Why is the concept of a minimum wage bad?

Question

Let me start off by qualifying my question. I am a senior in college and will have degrees in both Business Management and Economics in a short amount of time, so I understand my question on a technical level, and know how to answer it in the sense of economics. What I would like are some thoughts from other people who have studied the economics of minimum wage laws on how you could explain the economics in plain English to a poor distant relative who thinks everyone needs to be making more money, and it's the government's responsibility to make that happen. This person has no background in Economics, and I don't think they have any college experience. So, with all of that in mind, any thoughts???

Answer 1

Unfortunately for those that believe they "deserve" a higher wage for "working their fingers to the bone" that is not the way market economies like the US and Canada work. I might suggest you try a command economy like North Korea or Cuba.



A fundamental principle of economics - whether or not you choose to believe it - is that demand curves slope downwards. In plain english, when the price of a product rises people will buy less of it. Higher movie ticket prices, fewer people go to the theatres.



Labour services are a commodity, bought and sold in markets. Be clear here ... labourers are no longer bought and sold (except in professional sports, but I digress) ... labour services are bought and sold. The law of demand also follows here. The higher the price of labour, the fewer buyers there will be. If you increase the minimum wage, there will be fewer jobs available.



The minimum wage affects the youngest and least skilled members of society and it is these people that are most adversely affected by the minimum wage.



Those in favour of higher minimum wages ask yourself the following question. If McDonalds increased the wage they pay their employees to $20 per hour, would society be better off? Be sure to consider the fact that they would have to raise the price of a Big Mac to $10. Are you willing to pay $10 for a Big Mac so that McDonald's employees can make $20 per hour?



Clearly, the answer to the above question is "No, you are not". The evidence can be found in the massive US trade deficit with China. Individuals are more concerned with their own standard of living - buying goods at the cheapest possible price - than they are with the standard of living of people they do not know.

Answer 2

Minimum wage is a price floor. Raising it does not cause inflation. There is no such thing as cost-push inflation. If there were, rising energy prices would have pushed up wholesale prices and prices of goods that use petroleum as a feedstock, and they didn't - intermediate and finished goods makers just saw their margins squeezed and found ways to cut other costs and/or suffered through it, which is why chemical stocks went down and agricultural stocks went down until Bush started talking about ethanol. Raising it also does NOT give anyone a raise, nor is anyone paid $5.25/hour who would be paid $3/hour but for the present minimum. Minimum wage works like any other price floor - it renders illegal the sale of a good or service below that price. That means if the market value of your labor at a particular task is $3/hour, and the minimum is $5.25/hour, you don't get hired to do that task - or, you get hired under the table. At $5.25/hour with all the exceptions they have, the minimum wage is now economically meaningless. And that is why less than 2% of workers MAKE minimum wage, versus close to 4% when it was set at this level. $7 is probably meaningless for most people too - McDonald's pays more, Starbucks pays $2 more plus benefits, to START. Minimum wage is a starting wage, generally earned by students, housewives and recent immigrants - not all but most. This is why 70% of minimum wage earners will receive a 30% raise within a year. There is also incredibly high turnover - most of the one who don't get a raise from the same employer go to another employer, which one is the cause and effect not being quite clear. And THAT is why "most people don't lose their jobs" when you raise the minimum - - they raise it 75 cents effective six or nine months later or phased in over nine months, and they have a dozen or so exceptions covering most of the jobs you think of when you think of minimum wage. By the time the hike goes into effect almost nobody who was making minimum wage when you debated the hike in Congress is still making it and most of those who are are subject to one of the exceptions. But it does freeze out of the workforce anyone at the margins. So the most you can say for it is that in the past, because the hikes have been economically meaningless, not much has happened. But if you want to know "what would happen" if we raised it by a material degree, consider other countries where it is much higher - - France and Germany typically run 2X our rate of unemployment. 8-9% unemployment is darned good for those countries. When we have 6% people scream bloody murder. We have 4.5% now and people aren't happy with it. But now I say screw it, I'm sick of explaining it to people - let's just set it at $11/hour, watch unemployment go to 8-9% and then maybe they'll believe it.

Answer 3

Put simply, the idea is that the laws of supply and demand should dictate wages, in an ideal world. IE If you are good at your job or your skills are rare a company would be willing to pay you X for you to come work for them. In a strong economy when unemployment is low some positions work this way. In an Ideal world.



Reality is that we are not living in an ideal world and that all too many people looking for work or taking positions that they are over qualified for. Your premise that having a minimum wage is bad in my opinion is flawed.



In my opinion it should be raised so that a person over the age of 18 should be able to work 40 hours a week and at least reach the minimum income poverty levels. If that requires us to pay an extra 25 cents for hamburgers etc, so be it.



Put yourself in the shoes of the working poor for a moment and then tell me that the minimum wage is a bad idea.

