Professor Mark J. Perry's Blog for Economics and Finance
NBC -- "The catchy Subway sandwich shop jingle involving a variety of foot-long sandwiches available for $5 doesn't apply in San Francisco. Apparently, the city's new minimum wage, raised to $10.24 as of January 1, make $5 footlongs an impossible business model."
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
129 Comments:
or it could be the cost of the Real Estate Rental Market in SF?
or it could be the cost of the Real Estate Rental Market in SF?
Yet it's not a problem in more expensive New York City?
I don't think that's it.
"or it could be the cost of the Real Estate Rental Market in SF?"
While that's no doubt a contributing factor, the $5 footlong was available until recently. The min wage increased Jan 1st - perhaps the last straw.
Let them eat faux footlongs.
BTW, Jalapeno Tuna is the featured $5.00 Footlong for March (ex. SF).
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Am I the only one who had the immediate question: well, how much more are they?
I've now read 3 stories and none of them answered that basic question.
Good luck living on $10 an hour in San Francisco:
Average Rent In San Francisco, San Francisco Rent Trends
"As of February, 2012, average apartment rent within 10 miles of San Francisco, CA is $2133.
One bedroom apartments in San Francisco rent for $1946 a month on average and two bedroom apartment rents average $2367."
Am I the only one who had the immediate question: well, how much more are they?
I don't understand the question you are asking. How much more is what?
Jon,
If they are no longer $5, how much of an increase are they seeing?
Oh, you mean the price of the sandwiches?
I thought that's what the topic was.
It was. I was just a little slow on the uptake.
Mike,
The $5 footlong is a special price for a limited time for various sandwiches, each of which has a regular price. I assume they will now sell at their regular price only.
Ron,
After looking at their website and reading the stories, I don't believe that's accurate. They have a section of sandwiches that sell every day for $5 AND one additional sandwich each month that's on special for $5.
The SF stores are going to continue to offer the monthly special.
They are still under $5 at Walmart, and better subs.
Fortunately, there are minimum wage workers who still live with their parents, live in a car, share an apartment with several other people, etc., So we can buy a sandwich for $5 instead of $5.50.
My BLT's have been $6 for about 2 years now... nothing new in SF. Someone probably just called them out on it so they were waiting for an excuse like the wage increase.
I'm actually surprised nobody commented when all the chicken started to taste like fish (or dolphin). This is why I'm on the BLT train now - bye bye teriyaki chicken! I tried to hold on I really did... good bye old friend...
Yes, Peak. 18-year-old Subway workers should make as much as a doctor so they don't have to have a roommate.
bonsharker,
Are you in SF? The BLT is definitely on the $5 list. I suppose if you're adding cheese that would change the price..?
But if they've been $6, that makes this story a bit of BS (depending on how many stores have done what you're saying...I'm sure participation varies by location).
Downtown is all $5.97. Sunset, Richmond, SFSU, Daly City, $5.57. Been like that for some time now.
Mike, you don't need to make as much as a doctor to be independent, rather than dependent on parents, spouse, or government for subsistance.
Anyway, it doesn't seem that Subway worker will get a $0.25 tip from you.
Other parts of the Bay Area, including expensive Palo Alto and Cupertino, are all at $5.
Because they don't have this wage law.
It may not be Subway's fault that it can't pay all its workers at least a subsistence wage.
PeakTrader, only talk for yourself. Some people would prefer to pay a ZERO wage by making sandwiches for themselves at home. As prices rise from minimum wage hikes, the tasks that customers do for themselves will rise proportionally. Increases in minimum wage are simply stolen from lost wages of employees who lose their jobs due to customers who outsource those tasks to themselves. Minimum wage proponents seem to be oblivious to the fact that those tasks are at a low wage specifically because they can often be done by anyone, customers included. Customers alone determine the pricing of everything, because we hold all of the money.
"Customers alone determine the pricing of everything, because we hold all of the money"...
Ahhh yes Doug hits the nail squarely...
Economics 101 at work...
Doug, my comments reflect a wage floor, or labor standard, not an infinite rise in the minimum wage.
Yet it's not a problem in more expensive New York City?
No way NYC is more expensive than SF in rents. Average, maybe. But not median. Besides, its not fair to talk about SF, without taking into account surrounding areas. NYC has incorporated the 5 boroughs (and it would be even cheaper if we counted Jersey), but Oakland isn't part of SF, for example, skewing the data upwards. The people who live in SF are mostly single young high-tech workers who have no problem spending most of their money on rent. Most of them are short-term residents (ie in a few years, they'll move elsewhere, to be replaced by their younger selves). Such cities (ie any hipster infested place) always tend to skew their rents upwards to inexplicable levels because the utility of these residents is mainly focused on "location", and is short term.
Increases in minimum wages there, is only going to cause increases in rents and expenses for everyone else too.
Good luck living on $10 an hour in San Francisco
So don't. Go to Oakland. No one forces anyone to live in SF or Manhattan. Plenty of other cheaper places to go to.
