Minimum Wage should keep pace with inflation
Among other things, a growing economy means growing prices. Not all prices grow equally or predictably. The price of college, for example, has risen much faster than the rate of inflation. A college-trained workforce can design cheaper transportation, more efficient agriculture, lower maintenance housing, more adaptive business strategies, patent more inventions, and if there's extra college-trained workers left over they can choose whether to accept lower paying jobs, export their services to Europe (or other nations in general) and thus increase American wealth, or attend a graduate school.
Graduate schools add a whole new competitive dimension to a workforce's global prestige. Their pools of graduates raise the bar for scientific research, pharmaceutical quality, political soft power strategies, economic research projects and the arts. They add personnel to hospitals, research centers, legal firms, think tanks, and to the very universities that contribute so heavily to the workforce to begin with.
Formal training aside, living above the poverty line allows people to rid themselves of worries about where their next rent payments will come from, freeing them to turn their attention to their mental well being and that of their families. The economic benefits of this vary in levels of abstraction, but in general, an economy that cares for its participants will be cared for by its participants.
Economically, we are destined to fall behind nations that place a higher premium on the mental well-being of the middle classes than we do. As our growth and inflation leave behind our workers, the workers of Japan and Europe and other smart economies will leave behind our nation.
The argument to raise the minimum wage in relation to inflation is based on the premise that the minimum wage helps those workers with the least amount of skill. Such a premise is faulty whether looking at it from the standpoint of a micro view (individual businesses and employees) or a macro view (looking at the supply of "unskilled" labor versus the demand for it). For a minimum wage to have an effect, it must be set higher than what a worker wishes to work for; otherwise, the minimum wage is nothing more than words on a piece of paper. Looking at the issue from a micro view, no business can continuously employ a person for more than the value they bring the firm. It would be a form of charity, or at least a bet on the future, to hire someone who only adds five dollars per hour to the company for six dollars per hour.
What a minimum wage does, then, is make it that no person may be employed for less than that wage, regardless of their productivity. If a person cannot produce at least the minimum wage, such as a young adult just entering the workforce with nothing more than a high school diploma, then it is more difficult for that person to find an employer willing to take a chance on the person, especially when the labor market is swelled from a recession with workers with a much more extensive work history and contacts to further vouch for a person"s productivity.
Such relations effect the macro level, then, by essentially removing from the labor pool workers who do not produce enough to justify being paid the minimum wage. This artificially reduces the labor supply; workers who do exist may be able to earn more, but there is no additional production from those workers. Increasing the "profits" of laborers in this way artificially increases the costs for firms; smaller firms are less able to take a chance than larger firms, and thus the larger firms gain an advantage in productivity and crowd out competitors, resulting in scarcer consumer goods, raising the price further.
Once one takes into account the possibility of younger people being dependent on parents for longer, as well as tax-funded loans for those young adults to attend university, the benefits of those workers who do command a better wage quickly diminishes as well. Inflation is most certainly harmful to the poor, who tend to receive funds after new currency has entered the market, and savers, who rely on fixed incomes for their livelihood, but a silver lining to inflation is reducing the efficacy of the minimum wage.
Now, as for Pro"s Arguments: In relation to the minimum wage, Pro"s argument rests on the minimum waging improving the lives of poorer individuals so as to improve the economy through a better paid lower class and to help ease the troubles of life such as rent and food. Pro goes on a slight tangent in regards to education, but as Pro has not linked an increase in education with an increase in minimum wage, I see little reason in addressing those arguments. Most criticism of Pro"s position can be found earlier in my statement; one that is not addressed is the fear of not being able to provide ones family with shelter and food. Such concerns are the cost of having a family; it matters not whether one earns a lot of money or a little money, whether one attains income primarily through selling ones services or through investments, should the source of income disappear, then the family is in trouble. Of more concern is the real wealth a family attains; real wealth is born from competition, which besides cheaper goods means more competition for labor from employers and potential employers who must worry about good workers leaving one firm to earn a better wage at another.
To sum up the post, minimum wage is a net detriment to the economy when considering those who are not allowed to enter the workforce, the reduced competition larger firms enjoy, and the cost of dependents on working parents for longer periods of time. It is a mistake, further, to assume that any policy will greatly change the human condition; technology and goods increase the standard of living and makes life easier, but whether one works a minimum wage job or earns $100,000 a year, the needs of shelter and food are still going to be a priority in an uncertain world where the current form of income may be lost. Reducing the real wealth of nations will hurt those the minimum wage is supposed to help.
A minimum wage creates a demand for higher skilled labor. By preventing a vending business from paying a worker $2 an hour to sit in a box and hand people drinks, it makes it profitable to pay an engineer and a mechanic to build a vending machine.
"A form of charity, or at least a bet on the future." Great point. A bet on the future. Businesses that make long-term investments tend to do far better than businesses that intend to cut corners. Warren Buffet likes to point this out.
