My DECADES OLD, DECADES LONG EXPERIENCE with the “disaster” — not the saccharine “inequality” — of the American labor market as a Chicago cab driver:
Between 1981 and early 1997 the city allowed one 30 cent increase in the mileage rate on the taxi meter — at which 1990 midpoint the city started building subways to both airports, allowing unlimited limos, putting of free trolleys between all the hot spots downtown (the Aquarium used to be our busiest pick-up after O’Hare — OH, AND — 40% more taxicabs.
In New York City (where I came from) the mileage charge was (in 2004 dollars) $2.25 a mile after the last successful taxi strike in 1974. By early 2004 the meter was $1.50 a mile. Since the union was broken by the lease system (private contractors) the entire 75 cent deficit came out of the drivers’ side. Guys were going back to India for a better life. This in the only place on earth where wealth is a plateau not a pinnacle.
If we get a $15 an hour minimum wage the meter will have to go up a dollar and hour in Chicago, at least — if you want any cabdriver. Our job has been outsourced at home just like fast food — from an income that could buy a house and send kids to college (maybe for an 84 hour week — I’ve done it — to four guys sharing an apartment. If no one showed up for $8 an hour — no American born workers (too busy selling crack to survive) at McDonald’s you’d learn to pay 25% more fast.
I remember the summer before the New York meter was finally raised to $2 a mile — someone from the city was quoted as too many empty cabs built up in the garages: “Maybe we’ll add A LITTLE SOMETHING TO THE METER.” [Emphasis mine.]
Maybe our progressives ought to start to get real with their sense of proportion and think past — way past — adding “a little something” to les miserable’s wage (40 years after New York’s last successful taxi strike).
Yesterday Harold Meyerson pointed out in the American Prospect that raising the minimum wage is just the beginning of the way back out of the American labor morass — the last thing we need is a minimum (defined as anywhere in the vicinity of LBJ’s 1968 minimum wage), minimum wage. http://prospect.org/article/raising-minimum-bare-minimum
And don’t forget about the ultimate answer to our labor woes: legally mandated centralized bargaining. The specter of that might really focus you better on the scale of the “real world” that you talk about in your pieces. I wrote something about it a while back, here: http://ontodayspage.blogspot.com/2007/12/french-canadian-labor-setup-seamless.html
Progressive economists should readily admit — shout, scream — that a “moderate” federal wage increase, typically 10% cited in conservative studies, should indeed have little or no effect on poverty rates. Why would an extra 1/4 of one percent of GDP added to low wage pay checks be expected to clear a broad swath through poverty? That is what a $1 an hour increase in the federal minimum wage equates to — about $40 billion out of a $16 trillion economy. (E.I.T.C. shifts $55 billion.)
A $15 an hour minimum wage OTH would send about 3.5% of GDP the way of 45% of American workers — about $560 billion (much of it to bottom 20 percentile incomes who today take only 2% of overall income).
* * * * * *
Could raising the wages of 45% of the workforce actually raise demand for the goods and services they produce? Sounds sensible at some level; raising wages so much ought to add demand somewhere – but, is it all smoke and mirrors? Before the 45% — who would get a wage hike to $15 an hour — can raise demand anywhere, they would need to get the extra cash from somewhere else – meaning the 55%. (Bottom 45 percentile incomes – not wages – currently take 10% of overall income – so, at no time are we talking giant chunks of the economy here.)
The 45% can get higher pay even as “numerical” (to coin a phrase?) demand for their output declines due to higher prices — as long as labor gets an bigger enough slice of the new price tags. This can be compared to a leveraged buyout or buying stocks on margin.
Products produced by low-wage labor tend to be staples whose demand tends to be inelastic. Demand for food is inelastic – maybe even fast food. If the price of your Saturday family jaunt to McDonald’s rises from $24 to $30, are you really going to eat at home (the kiddies haven’t forgotten the fundamental theorem of economics: money grows on trees :-])? And fast food should be the most worrisome example: lowest wages to start with; even so, highest labor costs, 25%.
Wal-Mart is the lowest price raising example (surprise) with 7% labor costs. Jump Wal-Mart pay 50% and its prices go up all of 3.5%.
If low wage labor costs average 15% across the board and go up 50%, overall prices increase only 7.5% — and that is for low wage made products only; nobody’s car note, mortgage payment or health premium is affected. If demand drops just enough for price increases to maintain the same gross receipts (conservative, even without inelasticity), low wage income should improve appreciably.
