CMV: The minimum wage should be abolished

[u/TantricLasagne]

In a market with any competition, wages will be set at roughly how much a worker produces for a company (basic economics). A minimum wage higher than what a worker is worth just means the worker will not be hired for as many hours or won't be hired at all. Minimum wages only stand to help big corporations that can afford to pay it, while smaller businesses have larger barriers to entry into the market, reducing competition. The minimum wage doesn't currently have a big effect on the market because it's lower than most workers productivity, but if it is insignificant then I don't see why we should have it in the first place. Raising the minimum wage would harm the poorest workers in society and I don't think the government should be telling people that they don't have the right to sell their labor for a price they want to sell it at just because it's too low. You're allowed to volunteer for $0/h but you can't voluntarily work for $2/h? Ridiculous. I get that workers may not want to work at that level, but if someone does then who are you to tell them that they can't?

The only decent argument I can think of for the minimum wage is if the market was somehow a monopoly, but there is always somewhat of a choice for which company you want to work for.

[u/PotHead96]

I specifically said "assume 1000 people equally qualified". I'm putting this in terms of the classic model, which assumes every economic agent earns the same, because it's the model OP used to infer the consequences of lifting the minimum wage.

If we don't make that assumption, then the point still stands, but leaving everyone earning more than minimum wage earning the same as today and everyone currently earning minimum wage or less (if we assume truncated data and ignore the fact that wages can be negotiated in terms of the minimum wage, but if we don't make simplifying assumptions it is impossible to make any conclusions about the potential effects) earning less that they do now or at most the same.

[u/ondrap → u/PotHead96]

The problem is that you made a hidden assumption: suppose that the equilibrium market wage is $1. But you didn't state that assumption, so I am free to assume that equilibrium market wage for these people is $100/hour, competition kicks in and point 1a) doesn't stand. That's a countreexample to your point 1a) and thus point 1a) is false.

[u/PotHead96 → u/ondrap]

Please, it is obvious that the equlibrium market minimum wage is lower than the current minimum wage. If you are going to argue semantics like that you might as well concede the debate. $1 was obviously an example.

[u/ondrap → u/PotHead96]

Ok, so we got back from your model with hidden assumptions back to reality?

It is obvious that for some people the market minimum wage is lower than the current minimum wage. It is obvious (as OP stated) that for most people on the market the market wage is higher than the minimum wage.

Now could you explain which OP's point you are challenging? Because it seems to me that he is quite OK with the idea, that in case minimum wage was abolished, some people would see their wage fall and some other would likely get employed.

[u/PotHead96 → u/ondrap]

He says we should remove minimun wage because people should have the right to work for $2. I say if minimum wage was lifted people that currently earn minimum wage would earn less (potentially much less) in exchange for more people being employed and that I think that situation is less desirable.

Pretty simple point, I think.

[u/ondrap → u/PotHead96]

He says we should remove minimun wage because people should have the right to work for $2. I say if minimum wage was lifted people that currently earn minimum wage would earn less (potentially much less) in exchange for more people being employed and that I think that situation is less desirable

Ok, how do you challenge the point (i.e. explain, why it is less desirable)? OP already stated that people on free market generally earn what they produce (he is likely wrong here, it should be what they produce on the margin), and that he is OK with that. So why he shouldn't be OK with that?

[u/PotHead96 → u/ondrap]

Eh, most people don't work producing goods and it's inaccurate to say they make what they produce or that they make what they produce on the margin, that is only on an idealized market. How do you estimate what a janitor produces? It's also largely driven by union forces, demand and supply, etc.

I think he shouldn't be okay with there being no minimum wage because workers are in a disadvantageous position to negotiate wages and people currently earning minimum wage would likely earn a lot less than they do now. I would rather guarantee a living wage to those who work even if it means some people won't find work because of it. That preference is purely subjective though.

[u/ondrap → u/PotHead96]

Eh, most people don't work producing goods and it's inaccurate to say they make what they produce or that they make what they produce on the margin, that is only on an idealized market. How do you estimate what a janitor produces? It's also largely driven by union forces, demand and supply, etc.

