From: Hal Finney (hal@finney.org)
Date: Sat Apr 05 2003 - 17:27:01 MST
Lee Corbin writes:
> I would like some help with a model in which minimum wage
> laws would have a positive effect on the wealth of, if not
> society, then the lowest wage earners.
>
> I posit N entrepreneurs in country X where there exist M >> N
> (that is, M much greater than N) low-level workers. In order
> to become wealthy, an entrepreneur must enlist the aid of
> workers in his enterprise. Only entrepreneurs and workers
> exist.
>
> Now it seems to me that if the numbers N and M are fixed
> (i.e., no worker may become an entrepreneur) and M is larger
> than the number of workers H that the entrepreneurs can
> possibly use, then a minimum wage causes H people to
> receive more money than the H workers would receive
> otherwise, supposing also that at least M-H workers receive
> nothing in every case.
I think the issue in this kind of analysis is how the number of employed
low-level workers, which you don't have a letter for but I will call E,
varies with the minimum wage. Generally, with a higher minimum wage there
will be fewer workers employed, but the details of that generalization
will depend very much on the specifics of the case.
With a low or no minimum wage, E would be at its maximum, which
corresponds to what I think you mean by H, "the number of workers H that
the entrepreneurs can possibly use".
With a higher minimum wage, there would probably be fewer people employed,
for several reasons: there may be some substitutability between people and
technology, so if people get more expensive, some work tasks will shift
to technology; expenses to produce products will be higher, so there
will tend to be fewer products consumed and so fewer people employed;
and some tasks just can't be done economically above a certain price,
so those jobs will be eliminated if the minimum wage is above that price.
However, the degree of decrease in E as the minimum wage rises will
depend very much on the particulars. In some cases, the factors above
may not be very significant. There may not be technology to replace
the workers, and the product produced may have a high demand even if
its price increases, so there could still be high employment of workers
even with a high minimum wage. In that case the minimum wage increase
would shift a higher portion of total income into the workers' pockets.
In other cases, increasing the minimum wage will end up hurting the low
paid workers by reducing employment.
I'm not sure how significant a factor it is whether workers can become
entrepreneurs. I suppose that if the minimum wage is a net positive
to workers, then they would be less likely to take the risk of trying
to become entrepreneurs, while a minimum wage that hurts them would
encourage them to take the leap.
Hal
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