The minimum wage should be abolished
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|Updated:||2 years ago||Status:||Post Voting Period|
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Per bobtheponderer's request, I'm going to re-hash this debate once more--my third time in the past week, actually.
Definition and Particulars
Resolved: The minimum mage should be abolished
PRO will argue that the minimum wage should be abolished, whereas CON will argue that it should not be. The resolution is normative in nature, and thus the burden of proof will be evenly split.
Minimum Wage: "an amount of money that is the least amount of money per hour that workers must be paid according to the law" (1).
The resolution does not specify who sets the minimum wage--be it a federal or state government--so this will simply apply to any minimum wage law, whereby CON defends their existence and PRO argues for their abolition.
Abolish: "to officially end or stop (something, such as a law) : to completely do away with (something)" (2).
Round 1: CON provides rules and structure. PRO provides affrmative case.
Round 2: CON provides negative case. PRO rebuts CON's case.
Round 3: CON rebuts PRO's case. PRO defends his case.
Round 4: Con defends his case. PRO passes to even out the rounds.
1. Accepting this debate is consenting to the rules and guidelines laid out in this opening post.
2. Failure to adhere to any of these rules will result in forfeiting this debate.
3. Forfeits are not allowed.
4. Any semantial games or resolution trolling is not allowed.
5. Be respectful. No personal attacks or changing the goalposts.
6. The burden of proof is equally shared.
7. No new arguments in the final speeches.
Thanks to bobtheponderer for this debate. I look forward to a lively exchange.
If the minimum wage is raised above what a particular employer is willing to pay for a particular person to do a particular job for them, then that job will not be available for that person, and if it was available, raising the minimum wage will eliminate it. If you"re looking to get a job as a dishwasher at a particular restaurant, and the owner is only willing to pay at most $7 an hour for another dishwasher, than if the minimum wage is set any higher than $7 an hour, you will not get that job. If you cannot find anything else, you will be unemployed. This is how the minimum wage can create unemployment. It is a minimum price control on a commodity, labor, which has the potential to create unsold surpluses of that commodity on the market, ie. unemployment.
This little bit of economic logic is irrefutable. No amount of inevitably flawed empirical studies (as all empirical studies in the social sciences are, due to the inability to properly isolate variables) claiming to show no relationship between raising the minimum wage and unemployment can demonstrate that employers will voluntarily pay more than they are willing to pay for a given labor service.
For those who believe that the price of unskilled labor has little effect on the amount of unskilled labor demanded by a given employer, I would recommend a visit to a hotel in India. You will immediately notice that there are about four times as many employees in an Indian hotel as there are in a similarly sized North American hotel. Why? Because labor is a lot cheaper, both absolutely and relatively, in India than it is in North America. There is no place for the person whose only job it is to greet guests and put flower necklaces around their necks in the North American hotel market, while there is in the Indian hotel market. Higher North American wage rates, for both natural (supply and demand for labor) and artificial (minimum wage) preclude such a job from existing economically.
Now, is it guaranteed that having a minimum wage or increasing the minimum wage will create unemployment in a given situation? No. But is there a good chance that it will? Absolutely. So why even run the risk of introducing or maintaining a policy that might cause the most vulnerable people to be out of work? Why not just abolish this risky, market-distorting price control and find a better way of helping poorer people?
2.Chases away investment
Capital investment and wage rates have a somewhat paradoxical relationship to one another. On one hand, low wage rates in a region, other things equal, tend to attract more capital investment to that region, as most businessmen are always trying to produce in regions where their costs of production can be the lowest, other things equal. On the other hand, capital investment in a region serves to raise real wage rates in that region in general. This is both because saved-up capital funds are what are used by businesses to pay wages to workers, and because capital investment not directed to buying labor is usually directed to securing producer goods that will help make the labor hired more productive (machinery, tools, office buildings, research & development, training programs, etc") Because producer goods are ultimately useless without the labor to use them, labourers in a region with a relatively abundant supply of producer goods are in a better position to demand higher wages than labourers in a region with a relatively scarce supply of producer goods. The labor of those in the former region is more valuable to employers because it serves to set in motion a more productive complex of producer goods than the labor of those in the latter region. Ignoring for the moment the great difficulties of talking about the price of "labor in general", the least important use of labor in the former region will probably be more valuable to employers than the least important use of labor in the latter region. This means that market real wage rates will tend to be higher in the former region than in the latter region.
Thus, capital investment is attracted to regions with lower wage rates, but the act of capital investment serves to raise wage rates in the region. Let us suppose that capital investment, attracted to a region with relatively low wage rates, resulted in a "natural" raising of those wage rates. At some point, the region would get to a point where its wage rates were high enough to cease attracting capital investment due to the lowness of the region"s wage rates. Other factors in the region, such as the prevalence of law and order, respect for investors, low tax rates, the relative lack of burdensome restrictive regulations, an increasingly skilled and conscientious workforce, a greater supply of domestically-owned savings/capital funds, a good supply of valuable land and natural resources, and a relative lack of economic and political instability, amongst others, could still operate to attract capital investment to that region, but relatively low wage rates would now no longer be among those factors.
