Wednesday, September 30, 2015

Missing "MATHINESS" in minimum wage discussions

Re: Where Does the Minimum Wage Max Out? - EconoSpeak

AT LAST! Someone actually thinks of (thinks out) the practical trade off between the size of a minimum wage raise and the possible cost in jobs. IOW, if the wage rose 100% (which $15 today would in many places) and employment in that category (below 45 percentile) dropped even disastrously, 25%, labor would still be way ahead. Average raise across the 45% would be 50%.

Noto bene: $15, five years from now is $13.50.

Differential minimum wage depending on local living costs? As hinted just above, a higher wage ($15) in, say, South Carolina could mean the same overall amount of money going to the same overall demographic cohort (low-wage workers) -- but many would get more while a some got nothing (at least in their personal short run). So in a way that could count as A WASH. OTH, a differential would encourage $15 jobs in Ohio to move to $12 South Caroling -- A GIANT LABOR DEFICIT; another version of the race-to-the-bottom.
* * * * * * * * * *
This scaled concept needs to be articulated almost every time -- and if objections to practicality of academic researchers "guesstimating" about this arise they should at least be stated and probably some such framework should at least be hazarded.

Within this framework should be delineated the different sales -- and therefore employment -- effects at different low wage businesses depending on differing labor costs. Walmart with 7% labor costs will feel much less impact on prices (not necessarily on sales) of a large wage raise than than McDonald's with 33% ($15 raise prices there 25%).
* * * * * * * * * *
There is the possibility that raising wages an average 50% for the 45% of employees who take 10% of overall income (plausible representation of $15 federal minimum wage) would actually increase employment at their level -- as 5% of overall income were shifted to them from the 55% who now take 90% -- and they spent (do spend) disproportionately in lower wage businesses.
* * * * * * * * * *
I read a couple of days ago of some samplings of economists views of the possible employment effects of raising the fed min -- mostly of the eco 101 variety. I suspected that if whether the min was $5.15 or $11.15, they would be saying exactly the same things. I suspected they took (take) whatever the min is presently as some kind of "natural" starting point -- close enough anyway. I didn't think most of these progressives had any idea or even any curiosity about how $7.25 came to be in 2015.

Is the current labor price just a little low because of past moderate neglect -- or is today's price world-turned-upside-down low because of decades of mad, mad neglect -- just to state the outside ranges? Employees in Fight-For-Fifteen have no "mathi" idea for their price points either -- or do they? They are in touch at least intuitively with how much their wage demands would push prices up in different businesses -- and at least intuitively with how customers will react.

The chart below should have no trouble answering the range of neglect question (not that it will necessarily get past ivory tower intuition). In a nutshell: LBJ's 1968 min wage was $11 an hour -- per capita income has about doubled since.
* * * * * * * * * *

yr  per capita    real     nominal  dbl-index   %-of
(2013  dollars)

68    15,473    10.74      (1.60)        10.74      100%
69-70-71-72-73     [real, low point- 8.41]
74    18,284      9.47      (2.00)        12.61          
75    18,313      9.11      (2.10)        12.61
76    18,945      9.44      (2.30)        13.04        72%
77                                                    [8.86]
78     20,422     9.49      (2.65)        14.11
79     20,696     9.33      (2.90)        14.32
80     20,236     8.78      (3.10)        14.00     
81     20,112     8.61      (3.35)        13.89        62%
82-83-84-85-86-87-88-89               [6.31]
90     24,000     6.79      (3.80)        16.56  
91     23,540     7.29      (4.25)        16.24        44%
92-93-94-95                                    [6.51]
96     25,887     7.07      (4.75)        17.85
97     26,884     7.49      (5.15)        19.02        39%
98-99-00-01-02-03-04-05-06          [5.97]
07     29,075     6.59       (5.85)       20.09
08     28,166     7.10       (6.55)       19.45
09     27,819     7.89       (7.25)         9.42        40%
10-11-12                                          [7.37]  

13     28,829     7.25       (7.25)       19.32        38%


Denis Drew said...

Here’s another angle: economists like to talk about markets “clearing.”

How’s about a labor market that clears out native born employees who wont work for several dollars off LBJ’s minimum wage/twice the per capita income later — only to be replaced by desperate foreign born employees? Don’t hear economists discuss the implications of that, ever. Never.

In Chicago, fast food has been strictly the domain of Mexican and Indian born employees in my observation. Now, at $10/hr there is one young Am-born kid in my Micky’s.

Taxi driving. I started out making $50 a night in a car service in the Bronx in 1976 — $210 a night in today’s dollars. Grueling work but worth it. Down to $150 by 1980 after double-didget inflation whence I moved to Chicago — same pay; just as hard. Today I suspect our victims make less than $100 a night which if you figure in time and a half over eight hours (most work 6 days I’m sure) amounts to about $7 an hour, no benefits, no vacation. Did I mention that per capita income climbed 66% since I started hacking in the Bronx — most gains going to the income level who use cabs?

What, if anything, do our progressive pros think about “clearing out”? I would say you should test the market to discover the most the consumer will pay (I cab driver) — no matter who the employees are. Probably pay the same to any employees. Currently depending on the most desperate employees to keep prices lower (for who?). What do academics think. Do they ever think about any of this?

PS. Another thing academics used to take seriously on the verbal level: EITC. But, mathiness says EITC only transfers one-third of one percent of GDP in a labor market where 45% are making less than what the minimum wage could minimally be. How much is that supposed to impact overall so-called “inequality” (a.k.a., the Great Wage Depression)?

Denis Drew said...

Why can't we simply explain that -- if a higher minimum wage costs jobs -- that the extra money earned by the remaining workers will be spent elsewhere, re-creating jobs sort of automatically ...

... AND! that given that low wage labor tends to patronize low wage businesses more than average (and medium, medium, etc.) that more low wage jobs may be created ALBEIT at the cost of some mid and high wage jobs (because mid and high who pay more for low wage labor will have less to spend on their own ...

... AND that mid and reasonably high can get their money back by taxing the income, say, over two million dollar at 90% (cutting mid and high tax bills) ...

... WHICH HIGH TAXATION WILL IN TURN free up the log jam of demand created by super high incomes making more money than they can practicably spend -- a virtual stimulus with no debt hangover.