Fortunately, there are minimum wage workers who still live with their parents, live in a car, share an apartment with several other people, etc., So we can buy a sandwich for $5 instead of $5.50.
What's wrong with sharing an apartment? Or is that the new "cause" to complain about? Most people who have roommates, make well over the minimum wage, as the diminishing returns of roommates in relation to better living space, start to appear at a much higher price range. But that doesn't mean we should increase the minimum wage to $30/hour, in order to allow someone to live in SF alone.
"Anyway, it doesn't seem that Subway worker will get a $0.25 tip from you."
Why would it seem like that, Peak? Because you have everybody figured out by a few random comments? I'm sure you think you do.
As a former waiter, I tip to the point of absurdity...I enjoy the look on the face of the kid at the take-out counter when I give them 10 on a $30 tab, but that's MY choice. I don't tell people what to tip or how much a person should pay for a certain job. That's why we have you.
PeakTrader,
Why should the government implement a wage floor and price some workers out of jobs? If workers take jobs making $5.00 an hour, they obviously believe that $5.00 is a sufficient wage. If they do not, then employers will be forced to pay more. Why on earth would you want a government to get in the middle of that free exchange of labor for wages?
Jet,
People like Peak don't think about the results. Every time he writes something, I think about the now-famous Chuck Schumer campaign against ATM fees in bad neighborhoods. He fought and won the battle for a lower fee...obviously the ATM owners who could no longer justify business there at the new price moved. After that, the folks had to get their money at the bank during business hours...but at least they didn't have to pay that extra dollar when it was needed and convenient!
Another "feel-good" win.
Peak Trader said:
Doug, my comments reflect a wage floor, or labor standard, not an infinite rise in the minimum wage.
Wages that are increased by government order result in price increases that hit the recipients of the wage hikes disproportionately. The price increases tend to wipe out the benefits of the wage hike.
The only wage increases that benefit the worker are those that result from productivity increases. Making more with the same amount of labor. That drives prices down while allowing wages to rise.
Peak Trader said:
Doug, my comments reflect a wage floor, or labor standard, not an infinite rise in the minimum wage.
Wages that are increased by government mandate result in price increases that hit the very recipients of the wage hikes disproportionately. Those price increases tend to wipe out the benefits of the wage hike.
The only wage increases that benefit the worker are those that result from productivity increases. Making more with the same amount of labor. That drives prices down while allowing wages to rise.
It's nonsensical to insist that a part-time job at Subway should support a family -- or even an individual. Your crusade does nothing but entrench big-business interests. The small guys can't compete.
Well for all this talk about Frisco in its collective wisdom raising the minimum wage what has it done about the agressive panhandling, the louging winos, and the feces and urine odors wafting in from the public parks?
I haven't had the disagreeable experience of visiting Frisco since May of '03 and for all the money that is supposedly floating around there some of the most basic flaws of any third world country still were alive and well in Frisco...
PeakTrader said...
Good luck living on $10 an hour in San Francisco...
here's a map from The National Low Income Housing Coalition whiich shows how many hours one would need to work at minimum wage to afford a 2 bedroom apartment at fair market rent in each state:
https://data360.wordpress.com/2012/03/16/hours-at-minimum-wage-needed-to-afford-rent/
you can see that in the dark blue states, it would require over 88 hours of minimum wage work to afford rent, in other words, even a young couple living together would be hard pressed to make ends meet…and there is no state in the US where its possible to work a 40 hour per week minimum wage job and afford a two-bedroom unit at fair market rate…
Next, the knuckleheaded SF politicians will introduce price ceilings for subs. Subway is taking advantage of the citizens of SF, while citizens in other cities are enjoying $5 footlongs. Price gouging!!! This is a travesty and cannot stand (say the politicians)!!!
No problem, just change the ads to read $50 foot longs
here's a map from The National Low Income Housing Coalition whiich
Of course it is an pi**-poor analyses.
Lets take NYS, as an example. Given that the ENTIRETY of New York State is taken into consideration here, I guess I'm free to pick and chose which cities in NY I can compare :)
Ok. By their "analyses", in NYS one would need to make $47,385 in order to afford a 2-bedroom apartment of $1,184/month. This is for ONE PERSON. If 2 people are working (ie a "young couple" as you put it), they could easily afford such a house, at ONLY 30% of their income, by working about 44 hours each :) But of course, $1,184/month, in 90% of NYS, would get you a much better home.
But, lets assume $1,184 as the amount of rent that this source considered. Again, keep in mind that their analyses says that they should only spend 30% of their income on rent! In reality, most people spend a lot MORE than that in rent.
