Wednesday, January 22, 2014
Friday, January 17, 2014
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).
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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.
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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 Teamsters 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. Click for my everything-adjusted-for-everything minimum wage history chart.
Saturday, January 11, 2014
Perhaps the rise of a startling new “inequality” will wake up upper middle class progressives to see income inequality as their core concern — NOW THAT IT IS HAPPENING TO THEM!
For decades the top 90 to 97-98-99 percentile incomes about kept up with overall income growth. 50 percentile incomes remained stagnant — 50-90 grew proportionately to their place along the slope.
Since 2007 something like 95% of overall income growth has been going to the top 1%.
Now that (it really is) ALL 99% frozen out of income growth — the growth everyone rushes to track the progress of every quarter -- now, at last, our deckchair rearranging politicians may be able to hear the political opportunity knocking for reforming the American labor market (and concomitantly the political forum) from the ground up — now that most of their upper middle class friends are caught in the same pay and benefits tailspin.
Obama’s 50th anniversary of the War on Poverty show was anemic “Promise Zones”, promising affordable housing (anybody really ready to massively build?), education (ghetto schools don’t work because students -- and teachers! -- see nothing to strive for when nothing attractive awaits them in the labor market when they leave school*) and of course tax incentives for small businesses. Get me “Model Cities” from the sixties.
Krugman most recently cited the core inequality roots as the evaporation of labor bargaining power (add concomitant lost political muscle) — mostly due to virtual de-unionization of the US labor market. The only solution for that in the purely mechanical sense (whatever we think of its political possibilities) is legally mandated, centralize collective bargaining — wherein everyone doing the same sort of work in any geo locale (where applicable — airline workers would cover the whole country) negotiate one contract with all firms.
Jimmy Hoffa pioneered this kind of bargaining in the US with his national freight agreement for all truckers. Centralized bargaining was instituted post WWII on continental Europe* by INDUSTRIALISTS (not the radical left) to keep labor from going on a race to the top, conserving money for rebuilding. Magic bullet: it stops race to the bottom just as surely: the world’s only example that I know that truly fairly balances labor markets.
Spread worldwide over decades from French Canada to Argentina to Indonesia — to the US? No other labor market setup possesses the potential to restore what we used to think of normalcy to American economic (and political) life. Supermarket workers and airline employees would kill for centralized bargaining – good place to start.
Maybe now that the “Great Wage Depression” (I prefer to the saccharine “inequality) has lowered the boom on progressive leaders upper middle class circles too, maybe now same will reach for the only plausible permanent solution: centralized bargaining.
Obama may even wake up some day and realize he has a unique historical opportunity to become a culture changer (like MLK was) without needing to obsess over becoming a political loser (like JFK did).
Sunday, January 5, 2014
The first (dumb) thought that occurs to me when I see a chart like the one below is that the top 1% of income may jump much faster and higher than the bottom 20% -- but (stupidly) that since they represent a much smaller fraction of the overall workforce that that shouldn't take much from the bottom. (Sounds so sensible if you don't think.)
Then, I wake up and remember that the top 1% of incomes represents 23% (and growing) of overall income while the bottom 20% are the ones who get the tiny fraction of income: less than 2% (and going down).
Sources: U.S. Congressional Budget Office, Center on Budget and Policy Priorities