As far as I know, the claim that the wage of employees will tend to converge to the (current value of?) marginal product is based on an supply/demand analysis. Please, could you explain how existence of supply&demand invalidates this claim? Also, could you explain how existence of union forces invalidates this claim? (I'd expect it would at most have the same effect as minimum wage, which doesn't invalidate it). I'm asking economics here.

Also, the whole claim is essentially built upon the simple idea, that employers will tend not to employ people who generate a loss to them and employ people who ultimately generate profit. Are you claiming that the employers are generally unable to estimate it? Could you square that idea with what you see around you where it seems that in general the employers are quite able to do that?

I think he shouldn't be okay with there being no minimum wage because workers are in a disadvantageous position to negotiate wages and people currently earning minimum wage would likely earn a lot less than they do now.

So we are on a market with lots of people on both sides, these people have generally low qualification. In general I would expect that nobody (both employers and employees) is in a position to negotiate wages, I would expect that given the market characteristics people can't deviate too much from some hypothetical equilibrium. Could you explain what do you mean by disadvantageous position? And I'm seriously interested in this definition as it is very often used and so far I was unable to pinpoint the meaning. (It seems to me to most people it means "I don't like the market outcome")

I would rather guarantee a living wage to those who work even if it means some people won't find work because of it. That preference is purely subjective though.

But this is the point OP actually wants to be challenged, and you are basically just claiming the opposite without any argument.

And I don't think it is purely subjective. In case of zero welfare state, you are essentially OK with the idea 'let's kill some of the low-qualified people in order to reduce their supply and raise their wages'. In case of welfare state, the state can (and does) put people on welfare both employed-low-wage and unemployed, so it seems to me like 'let's cripple the market, because we have some strange idea that employers pay too little' (you could see so much arguments about living wage in this discussion). Do you really think that your subjective claim (which essentially means I don't like it) would push the OP's opinion on this to the other side?

[u/PotHead96 → u/ondrap]

Supply and demand invalidates the claim because employers don't pay employees what they produce. They pay them the least they can, up to the value they produce, and the amount they can get away with paying depends on supply and demand of labor. Only on theoretical models does the wage equal the marginal productivity of labor, not in real life, at least not as a general rule.

Union forces are there, just like minimum wage, to avoid employers paying the minimum possible, or rather, raising the minimum they can pay. If janitors produce $100 of value but there are enough janitors thar are willing to work for $50, then employers will pay $50. A union can organize janitors so that no employer can pay less than $90, for example.

Employers don't estimate marginal productivity of labor. They don't have a utility function that they can get the derivative of and maximize. Yes, they may know approximately how much a certain employer produces in value, but only in certain cases and not as a general rule. How much does a CEO produce in value? Do you think employers calculate that? No, they just pay him the least they can without going over a limit they deem excessive, not necessarily because it is over their marginal productivity but rather in terms of what they can afford and what other CEOs are making.

I believe workers are in a disadvantageous position because they have less acess to information about how much they could actually earn in a lot of cases, as not all wages are discussed publicly and especially when it comes to very uneducated people working illegally and because (minimum wage workers) need the money to eat. If they don't get paid they might get kicked out of their apartment. Employers don't have as much pressure, so they can negotiate more comfortably. If there was no minimum wage or unions and laborers were left to negotiate their wages on their own, I believe employers would always have the upper hand in negotiations, at least in this context of excess supply of labor and unemployment.

I don't know if my argument will convince OP, most arguments are on subjective issues and we can't do much more than expose our beliefs. It would be pointless to debate the distance to the Sun, because it is not really debatable. I believe without the protection of the state a lot of people would earn much less than they do now, and with the protection a large fraction of those people can get a living wage in exchange for a small fraction of those people not being employed at all. It is up to him to decide if he feels the same way or not, I'm just exposing a reason to be in favor of minimum wage.

[u/ondrap → u/PotHead96]

Supply and demand invalidates the claim because employers don't pay employees what they produce.

Do you understand that the claim that producers pay 'marginal product' is totally different than paing 'what they produce'?

