. They couldn't afford to strike even if they were organized. Should the US government work against these folks? That's as much a moral as an economic question.

Marginal businesses will always pay their workers the minimum legal wage. The inevitable question comes up: Do we want marginal businesses whose only life support is cheap labor?

Judge Posner, as you know there's a moral aspect to law. There is also a moral dimension to economics. You will sentence a defendant who is convicted of selling dangerous food to make a buck. You therefore enforce the moral strain in law. That same line is also drawn through economics -- particularly the minimum federal legal hourly rate.

Jack

You haven't really responded to anything I wrote. Some basic errors in your latest:

1. If corporations have the ability to set market wages then why have they set them so high for most of their workers? Higher than small firms do, by the way, not lower.

2. Absent minimum wage, wages cannot fall to zero. Everyone has alternatives to selling their labour by the hour on the open market.

3. The main determinant of wages is neither inflation or corporate market power, but productivity.

4. There is no long term relationship between inflation and employment. That idea is long dead. "Inflation is always and everywhere a monetary phenomenon."

Via Mankiw.

"Robert Whaples surveys PhD members of the American Economic Association.
One issue that fails to generate consensus is the minimum wage: 37.7 percent want it increased, while 46.8 percent want it eliminated."

That looks like, that there is not a consensus on minimum wages among economist.

It is a question of political views.

Ben: First a tip of the hat to Bob Rosen who say much that has been forgotten by today's SOULESS economists in few words: "There is also a moral dimension to economics."

Indeed there is Bob and an economic system is designed by us, not to serve some thoretical construct but to serve us.

Jack

You haven't really responded to anything I wrote. Some basic errors in your latest:

1. If corporations have the ability to set market wages then why have they set them so high for most of their workers? Higher than small firms do, by the way, not lower.

A.... By "corporations" I assume you mean the large, well set, heavily consolidated conglomerates who derive oligopolistic profits by domination of their sectors? Or as "Big Pharma" who just purchased from Congress ( by dint of a 5 hour vote while admin supporters twisted arms and delivered dire threats to get the "right" vote) relief from any price negotiation from Medicare and had the laws restricting our citizens from shopping beyond our borders? So they can afford to "give" health care and other benefits to their workers while those of the smaller corporations who DO have to compete are unable to provide such benefits to their workers? And yet, MSFT whose employees produce a whopping $300,000 of gross profit per employee, had to be taken to court to force them to pay benefits to their "part time" workers who had worked there and average of 6 years?

And, I did not say that any one corp or even group of corps set the stage for driving the lower wages down well BELOW the cost for that employee to maintain even the most basic living std. Indeed it IS a flaw in capitalism itself, and I suppose one could say exacerbated by the mandate of the Fed..... as mentioned, to save us all from inflation by making SURE that unemployment is ALWAYS about 5% so there are ALWAYS those at the bottom desparate for a job, any job at any pay level. Did you read and think about these flaws?

2. Absent minimum wage, wages cannot fall to zero. Everyone has alternatives to selling their labour by the hour on the open market.

Halleluja! And in our society in which some tattered remains of a safety net still exist, of course one option for young single moms or others who can not even cover the cost of child care by their labors is that of resorting to various forms of welfare. But! you'd be surprised in countries that have NO safety net how close to absolute zero wages can become. But... are we not speaking of a minimum wage? And to be sure, the FACT that millions ARE working at the legally mandated min wage, indicates that were it not for that miserly amount (which would be $10 were it to have been indexed for inflation since 1980) "the market" would drive it lower yet.

And I again ask WHO makes up the difference between the token 5.15 and the $17 of a life sustaining wage? And just what part of capitalist principles dictate that the taxpayer should be the bag holder for the difference?

3. The main determinant of wages is neither inflation or corporate market power, but productivity.

Ahh.... yes the "old productivity" argument. Having run a number of enterprises it's fairly easy to get an approximation of the firms productivity, but! far harder to figure out just what the productivity of the individuals who make up the team. Is my star salesman who "brings home the bacon" overpaid or underpaid? How much of his "productivity" is dependant on the cheery patience of the low paid receptionist who handles our incoming calls? Or the line guys who worked hard and skipped breaks to get a big order out? Can you help me ascertain just which of these people contributed what to my firm's "productivity?"

4. There is no long term relationship between inflation and employment.

....... Ah! Great! would you give Bernanke a call please? Both he and Gspn have been standing on the brakes with both feet, while across the road our Pres "feels" that our economy would sink like a stone but for being spurred by half a trillion in Deficit spending each year. Now if you can get the Fed to get off the brakes surly the rapid expansion will soak up all of our unemployment and then some. And, hey! "the market" will likely make a mandated min wage little more than a floor few ever touch!

4b That idea is long dead. "Inflation is always and everywhere a monetary phenomenon."

..... whew! Inflation is quite a complex issue not likely to be covered by a single bumper sticker and often confusing to ...... all. For example the "inflation" that Bernake thinks he is being paid to fight is in fact NOT inflation at all, it's the external price increase of oil working its way through our economy and assuming we can do nothing about it (except rattle sabers over Iran and make it worse) it's quite fruitless to "fight" it by adding higher interest rates to the burden.

But perhaps the thrust of your claim was that during the Clinton era high job growth and very low rates of (official) unemployment did not result in high inflation. The reasons are complex and most likely include IT finally coming of age and making great advances in productivity per worker, and, the much bigger effect of exporting jobs, importing H1B visa techies, as well as the influx of some 10 million hard working low paid "illegals". Equation: Lots of surplus labor to sop up = NO Wage increases for those in the lower half of the income scale.

Does this answer your questions? Also, one of my own; are you a reader of economic principles and a seeker of truth? or are you and agenda driven "faith-based" believer of dogmatic right? Serious question, no intent to insult. Jack

Lawrence: A few answers to your questions:

Perhaps it was because Iraq occupied so much attention during the campaign, but I find it unfortunate that a raise in the minimum wage was made part of a platform without explanation, debate, or analysis of the costs and benefits. Here are some of the questions that regretfully were not addressed by our politicians during the election season.

....... what seems more puzzling is why the min wage has been allowed to atrophy for ten years. (I know the answer but am trying not to be overly partisan or rant about Congress being owned by corporate interests.)

1. Why a federal wage? Economic conditions vary greatly across the country, so why shouldn't the states continue to serve as "laboratories of democracy" and be allowed to experiment with diverse wage strategies? These state differences are what allow the economic impact of minimum wage increases to be studied in the first place.

...... you're right, I live in Alaska and we've always bumped the Fed min by a couple of bucks. But! much of our nation is now on the 'flyway to the wage race to the bottom' thus state Chamber of C. are very reluctant to raise min wages.... hey, you could miss out on bringing in a new call center that would have otherwise headed directly to India. Now what you do to provide services for the influx of min wage workers ..... is well, a problem for "someone else."

As Brandon Bertelson notes above, 45 states already have minimum wage laws, 20 above the Federal rate, and five of those already above even the proposed $7.25. Cities such as Santa Fe and San Francisco even have their own policies, and Los Angeles distinguishes between jobs that do or don't offer health benefits. Why not let these entities and their constituents debate and decide for themselves what the minimum wage in their area ought to be?

.... ha! easy one! at either the 5.15 OR the 7.25 those areas will still have such an option.

2. Why not a "real" minimum wage tied to inflation? Washington, Arizona, Florida, and Ohio already tie their wages to the CPI. If the nation is committed to having a minimum wage, one tied to inflation would seem to end the repetitive political debates.

...... I think the Dems will do that. After all they should have learned by now that if they lose power.... no increases. But then? as a lawyer, can the actions of one Congress bind that of another?

3. What's so special about $7.25? Why not $8? Why not $10. Professor Becker notes that even minimum wage raise advocates recognize the economic damage that dramatic increases could accomplish. I have not seen the argument that $7.25 is some kind of maximizer in our labor market.

..... good point. And a recent study in modest cost Tulsa showed that the costs of providing a min living std (health care, food, apt housing you know basic slave subsistence level) came to $17/hour so perhaps $8.50 might be relevant as providing HALF the required amount. Here's my question: Who should pick up the shortfall? Today it is US! taxpayers and those who pay higher medical costs for others not paying at all. Is there something inherent in the capitalist model that favors an employer "third partying" a major chunk of his labor costs? At "poor" Walmart their skill in using 28 hour "part timers" results in $1.5 Billion being added to their bottom line from taxpayers. Great?

4. Why not create a wage system that differentiates between part timers (or teenagers learning how to do their first job while living at home) and full time employees providing for a family?

.... for the "part timer" see Walmarts abuse. Teens and SHORT apprenticeships? Ok.... but keep in mind that our "rich" country is in such dire straits that a third of high schools students work... all too many hours, not for their first car but to help their family make ends meet. BTW..... last year just one insurance CEO gleaned us for $150,000,000 or $50k per hour. Any interest in saving a few bucks UP TOP??

5. If the problem is poverty, or as the politicians say, "That a man working full time cannot provide for his family", why not simply increase the EITC which targets such situations much more efficiently?

....... The EITC comes from US. Now it happens that I eat most often in cafes where those working there do not qualify for EITC, housing assistance, food stamps or other government assistance, now while I'm lunching at my cafe and leaving a fair tip why should my pocket be picked by Unc Sam to subsidize McD's and Taco Bell's labor force? Do we BELIEVE in the power of capitalism to direct resources to the most efficient provider of services or are we creeping toward socialism?

