The Coming Obamacare Shock for 170 Million Americans

[Mr Khan]

sc94597 said:

Mr Khan said:

sc94597 said:
The biggest issue with minimum wage is that no employer is going to buy labor that isn't worth that minimum. Meaning that the unskilled go unemployed, and the moderately skilled are in lower-paying jobs than what they'd otherwise have in a market without the price-floor. This is economics 101.

Not really. I mean, there's a certain level minimum wage where you would start to price work out of the market, but businesses only hire the labor they need to get the job done in good times or in bad, especially businesses hiring minimum wage in the first placce (the low-end service industries). Labor costs going up by 20% is not going to slow business by 20%, and in most restaurants and stores you're already running as bare-bones as you can without severely impacting customer satisfaction (my gas station could cut to one cashier at a time, but the lines would stretch around the store at times). Whether you're paying $5 an hour or $15 an hour doesn't affect the number of customers you get, at least not directly, so in the $5 an hour scenario they won't have on cashier standing idle because there isn't enough business, they'd send him home for the day whatever they were paying him. Conversely in the latter scenario (though there's a harder cap on it as you slide up the scale), if you *need* two cashiers to keep things running at an acceptable pace, you're going to pay two cashiers, whether that's $40 for a day's work or $120 for a day's work.

And this, of course, ignores the fact that if the other cashiers are also making $120 instead of $40, they're going to spend that $80, and probably spend it right away (because the marginal propensity to consume for the poor is very high), so that money is going to go to you, even if you have to raise prices a little to compensate.

It depends on the elasticity. If the labor supply is very elastic then those unskilled workers are replaceable with skilled ones who are worth the greater cost. If the labor supply is inelastic then your point stands. Ultimately, most real world situations show more elastic labor supply than otherwise. I wasn't arguing productivity will decrease, I was arguing that the minimum wage creates a barrier of entry into the job market for unskilled workers, who would otherwise use the job to gain skills and training, so that they can move up the ladder. Of course in certain markets there is a deadweight loss, but not in all. Also we must also consider automated cashiers and computers, which have no cost other than their manufacturing cost. 

This is why we see more college graduates (those who have degrees with no demand, otherwise) and fewer teenagers working in the fast food industry. 

That's not the fault of wages, that's the fault of the shrunken market. Shrunken market is what forces out the less skilled (over time. Companies do hate turnover and they're not going to fire someone explicitly because they can get someone more skilled to work for the same pay. That would happen with attrition) and pushes everyone with skills down a notch, as fewer opportunities at all levels mean that all kinds will have to work "beneath their station". A higher minimum wage sparks demand by forcing money downward from corporate profits into the hands of minimum wage workers who then create demand due to marginal propensity to consume, which can help lead to a trickle-up effect better than other stimulus packages which have an expiration date on them. Eventually these gains become negligible due to inflation, but inflation is at long-term lows right now (again, the market wants to deflate and the Fed is the only thing standing in the way), so there would be quite enough time for some gains to work into the economy.