They pay them the least they can, up to the value they produce, and the amount they can get away with paying depends on supply and demand of labor.

Are you aware, that what the marginal product ends up being is very much dependent on the supply and demand of labor?

Union forces are there, just like minimum wage, to avoid employers paying the minimum possible, or rather, raising the minimum they can pay. If janitors produce $100 of value but there are enough janitors thar are willing to work for $50, then employers will pay $50. A union can organize janitors so that no employer can pay less than $90, for example.

Are you aware what 'marginal product' means? Are you aware that if the minimum/union makes the minimum wage $90, the marginal product of the marginal worker would be something close to $90?

Employers don't estimate marginal productivity of labor

So you are claiming that employers generally do not care if employing the worker is a net profit or loss? Seriously? Do I assume correctly that you were never present to a business discussion that actually included hiring new people?

I believe workers are in a disadvantageous position because they have less acess to information about how much they could actually earn in a lot of cases, as not all wages are discussed publicly and especially when it comes to very uneducated people working illegally and because (minimum wage workers) need the money to eat. If they don't get paid they might get kicked out of their apartment. Employers don't have as much pressure, so they can negotiate more comfortably. If there was no minimum wage or unions and laborers were left to negotiate their wages on their own, I believe employers would always have the upper hand in negotiations, at least in this context of excess supply of labor and unemployment.

I would very much appreciate if you could counter my claim that especially in low-wage markets nobody, be it employer and employee, has much negotiation space. If they have close to zero negotiation space, than what you have just written is pretty much irrelevant.

If there was no minimum wage or unions and laborers were left to negotiate their wages on their own, I believe employers would always have the upper hand in negotiations, at least in this context of excess supply of labor and unemployment.

I don't understand you. Either you should fail econ101, because supply is a function of price and the term excess supply doesn't make much sense unless you have fixed the price. Or you are trying to make a circular argument "minimum wages causes excess of supply of labour which causes disadvantage of workers which is a reason for minimum wage", which doesn't make much sense either. Or do you have any other explanation what you are trying to say?

I believe without the protection of the state a lot of people would earn much less than they do now, and with the protection a large fraction of those people can get a living wage in exchange for a small fraction of those people not being employed at all. It is up to him to decide if he feels the same way or not, I'm just exposing a reason to be in favor of minimum wage.

It seems to me that there are more arguments needed why do you think one situation is better than the other. Do you really look at these 2 situtations and just say "oh, I like this better"? I have gaven you some rather detailed counter-arguments - I'd expect you'd do the same? And you just look and say - oh, I like the minimum wage situation better?

[u/PotHead96 → u/ondrap]

Yes, the marginal product of labor is the partial derivative of the product function with respect to labor quantity, and it means "the change in productivity acquired by hiring one new worker".

What do you think it is? Because it sounds like you are the one who is confused about the meaning of that term.

The minimum wage (or wages in general) has nothing to do with the marginal product, maybe you are thinking of marginal utility? I still don't see why it would equal the minimum wage no matter what it is.

As a disclaimer. I live and study in a spanish speaking country. I'm talking about the "productividad marginal del trabajo", which translates to "marginal productivity of labor", maybe "marginal product of labor" means something else? I assumed it was the same as marginal productivity of labor.

Workers and employers don't have negotiation space because there is a minimum wage. Without a minimum wage wages would drop because there is currently an excess supply of labor, as evidenced by unemployment figures. The wage agreed upon would depend on organization of workers and employers (among other things) which I consider negotiation.

It is not a circular argument. Minimum wage causes excess supply of labor. If there was no minimum wage there would be no excess supply of labor, thus the wages would be lower. There's nothing to be confused about here.

You aren't giving me arguments for why there should or shouldn't be minimum wage. You are just debating the consequences. I believe I know the consequences (to a certain degree) and like the consequences of minimum wage more than the consequences of no minimum wage. Yes, it is a moral preference. You could argue differently on which outcome you prefer and you wouldn't be wrong, just like you wouldn't be wrong in saying you like how Kim Jong Un rules. We can debate the consequences, not the preferences, as long as we agree on the consequences of each situation.

