Now that the Democrats are poised to take over Congress in January, a minimum wage increase is all but certain. It's commonly thought that this is a great thing. But an elementary knowledge of economics tell us that when the cost of something goes up, demand for it goes down. This applies to labor, just like everything else.

Here's a simple explanation:
Classical economics teaches that for a given job, there is a market-clearing price--the price at which both someone is willing to do it and someone else is willing to pay them to do it. If you raise the legal minimum above that price, you may get more people willing to perform the job, but you'll probably also get less people (employers) willing to pay the new, higher price to get the job done.

To picture how this works, think about the grocery bagger in the supermarket, a classic low-wage service job. Supermarkets hire grocery baggers for the minimum wage, or close to it, because it's a perk that makes their customers' experience a bit nicer and helps move the lines along, possibly requiring fewer cashiers, who cost more to hire than grocery baggers.

Now, if you pass a law saying everyone, including grocery baggers, has to be paid $10 an hour, what happens? The supermarket probably hires fewer baggers, or has them work fewer hours. Perhaps they decide they only need baggers between 4 p.m. and 7 p.m. If you put the minimum wage up to $20 an hour, shoppers bag their own groceries. This is so clear that it's taken some time for the defenders of an ever-rising minimum wage to come up with an adequate theory to obscure it.
Advocates of minimum wage increases are fond of pointing out that "you can't feed a family on minimum wage". Well:
Most jobs do not involve bagging groceries. But most jobs don't pay the minimum wage. The Bureau of Labor Statistics puts the number of minimum-wage earners at 2% of the work force. The majority of these are under 25 years old and single. Minimum-wage jobs also tend to have higher turnover.
http://www.opinionjournal.com/weekend/hottopic/?id=110009232

And this will make illegal immigrants even more attractive for businesses.

But an elementary knowledge of economics tell us that when the cost of something goes up, demand for it goes down. This applies to labor, just like everything else.
Hmm. Yet I doubt there's been a single day in my entire middle-aged life that there hasn't been hundreds of minimum wage jobs available within a 10-mile radius of me.

You've been drinking the Republican punch too long. When the minimum wage is optimally raised, jobs are not lost on average because businesses can still maximize their profit with the same number of employees.

Suppose you are a business owner with 10 employees paid minimum wage and a profit of $100K per year. Then the minimum wage is about to be raised. You analyze the situation and determine the number of employees that yields the maximum profit is still 10, only now the profit is $90K per year. What are you going to do? First you will declare to anyone who will listen that you're going to have to lay off workers thanks to the pinkos in Congress. Then you'll suck it up and keep all 10 employees.

The real effect of an increase in the minimum wage is to increase the wages of almost everyone at the expense of the wealthy.

Suppose you are a business owner with 10 employees paid minimum wage and a profit of $100K per year. Then the minimum wage is about to be raised. You analyze the situation and determine the number of employees that yields the maximum profit is still 10, only now the profit is $90K per year. What are you going to do? First you will declare to anyone who will listen that you're going to have to lay off workers thanks to the pinkos in Congress. Then you'll suck it up and keep all 10 employees.

And how does one compute the number of employees that yield maximum profit? You don't. You fire one employee and make the others work harder so you can, hopefully, make up for the increased cost.

Again, if something costs more, you use less of it. It's not that complicated.

But an elementary knowledge of economics tell us that when the cost of something goes up, demand for it goes down.

Elementary knowledge of economics also tells us that companies operating in a competitive, free market don't make profits.

And how does one compute the number of employees that yield maximum profit? You don't. You fire one employee and make the others work harder so you can, hopefully, make up for the increased cost.
Then some employees may quit, making it apparent that the maximum profit was yielded by firing no one. It works both ways.

Again, if something costs more, you use less of it. It's not that complicated.
Nor is it that simple. Houses have doubled in price in my area in the last 10 years, well beyond wage increases. Are people buying less houses now versus 10 years ago? Nope. They still have to have a place to live. And businesses still seek to maximize profit after the minimum wage is increased.

Then some employees may quit, making it apparent that the maximum profit was yielded by firing no one. It works both ways. Indeed. Minimum wage goes up, some employees get fired. Others, forced to work harder, quit. The level of service goes down. Custumers notice. The business goes belly up. Everyone's out of work. Nice move, Nancy Pelosi.

I live in the state with the highest minimum wage. My state has among the best economies of all the states. There are always tons of jobs available. A highly skilled worker here can make over $100K per year and even those jobs are plentiful. We don't even have a state income tax, and we've been governed by Democrats for decades.

The 70% Republican state I moved from, which met only the federally mandated minimum wage and busted the unions, was like your scenario. A highly skilled worker there might get $20 an hour, if work can be found at all. The state income tax is 7%.

You believe just want the Republicans want you to believe, so the wealthy can get wealthier.

Indeed, it would be disasterous to the economy if the minimum wage were ever increasing, but it doesn't. It only rises in small increments in proportion to the minimum needs of the unskilled worker.

If these jobs are only 2% of the work force, the impact of small mandatory increases will be minimal.

The new generation that represents the future workforce is full of lazy CoolSkills and anarchist bumgartens anyway. We don't need as many jobs.