Either way, here's a 2 bedroom apartment in Rochester NY for $400:
http://rochester.craigslist.org/apa/2929762263.html
Here's a 2 bedroom in Buffalo NY for $385:
http://buffalo.craigslist.org/apa/2911107580.html
Here's a 2 bedroom in Albany NY for $550:
http://albany.craigslist.org/apa/2929516879.html
Here's a 2-bedroom in Staten Island (NYC!!!) for $600: http://newyork.craigslist.org/stn/abo/2929772687.html
You get the idea. Since we are talking about people making minimum wage, why are we comparing them against the MEAN market price for rent? I know, I know...I ask stupid questions.
So here's my analyses. A "young couple", making minimum wage in NYS, $7.25/hour, could afford an apartment of $700/month, and only spend 30% of their income on this. $700/month could easily cover virtually all 1-bedroom apartments in most areas of NYS, with the exception of NYC...with ONLY 40 hours of work per week. But since no one in NYC spend 30% of their income on rent, but rather a lot more, why limit ourselves to 30%?
$700/month in rent, would also get our "young couple" access to probably 60-70% of 2-bedroom homes in most places in NYS, with the exception of NYC.
PS: Why is a "young couple" living in a TWO bedroom apartment anyway?
PPS: Why is only 1 of our "young couple" working. What's the other one doing?
Here's another way to look at it. Lets ignore NYC for a moment. Lets go to NYS' second largest population and economic area, Rochester. In Rochester NY, the median home price is around $105,000 (and I'm assuming has at least or more than 2 bedrooms). If our "young couple", working on minimum wage of $7.25/hour, decide to BUY a house, instead of rent...they they got mortgage rate of 7% (today they are much lower), our "young couple" on minimum wage would only have to make a payment of $698.57/month! (right at our $700/month target! What a coincidence ;) )
So they would be able to buy a house in Rochester NY, on minimum wage, by spending only 30% of their wage, at 40 hours/week.
Hmm. So a couple making the LOWEST wage possible, with a terrible interest rate, could easily afford a MEDIAN home in the second largest economy in NYS.
At AIG: Being in a couple and buying/renting a house together would still be like having a roommate. That you have sex with.
Abir, don't be silly. You can't have sex on minimum wage. Birth control alone costs 30% of a young couple's income.
It's really quite amazing how some people react so emotionally to such a low labor standard, e.g. a $10 wage floor in San Francisco.
Perhaps, we should just do away with all those annoying labor standards.
That way some people can easily exploit the most unfortunate in society.
I'm sure they also wonder how the country ends up with an Obama-Pelosi-Reid government.
And, Mike says: "As a former waiter...I enjoy the look on the face of the kid...when I give them 10 on a $30 tab."
What about the face of the kid earning minimum wage at a fast food restaurant? Do you give him a 33% tip too?
At Peak trader: A minimum wage is not a standard. It is a price floor. What if I am willing to accept a job below the minimum price? According to the government, I cannot be employed. How does it help me?
Abir, a minimum wage is also a labor standard. For example, you may want to see the Fair Labor Standards Act.
If you had a choice of starving or working for $5 an hour in San Francisco washing windows on skyscrapers without a safety cord, which would you choose?
If I was running a small business, I wouldn't want a minimum wage or any labor standard.
I could make a fortune on cheap labor, and even lower prices for my rich clients, who pay me.
Peak Trader,
When I was a teenager, I did work at a couple of jobs (off the books) paying less than minimum wage.
I felt better off with that money than with no money at all.
I don't see your window washing example as relevant. If John Stossel ran the world, that window washing job might possibly exist (though highly unlikely). But even assuming that it did, the fact is that jobs would become quite abundant (not dangerous at all) if the minimum wage were eliminated.
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If you had a choice of starving or working for $5 an hour in San Francisco washing windows on skyscrapers without a safety cord, which would you choose?
Why are you living in San Francisco?
It's really quite amazing how some people react so emotionally to such a low labor standard
For me, its the logic. You people lie through your teeth, fabricate an alternate reality, and then expect the rest of to act stupid.
I would imagine people who use this logic, have probably:
1) never had to pay their own rent because they either never lived outside of their parent's house, or had their parents pay for their rent
2) Never had a roommate in their life
3) Never lived anywhere else other than a rich suburb or on a trust-fund sponsored vacation to San Fran/Seattle/Willimasburg
4) Never worked for anything remotely resembling minimum wage
5) never knew anyone making anything close to minimum wage
Only people like that, could make such ridiculous arguments such as...one needing $48,000 a year in NYS to comfortably rent a 2-bedroom house. What?? We rented a 4 bedroom for 1k in my college days, in a good part of the city (not NYC, of course).
One has to be completely detached from reality, to think that:
a) window cleaners in San Fran make minimum wage (they don't! Office cleaners even make way more)
b) anyone living in San Fran actually works as a window cleaner
When my family first came to the US, many years ago, my dad was the only one working since he was the only one who knew English. He worked for minimum wage as a clerk in a supermarket. Yet we survived, in NYC, and here I am today.
Immigrants come to this country, lots of them in NYC, and start working at BELOW minimum wage(most at below, under the table, since few people will hire them for minimum wage). They make it and they prosper, and in a generation or two they are indistinguishable from ordinarily middle class Americans.