6. What effect will a 40% increase in the minimum wage have on outsourcing and illegal immigration if those phenomena are considered problematic at current wage rates?

.... If a job is here only due to $2/hour it's most likely a goner already. But a subject to big to tackle here.

.....An enforced min wage that is closer to a LIVING WAGE should be a deterrent to hiring illegal immigrants. What pols (as our pres) skips in saying "jobs Americans don't want" is "at pay levels on which they can not live" after all we used to harvest our own crops and build our own homes. So.... given having to pay at least 7.15 and a local hire, with a home nearby, a phone, a driver's license, and speaking English applies for the job, it's unlikely the employer would then risk hiring an illegal. Now he may try to hire UNDER the min wage and if caught we should hammer him twice! Or so it seems from my perch at the top of the world, Jack

Ben: A letter signed by 650 U.S. economists, including five past presidents of the American Economics Association and six Nobel laureates, argued that increases in the minimum wage have had little or no effect on employment, and that boosting the minimum wage would actually have a positive effect not just on workers and the labor market but on the overall economy.

I found this while looking for your Whaples survey.... I did find that he polls economists on subjects but did not find the piece apparently contradicting the above. Do you happen to have it nearby? Jack

There are numerous unsupported claims and assertions in both Judge Posner's and Dr. Becker's attacks on increasing the minimum wage. An egregious example is Posner's dismissive suggestion that minimum wage earners are "uninterested" in joining unions, ostensibly because most of them are part-time. No polling data is provided to support the claim. There is another, much more plausible reason why part-time workers are less unionized than the general labor force -- our labor relations laws make it hard to unionize any shop, and even harder if the shop's work-force is transient. Part-time workers are more transient.

Posner is also wrong when he asserts that "the Democrats pushing to increase the minimum wage rather than to make EITC more generous." This is false. Increasing the EITC is one of the explicit promises in the House Democrats' 2006 platform.

When it is convenient to their arguments to do so, Posner and Becker assert that economic actors are essentially rational and act in their self-interest. Overwhelming majorities of minimum-wage earners favor an increase in the statutory minimum wage, including not only the people that Posner imagines do minimum-wage work for "pin money," but the many real people who depend on minimum-wage jobs for their livelihoods. Are they all irrational? If so, how does that comport with the assumptions underlying Posner's and Becker's entire economic analysis?

With the kind of record corporate profits that are occurring now I am extremely skeptical of any "hardship" that many corporations would suffer as a result of this.

The EITC must be combined with a minimum wage hike to be truly effective. I'd make arguments but Kevin McGilly has made many excellent points that need little elaboration.

Let me just say that I was unpleasantly surprised at the level of unsupported assertions that Judge Posner made in his argument. His first supported assertion is when he discusses the criticism of the study showing the minimum wage has little negative impact.

The hard-headed and cold-hearted calculus which the "Dismal Science" provides can not only be used to justify not raising the minimum wage, but also in eliminating it. It can also be used to justify human trafficking and slavery as an economic good. Which both appear to be on the rise world wide these days. These are just another view of the dark underbelly of unrestrained full free market capitalism.

The question now becomes too what level will this be allowed to overwhelm the four functions of government as articulated in the Preamble of the Constitution? Isn't there a line in there about "Promoting the General Welfare" as opposed to Corporate Welfare? Furthermore, what about the "Four Freedoms" that have been developed over the years that has come to define the United States and what it means to be an American? Two of them are the Freedom from Fear and the Freedom from Want.

Remember, to be a slave is to live in fear, and want.

You have to take into consideration the universal popularity of an increase in the minimum wage. A recent Pew poll found that 83 percent of respondents support an increase to $7.15/hour, including 72 percent of self-described Republicans. Among households with incomes below $20,000 (the group most likely to be affected, both positively and negatively), support for an increase was 91%!. I don't know if you'd get that kind of support for "free flags for orphans."

Could it be that we economists are so smart and everyone else is so stupid? And could it be that low income households are the stupidest of the bunch? If you think so, then you have to concede one of the arguments in support of the minimum wage -- that low-income workers don't know any better and are easily exploited.

Maybe people would be less supportive if they knew about the possible employment effects. But I'd think that the low-income people (who are more likely to have direct experience with the minimum wage market) would have some inkling as to what might happen if the wage were raised.
So why would they favor it unless it was good for them?

Jack

Thanks for the response.

I won’t go through what you wrote line by line. Becker already addressed the 650 economists letter. To see the quality of the thinking behind one of those economists’ signatures, see the post by Mike at Oct 12, 2006 8:34 AM at this address: http://cafehayek.typepad.com/hayek/2006/10/hall_of_shame.html As I note in the comments there, that economist has used his job title but not his economics in signing that letter.

Instead I’ll answer your last question, which is, "are you a reader of economic principles and a seeker of truth? or are you and agenda driven "faith-based" believer of dogmatic right?"

I believe any economic claim must survive, among other things, the free lunch test, which is: does this claim leave any free lunches permanently untouched by self-interested firms and individuals? Among your claims I disagree with, most fail this test. For example, productivity. You say its hard for a firm to work out an individual’s productivity. But I say its easy: use the market rate for that job type. Why is that a guide to productivity? Because if it were not, a (large) free lunch would be left on the table. Let’s say you believe receptionists are being underpaid relative to productivity. That leaves a free lunch untouched. People working as receptionists are ignoring a free lunch in the form of alternatives that are not underpaid. Firms are ignoring a free lunch by not hiring more receptionists, since it is profitable for them to do so (productivity > wage).

Unless you can show specficially what prevents these free lunches being eaten, I much prefer this reasoning to your feeling (faith?) - and that's all it is - that some people are underpaid.

NE Hatfield

It can also be used to justify human trafficking and slavery as an economic good. ...These are just another view of the dark underbelly of unrestrained full free market capitalism.

What is capitalism? It is a system marked by property rights, those rights being defended by government. Slavery, plainly, is contrary to that ideal, either because a) rights are denied to slaves, which violates this ideal, or their rights are being violated, which is a failure to properly implement capitalism.

You are confusing self interest, a feature of all economic systems including socialism, with capitalism. I do not think slavery is possible under capitalism. In fact, in view of both these principles and the near (total?) absence of slavery under capitalism, it can be said that slavery exists in spite of capitalism.

The hard-headed and cold-hearted calculus which the "Dismal Science" provides can not only be used to justify not raising the minimum wage, but also in eliminating it.

Here's another error. What you are doing is taking your disagreement in the economic analysis of the effects of minimum wage and using it to infer that economits don't care about the poor. I don't see what is cold hearted about rejecting a measure that will harm the people it is intended to help. You can pretend that an intention to help the poor is good enough, but it is surely no less cold hearted to hurt the poor if you are well-meaning.

Ben, Thanks....

I won’t go through what you wrote line by line. Becker already addressed the 650 economists letter. To see the quality of the thinking behind one of those economists’ signatures, see the post by Mike at Oct 12, 2006 8:34 AM at this address: http://cafehayek.typepad.com/hayek/2006/10/hall_of_shame.html As I note in the comments there, that economist has used his job title but not his economics in signing that letter.

........ yes I caught Becker's unsupported speculation that the opinions of the 650 economists and several prize winners did not please him or may??? not represent the entire body of that Assn. Perhaps the Whaple poll would shine something of a beam into the shadowy corners??

Instead I’ll answer your last question, which is, "are you a reader of economic principles and a seeker of truth? or are you and agenda driven "faith-based" believer of dogmatic right?"

I believe any economic claim must survive, among other things, the free lunch test, which is: does this claim leave any free lunches permanently untouched by self-interested firms and individuals? Among your claims I disagree with, most fail this test. For example, productivity. You say its hard for a firm to work out an individual’s productivity. But I say its easy: use the market rate for that job type. Why is that a guide to productivity? Because if it were not, a (large) free lunch would be left on the table. Let’s say you believe receptionists are being underpaid relative to productivity. That leaves a free lunch untouched. People working as receptionists are ignoring a free lunch in the form of alternatives that are not underpaid. Firms are ignoring a free lunch by not hiring more receptionists, since it is profitable for them to do so (productivity > wage).

Unless you can show specficially what prevents these free lunches being eaten, I much prefer this reasoning to your feeling (faith?) - and that's all it is - that some people are underpaid.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Surely you must have something there and it immediately occurs to be how underpaid CEOs were in 1980 when they command only an 80 times multiple of worker pay. Now the market has worked very efficient to correct this gross undervaluing of their expertise and now awards them some 500 times worker pay. Yet I remain just a bit troubled by corporate productivity gains being about the same and a bit less than when those skin-flint pre-1980 board members refused to open their purse and bid for and fully compensate the most talented of managers available. But! perhaps I'm overlooking the increased level of sloth today? And that it takes QUITE an incentive to get today's wastrels to answer their alarm in the morning and restrain their golf days to just a couple per week? Last year one of these geniuses who wasn't busy bankrupting GM and FD "earned" $150,000,000 or $50,000 per hour from a medical insurance company; an industry that one doubts has had much of any productivity gains since the scheme was invented, much less on his short watch.

