Welfare is nothing else than a big employer who doesn’t follow any economic principles and creates a massive economic distortion. If that fake employer pays a high salary the opportunity cost of taking a true job is massive. But that fake employer buys millions of votes to politicians so the incentives are wrong. We all know the devastating effects of any price control mechanism but, like with socialism, we keep trying and trying the wrong recipe. Bottom line, we learned nothing
Thanks Bryan. I see the argument that raising the minimum wage doesn't increase the employment rate, even in the presence of welfare for the unemployed. But is it clear that raising the minimum wage doesn't increase aggregate wages paid? I assume that's the goal of those in favor of a minimum wage -- to increase the total quantity of the gains of trade that goes to labor. Surely no one thinks it increases the employment rate?
Separately but relatedly, one argument for the minimum wage that seems sensible to me, but that I've never seen spelled out, is that it would tend to modernize the economy. Long term elasticities are higher than short term elasticities -- in the short run companies may be forced to pay the higher wage, but in the long run they'll be more incentivized to figure out how to automate away those jobs. So the minimum wage acts as a sort of subsidy for the automation sector -- software, robots, AI, and so on. And in a different context, this kind of subsidy seems to be favored by development economists, who seem to think that employers of skilled labor don't capture all of the value of the training and modernizing that they provide, while employers of less skilled labor, such as farm labor, have smaller positive externalities, and they cite the history of which countries developed the fastest as evidence for this model, particularly in southeast Asia.
I'm not an economist, so as an outsider to the field I'm confused why the same people who think developing countries should favor tech over farming also use "elasticities are higher in the long run than in the short run" exclusively as a mark against the minimum wage. It's not a contradiction, but there is some tension there, no? I'd love to see this addressed in simple terms along the lines of this post.
@csf: "Long term elasticities are higher than short term elasticities -- in the short run companies may be forced to pay the higher wage, but in the long run they'll be more incentivized to figure out how to automate away those jobs. So the minimum wage acts as a sort of subsidy for the automation sector -- software, robots, AI, and so on."
To quibble, minimum wage laws are an incentive to automate, but not a subsidy. Fast food restaurants aren't being told to raise wages and also given a check to buy equipment that will let them replace the now higher cost workers.
The point you make, that automation raises productivity so maybe in the long run we are better off if high minimum wages cause that to happen, seems plausible, but there is a big problem with it.
There are many jobs where automation is called for by circumstances in the real world. One example I used in a substack post in April, entitled "Automation-Right and Wrong," talked about the underground mining industry, where there is a generation of highly skilled miners reaching retirement age, yet there are few who want to get into that business. Anything that can be done to increase productivity of underground miners should have a big payoff, because that would help solve a real problem.
But in most places there is no shortage of unskilled people wanting to get their first real job on their resume, and if it involves flipping burgers for the Clown, so be it. Inexperienced, they don't add a lot of value, and the government forbidding them to work unless they are paid more than they are worth will keep them unemployed. The restaurants still need somebody or something to flip the burgers, so they will pay up for machinery to do a job that could have been done less expensively by a human.
Put another way, a restaurant automating because the government has made humans too expensive is not solving a genuine problem, but an artificial problem that only exists because the government created it. We don't have infinite savings, nor do we have an infinite supply of automation engineers who can design equipment. Shouldn't we have them working on real problems, like the coming shortage of underground miners, rather than diverting them to solve artificial, unnecessary problems?
For the employer, there are 3 choices. One, pay it and swallow the costs. Two, pay it and raise prices to compensate. Three, layoff people not worth paying minimum wage.
Raising minimum wage ultimately means eventually you need to raise minimum wage again because we are back to where we were. The cycle never ends and no one is better off.
I think what Curt is getting at is that there are three responses, which happen in time roughly in order that he describes them:
1: Minimum wage is raised
2: Employers short term take the hit and pay more as they can (this may be very short term, especially if they have been worried about wage rates for a while)
3: Employers raise prices as they can to mitigate the loss over the mid-term. If many firms and competitor industries are in roughly the same boat you might just see prices raise across the board, but otherwise it can be tricky. Raising prices can be hard, and some will go out of business.
4: Employers get more serious about culling now marginal workers and business operations, as well as doing more automation or other labor saving processes. For firms who have been worrying about wage rates this might happen very fast as they put existing plans into action, while other firms and industries might take a while to get there.
5: Prices tend to go up as the price of inputs rise, although how much and over what period is highly variable. We do expect prices to go up, however, as the new industrial structure must be more costly than the pre-min wage structure, or else we would likely have already been there. (E.g. it is very rare to invest in an expensive touch screen automated order taking system if order taking humans are cheaper.)
6: Due to price increases, demands for a higher minimum wage become more strident, and the cycle begins again.
In short: political determination of economic controls follows the political currents, and a problem that is self caused will cause itself over and over.
