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Comment by holograham | Hacker News Reader

I think most people on HN agree that employees should be paid proportional to the value they create. In fact that is an underlying reason many folks choose to work for (or start) a startup for equity rather than a big company for a salary. With equity, the more value you produce the more you make.

For the rest of America, you typically work for an agreed upon sum (salary or hourly wage) with your employer. We call this a mutually agreeable contract since no one is forced to work for an employer in our modern society (we have valid laws to prevent this scenario). If an employee does not like a given wage, they can shop their skills around for another employer (or start their own company) in order to gain a higher wage. We call this the free market.

I am a libertarian all about math. But even putting math aside, with the logic above why is there a need for a minimum wage?

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supply and demand have an important quality called elasticity, which is not taken into account in libertarian discourse.

unlike a simple commodity market, like coffee for example, where a buyer can say "these prices are too high, i'm not going to buy any", a worker cannot simply say, "these wages are too low, i'm not going to work". (unless the government plans to give them all sufficient social security so that they can live comfortably without any work, which is unlikely and probably undesirable.)

likewise, when a coffee producer sells a lot due to good prices, he will increase his production, and thus the supply. in the labor market, a company that seeks workers and offers them a great wage will easily find workers, but i find it incredible that it's managers will then think "hey, we had such a great demand for work, let's hire more people just because of that!" it will not increase demand, limiting the effect a single positive agent can have.

not every market is exactly the same, and considering the dynamics of various markets will enable you to understand why so many countries have minimum wage, why they subsidize food production and are very interested in influencing the prices of basic commodities, and why they often meddle in real estate. these are things people simply cannot do without, and the stability of governments and regimes depends on somehow ensuring them for as many people as possible.

If workers are so desperate that they can't not work, then putting them out of a job by making it illegal to work for low wages is especially cruel.

If you doubt that the minimum wage causes unemployment, how do you explain that the countries in Europe with a national minimum wage law have such consistently higher unemployment rates than the countries in Europe without one?

"If workers are so desperate that they can't not work" - did you really put an "if" there? :D i presume you come from privileged background?

"then putting them out of a job by making it illegal to work for low wages is especially cruel." - assuming they will all lose work. which they will not. not even a large minority will. despite the libertarian scaremongering, companies always somehow find the money to keep the workers, and their business running. go figure.

as for the other claim, do you have proof of this? in any case, it is ingrateful to draw such conclusions, due to large cultural and economic differences between these countries, and (the part which annoys me personally the most) the ever varying methodology of determining the unemployment rate.

P.S. No reference to the market dynamics? I believe it nicely explains where the extra money to cover for the minimum wage hike is going to come from, and why the hike will not result in a proportionate loss in jobs. I will take your silence as a sign of agreement ;)

> did you really put an "if" there?

Yes, I put it there because a large fraction of minimum wage workers are teens who live with their parents or are otherwise in a living situation where they aren't the only breadwinner. Hence, they aren't so desperate that they can't not work. Since choice exists (yet again, on the margin), labor employment is a normal good that responds to supply and demand.

> do you have proof of this?

Quoting from http://www.themoneyillusion.com/?p=24759 :

Regarding the minimum wage, here is some data for Western Europe:

There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment.

There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment.

Still want to raise our minimum wage to $10? Germany used to have really high unemployment. Then they did labor reforms to allow more low wage jobs, combined with subsidies for low wage workers. Now they don’t have high unemployment.

Still want to raise our minimum wage to $10?"

> No reference to the market dynamics?

Your "market dynamics" claim doesn't make sense. I'm familiar the concept of elasticity, but it doesn't have any obvious relevance. I suspect you don't have the economic background to paraphrase the argument you're trying to make - could you perhaps point me to a link where somebody else makes it? One problem is that you're making an "argument from personal incredulity" - you just say "I find it incredible that..." rather than giving any actual, you know, evidence or even argument - but the other problem is that the claim you "find incredible" is so weirdly phrased that I can't really tell what it is.

AFAIK, the best story labor economists have come up with in defense of their own claims involves theorizing that the employers have excess "monopsony power", but it's not actually a plausible story.

Anyway, we're probably well past the point of diminishing returns here.

