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johnmatrix

minimum/living wage

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If the textbook was a colouring book.  

 

Any half-decent A level course would explain why such an understanding of wages and labour markets was simplistic at best - let alone grad level study.

 

The fact he claimed: "A simple and one of the most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labour without reducing the amount of labour that will be hired" proves he hasn't studied economics at all - or didn't pay much attention in class.

I agree that economics always comes with caveats about the fact that models are approximations and not perfect. But I think you are being overly harsh. Despite such reservations mainstream economics does predict negative consequences i.e. higher unemployment and a one-off inflation shock.

 

Mainstream economics emphasises that government interference in the economy creates distortions that lower national income. What is often overlooked is that the labour market already has significant distortions from the existance of the welfare state and perhaps a minimum wage would not introduce new distortions. But I wouldn't expect someone with an A-level or maybe the first year of a degree to know see that.

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I recall a story (maybe apocryphal) that I believe Alistair Cooke told on one of his Letters from America.  The boss of GM was crowing to the Union negotiator about how he'd be able to drive wages down with his new automated machinery.  The Union leader is said to have remarked "and when you've driven everyone's wages down, who's going to buy your cars?"

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I recall a story (maybe apocryphal) that I believe Alistair Cooke told on one of his Letters from America.  The boss of GM was crowing to the Union negotiator about how he'd be able to drive wages down with his new automated machinery.  The Union leader is said to have remarked "and when you've driven everyone's wages down, who's going to buy your cars?"

I'm not sure that GM car workers were ever anywhere near 1% of GM's market.

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There are 7 EU countries with no minimum wage (Austria, Cyprus, Denmark, Finland, Germany, Italy, and Sweden). If we compare the levels of unemployment in these countries with EU countries that impose a minimum wage, the results are clear – a minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%; whereas, the average unemployment rate in the seven nations without a minimum wage is about one third lower – at 7.9%

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There are 7 EU countries with no minimum wage (Austria, Cyprus, Denmark, Finland, Germany, Italy, and Sweden). If we compare the levels of unemployment in these countries with EU countries that impose a minimum wage, the results are clear – a minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%; whereas, the average unemployment rate in the seven nations without a minimum wage is about one third lower – at 7.9%

That's a bit crude. For instance that list contains many of the richest countries in the EU (Germany, Austria, Denmark, Sweden, Finland) but only one country that is poor by EU standards (Cyprus). You would need a rather more in depth analysis to draw a conclusion e.g. is unemployment higher in countries with a minimum wage than you would "predict" based on their income per capita?

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If you can't afford to pay your workforce a decent wage ( I know we can discuss what that is later) then you shouldn't be in business

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If you can't afford to pay your workforce a decent wage ( I know we can discuss what that is later) then you shouldn't be in business.

Unfortunately we'd never have got out of the feudal age with that one. Actually we'd never have entered the feudal age either. Unfortunately we need to be able to walk before we can run.

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There are 7 EU countries with no minimum wage (Austria, Cyprus, Denmark, Finland, Germany, Italy, and Sweden). If we compare the levels of unemployment in these countries with EU countries that impose a minimum wage, the results are clear – a minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%; whereas, the average unemployment rate in the seven nations without a minimum wage is about one third lower – at 7.9%

Wages in Scandinavia would be horrendous by your thinking.  They are very high wage economies, with strong investment in labour and an affluent working class - not something Britain had in the late 80's early 90's

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Unfortunately we'd never have got out of the feudal age with that one. Actually we'd never have entered the feudal age either. Unfortunately we need to be able to walk before we can run.

 

 

 But we are out of the feudal age. There is really no excuse for business to not pay decent wages.

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If you can't afford to pay your workforce a decent wage ( I know we can discuss what that is later) then you shouldn't be in business

 

Correct.

 

But, sadly, some people take pride in believing their economics textbook beats basic humanity.

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 But we are out of the feudal age. There is really no excuse for business to not pay decent wages.

Isn't the issue here though what qualifies as a 'decent wage'? 

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Where I work, the HR/Finance departments are almost apoplectic at the thought of having to pay a raise in minimum wage.

They are now working full time trying to find ways to alleviate the increase by whatever means - increasing hours, removing bonus payments, makung employees pay for uniform etc.

The employees this applies to will not have had a wage raise for 2.5 to 3 years

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 But we are out of the feudal age. There is really no excuse for business to not pay decent wages.

Human societies are generally only capable of incremental increases of a few percent a year. Not much but it adds up over time. But much better than "since we can't double this salary, we'd better shut the business".

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Correct.

 

But, sadly, some people take pride in believing their economics textbook beats basic humanity.

No, I believe that reality beats ideology.

 

If you believe that you can run a business and pay a fair wage then good luck to you. But it seems rather odd to run down those with businesses that don't meet the standards that you shy away from yourself.

 

In reality, economic progress is measured in small percentages - situations slowly get better - if you want dramatic change, you'd better discover oil.

 

The thing that you don't get is that you don't really know what economics is. Economics is simply a framework for evaluating the consequences of a particular action so that you can see whether it is likely to achieve what you hoped it would and what the side effects are going to be. The point is to make people's lives better. If the results aren't quite as predicted then take the data and go and make a better model.

 

Does a minimum wage make people's lives better or not? Are the downsides to it worth any gains? If the answers are "yes" then fine but otherwise to hell with "basic humanity"!

 

Now if you think you know a better way of running an economy than actually using data and models then I'd like to know what it is. Certainly economies that are based on doing something deemed "moral" whilst ignoring economic theory and real life data have tended to end badly.

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Isn't the issue here though what qualifies as a 'decent wage'? 

For me, the issue is whether the concept of "decent wage" improves or hinders the situation. Social protection wins lots of platitudes but it doesn't always make people's lives better. For me the point is whether you can improve the lives of everyone, the poor included.

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