Ehis Odijie


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Should we abolish national minimum wage?

I posed the question to a professor and she screamed “No, we should increase it to help poor people”. So let’s increase minimum wage to, say 100 Pounds per hour. How do you suppose businesses will respond to that? If you work with Tescos supermarket for a wage of 7 pounds an hour you’d lose your job. Why? – is it because Tescos cannot afford to pay 100 pounds? Not at all – it is due to the fact that your productivity level is not up to 100 pounds so it will be an act of charity to keep you employed (Employers don’t pay on the bases of what they can afford – they pay you from what you produce. Just like you don’t buy an item on the bases of what you can afford but the value).

A friend of mine earns about 150 Pounds an hour; she wouldn’t lose her job in a system of 100 pounds minimum wage because she produces more than the MW.

If you understand minimum wage this way then, surely, a MW of 4 pounds could be properly defined as ‘if you cannot produce 4 pounds an hour you don’t deserve a job.’ There is no other way to describe it – if you deny this then you should be in favour of increasing the national minimum wage to 500 pounds -why not?

It is not the doctor or the engineer that is affected by minimum wage. It is the unskilled and poor worker with low productivity - the very group the minimum wage is created to protect.

On the other hand, some giant corporations would not have existed if there was a minimum wage system when they came into existence – so the policy also prevent potential entrepreneurs with low financial capacity from setting up.

If you study minimum wage from any angle you’d realise that it is only the poor that is affected. The poor skilled man, the poor entrepreneur and the poor consumer (YES it affect consumer but that is not my focus).

Off-licenses in the UK (your regular corner shop) cannot take up staffs in a system of minimum wage because it means no profit for them - same for local food stores. In a society of mass unemployed teenagers

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    Aug 17 2012: This is a argument of emotion. On one side the owner who is strapped by regulations, taxes, unions, and rising costs who is just hanging in there or is under water and sinking fast. On the other those making a case for the poor, deserving or not and possibally "using" the system. Lets look at Mr X with two kids working for 10 per hr. What he earns and what we (the tax payer give Mr X) I tried to be fair but if you think there are better numbers use them in your model.

    Mr X earns $10 hr X 8 hr day X 5 day wk x 4 wks = $1600 per month under the table no tax.

    We give Mr X these benefits (tax payers) with the equivelent costs (my estimate) per month
    Medical for family = $ 600
    Food stamps $250 wk = $ 1000
    Housing assistance = $ 650
    Gas money varies = $ 400 (est)
    WICK money for children food stuff approx = $ 800
    Education $7000 per year = $ 583
    Dependent assistance $ 600 per child ( X has 2) = $ 1200

    Mr X by working at a minimum wage job and receiving assistance earns $ 6033 in money, goods, and seervices. I do not add the costs of the public servants that provide all of these services that the tax payer also empolyes.

    Mr X at tax time has a earned income of $19,200 and has 4 dependents it is quite possible he will under certain program available will get a refund while not paying anything in.

    However, if you add up all the goods, services, and wages ... Mr X had $72,396 made available.

    Even at the most conservative I could make this he still makes over $50, 000 a year of his/our money.

    So before all of the whining and crying over poor Mr X ... do the math.

    You and I make (for example) $70,000. We must pay for all of the goods and services Mr X receives for "free". At tax time we can only deduct the number of dependents (or use the long form) and pay taxes on the amount left. All of the services come out of pocket.

    The bottom line is that Mr X is better off than us using the math provided.

    All the best. Bob
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      Aug 17 2012: Excellent your post nails it.
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      Aug 19 2012: You guys must have trouble just following all this. Here the minimum wage is much higher but it's all you get. (Except for lublic education and medical). If you have kids you can claim a tax rebate. It seems to me that the US has a very high level of hidden welfare. I don't know why Mr X bothers with the job his time would be better spent finding more hidden welfare programs he could apply for.
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        Aug 20 2012: Your right. Mr X does not have to seek more benefits the administration is developing them as a part of the re-election campaign and they are well advertised. The job is really not necessary as you say. It is pure fun money. Most of the benefits are put onto a charge card and are not cash.

        In some cases the card holder buys products for another person and takes money for the shopping he does on the tax payers money. This money is what is often used for drugs and whiskey.

        There is no requirement to meet either federal or state laws to be eligable for these benefits. The state of Arizona is under a federal lawsuit for enforcing federal laws that are and have been on the books. The federal authorities admit that there was a violation and yet turn the illegals loose because it is the federal job to enforce those laws. The administration is dependent upon the "mexican" vote to retain office and has overrode written laws by executive orders to cater to political needs.

        This is a big issue. I hope that even the most liberal person could see how the US is going broke under these types of decisions.

        In you country does just anyone walk in and recieve all of the benefits that the US offers without having to meet any requirements?

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          Aug 20 2012: The major difference here is the level of overall welfare available. A single unemployed person over 18 receives about $200 a week plus a rent subsidy if you supply a copy of your lease. Assuming you live in minimalist accommodation that might be another $150pw.
          After that you're on your own. Minimum wage is $600pw so their is a substantial difference. Even if you work casually you only need 2 or 3 shifts a week to do better than unemployment. While you are unemployed you are assigned a case worker who you meet with every two weeks to sign you up for courses or work experience programs to help get you off welfare. To qualify for benefits you need to provide a birth certificate or residency certificate if you are not a citizen. Of course we don't have anywhere near the illegal alien problems here as we have no borders.
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    Aug 17 2012: Dickensian London was real. Very poor people ended up in the work-house. The arguments about the deserving and undeserving poor were thrashed out in Victorian society, which recognised the evil in demonising the working classes in a society. Just after World War II William Beveridge introduced a social safety net model in the form of the Welfare state, in order to address the five great social evils. An economist called John Maynard Keynes successfully argued about a global system of economy based on increasing and decreasing the amount of money 'in play' in a society. Woolworths was a very successful store chain offering reasonable quality cheaply. On the collapse of this national institution the void has been filled by shops like Poundland and 99p stores very successfully. The poor will always be with us, it is not about their individual productivity but about the social and economic climate these people operate in. Margaret Thatcher thought she had destroyed the Trade Union movement and we could become a service economy and generate enough income from the rest of the world to buy in resources. Unfortunately services are the first thing to suffer in a global recession. Plenty of people willing to work for less than the minimum wage but how do you put food on the table and keep a roof over your head in such a market. Especially when the country is inundated with workers from other countries. I believe South Africa has a similar situation at the moment with it's migrant mining employees. During the Industrial Revolution workers were often paid 'truck' ie tokens to spend in the companies own food store. Basics like flour would be adulterated with chalk and other fiillers. Cadbury was a model employer, see Bourneville village scheme. Otherwise it was child labour and three to a bed. Free markets can be vicious.
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    Aug 16 2012: In the immortal words of Chris Rock "When your boss is paying you minimum wage... What he's really saying to you is "I would pay you less... but, I can't... Cus' it's illegal"
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    Aug 14 2012: @Eddie you are mixing several different concepts. You started with a definition of productivity based on marketable output. This is an absolute measure which will not vary between countries - 25 widgets is 25 widgets wherever you are.

    Market rate is a variable based on demand and supply. It can be expressed in local currency, which makes it difficult to compare market rates in two ountries with different currencies. Currency exchange rates are not designed to provide a like for like translation in terms of purchasing power. One way of eliminating this discrepancy is to express purchasing power in terms of units of a common commodity such as mars bars. This would allow you to compare market rates for a specified level of productivity across countries with different currencies.

    Opportunity cost of the cleaner is very simple to measure. If the supermarket decided to do away with the cleaning function and spend the money on something else, it would be shut down for being in breach of hygiene regulations, making the opportunity cost of the cleaner equivalent to the turnover of the store.

    In practice, market rates are the main driver of wages for very practical reasons.

    As regards workers whose low wages are subsidised by benefits, without the benefits many would not be able to afford to get to work in the first place. London already has a lack of key workers. What happens is that as people leave jobs, no-one comes in to fill the gap. And people do leave because they know that by moving out of London they pay less for travel, housing, food etc. So demand starts to exceed supply. Since that pushes market rates up, it starts to attract people at that wage level back into London.

    So there is a market rate for a job determined by supply and demand. People sell services in order to live so living wage determines supply. If a profitable company wants to pay below living wage, why should the taxpayer subsidise it?
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      Aug 14 2012: capital and education determines the productivity of a person. both are widely varying at different places. especially capital.

      market forces just ensure that the actual price of labor (wage) is not far off of the marginal productivity.
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        Aug 16 2012: But that's not comparing like with like, it compares the combined productivity of investment and individual.