"a large fraction of minimum wage workers are teens" -- how large? source? in the end, it does not matter - if they don't need to work, where is the problem? why should we even encourage them to work, to bring down the price of labor of those who already earn the least?

the data on minimum wage you quote is incorrect. i happen to know that Austria does have minimum wage, just not a single global one. i was offered work there, and then found out that they have minimum wages defined per occupation (country-wide collective bargain), and there exists a minimum wage for programmers in Austria. i actually found that unnecessary :D i believe in Sweden there is a similar situation, the unions are very politically strong there. as for Germany, when exactly did it have high unemployment, and how high? this is very sketchy. also, a factor for Germany is that a lot of people work part-time, which has reduced reported unemployment here.

but i must admit, even if unemployment is slightly greater, i don't care. because i believe that removing minimum wages in those countries that have it, even if it would hire some people, would cause a big drop in the pay and quality of life of many, many more people who would have been employed anyway. this is something that ultimately needs empiric check (Germany is also soon about to introduce minimum wage so there's another opportunity), but you already waved that off - what was it you said, we should not be fooled by lack of evidence to support your claim? :D

lastly, yes, i do not have economic background so i cannot phrase things in expert terms, but i would appreciate hearing some reason why it does not make sense. the point is, since demand is always equally present, and the supply is limited and independent of the demand (that is what i found incredible in the comment above - a company that offers great pay will easily find employees, but it will not choose to hire more simply because a lot of people applied, which is specific for labor markets), then the price of low-educated labor simply goes down until it hits some bottom, i.e. it becomes too low to earn a living, or it becomes comparable to social security payments. is it really so hard to grasp? or are you simply trying to discredit me and avoid the whole argument?

> (that is what i found incredible in the comment above - a company that offers great pay will easily find employees, but it will not choose to hire more simply because a lot of people applied, which is specific for labor markets)

How is this feature specific to labor markets? Suppose a company is buying laptop computers to accomplish some task. If the company is willing to offer great pay - a high price - in exchange for laptop computers, they will easily find laptops, but they won't choose to buy more laptops simply because a lot of vendors submitted bids. Right?

Going back a bit, it's not true about either workers or laptops that "demand is always equally present". And it is true about both workers and laptops that "the supply is [somewhat, in the short term] limited and independent of the demand".

I honestly don't get the point you're trying to make. People respond to incentives. If companies can hire people for less than the value of their labor product, companies will expand and try to hire more people. If they can't, companies will contract and hire fewer. In the extreme cases supply fluctuates via emigration/immigration. People have a reserve price - they generally aren't willing to work unless offered enough to make it worth their while, just as they aren't willing to sell a bicycle unless offered enough on eBay to make it worthwhile. Sometimes that price is less than the minimum, and sometimes it's more, in which case the minimum becomes irrelevant because it's less than the market rate.

I think I'm done looking up specific numbers for you; it never makes any difference to your views. Yes, collective bargaining exists in some sectors in Europe - it exists in some sectors in the US too! But there's no national minimum in those countries, which is what matters most for general employment. (And yes, these things are always in flux. Switzerland just last month voted on whether to have a $25/hour minimum, but 75% of the electorate voted against it - common sense prevailed for once!)

first of all, we are looking at it from different sides :) i was talking about the demand for jobs, not workers, and the supply of jobs. perhaps that created some of the misunderstanding.

the laptop example also illustrates the difference quite well. majority of the people need work, and they have to work, whether they like the price they will get or not. in the end they must eat. so, the demand for jobs (or, the supply of workers) cannot fall below a certain level, particularly the low skilled ones.

laptops are not such a necessity, so people may choose, if conditions become too unfavorable, to simply not buy them. this is why producers, who of course want to get the highest price possible, cannot raise prices as they wish. with low-skilled labor, however, companies can lower wages as much as they like. if they reach the point where people can no longer feed themselves, people don't simply decide not to work (really?!) - we then have a revolution.

your comparisons actually demonstrate this quite clearly, it really amazes me that you can compare a low skill workers quest for jobs with selling a bike on eBay without noticing any difference.

"I think I'm done looking up specific numbers for you; it never makes any difference to your views." -- that's a cheap shot. i gave some arguments, you ignored them, and you're now just weaseling out. the effects of a nation-wide collective bargain, which defines a mandatory minimum wage for all sorts of professions, are pretty much the same. in fact, since many professions have pretty healthy situations in the job market, i would say that that actually is harmful in the way you described.

but ultimately, i explained that i actually accept that a minimum wage may mildly increase unemployment. did you just skip that part?