And here you are, asking "me", which one would I chose?
"If I was running a small business, I wouldn't want a minimum wage... ... I could make a fortune on cheap labor, and even lower prices for my rich clients"
____________________
I'm a little curious as to what sort of business that would be. Cheap labor coupled with rich clients?
I can't think of many examples of that. But I suppose that landscaping would be one. Of course, if all of your competitors in the business could hire cheap labor as well, you'd have to lower your prices. Probably wouldn't "make a fortune" as a result of elimination of the minimum wage.
Arbitrage789, yes, we could get the 24 million unemployed back to work by paying them $3 an hour and setting up tents.
AIG, it would, if you are a certain slut from Georgetown Law.
I know. I know. 30% for rent, 30% for food (which is why there is an obesity epidemic amongst the poor), and 30% on birth control. There's BARELY any money left over for the iPhone 4S unlimited data plan. And how is a "young couple" on minimum wage supposed to get ahead without streaming youtube videos on their iPhones?
Peaktrader @ 9:46
Eliminating the minimum wage wouldn't mean that the government would have to impose a ceiling (of $3.00) on wages.
If the minimum wage were to be eliminated, perhaps a few jobs WOULD pop up paying $3.00/hr. But at $5/hour, I think there would be a lot of takers (among teenagers). And no one would have to "put a gun to their head" to accept the job.
AIG, anyone can create a simple and unrealistic model that has some logic.
However, that doesn't reflect the U.S. labor market and economy.
Peak, if $10/hr is a good thing in SF why not make it $20/hr? Or $50/hr? Why not establish a minimum wage of $100/hr nationally?
I'll help you out.
Because labor is only worth the value that it adds. If a business pays people more than the value that their labor adds to the business then eventually they'll go broke (barring a federal bailout).
AIG,
"There's BARELY any money left over for the iPhone 4S unlimited data plan"
_____________
I heard that's now a Constitutional right.
Arbitrage789, yes, and there would be some people willing to work without any safety standards.
If they're killed or injured, you can hire another one.
Keith, if one safety cord is sufficient washing windows on a skyscraper, then why have two, five, 10, or more?
And if the worker isn't worth one safety cord, then there should be none, right?
PeakTrader,
I'm not against all safety standards.
Also, I don't want to go back to the sort of labor standards we had in the 1930's
AIG, anyone can create a simple and unrealistic model that has some logic.
Their model has no logic. Neither do your assumptions that somehow minimum wage workers clean windows in skyscrapers, and they then go to live in their San Francisco homes.
I heard that's now a Constitutional right.
Well one does need to ask Siri for directions to the nearest soup kitchen.
Peak, I just checked. A window cleaner in San Francisco makes an average of 33k a year. That's $17.2/hour...72% more than the new minimum wage.
@ PeakTrader 3/29/2012 10:01 PM
Peak, that's a non sequitur. We were discussing the economics of the minimum wage, but you changed the subject to workplace safety.
My question remains: If a $10/hr minimum wage is a good thing why isn't $20/hr better? Why isn't $100/hr better yet?
Peak: The correct choice is making 5 dollars an hour and being unemployed. I would, obviously, choose the former unless Obammer gives me "free" money. You do realize that an artificially high wage decreases labor demand? Or is Econ 101 too taxing for your brain?
AIG, I gave Abir a choice, not a statement on how the window washing business actually works:
"If you had a choice of starving or working for $5 an hour in San Francisco washing windows on skyscrapers without a safety cord, which would you choose?"
AIG, I gave Abir a choice, not a statement on how the window washing business actually works
I thought you were interested in accurately portraying how the US labor market and economy works? Here, let me quote you:
"AIG, anyone can create a simple and unrealistic model that has some logic. However, that doesn't reflect the U.S. labor market and economy."
Peak: Your choices were wrong. You are making a strawman fallacy. And cord and no cord is actually a working conditions issue. Why did u bring that up?
Abir, so, out of only two choices, the "correct" choice is the one you made up.
Have you ever heard of "reservation wage" or ever read any economic literature on labor economics?
Perhaps, someday you'll learn some economics.
AIG, that was a simple choice, not an economic model.
AIG, that was a simple choice, not an economic model.
What was the choice supposed to reflect, if it had no relation to economic reality?
Yes Peak. I am aware of what a reservation wage is. What if my reservation wage is lower than the minimum wage as well as the competitive wage? I would be screwed out of a job wouldn't I?
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Pt says: "Perhaps, we should just do away with all those annoying labor standards.
That way some people can easily exploit the most unfortunate in society.
I'm sure they also wonder how the country ends up with an Obama-Pelosi-Reid government"...
Funny you should mention politicos that come from loser states...
PT do you know why 'the most unfortunate in society' are the most unfortunate?
Because they deserve the status... They live their lives to enhance that status...
They're parasites...