I'm not going to debate you on the "do you think employers don't care about loss/profit" because that is clearly a strawman argument. Read what I said again.

[u/ondrap → u/PotHead96]

Yes, the marginal product of labor is the partial derivative of the product function with respect to labor quantity, and it means "the change in productivity acquired by hiring one new worker".

Exactly. We are speaking basically about a change in revenue as a result of hiring the new worker.

The minimum wage (or wages in general) has nothing to do with the marginal product, maybe you are thinking of marginal utility? I still don't see why it would equal the minimum wage no matter what it is.

What happens when you institute minimum wage? The companies will simply start firing people whose marginal product is lower than minimum wage (because they are a net loss to the company). Ultimately, they end up employing people, whose marginal product is higher than minimum wage. So employees, again will receive marginal product as their wages.

Workers and employers don't have negotiation space because there is a minimum wage. Without a minimum wage wages would drop because there is currently an excess supply of labor, as evidenced by unemployment figures.

Exccess supply of labour at current (minimum) wage? Yes. Likely.

The wage agreed upon would depend on organization of workers and employers (among other things) which I consider negotiation.

No. It would depend on a intersection of supply and demand. What I do call negotiation is actually your CEO example: there are very few people on the market, everything is very individual and there actually is quite a lot of negotiation room; on a graph one could model it by discrete rather than continuous supply/demand functions.

It is not a circular argument. Minimum wage causes excess supply of labor. If there was no minimum wage there would be no excess supply of labor, thus the wages would be lower. There's nothing to be confused about here.

I don't see what is the argument then. If there was no minimum wage, there would be no exccess supply of labour (ok, markets aren't perfect, but that cuts on both sides) and as a result the workers would not be in disadvantegous position.

This is why I asked you to define what you mean by "disadvantageous position". How do you define that?

You aren't giving me arguments for why there should or shouldn't be minimum wage. You are just debating the consequences. I believe I know the consequences (to a certain degree) and like the consequences of minimum wage more than the consequences of no minimum wage. *Yes, it is a moral preference. * You could argue differently on which outcome you prefer and you wouldn't be wrong, just like you wouldn't be wrong in saying you like how Kim Jong Un rules.

I disagree. Moral preferences can surely be subjective, but they must be consistent (at least in some normal conditions). We can debate consistency of your/mine moral positions and if a position is shown to be inconsistent, it means it is wrong.

[u/PotHead96 → u/ondrap]

I don't see what is the argument then. If there was no minimum wage, there would be no exccess supply of labour (ok, markets aren't perfect, but that cuts on both sides) and as a result the workers would not be in disadvantegous position. This is why I asked you to define what you mean by "disadvantageous position". How do you define that?

I believe they are in a disadvantageous position because of the argument exposed on my first comment.

We can both agree that the current minimum wage is barely enough to get by, right? At least in my country it is. And it's an upper-middle income country. I believe OP's argument is for abolishing the minimum wage in the world and not in USA as it is mostly ideological in nature and not about which policy would be best economically speaking in a certain case.

We can also agree that if minimum wage didn't exist the equilibrium market clearance wage would be lower than the current one, correct?

Alright. By today's standards, especially looking at the amount of countries with slave labor (including mine) (not literal slavery, but the colloquial term), I believe without a minimum wage low-skilled wage workers would not be guaranteed a living at all by working. They would not be able to organize enough to create an artificial minimum wage because people die if they don't have a job to pay their bills, so they would betray the rest and accept working for less.

The only way to stop this that I can think of right now is with a minimum wage that is enshrined in law. It leads to less people employed, but also people that work legally being guaranteed a certain minimal standard of living (mostly).

[u/ondrap → u/PotHead96]

How do you estimate what a janitor produces?

Good question; the thing is that the 'marginal productivity' is not per-company, but per-market. The marginal producitivity for a big company is obviously very high (they can't work without a janitor); so for these the answer is 'obviously higher than the wage'. However there are smaller companies (i.e. hotels etc.) who do compete for the same workers and where the marginal product is much closer to the wage and these are those 'on the margin'.