In Praise of Net Social Benefits
A weed, Crabgrass, taking root.
When someone says, “if we raise the minimum wage, there will be more unemployment.” That may be true, but their fear of unemployment is not wise. It is better to say, “if we raise the minimum wage, will net social benefits be increased?”
When someone says, “if the Fed had gradually raised the Fed rate over the last two years, there would have been more unemployment.” That may be true, but their fear of unemployment is not wise. It is better to say, “if the Fed had gradually raised the Fed rate, would net social benefits have increased?”
Raising the minimum wage will increase net social benefits in the current environment. I refer to this paragraph from Bruce Kaufman, Institutional Economics and the Minimum Wage: Broadening the Theoretical and Policy Debate, page 444.
“Minimum wage laws may enhance (social) efficiency in another way as well, by protecting not only workers but also “high road” employers who make long-term investments in human capital, physical capital, and R&D. Research shows that productivity is higher at firms using a high performance work system (HPWS) with self-managed work teams, job security provisions, extensive training, employee involvement methods, and formal dispute resolution programs (Appelbaum, Berg, Kalleberg, Bailey 2000). These kinds of organizational investments are crucial for long-run growth but may be seriously impeded by the instability and hyper short-term competition found in competitive markets. A minimum wage law can protect and encourage new forms of work organization, such as HPWS, by putting a floor under competition so “low road” firms are not able to undercut and drive out high road firms.”
The low Fed rate increases the existence of low road firms, as Bruce Kaufman calls them. The result is that they impede healthy organizational investments for long-run growth. Thus, net social benefits are reduced.
If the Fed had gradually raised the Fed rate over the past two years… very gradually… Firms would have been made more socially accountable and efficient. Some low road firms, would have been weeded out. Even though the banks do not want that to protect their own capital ratios, it would have been better for society.
Moreover, financial repression would not have set down such strong roots into the economy. As it is now, we will probably see the Fed rate sit at the ZLB for years. …
Net social benefits from the economy have fallen due to the low standards of excellence and quality reflected in the low minimum wage and the persistently low Fed rate.
>>> When someone says, “if we raise the minimum wage, there will be more unemployment.” That may be true, … <<<
Not likely true — at least not at the minimum wage level — more likely at some higher level from (small) fractional loss of demand that shifts to maintain purchasing of minimum wage produced products and services because they still represent a better buy (you have to eat somewhere; Walmart will still be cheap).
When I theorized that doubling Walmart’s average hourly wage ($11 according to them) and laying on 25% more in benefits would only raise prices 10.5% (7% labor costs) — someone came back at me that Walmart’s sales being $260 billion that would suck $26 billion out of Walmart’s low income customers.
I came back that the lowest 45% of employees (also customers) would be getting $560 billion in raises from a $15 an hour minimum wage hike (70 million average 8,000 yearly raises) — which $560 billion represents only 3.5% of GDP — which 3.5% will come from the other 55% who currently partake of 90% of overall income.
The top 55% will take a (very) small hit — the bottom 45% will stop living in desperate penury (still uncomfortably close). 3.5% is how much we should grow every few years.
Big problem is that we need re-unionization on a country wide scale to take that (repeating) 3.5% back from the 1%.
Denis, you admit that Wal*Mart’s raising wages would increase prices to consumers, so why do you think that raising the Minimum Wage would not increase the price that Wal*Mart pays its suppliers?
Jack,
I figured 45% of the workforce getting an average $4,000 raise — 5% getting an $8,000 raise. That should cover it.
Of course, other wages get pushed up because of that. But, that’s the underpaid middle — $26,000 median income (doesn’t fit with $16 an hour median wage, but I guess that’s because of fewer than 50 weeks or 40 hours) — trying to get back to a reasonable level of pay.
Government says $400 a week is the poverty line for a family of four (maybe if they have free rent) which is what most of the people working in stores, etc., that I come in contact with all day earn or maybe a little more — MS Foundation chart adds up to more like $1,000 a week if they pay their own medical.
I’m glad to see you are coming around to — or getting painted into a corner by — the eighth grade math. 🙂 I guess.
I am ambivalent about the Minimum Wage.
First, I think the U.S. government simply does not have the Power to impose a Minimum Wage (though of course, States do).
Second, if a man cannot get a job at $7.25/hr, but can get one at $5/hr, why should it be illegal for him to take that job?
