minimum wage goes up - a prediction

[jts]

I'm going to stick my neck out and make a prediction. First have a look at this news article.

minumum wage goes up in 20 states Jan 1, 2015

"Low-wage workers in 20 states are getting a raise on the first day of 2015, when minimum wage increases automatically take hold."

My prediction:

My prediction is if the new minimum wage is above the free market level, then the rate of unemployment will increase. If the new minimum wage is not above the free market level, it will have no effect.

[RobinReborn]

Seems more like a statement than a prediction. How can you determine whether the minimum wage is above the free market level or not?

[jts]

Seems more like a statement than a prediction. How can you determine whether the minimum wage is above the free market level or not?

We can assume that the wage they are getting immediately prior to Jan 1, 2015 is the free market wage.

[RobinReborn]

I'm not sure if that's a safe assumption. There are always political groups trying to raise the minimum wage and it's difficult to predict the behavior of congress (many companies might also be lobbying congress). So I'd say most people earning minimum wage are earning less than their free market value because their employers fear they'll have to raise the minimum wage in the future.

[jts]

I'm not sure if that's a safe assumption. There are always political groups trying to raise the minimum wage and it's difficult to predict the behavior of congress (many companies might also be lobbying congress). So I'd say most people earning minimum wage are earning less than their free market value because their employers fear they'll have to raise the minimum wage in the future.

The fact that they are working there suggests that they can't get a higher wage elsewhere, which suggests it's the free market level.

In a free market, prices adjust to where supply and demand are equal. Wages are prices on labor. Price controls create imbalances between supply and demand. Minimum wages create unemployment.

[Gary Fisher]

In a free market, prices adjust to where supply and demand are equal. Wages are prices on labor. Price controls create imbalances between supply and demand. Minimum wages create unemployment.

Supply and demand being "equal" is a trivial consequence of producers and consumers not being wasteful. It has nothing to do with the free market. If the "free market price" of a widget is $3.00 and if exactly 10,000 widgets are produced and sold, and then the government decides that the price of the widgets should not be higher than $2.50, then, presumably, producers will not produce 10,000 widgets. Maybe they'll produce a little less, but all of the product will still be sold. Supply and demand will be balanced. It works the same way if the government commands that the price should be at least $3.50. Then, producers might produce more with the additional income, but why would they since consumers are going to purchase less? So even then supply and demand will still be balanced.

[RobinReborn]

Wage is just one factor in choosing a job. People won't necessarily switch jobs just because a similar job pays slightly more.

I don't disagree with you on the theoretical economics. But we don't live in a theoretical economy, we live in an economy which is controlled by a congress with a certain ideology. It doesn't take a rocket scientist to realize that that policy will lead to the minimum wage increasing every now and then. Astute businesspeople should be aware of this, even if they oppose it.

[jts]

Prices are signals.

A high price is a signal to the producer that there is a shortage and to produce more. The way he reads it is: that's a lucrative business to go into. The same high price is a signal to the consumer that there is a shortage and to consume less. The way he reads it is: that's too expensive for me.

A low price is a signal to the producer that there is an abundance and to produce less. The way he reads it is: there isn't much money in that. The same low price is a signal to the consumer that there is an abundance and come and get it. The way he reads it is: that's a good deal.

In a free market, prices adjust to where supply and demand are equal.

We don't live in a completely free market. Demand does not mean the amount that is bought; it means the amount that would be bought at the price if that amount existed.

Along comes government. Government throws a monkey wrench into the machinery of the market by price controls. A price control can be a minimum price or a maximum price or a fixed price. Price controls tend to prevent prices from getting adjusted to where supply and demand are equal. The result is imbalances between supply and demand.

Example 1:

What is the free market price of eggs? Let's say $2/dozen. At that price, the supply of eggs and the amount of eggs people would buy at that price are equal. Now let's imagine the price of eggs is sky high, $10/dozen, for whatever strange reason. That is a signal (a false signal) to the producers to produce more eggs. What a lucrative business! It is also signal to the consumers to consume fewer eggs. How many eggs can you sell at $10/dozen? The supply of eggs will be greater than the demand for eggs. Well, it won't take long for some egg producer to notice that he is not selling all his eggs and he could sell more eggs by lowering his price and he could make more money. In a free market, prices adjust to where supply and demand are equal.