Answer 4

Most people will answer this question based either from a logical or emotional point of view. You must realize that 75% of men & 25% of women are guided more by logic and the remainder are guided by emotions or feelings. It is difficult for someone like you or me to comprehend how 1/2 the people in this world either don't understand or are blind to cause & effect. Reasoning or logic will not persuade these people because it is not how their thinking process works.



Many of these people think that business owners are mean, selfish, greedy people who don't care about their employees. They don't realize that a person doesn't start a business so that they can employ people, but that employees are a part of running a successful business. Most people start a business as a way to increase their income or they feel that it is just something that they have to do.



Don't try to persuade or execute a logical argument for these people; THEY DON'T UNDERSTAND!

Answer 5

The problem is not an economic one. It is a political one: is it better to force employers to distribute more to workers than a free market would require them to, or to increase welfare payments? Remember, it was Richard Nixon who proposed the "negative income tax," and the idea was - and is - that consumers who have more money buy more, thus stimulating the economy, as opposed to the trickle-down people now in charge of our government, who believe that if rich people have more money they will invest it in the economy. It doesn't really work, but economists are nothing if not convinced the real world must conform to their theories, not the other way around. Rich people buy more money, not more food, blankets, clothes or even houses. How many mansions can you own?

Answer 6

Overall, the theory states that if businesses are required to pay more money to workers, they will need to raise prices which causes inflation. Inflation is good for no one. Secondary to that, the standard of living won't increase because the same dollar made at minimum wage X may even buy LESS at minimum wage Y if inflation is factored in.

Answer 7

the concept is not bad its not good at tis moment. I have no college background just what the amy taught me witch is useless but with the way everything is going up in price people making minimun wage is finding it hard to find ends meet making them to live off the goverment with that makes prices go up to supplement the cost of helping the ones making minimum wage there is no true way of balancing it out it would be like robbing peter to pay pual or using one credit card to pay another because if you raise the wage law you make the companies raise their prices so that wont lose their shirts to cover what they have to pay out or they would to fire people thus making more people live off the goverment so the law is not bad we need to find a better way of using it with out anyone getting hurt in the long run till then we really dont have a choise in the matter

Answer 8

Grow up just poor enough to not be able to afford college, read "Nickel and Dimed", then get off your college-educated high horse. Did they not teach you about sweat shops and child labor laws in college?



Not only do we need a minimum wage, it needs to be higher! How do you expect people to get off of government assistance if they can't afford to?



Let me guess. You grew up middle class or even better. You went to a pretty good high school and had assistance from your parents getting through college. Now you feel like you "earned" it.



Get a grip. Some people just got here yesterday. Some grew up very poor. Some were on drugs when college came and are trying to turn their lives around. Some got no guidance from their parents. Some were just unlucky, or sick. Big companies are just egging to abuse those people.



We need minimum wage. We need unions. We need welfare. We need unemployment insurance. We need social security. Those things were not created on a whim. They need to be kept under control, but that doesn't mean they aren't needed.



Now go on and vote Republican. Tell people what they can do with their bodies and in their bedrooms. It is your job to not understand anyone else's life, because everyone should live exactly like pig-headed, close-minded, college-educated, Christian little you.



PS: I hope your parents don't end up with some crippling disease, or your child end up retarded, or you end up in a horrible car wreck that leaves you paralyzed, because I wouldn't want you to walk 10 feet in someone else's shoes and have to change your tune.



EDIT:



Those are not "liberal talking points". They are reality. You have no idea how impossible it is to live on a minimum wage as it is. Yet many millions of people have to do this every day, working multiple jobs to "put food on the table" as you say. And to the clown who suggests that the minimum wage be increased to $20, please. Did I say to triple it? No, but does that mean get rid of it? No. And does that mean a Big Mac would suddently cost six times what it is now even if they did? No.



If you want to help these people, make education affordable. Instead, the price of education has skyrocketed in the U.S. My nephew would not be able to go if it weren't for me. His sister will likley not be able to go and all because my brother and his wife are raving lunatics that don't know how to raise children. So she will likely be one of those double-income maid/WalMart employees getting raked through the coals. And what does Wal-Mart care? So long as they make their cash.



I'm not making this up. You can turn a blind eye if you want, which would certainly not surprise me. You are looking for someone to agree with you here, not to answer your question. The truth is, there IS no good answer to give your cousin because your cousin is right.



I dare you to live for one year on a minimum wage income and see if you can dig yourself out of that hole. Now do it with a child or a disability.



If you are having a hard time seeing what I'm saying, I suggest removing the wool from in front of your eyes.

Answer 9

I are not be as edumacated as you be, Massuh. But I am think you not no nobodie that works the mimimum wage or you not say stupid stuffs.



SOME OF US ARE SMART AND "UNEDUCATED" AND WORK OUR FINGERS TO THE BONE SO THAT YOU CAN SIT IN YOUR CLEAN OFFICE AND PRETEND TO WORK ALL DAY. WE DESERVE TO GET PAID WELL FOR THAT WORK.

Answer 10

um, i dont really understand what u just asked