        It's not meaningful to compare the productivity of someone working with a hand lathe with the productivity of someone working on a highly tooled production line. They are different jobs.
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          Aug 16 2012: combined productivity. that is what we compare.

          an average unskilled man in nepal can for example pick rice. say he can pick five bushels of rice a day. his salary can not possibly be more than the worth of five bushels. a similar fellow in a more advanced country uses a harvester to return a hundred bushels a day. his salary can be up to the price of a hundred bushels, minus the rental of the machine. the same amount of effort and work results in hugely different outputs based on capital.

          in europe and the US, capital accumulates like crazy for many centuries, but especially in the last 2-300. in nepal, it didn't happen that much. that's why they have 1/20th of the income on average.
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      Aug 15 2012: Yes - productivity is based strictly on marketable output – that is the standard way to determine one's productivity. However, to speak of output in dollar terms we have look at the context. 25 widgets in China = 25 widgets in London - but the prices are not the same hence the productivity of 25 widgets (in money terms) is determined, among other things, by the context. No one will earn payment for 35 widgets when he produces only 25 - AND that is how productivity determines wage.

      The context is the market forces - demand and supply, local currency and what have you.

      To turn to your next point; you measured the opportunity cost of the cleaner as equivalent to the turnover of the store. This is a myth - again. Remember that cleaning job requires no special skill hence anyone can perform the duties (I’m speaking of context again). But to measure the opportunity cost of the cleaner you have to consider that fact that sale consultants and other workers can perform the duties in the absence of the cleaner.

      You then said “In practice, market rates are the main driver of wages for very practical reasons.”

      This is another error – it is individual productivity that determines individual wage but there is a context to it. I agree that the market rate come into the context but personal wage is determined by productivity. There is no other way – it is either the employer is making a profit or a loss. If worker A produces 10 pounds worth of products and worker B produces 16 pounds worth – it is common sense that worker B will earn more. On the hand there is nothing in the market force that will permit worker A (who produces 10 pounds an hour) to receive 20 pounds an hours.
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    Aug 14 2012: Question for you - how do you define the value of the productivity of a job?

    The person cleaning staff toilets in a supermarket doesn't generate identifiable value, but if the job wasn't done, the supermarket would probably go out of business as a result of making customers ill through hygeine breaches.

    And a thought on charity - if a profitable employer pays less than a living wage, then someone else ends up paying to keep that employee alive. that is a hidden subsidy to the employer - another form of charity but this time to an organisation which doesn't actually need it.
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      Aug 14 2012: “how do you define the value of the productivity of a job?”

      In standard theory you can measure productivity through the marginal product of labour. . i.e what happens when a company adds an additional worker to its operations -or subtract. . Most companies measure the productivity of their employees. When forecasting future sales goals, the company looks at what will happen when an additional worker is added to the workforce. In economic terms, marginal revenue should increase by at least the amount of the marginal product of labor. If marginal revenue does not rise and marginal costs increase, the additional labor is not a good investment.

      For example - if you own and operate a pin manufacturing with 10 workers producing 100 pounds worth of pin within an hour – what will be the increase if you employ one more worker? If an extra worker led to an increase by 3 pounds (i.e to 103 pounds an hour for 11 workers) and the minimum wage is 5pounds it won’t be profitable to take up an extra worker. On the other hand, if using an extra worker increases the output to 113 pounds worth of pins, the marginal productivity is 13 pounds – there is thus an incentive to take one more worker.

      But to turn to your example: it is simply not true than a toilet cleaner doesn't generate quantifiable value - that is a myth. Before minimum wage there was a market price for cleaners and all other jobs - how do you think that came about?

      To your final claim; if somebody's skill does not permit them to earn up to the “living wage”, do you then think the employer should pay the difference? Take an expensive city like London - with high living wage - and you have a man with low skills that doesn’t permit him to earn up to the living wage (cost of housing transport and what have you) - do you think his employer should pay him according to what he produces or the cost of living?
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        Aug 14 2012: But market price is not a measure of productivity, it is a measure of scarcity and the ability of particular groups to negotiate, either as individuals or together.

        And if you consider an expensive city, it creates its own market prices based on availability of resource. Since it costs more to live in London, or to commute in, this has the effect of limiting the availability of people prepared to accept lower rates so the market rate goes up.

        In the toilet cleaner example, the rate is based on the market, not on productivity. what you haven't considered is the opportunity cost of not having cleaners. that's another of the many factors which go into determining a reasonable wage.

        As to what an employer should pay, the example I gave is of an employer who can only get employees at the rate offered because those employees get money from elsewhere as benefits. If this didn't happen, the employee would not be working there. So in order to get the employee at that wage level, the employer is relying on the taxpayer to provide a proportion of the income that the employee needs to work there. why should the taxpayer provide that subsidy? Surely it's up to the employer to run their business effectively without a subsidy?
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          Aug 14 2012: Anne, the productivity of a particular individual in country A can be (and often is) different from that same individual in country B (all other things being equal) because it is affected indirectly by price and environment. There is always a context to it - this is the market price. In some professions it is easy/straightforward to look at the productivity in money terms just like the standard example i provided. In other professions we can look at the market price to determine the range of productivity since we are not dealing with figures.

          The opportunity cost can be easily determined in my pin factory example - but not in the case of the cleaner hence I invited market price. I don’t mean to say the market price is the productivity for the cleaner – but it surely influences it. If you can provide me with figures regarding the toilet cleaner then surely, i could, and would be able to, calculate the productivity.

          Finally you said the “employer who can only get employees at the rate offered because those employees get money from elsewhere as benefits. If this didn't happen, the employee would not be working there.” So where would the workers be if that was the case? That is the question – do you mean to say employees would get a better job but because they are been subsidized? I don’t think you can afford to say that YET that is what you are saying.
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    Aug 14 2012: Many companies took jobs overseas where they could pay slave wages. It had nothing to do with productivity and everything to do with profit margins. Minimum wage laws were enacted to help poor people survive and to help lower the welfare burden (people who get paid for no productivity at all).

    George Pullman was a railroad tycoon who developed the Pullman railroad car. His money was made at the expense of his employees. He lured them in with promises of a decent life where everything was at your disposal. His vice is that he didn't pay in money, but in company chits. The chits were redeemable at any company store, but nowhere else. He paid the people just enough to survive while he made millions. The people couldn't advance themselves because they couldn't afford an education, so they were trapped. My point is, there are people who will pay as little as possible, regardless of what you can produce, just because they can. It took minimum wage laws and unions to make life tolerable in a world where there is so much financial imbalance by people who are willing to profit at your expense.

    Juggling the minimum wage value is a tug-of-war between what people should be paid based on fairness, and what employers can afford to pay based on the bottom line. We were not all born with a silver spoon in our mouth. If you paid people just on the basis of what they can produce, then retarded and mentally challenged people would be out on the streets. Somewhere you have to draw a line.
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      Aug 14 2012: Ehis, what is Roy missing?
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      Aug 14 2012: Roy is missing everything but let me turn to some few points.

      "there are people who will pay as little as possible, regardless of what you can produce."

      This is a myth. The best and only protection for the worker is the availability of an alternative employer. If you produce so much and you are paid so little (which never happens) an alternative employer will snatch you away with a better deal. In short, there are potential employers always searching for experienced workers and they are ready to promote them from the onset. I know someone that worked with 4 banks within 10 years due to the opportunities of better deal. The skilled worker can only be exploited if there is only one potential employer for the skill he/she possesses. So – it is a myth than you can be paid way below your productivity in a competitive market.

      And then you said “If you paid people just on the basis of what they can produce, then retarded and mentally challenged people would be out on the streets. Somewhere you have to draw a line.”
      Are you saying we should not pay people based on what they produce? This is a serious statement – you have to be very bold to say that. Job is a product in the market just like any other product and it comes with a market worth – just like your shoe or cloth in the market place comes with a worth. You are saying, in principle, that we should not buy products on the bases of their worth but on our worth. That is, a wealthy man buying a shoe that is worth 4 pounds should pay 4000 pounds because he is rich. This is the logic of your argument.

      Issues of the retarded and mentally challenged can be discussed in a different context – we are speaking of something else.
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        Aug 14 2012: Buy low, sell high, is the salesman's creed. People will pay as low a wage as they can get away with and charge as much as they can get away with. Do you think that Chinese people produce less quality products? They certainly get paid less. But I'm still paying the same price. Someone is benefitting, and it isn't the worker.

        It is true that the skilled worker can always find a job at a good wage because someone will desire that quality and be ready to pay it. But not everyone has that luxury. In a market that is replacing people with machines and computers, there is a growing market of people who will work for what they can get. Take away the minimum wage and that will be less and less.

        Your argument only works in an ideal competitive world where everyone is fair. There are many rich people who didn't get rich because they were fair. How many skilled workers in this country are without a job? I bet it's far more than zero.
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          Aug 15 2012: The reason you pay the same price for Chinese product is due to a tax called tariff that you pay to your government. There is a misconception that tariff is a tax or duty to be paid by the importer – it is a myth – it is paid by the consumer. You said “Someone is benefitting” – yes; it is your government taxing you. If tariffs were eliminated you will get the products cheaper.

