Wednesday, April 3, 2013

If today's minimum and median wages were halved, would that help McDonald's and Wal-Mart?

Her to me: "
Thank you for your comments on the federal minimum wage and how raising it may affect the price of living.  There has been a great deal of research done on this topic with widely varying conclusions, and not all of this research supports the statistics you shared in your e-mail."

Thanks for (actually) responding.  :-)
Actually, even top progressive economists have yet to take the simple look (eighth-grade math is all it takes) that I did at whether a really big (doubling?) jump in the minimum wage would re-route even more income back to employers.  So conservative critics are not likely to have done that either.  Maybe my "Ph.D." in taxi driving gives me more real world worries to suggest thinking that through (30 years in NY, Chi and SF).

Bear with me for a tiny thought experiment.  Imagine both minimum and median wages were cut in half -- would that help McDonald's or Wal-Mart?  If we believe Massachusetts' junior senator -- adjusted for every increasing productivity -- worse has already happened!  "Elizabeth Warren: Minimum Wage Would be $22 An Hour If It Had Kept Up With Productivity"

It is curious that to catch up with doubling of productivity gains -- since 1968 when the minimum wage was $10.50/hr ($1.60 nominally) -- today's minimum wage would have to triple from $7.25/hr.  In early 2007 the minimum wage would have had to almost quadruple -- from $5.75/hr (nominally $5.15/hr).  Looking from that perspective my simple idea that doubling the minimum wage would add only 33% to fast food prices and 10% to retail prices while giving half the work force an average 50% raise -- win, win all around -- doesn't look so dumb.

To put it another way, as John Travolta might say, if an angel could have foretold to Americans of 1968 that by early 2007 the minimum wage would sink almost in half -- instead of doubling with the normally expected two-generation doubling of productivity -- they would have to have wondered what possibly was going to cause that: a comet strike, a small nuclear exchange, multiple outbreaks of plague, what?   ???  Apparently we all just fell asleep at the switch.

 If people know enough economics to know what the price of a quart of milk or a loaf of bread is (which the first George Bush didn't -- not to pick on) then they know enough to know that at $30,000 year wages people will buy a lot more fast food then they will at $15,000/yr.  And, the same doesn't hold when they go from $30,000/yr to $40,000/yr.

The equation of half (or more) of labor getting a bigger percentage wage increase than their employers' resulting pass along price increases doesn't hold up forever.  At a $40,000/yr minimum wage people wont want more burgers but the price of burgers will go up making an incentive to buy less -- but they will have more money to buy -- so maybe it would be a wash for employer profits.  ($5 fast food meal at $15,000/yr would go to $6.65 at $30,000/yr and $7.50 at $40,000/yr.) So at $30,000/yr we would have dug ourselves out of the -- for 1968 Americans -- unimaginable sinkhole. 

Of course so much more has gone wrong because of de-unionization which has robbed the middle-class, not to say the poor, of both their political and economic mojo -- assuming we were ever unionized the right way.  Some years ago I bumbled into the comparitively world-wide, as long as six decade old practice of legally mandated, sector-wide labor agreements -- where everybody employed in similar occupations (e.g., retail clerks) in the geographic locale (where applicable -- not airliner crews) works under a single, commonly negotiated contract.  No more Wal-Mart starts selling food and supermarket employees (new ones anyway) take a big pay cut. I've been trying to sneak up with the idea with this:

The reader may Google sector-wide practice here (mostly me):

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