Time and time again we hear that if the minimum wage were increased, it would result in job losses. This is in spite of research to the contrary www.irle.berkeley.edu/workingpapers/157-07.pdf
If fact the research found a slight negative correlation, that is, increasing the minimum wage may actually increase employment. Increasing the minimum wage is an important tool in improving the welfare of the poorest in our society, and reducing the gap between rich and poor.
A contrary opinion can be found at http://www.cis.org.au/media-information/opinion-pieces/article/3045-stop-pricing-young-workers-out-of-the-labour-force
I believe there are markets where competition for employment can drive wages below that required for living, that is supplying the basics of accomodation, food, energy, clothing and transport. Such a situation is fundamentally unjust, and a form of economic slavery and oppression.
A minimum wage prevents competition from pushing prices of certain markets into this oppressive region, and this is good for everyone.
Tuesday, 28 June 2011
Why is GINI important?
GINI is a measure of income inequality. An explanation of the GINI can be found here http://en.wikipedia.org/wiki/Gini_coefficient.
Why is this measure important to me? There is one commodity that every person on earth is endowed with in equal measure and that is time. Every person on earth has 24 hours in a day, 7 days in a week, and just over 365 days in a year. It therefore follows that economic utility to an individual for any good or service is best measured by the time that they are prepared to spend to obtain that good or service.
The economic argument that utility is best measured by how much someone will pay in monetary terms is flawed by the fact that relative scarcity of money changes the value of that money, depending on how much an individual has. A litre of cooking oil may be very valuable to a poor person as food, but they can be easily outbid by a rich person so that the oil is used to fuel a car to go to the supermarket.
It therefore follows that high levels of income inequality cause unnecessary human suffering through the distortion of price signals.
A similar argument follows when considering a price setting monopoly. Given a high GINI, the monopolist will set the price at a level that denies access to a greater number of people that would be the case if the income inequality was less, as the demand elasticity becomes less at higher prices which are easily within the grasp of the wealthy, but out of reach of the poor.
As well as being inefficient, in that it denies access to services that could have been provided, the impoverishment of poorest decreases demand, and the incomes of the wealthy.
The very basis of Pareto Efficiency, that is, if I can make me better off without making you worse off then that trade should be made, is violated when food is discarded and the poor remain hungry simply because they cannot pay.
Money is like manure, of very little use except it be spread.
Francis Bacon
Why is this measure important to me? There is one commodity that every person on earth is endowed with in equal measure and that is time. Every person on earth has 24 hours in a day, 7 days in a week, and just over 365 days in a year. It therefore follows that economic utility to an individual for any good or service is best measured by the time that they are prepared to spend to obtain that good or service.
The economic argument that utility is best measured by how much someone will pay in monetary terms is flawed by the fact that relative scarcity of money changes the value of that money, depending on how much an individual has. A litre of cooking oil may be very valuable to a poor person as food, but they can be easily outbid by a rich person so that the oil is used to fuel a car to go to the supermarket.
It therefore follows that high levels of income inequality cause unnecessary human suffering through the distortion of price signals.
A similar argument follows when considering a price setting monopoly. Given a high GINI, the monopolist will set the price at a level that denies access to a greater number of people that would be the case if the income inequality was less, as the demand elasticity becomes less at higher prices which are easily within the grasp of the wealthy, but out of reach of the poor.
As well as being inefficient, in that it denies access to services that could have been provided, the impoverishment of poorest decreases demand, and the incomes of the wealthy.
The very basis of Pareto Efficiency, that is, if I can make me better off without making you worse off then that trade should be made, is violated when food is discarded and the poor remain hungry simply because they cannot pay.
Money is like manure, of very little use except it be spread.
Francis Bacon
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