Minimum Wage – Markets and Morals

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Marvin_Edwards
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Minimum Wage – Markets and Morals

Post by Marvin_Edwards » June 14th, 2020, 8:18 am

Only the customer can tell you what a product is worth. And since we have a competitive free market, where customers can choose the lowest price, we don’t really know what a customer might be willing to pay for a product.

The gap, between what the customer currently pays and what the customer is actually willing to pay, determines whether a minimum wage increase can be totally recovered in the price.

Because the minimum wage applies to all similar competitors, none of them need worry about being under-priced by the others. All competitors can recover the added cost by raising their prices. Competition would be based instead on quality and efficiency, rather than which can pay their workers the lowest wage.

That’s the economics of the problem.

There are also two moral issues.

First, to sustain the work ethic, a person must be able to support themselves by honest labor. The wages for any job must meet that minimum requirement.

Second, if a product cannot command a sufficient price to support someone producing it, then the market should be allowed to prune that product, and the worker should do something else, something of more value to others.

The point of a minimum wage is to prevent wages from being forced too low to support the worker when there is a surplus of labor in the market. Without it, surplus labor may be forced to accept wages that are insufficient to meet essential needs of food, shelter, health care, and so forth.

The minimum wage should be based upon the current cost of a package of these essentials, and should be automatically increased or decreased to reflect inflation or deflation.

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Re: Minimum Wage – Markets and Morals

Post by Thomyum2 » June 15th, 2020, 8:56 am

Marvin_Edwards wrote:
June 14th, 2020, 8:18 am
Only the customer can tell you what a product is worth. And since we have a competitive free market, where customers can choose the lowest price, we don’t really know what a customer might be willing to pay for a product.

The gap, between what the customer currently pays and what the customer is actually willing to pay, determines whether a minimum wage increase can be totally recovered in the price.

Because the minimum wage applies to all similar competitors, none of them need worry about being under-priced by the others. All competitors can recover the added cost by raising their prices. Competition would be based instead on quality and efficiency, rather than which can pay their workers the lowest wage.

That’s the economics of the problem.
I don't necessarily agree with free market economics or oppose minimum wage policy, but even so, I think your argument is flawed because you are applying market theory to the price of products but not the price of labor. The theory is applicable to both. Under the theory of a market clearing price, an artificial price cap will create a shortage and a price floor will create a surplus. A minimum wage is a mandated price floor, which creates a surplus of labor. In other words, minimum wage will be predicted to create unemployment.

So when you get to the moral issues -
Marvin_Edwards wrote:
June 14th, 2020, 8:18 am
First, to sustain the work ethic, a person must be able to support themselves by honest labor. The wages for any job must meet that minimum requirement.

Second, if a product cannot command a sufficient price to support someone producing it, then the market should be allowed to prune that product, and the worker should do something else, something of more value to others.
- you can see, under this line of reasoning, that if the market is 'allowed to prune that product' because its price is driven up due to the increased cost of the labor required to produce it, that similarly the market for labor will also 'prune' the laborers whose skills have a cost which is of insufficient worth to the employer and thereby create a pool of unemployed workers.

So it takes you into a two-horned dilemma of having to choose between insufficient wages versus incomplete employment.

I do think that there are good arguments for a minimum wage, but the better arguments depend on an understanding that we don't actually ever operate in a completely free market, and that minimum wage laws are but one of many type of regulations and laws that tilt the economic 'playing field' one way or another.

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Re: Minimum Wage – Markets and Morals

Post by Marvin_Edwards » June 15th, 2020, 3:34 pm

Thomyum2 wrote:
June 15th, 2020, 8:56 am
I don't necessarily agree with free market economics or oppose minimum wage policy, but even so, I think your argument is flawed because you are applying market theory to the price of products but not the price of labor. The theory is applicable to both. Under the theory of a market clearing price, an artificial price cap will create a shortage and a price floor will create a surplus. A minimum wage is a mandated price floor, which creates a surplus of labor. In other words, minimum wage will be predicted to create unemployment.
The market is left free until that freedom creates harm. Regulations have evolved to address problems of abuse, like child labor, unsafe working conditions, a forty hour work-week and overtime pay, and products with dangerous defects.

