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 19:40:26 GMT
Organization: University of California, San Diego

I *said* I wasn't going any deeper on this thread, but somebody new joined
in, and raised a few new points that might be worth addressing.  

mfriedma@uucp (Michael Friedman) 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.
>
>Mind explaining why this would increas consumption?  After all, you're
>just taking money out of one set of pockets - the people whose skills
>are not worth more than the minimum wage - and putting them in another
>set of pockets - the people who are worth keeping at a slightly higher
>salary - and adding a bit of inflation to boot.  

Um, not quite.  First off, you mention the effect on prices yourself;
not all the cash to cover the raises is coming from those who would
get pink-slipped.  Secondly, somebody else posted that economists were
projecting only a "marginal" increase in inflation, which I understood
as meaning "less than the net increase in wages" (note that there
certainly *would* be a net increase).  So where does the money come
from?  In part from the people who are higher on the wage scale, in
part from possible productivity gains, and in part from an increase
in the money supply.

>You aren't adding any
>buying power to the economy so why should consumption increase?

First of all, note that it certainly shouldn't decrease, even if it
were just a reshuffling of consumption.  Second, any real productivity
gains would fuel an increase in consumption.  Third, the
redistribution of a small chunk of money from those with higher
incomes to those with lower incomes probably also fuels consumption,
given that low wage workers don't save as much.  Now, you may not
*want* a decrease in the savings rate, but that's another issue.

>>>It has no such effect.  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?  Sorry, 
>>but I can't support the "jobs at any wage" position.  I can't name a
>>developed democracy that doesn't have some sort of wage regulations
>>at the low end.
>
>So you oppose sub-minimum jobs so strongly you want to make them
>illegal?  This seems kind or unreasonable especially as many 
>states are moving to eliminate welfare for able-bodied adults 
>without children.

No, I don't think it should be a government policy to promote the
creation of jobs that don't pay a living wage.  What is the point of
that?  As far as the public assistance issue goes, you really
need the wage levels in your economy to be higher than the "wage"
you would earn from public assistance, and I think it's wrong to
to have a policy where you are in effect forcing people to work for
wages that they can't live off of.  If many states are changing their
welfare laws, but aren't providing training or transition employment,
then what good is *that* doing?  For one, this doesn't sound like a
way to decrease homelessness.

>>Further, wage inflation always used to be one of the big arguments
>>against the minimum wage, but I see that you're denying this effect.
>
>Well, he's wrong.  The key is the marginal benefit from adding extra
>workers.  McDonalds won't just close.  They'll raise prices.  That
>reduces demand.  So they fire some burger flippers.  

Did any of these things actually happen when the minimum wage went up?
Seriously, I though fast food prices were lower now than they were
before, while MacDonald's stock price looks pretty healthy right now;
you don't suppose that they might have increased productivity (and sales
volume) to come out where they were before?  Or even better?

Also, I've seen more "help wanted" signs at the fast food joints recently
than anywhere else.

>That solves
>McDonalds' provblem, but everyone else is paying a bit more for
>hamburgers so the CPI goes up.  That's called inflation.  

But this doesn't seem to have happened.  Do you have evidence that it
did?  The CPI seems remarkably low right now, whatever that really
means (the CPI is one of the strangest economic statistics of all
time).

>Needless to
>say, everyone else wants more money to compensate, the CPI goes up
>more, and the minimm wage is back where it was in real dollars.

Any evidence for this?  The minimum wage was $3.35 for years, and now
it's at least $4.25; I haven't seen a 25% gain in the CPI, have you?

>>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.
>
>So you want to put unproductive people on welfare?  That's loony!!

No, I want to get unproductive people into training programs to become
skilled workers.  What's loony is thinking you can run the economy
on low-wage food service jobs.

>>>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.] 
>
>No.  But thought experiments with large changes make it very clear
>that the posited benefits of small changes have no rational
>underpinning.  

Rubbish.  The experiment is on right now, and if I had time, I'd try
to look up the data.  Maybe you could.

>>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.  In the mean time, the workers
>>who actually *got* a raise have more money to spend.
>
>1.  How long do you think it takes to lay people off?  Not as long as
>it takes for Congress to raise the minimum wage.

Sorry about that:  "in the mean time" should have been "in any case".
Although you do make the point that businesses do usually have time
before the raise goes into effect to figure out what to do.  

>2.  Say you're right.  So what?  This money isn't being created out of
>thin air.  It's coming from someone else.  Why is this redirection 
>beneficial?

Where money is ever being created is pretty mysterious to me, then.
How strict a monetarist can anybody be?

As to why it might be beneficial to redirect money from those who live
more than comfortably to those who much less well--I expect this is 
more a political question than strictly an economic one.

jking

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