Since the primary purpose of courting capital investment is to raise real wage rates, there is no use lamenting the fact that capital investment has in fact raised them, even if it won"t be attracted as rapidly in the future due to the wage rates that are now relatively higher. The problem with imposing a minimum wage is that it is as if capital investment has done its job and raised wage rates among unskilled workers, when in fact this isn"t the case. The higher wage rates, due to the minimum wage, among unskilled workers results in attracting less capital investment to the region in which it is imposed, but the capital investment that would have been attracted by the lower wage rates, had the minimum wage not been imposed, is nowhere to be seen! Wage rates are raised not through capital investment, as they would be in a free-market environment, but through throwing unskilled people who can"t land a position where their skills are worth more to their employers than the minimum wage, out of work.
3.Dampens a spur for low skilled workers to improve their skills and change their jobs:
The wage rates set in a free labor market serve as useful signals to workers. They indicate what skills and jobs are important to the society"s employers and consumers (state of demand), and they indicate how rare the ability and willingness to perform these jobs is in that market (state of supply). If a worker is in a job that has a low free-market wage, it is a signal that either the worker"s skills or current job are relatively unimportant to employers and consumers, or that, while the job is important, too many workers are willing and able to perform these jobs satisfactorily. Usually, it is a mix of both. In either case, the relatively low wage rate is a signal from the society"s consumers (producers/employers being their intermediaries in this regard), telling the worker that he would be more valuable to them if he were doing something else.
In a free-market, this signal is not just idle hand-waving; the worker is incentivized to pay heed and to take action. If he does, he will be rewarded with a higher wage rate, and thus a higher standard of living. This action might involve moving to a new location, taking night classes to learn new skills, trying hard to show your employer that you have what it takes to assume a higher position in the company, or simply taking a look to see whether higher paying jobs are out there that you are already qualified for.
If a minimum wage is imposed, this spur is dampened for workers at the bottom end of the wage ladder. Those that are not thrown out of work receive an artificially higher wage for the positions they are able to retain. This causes the wage gap between these jobs and jobs that paid above the minimum wage before it was imposed to narrow. With this narrowing, workers have less of an incentive to put themselves in an employment position that is more useful to society"s consumers than the one they are in currently.
Thanks to briantheponder.
The minimum wage is a boon to the U.S. economy because it would increase consumption. Carroll et al., 2013, found that the marginal propensity to consume is far greater for lower- and middle-income households than it is for high income households (1). In reference to raising the minimum wage to $10,10, the CBO finds that "[t]he increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO"s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates" (2). Wage pressures would build not only for minimum wage workers, but for many more workers, all of whom are likely to consume with those dollars, thus stimulating economic activity. Aaronson and French found that an increase to $9 an hour would boost real G.D.P. by .3 percentage points and boosts household spending by $48 billion (3). Further, Aaronson et al, 2011, found that a MW causes “household income rises on average by about $250 per quarter and spending by roughly $700 per quarter for households with minimum wage workers” (4).
II. Efficiency Wage Hypothesis
The efficiency wage hypothesis "states that workers' productivities depend positively on their wages" (5). A literature review by Wolfers and Zilinsky, 2015 (6) finds a myriad of real-world evidence for this theory that higher wages tend to induce workers to work harder, which benefits businesses, who are able to produce more and thus sell more.
Yellen, 1984, found that higher wages led to "reduced shirking by employees due to a higher cost of job loss; lower turnover; an improvement in the average quality of job applicants and improved morale" (7). Holzer, 1990, arrived at a similar conclusion: "high-wage firms can sometimes offset more than half of their higher wage costs through improved productivity and lower hiring and turnover cost" (8). There's evidence that workers with less income security also have poorer on-job performance. The World Bank's 2015 Development Report found "The constant, day-to-day hard choices associated with poverty in effect tax an individual"s bandwidth, or mental resources. This cognitive tax, in turn, can lead to economic decisions that perpetuate poverty" (9).
In addition to increased productivity, higher wages also increase labor supply, attracting better and more productive workers. Rossi et al., 2013, found that "offering higher wages attracts individuals with higher previous earnings, and who have both higher IQ and more desirable personality traits, as measured by the Big 5 personality and public service motivation tests" (10).
Higher wages also reduce labor turnover, reducing the cost of training and hiring new workers and thus saving businesses money. Reich et al., 2003, in a study of the San Francisco airport, found that higher wages reduced labor turnover by 34%, thus saving the airport $6.6 million per year (11). Reich et al., 2007, found that a San Francisco wage floor policy reduced labor turnover from 95% in the mid-2000s to 18.7%--a 763 basis point decline (12).
There are also a multiplicity of other ways in which higher wages improve labor efficiency. Fisher et al., 2006, used data from 500 retailers to find that higher wages improve customer service and customer satisfaction (13). Capelli and Chauvin, 1991, found that higher wages improved employee discipline (14). Zhang et al., 2013, found that in Canadian firms higher wages resulted in reduced employee absenteeism (15). Finally, Georgiadis, 2008, find that, because higher-wage workers tend to require less supervision than low-skilled workers, "higher wage costs were more than offset by lower monitoring costs" (16).
Therefore, there a myriad of ways that raising the minimum wage would actually save businesses money through greater efficiency, offsetting cost increases.