The minimum wage only affects the bottom of the wage scale. All wages above that are still affected by market forces.

The minimum wage does not on its own create any surplus of labor. Because it applies equally to all of a business's competitors, there is no need to fire anyone, because the price can be raised to accommodate the wage increase. Customers may balk at first, but they will adapt to the change in prices as long as they are gradual and keep in line with overall inflation.
Thomyum2 wrote:
June 15th, 2020, 8:56 am
...if the market is 'allowed to prune that product' because its price is driven up due to the increased cost of the labor required to produce it, that similarly the market for labor will also 'prune' the laborers whose skills have a cost which is of insufficient worth to the employer and thereby create a pool of unemployed workers.
If the product cannot command the price required to support the worker's minimum wage, then we ought to find something else for that worker to do. Which brings us to "What if we can't find anything valuable to do?"
Thomyum2 wrote:
June 15th, 2020, 8:56 am
So it takes you into a two-horned dilemma of having to choose between insufficient wages versus incomplete employment.
That's not a real dilemma. We will always have incomplete employment. That's why we have unemployment insurance and welfare programs. The question is whether we should create fake jobs with starvation wages to deal with the problem of unemployment. I say no.

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Re: Minimum Wage – Markets and Morals

Post by Steve3007 » June 15th, 2020, 4:29 pm

Marvin_Edwards wrote:...there is no need to fire anyone, because the price can be raised to accommodate the wage increase. Customers may balk at first, but they will adapt to the change in prices as long as they are gradual and keep in line with overall inflation.
"Free" market advocates who object to minimum wage will point out that workers and customers are the same group of people. They will argue that the pushing up of the prices of the products which are made by the now more highly paid workers will negate the benefits of paying them more.

They also use a style of argument which imagines extremes and starts with something like "let's make the minimum wage $100 per hour. What happens?".

I don't know of any other arguments they use.

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Re: Minimum Wage – Markets and Morals

Post by Marvin_Edwards » June 15th, 2020, 10:58 pm

Steve3007 wrote:
June 15th, 2020, 4:29 pm
"Free" market advocates who object to minimum wage will point out that workers and customers are the same group of people. They will argue that the pushing up of the prices of the products which are made by the now more highly paid workers will negate the benefits of paying them more.
If we count profits as the wages of the business owners and investors, then wages are prices. Raising wages across the board would be self-defeating and can lead to a vicious cycle. But just raising the minimum only raises the prices on certain items.
Steve3007 wrote:
June 15th, 2020, 4:29 pm
They also use a style of argument which imagines extremes and starts with something like "let's make the minimum wage $100 per hour. What happens?".
Yeah, I've heard that one too!

Other arguments I've heard is that students don't really need a living wage and that a nominal wage helps teenagers get their first job. But that's just an excuse to take advantage of them.

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Re: Minimum Wage – Markets and Morals

Post by LuckyR » June 16th, 2020, 4:55 am

Marvin_Edwards wrote:
June 14th, 2020, 8:18 am
Only the customer can tell you what a product is worth. And since we have a competitive free market, where customers can choose the lowest price, we don’t really know what a customer might be willing to pay for a product.

The gap, between what the customer currently pays and what the customer is actually willing to pay, determines whether a minimum wage increase can be totally recovered in the price.

Because the minimum wage applies to all similar competitors, none of them need worry about being under-priced by the others. All competitors can recover the added cost by raising their prices. Competition would be based instead on quality and efficiency, rather than which can pay their workers the lowest wage.

That’s the economics of the problem.

There are also two moral issues.

First, to sustain the work ethic, a person must be able to support themselves by honest labor. The wages for any job must meet that minimum requirement.

Second, if a product cannot command a sufficient price to support someone producing it, then the market should be allowed to prune that product, and the worker should do something else, something of more value to others.

The point of a minimum wage is to prevent wages from being forced too low to support the worker when there is a surplus of labor in the market. Without it, surplus labor may be forced to accept wages that are insufficient to meet essential needs of food, shelter, health care, and so forth.

The minimum wage should be based upon the current cost of a package of these essentials, and should be automatically increased or decreased to reflect inflation or deflation.
Uummm no. The additional money to pay for minimum wage increases doesn't/shouldn't come from an increase in the price of the product or service, it should come from an adjustment in how gross profits are distributed between the workers and the owners.
"As usual... it depends."