Example 2:

Now let's imagine the price of eggs is ridiculously low, 10 cents per dozen, instead of the free market price of $2/dozen. This is a signal (again a false signal) to the producer that there is an abundance of eggs and to produce less. He will read it as there isn't any money to be made in the egg business. So the supply of eggs will go down. At the same time it is a signal to the consumer that there is an abundance of eggs, come and get it. He reads it as: what a deal on eggs! So the demand for eggs at that price goes up above the supply. The egg vender will sell all his eggs in 2 hours and will have no more eggs for the rest of the day and people will still be stampeding in to buy eggs. Well, it won't take long for some egg producer to figure out that he could jack up the price and still sell all his eggs. Prices adjust to where supply and demand are equal.

Ditto:

I used eggs as an example. The same deal works on bananas and carrot juice and computers and cars and labor and land and everything that is bought and sold.

In any balancing act:

In any balancing act, there is a continuous adjusting. If you balance a pole on your nose, you are continually moving to maintain the balance. In a free market, there is a continuous slight changing of prices to correct minor temporary imbalances.

But what happens when prices are not allowed to adjust?

I knew a guy from Poland. English was not his first language. He said: "I was live in communist country." There were not only shortages; there were also excesses, warehouses full of things that could not be sold. Those are imbalances between supply and demand, sometimes the supply being great than the demand, sometimes the demand being greater than the supply. How often do you see a significant problematic long term imbalance in a semi-free country?

If you see an imbalance:

If you see an imbalance, either an excess or a shortage, look to see if government has something to do with it. Maybe price controls producing false signals.

Minimum wage law:

This is a price control. It creates an imbalance between supply of labor and demand for labor, in other words it creates unemployment, more people wanting a job than there are jobs.

[Michael Stuart Kelly]

Supply and demand being "equal" is a trivial consequence of producers and consumers not being wasteful. It has nothing to do with the free market....

Maybe they'll produce a little less, but all of the product will still be sold. Supply and demand will be balanced.

Is that what they're teaching the young these days?

That balance between supply and demand is a metaphysical law of nature and not a characteristic of a free market (to the extent it can operate freely)?

Ok... So why bother having humans at all in the marketplace? According to this view, the market obviously doesn't need humans or reflect how humans tick. Those suckers never act right anyway.

Dayaamm!

Michael

[Brant Gaede]

In a free market, prices adjust to where supply and demand are equal. Wages are prices on labor. Price controls create imbalances between supply and demand. Minimum wages create unemployment.

Supply and demand being "equal" is a trivial consequence of producers and consumers not being wasteful. It has nothing to do with the free market. If the "free market price" of a widget is $3.00 and if exactly 10,000 widgets are produced and sold, and then the government decides that the price of the widgets should not be higher than $2.50, then, presumably, producers will not produce 10,000 widgets. Maybe they'll produce a little less, but all of the product will still be sold. Supply and demand will be balanced. It works the same way if the government commands that the price should be at least $3.50. Then, producers might produce more with the additional income, but why would they since consumers are going to purchase less? So even then supply and demand will still be balanced.

We can view this as dividing up a static economic pie common to theorectical communism. The government manipulating and setting prices, among other things, destroys economic and psychological incentives to entrepreneurship and capital accumulation. Freedom doesn't exist. Individual people, their lives and aspirations, are next to nothing to the ruling elite.

--Brant

any freedom lover interested in a mechanistic economics should read Isabel Paterson's "The God of the Machine"

[caroljane]

Seems more like a statement than a prediction. How can you determine whether the minimum wage is above the free market level or not?

We can assume that the wage they are getting immediately prior to Jan 1, 2015 is the free market wage.

Seems more like a statement than a prediction. How can you determine whether the minimum wage is above the free market level or not?

We can assume that the wage they are getting immediately prior to Jan 1, 2015 is the free market wage.

Lol.

[Gary Fisher]

@jts

Example 1:What is the free market price of eggs? Let's say $2/dozen. At that price, the supply of eggs and the amount of eggs people would buy at that price are equal. Now let's imagine the price of eggs is sky high, $10/dozen, for whatever strange reason. That is a signal (a false signal) to the producers to produce more eggs.

