Should the US raise the federal minimum wage?

[DGuller]

The reverse of Timmy's question: for those of you who voted for anything other than abolishing the minimum wage, what was the reasoning that got you to your number?

I voted for $12.50.  Simply because $15 felt like too far, while $10 felt like treading water some more.

I used to be all for eliminating minimum wage, as I bought into the free market explanations.  I also thought that laws like the minimum wage and the unwillingness to enforce them when it comes to illegal immigrants creates the worst of both worlds, where people are forced to break laws to stay in business in some industries. 

By now I think I was clearly mistaken on the first point.  Whatever the employment and inflation effects are, they're overstated massively by the opponents, and these negative effects judged by their real magnitude are countered by the advantages of protecting the lower rung workers with zero negotiating power.  Free markets may work flawlessly when it comes to supply and demand curves for widgets, but they don't always get things right when effects have several complicated orders with cross-feeding loops.

[Admiral Yi]

This concept of negotiating power is one that is frequently raised in this debates.  Can someone explain what is meant by it?  I can't think of a single time I negotiated my compensation.  I either excepted the terms offered or I didn't.

Or accepted.

[grumbler]

This concept of negotiating power is one that is frequently raised in this debates.  Can someone explain what is meant by it?  I can't think of a single time I negotiated my compensation.  I either excepted the terms offered or I didn't.

Or accepted.

I have negotiated about half my contracts.  Negotiations happen when things change.  For instance, last year the school I work for was desperate to have someone take over the AP World History course.  I was already teaching an AP course, but they offered me an additional $2000 to teach a second one.  It turned out they were not $2000 desperate, but $6000 desperate.

I would be a very hard teacher to replace, so i have some negotiating power.  A brand-new teacher or one easily replaced does not.

[MadImmortalMan]

I've negotiated every single time.

This is actually one of the theories about why women make less. Men are more likely to be comfortable negotiating. I don't know if that's true, but it sounds plausible.

[DGuller]

This concept of negotiating power is one that is frequently raised in this debates.  Can someone explain what is meant by it?  I can't think of a single time I negotiated my compensation.  I either excepted the terms offered or I didn't.

Or accepted.

Negotiation can happen implicitly.  Negotiating power exists when the other side will be hurt by the termination of an agreement, and is willing to pay something to avoid that, on-demand or proactively.  It's hard to have negotiating power when it comes to unskilled labor, and it's easy to have negotiating power when you're a professional with a specialization.  The more negotiating power you have, the more you can equitably share in the economic surplus created by your transaction.

[Admiral Yi]

Negotiation can happen implicitly.  Negotiating power exists when the other side will be hurt by the termination of an agreement, and is willing to pay something to avoid that, on-demand or proactively.  It's hard to have negotiating power when it comes to unskilled labor, and it's easy to have negotiating power when you're a professional with a specialization.  The more negotiating power you have, the more you can equitably share in the economic surplus created by your transaction.

Is it your contention that in the absence of mechanisms such as the minimum wage, unskilled labor would not equitably share in the economic surplus created by its work?

[MadImmortalMan]

Is it your contention that in the absence of mechanisms such as the minimum wage, unskilled labor would not equitably share in the economic surplus created by its work?

I think it depends on how much demand there is for the work. Employers compete with each other for that labor. But then again, if there's no demand, there's no value either.

[Berkut]

Negotiation can happen implicitly.  Negotiating power exists when the other side will be hurt by the termination of an agreement, and is willing to pay something to avoid that, on-demand or proactively.  It's hard to have negotiating power when it comes to unskilled labor, and it's easy to have negotiating power when you're a professional with a specialization.  The more negotiating power you have, the more you can equitably share in the economic surplus created by your transaction.

Is it your contention that in the absence of mechanisms such as the minimum wage, unskilled labor would not equitably share in the economic surplus created by its work?

I don't think the purpose of a minimum wage is to redress a problem with the unskilled being unable to "share" in the fair surplus of their labor.

I think the purpose is to set a floor on what people make, with the idea that while we know this is an artificial interference in the labor market, we accept the inefficiencies that result because we believe their is a greater good being served that transcends the market forces that would otherwise define what the unskilled can effectively negotiate for...

