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catallaxy in technical exile

The minimum wage sacred cow

with 65 comments

Becker and Posner have a good discussion of Democrat plans to raise the minimum wage in the US by 40 per cent.

Posner’s post also goes into the question of why the purportedly egalitarian side of politics continue to advocate minimum wage increases as a means of addressing poverty notwithstanding the effect this has on pricing out effect the least skilled from the labour market, when pragmatic libertarians like Milton Friedman have been willing to meet them more than halfway on this issue by advocating the use of low income supplements (like the US Earned Income Tax Credit which was essentially a variation of Friedman’s brainchild). Posner thinks that the explanation boils down in the US case to the influence of the unions and the unwillingness of the Democrats to be seen as the tax and spend party. However, the prospect of spending a lot of money has never deterred the allegedly egalitarian side of politics from pursuing a policy, and there is some confidence among proponents of what would in effect be a minimum wage/welfare safety net tradeoff that the reduced joblessness and easier entry into the labour market facilitated by such a tradeoff would pay for itself in the long run (of course a lot also depends on the generosity of welfare support for the low paid under a more deregulated labour market).

Likely another reason why the Left continues to place its confidence in minimum wage rises as a means of addressing poverty is the fear that a more deregulated labour market would lead to the bidding of wages down to the lowest common denominator for all, and not just those currently excluded from the labour market. This fear is, in my view, misplaced, as for the vast majority of employees, they would continue to be paid what they are currently paid, with or without the influence of statutory minimum wages as an implicit bargaining instrument below which wages cannot be bid. This is quite consistent with the increasing irrelevance of unions to most working peoples’ lives.

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Written by Admin

November 28, 2006 at 12:16 pm

Posted in Uncategorized

65 Responses

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  1. “Likely another reason why the Left continues to place its confidence in minimum wage rises as a means of addressing poverty is the fear that a more deregulated labour market would lead to the bidding of wages down to the lowest common denominator for all, and not just those currently excluded from the labour market.”

    If this were true, everyone would be on the lowest legally possible wage now, with no incentive programmes outside of legislated overtime.

    Furthermore, monopsonist behaviour does not occur in contestable markets, and Australian monopsonists pay very high wages as there needs to be an incentive to relocate to a remote area where they can apparently abuse their market power for buying labour.

    Mark Hill

    November 28, 2006 at 12:20 pm

  2. Jason,
    On your last sentence I think that the unions have become increasingly irrelevant precisely because of legislated statutory minima and other interventions. Employees do not feel as threatened by their (perceived) powerlessness and therefore feel they no longer need to “band together” against the “class enemies”.
    To me, unions could have a very positive role to play in the workplace – for an employee to, in essense, contract out their pay and condition negotiations, receive insurance or income support, receive councelling services and to help in being found a job are all very useful things. Where I believe they get it wrong is in trying to become monopoly suppliers of labour under uniform conditions and in carrying on political campaigns for unrelated areas, such as abortion policy.

    Andrew Reynolds

    November 28, 2006 at 12:28 pm

  3. Yes I know, but look at all the hysteria over WorkChoices that has been whipped by the union movement.

    Jason Soon

    November 28, 2006 at 12:29 pm

  4. JF Beck:

    Presidential hopeful John Edwards wants all Americans to boycott Wal-Mart because it doesn’t pay its workers enough. On a visit to Manchester, New Hampshire Edwards will hold a book signing at Barnes & Noble rather than at the nearby worker-exploiting Wal-Mart. There’s one minor problem with this:

    The Barnes & Noble where Edwards will hawk his book pays $7 an hour to start. The Wal-Mart that sits just yards away pays $7.50 an hour.

    C.L.

    November 28, 2006 at 12:48 pm

  5. gee and I though Jeff Beck was just a good guitarist!

    I remember not gaining an interview with ACOSS because I supported lower minimum wages combined with family tax credits alah five economists. A certain Dr Gruen also wrote about this at the BCA

    The ‘left’ it seems just want higher minimum wages.

    Bring Back CL's Blog

    November 28, 2006 at 1:09 pm

  6. The unions could do a great deal of good if they could only get hold of the idea that productivity is the key to raise all boats and they need to work with management to that end. Of course increasing productivity will usually mean that some workers become redundant at least for the moment at that site, so evey pressure is to save jobs on the site. Then the jobs are lost upstream and downstream of over-manned sites but that is hard to demonstrate.

    The unions and the labor movement at large are in the grip of some poweful and durable myths which have been demolished but are likely to be around for some time to come. For more on that…
    http://www.hrnicholls.com.au/nicholls/nichvo27/champion2006.pdf

    Rafe Champion

    November 28, 2006 at 1:32 pm

  7. Rafe,
    you are assuming that Management understnd that.
    When I was at Business school ( mid 90s) I was astounded that most businesses could not measure productivity or didn’t want to

    Bring Back CL's Blog

    November 28, 2006 at 1:42 pm

  8. They don’t need to put formal processes in place to figure out if they are efficient, homer.

    All they need to do is look at output and input ratios… ie if the same number of workers are producing 150 widgets to last years 100, they’re doing better.

