Saturday, August 16, 2008

MULTIPLIER EFFECT for labor of minimum wage or union bargaining wage hikes…

A MULTIPLIER EFFECT of minimum wage or union bargaining wage hikes may exist for labor…

…when labor costs are a minority component product price. Since the labor costs of even the highest labor use business, fast food, are but one-third, this multiplier can apply to virtually every labor negotiation -- or minimum wage raise:

If doubling today's $6.55/hr minimum wage (with inflation adjustments guaranteed for incomes under $100,000) hikes the price of a Big Mac from $3 to $4, then – as long as the restaurant barely stays in business – labor has the bargaining potential to double it’s pay at the cost of only a few, high turnover jobs.

Would a 33% price jump for minimum wage made products deduct from overall demand? The Mac purchaser has one dollar less to spend on other things, but some Mac worker somewhere has one dollar more to spend on anything. The direct economic effect is the loss of business to the Mac buyer's fav brands and the gain of business to the Mac maker's fav brands.

Direct inflation from doubling today’s $6.55/hr minimum wage can be reasonably computed at about 3%. Other wages pushed up, to make an un-educated guess, could add another 3% inflation for an overall rise of 6%.

$13/hr being roughly today’s 35 percentile American wage (wont have exact figures until the new State of Working America book comes out), it is safe to estimate that American workers up to the 45-50 percentile wage range could be in for, on the average, a whopping 50% wage boost from a doubling of the minimum wage (counting push ups) while typically adding only 6% to the price of what they produce -- which "multiplier effect" should make any, at worst, smallish unemployment effect -- lower income boost could plausibly boost demand for lower income made products -- easily tolerable in their sights.

Would diverting dollars from a better paid (and probably more skilled) consumers' pockets to low skilled workers' pockets warp labor market incentives in the direction of lower encouragement for training and education?

First, 6% higher prices yielding 50% of the labor force an – on average -- 50% pay boost should make any -- at worst marginal -- pay/education trade off look more than appealing to all.

Second, the highest price consumers are willing to pay -- not the lowest "fire sale" price -- should mark the true utility of labor (or anything else for sale): 6% allowing 50% to earn 50% more with minimal or very plausibly no loss of employment suggests that lower 50 percentile labor's price is extremely warped in the negative direction now (in America's virtually unfettered labor market).

Besides, people by and large are mostly incentivized to get -- or not get -- educated by their own internal compasses – higher income folks, to whom most of the burden of the 6% inflation would (hopefully) be passed along, mostly on the "to get" side.

Best of all, lifting 50% or more of our workforce out of grinding, living-to-work existences would incentivize -- as well as make financially doable for -- much greater numbers to seek education and training that most could not have dreamed of while surviving and not much more, paycheck to paycheck: the genuine ghetto buster.

No comments: