"The goal of a minimum wage is difficult to pin down"
In the most general sense it's straightforward.
Your salary is a function of your economic power vis-a-vis your employer - and nothing else. That power is usually derived as a function of the necessity (i.e. value creation) and scarcity of your skills, and possibly some other non-market forces.
Skilled workers have some modicum of leverage and can get a decent salary. Or have powerful guilds (like doctors).
'Capital class' will use their status as major asset holders, and non-market things like class, relationships, political patronage, lobbying, direct control of political systems etc. to manage their careers.
But unskilled workers have a problem. Basically, if there was no minimum wage (or other social intervention), workers would be paid the absolute minimum necessary to survive, and economies to support those very low levels would develop (i.e. 'Dollar Store' would be the '25 cent store) and there'd be favela like living conditions just as they already exist in advanced economies like Hong Kong and almost advanced economies like Brazil. (Obviously, if there is 'welfare' than the amount of welfare comp. would set the floor on this, i.e. 'work for the government and do nothing' would be the 'lowest alternative' to paid work.)
But especially without welfare, or non-market interventions in general ... that floor would be very, very low. Just take a trip outside of the 'rich world', it's easy to find workers working for 'a bowl of rice a day' whilst owners make considerably more, and by that I mean, there are definitely surpluses in the system to allow for higher salaries, but pure market power doesn't provide any impetus at all for employers to provide it.
So - 'minimum wage' is a non-market intervention, much like a 'union without membership' to establish a kind of meta collective bargaining.
Non market interventions are basically essential and they exist in one way or another in all advanced nations (either social services, welfare, min. wage. etc..). Should note that some argue that social intervention is correlated but not causal to wealth creation, but I disagree with this ... but that's for another discussion.
I think what you're saying is that there are jobs that are worth e.g. $25/hour but they only pay e.g. $5/hour because there are many people willing to do them for that price.
But that only happens when there is fairly high unemployment. Otherwise there will be an employer with a job worth $25/hour who can't find an employee for $5/hour and will offer $6/hour because $19 in net yields is better than none. Then the original employer will have to offer $7 because they don't want to lose their productive capacity either, and so on until the wage rises enough that employers stop raising their wages even if it means they can't hire someone.
For unskilled workers that doesn't really happen, because as a segment they typically have a high unemployment rate. But in that case you have a problem: Some of the employers paying $5 have employees who are worth $25, but some of them are actually only worth $5. Raise the minimum wage and the first group gets a raise while the second group loses their jobs.
It's basically a tax on hiring low wage employees where the tax revenue goes to subsidize the employee's wages. Which like any tax may cause the work to fall below profitability and cease to exist. But is especially distorting because the burden falls exclusively on employers who hire low earning workers, which is a very narrow base that makes the "rate" quite high -- if they have to pay $12 instead of $4 it's effectively a 200% tax on the original wage.
The better solution is a UBI, which is very similar on the "give lower income people some extra money" side but gets funded from broad based taxes so the effective rate doesn't get out of control like that.
> That's not true though. Surplus value is produced all the time
What I mean is that the surplus isn't that large unless there is high unemployment. At low unemployment the marginal employer might pay a $24 wage producing $25 worth of value, not a $5 wage producing $25. In which case a) a low minimum wage does nothing because everybody already makes more, and b) you can't raise it to e.g. $30 or you're back to causing unemployment.
At high unemployment the employer producing $25 worth of value and the employer producing $5.25 worth of value can both pay $5. A higher minimum wage extracts more from the first but prices the second out of the market and causes their employees to lose their jobs. Which is quite silly when there are known alternatives that don't do that.
>the surplus isn't that large unless there is high unemployment. At low unemployment the marginal employer might pay a $24 wage producing $25 worth of value
That's still not true. You're confusing market price with value, and the more difficult to define term, worth.
What's the water you drink valued at? What's its price? There's a huge difference.
