PeakTrader.com

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PeakTrader:

Higher wages can come from lower production costs (e.g. a lower turnover rate) and higher productivity (from both new and existing workers).

Moreover, perhaps, from higher profits and higher wages of other workers. A 50% rise in the minimum wage, over several years, will likely raise prices much less than 50%, e.g. 10% for everyone, and the gap between productivity and compensation may begin to close (if the gap was caused by increasingly underpaid lower wage workers).

Moreover, I suspect, weak firms will fail and strong firms will gain their market share and also gain from the increased demand, since both the income effect and multiplier effect may be greater than the employment effect, perhaps, up to $15 an hour.

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The labor economics literature, which uses rigorous empirical models and actual data, supports my position.

Obviously, your comment shows a bottleneck that hasn’t been dealt with, to raise productivity.

I’ve consulted (with my uncle who’s a millionaire business consultant), and worked for many businesses. Moreover, I have several friends who started and ran many businesses. Here’s one example of business that roughly doubled over the past five years:

A friend started a firm about 20 years ago and has well over 100 employees now.

He pays the highest possible wages for his workers, who all earn $30,000 to $60,000 a year, and buys equipment to make the work easier for them. He pays himself $150,000 a year. He could pay himself much more, if he wanted to, but limits his pay.

That’s always been his business philosophy, to pay his workers as much as possible and make their jobs easier. Attracting and retaining better workers was likely a major factor why he was able to take market share from his competitors.

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Morganovich, I find it amazing that even after I answer your questions, many times and in many ways, you still ask the same questions.

The reality is there are well run and poorly run firms, and many firms cannot afford to pay high wages. Similarly (for whatever reasons), many major league baseball teams can’t afford to pay for talent.

Economies change over time (they’re not static). Over the past 30 years as a percent of GDP, profits have soared, while compensation has declined. Much of that capital is idle and stored in low risk investments, e.g. money market funds, Treasury bonds, gold, etc., rather than flowing into high-risk investments, e.g. business start-ups.

In a depression, like the past few years, there are massive idle resources, including capital and labor. The U.S. has a structural problem, built-up over the past 30 years, which you don’t even recognize and remain a “stick-in-the-mud.”

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John, Morganovich has a simple and wrong answer for everything.

For example, he doesn’t understand why dollar stores and dollar hamburgers are so popular in the U.S..

While real income doubled, the real minimum wage declined over 25%, which made going to the Sizzler (for steaks instead of hamburgers) unaffordable for millions of low-wage workers.

Here’s a source of studies:

http://www.raisetheminimumwage.com/pages/job-loss

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People like Morganovich and Ron make false assumptions and illogical statements faster than anyone can respond to them, and even when you take the time to prove them wrong, in detail, you get the same exact false assumptions and illogical statements again.

Obviously, they completely disagree with mainstream economics, including the labor economics literature, and always fall back to the same few pieces of pre-20th century economic ideas, to explain a large dynamic macroeconomy with hundreds of major forces, pushing and pulling it, in hundreds of dimensions.

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Ron and Morganovich have proven many times they don’t have the capacity to understand how economic variables interrelate and interact in mathematical and empirical models.

Many people without econ degrees understood my statements, while Ron and Morganovich consistently shown they don’t even have a rudimentary understanding of economics.

Economists often proved conventional wisdom wrong. Yet, people will cling to what may be intuitive, initially, until it becomes common knowledge they were completely wrong.

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Ron, your statement reminds me of my first few days in a grad econ class, macro 5000.

The instructor wrote the most detailed equations I ever saw as fast as possible using all four chalkboards, and when he got towards the end he had to write smaller and smaller.

After a few days of this, a rich Arab student said: “What is this? I thought this was economics? I don’t understand?” and then said to the class “Does anyone understand this?” (no one said anything). The instructor said: “What is it you don’t understand?” The Arab said: “I don’t understand any of it.” The instructor said: “Come to my office after class for further instruction.”

Of course, you wouldn’t be accepted to a grad econ program in the U.S.. It would’ve been comical to see you in grad econ. LOL.

There are already many books on “Peakonomics.”

They’re called Macroeconomics, Microeconomics, Econometrics, International Trade, Public Finance, Labor Economics, Money and Central Banking, History of Economic Thought, etc.

My degrees are in mainstream economics, i.e. the Scientific Method of NeoClassical Economics.

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Good comments from others:

http://www.aei-ideas.org/2013/08/why-a-living-wage-will-not-help-the-economy/#comments

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PeakTrader:

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.

Also, I may add, a combined increase in higher wages and unemployment benefits (if unemployment rises) can facilitate a virtuous cycle of consumption-employment.

Or, the income effect may be stronger than the employment effect. to have a net positive effect on growth and employment.