Wednesday, September 3, 2008

More Minimum Wage Action At Angry Bear

HERE IS MY VERY LATEST TAKE -- lifted from comments to be a post on ANGRY BEAR on 8/10/13: 

The bottom 50% of America’s workforce now takes 12% of overall income. It is hard to believe that the products and services produced by this half of America's workforce (70 million people!) would no longer be in demand over a few percent shift in overall income from the top 50% brought about by a $15/hr minimum wage (today's median wage).

Half the workforce, 70 million employees would receive an average $8,000/yr = $560 billion added to the cost of $15.8 trillion economic output = only 3.6% direct inflation.  Probably wouldn't lead to much additional inflation.  Economies with high minimum wages have median wages not much higher.  LBJ's 1968 median was only 25% higher than his approaching $11/hr minimum wage (at half today's per capita output!).

If the federal minimum wage were raised to $15/hr Wal-Mart wages would go up 50%; Wal-Mart prices would go up only 5% (retail wages 10% of costs) -- fast food wages would go up 107%; fast food prices would go up 35% (fast food 33%). 10-33% is pretty much the range of labor costs -- clustering close to 10% I believe.

With half the labor force getting percentage wage increases that are multiples of their employers' percentage price increases their employers should do better than ever.

Unrealistic? Wal-Mart supported the 2007 minimum wage increase from $5.15/hr to $7.25/hr so its customers would have more to spend.

Wal-Mart would not like a minimum wage of $15/hr. Wal-Mart had to close 88 big boxes in Germany because it could not compete paying the same as everyone else. Since the late 1940s, economies on the continent (and since, around the world) have instituted sector-wide collective bargaining: all employees doing the same work (e.g., retail clerk) in the same locale work under one commonly negotiated contract. Only way to reset middle class mojo here.

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9/4The problem that has to be solved is the long term stagnation in lower to upper middle wages while average income grew 70%. See the best inequality chart I have ever seen:

I am looking at a chart in the State of Working America 2006/2007 (the new one should be in the mail) and it gives the 1973 median wage as $14.35/hr (in 2008 dollars) -- and the 2005 median wage as $15.75/hr.

Average income is $25/hr in 2008 (I believe we could make that closer to $35/hr if we larded in capital gains). Working backwards from 170% to 100%, AVERAGE income should have been (guess what?) in 1973: $14.75/hr -- virtually the same as 1973 MEDIAN income of $14.35/hr. So it seems (I never worked this out before) that average income and median income really can be about the same.

Over 35 years, 12.5% of income share was sucked up from the bottom 90 percentile to the top 3 percentile (the mid 90-97 percentile share holding even)...

...meaning it is not a matter of the better skilled people beating out the lesser in a higher tech economy: the top 3 percentile have always been highly skilled and educated -- but the top 1% now get 4X the 1973 share of income (meaning 7X the absolute amount -- given 70% average income gains in between) that they got 35 years ago for doing essentially the same level work (think CEOs, ballplayers and new anchors).

Which reduces the whole inequality problem (I prefer to call it the Great Wage Depression) in my mind to a simple matter of lost bargaining power.

Hence my emphasis on restoring same by forcing the market to pay what it would have paid anyway had American labor not fallen asleep at the labor market wheel, first, via a renormalized minimum wage (my proposal up ONLY 30% from 1968's $10/hr even though average income DOUBLED in that 40 year span) and, then, by reconstituting union power here through the modern, world-wide practice of sector-wide labor agreements (Wal-Mart just closed 88 big boxes in Germany where law forced it to pay the same rates negotiated with other firms).

* * * * * * * * * * * * * * * * * * * * * * * * * * * *You missed something:
If McDonalds raises its prices because of a minimum wage jump (and fast food is by far the highest user of labor -- 1/3 labor costs) guess who has EVEN more money to pay for the higher costs (3X multiplier effect for fast food -- more like 33X for most products)? Why minimum wage workers, of courese. This is actually one of the big arguments in favor of the minimum wage.