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Re: Minimum Wage – Markets and Morals

Post by Marvin_Edwards » June 16th, 2020, 6:28 am

LuckyR wrote:
June 16th, 2020, 4:55 am
The additional money to pay for minimum wage increases doesn't/shouldn't come from an increase in the price of the product or service, it should come from an adjustment in how gross profits are distributed between the workers and the owners.
Yes, that works as well, if the owner's profits are high enough. The ability to do that may vary from one business to another. The ability to recover the wage increase in the price helps get the business owner's buy-in, as it doesn't cost her anything.

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Re: Minimum Wage – Markets and Morals

Post by chewybrian » June 16th, 2020, 7:54 am

Marvin_Edwards wrote:
June 16th, 2020, 6:28 am
LuckyR wrote:
June 16th, 2020, 4:55 am
The additional money to pay for minimum wage increases doesn't/shouldn't come from an increase in the price of the product or service, it should come from an adjustment in how gross profits are distributed between the workers and the owners.
Yes, that works as well, if the owner's profits are high enough. The ability to do that may vary from one business to another. The ability to recover the wage increase in the price helps get the business owner's buy-in, as it doesn't cost her anything.
The ability to raise the price without losing sales depends on the price elasticity of demand, and varies with the product being produced. If you are making cream cheese and double the price, you might see a massive decrease in consumer demand, as they switch to butter or some other substitute or just go without. If you make cigarettes and double the price, demand may not be much affected, as the users still need their fix. Either way, the owner will never be able to pay higher wages without costing themselves, unless the higher wages enable them to get better workers or better production from their workers. I do think we should increase the minimum wage, but I don't think you can sell it as painless to the owners.
"If determinism holds, then past events have conspired to cause me to hold this view--it is out of my control. Either I am right about free will, or it is not my fault that I am wrong."

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Re: Minimum Wage – Markets and Morals

Post by Thomyum2 » June 16th, 2020, 10:14 am

Marvin_Edwards wrote:
June 15th, 2020, 3:34 pm
The minimum wage only affects the bottom of the wage scale. All wages above that are still affected by market forces.

The minimum wage does not on its own create any surplus of labor. Because it applies equally to all of a business's competitors, there is no need to fire anyone, because the price can be raised to accommodate the wage increase. Customers may balk at first, but they will adapt to the change in prices as long as they are gradual and keep in line with overall inflation.
It's true is does affect only a segment of the labor market, but that doesn't mean it would not create a surplus. A 'market clearing price' is just that - the price at which the amount produced and the amount sold balance exactly. Any time you mandate a different price, you upset that balance by creating a certain segment of the market which does not 'clear'. In other words, if your price is too high, you lose a certain subset of your buyers who are not willing to pay that price. If your price is too low, you lose certain subset of the producers who no longer find it worthwhile to make the items.

So the same applies to a minimum wage - you are raising the price of certain types of labor, for which certain subset of the customers (in this case employers) no longer are willing to pay that price. That creates a surplus.

There are, of course, other factors at work because, as I said before, we are never completely in a free market. So once you start making market corrections in one area, for reasons that are legitimate or otherwise, you create imbalances in another area and you're always playing a catch-up - sort of a game of 'whack-a-mole'.
Marvin_Edwards wrote:
June 16th, 2020, 6:28 am
LuckyR wrote:
June 16th, 2020, 4:55 am
The additional money to pay for minimum wage increases doesn't/shouldn't come from an increase in the price of the product or service, it should come from an adjustment in how gross profits are distributed between the workers and the owners.
Yes, that works as well, if the owner's profits are high enough. The ability to do that may vary from one business to another. The ability to recover the wage increase in the price helps get the business owner's buy-in, as it doesn't cost her anything.
No, it doesn't work. Profits are the cost of capital, which are subject to the same market forces as are anything else. Profits are the prices paid for investments made in a given type of business at a given level of risk. If profits are reduced in order to fund your wage increase, you will lose some of the investors that are willing to supply that investment in a particular kind of business.

This is economics we're talking about here. Isn't this is a philosophy forum?

