Sigh. Bob Herbert again.
A recent front-page article in The Los Angeles Times showed that
teenagers are faring poorly in a tight job market because of the fierce
competition they’re getting from older workers and immigrants for
entry-level positions.
….
(the federal minimum wage is still a scandalous $5.15 an hour)
Quite. Given the first fact it is scandalous that the minimum wage is as high as it is. Quite obviously it is above the market clearing level.
In
what’s the point in a minimum wage if it’s too low for people to survive on? Moron.
Tim adds: Wjhat’s the point in a minimum wage that’s too high, means people don’t have any work and therefore can’t survive?
“a tight job market” as far as i can tell is a tight job market a market where employers are competing to hire workers. In a tight jobs market competition should raise wages, no?
Ivan, no a tight job market is when supply far exceeds demand. In this case not enough jobs for too many people.
“what’s the point in a minimum wage if it’s too low for people to survive on? Moron.”
Your suggesting there is a lower limit set in stone of what people can survive on? Rubbish!
The minimum wage sets the marginal cost of labour – and hence its price. Set it too high and there is no demand for the product, especially if it can be bought more cheaply elswhere. In Holland, the minimum wage is 1250 euros a month, while in Latvia, which has just approved the constitution, it is 121. Guess where the low value added labour intensive business is going. No need to worry about China, Europe’s grandees have just created a mexico on europe’s doorstep. In France of course the minimum is “only” 1200euros, but given that an employer must pay THE SAME AGAIN in National Insurance, the marginal cost of the most basic labour is 2400 euros amonth, or almost 30000 a year. This sets the price charged but not the income received. The government cuckoo is in first. The evil anglo saxons of course would employ 2 plumbers and tax them afterwards.
Even if one accepts, on the basis of static supply/demand diagrams, that a minimum wage would lead to some job losses at the margin, there is still the fact that the intra-marginal workers would have somewhat higher wages. This effect has to be set against any potential loss of jobs on the margin. If the elasticities for labour demand are low, then there would well be a good case for a wage floor as a relatively efficient form of social policy. So even in a nice neoclassical world of static supply and demand curves one can argue the case for non-market clearing wages. To presume that the “market clearing” wage/employment level is the most desirable outcome begs the question.
But of course – we do not live in a nice neoclassical world with nice neat demand and supply curves. There is always some residual unemployment – and depending on the cycle – sometimes a lot more. The notion that the labour market “clears”, like a market for fish, is somehow rather quaint. The list of reasons why labour markets are “different” is long: turnover costs, training externalities, internal labour markets, trade-unions, skill specificities, signalling issues, the interrelation between wages and productivity…. Chris at “stumbling and mumbling” has a nice recent post on some of these. BUt the bottom line is that labour markets are different.
One particular difference is the tendency to persistent residual unemployment. There are plenty of reason to believe that a degree of persistent unemployment is the normal state of affairs for the labour market. One reason is simply that even in a “flexible” labour market there are bottlenecks that generate inflation before everyone has a job. A second, (more marxist) point of view might be that a certain amount of unemployment is necessary to stop the workers getting too flightly, shirking on the job, and pressing for higher wages.
Either way, at the very bottom end of the market there is usually a core of unemployed, and persistent downward pressure on wages in that segment of the market. And in the absence of a wage floor market wages get pressed down towards the de facto floor set by the benefit system – with all the complications and poverty traps that involves. One consequence of which is that some employers are able to pay low wages – below what people can subsist on – precisely because the benefit system tops up wages to a minimun level. The net result of this dynamic is that the state ends up subsidising low paying employers.
This is not speculative – there is plenty of historical experience of this type of mechanism.
So, personally, I don’t really have a problem with setting reasonable minimum wage, to avoid employers squeezing down pay in this way, and ensuring that the market for low paid work is a little less exploitative. As to the argument that this may still reduce employment below what it would otherwise be – two responses – a much bigger factor driving employment of low skilled workers is the overall state of the macroeconomy – and this depends primarily on bottlenecks OUTSIDE the low pay segment of the market. And secondly, as above, a small loss of employment through relative price effects at the margin may be a small price to pay if the benefits to the intra-marginal workers are significant.