          I agree that the unskilled worker find it hard to get employment – but how does the minimum wage help this situation? It is the very reason why we have to abolish minimum wage because the policy says if you cannot produce up to the minimum wage you do not deserve a job. You speak beautifully of protecting people in minimum wage – what about those with no employment?

          You think people in minimum wage are the lowest in the society – this is the error in you theory. There are millions of unemployed people seeking for minimum wage jobs/ and millions of businesses that could not employ people for minimum wage because they don’t earn much. What sort of policy is that?
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          Aug 15 2012: You are not bothered with the unskilled/unemployed; all you care about is protecting the employed people in minimum wage.
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        Aug 15 2012: Why are corporations bringing in huge profits if what I am paying is a tax?

        When there are far more workers than there are jobs available, it puts the wage earner at a disadvantage. If you don't think that employers use that to their benefit, you're either trying to hide the fact, or you don't see what is really happening. It is not uncommon for wage earners to see a cut in pay when the CEO is taking a huge benefit. Where is the logic or fairness in that?

        If an employer takes anyone out on the street rather than looking for those with the best skills, that is not the fault of the policy. How does getting rid of the minimum wage produce a better society? There is a highly competitive market for skilled workers. Minimum wage does not affect that market in the least.

        So you would rather employ more people at slave wages just to keep them off the unemployment line? They could all live in cardboard cities because they couldn't afford to pay what people want for rent. People's greed for money is a far greater problem than minimum wage.

        How is getting rid of minimum wage going to help the unskilled/unemployed advance in life? They won't be able to afford education, they won't have time to learn skills because they will be working two or three jobs that don't teach skills? The problems you fix will not offset the problems you create.
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          Aug 15 2012: "When there are far more workers than there are jobs available, it puts the wage earner at a disadvantage. "

          the wage earner also should ask why they are more than jobs. average wage earner does not ask that question. or if they do, they quickly cover it up with something like "evil corporations don't want to hire people". which is not an answer. so maybe some thinking ...
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          Aug 15 2012: “Why are corporations bringing in huge profits if what I am paying is a tax?” Try to be more specific – and so many corporations are making huge losses. Do you mean to say Chinese importers are making huge profits? name me a corporation making huge profits without government help. .

          Corporations making extraordinary profits are either protected by the government (through lobbies and what have you) or issued monopoly right by the government (which is a way of guiding your tax to the corporation.)
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          Aug 15 2012: "How does getting rid of the minimum wage produce a better society?"

          "There is a highly competitive market for skilled workers. Minimum wage does not affect that market in the least."

          Read your question and the extract, read them again, and again. Let me start with the comment - if you agree that minimum wage does not affect the skilled worker in the least, the it is a policy for the unskilled then the question becomes; does it help the unskilled?

          You answer this question in the negative when you asked “So you would rather employ more people at slave wages just to keep them off the unemployment line?". Meaning you, Roy Bourque, prefer for the unskilled to stay jobless as an alternative for a low paying job (what you called slave wage) that corresponds with their productivity. Don’t you think working for 3 USD an hour is better than staying unemployed? The one who works for 3 USD acquires training that advances his skills to a better paying job while the one who stays idle remain idle – what is your plan for the unemployed?

          And then you asked - "How is getting rid of minimum wage going to help the unskilled?" We can safely update ‘minimum wage’ with ‘joblessness for the unskilled’. Getting a ‘low paying employment’ and ‘no employment at all’ which is better for the unskilled?

          How does it help the low skilled to drive them out of the work force? That is the only question.

          You are telling poor people that, no job for you is better than a job of 5 dollar.
          “Why are corporations bringing in huge profits if what I am paying is a tax?” Try to be more specific – and so many corporations are making huge losses. Do you mean to say Chinese importers are making huge profits?

          Corporations making extraordinary profits are either protected by the government (through lobbies and what have you) or issued monopoly right by the government (which is a way of guiding your tax to the corporation.)
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      Aug 14 2012: To turn to your open point - “Minimum wage laws were enacted to help poor”.

      Minimum wage cannot help the poor – it disobeys simple logic. Have you ever seen a poor doctor? I haven’t. A different word for 'the poor' is ‘people with low skills’. You cannot be poor if you possess high value skills – yet minimum wage is a policy that discriminates against people with low skills. Like I said, the physician or lawyer isn’t bothered by minimum wage – if anything the minimum wage helps increase his wage. It is people with low set of skills that are left out of work force.

      Then you said "It took minimum wage laws and unions to make life tolerable in a world where there is so much financial imbalance by people who are willing to profit at your expense".

      This is just funny. . Unions only raise wages at the expense of other workers – it is a simple case of demand and supply. I will explain this if you specifically ask me to.
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        Aug 14 2012: OK, let's apply the same logic to skilled rather than unskilled workers. We won't pay our MPs if the national debt increases. We won't pay our bankers if their investment strategy doesn't result in a good return on our investments. We won't pay our doctors unless they cure all their patients. We won't pay our lawyers unless they win every case. We won't pay our teachers unless every child passes its exams. We won't pay our company directors unless the company makes a profit......

        These people have a degree of power and influence which allows them to negotiate payment independent of productivity. People working at minimum wage level do not have this power, yet we need people to do the jobs that they do, so why cut off the supply by not paying a minimum wage?

        BTW your point on unions raising wages at the expense of other workers is out of date, in the UK at least. It is a long time since unions were in a position to negotiate deals for their workers only.
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          Aug 15 2012: Do you measure the productivity of MPs by level of national debt? This again, is the space in your logic. Is the function of an MP limited to the reduction of National debt? That is not even a function of the MP.

          Again, is the role of the teacher to get a child to pas exams? Not at all. I agree that the teacher should not be paid if they refuse to teach their students. There is a way to understand this: if the teacher was absent for one week then one week pay should be deducted from their salary. The role of the teacher is to teach – if they are not doing that why should be pay them?

          There is no degree of influence my friend; a lawyer who refuses to turn up to defend his client should not be paid. The duty of a lawyer is not to win but to defend his client. So you start your case from a flawed premise.

          “BTW your point on unions raising wages at the expense of other workers is out of date, in the UK at least.”

          It is the argument that is out of date in the UK – it is a matter of simple fact and logic that unions raise wages at the expense of other workers it is the use of this fact in public discourse that is out of date. It cannot be out of date – it is like 1+1=2. There is no getting around it.

          But more, unions also raise wage at the expense of unemployed/potentially employed workers. It is basic demand and supply to understand that the more expensive a product the lesser the demand for that product.All things held constant.
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    Aug 20 2012: In a Capitalist society, a persons value (within society) is related to their value in the cost to produce a product or service. Politically speaking, in a pure Capitalist society, a person’s class position within society is based upon their value to produce products or services. Even a CEO has a Minimum wage for which they will work.

    The basic, primary “Goal” of each individual is to survive. By joining together as a group this goal becomes easier to achieve. Once the group has organized itself to easily survive, they can expand the primary goal to: surviving with a level of comfort. Once this is achieved, you have a society living in harmony.

    To maintain harmony within a group, individuals they must perceive that the demands required of them are equal to the demands placed on the other members of the group.

    In a pure Capitalist society some individuals perceive themselves as being more valuable than other members of the group. They feel they need to be compensated at a higher level of comfort (less work and more recreation). When an individual expects to live at a higher level of comfort within the group, dissonance is introduced into the group. Dissonance is a natural consequence of trying to live in a pure Capitalist society.

    In a pure Socialist society, all profits created by group endeavors are divided equally among all group members, regardless of the hardship imposed on some individuals to produce products necessary to support the group at the level of comfort. Dissonance is a natural consequence of trying to live in a Pure Socialist society.

    By attaching a bonus value to tasks requiring more individual effort, such as less work time and more recreational time, dissonance can be avoided and harmony maintained. To determine the value of the bonus, a leader, or the entire group, should vote what that value should be.

    Minimum wage should not be abolished but should be reevaluated as to it's relevant value in today's work force..
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      Aug 21 2012: "perceive themselves as being more valuable "

      Perception doesn't have anything to do with it. It sounds like you are saying Bill Gates made more money because of his self perception. Not the case he simply created something that everyone wanted. It was a win win all the way.

      "To determine the value of the bonus, a leader, or the entire group, should vote what that value should be."

      Why not just have everyone vote with their wallet? The Google boys sure did get a lot of votes as did the Koch brothers, as did Stephen Jobs, as did Sam Walton. What did they do that got so many votes? you said it in your opening paragraph they helped their fellow earthlings survive better. The Google boys made everyone smarter a lot smarter, the Koch brothers gave everyone cheaper energy, Stephen Jobs gave everyone an easier friendlier computer. Sam Walton gave everyone more crap for less money. Don't you think they deserve more votes?

