Wednesday, December 11, 2013

E.I.T.C. v. "moderate" minimum wage = too little v. too late

According to minimum wage critic David Neumark, $55 billion is transferred yearly to poor families by the E.I.T.C. -- and that says it all. That represents about a third of one-percent of our $16 trillion economy.

That closely equates a minimum wage raise of $1 an hour -- which would shift about
$40 billion out of our $16 trillion -- or about a quarter of one percent of overall income -- from the 85-90% who earn more than $8.25 an hour to the 10-15% below (I don't have exact figures here). 

The bottom 20% of earners now take 2% of overall income -- big help.  Neither path offers much hope of lifting working families out of poverty. The E.I.T.C. does not even pretend to help the single worker.

A $15 an hour minimum wage OTH would shift about $560 billion from the 55% who now take 90% of overall income to the 45% of Americans who take only 10% -- or about 4%. I don't foresee the 55% tellling the 45%: Stay home; we don't need your output anymore, over a 4% overall price increase.
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It occurred to me recently -- after reading a very pro-minimum wage raise piece in the NYT -- that most of of today's pro-raise pieces could have been written in January 1967, when the potential minimum was near $11 an hour (as we know from history) -- but when per-capita output was about h-a-l-f today's (to be precise, that would be if the minimum were $7.25 in 1967 January rather than $8.75).
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A $15 an hour minimum wage would not have been "feasible" in 1956 – when economic output per American was only 40% of what it is today – when (Senate Majority Leader) LBJ's minimum wage was $8.50 an hour. $100 an hour minimum wage should actually, literally be "feasible" ("feasible" is the operative word for this whole essay), in something like 100 years – if productivity goes on doubling every 40 or 50 years.

It was "feasible" to raise the federal minimum wage from $8.50 an hour in 1956 to almost $11 an hour in 1968 because overall productivity – not the minimum wage workers’ productivity – grew 25%. Barbers get paid more in France than barbers get paid in Poland because France has a lot more money to pay barbers with.

A $15 an hour federal minimum wage need not be sold on humanitarian – nor least of all welfare – grounds. It can be sold on the simple premise that the free market is ready and willing to bear it – on the simple basis that it is "feasible."

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