The Instigator
RoyLatham
Pro (for)
Winning
7 Points
The Contender
ilovgoogle
Con (against)
Losing
0 Points

Minimum Wages Laws Having Economic Effect Should Be Abolished

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Post Voting Period
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after 1 vote the winner is...
RoyLatham
Voting Style: Open Point System: 7 Point
Started: 2/22/2010 Category: Politics
Updated: 6 years ago Status: Post Voting Period
Viewed: 2,556 times Debate No: 7975
Debate Rounds (3)
Comments (9)
Votes (1)

 

RoyLatham

Pro

Definitions

"A minimum wage is the lowest hourly, daily, or monthly wage that employers may legally pay to employees or workers. Equivalently, it is the lowest wage at which workers may sell their labor." http://en.wikipedia.org...

The "having an economic effect" caveat in the resolution excludes minimum wage laws that set rates substantially below the market rates for labor in the industry affected. Minimum wages laws that are symbolic, making someone feel good for some reason, are harmless. In my area the market rate for unskilled day labor from illegal aliens, who are effectively exempt from wage laws, is $15 per hour. Setting an enforced minimum wage of $7 per hour for that particular type of work would have no significant economic effect.

Arguments

The purpose of minimum wage laws is to attempt to force employers to subsidize low wage workers. This attempt fails because there are alternatives to paying the low-wage worker. One is to simply eliminate that business, or the part of he business that is unprofitable with high labor costs. The other is to automate the job, replacing the unprofitable low-wage labor with machinery and skilled labor that turns a profit.

1. Consider an example that is a paradigm for the arguments against a minimum wage. Fast food restaurants employ low-skilled workers. Suppose a higher minimum wage is imposed. The restaurant then raises its prices to cover the costs. The laws of supply and demand dictate that there will be some customers who will pay the higher price, but that some others will not. The chain outlet in an upscale area may continue with only a small drop in business, however in a less affluent area business will drop more sharply. The people not buying hamburgers will bring their lunch or buy pre-packaged food from a convenience store. The outlets that are no longer profitable will be closed, or the hours reduced to prime selling periods. The net effect is that some of the employees will make more wages, but others will lose their jobs and the previous patrons of those outlets will not get hamburgers they can afford.

2. The outlets that survive selling higher priced hamburgers might now find automation attractive. About a decade ago, McDonald's built a prototype fully automated restaurant. None of the tasks involved are beyond automation. All that is necessary it to have labor costs rise above the capital and maintenance costs of the equipment. As labor costs rise, McDonald's is moving to greater and greater automation. http://www.techdirt.com...

The Japanese fast food chain Yoshinoya now operates with advanced automation. They sell curries and stews over rice, not hamburgers, so they are easier to automate. In expensive Tokyo, they deliver meals to customers for about $5. http://www.virtualtourist.com... Yoshinoya has entered US markets, and what they need most to succeed in the US are high minimum wage laws. Get fast food burgers to $10 and there will be a dramatic increase in rice bowls.

3. If it were true that minimum wage laws helped cure poverty, then poor countries could just set a minimum wage of, say, $25 per hour. Or why not $100 per hour, so everyone could be well-off? No one believes for a moment that such a tactic would work. Advocates of minimum wage laws must explain why it doesn't work. It is for precisely the reasons I have given.

4. If legislatures want to give money to low-wage-earners people, they can provide welfare benefits, direct government subsidies to low wages, or a negative income tax. Those methods do not destroy jobs, and they do not unfairly try to shift welfare burdens on to employers or the customers of labor-intensive businesses.

Minimum wage laws should be repealed for the benefit of employees, employers, and customers alike.
ilovgoogle

Con

Thanks you RoyLatham for making what should be an interesting debate. I agree to your definition, but reserve the right to challenge any should I choose to do so. I will start by refuting my opponents contentions then move onto my own.

"1. Consider an example that is a paradigm for the arguments against a minimum wage. Fast food restaurants employ low-skilled workers. Suppose a higher minimum wage is imposed. The restaurant then raises its prices to cover the costs. The laws of supply and demand dictate that there will be some customers who will pay the higher price, but that some others will not. The chain outlet in an upscale area may continue with only a small drop in business, however in a less affluent area business will drop more sharply. The people not buying hamburgers will bring their lunch or buy pre-packaged food from a convenience store. The outlets that are no longer profitable will be closed, or the hours reduced to prime selling periods. The net effect is that some of the employees will make more wages, but others will lose their jobs and the previous patrons of those outlets will not get hamburgers they can afford."