III. Income Inequality
The U.S. is plagued with the worst income inequality since 1928 (17), and research by Saez, 2013, shows that it has been increasing steadily since the 1970s (18). This coincided with widespread deregulation and tax cuts under Ronald Reagan and his attacks on labor unions (19), and a nearly doubling of productivity over the past thirty years, but flat wages for most workers, adjusted for inflation (20), and falling real wages for minimum wage workers, whose wages aren't adjusted for inflation (21). For instance, the minimum wage from 1979 to 2012 fell 21 percent (22). This is undesirable not only on a moral basis because people are paid not what they're due or what their skill set lends itself to, but are placed at a lower rung of the economic ladder as their starting place, based on characteristics outside of their own control--e.g., their family's socioeconomic status--and thus are denied equality of opportunity. This is especially true because income inequality is self-reinforcing. Children born into poor families disportionately likely to stay poor. Hamilton et al., 2013, find that poor children in the lowest income quintile are more than ten times more likely to stay there than they are to reach the highest quintile as an adult (23).
Nobel Laureate Joe Stiglitz adds the following:
"There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth...Second, the hollowing out of the middle class since the 1970s, in a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses..Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks...Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable" (24).
Now, how does the minimum wage tie to this? Simple: it's contributed to the widening disparity in income distribution which dates by to the 1970s because it's declined in real terms. Autor et al., 2014, estimate that 30 to 50% of the growth in income inequality from 1979 to 1989 can be attributed to the falling real value of the minimum wage, and they note a still significant contribution from 1979 to 2012 (25). Note that the authors admit that these estimates are conservative, and there"s a body of literature attributing as much as 85% to 110% of the rise in inequality to the falling real value of the minimum wage.
Mishel, 2013, adds:
“A higher minimum wage wouldf help address growing inequality, particularly as it affects lower-wage women...For workers overall more than half (57.0 percent) of the increase in the 50/50 wage gap [between median-wage workers and workers at the 10th percentile in wages] from 1979 to 2009 was accounted for by the erosion of the minimum wage” (26).
IV. The MW does not kill jobs
A canard that my adversary will raise is that MW results in layoffs. Obviously that falls short in light of the evidence I presented earlier in this round, but the claim is without strong empirical backing. In fact, John Schmitt, 2013, conducted a literature review and found that the minimum wage has "no discernible effect on employment" (27). Much of this is because, per Krugman, minimum wage jobs exist in industries which are non-exportable (28). Let's explore some of the relevant literature.
Card and Krueger, 1994, looked at the 1992 rise in New Jersey’s minimum wage and found no evidence of negative employment effects (29). In fact, they found, after comparing evidence from stores in eastern Pennsylvania where the MW remained constant or to stores that were already paying near wages near the MW, that the minimum wage actually worked to increase employment. Dube et al., 2010, replicated the findings of Car and Krueger and found no negative employment effects after adjusting for spatial heterogeneity (30). Next, a meta-analysis by Doucouliagos and T. D. Stanley, 2009, looked at 64 minimum wage studies from 1972 to 2007, and found that, after adjusting for public selection bias, that the evidence is clear that the minimum wage has no effect on employment (31). Belman and Wolfson conducted a similar meta study on literature revealed since 2000 and, using 27 studies, found no statistically significant negative employment effects (32).
Now, how far could we go? Michael Reich, economist at U.C. Berkeley, finds that, “Our data show that an increase up to $13 an hour has no measurable effect on employment" (33).
I will not dispute that raising the minimum wage would increase present consumption; perhaps it would. But I would not label this as a positive effect of the policy. If anything, I would consider it to be a negative effect!
The more resources are consumed in the present, the fewer are available to be saved and invested in longer production processes. If producers detect that the market society"s overall consumption/savings ratio is tending towards more consumption, they will tend, more so than before the shift, to employ shorter, but generally less productive, production processes, over longer, generally more productive, production processes. The result will be that the economy as a whole will become less productive overall, and workers will have less productive production processes to integrate themselves within, resulting in a drop in average worker productivity and with it, a drop in average real wages.
Savings and investment, not consumption, are the driving force of economic progress, thus encouraging more consumption via policy measures should not be considered a benefit of that policy measure. I doubt that my opponent and I will see eye to eye on this, since he seems to be an adherent of Keynesian economics, whereas I am an adherent of Austrian School economics; schools of thought which have diametrically opposed views on the role of present consumption in the economy. As such, onlookers will just have to judge for themselves which theory makes the most sense.
Efficiency Wage Hypothesis
Here, my opponent claims that forcing businesses to pay higher wages to their low skilled workers via a minimum wage would actually be beneficial to these businesses, because for a number of reasons, employees that are paid higher wages work more effectively.
In response, I would ask: who would you think would be more likely to set their employees" wage closest to the profit-optimizing point, individual business owners who actually receive whatever profit their businesses make, or government legislators, who are motivated by different, mainly political, considerations? I submit that the individual business owner (or franchise owner, or shareholder operating through a corporate structure, etc") has a much greater incentive to seek out and then implement wage rates that are as close as possible to the profit-optimizing point for their employees. Compared to them, the incentive of a government legislator to do this same thing is truly minuscule; thus making the businessman a much better judge of what wage rates to pay his employees than the legislator.
Also, the minimum wage is a crude, overly standardized instrument. One single wage floor is set across the entire economy. How could this possibly be as accurate, for individual business-profitability purposes, as each individual business owner determining, based on his specialized knowledge of the particular business and psychological circumstances surrounding a particular employment relation, what wage rate would make the most business sense to pay to his various employees?
Is it possible that particular businesses might make a mistake and pay a wage rate that is sub-optimally low, which a higher minimum wage could then correct? Absolutely. But it is also possible, and far more likely, that the politicians will "make a mistake" (if this is even the goal they are aiming at, which it generally is not) and set a minimum wage that will throw a lot of wage relationships further away from the profit-optimizing rate.
