A solution for unemployment and under-employment

I actually calculated that we would save money with this plan in the 16th post on this thread, so no new taxes would be needed.

 

I actually did the math, and it's cheaper to subsidize employment rather than to give unemployment benefits (read the last paragraph of the 16 post). So no tax increases are necessary, in fact tax decreases would be necessary if this plan employs people.

 

Ok, what about singapore? They have no minimum wage and their unemployment rate is 2%, and they have no oil (though they do refine it)

I'm not even likely to vote for that guy, although I got to do some research first.

 

What you've done is very simple: misinterpreted the origins of monopsonistic power, ensuring that you cannot understand the impact of minimum wages on unemployment. You can either admit it or hide

 

You want to solve unemployment? Reduce regulations regarding business entry costs and pollution. Manufacturing is a dirty business, typically, but it pays. It pays very well to the country if a corporation located in one country can export their stuff to another country. By definition, if you fantasize about some Utopia that selectively manufactures "high value" items, you will delude yourself for a while and might find some residual strength via military might, however, it is a long-term losing proposition. Minimum wage can be circumvented with illegal labor. For those who develop business models based upon cheap labor, minimum wage is a non-issue with the number of illegal immigrants already in the USA. Elimination of the minimum wage would solve essentially nothing unless you booted the illegal immigrants first.

 

Their impressive wealth is chiefly from their status as international trade hub from the British days. They are really tiny, and it is unclear if their impressive success could scale up at all, since international trade wouldn't scale up with them.

They are perhaps the best example though as being a trade hub is something other nations could compete with you on, and it appears their policies may have had a lot to do with that.

I do not know how much minimum wage plays into that though. They are known for impressive wealth and having non-citizens from other countries do a lot of their work. My impression is that few citizens of Singapore work jobs that would be affected by a minimum wage similar to the ones other nations have, I think they have jobs well above that, hence lack of demand to legislate one. Feel free to look into that.

Hurm. Poking around it a bit it seems minimum wages in some form are pretty ubiquitous except for nations with reasons to be wealthy (such that they may simply have not had people working such jobs) or middle east/African nations with issues such that perhaps they couldn't even enforce one.

Looks like your analysis may need to be more complex. Or hunt for historical data about what happened when minimum wage laws were put into effect.

Something else to watch out for though would be if minimum wage laws were put into effect to slow low skilled immegration.

I just meant that in regard to the "I will have monitored" bit, which would only be applicable if you were him or something like that.

And I see you've reached the point where you've either realized you're wrong or are incapable of turning the claims of whatever website or paper you're using as a source into a coherant point or line of reasoning. Pity you reached this point so soon.

 

And you choose to hide! How dull. There is no debate here; you've simply made an error over the origins of monopsony. I made it clear that I wasn't referring to the traditional sense talked about in Econ 101. Given the positive relationship between firm size and wages, that cannot be applied to understand the impact of minimum wages. I referred to a dynamic form based on the notion of job search, where firm labour supply elasticity is the result of labour market frictions created by our imperfect knowledge of job opportunities. And how did you react? You questioned the approach by continuing to refer to the traditional sense through irrelevant remark over international competition. As usual, you assume erroneous remark is somehow a sufficient tactic in debate. It isn't

 

You're pointing out how monopsonic effects can occur even when you don't have a classic situation where there is a single employer. However regardless of the source of monopsonic power you wouldn't see the employment reduction unless there aren't companies willing to profit from paying that higher wage, though you could have, say, a large firm that pays less that it might have to.

In any case, regardless of the presence of a monopsony, there is a point at which raising a minimum wage reduces employment. The question is where one is at a given point in time.

In relation to this thread, the OP is proposing an attack on the elasticity of the labor supply curve by cutting the various support and safety net programs, as well as providing a much higher wage to the workers than what the companies would have to pay. Both to extreme degrees. In such a scenario lowering or eliminating the minimum wage would lower unemployment. And in any case monopsonic effects would soon be left far behind.

Though neither of us thinks such a move is a good idea.

In regards to today, we have recently seen multiple increases in minimum wage. Simultaniously we have at least a temporary reduction in demand for the luxuries and conveniences provided by minimum wage jobs, most of which I believe are in the service industry these days. Further I think technology in the form of automation, especially self service in the service industries, has created a long lasting downward pressure on the revenue generated by hiring employees vs using automation/ self service.

I suspect that this particular point in time the minimum wage is hindering young unskilled employment, and lowering it would reduce unemployment in that set, barring government benifits being the better deal.

 

You're not making sense, implying that you still don't understand the nature of monopsony. At worst, we have a redistribution of economic rent from employer to employee. At best,assuming dynamic monopsony dominates, we will derive an extra 'exchange' efficiency gain through a reduction in equilibrium unemployment. This of course kicks the op right in the knackers!

