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!

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