The problem is that you demand support even for claims of mine that are easy for you to verify for yourself and that you have no reason to doubt. While on the flip side you never provide any numbers of your own, so it's unbalanced. But what the heck, I'll do it one last time.

>"a large fraction of minimum wage workers are teens" -- how large? source?

Half of all minimum wage workers are under age 25; 62% are still enrolled in school, and the average family income of people earning minimum wage is in excess of $60,000/year. I found this out just now by googling the string "what percent of minimum wage workers are teen", which led me to these links:

http://www.bls.gov/cps/minwage2011.htm

http://www.heritage.org/research/reports/2013/02/who-earns-t...

It is true that SOME minimum-wage workers desperately need a job. But it is also true that SOME people desperately need a laptop computer! The overall characteristics of a market - whether a market for labor or a market for laptops - aren't driven by just the few who have the most inelastic demand. Employers have to offer wages high enough that on the margin, those people who are indifferent between employers or willing to wait a little longer for "the right job offer" are inclined to accept the one being offered. This means the average job pays a lot MORE than the bare minimum that the most desperate people would be willing to accept. Even if there were no minimum wage, wages would not drop to starvation levels for that reason.

In short, Malthus and Keynes were wrong to predict a "race to the bottom". We don't need a minimum wage to have high average wages, high entry-level wages or a high standard of living. (In fact, the minimum wage does far more harm than good to the lowest-skilled workers - it reduces job quality and availability, cutting off some of the bottom rungs of the economic ladder.)

ok, interesting statistics. i did not expect such a large number of teens. the average income part, the key is that it counts "families" or "households", i have seen it in another source where it stated that many of the poorest families actually earn 2-3 wages in order to reach that level, so i would not immediately jump to the conclusion that they are all that well off.

"It is true that SOME minimum-wage workers desperately need a job. But it is also true that SOME people desperately need a laptop computer!" -- again, these crazy comparisons... these situations are not equal. period. such reductionism is unproductive.

"Employers have to offer wages high enough that on the margin, those people who are indifferent between employers or willing to wait a little longer for "the right job offer" are inclined to accept the one being offered." -- this seems unrealistic. middle-class or up may afford that, but we're not talking about them here. and it's worth noting that the middle-class is growing smaller lately.

as for the race to the bottom, it is a demonstrated reality of history, one that we have experienced, but which is easy to forget now that the problem had been solved. it drove people to revolutions, simple fact. we have progressed far since then. this neo-libertarianism seems to be an initiative to take us back, and by many indicators, since the 80s, that plan is working out.

Simply calculating wage by intersecting supply and demand curves without regulations such as minimum wage regularly creates conditions where minimally skilled workers end up being supported by individual tax payers (instead of businesses)

My assertion that in any capitalism driven society (no matter the quality of education) you will have a non-trival size of the population not capable of fulfilling job demand and achieving minimum viable salary for survival.

At the end of the day we have 3 options for these people:

1) Do nothing. This creates tax burden to combat crime as people get desperate to satisfy basic needs like food and shelter. It also is pretty crappy thing to do to our fellow man.

2) Subsidize them through programs like welfare. Helps but hurts middle class workers disproportionately and doesn't produce labor.

3) Create and enforce a livable minimum wage. Helps in the short-term (until goods/services prices are inflated adjust to this minimum) and produces labor that arguably has some value. Not perfect because it further decentivizes job creation and increases R&D for automation. Also, it is just a quick fix and needs to be constantly raised.

Minimum wage is clearly not a perfect solution but I'm not sure we have a better one yet within the framework of government regulated capitalism.

The Earned Income Tax Credit (a form of negative income tax) is an alternative to a livable minimum wage. Although a negative income tax is not without some problems (see [1]) it has been proposed as a better alternative to minimum wages by serious economists.

[1] http://en.wikipedia.org/wiki/Negative_income_tax

> The Earned Income Tax Credit (a form of negative income tax) is an alternative to a livable minimum wage.

Some form of negative income tax might arguably propose a serious alternative to a livable minimum wage, but the existing form of the EITC isn't it. (If it was, then the actual minimum wage would be a "livable minimum wage", since it exists in the context of the existing EITC.)

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