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Comment by bko | Hacker News Reader

People like to think that employment is pretty much the only good that does not result in a mismatch of supply and demand from a price floor.

Take for instance a proposal that says "no one is allowed to sell their used car for less than $10k". Maybe the justification is poor people are desperate and sell their car too cheap and all these dealerships and buyers are a monopsony underbidding the real value of the car, profiting off these uninformed, unorganized individual sellers.

Does anyone think this is a good idea? Would anyone bother reading studies contemplating the effect this may have?

No, of course not. Everyone knows that this would essentially mean many cars that would have sold under $10k would just not get sold. Sure some people would benefit, maybe getting a higher price for their car. Some things would shift, maybe people would opt for scooters or e-bikes or something.

But I wouldn't want this price floor if I was on either side, trying to offload a bad car or buying one.

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The cost of employment is not comparable to the cost of a particular good. Employment has much more complicated implications on the economy and on society. A minimum wage is set in part to prevent a desperate race to the bottom, and to (try to) ensure something approaching a living wage. It’s a blunt and often ineffective tool, but viable alternatives are scant. The free market won’t solve this one any more than it solves the problem of healthcare.

Interestingly, minimum wage seems to be more likely in places with weak unions.

In places with strong unions, there is often a de facto, negotiated minimum at least on a sector by sector basis instead.

E.g. Norway has a roughly 50% unionisation rate, and no minimum wage in most situations, but most sectors are covered by negotiated agreements between the unions and employer organisations.

Real question: If government-mandated wages are good policy, why not set the minimum wage to $100/hr?

(Btw, the American healthcare system is about as far away from a free market as it gets. Don’t think that example supports your point.)

Humans have certain fundamental maintenance costs. $100/hr vastly exceeds maintenance. However, if you pay below those maintenance costs, then society effectively picks up the tab via other social costs and programs. For instance, if employers don't provide healthcare, then we either pay more for emergency medical treatments and other publicly-subsidized healthcare programs, or we accept being a country with a bunch of people dropping dead at age 40 of entirely preventable problems.

This is very different from most other goods, because no one really cares if you break your chair, the chair's parents didn't spend 18 years of their life on it, etc.. If you break a chair, you bear the full costs of replacing it.

Also, the full cost of replacing a human is vastly higher than the maintenance wage.

It would be more efficient to pay someone market rate, have needed work get done, and subsidize their existence than to try and offload that cost onto employers.

Exactly. Minimum wages are an attempt to solve economic redistribution policies by obfuscating the cost to employers rather through the tax code, which is the cleanest way to achieve the goals of broad based prosperity.

It also has consequences like increasing the attractiveness of substituting capital (i.e., automation) for labor or simply leaving some work undone (e.g., many smaller restaurants in CA are going out of business due to multiple government policies, including very high minimum wages).

That effectively becomes a subsidy to those employers though, plus an incentive to drive wages down even more.

Why would it drive wages down? The less desperately that workers need a job (due to universal basic income), the more they can demand, assuming they also have skills that fill the employer's need.

The trick for this to work is that the UBI has to really cover a lot of basic needs.

Overall, this works better for lower skilled workers than it does for higher skilled and higher paid workers. But it could also make sense for people staying home to raise their children, a job which is not compensated today.

The alternative is that certain types of work simply do not get done, as shown by the article. That means if you care about providing for these people you'll now be responsible for shouldering 100% of their cost as they sit around unemployed.

Is it? Minimum wage is a pretty simple law, compared to the paperwork and bureaucracy of existing welfare programs. I suppose you could go with Universal Basic Income, but I'm not convinced society is actually ready for that one yet.

How would such a program even work? If we say the Maintenance Wage is $15, is the government just paying the difference between that and the market rate? If so, it seems the ideal salaries to offer are $0 (let the government subsidize it) and $16+ (but you could just get two $0 workers, so I'd expect pay scales to really start at more like $30?)

This seems like it rapidly descends into Bureaucracy or Communism

Just because a law is simple does not mean it's efficient. We are talking about the total value being produced. But if you want simple, something like a negative income tax would be simple and decently efficient.

This already exists: Earned Income Tax Credit: https://en.wikipedia.org/wiki/Earned_income_tax_credit

I wonder how the “replacement cost” of a human should be calculated in light of the low birth rates in so many countries.