Now I'm sure that according to "the market" or at least his former Yalies on the interlocking boards of directors that he's worth every penny of $1,000 per second, however, as either a payer of medical costs that are soaring at multiples of our inflation rate or as a stockholder I'd surely like to crosscheck the judgement of his fellow country-clubbers with a means of determining that his contributions are more than 3000 $50k guys, a thousand or so five star generals.

BTW.... the trend continues so do you think it indicates this poor fellow is underpaid and "free lunches" are going to waste?

Seriously now...... I've found on these boards that those who profess undue fealty to the god-given perfection of capitalism and sacrosanctity of "the mark" ARE most often faith-based toadies for "our" nation-less corporations whose irresponsible actions will soon bring us the similar melt-down of the last Robber Baron era........... and have never opened their first text on the economic principles that guide our mixed economy. Could you not duck the question this time? The answer would simplify things here. Jack

Jack, I am wasting my time. We were, after all, talking about minimum wage and the poor, not CEOs. You're just shifting goalposts.

I have answered the question. What part of the reasoning do you disagree with? Or is it your habit to simply label whoever you disagree with a toadie?

Ben??? "Jack, I am wasting my time. We were, after all, talking about minimum wage and the poor, not CEOs. You're just shifting goalposts."

Well, at least until you tried to tap dance around the issue of the productivity of individual team members by invoking the "perfection" of "the market".

I have answered the question.

......OK...... I get it. You ARE yet another of the extreme right who are, apparently not allowed to read any econ texts? If you had read one, then I could use some to the terms and not have to try to teach by metaphor and anecdotal examples.

What part of the reasoning do you disagree with?

....... that which I disagreed with. You'd have to be utterly unfamiliar with economic principles to claim that the PRODUCTIVITY of low wage workers is consistent with their pay.

Or is it your habit to simply label whoever you disagree with a toadie?

........ no, but it is handy for those who ALWAYS favor the corpies over individuals, community values, favor screwing those below themselves out of their last buck while ignoring the obvious rip-offs and excesses above and are seemingly blind to the creeping socialism of the employer paying a lower and lower share of low wage employees and gleefully exporting the larger share of the costs to innocent bystanders such as taxpayers and those who in one way or another cover the med costs of a goodly portion of the 45 million WORKING folk who have no insurance coverage.

All.... of course is couched in the show-trappings of econ and "the market" despite the coucher never having opened any econ text. 'bout right? Jack

Well Jack, you have in your wisdom now accused both me and Becker of never having opened an econ textbook. I'll take it as a complement. Cheers

Not only do those who oppose the minimum wage and similar labour laws care about the poor, but they are also the only proposing measures that will actually help the poor.

Labour conditions have never improved because of labour laws. On the contrary, these have only served to perpetuate poverty and keep a considerable part of the population unemployed.

If a company makes a huge profit by hiring someone (and remember that the person hired also wins, or else he wouldn't have entered the transaction), then every single potential entrepeneur has a good incentive to set up their own company and hire those workers as well.
And as firms compete for the resource of labour, which is the most scarce of all resources, its price goes up.
People accept this with wood and with iron. But when it comes to the service of labour, feelings are substituted for reason.

Note that the mechanism described above does not assume perfect information, absence of transaction costs or any other unreal assumption. Whatever be the case, the population is better off without the minimum wage than with it.
In other words, they are better off without limitations on the mutually beneficial transactions which can be effected than with such limitations and restrictions.

Joel: Well it makes for a nice inspirational yarn well suited for the talk jocks of Clear Channels 1,000 radio stations largely devoted to propaganda.

Not only do those who oppose the minimum wage and similar labour laws care about the poor, but they are also the only proposing measures that will actually help the poor.

........ where did you find this little gem?

Labour conditions have never improved because of labour laws. On the contrary, these have only served to perpetuate poverty and keep a considerable part of the population unemployed.

........ au contraire, the rise of socialism and communism in the LAST lassez faire, Robber Baron era nearly put a stake in the heart of a then still formative capitalism. Virtually all economists recognize the flaw in capitalism which bids down generic commodities and low skilled labor to well under the costs of production.... as we see with our eyes and that I've reported here. That IS why virtually all advanced nation have A. farm price support programs B. minimum wage, hour, and working conditions laws.

........ as for "keeping part of the population unemployed" it would be ours and each other advanced countries Fed Reserve system which dials in unemployment to "contain inflation."

If a company makes a huge profit by hiring someone (and remember that the person hired also wins, or else he wouldn't have entered the transaction), then every single potential entrepeneur has a good incentive to set up their own company and hire those workers as well.

....... indeed it is so. Also it is just as true that if profits are marginal "entrepreneurs" have VERY strong incentives to pay as little as possible. You'll recall McD's Ray Kroc purchasing Nixon's agreement to keep the min wage low for $250,000? A record bribe/"donation" for that era.

And as firms compete for the resource of labour, which is the most scarce of all resources, its price goes up.

........ Indeed it should. However, just as it BEGINS to benefit those at the low end and these days even the middle IN comes H1B visa immigrants to drive down techy wages, and the inflation you mention spurs the Fed to jump into action pour cold water on the action and ENSURE that there WILL be 5% unemployed and another percentage holding on desparately to what EVER they have that is better than being unemployed.

People accept this with wood and with iron. But when it comes to the service of labour, feelings are substituted for reason.

...... well........ No. MOST businessmen buying their raw materials expect to pay at least the cost of production plus some amount of profit to their suppliers. But! in the case of low paid workers they are not the least bit interested in covering the ACTUAL costs a single human worker must cover which are estimated to be $17/hr for a basic living std. Instead he hopes to get away with the token $5.15 and as it the case today, let the taxpayers cover the rest through EITC, other transfer programs and medical care paid for buy someone other than the employer.

Note that the mechanism described above does not assume perfect information, absence of transaction costs or any other unreal assumption. Whatever be the case, the population is better off without the minimum wage than with it.

...... so you say, but have not made your case.

In other words, they are better off without limitations on the mutually beneficial transactions which can be effected than with such limitations and restrictions.

....... ahh yes as is claimed by those who irrationally "believe" that capitalism is such a fine engine that it works without any controls or limit switches. No one who reads or studies the principles of economics believes such a fairy story. Jack

Ben, you, I now understand. While Becker has hefty credentials in the study of economics, yet neither his nor Posner's articles are based on known economic principles nor would their linked speculations be acceptable as short essays on the Min Wage debate in any undergrad econ course. I don't know what these guy's agendas are, and perhaps they just had to rush some pap out under deadline, but they are doing little to teach econ or illuminate the min wage issue. Jack

ben, Touch a nerve did I? These aren't my ideas just a rehash of some arguments between the likes of Thomas Carlyle, J.S.Mill, J.Bentham and T.Malthus, T.Jefferson, Adams, Hamilton, Roosevelt and the like. Some of the founders of Classical and Neo-Classical Econ. and the modern nation state. Remember, don't try and kill the messenger when you don't like the message. ;)

NE Hatfield

Those are some impressive names, but the questions remain: how is slavery possible under capitalism when everyone is accorded rights which are enforced? How it is cold hearted to reject measures which hurt the poor?

It is hard to respect or understand a view if it is backed only by your pleasure to hold it, rather than good reason.

No nerves touched, just pointing out where I think you might be off base.

ben,

question 1: The U.S. prior to 1865 or the rest of the Americas. Just one of many examples. As for today, it's rather well hidden in that "dark underbelly, especially in Asia and the rest of the world.

question 2: It's called "hearts and minds". Humanity has both, not just one and the mind must be guided by the heart. Otherwise ... reason alone can carry one to some strange places, sometimes even Hell.

NE
C'mon, you can do better than this. Slavery isn't a feature of capitalism, and is certainly not endorsed by it. The fact that it exists in a mostly capitalistic world is unfortunate, just like the fact that murder, rape, and robberies still happen. It's a matter of law enforcement and property rights.
And stop thinking you touched people's nerves if they disagree with you.

Jack
You're not actually suggesting that the fact that "advanced" nations subsidize agriculture means anything at all except how strong the agricultural lobby is, are you? Because all it is is a redistribution from the many [us] to the few [poor small farmers like the DuPont corporation]. If you support subsidies like that, you should be backing the EITC expansion. The EITC is a pretty good analogue to the subsidies, and while it is bad for workers in other countries [like farm subsidies are bad for foreign farms], we don't really care about them now, do we...

Jack, not even the classical economists, not even Marx, would be capable of making this assertion of yours:

"Virtually all economists recognize the flaw in capitalism which bids down generic commodities and low skilled labor to well under the costs of production"
This is your invention!

What determines the price of something is its marginal utility.
If you say a given good has a price lower than what it costs to produce him, then it means that the resources used in producing that good are being badly employed, and should be used to produce something else (from the point of view of society).

What the classical economists, and Marx with them, wrongly assumed, and you do as well, is that the wage of workers would always be kept on the bare minimum for their own sustenance and reproduction.

This thesis can be refuted both theoretically and from a simple empirical observation.

If firms are making a profit hiring labourers cheaply, it will be good business for other firms to do the same. And as firms compete for labour, its price goes up. You have so far failed to deal with this economic truth.