Allow me to cite: from a 1/ll/14, NYT article “The Vicious Circle of Income Inequality” by Professor Robert H. Frank of Cornell:
“… higher incomes of top earners have been shifting consumer demand in favor of goods whose value stems from the talents of other top earners. … as the rich get richer, the talented people they patronize get richer, too. Their spending, in turn, increases the incomes of other elite practitioners, and so on.”
The same species of wheels-within-wheels multiplier ought to work the at both ends of the income spectrum — and likely in the middle. A minimum wage raise to $15 an hour is not going to send most low-wage earners in pursuit of upper end autos, extra bedrooms or gold seal medical plans. Wal-Mart and Mickey D’s should do just fine, OTH – which in turn should keep Wal-Mart and Mickey D’s doing even better.
* * * * * *
Did I forget to mention … ? The poverty line that a “moderate” minimum wage could not help anybody cross — $20,000 for a family of three – is only about half as high a hurdle as a realistically worked out minimum needs line should be. .
A practical line would be more like $40,000 a year. Today’s official federal formula is an early 1960s creation: multiplying the price of an emergency diet by three (dried beans only, please; no expensive canned) – no current basket of goods. For a reasonable basket of goods consult page, 44, of the, 2001 (2008), MS Foundation book “Raise the Floor.”
So, a so-called “moderate” increase in the minimum wage will not even clear a half-height hurdle.
Final thought: Why does everyone obsess so over the “hazards” of raising one price in our economy — low wage labor’s. Nobody shudders when the Teamster Union raises its price. It is not like the price of low wage labor has been habitually tested against market willingness to pay and been barely holding its own. It is more — it is exactly — like the price of low wage labor has sunk further and further below market willingness — precisely for lack of testing — as the ability to pay has grown and grown — for almost half a century now. To see, click my everything-adjusted-for-everything minimum wage history chart.
I do not know what to say to Denis’ observations, but on the same topic, income inequality, which Krugman talks about today and POTUS is supposed to talk about next week, I have been having a debate with one of my right wing friends–who predictably suggests that poor people are poor because of their failings and that we should not “punish” the extraordinary wealthy because we “envy” them–about both the damage it does and potential policy decisions to reduce it. Today I read a study which suggests that despite the dramatic increase in income inequality, there is actually more opportunity to go from the poorest quintile to the richest quintile today than in the 70’s. Of course the chances of doing so are still only 9% and we rank 15th among developed countries in economic mobility, but it did seem a little counterintuitive. Just wondering what the brighter minds on this site think about the study–which I believe but do not know– was nonpartisan.
no doubt there is still “opportunity” in this country. and no doubt we will always have the poor… not all of them stupid or lazy…
but it is purely a political, or moral, decision that results in the “poor” being miserable. there is NO reason a lawyer ought to earn more than a longshoreman or a janitor except that we have arranged an economic system that “decides” that, and we have a moral system that accepts it.
on the other hand there is no reason the poor should ape the rich and refuse to be happy unless they have the new car, the fashionable clothes, the big house… it has long been possible for “the least among us” to live a comfortable and fulfilling life on somewhat less than “average pay.” the problem is that we don’t learn how to do that, and the economy and the masters of the economy promote insecurity and misery and slave-like conditions in work and housing.
oh, and the banks are stealing people’s homes while the government looks the other way.
literally stealing. Bank of America and Wells Fargo use fraud as their standard business plan.
even some leftists wouldn’t understand why they should pay the cleaning lady the same dollars per hour as they pay themselves for their highly educated and highly socially valuable work…
but consider, if you are making a hundred dollars an hour, and that cleaning lady saves you from having to clean your own floors and toilets… isn’t she “making” you a hundred dollars an hour in opportunity costs?
the answer is yes. the extent to which you don’t pay her what she is worth to you is the extent to which you can find someone to “do it cheaper” and that is a result of power and not “economics.”
In Truman’s time by FDR’s dumped vice-president (nothing personal) Henry Wallace. Wallace started a new part that was polling 13%. The South started a party to pay back for some of Truman’s desegregation decisions. Now did it look like Truman had a chance.
Both suddenly began spouting the inspirational rhetoric about the middle class and the poor being bled to death by the rich that we always hear quoted today.
I guess that leaves on genuine heavy presidential populist, LBJ — who was the devil servant of Texas oil millionaires until he got into power.
Crazy world.
