The Minimum Wage

1. Contrary to Pro’s claims, I never said that there is a fixed, hard and fast marginal productivity for each worker, or that other factors, such as efficiency or cost of materials, do not affect the output of workers. I merely claim that the labor of workers produces some amount of value for their employers. It can vary from job to job, depending on type of job, capital (machines and such, not capital as in money), and many other factors. It doesn’t matter whether a worker’s marginal productivity varies, all that matters is that the worker’s labor brings some value to the employer. In addition, Pro misrepresents his own source regarding wages and productivity. He claims that Locke’s research showed that higher wages increased productivity. What his source actually says is that when offered financial incentives for higher productivity, workers worked harder and were more productive. [1] So higher wages followed productivity, not the other way around—which helps prove my point. 2. Pro fails to refute my argument about the profitability of industries employing low-wage workers. I do not ignore factors such as technology and efficiency. If an industry is more efficient and advanced than others, and that makes its average profits higher, then investors will invest in that industry too. That doesn’t refute my point that if unskilled workers were paid significantly below their marginal productivity, industries employing those workers would be very profitable, and they would therefore attract investors, increasing the demand for unskilled workers, raising wages, and thus decreasing the profitability of those industries to the common level among a country. If they aren’t more profitable than other industries, then an artificial wage increase decreasing their profits would have the reverse affect, driving investors away from those industries, and reducing the demand for unskilled workers. Pro’s example of workers being paid $2 an hour to make $800 shoes in no way disproves my claim that workers are paid close to their marginal productivity. $800 shoes do not cost that much because there’s 40x more physical labor put into them than $20 shoes, they’re more expensive because of superior materials and design. Because it is those things that make the shoes worth that much more, it is those things that have the high marginal productivity in that situation. 3. Again, Pro misunderstood his source from part 1, so this point fails. In addition, even if it were the other way around, and wage increases did lead to productivity increases, that wouldn’t prove the minimum wage works, unless you first assume that the minimum wage increases wages, which is what Pro is trying to prove. 4. And I find the idea that a minimum wage won’t be set above marginal productivity unrealistic, as there are so many different workers with so many different marginal productivities. It will surely be set below the marginal productivity of many, who thus won’t be affected by it, but it is certainly set above the marginal productivity of many others. Pro then asserts that he thinks any well-run business should be able to get enough productivity from their workers to justify paying them at least minimum wage. As I don’t see how Pro could possibly know this, and he provides no support for this opinion, this point should be disregarded. 5.While it may be true that businesses could fire supervisory and managerial staff, rather than low-wage workers, there’s no reason to think they will. Even if it were the case that those people are greatly overpaid, business owners obviously believe that they’re worth the money. Even if they aren’t (which I think is probably not true—a business owner is much more likely to understand his business and his employees than someone who doesn’t know anything about the business, like my opponent), the fact that business owners think they are means that they won’t fire them first. Just as Pro claims we aren’t working within the framework of my perfectly free-market ideal, we also aren’t working in Pro’s socialist utopia either—we’re talking about the world as it currently is. 6. Contrary to Pro’s claim, 6 does logically follow from the premises. If the premises are correct, then they show that a minimum wage set below marginal productivity does nothing, and one set above it unemploys the workers it affects—thus, the only affect a minimum wage can have is to cause unemployment. Empirical Evidence: Pro seems to misunderstand the state-by-state minimum wage map. While it is true that there is no state minimum wage law in the states he mentioned, they still have to obey the federal minimum wage law—a proper comparison would be green states from the map (higher than the federal minimum wage) to all of the blue, red, and yellow states (because states with no minimum wage, one lower than the federal one, or one equal to the federal one will all have the same minimum wage law—the federal one). If you compare the average from the states (plus DC) with a minimum wage higher than the federal one to those who only obey the federal one, you get an average unemployment rate of 9.34% for the 1st group and an average of 7.88% for the 2nd group (according to Pro’s sources). [2] [3] Pro then cites the famous Card and Krueger study, which has been widely discredited by serious economists for its lack of statistical rigor. They used telephone surveys to measure unemployment, rather than actual payroll data—and when others looked at the same data set, but with all of the data, rather than just telephone surveys, they found that Card and Krueger’s findings were wrong, and the minimum wage increase did increase unemployment in the area they studied. [4] [5] There is a mountain of empirical evidence showing that the minimum wage increases unemployment [6] [7] [8], particularly among teenagers [9] [10] [11]. Pro has also failed to provide any actual evidence that a minimum wage increases wages. [1] http://www.nbrii.com... [2] http://en.wikipedia.org... [3] http://en.wikipedia.org... [4] Neumark, David and William Wascher, "The Effect of New Jersey's Minimum Wage Increase on Fast-Food Employment: A Reevaluation Using Payroll Records." American Economic Review, Vol. 90, No. 5 (December), pp. 1362–96. [5] http://epionline.org... [6] "Recent Department of Labor Studies of Minimum Wage Effects." George Macesich; Charles T. Stewart, Jr. Southern Economic Journal V26, N4 (Apr., 1960), pp. 281–290 http://www.jstor.org... [7] "The Marginal Productivity Theory of Wages and Disguised Unemployment." Dipak Mazumdar The Review of Economic Studies V26 N3 (Jun., 1959), pp. 190–197 [8] “The Economics of Minimum Wage Legislation." George J. Stigler The American Economic ReviewV36 N3 (Jun., 1946), pp. 358–365 http://www.jstor.org... [9] "Minimum Wages and Teenagers' Enrollment-Employment Outcomes: A Multinomial Logit Model." Ronald G. Ehrenberg; Alan J. Marcus The Journal of Human Resources V17 N1 (Winter, 1982), pp. 39–58 http://www.jstor.org... [10] "Teenage Employment Effects of State Minimum Wages." Arnold Katz The Journal of Human ResourcesV8 N2 (Spring, 1973), pp. 250–256 [11] Brozen, Yale. 1969. "The Effect of Statutory Minimum Wage Increases on Teen-age Employment." Journal of Law and Economics, vol. 12 (April): 109–122