PeakTrader.com

administrator · Site Admin Joined: 28 Dec 2005 Posts: 12651

PeakTrader said...

"The level of sales and starts remains very depressed...from an economist's perspective, it's not the level that is important, it is the change on the margin."

That's an oversimplification. Economists are interested in net effects, or whether changes have positive or negative effects.

A simple example is a 10% rise in the minimum wage (e.g. $10 to $11) may increase real economic growth 5% (e.g. 2% to 2.1%).

However, a 50% rise in the minimum wage may decrease real economic growth 20%, etc.

Also, when you lose 90% and then gain 100%, you're still down 80%.

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So, for example, a rise in the minimum wage can increase real economic growth.

The higher wage attracts better workers, with higher reservation wages, to increase productivity.

Minimum wage workers have high marginal propensities to consume. So, a higher minimum wage increases consumption.

Only a portion of the higher minimum wage may be passed along in higher prices, because portions will be absorbed by "excess" wages of other workers and "excess" profits.

Weak or poorly managed firms will lose business or fail. However, stronger or better managed firms will gain their business, and also gain from the increased demand.

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Bart, do you really believe increases in the minimum wage cause recessions?

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Bart, you can't answer a simple question, even after you seen the "facts?"

It may just be a coincidence.

After several years of prosperity, and after minimum wage workers are left behind, the minimum wage is raised towards the end of expansions.

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Ron says: "You have never produced a shred of evidence to suport your claim that higher demand from newly wealthy minimum wage workers will offset the loss to those who lose their jobs or don't get hired."

I've shown a higher minimum wage has little or no effect on employment. So, minimum wage workers have more income.

For example, you may want to read the Card-Krueger study. In the meantime, here's an article:

Chinese factories struggle to hire
By Paul Wiseman, USA TODAY
4/11/2005

The unthinkable is happening in China: This country of 1.3 billion can no longer find enough people willing to work long hours for low wages.

Entrepreneur Johnny Jiang, who owns a plastics factory in Dongguan, says workers used to be too frightened to make demands. Now, they'll walk out if he doesn't boost pay.

In January, entrepreneur Jiang visited Hunan University. He borrowed an office and waited at a desk for applicants for two hours. No one showed up.

Workers are increasingly knowledgeable about the job market....migrants are trading information about which factories are good employers and which are stingy and cruel.

"Factories in China have been spoiled," says economist Chi Lo, author of The Misunderstood China. "They still want to pay cheap wages."

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It's likely, higher income more than offsets any loss in employment (and unemployment benefits adds to consumption).

Survey of economists:

"Until the 1990s, economists generally agreed that raising the minimum wage reduced employment. This consensus was weakened when some well-publicized empirical studies showed the opposite, but others consistently confirmed the original view. Today's consensus, if one exists, is that increasing the minimum wage has, at worst, minor negative effects."

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"Surveys of labor economists have found a sharp split on the minimum wage. Fuchs et al. polled labor economists at the top 40 research universities in the United States on a variety of questions in the summer of 1996. Their 65 respondents split exactly 50-50 when asked if the minimum wage should be increased. They argued that the different policy views were not related to views on whether raising the minimum wage would reduce teen employment (the median economist said there would be a reduction of 1%), but on value differences such as income redistribution. Klein and Dompe conclude, on the basis of previous surveys, "the average level of support for the minimum wage is somewhat higher among labor economists than among AEA members."

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PeakTrader said...

It seems, over the past four years, the rich became richer, the poor became richer, and the middle class became poorer, while $5 trillion of additional federal debt maintained living standards at best.

U.S. median household income up 4% at end of 2011
2/9/2012

"Inflation-adjusted median household income increased 4%, from $49,434 to $51,413, from August to December.

The rise coincides with stronger job growth, modest wage increases, a longer workweek and easing inflation.

Real median household income is still 7% lower than it was in December 2007 and 3.9% lower than in June 2009, when the recession officially ended."

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If I would've been laid-off, I'd collect the maximum unemployment benefits of $450 a week for 99 weeks.

That's a good income for not working.

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PeakTrader said...

Geoih, there are more economic forces than supply and demand.

Economists find the net effects of relevant forces.

Diminishing marginal utility was a powerful force that led to the recent recession (a few years ago).

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PeakTrader said...

David Card and Alan B. Krueger

"In each case they present a battery of evidence showing that increases in the minimum wage lead to increases in pay, but no loss in jobs."

http://press.princeton.edu/titles/5632.html

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Card and Krueger - Wikipedia

"...the authors concluded that the increase in the minimum wage increased employment..."

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Jon, I was proving your statement is false and increasing the minimum wage can increase employment.

Ironman, where are the explanatory variables?

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July 2012:

"If the minimum wage had kept up with inflation since its highest level in 1968 it would be $10.55 today."

I think, a bigger problem than not rewarding work is rewarding welfare:

Poll: Most Americans Favor Work for Welfare Recipients
18 Jul 2012

"A new Rasmussen Reports national telephone survey finds that 83 percent of American adults favor a work requirement as a condition for receiving welfare aid. Just 7 percent oppose such a requirement, while 10 percent are undecided.