Thus, if this efficiency wage hypothesis is correct, business owners will have greater incentives to implement it, and thus be the better parties to implement it, than one-size-fits-all minimum wage-setting government legislators. As such, establishing its veracity is not in fact an argument in favour of having a minimum wage.
In this section, my opponent is, unintentionally I am sure, being a bit misleading. He first talks about all the woes of increased income inequality in general, including the dreaded "hollowing out of the middle class". He then goes on to try to relate this increased general income inequality to the decline of the real minimum wage over the same time period. He uses the Autor study to claim that about:
"30 to 50% of the growth in income inequality from 1979 to 1989 can be attributed to the falling real value of the minimum wage" (ResponsiblyIrresponsible)
But what the authors actually write in their concluding section is this:
"Under our preferred model specification and estimation sample, we estimate that between 1979 and 1989, the decline in the real value of the minimum wage is responsible for 30 to 50 percent of the growth of lower tail inequality in the female, male, and pooled wage distributions (as measured by the differential between the log of the 50th and 10th percentiles)" (Autor et al., 2014, pg. 26-27)
Note that what the authors are talking about is lower tail wage inequality, not general income inequality. They are talking solely about the wage distribution between the 10th and 50th percentiles. Neither the "1%", the "rich", nor even the "upper middle class", are included in this part of the distribution, nor, it should be noted, are the unemployed. The authors are just saying that a reduced real minimum wage has contributed to a greater gap between the wages of workers receiving close to the legislated minimum wage rate and those receiving close to the median wage rate in the economy.
This finding is perfectly plausible and is probably accurate. But in this form, it doesn"t seem as bad as my opponent makes it out to be. In fact, as per my point #3 in my positive case, a greater gap between the minimum wage and the median wage could even be a good thing.
The MW does not kill jobs
Like most headlines, this one is wildly over-simplistic, as I think even my opponent would agree. Or does he really want to imply that, even if the minimum wage were raised to $100 an hour, no one at all would lose their jobs?
Also, the "does not" is a very bold choice of words, considering how divided even the empirical evidence is on this subject, not to mention the theoretical considerations militating against the statement.
To give the reader a sense of how truly divided these "reliable" empirical studies really are, I offer a review found on the Ontario Ministry of Labour"s website (Google knows I"m from Toronto):
"Based on more recent studies using US data from the 1980s and into the 1990s, the results tend to be conflicting. Some find effects within the former consensus range whereby a minimum wage increase of 10% would lead to an employment reduction of 1-3% (Neumark and Wascher 1992, 1994, 2000, Williams 1993, Williams and Mills 1998). Some find even larger negative effects (Burkhauser, Couch and Wittenburg 2000, Deere, Murphy and Welch 1995, Kim and Taylor 1995). Others find adverse employment effects that are close to zero or statistically insignificant (Card 1992a, 1992b, Card, Katz and Krueger 1994, Card and Krueger 1994, 1995 and 2000, Katz and Krueger 1992, Klerman 1992, Solon 1990, and Wellington 1991). Studies that use panel data to estimate the employment transitions of persons affected by minimum wage increases tend to find adverse employment effects that range from small (Currie and Fallick 1996, Zavodny 2000) to substantial (Abowd, Kramarz, Lemieux and Margolis 2000 and Linneman 1982)."
"In the Canadian context, researchers have generally found an adverse employment effect of raising minimum wages especially for young workers. Studies from the 1980s suggest that a 10% increase in minimum wages would result in 1%-3% reduction in employment (Swidinsky, 1980; Schaafsma & Walsh, 1983). More recent studies find larger adverse employment effects (Baker, Benjamin & Stanger, 1999; Yeun, 2003; Baker, 2005; Campolieti, Fang and Gunderson, 2005a.b.; Campolieti, Gunderson & Riddell, 2006; Sen, Rybczynski and Van De Waal, 2011). Typically those studies find that teen employment would drop by 3% - 6% if the minimum wage is raised by 10%."
So" What all this is telling us is that economic law somehow changes every time a new empirical study is done, and that economic law is particularly unfavourable to raising the minimum wage in Canada, when compared to the US, where the results are more mixed.
Or, more plausibly, what it is telling us is that flawed, non-reproducible empirical studies purporting to either prove or disprove pieces of deductive economic reasoning should be taken with a massive dose of salt.
This is unfortunate for my opponent, as this would mean that cherry picking empirical studies is not in fact sufficient to disprove crucial pieces of economic theory, such as that minimum price controls on a commodity always have the very real potential to artificially create unsold surpluses of that commodity, in this case, labour.
I’ll rebut PRO’s case and defend mine in the next round.
PRO’s remarks are nothing more than bare assertions--and he admits as much in conceding that he isn’t sure whether the MW has the effects he claims. If he isn't sure, he has a mountain to climb to prove it ought to be abolished, because in a case where it doesn't have these sorts of impacts, this boils down to a utilitarian question of whether the gains to society ought to be distributed widely or concentrated at the top, the former of which is optimal per my C3.
Second, it is true that it is difficult for models to capture causation, but this in no way invalidates these findings, particularly statistically significant conclusions based upon empirics. Correlation, modelled via regression, confirms causation: if PRO claims that the MW causes unemployment, then the MW should be correlated with higher unemployment, which shows that either one causes the other or a third factor causes both.The absence of this, as my studies show, lays waste to PRO's remarks. Empirics are necessary to explain and expound on theory.“Empirical studies of the imposition of minimum wages do more than merely illustrate economic theory; they help economists to learn which theoretically relevant factors actually matter” (1).