The interesting thing is that over here in the UK, they have raised the minimum wage several times in the past 10 years (Its the only thing that Tony blair has done that I have any sympathy for). Currently there are so many jobs around that we have imported hal f amillion Eastern Europeans to fill them.
So, what you think is logical is not necessarily correct.
http://news.bbc.co.uk/1/hi/uk/5396110.stm
minimum wage going up.

I saw on TV about a guy that owns a few businesses that have a handful of positions at minimum wage. He said it wouldn't be right for him to get rid of some of his employees to keep costs the same. He did say, however, that as workers leave, he will be less likely to fill that position.

So, if he has 10 MW employees.. and 6 months from the raise, 3 leave... he might not rehire anyone to take these positions.

So, in the long run... 3 lost jobs.

Yes, there is an optimum workforce, but an employer can only support so close to it given what capital they have at one time. Here's an example (with the numbers chosen only for simplicity):

A company has 100 minimum wage employees at 4 dollars an hour, and the owner of the company earns 100k a year. All of the other money (besides the employer's 100k) goes to employee wages, overhead, materials cost, marketing, or is reinvested in some way (like buying more marketing for the business or building up the product line) to expand the business. Now, minimum wage is raised to five dollars an hour. This means that the cost of running the business is raised by 200,000 dollars a year (given 1 extra dollar per hour, 40 hours a week, and let's say 50 weeks a year for 100 people). Each employee working 40 hours a week, 50 weeks a year will make 10,000 dollars a year. So what will probably happen, because of the 200k extra cost a year, is that marketing/expanding the product line cost might go down by 100,000 dollars, and then 10 employees will be fired. This is not because the optimum workforce has changed, but because the employer no longer has the capital to support the optimum workforce.

guthrie: I find what you said very interesting. Perhaps jobs are just expanding in spite of the raised minimum wage? Or could you explain economically how that happens? I'd be very curious to see an explanation for it.

Anyway, of course the standard of living for those still employed goes up (although less than you might think because workforce is lost, production goes down, and the general supply of goods drops), but it does make sense that it would cost some jobs.

Also: it says that any person whose best labor is not worth minimum wage (of whom I know a couple personally) is incapable of getting a job. I have a friend who, though he's an interesting character, I would not pay more than 4 dollars an hour to do anything he would be capable of doing. Minimum wage obviously being above this, he can't get a job. Of course, the government eventually made it up to him by giving him money for not working at all, but it would certainly be nice if he was given the opportunity to contribute SOMETHING, however trivial, toward the economy.

So, if he has 10 MW employees.. and 6 months from the raise, 3 leave... he might not rehire anyone to take these positions.

So, in the long run... 3 lost jobs.
Actions over words. Watch what he really does. Many employers will say this, but in practice they'll keep the same number of employees because they still maximize their profit that way. Likely this employer wants to scare the public but not scare his current employees.

I really think everyone needs to honestly look at this scenerio. Someone on the forums mentioned even if jobs are lost what does it matter if the wages being made aren't enough to live on? I don't know about you guys but if people lost jobs that were so low paying I don't think they'd really care, nor would I.

Money isn't the problem, the issue is reality. What we see is companies thinking so little of those working for them they can't see even raising pay 1 dollar let alone a few. If the business can't afford to pay the employees a proper wage then it deserves to be closed down.

I have no sympathy for pathetic companies with so little understanding of financial systems they can't afford to pay people a descent living wage. Think of this, if Microsoft began cutting pay by 1/2 they'd double the amount of jobs they could open to the public, yet if no one feels it's enough to live on then who the hell cares?!

With the logic presented here having a company with 100 employees paying them .50 cents is better then having 10 employees making 11 an hour. That's just not reasonable in my opinion. With the cost of survival going up it seems to me there is a line being drawn, one between workers and the business's.

In the future I believe there will be a very large economic failing in the USA due to it's inability to reason things out fairly. When that happens they'll scream "the workers want to much money" but it won't help, they're the ones that can't manage things not the employees.

I'm gonna go throw up now because this entire topic makes me sick.

I'm gonna go throw up now because this entire topic makes me sick.

just think if minimum wage were 1\2 what it is now you could hire someone to clean your puke full time...imagine how happy someone would be that you were so nice as to give them a job.

If that makes someone happy then this world is even sicker then I thought. Work should be at least descent and something worth doing, I couldn't consiously pay anyone to clean up a mess I made, it just feels wrong.

I think the USA really needs to stop it's whining about jobs and start thinking.

dude it was a JOKE...I think everyone should be paid more.

A joke?? A joke! You little piece of......... LOL nevermind I'm messing.

Yeah so umm it's funny I was just a little touchy considering how annoyed these big companies make me with their whining blah blah "I don't have enough money to pay you" blah blah. They're stupid and if they can't pay workers I'd rather see them burn in the deepest pits of hell until Microsoft takes over the world!

"With the logic presented here having a company with 100 employees paying them .50 cents is better then having 10 employees making 11 an hour. That's just not reasonable in my opinion."

In my opinion, it isn't a matter of getting the most pay or the most jobs, but about having as many people have fair pay as possible. I don't think making an employer pay a certain amount is fair, just like making the employee labor overtime for no compensation is unfair. In my opinion, "fair" is only DEFINABLE by what both parties agree to, although that may not end up being ideal (because "fair" is such an arbitrary term). Anyway, it's better that the employees get a right wage than more employees get any wage. But forbidding an employer to pay less than a certain amount for ANY job is not right.