    That ain’t too complex.

    JC.

    November 28, 2006 at 1:46 pm

  9. Market-determined wages are certainly working in the US where a significant percentage of low paid workers work full hours for pay insufficient to meet rent and food requirements, let alone health, education and discretionary spending.

    In my experience, it is invariably people who aren’t on the minimum wage who are most eager to see its abolition – people on at least $30-200 an hour pontificating on the merits of surviving on $12 an hour.

    There was a comment somewhere yesterday that the AWAs, and the anticipation of lower overall wages, are a factor in the surge of interest in Australian companies by corporate raiding asset-strippers private equity companies.

    slim

    November 28, 2006 at 1:52 pm

  10. I think it is just politics – “no minimum wage” is such a useful bogeyman to rail against – even when the income tax credit or similar protects against reductions in income. Problem is, in times of economic growth, the swinging voters (I bet none of whom earn minimum wage) are just not interested, so it’s not particularly effective. Throw in a recession (eg 1993 Federal Election), and the issue resonates more widely.

    jimmythespiv

    November 28, 2006 at 1:55 pm

  11. I think regulating working conditions (why not include OH&S regs here as well) is one of the penalties of imperfect knowledge flow by employers about working conditions. In a world where everyone knows what’s fair recompense and what’s safe, these rigidities would be swept away by the Tide Of History as surely as the bourgeoisie under communism (you, stop that cynical laughter at once!). Keep working toward that end my dreamy friends, but until then getting rid of rigidities like this are more trouble than they’re worth.

    Andrew Elder

    November 28, 2006 at 2:01 pm

  12. “Market-determined wages are certainly working in the US where a significant percentage of low paid workers work full hours for pay insufficient to meet rent and food requirements, let alone health, education and discretionary spending.”

    Prove it.

    Also prove it isn’t because of zoning controls and cartelisation of medicine. The way to overcome the negative effect of a tax or regulation isn’t to add another tax or regulation. (The same reasoning applies to the ignored option of reducing automotive tariffs to reduce GHG emissions as tariffs and luxury car tax decrease supply and demand for more efficient, safer cars).

    “In my experience, it is invariably people who aren’t on the minimum wage who are most eager to see its abolition – people on at least $30-200 an hour pontificating on the merits of surviving on $12 an hour.”

    Me? 1. Not yet. 2. Previously legally barred from some work (my productivity was too low).

    “There was a comment somewhere yesterday that the AWAs, and the anticipation of lower overall wages, are a factor in the surge of interest in Australian companies by corporate raiding asset-strippers private equity companies.”

    There has been large increase in inward and outward Australian foreign direct investment (FDI) since Keating opened up the market. If anything, the “push” factors are reduced and Australian domestic investment will increase. What the commentators said was garbage. Efficiency seeking FDI goes to nations with low wage assembly style workers. The private equity firms are buying into services, and Australia does not have low wage assembly type workers. Inward FDI pays higher wages and efficiency type FDI isn’t based on the total wage bill but the cost of labour efficiency per unit. Furthermore our non-wage costs of employment are excessively high (thanks to OH&S [better serviced by strict tort law and contestable insurance markets] and payroll tax).

    Mark Hill

    November 28, 2006 at 2:08 pm

  13. Mark Hill and the working poor of the US:

    Here, here, here, and here and any number of other sites searching Google for ‘working poor’ and ‘US’.

    slim

    November 28, 2006 at 2:22 pm

  14. Mark,
    That was certainly the case some ten years ago.
    This is why tax credits and food stamps are an essential part of US polity.

    JC ,
    I agree which is why I was so surprised at the results.

    Sorry Slim but to make money you need to severely cut costs in the short run to make the short Run ROA look attractive and sell at a huge profit.
    In the medium term cutting costs actually cuts profits because of little organic growth usually associated with little corporate knowledge.

    Bring Back CL's Blog

    November 28, 2006 at 2:23 pm

  15. Sorry JC, but while the corporate raiders may be in it to make money I don’t they they actually contribute anything substantial in the way of economic entrepreneurial development. Just taking the easy cash.

    slim

    November 28, 2006 at 2:26 pm

  16. Corporate raiding is at least potentially productive.

    Its a bit of an antidote to Parkinsons law.

    There was a time when I think it was very productive.

    Back in the 80’s with people like Ron Briely.

    He took a value investors approach to the whole thing. And would simply split up a company, or pressure management to act differently, where you had a viable sub-sector of the business that was low on returns as opposed to the high value of its assets.

    At least thats what I think he was up to.

    Back in those days you had all these conglomerates.

