Min.wage

[Sanjeev Sabhlok <sabhlok@almaak.usc.edu>]

Dear Kush,

Thanks for your response on the minimum wage issue. 

Please permit me to suggest one thing at the outset, before I add anything
else. I think we are here to discuss issues as dispassionately as
possible. In other words, we need to strictly avoid use of any words that
might not be used in the most polite company, such as B.S. There are
ladies on this group, as well as senior civil servants and soon we hope to
have Professors and other such people signed up on the list. While I might
be immune to the use of any kind of words, I think that many members might
not be so immmune and we don't want to lose people simply because of
language issues. We are here to discuss contents.

Your response, however, was most welcome as it raises many important
issues.

Since the web archive has not yet been set up, let me extract some of the
earlier arguments on this list on minimum wages: 

Sanjeev:
------
Minimum wage: I have been involved in its implementation and know that
this breeds corruption and other nasty things. In a fully computerized
economy like USA this might work (even here ALL economists point out that
it is a harmful thing and distorts incentives), but in India any control
has bred and will breed corruption. Nobody actually receives a minimum
wage: only the inspectors help increase the cost of the employers by
taking bribes to show that the minimum wage laws are being upheld.
Legislataion without a fool-proof (and I really can discuss any of these
proposals since I have seen these in the field) method of implementation,
is quite dangerous. We need to reduce, not increase, our laws. 

Utkarsh:
-------
I AGREE IN TERMS THAT WE NEED SYSTEMS TO IMPLEMENT THIS. ONE WOULD
REQUIRE LOT OF GOVERNMENT REGULATION TO ACHEVE THIS. 

New points:
-----------
Let me add a few points at the moment:

a) NBER stands for the National Bureau of Economic Research, which is a
national, independent, private non profit organization in the US, very
prestigious in the field of economics. Its web site is at: www.nber.org.
Their studies are fully respected. The current study might have some
deficiencies but we cannot write it off as being orchestrated by any
motives. Sophisticated econometric techniques are available these days
which help distinguish various effects.

b) Politically, you are right; minimum wages are perhaps essential.  But
in a purely "ideal" political system, there would be no checks on the
market wages paid since all distortions promote inefficiency. We do not
have to go too far in India to see the distortions caused by such laws,
particularly by the implementation of such laws.

c) If we are trying to change India for the better, how does it help if we
add to the governmental interference? We all realize that competitive
systems are the ones that succeed. If so, what competitive purpose does
minimum wage serve? 

d) The economic arguments against miniumum wages are too well known to
enumerate here. Most elementary economics text books give the arguments
cogently. 

I hope there was no overlap of these arguments with the previous
ones! These discussions can only be in the outline form, and as a "first"
draft, not fully detailed papers with references. 

Of course, if the issue attracts a lot of dissenting opinions, it would be
worthwhile for someone, maybe you yourself, to take up this topic for
study for a while and to submit a detailed report to the group. We need to
ultimately take a stand supporting minimum wages or not suppporting it. 
There is plenty of time to come to such a conclusion if some members are
not convinced by my sketchy arguments. 

I don't claim to be a know-all;  I am only trying to present a coherent
ideological basket of policies. If we have a conservative policy on
openness of the economy and competition, then it might not be
ideologically or theoretically supportable to have minimum wage laws in
place. 

Thanks for your patience. I would appreciate your response, so that if
necessary one can change one's views on this topic.

Sanjeev