Tuesday, August 29, 2017

Let's analyze the minimum wage upside-down -- and backwards

Let's begin analyzing the minimum wage where we usually end: with how the newly higher pay recirculates back into the consumer market.  But let's start out BACKWARDS: let's imagine we are going to take pay away from the minimum wage workers -- and see what happens.

I know that scenario sounds extremely unlikely in real life* but stick with me -- for some reason it seems just a little easier to imagine how money recirculates when we give the money to consumers (rather than add it to wages).


Imagines that we take two dollars an hour back from min wager workers.  That money will then be spent by better paid consumer/workers.  Since consumers tend to purchase disproportionately more goods produced by people at their own pay level DEMAND FOR LOWER WAGE MADE GOODS WILL LIKELY (not always) SHRINK -- killing off some minimum wage jobs?

Of course, if a min wage RAISE is priced right -- sending more money overall to the pockets of min wagers -- then, the low income consumers will spend those new dollars disproportionately more on min wage made goods -- and DEMAND FOR MIN WAGE GOODS COULD ACTUALLY INCREASE -- creating more min wage jobs?

As long as we don't overdo it.  Since fed min was $11.45 (adjusted) in 1968, and US per capita income has doubled since then, there seems little chance of overdoing anything.

Usual second consideration (second here too): if fast food with 33% labor costs can pay $15/hr, then, Target with 10-15% labor costs ought to be able to pay $20/hr, and, Walmart with 7% labor costs (can't wait to get a union in there) should be able to pay even $25/hr.

Jason Furman, chairman of Obama's Council of Economic Advisers of all people touted that Walmart saves consumers $260 billion a year ("a progressive success story").  Cut 10% off that Jason and you can give every Walmart employee a $20,000/yr raise.  (Jason quoted Walmart only paying employees $5 billion less than optimal -- but that was 5 billion less than other miserable paying, non-union American jobs, Jason.)

Usual first point: with any commodity other than labor the first (that's first) thought is (always) what proportion of the cost of production does the commodity account for.

There are states where the median wage is not quite $15/hr.  Raising the minimum to $15/hr seems impossibly overreaching -- at least how it is made out in most of our supposedly progressive academic and press discussions (heads in the clouds or what?!).  If a firm is paying every last worker $10/hr and has to go to $15 -- and if labor represents 12% of costs, the consumer price goes up 6% (that's if every last employee is paid 50% more).  Sounds a lot less "impossible", doesn't it (down from the upper middle class clouds -- pay attention to everyday life please)?

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