      "Minimum wage should not be abolished but should be reevaluated as to it's relevant value in today's work force.."

      Who would this individual be? No one is that smart. Again let each individual vote by agreement on what they are worth and what the employers think they are worth. Simply put by agreeing on an exchange.

      Most people fail to realize the importance of the inspection the quality of the exchange. It requires that the exchange be inspected many times per day per individual. When this has been erroneously attempted in communist countries it has resulted in failure:

      A turning point in Yeltsin’s intellectual development occurred during his first visit to the United States in September 1989, more specifically his first visit to an American supermarket, in Houston, Texas. The sight of aisle after aisle of shelves neatly stacked with every conceivable type of foodstuff and household item, each in a dozen varieties, both amazed and depressed him. For Yeltsin, like many other first-time Russian visitors to America, this was infinitely more impressive
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      Aug 21 2012: than tourist attractions like the Statue of Liberty and the Lincoln Memorial. It was impressive precisely because of its ordinariness. A cornucopia of consumer goods beyond the imagination of most Soviets was within the reach of ordinary citizens without standing in line for hours. And it was all so attractively displayed. For someone brought up in the drab conditions of communism, even a member of the relatively privileged elite, a visit to a Western supermarket involved a full-scale assault on the senses.

      “What we saw in that supermarket was no less amazing than America itself,” recalled Lev Sukhanov, who accompanied Yeltsin on his trip to the United States and shared his sense of shock and dismay at the gap in living standards between the two superpowers.

      What does work is the individual deciding for himself what is in his best interest.
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    Aug 20 2012: There is of course a related question.

    Should an entrepreneur be allowed to run a business so that profits are dependent on paying workers less than a living wage?

    Businesses are run to make a profit, and people sell their labour in order to make a living. Why should the rights of one be given precedence over the rights of the other?
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      Aug 20 2012: how do you define "living wage"?
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        Aug 27 2012: It's as difficult to pin down as 'market rate'. But basics of life can be defined in the context of housing, food, clothing, utilities, cost of getting to a place of work.
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          Aug 27 2012: i claim that they can not be. that "living wage" is so different from place to place, person to person, and also changes rapidly. it is nothing but a perception.

          just for example in nepal, people have all these, and they live like 1/40th of the average US wage. and it is not like some rotting hole of disease and suffering. it is a country with people living their lives colorfully and meaningfully. (except the maoist party, but that's another story.)
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      Aug 20 2012: For a start, businesses are run to make a profit but, even when they are making huge looses, they are still entitled to pay workers for their productive input.

      Let me bring out the absurdity of your argument;

      Mr Charles sell his labour in order to get a yacht; DO you then think his employer should negotiate his pay to reflect his goal of getting a yacht? I think not . . . A 'living wage, however you define that, is not the how you get paid ( highly skilled workers get paid way above that) it is strictly based on what you produce.
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    Aug 20 2012: If your minimum wage is too low, people need to rely on welfare and charities to get by. This discourages the unemployed from looking for a job as you are no better off. You spend 40hrs a week to live slightly better. This also encourages doing (off the books) work. Walfare should enable the poor to meet their needs (food, shelter, medical, education) Minimum wage needs to be high enough above this to provide an incentive. The level of welfare is reliant on the prosperity of the society you live in. Surely its better for a company to pay higher wages to its workers and then less tax on its profits rather than pay low wages and then have to pay high taxes to support the welfare the the low payed workers need to get by. That just means you need more public servants to shuffle the money around.
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      Aug 20 2012: The reality is that politicians care about getting reelected above anything else. They could not care less about what is rational.

      A minimum wage automatically pushes jobs away from entry level workers. And it surely does it in Australia.

      Economics by definition is the study of scarce resources that have alternative uses. When ever something is given away for free the demand skyrockets.

      Your system is borrowing from the future to pay for now, you could sooner argue that a perpetual motion machine is real.
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        Aug 20 2012: We have 5% unemployment and the federal budget is back in surplus so we must be doing something right.
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          Aug 20 2012: Your doing a lot of things right but not when it comes to minimum wage.
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    Aug 19 2012: OK, I now have a whole list of stuff to read on this. It may take me a while, but I am going to come to a better understanding of how the non-aggression principle works and economic theory from a libertarian perspective works. The only way we can make rational decisions is to have all the facts and understand how they interrelate.

    Thanks for your patience guys.

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    Aug 17 2012: If a job is not worth compensating a worker enough to be above the poverty level, the job is not worth doing. If society does not think a cashier at a store is worth being paid above poverty level, society should not have cashier jobs.

    In the US we pay food stamps to those under the poverty level with tax money to help alleviate their poverty. That means the money is in the economy already, but it comes out of the pockets of those who are above the poverty level as taxes. Those tax payers subsidize the lower income earners through their taxes in the form of food stamps. We could stop paying the extra tax, and instead pay the difference to the companies with the lower paid workers as the services are provided. This would help the employers pay a living wage.

    Economic studies have shown in some models that raising the minimum wage above the poverty line increases unemployment, and in other studies it shows that raising the minimum wage above the poverty line lowers the poverty level. There is not a firm consensus within the economic field on this issue. Free market proponents find ways to get and analyze data to support their views, and left leaning economists find ways to get and analyze data to support their belief systems.

    The followers of Ayn Rand believe that the only moral value with validity is selfishness. Selfishness will lead to the most good for the most people in their view. They are conveniently ignoring one of the main attributes of selfishness in their reasoning. If selfishness is the only good, then those at the top of the company should hoard more and more of the profits for themselves at the expense of their employees. All employers should do this if selfishness is the only moral good. All employees would then be forced to work for lower and lower wages. This is the paradox of objectivism: The rich exploit their employees until the lower classes can't afford to participate in the economy, and then the whole system collapses.
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      Aug 17 2012: take a guy, john. skipped school, did drugs instead. but later came to the conclusion that this is not the life he wants. now he is willing to work, and a nearby institution would pay him $4 an hour to mow the lawn. at evenings, he could work part time at a supermarket, moving shopping carts back to their place, and collecting garbage. he could pay a small rent, and live a humble life, and save enough money to buy a hot dog stand 2 years later, and sell hot dogs.

      but no. this is not worthy. we don't want such guys around. better give them some food stamps so they shut up, and put them out of sight. we don't want to even hear about them. they don't fit in the image of our own great society.
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        Aug 17 2012: Or a government, business, or family member, could invest in teaching John skills so that he can earn a living wage, and share that apartment with a partner, and not be embarrassed to be begging for meanial tasks for his entire life...
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          Aug 17 2012: thus solving the problem, and not hiding it
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          Aug 17 2012: Yes, this would help. I don't dispute that the market should create value in education and personal motivation by compensating its contributors based on the value they provide to society. There should be higher and lower paid workers based on the value of the production of the worker, but my argument is that the market should not sustain products and services that it is not willing to support at a living wage.
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          Aug 18 2012: You agree that "There should be higher and lower paid workers based on the value of the production of the worker" meaning people should be paid according to their productivity. There is no argument here - we are in agreement..

          Saying "market should not sustain products and services that it is not willing to support at a living wage" is sharply in contradiction with your first statement. If that was to be the case then it has to be a wage system on local bases because living wages are defined locally. The living wage of London is different from that of Liverpool.

          But let us see what is involved. Someone has to first of all define the meaning of living wage. Then we take out from the system people whose productivity does not permit them from getting a “living wage” job. How does punishing them (by making them unemployed) solve the issue of low productivity? If anything redundancy takes away the little productivity they've got.
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        Aug 17 2012: You fail to address my argument. I was showing the wrongheadedness of using tax payer money to provide food stamps, when the market should have supported a living wage in the first place.
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          Aug 17 2012: sorry if i failed to get the essence of your post, it was rather incoherent and did not make too much sense.

          but i still ask: if the guy agrees to a wage, the employer agree to the wage, what else can be said? what does "society does not think". who is that society? what society has to do with the business between a guy and a potential worker? why would it interfere? on what ground?
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    Aug 17 2012: In a well run economy minimum wage should be unnecessary as unemployment should be so low that competition should support the minimum wage. As far as off-shoring is concerned no amount of lowering the minimum wage will compensate for countries where 8 yearolds get payed 10c a day to assemble products. If you live in a country where minimum wage is a topic of discussion you need to ask who stuffed the economy and how do we fix it? Why did we keep borrowing more and more money without considering how we were going to pay it back.
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      Aug 17 2012: I can think of a few reasons, the 8 year old is not here, I had a newspaper route when I was 10 is that child labor as well?, if there is no minimum wage then people will work if they can and the government alternative is not there, the government subsidizes immigrant labor who then can work for less wages because food stamps, subsidized housing, and emergency room healthcare for free allows them to work a lot cheaper than the indigenous workers, because of this the customers have become accustom to lower and lower standards, public union employees are another form of minimum wage as they force out competition, And there are more I don't care to type out.

