The Instigator
Esuric
Pro (for)
Winning
34 Points
The Contender
TheAtheistAllegiance
Con (against)
Losing
19 Points

Minimum wage laws are inherently self-defeating and should be eliminated immediately

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Voting Style: Open Point System: 7 Point
Started: 8/19/2010 Category: Politics
Updated: 6 years ago Status: Voting Period
Viewed: 4,382 times Debate No: 12789
Debate Rounds (3)
Comments (29)
Votes (11)

 

Esuric

Pro

This debate will focus on the social and economic ramifications of minimum wage laws. My position is essentially that it (a) is self-defeating, (b) causes social deterioration, and (c) makes all of society poorer. Additionally, empirical studies have shown mixed results: Neumark and Wascher's study concluded that minimum wage laws yield negative results, while and Card and Krueger's study concluded that minimum wage laws actually elevate employment. The mixed results are to be expected considering the inherent difficulty in statistically measuring and analyzing economic phenomena (cannot hold the ceteris paribus condition). Thus, the question must be approached from a purely logical point of view, that is, if you accept deductive reasoning as a reliable method towards the acquisition of truth.

1)The market attempts to establish equilibrium or market clearing prices, that is, prices which allocate resources towards their most urgent uses and maximize social benefit.

2)When prices are arbitrarily set above this "equilibrium position" you have surpluses, and when it is arbitrarily set below this position, you have shortages. People tend to purchase less of a product when it is more expensive and vice versa (all other things equal).

3)When you arbitrarily elevate wages above the equilibrium position you must necessarily diminish the (quantity) demand for labor, yielding unemployment. When the productivity of a laborer is not high enough to warrant such a wage then that laborer becomes a burden upon his employer and must be terminated.

4)Minimum wage laws hurt those who they are intended to aid (the least productive members of society), namely minorities, young adults, and immigrants.

5)Thus, minimum wage laws are inherently self-defeating.

Furthermore, the macroeconomic and social ramifications are severe: unemployment lowers total national output/income, lowers tax revenues, it creates a demand for costly social services which must be financed through government debt, which, in turn, leads to debt monetization and inflation. And finally, teenagers, that are trapped in urban areas, who attend poor public schools with unmotivated teachers, are unable to find work and therefore turn to the streets. This leads to a perpetual and self-reinforcing cycle of violence and criminality.

NOTE: We can trade statistical studies all day, and I can cite countless examples of the horrific outcomes caused by price ceiling and price floors, but I would much rather debate the logical consistency of my argument.

Thank you and good luck!
TheAtheistAllegiance

Con

Thanks for posting this debate, Pro. Because this debate is my first, I may mess up a few things; please be patient if I do. Also, because I am starting another semester of college in 3 days, I may not be able to keep up with this debate, which will invoke an inevitable forfeit. If that happens, I apologize beforehand.

"Additionally, empirical studies have shown mixed results"

This is true. The large consensus of empirical studies have produced little to no effects on employment levels that correlate with moderate rises in the minimum wage.

1)"The market attempts to establish equilibrium or market clearing prices, that is, prices which allocate resources towards their most urgent uses and maximize social benefit."

I disagree, but because my disagreement is off topic, I'll be brief. Social benefit is not always maximized by an unfettered market because market equilibrium drives toward what is most profitable, not socially beneficial - the two are not mutually inclusive. For example, fossil fuels are very arguably non-conducive to long term outcomes that can be considered socially beneficial, but because it is profitable, they are perpetually utilized by the market, which goes to show that market equilibrium isn't always best for society.

2)"When prices are arbitrarily set above this "equilibrium position" you have surpluses, and when it is arbitrarily set below this position, you have shortages. People tend to purchase less of a product when it is more expensive and vice versa (all other things equal)."

This is true in theory, but not in practice. As you correctly stated in your first paragraph, arbitrary price floors on labor have little to no effect on the current surplus of labor.

3)"When you arbitrarily elevate wages above the equilibrium position you must necessarily diminish the (quantity) demand for labor, yielding unemployment. When the productivity of a laborer is not high enough to warrant such a wage then that laborer becomes a burden upon his employer and must be terminated."