Its called the minimum wage for a reason! It should also be noted that monopsony typically predicts greater underpayment as we move down the wage distribution (with it only complicated by other forms of monopsonistic power, such as the forms generated through worker preference heterogeneity)

No, the op is proposing a shift in demand in favour of low skilled labour. The fellow just doesn't realise it as he hasn't thought any of this through.

Absolute nonsense! The elimination of the minimum wage will increase inefficient compensation differentials and harm employment. The supposed employment gains would purely come from the cretinous attempt to interfere with the invisible hand, skewing resources in favour of product with relatively low income elasticity of demand

The real question is 'why do you have such an abundance of low skilled young labour?'. Minimum wages of course allow a training element, with sub-rates available for the perceived exchange of lower wage for higher training

 

In order for sunnyside's comment to be nonsense we'd have to assume the demand for labor is completely inelastic and that price floors have no impact at all on unemployment, sounds like quite the stretch to me...

 

We're add that to the book of nonsense. The fellow continues to ignore the consequences of wage making power. Under conditions of monopsony, the elimination of the minimum wage will reduce employment as long as the profit maximisation objective is followed.

 

Why not be moral enough to adhere to the rule of law, regarding the concept and legal doctrine of employment at will. We could be solving two or more issues with one "stone".

If unemployment compensation clears our poverty guidelines, we could be solving poverty in our States and republic, and solving for a poverty inducing, "natural" rate of unemployment under any form of Capitalism, with sufficient socialism regarding the rule of law; and, we may also avoid a "race to the bottom" as may be the case by merely repealing minimum wage laws without a social safety net being available.

We could even be lowering our tax burden by drawing participants from more expensive means tested welfare to a simpler social safety net that allows for Individual Liberty and the individual responsibility that goes with it.

Simply "teaching a person to fish" is not enough in a modern economy where "perfection" in capital management skills should be a "holy grail" under any form of Capitalism.

 

Let me be clear about the portion of his comment I was referring to:

That eliminating a price floor would have a negative (or null) impact on the demand for labor is a very strange starting point. It'd imply that a firms desire for labor is either not sensitive at all to price (completely vertical), or as you're suggesting it'd actually lower their demand (be downward sloping).

So if we take it to the extreme, slavery. Productivity is increased at zero cost and the firm still would not employee the person.

 

Teach yourself monopsony and then get back to me. You're ignoring the consequences of wage making power whereby, in absence of the wage floor, the profit maximisation decision is to restrict employment. Of course its more complicated with dynamic monopsony. The employment effect is then focused on the heterogeneity in the opportunity cost of labour

 

I am not sure how you reached that conclusion. One of the reasons for a "minimum wage" was so that workers would not have to work, merely to be in (official) poverty for their labor effort.

 

Ah, when talking about monopsony's, or things like an upward sloping or elastic labor supply curve what we're getting at isn't that the employer wouldn't want to hire people at a lower wage.

Rather the issue is that people don't want those jobs. In the case of national unemployment that means they would rather be unemployed than take a low pay job.

This can easily be the case with teenage unemployment, because teens often don't have to work as they're still living at home and might still be in school. Or perhaps if out of school they might feel they get along well enough due to government assistance, or with just one 30 hour a week job instead of two.

The textbook sort of example of how employment can be improved through a minimum wage would be if you imagine, say, a single call center operating in a small town being the only local employeer able to hire a bunch of unskilled labor. This makes them a monopsony (rather like the term monopoly except monopolies are sole supplies and monopsony's are sole purchasers, in this case purchasers of labor). So they pay a certain amount, and get a certain number of employees. If they want another employee they'd have to offer more to tempt someone away from relaxing evenings at home.

And they can't just offer to pay the new employee more than the existing ones. (That's a requirement for the employment effect to occur). Rather in order to get another worker they'd have to raise the wages of all their existing workers up to the level required to tempt the next teen into the job.

The result can be that, even if the new worker would generate a profit, the employer's total profit would go down because of having to pay all the others more, so they don't.

If you throw in a minimum wage, then the employeer might as well hire all the employees they can that will accept that wage so long as they're still profiting by adding each one.

The end result in such a scenario is that the employees are getting paid more, there are more employees, and the employeer has a lower profit, though they are still profitable. And this sort of a thing can indeed happen.

However the OP wasn't proposing to just drop the minimum wage. Rather they were proposing to cut social safety net and government benifits. Essentially forcing people to take the lower paying jobs instead of being as able to sit out while trying to apply for higher paying ones. They were also offering to pay the workers additional funds on top of what the employeers were, which would further make people want the jobs. Do enough of both and you clearly get to the case where it will be the minimum wage that is holding up further subsidized jobs.

The question in regards to our current unemployment situation and minimum wage is if it is the case that the unemployed are unemployed because they would rather be unemployed than take minimum wage jobs, and there is a lack of sufficiently higher paying jobs because employeers are engaging in monopsonic profit maximization, or it is the case that workers would gladly take minimum wage jobs, and there is a shortage of them because of the current minimum wage.

I think, right at this point in time, the case is the latter.