Furthermore, suposing that what you say is true, that firms will always pay the minimum to their employees (according to you, even below the cost of keeping them alive!), then there would be no firm offering wages even one cent above the minimum wage.
But that is false!
Even in the third world city where I live the great majority of workers earn salaries superior to the legal minimum wage. The same is true in the USA.

So you see that both logic and experience, by two different ways, can refute your assertion that firms will always keep wages at a bare minimum.

Like every other resource, firms compete for labour, and have to, if they want to make a profit, offer wages higher than their competitors for that same resource.
Wages will thus rise up to a certain point.

To raise it further, it is necessary that the productivity of workers increase, either through physical or human capital accumulation.

Both farm price subsidies and minimum wages are terrible things which greatly impoverish any nation which institutes them.
Rich nations can easily bear this, as they already have acceptable life standards.
Poor nations, on the other hand, are kept in perpetual poverty by these pernicious interventionist doctrines, whose failings provide the justification for yet more interventionism, in a vicious cycle whose last end is socialism and with it the implosion of society itself.

As for the comments on monetary policy being the cause of unemployment: accusing the FED or central banks in general (and I'm no supporter of them either, or of fiduciary money for that matter) of causing unemployment by fighting inflation is absurd.
The FED's activity consists of increasing the quantity of money, that is, of coloured paper. In order to "fight inflation" (actually the FED causes inflation in the first place) it restricts somewhat the growth of the quantity of money.
Does increasing the number of coloured paper (or numbers in mainframes) make society wealthier and prosperous? Not at all.
Thus, no jobs are lost when the FED decides not to be as inflationary as some people would like it to be.

If you answer this, I ask you to please make arguments and try to prove your case on its own merits rather than constantly rely on the supposed opinion of the elusive "ALL ECONOMISTS".

Haris & Joel Thanks for the response.... I'll try to address your questions:

You're not actually suggesting that the fact that "advanced" nations subsidize agriculture means anything at all except how strong the agricultural lobby is, are you? Because all it is is a redistribution from the many [us] to the few [poor small farmers like the DuPont corporation].

Ha! I thought the same in an early econ course...'long about 1968 or so. But! the system does NOT work in the case of farm commodities and generic labor. Here's why: If in the "supply and demand" model of widget producers the third quarter is slow the firm can reduce production, improve sales department or direct their resources into a more profitable product or model.

Very different from the farmer who approaches his broker with a ripe crop in the fields, harvest labor and equipment scheduled for the coming week, and rain clouds on the horizon, and very thankfully in our country in most years a bumper crop in which the supply exceeds demand. The broker is standing there with dollars or letters of credit and will buy only if there is a virtually assured margin for himself. Now by harvest time there are few secrets about the upcoming corn harvest and contracts and forward markets have already set the price.

Now if you recall your supply and demand graphs, the ever-elusive "equalibrium" price bears no relationship to production costs and instead Price drops off that steep demand slope that looks like an extreme skiing run. That's why wise Saudi Princes schooled schooled at Harvard or Oxford "forego" the opportunity to sell as many bbls as the world demands. But you've noticed being able to buy 10 ears of corn for a buck? And pictures of old navy vessels filled with dried corn? And attempts to turn it into ethanol?

..... "but teach?" asks the wise kid in the back row, "doesn't the farmer make it up in scarce years? or why doesn't he switch products like the widget guy?" Well, he tries, but! if corn is scarce and priced too high the wily housewife out foxes him again and puts green beans or carrots on her plates. As for switching he tries that too, only to run into his neighbor whose having the same problem with a different crop.

If you support subsidies like that,

....... I begrudgingly live with the subsidies after coming to understand that subsidy, price support, land bank and all, our farmers produce the cheapest food in the world and that improvements there are likely to be small and rare. I WISH I could have drawn a line with a giant marking pen before Archer Daniels and the K-street boys saddled us with the ethanol scam.

you should be backing the EITC expansion. The EITC is a pretty good analogue to the subsidies, and while it is bad for workers in other countries [like farm subsidies are bad for foreign farms], we don't really care about them now, do we...

........ it's much worse. As regardless of who's farming farm land is likely to be farmed in any case. But having the government assume increasingly higher percentages of the cost of low income worker's wages creates massive distortions in the labor market and the subsidy to poor, or greedy (Walmart) business models slows them from making the needed increases in productivity or going out of business entirely.

Funny thing here.... the style is to intro oneself as a "conservative" or believer in capitalism but then by one means or another to want to duck and "third party" some or most of the costs of higher low paid labor. "Min wage as a mandate" or not the truth here is that if a businessman employs a truck he must bear the full costs of buying and operating it. If he employs a human being he (or SOMEONE) must cover those costs of operation.... which were estimated in OK as being about $17/hour. So.... I ask all capitalists here, if the employer does not pay at least those basic costs, where should we send the bill for the remainder? (Please.... no tap dancing about teens of "wealthy" homes etc. Instead go into some fast food places and Walmart and see who makes up this underpaid workforce. And in the case of Walmart that has legitimately made a great contribution to distribution efficiency and productivity with the fattest bottom line in world history to show for it ask yourself(as they aren't saying) WHY they WILL not pay a living wage and instead fiddle with "28 hour" weeks in order to take maximum advantage of taxpayer subsidies meant for those in crisis or working for marginal companies unable to pay a decent wage? While COSTCO pays very nearly twice as much per hour?

Jack

Not gonna act like I followed your take on ag subsidies, or that it's somehow realistic or relevant. Farmers have made a living for centuries without subsidies. If you aren't getting the prices you want, maybe you stop growing billions of tons, sell some of the land to someone who can use it, and start up your own business as an ag broker, since they seem to be making a killing in your example. No one's stuck doing what they're doing. I know there are some transition difficulties but I don't think our job is to make sure everyone has an easy life. Particularly those who are unproductive.

If the federal government wants to make sure that people have a living wage, it can damn well assume that responsibility and pay for it rather than pawn it off on businesses. Maybe if we redirected the oil subsidies and weapons systems and [yes] ag subsidies to the EITC, then the federal government could afford to help the poor. I don't know why it's okay, in your view, to subsidize farmers but not workers.

Joel: Thanks.... and do you mind if I deal with your claims as questions:

Jack, not even the classical economists, not even Marx, would be capable of making this assertion of yours:

"Virtually all economists recognize the flaw in capitalism which bids down generic commodities and low skilled labor to well under the costs of production"
This is your invention!

...... Joel it would have been better to ask IF this was my "invention" which sadly it's not and has been a part of the teachings of "classical" economists for a very long time. You can google up summaries perhaps by using key words: many sellers-few buyers.

...... does your mention of "classical" mean you might be one of the new adherents of "faith-based" or "voodoo" econ? or rebelling against Keynes in favor of whichever coven of witches brought us eighteen years of experimentation with "supply-side" theories along with eight of the $9 Trillion of Federal debt, a trade deficit soaring past $700 billion this year alone, our economy running at 70% of capacity and zipnada on the demand side?

What determines the price of something is its marginal utility.
If you say a given good has a price lower than what it costs to produce him, then it means that the resources used in producing that good are being badly employed, and should be used to produce something else (from the point of view of society).

....... well true in the simple case. If a maker of lattes doesn't come home with enough to eat and house himself, odds are, if other options ARE open he'll seek them out. But! in the case of a man out in the rain with a wife and two kids in the car who's been looking for six weeks and is offered half a living wage over nothing he's very likely not to hold out for more.

What the classical economists, and Marx with them, wrongly assumed, and you do as well, is that the wage of workers would always be kept on the bare minimum for their own sustenance and reproduction.

........ to understand, me, Marx, or Keynes thoughts on the min wage issues, we'd first excuse those who have a franchise in the form of scarce talents, high skills, work in careers where the entry threshold is high such as law, medicine and the like and look at those who for this purpose would be called generic labor.... ie applying for jobs that can be taught in a matter of hours or days. It is sad that there IS always a surplus of such labor, and an issue we SHOULD address in an era when the New Economy needs 75% college or hi-tech yet we graduate only 25% from college and a few more from tech-schools.

But.... it is the case.... and as mentioned exacerbated by the OTHER great flaw in capitalism: that it CAN not run at full employment and must have 5% unemployed. Obviously that 5% is mostly those who's skills are least in demand, and they exist very close by the lowest 5% on the wage scale who are employed. Can you begin to see this 10% does not command much "market power??"

This thesis can be refuted both theoretically and from a simple empirical observation.

If firms are making a profit hiring labourers cheaply, it will be good business for other firms to do the same. And as firms compete for labour, its price goes up. You have so far failed to deal with this economic truth.

...... yes! We do see a "lot of firms profiting by paying workers low wages!" They fall into quite a few categories including such giants as Walmart which for some "curious" reason gets away with paying about half what COSTCO pays.

...... but! the typical "deal" in our time is that of our economy being "FUBAR" (ask a soldier) with the stated unemployment rate not being unusual but the rate of "underemployment" being enormous. Using your own example in a time of truly strong demand for labor we'd not see so many latte stands or acres of marginally productive retail shops. Here's why: Say the operator of a string of dress shops is deciding to open or close a store. When labor is very cheap he can afford to have a couple of clerks stand around all day for just enough business to pay their low salaries plus provide a small profit to the operator. Open 50 of these and GREAT the owner lives well, the employees get token payment...... and add their names to the other 30 million on EITC.