Also, theory may not hold up to reality. Theoretical MW analysis assumes perfect competition, rational expectations, equal bargaining power, and perfect information, none of which hold in the real world. For PRO to claim that the theory must be fact, even when empirics shows otherwise, is abusive and obviates debate. Do not allow PRO to apply a broad brush to discredit economic research. Even if models have their shortcomings, there is no reason at all to discredit them without a valid reason to do so (e.g., a flaw in the study). Further, do not accept mere generalizations, which is all PRO has offered, over facts.
PRO begins by claiming that there is a “chance” that the minimum wage will cause unemployment. He falsely claims this logic is “irrefutable.” Economic theory and knowledge is constantly updated and is never beyond scrutiny. Further, I’ve provided several meta-analyses showing the minimum wage has no discernible effect on employment, while PRO has provided no evidence. Further, PRO’s nonsensical anecdote about India is based on the flawed notion that labor costs are the single factor bearing on unemployment. I could launch a business in Somalia if I wanted, but I wouldn’t be successful. Why? Because Somalia is a poor country, and in the absence of an adequate stream of revenue from sufficient demand, I would go bankrupt. If you add in my evidence on the efficiency wage hypothesis, which would explain why an employer would be willing and in fact better off to pay higher wages, his case falls further.
His anecdote of an employer not being willing to pay above X wage is flawed. First, it presupposes that any minimum wage is necessarily above a person’s “productivity” level, or the maximum employers, per PRO’s example, would be “willing” to pay a worker, though this is far from the case. Median wages have stagnated for three decades and the real value of the MW has fallen. For the MW to have the same purchasing power today as it did in 1968, it would need to be $10.68 today (2). If we add productivity, it would be as much as $21.72 (3). It’s clear workers are being paid significantly lower than their “worth”—which by itself is artificial because labor productivity isn’t fixed, cannot be readily ascertained ex ante, and includes qualitative factors—which lends weight to Marx’s notion of surplus value, where workers require a productivity of X + Y in order to earn a wage of X (4).
The remainder of PRO’s contention hinges on the supremacy and perfection of markets and rational actors, which I have already refuted.
First, he claims that, all else equal, there’s an inverse relationship between wages and capital investment. The first thing he does wrong is using the phrase “all else equal” —that’s the basis for his entire case, and it’s patently false and not borne out by reality. Second, this relationship is completely fabricated. Higher wages tend to reflect an improving economy, more competitive job markets, and higher productivity—with these factors in mind, capital investment would tend to increase because the economy is doing well, irrespective of wage rates, because wages are procyclical (i.e., they rise as the economy does). The rest of PRO’s paragraph is non-topical. The reason that the former region he describes had an abundant supply of capital was by virtue of higher capital investment, which was a consequence of a strong labor market and strong demand. That doesn’t tie to the MW, save for the fact that the MW tends to boost consumption which may spur capital investment—so this point supports my C1. As the economy improves, demand for both capital AND labor tend to rise.
PRO then names several factors which in theory may attract capital investment, but this doesn’t tie to the MW, though he is continuously making the assumption that low wage rates spark capital investment. Again, none of his arguments are sourced.
He then makes even more incoherent, fact-free arguments. The purpose of capital investment is not necessarily to raise real wage rates, though that may be a result, but to grow business’ productive capacities. In many cases, higher productivity and productive capacity do not lead to increases in wage rates. For this, you can look at my evidence that, over the past thirty years, real wages have stagnated for most Americans and the real MW has fallen in spite of a nearly doubling of productivity. Further, you can note that in spite of productivity gains in recent years, real wages have also been stagnant since the recession, largely as a consequence of a still-weak jobs market (5)—proving my point that wages are heavily procyclical. PRO’s remarks suggest that once wages rise, capital investment falls—but when the economy is doing well, both tend to rise.
His next argument is also flawed. Again, capital investment is not a consequence of low wage rates. PRO fabricated this relationship—meaning that there is absolutely no evidence that the MW will reduce capital investment unless it materially reduces employment, and because I’m winning on that point—since I provided several studies showing no effect on employment, and an estimate that there will continue to be no effect on employment until at least the MW hits $13 an hour—I also win on this point too. Third, there is no reason to assume that capital investment spurs wage increases. Prefer my evidence on stagnant wages amid productivity gains. Third, there’s no reason to think the MW will harm capital investment. At the very least, it will have no effect, though we would tend to think that businesses would invest more in capacity as demand rises. His assertion that wages are raised in a “free market environment through capital investment” is also ahistorical, as I’ve noted already.
These remarks once again are completely off-base, and display an unfounded faith in the market mechanism which isn’t founded by reality. Again, cross-apply my evidence on stagnant wages amid a doubling of productivity over three decades—showing that, even amid significant productivity gains, wages didn’t budge. This is largely because of asymmetries of bargaining power, globalization, and imperfect markets. My points on income inequality and social mobility are also applicable here, because PRO claims that people can simply “improve their skills” and their wages will rise. First, education is extremely hard to attain and expensive for people on the bottom end of the income ladder, and results in crippling student loan debt, which has now outstripped credit card debt (6). Second, as Krugman argues, there is no perfect link between education and incomes (7). Instead, as Pikketty has argued, wage inequality is ingrained based upon the resources of one’s families, which is highly likely to persist. People borne from large amounts of inherited wealth may be able to access higher education at higher rates than people without, but there is no perfect link between higher education and higher wages—nor is there one between productivity and wages, as I’ve already noted.