Mike,
"After looking at their website and reading the stories, I don't believe that's accurate. They have a section of sandwiches that sell every day for $5 AND one additional sandwich each month that's on special for $5.
The SF stores are going to continue to offer the monthly special."
I was confused, then. Thanks for the correction.
Peak: "...you don't need to make as much as a doctor to be independent, rather than dependent on parents, spouse, or government for subsistance."
Why should a person be independent if they have no marketable skills, and why is it up to me to pay for their independence?
Peak: "Anyway, it doesn't seem that Subway worker will get a $0.25 tip from you."
They will if they serve me at my table. Or if they are hot and smile at me.
Peak: "It may not be Subway's fault that it can't pay all its workers at least a subsistence wage."
I would think it's the workers fault.
"No problem, just change the ads to read $50 foot longs"
LOL
When you want to impress your date that your a big spender, come on in for a $50 footlong.
"and there is no state in the US where its possible to work a 40 hour per week minimum wage job and afford a two-bedroom unit at fair market rate."
...and, so?
AIG: "PS: Why is a "young couple" living in a TWO bedroom apartment anyway?"
3 children.
"PPS: Why is only 1 of our "young couple" working. What's the other one doing?"
Tending to the 3 children.
:)
AIG: "...don't be silly. You can't have sex on minimum wage. Birth control alone costs 30% of a young couple's income."
Yeah. Just ask Sandra Fluke.
Peak: "...anyone can create a simple and unrealistic model that has some logic."
LOL
I'll say, you are the poster child.
Peak: "If you had a choice of starving or working for $5 an hour in San Francisco washing windows on skyscrapers without a safety cord, which would you choose?"
If those are my only two choices, why are you offering to pay me so much?
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Peak: "Have you ever heard of "reservation wage" or ever read any economic literature on labor economics?"
Yes. I guess that if my reservation wage is higher than $5/hr, I will be starving instead of washing windows.
But hey, it's good to stick to your principles.
"Have you ever heard of "reservation wage" or ever read any economic literature on labor economics?"
Well, then I would be starving and the skyscraper would have dirty windows. I'm not sure how forbidding the skyscraper manager to hire me at 5$/hour would change the situation.
Ron, I've shown how a minimum wage can be a net benefit for society, in the context of economic models, depending on economic conditions.
For example, an increase in the U.S. minimum wage can be a net benefit when:
1. Inflation is low.
2. Interest rates are low.
3. Profits are high.
4. Compensation of top management is high.
5. Economic growth is low.
Some profit and compensation will shift to minimum wage workers, low interest rates can offset some of the higher wage, consumption will increase, because low-wage workers have a high marginal propensity to consume, any increase in unemployment is offset by higher wages and unemployment benefits, and productivity can increase.
Ron, I've shown how a minimum wage can be a net benefit for society, in the context of economic models, depending on economic conditions.
I don't see how, or where, you have done this. You first started out making the argument that our reaction was "unreasonable", for such a "small thing". Then you created a "model" where the only choices available were starvation, or swinging around at 300 foot heights, constrained by having to live in downtown San Fran.
So I'm going to go back to my original strategy; showing you why your assumptions (and the assumptions on which all these feel-good arguments are based on) are unrealistic. So if our mythical minimum wager has
a) the option to live anywhere else in the country other than San Francisco
b) the option to work for any number of employers offering wages ranging from minimum wage to considerably higher
c) The option of starvation is certainly never on the table
Then all we're left with is someone who is willingly living in the most expensive part of the country, and willingly engaging in minimum-wage labor, be it with or without safety straps. Given that he has multiple other more attractive choices (like doing the same job, somewhere where living costs are 5 times lower), then I see no reason why there ought to be any interference in the labor market.
Again, I'll give you the example of immigrants in NYC: a very large % of recent immigrants, for the first few years, work at below minimum wage levels. Again the evidence seems to support the arguments of the economists; they gain the necessary skills, and then move on to higher wage levels rather quickly.
The point is to create the conditions where the people who work at such low wage levels, can move up as quickly as possible. Simply moving their wages up artificially, only places barriers on the people moving up from the bottom.
Your assumptions, on the other hand, are that minimum wage is a permanent condition, and there is no reasons why they are at the bottom, and no options for how they will move up.
3 children.
THREE children? Is this "young couple" from a Rick Santorum voting constituency? :p Well, given all the child tax credits, the welfare payments for each child, medicaid, section 8 etc...with 3 children, our "young couple" doesn't really need to work at all.
Well I guess birth control IS really expensive, so there was NO WAY of avoiding having 3 children. No I take that back...they probably don't believe in birth control.
For example, an increase in the U.S. minimum wage can be a net benefit when:
1. Inflation is low.
2. Interest rates are low.
3. Profits are high.
4. Compensation of top management is high.
5. Economic growth is low.
Some profit and compensation will shift to minimum wage workers, low interest rates can offset some of the higher wage, consumption will increase, because low-wage workers have a high marginal propensity to consume, any increase in unemployment is offset by higher wages and unemployment benefits, and productivity can increase.