Now....... run the country so there IS growth AND demand for employees and those clerks WILL move on to better jobs. The operator of the string of stores had better figure a way to improve sales and PAY his clerks, or close the lower volume stores. But..... AS demand in this country is LOW ... those who are clerks command little market power. (And yes I know they should all have $25,000 and four or five years to finish college and improve their skills........ but that's well beyond our discussion of why advanced nations do mandate a min wage...... and must.)

Furthermore, suposing that what you say is true, that firms will always pay the minimum to their employees (according to you, even below the cost of keeping them alive!), then there would be no firm offering wages even one cent above the minimum wage.

....... See above. But! let's turn it around.. we KNOW there are millions who ARE at even the miserably eroded min wage of today. And it seems a very fair extrapolation that were even this floor not in place wages for many would be yet worse.

But that is false!
Even in the third world city where I live the great majority of workers earn salaries superior to the legal minimum wage. The same is true in the USA.

.... Ha! ONE would hope to hll and well beyond that MOST salaries ARE well above a min wage that is half or one third the cost of the most basic existence!

So you see that both logic and experience, by two different ways, can refute your assertion that firms will always keep wages at a bare minimum.

........ though econ and the principles of capitalism are fairly logical you can not learn the by observation or experience. And fortunately MOST of what one needs is in the introductory course. If you took that much you could continue.... perhaps reading the economist and using experience and logic, but not before.

Like every other resource, firms compete for labour, and have to, if they want to make a profit, offer wages higher than their competitors for that same resource.
Wages will thus rise up to a certain point.

........ ah so. However keep in mind that generic labor is ALWAYS in surplus. In fact..... the the unemployed lavor "overhang" of more than ONE billion people world wide may well destroy the standard of living within the US if we remain on our present course of "the wage race to the bottom" Please note that lately ONLY those earning more than $90,000 have had wage increases (worthy of the term) in a dozen years here.

To raise it further, it is necessary that the productivity of workers increase, either through physical or human capital accumulation.

...... indeed. And in a former time when productivity went up MOST American workers shared in the gains. No longer true. Walmart has made a quantum leap in the tech of distribution..... but! keeps it all for themselves.

Both farm price subsidies and minimum wages are terrible things which greatly impoverish any nation which institutes them.

....... it is far more complex and not understandable to the bystander.

Rich nations can easily bear this, as they already have acceptable life standards.
Poor nations, on the other hand, are kept in perpetual poverty by these pernicious interventionist doctrines, whose failings provide the justification for yet more interventionism, in a vicious cycle whose last end is socialism and with it the implosion of society itself.

....... this is quite a lump of stuff. However sticking to the employer paying a living wage to its lowest paid workers, one result is that he works harder to find efficient means of using these scarce resources. Union wages do the same.... the last thing you want is a brace of union guys using shovels if you can hire one union guy with a backhoe.

As for the comments on monetary policy being the cause of unemployment: accusing the FED or central banks in general (and I'm no supporter of them either, or of fiduciary money for that matter) of causing unemployment by fighting inflation is absurd.
The FED's activity consists of increasing the quantity of money, that is, of coloured paper. In order to "fight inflation" (actually the FED causes inflation in the first place) it restricts somewhat the growth of the quantity of money.

...... indeed. The basic theory (and perhaps it's broken) is that of increasing the cost of corporate borrowing, thus stalling expansion plans....... and.... of course, hiring to fill those expansions.

Does increasing the number of coloured paper (or numbers in mainframes) make society wealthier and prosperous? Not at all.
Thus, no jobs are lost when the FED decides not to be as inflationary as some people would like it to be.

..... Were the Feds actions worthless or neutral our stock boys would sleep in instead of pile out to hear what "the guy" says.

If you answer this, I ask you to please make arguments and try to prove your case on its own merits rather than constantly rely on the supposed opinion of the elusive "ALL ECONOMISTS".

....... How about "ALL except those who've found fertile fields in right wing "think" tanks and are paid quite well to sell the canards politicians of our former plantation and slave states?"

Jack

You know what I think is hilarious? It doesn't matter one bit what Posner or any of you econo-bloggers think about the minimum wage. Why? Because of the recent ballot initiative results in every state where the question has been posed have raised the minimum wage.

Eventually, the 20-some non-initiative/referenda states will have to legislatively raise their wages as their people grow discontented and ponder moving west.

Poor people want to make more money, and there are only enough of you to stop them in republican-government-land. In direct-democracy-land, the minimum wage is already up.

I guess if the economists want something to do, they can compare productivity between states with 40% higher minimum wages.

And see, with the increase, I can buy 40% more wine. Wine makes your econo-blogging seem funny.

I learned in some class once that all this "minimum wage hurts poor people" stuff was wrong. I guess that's what I get for not going to UChicago.

If you pay your cafeteria workers 40% more, does that make them 40% less likely to put disgusting things in your filet while cursing under their breath in Tagalog?

"2. Absent minimum wage, wages cannot fall to zero. Everyone has alternatives to selling their labour by the hour on the open market."

What is it now, $50 for 30 minutes, no kissing?

oh wait... you meant less demeaning alternatives than working for $5.15 an hour

I'll head on down to McD's and tell everyone you said they had alternatives. People love to hear stuff like that from white guys with six figure jobs.

Reaganomics is taking a long time to die out

Anonymous... confusing and contradictory:

You clearly oppose the subsidies of farm programs and offer a number of specious suggestions for getting rid of them but favor subsidies for low paid workers?

You say: "If you aren't getting the prices you want, maybe you stop growing billions of tons, sell some of the land to someone who can use it, and start up your own business as an ag broker, since they seem to be making a killing in your example. No one's stuck doing what they're doing."

....... and naturally ALL of these suggestions are taken, by some. But the huge number of sq miles of rich farmland we are VERY lucky to have, have little use other than as farmland and will, very likely be farmed..... by someone. But year in and out, most often huge surpluses are produced. Now we COULD do something different such as, basically giving the surplus to starving people in other lands (they've not the currency to buy it at any useful price) but! that would be another form of price support and the American consumer is, once again paying the farmer what it costs to produce the entire crop. Tough problem. Not easy to understand. Stuck with it! though, and with the ethanol camel getting its greedy nose under the tent it will get worse.

If the federal government wants to make sure that people have a living wage, it can damn well assume that responsibility and pay for it rather than pawn it off on businesses.

........ Oh? And when did it become a part of capitalism to have the government pay the operational costs of a business?? Would you "like" to have them also pay the costs of your plant? equipment? other? Sorry but it's the central tenet of capitalism to allocate the true costs of using scarce resources to the business that is benefiting from their use.

Maybe if we redirected the oil subsidies and weapons systems and [yes] ag subsidies to the EITC, then the federal government could afford to help the poor. I don't know why it's okay, in your view, to subsidize farmers but not workers.

........ It is confusing as both problems derive from a similar flaw in the capitalist engine. But in the case of farm price supports the government does "something" with a small segment of the crop (or by other means) that rescues the price of the WHOLE crop from falling below the cost of production and bankrupting most of the farmers.

....... the closest thing to doing the same thing in the case of labor is that of mandating a min wage, ie, ensuring that the price paid does not fall below "the costs of production" or what it costs one person to live at a very basic level.

...... Now it's VERY clear than nowhere in the country can anyone pay their own way at $5.15 or at even double that amount. It's also VERY clear that "THE market" is pulling the wage up toward the living wage of close to $17/hr so what's to be done? Mandate that the employer come CLOSE to paying a min wage? Or let the min wage continue to drop while taxpayers pick up the tab for increasing levels and numbers of people on EITC? plus a host of other, costly to administer transfer programs directed at people who ARE working full time??? So, when a yacht own pays the token $5 min wage to have his boat washed middle class taxpayer pitch in another $10 to cover the rest?

Jack

N.E.

Has it not occurred to you that the slaves of pre-1865 were excluded from the capitalist system, and that their status was the product of inconsistent application of property rights? Were those rights granted to all - which is surely a pre-requisite for the pure unfettered capitalism about which you complain - then slavery is not possible by definition. Capitalism is defined by the economic freedom those slaves were denied. Slavery violates the rights which are intrinsic to capitalism; it therefore exists in spite of capitalism, not because of it. Your argument fails.

Your second point. If you have to abandon reason to make your point, what have you got?

Jack
It is not a feature of the capitalist system for the government to pay business expenses. I never said that. It's also not a feature of the capitalist system to have the government mandate a living or a minimum wage. If the government wants to mandate such things, it should bear the costs for it. If the taxpayer doesn't want to pay for it, they can elect a government that feels differently. I'm pretty sure that's how democracy is designed to work.

Second, the taxpayer will bear the costs of everything anyway, whether it's the EITC or the minimum wage. At least in the EITC the costs are accounted for as an item in the federal budget, and they're paid for by the top 60% of earners [the bottom 40% pay no federal income tax to begin with]. In the case of the minimum wage, the taxpayer pays for it in his role as a consumer: since the price of inputs has rises, the cost of the final product will rise as well.

BTW, Corey: you've correctly identified that most people have no other choice but a minimum wage job. Maybe that's the real problem we should be addressing.

