Open thread Nov. 1, 2013 Dan Crawford | November 1, 2013 5:30 am Tags: open thread Comments (7) | Digg Facebook Twitter |
Trickling down the trickle down — US and California’s very minimal minimum wage increases
If Obama gets his (not very fervent) wish to raise he federal minimum wage by $2 an hour over two years that will shift all of ONE-THIRD OF ONE PERCENT of overall income in this country from the top 80 percentile who get about 95% of all income to the bottom 20% …
… as per capita income grows TWO PERCENT, P-E-R Y-E-A-R*. Talk about-trickling the down the trickle-down.
Which is exactly what California’s raise from $8 an hour to $10 an hour over two years has achieved. (California income number only 5% higher than national averages so comparisons should hold.)
$9 an hour is about 15 percentile wage. 5% of work force at minimum wage. 20% of national workforce gets a raise to $9 an hour.
20% of the national workforce = 28 million people. Average pay raise $1 an hour. Assume 2000 hour work year. 28 million X $2,000 = $56 billion out of a $15.8 trillion dollar economy = .0033734 = one-third of one percent price rise or shift of income from top to bottom.
ADDITIONAL THOUGHT: If you take money from half the workforce (consumers) who would have spent some of it a McDonald’s and give it to the other half — guess what? — they will spend some of it at McDonald’s. Either way Ronald is very happy. (Ronald’s prices go up 25% while the wages of the half the workforce most likely to eat there go up average 50% — with a $15 an hour minimum wage,)
EXTRA ADDITIONAL THOUGHT: No one — except perhaps the minimum wage workers — ever seems to bring to the discussion what seems the mandatory, eighth-grade math concept that even if a $15 an hour minimum wage did cost 5% of jobs (within possible range — I think the worst possible) the remaing jobs would pay an 50% more on the average. Since a lot of low wage earners might cut back to only one job with the raise (or someone in the family might drop one of the many family jobs) it might actually add to job openings (most likely scenario?).
But what concerns me most about the 5%/50% comparison is not so much for the financial aspect as the PSYCHOLOGICAL aspect: if commentators stopped thinking in saccharine terms like “inequality” (after all, it’s not happening to them) and thought in terms of “Great Wage Depression” which truly fits (my Chicago taxi job of 1981 would literally pay half as much by now!), it would open up their eyes to the eighth-grade math that needs to be said. Got to get away from “everyday, normal outlook — the minimum wage dropping $3.50 an hour while per capita output doubles qualifies as very, very extraordinarily crazy (now think 5%.50% — see how easy it came?).
As of early 2007, 25% of the workforce was earning less than LBJ’s minimum wage — double the per capita whatever later. That qualifies to add up in everyone’s perceptions as VERY CRAZY (when the obvious eighth-grade math craziness would be the first thing everybody thought. Got to get away from the starting concept that we are living in any kind of sane labor market — in any way sane at all (it’s help your math).
JUST AN EXPERIMENT to see if links link automatically now without all that “>a href=” stuff — this link may not have worked above because an asterisk (that looks like this: “*”) was on the front.
Well I touched on this back in 2009
Minimum Wage: the Jimmy the Stock Boy Fallacy
Sure it is possible that raising the minimum wage causes poor Jimmy (who between you, me and the wall is a little dim) to lose his job. On the other hand everyone else earning minimum wage gets a raise. And most everyone earning what is now the new minimum wage probably gets a small bump. That is everyone is happy except maybe Jimmy.
But the logic of the anti-minimum wage folk is that everyone should just subsume and discount their own individual self-interest on the basis of “Don’t you care about poor Jimmy? (You heartless bastards)”. Which is pretty damn odd coming from folk whose own economic theory is based on the principle that maximizing ones own self-interest is not only the natural drive of Homo Oeconomicus but in many formulations the highest virtue of all. That is in a capitalist society all of us are SUPPOSED to be heartless bastards.
Yet when workers exercise this logic in their own collective interest as well as their individual self-interest we get confronted with “Well I thought YOU were supposed to be the compassionate ones”. Well to mix some metaphors this is just a strawman built out of crocodile tears.
What is worse the ostensible victim in this piece-Poor Jimmy the Stockboy, may not be a victim for long. Because whatever job he does get will pay at the new minimum wage (or better) and at worst he has a period of having to make up lost wages with that new higher wage.
The only way the logic of the anti-minimum wage folk works is if there is a net loss of jobs meaning that everyone has to do just that tiny allocated fraction of Jimmy’s labor to make up for the lost position. But even if the total labor compensation pool remains steady-state within that particular firm, that is every dollar given to remaining employees comes directly in the form of reduced jobs dollar for dollar, it still remains that everybody still has more take home pay. That is has maximized their own self-interest in exactly the way classical economic theory suggests they would and SHOULD.
So don’t ask workers to cry for Jimmy. We will give him a nice going away party and maybe chip in for some interviewing clothes to help him get his next, better paying stock room job at the firm down the street. But don’t expect us to accept a guilt trip from the very folk who would brag to their shareholders if they introduced a new method of JIT delivery of supplies in ways that allowed them to eliminate Jimmy’s job and that of the stockroom itself. Because somehow maximizing returns to stockholders is virtuous while workers maximizing returns to themselves is evidence of moral depravity. Well sorry you don’t get to keep your sociopathy and sell empathy at the same time. Because clearly you never gave a shit about the welfare of Jimmy the Stock Boy before it looked to put a squeeze on your operating margin.
PAUL KRUGMAN IS TIRED OF TRYING TO REASON WITH YOU PEOPLE
Interesting piece from the economist suggesting that world wide labors share of production is decreasing. This is occuring in many countries not just the US. The article suggests it may be partly the hollowing out of middle tier jobs that is a piece of this. Essentially jobs that are mostly routine, can be automated away. This leaves high and low skilled jobs left. There is a chart that shows labors share by country, South Korea and Mexico have the biggest reductions in the labor share. It suggests that in general as automation becomes cheaper more and more the middle skill jobs will be automated away (IMHO because machines do not present the same sorts of demands as humans, and can be turned off when not needed.)
Thanks Lyle…do you have a link?
Here is the link, sorry about forgetting it:
And here is a link to a blog post on the economist, that suggests that it
is technology: http://www.economist.com/blogs/freeexchange/2013/11/inequality That is the major world wide factor.
One interesting statistic I would like to see someone come up with is the capital deployed per worker, i.e. the investment needed to enable the worker to do the production. In a simple mined example, compare an office worker processing claims 50 years ago to today. 50 years ago there might have been an adding machine, and perhaps a typewriter, along with some pens a desk and the office space. Today you have a network of servers, as well as a desktop device of some sort, along with the office space. (all be it it may be cubicles today compared with the open office typicaly used 50 years ago for these sorts of functions.
Indeed I have a theory that a number of our problems are an unintended consequence of IT, ranging from the ability to slice and dice on insurance, when computers where human beings it did not make economic sense and insurance was more of a pool concept.