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Re: Minimum Wage – Markets and Morals

Post by Sculptor1 » June 16th, 2020, 10:26 am

Marvin_Edwards wrote:
June 14th, 2020, 8:18 am
Only the customer can tell you what a product is worth. And since we have a competitive free market, where customers can choose the lowest price, we don’t really know what a customer might be willing to pay for a product.

The gap, between what the customer currently pays and what the customer is actually willing to pay, determines whether a minimum wage increase can be totally recovered in the price.

Because the minimum wage applies to all similar competitors, none of them need worry about being under-priced by the others. All competitors can recover the added cost by raising their prices. Competition would be based instead on quality and efficiency, rather than which can pay their workers the lowest wage.

That’s the economics of the problem.

There are also two moral issues.

First, to sustain the work ethic, a person must be able to support themselves by honest labor. The wages for any job must meet that minimum requirement.

Second, if a product cannot command a sufficient price to support someone producing it, then the market should be allowed to prune that product, and the worker should do something else, something of more value to others.

The point of a minimum wage is to prevent wages from being forced too low to support the worker when there is a surplus of labor in the market. Without it, surplus labor may be forced to accept wages that are insufficient to meet essential needs of food, shelter, health care, and so forth.

The minimum wage should be based upon the current cost of a package of these essentials, and should be automatically increased or decreased to reflect inflation or deflation.
The economy would be much healthier if the minimum wage were higher and those holding on the vast sums of money were encouraged to spend it, rather than store up potential inflation for the future.
Each dollar is worth more to the economy when it circulates.
When wages are low, spirits are low too. Poverty causes problems that are expensive to remedy.
People disassociated with their own country; with poor prospects; in a social environment where they witness extreme luxury and experience extreme deprivation are less likely to respect basic standards of behaviour - and who can really blame them. Poorly funded schools, badly built housing is projects designed more the put tax dollars in the banks accounts of property developers, than to provide for the needy are all symptomatic of a "free market".
Incarceration is also a complete scandal, costing far more to keep people in gaol than it would be to invent well paying jobs on social projects.
The minimum wage is only a part of it. But its a start.

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Re: Minimum Wage – Markets and Morals

Post by LuckyR » June 17th, 2020, 2:55 am

chewybrian wrote:
June 16th, 2020, 7:54 am
Marvin_Edwards wrote:
June 16th, 2020, 6:28 am


Yes, that works as well, if the owner's profits are high enough. The ability to do that may vary from one business to another. The ability to recover the wage increase in the price helps get the business owner's buy-in, as it doesn't cost her anything.
The ability to raise the price without losing sales depends on the price elasticity of demand, and varies with the product being produced. If you are making cream cheese and double the price, you might see a massive decrease in consumer demand, as they switch to butter or some other substitute or just go without. If you make cigarettes and double the price, demand may not be much affected, as the users still need their fix. Either way, the owner will never be able to pay higher wages without costing themselves, unless the higher wages enable them to get better workers or better production from their workers. I do think we should increase the minimum wage, but I don't think you can sell it as painless to the owners.
Double the price? The subject matter is raising the minimum wage, The percentage of hourly workers who make the federal minimum wage (or less) is under 3%. So increasing the lowest wage by say 50% of 2.5% of your staff would likely have a negligible impact on profits and prices, yet would be of great value to those workers.
"As usual... it depends."

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Re: Minimum Wage – Markets and Morals

Post by Steve3007 » June 17th, 2020, 7:23 am

LuckyR wrote:Uummm no. The additional money to pay for minimum wage increases doesn't/shouldn't come from an increase in the price of the product or service, it should come from an adjustment in how gross profits are distributed between the workers and the owners.
Do you mean "doesn't" or "shouldn't"? They're two different things. The former would be your description of what happens in practice. The latter would be your opinion of what ought to happen. If you mean the latter, then with any issue like this it's no good simply saying "people should act like this...". For example, if we wanted all wars to stop I could say "people should all stop fighting and love each other". But that wouldn't be a serious solution to the problem of war, would it?

In my view, in the context of politics, the only meaningful way to propose "shoulds" is to propose policies that one could actually, realistically implement if one were in power. So, in policy terms, how would you motivate an adjustment, by the owners, of "how gross profits are distributed between the workers and the owners"?

