Would decreasing the minimum wage increase employment?

Hmmm.. pulling out my microecon....

If you cut minimum wage in half, you are not only allowing more workers to participate in the labor market, but you are potentially hurting all of the current crop of minimum wage workers, many of who now must take a lower wage. Current 'high wage' minimum wage workers might not have such an easy time having market power, so in the end all unskilled wages go down. Also elasticity of labor demand likely comes into play. On inelastic portions of the labor demand curve (high employment levels I assume), the aggregate sum of all wages will rise, increasing aggregate demand. Contrary is true for elastic portions. This is price vs quantity effect.

Also, without collective bargaining, unskilled laborers don't really have so much pricing power.

Then there are income and substitution effects cancelling eachother out - so because of this, US is thought to have a vertical labor supply curve. Government transfer programs modify these effects. If you can make more taking welfare than working at $1/hr, then you have incentive not to work.


http://dss.ucsd.edu/~jhamilto/Lec_18_labor_mkts.pdf
(p.2 illustrates this sort of thing)

http://www4.ncsu.edu/~almarte2/ec205/lecture_notes/ch24.pdf
(p.3)

But look at that argument on above p.3... Increase of labor force participation from a policy change would shift the labor supply curve to the right, lowering everyone's wage (as I argued above).

So you have a lot of variables counteracting each other ... I think the safest answer is that it all depends on the status of all of these conditions, where minimum wage is relative to basic cost of living, productivity levels of unskilled and unemployed labor (you get what you pay for), existence status of government transfers, etc. I think it is fair to say without real analysis and actual data inputs, that it could go either way. The conclusion is indeterminate without the details.

I haven't studied labor economics very intensively, but these links are a decent starting point. Learning income and substitution effect concepts from microeconomics will be helpful.
 
What a business man most needs is customers that can afford to buy.
That is one of the most basic market research studies prior to opening any retail establishment, is the customer base with the income there.

A person with very little money buys very little of anything, so the man employing a person at half minimum wage is a parasite upon the rest of the economy because he is depending on workers better paid by other employers to supply customers to his business, while his employees will offer very little custom to other businesses.

Or to rephrase that.

Assume that there ARE no government programs. And essentially for workers that run out of Unemployment, are able bodied and don't have young children, there are not, (welfare reform took care of that) cutting the minimum wage by half cuts by half the amount of money available at the bottom of the economic ladder where the velocity of money ( the rate at which people spend any dollar they get0 is at it's highest.

The earnings of farmers and grocery stores went up when the food stamp program was enacted, halving the minimum wage would have the inverse effect.
Businesses who have a substantial number of minimum wage earners among their customers like Walmart would see their earnings cut drastically.
Banks would find landlords unable to repay loans because their renters would be unable to make the rent something that I am already seeing among my properties, grocers would sell less food, child malnutrition would rise to probably twice what it is now because in actually people are proud and a large percentage of them never sign up for any government program.

In actually Henry Ford is credited with the idea that spread among industry early in the century that if you paid your employees well, they would be able to buy what they produced, and one would have a ready made customer base. In Ike's time there was a tacit agreement in industry that paying workers a living wage was socially responsible, modern and patriotic thing to do and helped grow the economy. It worked brilliantly until greed replaced patriotism and social responsibility as the paradigm.

Again,

A number of economic models have been run by everyone from Rand to the AEI and they pretty much all show that the most profitable level of economic activity occurs when there is minimum wage inequality, that is that the difference between the lowest earning worker and the highest is less than approximately 20. Not that the AEI would ever publish those findings.
 
Quote from scriabinop23:

I haven't studied labor economics very intensively, but these links are a decent starting point. Learning income and substitution effect concepts from microeconomics will be helpful.
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Or we could look at the UK which introduced a minimum wage in 1999 with no particular effect on unemployment.

Amazingly, it turns out people need workers.
 
The most important driver of employment by far is the viability of the underlying product being produced - do people around the world want to buy it at the price you can produce it at?

Everything else is just hand waving nonsense.

If Washington could dictate prosperity and meaningful employment the way it pretends it can, why don't we all sit back and let DC run the country in the first place?

Why bother with 4 or 5 automakers, 4 or 5 airlines, 4-5 cereal makers? Why not just let Washington decide whether we want Honey Nut Cheerios for breakfast or Rice Crispies?

Washington cannot run a business, lets be clear about that. It has never produced audited statements for it's budget, and it does things routinely that would put most companies in jail.

