From: king@cogsci.ucsd.EDU (Jonathan King)
Newsgroups: alt.politics.clinton,talk.politics.misc,sci.econ
Subject: Re: Minimum wage: balancing job losses vs pay increases
Date: 26 Jul 92 01:39:54 GMT
Organization: University of California, San Diego

This is the maximum depth for me on this thread.

pjm@anegada.sps.mot.com (Patrick J. McGuinness) writes:
>king@cogsci.ucsd.EDU (Jonathan King) writes:
>>n9020351@henson.cc.wwu.edu (James Douglas Del-Vecchio) writes:
>>>king@cogsci.ucsd.EDU (Jonathan King) writes:
>>>>crisp@netcom.com (Richard Crisp) writes:
>>>>>Minimum wages have the effect of reducing employment or increasing
>>>>>unemployment (state it your preferred way).
>>>
>>>>That's one effect.  The other effect is to raise wage levels for those
>>>>who are working, which could (say) increase consumption and create new
>>>>jobs.  One sentence on the topic is not a useful analysis of the
>>>>situation.

[note that a couple layers of reply were completely deleted here, for
whatever reason.]

>The analysis by the AFL-CIO's economists on the effects of the minimum
>wage increase in 1989, from $3.35 to $4.50, estimated that the
>rise in the minimum wage would cost several hundred thousand jobs
>(the estimates ranged from 100,000 to 500,000). It also marginally
>increases the inflation rate.

OK, now we have real numbers, or at least some of them.  It would be
good to know the total number of minimum wage jobs in the whole
economy, as well as the size of the increase in the inflation rate.
Also, what percentage of the job losses are for part-time workers?
Are these losses estimated to be *permanent*?  Did the analysis take
into account the effect of additional spending power of minimum wage
workers?  Also, the range of these estimates suggests to me a rather
large amount of uncertainty, and wide differences of opinion on the
effects of the move.

But another major point here is that the minimum wage didn't change
for several years, which probably enlarges the effect of this big
lump sum increase.

Actually, what *was* the net effect in jobs lost caused by the
increase?  (Or did the actual increase occur too close to the start of
the recession to really tell?)

>In fact, almost all economists agree on that. 

(The marginal inflationary push, right?)

>>>It merely eliminates all jobs paying 
>>>below the floor, with no change for the workers already getting the 
>>>minimum or better.
>>
>>What?  As if you want to promote the creation of sub-minimum wage jobs
>>in the economy, when you can't live on minimum anyway? I
>>can't support the "jobs at any wage" position.
>
>But you do apparently support having them be unemployed instead.

No.  I support giving them training so they won't have to chase after
minimum wage jobs.  (Assuming that the minimum wage isn't enough to
pay the bills, which it isn't, in many places.)

But this brings up another point:  if minimum wage jobs don't
pay you enough to get by, then how do people make up the shortfall?
There are hidden costs here, as well.  And in any case, you want to
make sure that available jobs pay well enough to keep people off
of public assistance.

> [point about marginal inflationary impact deleted]

>>I wouldn't necessarily make this argument, but one could try to argue
>>that minimum wages are another way to encourage businesses to increase
>>per worker productivity.
>
>And workers, like entry level workers, that aren't fully 
>productive, get canned. 

First, I know that you know it's not just entry-level workers who get
canned.  Second, this is how the economy works.

>Shifting of costs, while not a positive overall, will help some
>individuals (capital-intensive or more skilled labor).
>Unfortunately, the minimum wage hurts the unskilled
>and entry-level workers who most need work.

It hurts them if there is no way they can become skilled workers, for
certain; that's the real problem.  I suggest that government policy
might better be aimed towards training a highly skilled workforce
earning real money than towards ensuring a pool of cheap labor for
low-wage employers.

>>>It would be interesting to see, if say you work for Burger Phlem,
>>>for example, for $4.85/hr, if a minimum wage increase to $9/hr would
>>>cause you to get a $4.15/hr raise, or if you would just get canned.
>>
>>Oh, please.  When has there ever been such a dramatic rise in the
>>minimum wage?  [Answer: never, and it's obvious why not.]
>
>Why is that? Becuase the negative consequences of the minimum wage
>at that level would become so blatant that nobody could defend it.

Oh, *please*.  There are two problems with the example.  The first is
that the sudden, much huger than ever contemplated increase *would*
cause substantial unemployment in the low-wage sector.  The second is
that the new level of the minimum wage would suddenly (and
nonsensically) affect maybe three or four levels of workers above the
entry level, which is obviously *very* inflationary.  *Excluding* CEOs
and such, the ratio of the lowest wages to the highest is about 25:1;
after this increase, it would suddenly be much closer to 10:1 (with
high unemployment).

The object of minimum wage laws are not to ruin the economy, after
all.  Interestingly, you deleted the point that all of our major
economic competitors have similar wage regulations; why would *they*
be so dumb, too?

>>But this does bring back the other point about what happens you raise 
>>the minimum wage: the company has a choice.  It can swallow the added
>>cost, find some way to increase productivity to cover the cost,
>>increase prices, or lay people off.
>
>The option of increasing productivity is already a necessity
>to the company if they wish to become more competitive.  

Of course; does the encouragement hurt that much?

>You have
>shown that if the company was faced with a rising labor cost they
>would react in a way that hurts either the company (eat costs), the
>customers (increase prices), or the employees (lay people off).
>Well guess what? You are right -- they *all* get hurt.

Once again, do you have evidence that the layoffs are more damaging
overall than the positive effect of increasing income for the vast
majority of those workers who *don't* get laid off, PLUS the possible
gain in productivity?  Again, how important is the price inflation
factor here?

And you keep ignoring the other way out:  the company could decide to
"skill-up" its workforce, and try to make money with higher quality
products; no, I guess that would never work. :-)

>> In the mean time, the workers who actually *got* a raise have more 
>> money to spend.
>
>The net effect of the law is a reduction in economic activity.

Was this the conclusion of the AFL-CIO study you mentioned, some
other study, or just your opinion?  And, once again, I would suggest
that continued growth of the low-wage economy leads to a reduction
in economic vitality, which will in the end affect us all.

Again, I don't think the situation is as simple as many people do.

jking
Newsgroups: alt.politics.clinton,alt.politics.bush,talk.politics.theory