Sixty-five percent of Americans think the bigger problem with welfare programs is that too many people get welfare who should not be getting it...only 24 percent feel the bigger problem is that there are too many people who should receive welfare who are not getting it. Eleven percent are unsure."

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New York Times:

"American businesses reported that third-quarter profits in 2010 rose at an annual rate of $1.659 trillion, the steepest annual surge since officials began tracking such matters 60 years ago."

["The previous record, without being adjusted for inflation, was $1.65 trillion in the third quarter of 2006."]

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Jet Beagle seems to want to hire three low-wage workers to screw-in a light bulb.

William Occam, maybe, you should've invested in one of its competitors. Is it a business or a charity program, i.e. some type of non-profit?

Givemefreedom, doesn't believe in labor standards, even low ones like the minimum wage.

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Jet Beagle, U.S. firms can invest lots of money on capital equipment to replace their workforce.

Profits are at all-time highs, firms are holding trillions of dollars in cash, and top management is paid hundreds of times more than minimum workers, who are being hired and squeezed for more productivity, while not even earning a subsistence wage.

Your solution: Get rid of the minimum wage.

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Ron says: "I can't believe you're going to dredge up that thoroughly discredited Card and Krueger study once again..."

That's a ridiculous and biased statement.

"Several researchers have conducted statistical meta-analyses of the employment effects of the minimum wage. In 1995, Card and Krueger analyzed 14 earlier time-series studies on minimum wages and concluded that there was clear evidence of publication bias (in favor of studies that found a statistically significant negative employment effect). They point out that later studies, which had more data and lower standard errors, did not show the expected increase in t-statistic.

Though a serious methodological indictment, opponents of the minimum wage largely ignored this issue; as Thomas C. Leonard noted, "The silence is fairly deafening."

In 2005, T.D. Stanley showed that Card and Krueger's results could signify either publication bias or the absence of a minimum wage effect. However, using a different methodology, Stanley concludes that there is evidence of publication bias, and that correction of this bias shows no relationship between the minimum wage and unemployment.

In 2008, Hristos Doucouliagos and T.D. Stanley conducted a similar meta-analysis of 64 U.S. studies on disemployment effects and concluded that Card and Krueger's initial claim of publication bias is still correct. Moreover, they concluded, "Once this publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains."

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Jet Beagle, capital investment creates high-paying jobs, because people have to invent, produce, improve, install, maintain, and operate the equipment.

More investment in capital equipment will facilitate marginal benefits.

Also, I may add, the benefits of a higher minimum wage to society can exceed the costs to society.

Obviously, some people can't get beyond a two-dimensional Econ 101 standard partial equilibrium model.

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Givemefreedom, society can benefit. I stated before:

A rise in the minimum wage can increase real economic growth.

The higher wage attracts better workers, with higher reservation wages, to increase productivity.

Minimum wage workers have high marginal propensities to consume. So, a higher minimum wage increases consumption.

Only a portion of the higher minimum wage may be passed along in higher prices, because portions will be absorbed by "excess" wages of other workers and "excess" profits.

Weak or poorly managed firms will lose business or fail. However, stronger or better managed firms will gain their business, and also gain from the increased demand.

It's possible, a 10% rise in the minimum wage (e.g. $10 to $11) may increase real economic growth 5% (e.g. 2% to 2.1%).

However, a 50% rise in the minimum wage may decrease real economic growth 20%, etc.

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Hancke makes an interesting observation: "Using McDonalds as an example, if you took the CEO's $3.3M bonus and equally distributed it to the 450,000 hourly employees they would each receive $7.33. If you seized McDonalds annual profit of $1.3B and redistributed it, each hourly employee would get $2,888. In comparison a $1.50/hr increase for the same employees would cost $1.012B or 78% of current profits."

He makes a case for corporate taxes and earned income tax credits, because fast food restaurants will pay a disproportionate share of the minimum wage increase compared to most other industries, or prices are too low at fast food restaurants.

U.S. corporations make over $1.5 trillion a year in profits.

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Givemefreedom, you're talking about a market wage, e.g. the wage a worker is willing to accept to avoid starvation.

Obviously, you don't believe in labor standards, including low standards, e.g. the minimum wage.

Just because you declare something is true doesn't mean it's true. There've been many rigorous studies by labor economists.

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Ron, unfortunately, not everyone will tip $7 an hour workers. So, to be fair, prices rise 10% (for everyone) and then they can make $15 an hour or more.

I'm sure, they'll squander the additional money on rent, food, clothing, an auto, etc.

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Ron says; "all demand curves slope down."

Only in your two-dimensional world.

Ron says: "No, a market wage is that wage an employer must pay to attract the worker he needs for a particular job...You sound really ignorant of economics."

And there's only one example in your "economics."

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Morganovich, you don't believe there are any (non-linear) conditions where an increase in wages increases employment?

Givemefreedom, are you saying workers have more leverage or a better advantage in bargaining for wages?

