Your objection has nothing to do with what was being discussed


Your claim that the example was contrived and not a generalization. And your follow up post (which seemed to get to the point where arguments are randomly thrown out to see what sticks) that tried to say 'well, then we should apply that to everything, since everything has an externality'.

And don't worry, I'm not getting refutation confused with your delays.

It's out there, but it's pointless to get into it with you, since you'll just reject it out of hand.

BTW, how far back are you going with that? The 'analysis' of that could simply be that you were looking at it from a partial equilibrium approach rather than a general equilibrium approach, by definition. So that's the analysis of that statement.

However, if I remember the argument of yours that I was referring to, you've already dismissed out of hand the evidence taking into account other markets and the interactions in a typical economy. Because it used econometrics. That's why I said it was pointless.

And if you want analysis, you could always google (scholar) it for yourself. Just search for "minimum wage" "general equilibria" or variations thereof.

One of the papers I found was here: http://www.econ.nyu.edu/user/flinnc/...inimumwage.pdf. Specifically from the abstract: "Although minimum wage increases may or may not lead to increases in unemployment in our model, they can be welfare-improving to labor market participants on both the supply and demand sides of the labor market". It appeared in Econometrica, so while I haven't read through the whole thing, it has a much higher probability of being correct than some link to mises. There was already empirical evidence substantiating the model's results already given ITT.

And if you don't really want to google around for things, just look at that paper's introduction/literature review and look at those papers. It should give you a good place to start.

I read through that paper, and while I certainly don't claim to understand all of it right now, a few things stood out.

1) They acknowledged that a minwage increase would result in some people becoming, in their words, "permanently unemployable". Not that this is news to you (CM), but it was somehow an issue ITT. I don't see anything accounting for this specifically in the paper.

2) "On the demand side of the market, we have ignored the welfare
contribution of firms that have chosen not to create a vacancy and those that currently hold one, because the free entry condition implies that the welfare of firms (or potential firms) in either of these classes is zero. Thus the only term from the demand side that enters is associated with firms with a filled vacancy."

This doesn't make sense to me. A firm that chooses to continue to employ somebody at an increased minwage has clearly taken a hit, as has one who's let an employee go because he's worth less than the new minwage.

And on firms that filled that vacancy...

3) "Moreover, even when it does, it is possible for the steady state employment rate to increase due to inflows to the labor market (which occur whenever the value of unemployed search increases as a result of the minimum wage change)"

In simple terms, this appears to be saying that more currently unemployed people will look for jobs if jobs pay more. OK. But assuming that filling the vacancy at the higher rate is an improvement for the firm over having the vacancy, why wouldn't they be offering it at that higher rate to begin with? The argument has to be something more profound than "if some jobs are being offered at too low a wage to be filled right now, but the firm would still benefit from filling them at the new-minwage-to-be, and the minwage increase happens to jack them up to the right place by law before the firms figure this out on their own, firms benefitted from minwage increase" but I don't see it.

There's more, but that's a start.

Places that currently employee true minimum wage employees are nowhere CLOSE to paying those employees what they are worth to the business. Obviously this ceases to be true pretty quickly when you climb above a certain threshold... But we're not in that thresholds vicinity at the moment.

At present I'd probably title a minimum wage raising bill "The protecting morons from their own poor negotiation skills bill".

I remember when I worked at a fast food restaurant briefly in high school. That place would take in 800-1200 in a lunch rush. That place averaged MAYBE 3.5 employees in the building on average and was open 14 hours a day. In other words gross labor costs were *tops* 355.25. I'll be generous and call it 400. The restaurant industry typically charges 3 times what food costs are... So basically COGS for that store in the busiest 3 hours of the day were 360$. Basically they were able to pay for the stores labor for the entire day in 3 hours after food costs.

People who work are at McJobs are getting straight up ripped off in a lot of cases. There ARE companies like Walmart that are highly efficient in terms of passing on savings to customers, but honestly who here thinks paying 3% more at Walmart (they have huge sales so the % would be quite small) would be world shaking?

Normally I frown on protecting people from their own stupidity... But I put this in the same category as regulating payday lenders. Basically there is a specific segment of the population that will always be there that literally stands no chance of protecting themselves. These are the people who are just clueless for some reason.

At a certain point convincing some imbecile to do something dumb becomes abuse. It's also abusive to take advantage of something like a criminal record (something we shouldn't let many types of employers even discriminate against) or a disability to pay someone far, far less than they are worth to the business.

EDIT: Frequently it's not cluelessness but desperation that forces people to work these jobs. Seriously if you guys knew anyone who was trapped in the vicious cycle that is this kind of poverty you would probably be for a minimum wage hike. I'm not for allowing anything that can get people stuck permanently in some sort of underclass. Having a permanent underclass is sooo -EV. It's what leads to the government spending so much money on prisons.