Third, it puts the lowest rung of the ladder out of reach of too many young Blacks.
Fourth, it makes our unskilled laborers even less competitive with foreign labor.
On the flip side, it forces improvements in efficiency. Instead of having grocery store cashiers working Minimum Wage jobs, they have been replaced by self-serve scanners (probably programmed in India and manufactured in China). When the price of labor goes up, the relative price of capital improvements goes down, and that leads to technological improvements which eventually benefit everyone.
Jack since all States except the first thirteen were explicit creations of Congress where do you derive your theory that they have rights to rule over Commerce that are denied to the U.S.? I get the “Reserved Rights” construction of the Tenth Amendment but why would those not be trumped by the individual rights granted by the Ninth Amendment?
I would think that most Libertarian minded folk would be Ninth Amendment about lists rather than just granting “of course States have. the rights to restrict liberty of Contract”.
Says who? It would seem you can coherently argue the primacy of Personal Property and Private Contract against ALL State actors but rather odd to say that Intermediate State Actors such as the 37 States created pursuant to the Constitution magically get Rights granted by the U.S. that are the same time denied to the U.S.
This is related to the same absurdity that argues that Lands unequivocally acquired by the United States through treaty and outright confiscation somehow pass out of the power of the United States simply by being included within the boundaries of a newly established State. Under that argument the U.S. would not own any Miitary Base or Post Office or Federal Building acquired prior to Statehood of that previous Federal territory. Or is there some logical or legal argument that would show that the U.S. somehow owns White Sands or the Preaidio in San Francisco but does not own the Lands administered by the Interior Department prior to Statehood?
Welcome to AB. Because we need smarter Conservatives. Just be prepared to argue out these deeper legal, constitutional and the como if argument based on more than lazy readings of Common Law by Tenthers.
Can you cite sources or provide arguments to show that States “of course” have the rights to restrict private contractors? Pretend I am a Libertarian and not an admitted New Dealer and make the convincing case.
For example I faintly understand the arguments of certain strands of the Sovreignity movement that argue that County Sherrifs are in fact the highest or perhaps only legal heads of government. I think the argument is historically flawed in that it tries to relate the Powers of U.S. Counties to those of their historical antecedents the English Counties and then relies on a fundamental misconception of the relation between English Counties and the early Kingdoms that begat some of them (e.g the County of Sussex derives from and has much the same boundaries of the Sixth Centrury Kingdom of the South Saxons (whence Sus Sex)). But understanding why it is flawed requires some advanced knowledge of the governmental administration and structure of Roman and then Saxon England and how those were mediated by the primacy of the Kings of Wessex over the Kingdoms of the Heptarchy (GOT being an imposition of the 14th c. War of the Roses over the 7th c Heptarchy).
Which is to say we can have some lively discussions of the relation of powers between ‘Counties’ ‘States’ and the sequence of Federal State-like institutions that resulted in the United States of America. But it would require addressing such things as that the powers of the Federal government over schools was a product of a law passed under the Articles of Federation and never subsequently abrogated by either the Constittuional Convention or Congresses created subject to the Constitution and oh by the way the basis for most property rights created in those States created after the Constitution but prior to the1860s Homestead Acts, which is to say every State between the Alleghenies and the Mississippi River.
So welcome my friend. But know that some of us could give two shits about unsupported interpretations of Constitutional Law no matter how popular those are among the folk at Red State or Breitbart or for that matter the Cato Institute. Wanna play at AB? Then bring both your A and B Games. Because what I have been seeing in the last couple weeks has been more like Weak C. Or more precisely Weak Tea.
I won’t even address the fatuities of Jack’s points 2-4. Because if he can’t back up point one he is just a lazy poseur of a type too familiar to AB over the last eight years or so. (Anyone seen FA or He Who Must not Be Mentioned? Or should I simply say ‘Welcome Back Noraa from Cantibrigia!’ Sniff Old Tymes.)
Jack,
<<< Fourth, it makes our unskilled laborers even less competitive with foreign labor. <<>> Third, it puts the lowest rung of the ladder out of reach of too many young Blacks. <<<
That's like saying young blacks are worth less to an employer than, say, uneducated faulty-English speaking foreign born workers. I know you wouldn't mean it like that if you thought about it in those terms but that's what it adds up to economically.
100,000 out of appox. 200,000 Chicago gang-age minority males are in street gangs — pretty surely because they will not go to work for a minimum wage that is $3.50 an hour less than it was in 1968 when the country is now twice as productive.