    The situation where the gardeners (ie executives) have taken over the estate (ie the company) and are running it more for there own benefit is, I think, an outgrowth of

    1.high tax rates (which hurt small up-and-comers more then the established guys)

    2. Countless regulations and tariff protections which do the same and

    3. Most of all currency debauch.
    >>>>>>>>>>>>>

    If these factors have prevailed for the past few decades and the corporations have grown fat one might wish to reverse these conditions.. And the corporate raiders would speed up the healing process.

    On the other hand if the easy money resumes the raiders may take on more of an aspect of power-grabbing Lords and Princelings and outrageous gamblers with other peoples money.

    Which may well have been the more prevalent breed of the species.

    GMB

    November 28, 2006 at 3:07 pm

  17. the ignored option of reducing automotive tariffs to reduce GHG emissions as tariffs and luxury car tax decrease supply and demand for more efficient, safer cars

    It hasn’t been ignored but it is a non-starter. Such a tax would fall heaviest on low-income earners. Firstly, they tend to buy poorly-maintained older cars. Secondly, they drive longer distances as they live in rural areas or outer suburbs where jobs, shops, community facilities and GHG-minimising public transport options are fewer and further between.

    This raises doubts over the sentence before it:

    The way to overcome the negative effect of a tax or regulation isn’t to add another tax or regulation

    Mark doesn’t say what you do, other than fight or submit. You can hope for a well-designed regulation, but in the meantime you just have to patch and pray and sand back where you can, and hope the whole edifice doesn’t come crashing around you before the Rapture cometh.

    Andrew Elder

    November 28, 2006 at 4:27 pm

  18. Slim: poverty is worth talking about when you define a poverty level (remember our HPI for a family of four used to be $55 000), make comparisons in PPP terms and note hours worked. Underemployment is another [related] issue.

    If people can’t afford goods, you can’t raise their wage bill: this only prices them out of the market. The best policy is to allow the prices of goods to fall in a competitive market. Would health insurance cost so much without the cartelisation of medicine? Would rent cost so much if there was less zoning and height restrictions on buildings? Think about taxes: tariffs and excises are particularly regressive, the marginal tax rates of the working poor on items taxed by excise and tariffs are just cruel. It is not wages that makes them poor, but what takes away their purchasing power and makes necessities scarce which does. If you want to raise their productivity and nominal wages in the long run, make factor and goods markets contestable (minimises monopsony) and lower taxes and regulation in order to accumulate more capital.

    “Sorry JC, but while the corporate raiders may be in it to make money I don’t they they actually contribute anything substantial in the way of economic entrepreneurial development. Just taking the easy cash.”

    Yes they do. If they make money, they are a net supplier of resources, and at a greater rate than the firm they bought out. Whatever happens to the entity, over the long run they have lowered the costs of capital to the firm. Otherwise it is the strength of their intellectual capital that means they can run the firm better, or they vertically integrate and use less resources overall, there are large internalisation benefits. Your argument also derides small investors who do not build new homes or buy into share IPOs. That too is a secondary market.

    “Its a bit of an antidote to Parkinsons law.”

    Quality, Graeme.

    “It hasn’t been ignored but it is a non-starter. Such a tax would fall heaviest on low-income earners. Firstly, they tend to buy poorly-maintained older cars. Secondly, they drive longer distances as they live in rural areas or outer suburbs where jobs, shops, community facilities and GHG-minimising public transport options are fewer and further between.”

    I think you totally and utterly misunderstand me Andrew. The taxes should be scrapped. You have outlined two reasons why: regressiveness, Australian economic circumstances and relying on agriculture and long range transport. The taxes simply make more expensive, more efficient cars less available and subsidise poor quality, inefficient machinery. The point is that Pigouvian taxes are a bad idea because a proportion of the emissions is caused by the inefficiency, poor quality, limited choice and high prices imposed on us by tariffs and NTBs. (Industry adjustment is a non-issue. When the PMV market went through the 1990’s tariff cuts, they had their most profitable years after poor performance and loss-making.)

    “The way to overcome the negative effect of a tax or regulation isn’t to add another tax or regulation”

    Yeah, that IS what I meant. Other than the environmental benefit, there are overall welfare benefits of removing luxury car taxes and PMV protections.

    Mark Hill

    November 28, 2006 at 5:22 pm

  19. “Sorry JC, but while the corporate raiders may be in it to make money I don’t they they actually contribute anything substantial in the way of economic entrepreneurial development. Just taking the easy cash. ”

    What ABL but more loudly at having to deal deal with this view.

    JC.

    November 28, 2006 at 6:01 pm

  20. So Mark, did you read any of those working poor references?

    “The best policy is to allow the prices of goods to fall in a competitive market.”

    Nice theory, but apart from Chinese manufactured goods, I’m hard pressed to think of any examples where this actually happens and therefore raises the spending power of the working poor. Evidence?