When you buy an expensive toy and spend more money on it than your water, it's not because it has more value than you living beyond 3 days, but it's because you are spending until your marginal value-add reaches equilibrium with marginal price. Same thing goes with jobs, which is just a business buying labor.
> What's the water you drink valued at? What's its price? There's a huge difference.
Because water is not particularly scarce. If it was scarce (more demand than supply), the equivalent of low unemployment, then its price would approach its value, i.e. be much higher.
Consider your example and then walk along the demand curve for water at your new supply curve (your scarcity scenario). There is still surplus value created.
The price already approaches its value, but only at the margin.
I'm just trying to explain why this argument about surplus value that I always hear in this context is not accurate.
> Consider your example and then walk along the demand curve for water at your new supply curve (your scarcity scenario). There is still surplus value created.
It's not that there is exactly none, it's that there is relatively less.
Suppose it takes a unit of water to live and there are a thousand people and a million units. Then the price is near zero and the surplus is huge -- the value of not dying is maybe a million dollars for the average person and more for people with access to more money, and they all get it for free.
Now suppose there are still a thousand people but only a hundred units of water. The price of a unit rises to five million dollars. At the [new] margin the surplus has gone from five million dollars to zero. The surplus for the person willing to pay six million has fallen from six million to one million etc. Everyone has lost five million in surplus and everyone with less than five million in original surplus has been priced out of the market.
Now suppose you want a "minimum price" for water. If the market price is just under five million dollars and you set the minimum price to five million even, you aren't pricing many people out of the market who weren't already. But you also aren't doing much to raise the price.
On the other hand, if the market price is zero (or, say, $5) and you set the minimum price at five million, you're causing widespread economic harm and pricing lots of people out of the market.
Just to point out, for the record, that Hong Kong has had a minimum wage in operation for 7 years, and while of course there are people living in crappy conditions at the bottom end of society, "favela like living conditions" is a pretty loaded term...
I think that 'favelas' are better than the conditions those at the bottom of the HK spectrum are living in [1] though I can only speak from journalism, only having viewed some of this from afar myself.
At least favelas have some space, some basic amenities however hacky, some community, sunshine - and mobility at least during the day there are vast spaces for people to access including some of the world's best beaches.
I think why people support a minimum wage is complicated and varied. Great Britain did not pass a minimum wage until 1998. I don't it was full of favela like living conditions throughout the 20th century.
In the most general sense it's straightforward.
Your salary is a function of your economic power vis-a-vis your employer - and nothing else. That power is usually derived as a function of the necessity (i.e. value creation) and scarcity of your skills, and possibly some other non-market forces.
Skilled workers have some modicum of leverage and can get a decent salary. Or have powerful guilds (like doctors).
'Capital class' will use their status as major asset holders, and non-market things like class, relationships, political patronage, lobbying, direct control of political systems etc. to manage their careers.
But unskilled workers have a problem. Basically, if there was no minimum wage (or other social intervention), workers would be paid the absolute minimum necessary to survive, and economies to support those very low levels would develop (i.e. 'Dollar Store' would be the '25 cent store) and there'd be favela like living conditions just as they already exist in advanced economies like Hong Kong and almost advanced economies like Brazil. (Obviously, if there is 'welfare' than the amount of welfare comp. would set the floor on this, i.e. 'work for the government and do nothing' would be the 'lowest alternative' to paid work.)
But especially without welfare, or non-market interventions in general ... that floor would be very, very low. Just take a trip outside of the 'rich world', it's easy to find workers working for 'a bowl of rice a day' whilst owners make considerably more, and by that I mean, there are definitely surpluses in the system to allow for higher salaries, but pure market power doesn't provide any impetus at all for employers to provide it.
So - 'minimum wage' is a non-market intervention, much like a 'union without membership' to establish a kind of meta collective bargaining.
Non market interventions are basically essential and they exist in one way or another in all advanced nations (either social services, welfare, min. wage. etc..). Should note that some argue that social intervention is correlated but not causal to wealth creation, but I disagree with this ... but that's for another discussion.