January 03, 2007

Minimum Wage: Democrats Fail Economics 1

How much do you know about the minimum wage? Test yourself with this question from an actual college economics mid-term exam.

3. T or F - A binding minimum wage raises the quantity of labor supplied and reduces the quantity of labor demanded.

Answer below the fold.


TRUE. Here's the graph:

A binding minimum wage, as a price floor, is set above the market equilibrium. At that legislated wage (w2), the quantity of labor supplied exceeds the quantity of labor demanded. The new quantity of labor supplied (LS2) is an increase from the level of labor supply at the unregulated market equilibrium (LS1), and the new quantity of labor demanded (LD2) represents a decrease in labor demand from the market equilibrium (LD1).

University of California, Santa Cruz Professor Kletzer
Economics 1, Winter 2002
Midterm Exam Solution Sketch

Basic economics. Increasing the minimum wage reduces the demand for labor. Got it? Well, the Democrats don't.
Pelosi Pledges to Give Americans a Raise
Yeah, give them a raise with other people's money. Don't worry if it really costs jobs, drives manufacturing to other countries, and pushes inflation as long as you get political mileage with people who are trusting or ignorant or greedy and with the political left. Typical.

Additional References:

U.S. Congress Joint Economic Committee Report
The Case Against a Higher Minimum Wage

Conclusion: The campaign to raise the minimum wage will have little positive impact on the lives of poor people. Rather, it is a political measure that plays to a misunderstanding of the impact of higher minimum wages. The future of the American economy depends on a correct understanding of the causes of prosperity. For too long, attempts to relieve poverty have been misguided. To lift people out of poverty, we need a system that maximizes opportunities for economic well-being of low-skilled workers. Raising the minimum wage is a wrong-headed solution that will deprive young, poor Americans of an opportunity to improve their economic situation.

Cato Institute
The Minimum Wage:
Washingtons Perennial Myth

Conclusion: Regardless of the intentions of its supporters, the proposed minimum-wage legislation cannot achieve their stated goal of raising the real income of the poor to a more livable level. Indeed, it is an extremely shortsighted policy that can only breed destruction, by eliminating the jobs of those who need work most: the poor, the young, and those suffering from discrimination.

What has been touted as a matter of basic economic justice turns out to be a self-serving issue for many of its supporters. If the minimum wage is increased, labor unions and their influential friends in Congress will make big gains. Unfortunately, everyone else will lose.

In the long run, however, such policies will hurt every-one. As unemployment increases, business becomes more and more unproductive, and the overall quality of life declines, all Americans will suffer.

Get ready for a lot of flawed economic studies and misleading arguments from liberals. They will never admit that the Democrats' proposed minimum wage increase is driven solely by political considerations, which takes precedence over honesty and the jobs and lives of people.

Posted by Woody M. at January 3, 2007 10:30 AM | TrackBack

Yeah, give them a raise with other people's money.

Hey, your money is funding an increase in the minumum wage? Well, my money is funding a pointless war in Iraq. How 'bout we trade? Then you can be happy with the way your money is being spent and I can be happy with the way my money is being spent.

Posted by e. nonee moose at January 3, 2007 12:31 PM

Moose, the distinction in your trade offer is that tax money for your causes and other causes come from all workers, both you and me, whereas increases in minimum wages come solely from employers. Corporations get taxed but can't vote--a more convenient target for Democrats than individuals.

It's absolutely amazing that, to a liberal, EVERYTHING, I mean EVERYTHING, has to do with Iraq. If I said something about Nick Saban becoming the new head coach at Alabama, some liberal would find a tie-in with Iraq.

At least you didn't dispute the premise that increasing the minimum wage costs jobs.

Posted by Woody at January 3, 2007 12:42 PM

Moose, the distinction in your trade offer is that tax money for your causes and other causes come from all workers, both you and me, whereas increases in minimum wages come solely from employers.

No, it does not come solely from employers. Costs like this are inevitably passed down to consumers.

At least you didn't dispute the premise that increasing the minimum wage costs jobs.

In a global economy there will always be a foreign country with a large pool of skilled labor willing and able to undercut any minimum wage or any established "market equilibrium" in the U.S. You cannot protect American jobs by refusing to raise the minimum wage.

Posted by e. nonee moose at January 3, 2007 01:05 PM

P.S. Nick is gonna whup Tubberville's rump next year... Bank on it!

Posted by e. nonee moose at January 3, 2007 01:06 PM

Moose, a rise in product prices from minimum wage increases can result in a reduction of consumer demand for products and reduced profits, which affects shareholders and owners--not everyone proportionately.