Now Washington could help draw up the rules for society and markets to run properly under, but it has demonstrated its incompetent in that.

Between OFHEO, which only had two entities to regulate (and *both* blew up bigger than LTCM and all the previous hedge fund blowups combined), and the OCC, which let all the banks in the country run up massive leverage way beyond any semblance of prudence, we already know Washington can't regulate a pile of turds on the sidewalk.

Don't forget how Washington pissed away hundreds of billions both in Iraq and in New Orleans, as "private contractors" ripped the government off left, right and center.

But what do people in Washington care? After all, it isn't their money. Unfortunately anarchy is even worse and we have to put up with the clowns that make up Government.
 
Quote from TheStudent:

The most important driver of employment by far is the viability of the underlying product being produced - do people around the world want to buy it at the price you can produce it at?
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What are you three?


Lets simplify this a bit.


If a desirable product is produced, but the value added accrues to only 1% of the population, people do not have the capacity to buy a highly engineered high quality product like a high quality car.
The market for this product will be small because only the wealthy of the population will be able to afford it, and in this model only 10% or so are wealthy.
If on the other hand 50% of the value added is dirtributed to the workforce and 50% goes to the investor class, then the number of people who can afford the product goes WAY up and production has to be increased to fill demand.

And the caveling against Washington?
Yes lets get rid of regulation, by all means.
If nothing were illegal it would be legal for your broker to front run you, big corporations could devour smaller competitors by penalizing retailers that gave competitors shelf space, and tie up other scarce resources to drive their competitors out of business. and the biggest iron worker could twist your neck until you gave him your money.

Don't like that idea very much?

The stupid here sometimes just runs too deep for tears.
 
A more interesting question would be what would happen if China doubled the wages of it's factory workers.

Suddenly internal demand would absorb those unsold exports.
 
A more interesting question would be what would happen if China doubled the wages of it's factory workers.
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No, those jobs would disappear or leave. The reason Chinese laborer's get paid so little is because the typical Chinese laborer adds so little value. If what you produce is only worth a buck a day, paying you 3 bucks a day, or paying you 500 bucks a day isn't going to help the economy.

By your logic, why stop at doubling the factory workers' wages? Why not increase them a few thousand percent....mandate that all Chinese factory workers get paid the equivalence of 68000 USD a year. That would really increase domestic demand then!
 
Quote from truehawk:

[BAgain,

A number of economic models have been run by everyone from Rand to the AEI and they pretty much all show that the most profitable level of economic activity occurs when there is minimum wage inequality, that is that the difference between the lowest earning worker and the highest is less than approximately 20. Not that the AEI would ever publish those findings. [/B]
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SO you are saying that "everyone from Rand to AEI" says price fixing works... not surprised they don't publish that:cool:
 
Quote from truehawk:

A more interesting question would be what would happen if China doubled the wages of it's factory workers.

Suddenly internal demand would absorb those unsold exports.
More...

and manufacturers would look elsewhere for factory locations.

Look, too much linear thinking such as "double min wage & more people can afford luxury items. Wages are based upon productivity, value-added & supply & demand... min wage workers have no pricing power & are overpaid... The FACT that there is labor price fixing aka minimum wage is absolute proof they are overpaid.
 
Quote from QQQBALL:

SO you are saying that "everyone from Rand to AEI" says price fixing works... not surprised they don't publish that:cool:
More...

Yeah that awful Commie Henry Ford.

If Chinese workers were paid the same as American workers for the same job at the same skill levels, then China would have no problem absorbing it's own production. They are not because the corporations that outsourced the jobs did so to avoid paying labor so that they could dstribute a larger percentage of the value added upward.
The result is that in the end there are fewer people in the world in aggragate that can afford their products at the designed price points.

These companies were the parasites on the body of American Industry that in aggregate brought down the American Consumer and as in the exploitations of any Commons, or fishery only a law could have prevented this, because in the absence of a law, because in absense of the will and ability to stop them the biggest assholes will always overgraze, and overfish, corner the market, until the system/grazing/ population collapses .



But I can see why you equate this to price fixing, absence of a national vision, the uncivilized rich make rules that ensure that nothing stands between them and their prey, and value added is always distributed upward over time, again because the rich and their worshipers make laws that make them richer. So of course anything that interfers with this natural process of the rich getting richer is "price fixing" in the parlance of their worshipers.

Worship the amoral rich if you must, but you will have a high probability of being their sacrifice, since in that model the winners take most, until there is legal redistribution, or a lot of people get very unhappy and then the messy messy things happen.
 
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