    There are so many layers of regulation, special deals, protected markets, anti-competitive practices that would need to be removed and outlawed for your economic nirvana to even have a chance for the price of goods to fall in a free market. We just don’t have a free market, and we ain’t likely to see a truly free one anytime soon.

    Meanwhile, you working poor shouldn’t have a pay rise because it will make you poorer. Give us another 10-30 years to get this free market theory working and you’ll be much better off. Trust me, I’m an economist!

    I think I’d be going for the minimum wage increase while I’m holding my breath and trying to keep my family together and the wolf from the door.

    slim

    November 28, 2006 at 6:42 pm

  21. Come on man. You’ve heard about Walmart.

    You’ve seen all those bargain shops sprouting up and been to Aldis.

    With the markets that are working like markets should we see evidence that the natural way of things is for the poor to do better every year.

    But then we see the real-estate market. The health services market. The financial system. The market for legal services. The education system….

    And these anti-free-markets rund things the other way.

    So of course its possible for the bottom end to go backwards.

    GMB

    November 28, 2006 at 6:52 pm

  22. So I suggest address the big anti-free-market issues before asking the least privileged to take a pay cut in order that they’ll have more to spend.

    Meanwhile many minimum pay opponents are hooning around in BMW urban assault vehicles. At this time of year, in the summer seaside resort town where I live, you are more likely to be run over crossing the road by a BMW or Mercedes than any other brand.

    slim

    November 28, 2006 at 7:15 pm

  23. Slim

    you’re missing the point in your eagerness to stomp the rich. The rich were never really affeced by the minimum wage anyway.

    This is what you need to come to grips with, Slim dusty.

    You can legislate a minimum wage if you so wish. You can set the mini wage above or below the clearing rate. If you set it too high the market will by creating surplus labor….. ie unemployment.

    You can support unions tatics in rasing wages for their members, however when you do always recall that if the union set wage is above the clearing rate unions it will create unemployment for non members.

    You can’t get a free meal from the market, no matter how hard you try,

    JC.

    November 28, 2006 at 7:30 pm

  24. Hmm.

    Slim, wouldn’t it be better to just let the free market rip and deliver whatever it delivers (good or bad)?

    Then we could pay the working poor lots of money to maintain a decent standard of living, if that’s what they need.

    If we separated the market from welfare, I would prefer that to interfering with things like minimum wages.

    Because then you could legitimately criticise free markets.

    Because then we’d actually have a free market to look at, instead of the present distorted system that some people wrongly think is a free market.

    Sukrit

    November 28, 2006 at 7:39 pm

  25. “So Mark, did you read any of those working poor references?”

    Yes, and they need the refinement I suggested. 11% of workers below poverty line – what is the poverty line?

    Minimum wages will not help, ever. They do not raise anyone’s wages. They are either benign or deleterious.

    “Nice theory, but apart from Chinese manufactured goods, I’m hard pressed to think of any examples where this actually happens and therefore raises the spending power of the working poor. Evidence?”

    It is called economic growth and or liberalisation. There are millions of papers on the issue. So too growth.

    “There are so many layers of regulation, special deals, protected markets, anti-competitive practices that would need to be removed and outlawed for your economic nirvana to even have a chance for the price of goods to fall in a free market. We just don’t have a free market, and we ain’t likely to see a truly free one anytime soon.”

    We will always have growth as long as there is reinvestment, liberalisation allows maximisation of growth, market clearing and most importantly, dynamic productivity changes. I don’t know why you throw “anti-competitive practices need to be outlawed” into the mix. There is no long-term anti-competitive behaviour in contestable markets.

    “Meanwhile, you working poor shouldn’t have a pay rise because it will make you poorer. Give us another 10-30 years to get this free market theory working and you’ll be much better off. Trust me, I’m an economist!”

    Yeah, exactly? Why? Growth. You want a greater increase in living standards – liberalise markets.

    You are missing the point entirely. Raising the minimum wage does not give the working poor a pay rise. It makes them (or a proportion of) unemployed. Market liberalisation and the accumulation of capital gives them permanent and real pay increases. The price of labour isn’t determined by law (or we would all be on minimum wages now anyway) It is determined by productivity. Cutting taxes, especially regressive ones and artificially high prices in legally incontestable markets gives everyone real wage rises.

    Mark Hill

    November 28, 2006 at 7:55 pm

  26. I’m hard pressed to think of any examples where this actually happens and therefore raises the spending power of the working poor. Evidence?

    Computers. The computing power available at any price point has risen by several orders of magnitude since the release of the first mass-market PCs.

    Computers are much less regulated than many other industries. If you ask me, the only reason that the price continues to fall is because technological advances (ie Moore’s Law) outpace the rate of M3 inflation.