Example 2:Now let's imagine the price of eggs is ridiculously low, 10 cents per dozen, instead of the free market price of $2/dozen. This is a signal (again a false signal) to the producer that there is an abundance of eggs and to produce less.

How can a high or low price possibly serve as a signal to the producer when the producer himself sets the prices? That makes as little sense as saying that a sentence you yourself write tells you something you did not already know.Prices cannot be signals. Prices are more like a kind of control valve which regulate how much is exchanged between different segments of the economy. For example, if the producer raises the price of eggs, then people will either spend a higher portion of their income on eggs, or they will buy less eggs. It's usually the first eventuality that causes all of the problems in a free market. If the producers of essential goods and services such as food and electricity increase the prices of these things, then people will still buy about the same amount. This will make the business more profitable, and so they will have an interest in raising the price to absurd heights. The producer benefits, but his customers and all other sectors of the economy are harmed, because the customers now have to spend a higher portion of their income on essentials, and this, in turn, greatly reduces the demand for all other kinds of goods. By instituting a price ceiling, the government could greatly improve economic activity, since a lower price for essentials would generate a lot more demand elsewhere. That's why the government controls the electric and water companies.Something similar happens in labor markets. If you pay people too little, then they will spend most of their income on things like food and housing. This would be fine, for an agrarian economy, but it is obvious that an industrial economy could not exist if the market was totally free. Because an industrial economy can and should produce things other than food and housing, the government must institute a minimum wage in order to create demand for industries in non-essential consumer goods.Additionally, unemployment is a natural consequence of a capitalist economy, and has nothing to do with the minimum wage. Even before there was such a thing as minimum wage and other kinds of labor regulations, there was unemployment. Why? For the simple reason that when people work, things get done, and, for some kinds of work, when it gets done, it doesn't need doing again for some time. In the olden days of Medieval Europe, all the peasants worked but they did not work all year long. Once the crops were sown, there was really nothing left to do until winter was over. There was "universal unemployment" in a sense, but since people didn't need to work all year long, this wasn't seen as a problem but a benefit.Things changed when the industrial revolution started. Because of free labor and labor contracts, people needed to work all year long in order to feed themselves. Even today, you can't just work for part of the year, and save up enough money so you can quit your job for the rest of the year. It just doesn't work that way. So now, instead of spreading out unemployment across time, like in the feudal system, unemployment was loaded off unto, well, the unemployed. If the economy is in a situation where everybody needs to be employed, then as things get done, less and less people need to be employed. The people whose jobs are necessary for the whole year get to keep their jobs, and the people whose jobs need doing only once, don't.

[Gary Fisher]

@jts

Example 1: What is the free market price of eggs? Let's say $2/dozen. At that price, the supply of eggs and the amount of eggs people would buy at that price are equal. Now let's imagine the price of eggs is sky high, $10/dozen, for whatever strange reason. That is a signal (a false signal) to the producers to produce more eggs.

How can a high or low price possibly serve as a signal to the producer when the producer himself sets the prices? That makes as little sense as saying that a sentence you yourself write tells you something you did not already know.

Prices cannot be signals. Prices are more like a kind of control valve which regulate how much is exchanged between different segments of the economy. For example, if the producer raises the price of eggs, then people will either spend a higher portion of their income on eggs, or they will buy less eggs. It's usually the first eventuality that causes all of the problems in a free market. If the producers of essential goods and services such as food and electricity increase the prices of these things, then people will still buy about the same amount. This will make the business more profitable, and so they will have an interest in raising the price to absurd heights. The producer benefits, but his customers and all other sectors of the economy are harmed, because the customers now have to spend a higher portion of their income on essentials, and this, in turn, greatly reduces the demand for all other kinds of goods. By instituting a price ceiling, the government could greatly improve economic activity, since a lower price for essentials would generate a lot more demand elsewhere. That's why the government controls the electric and water companies.

