Hi, not sure if this forum is completely relevant for my question(s), but hopefully some economists out there can offer some insight. I recently debated the idea of a minimum wage with a friend, who put across some interesting points in support of abolishing or vastly reducing the minimum wage. This got me interested, and after some research I have almost come to the conclusion that a minimum wage can cause more harm to the poor and 'needy' than good, and by restricting how much you pay a worker, you are eliminating the chances of a lot of uneducated people, who's skills simply aren't worth the minimum wage rate, getting employment. I agree with this, but something doesn't seem to make sense to me - how can you pay a labourer such a low wage? (which is far below what I would consider a good standard of living compared to the rest of the countries workers.) How does someone who works for McDonalds for £2 an hour survive, when that isn't enough to pay rent, food (for themselves and possibly children) etc... as the minimum wage now is barely enough for those things. I understand that abolishing a minimum wage would increase employment, because companies can now hire workers who otherwise would not be able to offer their skills, which aren't worth £6 or so an hour, but how can anyone possibly survive on a wage under that, because essential products are priced much higher than what a worker would earn. Does companies paying workers less, mean that their products are priced cheaper (bread, water, gas etc..) because they save money on wages, and that allows them to sell their products at a cheaper rate (surely companies would monopolise on this, so they increase profits while product prices stay the same) How do people on £5 or less an hour afford these products? or, do prices of products reduce because a lot of people can no longer afford to pay the prices they were paying for them, as they earn less, so companies MUST reduce prices? TL;DR - how does reducing/stopping the minimum wage help increase the standard of living for poor people? am I right in thinking for this to happen, prices of products must decrease, and if this does happen, how and why does it happen? sorry for long post, but I'm really interested in learning more on the subject, and economics in general.
It is called capitalism. If people really cannot make a living working at McDonalds, they will go elsewhere. When they all go elsewhere. McDonalds has no employees and they go out of business. Therefore, they must pay enough to maintain a full workforce just like you must charge as little as possible to sell enough of your product (hamburger?) to survive. If you cannot do both at the same time, you go out of business. How do the people survive? If only on McDonalds entry wages, probably they don't. But then most of the people earning that wage are high school/college kids filling in to get spending money. I have seen the figures (I will let you look them up) on how many adult full time wage earners actually earn anything near the minimum wage and it is almost nil except for restaurant employees where they earn most of their money as tips.
Long posts are not an issue here, so don't worry about it. I don't know if you'll hear from any experts on this subject here though, as I am unaware of any active members who would qualify. Instead, you'll likely only be hearing our opinions, much as your own in the OP. Being from the U.S., where the economic model is somewhat different than in your country, my opinion will reflect that slight difference is some ways... but the basic principles are the same. Reducing or eliminating the minimum wage: That is a subject occasionally brought up in American politics, almost exclusively by republicans. Most of the argument is based on the idea that by lowering the minimum wage, businesses will benefit... they would be able to have more capital and therefore make improvements in their businesses and eventually hire more workers... and the prices of good will lower as a result. IMO, that's a lot of wishful thinking... along the lines of the "trickle-down" theory of one of our past republican presidents, Ronald Reagan, a theory I have looked into quite a bit and found to be seriously lacking in almost all facets of reality. Businesses are in it for profit, the faster the better, and a lower wage requirement means the business owner(s) have more spending money or padding in their personal accounts, but don't invest the majority of it back into the business... not that it would matter, even if all the extra money was put back into the business the business would eventually fail. While businesses would certainly benefit in the short term from a lowered or non-existant wage requirement, in the long-term the economy falters and the businesses fail. Why? Because the people who buy the products need money. With a lower income, they cannot afford to buy products that are not directly related to their basic needs, like clothing, shelter, food, etc. The products become unsellable and the businesses quickly become unprofitable. Now, IMO, I believe you are correct that a lower wage requirement may lower the costs of products ...eventually... but those prices would never have the same ratio as they had previously, and in the time it would take to lower to more reasonable price, people would starve, crime would increase, etc. so the net effect is far worse than before. The key is balance: In order for a society to be stable, and grow at a steady rate, conditions must be overall optimal. By that, I mean that the richest and poorest must all be relatively satisfied with their lives. That balance can be unsettled by too much greed, as well as too much generosity. Tip the scale too much either way and people rebel, work slows, production falters, purchases plumet... in short, the economy suffers as discontent rises. I'm tired of writing so I'm gonna stop here lol
The reality of Capitalism... (Reuters) - A New York woman who donated a kidney so her ailing boss would move up the transplant waiting list says she was fired shortly after the operation, according to a complaint she filed with the New York State Division of Human Rights.
...add higher unemployment, more people on entitlements & higher gas prices....who would possibly want 4 more years of that?
