PeakTrader.com

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PeakTrader:

While real income doubled, the real minimum wage declined over 25%.

Moreover, regulations, which soared over that period, tend to be regressive, e.g. through higher prices and lower wages, raising the cost of living, particularly for low income workers.

So, raising the minimum wage and reducing regulations (i.e. overregulation) will improve living standards of low-income workers substantially.

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I already explained how the (positive) income and multiplier effects may be stronger than the (negative) employment effect raising the minimum wage (e.g. the very small employment effect), perhaps, up to $15 an hour, how workers making up to $25 an hour will benefit greatly (e.g. comparing low marginal propensity to consume to high marginal propensity to consume), while workers making over $25 an hour will lose little (e.g. from faster economic growth), how it’ll somewhat offset the structural problems in the economy built-up over several decades (e.g. idle capital in a saving glut), etc..

However, it’ll also make firms much more efficient in production (weak firms will fail and stronger firms will take their market share and also benefit from the increased demand). Real example:

There was a fast growing firm that was also very disorganized, because it was so busy. One of the recommendations was raising the starting wage from $11 to $13 an hour for all factory workers. However, management decided that was a bad idea. One reason was there were always plenty of applicants for $11 an hour, over the prior five year period, and of course, there was concern profits would fall, substantially.

However, roughly six months later, management raised the starting wage to $13 an hour and something miraculous happened.

Turnover rates dropped like a rock, overtime was almost completely eliminated, including six day weeks, injuries fell dramatically, hardly anyone called in sick, damage to equipment and products almost disappeared, including steep declines in reject rates, quality rocketed, morale was lifted, management no longer had to spend enormous time interviewing workers, with related paperwork and training, supervisors no longer had to cover for sick workers, to do their jobs, and had time to actually do their work, and profits soared.

Experienced workers who rejected the job when they learned it was $1 or $2 less than they were willing to work for took the jobs at the higher rate. Management had much more time to manage and supervisors had much more time to supervise. So, operations became much more organized and efficient.

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It’s ridiculous to reward work with poverty, just because there’s abundant labor.

Raising the minimum wage has the added benefit of turning workers into taxpayers instead of receiving an earned income tax credit, food stamps, finding ways to collect unemployment or other government benefits.

And, the collapsed teen labor force participation rate may begin to rise again with a higher minimum wage.

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When the real minimum wage was above $8 an hour, roughly between 1960 and 1980, the teen labor force participation rate rose from below 45% to about 60%, and when the real minimum wage was at its highest, in 1968, the unemployment rate for the country was 3.5%.

Chart – Teen Labor Force Participation Rate

http://research.stlouisfed.org/fred2/series/LNS11300012?cid=32449

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Sure, the ones willing to work for cheap wages gain experience.

The ones unwilling to work for cheap wages play video games and depend on their parents, collect some type of government assistance, or go to school, fueling the education bubble, while going into debt.

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http://www.aei-ideas.org/2013/09/friday-afternoon-links-10/comment-page-1/#comment-317229

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Regulation site from Juandos

http://cei.org/10KC

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PeakTrader:

“If firms respond to Obamacare by cutting hours and jobs, wouldn’t they do the same when the minimum wage rises?”

Sure they will. However, the boost in purchasing power, greater efficiency in production, lower production costs, and less consumption of government services will more than offset the cut in hours and employment.

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On a macro level, the (positive) income and multiplier effects may be stronger than the (negative) employment effect up to $15 an hour.

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“…the fallacy that higher minimum wages won’t adversely affect the employment prospects of unskilled and low-skilled workers.”

What’s with the preoccupation of providing jobs for unskilled workers? Sounds like a welfare program.

Why not instead pay workers to increase output, even if it takes fewer workers. There may be more unemployment. However, there will be more freed-up labor available to produce other goods, to expand the economy.

Unskilled labor should be the last to be hired, before reaching full employment, unless firms are willing to invest in them.

Raising the minimum wage alone will not get us to full employment. There are much more powerful factors that can get us there.

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Those who lose their jobs will receive unemployment benefits, which will add to demand, along with the higher wage.

However, also, a higher minimum wage will turn workers into taxpayers instead of receiving an earned income tax credit, food stamps, finding ways to collect unemployment or other government benefits.

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I know you prefer idle capital and labor.

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Here’s a real world example, which reflects much more than a single and simple two dimensional model:

There was a fast growing firm that was also very disorganized, because it was so busy. One of the recommendations was raising the starting wage from $11 to $13 an hour for all factory workers. However, management decided that was a bad idea. One reason was there were always plenty of applicants for $11 an hour, over the prior five year period, and of course, there was concern profits would fall, substantially.

However, roughly six months later, management raised the starting wage to $13 an hour and something miraculous happened.

Turnover rates dropped like a rock, overtime was almost completely eliminated, including six day weeks, injuries fell dramatically, hardly anyone called in sick, damage to equipment and products almost disappeared, including steep declines in reject rates, quality rocketed, moral was lifted, management no longer had to spend enormous time interviewing workers, with related paperwork and training, supervisors no longer had to cover for sick workers, to do their jobs, and had time to actually do their work, and profits soared.

