Re: Help with a Minimum Wage Model

From: Rafal Smigrodzki (rafal@smigrodzki.org)
Date: Sat Apr 05 2003 - 21:06:06 MST

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    ----- Original Message -----
    From: "Lee Corbin" <lcorbin@tsoft.com>
    To: <extropians@extropy.org>
    Sent: Wednesday, April 02, 2003 4:53 AM
    Subject: Help with a Minimum Wage Model

    > 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.
    >
    > It's only with these assumptions that I can see how minimum
    > wage laws help the poor.

    ### A minimal wage law is an attempt to do good with other people's money -
    the legislator (and the voter who elected him on the basis of a promise to
    enact the law) are attempting to effect a transfer of funds to poor people,
    without directly giving up a part of their own income, merely by restricting
    the ability of others to enter into contracts. The employer, and,
    indirectly, his customers are asked to defray the cost out of the funds
    available to them. As usual with such schemes, those who are burdened so,
    will attempt to reduce the payout, e.g. by substituting mechanized labor,
    stopping to patronize businesses which have to increase prices to comply
    with the transfer demands, and the total amount redistributed to the poor
    will be greatly reduced. Demand for services will be reduced, meaning that
    the persons who give up the use of services, like dog grooming, maid
    service, due to increased prices, will experience diminished utility. The
    diminished demand for services will reduce the number of employed,
    increasing either crime or taxes needed to support them (usually both). An
    increase in crime and taxes will further diminish the efficiency of the
    system, meaning lower wages, and more workers falling beneath the minimum
    wage, closing the vicious circle. This should be the case even in the
    artificial situation of fixed N and M.

    Generally, trying to do good with other people's money is a bad idea.
    Helping the poor can be achieved by less dishonest means, such as offering
    employers subsidies to hire workers, e.g., by matching every 1$/hour in
    wages
    paid with 1$ in subsidy, up to a stated minimum. This will not induce a
    shift to
    mechanized labor (which otherwise would occur specifically in the industries
     most likely to employ the poor) keeping the pool of available workplaces
    almost intact. Users of services provided by the poor would no longer be
    specifically targeted to support the poor, meaning that they would be more
    likely
     to be able to afford such services, and experience the utility derived from
    using them.
    If financed by a flat tax, this would mean that all citizens (=all voters +
    all politicians
    + all employers + all higher-income workers) would contribute to the
    survival of
    the poor, in accordance with the duty of basic solidarity, which most of us
    recognize as having, but many of us try to avoid paying for by demanding
    minimal wage laws.

    Rafal



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