If a person only has $2 worth of productivity, they shouldn't be employed. They should work harder before they're employed. By removing from the labor pool workers who do not produce enough to justify being paid the minimum wage, the minimum wage raises standards for hard work in much the same way it does for sophistication. It results in scarcer "badly made" goods, requiring goods that were made more intelligently and durably.
And as for tax funded student loans, this is exactly why minimum wage "must keep pace with inflation," which is more on topic with the debate anyway. Because workers can't pay for their own college, and because the nation needs college graduates, the government makes an investment in student loans. But because the government makes this investment, colleges continuously raise their prices for the "average" student, and continuously hand out larger scholarships to priviledge the few star students that the college believes will add to their reputation.
For providing for a family, if the source of income should disappear, a below-minimum wage is a temporary solution that will drown itself in the future of inflation and real gdp growth. A minimum wage causes a temporary unemployment, but the increased tax revenue that comes with the employment of the rest of the nation provides the government the funding it needs to empower the family breadwinner to take a breather, learn a new skill, and get a job that will be in demand for decades to come.
Real wealth is born from properly allocated competition. Competition can occur in the form of lower wage, but this form of competition soon falls behind the global economy, turning Americans into the warehouse workers of the world. A better allocation of competition is to require workers to find new ways to be productive. And, in fact, economic growth and the value of exports and a function of the worker's innovation, and the least we can do is enable our standards to keep pace with it.
http://www.stanleyelectricus.com...). When it comes to employing people to make these parts that go into the final good, it tends to be lower skilled workers with a small part of the information cooperating to effectively create great feats of human engineering compared to the days of trades-masters.
The next point I want to cover is Pro"s statement that a person worth only $2 of productivity should not work and be forcibly removed from the labor pool, resulting in only quality goods and services, and that a person should work harder before being employed. First, employers can only make an educated guess on what a worker will produce before hiring them; a 20 year old with only an associates degree against a 20 year old who has lots of work experience and was an assistant manager at a restaurant-chain with a steady $11.50 per hour income are two different "risks" with differing experiences. One shows a person who has a good signaling device (a degree), but has no experience showing his use of intellectual talents in production. The latter worker does. Prior work experience, which you are cutting off from younger members of the population, has a lot to do in signaling productivity; a person who proves to be an able producer will soon be able to bargain for more than $2 an hour if their productivity proves to be more; otherwise, they would seek employment at a place where they earn more.
Pro"s stance that those whose marginal productivity is less than the minimum wage is also in contrast to federal laws; "The Secretary, to the extent necessary to prevent curtailment of opportunities for employment, shall by regulation or order provide for the employment, under special certificates, of individuals ... whose earning or productive capacity is impaired by age, physical or mental deficiency, or injury, at wages which are lower than the minimum wage."(http://www.dol.gov...) That is, people today for reasons of old age, physical, or mental disability are already made exempt to those larger firms who can go through the paperwork. Such stricter standards would unemploy even more people than a simple hike with existing laws would!
As for Pro"s point about greater tax-money making it easier for a laid-off worker to attain a better education, why is it assumed that a university/tech-school education is the best method? After all, both on-the-job training at a starting rate lower than normal and an education can take the same amount of time, the difference is that one is wealth creating (the apprenticeship) while the other is first destructive (in the form of taxes) before being spent to increase skills. Also, the time in which people with above-minimum wage jobs lose them without a back-up plan is during a downturn; where is government gaining money in an economy on the downturn?
As for Pro"s point to real wealth, we both have competing views, though my own on real wealth coming from what is made and bought, rather than on the nominal wage each person receives for their labor, has not been disproven, but merely asserted against. In stating that competition can take the form of lower wages, this is not the historical case; less than 5% of people today work for minimum wage or less legally (http://www.bls.gov...). If we have to worry constantly about this competition to the bottom making everyone poor, why is it that we have less and less people working at or below the federal minimum, even when inflation is making the minimum wage less effective? Most humans (excluding those who like to make themselves miserable) seek out better situations for themselves; companies in search for good workers seek to keep and attract more productive workers. The minimum wage simply sets a higher bar to "getting one"s foot in the door;" once there, workers use their prior experience and their skills to gain more profitable employment, in the same way that craftsmen specialize in a unique good only they can provide to gain a better profit and how investors see whether buying this or that stock or machinery leads to better gains. Also, real wealth includes more being able to be bought with less; a more productive process creates more of a good for less labor, and the results are the likes of which even a low-wage earner can partake in.
brant.merrell forfeited this round.
My apologies for the forfeit, and I appreciate Con's eagerness!