Maybe we could get Senator Elizabeth Warren out front campaigning burn-everybody’s-ears populist for president just to push whoever the Democratic nominee turns out to be into at least talking a good populist game — a lot better game than Obama’s — and to keep the Democratic winner (he/she will win if populist enough) talking, maybe even doing (!) populist, in fear of Warren or some similar candidate challenging same four years later.
here is someone who puts it in terms more likely to be palatable to you than what i would say.
what i would say is that “both” are right. we need to protect upward mobility… as by better schools (a horrible political boondoggle as it usually means some scam that someone can make money on, but if actually done with the idea of helping kids become “more human”… that is, have better things to think about than sex, drugs, and raiders’ jackets) there is reason to hope it will do real good.) access to higher education… when that makes sense, and not just as a holding place for teenagers helping to keep the unemployment rate down, and sobering them up to be docile employees.
on the other hand, while “equality” is not a reasonable or desirable goal, “equity” (justice) is. and “more equality” is probably better for society. We don’t all need McMansioins and private jets, and the “rich” don’t all need to work for minimum wage, but people in generally should be able to live a better life than as wage slaves in public housing. and the rich don’t need to be so rich that they can govern the country by buying congressmen, or that they should be allowed to become rich by abusive practices.
“equality” as a political slogan scares the rich. they think “communism” in all the worst connotations.
maybe it sells to the poor… i don’t think so. most of the poor understand they are “not equal” in a money-earning sense, and most workers at least want the option of becoming rich… Reagan was a better politician than the progressives…
so, it’s not that i want to compromise and can’t we all get along…
it’s that i’d actually like to accomplish something..
and of course i don’t think that “levelling” was ever a very good idea.
but limiting the power of the very rich to own the government and commit crimes against people is a good idea.
and it will sell. as Roosevelt showed, and he didn’t even have obvious criminals in high places to point to.
Does anyone know what happened to Susan of Texas?
My DECADES OLD, DECADES LONG EXPERIENCE with the “disaster” — not the saccharine “inequality” — of the American labor market as a Chicago cab driver:
Between 1981 and early 1997 the city allowed one 30 cent increase in the mileage rate on the taxi meter — at which 1990 midpoint the city started building subways to both airports, allowing unlimited limos, putting of free trolleys between all the hot spots downtown (the Aquarium used to be our busiest pick-up after O’Hare — OH, AND — 40% more taxicabs.
In New York City (where I came from) the mileage charge was (in 2004 dollars) $2.25 a mile after the last successful taxi strike in 1974. By early 2004 the meter was $1.50 a mile. Since the union was broken by the lease system (private contractors) the entire 75 cent deficit came out of the drivers’ side. Guys were going back to India for a better life. This in the only place on earth where wealth is a plateau not a pinnacle.
If we get a $15 an hour minimum wage the meter will have to go up a dollar and hour in Chicago, at least — if you want any cabdriver. Our job has been outsourced at home just like fast food — from an income that could buy a house and send kids to college (maybe for an 84 hour week — I’ve done it — to four guys sharing an apartment. If no one showed up for $8 an hour — no American born workers (too busy selling crack to survive) at McDonald’s you’d learn to pay 25% more fast.
I remember the summer before the New York meter was finally raised to $2 a mile — someone from the city was quoted as too many empty cabs built up in the garages: “Maybe we’ll add A LITTLE SOMETHING TO THE METER.” [Emphasis mine.]
Maybe our progressives ought to start to get real with their sense of proportion and think past — way past — adding “a little something” to les miserable’s wage (40 years after New York’s last successful taxi strike).
Yesterday Harold Meyerson pointed out in the American Prospect that raising the minimum wage is just the beginning of the way back out of the American labor morass — the last thing we need is a minimum (defined as anywhere in the vicinity of LBJ’s 1968 minimum wage), minimum wage.
http://prospect.org/article/raising-minimum-bare-minimum
And don’t forget about the ultimate answer to our labor woes: legally mandated centralized bargaining. The specter of that might really focus you better on the scale of the “real world” that you talk about in your pieces. I wrote something about it a while back, here:
http://ontodayspage.blogspot.com/2007/12/french-canadian-labor-setup-seamless.html
Progressive economists should readily admit — shout, scream — that a “moderate” federal wage increase, typically 10% cited in conservative studies, should indeed have little or no effect on poverty rates. Why would an extra 1/4 of one percent of GDP added to low wage pay checks be expected to clear a broad swath through poverty? That is what a $1 an hour increase in the federal minimum wage equates to — about $40 billion out of a $16 trillion economy. (E.I.T.C. shifts $55 billion.)
A $15 an hour minimum wage OTH would send about 3.5% of GDP the way of 45% of American workers — about $560 billion (much of it to bottom 20 percentile incomes who today take only 2% of overall income).
