Friday, December 6, 2013

Republicans need more precise formula by which to endlessly whittle down the federal minimum wage

Republicans need a more precise formula by which to whittle down the federal minimum wage in real terms, year after year -- if not quite as far as Republicans would like to see it whittledThey can forget their old Republican bromide: Why not make the minimum wage $100 an hour? – Malthusian theory should become the Republican order of the day.

The 1968 federal minimum wage (adjusted for inflation) approached $11 an hour. But in 1968 there were only 200 million Americans to divide the economic pie. Now there are over 300 million Americans. Under classic Malthusian theory 300 million people must now divide the same output that previously supported 200 million.

Under this economic understanding today's federal minimum wage needs to be diluted -- because of simple physical limits -- down to two-thirds of what it was in 1968. In reality, by early 2007, he federal minimum wage had slipped to almost half that. 1968's $11 an hour minimum wage never needed to be reduced to lower than $7.26 an hour (two-thirds of $11).  And thanks to the more authentic Malthusian credentials of the Democratic Party, that is exactly where it stands today.

A skeptic of Democratic Party economic sophistication might worry that Malthus theorized before what later became known as the Industrial Revolution – back when land, crops, and farm animals were the basis of all production. The Lord made the earth and he was not making anymore, was what they used to say back in the day.
But, today, more people are able to make and run more factories – keeping economic output per person exactly the same over the decades – if that were all there were to it.

Actually factories get more efficient over time. I'm not talking about putting out better products with the same effort. Economists don't (know how to for the most part) keep track of better TVs now than back when I bought my first TV, 50 years ago (no way to put that into numbers). Economists do keep track of how many TVs the same number of persons can produce in the same number of work hours. Overall, workers in 2013 produce something like twice as much per work hour as they did in 1968, 45 years ago.

Every year, efficiency – productivity – goes up a couple of points, on average. For a giant jump; think Henry Ford creating the assembly line for the first time. Usually it's very gradual improvement. I read in BusinessWeek in 1990 that US firms had invested $1 trillion (in today's money) in computers by then without any increase in productivity. Only when a new technology matures, and become widespread does productivity leap. Over 50 years, productivity about doubles.

You get different figures – I'm not an economist – but had LBJ's 1968 minimum wage kept up with productivity gains, today it would be somewhere between $16.50 and $22 an hour.

$15 is about the 45 percentile wage. A $15 an hour minimum wage would shift something like 4% of overall income in the US from the 55% of folks who get 90% to the 45% of folks who get only 10%. I don't think the 55% are going to tell the 45% to stay home from work, we don't need you to work at Wal-Mart or McDonald's or anyplace else anymore – close them all down! – because they have to pay a little more (that they should have been paying all along – correction; in pure market terms, what they would have been willing to pay all along – this whole essay is all about "feasibility").

It would work like this: multiply 70 million workers (half the workforce) X the $8000 year average raise = $560 billion = 3.6% of our $15.8 trillion economy. (To the 45%, add 5% at the minimum wage who would get a double half-raise = 50% of 140 million workforce = 70 million.)

Obama's $9 an hour minimum wage hike – in yearly steps yet! – works out like this: $9 an hour is roughly the 20 percentile wage (will add 5% to get 25%). Multiply 37 million workers X and average $1000 a year raise = $37 billion = .0023417 or less than one quarter of one percent shift of overall income from to the 80% to the 20% …

… while productivity – and per capita income – grows an average 2% per year.

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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