<<< Second, if a man cannot get a job at $7.25/hr, but can get one at $5/hr, why should it be illegal for him to take that job? <<<
Let's get a look at the big picture — the scale — here. If we could somehow have foretold to the people of 1968 that by early 2007 (min wage bottom) the minimum wage would be down almost half what would they have guessed: a comet strike, a limited nuclear exchange, airborne Ebola? To look at the scale another way — under Malthusian theory if the population goes up one half (US population grew by half since 1968), labor incomes have to go down by a third (not almost half!) — that was before something called the Industrial Revolution of course.
<<< First, I think the U.S. government simply does not have the Power to impose a Minimum Wage (though of course, States do). <<<
You and I may differ — but the US Supreme Court disagreed with you during FDR's administration.
Silly computer tricks again. Notice the first answer disappeared — probably having something to do with these things: <<<
Not important to restate. Something else to worry about. 🙁
This week from the Center for Economic and Policy Research, which compared employment growth between states and found that those states that raised their minimum wage levels experienced higher growth than those that didn’t.…
http://www.cepr.net/index.php/blogs/cepr-blog/2014-job-creation-in-states-that-raised-the-minimum-wage
“While this kind of simple exercise can’t establish causality, it does provide evidence against theoretical negative employment effects of minimum-wage increases,€” writes Ben Wolcott of CEPR. In other words, it doesn’t prove raising the minimum wage always creates a certain number of jobs within 6 months, but it does add to (http://www.americanprogressaction.org/issues/labor/news/2014/02/18/84257/evidence-shows-increasing-the-minimum-wage-is-no-threat-to-employment/) the pile of evidence showing that raising the minimum wage doesn’t negatively affect employment.
And CEPR isn’t the only group that reached these conclusions.
An analysis by banking giant Goldman Sachs also found the states that raised their minimum wages doing better than those that didn’t.
href=”http://thinkprogress.org/economy/2014/07/03/3456393/minimum-wage-state-increase-employment/”
No, but the young blacks COST more — in government-mandated paperwork, payroll taxes, and Minimum Wage. They don’t do these things when hiring illegals.
Yes, it did.
This study has two flaws, Dan. First, there is no baseline — how much was each State’s economy growing before the Minimum Wage increase. Second, there seems to be no correlation — yes, on average those that raised their Minimum Wage grew more, but the top two growth States did not raise theirs, and New Jersey, which did, was the biggest loser. The rest are scattered randomly through.
These studies are much better — especially the bordering-counties studies. (They even eliminated those “bordering” counties that were separated by considerable rivers, which deter commuters.) They also looked at “anticipation lag” around the time of minimum wage changes. I strongly recommend that everyone read them. (I only linked to one.)
You last link is just a repeat of the first.
I guess the biggest concern I have with the “net benefits” approach is that a few — the most vulnerable, those at the lowest end of the economic spectrum — will be hurt A LOT, for miniscule benefits to the many.
The biggest concern I have Jack is that you are pulling that “A LOT” out of your ass based on simple assumptions not backed by any empirical data.
For example you seem to have examined by eye the spread between states that raised the minimum wage and those that didn’t and just make plain assertions that “there seems to be no correlation” and “the rest are scattered randomly through” without providing any actual data analysis.
‘Seems to me’ is not an adequate claim here. But you don’t seem to have anything else.
Not to mention that the people whose claims you are aping show no signs of their own of examining “baseline”s and are perfectly happy to report nominal changes when it suits their purposes.
Look the argument againsts minimum wage is that it will cost jobs. You admit that you have no evidence that there is an actual correlation between raising minimum wage and costing jobs only that there are states that increased jobs that didn’t increase minimum wage. Which are not logically equivalent.
For example lets take the case where two different policy approaches were taken. In approach one the State Government established strong rules in favor of ‘prevailing wages’ for all State and local contracts. Which you might call a ‘median wage requirement’. While in approach two the State Government increased the minimum wage. And lets say (purely for the sake of argument) States pursuing both approaches saw actual improvements in employment overall do to multiplier and wage attractor effects. The argument that States that used approach 1 did not do better than States that used approach 2 does NOT mean that approach 2 doesn’t work. In fact it might argue for a Belt and Suspenders combined approach that pushed for an increased minimum wage AND prevailing wages for all governmental contracts. That is the fact that two states had greater reductions in unemployment than those that raised minimum wage has ZERO explanative power.
