PeakTrader.com

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PeakTrader said...

I find it amazing some focus on a low standard, e.g. the minimum wage, while there are way too many other standards, including ridiculously high standards, that are much more costly (in both money and time).

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Benjamin said...

The WSJ also recently op-ed'd against the licensing of lawyers, a very good idea.

This is a more serious structural impediment that guys making a minimum wage that is 25 percent lower than in the 1960s.

I can still remember JFK promising that a "rising tide will lift all boats."

Except if you are working for the minimum wage. Your boat has sunk 25 percent in 50 years.

The right wing does itself a disfavor when it always beats up on the lowest, but never the lawyers, the doctors, the liquor distributors, crooked defense contractors--but I forget! Those people give money to political campaigns.

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PeakTrader said...

So, some people shouldn't attend college, some people shouldn't own a home, and some people who work hard doing jobs other people won't do at minimum wage are overpaid.

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juandos said...

"I find it amazing some focus on a low standard, e.g. the minimum wage......"

Well PT do you also find it amazing that kids can't get jobs?

That there are skill sets almost vacant now in this country because the young folks are to expensive to hire and teach while on the job?

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PeakTrader said...

Juandos, raising the minimum wage to $10 an hour would have a small effect on employment.

For example, the job losses from increasing the minimum wage would be offset by the job gains from increased consumption (from workers with the highest marginal propensities to consume) and unemployment benefits.

And

Two-Thirds Of Americans Support Raising Minimum Wage: Poll
12-6-10

"Two-thirds of Americans support raising the minimum wage to at least $10 an hour.

The survey, conducted by the Public Religion Research Institute to plumb American attitudes on religion, values, and politics, found that 67 percent of respondents favor hiking the minimum wage to $10 an hour. Even a majority of Republicans -- 51 percent.

Just 980,000 U.S. workers earn exactly the minimum wage, and 2.6 million earn less, according to the Labor Department. Those groups make up just 4.9 percent of hourly-paid workers."

Work should be rewarded, even work by low-skilled workers.

Also, I may add, I don't think it's about inequality.

It's about 90% of workers receiving a little less income and profit to maintain a floor, or a subsistance wage, for the bottom 10% of workers.

I'd also want less welfare and more work or workfare.

However, I can see government working towards equality by raising the floor "too high."

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juandos said...

"Two-Thirds Of Americans Support Raising Minimum Wage"...

Yes PT, its probably that same 2/3 of Americans who's collective grasp of basic economics is somewhat less than nil too...

The cost to any employer is damn site more expensive than the mere wage PT but I'm sure you know this already...

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Ron H. said...

"For example, the job losses from increasing the minimum wage would be offset by the job gains from increased consumption (from workers with the highest marginal propensities to consume) and unemployment benefits."

Wait a minute. Are you advocating increased amounts in unemployment benefits as an economic growth engine?

Where WILL the money come from to fuel this pipe dream, absent any redistribution from the highly productive to the less productive? Would any prices increase? How would these newly wealthy teenagers be better off if they must spend their new largess on the same amount of goods and services they used to spend less on?

Or, what if these newly flush people change their consumption habits by dining at Outback instead of Wendy's?

Bigger numbers don't equal prosperity.

Just what IS, in your opinion, the optimum min wage?

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PeakTrader said...

Juandos, representing the low-wage labor market with a linear partial equilibrium model is an oversimplification.

Ron, unemployment benefits will be spent. The alternative is less consumption.

Unemployment benefits are normally temporary, until there are jobs, where people can get hired (e.g. in the cyclical nature of the economy).

A subsistance wage allows you to pay for the most basic bills, e.g. housing, food, clothing, transportation, minimal health care, etc. rather than depend on government, family, or charity.

Of course, a squirrel will bury its nuts when times are good and dig them up when times are bad to avoid starvation.

However, if people bury their nuts in the wrong places when times are good, e.g. the housing or stock market, and times turn bad, there may be little to dig up except shells.

Then where would they be?

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Ron H. said...

"Ron, unemployment benefits will be spent. The alternative is less consumption."

But where does the money come from? Consumption without production isn't growth. Redistribution isn't growth, and doesn't lead to it. It should be obvious by now that stimulus only creates activity until the money runs out, then it's back to recession as usual, except for the additional debt.

There is another alternative: Rather than redistributing my earnings to others, allow me to keep it, and spend it as I see fit. I may cause the creation of some jobs along the way, and eliminate the need for some of the unemployment benefits.

"Unemployment benefits are normally temporary..."

That may have been true in the past, but appears to no longer be the case.

"A subsistance wage allows you to pay for the most basic bills, e.g. housing, food, clothing, transportation, minimal health care, etc. rather than depend on government, family, or charity."

That sounds like a pretty good living to me.

How much, exactly, is this subsistence wage, and is it provided by government mandate?

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PeakTrader said...

Ron, supply didn't dry-up, demand did.

Yes, a subsistence wage is set by government, and it could replace many expensive and inefficient government programs.

It would be higher in some states than others, because of differences in the cost of living.

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Ron H. said...

"Ron, supply didn't dry-up, demand did."

The high level of demand seen by producers was never there. Fed policy provided an excess of easy credit that masked the actual level of demand.

"It would be higher in some states than others, because of differences in the cost of living."

What would it be in California?

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PeakTrader said...

Ron says: "The high level of demand seen by producers was never there."

I guess, it was an illusion, until demand dried-up.

In California, a subsistence wage is likely over $12 an hour, because the state has driven-up the cost of living through excessive regulations, taxes, fees, etc..

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Ron H. said...

"In California, a subsistence wage is likely over $12 an hour, because the state has driven-up the cost of living through excessive regulations, taxes, fees, etc."

( - one of them being a minimum wage.)

OK, so assuming that's a minimum wage, and not a negative income tax, just where will that money come from?

From the prospective of an employer, say a fast food restaurant, when the cost of an input goes up, will they:

a. Raise prices or reduce portions, thereby risking losing customers to competitors.

b. Reduce the amount of that input they use.

c. Reduce profit margin, meaning owners income.

d. Something else.


I vote for b.

c. is unlikely, and at some income level the incentive to operate a fast food restaurant will be gone, and it will close.

a. would essentially raise the cost of most basic goods that involve low wage workers, so their gains in pay would be offset by higher prices for almost everything they buy.

Where is the gain, and who gets it?

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PeakTrader said...

Ron, also, some of it can come from more productive workers attracted to the higher wage.

Moreover, demand can increase from the higher wage and unemployment benefits.

Furthermore, some of it may come from "excessive" profits or "excessive" wages, not used for consumption.

So, demand may rise, although it may remain below supply.

You don't want to raise the minimum wage when the economy is overproducing.

Henry Ford
Labor philosophy
The five-dollar workday

Ford was a pioneer of "welfare capitalism", designed to improve the lot of his workers and especially to reduce the heavy turnover...Efficiency meant hiring and keeping the best workers.

Ford astonished the world in 1914 by offering a $5 per day wage ($110 today), which more than doubled the rate of most of his workers.

A Cleveland, Ohio newspaper editorialized that the announcement "shot like a blinding rocket through the dark clouds of the present industrial depression."

The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs.

Competitors were forced to raise wages or lose their best workers.

Ford's policy proved that paying people more would enable Ford workers to afford the cars they were producing and be good for the economy.

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http://www.blogger.com/comment.g?blogID=28997633&postID=8285116999179172992

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PeakTrader said...

Minimum wage trends:
Understanding past and contemporary research
October 24, 2006

The belief that raising the minimum wage causes job loss was more commonly accepted by economists decades ago, but high-quality research by leading academic economists has forced the economic community to re-evaluate these arguments.

In lieu of negative employment effects, economists are frequently citing higher productivity, decreased turnover, lower recruiting and training costs, decreased absenteeism, and increased worker morale as ways in which employers may be able to offset some of the costs of a wage increase.

Former Federal Reserve Vice Chairman and current Princeton economist Alan Blinder commented, “My thinking on this has changed dramatically. The evidence appears to be against the simple-minded theory that a modest increase in the minimum wage causes substantial job loss.”

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PeakTrader said...

Traveler, a higher minimum wage can be paid for by excess profits, compensation of top management, and other highly paid employees (along with "higher productivity, decreased turnover, lower recruiting and training costs, decreased absenteeism, and increased worker morale").

Otherwise, why don't we import millions of Chinese, who make $0.25 an hour in China, and pay them $2 an hour to work in the U.S.?

If they're killed or injured, we'll import new ones.

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Mike said...

Peak,
It's clear that you've never had to hire unskilled "warm bodies" for a job with your own money. I think the economist you quoted may want to take a class while he's at Princeton...he may be right that the available data show less than 'significant' job loss, but the loss is often hidden by greatly reduced competition from smaller companies.

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PeakTrader said...

Mike, in the late '90s, we had to hire bag ladies and guys who slept in parks for "warm bodies" to process paperwork at Janus Funds.

That was shortly after the federal minimum wage was raised.

The country was at full employment in the mid-2000s also, i.e. below 5% unemployment.

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Mike said...

Peak,
I don't understand your point. So you were forced to pay somebody MUCH more than they were worth and you think that's a good reason to have an even higher standard? I'll assume you don't own Janus Funds so it wasn't your money.... Believe it or not, there are a lot of businesses smaller than Janus that have finite revenue.

BTW, If you think processing important paperwork is a job for those with just more than a pulse, how would you hire for standing with a sandwich board?

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PeakTrader said...

Mike, you stated: "...(the job) loss is often hidden by greatly reduced competition from smaller companies."

At full employment, there are no hidden job losses.

The minimum wage has been a low standard.

Would you pay a teen or a low skilled immigrant less than $10 for mowing your lawn or shoveling snow for an hour?

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PeakTrader said...

Ron says: "That worked in the 19th century ("If they're killed or injured, we'll import new ones"), but it might not be as popular now."

It seems, some people believe it's a good idea.

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Mike said...

Peak,

"Full employment", as I'm sure you're aware, doesn't exist. However, I've never seen a low-unemployment situation in which wages didn't rise above the minimum for entry level positions. So I still don't understand your point.

The hidden jobs to lose do not ever materialize in that environment. We're talking about entry level jobs that are filled with young people who may not have any job experience and haven't entered the work force. How do you tally job losses from companies that never opened, Peak?

To answer your question, yes. Of course. You wouldn't? If I'm given an opportunity to pay somebody $6 or $10 for the same job how on earth would I be smarter by paying more?...Why don't I just give the nice grocer $8 for a box of cereal? I like the guy at the gas station, I should totally up my offering to $5 a gallon....wow.

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PeakTrader said...

Ron says: "Why is it you don't think the market can price unskilled labor correctly when it works so well for other prices?"

If you don't like the price of filet mignon, you can buy prime rib.

If you don't like the wages of the employer, you can starve or work.

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PeakTrader said...

Mike, that's why we need a minimum wage, because people like you will pay a teen or unskilled immigrant $2 for an hour of work.

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