Peak, do you think people making minimum wage are currently working in high profit industries?
Where do the unemployment benefits come from? Must I pay more for my sandwich plus the higher taxes necessary to pay the unemployment benefits?
How exactly does a higher minimum wage cause productivity to increase? Isn't it the other way around?
AIG, you've completely missed the point.
Would you say it's easier or harder for some people to exploit other people with or without labor standards, e.g. a minimum wage?
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Mike, I could make a high profit exploiting low-wage workers, and also reduce prices for rich clients, and still make a higher profit.
If I'm most productive and my reservation wage is $12 and I was given a choice of starting at $10 or not working, I wouldn't work.
Peak Trader,
How is it "exploiting" someone when an employer offers a job at a given wage? The potential employee is free to accept or reject the offer. How can offerring someone money for their services ever be "exploiting"?
On the other hand, consider what happens when elected officials enact a wage floor which prices unskilled workers out of the labor market. Many such workers then become dependent on those elected officials for food and shelter - essentially becoming wards of the state. In order to maintain such a meager existence, the unemployed workers often feel compelled to re-elect those officials who initially eliminated their jobs, but who are now using their taxing power to "save" them. To me, this is a much better example of someone "exploiting" a human being.
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"AIG, you've completely missed the point.
Would you say it's easier or harder for some people to exploit other people with or without labor standards, e.g. a minimum wage"
no peak, you seem to be missing the point. you look only at one side of the issue.
if min wage is $10 and i have skills worth $8 and a willingness to work for that, i am being harmed by not being allowed to. the employer is harmed by not being able to hire me. so are all his customers, investors, etc.
if you price fix, you get bad asset allocation.
what if we said corn could not be sold for less that $10 a bushel? you'd see that as clearly anti consumer and see corn demand plummet as a result.
wages are just another price and price fixing is still price fixing.
this notion of "exploitation" is just subjective nonsense ignoring the bulk of the issue.
what you had a used car worth $30k but i told you you could not sell it for less than $40k? you'd never be able to sell it. would that make you feel protected from exploitation?
no. it would make you feel screwed. instead of $30k, you'd get zero.
wages work the same way.
methinks-
nyc is not more expensive than SF. i have lived in both, and SF is considerably more expensive, especially at the low end.
further, in SF, you have a big jump in costs for subway workers due to the healthcare law that mandates very expensive health policies for ALL workers. it drove up restaurant prices around 20% when it passed.
i think that is the bigger deal than minumum wage.
Jet Beagle, are you saying if you don't have money and need money, you can't be exploited by those with money?
Morganovich, you're comparing apples to oranges, because a wage (an input) is not the same as a price (an output).
Peak Trader: "Jet Beagle, are you saying if you don't have money and need money, you can't be exploited by those with money?"
Not at all. there are many ways for one human being to exploit another. But I do not see how the act of offerring wages for another person's services can be "exploiting". Can you explain?
Jet Beagle, for example, a desperate Mexican may be willing to mow lawns for $5 an hour and live in a car, while you increase your profit substantially and buy a mansion.
Of course, some people wouldn't view that as exploitation.
Would you say it's easier or harder for some people to exploit other people with or without labor standards, e.g. a minimum wage?
So now its exploitation. Yesterday it was labor market economics. Tomorrow, it will be moral Christian duty.
No I don't think exploitation has anything to do with it. Low-wage employees switch jobs at a much higher rate than high-wage employees. That indicates that they have plenty of opportunities to switch from one employer to another, if they feel that the particular employer is exploiting them.
So again, we come to the conclusion that you assume no possible alternatives for these people, other than a monopoly position of a single employer over them, requiring some sort of government intervention. Obviously, that is not an argument even worth having.
If I'm most productive and my reservation wage is $12 and I was given a choice of starting at $10 or not working, I wouldn't work.
Great. Don't work. But why would you stop someone whose reservation wage is $5? An immigrant who no language skills, no US work record, no US work skills, in most cases simply doesn't have the luxury of a $10/hour reservation wage. But how is he/she going to GAIN those skills, if they don't enter the work force at a discount?
I know, I know...exploitation
Of course, some people wouldn't view that as exploitation.
Including the Mexican laborer. So if none of the parties involved feel they are exploited...but you the observer, do...what do you suggest? ;)
AIG, I doubt many people are willing to work for $5 an hour in the U.S., unless they had to.
So, you don't believe a Mexican laborer earning $5 an hour in the U.S. doesn't feel even a little bit exploited?
So, you don't believe a Mexican laborer earning $5 an hour in the U.S. doesn't feel even a little bit exploited?
He crossed the border, stood on a street corner, offering specifically this service. And yet...you...feel exploited.
Very strange. Whether one "feels" exploited or not is quite irrelevant. No one making $5/hour is happy about it. But happiness isn't the reason most people work.
