Saturday, October 4, 2008

To over-price lower skilled labor or to under-price higher skilled labor -- is this the quesiton?

Santa Fe’s minimum wage raise to $8.50/hr (now $9.50/hr, soon indexed) lost lower skilled workers a significant number of jobs (8.3%, adjusted for something – nominal employment rose) many to higher skilled replacements
, according to a think tank committed to protecting the working poor from higher wages.

Could such pay/employment trade-offs lie in the future as America catches up wages with productivity growth?

Simple (ask any minimum wage earner) job/wage resolution:
1) If lower skilled workers lose a percentage of jobs to a higher minimum wage (or any broadband wage increase), they should earn more over a lifetime because they will earn more when they are working ($3.35/hr more in 2005 Santa Fe!) – which should be most of the time.
2) Higher skilled workers would be earning enough extra to pay a bit more in taxes to fund some cover for the lower skilled if needed.
Quick lopsided income tutorial:
At $186,000/yr, the average family income reported by the Census for top 20 percentile families may sound out of proportion – your typical primary care provider earning well below that these days – but is actually a little less than we might expect if family income growth matched per capita income growth reported by the same Census: doubled since 1968, when $102,000/yr was the top 20 average.

What is out of proportion is the Census reporting 100% per capita income growth along with 67% (overall) family income growth since 1968 – a 33% family shortfall? The presumed missing 33% -- presumably hidden by the Census practice of “top coding” income over $1 million per family out of its survey -- would add $112,000 to the top quintile average – presuming family income grew exactly the same pace as per capita income since 1968.

Family income may have grown closer to 90% over those years: still leaving $86,000 hidden by the top code (not $111,000): still making for 185% top quintile growth (not 212%), still comparing lopsidedly to the 12%, 22%, 37% and 53% eked out by lower quintiles (much due to more members working more hours). If we add enough dollars to all five quintile 2007 incomes (top quintile growth was reported at only 82%) to bring them into line with 90% growth: the additions total up to the unreported dollop of top income, dollar for dollar (by mathematical definition).

If we could somehow throw a reset switch to share around 2007’s doubled personal income according to 1973's distribution, lower four quintile wage earners would remain in the same relative (skill/pay) bargaining positions vis-à-vis each other in the job market – making for little expectation of more unemployment -- ditto for shaved-income top earners: my “Chinese snake dance” theory of labor price and employment. :-)
It is not under-priced labor -- in the sense of people here and overseas willing to work for less -- that is dragging down American wages and causing whole-segment unemployment (see very many American born cab drivers or fast food workers lately?). It is the under-pricing of labor that is causing America's Great Wage Depression (my term covering both lost pay and lost jobs).

If Australia had a 1000 mile land border with China – open, Mexican-American style – Australian labor would need powerful wage support legislation to maintain its native pay and employment at maximum levels: a solid minimum wage (1/2 the “real” average wage -- USA "real" meaning $25/hr; reported AWI up only 20% since 1968) plus the most up to date collective bargaining structure known as sector-wide labor agreements (not the card check attempt to wring one more drop of life out of all but dead labor law -- Australian could actually consider sector wide now that its once effective if eccentric wage support structure has badly eroded).

America's is the only modern OECD labor market facing the double whammy of globalization and yearly immigrating millions; and yet remains the only modern OECD market seriously devoid of legislative defenses against either outside low wage expectations or against the home grown race to the bottom (recently introducing whole-segment unemployment to middle class, would-have-been supermarket employees).

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