This isn't necessarily true. Firms must take into account the diminishing marginal utility of labor (overall productivity based on the quantity of labor), which warrants only a specific quantity of workers based on how large a firm can profitably become, which ultimately relies upon economies of scale. Because 99% of all firms are not economies of scale, they cannot infinitely expand, nor hire an unlimited quantity of workers. The majority of firms are already operating at the most efficient and profitable capacity based on their particular economy of scale and its coordination with utility of labor. Ultimately, this means that firms will not hire more workers if the price floor is removed because it will not increase the productivity of that firm much, if at all. Instead, they will keep approximately the same amount of workers on payroll, except at much less cost. The outcome is effectively a lower wage for non-competitive workers (teens, immigrants, etc), and a relatively similar employment level. This may be beneficial to employers, but not for employees, the firm in question, or the overall GDP of the economy.

Example::

Firm A produces the most goods at the lowest cost with exactly 15 workers. Any increase or decrease of workers will diminish marginal productivity, along with raising the costs of operation. In effect, hiring any more workers will grant higher costs, regardless of changes in payrolls.

4)"Minimum wage laws hurt those who they are intended to aid (the least productive members of society), namely minorities, young adults, and immigrants."

The consensus of empirical data suggests otherwise. The most that could be accepted as true based on current research is a 1-3 percent change in employment levels among teenagers, which is negative.

5)"Thus, minimum wage laws are inherently self-defeating."

Minimum wage laws may be meant to help the poor, but not solely teenagers and minorities. The price floor was implemented during the Great Depression, which suffered a period of severe unemployment that largely transcended race, age, or background. Additionally, the minimum wage increases the purchasing power among those receiving it, which arguably helps to alleviate the burden of the cost of living, albeit very slightly. However, the minimum wage is not inherently self-defeating mainly due to the consequences of removing it. With the current economic crisis, there is a large labor surplus, which will naturally drive wages down substantially. Businesses are not going to hire more people based on lower wages, but rather use that to cut back operating costs. This will have an overwhelmingly adverse effect on those who are barely getting by on the current minimum wage, which may fall to $3 an hour if the price floor is retracted. In other words, the current existence of the minimum wage is effective at helping to maintain a decent standard of living for the most vulnerable members of society, which isn't self-defeating at all.

"Furthermore, the macroeconomic and social ramifications are severe: unemployment lowers total national output/income, lowers tax revenues, it creates a demand for costly social services which must be financed through government debt, which, in turn, leads to debt monetization and inflation. And finally, teenagers, that are trapped in urban areas, who attend poor public schools with unmotivated teachers, are unable to find work and therefore turn to the streets. This leads to a perpetual and self-reinforcing cycle of violence and criminality."

Because unemployment levels are not effected by the minimum wage, the economy's GDP or productive capability will not endure much drag, if any at all. Also, contrary to your first sentence in this paragraph; if the minimum wage is removed and wages go into free fall, people will have to use more social services to get by because the cost of living is only rising. The subsequent rise in demand for these services will lead to less tax revenue and additional government expenditures. Lastly, I feel that teenagers in urban areas turn to the streets mainly due to the low purchasing power of the minimum wage as it is - of course in conjunction with limited employment opportunities. Because of this, many teens feel it is easier to just sell drugs, which brings in pretty good money compared to a job at McDonalds...

Thanks again for the debate, Pro. I hope that the content of my reply is consistent with your goals of keeping this debate limited to logical consistency, rather than a list of endless and contradictory empirical studies.
Debate Round No. 1
Esuric

Pro

This is my first debate as well. Thank you for joining in!

1) "Social benefit is not always maximized by an unfettered market because market equilibrium drives toward what is most profitable, not socially beneficial - the two are not mutually inclusive."

This issue is, in fact, absolutely essential and it must be resolved in order to reach a definitive conclusion regarding the effects of minimum wage laws, which, I argue, are inherently self-defeating because they disturb natural market processes.

First, profit, in an unfettered economy, that is, one where businesses cannot turn to legislators in order to receive arbitrary advantages (through lobbying and regulation), is, by definition, social benefit. Profit is comprised of two different components, namely revenue and costs (revenue – costs = profit). In order to maximize revenues firms must produce goods and services that are desired by society and they must out-compete their competitors. In order to do this, they must offer the highest possible quality for the lowest possible price. Next, minimizing costs means using as little resources as possible in the production process. Doing so (minimizing costs) leaves additional resources, which are scarce, for other economic activities. Thus, profit maximization is the production of the highest quality goods, at the lowest possible prices, while utilizing the minimal amount of scarce resources as possible.