Second, the remark on signaling to workers is flawed not only for the points I’ve raised earlier—imperfect markets, differentials in bargaining power, and lack of rational expectations that would drive workers to consider these signals—but also for basic labor market dynamics. Prices and wages are not perfect signals for several reasons. First, a multitude of factors bear on both, which are completely independent of worker skills—globalization, for instance, has depressed wages in much the same way that falling oil prices depress inflation and thus depress nominal wage gains. He cannot possibly tie wages or prices to one specific factor. Second, labor markets are rigid, particularly in the very short run: wages and prices tend not to move at all, particularly due to contracts fixed in nominal terms. In other words, skill preferences could conceivably change, but prevailing wages will remain the same. We cannot simply “wait for the long run” for wages and prices to become flexible, because by that time, we’re already dead. Thus, this signaling mechanism is already broken at best, if not almost entirely nonexistent.
His next remarks on dampening demand for workers “at the bottom end of the wage ladder” is unsourced and refuted by the evidence in my C4. Further, the point on “artificially high wages” has already been refuted several times over in my discussion of imperfect markets.
Con: "PRO"s remarks are nothing more than bare assertions--and he admits as much in conceding that he isn"t sure whether the MW has the effects he claims."
Brian: My opponent seems to be implying that anything said that does not reference academic studies done by people with economics PHDs is, for that reason, baseless garbage. Yet there is way more to the social sciences, including economics, than statistical studies, which aren"t actually particularly well-suited to the discipline in the first place.
Also, admitting that it is theoretically possible, though not probable, that the MW could have no negative effective on employment in a given application is in no way an admission that everything said on the subject is just a bare assertion. This is just realistic intellectual modesty. Can my opponent truly honestly state that he is sure that the MW will never have any negative effects on unemployment? If made, such a statement would simply be a revelation of hubris, rather than proof that his argument was sound.
Con: "if PRO claims that the MW causes unemployment, then the MW should be correlated with higher unemployment, which shows that either one causes the other or a third factor causes both.The absence of this, as my studies show, lays waste to PRO's remarks."
Brian: But as my rebuttal of my opponent"s point #4 in the previous round showed, there are tons of studies that correlate increases in the MW with higher unemployment. Does my opponent really mean to claim that there are no empirical studies that have ever correlated increases in the MW with higher unemployment? Such a claim would be truly outlandish, and a sign of the utmost obliviousness.
Con: "Theoretical MW analysis assumes perfect competition, rational expectations, equal bargaining power, and perfect information, none of which hold in the real world."
Brian: The analysis I presented assumes no such things. It just "assumes", if this is even the right term for it, that employers will not willingly pay more to an employee than they think he is worth to them. Perhaps some Neoclassical analysis of the MW assumes such things, but I did not present a Neoclassical analysis, so the point is moot.
Con: "Even if models have their shortcomings, there is no reason at all to discredit them without a valid reason to do so (e.g., a flaw in the study)."
Brian: Um, how about the fact that numerous studies of the same phenomenon offer wildly contradictory findings, as any cursory review of the MW empirical literature will show? Doesn"t this indicate that something may be wrong with these models?
Con: "Further, PRO"s nonsensical anecdote about India is based on the flawed notion that labor costs are the single factor bearing on unemployment."
Brian: A nonsensical anecdote about India would be: "I went to India once, and observed that every Indian person can breathe fire". A description of actual observed facts in the hotel industry in India is not "nonsensical".
Also, of course labor costs are not the single factor bearing on unemployment, but they are a factor, and I would venture to say a pretty big factor at that. Unless my opponent means to claim that labor costs have no bearing on unemployment, which would seem absurd, than the anecdote retains its utility.
Con: "It"s clear workers are being paid significantly lower than their "worth""which by itself is artificial because labor productivity isn"t fixed, cannot be readily ascertained ex ante, and includes qualitative factors"
Brian: Really? Is it clear? Than why doesn"t some entrepreneur just start a business, snatch away all the best workers by paying them closer to their true "worth", and have enough "surplus value" left over for a handsome profit for themselves?
Also, when I talked about an employee"s worth, I deliberately talked about their worth in relation to a particular employer.
All kinds of factors will influence this subjective valuation by the employer, though the most important of these will probably be the anticipated marginal value product that the employee will add to the business. I never stated that employers all know the "true worth" of every employee, whatever that means. I simply stated that employers will have a definite idea of what a particular employee is worth to them, much of which will be based on educated speculations about the uncertain future, and that if the minimum wage is higher than this, the worker will not get a job.
Con: "The first thing he does wrong is using the phrase "all else equal" "that"s the basis for his entire case, and it"s patently false and not borne out by reality."
Brian: The "all else equal" is a device used to elucidate an economic theorem, it is not supposed to be an accurate description of reality. My opponent doesn"t seem to believe in deductive economic theory, only empirical statistical studies, which explains his confusion.
Con: "In many cases, higher productivity and productive capacity do not lead to increases in wage rates. For this, you can look at my evidence that, over the past thirty years, real wages have stagnated for most Americans and the real MW has fallen in spite of a nearly doubling of productivity."