Something similar happens in labor markets. If you pay people too little, then they will spend most of their income on things like food and housing. This would be fine, for an agrarian economy, but it is obvious that an industrial economy could not exist if the market was totally free. Because an industrial economy can and should produce things other than food and housing, the government must institute a minimum wage in order to create demand for industries in non-essential consumer goods.

Additionally, unemployment is a natural consequence of a capitalist economy, and has nothing to do with the minimum wage. Even before there was such a thing as minimum wage and other kinds of labor regulations, there was unemployment. Why? For the simple reason that when people work, things get done, and, for some kinds of work, when it gets done, it doesn't need doing again for some time.

In the olden days of Medieval Europe, all the peasants worked but they did not work all year long. Once the crops were sown, there was really nothing left to do until winter was over. There was "universal unemployment" in a sense, but since people didn't need to work all year long, this wasn't seen as a problem but a benefit.

Things changed when the industrial revolution started. Because of free labor and labor contracts, people needed to work all year long in order to feed themselves. Even today, you can't just work for part of the year, and save up enough money so you can quit your job for the rest of the year. It just doesn't work that way. So now, instead of spreading out unemployment across time, like in the feudal system, unemployment was loaded off unto, well, the unemployed. If the economy is in a situation where everybody needs to be employed, then as things get done, less and less people need to be employed. The people whose jobs are necessary for the whole year get to keep their jobs, and the people whose jobs need doing only once, don't.

[jts]

@jts

Example 1: What is the free market price of eggs? Let's say $2/dozen. At that price, the supply of eggs and the amount of eggs people would buy at that price are equal. Now let's imagine the price of eggs is sky high, $10/dozen, for whatever strange reason. That is a signal (a false signal) to the producers to produce more eggs.

How can a high or low price possibly serve as a signal to the producer when the producer himself sets the prices? That makes as little sense as saying that a sentence you yourself write tells you something you did not already know.

When the producer sets prices, he sends signals. If he sets the price of his eggs at $10/dozen (normal is let's say $2/dozen), he signals to his customers: these eggs are expensive, you might want to consider not buying. He also signals to potential producers that this is a lucrative business. (This might not be a very strong signal if he is the only one selling eggs at this ridiculous price.)

A producer does not set prices arbitrarily. He sets prices at maximum profit. The higher the price, the fewer sales. The lower the price, the less profit per sale. Somewhere between these 2 extremes is the price that makes the most profit.

Food stores sometimes have things 'on sale', which means a lower price to sell something quickly. It might be some grapes or bananas that are old and starting to spoil. This is a signal to the customers: come and get it.

Anything in any store that doesn't move off the shelves fast enough might go 'on sale', meaning lower than the normal price, to get rid of it. Stuff that stays on the shelves doesn't make money for the store; it is the stuff that moves off the shelves that makes money for the store. Stuff that stays on the shelves takes room that could be occupied by stuff that moves off the shelves. When a store has 'a sale', it is a signal to the customers: get this stuff off the shelf.

When a radically new invention hits the market, it is likely to be high priced at first. This is because there is a small amount of it at first. The high price is a signal to producers to produce more of it and a signal to customers to not buy too much of it. As it goes into greater production, the price goes down, signalling producers that now there is more of this product, and signalling customers that now they can buy more.

[Gary Fisher]

@jts

A producer does not set prices arbitrarily. He sets prices at maximum profit. The higher the price, the fewer sales. The lower the price, the less profit per sale. Somewhere between these 2 extremes is the price that makes the most profit.

I don't agree with that at all. It simply doesn't make sense when you think it through using simple common sense. How would the producer go about figuring out the profit-maximizing price? The trouble is that the profit depends both on revenue generated and the total cost of production, which in turn depend on the price as well as the quantity produced. There need not be a unique profit maximizing combination of production and price. It is possible for the producer to produce slightly less at a slightly higher price and leave profits unchanged, and he can also produce slightly more at a slightly lower price and leave profits unchanged.

The way that economists deal with this problem is by assuming that all firms are "price-takers" and then they only have to worry about how much to produce, which is easy to do. But this doesn't work in real life, because if every firm is a price-taker, then who are the price-makers?

Real-life businesses have to decide both how much to produce and what price to charge, but there is no simple guide like in economics textbooks such as "maximizing profit" or "utility". My whole point is that, in doing so, they can make decisions which are just as economically inefficient as a bad government regulation.