Just ran across this. If you scroll down to the middle Milton "Fenwick" Friedman addresses this debate quite nicely, and perhaps those who aren't too shy of personally attacking Judge Posner and Becker will refrain from attacking the late Mr. Friedman.

http://www.freetochoose.net/article_1.html

From the above article:

“Some men just can’t live on that! Or feed and clothe their children! Or pay their medical bills!” This was Shmidlapp at his best.

"We certainly ought to remedy that,” said Fenwick. “No American who wants to work should go hungry because of the objective (and therefore efficient) forces of supply and demand. Let us by all means give and guarantee the poor a minimum income; that does far less economic and political damage than a minimum wage. A minimum income does not discriminate against the black, the illiterate, the inept——”

Haris..... some agreement:

Jack
It is not a feature of the capitalist system for the government to pay business expenses. I never said that.

........... Agreed

" It's also not a feature of the capitalist system to have the government mandate a living or a minimum wage. If the government wants to mandate such things, it should bear the costs for it. If the taxpayer doesn't want to pay for it, they can elect a government that feels differently. I'm pretty sure that's how democracy is designed to work."

....... not agreed. Goverment (our Reps) simply see that capitalism has a number of flaws, one of which is a failure of "the market" both at the top and bottom of the wage scale. Don't believe it? Then in a decade when corporate profits are up and CEO and upper exec compensations have soared, is there any explanation for the lower wages to have been flat, and even follow the declining value of the min wage down? I would speculate that the productivity of say fast food workers and others is at least as great as it was a decade ago and most likely higher. Meanwhile CEO pay has soared from 80 times worker pay in 1980 to 500 times this year. Again, I'm speculating but I doubt the productivity of CEOs changed by a fraction of that increase. Also, I'd speculate that the talents to enhance or ruin a company have not become more scarce in the interim. Most economic texts confirm that individual low skilled workers have no market power thus, either a min wage or collective bargaining is the only means of adjusting things.

"Second, the taxpayer will bear the costs of everything anyway, whether it's the EITC or the minimum wage."

...... not agreed. And this is important. Today I ate in a cafe where the employees do pretty well and are not eligible for EITC. The other day I dined at a friend's home, but on each day I passed by McD's and though I did not stop in a wee bit of my hard-earneds were filched by McD's equally hardworking employees in the form of EITC and a host of other low wage subsidies, plus when their tired bodies fail it is again us who'll chip in for their showing up at the ER after foregoing the preventative care they can not afford.

"At least in the EITC the costs are accounted for as an item in the federal budget, and they're paid for by the top 60% of earners [the bottom 40% pay no federal income tax to begin with]."

...... the last of this touches on one of the negative market distortions that is a threat to a democratic system. Increasingly, as it was not always this way, the ever-widening wage gap has created a class of "earners" and tax-payers, a lower 30% who pay little or no tax and now 10% who are increasingly wards of the state even as they toil 40 hours (or at Walmart 28) per week. The number of problems with this scenario is too lengthy to list. Even for me!

"In the case of the minimum wage, the taxpayer pays for it in his role as a consumer: since the price of inputs has rises, the cost of the final product will rise as well."

........ good that you mention the consumer. But what happens is difficult to predict. First in my example McD's might raise prices if they thought the market would bear it, in which case I'd dine there even less frequently than today and you and I would have a bit less tax burden to pay and hopefully not have to chip in for the healthcare of McD's folk and have those funds to deploy as we wish. But, McD's might look over their biz model either to lower their labor costs via productivity improvements or improve the ambiance of their store or make their product more attractive, or the owner might make a bit less. Lastly, if their biz model is so flawed that it can not compete w/o having others subsidise its labor costs, Great! I liked it better when we had a myriad of locally owned Ma and Pa cafes and drive-ins.

"BTW, Corey: you've correctly identified that most people have no other choice but a minimum wage job. Maybe that's the real problem we should be addressing."

....... Yes! I suppose we should. But say Intel came out with a College Degree Chip wouldn't those "min wage jobs" still have to be done? by someone? Or is their prevalence due to the employer getting the full use of a worker for a third or half of what it costs to maintain him? BTW if you guys get your way and either let the min wage continue to fall or have Unc pick up yet more of the costs I'll "hire" a few too, kinda handy to have a hand around to step and fetch it, shovel my walks, perhaps wash the car at home?

Or so it seems from Lat 60 north, Jack

"But say Intel came out with a College Degree Chip wouldn't those "min wage jobs" still have to be done?"

Yeah, but the wage would go up because people willing to do it would be scarce. But that's in economic theory, which we abandoned somewhere around "there must be 5% unemployment."

In a perfectly competitive market, the analysis would be correct. However, a snapshot of the U.S. economy, using Wal-Mart an illustration, shows that the competitive market model is not the proper framework for the minimum wage increase analysis. Wal-Mart profited $10.3 Billion dollars in 2005. In perfectly competitive markets, normal economic profit exists. Normal economic profit is ultimately zero. The principal is that competition works such that new firms enter the market until no profit can be made. Once that point is achieved (equilibrium), the most efficient firms remain in the economy and the less efficient firms fail and leave. But, Wal-Mart, like most major employers, is not operating in a perfectly competitive market. . Primarily due to the prohibitively expensive start up costs and economies of scale, new firms cannot enter the market to compete, thus the actual company profits exceed normal economic profit. A more accurate analysis should take this into consideration. In short, since there is no foreseeable equilibrium, the minimum wage theories based on purely competitive markets should not apply.

We don't actually know if Walmart is making supernormal profits, although I'm pretty sure they are. But you have listed accounting profits of $10 billion, not economic profits. Walmart's profit margin is something like 3%, which is probably higher than most retailers. It's true that startup costs and economies of scale create barriers to entry, that hardly affects the minimum wage discussion. Airlines have much higher barriers to entry than grocery stores, and we're not having this discussion there, mostly because airlines are bleeding money because of excessive labor costs. The fact that Walmart makes money isn't grounds for regulation: as Judge Hand said, "the successful competitor, having been urged to compete, must not be turned upon when he wins."

On another note, I'm not sure we should blame Walmart for bad laws. I'm referring here to the distinction between part-time and full-time workers, the key distinction being that full time workers legally get health benefits from the employer. Had Congress not created this distinction, Walmart wouldn't have the incentive to hire mostly part-time workers. Maybe if Congress had written a sensible law [perhaps pro-rated health benefits to part-time workers based on a portion of 40 hours they work or something similar], we wouldn't be creating incentives for companies to avoid contributing to health benefits.

Ha! Corey is doing a better job of illustrating the case with his wit and humor than I have with lengthy explanations, Guess he can be Senator...... while I'll be stuck drafting the reforms with the policy wonks. Oh well! The comments are getting better.

...Haris sez
Yeah, but the wage would go up because people willing to do it would be scarce. But that's in economic theory, which we abandoned somewhere around "there must be 5% unemployment."

........ we aren't sure of that. Many years ago I found Korean college grads working in the Army PX in Korea. As in the US, during the Depression quite a few went to college because there were no jobs anyway, may as well starve in college. Today looking over the Sunday paper there does seem lots of demand for those with degrees and a decade of experience, but a lot more debt-saddled college grads not finding much. I'd like to think that increasing the skills and education of our work force would improve our productivity and overall standard of living. But which vocation would you advise a young person to persue these days? Something that can't be sub'd out to venues of far lower wages? Or that isn't capped by industry bringing in H1B Visa immigrants? And, we've seen a decade now of healthy corporate profits that have improved wages in the top sectors but has yet to "trickle down" to the lower levels and at the very bottom the min wage has lost 40% of its purchasing power. To top it off, we still have the "new Greenspan" standing on the monetary brakes, making sure that the economy doesn't expand too fast and give those at the bottom any leverage to create "wage inflation." "Soaring salaries at the top?" No problem, those are due to "THE market" and well justified by "productivity increases". Probably should give them another tax break so they'll have enough incentives to stay on the job?

Good comments on Walmart from Chris, and no corporation can be faulted for "working the system". Well, kinda anyway; they all have become sort of "nationless" haven't they with 12,000 of them having tax haven "HQ's" in one very small building in the Cayman's.

Health care delivery became an employer's "responsibilty" as an "unintended" during the wage/price freeze of WWII making the huge mess we have today. Will we play these same cards until the ship goes down? Good topic for another day and for the new Congressional majority.

BTW barrier to entry for airlines is not that high. One of my neighbors began with a travel agency buying blocks of seats and selling them at discount and later began leasing wide bodies to ferry chilly Alaskans to our third largest winter city; Maui. I suspect the stories of those nibbling at the "Bigs" like Jet Blue and other recent startups are somewhat similar. Walmart does have to keep running as it has plenty of competitors, I'd just rather they not do it sweat-shop style on the backs of their underpaid employees and saddle the taxpayers and the communities with subsidizing the employees of such a wealthy company with a good business model. Costco pays, Safeway pays, Walmat can pay and should.

Jack

I'm surprised at how little attention is given in any of the contributions--either by Posner or Becker or all the rest--to the empirical literature on the minimum wage. Most of you are applying a simple theory to a much more complicated reality that has been extensively studied.

In the 1980s the consensus view in the discipline was that a 10% increase in the minimum wage (mw) results in 1-3% disemployment for teenage workers. The impact on adult workers was thought to be minimal since most earn quite a bit more than the mw.