      Child labor or no the wages in China are rising which is a good thing. Just in the last 10 years they have gone from 500 per year to 7000 that I know of they are probably higher now. According to the WSJ China will no longer have a price advantage on wages by 2015. You say it will go elsewhere maybe but then again maybe not India is not business friendly like your Australia.
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        Aug 17 2012: I'm assuming your newspaper route didn't occupy 60 hours a week and prevent you from going to school.
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        Aug 17 2012: I'm pretty sure the wage numbers in the WSJ don't include child labour but as both Apple and Samsung have been caught using child labour it would be a good guess that it is standard practice amongst Chinese companies. If the chinese government didn't consider child labour info as classified it would be a lot less suss.
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          Aug 17 2012: The point is that the child labor is included or not included now it is not going to change in 2015.
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        Aug 17 2012: Maybe in ten years we'll be buying our cheap crappy electronics from you guys. ;-)
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          Aug 17 2012: You think it will be that long? No question as Ferguson says the divergence is OVER.
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    Aug 16 2012: The factor you leave out of your equations is human potential. For almost all of human history it was an unspoken assumption, in physical labor, or tradeskills, that when an employer hired a laborer, they would lose money on that laborer for a year. Someone you pull in off the street is not going to make your product with enough skill and speed to make you a profit... at first.

    Even education was not expected to make up for this fact. You, as a business, have a way of doing things, it is refined to a science, and the person you just hired, doesn't know the science of your machine. With that new hire, however, also comes a new perspective. In physical labor jobs, you can train someone up from incompetent to great on the line, very quickly.

    The concept that we should reduce minimum wage, or abandon it all together, is based on 1 of 2 assumptions. Either, employers, should not have to train new physical laborers at a loss, as a bet on future profitabillity... Or, there is a human being out there, who will never be trained well enough to be worth a few dollars an hour.

    The concept of a new hire, often used to be like the concept of the news in television. The news was a "loss leader", by covering it with integrity, you could build esteem for your brand, and generate new customers for your entertainment programs. In and of itself however, and Dan Rather talks about it, the news used to be the one hour a night that the television network lost money. They spent more on production than they generated in ad revenue.

    By treating entry level physical laborers with integrity, and investing in their future, you can make them, and your customers more loyal. In and Out hamburgers in Los Angeles has proven this with rapid expansion, by maintaining this philosophy. Henry Ford built an empire on unions, and overpaying entry level work to build loyalty. Business is not doing what it is supposed to do anymore, and unfortunately minimum wage is a necessary evil.
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      Aug 16 2012: yeah, because, you know, everyone is stupid

      business owners are stupid. they simply can not anticipate that a worker might be more valuable later. they just don't get it. they believe that a person is just a fixed set of skills that never change. among all the millions of entrepreneurs, not a single one is capable of understanding human development, despite the fact that their business depends on it.

      business owners are stupid. it just does not occur to them that they can simply not hire someone if they don't benefit from it. they will never find out that they can use machines, reduce service or outsource to china.

      workers are stupid. we can't let them accept lower wage now in hope to get higher wage later. we can't let them decide what is the level of income they are satisfied with.

      people are just a flock of sheep. we need a good shepherd, the government, to organize their life and ensure their safety.
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        Aug 16 2012: Yep... That's exactly what I said... If you're just going to quote, why even bother responding?
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        Aug 16 2012: Alright... I'll play your game... So, your position is...

        I think people are smart... That is why they deserve less than 8 dollars an hour in faux currency, printed from thin air, by a corrupt government.

        If people are so smart, well... then, how can an hour of their labor be worth less than eight nothings?
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        Aug 16 2012: And there you have it... To you, human labor is worthless.
  • Aug 15 2012: I work in the performing arts, it really isn't about productivity. In our industry its about employers who simply don't want to pay and aren't even aware that the NMW applies.
    The same is true of fashion, journalism and politics. Employers are deliberately misinterpreting the law, plain and simple.
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    Aug 27 2012: @Krisztian If you take the contract back to its basics, an employment contract is about paying someone to be present and to be involved in the act of production for agreed periods of time.

    If an employer wants to pay on the basis of production, that requires a completely different commercial relationship. There is nothing to stop an employer entering into a very different type of contract to pay on the basis of deliverables - but that is not an employment contract.

    As regards the source of higher wages, you have missed one way of providing the funds - reducing profits. It is current practice for financial analysts to measure company success in terms of ever-increasing profits. But just because it's the practice doesn't mean that it's a good measure. There are successful companies which operate a minimal profit model, with profits being returned to workers rather than shareholders.
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      Aug 27 2012: first i don't know why are you talking about what is an employment contract and what is not. second, i disagree with it, many employment contracts today contains profit based or performance based bonuses. third, it is just a matter of definition, i don't see the point.

      you miss the important fact that profit is not only for yachts and such. profit is the source of investment and also the income of great many people, including possibly you, if your retirement plan is such. in the free market, profit tends to shrink with time in a given industry, exactly because of competition. if you want to compete, you have to offer higher wages and lower prices. competitors will do that to the point when profits are so low that no new participants will enter the market as it loses its attractiveness. if the profits are high, and innovation is low in an area, you can always suspect the government behind it, because free markets can't sustain high profits in an equilibrium point.
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    Aug 27 2012: I didn't sugggest that the minimum wage is the rate for alll workers. I asked whether you believe that an entrepreneur should make profits by paying less than a living wage.

    There is often an imbalance of power between employer and employee, especially those in high volume, low skill occupations. Legislation and unions are part of a balancing mechanism which goes some way to redressing that imbalance.

    I have yet to see any cogent argument in favour of removing that balancinbg mechanism and creating an economic system based on exploitation of the least powerful.
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    Aug 27 2012: You refer to unions negotiating 'above the market price'. But the union (which is made up of its members), like the employer, is a component of the market. Both therefore, are factors in determining the market price.
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      Aug 27 2012: except unions are protected by law. if unions were completely a free market phenomenon, and should follow the same law as everyone else, they would be part of the free market indeed.
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    Aug 21 2012: krisztian, That's the way it is in the US. It may be different in your country.


    ". if i want to support poor people, i will donate to the acumen fund, or kiva. certainly won't hire someone for twice the value he creates."

    In America, you will do what the law specifies or you will be taken to court about it.

    It's not up to you.
    Again. Sorry.
    It's been nice talking to you. Later.
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      Aug 21 2012: and the law does not say i must hire someone. it just says i can't hire for less than X per hour. so i don't hire.
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        Aug 22 2012: You are correct. You don't have to hire anyone if you desire. In that regard, the law has no bearing on you.

        What is the minimum amount of money that you would take to work in your profession?
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          Aug 22 2012: it does not really work like that. i can tell you what i expect, but if i can't find a job i must go down with my expectations. here, in hungary, my expertise, i believe, grants me like net 12 USD per hour. it is like 2-3 times the average.

          and now what have you learned from this?
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        Aug 22 2012: I have learned that you make 3 times the national Hungarian average in wages. I'm learning that your focus is on those who can't find a job and must settle for less, especially if the per unit production sale is less per worker. Over all, when the national production is down and profits are down, sometimes people might have to take a cut in wages to compensate. But, this must also include some help from retailers by lower their prices or else their sales will suffer. In a well run Capitalist system, demand should dictate the sale price of items. If people make less, they can only afford less.

        I think this is the way it really measures out in the natural setting of people and economics, but that is only in a country where democratic laws allow people to protest the rate of inflation vs. the true cost of production by refusing to purchase an item. I think this is what is happening in the US today. Retailers want to keep prices up but unemployment and thrifty consumerism is giving them a problem.

        I don't think they understand that when my family members are unemployed, I am forced to assist them with the basics, cutting down on my ability to consume unnecessary items, like going to the movies, buying candy or even taking the kids to McDonald's (for example). I'm forced to stay home to save money on petrol. They just don't get it.

        In some countries, people are forced, by their government to pay a certain price for items, and accept a limited wage for their labor. To me this amounts to slave labor.

        Have I learned well?
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          Aug 22 2012: almost. my focus is on those that can't find a job, and mus settle with food stamps.

          in a free market economy, prices are flexible. if demand drops, prices fall. including the price of labor, the wage. if we have a legal system that interferes with the price system, shortages or overproduction will happen. in any way, the total output of the economy suffers.

          inflation is purely artificial. modern economics and especially politics present inflation as environmental or an artifact of the market. but in fact inflation is caused by the expansion of the money supply, which is intentionally done by the central bank.

          there is some merit in calling it slave labor. but it is certainly a stretch to some level. it is not a stretch however to call it coercion and theft. this is not changed by fact that people actually voted democratically. it just makes the perpetrator not the government, but the people.
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        Aug 22 2012: I see your point and agree.