> Also, the full cost of replacing a human is vastly higher than the maintenance wage.

>However, if you pay below those maintenance costs, then society effectively picks up the tab via other social costs and programs.

No, that doesn't hold because humans need these "maintenance costs" regardless of whether they're working or not. Therefore it's fallacious to claim that such "maintenance costs" stem from the job itself. It's a sunk cost arising from the person existing in the first place.

Exactly why healthcare should be just one more part of the standard social contract. We the people should collectively pay (single payer) for everyone to have the required basic healthcare in bulk, without the stress of billing, collections, etc.

Same idea as police, fire, basic education. We want a properly educated, health, safe workforce. That's the basis of a healthy, productive, strong society.

> Real question: If government-mandated wages are good policy, why not set the minimum wage to $100/hr?

Because min wage policies have a cost and a benefit. The benefit only happens at relatively low numbers (enough for basic necessities). After that point you dont get more benefits but the costs still increase.

Please define basic necessities.

Is a three-bedroom house in [pick nicest neighborhood in any metro area] a necessity?

How about a one-bedroom apartment in the same neighborhood?

An in-law unit (e.g., "granny flat") on a farm just outside town?

A room in a six-bedroom co-op house where meals are collectively prepared and shared?

Same could be asked about food, clothes, etc. I can buy used clothes for $5 or new ones for $100.

"Basic necessities" is woolly term that in practice is full of paternalistic value judgements. Every individual has a variety of resources to draw upon that would make them willing/unwilling to work a job at a given wage.

A government-mandated minimum wage means some people who could find employment will not because their output do not exceed the wages the government has declared must be paid. In practice, it also means many people starting out in life or who are less skilled never get the chance to be hired and learn new skills that increase their pay.

Minimum wages remove the lowest rungs on the job ladder that often teach skills required to be successful higher up.

How is that a real question? If it is reasonable to make a policy with number X, how come it is not reasonable to make a policy 5X or 0?

Because you intentionally picked large unreasonable number and now want to argue it implies much smaller number is reasonable.

If maximum speed of 50km/h is reasonable in cities, why not making it 5km/h?

It is still useful to ask the question just so we know the answer. I admit the person asking in this case probably didn't mean it this way... :)

On speed limits, when it comes to road deaths, you get people saying "one death is too many" and so on when one of their loved ones die, even when speed limits are set to 20 mph.

These people are wrong. Asking why a 1 mph limit is bad can help reveal that we do put a cost measured in lives on convenience, and we do face the risk of death when driving a car, and everyone has a number they think is reasonable.

Asking why $100/hr is too high can at least help us decide on a quantitative way to decide on a number rather than just guessing.

In the early days, the speed limit was indeed walking pace - often with a person needing to walk in front waving a flag!

https://en.wikipedia.org/wiki/Locomotive_Acts#Locomotives_Ac...

Another reply already addresses your question about speed limits, which is another great example through which to examine these questions.

"Reasonable" is a completely subjective standard and not a good way to run a complex economy with an infinite combination of job seekers and providers.

Who gets to decide what is reasonable has big real world implications for millions of people. Get it wrong, and as we see in California here, people lose their jobs and businesses close all because some politician or bureaucrat (or misinformed voter) thinks they know better than workers and employers what the correct price for labor should be.

Your question can be applied to literally any market intervention with a grey area. If housing code is good policy why not make all houses 10 times as strong?

If your question is why is minimum wage a good policy, you could start here for a summary of the arguments and evidence: https://en.wikipedia.org/wiki/Minimum_wage

It's the same question, really. If we make housing too expensive to build through stricter codes, then housing won't get built and at some point (e.g., last decade in California discussed in the parent article), the homeless population increases and people/businesses decide to relocate because the math doesn't work.

I don't think a full look at the history of minimum wages will be kind to their supporters. Minimum wages were created by labor unions for the sole purpose of excluding other workers who are more productive or less expensive than their members[0].

Going back further, labor unions were created during the railroad boom by racist white workers to exclude Chinese laborers who were 2x more productive for the same price. Instead of responding to competition by getting better, American railroad workers formed labor unions and lobbied politicians for relief, culminating in the Chinese Exclusion Act [1] that forcibly expelled 400,000 Chinese immigrants and led to some horrific violence and racism towards Asian people in this country.