* * * * * *
Could raising the wages of 45% of the workforce actually raise demand for the goods and services they produce? Sounds sensible at some level; raising wages so much ought to add demand somewhere – but, is it all smoke and mirrors? Before the 45% — who would get a wage hike to $15 an hour — can raise demand anywhere, they would need to get the extra cash from somewhere else – meaning the 55%. (Bottom 45 percentile incomes – not wages – currently take 10% of overall income – so, at no time are we talking giant chunks of the economy here.)
The 45% can get higher pay even as “numerical” (to coin a phrase?) demand for their output declines due to higher prices — as long as labor gets an bigger enough slice of the new price tags. This can be compared to a leveraged buyout or buying stocks on margin.
Products produced by low-wage labor tend to be staples whose demand tends to be inelastic. Demand for food is inelastic – maybe even fast food. If the price of your Saturday family jaunt to McDonald’s rises from $24 to $30, are you really going to eat at home (the kiddies haven’t forgotten the fundamental theorem of economics: money grows on trees :-])? And fast food should be the most worrisome example: lowest wages to start with; even so, highest labor costs, 25%.
Wal-Mart is the lowest price raising example (surprise) with 7% labor costs. Jump Wal-Mart pay 50% and its prices go up all of 3.5%.
If low wage labor costs average 15% across the board and go up 50%, overall prices increase only 7.5% — and that is for low wage made products only; nobody’s car note, mortgage payment or health premium is affected. If demand drops just enough for price increases to maintain the same gross receipts (conservative, even without inelasticity), low wage income should improve appreciably.
Allow me to cite: from a 1/ll/14, NYT article “The Vicious Circle of Income Inequality” by Professor Robert H. Frank of Cornell:
“… higher incomes of top earners have been shifting consumer demand in favor of goods whose value stems from the talents of other top earners. … as the rich get richer, the talented people they patronize get richer, too. Their spending, in turn, increases the incomes of other elite practitioners, and so on.”
The same species of wheels-within-wheels multiplier ought to work the at both ends of the income spectrum — and likely in the middle. A minimum wage raise to $15 an hour is not going to send most low-wage earners in pursuit of upper end autos, extra bedrooms or gold seal medical plans. Wal-Mart and Mickey D’s should do just fine, OTH – which in turn should keep Wal-Mart and Mickey D’s doing even better.
* * * * * *
Did I forget to mention … ? The poverty line that a “moderate” minimum wage could not help anybody cross — $20,000 for a family of three – is only about half as high a hurdle as a realistically worked out minimum needs line should be. .
A practical line would be more like $40,000 a year. Today’s official federal formula is an early 1960s creation: multiplying the price of an emergency diet by three (dried beans only, please; no expensive canned) – no current basket of goods. For a reasonable basket of goods consult page, 44, of the, 2001 (2008), MS Foundation book “Raise the Floor.”
So, a so-called “moderate” increase in the minimum wage will not even clear a half-height hurdle.
Final thought: Why does everyone obsess so over the “hazards” of raising one price in our economy — low wage labor’s. Nobody shudders when the Teamster Union raises its price. It is not like the price of low wage labor has been habitually tested against market willingness to pay and been barely holding its own. It is more — it is exactly — like the price of low wage labor has sunk further and further below market willingness — precisely for lack of testing — as the ability to pay has grown and grown — for almost half a century now. To see, click my everything-adjusted-for-everything minimum wage history chart.
I do not know what to say to Denis’ observations, but on the same topic, income inequality, which Krugman talks about today and POTUS is supposed to talk about next week, I have been having a debate with one of my right wing friends–who predictably suggests that poor people are poor because of their failings and that we should not “punish” the extraordinary wealthy because we “envy” them–about both the damage it does and potential policy decisions to reduce it. Today I read a study which suggests that despite the dramatic increase in income inequality, there is actually more opportunity to go from the poorest quintile to the richest quintile today than in the 70’s. Of course the chances of doing so are still only 9% and we rank 15th among developed countries in economic mobility, but it did seem a little counterintuitive. Just wondering what the brighter minds on this site think about the study–which I believe but do not know– was nonpartisan.