You make the assumption that higher wages result in higher prices, but just the opposite is true. In a competitive free market businesses cannot afford to raise prices or else they lose consumers. To compensate for an increased wage businesses will have to lower profits or else risk failure altogether.

"2. The outlets that survive selling higher priced hamburgers might now find automation attractive. About a decade ago, McDonald's built a prototype fully automated restaurant. None of the tasks involved are beyond automation. All that is necessary it to have labor costs rise above the capital and maintenance costs of the equipment. As labor costs rise, McDonald's is moving to greater and greater automation."

Thank you for providing me with my first contention RoyLatham! The idea that automation causes unemployment is one of the most repeated economic fallacies still around today. I quote a section from Henry Hazlitts "Economics In One Lesson"

"Suppose a clothing manufacturer learns of a machine that will make men�€™s and women s overcoats for half as much labor as previously. He installs the machines and drops half his labor force.

This looks at first glance like a clear loss of employment. But the machine itself required labor to make it; so here, as one offset, are jobs that would not otherwise have existed. The manufacturer, however, would have adopted the machine only if it had either made better suits for half as much labor, or had made the same kind of suits at a smaller cost. If we assume the latter, we cannot assume that the amount of labor to make the machines was as great in terms of payrolls as the amount of labor that the clothing manufacturer hopes to save in the long run by adopting the machine; otherwise there would have been no economy, and he would not have adopted it.

So there is still a net loss of employment to be accounted for. But we should at least keep in mind the real possibility that even the first effect of the introduction of labor-saving machinery may be to increase employment on net balance; because it is usually only in the long run that the clothing manufacturer expects to save money by adopting the machine: it may take several years for the machine to �€œpay for itself.�€�

After the machine has produced economies sufficient to offset its cost, the clothing manufacturer has more profits than before. (We shall assume that he merely sells his coats for the same price as his competitors and makes no effort to undersell them.) At this point, it may seem, labor has suffered a net loss of employment, while it is only the manufacturer, the capitalist, who has gained. But it is precisely out of these extra profits that the subsequent social gains must come. The manufacturer must use these extra profits in at least one of three ways, and possibly he will use part of them in all three: (1) he will use the extra profits to expand his operations by buying more machines to make more coats; or (2) he will invest the extra profits in some other industry; or (3) he will spend the extra profits on increasing his own consumption. Whichever of these three courses he takes, he will increase employment.

In other words, the manufacturer, as a result of his economies, has profits that he did not have before. Every dollar of the amount he has saved in direct wages to former coat makers, he now has to pay out in indirect wages to the makers of the new machine, or to the workers in another capital-using industry, or to the makers of a new house or car for himself or for jewelry and furs for his wife. In any case (unless he is a pointless hoarder) he gives indirectly as many jobs as he ceased to give directly."

Not only does automation increase employment, but it also increases purchasing power allowing consumers to buy more product with less money. By my opponents own admission the minimum wage increases a move toward increased automation. I say cheers!

3. If it were true that minimum wage laws helped cure poverty, then poor countries could just set a minimum wage of, say, $25 per hour. Or why not $100 per hour, so everyone could be well-off? No one believes for a moment that such a tactic would work. Advocates of minimum wage laws must explain why it doesn't work. It is for precisely the reasons I have given.

Who ever said minimum wage laws cure poverty? They merely help workers support themselves. As I mentioned before increase wage come from profits so the actual amount of a minimum wage should be high enough to help workers support themselves, but not high enough to entirely destroy profits.

4. Merely stating alternatives is not a contention, but nevertheless minimun wage laws might spur productivity unlike welfare programs. If employees can get paid more hourly for their work, they work harder. Minimum wage laws also decrease inefficient government spending for societal welfare programs or regulatory agencies since these laws are easier to enforce and administer. Let's not forget that minimum wage laws to do not create a cycle of dependence as workers must still work to earn their salary.

Clearly we can see that minimum wage laws have beneficial effects by increasing automation, which in turn increases employment and purchasing power. It also is more effective at dealing poverty then other government "solutions." Minimum wage laws help people provide a stable home for many families and help workers receive fair pay.
Debate Round No. 1
RoyLatham

Pro

I'm looking forward to a good debate.

1. Con speculated that business would not cut employment when the minimum wage is increased, but rather would fund the cost from profits. Does that actually happen?

"Overall, when the minimum wage increases by 10%, unemployment rises by +2% to +6%" (Richard Burkhauser, Kenneth Couch et David Wittenberg, "Who Minimum Wage Increases Bite: An Analysis Using Monthly Data from the SIPP and CPS", Southern Economic Journal, 2000).