The question is, how is this immigrant going to improve his market offer, if he doesn't start with a discount, given that the productivity he offers is lower than someone else.
Your argument is, don't worry about improving your capabilities, don't worry about securing opportunities, don't worry about competing...we'll just increase your wage artificially for you.
And you don't see how you CAN'T really make an economic argument for this? You can make a moral argument all you want, but not an economic one.
Your argument can only work under some very specific, and completely unrealistic, circumstances.
And by "work", I mean that you may actually find some sort of economic argument.
If you are dealing with a monopoly situation where the employee has really only 1 (or a couple) employment options, then one can make the argument that some sort of "involvement" may be beneficial.
But the low wage environment is a "commoditized" environment; there are a lot of potential employers in a lot of different industries. Moving from one to another carries very little costs.
It may also make some "sense", if the reason for the low wages has, for some reason, less of a connection with the individual's productivity, skills etc, but some other factor. However, no such labor market exists in the US.
So...what is the justification for an "intervention" in a highly competitive market? "Exploitation" isn't one.
I can see this goes nowhere with some people.
If it weren't for the minimum wage, some workers would be earning a couple of dollars an hour less, and you could still buy your Subway footlongs for $5 instead of $5.25.
"If it weren't for the minimum wage, some workers would be earning a couple of dollars an hour less, and you could still buy your Subway footlongs for $5 instead of $5.25"...
So what PT?
No one is being forced to work there, right?
PT are some sort of living wage shill?
peak-
"Morganovich, you're comparing apples to oranges, because a wage (an input) is not the same as a price (an output)."
that's complete nonsense.
if i build a muffler, that's an output of my business. it's an input to another one. thus, your ideas of price are totally invalid.
wages are just another price for a thing you buy. to the provider of labor, it's an output, to the buyer, an input in exactly the same way that an orange is an output for a florida farmer and an input into your lunch.
pretending that wages are somehow "special" is just nonsense.
i note you have ducked my price fixing question.
so:
let's imagine a law that state that no one can sell a used car for less that $20k. you have a used car others would pay $10k for. doe this law stop exploitation of you? does it improve the economy and asset allocation?
no.
it's a disaster. it strands value by preventing a market clearing price from being able to exist.
minimum wage is THE EXACT SAME THING.
far from stopping exploitation, it just creates rationing. it reduces the number of jobs, increases the prices of goods, and ups unemployment all to stop some fanciful notion of "exploitation" you have which is nothing of the sort.
shall we fix corn prices at $10/bushel to stop exploitation of farmers? how about allowing no cars to be sold under $40k to stop exploitation of auto makers?
it's price fixing, pure and simple.
your input/output dichotomy is completely false. wages are a price like any other, and a labor market needs a market clearing price, just like any market.
"let's imagine a law that state that no one can sell a used car for less that $20k. you have a used car others would pay $10k for. doe this law stop exploitation of you? does it improve the economy and asset allocation?"
Of course not. It instantly creates a black market and an increase in the number of formerly law abiding citizens willing to mis-state reported prices paid for cars. Suddenly every used carappears to be selling for $20k.
The beneficiary of this price fixing law is the State, not consumers, as higher sales taxes will be collected on each sale. This , of course, amounts to a tariff on used car sales, and as always, hurts low and moderate income people most
Low priced used car dealers would go out of business, leaving only high end used cars available, and new car dealers wouldn't take trade-ins except for high end models.
Peak: "...for example, a desperate Mexican may be willing to mow lawns for $5 an hour and live in a car, while you increase your profit substantially and buy a mansion."
It's not clear how I can increase profits enough to buy a mansion by paying someone $5/hr to mow my lawn, but if I'm getting such a great deal, wouldn't my neighbors hire her away at $6/hr?
How much value to me is being produced by this lawn mowing dynamo, and won't my neighbors recognize this value and offer to pay closer to the value they place on lawn mowing?
If I and my neighbors value having a tidy lawn at $20/hr, and I have the good fortune to only pay $5/hr, wouldn't I lose that mower to others willing to benefit by less than $15/hr?
I suppose I can form a cartel with my neighbors, and agree to never pay more than $5/hr for lawn mowing, but there may not be enough labor available at that price to get everyone's lawn mowed.
Put another way, my reservation price for lawn mowing is $20/hr, so I won't mow my own lawn for less than that, meaning I will hire someone else as long as they charge less than $20/hr, at which price I will start mowing it myself. If my neighbors have a similar reservation price, they will start a bidding war for my $5/hr lawn mower. There is a market clearing price for lawn mowing labor, and it's likely more than $5/hr..
How was my lawn mowed before this $5/hr wonder got the job? Did I replace a higher priced mower, or was I mowing it myself?
Did you skip all those micro econ classes when you went to school?
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Ron, why don't you ask the millionaires and billionaires for some insights on microeconomics?:
http://rwer.wordpress.com/2010/11/20/graph-of-the-week-usa-productivity-and-real-hourly-wages-1964-2008/
Peak: "...I doubt many people are willing to work for $5 an hour in the U.S., unless they had to."
