Should Congress Raise the Federal Minimum Wage?--Posner

Increasing the federal minimum wage, currently $5.15 an hour, is a priority of the new Democratic Congress. Democratic leaders want to raise it by 40 percent, to $7.25 an hour. From an economic standpoint, even from an egalitarian standpoint, raising the minimum wage, especially by such a large amount (roughly 10 percent of the American workforce makes less than $7.25 an hour, which is double the percentage of the workforce that is paid the current minimum wage), would be a grave mistake. As a matter of economic theory, increasing the price of an input into production, such as labor, has two effects: an increase in the price of the product, because the producer's costs have risen (provided the increased input cost affects his competitors as well) and a reduction in the demand for the input, both because the higher price of the product reduces demand for it and because substitute inputs will now be more attractive. Any such substitution will be inefficient because it is motivated not by an increase in the real cost of labor but by a government-mandated increase in the price of the input, which has the same misallocative effect as monopoly pricing. If the input is labor, forcing employers to pay employees an above-market wage will result in (1) higher prices for the goods or services produced by the employers, which will have the same effect as a tax on the consumers of those goods or services, (2) higher wages for those minimum-wage employees whose employers decide to retain them and pay the mandated new wage, and (3) less employment of marginal workers, that is, of workers paid less than the imposed minimum. Any interference with the market-determined wage level is prima facie inefficient; and to the extent that marginal workers are poorer than workers unaffected by a minimum wage, and the consumers of goods and services produced by employers of marginal workers are also below average in income, a minimum-wage law is inegalitarian as well as inefficient. Its effect on income equality, however, depends not only on the relative incomes of the groups affected by the law but also on the balance between the effect on employment and the effect on the wages of those who are retained. The lower the percentage drop in employment relative to the size of the minimum wage, the less likely the net effect of the mininum-wage law will be to make marginal workers worse off. Some economists, notably David Card and Alan Krueger, deny that the minimum wage has any disemployment effect. See their book Myth and Measurement: The New Economics of the Minimum Wage (1995), but their work has been heavily criticized. See, e.g., David Neumark & William Wascher, "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania: Comment," 90 Am. Econ. Rev. 1362 (2000), and Richard V. Burkhauser, Kenneth A. Couch & David C. Wittenburg, "A Reassessment of the New Economics of the Minimum Wage Literature with Monthly Data from the Current Population Survey," 18 J. Lab. Econ. 653 (2000). It is unlikely that a 40 percent increase in the minimum wage would have no effect on employment. 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. Examples of such workers are retirees living on social security or private pensions who want to get out of the house part of the day and earn some pin money, stay-at-home spouses who want to supplement their full-time spouse's earnings, teenagers working after school, and other students. An increase in the minimum wage--depending critically of course on how great the increase is--will provide a windfall to some minimum-wage workers, many of whom are not poor, and disemploy some others, also not poor. The effect on wage equality is likely to be slight, but consumer prices will be higher (which may reduce overall equality) and the efficiency with which goods and services are produced by low-wage workers will be reduced. As a means of raising people from poverty or near poverty, the minimum wage is distinctly inferior to the Earned Income Tax Credit, which compensates for low wages without interfering with the labor market. EITC is of course not devoid of allocative effect, because like any other government spending it is defrayed out of taxes; but it is probably a less inefficient tax than the minimum wage. And it is a more efficient device for spreading the wealth, since many, perhaps most, minimum-wage workers are not poor. So why are the Democrats pushing to increase the minimum wage rather than to make EITC more generous? Three reasons can be conjectured. First, unions, which are an important part of the Democratic Party's coalition, favor the minimum wage because it reduces competition from low-wage workers and thus enhances the unions' bargaining power and so their appeal to workers. This would not be as serious a problem for unions if minimum-wage workers were organized. But the fact that most minimum-wage workers are part time makes them uninterested in joining unions. Second, 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. And third, genuinely poor people vote little. The number of nonpoor who would be benefited by an increase in the minimum wage, when combined with the number of nonpoor workers whose incomes will rise as a result of reducing competition from minimum-wage workers, probably exceeds the number of nonpoor who will be laid off as a result of an increase in the minimum wage. Teenagers, moreover, will be among the groups hardest hit, and most of them do not vote.

Comments

[guy in the veal calf office]

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.

[ben]

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.

[Jack]

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??

[Jack]

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

[Ed Heath]

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).

[Bob Rosen]

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.

[ben]

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."

[Mads Keller]

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.

[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

[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

[Kevin McGilly]

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?

[MNPundit]

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.

[N.E.Hatfield]

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.

[Pettibone]

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?

[ben]

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.

[ben]

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.

[ben]

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.

[Jack]

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

[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.

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?

[Jack]

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

[ben]

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

[Joel Pinheiro]

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.

[Jack]

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

[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

[N.E.Hatfield]

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. ;)