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Re: Minimum Wage – Markets and Morals

Post by chewybrian » June 17th, 2020, 7:35 am

LuckyR wrote:
June 17th, 2020, 2:55 am
chewybrian wrote:
June 16th, 2020, 7:54 am


The ability to raise the price without losing sales depends on the price elasticity of demand, and varies with the product being produced. If you are making cream cheese and double the price, you might see a massive decrease in consumer demand, as they switch to butter or some other substitute or just go without. If you make cigarettes and double the price, demand may not be much affected, as the users still need their fix. Either way, the owner will never be able to pay higher wages without costing themselves, unless the higher wages enable them to get better workers or better production from their workers. I do think we should increase the minimum wage, but I don't think you can sell it as painless to the owners.
Double the price? The subject matter is raising the minimum wage, The percentage of hourly workers who make the federal minimum wage (or less) is under 3%. So increasing the lowest wage by say 50% of 2.5% of your staff would likely have a negligible impact on profits and prices, yet would be of great value to those workers.
Minimum wage workers are 0% of the workforce in many if not most industries, but if you own a restaurant, they are the majority of the workforce. I certainly did not say or mean to imply that an increase in the minimum wage would mean doubling wage costs for everyone. I only used the word 'double' for simplicity in explaining the concept of elasticity. I also said that I agree with the idea of raising the minimum wage. I only argued against the idea that owners could simply raise their prices to pay the increased cost, and pass this on to consumers without changing consumer behavior.
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Re: Minimum Wage – Markets and Morals

Post by Steve3007 » June 17th, 2020, 7:40 am

chewybrian wrote:I do think we should increase the minimum wage, but I don't think you can sell it as painless to the owners.
And the important point here, as I see it, is that when we're pretending to be politicians and putting the world to rights, we do indeed need to consider how we sell ideas to people. i.e. what do we want to motivate people to do and what policies do we propose in order to provide that motivation? The policy options open to us will generally be:

1, make something illegal and set a punishment for transgression.
2, adjust a taxation policy.
3, kill or hurt somebody.

(That last motivational technique is generally favoured more by dictators and mafia bosses of the "either your brains or your signature..." type.)


A lot of people, in my experience, seem to think that all they have to is declare what they would do if they were omnipotent. "If I ruled the world...".

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Re: Minimum Wage – Markets and Morals

Post by chewybrian » June 17th, 2020, 8:42 am

Steve3007 wrote:
June 17th, 2020, 7:40 am
chewybrian wrote:I do think we should increase the minimum wage, but I don't think you can sell it as painless to the owners.
And the important point here, as I see it, is that when we're pretending to be politicians and putting the world to rights, we do indeed need to consider how we sell ideas to people. i.e. what do we want to motivate people to do and what policies do we propose in order to provide that motivation? The policy options open to us will generally be:

1, make something illegal and set a punishment for transgression.
2, adjust a taxation policy.
3, kill or hurt somebody.

(That last motivational technique is generally favoured more by dictators and mafia bosses of the "either your brains or your signature..." type.)


A lot of people, in my experience, seem to think that all they have to is declare what they would do if they were omnipotent. "If I ruled the world...".
Well, I do in fact have a small measure of control in these situations.

I could go to Harbor Freight and buy some cheap Chinese tools, and convince myself that this was the only realistic option for me. I know, or should know, that this supply chain includes a lot of pain and exploitation. The tools may be made in a prison by political prisoners, they may be polluting excessively in the process, and even the guy at the counter might not get a living wage, or have health coverage. If I wish to go on thinking I am a 'good' person, I can cast this knowledge into the shadow of my unconscious, and project the evil into the external world. If only 'they' made better laws, if only 'they' would buy American, I would have more choices available to me. In this way, I can claim to be aware and caring without making any real effort of my own toward solving the problem. If enough of us think and behave this way, well, here we are...

Your policy solutions are accurately the type available and used, though sincere motives are rarely in play for those putting them into practice. But, even if we make proper policy choices, they are still shotgun solutions to fly swatter problems. We could collectively change the world if we acted individually in small but important ways. But, it's a lot easier to whine about what the politicians did, could or should do.
"If determinism holds, then past events have conspired to cause me to hold this view--it is out of my control. Either I am right about free will, or it is not my fault that I am wrong."

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