Experienced workers who rejected the job when they learned it was $1 or $2 less than they were willing to work for took the jobs at the higher rate. Management had much more time to manage and supervisors had much more time to supervise. So, operations became much more organized and efficient.

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I stated before, it’s ridiculous to reward work with poverty, just because there’s abundant labor.

Low income real wages have been falling, not rising.

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In the real world, some workers are better than others, although they’re paid the same.

And, some workers are grossly overpaid and some are grossly underpaid.

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If you can pay $1 for something worth $10, you’re not going to say it’s too cheap and pay $10.

And, some people are desperate enough to exchange their work for poverty, while others aren’t.

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Your statement completely contradicts economics.

Empircal models isolate the effect of the minimum wage on employment. The most rigorous models (not just one) reveal the effect is very small, ceteris paribus. The Card Krueger study, in the low wage fast food industry, found it had no effect.

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Supply and demand is a price-quantity model.

Wages don’t equal prices.

Demand can be inelastic or elastic.

The supply and demand model works well in a vacuum.

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http://www.aei-ideas.org/2013/09/if-firms-respond-to-obamacare-by-cutting-hours-and-jobs-wouldnt-they-do-the-same-when-the-minimum-wage-rises/#comments

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PeakTrader:

“In a rare display of economic sanity and some familiarity with Econ 101, Congress agreed last week by a vote of 415-0 that increases in the minimum-wage are an economic disaster.”

Beyond some econ 101 (e.g. a couple of rigorous econ programs and applied experience), people will learn the U.S. economy is not the Northern Mariana Islands and American Samoa economies.

Their minimum wage may be too high, unlike the U.S..

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I’m not surprised it’s political for you. I already explained it. Why don’t you explain why it’s wrong (in the context of economic variables).

No economist knows the “exact” minimum wage. Top economists can figure out with a high level of confidence if raising or reducing the minimum wage will be a net positive or a net negative for the economy.

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PeakTrader:

MP: "As I’ve said before, I’ve found that the minimum wage issue is a pretty accurate litmus test for basic economic literacy. Defenders of government price controls like the minimum wage really can’t be taken seriously because they haven’t yet mastered basic economic principles and don’t yet understand the fundamental laws of supply and demand."

All mainstream economists who favor the minimum wage don’t understand supply and demand. It doesn’t matter how many Nobel Prizes they win.

If you’re a political hack, make things up, or just shrills “fraud” all the time, you’re totally correct.

If you build rigorous models, use actual data, and incorporate the other 99.99% of economics trying to understand reality, you’re all wrong.

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“It is not uncommon to hear the Card and Krueger results dismissed by opponents of the minimum wage as having been disproved by the Neumark and Wascher study. However, an objective review of all the material from both sets of authors leads to the conclusion that the New Jersey minimum wage increase had no measurable impact on employment in fast-food restaurants. As discussed on the following pages, a number of factors support the Card and Krueger findings and call into question the results of the Neumark and Wascher study: 1) the questionable data collection methods used by Neumark and Wascher; 2) a reexamination of the Card and Krueger study using unbiased government records; and 3) the carefully worded conclusions in the final version of the Neumark and Wascher paper.

Based solely on their own research—using highly questionable data—Neumark and Wascher concluded that the minimum wage had a negative impact on employment. They did, however, acknowledge that many of their results are not statistically significant. Even more telling, after reviewing the results of the second Card and Krueger study that used government data and combining that with their own findings, Neumark and Wascher hedge by saying that they can only decisively conclude that “New Jersey’s minimum wage increase did not raise fast-food employment in that state” (Neumark and Wascher 2000, p. 1,391). “

“The best data for looking at the impact of the minimum wage on restaurant employment are ES-202 data, which are routinely collected by state governments for the unemployment compensation program. These data are likely more accurate than the phone survey originally performed by Card and Krueger and would not be subject to the same biases as the EmPI/Neumark and Wascher data. For confidentiality reasons, ES-202 data is generally not available to the public except in the form of broad aggregate data. Card and Krueger, however, received access to establishment-level data, which allowed them to reevaluate their original study using an accurate and unbiased source.

The results of this study were published in the American Economic Review alongside the results of Neumark and Wascher (Card and Krueger 2000). The updated conclusion of Card and Krueger was identical to their first study: that the “increase in New Jersey’s minimum wage probably had no effect on total employment in New Jersey’s fast-food industry and possibly had a small positive effect” (Card and Krueger 2000, p. 1,419).”

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Larry, yes, they’re just politically-driven ideologues. You can’t take them seriously.

They really have nothing to support and defend what they’re saying.

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Jon, your assumptions are false. There are too many to deal with. You say “increased demand lead to higher prices/wages, not the other way around.”

Higher wages for low income workers mean they’ll buy more steaks at the Sizzler and fewer burgers at McDonalds. So, the Sizzler will gain jobs and McDonalds will lose jobs.

Jobs at the Sizzler, including related jobs, will likely be better jobs.