Brian: Ah, the real wage/productivity gap. There are a number of explanations for this, including: 1. The data compares total economy real wages to non-farm business employee productivity. But not all employees are in the non-farm business sector, thus why would we expect the two figures to correlate extremely well? Specifically, as government has continued to grow, there are more public sector wages to pay based on this private sector productivity, which would cause the gap between the two figures to grow bigger.
2. Non-wage employment benefits are not included in the wage figures, but employers must pay them out of the employee"s productivity all the same. These benefits have steadily increased, causing the gap to grow bigger.
3. Increased money-printing by the government usually artificially results in higher profits for businesses, and less of a share going to workers, whose real wages are constantly reduced via inflation. This explains some more of the gap.
4. Perhaps employers in industries who have not experienced much of the increase in productivity increasingly don"t have to directly compete for employees with the increased productivity domestic industries, which is the source of increased wages via productivity in these kinds of industries. Shifts in the relative value of low skilled and high skilled labor, as well as globalization, could both be causes of this.
In general, these real wage versus productivity figures are way too aggregated and generalized. For determining wage rates, what matters is the individual employer"s evaluation of the worth of the individual employer, not giant aggregates.
Con: " PRO fabricated this relationship"meaning that there is absolutely no evidence that the MW will reduce capital investment"
Brian: Generally speaking, common sense does not need to be supported by academic studies. If we assume that capitalists are looking for the highest return on their investment, which is not a heroic assumption at all, then we can confidently state that, other things equal, they will prefer paying lower wages to their employees for the same work. Thus, if the MW forces them to pay higher wages to these same employees to do the same work, they will be less happy about their investment. The less happy capitalists expect to be about their investment in a particular region, the more likely they will be to invest elsewhere. This is pretty basic stuff; I think the statisticians have better things to do with their time than to try to "prove" this.
Con: "First, education is extremely hard to attain and expensive for people on the bottom end of the income ladder, and results in crippling student loan debt, which has now outstripped credit card debt (6). Second, as Krugman argues, there is no perfect link between education and incomes (7)."
Brian: Firstly, if the education were worthwhile and cost-effective (which more of it would be if the government didn"t keep screwing up the education market, which is a topic for another time), than the student debt needed to pursue it could be paid off with part of the differential between the lower income and the higher income that the education would make possible.
Secondly, I never posited a "perfect link" between education and income, in fact I would be stunned if there was, given the many other important factors in any employment relationship. But the fact is that there are a number of skills that most people can successfully learn via educational training, and those that can should be encouraged as much as possible to learn the skills that the consumers on the market find useful.
Con: "Prices and wages are not perfect signals for several reasons."
Brian: Again, who"s talking about perfection? Does everything worth advocating have to be "perfect"? Contrary to popular belief, pointing out that some aspect of the free-market isn"t "perfect", is not a valid reason for rejecting that aspect in its entirety, nor for downplaying its very real, though "imperfect", benefits. What matters is whether the free-market or the government can do a better job at a particular task. Here, either we leave workers free to respond to free-market wage signals, or the government tells them where they should work. How else could the workforce be organized? I think the former is much better than the latter, and while it is not "perfect", it is a heck of a lot less "imperfect" than the governmental alternative.
In sum, we should abolish the minimum wage: stop messing with the delicate price mechanism of the free-market and find a less ham-fisted way of helping out lower income people (such as subsidizing them with transfer payments).
Thanks to PRO for this debate. Per our structure, I'm now going to defend my case without address his counter-rebuttals.
Overview: You're voting CON because none of PRO's arguments have held up, whereas mine has. In fact, he conceded in his round on inequality, the efficiency wage hypothesis, and on consumption--which also means he concedes on employment. There was evidence only in my case, and nothing PRO provided could match my impacts.
PRO begins by conceding that the minimum wage could boost consumption. This not only bolsters the impacts in my C1 from the CBO study--$31 billion in new income--and from the Aaronson and French study--$48 billion in new spending--as well as the Aaronson et al. study--$700 per quarter for households with MW workers--but also amounts to a concession on unemployment. If the MW induced unemployment, as PRO claims, it would lead to a decline in consumption. If the MW spurs consumption, it must have had either no net effect on employment or a positive effect on employment. Per my analysis last round, this also results in me winning on capital investment. Therefore, you're voting CON on these points.
He then contends that this is actually a *bad* thing. because "fewer resources will be saved and invested in longer production processes." This is patently false not only because he shows no evidence, but also because economies--paritcularly the U.S. economy right now--operate significantly below capacity. Insufficient aggregate demand, which was the cause of the recession of 2007-09, leads to less labor being utilized and thus less capital investment. The result is idle resources, underutilized capacity, and eventually a decline in worker's skills which makes those individuals virtually unemployable and works to reduce labor productivity, which lowers long-run trend GDP growth. In other words, demand-side problems can in fact cause supply-side problems. In other words, insufficient demand can in fact lead to fewer resources for savings and investments and fewer productive outlets. Without adequate consumption, you don't have savings or investment because the economy will be underutilized.
His claim that savings and investmenr are the driving force of economic progress are wrong for a few reasons. First, consumption is 70% of the U.S. economy, whereas investment is only 11 percent (1). Second, investment is the most volatile portion of GDP, which is why consumption tends to drive most economic recoveries. Third, PRO's endorsement of the Austrian school runs counter to recent economic data. Per their analysis, recessions result not from insufficient demand, but from a maladption of resources, meaning that high unemployment should be accompanied by high inflation. But headline measures of inflations are hovering below 1 percent--far below target--even as the economy picks up steam (2), showing that demand is a driving factor of inflation, and is insufficient as present. Because of this, boosting consumption would be beneficial to the U.S. economy, which is precisely what the MW does.