        But, what of those on welfare, food stamps, who can't find a job because of disability, lack of education, or are displaced by technology and or robotic automatons? How should we deal with these people? Is private enterprise partially responsible for their condition? Does the government have a responsibility to see these people are provided for until some means can be created to offer them work instead of welfare? Should we just leave them to wallow in their misery?
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          Aug 22 2012: minimum wage won't help them, will it? btw i can hardly believe that civilized people just sit back and watch their fellow man suffer. people engage in all sort of charity like activities. i myself pay usd 50 per month to the acumen fund. i'm on kiva. and i just donated eur 250 to wikileaks, which might help to eventually bring down the military industrial complex or otherwise reduce government crimes, which in turn might save lives.
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        Aug 22 2012: Good man. The wikileaks ideas sounds like a radical idea.
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      Aug 22 2012: Even you, John, must see the gap in your reasoning - AND THE LAW TOO
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    Aug 21 2012: Our country is indeed great because the "Law" based on the "Constitution" allows it. However, Greatness does not guarantee that all the basic needs of the people are met. Some live under a burden they are unable to climb out from under and participate in the Greatness of the American Dream. They need a helping hand. As long as there are individuals with wealth that insures they have more than they can consume, there is ample enough to drag everyone up out of the darkness and into the light. But first, we have to want to bad enough.
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      Aug 21 2012: " They need a helping hand. "

      and what government has to do with it? why don't you, and other people, just give a helping hand? for the helping hand of the state is not too helpful. in this case, the few that will get the raised wage are dwarfed by the number of people that just won't be able to get a job. not exactly the help they were looking for.
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        Aug 21 2012: If the people decide to help those who need a "Helping hand", the government would more than likely be the instrument that administrates the process. The government already has the necessary tools to accomplish the administration of the effort.

        If the wage were set, by law, there would be no "few" getting the wage while some did not. It would be the legal minimum wage and should be given to all who work. Of course a private company or a corporation can give their employees more than the minimum if they like.

        In the US. all jobs that are covered by Fair Labor Standards Act must pay their employees a minimum of $7.25 per hour.

        Some states have a higher minimum wage. Some states where the Fair Labor Standards Act does not apply, have a lower Minimum Wage.

        In the US, you can work for someone else or create your own job and pay yourself. No one is required, by law, to be unemployed. In some fashion, being unemployed is a personal choice.
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          Aug 21 2012: "If the wage were set, by law, there would be no "few" getting the wage while some did not. "

          eer, ugh, what? since when the minimum wage laws state that you must hire someone? obviously i will not hire someone that brings in 5 bucks an hour in revenue for 10 bucks an hour. i'm not totally stupid. either i find another way, or i stop that activity altogether. why lose 5 bucks an hour? i'm not charity. if i want to support poor people, i will donate to the acumen fund, or kiva. certainly won't hire someone for twice the value he creates.
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    Aug 21 2012: If you are correct, then there is no dissonance in the world and we all live in harmony.

    We are what we do.
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    Aug 21 2012: Does anyone know why some replies were deleted after my last comment below?
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      Aug 21 2012: Because Debra and I cannot play nice we are bad monkeys.
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    Aug 17 2012: Krisztián,

    Please help me out here. I'm not trying to be unreasonable or to be a know it all. I just haven't yet seen an argument to help me confront the cognitive biases that I am sure I have on this subject. (We all have them.) A well reasoned argument based on facts and set up in a logical way would help me change my mind. I can see that you're trying to show this with your example, but I haven't been convinced yet that eliminating the minimum wage will help.

    I do believe that, in democratic countries, we all have a right to help determine how our economic system and every other system that affects our lives works. That is what democracy is all about. Without democratic oversight of the economic system, we simply have a plutocracy.

    Let's try to be civil though.


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      Aug 17 2012: I'm with you Eric. Formulas only work in a perfectly controlled environment where the variables are predictable and the constants are constant. Thank goodness we don't live in an absolute world...that would be dreadfully boring. Due to corruption and crony capitalism the ideal of acheivement is a rigged game. Root out the corruption and minimum wage will only be mentioned in history books.
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        Aug 18 2012: And what of the corruption in government, you know the ones without whom crony capitalism would only be a gleam in George Soros' and Jamie Dimon eye?
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          Aug 18 2012: Don't get me wrong Pat, I'll support captialism in it's true sense. The problem starts when we start to use our monetary power to manipulate legislation through lobbying for our own special interests. Now we not only buy off the legislators but we can obviously buy out journalism to attempt to dumb down our viewers. That's my understaning of crony capitalism, but I'm more than willing and eager to listen to an oposing opinion for something I may not have thought about (which happens alot for me)
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        Aug 18 2012: The question is what could we change that would change the paradigm?

        If as you say we change the ability to influence legislators that would solve the problem or would it?

        1) The constitution allows for companies, unions, or individuals to petition the government. If you do away with this you are throwing out the baby with the bathwater.

        2) Those so inclined are going to find a way to influence the government. Water will find the leaks. No matter what you come up with their will be unintended consequences that will produce the opposite of the intended effect.

        3) The question is the answer. Our government is influencing people's lives when they shouldn't. How do they do this they do it with money. The answer is to take away their money.

        4) Would the above work yes but there is a prerequisite and that prerequisite is education of the people. The meme I hear over and over is the crony capitalism meme. This assigns blame to the banksters. But all this does is get everyone's ire worked up, it doesn't accomplish anything. Since it doesn't work I say it is not the real problem.

        5) What could we do differently that would really effect the real problem? What is the real problem.

        How come we have crony capitalism? Because corporations can influence the law makers.

        How come corporations are able to influence the law makers? Because the law makers pursue their self interest and need money to get reelected and everyone in the beltway does it and are indoctrinated into this corruption.

        How come the law makers pursue their self interest and need money to get reelected and everyone in the beltway does it and are indoctrinated into this corruption? Because it takes a lot of money to get reelected.

        How come it takes a lot of money to get reelected? Because people are not interested in politics and require a lot of repetition or brainwashing.

        How come people are not interested in politics and require a lot of repetition or brainwashing.

        Because they...
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          Aug 18 2012: Excellent point. As part of that education, shouldn't we attempt to expose these crony relationships? How do we replace those in government hold the power. How do we bring back honest journalism? Maybe we should start an idea conversation to try to gather strategies to bring what both you and I seek. Equal oppurtunity as opposed to equal results. I'll provide a link in case anyone else besides me needs brought up to speed.

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        Aug 18 2012: There are quite a few of us that are spreading the word.

        Krisztian, Ehis, Bob, the Tea Party, Ayn Rand, since people learn best in small groups I think these message boards are a great vehicle.

        I learned about how a politician named Paul Martin did this in Canada from Debra Smith. I believe he did some education by television that Canada needed to get it's financial house in order in the early 90's. My understanding is that because of his efforts Canada today is the only country in G20 that is not experiencing a recession.
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      Aug 18 2012: Do you agree that a minimum wage system increases the cost of employing low skilled labour? If you do then you must agree that it causes unemployment for the poorest members of the society. If we agree to this point then i find it hard to understand why you are advocating the system.
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        Aug 19 2012: Ehis,

        I need to apologize to you for my arrogant posts. I had about a week of emotional driven thinking here. While its difficult for me, I need to confront my own biases here and make sure my thinking is really clear, or find out if it is based on faulty facts and reasoning. If there are any books or authors you could suggest for me I would appreciate it.


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          Aug 19 2012: Following on from Krisztián, you can access free books/Audio from mises institute. It is strictly a libertarian site. Also, you can read Milton Friedman's 'Free to Choose' and 'Freedom and capitalism'.
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      Aug 18 2012: you have been repeatedly asked a single question you refuse to answer. it is not that difficult.

      the question is still this: if two adult, mentally sane individuals agree on an employment contract, what gives you the right to interfere with it?

      there are many such questions, and the answer is always muddying the waters with generalizations like "we live in a society". so what? it somehow makes unnecessary to argue? we can arbitrarily take a position because "we live in a society"? then why i can not say, minimum wage is bad because we live in a society? i can use that argument too? it is intellectual sloth.
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        Aug 19 2012: Kristian, I'm going to force myself to try to see this from your perspective. If an employee is seeking work, and can't find a higher paying job, he will apply for the jobs that are available, and that will be his free choice. The society in which the employer and employee are members have no say in an agreement freely made between those two people. If I look at it from the point of view of the non-aggression principle as I've read on Wikipedia, then I can see your side. The problem for me is that my world view and moral value system which more closely resemble utilitarianism, seem incompatible with this. Maybe I need to reevaluate my value system. It certainly won't be as easy as flipping a switch, because our value systems are part of our identity. It takes time to change them. One of my goals in the last few years has been to confront my paradigms when new information comes in. Its difficult to do to say the least.

        Could you give me a few books or authors that you think will clarify my thinking on this matter?