    Jacques Chester

    November 28, 2006 at 8:02 pm

  27. Sukrit, wouldn’t it be better to just let [insert any political philosophy here] rip and deliver whatever it delivers (good or bad)?

    No, because there will always be those who complain it “wasn’t really tried”. Whether it’s a Marxist dismissing the lesson of the Soviet Union or this peanut neoconning himself, dreamy ideologues will always kid themselves and no amount of blood in the streets or “temporary adjustments” will change that.

    Raising the minimum wage does not give the working poor a pay rise. It makes them (or a proportion of) unemployed.

    The Australian economy is such that no employer who/which can’t afford the payrise at the bottom end should be in business. Seriously, if your margins are that thin and your productivity that low, stop confusing yourself with a manager/business operator and sell up. Anyone in such a fragile economic position is a weak reed which would snap under a cancelled order, a natural disaster, or some other non-state action that poor management fails to foresee.

    Andrew Elder

    November 28, 2006 at 8:05 pm

  28. Elder
    So why don’t we simply increase our wages at 20% a week. By your reckoning it wouldn’t matter

    JC.

    November 28, 2006 at 8:17 pm

  29. “The Australian economy is such that no employer who/which can’t afford the payrise at the bottom end should be in business. Seriously, if your margins are that thin and your productivity that low, stop confusing yourself with a manager/business operator and sell up. Anyone in such a fragile economic position is a weak reed which would snap under a cancelled order, a natural disaster, or some other non-state action that poor management fails to foresee.”

    That’s analogous to central planning, with a bias against start-ups and firms which are in decline but may have a new growth phase. It would kill innovation, other than put people out of work. Picking winners has problems, but practicing this on a dynamic, intertemporal basis is far worse. What determines whether a business is viable is if it is a net user of resources or not. Credit markets price risk so solvency is a matter best left to potential lenders anyway.

    Mark Hill

    November 28, 2006 at 8:36 pm

  30. Elder. What for the love of stupid people everywhere, has what the employer CAN AFFORD TO PAY got anything at all to do with this issue.

    Have you lost your mind entirely?

    GMB

    November 28, 2006 at 9:00 pm

  31. “11% of workers below poverty line – what is the poverty line?”

    How about working 40 hours only gets you enough to pay your rent and not enough to feed your family adequately.

    Anyone here actually earning the minimum wage? Or know anyone on the minimum wage with no future prospects?

    Anyone here volunteering to take a wage cut for the sake of the economy?

    Didn’t think so.

    slim

    November 28, 2006 at 9:01 pm

  32. Slim..

    What has that got to do with ANYTHING?

    You guys are just off in fantasyland tonight..

    Go to Darfur with a bunch of guns and make the going rate $200 per hour.

    What will it do?

    You and Elder must try and stay on topic and in the real world.

    GMB

    November 28, 2006 at 9:08 pm

  33. “The unions could do a great deal of good if they could only get hold of the idea that productivity is the key to raise all boats and they need to work with management to that end.”

    Wasn’t that called the Accord? 😉

    fatfingers

    November 28, 2006 at 9:12 pm

  34. No-one voluntarily gives money away….. Ergo…… We ought to have wages set by physical intimidation.

    I don’t see how that holds up myself.

    GMB

    November 28, 2006 at 9:12 pm

  35. GMB: we (middle class, educated, relatively well-off) blithely expect the poorest workers to take less pay so they will eventually be better off after the free market eventually sorts it all out (we hope).

    That’s the argument here. And nobody on a minimum wage is gonna buy it. It’s a bit rich for those not enduring a minimum wage to advocate that minimum wage earners have even less (at least in the short to medium term).

    As I suggested earlier – bring about the conditions that will encourage the free market to provide affordable housing, create more jobs, cheaper transport, education, food etc. Then worry about how much poor people are paid. Paying poor people even less ain’t gonna fix these other issues.

    A little compassion can be a good thing. Put yourself in someone else’s situation.

    slim

    November 28, 2006 at 9:22 pm

  36. I spent a good whack of my youth earning the minimum wage, slim – burger flipping, retail, cleaning etc. I started at 14 years 9 months (the legal age to start work in Qld) and did it to put myself through school and later university, because mum & dad weren’t interested.

    If the minimum wage had been set any higher, it’s pretty likely that I wouldn’t have got a job at all, so no finishing high school and no going to university for this member of the working class.

    skepticlawyer

    November 28, 2006 at 9:27 pm

  37. skeptic lawyer – but if you didn’t have the ability to improve your prospects, would you still be satisfied with an inadequate minimum wage for the rest of your days?

    slim

    November 28, 2006 at 9:33 pm

  38. The accord helped the members and fucked everyone else who wasn’t a member.

    It was also based on an inflationary policy where wages were paid in nominal dollars.

    The deep recession of 90/92 put paid to that nonsense.

    JC.