Since the early 1990s the consensus in the field of labor economics has broken down, but most studies still find roughly the same results for teenagers and low-skilled adults. For a good summary of the literature, see the contribution by Charles Brown in volume 3B of "Handbook of Labor Economics" (1999).

In assessing the impact of any disemployment produced by the mw, we must bear in mind that there is enormous turnover in the low-wage sector. As a result, the disemployment takes the form not of layoffs but of somewhat increased time looking for a job or reduced hours of employment shared across the mw population.

Hence gains and losses are shared across this population and are not concentrated on a small group. This should make modest increases in the mw palatable because the gains outweigh the costs.

I find this simply amazing. That all of you people would go to this much trouble trying to not only justify the huge imbalance in pay between classes, but to try and 'prove' how good it is for our economy. Why don't all of you grow some balls and just say what you really mean: "Fuck the poor". That's what you're arguing. How about we take the $2 an hour from the top 1%? Let me guess, if we did the economy would crash, the Sun would burn out, and the planet would be attacked by aliens, right? Here's an idea, why don't you all go "Cheney" yourselves.

minimum wahe is WAY too high as it is.. I'm making minimum wage and you're right! We need to scale it back so we dont create economic chaos. As for me I'll be fine picking from dumpsters and stealing, dont you worry... keep your $7.50

Wow, your last paragraph (why would the hippy democrats want such a stupid thing?) was one of the laziest things I've seen in print in months. You should be ashamed of yourselves for ending this piece with such a blatant sack of strawmen.

Although working full time at $5.15 an hour yields an annual income (slightly more than $10,000) barely above the poverty line, most minimum-wage workers are part time, and for the majority of them their minimum-wage employment supplements an income derived from other sources.

I've heard conservatives say this over and over again, but I never hear anyone quote their source. Where exactly do you get this information? How am I supposed to know it's accurate? Please provide sources when spitting out random facts that support your position. I have serious doubts that what you said above is accurate at all...

Cid: I kinda like it that you spot the package as being a turd w/o even wasting time to undo the ribbons and bows of the new-right's faddish psuedo-pop "econ". But, despite the poor start to this thread of Posner or Becker's unsupported essays it looks as though the position of the "no-min wage needed" set has been fairly well destroyed by posters here..... with more to come.

Elliot, too makes as good case often overlooked by those of us who live in a nation WITH a min wage and something of a social safety net in that people ARE going to eat and when that becomes impossible by legal means then it's time for the rest to build high broken glass and concertina wire topped walls around their homes as they do in countries where the poor are truly desperate.

Eddie
As for "conservatives saying" it appears that the few? remaining, principled conservatives, have been overrun by some new form of me-generation beast who cares not that once their reps gained power they went on a spending spree of a magnitude beyond anything we've seen since the build up for WWII, approved allowing Big Pharma to send an utterly unnegotiated bill to Medicare and are prone to "SAY" about anything.

So, as for saying: "for the majority of them their minimum-wage employment supplements an income derived from other sources."

I doubt anyone knows and of course what the statement can mean is that the min wage worker or family has 1.5 or more jobs each.

But unless the task was some sort of partially volunteer work, why should the second job be subsidized by the first?

Not long ago Pepsico owned Taco Bell and in a hearing before Congress on health care the Pepsi rep was asked a couple of interesting questions by one Senator: In my district I'm sure there are cases where one family member works for Ford while another works for Taco Bell; can you think of a reason why Ford should be saddled with the healthcare costs for both employees?? And a follow-up that may have something to do with Pepsi selling Taco Bell: Your Pepsi truck drivers have a pay package of $30/hr and health care/retirement benefits, why is there such a disparity between the driver's wages and those of Taco Bell and no healthcare? Indeed, why? Jack

What a laugh--hurting the poor by paying them more money! It's quite amazing that the rich have the gall to advance such preposterous arguments. Economics is not an exact science, and economists are frequently incorrect as one would expect. In fact there are few absolutes in economics--the judge merely expresses an opinion based on how he thinks thing will turn out for monied interests. If you're concrened about the investor class, the judge probably has a point. If your concerned about the common man, he definitley doesn't.

Firstly this talk about Teenagers is bunkum,, since when does the Us depend on teenagers to create wealth??? We should be talking more about Training teenagers Yes that dirty word Training, ---remember the 4 year Apprenticeship ???
Also on one hand its said that Unemployment has been brought down to low levels by this Administration, so these companies that lay people of because of the Raise in the Minimum wage, will have to pay Unemployment Benifit to these people wont they ????. For the life of me I cant see what aspiring companies will gain by taking this way forward
In my opinion all of the thoughts of the two bloggers on this site rely tottaly on "In reality" high Unemployment.
The thought of full employment is the worst situation of all for all employers, they want employers to have the right to instill fear into there workers that tommorow could be there last day of work, the prospect of workers turning down job offers because the Employer is not paying enough,to these Bloggers way of thinking is to horrid to contemplate.////

So let all these companies cut back on staff reducing there output ?? how will this help them prosper??? No this is a big bluff this theory.
Bearing in mind that $1000 dollars a month is about the average apartment rent, Is $7.50 an hour a huge amount of money to earn, do the maths??. Or dont you think having a place to live is a reasonable expectancy from a living wage.

In the year 2006, Slavery is not the way forward for the working man.

Incidentally, your preview feature seems to be broken; the formatting of previewed text differs from what actually appears in the post.

M when I saw ""Fully" 65% are women" I thought I'd better click! And there I was at the front door of Heritage Org where nothing trumps shilling for our now nationless corporate profits and their joy in seeing the wage race to the bottom.

Well, they DID do a fine job of reporting how "few" were actually at the federal minimum, but.... sorta left out that NY, MA, CA, FL, WA, IL, OR and a number of smaller states have min wages higher than the fed's $5.15

I wondered for a minute if having a Fed min wage worker at home might be a short cut to wealth seeing as the min wage household had an AVERAGE household income well above the $43k Median household income. But then I remembered that the AVERAGE per capita income (babies included) is also about $43,000 so the Average 4 person household would have over $170,000 so just a few of the above average households who had a member earning the min wage would bring up the Average household income substantially and then I suspect those min wage households making $50k have several wage earners.

The picture below (from US Census) showing some 38 million living below the poverty line of $10,000 with 45 million working folk lacking health insurance coverage isn't all that pretty for the "richest nation" and one where the average per capita income is higher than median household income.

Real median household income remained unchanged between 2002 and 2003 at $43,318, according to a report released today by the U.S. Census Bureau. At the same time, the nation’s official poverty rate rose from 12.1 percent in 2002 to 12.5 percent in 2003. The number of people with health insurance increased by 1.0 million to 243.3 million between 2002 and 2003, and the number without such coverage rose by 1.4 million to 45.0 million. The percentage of the nation’s population without coverage grew from 15.2 percent in 2002 to 15.6 percent in 2003.

Jack

There are three other points that I think are worth consideration:

1) The point here isn't about job gains or losses about about the total amount of labor surplus generated by the increase in the minimum wage. If demand for labor is highly inelastic, then there will only be a small decrease in jobs resulting in a larger income pie for those at minimum wage. I, however, can't believe the that the price elasticity for this class of worker is anything but elastic (given the technological subsitutes for labor available) so an increase of 40% will most likely hit employers, and their employees, hard. A smaller increase in the minimum wage may allow for larger labor surplus vs. the status quo, but Dems don't seem to be heading that way.

2) EITC is a fantastic idea, but from experience, it is difficult to explain to those qualified for the credit that they need to act rationale and save the large tax refund to help them with daily living expenses over the next year. Are they uneducated or irrationale? No, they're human. I know a lot of people (myself included) who tend to make aspirational purchases when a huge sum of money given to me, and those receiving EITC are no different. At the very least, the minimum wage provides a way of distributing cash at increments over the year. Perhaps some sort of funding mechanism like that can be applied to EITC as well?

3) Despite my misgiving about the increase in min wage, there is a spillover benefit in crime reduction, particularly among young men. Crime occurs because the payout from committing crime minus the probability-adjusted cost of being caught is greater than the value of doing "honest" work. Minimum wage provides that value and may convince the marginal worker to engage in the organized economy vs. in a life of crime.

Eddie: points well worth consideration:

There are three other points that I think are worth consideration:

1) The point here isn't about job gains or losses about about the total amount of labor surplus generated by the increase in the minimum wage. If demand for labor is highly inelastic, then there will only be a small decrease in jobs resulting in a larger income pie for those at minimum wage. I, however, can't believe the that the price elasticity for this class of worker is anything but elastic (given the technological subsitutes for labor available) so an increase of 40% will most likely hit employers, and their employees, hard. A smaller increase in the minimum wage may allow for larger labor surplus vs. the status quo, but Dems don't seem to be heading that way.

......... One thing IS sure that small, predictable annual increases would be far better than letting things get out of kilter for a decade and then trying to "fix it" in a short time.

........ as for swapping grunt labor for machinery and tech it seems that our ONLY true wealth creation comes from increasing the productivity of our workers. Thus.... I see that insisting on the capitalist honesty of a min wage being fairly close to a LIVING wage as having the additional benefit of spurring productivity increases as well.

