Minimum wages are implemented with noble motivations, but are based on a broken mental model, where the edict alone can lift everyone who would have made less up to the new statutory minimum.
In fact, many of the people who would be employed at lower wages aren't (yet) productive enough to justify a higher wage. An employer will pick a mix other adaptations rather than simply 'the same number of employees at a higher cost' once the wage floor is enforced. (These might include shorter opening hours, more automation, a few higher-paid workers replacing many lower-paid workers, longer waiting lines, less customer service, less attention to cleaning/inventory, and outsourcing work to other lower-cost entities or countries.)
These dynamic adaptations leave a few people bumped up to the higher minimum, but more left completely unemployed, idle and dependent on other social assistance. They're not building work habits or a work history that would put them on the path to much higher wages.
Even if we wanted, as a society, to ensure a certain minimum wage, why would we make the responsibility for paying it fall solely on those particular companies and industries that can best utilize inexperienced and low-skilled labor? Their manufacturing and simple services fill a important role, in the goods they provide and the meaningful productive work they offer those without other skills. By making them and them alone face this costly extra non-market constraint on hiring, they become disadvantaged and shrink, relative to other sectors and overseas competitors.
It would be like deciding "every low-income family requires a computer", but rather than buying it out of common public funds, making it a legal requirement for just the domestic computer industry to provide free computers, out of their own revenues. Would that properly value the exact thing you want to happen – more computer production – or impair it by making it less profitable than other uses of the same talent/capital? The same goes with employment opportunities for the low-skilled. The minimum wage has been thinning such domestic opportunities out, for decades, rather than expanding them. Intended to reduce income disparities, it's increasing them.
This is in fact their purpose. Minimum wage laws destroy low-paying jobs by making them illegal, preventing the least competitive members of our society from having the hours and days of their lives "mined" by an employer for negligible compensation.
That having these laws "reduces welfare" is, I believe, a conclusion not supported by fact.
A living example can be found in urban Brazil. By failing to outlaw and enforce certain minima (building codes, wages), large Brazilian cities have created vast marginal neighborhoods that no one wants to live in.
Based just on the example of favelas alone, I would argue that having laws to guarantee minimum wages is one thing a government can do immediately to protect the weaker members of a society.
I think you have not addressed another important duty of governments: to provide a reasonably rigorous educational launchpad so that the less fortunate need not always remain so.
Pass all the laws you want, there is simply not enough wealth (i.e., not enough material and skilled labor) for everyone to live in a house that meets building codes. No matter what you redistribute (note: India has very low inequality [1]) or demand from people, you can't squeeze water from a stone.
[1] Nominal inequality is low, but inequality of living conditions is high. This is the exact opposite of the US, where the rich have a PS3 and an XBox, and the poor are stuck with only a PS2.
Brazil has a minimum wage. If it's not enforceable maybe that's because it's based on wishful thinking, pandering to those with an unrealistic mental models, rather than what's sustainable.
These 'vast marginal neighborhoods that no one wants to live in', they are empty ghost towns because no one wants to be there? I don't think so. And the favelas would just disappear if the firm-handed authorities were just a bit more insistent everyone get paid more (or nothing at all!)?
Rich societies can afford nice neighborhoods and rigorous building codes. Societies get rich by accepting every opportunity for voluntary coordination and incremental improvement. Societies stay poor by enacting showoff policies that appear generous but destroy more productivity than they enable, satisfying the aesthetic hopes of comfortable do-gooders, but trapping the really poor.
Perhaps yes.
A price is a signal. As with any restriction on free speech, outlawing certain prices (low wages) should show a clear and easily demonstrated social benefit.
In this case, private free enterprise is clearly harmed, but the benefit returned to society is an intangible, a void: society receives only the absence or reduction of sweatshop working conditions.
I think we are actually in violent agreement on most of these issues.
The major exception, I think, is that I am deeply skeptical of a society's ability to check the worst behaviors of private corporations. I believe that certain entire business models are better legislated against and rendered completely illegal, to prevent regulatory capture [0].
EDIT: This view seems to be controversial. May I suggest a little light reading? [1]
Except this is simply not true. Germany, where workers enjoy generous terms and privileges even for Western Europe, has no minimum wage, and its labour unions vocally oppose introducing one. Countries such as the US and UK with minimum wages have higher unemployment, and things are more precarious even for those in employment.
