Minimum Wage Post (from Discussion Page on Aplia)

While I understand the concept taught in lecture today is meant to be an oversimplification, I would think that, even in the simple supply and demand model, labor should be represented differently than other goods. Up until the point of a living wage, I would expect the supply curve in a labor market to be almost perfectly inelastic. If my options were to work for the market price or starve, I would work for the market price. If I chose not to work at that price, that decision would likely be due to assets or income that made working for any low wage irrelevant. A low minimum wage, especially one as low as the minimum wage in the United States right now, consequently shouldn't increase the number of workers interested in those minimum wage jobs.

I suppose one might argue that low-wage workers from other countries would lead to the increase in supply, but even against this criticism I think we should view minimum wage differently. The "immigrants will be willing to work at those wages" argument suggests that the minimum wage fails because the market is allowed to function outside of that price floor elsewhere. But if an international mechanism oversaw a global minimum wage, the worker supply would again fail to increase. Unless the minimum wage were so high it enticed already comfortable people to leave the home to obtain excess luxury goods, the supply curve would be nearly inelastic and employers would be forced to hire a comparable amount of workers while complying with the wage. If they laid workers off, they would likely lose out to other companies that allocated internal resources more equitably and efficiently and hence provided a cheaper product to the consumer.

Similarly, if the governments in major consumer markets (i.e. the United States) were to mandate that any company conducting business in that country need pay all of its workers, including those in other countries, a minimum wage, those companies would have one of two options: comply or stop selling to that consumer market. To leave a large consumer market would allow competitors to capture a huge market share. If the U.S., India and China all made such a stipulation, for example, would companies stop selling to 2 billion people who consume such a large percentage of the world's goods? Or would they adapt, pay their high-level executives $1 million instead of $100 million per year, and reallocate that money into making sure their employees have a living wage at which to work?

If we can recognize that the supply and demand model leaves a plethora of factors out when considering something like minimum wage, why do we even teach such a politically charged principle in economics courses? Couldn't we develop a more sophisticated model that better reflects the complex issues involved? Despite the attempted separation between a "positive analysis" and belief in an untethered free market system, the message comes across as "minimum wage is inefficient. And inefficiency is bad." In particular, we're taught minimum wage will create layoffs, hurt employers and raise prices on consumers. Yet in a real market, one can easily imagine scenarios in which this model is inaccurate. Isn't the way we teach minimum wage a political argument in disguise?