"For example, fossil fuels are very arguably non-conducive to long term outcomes that can be considered socially beneficial, but because it is profitable, they are perpetually utilized by the market, which goes to show that market equilibrium isn't always best for society."

I don't want this debate to be about the economic tenability of alternative energy, but your example does not support your position. It is true that fossil fuels emit carbon emissions, but the fact that its supply is relatively plentiful makes it relatively inexpensive. So much so, that it is, at this point in time, the most cost-effective way to power our economy, and sustain our current population levels. In other words, the utility that may be gained from completely switching from fossil fuels to "green energy" is greatly out-weighed by the utility that would be lost from the diminution in total economic output and productivity.

2) "This is true in theory, but not in practice."

What is true in theory is true in practice, assuming that the theory (a) has a valid initial premise, and (b) is logically and internally consistent. There is no divide between logic, on the one hand, and the real world on the other. Logical consistency is universally valid, which is why science and mathematics works. Next, there is no "surplus of labor." Labor, like all economic goods, is scarce. The demand for economic goods is infinite, and because labor is required to produce commodities (it is one of three co-dependent factors of production), then the demand for labor (in general) is, ipso facto, infinite. This is not to say, though, that the demand for computer engineers is infinite.

3) "….Ultimately, this means that firms will not hire more workers if the price floor is removed because it will not increase the productivity of that firm much, if at all. Instead, they will keep approximately the same amount of workers on payroll, except at much less cost. The outcome is effectively a lower wage for non-competitive workers (teens, immigrants, etc), and a relatively similar employment level….."

If your logic were valid, then minimum wage rates at $100/hour, or $1000/hour would have absolutely no effect on employment rates—clearly, this is absurd.

It is true that the productivity of labor is directly a function of (a) capital per worker and (b) the total supply of labor (labor force), and it is also true that continuous firm expansion is impossible, but for reasons you have not mentioned (namely transaction costs, managerial diseconomies of scale, et al). But from this, one cannot logically deduce that the demand for labor is inherently and entirely inelastic, or insensitive to changes in wages. Managers hire labor based on the expected surplus they will earn from that laborer. If the surplus is greater than the costs, then that laborer will yield supernormal profits for that employer (above the interest rate or return to capital). The employer will offer any wage that is not above the surplus that laborer yields, since some profit is better than no profit.

For example:

Let us suppose that laborer "a" has a marginal product of $10 per hour (in monetary terms for the sake of simplicity). The employer would be willing to pay that employee any wage that does not exceed $10 per hour. At $7/hour the employer makes an additional $3 surplus; at $9.99/hour, the employer makes $.01 surplus. And since $.01 surplus is better than no surplus (or an economic loss), the employer will employ that laborer. Conceivably, the employer will pay laborer "a" $10/hour since it comes at no cost to him.

Essentially, wages are not determined by decree, that is, employers don't really "choose" what they pay their laborers. Competition bids up the price of labor towards the marginal product. Assume, for the sake of simplicity, that the marginal product of labor is $10/hour, and that the national wage rate is at $1/hour for whatever reason. This means that simply hiring a laborer will earn you an economic rent (specifically $9/hour). But since labor is scarce, that is, it is absolutely required for production, and because some profit is better than no profit, employers will begin bidding up wage rates. That is, one employer, who has capital but requires labor, will offer $2/hour, since $8/hour is better than the $0/hour he would earn if he was unable to find laborers. This process continues until the national wage rate = the marginal product of labor (all of this can be expressed quite easily with mathematics).

Now, it is true that each additional laborer lowers the marginal product of labor, but if the price of labor falls faster, or at the same pace, then employment rates remain the same. If the marginal product of labor falls faster than the national wage rate (because of a minimum wage law, for example), then labor becomes a liability and yields economic losses for the employer.

(SKIPPED 4)

5) "The price floor was implemented during the Great Depression, which suffered a period of severe unemployment that largely transcended race, age, or background. Additionally, the minimum wage increases the purchasing power among those receiving it, which arguably helps to alleviate the burden of the cost of living, albeit very slightly. However, the minimum wage is not inherently self-defeating mainly due to the consequences of removing it..."

It is true that, during recessions, businesses may attempt to cut wages in order to reduce their operating costs (though some firms are hesitant to do this because they fear that the loses in productivity, due to lower worker morale, will out-weigh the costs they reduce from wage reductions—also known as endogenous wage rigidity). But if employers are not allowed to reduce (nominal) wages, that is, if the labor market is not allowed to "clear," then they are forced to layoff additional workers, which will actually lower total economic output and income by a greater extent. In fact, many blame FDR's policies for the unprecedented unemployment rates during the 30s, which lead to extended economic stagnation. It's better to have 97% of the labor force employed at $7/hour then have 60% of the labor force employed at $10/hour.

"In other words, the current existence of t
TheAtheistAllegiance

Con

"This is my first debate as well. Thank you for joining in!"

No problem; thanks for the quick reply!

"This issue is, in fact, absolutely essential and it must be resolved in order to reach a definitive conclusion regarding the effects of minimum wage laws, which, I argue, are inherently self-defeating because they disturb natural market processes."

Because my disagreement with the notion that profit = social benefit is unrelated to our minimum wage discussion, I'm going to agree to your terms for this particular debate.

"I don't want this debate to be about the economic tenability of alternative energy, but your example does not support your position."

Neither do I, so we can skip this.

"What is true in theory is true in practice, assuming that the theory (a) has a valid initial premise, and (b) is logically and internally consistent. There is no divide between logic, on the one hand, and the real world on the other. Logical consistency is universally valid, which is why science and mathematics works. Next, there is no "surplus of labor." Labor, like all economic goods, is scarce. The demand for economic goods is infinite, and because labor is required to produce commodities (it is one of three co-dependent factors of production), then the demand for labor (in general) is, ipso facto, infinite. This is not to say, though, that the demand for computer engineers is infinite."

Economics is not a hard science, so theories derived from this field are often not observed in practice. There is a logical divide between the theory and practice that you had acknowledged yourself. In theory, a minimum wage is predicted to spur unemployment, which just doesn't happen in the real world. You noted this in your own posts, so I'm not sure how you reconcile these two contradictory statements...

"If your logic were valid, then minimum wage rates at $100/hour, or $1000/hour would have absolutely no effect on employment rates—clearly, this is absurd.Z"

I agree - a $100 price floor is absurd, and it will certainly affect employment rates. For one, the logic of my narrative demonstrated that "moderate" increases in the minimum wage will not have any substantial effect on employment levels, which is backed up by empirical data; something we agree on. Secondly, the logical "point" of my narrative was intended to demonstrate how and why removing the price floor will not necessarily increase employment rates due to the diminishing marginal utility of labor. I wasn't implying that any wild or excessive increase in the minimum wage rate will have no effect on the employment rate.

"It is true that the productivity of labor is directly a function of (a) capital per worker and (b) the total supply of labor (labor force), and it is also true that continuous firm expansion is impossible, but for reasons you have not mentioned (namely transaction costs, managerial diseconomies of scale, et al). But from this, one cannot logically deduce that the demand for labor is inherently and entirely inelastic, or insensitive to changes in wages. Managers hire labor based on the expected surplus they will earn from that laborer. If the surplus is greater than the costs, then that laborer will yield supernormal profits for that employer (above the interest rate or return to capital). The employer will offer any wage that is not above the surplus that laborer yields, since some profit is better than no profit."

I never stated that the demand for labor is totally inelastic. The demand for labor certainly is not totally elastic either, which is mainly due to sticky wages and a diminishing marginal utility of labor. Because of this, removing the minimum wage will do more harm than good, which in itself, demonstrates that the minimum wage isn't inherently self-defeating.

"Essentially, wages are not determined by decree, that is, employers don't really "choose" what they pay their laborers. Competition bids up the price of labor towards the marginal product. Assume, for the sake of simplicity, that the marginal product of labor is $10/hour, and that the national wage rate is at $1/hour for whatever reason. This means that simply hiring a laborer will earn you an economic rent (specifically $9/hour). But since labor is scarce, that is, it is absolutely required for production, and because some profit is better than no profit, employers will begin bidding up wage rates. That is, one employer, who has capital but requires labor, will offer $2/hour, since $8/hour is better than the $0/hour he would earn if he was unable to find laborers. This process continues until the national wage rate = the marginal product of labor (all of this can be expressed quite easily with mathematics)."

No math required; you expressed it perfectly. Even so, this still neglects to mention whether the market wage rate has the sufficient purchasing power to get by with. When the market is left to determine wages, the given wages we're discussing will very likely fall below the current price floor, which has a purchasing power that is already below the federal poverty level. One would have to work approximately 63 hours a week at the current minimum wage rate just to meet the FPL - not including tax deductions. In a consumer driven economy, this is only going to drag down aggregate demand, with GDP following suit because of a reduced disposable income for these individuals. The employers' excesses in disposable income are often hoarded or placed in a bank account instead of being spent at various firms, which doesn't motivate increases in production. Also, due to diminishing marginal utility of labor, the unemployment rate will not substantially decrease. Instead, the overall economy, and especially its most impoverished members, will endure a decline.

The point is that a market wage may not be as beneficial as the minimum wage. The macroeconomic outlook has to be taken into account as well.

"Now, it is true that each additional laborer lowers the marginal product of labor, but if the price of labor falls faster, or at the same pace, then employment rates remain the same. If the marginal product of labor falls faster than the national wage rate (because of a minimum wage law, for example), then labor becomes a liability and yields economic losses for the employer."

Yes, but the economic loss isn't very substantial because employers would account for those losses by laying off employees, which hasn't been observed in the real world.

"In fact, many blame FDR's policies for the unprecedented unemployment rates during the 30s, which lead to extended economic stagnation. It's better to have 97% of the labor force employed at $7/hour then have 60% of the labor force employed at $10/hour."

True, but this isn't a trade-off that is often dealt with; 40% unemployment is a bit unrealistic. If these circumstances were common, I would agree with your take on price floors. Plus, the minimum wage under FDR (enacted twice) did not show any substantial effects on unemployment during the Great Depression. Instead, like almost every observed scenario in history, unemployment rates were most sensitive to the cyclical state of the economy - not the minimum wage.

"In other words, the current existence of t"

I assume you accidentally submitted your argument prematurely. If so, you can continue it in the next round if you like.
Debate Round No. 2
Esuric

Pro

"Economics is not a hard science, so theories derived from this field are often not observed in practice. There is a logical divide between the theory and practice that you had acknowledged yourself."

If by "hard science," you mean to say that economics is not a natural science, then, by all means, you are absolutely correct. And it is also true that the natural scientist has a much easier endeavor insofar as his subjects are easily identifiable, stable, and have fixed and definite relationships. But economics is just as sound as physics or any other natural science, and the economist's logic is just as valid as the physicist's differential equations—in fact, they are one and the same. This is also why we must approach economic matters from mainly a logical perspective (as opposed to an empirical one).

"I agree - a $100 price floor is absurd, and it will certainly affect employment rates. For one, the logic of my narrative demonstrated that "moderate" increases in the minimum wage will not have any substantial effect on employment levels, which is backed up by empirical data; something we agree on. Secondly, the logical "point" of my narrative was intended to demonstrate how and why removing the price floor will not necessarily increase employment rates due to the diminishing marginal utility of labor. I wasn't implying that any wild or excessive increase in the minimum wage rate will have no effect on the employment rate."

Well, first, we don't agree on this at all. Like I said before, there is torrential empirical evidence supporting my position. My only point is that empirical studies are inherently flawed because they do not hold the ceteris paribus condition, or, in other words, they are measuring multiple independent variables simultaneously (which skew the results).

Next, it may be true that "moderate" rises in the minimum wage may not lead to substantial changes in the rate of unemployment, but this is precisely why minimum wage laws are inherently self-defeating. The minimum wage law is merely one form of exogenous price rigidity that only affects a certain small sect of the economy, namely the least productive. The vast majority of society is productive enough to earn wages that far surpass this arbitrary price floor, and those who are not productive enough to earn the minimum wage are simply not hired.

Now, this is not always the case. The minimum wage law, if it is low enough, may not affect the employment rate at all. For example, we should not expect any changes in the employment rate if we double the minimum wage from $1/hour to $2/ hour. This is because everyone, with the exception of infants, is far more productive than $2/hour.

Thus, the minimum wage law will have no affect on the employment rate if it is set below the productivity of labor, that is, if it is set below the wage rate society already earns. If the minimum wage rate, on the other hand, is set above the productivity of labor (either for the entire economy, or for a specific group), then it must necessarily elevate the unemployment rate. Simply put: if the minimum wage rate has any effect at all, it must be a negative one.

"The demand for labor certainly is not totally elastic either, which is mainly due to sticky wages and a diminishing marginal utility of labor."

First, the minimum wage law contributes to the stickiness of wages. Second, it is true that labor suffers from diminishing marginal returns (like all economic goods), but this does not mean that wages are in perpetual free fall. Increasing the capital stock, or increasing the productivity of capital, through technological innovation, will elevate the marginal productivity of labor and therefore real wages. This is precisely what happened in the 90s with the tech revolution.

"Even so, this still neglects to mention whether the market wage rate has the sufficient purchasing power to get by with. When the market is left to determine wages, the given wages we're discussing will very likely fall below the current price floor, which has a purchasing power that is already below the federal poverty level."

So we agree that the market, through competition, bids up wage rates towards the marginal product of labor. Okay, good. Your argument, then, seems to be that without this government price floor, wages would fall to unacceptably low levels. But what you're saying, then, is that the vast majority of individuals are not productive enough to earn $7.25/hour (the current minimum wage rate), or, in other words, that the price of labor exceeds its productivity. I argue that if this were true, then (a) profit-maximizing employers would have never employed them in the first place, and (b) we would have a condition of perpetual economic stagnation and high unemployment (like the social Democratic European states—that have unbelievably high natural rates of unemployment).

Additionally, the government does not have the ability to elevate wages whenever it sees fit, or at all. Politicians only have the ability to say that they will elevate wages in order to get votes and stay in power. If government could truly do this, then poverty would no longer exist. Nations like India, China, and Zambia could become first-world developed nations over night with a comparable purchasing power to that of the U.S—they merely need to elevate their minimum wage! Unfortunately, wage rates are not determined by political fantasies and decree but rather by market forces and the marginal productivity of labor.

I just want to conclude by saying that it is impossible to elevate real wages without first elevating the productivity of labor, the same way that it is impossible for a childless woman to be a grandmother. Additionally, individuals have two tools at their disposal when they enter the labor market: they have their productivity and ingenuity, on the one hand, and they have the wage that they are willing to work for on the other. If a relatively unproductive worker wants to compete with a highly productive worker then he or she must necessarily accept a lower price for his or her labor. Denying this individual the right to do so, with arbitrary government price floors, takes out his or her ability to compete and to find employment. The minimum wage law necessarily disarms the portion of society it is meant to aid. It is no coincidence that the urban areas in this nation have the highest rates of unemployment.

And finally, it is at least conceivable that employers could deal with minimum wage laws by cutting other costs (production and allowing their capital to depreciate), but there is no reason to believe that employers, who are profit-maximizing agents, would ever willfully do this. Either way, this would lead to perpetual economic decline (permanent recession).

I just want to thank con for participating in this debate. It was fun!
TheAtheistAllegiance

Con

"If by "hard science," you mean to say that economics is not a natural science, then, by all means, you are absolutely correct."......"But economics is just as sound as physics or any other natural science, and the economist's logic is just as valid as the physicist's differential equations—in fact, they are one and the same. This is also why we must approach economic matters from mainly a logical perspective."

I mean to say that economics is a social science, similar to psychology and political science. I agree that an economic theory is just as sound as perhaps evolutionary theory, but unlike evolution, there are many different theories (schools of thought) currently in competition; Keynesian, Austrian, Neo-Classical theory, etc. These theories wield vastly different predictions, some going as far as the origination of the business cycle. Such a lack of consensus exhibits that some of these assumptions (ceteris paribus) must be faulty. This must be taken into account to logically determine whether the minimum wage is inherently self-defeating.

"The vast majority of society is productive enough to earn wages that far surpass this arbitrary price floor, and those who are not productive enough to earn the minimum wage are simply not hired."

This depends on whether the firm can still profit from paying a higher wage. Our economy does not reflect a perfectly competitive model at all, which is why employment is not as sensitive to a price floor as it may seem. An employer can often divert resources from other avenues within their firm, such as executive pay or other administrative costs that are not vital to production or profit, which ends up in the hands of those receiving the minimum wage. Because of the given demand for labor to reach higher marginal utility, firms will not always lay off workers receiving wages higher than the the market equilibrium (remember that perfect competition and elasticity doesn't exist, so this is very feasible and logically plausible).

"Thus, the minimum wage law will have no affect on the employment rate if it is set below the productivity of labor, that is, if it is set below the wage rate society already earns. If the minimum wage rate, on the other hand, is set above the productivity of labor (either for the entire economy, or for a specific group), then it must necessarily elevate the unemployment rate. Simply put: if the minimum wage rate has any effect at all, it must be a negative one."

This is only true in a world where perfect competition exists. Contrarily, our world contains a combination of monopolistic and oligopolistic competition. Since there are indeed excesses and waste within a non-perfectly competitive firm, a set minimum wage will not immediately drive up unemployment. Instead, the firm will have to balance the costs of lost labor utility against the costs of a higher wage being mandated. If the worker in question provides the necessary productivity, he/she will not be laid off; instead, other costs will be cut. Often, this is certainly the case since the various minimum wages in the US do not show any direct affects, whatsoever. This illustrates the minimum wage as beneficially effective.

"First, the minimum wage law contributes to the stickiness of wages. Second, it is true that labor suffers from diminishing marginal returns (like all economic goods), but this does not mean that wages are in perpetual free fall."

If the current minimum wage is removed, real wages will not fall perpetually, but they will fall for approximately 2-3 million people. This is unlikely to lead to full employment, but rather a weaker purchasing power due to factors associated with marginal utility, among imperfect competition and elasticity. This wouldn't be beneficial.

"So we agree that the market, through competition, bids up wage rates towards the marginal product of labor. Okay, good. Your argument, then, seems to be that without this government price floor, wages would fall to unacceptably low levels. But what you're saying, then, is that the vast majority of individuals are not productive enough to earn $7.25/hour (the current minimum wage rate), or, in other words, that the price of labor exceeds its productivity. I argue that if this were true, then (a) profit-maximizing employers would have never employed them in the first place, and (b) we would have a condition of perpetual economic stagnation and high unemployment (like the social Democratic European states—that have unbelievably high natural rates of unemployment)."

Market wages are indeed unacceptably low, for they are not sufficient for a considerable portion of the population to survive with. When arguing economics, it is only reasonable to apply practical application and conclude how and why theoretical outcomes affect real world circumstances. Additionally, perpetual economic stagnation and high structural unemployment does not happen unless referenced under a perfectly competitive model. Otherwise, structural unemployment will go largely unaffected, while economic stagnation will be contrasted by actual growth instead, for a higher disposable income among those who need to spend more to comfortably live will initiate rises in consumption (demand), thus investment and production, which results in expansion and growth.

"Nations like India, China, and Zambia could become first-world developed nations over night with a comparable purchasing power to that of the U.S—they merely need to elevate their minimum wage! Unfortunately, wage rates are not determined by political fantasies and decree but rather by market forces and the marginal productivity of labor."

A modest rise in the minimum wage only slightly benefits growth as an after-effect of increased purchasing power, via wealth redistribution. When I can spend money that my rich executive employer was saving, the economy will increase production to meet the demand. If, instead, my employer keeps his money, I will have to go into debt to get by, and the economy will not expand based on the lack of a rise in demand. In fact, growth may very well stagnate.

== Conclusion ==

The minimum wage is designed to raise the wages of the most vulnerable members within the US economy. By doing this, the US government is effectively ensuring that its citizens will not have to endure peasant-like living conditions. No, instead these laborers will have the increased purchasing power to live a comfortable lifestyle, along with being a more effective contributor to society with their increased disposable income. Despite conventional wisdom, these laborers' higher earnings will not steal job opportunities from others because businesses require a fairly specific amount of workers imperative to cheap and efficient production. Instead, these businesses will choose to cut administrative costs or executive pay to meet these minimum wage requirements, the excesses of which, lands in the hands of the impoverished and disadvantaged. This does little more than to arm US citizens with the opportunity to live in the absence of abject poverty. The minimum wage is certainly not inherently self-defeating for those who receive it; not in any sense, whatsoever.
Debate Round No. 3
29 comments have been posted on this debate. Showing 1 through 10 records.
Posted by sadolite 6 years ago
sadolite
So as times change everything must change except wages? Welcome to the reality of a country that has sold off all of it's ability to compete in the world market in order to appease unrealistic wages subsidized by worthless unbacked printed money. The days of getting full medical benefits is over, the days of getting $25.00 to $40.00 an hr to put square pegs in square holes is over. The economy has collapsed and it will continue to do so. And yes you will have to work for less. Simple economics 101. Supply and demand also applies to wages.
Posted by ClintS 6 years ago
ClintS
Sadolite I believe that statement was directed at me and my argument still stands. What is keeping any business from lowering someone's wage? Well, there are several factors, but I believe the biggest is how valuable is this person's expertise(meaning how many people can do this person's job). If the job market is scarce and there is 30 people lined up behind you to take your spot. What is the disincentive for a business to lower your wage? Lose Profit? They make profit when they lower your wage. Lose you to a competitor? Well there are not a lot of jobs so guess what they are not hiring. Hurt productivity? Your probably going to work harder for your garbage job because it is the only game in town.
You can probably say that is just an incentive for people to go to college, but this becomes increasingly hard when you are just trying to pay the bills. The only thing that keeps this from happening is a third party such as a union or the government. Scenarios like these don't happen over night, but if you let them they will eventually happen. It all starts off with one company lowering a unskilled worker's wage to be a little competitive and if others fall suit that's all you need to start a race to the bottom. The only thing preventing companies from giving in is their morales and personally I would rather have a back up.
Posted by sadolite 6 years ago
sadolite
Small business suffers from excessive minimum wage laws, not big business. Name one fortune 500 company that pays anyone minimum wage. Not even McDonald's pays minimum wage. Anyone who works for minimum wage is worth every penny. I wouldn't hire anyone who would.
Posted by ClintS 6 years ago
ClintS
I don't understand why some many people voted pro because his argument was basically businesses are inherently smart and will look out for what is in their best interest of everyone even if it is something that they don't initially plan for. Companies don't look at entire economies and see what is good for everyone. They see what is good for themselves. If one company lowers the average employee's annual salary by 1,000 dollars will they lose workers? No, because it seems miniscule at first and if they do decide to leave the company there will be someone else to take their place, especially in this economy. If one company does it then another will surely follow just to gain a slight edge in profits. This will just create a race to the bottom.
Didn't we learn the lessons of this last financial crisis? They basically trusted all these big companies to regulate themselves. They weren't thinking in terms "I know this mortgage is going to default so I'm not going to do the deal". No they were thinking that I'm going to make my money and make sure someone else picks up the tab. Getting rid of these kinds of safeguards got us into this economic situation.
Posted by the-nikki 6 years ago
the-nikki
this debate just helped me so much on my homework lol but seriously i applaud you
Posted by Esuric 6 years ago
Esuric
Okay, I made it.

Title: "Government intervention is always a retardant of beneficial market mechanisms."
Posted by TheAtheistAllegiance 6 years ago
TheAtheistAllegiance
You choose the resolution btw, I'm just making sure that's what you want to debate.
Posted by TheAtheistAllegiance 6 years ago
TheAtheistAllegiance
I'm new as well, and that sounds good to me. The resolution will be that government intervention thwarts market transactions, which causes dead-weight losses and decreased profit and social wealth, yada, yada. That is basically the your argument, correct?

Also, I am ready now, so you can post it whenever you want to.
Posted by Esuric 6 years ago
Esuric
Round 1- Present our general argument
Round 2- Get into specific details
Round 3- Rebuttals (no new arguments).

Is this okay? I'm new to formal debates.
Posted by TheAtheistAllegiance 6 years ago
TheAtheistAllegiance
Whatever you prefer. In all honesty, I started a debate as Pro, and I didn't like it very much. It's all up to you; I just prefer to be Con. Other than that, lets just make sure we agree on a resolution before it's actually cast in stone. You can list one here if you want to.
11 votes have been placed for this debate. Showing 1 through 10 records.
Vote Placed by Willoweed 5 years ago
Willoweed
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Reasons for voting decision: Con is 100 correct
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