Sunday, May 31, 2015

The "side impact" of aminimum wage hike

IMAGINE that all fast food restaurants (the only ones I know the numbers for — also, I never see the inside of a full-service :-)) were somehow able to conspire to raise their prices 25% all at the same time (about how much a $15 an hour minimum wage would impact fast food prices). Demand for food is inelastic so it is in the realm of possibility that fast food might make out like gang busters. Possible.

Now imagine that fast food was able to conspire at the same time to have the federal minimum wage raised to $15 except for fast food. Most industries average 10-15% labor costs and don’t pay as low as fast food to start with (fast food 33% labor costs; 25% price hike because not all at minimum) — let’s say average price hikes in other industries that use low wage labor average about 6%; not enough to heavily hurt employment.

Wage levels tend to patronize their own wage levels. Allow me to cite an example from the opposite wage end: 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.”

In the double conspiracy case fast food should surely make out like a bandit because its low wage customers would benefit more from the wage hike than the food price hike would hurt them: driving business up …
… driving business up no matter who benefits from the price rise: labor or management. 

Where is all the extra dough ultimately supposed to materialize from? From higher income employees or agents who have been getting relatively more of what consumers are willing to pay — than lower wage employees in our particular economy who have been getting squeezed unmercifully below what I call their natural market value for decades (minimum wage one-third below peak, double average income later! — time to mark the minimum wage to market).

This “side impact” on fast food businesses from employees of firms that did not have to raise prices relatively as much to meet the same wage hike is probably what Card and Kruger observed in their seminal study. It is probably why business went up in the states that raised their minimum wage.

Friday, May 22, 2015

The landlords are coming; the landlords are coming!

IMAGINE we magically (without unions) mark wages to market (what the consumer will pay) -- could we hold on to the money?

"The landlord reaps what he does not sow." Familiar is the plight of the business that grows and grows as the landlord raises and raises the storefront rent. Ever more apartment renters in this country are gouged for everything they earn over subsistence. The Lord made the Earth and He's not making anymore. Also more and more rentals are going condo. If retail workers go from $500/wk to $800/wk, how much will the landlords milk?

Wednesday, May 13, 2015

The missing link in macro economics: labor extracting what the market will bear

Glad I watched Stiglitz video to the very end -- to the part where he contradicts the (fading) free market consensus that pursuing LOWER inequality inevitably causes market distortions that lead to a loss of overall efficiency.

A more fundamental understanding than even progressive economists present (the missing link in macro economics if you ask me) for why HIGHER inequality is associated with higher in-efficiency, higher in-stability and lower growth is that the true market distortion results when labor is unable to test -- indirectly -- what the ultimate consumer would have been willing to pay for the combined product of capital and labor -- through collective bargaining with capital.

When labor is priced only in comparison with other labor – what I call a subsistence-plus labor market -- I think that the most serious miscalculation of relative value occurs.

Thursday, May 7, 2015

Labor Unions Trump Luddites

Mere civil penalties -- if you can call reinstatement a penalty -- carry zero deterrent against union busting.  Firing employees who attempt to organize a collective bargaining unit can be overwhelmingly profitable (unlike practicing forms of discrimination).  Firing a few organizers packs the same tactical punch as locking out the entire workforce but with zero economic inconvenience to the boss.  An employer may even feel compelled to bust a union because the firm down the road does so and he wont be able to compete equally.

Labor unions have no chance to ever resume their role as the natural  counterweight to employer interests unless union blocking/busting will be met with serious jail time.

Disappearing organizers deprives them of more than a job: it strips them of -- both -- the economic and political sinews they need to interact effectively against competing interests. Employees may be able to find another job but they cannot find another fair and balanced society (unless they emigrate to Denmark).
 * * * * * * * * * *
Once a state legislature makes union busting a felony, federal and state RICO prosecution will kick in (there are 33 state RICO laws).

A business (which is not the defendant and which can be perfectly legit) fits the case law definition of an ongoing enterprise -- if it has:
(a) a purpose,
(b) a life outside the crime (a bank robbery gang is not an enterprise),
(c) longevity -- which is taken as over a year or substantially over. Longevity however may be considered built in: for example, if a demand is made for $1,000 a month. I imagine union busting action could be taken as having a common sense expectation of longevity -- if not, wait a year, then factor in the common sense expectation and start your prosecution.
 * * * * * * * * * *

The Industrial Revolution replaced fairly paid individual cloth weavers with steam loom operators whose incomes were squeezed below subsistence by the “Iron Law of (unorganized) Labor.” Over the same period, anyone in England who publicly advocated universal suffrage for all males was on his way to jail and then to Australia.  
The Making of the English Working Class (1966) -- E. P. Thompson

How much happier employees would have been to successfully support legislation protecting collective bargaining -- than to burn down looms.  Labor unions trump Luddites.  :-)

PS.  At first I couldn't believe reading that four years ago, California Governor Jerry Brown vetoed card check legislation for farm workers (of all most desperately in need).  Then, further informed that California has the strongest labor law in the country -- 10% cards signed, the union gets the names and addresses of all employees; 50% gets an election within 7 days, no delays.  Also been suggested Brown traded this off for support for his deficit fighting bill -- possibly figuring he wasn't giving away much even if the other side thought he was.  ???  Important revelation for many here is that states may and do pass their own, even stronger than federal, labor legislation.

[LATE NOTE:  Just came up with this gem -- in Wisconsin it is a crime to force collection of dues for a union:
"Right to work comes with a Class A misdemeanor. Requiring dues payments could mean nine months in jail and/or a $10,000 fine for each violation."

[So when are we going pass state (and eventually federal) rules criminalizing employers thwarting employees exercise of their right to follow the federally prescribed formula to organize a collective bargaining unit by firing them?]