Con expresses understandable concern for the manual laborers of a workforce structured to favor skilled labor over below-minimum-wage labor, but suppressing the below-minimum-wage labor does not only affect workers, it also affects consumers, who cannot purchase cheaply produced goods and thus have more money to purchase high-quality, durable goods. This may suppress 1-yr GDP growth, but increase 5-yr or 10-yr GDP growth. The vending machine may be put into mass production, but this creates a far more efficient workforce than attempting to replace every vending machine with a human-run lemonade stand.
Regarding the 600 workers who produce exterior automotive lighting, they all require training in engineering convention and principles of science because 1) it's very difficult to efficiently coordinate any area of expertise with 599 other people, 2) the wiring has to coordinate with boolean programming that extends through other parts of the car, it may have to respond to temperature changes that affect how much power runs through each wire and affect the brightness of the lights, the lights have to be bright enough for fog, dim enough for night, and 3) the glass for the lighting has to utilize principles of light absorption, reflection, and transmission, it has to cast light expansively and narrowly in various levels, and it has to protect the light bulb.
My point being, industries of mechanical or other modern products rely on the evolving sophistication of their workforce. If we allowed our worker wages to stagnate because their labor is cheap, their labor will remain cheap as their competitors in other corners of the globe race ahead to build the next great design.
Con is correct that we have less and less people working at or below the nominal federal minimum. This is because inflation is diluting the the real value of the federal minimum. It is becoming easier to obtain a $10 / hour job because $10 is dropping in value. The same set of companies that pay their employees double what they paid 30 years ago also charge their customers triple what they did 30 years ago. He is correct that some companies, such as Costco, which pays its employees quite well to take care of its customers, and these employees in turn shop at Costco rather than Walmart, whose employees struggle to pay the rent. This all supports the principle that an economy or company that cares for its workers will be taken care of by its workers.
Con and I both agree that real wealth is truly something to collectively strive for. He advises workforce strategies for fighting inflation, and I hope to dicuss that more in depth with him in the future, but this debate is about how to respond to inflation.
Assembly lines and other forms of low-skill labor are good strategies for a stagnate economy, a closed system, a GDP that needs no exports, a workforce of software engineers who don't compete with India, an industry where Ford need not compete with Toyota or BMW, a never-ending 20th century in which American farming is the primary agricultural provider for dozens of other nations. But growing and competing requires leaps in construction, engineering and science, and great feats of engineering create "transitional unemployment," which is healthy for the long-term economy. The "transitionally" unemployed are not unqualified, they are the potential for the economy's next step. The economy might have a low-wage demand for their low-level work, but if low-level wages are suspended, the economy's demand must be spent elsewhere, on something of greater long-term value. The correlation between minimum wage and unemployment was invented by brilliant economists who investigated the economy by imagining closed scenarios. Empirical research has shown only short-term correlation between minimum wage and unemployment.
I thank Con for an excellent debate.
Low-skilled labor is a natural precursor to more mechanization; as supply increases, demand is capable of increasing. If demand increases enough to justify more investment technologically, then it will do so.
It seems Pro agrees with me; as I stated in round 2, the silver lining to inflation is that the minimum wage becomes less effective. However, the point made in round 3 was that there is not a race to the bottom in labor; yes, companies can afford to hire workers above the minimum wage, and yet the demand for labor compels them to choose that higher price for labor than the minimum price they could pay.
The cost of labor is part of the investing process; most of the gains from a process are spent back to make more of the product, while the initial start-up is purely an investment in employing the correct amounts of capital and labor to bring a good to market. Minimum wage reduces this effect.
As investment increases, labor can diversify. There is a need for people with intelligence to specialize more in a subject than others; the opportunity cost, however, of an engineer performing maintenance compared to someone who specializes in knowing how to fix the machine doing the job is high, as is the opportunity cost of someone good at fixing machines when they do go wrong stuck at simply using the machines the majority of the time it works. There is indeed a hierarchy of skills, but trying to push more machinery into operation than is currently profitable through State action results in a system only a number of current firms can adapt to, while driving up the risk of a new venture. Such pushes do not lead to innovation, but stagnation.
Ultimately, the price system incentivizes finding the best means to using current resources for consumer demand; where low-wage workers are employed, it is because such production practices are more likely to create a social benefit (desirable use of resources) than the alternative of investing in machines to do the same job.
Lastly, it should not be forgotten that a less effective minimum wage encourages easier entry into the workforce. A solid work ethic, work experience, contacts to vouch for those qualities, and even experience gained on the job (an engineer who has worked the factory floor of a company he designs machines for can think of relevant production issues) are useful to people of all skill levels, regardless of whether they will spend little time improving skills to live all the other aspects of life or a lot of time improving skills for a job they love. The work experience provided by a less effective minimum wage, not mentioning all the economic benefits society receives, is as useful to the high school drop-out as it is the P.H.D holder.
I hope the audience shows leniency to Pro for extraneous circumstances. It has been an enjoyable debate, and thank Pro for the engagement. May you all vote for the better competitor.
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