I've shown an example above that labor standards (what you call price controls) can and likely work well.

Also, "distortions" worked many times before, e.g. smoothing-out business cycles.

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PeakTrader said...

"When it comes to maximizing the efficiency of the labor market, what we want are accurate, truthful and precise measures of worker productivity, and we get those from market wages, not from artificial, government-mandated minimum wage laws."

BLS
The Editor's Desk
The compensation-productivity gap

"Since the 1970s, growth in inflation-adjusted, or real, hourly compensation—a measure of workers' purchasing power—has lagged behind labor productivity growth.

Real hourly compensation growth failed to keep pace with accelerating productivity growth over the past three decades, and the gap between productivity growth and compensation growth widened."

Chart:

http://www.bls.gov/opub/ted/2011/ted_20110224.htm

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Fact sheet for 2009 minimum wage increase
July 20, 2009

"On July 24, 2009, the federal minimum wage will increase to $7.25 per hour...about 4.5 million workers will receive a raise (less than 4% of the workforce), providing an additional $1.6 billion annually in increased wages.

However, when adjusted for inflation...still less than the minimum wage through most of the period from 1961 to 1981.

2.8 million workers currently earn less than $7.25 and will be directly affected by the increase. The additional 1.6 million workers earning slightly above the minimum, those we call indirectly affected, will also be likely to benefit from an increase due to “spillover effects.”

76% of workers whose wages will be raised by a minimum wage increase to $7.25 in 2009 are adults (age 20 or older)...63% of workers who will benefit from an increase to $7.25 by 2009 are women.

African Americans represent 11% of the total workforce, but are 18% of workers affected by an increase. Similarly, 14% of the total workforce is Hispanic, but Hispanics are 19% of workers affected by an increase.

New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases...employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale."

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Jet Beagle, also, it seems, since 1982, higher productivity was reflected in lower prices (inflation was overstated) and lower interest rates, which somewhat offset lower real compensation growth.

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Moreover, I think, quality improved more slowly in 1947-73 than 1982-07.

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Ron, typically, a higher wage attracts better workers.

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Ron, if you don't believe me, then you may believe this chart:

http://en.wikipedia.org/wiki/File:Transistor_Count_and_Moore%27s_Law_-_2011.svg

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Labor laws, including a minimum wage, can prevent exploitation.

What about immigrants from Mexico who come to U.S. farms and work hard for the minimum wage. Aren't they attracted to the higher wage?

Perhaps, you believe they should receive $2 an hour, which is what they'd earn in Mexico, if they could find a job.

You could be working at a minimum wage job and find you're twice as productive as your co-workers. In the real world, do you believe your employer will double your wage?

If he offers you a 10% raise, you may want to quit. However, do you believe you can get another job that pays you what you deserve?

Anyway, rigorous empirical studies by labor economists reveal more economic forces than what's shown in a two-dimensional partial equilibrium model.

Raising the minimum wage can cause a (positive) wage effect that exceeds a (negative) employment effect.

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Jet Beagle & Givemefreedom, the real world isn't a limited supply-demand model. It's a general equilibrium model with hundreds of major forces pushing and pulling the economy through many mechanisms.

In response to Jet Beagle's assumptions on automation and offshoring (again):

Unskilled jobs may be lost through automation. However, many of those jobs are replaced with higher skilled jobs. Workers will invent, produce, improve, install, maintain, and operate the equipment. Also, labor will be freed-up to move into emerging industries.

Offshoring also frees-up labor. Capital creation of U.S. firms and the global saving glut allow Americans to acquire higher skills, e.g. through a virtuous cycle of consumption-investment (where imports are sold too cheaply and dollars are lent too cheaply). Also, dollars from trade deficits flow to U.S. Treasury bonds, which lower government's borrowing costs to allow spending on education, for example.

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Ron, I'll try to make it simple for you.

Say there's a firm with 100 workers that has a minimum wage of $5 an hour, 90% of the workers earn $5 to $7 an hour, 10% earn $200 to $500 an hour, and the firm makes $1 billion a year in profits.

If the minimum wage is doubled to $10 an hour, do you believe output, consumption, and employment will rise, fall, or remain unchanged?

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PeakTrader said...

"California...shortage of farm labor...local residents applying for the farm jobs? None."

It's easier to collect government benefits and panhandle.

There are millions of Californians who'd benefit from a season of hard work.

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Instead, the people who work in California have to work harder to support the people who don't work.

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Unskilled labor should be paid $15 an hour and pay $5 an hour in taxes Smile

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I've noticed inequality, in the form of living standards, is huge in California and the middle class suffers the most.

It's the complete opposite of what government says it's trying to achieve.

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Hell_Is_Like_Newark said...

Cut off: Section 8, EBT cards, Medicade, WIC, Food Stamps, and the earned income tax credit... I bet those farming jobs would get lots of applicants.

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PeakTrader said...

The federal government continues to spend over $1 trillion a year more than it has, while many people, who support government programs, don't seem to understand they'll ultimately pay, one way or another, and don't realize the opportunity costs.

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