Tuesday, July 21, 2009



Even under defunct Malthusian theory, LBJ's $10/hr minimum wage ($1.60/hr in 1968, adjusted) should have shrunk only 33% as US population grew 50%. But by the time GWB's $5.30/hr minimum wage ($5.15/hr in 2007, adjusted) came to be it had sunk nearly 50%.

Adding 72.5% to today’s $7.25/hr minimum wage would make it $12.50/hr; would raise a $6.00 fast food meal to $7.45, but would raise nearly 40% of the US labor force to (a still shamefully low for the 40 percentile US wage?) $500/wk -- the fast food buying 40%. Direct inflation would be 2% -- not “1000%” with the fantasy “$100/hr."

Two short years ago the federal minimum wage was $212/wk. Today it is just short of $300/wk. Michigan Democrats are pondering $400/wk next. Does anybody expect -- has anybody yet experienced -- any great unemployment tragedy? $212/hr never should have happened!

A realistically* assessed (if never ever reported) 30% US poverty level shouts that there is lots -- and lots -- of room for more fairly set labor costs (which should be all the market will bear, just like ownership's prices) to be re-inserted into US products and services -- the same missing labor costs that have siphoned 15% of income share from the pockets of bottom 90 percentile earners mostly into the buckets of top fraction of 1 percentile earners over the past few decades -- with neither matching increase in relative output from the top nor decrease from the bottom. (*see charts, pp. 44-45)

This “http”* illustrates that minimum wages do not affect employment below half the median wage. Unfortunately (unbelievably?) the US median wage rose only 20% while average income climbed 100%, probably making half the US median no longer a true test (meaning that if the minimum could be pushed harmlessly to $12.50/hr that the median could sensibly be pushed to $25/hr?). *http://worthwhile.typepad.com/worthwhile_canadian_initi/2006/11/when_the_minimu.html

LBJ's 1968 minimum was about 80% (!) of the median (around $12.50/hr) -- really pushing it. It must have been recognized back then that nobody could live on half their day's median ($6.25/hr). LBJ's minimum wage earners would fit into today's $20,000/yr income tax paying bracket -- GWB'S were in 2007's $10,000/yr almost no income tax paying bracket. (If LBJ's minimum wage had kept up with average income growth, today, it would be $5/hr higher then Obama's median wage!)

Re-inserting (re-asserting!) fair US labor costs across the board must needs cause a boat load of inflation – but that just quantifies the depth of what I call America's "Great Wage Depression."

My neighborhood McDonald's enjoyed a noticeable up tick in business following Illinois' minimum wage jump from $6/hr ($5.15 in 2003, adjusted) to $8/hr -- noticeably (to myself and others) all in the low wage, foreign born customer segment. Minimum wage earners beginning to afford the products of their labor? My neighborhood owners even closed both their stores -- one at a time -- for 6 months to beautifully rebuild them for $1 million dollars apiece -- right in the teeth of the 33% real minimum wage increase which apparently did not phase them much.

Given the too long, below fair share US labor market, those who perform minimum wage studies ought to separate US born from foreign born employment statistics to get a realistic assessment of the effect on both. How else can they detect whether today’s minimum wage may often (most often?) be too low for Americans to even show up for? Ditto for measuring teenage and adult minimum wage work participation simultaneously: a higher wage may merely attract a few more, more employable adult applicants.

Meantime my neighborhood Ronald's has begun to attract a few (very few) American born workers now that Illinois' 2009 minimum wage has caught up with Ike's (read senate majority leader LBJ's) $8/hr minimum wage ($1.00/hr in 1956, adjusted).

Wednesday, July 15, 2009

Huge minimum wage hike -- (supposedly?) loses sales -- while labor gains

You would never know it from reading “scholarly” examinations of the minimum wage but both labor and management could make more money moving fewer hamburgers for a higher price apiece. If all fast food franchisees could collude to raise meal prices from $6 to $7 they would do it, wouldn’t they?

Labor may legally “collude” if you will to double its price from $6.55/hr (federal minimum up to July 24) to $13.00/hr via a minimum wage raise (or via sector-wide collective bargaining if it were available). Ownership could potentially lose profit, of course, leading to some stores closed and some employees laid off – there could be nothing good in the price raise for ownership (OTH, there could very well be). But without a doubt, if American labor had a choice it would never have agreed to adding a more jobs (or even many more – most of the increase maybe going to desperate immigrants) if that meant dropping its fair market price in half.

Why not make the minimum wage $100/hr? 1000% inflation (to cite a genuine possibility) instead of 2% inflation (see link).

The so called “hidden hand” would be recognized by any modern day biologist as a system of equilibrium among equilibrium points – A.K.A., an evolved living organism. If the pin maker and the butcher and the lawyer did not cooperatively support each other’s occupations the market organism would never have evolved in the first place. Point being: a robust mechanism is the free market (how do all just the right products end up on all just the right supermarket shelves? – how do all just the right nutrients end up in all just our right mammal cells?), not some ethereal force never to be touched by human regulation lest the whole efficiency fall mysteriously apart as our eighteenth-century-myth based Republicans would have it.

By far the biggest users of labor are restaurants -- and the biggest users of minimum wage labor are fast food restaurants: one-third labor costs (typical businesses: one-tenth). Double the minimum wage and the one-dimensional (typical “scholarly”) expectation is demand will drop. Maybe not for fast food.

Last time I looked (see link) $13/hr was the 40 percentile wage. Raise the minimum wage to $13/hr and fast food demand should thrive, no? Almost half the work force (not the expensive restaurant half) gets a big raise (average $150/wk). In between restaurant eaters will their extra 2% inflation raise (40-90 percentile earners get some economic growth raises too; more as they get closer to the top).

When labor has been down in the raise department as long as it has been in our unbalanced market (as of 2007 25% of the workforce earned less than LBJ’s minimum wage!) every bit of inflation caused by labor getting some income share back should be looked upon as a positive sign – it may take 30% inflation to restore 15% of income share lost to the top 1% (mostly top fraction of) over the last few decades – with back and forth “chain-shifting” of income share; get used to it.

Why aren’t some progressive scholars working out models or whatever to predict just how demand would shift after a minimum wage hike to 30% over LBJ’s minimum ($10/hr adjusted -- 100% average income growth later!)? There are thousands of progressive economic researchers. Why is there only one positive study (that I know of: Card and Kruger) on the impact of minimum wage raises? Myth-based economists, of course, come back citing 100 studies. Reality-based economists have to close the minimum wage (not to mention sector-wide labor contracts) study gap!