Now lets say you had four States, two that increased minimum wage and two that eliminated it and that employment increased more in the second two than the first two. Well that at least would be an argument. But instead you seem to be claiming that a positive correlation between minimum wage increases and employment (your “yes on average”) is simply offset by two outliers whose change may not have been related to changes in wage at all is just lazy after the fact pseudo-argumentation.
Yeah it seems clever to brain dead Red Staters but doesn’t actually prove anything. Because you have made no attempt at all to control for the relevant variables.
Plus the whole idea that Libertarians like you, people who openly expouse the idea that maximizing freedom means allowing people to maximize their own returns are somehow concerned with the losers “the most vulnerable, those at the lowest end of the economic spectrum” is intellectually incoherent. Particularly when coupled with active hostility to any act that would positively direct resources to that “lowest end”.
Now some of my objections could be offset by actual data showing that increasing minimum wage city wide or state wide actually hurt that most vulnerable population then we would have something to talk about. But you have presented nothing but platitudes and conclusions based on simplistic Principles textbooks.
It is all special pleading Jack, maybe you should try elevating your own game by Googling the concept ‘logical rigor’. Because your “A LOT” and “miniscule benefits” are based on nothing at all. Something I addressed with a little more humor and certainly more rigor in past posts on minimum wage at AB with titles with variations on “The Jimmy the Stock Boy Fallacy”. For example this from 2009:
http://angrybearblog.strategydemo.com/2009/02/minimum-wage-jimmy-stock-boy-fallacy.html
Lambert
I don’t think it wise to say there “may be” more unemployment if the minimum wage is raised.
why should there be. there is still the same productive capacity in the nation, the same “unlimited wants” and the same “money’ (allowing for the fact that “money ” is someting of an illusion).
There is no job worth so little that it can’t be paid more to have done. It is true that in the moment, there would be some shift of buying power from the “comfortable” to the “uncomfortable,” but, to take a crude example.. if people are going to want their toilets cleaned at five dollars an hour, they are still going to get them cleaned at six dollars an hour. The one dollar that “costs” them will show up in one less dollar spent… or borrowed…on something else…. and ultimately,perhaps, on someone now making 20 or 50 or a hndred dollars an hour making fifty cents less an hour…. but the “higher min wage will cause unemployment” is just the cocktail wisdom that employers fool themselves with.
wages are up to a point a consequence of political power not “economic forces”
Bruce
I think you give Jack too much credit. His “analysis” of the minimu wage meaning that you can’t hire someone who was only “worth” five dollars an hour when the min wage is six (numbers made up to suggest that it doesn’t matter what the actual numbers are) shows that he doesn’t even understand the point of a legally mandated min wage.
with the min wage, that worker is automatically worth the six dollars… as long as you want the work done. and you will as long as you have customers.. and you will as long as the customers have money and demand your product. there is NO law economic or otherwise that says “current prices and wages” are created by God and cannot change in response to changes in the “economic” environment… such as a raise in the min wage.
i didn’t say that as well as i would have liked.
one tends to forget that the higher min wage folks will have money to spend on things they couldn’t buy before… this money will filter through the economy resulting, i think, in no net loss of production or jobs.
jack, who hopes to make a federal case out of my saying that most people are not as smart as they think they are… certainly seems to think that poor people are not smart enough to “deserve” more pay… or that their bosses are not smart enough to design their work so they are more productive.
something real bosses do all the time when they can’t get away with slave labor.
Dale I don’t give Jack any credit. I am simply mocking and baiting him by using his own presumptive superior knowledge technique.
If he wants to shut me down he needs to out mock me by elevating his level of pseudo-knowledge. Or perhaps by actually showing some mastery of the topic he is posing as an expert on.
I am not waiting up on the latter.
Coberly,
I only said “may be” because unemployment should not be the over-riding concern. But rather, net social benefits should be the over-riding concern.
So if unemployment rises, but net social benefits increase, then that is a good thing that unemployment rises, because in the long-run the economy will be stronger and unemployment lower.
Policymakers who focus on unemployment and not net social benefits are weakening the economy. They mistake the unemployment number for increased social benefits.
Lambert
you could be right, but as a person who was unemployed for a long time while Reagan was strengthening the economy, i can tell you that i was not glad to learn how much better “we all” were going to be” by and by.