To tie all this back to the original discussion, sometimes, private businessmen can't figure out the best wage for their employees or they might face incentives which cause them to make decisions that can seriously damage the economy as a whole. If they pay too much, they won't make enough profit to invest, and if they pay too little, then there won't be enough demand to grow the economy. In these cases, the government has to step in to correct the problem.

[jts]

@jts

Example 1: What is the free market price of eggs? Let's say $2/dozen. At that price, the supply of eggs and the amount of eggs people would buy at that price are equal. Now let's imagine the price of eggs is sky high, $10/dozen, for whatever strange reason. That is a signal (a false signal) to the producers to produce more eggs.

[...]

Something similar happens in labor markets. If you pay people too little, then they will spend most of their income on things like food and housing. This would be fine, for an agrarian economy, but it is obvious that an industrial economy could not exist if the market was totally free. Because an industrial economy can and should produce things other than food and housing, the government must institute a minimum wage in order to create demand for industries in non-essential consumer goods.

[...]

If by 'pay people too little', you mean below the free market level:

This means they can get better wages elsewhere and the employer will lose employees.

If by 'pay people too little', you mean less than the amount needed to live on and it is at the free market level:

Raising the wage by force above the free markwt level causes unemployment. Better to be employed at a measly $5/hour that to be unemployed at $10/hour.

A minimum wage creates unemployment and benefits nobody except maybe politicians who seek votes from voters who don't have any understanding of how a free market works.

About agrarian economy vs industrial economy:

I will assume that by 'agrarian' you mean low tech economy and by 'industrial' you mean high tech economy.

Compare the low tech factory worker vs the high tech factory worker. The modern factory worker is much more productive because of technology and consequently can get paid more money.

Compare the low tech farmer vs the high tech farmer. Many years ago, Yeltsin (if I remember correctly), president of the USSR, visited a farmer in Canada. The farmer showed the USSR prez all over the farm, the buildings, the machinery, etc. The prez was impressed and asked the farmer how the state trusts him with all this stuff. The farmer said he owns all this; all this stuff is his personal property. In the Soviet Union in those days they had collective farms. Yeltsin had difficulty wrapping his brain around the idea that a farmer could be so wealthy.

A high tech economy produces more wealth and consequently higher wages than a low tech economy.

[Gary Fisher]

@Michael

Is that what they're teaching the young these days? That balance between supply and demand is a metaphysical law of nature and not a characteristic of a free market (to the extent it can operate freely)? Ok... So why bother having humans at all in the marketplace? According to this view, the market obviously doesn't need humans or reflect how humans tick. Those suckers never act right anyway. Dayaamm! Michael

Balance between supply and demand may not be a "metaphysical law of nature" but it certainly isn't a product of the free market either. Just consider the fact that, under feudalism, there was a near-perfect balance between supply and demand, (that is, people produced exactly as much as they used or consumed, at least under normal circumstances) yet one would be hard-pressed to call such a system a "free market".

[jts]

@jts

A producer does not set prices arbitrarily. He sets prices at maximum profit. The higher the price, the fewer sales. The lower the price, the less profit per sale. Somewhere between these 2 extremes is the price that makes the most profit.

I don't agree with that at all. It simply doesn't make sense when you think it through using simple common sense. How would the producer go about figuring out the profit-maximizing price? The trouble is that the profit depends both on revenue generated and the total cost of production, which in turn depend on the price as well as the quantity produced. There need not be a unique profit maximizing combination of production and price. It is possible for the producer to produce slightly less at a slightly higher price and leave profits unchanged, and he can also produce slightly more at a slightly lower price and leave profits unchanged.

Whatever the problems in figuring it out, he does the best he can to set the prices at maximum profit, taking into consideration costs of production and rent and lights and salaries and contingencies. Maybe he doesn't always get it exactly right because it can be complicated. But that is what he tries to do.

If you don't get it after it's explained clearly and repeatedly, then I give up. Maybe you should take some time out to digest information that you are not familiar with instead of continuing the discussion. It is obvious that you are not familiar with how a free market works.