"Had To" meaning they chose it as there best possible opportunity above all others?
Don't we all make those kinds of decisions?
AIG's example of an immigrant with no English, no skills, and no experience is a good one. That person is competing for work with many others who may be more qualified in one or more of those areas. Their only advantage is their willingness to work for less.
Once they have some experience, gained some skills, and learned some English, their value to an employer increases, and their competitive position is better, and they can demand higher pay.
I believe this has worked for millions of immigrants to the US for as long as the US has existed.
"why don't you ask the millionaires and billionaires for some insights on microeconomics?"...
Geez PT your Real-World Economics Review posting still doesn't mitigate the fact that raising the minimum wage is a catastrophe for young and or unskilled labor...
From US News: High Teen Unemployment Could Hurt Future Job Growth
From the Employment Policies Institute: Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?
"Ron, why don't you ask the millionaires and billionaires for some insights on microeconomics?:"
Because I was asking you. Thanks for the interesting graph showing aggregates. Isn't that a macro term?
Where's the line showing real income including non cash benefits, and where is the line that shows lower real prices due to that increasing major sector productivity?
Juandos, did you even read the simulations in your article? (and you should read more literature on the minimum wage by labor economists than just choosing one):
"...the proposal to raise the federal minimum wage to $9.50 per hour is unlikely to be any better at reducing poverty because (i) most workers (89.0%) who are affected are not poor, (ii) many poor workers (48.9%) already earn hourly wages greater than $9.50 per hour, and (iii) the minimum wage increase is likely to cause adverse employment effects for the working poor.
We conclude that further increases in the minimum wage will do little to reduce poverty and are a poor substitute for further expansions in the federal Earned Income Tax Credit program as a mechanism for reducing poverty."
"let's imagine a law that state that no one can sell a used car for less that $20k. you have a used car others would pay $10k for."
Actually one of the many negative consequences of the 'Cash for Clunkers" program was something similar to that, in that it removed tens of thousands of perfectly serviceable used cars from the market, thus denying them to low income buyers.
Peak: (quoting from the EPI report)
"We conclude that further increases in the minimum wage will do little to reduce poverty..."
Wait. I'm confused. Isn't it your position that increases in min wage have positive effects?
Are you now supporting juandos' position that they don't?
"did you even read the simulations in your article? (and you should read more literature on the minimum wage by labor economists than just choosing one)"...
Well I see you're still missing the painfully obvious point PT...
I did read it and more importantly I understood it... It calls for MORE government intervention in the job market place with the Earned Income Tax Credit program...
Did that sail right on past you?
Obviously you missed all of the substance of the US News article...
PT this is for you from the Mises Institute: Learn Principles of Economics Online
Robert P. Murphy
I am pleased to announce that in mid-April, we will begin another session of my Mises Academy online class: Principles of Economics...
Ron, yes, including for reasons I stated above, raising the minimum wage will have a net positive effect on the economy.
However, raising the minimum wage will also do little to reduce poverty, which includes those making more than the minimum wage, and the worst workers may be laid-off.
Juandos says: "PT this is for you from the Mises Institute. Learn Principles of Economics Online."
I already have degrees in economics.
The problem is too many people think they really and fully understand economics by finishing econ 101, or taking a few econ classes.
"I already have degrees in economics"...
Where PT? Keynesian U.?
"The problem is too many people think they really and fully understand economics by finishing econ 101, or taking a few econ classes"...
Medicus curare te...
Its still obvious, beyond obvious you missed the point of both links...
Peak: "...yes, including for reasons I stated above, raising the minimum wage will have a net positive effect on the economy.
However, raising the minimum wage will also do little to reduce poverty, which includes those making more than the minimum wage, and the worst workers may be laid-off."
May I conclude then, that if the poor aren't helped, that raising the minimum wage has the positive effect of benefiting the rich?
Perhaps it increases demand by the rich for unskilled labor.
Peak: "The problem is too many people think they really and fully understand economics by finishing econ 101, or taking a few econ classes."
Or by having degrees in economics.
"Perhaps it increases demand by the rich for unskilled labor"...
Zing!
Outstanding ron h, yes sir that was most outstanding...:-)
"Outstanding ron h, yes sir that was most outstanding...:-)"
Yeah, those rich liberals are smarter than we thought.
"Yeah, those rich liberals are smarter than we thought"...
Oh damn! LMAO!
ron h you're on hot roll...:-)
BTW speaking liberals did you see the following?
Current TV, the fledgling liberal cable channel, said Friday that it had terminated its relationship with Keith Olbermann, the anchor that it hired just one year ago...
Some of the comments are truly historic in their hilarity...
I'm wondering if there's a Subway in Frisco looking to hire?
"BTW speaking liberals did you see the following?"
No, but isn't there a 3 strikes law for people like him? He needs to be very careful.
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