Abolishing the minimum wage (mw) would have immediate harmful effects on those who have the least ability to cope with it. On the flip-side, it would also provide a short-term boost in businesses profits, but that would be very short-lived. Abolishing the mw means less pay for not only the former mw earners, but everyone else too. People making twice the mw would quickly see their wages cut, same with people making four times as much, or ten times, all the way to the top... who would be the last people to take the cut, and it's a sure bet the percentage of their loss in wages wouldn't be as much as everyone elses. For the love of whatever you hold holy, don't tell them that! They may just be stupid enough to try it! If they did, you may as well kiss the economy goodbye, as well as peace and quiet... I mean how could anyone relax during all those riots and such?
I think the Minimum Wage should be increased to, let's say... oh... $30.00 per hour. Of course, the prices of every good will increase proportionally, so what have we gained? Actually, nothing. Every single wage earner will demand an increase in pay to keep up with the rising prices. Union members will demand even more. Then next year, we can increase the Minimum Wage to $40.00 per hour and the vicious cycle starts all over again.
Eventually both those minimum wages will be reality, however, it is highly unlikely that the ten dollar rise from $30 to $40 will occur in one year, though it isn't an impossibility either. By that time though, the highest earners will be in the trillions of dollars per year range. Currently, only a select few have enjoyed earning a billion+ dollar per year, and usually only for a couple of years ...those poor poor people.
In this instance, "poor" is sarcastically used to elicit pity, as in that poor fellow, with people who are undeserving of that pity. The idea that the wealthiest people deserve pity for earning a trillion dollars is sarcastic, in that it was used to state my contempt for the idea.
@ IQless1 So what you were saying in your original reply, is that because people are payed less, they won't have as much money to invest back into the economy (by buying products from business') and because of that in the long run, business' will eventually lose profit? On top of that, the money saved by business paying workers less, instead of being invested back into the economy, it will head straight into their pockets and their wealth will just increase further. But surely if everyone's wage decreased, business wouldn't be able to sell their products at the price they were before the end of mw, and would have to lower prices to survive, otherwise no one would be able to afford their products? Like CoinOKC said, the price of products will decrease/increase proportionally to wages. I think it's more of a moral question really, as with a mw not only are you not allowing business' to save money by paying workers less, you are denying some people the right to work, because they cannot compete with other potential employees who are much better at the job, and therefore business' will always choose those people, as they are getting their moneys worth. If someone was being paid 2$ an hour, and a potential employee came along who was better at the job, but demanded 3$ an hour, then wouldn't that encourage workers to compete with eachother to gain a better wage, by being more skilled at their job...
More or less. Under this scenario, workers are paid less, resulting in an immediate short-term gain in profits. The owners of businesses are in business for profit, as such, investments back into the business are less than whatever profit there is, hence the owners "pocket" more money and are happy in the short-term. Long-term, profits fall. That's just basic math. People under this scenario have less money and cannot afford to buy as many products, forcing companies to lower prices to remain solvent. That lowering of prices means lower profits. Of course, as you mentioned, the buying power of money would try to equilibriate. Equilibrium between money and product may or may not be reached though, and in the mean time, those with the lowest wages suffer. That equilibrium isn't automatic, or a sure thing. It favors the richest while putting a serious hit on the poor, the people least able to take such a hit. In the time it takes to reach equilibrium, if it ever truly occurred, the poorest would be harmed the most. The main reason businesses have moved to other countries is to increase profits. That's good for the business, but bad for the previous country's workers, who no longer have the job... someone else in another country is doing his/her job now for a much lower rate. I agree it is indeed a moral dilemma, but from my point of view the choices are either staying in the original country, keeping those original jobs, and not making as much profit or moving to another country, shedding those original wages, and making more profit. To me, it's a question of greed. Personally, I don't have an issue with a business buying something for a dollar and selling it for two. When businesses are happy with that there isn't an issue. An example of that is the "mom and pop" store. Their business is sustainable, and while it's not "heavy" on profits, they are content to keep it that way. The problem is just that, ...that some businesses are not content with being mearly sustainable, they want more than that. So, in order to grow as a business, profits become the focal-point. As the business grows, investors are added, and those investors want bigger profits. Eventually the business may "go public" on a stock exchange. By now, the businesses' sole purpose is the bottom line, or profits. Investors and stock holders demand more profits, more, more, more. IMO, that is the prime reason for inflation. With bigger businesses demanding more and more profits, equilibrium can't be reached. Meanwhile, that inflation favors the wealthy while causing the poor to suffer. So, to me the moral of the story is about greed. It's what causes people to not be content. It's what causes businesses to outsource jobs. The mw would not be an issue if an equilibrium was maintained, if inflation wasn't being pushed by greed.