.......One can quickly see that the lower the min wage is allowed to fall or the more that the employer can shift their labor costs to taxpayers the LESS incentive they'll have to invest in productivity.

.......There IS some elasticity at the bottom, as McD's is already experimenting with using off site call centers to take drive up orders and I suspect to soon hear "Supersize that?" in crisply spoken Indian English. On the other hand how expensive would be a machine to man their counters? or to mop their floors? And lastly? Are any jobs that are truly "worth" only one third of a living wage (estimated by a recent study as $17/hr) worthy of being done by an employee at all?

2) EITC is a fantastic idea, but from experience, it is difficult to explain to those qualified for the credit that they need to act rationale and save the large tax refund to help them with daily living expenses over the next year. Are they uneducated or irrationale? No, they're human. I know a lot of people (myself included) who tend to make aspirational purchases when a huge sum of money given to me, and those receiving EITC are no different. At the very least, the minimum wage provides a way of distributing cash at increments over the year. Perhaps some sort of funding mechanism like that can be applied to EITC as well?

......... EITC a "fantastic idea??" It's really a very crude response acknowledging a couple of major flaws in the capitalist model: This animal came in response to trying to lure folks on welfare to instead work 40 hrs per week for wages that were little better than welfare. Were the min wage at LEAST as high as today's min wage plus the government subsidy the incentive to the worker would be the same. With the added benefit of the employer acknowledging the truer cost of labor he'd use it more efficiently and may well invest in productivity increasing tech and machinery. To which I say GREAT! Having lived through decades of irrational fears that "computers would take all of our jobs" and there is a tremendous demand building for taking care of aging baby boomers.

3) Despite my misgiving about the increase in min wage, there is a spillover benefit in crime reduction, particularly among young men. Crime occurs because the payout from committing crime minus the probability-adjusted cost of being caught is greater than the value of doing "honest" work. Minimum wage provides that value and may convince the marginal worker to engage in the organized economy vs. in a life of crime.

........ agreed. And actually worse than the rational "this is better than that" choice that most of us make every day, as today's min wage is but one third what it costs to live even a minimum existence, that it is instead a survival choice of "making it" or not. As mentioned when a min wage is but a third of a living wage, someone, somewhere WILL have to make up most of the difference. Is it the taxpayer? Those paying increased medical premiums? and/or those who are the victims of crime? Or...... for honest capitalists? The employer who most directly benefits from the employees labor? Did I leave out any options?

Jack

Eddie: points well worth consideration:

There are three other points that I think are worth consideration:

1) The point here isn't about job gains or losses about about the total amount of labor surplus generated by the increase in the minimum wage. If demand for labor is highly inelastic, then there will only be a small decrease in jobs resulting in a larger income pie for those at minimum wage. I, however, can't believe the that the price elasticity for this class of worker is anything but elastic (given the technological subsitutes for labor available) so an increase of 40% will most likely hit employers, and their employees, hard. A smaller increase in the minimum wage may allow for larger labor surplus vs. the status quo, but Dems don't seem to be heading that way.

......... One thing IS sure that small, predictable annual increases would be far better than letting things get out of kilter for a decade and then trying to "fix it" in a short time.

........ as for swapping grunt labor for machinery and tech it seems that our ONLY true wealth creation comes from increasing the productivity of our workers. Thus.... I see that insisting on the capitalist honesty of a min wage being fairly close to a LIVING wage as having the additional benefit of spurring productivity increases as well.

.......One can quickly see that the lower the min wage is allowed to fall or the more that the employer can shift their labor costs to taxpayers the LESS incentive they'll have to invest in productivity.

.......There IS some elasticity at the bottom, as McD's is already experimenting with using off site call centers to take drive up orders and I suspect to soon hear "Supersize that?" in crisply spoken Indian English. On the other hand how expensive would be a machine to man their counters? or to mop their floors? And lastly? Are any jobs that are truly "worth" only one third of a living wage (estimated by a recent study as $17/hr) worthy of being done by an employee at all?

2) EITC is a fantastic idea, but from experience, it is difficult to explain to those qualified for the credit that they need to act rationale and save the large tax refund to help them with daily living expenses over the next year. Are they uneducated or irrationale? No, they're human. I know a lot of people (myself included) who tend to make aspirational purchases when a huge sum of money given to me, and those receiving EITC are no different. At the very least, the minimum wage provides a way of distributing cash at increments over the year. Perhaps some sort of funding mechanism like that can be applied to EITC as well?

......... EITC a "fantastic idea??" It's really a very crude response acknowledging a couple of major flaws in the capitalist model: This animal came in response to trying to lure folks on welfare to instead work 40 hrs per week for wages that were little better than welfare. Were the min wage at LEAST as high as today's min wage plus the government subsidy the incentive to the worker would be the same. With the added benefit of the employer acknowledging the truer cost of labor he'd use it more efficiently and may well invest in productivity increasing tech and machinery. To which I say GREAT! Having lived through decades of irrational fears that "computers would take all of our jobs" and there is a tremendous demand building for taking care of aging baby boomers.

3) Despite my misgiving about the increase in min wage, there is a spillover benefit in crime reduction, particularly among young men. Crime occurs because the payout from committing crime minus the probability-adjusted cost of being caught is greater than the value of doing "honest" work. Minimum wage provides that value and may convince the marginal worker to engage in the organized economy vs. in a life of crime.

........ agreed. And actually worse than the rational "this is better than that" choice that most of us make every day, as today's min wage is but one third what it costs to live even a minimum existence, that it is instead a survival choice of "making it" or not. As mentioned when a min wage is but a third of a living wage, someone, somewhere WILL have to make up most of the difference. Is it the taxpayer? Those paying increased medical premiums? and/or those who are the victims of crime? Or...... for honest capitalists? The employer who most directly benefits from the employees labor? Did I leave out any options?

Jack

Eddie: points well worth consideration:

There are three other points that I think are worth consideration:

1) The point here isn't about job gains or losses about about the total amount of labor surplus generated by the increase in the minimum wage. If demand for labor is highly inelastic, then there will only be a small decrease in jobs resulting in a larger income pie for those at minimum wage. I, however, can't believe the that the price elasticity for this class of worker is anything but elastic (given the technological subsitutes for labor available) so an increase of 40% will most likely hit employers, and their employees, hard. A smaller increase in the minimum wage may allow for larger labor surplus vs. the status quo, but Dems don't seem to be heading that way.

......... One thing IS sure that small, predictable annual increases would be far better than letting things get out of kilter for a decade and then trying to "fix it" in a short time.

........ as for swapping grunt labor for machinery and tech it seems that our ONLY true wealth creation comes from increasing the productivity of our workers. Thus.... I see that insisting on the capitalist honesty of a min wage being fairly close to a LIVING wage as having the additional benefit of spurring productivity increases as well.

.......One can quickly see that the lower the min wage is allowed to fall or the more that the employer can shift their labor costs to taxpayers the LESS incentive they'll have to invest in productivity.

.......There IS some elasticity at the bottom, as McD's is already experimenting with using off site call centers to take drive up orders and I suspect to soon hear "Supersize that?" in crisply spoken Indian English. On the other hand how expensive would be a machine to man their counters? or to mop their floors? And lastly? Are any jobs that are truly "worth" only one third of a living wage (estimated by a recent study as $17/hr) worthy of being done by an employee at all?

2) EITC is a fantastic idea, but from experience, it is difficult to explain to those qualified for the credit that they need to act rationale and save the large tax refund to help them with daily living expenses over the next year. Are they uneducated or irrationale? No, they're human. I know a lot of people (myself included) who tend to make aspirational purchases when a huge sum of money given to me, and those receiving EITC are no different. At the very least, the minimum wage provides a way of distributing cash at increments over the year. Perhaps some sort of funding mechanism like that can be applied to EITC as well?

......... EITC a "fantastic idea??" It's really a very crude response acknowledging a couple of major flaws in the capitalist model: This animal came in response to trying to lure folks on welfare to instead work 40 hrs per week for wages that were little better than welfare. Were the min wage at LEAST as high as today's min wage plus the government subsidy the incentive to the worker would be the same. With the added benefit of the employer acknowledging the truer cost of labor he'd use it more efficiently and may well invest in productivity increasing tech and machinery. To which I say GREAT! Having lived through decades of irrational fears that "computers would take all of our jobs" and there is a tremendous demand building for taking care of aging baby boomers.

3) Despite my misgiving about the increase in min wage, there is a spillover benefit in crime reduction, particularly among young men. Crime occurs because the payout from committing crime minus the probability-adjusted cost of being caught is greater than the value of doing "honest" work. Minimum wage provides that value and may convince the marginal worker to engage in the organized economy vs. in a life of crime.

........ agreed. And actually worse than the rational "this is better than that" choice that most of us make every day, as today's min wage is but one third what it costs to live even a minimum existence, that it is instead a survival choice of "making it" or not. As mentioned when a min wage is but a third of a living wage, someone, somewhere WILL have to make up most of the difference. Is it the taxpayer? Those paying increased medical premiums? and/or those who are the victims of crime? Or...... for honest capitalists? The employer who most directly benefits from the employees labor? Did I leave out any options?

Jack

agree, market-decided salary policy is more reasonable,above-market salary level will arise substantial issues.