    November 28, 2006 at 9:39 pm

  39. So why don’t we simply increase our wages at 20% a week. By your reckoning it wouldn’t matter

    If you’re earning what I think you’re worth, it probably wouldn’t. However, Mark Hill thinks that a piddly amount is all that stands between innovative, growing businesses and bankruptcy. Dear Lord! Innovative growing businesses know that you have to pay people and they manage them in such a way as to get you money back many times over.

    The Australian disease: all these low value-add spivs living on subsidies who think they’re cutting-edge and innovative.

    Andrew Elder

    November 28, 2006 at 9:50 pm

  40. slim, the point is that the alternative for some people is not “an adequate minimum wage” versus “an inadequate minimum wage”, but “an inadequate minimum wage” versus “unemployment”. That’s a fact, and just because it’s an unpleasant fact doesn’t make it not a fact. As Clint Eastwood said to Gene Hackman before he blew him away in Unforgiven “deserve’s got nothin’ to do with it”.

    I think a rise in the US minimum wage would, on the empirics, cost very little in reduced employment and, again on the empirics, raise quite a few poor peoples’ living standards. For several reasons that’s not true in Australia; a fall in the minimum wage here would almost certainly reduce poverty.

    derrida derider

    November 28, 2006 at 9:50 pm

  41. As my mother used to say: ‘if ifs and ands were pots and pans, there’d be no need for ironmongers’.

    I don’t know, slim, but I sure as shit know I preferred to work, and I also sure as shit know I hated paying tax on my low wages.

    I watched people in my family (including my own father) get shut out of the workforce (dad was unemployed the whole time I was at uni) and not even be able to work part-time (where there was work available) because he finished up earning less.

    So like every person I ever met in his position, he dodged the system and did ‘cash money’ jobs, constantly on the lam from the DSS/Centrelink. He’d have been better off without any minimum wage, but with the ability to earn money part time. His circumstances are one of the reasons I support abolishing the minimum wage and the institution of a negative income tax.

    skepticlawyer

    November 28, 2006 at 9:51 pm

  42. “How about working 40 hours only gets you enough to pay your rent and not enough to feed your family adequately.”

    The situation you mention is terrible, if not subject to conjecture (please quote a monetary figure for the US poverty line). But raising minimum wages doesn’t help at all. It doesn’t help the long term unemployed either. The key is to increase productivity and expand our resource endowment (growth) by capital accumulation and to reduce the prices of goods and commodities by removing taxes and artificial supply constraints.

    Very funny Andrew 🙂 but, the effect of what you say is central planning, although probably benign in the grand scheme of things. But are the sum of start-up firms with limited resources insignificant? What if you make the wrong decision? What is bad about clearing markets, for example reducing wages in a recession? It won’t stop recessions but it would stop mass unemployment or severely lessen it.

    Mark Hill

    November 28, 2006 at 10:19 pm

  43. Derisive D

    You’re not factoring in the huge pool of illegal labor in the US that most definitely competes with the bottom rung of the labor market. A rise in the minimum wage in the the US could be just as destructive for US citizens competing with the illegals.

    Again this is all speculative and another example of why it is best to leave wage determination to the market instead of legislative fiat.

    I keep repeating this and will continue until it sinks in. One can set wages through legislation. If the setting is above the clearing rate unemployment will be the end result. unless there is a joker out there who can disprove economic laws that have been around for 200 years or so this remains a truism.

    JC.

    November 28, 2006 at 10:19 pm

  44. “Raising the minimum wage does not give the working poor a pay rise. It makes them (or a proportion of) unemployed. ”

    This is a crucial fact. But as DD said, we need to know what this proportion is. If it is 1% (of those on minimum wage), then it may be a good price to pay for 99% who will have a pay rise. If it is 10% it is another matter.

    Conversely, lowering (real) minimum wage will give employment to some of the unemployed, but at the same time will reduce the (real) wage of some of those on the minimum wage. I am sure the bakery where my daughter works will stay on the minimum wage.

    Don’t know how to strike the balance right. Need the numbers which can only be obtained empirically.

    Boris

    November 28, 2006 at 10:30 pm

  45. “The Australian disease: all these low value-add spivs living on subsidies who think they’re cutting-edge and innovative. ”

    You really don’t understand, do you, otherwise you wouldn’t be making silly cracks.? Look dead shit, if you think these firms are low value adding go out there and show us how you would create a high value added firm.

    More to the point how would you employ those people that aren’t cut out to be biop tech engineeers. Go!

    In fact what is a high value added start up? A bio tech firm? is that what you think? Go take a look at the burn rate of these firms and so how much money they’re making. Nothing! Zilch. it’s all a big gamble with most of them… and costs do matter.

    The bet is that they will eventually payoff but investors are simply playing a crap shoot with most. i have a good idea as I have small book in these firms.

