Friday, April 01, 2005

What Minimum Wages Mean

There is a political cry in the air these days to increase the minimum wage. Most any student who has ever taken a course in Principles of Microeconomics has heard that the demand and supply cross of the economist shows that a minimum wage decreases the amount of labor employed and leads to unemployed workers. But the graphical models of the economist may lead students to not truly understand how a minimum wage works in the real world. If you want to get your hands dirty with the economic reality of an increase in the minimum wage, then you need to click right here.

7 comments:

monterey63 said...

I agree that minimum wage laws go against fundamental economic principles. However I do believe that there should be a check a balance system to prevent employer abuse. My idea would be to implement a system that would not allow the highest paid employee in a company to make over 10 times what the least compensated employee earns. If the janitor makes $25,000 a year, the CEO can’t make more than $250,000. That would keep mom and pop concerns from going under because of the cost of labor. It would prevent big corporations from allowing their executives to overcompensate themselves at the expense of employee benefits.

monterey63 said...

By the way, the 10% thing isn't my original idea, Ben and Jerry did something similar when they owned their ice cream company. I just think it is an equitable way to distribute the payroll.

Larry Eubanks said...

I don't think I understand monterey63's reference to checks and balances. It seems to me corporations are created with "check and balances" well defined in many ways. These legal entities have elaborate rules of governance, and as well an elaborate system of regulation courtesy of Congress.

Specifically, why should we think that all the legal rules for governance combined with the government's regulatory system aren't sufficient?

monterey63 said...

My reason for not accepting the legal rules for governance combined with the government's regulatory system is because of how those rules and systems are enacted. Our political system has condemned itself to a purgatory of legislation based on the bribes of corporate contributions. That is why I think that we should put things in the simplest form, salary distributions that reflect real equity from the top to the bottom of the corporate ladder.

monterey63 said...

My reason for not accepting the legal rules for governance combined with the government's regulatory system is because of how those rules and systems are enacted. Our political system has condemned itself to a purgatory of legislation based on the bribes of corporate contributions. That is why I think that we should put things in the simplest form, salary distributions that reflect real equity from the top to the bottom of the corporate ladder.

Larry Eubanks said...

There doesn't seem much in your last comment to move me in your direction.

"Bribes of corporate contributions" seems to cry out for more depth of explanation, and even, the question: "What system of political economy would you replace our system with?"

What does "real equity" mean? There is an economic logic to salary determination that is related to productivity and to the value of the product. Greater productivity brings greater salaries, in general. I think this is as it should be. Perhaps there is some identifiable flaw in the salary choices in corporations that breaks this economic linkage between salaries and productivity? Does the idea of "real equity" seek to relate salary determination to something other than productivity and the value of the product?

James Sayno said...

Interesting to me is that minimum wage law does not even impact levels of executive compensation.
By drawing exec compensation into the argument, I believe that we begin to work on people's emotions (they make too much!) versus the logic of the debate at the lowest levels of compensation.

Also, it is very easy to complete a survey of people making minimum wage jobs, aggregate their incomes, make plain statements that the "should" earn more, poverty lines, etc. It is very difficult to measure a job that was not there because of minimum wage law. Where are the victims? We can't drag them out in front of the TV camera's or a congressional panel because they simply did not exist and never knew they were victimized.

I believe the posted example is important because it is from a personal perspective from someone that is actually affected by these changes. He also makes the point that he does not absorb the changes and make himself worse off, but illustrates that the cost is passed along to consumers.