What is it you don't understand about inflation and minimum wage?

[MyndFyre]

Declaration ahead of time: this essay does not use gender-neutral language.  You'll get over it.

I was listening to the news during a break on talk radio the other night, and Arizona Democrats are again pushing for a raise in our state's minimum wage (we're currently on the federal $5.15/hr rate) -- stating that if we don't raise it, it will be (*gasp*) the 9th year in a row without an increase.

Futhermore, the new initiative is supposed to increase the minimum each year for the next ten to adjust for inflation.

I'm not exactly sure why it is you people don't understand why minimum wages damage the economy.  Let me try to explain it to you in a simple, easy-to-understand way.

Business A employs a large, unskilled labor force at minimum wage.  Let's say they have 600 workers working at $5.15/hr.  The minimum wage rate increase to, for example, $5.75 -- this is $360 per hour increase, or $14,400 per week increase, or $720,000 per year increase (assuming a 50-week year).

The business isn't going to pay that increase; the customers are.  So let's say that each man-hour of labor produces $8.00 of market value (the sharp reader will now understand that the business owner will be having his earnings cut from $2.85/man-hr to $2.25/man-hr).  The business owner will now artificially raise the price of his goods to $8.60/man-hr.

Now the market is going to be hurt in one of two ways, depending on whether Business A delivers essential services.  If Business A delivers essential services, like electricity or water, everyone in the region will be hit with the increased costs of delivering that service.  As the saying goes, "everyone will be hit by it," so the burden will be distributed, but we'll effectively be taking money out of the pockets of consumers, which will hurt the economy further (because fewer goods will be able to be purchased).

Hopefully, it should be obvious that the price of the goods on the market has increased at a rate consistent with the amount of man-hours required to produce it.  This actually benefits big-business, which is better at producing larger quantities of product faster.  For instance, Tippman, a paintball manufacturer, might only require two man-hours of labor to manufacture a paintball marker (I highly doubt it even requires this, but this is simply to illustrate an example).  Mom-and-Pop Airsmith, who can produce an equivalent-quality marker but require three man-hours of labor because they can't afford such high-tech machinery, are competing with Tippman at a local store.  No matter what price they are at, Tippman is always going to be more competitive, naturally.  But Mom-and-Pop might need to take a loss to stay competitive with Tippman, and while this is true all the time, with the increase in minimum wage, Tippman will by default become more competitive by not adjusting its product price.  This is because big business earns its money in volume whereas small business depends on repeat customers; customers are less-likely to stick with mom-and-pop when their price is less comparable to the big-business alternative.  To add insult to injury, if the big business increases its product's price to match that of the small business, we've artificially inflated the value of that product (remember that inflation is when the market price of a product increases faster than the market value of the total cost of producing the product).

Furthermore, having a minimum wage prevents wages from falling when labor (as a commodity) is in high supply -- that is, when there is high unemployment.  Having a high wage discourages employers from hiring additional workers, which is a barrier to decreasing unemployment.  As we saw during the Great Depression, people who cannot afford to provide sustenance often revert to petty theft to survive, which causes more inflation (paying customers have to make up the difference).

I hope that you all can see clearly that minimum wages are bad in general, and increasing minimum wages causes more problems than it solves.

[hismajesty]

I can see clearly, and I've argued this point time and time again. They still don't get it.

[Adron]

Having reasonable minimum wages makes a lot of sense. Increasing them could cause inflation, but they should also be raised as a result of inflation. Minimum wages should be designed to match the minimum level of pay that you estimate someone will need to make a decent living without working more than however many hours you allow per week.

Minimum wages works against those who seek to abuse people. Here, we do not have minimum wages set by the government, but it is being discussed. Why? Well, for example because of people fooling polish workers to come here and work for crap pay, leaving them unable to pay for their stay and their ride back.

[hismajesty]

If everyone could make a decent living off of minimum wage that would not be good. In order for our economy to work there has to be some poor people.

[CrAz3D]

If everyone could make a decent living off of minimum wage that would not be good. In order for our economy to work there has to be some poor people.

That isn't very nice.
People should be able to live at least

[hismajesty]

If everyone could make a decent living off of minimum wage that would not be good. In order for our economy to work there has to be some poor people.

That isn't very nice.
People should be able to live at least

The way of the world isn't always nice.

[CrAz3D]

True, but we're supposed to be better & help less fortunate people out

[Arta]

I understand that argument, but I still disagree with it. I, in general, agree with letting the market sort things out for itself - as opposed to enacting heavy regulation - but there are some things the market cannot be trusted to set.

Minimum acceptable wage is one of these things. The reason for that is the same as the reason for the other things that the market shouldn't decide: the people who bear the cost of not having a minimum wage (workers) are not the people who benefit from not having a minimum wage. In the absence of a minimum wage, a business requiring unskilled labour can set its wages at any amount, without subjecting itself to any negative consequence. As a result, other people suffer.

Unskilled labour is something that society needs, but it is also something that society has too much of. I very much hope that that will one day not be the case, and when that day arrives, a minimum wage will not be necessary. Unskilled labour does have value, but the market undervalues it because supply exceeds demand. For as long as that is the case, it is necessary to have a minimum wage, to ensure that unskilled, full-time workers have an acceptable quality of life.

[CrAz3D]

But by the time unskilled labor is gone (I assume it'll be done by machines) companies will be replacing skilled laborers w/machines as well.  Then there are no jobs for anyone.

[MyndFyre]

True, but we're supposed to be better & help less fortunate people out

Then let's allow people to help them out by donating to charities, not sucking 20%+ of their income each year.  People are usually very willing to be philanthropic - it's a natural impulse.  People are nice by default.

[Rule]

People are nice by default.

I cannot overstate how much I disagree with this point.  If anything, people are cruel and self-serving by default.  In my experiences, perhaps less than 1% of the people I've met I would deem genuinely good.

Aside from my own experiences, psychologists have done much research on this, and indeed it is quite agreed upon that man's baser instincts are not good "by default": infact, to the contrary, it is in our nature to be completely self-centred, without regard to our fellows.  Please read on Freud's "ID".

Good people are exceptions.

I'm sorry, but merely relying on the good nature of mankind to help those who are less fortunate sounds like a really crummy and poorly thought out plan.

[CrAz3D]

Hmm, well, while thinking about little babies I've seen them both share & take away from eachother.  BUT probably mostly taking.
So yeah, I'd say people are generally self absorbed.

[Grok]

Rule, did the research indicate whether the majority of people were self centered because of conditioning, or that they were born that way?

[hismajesty]

Well, I follow Hobbes on this in that man is warlike and brutish in his natural state.

[Grok]

Well, I follow Hobbes on this in that man is warlike and brutish in his natural state.

I'm not siding with either until I know whether their studies and results were inclusive of the question of nature vs nurture.  The question would be if nature alone accounts for mankind's natural state of peaceful or brutish, altruist or self-centered, or whether nurture was somewhat responsible.  If nurture cannot be eliminated, then is the conclusion that nurture could change mankind into being naturally peaceful and caring about others?

And yes, this will come back to minimum wage.