    Let’s take another example of a “low tech” firm. I am a silent investor in a car wash franchise that does well in a business that would normally be regarded as “spivvy”… “low value added”, by your reckoning.

    Understand one thing, Elder. You’re an idiot when it comes to economics and most other things. You shoot yoiur mouth off without knowing 1% of most subjects you engage in. No wonder you were a young lib.

    JC.

    November 28, 2006 at 10:33 pm

  46. http://www.irp.wisc.edu/faqs/faq1.htm

    “for a four-person family unit with two children, the 2005 poverty threshold is $19,806 USD”

    http://www.ubs.com/1/e/ubs_ch/wealth_mgmt_ch/research/rates.html

    Considering our PPP exchange rate, this is about $29 500 to us (AUSUSD PPP = 0.67)

    I refuse to call this poverty. You can afford an admittedly modest but well resourced life on this income. If buying a new home is expensive, it isn’t because wages are unjust but because of factors like limited land release, constant mild inflation, zoning restrictions, vendor taxes, stamp duties, planning regulations and unsustainable investment engendered by irresponsible fiscal and monetary policy.

    Mark Hill

    November 28, 2006 at 10:43 pm

  47. Boris

    We don’t know if wages in low skilled areaswould fall in price in an open and free market.

    My guess is that it would at first and then correct back smartly as employers bid up wages while the labor market broadened and demand for labor increased.

    And it would broaden.

    Look, we had wages setting that looked as though it was clearly below the clearing rate in the 50’s and 60’s. I recall unskilled relatives who could leave their jobs in the morning and find another that same morning. People in those times had no fear of losing a job.

    The biggest fear most workers have is not the fear of losing their current job becasue let’s face facts most people actually hate their jobs.

    The biggest fear they have is the fear of not finding another one at comparable wages. Freeing up the labor market would broaden the market so poeple would on the whole live without that fear.

    What we really want is the environment when it’s the bosses who live fear losing good labor.

    JC.

    November 28, 2006 at 10:43 pm

  48. Boris: you need to know elasticities too.

    But there is no balance to be struck. It is either benign or deleterious.

    Mark Hill

    November 28, 2006 at 10:45 pm

  49. You also receive income support in the US, ABL, as I am sure you know. Food stamps. Medical insurance through US medicare, child support. There are a whole host of state and federal support schemes.

    JC.

    November 28, 2006 at 10:46 pm

  50. My point was that it is farcical to call $29 500 for a family of four the poverty line. It’s not glamourous, but if you buy a smaller (new) car, you can rent a reasonable, modern air conditioned unit and have access to broadband and afford a good education, medical costs and actually save to invest and get a mortgage. You can pay to go to a gym or public pool. You have enough left over for mobiles, BBQs and some drinking, Pay TV and other entertainment. Hardly disadvantaged, even if you have to manage your budget well.

    Mark Hill

    November 28, 2006 at 10:52 pm

  51. I recall that the big policy Agore was rabbiting on about in the 2000 campaign was the right for the poor to have wide broadband in the home.
    That’s a good thing, a great thing. But if the party of the left is arguing broadband for the poor, the poor aren’t that poor by world standards.

    JC.

    November 28, 2006 at 10:56 pm

  52. “It’s not glamourous, but if you buy a smaller (new) car, you can rent a reasonable, modern air conditioned unit and have access to broadband and afford a good education, medical costs and actually save to invest and get a mortgage.”

    How on earh did you get this?

    Boris

    November 28, 2006 at 11:09 pm

  53. interseting PPPs, ABL.

    The US Dollar and Japanese Yen look very cheap on those values. They are exactly the two major currencies the markets have been trashng this past weeks.

    JC.

    November 28, 2006 at 11:16 pm

  54. wrong recession JC.

    It was correct in 82 not the early 90s

    Bring Back CL's Blog

    November 29, 2006 at 8:22 am

  55. Boris, tell me what you think someone on about $29-$30k can afford for a family of four?

    I’ve seen people on about that income live like that, comfortably.

    Mark Hill

    November 29, 2006 at 10:39 am

  56. Depends where they are living, Mark. In regional areas I agree they’ll be comfortable if they manage their money, I’m not so sure about the cities.

    Steve Edney

    November 29, 2006 at 10:49 am

  57. What part of greater Sydney or Melbourne are we talking about?

    Furthermore, unaffordability has more to do with supply restrictions than low wages.

    Mark Hill

    November 29, 2006 at 10:56 am

  58. I agree with the problems of unaffordability being largely due to supply restrictions. However that wasn’t the question.

    Steve Edney

    November 29, 2006 at 11:38 am

  59. But isn’t that part of the problem?

    We restrict housing through zoning and height restrctions and then when housing becomes unafffordable we take another look and suggest the big bad capitists are not paying their workers enough to live on.

    Thjis is what passes for poverty economics these days.

    JC.