And, as coberly pointed out the other day, a minimum wage increase ties in much more efficiently with normal market processes than does the EITC because consumers wont buy products that they feel are too highly priced -- while raising the EITC on the same scale as a doubled minimum wage could have the government subsidizing whole industries.
Denis Drew | Homepage | 09.04.08 - 11:44 am | #* * * * * * * * * * * * * * * * * * * * * * * * * * * *

Agreed, the wealthy are not going to be impacted by higher prices at McDonalds, but, I see the wealthy as having go so far ahead because American labor forgot to keep up -- squeeze a toothpaste tube at the bottom and most of the way up (paralleling American labor just going into the labor market and taking whatever is offered) and it all comes out at the top. I don't even blame the top for taking what the bottom and middle didn't seem to want.

But, if you are worried about the bottom, then, doubling the minimum wage would be a practical place to start -- at least if, as I guess, the effect on prices would be hardly noticeable if not followed by other near bottom wages getting pushed up too (all for the good of course).

Then, there is renormalizing the unionizing scene (sector-wide). I see the totallity of all this "renormalizing" (bottom, near bottom, most of the way to the top) as tending to take away the froth that has been floating loosely to the top. If we don't do these things we will accomplish nothing.

Thing is, along with renormalizing unionization, the political power balance will shift completely in most people's direction and whatever needs to be done to renormalize top income will likely get done.

I see the whole (bottom, near bottom and most of the way to the top) move as chain-shifting income down from the tippy top. All of it should be done anyway just because it should have been done all along.
Denis Drew | Homepage | 09.04.08 - 12:46 pm | #
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I am coming in real late on this post: too late to read all the comments: almost collapsed from two days of emailing and posting.

Actually, the minimum wage was once as low as it was last year even though average income was never as high as it was last year: it was as low as 2007 as it was in (ready?)1939! Whence the minimum wage was .30/hr w/no taxes whatever -- or $4.50 untaxed in today's dollars. (I'm a little puzzled why Noni is using 1996 dollars, but I'm a "regular person" -- read, not reak, broken down old cab driver -- who may have been doing it a little bit longer: try Noni.)

I will shout the word "INSANE" in these scholarly quarters to describe the current state of the minimum wage. In this I am sure I will get full (if "ghostly") agreement from all the folks from 1939 who would have shouted "INSANE" if told that 70 years the minimum wage would still have the same buying power.

It should have taken 70 years of depression AND 70 years of no productivity growth to keep the minimum wage the same. All of which underscores my main point of just how out of whack American lower wages have become.

There is no other way to get back to normal income share than to raise the wages of those on the bottom the most and gradually less on the way up -- or maybe we should call it the wage share (since wages should be going up with productivity across the board). If we cannot face this we will be the only first world economy where labor gets paid less all the time.

Hopefully income share can "chain-shift" across the percentiles, ultimately leaving everyone in the lower 90 percentile better off (the bottom most especially), the mid 90-97 percentile with the same share, and the top 3 percentile with much depleted share (even if that take heavy taxes).

Hopefully the only businesses that get hurt will be those which used to sell to the top 3 percentile, while businesses that sell to mid 90-97 just keep pace, while businesses that sell to the bottom 90 do better. That is the overall aim -- no need to panic about higher wages hurting business -- the big picture is all about reshuffling.
Denis Drew | Homepage | 09.03.08 - 6:41 pm | #
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I really wish I could get going here but my poor old brain feels like it just climbed Mount Everest.

One more word on the so-called living wage. I am not looking for a welfare wage -- and neither was LBJ in 1968 ($10/hr minimum at half the average income). I am looking for all the traffic will bear! If we can squeeze the minimum up to $20/hr, fine!

