Tuesday, July 19, 2005

More minimum wages

I decided to elevate this from a Comment section, because I am interested in other's opinions. Below in the downhome economic theory entry, Serena and I discuss minimum wages. Here are my latest thoughts:

Been pondering this a bit, and I think I am going to go with Serena to the extent that I am not sure the ability to send your children to college should be part of Minimum wage, emphasis on the word minimum. It is asking too much, especially since a college eduation is really useful, but not a real requirement for decent life, like shelter and food, etc. This is not to say that our nation as a whole has no interest in everyone having the opportunity for higher education. After all, brains don't come with family money, and we are best off if our best brains, no matter their economic background, get into college. But the fact that our nation is better off that way is likely a separate question from government-mandated minimum wage. It should be discussed another day.

Now, I did pick up an Economics textbook recently, since I know nothing about economic theory. I came across an interesting point. It had an opinion arguing against goverment minimum wages, because it removed the opportunity for some to bid low for their services. I get the point. The reason that much of our production is moving to the Third World is exactly because they have the ability to bid low wage-wise. If they could not work for less, our work would not go there at all. However, there is a possibility that this is missing some information if it is intended to be a complete policy rationale. What I am thinking of at the moment is that it is middle class wealth that most benefits our economy. I don't mean of course that everyone must be average - that's borderline contradiction. What I mean is that the poorest share no wealth due to having to spend every penny to make ends meet. The wealthiest often share less because if I have 10 million or 11 million, will my spending habits change much? It is the middle class whom consumes such to drive our economy, and if a minimum wage moves more people into the class of those who consume, then that will benefit our economy.

These are incomplete thoughts, so completion is welcome.

1 comment:

Killer Llama said...

Good thoughts, as well.

I don't think it's in a societies' best interest to give everyone a college education. As you wrote earlier, someone has to flip the burgers, and you don't need a BS to do that. A 4 year education is a waste of resources for someone that does not need that much to be productive.

This is not just theoretical. Sri Lanka spends a huge amount of money each year on providing 'free' higher education to anyone that wants it. Furthermore, the government foolishly promised a government job to anyone with a college degree. So, basically, the whole country is on welfare.

Thailand has a similar problem, though not to the same extent. Here, a college education is required just to work as a receptionist in a hotel. Nearly every middle-class citizen is able to obtain an education because tuition rates are state subsidized, so these businesses can limit their recruiting to college grads and still have a large labor pool. If you come from a poor rural area you are unlikely to have that education because even the low tuition rates are too expensive for the farmers (btw, about 65% of the thai population is rural). So, without a college degree the very poor are unable to get a decent job and they are kept in poverty. That's one reason why so many uneducated women come to Bangkok to work as prostitutes... it's the only work available to them that will pay a decent wage. Many of these people can speak English well and would be fine working in a hotel... but they are denied that just because they don't have that piece of paper that says "graduate".

In short, with scarce resources (in this case, the money and time cost of education), from a societal point of view, over-education of a population can be dangerous just as under-education can be.

The (economic) argument for a minimum wage is partly based in the relatively inflexible nature of the labor market. If one thinks of labor as good whose price can be set through the free market, then the idea is that as business improves, folks become welthier, export markets grow, etc... demand for product increases. This demand for product will require the hiring of additional labor to create the product. This increases demand for labor, causing labor wages to rise. This theory takes as an assumption a "perfect market", in which both buyers and sellers are fully aware of the market environment. In reality, laborers rarely know that their services are in increase demand, at least not until several months into the cycle, by which time the hiring firms may have already filled their needs. In this way the labor market is "imperfect." The minimum wage is an attempt by the government to counter these cycles by establishing a "fare" price for labor that is somewhere close to what the market would determine if it were perfect (which it is not).