[Gary Fisher]

@jts

By "pay people too little" I mean that the free market wage itself is lower than what is needed for people to live on, although it can also happen that the free market wage, while being above what is needed for people to live on, is not enough to create demand in less "basic" industries.

Raising the minimum wage "by force" does not cause unemployment. As I've pointed out before, there was persistent unemployment even before the minimum wage. furthermore, if working for $5/hr is not enough to live on, then it is definitely better to be "unemployed" at $10/hr by turning to crime (or, better yet, join a communist party and spend all your free time protesting in the streets) because then at least you won't slowly starve to death working for food you can't afford.

Compare the low tech factory worker vs the high tech factory worker. The modern factory worker is much more productive because of technology and consequently can get paid more money.

By definition, productive workers are those who get paid LESS to do the same amount and quality of work, not more. The only reason that workers in industrial societies are paid so much is because they live an expensive lifestyle which, in turn, is necessary to create the demand that industry thrives on.

[Gary Fisher]

@jts

Whatever the problems in figuring it out, he does the best he can to set the prices at maximum profit, taking into consideration costs of production and rent and lights and salaries and contingencies. Maybe he doesn't always get it exactly right because it can be complicated. But that is what he tries to do.

Even so, sometimes one's best still isn't good enough.

If you don't get it after it's explained clearly and repeatedly, then I give up. Maybe you should take some time out to digest information that you are not familiar with instead of continuing the discussion. It is obvious that you are not familiar with how a free market works.

You're not describing how "a free market works" and I'm not misunderstanding it. What you're doing is arguing from Austrian and Neoclassical economic THEORIES of economics. These theories can and should be questioned.

[jts]

Raising the minimum wage "by force" does not cause unemployment. As I've pointed out before, there was persistent unemployment even before the minimum wage.

Is that your reasoning? Are you that poor at logic? Persistent unemployment before a minimum wage does not prove minimum wage does not cause unemployment. It proves minimum wage is not the only cause of unemployment.

[Michael Stuart Kelly]

Just consider the fact that, under feudalism, there was a near-perfect balance between supply and demand, (that is, people produced exactly as much as they used or consumed, at least under normal circumstances) yet one would be hard-pressed to call such a system a "free market".

You have a very odd understanding of supply and demand.

I suppose we could call a turkey a snake and then say snakes don't crawl, just look at that one over there (while pointing at a turkey).

But that is not really dealing with snakes.

You have a good mind. If I were you, I would try to fill it with correct understanding before I judged a thing rather than preach to others about it when I don't understand it myself.

But that's me.

Do carry on, though... working through ideas is hard work. I mean that sincerely.

Michael

[Brant Gaede]

@jts

Whatever the problems in figuring it out, he does the best he can to set the prices at maximum profit, taking into consideration costs of production and rent and lights and salaries and contingencies. Maybe he doesn't always get it exactly right because it can be complicated. But that is what he tries to do.

Even so, sometimes one's best still isn't good enough.

If you don't get it after it's explained clearly and repeatedly, then I give up. Maybe you should take some time out to digest information that you are not familiar with instead of continuing the discussion. It is obvious that you are not familiar with how a free market works.

You're not describing how "a free market works" and I'm not misunderstanding it. What you're doing is arguing from Austrian and Neoclassical economic THEORIES of economics. These theories can and should be questioned.

If you mean question the value of theory then the theories are irrelevant and as a discipline any economics is trite. The virtue of that attitude would be the massive unemployment of economists. Freedom results in various economies in various places for various reasons. As freedom is subtracted from freedom the economies change; one can argue for any particular that that is good, bad or indifferent. We can call that an artificial distortion and reset the observation calling it the new normal. Then subtract another piece of freedom in economic interactions--all these subtractions literally involve force initiation--and we can repeat the labeling. Eventually we may arrive at the sort of place the old Soviet Union occupied--such a successful economy.

For popular purposes we can posit the Austrian and Keynesian types of theories. The Austrian says mal-investments will cause pain when they are wiped out--and they should be now or will be later--while the bastardized Keynesian says keep laying on the juice. This last has been adopted by politicians all over the world because politicians associated with economic pain by hoi polloi will lose their jobs to the juicers. So everybody who needs to juice juices for the sake of all and sundry, especially themselves.