        Thanks, Eric
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          Aug 19 2012: you can only pick another moral system if you refuse mine. so if you want to believe something else than the non aggression principle, then you in fact say sometimes it is good to initiate aggression (emphasis on initiate) against other people. i'm ok with that, but you need to admit it. i'm ready to admit that my value system refuses utilitarianism. even if one could show me that some form of aggression makes the world a more pleasant place, i will still choose the non aggression and the less enjoyable world.

          some good sources to learn about non aggression and where it leads includes the mises institute

          they also have a youtube channel, on which you can follow the mises summer university lectures.

          this is mostly economics issues, but covers ethics to lesser degree. if you want a more ethical/social approach, the freedomain radio is for you:

          it also has a youtube channel, linked from the main page

          and if you want to dive right in deep, i recommend basically anything from murray rothbard, who is in my view the absolute champion of the philosophy of liberty.
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      Aug 18 2012: Eric

      Are you willing to be Honest and genuinely confront this subject?

      If so is there something about your premise that does not quite add up or doesn't quite make sense?
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        Aug 19 2012: Pat,

        I'm going to try to honestly reevaluate my thoughts and beliefs on this. Can you give me some authors or books that you think would help me see a logical analysis of any misconceptions I have?


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          Aug 19 2012: I prefer Thomas Sowell he was a student of Milton Friedman he is long on examples and short on theory which I like.

          I get that you are taking a hard look at this subject and find that to be a breath of fresh air.

          What happens is that an individual inadvertently and unknowingly adopts a meme that can change his life for the worse because the meme is fallacious. There is no shortage of fallacious memes on the subject of economics.

          Here is an example of how this works. There was a kid that was about 10 or 11 who had trouble in school so the counselor sent him to the school doctor the doctor told him that he had "learning disabilities" and gave him some medication and took him out of the advanced classes and put him in the regular classes. The medication had adverse effects on the kid so he quit taking it. But for the rest of his life the kid thought that he was a "poor student" because of the learning disabilities. Then one day the kid (40 years later) had an epiphany that he was not a poor student it was just that some "know best type" said he could not learn. Realizing that this was sitting there all those years explained a lot of things and I was quite relieved.

          Again ask yourself the question what about economics does not add up? What about economics does not make sense?

          If you will answer these questions honestly we can probably point out the facts that will set the you straight on the part of economics that doesn't quite add up.
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    Aug 17 2012: What is the formula that determines the hourly value of work, whether it be a custodian, cashier, or general manager. Solve for this and you will no longer need minimum wage. I'm thinking, the less skill it takes to do a job, the less value (productive rating) it recieves. Therefore, there are more people to compete for the jobs that require less skill. So, businesses can hire the lowest bidder for said job. Economy can have and effect on the value as well. In a weak economy, the labor market is larger and this drives the value (pay equivelent) down due to more people bidding on less availble openings. In a strong economy wage value would go up due to less competition for more jobs. Using this model, I would conclude that to increase the value of wages, one must first strengthen the economy. Create real demand through innovation and deregulation. Give people something to shoot for and you will see a good economy. Give people something for nothing and you will remove the will to acheive anything.
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      Aug 18 2012: Just because you cannot calculate the productivity of a cashier, or general manager does not mean it cannot be determined. If it cannot be determined - do you then suppose they are paid through guesswork?
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        Aug 18 2012: No guesswork at all. The value is determined by the employer based on experience.. That value is different for each employer there is no national standard, it's based on negotiation. This has been my personal experience. My opinion is not based on a scientific study.
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          Aug 18 2012: No employer will employ you for an amount exceeding your productivity - if he does he would go out of business sooner or later. The negotiation point always revolve around your productivity level - if you increase what you produce your salary will correspond along. . . This is how people get promoted. It is simple as that.
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    Aug 17 2012: "If you understand minimum wage this way then, surely, a MW of 4 pounds could be properly defined as ‘if you cannot produce 4 pounds an hour you don’t deserve a job.’ There is no other way to describe it – if you deny this then you should be in favour of increasing the national minimum wage to 500 pounds -why not?"

    Jumping from 4 pounds to 500 pounds in your example is an extreme case. It is a straw man fallacy. You are substituting an unrealistic case that no economist in the world endorse (be they free market or socialist) for a more reasonable case that would raise the minimum wage to just above the poverty line. This reasoning is designed to flare up emotions in the debate rather than debate a realistic scenario. It is not a sound argument.

    If said product or service is worth 4 pounds an hour to a consumer, then the employer needs to determine what the minimum cost of labor, materials, and other overhead needed to pay a worker above the minimum wage is. If that cost is greater than the value that consumers are willing to pay, the product or service does not have a strong enough demand to warrant its existence within the marketplace. If it cuts into the employer's profits too much, she won't hire the worker due to either her selfishness, or an inaccurate estimation of the demand/cost ratio for society. Employers have to balance their profit margin with the moral treatment of their employees and the demand of the market. It is a three ball juggling act that is happening with only the first and third balls right now (profit margin and market demand). We need to juggle all three.
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      Aug 17 2012: so we have a potential worker, a potential entrepreneur and a potential customer all agreeing that a certain arrangement is good. they all benefit, they all want it.

      but somehow, you know better. you know that in fact this service is "not warranted", and "we" need to "balance" moral and margin. on what grounds?
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        Aug 17 2012: It all comes down to moral values, which are very hard to get agreement on across the board. On the far right we have Randians who believe the only moral good is selfishness (objectivism), and on the far left we have something more like extreme egalitarianism (communism). Who is correct? Probably somewhere in between. The debate will go on. I think history shows us that selfishness unchecked does not provide the most good for the most people, and totalitarian communism allows no human flourishing. To me there is a middle ground. (Capitalism with free markets limited by the people through democracy.) You ask me on what grounds should we balance morality with profit margins? On the basis that no man is an island. We all live in a society, like it or not, and every action has consequences toward others. Some good, some bad. Thomas Jefferson said it very well - "Rightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others." So there are limits to our liberty, which are the equal rights of others.
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          Aug 17 2012: cut the bullshit, so to speak. my question was way simpler than that.

          we have X, who is willing to do job A for salary N. we have Y who is willing to pay salary N form the job A. they both agree that it is better for them than not having this exchange. show me how these people do wrong, and what is your moral basis to interfere with it. i don't care about cloudy elusive quasi reasoning like "we don't live on an island". show me how that fact leads to the validity to interrupt these men's cooperation. how will the minimum wage help them? how will anything you plan to do help them? what is the price of that? what we give and what we gain.

          when it comes to moral questions, and especially such important questions, it is not enough to answer it "probably" or "to me". you want to interfere with the life of a human being. you want to ban an activity that is about his life. it can not be up to "to me" or "probably". you need a much more stable foundation than that.
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          Aug 17 2012: Hmm Eric me thinks he has a point?
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    Aug 16 2012: I really dislike it when the discussion is bifurcated by a new post when the original is stil running so I am pasting my response from over there here where I meant to place it (in full knowledge of the predictable attack it will receive):

    I think minimum wage specifications are merely a line drawn in the sand that says "go elsewhere, if your intention is to exploit our people" There are many rich companies now who accept the competition of poor people working like slaves in competition for a job while they rake in months of free labour from multiple candidates. Thanks, Donald you always show those people how to exploit.
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      Aug 16 2012: The reality is that it drives jobs offshore. Entry level jobs that would be taken by entry level workers. No one is being exploited if they were they would simply work elsewhere. The nannies need a straw man to demonstrate their usefulness. But the reality is that the only ones that get hurt are the ones they are supposed be protecting.
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        Aug 16 2012: GET real. GREED drives jobs offshore. That and unpatriotic slobs.
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          Aug 16 2012: hm. people are not greedy offshore? if they are also greedy, why they don't outsource their jobs to the US? maybe there are some other factors to it. maybe as simple as it is reasonable to buy stuff at lower price? jeez, that is evil
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          Aug 16 2012: I'm quite real. The owner has the choice of doing without, finding an alternative, automating, relocating, off-shoring, passing the cost on to the customer, etc.

          China's price advantage will go away by 2015 at which point I would guess that many business's will stay in China because of regulations and uncertainty in the U.S.

          E.G. a local business had 100 workers, due to excessive workers comp claims being given away by the state at the business's expense the company moved to VA and put 250k on the bottom line with only the one change.

          Davis Bacon laws require that workers are paid a prevailing wage, which is roughly equal to union wages. The reason for this is that some construction companies would bring in cheaper workers from out of the area and thus be able to do the job cheaper. This in effect passed the expense on to the customer. It also prevented the lessor skilled workers do the work because they could not produce as much work as the higher paid local workers.

          This is what happens with minimum wage the entry level worker cannot produce as much as the more experienced worker so the owner is forced to do with out the extra workers.

          What I'm saying is true. Ask any small business owner, trust me there is nothing about this stuff that is glib.
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          Aug 18 2012: What happened to the poor and unskilled taken out of the system due to minimum wage system?