The marginal propensity to consume may be unchanged. However, income (equals output) will be higher. So, both consumption and saving will rise.

In nominal GDP, the inflation component affects the real GDP component. So, higher prices will raise real GDP, particularly with massive idle resources.

A self-sustaining cycle of consumption-employment, where consumption generates employment and employment generates consumption, can take hold, if it’s strong enough.

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I explained it to your many times before. Here’s a small part of it:

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 (or overpaid workers) and “excess” profits (capital as a share of GDP is at an all-time high, while real wages declined).

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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If minimum wage workers get a raise from $7.25 to $9.00, then non-minimum wage workers earning above $7.25 and below $9.00 also get a raise.

Moreover, I suspect, workers earning slightly above $9 will also get a raise.

Real wages may increase for workers, perhaps, up to $15 an hour, i.e. prices will rise less than the rise in low income wages, while real wages for workers earning above $15 an hour will fall.

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http://www.aei-ideas.org/2013/09/thomas-sowell-on-the-minimum-wage/#comments

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PeakTrader:

Imagine if the minimum wage kept up with real income growth, since 1968. It would be $20 an hour today.

Tens of millions of workers would be happier and would’ve chosen work over government benefits or welfare, including student loans.

They would’ve consumed more goods, saved more for retirement, paid more taxes, and consumed less government services.

Trade deficits would’ve been even greater and there could’ve been budget surpluses instead of huge budget deficits. The national debt would’ve been shrinking.

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Both inflation and real growth, or nominal growth, would’ve been much higher. And, I explained before, low-income workers would benefit greatly, while high-income workers would lose little.

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I explained in detail before, there would’ve been a net gain in purchasing power (the gains of low income workers would’ve been much greater than the losses of high income workers), greater efficiency in production, or productivity, and lower production costs.

Real income would’ve been higher. So, both real consumption and real saving would’ve been higher.

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And, regarding unemployment.

We know when the real minimum wage was $10 an hour and per capita real income was half as much, the unemployment rate was 3.5%. So, the minimum wage wasn’t high enough to trigger massive unemployment.

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The U.S. economy could become like the welfare to workfare Clinton economy, when real wages actually increased and the country had budget surpluses.

Instead, we have depressed or falling real wages with a saving glut and huge budget deficits.

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Paul:

McDonald’s hires 7,000 touch-screen cashiers:

http://news.cnet.com/mcdonalds-hires-7000-touch-screen-cashiers/8301-17938_105-20063732-1.html

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PeakTrader:

If a firm is able to produce the same output with fewer workers, then there’s more freed-up labor, available, to expand the economy.

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Better jobs are created, since workers create, build, ship, install, improve, maintain, operate, and manage those machines.

If one worker can do the job of 100 workers, that’s good for the economy.

Then, the other 99 workers can produce other goods.

Perhaps, you prefer more scarcity instead.

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How do you know the economy would grow faster? Since the minimum wage was established, per capita real GDP has grown at a much faster rate.

Annual per capita real GDP growth:

1863-1937 (75 years): 1.33%
1938-2012 (75 years): 2.44%

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http://www.aei-ideas.org/2013/09/wednesday-afternoon-links-9/#comments

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PeakTrader:

“Surveys of labor economists have found a sharp split on the minimum wage. Fuchs et al. (1998) 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 were nearly evenly divided 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. Daniel B. Klein and Stewart 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:

Morganovich says: “the guy who thinks that higher min wages create jobs.”

This is further proof of your dishonesty, and lack of comprehension, because I explained, in detail, my statements to you many times.

I showed how a higher minimum wage can increase output and productivity, reduce production costs, and raise overall purchasing power, not necessarily create jobs. I stated, labor will be freed-up to expand the economy, and there are other, more powerful, factors that can create jobs.

And, people like you assumed, because I stated the (positive) income and multiplier effects may be stronger than the (negative) employment effect, up to $15 an hour, then that means the demand curve, in the single, simple and static price-quantity model, slopes upward.

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Morganovich, I knew you would say things about me that fit your perfectly, and it was likely one of your worn out supporters, like Givemefreedom, would shrill something like “liar.”

I’ve already shown the mathematical and empirical models support my statements. You’re anti-economics, and pre-historic along with dishonest.

You’re as anti-economics as an environmental wacko.

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Morganovich and his worn out supporters abhor debate. Their ideas are rigid, regardless of American mainstream economics, or anything that contradicts their beliefs, like logic.

If someone is objective, they’ll immediately jump to conclusions and say you’re biased, and they’ll spread as much misinformation about you as they can.

They make people like Obama look humble, while driving away unbiased people.

They should move to another site, rather than a site with economics, because they contribute no value here.

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http://www.aei-ideas.org/2013/09/quotation-of-the-day-on-the-magic-of-the-marketplace/#comments

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PeakTrader:

It’s not about fairness, it’s about optimization. I think, only a crackpot would want to eliminate all labor standards or all environmental standards.

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Democrat leaders have done an effective job turning lies into conventional wisdom. The real nitwittery is Republican leaders allowing them to get away with it.

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