Welfare is nothing else than a big employer who doesn’t follow any economic principles and creates a massive economic distortion. If that fake employer pays a high salary the opportunity cost of taking a true job is massive. But that fake employer buys millions of votes to politicians so the incentives are wrong. We all know the devastating effects of any price control mechanism but, like with socialism, we keep trying and trying the wrong recipe. Bottom line, we learned nothing
Thanks Bryan. I see the argument that raising the minimum wage doesn't increase the employment rate, even in the presence of welfare for the unemployed. But is it clear that raising the minimum wage doesn't increase aggregate wages paid? I assume that's the goal of those in favor of a minimum wage -- to increase the total quantity of the gains of trade that goes to labor. Surely no one thinks it increases the employment rate?
Separately but relatedly, one argument for the minimum wage that seems sensible to me, but that I've never seen spelled out, is that it would tend to modernize the economy. Long term elasticities are higher than short term elasticities -- in the short run companies may be forced to pay the higher wage, but in the long run they'll be more incentivized to figure out how to automate away those jobs. So the minimum wage acts as a sort of subsidy for the automation sector -- software, robots, AI, and so on. And in a different context, this kind of subsidy seems to be favored by development economists, who seem to think that employers of skilled labor don't capture all of the value of the training and modernizing that they provide, while employers of less skilled labor, such as farm labor, have smaller positive externalities, and they cite the history of which countries developed the fastest as evidence for this model, particularly in southeast Asia.
I'm not an economist, so as an outsider to the field I'm confused why the same people who think developing countries should favor tech over farming also use "elasticities are higher in the long run than in the short run" exclusively as a mark against the minimum wage. It's not a contradiction, but there is some tension there, no? I'd love to see this addressed in simple terms along the lines of this post.
@csf: "Long term elasticities are higher than short term elasticities -- in the short run companies may be forced to pay the higher wage, but in the long run they'll be more incentivized to figure out how to automate away those jobs. So the minimum wage acts as a sort of subsidy for the automation sector -- software, robots, AI, and so on."
To quibble, minimum wage laws are an incentive to automate, but not a subsidy. Fast food restaurants aren't being told to raise wages and also given a check to buy equipment that will let them replace the now higher cost workers.
The point you make, that automation raises productivity so maybe in the long run we are better off if high minimum wages cause that to happen, seems plausible, but there is a big problem with it.
There are many jobs where automation is called for by circumstances in the real world. One example I used in a substack post in April, entitled "Automation-Right and Wrong," talked about the underground mining industry, where there is a generation of highly skilled miners reaching retirement age, yet there are few who want to get into that business. Anything that can be done to increase productivity of underground miners should have a big payoff, because that would help solve a real problem.
But in most places there is no shortage of unskilled people wanting to get their first real job on their resume, and if it involves flipping burgers for the Clown, so be it. Inexperienced, they don't add a lot of value, and the government forbidding them to work unless they are paid more than they are worth will keep them unemployed. The restaurants still need somebody or something to flip the burgers, so they will pay up for machinery to do a job that could have been done less expensively by a human.
Put another way, a restaurant automating because the government has made humans too expensive is not solving a genuine problem, but an artificial problem that only exists because the government created it. We don't have infinite savings, nor do we have an infinite supply of automation engineers who can design equipment. Shouldn't we have them working on real problems, like the coming shortage of underground miners, rather than diverting them to solve artificial, unnecessary problems?
For the employer, there are 3 choices. One, pay it and swallow the costs. Two, pay it and raise prices to compensate. Three, layoff people not worth paying minimum wage.
Raising minimum wage ultimately means eventually you need to raise minimum wage again because we are back to where we were. The cycle never ends and no one is better off.
What cycle? It's just something that's politically determined. There's no cycle.
I think what Curt is getting at is that there are three responses, which happen in time roughly in order that he describes them:
1: Minimum wage is raised
2: Employers short term take the hit and pay more as they can (this may be very short term, especially if they have been worried about wage rates for a while)
3: Employers raise prices as they can to mitigate the loss over the mid-term. If many firms and competitor industries are in roughly the same boat you might just see prices raise across the board, but otherwise it can be tricky. Raising prices can be hard, and some will go out of business.
4: Employers get more serious about culling now marginal workers and business operations, as well as doing more automation or other labor saving processes. For firms who have been worrying about wage rates this might happen very fast as they put existing plans into action, while other firms and industries might take a while to get there.
5: Prices tend to go up as the price of inputs rise, although how much and over what period is highly variable. We do expect prices to go up, however, as the new industrial structure must be more costly than the pre-min wage structure, or else we would likely have already been there. (E.g. it is very rare to invest in an expensive touch screen automated order taking system if order taking humans are cheaper.)
6: Due to price increases, demands for a higher minimum wage become more strident, and the cycle begins again.
In short: political determination of economic controls follows the political currents, and a problem that is self caused will cause itself over and over.
NOW
I still love HIM
Just like steven david rei. Don't care!
Honorable
That's generations of gaslighting every goddamnedmaryknowntohistory. All her sisters fall with her
Don't like at all
Oh no
That must have horrible for the true mary omg decon Sean really needs to know about this
Ok
?
Probably philip
Can't enjoy others differences
Can't look bad in front of wifey
Hehehehe