 

You continue to be backward in your thinking. Monopsony isn't reliant on the 'company town' or dropping the assumption of many buyers of labour. Dynamic monopsony, by definition, leads to greater underpayment in apparently more competitive industries characterised by a large number of small firms

 

This is an important point:

"However the OP wasn't proposing to just drop the minimum wage. Rather they were proposing to cut social safety net and government benifits. Essentially forcing people to take the lower paying jobs instead of being as able to sit out while trying to apply for higher paying ones. They were also offering to pay the workers additional funds on top of what the employeers were, which would further make people want the jobs. Do enough of both and you clearly get to the case where it will be the minimum wage that is holding up further subsidized jobs." Sunnyside

I didn't see that in the original post, however, if one believes in unemployment benefits, the benefits should be LOWER than the minimum wage (if one believes in that) as an incentive to take a job. The rate should not be scaled to the income of an individual workers past.

 

This is an important point:

"However the OP wasn't proposing to just drop the minimum wage. Rather they were proposing to cut social safety net and government benifits. Essentially forcing people to take the lower paying jobs instead of being as able to sit out while trying to apply for higher paying ones. They were also offering to pay the workers additional funds on top of what the employeers were, which would further make people want the jobs. Do enough of both and you clearly get to the case where it will be the minimum wage that is holding up further subsidized jobs." Sunnyside

I didn't see that in the original post, however, if one believes in unemployment benefits, the benefits should be LOWER than the minimum wage (if one believes in that) as an incentive to take a job. The rate should not be scaled to the income of an individual workers past.

 

Generally speaking, my issue with minimum wage is that it is a policy intended to help lower-income workers however the biggest disadvantage of the policy is that it leads to some degree of layoffs of unskilled lower-income workers. The benefits and costs seemingly almost cancel themselves out. Then you have to evaluate other potential side effects such as companies raising prices on their products. Raising prices of goods hurts lower income people more than others.

The issue is not black and white. Minimum wage does not necessarily promise unemployment in certain markets. A market of which has dynamic monopsonistic competition could certainly result in a situation in which minimum wage has no effect or theoretically even could lead to small employment gains. Regardless, in the context of the entire economy, I find it safe to assume that the policy does lead to small unemployment and its costs outweigh its benefits.

 

Quite honestly, the majority of working poor are at a pay level higher than minimum wage to begin with, and see no increase when the bottom level rises. They are skilled workers in thankless professions we as a society like to pretend aren't skilled to keep ripping off. To say that the bottom level of a firm with 5 tiers of labor and wages, somehow will effect the price of a product is ludicrous, as the age old rule of thumb in trade is people will charge what they can, regardless of extenuating circumstance. Taxes, etc. They can only get what a customer is willing to pay, so either they will be able to stay in business or won't be via wage laws, regulations or taxes. The "price raise" is a myth when concerning frivolous purchases, and should especially be taken into account when the "service sector", a frivolous market in most aspects, is now our pseudo mainstay. Sure, "competition creates lower prices" is a myth as to necessary purchases, from gas stations to utilities like water, gas and electricity. That is why in the future the answer will be to get the government out of the business of companies who operate on the supplying of luxury items, while nationalizing the necessities. But in this case, the great majority of minimum wage workers work for firms on the luxury side of the coin, and those who make their bread and butter off luxury, whether through products or services, can't simply raise their prices whenever they feel like it. Competition dictates otherwise. Or are you suggesting that companies out there can actually get more for products they are selling but choose not to do so out of some altruistic want?

 

Every situation is different. If I am managing a business, and minimum wage increases, my capital expenditures increase and therefore I will have to: take a smaller profit, if I am generating losses or profits that are too small for growth I may have to fire employees or raise prices on the goods I sell or services I provide. All of those options can happen and do happen when these kinds of policies go into effect.

 

Partner, if you're in a business where the bottom having an increase from $6 an hour to $7 will force you to go under, you're in the wrong business.

 

I would agree with you. However, when you reflect on the absurd number of small businesses that do not make it passed the first year or two, things may seem different. Obviously none of those companies are going out of business because of min wage alone, however, smaller businesses who may not see profits for 3-5 years of operating need to keep cap-ex as low as possible, especially in times when banks are stricter with lending.

Not every business is established with high profit margins. All negative effects of a policy must be weighed against the positives.

 

Very true. But when our entire economy is service sector, with the great majority of businesses incapable of realizing workers = demand, do you not see the repercussions of letting a huge chunk of our nation go back to paying people $3 an hour in a day and age of $1.50 snickers bars and $4 loafs of bread? With inflation mixed with the lack of jobs and stagnant wages, an employers market as to labor, the entirety of our nation has now become the "company store" of old. I realize the term "demand side" has been confiscated by statists fond of public debt, and know I am not one of them. But we need demand side capitalists who realize the importance of wages as to cost of living, for the sake of their own bread and butter, if nothing else. We need some Henry Fords.