Greg Mankiw reads this story and writes:
Staffers in the Sanders campaign, who are working on salary, complain that they are paid less than the $15 per hour that Senator Sanders advocates for the minimum wage. So Sanders raises their hourly wage. Does that increase their income? No, because he raised the hourly wage by cutting the number of hours they work! Of course, if a President Sanders raised the federal minimum wage, I am sure he would be confident that the change would not have any adverse employment effects. Downward-sloping demand curves may describe socialist political campaigns, but back in the actual capitalist economy, the laws of supply and demand work completely differently.
OK – he started his post by saying it is a wonderful story, which is true. But as I read the story, I saw a very different tale than the one Mankiw suggested:
Field organizers say they make a salary of $36,000 annually but work 60 hours per week, which is an average of $13 per hour … Sanders’ 2020 campaign was the first to unionize in March 2019. The union then made an agreement with the campaign that field workers were to be paid $36,000 annually. The contract, which began on May 2, also provides platinum level health care, paid vacation, sick leave and other benefits. Shakir also told Newsweek that leadership at the campaign previously offered a pay increase for field organizers, but that the offer was rejected in a formal vote. According to the Post, Shakir offered organizer pay to be raised to $42,000 annually and extend the workweek to six days. The offer was reportedly rejected because it would have elevated staff to a pay level in which they’d be responsible to pay more of their own health care costs.
Let’s note what Mankiw did not. The negotiations also involved what appears to be a decent level of fringe benefits in addition to a $36,000 per year salary. These workers are apparently working 60 hours a week, which if they did so for 50 weeks would indeed translate into 3000 hours per year at $12 per hour. Does Harvard require its faculty to put in such an incredibly demanding schedule? I hope not as we know Mankiw loves to spend time with his children. Now if one worked 6 days a week and 8 hours a day for 50 weeks, then $36,000 per year translates into $15 an hour. How Mankiw interprets this story into evidence that we are seeing a competitive labor market moving along a downward sloping demand curve is beyond me. I’m sure he can explain this all to his students at Harvard.
I’m sure he can. Harvard graduates the best liars in the world.
Intuitively, we expect that if the bottom 40% of earners increase their take of overall income from 10% (okay, 11.3%, but I like round numbers — so does the general public) to 20%, that they will live much more prosperously.
Intuitively, we naturally fear that the path to that goal (should be our #1 national goal if you ask me), doubling their wages, will lead to ruinous loss of employment.
The latter intuition ignores the wheels within wheels of labor markets dynamics that make said path not only easy, but self-reinforcing. First, increasing labor’s price at typical 15% labor costs businesses will only add (typically) 15% to consumer price. Second, those doubled incomes (speaking broadly) are going to create huge consumer demand of their own — dollar for dollar (for the most part) replacing demand lost due to higher labor prices due to higher consumer prices.
Any cab driver could figure out this simple equation — too confusing for some big time econ text book authors.
I should add to above — typical, what I call split-screen researchers’ example: economists project loss of jobs in high end restaurant businesses if low wage workers receive a pay raise (often thinking that increased wages should more than make up for lost positions).
Split-screen: of course an increase in low wage earnings is not going to create demand at high priced consumers businesses. Will somebody please use their brains and do a survey to find out what these workers do with their increase wages? (Thinking Card and Krueger, anybody?)
What did I tell you about Labor?