"Teen unemployment in Illinois averaged 25.8 percent in 2009; in 2005, that number was 15.3 percent. Exacerbating the rise in teen unemployment was an 45 percent hike in the state's minimum wage between January 2005 and October 2009. ..Faced with increased labor costs from a minimum wage increase, employers can either slash the number of low-wage jobs they offer, or hire more skilled applicants. Either way, the door for employment is effectively shut for less-experienced teens searching for that all-important first job." http://illinoishomepage.net...

A review performed by the U.S. Congressional Joint Economic Committee considered over 100 independent studies of the impact of minimum wage increases. Three cited studies found no increase in unemployment when the minimum wage was raised, but these were the rare exceptions. "While it is not yet clear why Card, Katz and Krueger got the results that they did, it is clear that their findings are directly contrary to virtually every empirical study ever done on the minimum wage. These studies were exhaustively surveyed by the Minimum Wage Study Commission, which concluded that a 10% increase in the minimum wage reduced teenage employment by 1% to 3%." http://www.house.gov...

Why are there exceptions? As I noted at the outset of this debate, if the minimum wage in a local area is below the prevailing free market wage, then an increase will have no effect.

So why was Con in error? Con argued that competitive market pressures would cause employers to keep staff for fear of losing business. But business owners do not worry about the volume of their business in preference to its profitability. If they do, they will soon be out of business. The competition is not just from others in the same industry, it is also from alternative opportunities. If a business cannot yield more that putting their capital in the bank, then the low-profit operations will be phased out in favor of a savings account, or some other passive investment. No one is going to operate at a loss for very long

The margins in businesses that use minimum wage labor tend to be thin. "Based on the 2004 Restaurant Industry Operations Report published by Deloitte & Touche LLP, average pre-tax profit margins range from 4-7%" http://rrgconsulting.com... One study showed the failure rate for new restaurants "was 57 percent to 61 percent for a three-year period " http://www.restaurantowner.com... Another study showed the three year failure rate to be 45% http://www.restaurantowner.com...

Clearly these businesses do not have lavish profits to be used to absorb increased costs. Increasing the minimum wage causes job loss.

2. Con said, "The idea that automation causes unemployment is one of the most repeated economic fallacies still around today." The argument then presented depends upon the notion that there is no value other than labor, so the cost of machines necessarily implies that there must be an equal amount of employment needed to make it.

The argument is false. For example, around 1900, 90% of Americans were engaged in agriculture. Thanks to automation, 4% of the population now produces vastly more food. However, it is not the case that 86% of the population is now making farm equipment, thereby evening the score. While some higher paying jobs are created related to equipment, many more low-skilled jobs are lost. It might be good economic policy overall if we had a surplus of high-skilled labor and a shortage of low-skilled workers, but that's not the case either. The government should not have a policy of making low skilled workers unemployed. Over time, automation will continue to gradually displace low-skilled jobs, but it does not benefit society for government to increase unemployment deliberately.

Contrary to Con's argument, automation primarily replaces low-skill labor with capital, not with high-skilled labor.

3. Con argues, "Who ever said minimum wage laws cure poverty? They merely help workers support themselves." If the idea behind the laws is not to fight poverty, then what is the motivation?

Con argues is that small increases in the minimum wage are absorbed by reduced profits. That claim is not supported by the evidence. Unemployment increases whenever the minimum wage is pushed above free market levels. Business works on the margins, and they will cut back the operations that are not producing a return on investment better than can be obtained elsewhere.

4. Pro contends that "If employees can get paid more hourly for their work, they work harder." The reason the employee is at the minimum wage is that they lack the skills or ambition needed to get a higher paying job. The minimum wage laws say, in effect, "You deserve more for doing exactly what you are doing." That undermines the desire to work harder by providing an unjustified sense of entitlement.

Con argues that employers can run a welfare system more efficiently than the government. That does not address the question of why employers should be forced do so, or attempt made to force them. If employers wants to support some people for charitable reasons, they are free to do so. There is no justification for government unfairly demanding that employers bear a burden greater than other tax payers, many of whom can better afford it.

Con argues that it is better to have people employed than on welfare roles. I agree, and that is why minimum wage laws should be abolished. The data shows that the minimum wage causes unemployment. Instead, the government could allow people to be hired at low wages, and then supplement wages in those cases where people qualify for support. As a debate point, it is valid to contend that something be ended because there is a better alternative.