On the global economy point, I agree that places like China will always have labor at near slave wages, with which we can never compete. I just hate seeing more of our manufacturing going to such places.

P.S. Alabama hired Saban just so that they could say that they have a coach who has beaten Auburn, even though he did it at LSU. BTW, I was in Tuscaloosa this past weekend and went by the statues of championship coaches outside the stadium. There's a place left for one more statue of an Alabama coach who has won a national championship. I wouldn't order that statue quite yet.

P.P.S. Can you find a tie-in with Saban and Iraq? Surely, there is one.

Posted by Woody at January 3, 2007 01:24 PM

The answer should be obvious and is in no way related to Iraq. The answer also gives the obvious reason minimum wage doesn't work and so many of our jobs are going overseas.

One of the ironies of the minimum wage debate is that while so many rail against Walmart regarding this issue, Walmart already pays most employees well above minimum wage and will not be significantly effected. Nor will most corporations. The lowest paying job at my company is about $9 per hour.

The small local businesses will be effected the most. Giving part-time employees a 10-30% raise can be quite difficult for many small businesses. They may have t eliminate a position or two to afford it. If it is a retail business, if they raise their prices they won't be able to compete with the hated Walmart.

A blogger/small business owner I know wrote a newspaper oped column last year strongly supporting a state minimum wage in Tennessee. (Link to column no longer works.) Of course, he has no employees and has told me personally that he never will because it's too much trouble. He contracts out everything he doesn't do himself.

Just another liberal telling other people what to do with their money.

Posted by DADvocate at January 3, 2007 07:24 PM

Anyone that doesn't know that the raise will only put more people on the welfare dole is a fool even if only effects a few hundred thousand people and thousands of jobs will be lost to overseas.

That's just the mind of a democrat works. Send the jobs overseas, put more people on welfare (hoping they will vote dhimmi) and raise taxes on the rest of the working stiffs. I think a lot of working stiffs will find that welfare now pays more than they earn with 100% medical care. Add in a few part time cash only jobs for walking around money and you're much better off.

Posted by Scrapiron at January 3, 2007 09:05 PM

The other hypocritical aspect of this for the Dems is that they've championed illegal immigrants coming into this country and keeping wages artificially depressed in many jobs, especially unskilled and skilled labor. Now they're going to pretend to be helping the legal residents they've harmed.

Posted by DADvocate at January 3, 2007 09:09 PM

Our past visitor Warren Meyer gave some real-life examples of the consequences of rising minimum wages at his blog in his Case Studies on the Minimum Wage

Posted by civil truth at January 3, 2007 09:12 PM

If I said something about Nick Saban becoming the new head coach at Alabama, some liberal would find a tie-in with Iraq.

Well, I'm not liberal, but lemme try:

"Nick Saban is busy coaching Alabama so he doesn't get drafted by Cheney McHitlerburton to fight in the illegitimate Chimpy's illegal war!"

There. How's that for a moonbat talking point? :-D

Posted by Crush Liberalism at January 4, 2007 09:15 AM

they've championed illegal immigrants coming into this country

I think you've got to expand your "they" to include the Republican Party. It's "Big Agribusiness" in particular that wants cheap labor imported into the United States and it's always been the Republican Party that's delivered for them.

Posted by e. nonee moose at January 4, 2007 12:31 PM

Welcome back, Woody. For the last few days/weeks your rants and tirades have been missing. Now GM's posts are good and interesting, but they don't stir up the good feeling that say, killing a democrat does. Carry on, Woody, you really make my day.
Do I understand your position to be in defense of slavery? That would be good, you could cut the food ration when ever you wanted to reduce the cost of goods to the business of your choice.

Posted by James S Melbert at January 4, 2007 04:22 PM

Yes, James, eliminating the minimum wage would be exactly the same thing as slavery. Employers could pay nothing and workers would have to...

No wait, this isn't working out. They could go to another employer.

Okay, all the employers could get together...

Hmm, I'm not sure how we're gonna do that.

If you can't even make your point without exaggerating it absurdly, you don't really have one.

Posted by Assistant Village Idiot at January 4, 2007 05:05 PM

ninee onee onee,

"They" include some of the Republican Party such as John "You can't do it" McCain which is why he'll never be president. But more Democrats supported illegal immigrants, note who showed up and spoke at rallies for the illegals, which undermines the higher wages they say they want for the working man. Quite disingenuous. They're mostly buying votes.

Posted by DADvocate at January 4, 2007 09:43 PM

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