    November 29, 2006 at 12:44 pm

  60. Sure its part of the problem, but he was asking whether someone one $29k can afford to support two kids in Australia, not should they be able to if we have all this other stuff right.

    I agree that we should be tackling these problems not by addressing all the costs we impose by various restrictions and regulation as well as fixation on income.

    Steve Edney

    November 29, 2006 at 1:29 pm

  61. But Steve, that is part of the problem that simply can’t be ignored.

    Someone on 29K could be able to afford living ok if those add ons weren’t there.

    As to your question:
    I think under the current climate it would be quite difficult to raise a family on that kind of wage.

    However i am not so sure that there are many people actually doing that these days. A building site laborer earns $30 an hour ($57,000 a year) these days in a major Oz city.

    Again if the market determines the going wage, we can’t then turn around add on all the extra living costs and say the wage isn’t enough. We should only be be doing that when we have exhausted the other alternatives by reducing the cost of living.

    JC.

    November 29, 2006 at 1:44 pm

  62. My last sentence was a little confused before. Some hasty editing made it say something halfway between unintelligible and opposite of what I meant.

    It should read

    “I agree that we should be tackling these problems by addressing all the costs we impose by various restrictions and regulations not just as fixation on income.”

    Steve Edney

    November 29, 2006 at 1:59 pm

  63. “This is a crucial fact. But as DD said, we need to know what this proportion is. If it is 1% (of those on minimum wage), then it may be a good price to pay for 99% who will have a pay rise. If it is 10% it is another matter.”

    No we don’t need to know this. What we need to know and find and rediscover is a little bit more respect for eachother that we aren’t going to go around pointing guns at people who aren’t of the group of people that need guns pointed at them.

    1. There is absolutely no doubt whatsoever that average worker productivity tracks with real wages.

    This fact transcends the common idea of ‘well it would work in a free society’. We have Reisman.. I suspect building on Hutt and Mises… And his inductive explanation of why worker productivity and real wages track is superb…

    But then the data comes back under Krugman… Leftist lunatic but I’ve never doubted his quantitative/statistical abilities.

    And Krugman finds that the two track in any system we have, across cultures, everywhere.

    So we don’t need to be MACROMANCERS here and let our eyes glaze over and think with the most equisite use of intimidation equisitely delivered by the right Saints we can get things right for a tiny bit of unemployment…

    But by the way under inflationary conditions in a union setting this, to be sure, is how things LOOKED.

    It LOOKED like you could force the management to pay everyone more and then they stay up at nights figuring out how to make the place run better whereas before they were given over to stodginess and not sticking their neck out.

    But nonetheless if you take 1000 such firms and such tactics lead to higher productivity and real wages then the problem with the society was that it was uncompetitive in the first place.

    And it is this that ought to have been adressed.

    There is just no way to nuance this sort of thing. If your society is otherwise competitive and you try to force wages up then someone, someone is having to pay for the people you’ve victimised into not being able to work and FURTHER not being able to work in the field of their choosing.

    And further not being able to tell a bad boss to go fuck himself for fear of not being able to get another job….

    Someone will have to look after these people that the leftists have decided to close the door on and narrow the options of.

    Then the other thing is that since everyone won’t be working the price of goods and services for any volume of total spending will be more. Thats a reduction in real wages right there…..
    >>>>>>>>>>>>>>>>>>>>>>>>

    This road we took. Well it did seem to be reasonable.

    It worked, or at least seemed to work, between the end of World War II and the early 70’s.

    Its a dead-end. Its doesn’t over the long haul. And now we’ve lost such a massive amount of our personal freedom because of it.

    But I would grant you that it appeared to work powerfully well in places like West Germany for about 3 decades.

    But we can do better.

    GMB

    November 29, 2006 at 4:11 pm

  64. Interesting discussion but it just proves that nobody can know everything about everybody else so they should not be in a position to make decisions that may adversely affect others – stop meddling in other peoples business and let the market sort it out.

    Substitute wages for potatoes, nobody would want a minimum $/kg for spuds yet spud growers pay wages and wage earners buy potatoes.

    As to the add-ons, many are imposed by other meddlers who mandate waste & enviro levies, section 94, stormwater tanks, EPA, EIS, land & enviromnment court, etc etc. Tens of thousands of dollars are lost forever on feel good notions before the first brick is laid. If they want more efficient use of resources they could start by not putting their hands in others pockets.

    rog

    November 29, 2006 at 4:48 pm

  65. “Sure its part of the problem, but he was asking whether someone one $29k can afford to support two kids in Australia, not should they be able to if we have all this other stuff right.

    I agree that we should be tackling these problems not by addressing all the costs we impose by various restrictions and regulation as well as fixation on income.”

    Yes they can Steve, but they’d be much better off with having the other stuff right.

    Mark Hill

    November 29, 2006 at 5:38 pm


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