From: Lee Corbin (lcorbin@tsoft.com)
Date: Sun Apr 06 2003 - 22:54:14 MDT
Damien S. writes
> 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 know some economists have done stuff like this already. I have a vague
> memory of the mechanism being something like
>
> * raising minimum wage gives more money to workers, possibly unemploying some
> * but workers spend the money they get, vs. the rich people the money was taken
> from who saved most of it
> * so demand increases, calling for more workers to be employed to satisfy
> demand.
A good, more plausible but perhaps questionable assumptions, thanks.
4. Saving money, especially by the rich, has no salutary side-effects
Another interesting assumption that seems to be embedded here is
a complex dynamic model of an economy in which there is a "maximum"
or maximally beneficial level at which "churning" can take place:
that is, people are paid more than their work would normally command
but that unnatural stimulus far from having a distorting or adverse
effect actually circularly creates wealth. This might not be too
dissimilar from the government just calling in one of the old dollars
and replacing it with two of the new ones, or inflating the economy.
Whatever its (dubious) plausibility, this scheme also suffers from
reductio ad absurdum: why not just pass a law that causes the workers
to be paid a ridiculously high wage, with the understanding that they'll
just really go out and spend it all back into the economy?
> Another angle might be to throw out the assumption of a perfect market. The
> whole thing of equilibrium price and minimum wage being a price floor above
> that comes out of models of perfectly competitive markets, at least in simple
> analyses. But if employers are an oligopoly -- market power and all that --
> raising the legal wage might just shift some of the profits to the workers,
> without causing unemployment.
Good.
5. The number of employers and number of jobs are fixed.
This is a little similar to #2 and #3 below, but in some
historical cases, actually obtains, I think.
> I don't claim that's a solid idea, just an angle I can think
> of. Hopefully I'll stay out of arguments about this, since
> there's real literature I haven't read on the subject.
Yes, well, thanks anyway. Like I said before, I'm trying
to figure out the most plausible set of assumptions held
by people who favor the existence of minimum-wage laws.
Here is the current set:
1. Higher minimum wage does not eliminate the existence of
jobs due to advances in technology.
2. There is no supply and demand relationship affecting the
value of worker efforts, (and hence their retainability).
3. Jobs are givens: in black and white terms, society needs
to perform and will perform a job X, or it will not.
4. Saving money, especially by the rich, has no salutary
side-effects.
5. The number of employers and number of jobs are fixed.
Lee
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