In all cases, the role of government should not be to mandate wages or prices or anything else that markets are better suited to establish, or there will necessarily be higher unemployment. Governments can help by establishing some health and safety standards and policing abuses, but when it comes to accomplishing the social goals that minimum wages intend to, that's better done through tax policy and income redistribution (e.g., guaranteed minimum income, earned income tax credit, welfare benefits).

[0] https://en.wikipedia.org/wiki/Workingmen%27s_Party_of_Califo... [1] https://en.wikipedia.org/wiki/Chinese_Exclusion_Act

You still didn't address the idea that there is a threshold for all intervention. You said "why not make $100hr minimum?" and the answer is "that's too high".

It sounds like, were you to acknowledge that thresholds exist somewhere for most things you think the threshold for minimum wage is 0 and that UBI and guaranteed services is a better mechanism.

Which is respectable, at least in that you recognize a government role in ensuring humane living conditions for its citizens. Most people who argue against a minimum wage seem to think any government action of any kind to protect or provide for citizens is "theft by taxation".

I don’t think there is a threshold for intervention in setting prices. If a $100/hr minimum wage is too high, then a $20/hr min wage will also be too high for plenty of employers and would-be employees who are now unable to legally transact. Safety standards create similar issues, but most typically require capex that can be amortized or depreciated (unlike labor opex).

I’m not opposed to taxes. When designed properly, they’re transparent and avoid excluding economic activity like min wages do.

Ah sorry I was taking you seriously when you said "real question", I didn't realize it was a rhetorical device. The history of the minimum wage is pretty irrelevant compared to the economic models and empirical studies in that article, I'm not going to engage in such a pointless distraction. If the Nazis invented building codes I would still support them based purely on whether they are a good idea or not.

But you seem to be missing my point on housing code: do you support a nonzero housing code? Some is good, too much is bad. Same for minimum wage, many models and analyses show that some minimum wage improves productivity and counterintuitively increases employment in monopsonistic industries up to the point when they (partially) undo the damage the monopsony caused, at which point obviously a further increase in minimum wage causes damage as you say. My point is that your "real question" (which was an argumentative point in disguise) works rhetorically against nearly every intervention, some of which you certainly support (I tried to pick an obviously good intervention and came up with building code), and thus is a weak argument. If you truly support no market interventions I at least respect the internal consistency of your worldview but think you must underestimate how much food poisoning, fire death, servitude, etc it would cause.

Rhetorical questions are real questions and useful for exploring the logical fallacies that are embedded in ideas like minimum wage.

As shown by comments elsewhere, picking a minimum wage is often based on some imagined everyman/woman’s standard of living that may preclude others from earning a livelihood at all due to jobs never created or capital replacing labor because government decided by fiat that no work that generates less than $X/hr in output shall occur. Human skills and living arrangements are infinitely variable, and governments fail when they attempt to preclude people with lower skills from finding work.

In practice, very few workers earn the minimum wage, but union contracts are often tied to it, so unions like to advance laws that increase the minimum wage, which leads to the outcomes described in the parent post.

As economic policy, they’re also bad because inflating the price floor of labor fairly quickly feeds through to higher costs for housing, food, and services.

Safety standards (ie rules of the road) and competent enforcement are good roles for government, and while they do tend to increase operating costs and function as regulatory barriers to entry, setting prices is best left to markets.

Monopsonies are easily solved by workers moving out of the (labor) market controlled by the buyer to better job prospects. Claiming ancestral ties to a place, etc, as reasons for remaining are then the choice of the worker. If enough people leave, the employer will be forced to increase wages to attract workers.

I think the solution here is to have you work at a fast food restaurant with a salary just low enough not to be able to eat at the end of the day. There really is no substitute for experiencing first hand what it is like to stack 500 burgers on an empty stomach then telling your kid there wont be any dinner today. Imagine some land whale exploding over her 7th burger not approaching perfection closely enough and that it seems you are not taking the issue seriously enough.

You were doing fine until you jumped to an aspersion.

The audacity that a starving person would insult somebody for their obesity! How dare they?