          Presently there are millions of unemployed that would stay unemployed forever due to the fact that their productivity does not correspond to the minimum wage.
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        Aug 17 2012: China's price advantage will only go away when they introduce child labour laws. Although even then they'll just move production to India.
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          Aug 17 2012: Not according to the Wall Street Journal. Do you have a source?
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        Aug 17 2012: You don't think employing child labour and paying token wages gives them a competative edge?
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          Aug 17 2012: You stated that it was contingent on the introduction of Child Labor Laws. I don't think so and neither does WSJ.
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    Aug 16 2012: As regards MPs, how would you measure their productivity? As a group they are responsible for the policies which determine a country's policies. Their manifestos frequently claim that they will reduce national debt, increase GDP and the like. Why would we not use that as one of the measures of their productivity?

    As for teachers, yes they are there to get students through exams, that is part of their function. Behind that is the activity required to ensure the pupil acquires the necessary knowledge and other skills that go into passing an exam, but the major hard measure of their productivity is the passing of exams.

    And lawyers are employed to win caseds, not just to turn up. Why would anyone pay legal fees if they didn't have the objective of winning a case.

    As regards unions raising wages at the expense of other workers, you have not provided a credible explanation of how that works. When mimimum wage increases, press space is given to the argument that this will mean laying off workers, but there is no record of this actually happening, just a minor blip in inflation as prices go up.

    And there is another flaw in using productivity as the sole measure for payment - Eki Goldratt's book The Goal describes the theory of constraints which will give you an idea of the need for contingency.
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      Aug 16 2012: but again, just because you can't just sit down and figure out the price of something, it does not mean nobody can, and especially not that the free market can't. the free market is pretty much able to decide the price of software technology that is used in automated ship navigation systems of bulk carriers. i don't even know how to write down the equation system that would describe that. let alone finding out the actual value of tuning parameters. the free market is exceptionally good at that. through money and the freely floating price system, we are capable not only to compare apples to oranges, but even this piece of software to oranges. we can say that such a technology gives as much satisfaction to the world as twelve thousand oranges. take that!
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        Aug 20 2012: My point is that price is not necessarily proportional to productivity, and determining proce is more complex than determining productivity..

        Take the following simple example. If there are more than enough workers to fill all the vacancies, and all workers are equally productive, then the jobs will go to those who are prepared to work for the least amount. But if there are insufficient workers for the jobs available, employers will pay more to get people to work for them. The productivity hasn't changed, but market conditions have, and that has affected wages.
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          Aug 20 2012: if you freeze the economy in a non-equilibrium point, yes. that is what for example government interventions can do. but a free market always tends toward an equilibrium, and never stands still. if there are workers available, some entrepreneurs will start new businesses. that is governed by the law of supply and demand. the market always "clears" itself through the price system. the price falls until all the supply is find demand.

          the very fact that some workers earn less than they produce puts a pressure on the economy. it represents an opportunity for entrepreneurs to move to that area, because they can earn profit from the difference. entrepreneurs will compete with each other for the cheap workers, up to the point when marginal productivity is close to the wage. when this happens, entrepreneurs stop moving into that field.

          and it is good. because it indicates that the market opted for more of that product. if you put a barrier in the way of that trend (for example with minimum wage), you will prevent the market to adjust itself to the needs of the people.
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      Aug 18 2012: "As regards unions raising wages at the expense of other workers, you have not provided a credible explanation of how that works."

      Successful unions, by definition, are the once that reduces the number of jobs available of the kind they control by increasing salaries above market price . As a result employers would take on less employment than they otherwise would. People that would otherwise be employed in the sector will be forces to look for jobs elsewhere - a greater supply of workers for other jobs drive down the wage paid for those jobs.

      Higher wage to one group of workers must come primarily at the expense of other workers - there is no other way round it except increasing the price of consumers goods.
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        Aug 20 2012: Where does that definition of success come from?

        It is not in the interests of a large union to reduce the number of jobs available because this makes it more likely that market fluctuations will put their members out of a job.

        And small unions don't have the negotiating power.
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          Aug 20 2012: Unions are created with a set of principal functions - regulatory, representative, negotiation and what have you - a successful union is one that is effective with regards to performance of the functions. The very meaning of effective, in this context, is where the problem lies.

          The question should be: do large unions know that they reduce the number of jobs available? Each time unions negotiate pay rise above market price they are creating mass employment. It is a simple case of demand and supply - whenever the price of anything goes up the demand comes down. In this case they are getting higher prices at the expense of potential workers. There is no such thing as a free launch, Anne.
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    Aug 16 2012: Productivity may be measured as you say, but that is productivity of a combination of factors, not individual productivity.

    The opportunity cost example is absolutely correct. You are not looking at the full picture. If a store is shut down for a hygeine breach, then none of the other workers can do their jobs. If you are trying to say that some other employee will do the cleaning job, then all you are doing is using a more highly paid employee. The opportunity cost is less than if the function was not carried out at all , but there is still an opportunity cost, and it is greater than the cost of employing the cleaner.

    The only occasion when personal income - not wage - is driven by productivity is when payment is on the basis of deliverable, which is a different model from the wage based one.
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      Aug 16 2012: so who cares? we work with what we have. and that is where the marginal theory comes in. a person's productivity is the additional revenue the firm expects from hiring that person, everything else given. that is the job of the entrepreneur to anticipate that. he can decide to start a company with 5 or 10 workers, with or without office manager, separate sales and marketing or one person, and so on. he will try to predict what a certain person will bring to the company, and pay accordingly. just because it is overwhelmingly complex, it does not mean it is impossible to appraise with the appropriate skill and expertise. plus trial and error. as long as we have many companies, the market finds the price of each and every worker. just like it finds the price of apples or management consulting.

      btw this is the same method as price of machines are determined. a machine has a marginal revenue product. i will pay up to that price for the machine, but never more. but if others also want to buy that machine, we will enter a bidding competition, and the price will go up to its marginal productivity (and one of us will not buy it).
  • Aug 15 2012: I work in the performing arts, in this industry employers are simply unwilling to pay NMW and continually deny that it applies.
    The same is true of journalism, politics and fashion.
    Employers deliberately misinterpret the law.
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    Gail .

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    Aug 14 2012: Minimum wage laws do nothing more than impose greater financial burdens on the poor. Companies pass employee costs onto their customers. In the USA, if your wage goes up by 50 dollars, the cost goes up by almost 100 dollars because of employee benefits and employer payroll taxes. This means that your raise was less than the proportionate increase in the cost of goods and services that the raise in minimum wage caused. Thus raising the minimum wage makes the poor poorer.

    The reason we have poor people in the first place is because our entire economic model requires poor people to exist. It REQUIRES inequality. It would fail if the rich didn't get richer so that the poor can become poorer. Your teacher should familiarize herself with Adam Smith's "The Wealth of Nations" where he speaks of the (created) "race of laborers" and the need for the greater number of them to die (from poverty related deaths) to keep the system in balance.

    Just because a teacher is a teacher, or a professor is a professor, does not mean that the educator is educated in anything outside of his/her field. I have a teacher friend who is incredibly numb. Perhaps that's why she teaches elementary school. I don't think she is bright enough to teach at a high school level, let alone a college level. But she was a good test taker and is good about following instructions, so she is a certified teacher. But - here's the thing - she really thinks that she is smart. She's convinced of it, and she thinks that anyone who disagrees with her or who has not achieved the same degree level is either is dumber than her or less educated than her. She couldn't be more wrong. She may be a teacher and many of my friends have not even gone to college, but she is the most ignorant person I know.

    Your teacher needs to take a basic math course.
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    Aug 14 2012: yet another example of outlawing a problem instead of solving it.

    question: if you ban doctors treating aids, will aids go away?

    question: if you ban low wages, will low productivity go away?
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      Aug 14 2012: question: if you ban low wages, will low productivity go away?

      No, but people with low productivity will have the chance to work. Even more, they could acquire on the job training to help increase their productivity level. The question you should be asking is this: is it better for people with low productivity to be in work or out of work? That's the only question. I don't think you can afford to say it is better for people with low productivity to be out of work - yet that is the very meaning of a minimum wage system.

      And your analogy doesn't fit at all. Doctors treat aids, 'minimum wage policies' doesn't help low productivity if anything it is a system of 'non-minimum wage policy or free wage policy' that could help low productivity because it will create an environment where people with low skills could have the opportunity to work. So your two question doesn't fit at all. . . . And you are helping my case
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        Aug 14 2012: i think you didn't get that we are on the same side

        note that i didn't say ban minimum wage laws, but rather ban low wages = enact minimum wage laws
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          Aug 14 2012: Ha ha . . I was waiting patiently for someone to disagree that i read your comment as a disagreement. .
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    Aug 14 2012: Exactly, you get it. This is an area where people first learn to work and to navigate in the work a day world.