Never mind the theories. All this will continue until it can't any longer. Then the Austrian will triumph, king of a world-wide disaster.

If Austrian theory was of any value it would prevent the inevitable, but that would prevent the business cycle on which it all rests. (Well, there may be some value in heading for the hills by those in the know sold those goods by knowing entrepreneurs who know there's money in scaring the shit out of people.) In the meantime, good old Lord Keynes--what's left of him--heroically holds off the inevitable disaster with Modern Monetary Theory--another way of saying, "It's different this time!"

--Brant

truth gives out headaches, lies make for make believe: make believe the government is a hero, but too much is just too damn much

my economic theory: hurt causes better if hurt is allowed to happen (plus creative destruction)

when, btw, does the questioning begin--what are the questions?

[Michael Stuart Kelly]

Here is the technocrat power-monger's wet dream of how human society should work, that is in terms of supply and demand.

For the technocrat, guess who gets to be the lady pouring the milk?

Michael

[Gary Fisher]

@jts

Is that your reasoning? Are you that poor at logic? Persistent unemployment before a minimum wage does not prove minimum wage does not cause unemployment. It proves minimum wage is not the only cause of unemployment.

No, but it is a pretty big hint that the minimum wage doesn't cause unemployment. I was also referring to my earlier argument about what DOES cause unemployment but I can see how you might have missed that.

I said that:

If the economy is in a situation where everybody needs to be employed, then as things get done, less and less people need to be employed. The people whose jobs are necessary for the whole year get to keep their jobs, and the people whose jobs need doing only once, don't.

Expanding on this, if we did have a free market without a minimum wage, we would still have unemployment, and a lot of it. In any economy, unemployment will increase so long as jobs are being completed or destroyed faster than new ones are created. An economy which creates new jobs as quickly as it gets rid of old ones, will necessarily have a fixed rate of unemployment, and it will not be able to eliminate it entirely.

It often helps to understand our capitalist economy by contrasting it with the subsistence economies of the feudal era. In those economies, no new jobs are ever created or destroyed, but rather, every job is destroyed once a year for the winter. Then, you lived off of the things you produced earlier in the year until spring came around again. If more work than usual needed to be done, then everyone worked a few days out of the year more, or a few hours longer each day (either way it kind of doesn't matter because the economy didn't really grow all that much).

Once industry started kicking in, and there were profits to be made, people needed to work all year 'round in order to make as much profit as possible in as short amount of time as possible (since factory and other manufacturing work didn't have to stop on account of winter). This extra work was offset by people being able to earn wages and get a higher standard of living. However, since most people worked more than ever, and since the peasants were no longer bound to the land, not everybody had to be employed simultaneously, and there just weren't enough jobs for everyone. Although the economy grew, the problem was exacerbated by the population explosion that was caused by increased standards of living and urbanization.

As industrialization marched on, and machines became more and more efficient, requiring less and less human labor, wages began to decline, and people started having to work longer and longer hours just to support themselves. This is why people had to work sixteen hours a day and send their children to work as well. Not only that, but more people than ever were unemployed. So although industrialization initially improved the lives of most people and raised them out of subsistence, the process ran out of steam and was driving people into worse conditions than before. Because now, people were once again working just to feed themselves. But they were also working impossibly long hours all year round, doing harder and more dangerous work than ever before.

This situation led to social unrest and sparked a number of anti-capitalist movements in the 19th century, such as the socialists and the luddites. Thinkers of the time noted the "contradictions" that were "inherent" to the capitalist system. For example, machines produced more than ever, and yet most people still lived in subsistence conditions. Those who were lucky enough to have jobs worked harder and longer than ever, and yet, at the same time, more people than ever had no jobs at all.

Eventually, labor reforms, in the form of the 8 hour day and the minimum wage were introduced. The 8 hour day did a lot all on its own. With people working at most 8 hours a day, more people would have to be employed to do the same amount of work. The simultaneous introduction of the minimum wage brought people out of subsistence once again and led to the creation of new industries which required high-skill labor, education, and consumerism, in short, the creation of a middle-class.

Without labor market regulations, it is easy to see how this process could reverse itself.