Minimum Wage and Poverty

There is a strange argument that is often put forth when discussing minimum wage, namely that eliminating the minimum wage would result in falling wages.  Allusions to slavery are often made.  Allow me to quote the ever-hilarious Robert Reich:

Now….there is a certain diabolical logic to [eliminating minimum wage]. Maybe, if we were willing to all work for a nickel or a penny, perhaps we would all have jobs. In fact, slavery was a full employment system.

Do you see the absurdity…To assume that the goal is just to get jobs by keeping wages down completely puts logic on its head.

(By the way, this video is certainly another case for a Reich v. Reich post since here he admits higher wages cost jobs but in his minimum wage video of the other day, he staunchly denies such reality).

Reich (and others) seem to think that wages are kept high only because of minimum wage.  Interestingly enough, there is no evidence to suggest this is true.  According to the BLS, just 3.9% of hourly workers earn minimum wage or less.  That’s about 2.6% of the total employed labor force.  Not a big number.  In order for Reich’s assertion to be correct, those working at or near minimum wage would have to be much closer to 100%.  Workers are paid according to the value they add to the firm.  If minimum wage were eliminated, it is not likely many, if anyone, would face pay cuts.  However, those who aren’t allowed to join the labor force now because they are priced out would have an easier time finding jobs.

15 thoughts on “Minimum Wage and Poverty

  1. Workers are paid by a combination of value to a firm and the availability of labor. If my job brings in $100 of value per hour to a company, the company might be willing to pay me up to $50. If one person is available for that job the company will give salary of $50. If 100 people apply for the job, the company could probably get away with paying $10, but would also then consider hiring more people.

    Good example would be airline stewards(stewardesses) The job is considered a glamor job that lots of people want,.so airlines pay less.

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  2. Okay. We get it! Robert Reich = Bad

    I understand that you are educating us on the faults of his arguments, but it’s been four posts in a row now. It’s getting a bit much.

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    • Albert, you understand, don’t you, that you are welcome to ignore Jon’s comments if you find them troublesome, right?

      You may be looking a zombie gift horse in the mouth.

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      • He is, of course, welcome to comment however he wishes (as long as it’s respectful) and perhaps I am overusing Reich to show the common economic mistakes people make, but I’d rather be remembered for the economic content rather than who I chose to use as an example.

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      • Jon

        If you need another example, you can quote me as saying: “Minimum wage hurts low skilled workers by pricing some of them out of the market.” 🙂

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        • Nah. I found when I didn’t quote people, I was accused of attacking strawman. When I do quote, I’m accused of putting politics ahead of economics. It’s a no win

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      • Jon:

        “perhaps I am overusing Reich to show the common economic mistakes people make, but I’d rather be remembered for the economic content rather than who I chose to use as an example.”

        That’s exactly what I am saying. When one frequently criticizes a specific entity it comes off more like a personal crusade to discredit said entity than it does an economic argument.

        If you want to be remembered for your economic contributions and avoid criticism of being overtly political, it’s better to spend more time developing your own arguments and less time tearing down the ideas of others.

        Let the fools (whether it be Reich or liberals or someone else) incriminate themselves!

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  3. I was amazed at some of the comments in response to Reich’s supposed zinger video. Some folks seem to accept without question that people would actually go to work for a nickel or penny an hour if it was offered.

    Let’s see: $2/week (or 40 cents): Can I live on that? No. My time would would be better used searching for wild fruits and berries, digging up roots, and killing small animals with my bare hands. Or better yet, dumpster diving behind McDonalds.

    There is some minimum market wage below which EVERY person would be better off doing something else, so NO ONE would work for less than that min wage.

    Slavery isn’t free labor. Slaves must be fed, clothed, housed, etc. there is some subsistence wage they must be “paid”. Surely Reich knows these things, even if those who like his snappy presentation don’t.

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