That restaurant also needs to pay lights, rent, taxes, etc. The cost of employing a min.wage worker is not the min. wage. It is quite a bit higher.

You can find reasonable payday loans without harming poor people through regulation. 20 dollars for a 200 dollar loan is cheap compared to the 60 dollars plus 5 dollars a day in late rent. If you regulate payday loan businesses too severely, they may not offer services in walking distance. This could be disasterous for poor people in say Phoenix Arizona. Poor people occassionally use prudent payday loans to manage their finances. Most are not as clued out as you think.

I agree with that. $20 for a $200 loan is also better than a bounced check fee these days.

That's certainly true if payday loans are used correctly. I suspect that plenty of people get stuck on the payday loan treadmill and end up spending far more than the 60+5 they would have spent without it.

I'm basically against things that turn cyclical. Those kinds of insidious things are incredibly bad for society.

Sure. They also are open for far longer than the lunch rush. Bottom line is that the entire business model of a fast food joint depends on people being dumb enough to work for less than their own costs. That bugs me.

I also have zero respect for the fast food business model. It's horrible for the customers, the employees, and whoever has to foot the customers medical bills eventually. Literally the only people benefiting at all are the owners. I would rather those businesses either raise their prices to accommodate higher wages for their employees (so that I'm not directly subsidizing them through paying for their employees welfare check) or go out of business (which I won't cry over)

You can't look at the most important hours of the day and conclude they are working for far less than they should be.

When the 3 best hours of the day can cover all of their fixed and variable expenses for the day it's probably pretty safe to say their margins are good.

You haven't even shown that, though. You just guesstimated and handwaved your assertion.

As I (minimally) implied, I don't really want to get into a blow-by-blow of the paper, just said it was an example and there were more and others that were indicated in the intro to the paper I linked to. Those would probably be better papers to discuss to be honest for a few reasons. But I'll give my thoughts on these.

Here, the paper seems to focus on efficiency. I think they were saying those workers that wouldn't be worth employing at m (the minimum wage) would never find a job. So those are the permanently unemployable that you mention. However, I believe the paper focuses on efficiency, which is the sum of the individual surpluses (if you want, you could read 'outcomes' there, but that isn't *quite* right, so if you do, there may be some further clarification required). Since efficiency is a sum, you might have a 1 going to a 0 for the permanently unemployed, but you might have a 5 going to an 8 for the people who are employed and the employers. If you're looking at this from an equity/fairness standpoint, one should also include the other programs that would be involved--taxes that redistribute incomes and such, that might fully compensate the permanently unemployed for the damage done to them from a minimum wage.

I'm going to have to find this--I thought I knew what they were talking about (which I'll still say below), but I might need to do a little more reading. I'm wondering if what the authors are referring to is a change to welfare when they say "the welfare contribution". If so, that makes sense to me (but I'm also not sure why they're citing the free entry condition).

What I was thinking is that if a person has a job before and after the minimum wage was enacted, the change to welfare is zero. That's because as you point out the firm is worse off because they pay more in wages, but the worker is better off by exactly the same amount, since their wage increases by exactly as much as the firm has to pay.

I concur.

I was just going to type an answer out but I think it differs with the assumptions of the paper's model. Actually maybe not, so here goes...

By paying a higher wage to the potential entrants, they have to pay a higher wage to those already working for them. The firm's profit can be thought of as the product of the number of workers and the profit generated by each worker. The profit generated by each worker is the revenue produced by the employee minus the wages. (That's a simplification in terms, but I think it's OK) So if I want to hire another worker I have to raise the wages I offer to attract new workers into the economy. That means in my profit function the number of workers will increase but the profit margin per worker decreases. There's a maximum somewhere between the point where there are 0 workers hired and the other extreme where my profit margin per worker is zero.

If I'm forced to set a higher wage then that maximum, I will hire more workers than I was before (since there's more workers out there willing to work at the higher wage). But my profit will be less.

BTW, in the above discussion, I'm assuming I'm the only one making the changes. If we're going to a general equilibrium model, then things change a bit because the demand for my product may go up too, which will make me willing to hire even more workers.

I hope my argument was better and more profound than that.

Right, I wondered about that (and couldn't figure out the free entry condition relevance either) but this isn't really a useful conclusion- group A can always be made better off (at least short term) if you take from group B and give it to group A.


Except their model disallows on-the-job search, so that shouldn't be true (I don't remember seeing it specifically mentioned). Also, even if it is true, if the firm is actually better off paying everybody more and getting vacancies filled, then my point still holds- they should be doing it already. And if they're not, it's just forced redistribution instead of win-win. What was interesting to me was the claim that this could actually be a win for firms too, but I'm not seeing how yet.