[DGuller]

Negotiation can happen implicitly.  Negotiating power exists when the other side will be hurt by the termination of an agreement, and is willing to pay something to avoid that, on-demand or proactively.  It's hard to have negotiating power when it comes to unskilled labor, and it's easy to have negotiating power when you're a professional with a specialization.  The more negotiating power you have, the more you can equitably share in the economic surplus created by your transaction.

Is it your contention that in the absence of mechanisms such as the minimum wage, unskilled labor would not equitably share in the economic surplus created by its work?

Yes.  And the fact that minimum wage increases do not in fact appear to lead to material job losses seems to somewhat support that belief.

[DGuller]

I don't think the purpose of a minimum wage is to redress a problem with the unskilled being unable to "share" in the fair surplus of their labor.

I think the purpose is to set a floor on what people make, with the idea that while we know this is an artificial interference in the labor market, we accept the inefficiencies that result because we believe their is a greater good being served that transcends the market forces that would otherwise define what the unskilled can effectively negotiate for...

I don't disagree, but you don't want interference in the market to be counter-productive for the people on whose behalf you're interfering.  It helps when a good policy also has some economic benefits in addition to social benefits.

[Admiral Yi]

Yes.  And the fact that minimum wage increases do not in fact appear to lead to material job losses seems to somewhat support that belief.

I don't understand the connection between price elasticity of labor and disposition of surplus.

[Berkut]

I don't think the purpose of a minimum wage is to redress a problem with the unskilled being unable to "share" in the fair surplus of their labor.

I think the purpose is to set a floor on what people make, with the idea that while we know this is an artificial interference in the labor market, we accept the inefficiencies that result because we believe their is a greater good being served that transcends the market forces that would otherwise define what the unskilled can effectively negotiate for...

I don't disagree, but you don't want interference in the market to be counter-productive for the people on whose behalf you're interfering.  It helps when a good policy also has some economic benefits in addition to social benefits.

Of course - that is why interfering is so difficult. It is hard to do without making the problem worse, or creating some new problem that is worse than the old problem.

[Admiral Yi]

I had the thought today that what we need is more market segmentation.

There are people who are willing, and in fact would prefer, to pay more for goods and services if it meant the people providing them were getting paid more.  I imagine these people tend to have more income.  There are also people, presumably on the lower end of the scale, who are simply looking for the best deal.  The problem from a business's point of view is they can only charge one price for a given item and offer one wage for a given employee.

So segment the market.  Open a coffee shop that charges $2.50 a cup, pays its employees more than minimum wage, and offers tuition reimbursement and stock options.  We can call it "Starbucks."  And the dude who doesn't want to pay for all that crap can still get his dollar cup of joe at Dunkin.

[grumbler]

So segment the market.  Open a coffee shop that charges $2.50 a cup, pays its employees more than minimum wage, and offers tuition reimbursement and stock options.  We can call it "Starbucks."  And the dude who doesn't want to pay for all that crap can still get his dollar cup of joe at Dunkin.

But all of the employees will want to work for the higher wage, and so will compete for the "Starbucks" job and drive down wages.  You'd have to segment worker pools as well, and consider some of them "hard workers" or "experienced workers" who can get the higher-wage jobs and produce enough labor value to justify the higher wages.  That'd be tough unless there really are differences between workers.

[dps]

I had the thought today that what we need is more market segmentation.

There are people who are willing, and in fact would prefer, to pay more for goods and services if it meant the people providing them were getting paid more.  I imagine these people tend to have more income.  There are also people, presumably on the lower end of the scale, who are simply looking for the best deal.  The problem from a business's point of view is they can only charge one price for a given item and offer one wage for a given employee.

So segment the market.  Open a coffee shop that charges $2.50 a cup, pays its employees more than minimum wage, and offers tuition reimbursement and stock options.  We can call it "Starbucks."  And the dude who doesn't want to pay for all that crap can still get his dollar cup of joe at Dunkin.

The problem with that approach is that the segmentation of the market for the products doesn't match the segmentation of the market for the labor.  Sure, there are people willing to pay more for the presumed quality (or status) of the more expensive coffee, while others aren't, but workers at either business are performing unskilled labor, and the person who would work for minimum wage at Dunkin Donuts wouldn't turn down the opportunity to make more at Starbucks.

EDIT:  well, beaten to the punch.