Terry
speaking for the brighter minds…
(but not AS one)
no doubt there is still “opportunity” in this country. and no doubt we will always have the poor… not all of them stupid or lazy…
but it is purely a political, or moral, decision that results in the “poor” being miserable. there is NO reason a lawyer ought to earn more than a longshoreman or a janitor except that we have arranged an economic system that “decides” that, and we have a moral system that accepts it.
on the other hand there is no reason the poor should ape the rich and refuse to be happy unless they have the new car, the fashionable clothes, the big house… it has long been possible for “the least among us” to live a comfortable and fulfilling life on somewhat less than “average pay.” the problem is that we don’t learn how to do that, and the economy and the masters of the economy promote insecurity and misery and slave-like conditions in work and housing.
oh, and the banks are stealing people’s homes while the government looks the other way.
literally stealing. Bank of America and Wells Fargo use fraud as their standard business plan.
put another way
your friend “dont punish the rich” is repeating a brain damaged advertising slogan which has nothing to do with reality.
the rich are not being punished if they pay their fair share of taxes and are restrained from abusive business practices.
and any government action which tends to raise the quality of life of “the poor” ultimately makes the rich richer, even the honest rich.
but when you can wander around chanting “don’t punish the rich” why would you want to think about any of this?
and just to get a jump on the finer minds,
even some leftists wouldn’t understand why they should pay the cleaning lady the same dollars per hour as they pay themselves for their highly educated and highly socially valuable work…
but consider, if you are making a hundred dollars an hour, and that cleaning lady saves you from having to clean your own floors and toilets… isn’t she “making” you a hundred dollars an hour in opportunity costs?
the answer is yes. the extent to which you don’t pay her what she is worth to you is the extent to which you can find someone to “do it cheaper” and that is a result of power and not “economics.”
I just been reading a book called “The Rich Don’t Always Win” by Sam Pizzigati and, low and behold, neither FDR nor Truman came out hard for the populist side until their re-elections were threatened by the possibility of facing someone genuinely left (in hard times that called for strong action)– in FDR’s case by Huey Long a Father Charles Coughlin (the radio priest).
http://www.amazon.com/Rich-Dont-Always-Win-Plutocracy-ebook/dp/B007M2TFU0/ref=sr_sp-atf_title_1_1?ie=UTF8&qid=1390589004&sr=8-1&keywords=the+rich+don%27t+always+win
In Truman’s time by FDR’s dumped vice-president (nothing personal) Henry Wallace. Wallace started a new part that was polling 13%. The South started a party to pay back for some of Truman’s desegregation decisions. Now did it look like Truman had a chance.
Both suddenly began spouting the inspirational rhetoric about the middle class and the poor being bled to death by the rich that we always hear quoted today.
I guess that leaves on genuine heavy presidential populist, LBJ — who was the devil servant of Texas oil millionaires until he got into power.
Crazy world.
Maybe we could get Senator Elizabeth Warren out front campaigning burn-everybody’s-ears populist for president just to push whoever the Democratic nominee turns out to be into at least talking a good populist game — a lot better game than Obama’s — and to keep the Democratic winner (he/she will win if populist enough) talking, maybe even doing (!) populist, in fear of Warren or some similar candidate challenging same four years later.
http://www.salon.com/2014/01/25/listen_up_talking_heads_upward_mobility_isnt_the_answer/?source=newsletter
here is someone who puts it in terms more likely to be palatable to you than what i would say.
what i would say is that “both” are right. we need to protect upward mobility… as by better schools (a horrible political boondoggle as it usually means some scam that someone can make money on, but if actually done with the idea of helping kids become “more human”… that is, have better things to think about than sex, drugs, and raiders’ jackets) there is reason to hope it will do real good.) access to higher education… when that makes sense, and not just as a holding place for teenagers helping to keep the unemployment rate down, and sobering them up to be docile employees.
on the other hand, while “equality” is not a reasonable or desirable goal, “equity” (justice) is. and “more equality” is probably better for society. We don’t all need McMansioins and private jets, and the “rich” don’t all need to work for minimum wage, but people in generally should be able to live a better life than as wage slaves in public housing. and the rich don’t need to be so rich that they can govern the country by buying congressmen, or that they should be allowed to become rich by abusive practices.
“equality” as a political slogan scares the rich. they think “communism” in all the worst connotations.
maybe it sells to the poor… i don’t think so. most of the poor understand they are “not equal” in a money-earning sense, and most workers at least want the option of becoming rich… Reagan was a better politician than the progressives…
so, it’s not that i want to compromise and can’t we all get along…
it’s that i’d actually like to accomplish something..
and of course i don’t think that “levelling” was ever a very good idea.
but limiting the power of the very rich to own the government and commit crimes against people is a good idea.
and it will sell. as Roosevelt showed, and he didn’t even have obvious criminals in high places to point to.