The Minimum Wage

Thanks L-F. This debate is for round two of the tournament organised by Freeman. The challenge was sparked off by a lively exchange in the forums which can be viewed here: http://www.debate.org... I accept that as Pro, I have the burden of proving that the benefits of the minimum wage outweigh any negatives. My opponent as instigator also has a burden of proof and I will be demonstrating that a lot of his absolute statements are founded on questionable assumptions that he will need to provide evidence for. It should also be clear that we are discussing the effects of the policy as a whole, not solely how it can affect the economy, but also the impact it has on individual lives and society as a whole. From this it is also clear that we are not just discussing the policy within the vacuum of a free market, which most of L-F's points correspond to. As Con, L-F is also arguing for abolishing existing minimum wage laws in the current mixed economy status quo. ____________ Firstly I'm going to examine my opponent's proposed syllogism. 1) While marginal productivity exists as a concept in economics and business management, the notion presented by L-F that "a" marginal productivity exists as a hard and fast value tied to each hour that each employee works is highly misleading. Obviously other factors such as efficiency of operation and costs of materials will have a direct impact on the marginal value of what each worker produces. In many jobs that aren't involved with actual physical production, such as supervisory or marketing roles, direct marginal productivity would be impossible to pin down exactly. Also, workers are not machines where you insert a certain amount of fuel (wages) and get a consistent output, one worker may be far more productive than another worker on the same wage. This is especially relevant to the issue of the minimum wage since better paid staff and those who feel their wages are fair are likely to be healthier, and feel more respected and more motivated, therefore being more productive. This is backed up by economic process theories of expectancy, equity and reinforcement. Edwin Locke studied this phenomena and found that higher wages increased productivity by an average of 30%[2,3] 2) Most of L-F's post outside his 6 steps consists of pre-empting criticism of this point, so I'll include my rebuttal to that here as well. Companies do have to compete financially for highly skilled workers but those are not the people affected by MW. L-F provides no evidence that a worker's wage will be close to marginal productivity, which as we have seen is not a fixed amount. There are obviously large pools of unemployed people looking for work (whether there would be in a free market fairy land is irrelevant) so employees can increase their profits by paying them far less than the marginal value of their productivity and people desperate to work do not have the bargaining power of workers whose skills are in demand. How do examples such as £800 shoes produced by workers being paid £2 an hour fit in with L-F's assertion that it is not possible for there to be a significant gulf between wage and product value. [4] Bear in mind that this example concerns immigrant workers in Italy and that there are far more extreme examples of sweatshops in places like China that are harder to verify figures for but which clearly exist. [5] L-F claims that this cannot be the case because if it were such industries would be significantly more profitable than others. This completely ignores very obvious factors such as technology and efficiency. Under-paying people is not the only way to increase profits, but it is an easy way for unscrupulous businesses to do so. 3) While the government declaration may not raise the productivity of workers, wage increases can. See the point about the motivating value of monetary incentives under 1. 4) I think the notion of a minimum wage being set above marginal productivity is unrealistic. I think any efficient and well-run business should be able to get enough productivity from a decent employee to justify at least the minimum wage. 5) This is essentially a strawman as nobody is suggesting that businesses should behave like charities. As mentioned above, it is entirely possible that supervisory, management and promotional staff could well be bringing far less actual value to a company than the wage they take home. The inverse is also true across the range of pay and skills. Rather than fire workers they could cut costs elsewhere (perhaps in management pay packets) or give the worker more responsibilities. 6) This is an entirely illogical conclusion to a sequence of flawed premises. Even if it could be argued that the minimum wage could possibly cause unemployment, this is far from the "only" effect it can have. The obvious improvement in individual standard of living is the most obvious and significant example of an increase in wages, the positive effects on productivity are discussed above and the wider impacts on society can be estimated by happiness indexes etc. [6,7] _________ Now onto the evidence L-F provides in support of his case. [L-F's 1] I'm unable to view this source as there is no online link but L-F seems to dismiss it as insignificant anyway, acknowledging that such data can be highly misleading. [L-F's 2] is a piece of anti minimum wage propaganda from a thinktank headed by CEOs and the like who clearly have a vested interest in abolishing minimum wage laws. They make a lot of the points L-F makes, but it should be noted that their overall tone is far more cautious about the accuracy of their conclusions than my opponent is about his absolute statements. "most economists say..." "minimum wage may cause..." "it is possible that..." Con is trying to use these weasel words to verify things he states as fact. __________ L-F claims that the minimum wage causes unemployment but many statistics would seem to contradict this. For example, those US states with no minimum wage law such as Mississippi, Georgia and Tennessee have some of the highest unemployment rates [8,9] Card and Krueger found minimal negative effects of even substantial minimum wage increases [10] Abolishing a minimum wage that had any economic impact would directly affect many workers by lowering their wages, because as L-F has acknowledged "We all know businessmen and investors are greedy—they always want to maximize their profits". These profound negative implications of abolishing the minimum wage need to be justified by my opponent. Without a minimum wage, employers are free to exploit the desperate and needy in inhumane ways and it is clear that they will do so if given the opportunity as modern examples like sweatshops and historic ones like Slavery demonstrate. My opponent's misguided analysis makes too many assumptions and ignores too many details, but I'll hand back over for him to defend it now. Thank you. [1] http://american-business.org... [2] http://www.nbrii.com... [3] http://www.questia.com... [4] http://www.mirror.co.uk... [5] http://www.laborrights.org... [6] http://www.iim-edu.org... [7] http://www.nationmultimedia.com... [8] http://en.wikipedia.org... [9] http://en.wikipedia.org... [10] http://www.ibookdb.net...