The minimum wage destroys long term incentives as well:

"Individuals between the ages of 16 and 24 accounted for 53 percent of all minimum wage-earners in 2005. When the minimum wage rises, it increases the incomes of teenagers with minimum-wage jobs, making entering the workforce more attractive. This, in turn, can be expected to cause some students to spend less time in school and more time working. While the overall number of minimum-wage jobs might decrease, if employers prefer to hire teenagers to low-skilled adults, the number of teenagers enrolled in school would drop. … Recent research has confirmed exactly this effect. David Neumark, professor of economics at Michigan State University, and William Wascher, a researcher with the Federal Reserve, found that minimum wage hikes decrease the proportion of teenagers enrolled in school." James Sherk, http://www.heritage.org...

Competition extends globally these days, so artificially increasing American labor costs drives jobs overseas. That's obvious for manufacturing, but it extends to other industries. A fast food restaurants have their drive-thru orders taken by staff in India. http://www.democraticunderground.com... Vacation resorts in low-wage areas compete successfully with the American industry. Field crop farming can relocate to other countries.

Legislatures should not be forcing increased unemployment in a misguided and counterproductive attempt to get employers to pay welfare costs. The resolution is affirmed.
ilovgoogle

Con

ilovgoogle forfeited this round.
Debate Round No. 2
RoyLatham

Pro

My opponent has forfeited, so all my previous arguments stand unrefuted. The data are overwhelming that minimum wage laws cause unemployment, especially among teenagers. If Con's argument were correct, that increased costs would be absorbed out of employer profits, the laws would still be immoral. Forcing employers to run a charity is equivalent to special tax levied solely on employers who employ entry-level workers. If society wants to provide welfare benefits, then that should be a matter for charitable organizations or government, not for businesses that have thin margins and often fail.

There are three alternatives to paying the minimum wage:

1. Shut down the parts of the business that are rendered unprofitable.
2. Automate the low-skilled tasks.
3. Replace low-skilled labor with more-productive higher caliber staff

I am not arguing that automation causes unemployment. I am arguing that automation is one of the alternatives to paying a minimum wage that is not competitive. It is the minimum wage that caused the unemployment. Ordinarily, the main alternative is to shut down the part of the business that is not profitable. Customers have alternatives to paying artificially high prices; they buy less or not at all. Automation only comes into play if the increased cost of automating is lower than the increased cost of the minimum wage. Then it's possible the market might sustain more of the business than would be case if the wage costs were added to prices.

The premise of the minimum wage is that employers have no choice but to pay. In fact, they do not have to pay it, and the customers of the business do not have to pay for the more costly products. The minimum wage is bad for employers because it damages their business. It's bad for taxpayers, because it increases unemployment and welfare costs. It's bad for consumers because it increases prices. It's bad for employees because it deprives them of jobs and removes part of the incentive for improving their skills. The arguments against the minimum wage are amply documented by studies performed over many decades. I have cited the studies. My opponent has given no evidence in support of his claims.

The resolution is affirmed.
ilovgoogle

Con

ilovgoogle forfeited this round.
Debate Round No. 3
9 comments have been posted on this debate. Showing 1 through 9 records.
Posted by NateTheFirst 1 year ago
NateTheFirst
Lolol the judge was a little biased.
Posted by RoyLatham 6 years ago
RoyLatham
It's unusual for a 73 year old to be overwhelmed by school work. A second PhD perhaps? Good luck with your thesis defense.
Posted by ilovgoogle 6 years ago
ilovgoogle
I apologize for not responding; school killed my life.
Posted by RoyLatham 6 years ago
RoyLatham
mattrodstrom, The present debate is not about whether automation of itself causes unemployment, it is about whether the minimum wage causes unemployment because there are alternatives, of which automation is one, to keeping workers employed.
Posted by mattrodstrom 6 years ago
mattrodstrom
The idea that automation causes unemployment is one of the most repeated economic fallacies still around today.

And the other is that the minimum wage somehow helps poor people.
Posted by mongeese 6 years ago
mongeese
I'd suggest just lowering the minimum wage a penny every day so that it eventually falls below the market price, and then keep lowering it anyway, just because.
Posted by wjmelements 6 years ago
wjmelements
Both solutions are just as politically practical, Roy.
Posted by RoyLatham 6 years ago
RoyLatham
The minimum wage was increased last July, increasing unemployment during the recession. Inflation won't overtake it as long as Congress keeps increasing it.
Posted by wjmelements 6 years ago
wjmelements
I think waiting for inflation to defeat it would be better, but that's not worth taking this debate over.
1 votes has been placed for this debate.
Vote Placed by RoyLatham 6 years ago
RoyLatham
RoyLathamilovgoogleTied
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