Efficiency Wage Hypothesis
PRO says that I made a *claim* about the MW benefitting businesss, when in fact I provided a significant amount of evidence for every argument I made. You'll note that he never once disputed a single study I provided, which noted that the costs of raising wages would be offset by gains in productivity, reductions in labor turnover, drawing in of better workers, improved employee discipline, and more. This also boosts my unempoyment contention because it lays waste to the argument that increase costs to business would spur layoffs.
PRO does nothing more in response to this contention than argue that, if this held, businesses would see it and raise wages. This is undermined by my earlier remarks on imperfect markets, imperfect information, and lack of rational expectations, which PRO drops. As I noted earlier, businesses were able to profit substantially over the past three decades with flat wages--which by themselves gives them little incentive to implement it, especially because they don't have perfect knowledge that X wage leads to Y productivity. The point is they would've done better, and the gains would've been more broadly distributed, had they done so in the context of higher wages.
His arguments on politicians "making a mistake" is non-topical, because I'm not advocating for a bloated $100 minimum wage. In fact, this resolution only requires me to argue for some minimum wage which can at least partially compensate for wage differentials because employers will not pay workers "what they are worth," and those theoretical values upon which PRO's case is predicated are artificial and intangible by nature. The "profit-optimizing rate" he speaks of is nothing more than an arbitrary theory in microeconomics, but the truth is no one knows precisely where that point is. Even in a basic monopsony model a MW actually increases employment (3).
PRO claims that my use of the Autor et al. study is misleading, but this also isn't true. The inequaliy we're discussing with respect to the MW is inequality amongst low-wage workers. The number I cited, he rightly notes, does show lower-tale inequality, which only bolsters my case further because if we were actually to compare wage rates to the "top 1 percent," the disparity would be far greater. In fact, in 1981 the ratio of CEO pay to average wages was 42 times, but now it's over 380 times (4). My points, then, completely stand: inequality has been increasing from the late 1970s on, largely due to Reagan's policies (which PRO dropped), and even though the real value of the MW has fallen significantly, incomes at the top of the income spectrum have increased rapidly.
PRO concedes that this is the case, but claims it's a good thing. In the process, he completely drops all of the evidence I provided from Joseph Stiglitz: this spurs boom-and-bust cycles which result in recessions, dampens consumption, prevents the middle class from investing in their future and thus eroding social mobility, and holds back tax receipts. All of these impacts are uncontested, and far outweight any of PRO's. PRO's C3 was already refuted by my remarks regarding imperfect markets, and borne out by his concession that the MW would boost consumption, which is predicated on my evidence in my C1 showing that low-wage workers are more likely to spend any additional dollar they earn.
PRO starts with the classic strawman: "Why don't you raise it to $100 an hour?" Never once did I advocate that, nor does the existence of the minimum wage rely on the ability to sustain such an exorbitant figure.
There are several reasons you're preferring my evidence on employment. First, PRO only cites a single literature review on studies conducted in Canada. He doesn't provide links to these studies or any analysis of their findings, so we cannot access them. Second, he waited until his last round that I'm able to respond to post these studies, instead of posting them in his opening case, which is inherently unfair to me--especially because he only needs to copy and paste a list of studies without expounding upon their individual significance as I've done with mine. Third, I've provided several meta studies from Doucouliagos and T.D. Stanley and Wolfson and Belman, the former of which looked at 64 studies and the latter of which looked at 27. None of PRO's studies are meta-analyses, and many of them--such as Currie and Fallick, 1996 (5)--only address a limited period of time. That study in particular only looks at 1979 to 1980, which is hardly a representative sample of the MW data, which has been available since the 1930s. Fourth, none of his studies provide--or at least he has not told us whether any of them provide--analysis of any of the past literature. The first meta study I pointed to points out that much of the literature claiming that there are negative employment effects of the MW are subject to public selection bias and, upon removing that, we find that there are no net effects on employment. The study I cited from Dube et al. finds that, after accounting for spatial heterogeneity, they find that the MW doens't impact employment. Further, Dube's study confirmed research by Card and Krueger. None of the gibberish that PRO copy and pastes does a thing to assess existing literature. And, finally, PRO's studies are generally extremely outdated, most of them dating back to the 1980s and 1990s. The meta study from Wolfson and Belman uses post-2000 literature, so I urge you to prefer that.
Further, PRO's own review concedes that there are larger employment effects when MW increases are faster and larger. This is not a case against the MW, especially because the prevailng proposal in the U.S. is a modest, gradual increase in the MW over the course of three years.
Finally, even the case of what actually took place in Canada doesn't bear our what PRO claims it does. Canada raised its MW 25% in 2014 and its unemployment actually fell, and there's a similar case in British Columbia (6).
Ultimately, you should prefer my studies, but even if you don't buy those and believe PRO that the studies are ambiguous, you're voting CON because PRO has conceded on consumption, income inequality, and the efficiency wage hypothesis, and by winning on those, I've also won on employment and capital investment. Further, I thoroughly refuted PRO's remarks by critiquing, and providing hard evidence, of the imperfection of the market mechanism and of individuals, who are not rational actors. I even provided a framework last round--which was dropped--that even if you are uncertain about the outcome of this debate from the evidence, you should side with raising the MW anyway because it's the utilitarian solution.
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|Who won the debate:||-|