PeakTrader.com

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PeakTrader:

Workers have to create, build, ship, install, improve, maintain, operate, and manage those machines.

Currently, in the U.S., there’s an overabundance of capital and an education boom.

Do you want trillions of dollars of idle capital kept in unproductive assets, while overeducated Americans work at low-skilled jobs?

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Let’s make cheaper and more powerful drugs available for blacks and force them to work for $2 an hour.

If they do a good job, they’ll get a raise, and drive-down all low-income wages even further, while driving-up profits even higher.

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If blacks are unwilling to be exploited for $8 an hour, why would they be willing to be exploited for $6 an hour? Isn’t that what Hispanics are for?

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What do you call a person whose labor is worth less than the minimum wage?

Under 16 or disabled.

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OK, here’s a 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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Is allowing market failures that can be prevented morally acceptable?

Is moving a macroeconomy towards optimization morally acceptable?

A $20 an hour minimum wage is likely too high. Similarly, a $10 minimum wage is likely too low.

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If the economy was able to absorb a $10 real minimum wage (with a 3.5% national unemployment rate and a much higher teen labor force participation rate), why can’t it absorb a higher real minimum wage with low-wage productivity 25% higher, particularly, since per capita real income doubled, profits are much higher as a percent of GDP, and the proportion of real income of the top 20% became much more concentrated, while real median income was stagnant, and then declined since 2000.

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http://www.aei-ideas.org/2013/12/raising-minimum-wage-would-be-disastrous-for-minorities-espeically-black-male-teens-whose-jobless-rate-is-now-44-3/#comments

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PeakTrader:

It’s inappropriate to use a price-quantity model to explain the labor market, because:

1. Prices don’t equal wages.
2. Workers don’t equal widgets.

Moreover, it’s inappropriate to use a partial equilibrium model to fully explain a general equilibrium model.

Also, I read some of the statements in the other posts and much economics is ignored.

1. If a firm is so weak, it cannot afford $10 an hour (represented in the cartoon), it should go out of business, and better managed firms should take their market share, along with the increased demand from the higher wage.

2. Prices don’t have to fall from a declining real minimum wage; profits can rise instead.

3. If firms can pay workers, who are 25% more productive, than in the past, 25% less, why would they pay a higher price for labor?

4. Firms can use market power to sell their goods at higher prices, underproduce, and hire fewer workers.

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I also explained how a higher minimum wage can reduce (other) production costs and raise productivity.

Moreover, the positive income and multiplier effects may be stronger than the negative employment effect, up to $15 an hour.

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Workers responds to incentives. Widgets don’t.

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Yes, a wage is the price of labor.

Also, the cost of an input does not equal the price of an output.

Moreover, wages is income, which equals consumption and saving.

And, some people save more (i.e. high-income workers), while others spend more (low-income workers).

A wage is the price of labor. However, unlike output prices, wages are inputs and income.

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“If paying higher wages is such a good idea, why aren’t companies doing it voluntarily?”

1. Not all firms can afford higher wages.
2. Not all firms are equally managed (e.g. some firms believe profits will fall).

If you prefer to eat at the Sizzler than at McDonalds, why aren’t you doing it voluntarily?

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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 (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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Here are some ideas by economists (I suspect, they’re labor economists):

Minimum Wage

“The argument that minimum wages decrease employment is based on a simple supply and demand model of the labor market. A number of economists (for example Pierangelo Garegnani, Robert L. Vienneau, and Arrigo Opocher & Ian Steedman), building on the work of Piero Sraffa, argue that that model, even given all its assumptions, is logically incoherent.

Michael Anyadike-Danes and Wyne Godley argue, based on simulation results, that little of the empirical work done with the textbook model constitutes a potentially falsifying test, and, consequently, empirical evidence hardly exists for that model.

Graham White argues, partially on the basis of Sraffianism, that the policy of increased labor market flexibility, including the reduction of minimum wages, does not have an “intellectually coherent” argument in economic theory.

Gary Fields…argues that the standard “textbook model” for the minimum wage is “ambiguous”, and that the standard theoretical arguments incorrectly measure only a one-sector market.

An alternate view of the labor market has low-wage labor markets characterized as monopsonistic competition wherein buyers (employers) have significantly more market power than do sellers (workers)…Such a case is a type of market failure and results in workers being paid less than their marginal value.

Under the monopsonistic assumption, an appropriately set minimum wage could increase both wages and employment, with the optimal level being equal to the marginal productivity of labor.”

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I think, the U.S. economy can absorb a $15 national minimum wage.

Prices will rise much less than the higher wage. Overall, real wages will rise, in part, because low-income real wages will rise more than high-income real wages will fall, e.g. up to $15 an hour.

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http://www.aei-ideas.org/2013/12/video-explains-how-the-minimum-wage-leads-to-a-deadweight-loss-and-makes-us-worse-off-on-net/#comments

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Articles on Monopsonistic Competition

http://monetaryfreedom-billwoolsey.blogspot.com/2013/10/monopsonistic-competition.html

http://www.bls.gov/ore/pdf/ec030060.pdf

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PeakTrader:

Why raising the minimum wage is a good idea:

1. Stimulate economic growth.
2. Correct a market failure.
3. Lower production costs.
4. Raise productivity.
5. Raise teen labor force participation rate.
6. Expand better managed businesses.
7. Create less income inequality.
8. Correct the saving glut.
9. Correct weak demand.
10. Build morale and make work pay.
11. Reduce government support for low wage workers.
12. Reduce parental support for low wage workers.

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And, wages don’t equal prices, because wages isn’t just the price of an output, it’s also an input and income.

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Moreover, if a higher minimum wage shifts idle capital (earning enough for capital preservation), in the saving glut, into capital equipment, rather than more minimum wage employment, better jobs may be created.

I stated before:

Workers have to create, build, ship, install, improve, maintain, operate, and manage those machines.

Currently, in the U.S., there’s an overabundance of capital and an education boom.

Do we want trillions of dollars of idle capital kept in unproductive assets, while overeducated Americans work at low-skilled jobs?

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Studies:

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

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http://www.aei-ideas.org/2013/12/raising-the-miniumum-wage-might-be-a-good-idea-if/#comments

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