In contrast, if one earns enough to live a normal life they instantly change into one of the best regular customers. One can make a career out of flipping burgers and have a long term [professional] relationship with them. If they are indeed overweight give them a salad on the house and have them explore the many delicious healthy things on the menu. Delicious because one gets room to think about improvements when not drowning in bills. An eating disorder usually comes with above average knowledge of the culinary realm. Should make an interesting conversation.

Where do we see a desperate race to the bottom? People leave if there's too much competition / low wages in an area. At least in America where the people are nomadic.

People forced to move because of low wages is a societal negative. High population churn disrupts communities, worsens local governance, and causes atomization.

Suppose a town forms around a coal or gold mine. Then the mines dry up, or demand for what they're mining dries up. There are no jobs and no reason for people to live there any more.

If this community ceases to exist, is it a societal negative? And further, will a high minimum wage speed up or slow down the decline of this community?

Viable alternatives are many when you look at minimum wage closely and see that it is, in essence, welfare funded by a regressive (even more so than usual) sales tax: businesses will pass most of it to their customers, and the fraction it in good or service sold is broadly inversely proportional to the price of that service. That is, people who buy the cheapest stuff - i.e. the poor - are those who are disproportionally taxed, as percentage of their overall spending. So it's taxing the poor to feed the poorest.

The obvious alternative is to tax the rich to feed the poorest. We can start with capital gains.

Most arguments for minimum wage solutions are better served by UBI-style solutions tied to having a job somewhere. People show up to work to benefit society in some way deemed valuable by someone who put a much larger investment in play (maybe tie to some really small minimum wage like $2/hour just to make sure the business owner really does deem the labor beneficial), but the vast majority of the worker's income comes from wealth transfers from the wealthy (via UBI) instead of from the working classes (who are the vast majority of clientele at places like McDonald's).

Prevent a desperate race to the bottom? Ensure something approaching a minimum wage? Nobody cares, so long as they're getting a UBI check from the government.

I don't disagree with you and think that UBI and universal health care are better alternatives. However, there is a much easier path forward to getting higher minimum wages and we shouldn't stop making incremental changes just because there is a potentially better solution that we will probably never implement.

> viable alternatives are scant.

Not really? Other countries do industry-wide union agreements that apply to the whole sector, seems to work well enough for them.

The price mechanisms of supply and demand are very well understood since the 1800s, and apply to anything that's bought and sold, including labor. 150 years of solid science.

When facts conflict with beliefs we hold dear and perhaps define our identities, our brains are very skilled at finding ways to keep believing what we want to believe.

Especially when the facts define your in-group. Changing such beliefs, makes you one of the people you and your friends hate. The mind will convince itself of pretty much anything to avoid such social suicide.

This comment is weirdly heavy on lecture and light on substance. I'm going to ignore the second two paragraphs and just stick to the first. The person you're replying to says that labor is different because it has more complex costs to society aka an externality. Your rebuttal, as far as I can tell, is "nuh uh". I can think of a very simple externality - low paid workers are supported by the rest of us via social programs. Goods that require similar support from the rest of us (cigarettes for example) should also be regulated because it breaks the economic magic that makes efficient decisions and allocations. We have known about these basic (literally econ 101) flaws for almost as long as we've studied markets.

I am open to being convinced by either you or OP but your argument is failing to do so.

My claim is just that wages are prices which arise from the same supply vs demand dynamic as any other price. This important truth is sadly very controversial, which I think is really damaging to society.

Of course, I can't prove that from scratch in a HN comment. What I can do is point out that in the science studying this, it is an uncontroversial fact.

I didn't substantiate that, which made it less convincing, but here is an Economics textbook saying the same thing: https://pressbooks.oer.hawaii.edu/principlesofmicroeconomics...

I know, you can think of an externality. Trust me, Economists can also think of externalities, far more than you or me. In general, they just add interesting nuance to the supply/demand model. They don't completely invalidate it.

But I can't easily demonstrate that, so I suspect I have not changed your mind.