In my mind the issue is really one of deciding what is “reasonable”.
>what’s the point in a minimum wage if it’s too low for people to survive on? Moron.
Yes, you are a moron. How come people are able to live on welfare even when it’s lower than what they would get with a below-mimimum-wage job?
Mark T makes a reasonable point about not wanting average wages that are too high relative to productivity. But let’s remember that the vast majority of genuinely low paid jobs are in the non-tradeable sector, not manufacturing. The low paid are personal carers, health workers, cleaners, shop workers and the like. Relatively few are exposed to competition from Latvia, quite frankly.
Teenagers are priced out of many labor markets because of the minimum wage. In truth, most teenagers don’t need to “survive” on the minimum wage, as they are pooling their income with the parents. By putting more years between teenagers and work, they are losing personally valuable years of work experience. If anything, they realize that working at McBurger for the rest of their life sucks, and going to community college might not be such a bad idea…
The concept of “survival” is an interesting one. I know many recent immigrants who are “surviving” on minimum or even sub-minimum wage. They sometimes have two jobs, sometimes need to get together with another family to split an apartment, but they have microwave ovens, air conditioning, and big screen TVs with surround sound. Their kids are getting good educations and moving into low-level white collar employment, and probably will be able to get their parents out of the tight apartment.
My own great uncle lived in Brooklyn in a small apartment with eight other people without indoor plumbing, refrigerator, air conditioning, etc, and went on to become a medical research doctor.
1-minimum wage is $6.75 in California.
2-Latimes comveniently did not mention this in their article. Surprise, surprise.
I agree with Mr. E. If necessity is the mother if invention, then wouldn’t it seem logical that increasing the minimum wage also increases the opportunity cost for those earning a minimum wage who would otherwise work hard and take risks in an effort to improve their material lot in life?
given that it’s barely possible to live on welfare in the UK, i find it doubtful that it’s so easy to do in the US.
“given that it’s barely possible to live on welfare in the UK”
Nonsense, in fact those on welfare get quite fat.
It is however barely possible to be better off by working in success punished Blairistan, as so much money is extorted for the labour voting parasite classes.
rob,
that’s an extremely flippant statement. Go to a budget supermarket and find the cheapest food options and they’re invariably the least healthy. Healthy food is expensive. And I can only assume you’ve never given any thought to the amount people receive from the benefits system and so simply assert that it’s over generous. I was once unemployed for a sustained period of time and, after rent, had to get by on less than thirty quid a week. Hardly luxurious …
Tim adds: Healthy food is expensive? What planet are you living on? If you can’t feed one person healthily on fifteen quid a week you’re not trying.
Healthy food is expensive.
Guffaw!! Aye, fresh vegetables, homemade pies, and other produce bought from the local WI market are mega expensive. Them grannies drive around in Rollers off the proceeds of their sales!
LA passed a living wage ordinance requiring contractors working with the city to pay their people roughly $10 an hour. There was a recent study done that showed about 1% of the jobs were lost. Of course, the living wage proponents trumpet that as “only” 1%, but an increase of 1% in the unemployment rate of any group if caused by President Bush would bring howls of anger.
If you’re working for minimum you’re not trying hard enough, but even so the Mexicans standing on El Camino want $15/hr, and transportation to and from the job-site…
“If you’re working for minimum you’re not trying hard enough”
oh, come on … that’s just fucking ridiculous.
It’s not absolutely totally ridiculous. Not when you see tons of “Help Wanted” signs at McDonalds and other fast food joints advertising starting pay significantly over minimum wage.
My point on Latvia is that the low value added manufacturing jobs will go there while Latvians, Poles etc will come to western europe to take the service jobs at a minimum wage that is 10x what they get at home. In addition they will probably do so in the black economy – Polish nannies, czech bar staff etc. The eurocrats have created a version of mexico on europe’s doorstep, capital investment will go to the cheap labour and the cheap labour will move to price out the (immobile) expensive labour in UK, Holland, France etc. Western Europe unemployment will rise, and with it resentment. Social security costs will rise and taxes will fall. Second round, families of the original migrants find doing nothing in the west pays far more than doing something in the east (which is of course how the socialists got in in the first place.)
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