Why? Because "greed" for want of a better phrase "is good" for labor too (authority: Teamsters local 804, where low tech, high school educated truck drivers and laborers just had their defined pension raised to $3600/mo BECAUSE THEY NEVER LET THEIR BARGAINING POWER DROP).
Denis Drew | Homepage | 09.03.08 - 6:51 pm | #
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Me again; "hopped up" on hamburger and caffeine-free Pepsi:

The practicality of shifting income share back to where it was 35 years ago comes down to this: in other first-world economies people at the bottom get paid more than they do here for doing the same thing -- and people at the tippy-top get paid much less for doing the same thing (the CEO of Mercedes-Benz's pay went from $3 million/yr to $12 million/yr when he picked up poor little Chrysler -- other German CEOs want to hook up with an American corp in hopes of similar).

Most people over there end up doing the same thing for different income share than they would get over here because of different labor bargaining power levels over there: shifting share to more equitable levels is perfectly doable -- they DO IT all over the first world.

Another supposed road block: a few points of higher unemployment over there.

Does anyone here want to adopt work rules that don't allow employers to fire anyone (making them reluctant to hire anyone)? Does anyone here want to adopt the automatic dole (you are out of work; you are on the dole -- mostly getting better pay and benefit combo than the minimum wage worker over here)?

Does anybody over here doubt that if we adopted both of the above that disaster would not strike: in the form of a few extra points of unemployment at least over here?
Denis Drew | Homepage | 09.03.08 - 7:59 pm | #   

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My minimum wage worksheet -- my easily-could-have-been minimum wage double-indexed for inflation and per capita income growth: 

yr  per capita    real    nominal  dbl-index  %-of 

68    15,473    10.74      (1.60)                    100%
69-70-71-72-73               [real, low point -- 8.41]
74    18,284      9.47      (2.00)     12.61          
75    18,313      9.11      (2.10)     12.61
76    18,945      9.44      (2.30)     13.04        72%
77                                                                 [8.86]
78     20,422     9.49      (2.65)      14.11
79     20,696     9.33      (2.90)      14.32 

80     20,236     8.78      (3.10)      14.00         
81     20,112     8.61      (3.35)      13.89        62%
82-83-84-85-86-87-88-89                             [6.31]
90     24,000     6.79      (3.80)      16.56  
91     23,540     7.29      (4.25)      16.24        44%
92-93-94-95                                                  [6.51]
96     25,887     7.07      (4.75)      17.85
97     26,884     7.49      (5.15)      19.02         39%
98-99-00-01-02-03-04-05-06                        [5.97]
07     29,075     6.59      (5.85)       20.09
08     28,166     7.10      (6.55)       19.45
09     27,819     7.89      (7.25)       19.42         40%
10-11-12                                                       [7.37] 
13    29,209?    7.25      (7.25)      20.20?     36%?

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An added thought: By the year 2013 some could speculate that a $20.20/hr minimum wage might not be a realistic expectation evidenced by double indexing alone because the fabric of the economy might have changed so radically over 45 years.  Might be an outside possibility, but, LBJ's 1968 minimum wage would have morphed to more than $14/hr with double indexing by only 1978.  Can anyone explain how the economic fabric might have changed sos radically in a mere 10 years?


1 comment:

Denis Drew said...

If the federal minimum wage had gradually grown 50% from 1968 to present (from $10.50/hr to $15/hr) as per capita income grew 100% I don't think anyone should have objected strenuously to $15/hr today. In many economies the minimum wage is indexed to automatically grow in step with both inflation an increases in average income -- in which case the American minimum wage would be even higher than that ...

... depending on whose growth and income numbers you go by. The most commonly accepted inflation measure (CPI-U, used by the BLS) says the minimum was $10.50 in 1968. Another (sounds like CPI-U-RS, used by the Census) say it was only $9.25/hr. Double indexing (inflation and growth) would not give a much different overall index result however because when inflation registers lower, growth registers higher (because money is worth more) ...

... in which double indexing case the American minimum wage would be closer to $20/hr.