I'm not the poster you replied to but I appreciate your clarification. However, I still don't understand your argument. I don't think anyone has argued that supply and demand don't apply to the labour market. However, it seems that you do agree that there are externalities if workers are paid extremely low wages. Is your argument that the government shouldn't put in laws to mitigate or prevent those externalities? Are you saying that minimum wage laws don't actually address the externalities and should be removed? Are you trying to promote other solutions to solving those externalities? If so, what are they? Is there some other point you're trying to make that I'm completely missing?

Many people argue that supply and demand don't apply to the labour market!

Often because they're not even aware of the concept. The more sophisticated claim that it doesn't apply to the labor market.

The minimum wage discussions are dominated by this view.

The supply/demand analysis is simple: If a worker has skills worth $12/hour on the labor market, and the minimum wage is $15, that worker will be unemployed, making 0$/hour. They'll also not learn new skills, since they can't get a job.

Try bringing that up in a minimum wage discussion, and you'll be called many nasty names. Often equalling market wage to human worth, which means you think the poor are lesser humans. A few sophisticates will bring up vague externalities arguments, as if they negate the whole supply/demand concept.

From my perspective minimum wage laws is one of the main factors keeping people in poverty, but that concept is impossible to even explain to most people.

My main thought about externalities is that they their effect is usually minor, and can be ignored. Many of them are also positive. For the bigger ones, it's a case by case analysis.

Is the externality you're thinking of something around the government paying money to the working poor?

That's a strawman. I don't doubt that you've read these things that bother you so much that you bring it up in unrelated discussion, but to the extent serious people critique supply and demand, they don't say it doesn't apply at all (literally all things have supply/demand curves) but that the market distortions in our concentrated economy lead to suboptimal outcomes for society and that the simpler market model (in econ 101 you learn this model is optimal under many assumptions including "perfect competition" that is rarely true of the real world) is an incomplete model of reality which leads to the wrong answer. If you're going to argue against anything please argue against a serious point like one found in an introduction to the topic such as https://en.wikipedia.org/wiki/Minimum_wage and characterize it fairly. If you don't understand this graph then you aren't ready to debate the topic https://en.wikipedia.org/wiki/Minimum_wage#/media/File:Monop...

To demonstrate that this is a strawman, I will parrot back what that basic wikipedia article provides as a critique of your point: often in the real world that $12/hr number you provide is depressed by a one-sided monopsony (few large employers vs many small employees, a fact known as market concentration that has grown stronger over decades) and minimum wage can provide effectively a mega union against it to put it simply. When a market is dominated by a single entity what is something "worth"? You may say whatever the market will bear but in noncompetitive markets that is absolutely not the most efficient allocation of resources for the broader system. If insulin were a complete monopoly would it be worth $1M/vial because a billionaire would happily pay that much to save their life? I use the extreme to demonstrate the concept of market failure to you. By pointing out monopolistic forces am I saying "supply and demand don't apply"? Maybe in a way, but putting it that way is reductive and unproductive for our collaborative search for the truth in this discussion.

Or, for a totally separate but less abstract argument, say someone has no skills except for an ability to dig a ditch at $5/hr - it is low value because you could pay someone $50/hr to rent and operate a trencher and be 100x more productive at less total cost and a better overall outcome to society (I think these numbers are probably roughly reflective of reality), but this low skill person is unable to run that trencher. Is it better for society to "learn new skills" as you say by digging ditches for years? They probably would get a bit stronger but obviously never get close to the trencher's productivity or bang per buck. This is an exaggerated toy model but it demonstrates the point that many sub-minimum wage gigs teach negligible skills compared to formal education. I point this out just to object to your example - many people turn to education if possible when they fail to find employment, so to say sub-minimum wage employment will teach them skills whereas unemployment will be worthless just doesn't map on to most people's experience in the real world and to be frank sounds out of touch.

History has already shown that the free market will reduce wages to the point of slavery and destitution. Minimum wage laws are very important to counter the psychopathic greed of many company management.

Labor isn't just another good, it is actual human beings whose wages greatly affect their quality of life.

Your rant about in-groups is odd.

The predictable end game of unregulated free markets is the opposite of freedom for 99.99% of the population.

There's a curious authoritarian tinge to these "free market" argument. "Free markets are powerful, therefore if I support free markets I am a powerful insider."

It usually takes an encounter with a major economic reverse - like being bankrupted by healthcare - for proponents to realise that the free market doesn't care about them either, no matter what they believe.

Minimum wages are an economically imperfect (as you've pointed out) but politically possible way to put some downward pressure on much, much bigger failures of our species and society to have attitudes and policies around acceptable minimums for basic human needs that are even logically self consistent, to say nothing of enlightened.

We can't quite get it together on saying "food, shelter, healthcare are human rights" or it's sinister sibling "we'll let you die in the cold if there's no profit to be had from you".

Those are both consistent, actionable policies, but no one wants a consistent policy on this because everyone gerrymanders it dofferently.

So we get clunky hacks like minimum wage that are sort of the average of Aspirational Star Trek and Aspirational Blade Runner.

Hate to boil this down to the basics, but I think it’s pertinent here. You’re comparing human beings working to survive to used vehicles. Even removing the complete lack of reckoning with basic humanity, the basis of your analogy is a ridiculous starting point to argue from. The value of an asset is not in any way analogous to the value of labor.

> You’re comparing human beings working to survive to used vehicles.

You could flip this and say "you're comparing people who are selling off an essential possession just to survive to a bit of company work."

The way people frame things in completely different ways to justify their preexisting beliefs is part of the reason why it's difficult to get people to consider other possibilities. The person could be doing their job to survive, or they could be working a few hours on a fun job on the weekend for a bit of extra cash. A person might just be getting rid of their used vehicle, or they might be giving up an essential possession because they're in dire straights.

> The person could be doing their job to survive, or they could be working a few hours on a fun job on the weekend for a bit of extra cash.

Your statement makes it seem as if these populations are of equal size, but in reality the vast majority works to survive.

An item should not have a minimum price as it is just an item, meanwhile every person is, well, a person, and should be able to sustain themselves.

People sell something to survive (their labor, their goods, etc.). It doesn't mean that every single transaction they make is for the sake of survival, or that external actors are a better judge of what their prices must be.

In college I would often make some extra spending money by partaking in social science experiments. I didn't really care if the compensation was below minimum wage - I had time, it was easy enough, and it was easy to opt in when I could. I wasn't doing it for survival, but for a bit of extra spending cash. If someone forced them to significantly increase wages, I might have benefited, but it's far more likely that they would done fewer experiments with a more select group and I would have been worse off.

If someone is on the edge, and it's only a minimum wage job that they have open for them, California's minimum wage could help them if they're one of the lucky ones who benefit from it, or could hurt them if they were one of the people hurt by the loss of 18,000 jobs it caused (per the linked report). A policy that leads to fewer jobs that pay more tends to just increase inequality.

Injecting appeal to emotion is almost universally a sign of a weak argument, especially when it comes to thinly veiled labor theory of value angles.

It's a typical thinking of someone who read "Econ 101 for kiddies and libertarians" and never got the rest of education that explains all the ways those pronciples aren't as simple as descibed. And how people aren't interchangeable with cars.

Except that every company's wages is another company's revenue. Healthy consumer economies depend on consumers actually having disposable income, but this is becoming increasingly less and less true in the US.

It's an interesting point, but it's the closest thing to guaranteeing a minimum return on a person's work and preventing downright slavery that we have.

Well, employment and taxes are special because they can increase the propensity of people to spend. So, yes, they don't obey whatever idea of "supply and demand balance" uninformed people get from the news.

We absolutely do have laws that are the equivalent of “no one is allowed to sell their used car for less than X".

These laws take the form of transfer and registration fees for vehicles, taxes, and especially inspection requirements. We also have much stricter requirements on what a large commercial enterprise can sell versus a private individual.

We have rules like that for everything. We also say you can’t sell houses for less than X by mandating things like how many stairwells they have, and so on.

To the extent you’re tempted to argue some semantics about how you could still sell a car for a dollar you’re wrong and missing the point on purpose by arguing over the definitions in a way that doesn’t change the principle.

We do this because we are a society and we get to decide what the society looks like. Prices are downstream of our value system.

That's a terrible comparison. As a society we want cars to be cheap. A race to the bottom for cars is a good thing. The cheaper the better.

We do not want a race to the bottom for wages. If full time employment is not enough for basic necessities, that is the sort of thing that leads to riots. Society in general does not want that. Society prefers stability.

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