PeakTrader.com

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http://www.blogger.com/comment.g?blogID=28997633&postID=4436095792648511472

Comments:

PeakTrader said...

Raising the minimum wage may have increased quality, because StarKist is better than Chicken of the Sea.

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Morganovich says: "and likely also increased price, as now there is less competition and as well as higher costs...(oh, and fewer jobs of course)."

Why would the price rise? StarKist survived, because it's a more efficient producer of tuna than "Samoa Packing, a Chicken of the Sea subsidiary."

So, it's possible, more tuna is being produced. Also, the higher wage attracted more productive workers (or the higher wage allowed StarKist to exchange less productive workers for more productive workers).

If the price did rise, so did wages and perhaps profits, which boosted economic growth on the island, ceteris paribus, including through a multiplier effect.

Anyway, is the goal to produce tuna or jobs?

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Ron, I buy albacore cans of tuna only when it's on sale (e.g. $1 or $1.25).

I've noticed Chicken of the Sea tuna is soggy or watered-down compared to StarKist.

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Morganovich, it seems, you have no understanding of economics beyond a standard and static model.

At least Ron comes up with creative, although crazy, ideas.

Have you ever heard of "investment" or "expansion?"

So, when U.S. automakers fell from 20 to three firms, fewer autos were produced?

Or when the same or more output was produced with fewer inputs, living standards fell?

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Raising the minimum wage, to create a level playing field, forced a poor firm out of business and that business was replaced by a better firm.

Isn't that how Reagan won the Cold War?

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I stated before, raising the minimum wage can raise real GDP.

My statements have been consistent.

However, it seems, some people don't understand my comments, and don't even understand their own comments.

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Jet Beagle, it has nothing to do with prices. It's about a winner beating a loser. It happens all the time.

Both firms had the same government standards.

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The minimum wage is raised for both firms.

One survives, the other fails.

The implication is the surviving firm operates its business better.

The surviving firm expands and takes over the failed firm's business.

The surviving firm produces the same or more output with fewer inputs, although wages are higher.

Resources are freed-up, because it uses resources more efficiently.

So, the economy can expand through higher wages and more resources.

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If the price of tuna rises (e.g. StarKist is higher quality than Chicken of the Sea), then fewer cans of tuna can be exchanged for imports.

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Morganovich says: "driving a good and profitable business out of an industry."

You mean like a slum lord?

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Mike said...

If you ever ran a small margin, small business you'd understand other's comments.

PeakTrader said...

Mike, how low do wages need to be to run "a small margin, small business?"

Mike said...

It depends on volume.

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Morganovich, here's another simple example.

Say StarKist produces 100 cans at $2 and Chicken of the Sea produces 100 cans at $3.

Assume Starkist makes $2 profit on 100 cans and Chicken of the Sea makes $1 profit on 100 cans.

Also assume a rise in the minimum wage lowers Starkist profit from $2 to $1 and Chicken of the Sea profit from $1 to zero.

All the workers can now work at StarKist (because they can't work at Chicken of the Sea).

StarKist workers can produce 100 cans of tuna at $3 instead of $4 at Chicken of the Sea.

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American Samoa - Wikipedia

"The Unemployment rate was 29.8% (2005), but has been improved to 23.8% as of (2010)."

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Morganovich says: "increasing the cost of an input without an increase in productivity does not result in growth or prosperity."

Both wages and productivity rose.

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The facts remain. Before the minimum wage increase in American Samoa, the economy was stagnant and more workers were needed to produce cans of tuna. Unemployment was substantially higher before the minimum wage increase than after.

Of course, weak firms operate in countries with low wages, like Thailand or Haiti, to make profits.

Some people refuse to accept any other mechanisms, beyond a simple supply-demand price-quantity two-dimensional model, that adjusting the minimum wage, e.g. raising it, can raise real GDP and employment.

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We know American Samoa's economy did poorly before the minimum wage increase (see chart of per capita real GDP):

http://www.bea.gov/newsreleases/general/terr/2010/asgdp_051010.htm

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Jet Beagle, we don't know how much of an impact the 2008-09 recession, and slow recovery, had on demand for tuna.

However, we know in 2002-07, per capita real GDP declined substantially.

Some firms are so weak, that raising wages to $5 or $6 an hour was enough to bankrupt them.

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Perhaps, they made a higher profit on higher quality tuna, e.g. solid white albacore, than lower quality tuna, e.g. chunk light tuna.

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Morganovich, cans of tuna are still cheap. I buy albacore often at $1 or $1.25 a can. Overall production may have increased.

It seems, American Samoa unemployment rate has been around 25% for decades.

At least taxes went up:

Employer’s Responsibility
Two Percent Wage Tax

"(Utulei) On March 18, 2011 Governor Togiola T.A. Tulafono signed into law legislation for a 2% tax on wages. This is in addition to the current income tax. This Wage Tax is effective as of January 1, 2011.

Withholding: Employers should withhold an additional 2% on wages. Employees subject to the 4% minimum tax should have an additional 2% withheld for a total withholding of 6%."

http://americansamoa.gov/index.php?option=com_content&view=article&id=99

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Raising the minimum wage in American Samoa and in the U.S. may have increased overall production and productivity with no change in prices.

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And American Samoans who lost their jobs at the cannery may have received up to 99 weeks of unemployment benefits, while the remaining workers earned higher minimum wages.

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Morganovich, perhaps, American Samoa didn't have a productive workforce.

A shift to a more productive workforce and more automation can increase production and productivity.

We've seen it in the past.

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Morganovich, it's amazing how you and Jet Beagle think almost alike, even asking me the same question almost simultaneously.

You both can't seem to understand there are many economic forces and mechanisms beyond an Econ 101 two-dimensional model.

Also, you both either ignore or reject the literature in labor economics, most likely because it's Chinese to you.

It's too much to expect that you both can begin to understand how everything in economics fits together, and how economic changes have net positive or negative effects on the economy.

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Juandos, you may want to see Occam's razor: "One should proceed to simpler theories until simplicity can be traded for greater explanatory power. The simplest available theory need not be most accurate."

Morganovich, you're absolutely convinced always raising the minimum wage will reduce real GDP and employment. So, why attempt to show you otherwise?

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Chart - U.S. per capita real GDP:

http://www.advisorperspectives.com/dshort/charts/indicators/GDP-per-capita-overview.html?Real-GDP-per-capita-since-1960-log.gif

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