To measure the effectiveness of the policies that lead to German job creation, we need to count every worker who is receiving a wage in the German national currency against the workers who wanted to, and legally could have received wages in that currency.
When we look at the whole picture, the situation is ugly and getting worse. Headline unemployment averaged across the European single currency area is now 10.4% and rising rapidly. [0]
Germany is a manufacturing powerhouse, and its exports are currently red hot. Any breakup of EMU would brutally reprice those goods. I would expect this to lead to significant German unemployment.
[0] "Eurozone unemployment hits new record" http://www.bbc.co.uk/news/business-16808672 - 31 January 2012
There's the rub: how many unemployed Greeks have the skills to work in a German factory?
Cite, please.
Often analytical (rather than emotional) minimum wage proponents admit a small decrease in total employment but think the benefits to those who make the cutoff helps offset that. That might even be true in a growing economy with generally low unemployment and short unemployment terms. In one with ~20% youth unemployment, and workers discouraged by multi-year stints of unemployment, any job – even a low-paying job – is better than prolonged idleness. Employers are understandably loathe to take a chance on those who have gone years without a reliable work history, or never started a work history at all.
When he wasn't quite as partisan, even Krugman could make an eloquent case that bad jobs at low wages were better than no jobs at all at wishful-thinking wages. See for example:
In Praise of Cheap Labor: Bad jobs at bad wages are better than no jobs at all
http://www.slate.com/articles/business/the_dismal_science/19...
Even today, while Krugman is against any sort of lowering-nominal-wages or lowering-minimum-wages for macroeconomic adjustment, he'd like to achieve the same thing through massive fiscal and monetary stimulus, essentially lowering wages through inflation.
In the funhouse mirror world of politics, the 1-2 punch of higher minimum wages but also inflation is a perennial winning strategy. Give people a superficially popular, though actually harmful, boost in minimum wages: an easy focal point on which to campaign. But prevent its full damage with harder-to-assess, noticeable-only-after-the-election inflation. Or at least keep the celebrated raises below other growth/income indicators, so that it's mostly a symbolic measure. (Any raise large enough to make a 'big difference' for minimum-wage earners would also make a 'big difference' in boosting unemployment.) Via the only-slightly-harmful symbolism, everyone (who is a politician) wins!
Pretty much right now minimum wage workers usually do service jobs (fast food, waiting, etc), household chores (cleaning, landscaping), farming, or no-skill manufacturing.
No-skill manufacturing is largely dead in this country. Changing the minimum wage won't change the fact that you still have to follow environmental and safety regulation. That is expensive in its own right. You also can pay $3/hour in a different country and get good people. You can pay $10-15/hour and get great people. If you pay $3/hour in the US, you are going to get the people who can't even get a minimum wage job. I doubt a lot of companies want to hire those people for any price.
For service jobs, you usually have a fairly fixed number of people. If McDonalds has 3 registers, they already have 3 cashiers at lunchtime. Lowering minimum wage just hurts all those people because the pay will be less. It won't create many more jobs.
Farming could see a big increase in people, or at least a big increase in paying people on the books. A lot of migrant farmers are paid off the books below minimum wage as is.
So where is this giant pent up demand for hiring $3/hour workers? All I see is a marginal increase in jobs, and a massive decrease in wages for everyone else near the bottom.
There are some people who can only be hired with a wage below the minimum:- high school dropouts, immigrants, physically disabled, blind, mentally ill, elderly, long term unemployed. By setting up a minimum wage too high you are ensuring all these people will not get jobs even if they want or need one. To the employers eyes: if you had to pay $7/hr anyway to hire someone, you might as well hire someone who is physically strong, understands english and has graduated high school.
The minimum wage makes people on the lowest tier unemployable. Arguably it does raise wages for workers on the people near the bottom but not quite there. As you can see there is certainly a trade-off to be made.
All you are saying here is that the min wage is harmless because it's set below market rates. I.e., it's like setting a $0.25/gallon price floor for petrol, or passing any sort of "keep doing what you are already doing" law.
But if that is the case, then why would wages decrease if we eliminated the min wage?
As for the pent-up demand for $3/hour workers, you can see it every time a company outsources or offshores. My company (located in India) wouldn't exist if we had to pay $7.25/hour, for example. (Of course, market rates for the people we need would probably be higher than $7.25 in the US, so the min wage is a moot point - lowering it would not affect our costs or our hypothetical US employee's wages.)
without the minimum you are correct that theoretically more jobs would exist, but at a pay rate so low that it would create an incentive not to work at all. the government assistance required for an employeed unskilled worker and an unemployed one would be about the same, whats the motivation to work?
You'd have... a republic with a minimum wage law.
Another solution would be to use worker reputation (something explored by Panos Ipeirotis @ http://www.behind-the-enemy-lines.com/ )
Because MT workers are unreliable, you often need to have several doing the same task. Better workers require fewer checks, and are therefore much more cost effective. Right now MT is a market for lemons.
So the challenge then would be to let poor people build up a reputation to fix that market...
This is not the sort of disruption we want in the marketplace. Let's say someone rolls this out, with moderate success. What's to say a company like Wal-Mart wouldn't crowdsource stocking shelves? We already see some people taking advantage of low-income workers (giving less than 36 hours to avoid health insurance coverage, etc). This would be another opportunity to lower costs all around without much of an upside for those doing the work.
Also, the possibility for automation is then great as well. Companies could offer assistive devices and software to the freelance shelf stackers for increasing their productivity, all they way to full blown robots.
Can also apply this to other tasks such as crowdsourced burger flippers and crowdsourced cleaners.
There's a lot of opportunity in automation of service businesses such as retailer and restaurants, but it seems like the industry does not take much interest in applying robotics to the task. This crowdsourcing system would be a way for nimbler companies to introduce more technology into the system without going through the management.
What would robots capable of stocking shelves cost? $500k? It's just not worth it. McDonalds has how many thousands of stores - and they don't bother automating that much. Amazon.com still uses people to pick their orders (for the most part). The companies aren't stupid, someone has run the numbers and figured out that robots are too expensive.
It's not even Moore's law thing. Computer are plenty powerful. You can make a robot do these things. But by the time you buy good quality motors, batteries, and sensors, it gets expensive no matter how cheap the computer is.
If the above is true, why hasn't it been done you might ask.
I might be wrong, but you could have the said the same thing about why a search engine that didn't suck wasn't around in 1997 - why didn't microsoft, or yahoo, or ibm have that, or even buy it from sergey and larry?
What mechanical turk does allow companies (and individuals) to do however is to hire people for a very short term (a few seconds) for, literally, pennies.
And assuming that enough work was available we should expect the rate to increase since there will be less spam bots.
And at any rate it is better than the alternative of make work.
This is unrealistic in practice. The Simple Dollar article cited describes making >$7 in an hour, but $6.55 of that comes from writing an article on email autoresponder marketing and writing a review of an unspecified service. Those aren't the kind of tasks that anybody can accomplish in a timely and competent manner, nor is the supply of those tasks reliable.
There are also exceptions for people with disabilities, special minimum wages (you can actually pay the disabled less than minimum... sometimes), etc.
So, I think the basic answer is that you still have to respect minimum wage, but how you do that is pretty complex.
Also, cashiers and receptionists. Is it really necessary for person to be there in person.
And marketing. Testing which ads/videos work best.
No one would let a random person on the street control their half a million dollar machine.
> And marketing. Testing which ads/videos work best.
Urban poor are definitely not the group advertisers are targeting.
So, for example, if the factory robot knocks something over, and there are 10 different people watching a few frames of video, it's pretty likely they'd spot the mistake.
Same goes for ad critiques. You wouldn't ask "is this a good ad". You'd split it up. "Is this actor better wearing a blue shirt than a red shirt" - ask 10 people.
But you're still asking the "wrong" people. And you're asking, instead of observing the actual behaviour.
Someone working all day at mechanical turk, is likely to fall below the federal minimum wage rate in terms of what they're pulling down per hour. Is it ok for companies to utilize mass scale labor at what becomes in reality a sub minimum wage rate? Particularly if mechanical turk stations were to become wide spread.
Obviously mechanical turk is a per unit pay system, not a job with an hourly pay rate. However, if you're doing it full time, I call bullshit on that difference. If you had 100,000 people working on mechanical turk 40 hours per week, making $6 per hour, those are very much jobs paying sub minimum wage.
It would be no different than if a thousand companies banded together to source labor below minimum wage by paying per task, and sharing that labor around rather than employing each laborer in a "job" (eg in a metro area with high population density). Those companies would be paying for net full time labor, while evading the minimum wage responsibility.
One solution to this legal boundary, would be to require that mechanical turk style tasks pay at least equivalent to minimum wage based on the time they take. I expect in any large scale adoption of mechanical turk, this issue will jump to the forefront.